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Investing.com -- Moody’s Ratings has affirmed the B1 corporate family rating (CFR) for AMG Critical Materials N.V. (AMG), but revised its outlook from stable to negative. The rating agency also confirmed the B1-PD probability of default rating (PDR), the Ba2 ratings on AMG’s senior secured revolving credit facility (RCF) and the senior secured term loan B. Additionally, AMG Vanadium LLC’s B3 backed senior unsecured revenue bond rating, issued by Ohio Air Quality Development Authority, and guaranteed by AMG, was also affirmed. The speculative grade liquidity rating (SGL) remains at SGL-2.
Moody’s decision to revise the outlook to negative is due to a slower than expected recovery in lithium prices, resulting in a weaker than predicted outlook for 2025. This follows a weaker 2024, which has led to credit metrics stretching beyond levels compatible with the current B1 rating.
Despite the negative outlook, Moody’s has affirmed AMG’s rating, reflecting its good liquidity, broad geographic and end market diversity, and strong market position with few major competitors. AMG’s long-term relationships with blue-chip customers and the importance of its products in lightweighting, energy efficiency, and carbon emissions reduction are seen as positive credit considerations. The rating is also supported by Moody’s expectation that AMG will maintain its good liquidity position during its current growth phase, despite elevated leverage in 2025.
However, AMG’s rating is limited by its modest scale compared to higher-rated manufacturers, material reliance on ferrovanadium revenues, and volatility in commodity prices, including lithium. The company’s high capital expenditure (capex) and negative free cash flow in 2025 also constrain its rating.
AMG has been heavily investing in growth projects in recent years, including a new $325 million Zanesville FeV plant completed in 2023 and the Spodumene1+ expansion project in Brazil completed in 4Q24. The company has also built a facility in Germany to refine lower-grade lithium chemical products into battery-grade lithium hydroxide. The plant’s first module is designed to deliver 20,000 tons per year of battery-grade hydroxide to the market, pending product qualification that began in 2024. The project’s capital cost is $150 million and was prefunded via an equity offering in April 2021.
Moody’s anticipates that AMG will generate about $160 million in adjusted EBITDA in 2025, assuming a spodumene price of $750/ton and FeV price of $15/lb. While capex is expected to decline year-over-year, lower expected earnings will result in modestly negative adjusted free cash flow (post dividends). Leverage is expected to remain elevated for the current rating, and relatively flat vs year-end 2024 levels.
For 2026, Moody’s expects adjusted EBITDA of around $230 million and adjusted free cash flow of around $50 million, assuming a spodumene price of $850/ton, FeV price of $15/lb, and increased volumes. This should result in leverage returning to levels more compatible with the current B1 rating by year-end 2026.
AMG’s SGL-2 speculative grade liquidity rating reflects its good liquidity profile supported by $294 million in cash and cash equivalents and full availability under its $200 million revolver as of December 31, 2024. AMG has no significant debt maturities before the maturity date of the revolver in 2026 and the term loan B in 2028.
The negative outlook reflects the expectation that AMG’s metrics will be weaker for the current rating in 2025, although with a potential improvement and return to positive free cash flow generation in 2026. However, it also reflects the possibility of a downgrade if the recovery takes longer than currently anticipated.
A ratings upgrade is less likely given the negative outlook, but could be considered if AMG successfully begins production at the lithium upgrading facility in Germany, generates commercial sales from the project, and maintains strong operating performance and credit metrics commensurate with a rating higher than B1 CFR. Negative rating pressure could develop if the company experiences any significant issues related to its growth projects or a significant reduction in borrowing availability or liquidity.
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