Ontex’s CFR upgraded to B1 by Moody’s Ratings following bond refinancing proposal

Investing.com -- Moody’s Ratings has upgraded the long-term corporate family rating (CFR) of Ontex Group (EBR:ONTEX) NV to B1 from B2. The firm also upgraded Ontex’s probability of default rating (PDR) to B1-PD from B2-PD on March 24, 2025. Simultaneously, Moody’s assigned a B1 rating to the proposed new €400 million backed senior unsecured notes due 2030, which Ontex plans to issue. The B2 rating on the existing €580 million senior unsecured notes due July 2026 remains unchanged. The outlook for Ontex continues to be stable.

The proceeds from the new €400 million notes will be utilized to partially repay the existing €580 million bond. Moody’s expects Ontex to pay down the remaining amount by the end of 2025 using around €80 million from the sale of its business activities in Brazil, available cash, or a drawdown from its €270 million revolving credit facility (RCF). Upon full repayment, Moody’s will withdraw the existing €580 million notes.

The upgrade to B1 reflects the consistent performance of Ontex’s core activities in Europe and North America. Moody’s anticipates the company’s credit metrics will improve over the next 12-18 months. "Ontex’s financial leverage is expected to decline steadily starting from 2025, mainly due to the debt reduction amid the proposed refinancing, as well as the growing free cash flow (FCF) generation capacity in light of lower restructuring costs and cost savings," stated Giuliana Cirrincione, Moody’s Ratings lead analyst for Ontex.

The company’s decision to sell its non-strategic assets in Brazil and Turkey, as part of its emerging markets division, will enhance profitability despite lower business diversification. Ontex will also benefit from lower exposure to foreign-exchange-rate fluctuations.

Ontex’s business expansion in North America and focus on cost efficiencies are expected to further increase profitability. The company has been successful in implementing its business transformation initiatives and it plans to conclude the program by 2025. Cost savings will be a key driver of EBITDA growth in 2025.

Moody’s adjusted leverage for Ontex is expected to decline from 5.8x as of December 2024 to below 4x by year-end 2025 and to around 3.5x by 2026. The company’s commitment to using the approximately €80 million net proceeds from the sale of its Brazilian subsidiary to repay part of its outstanding debt is driving the reduction in adjusted leverage.

Ontex’s FCF generation capacity is expected to improve over the next 12-18 months, from around €20 million in 2025, to around €70 million from 2026 and onwards.

Ontex’s liquidity is good, with around €115 million in cash in December 2024 and around €245 million available under its €270 million revolving credit facility (RCF) due in November 2029.

The B1 rating on the proposed €400 million backed senior unsecured fixed-rate notes due April 2030 is in line with the CFR. The notes are guaranteed by material subsidiaries representing a minimum of 70% of consolidated EBITDA.

The stable rating outlook reflects Moody’s expectation that a consistent operating performance in Europe and business expansion in North America, combined with debt reduction and a focus on cost controls, will lead to a Moody’s-adjusted leverage below 4x over the next 12-18 months.

The ratings could be upgraded if business expansion in North America results in faster business growth in the region such that Moody’s-adjusted leverage remains sustainably well below 4x. A downgrade could occur if Moody’s-adjusted leverage remains around 5x, if FCF weakens, or if there is a deterioration in liquidity because of reduced capacity under financial covenants.

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