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Investing.com -- Moody’s Ratings has downgraded the corporate family rating (CFR) of Compass Minerals International (NYSE:CMP), Inc. to B2 from B1, and revised its outlook to negative from stable. The downgrade also includes the probability of default rating (PDR) to B2-PD from B1-PD, and the rating of its existing senior unsecured notes to B3 from B2. However, the speculative grade liquidity rating (SGL) remains at SGL-3.
The downgrade is attributed to Compass’ weakened credit metrics and elevated leverage, driven by unfavorable weather conditions and strategic missteps that consumed a significant amount of capital and reduced operating and financial flexibility. Compass’ financial strategy and risk management were key considerations in Moody’s ESG framework that led to the rating action.
The ratings reflect a decline in Compass’ Moody’s adjusted EBITDA in recent years, due to mild winters and a challenging plant nutrition market. Since January 2024, Compass has implemented a new strategy that refocuses on the core business and prioritizes cash flow generation for deleveraging, which includes the termination of the lithium project and elimination of dividends. Despite these changes, Moody’s expects Compass’ credit metrics to remain challenged in fiscal 2025, with an expected Moody’s adjusted leverage of 6.2x by the end of the fiscal year.
Moody’s forecasts that the company will generate over $220 million in Moody’s adjusted EBITDA for fiscal 2026, resulting in Moody’s adjusted leverage of approximately 4.7x by the end of fiscal 2026. However, Moody’s does not expect the company to generate positive free cash flow in fiscal 2025 due to lower EBITDA relative to its interest obligations and capex needs. This lack of expected free cash flow generation in fiscal 2025 will continue to weigh on Compass’ liquidity profile.
The negative outlook reflects the company’s limited liquidity and potential negative financial impact from the recently implemented tariffs on Canadian imports into the U.S. Compass’ largest mine is in Ontario, Canada, and its exports into the U.S. will be subject to a 25% tariff. The uncertainty over the duration of the tariff and resolution of US-Canada trade tension creates significant risks on financial performance and credit metrics.
Despite the challenges, Compass’ credit profile is supported by its strong competitive position in the North American salt industry, traditionally attractive EBITDA margins of the Salt segment, and ability to generate robust operating cash flow during normal winters. However, the company’s limited scale, elevated leverage, and concentrated exposure to the salt segment constrain the credit profile.
As of December 31, 2024, Compass had approximately $46 million of cash on balance sheet and $81 million of availability under its $325 million revolver. The company also has access to a $100 million AR securitization facility, of which approximately $58 million was utilized as of the end of 2024. The revolver commitment size will be reduced to $300 million by October 2025, $275 million by April 2026, and further to $250 million by July 2026.
Moody’s would consider upgrading the ratings if the company reduces its gross debt such that Moodys-adjusted leverage sustains below 4.75x during mild winters, generates positive free cash flow on a sustained basis, and lowers its earnings dependence on the de-icing salt business. On the other hand, a downgrade of the ratings would be considered if the company is unable to consistently generate positive free cash flow, adjusted leverage remains above 6.5x on a sustained basis, or if the company is unable to secure additional liquidity. A downgrade would also be considered if tariffs on Canadian goods sold in the US were implemented on a prolonged basis.
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