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Investing.com -- Moody’s Ratings has lowered the long-term corporate family rating (CFR) and the probability of default rating (PDR) of Synthomer (LON:SYNTS) plc to B2 from B1. The global credit rating agency also downgraded the ratings on Synthomer’s €350 million backed senior unsecured notes due 2029 and outstanding €150 million back senior unsecured notes due 2025 to B2 from B1. The outlook for the company remains negative.
This rating action is influenced by Synthomer’s weak credit metrics and the anticipated negative free cash flow for 2025. The company is grappling with difficult trading conditions due to weak demand in Europe and price pressure from competitors. On a brighter note, the management has taken steps to bolster the company’s liquidity position amidst these cyclical downturns.
Synthomer, a leading manufacturer of high-performance, specialty polymers and ingredients, is recognized for its diversified product portfolio and technological capabilities to meet the rising demand for sustainable products. Despite its modest size compared to peers and a degree of geographical concentration in Europe, the company’s initiatives to support its liquidity position through the cyclical downturn have been noted.
However, the company’s earnings performance in 2024 was significantly below historical levels due to weak demand in Europe and lower prices due to competition. The prospects of a significant recovery in 2025 seem limited, prolonging the path to deleveraging. It is expected that the company’s weak credit metrics will not improve significantly over the next 12-18 months.
Moody’s expects Synthomer’s adjusted leverage for year-end 2025 to be 5.7x from 7.5x in December 2024, assuming a modest recovery in the market. The company’s free cash flow was negative £58 million in 2024, and it is projected to be negative £35-£40 million in 2025. This will limit any significant reduction in gross debt in 2025, apart from the repayment of the €150 million bond in July 2025.
Governance risks were a key factor in today’s rating action. The Credit Impact Score (CIS-4) reflects increased risks associated with the company’s financial strategy and risk management, operating at reasonably high leverage. The company’s liquidity position is deemed adequate, with cash in the bank as of December 2024 of £220 million and a fully undrawn €300 million revolving credit facility (RCF) maturing in 2027.
The negative outlook reflects the risk that the company’s path to deleveraging will be constrained by weak demand in the next 12 to 18 months. The company may face sustained negative free cash flow if earnings do not improve in 2026.
A rating upgrade for Synthomer in the next 12-18 months is unlikely but could occur if trading conditions and operational performance improve, and profitability is reflected in Moody’s adjusted EBITDA margin above 10%. A downgrade could occur if operating performance fails to improve, or the company fails to delever to below Moody’s adjusted gross debt/EBITDA of 6.0x on a sustainable basis, or there is a sustained negative FCF, or the company’s liquidity position deteriorates.
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