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Investing.com -- Moody’s Ratings has confirmed Ferroglobe (NASDAQ:GSM) PLC’s long-term corporate family rating (CFR) and its probability of default rating (PDR) at B2. The outlook for the company, which is a leading producer of silicon metal and silicon/manganese alloys, has been revised from positive to stable.
The rating affirmation and outlook revision comes in light of enduring market challenges, including subdued demand and increased import pressure in Ferroglobe’s crucial US and European markets, according to Tobias Wagner, Moody’s Ratings Vice President – Senior Credit Officer. Despite these conditions delaying improvements in Ferroglobe’s performance, Wagner stated that the company’s credit metrics, balance sheet, and liquidity are expected to remain solid and consistent with the B2 rating.
In 2024, Ferroglobe’s debt/EBITDA, as adjusted by Moody’s, remained strong at approximately 1.3x. The company also continued to generate substantial free cash flow after dividends, buoyed by releases in working capital. For 2025, Moody’s expects debt/EBITDA to stay below 2.0x and the company to continue generating free cash flow, supported by further working capital releases. Performance improvements are likely to hinge on strengthening demand in key end markets such as aluminium, steel, or solar. Potential trade measures in the US and EU could also boost market conditions from 2025.
Over the past years, Ferroglobe has consistently improved its balance sheet by using cash flow generation for debt reduction. Further slight improvements are anticipated in 2025. The company has begun paying moderate dividends and has initiated a share buyback program. It is also believed that Ferroglobe may engage in growth investments or acquisitions over time, although the rating reflects the expectation that the company will balance any investments and shareholder returns with maintaining its solid balance sheet and adequate liquidity profile.
Ferroglobe’s ratings continue to reflect its status as one of the largest producers in the silicon metal sector. Its vertically integrated business model provides some protection against raw material price fluctuations such as quartz and metallurgical coal. The ratings also take into account the company’s volatile profitability and working capital track record in past years, with continued exposure to market prices and limited visibility into market demand and supply dynamics.
As of December 2024, Ferroglobe had $133 million of cash and cash equivalents and access to a $100 million committed asset-backed facility due in 2027, along with access to some smaller additional local facilities. The working capital exposure to volatile prices remains a key liquidity challenge, requiring a significant degree of minimum liquidity.
Ferroglobe’s ESG Credit Impact Score of CIS-3 indicates that ESG considerations have a limited impact on the current credit rating with potential for greater negative impact over time. This reflects governance risks, including the need to carefully manage its balance sheet and liquidity because of the high volatility and low visibility in the business. It also reflects mostly sector-driven exposure to environmental and social risks.
The stable outlook reflects Moody’s expectation that the company should be able to maintain solid metrics for the B2 rating through most market conditions based on maintaining low debt levels and at least adequate liquidity, despite the volatility of profits and working capital.
Positive pressure on the ratings could arise from a demonstrated ability to weather different market conditions while maintaining moderate debt levels, solid metrics, and good liquidity and cash flow generation. This would require Moody’s-adjusted debt/EBITDA to remain comfortably below 3.0x through the cycle.
Negative pressure could arise if debt levels rise or liquidity weakens, for example from weak cash flow generation. An inability to sustain profitability in a weak market environment would also pressure the rating, as would leverage rising above 4.0x.
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