S&P Global lowers Synthomer rating to ’B’ on weaker outlook

Investing.com -- S&P Global Ratings has downgraded chemical manufacturer Synthomer (LON:SYNTS) PLC’s credit rating to ’B’ from ’B+’, citing reduced deleveraging prospects amid a challenging economic environment.

The rating agency expects uncertain macroeconomic conditions to weigh on business and consumer confidence, extending soft trading conditions for Synthomer’s products through 2025 and 2026. This has led S&P to revise its debt-to-EBITDA forecast for Synthomer to approximately 6.0x for 2025, up from its January projection of 5.3x-5.6x.

S&P now anticipates Synthomer’s adjusted leverage will not fall below 4.0x in 2026, and the company may face negative free operating cash flow (FOCF) in 2025. The recovery rating on Synthomer’s debt remains at ’3’, reflecting expectations of meaningful recovery prospects (about 65%) in the event of a payment default.

The negative outlook reflects S&P’s expectation that Synthomer’s adjusted debt-to-EBITDA ratio will remain at about 6x in 2025, with uncertainty about its return to healthy positive FOCF generation in 2026. S&P also forecasts renewed covenant pressure, though it expects Synthomer will successfully renegotiate required thresholds.

S&P believes tariffs and weaker global demand will cloud Synthomer’s outlook in 2025-2026, in line with broader sector challenges. While Synthomer’s strategy of manufacturing close to customers largely mitigates direct exposure to tariffs, secondary impacts are expected over time.

The rating agency has lowered its adjusted EBITDA forecast for Synthomer to about £137 million in 2025 and £183 million in 2026, down from previous projections of £155-165 million and £210-220 million respectively. This revision reflects softer trading conditions and the June 2025 disposal of William Blythe Ltd. for £25 million, which will be used for debt reduction.

Synthomer’s business improvement initiatives, including supply chain optimization, are expected to partially offset lower EBITDA forecasts. However, some gains may be counterbalanced by higher operating costs, such as wage inflation.

The company’s strategy focuses on rebalancing its product portfolio toward specialty chemicals, aiming to increase their share to 70% from the current 55%. This transition is expected to be achieved through asset disposals and investments in innovation, particularly focusing on product sustainability.

S&P could further downgrade Synthomer if its FOCF remains negative in 2026, if adjusted debt-to-EBITDA stays at 6.0x-6.5x, if covenant headroom faces additional pressure, or if adjusted EBITDA margin fails to progress toward 9% and above. Conversely, the outlook could be revised to stable if adjusted leverage remains below 6x, the company consistently generates positive FOCF, and maintains adequate liquidity with comfortable headroom under financial covenants.

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