Venator Materials PLC downgraded to ’CCC’ at S&P, facing cash flow deficits

Investing.com -- S&P Global Ratings has downgraded U.K.-based titanium dioxide and pigments producer, Venator Materials (OTC:VNTRF) PLC, to ’ CCC (WA:CCCP)’ from ’CCC+’, due to ongoing cash flow deficits and a negative outlook. The company’s debt ratings have also been lowered.

Venator continues to struggle with weak market conditions and high restructuring costs, leading to cash flow deficits. Despite asset sales and debt funding increasing cash balances in 2024, S&P Global Ratings predicts that the company’s liquidity position will remain under pressure due to continuing cash flow deficits. This could result in a liquidity shortfall or covenant breach over the next 12 months.

The ratings agency has also lowered its issue-level ratings on Venator’s $100 million first-out term loan due 2026 to ’B-’ from ’B’, while its $175 million initial term loan due 2028 has been lowered to ’CCC-’ from ’CCC+’. The issuance of an additional $100 million first-out B term loan due 2026 has reduced the recovery prospects for the initial term loan lenders.

The negative outlook is due to high restructuring costs and a weak, but slightly improving, market environment. This is expected to continue pressuring Venator’s earnings and cash generation, with negative EBITDA and free operating cash flow (FOCF) predicted for 2025.

In 2024, asset sales and additional debt funding provided liquidity of over $250 million, allowing Venator to end the year with cash balances of about $190 million. However, the company’s operating performance is being affected by weak demand and high restructuring costs. S&P Global Ratings anticipates that Venator will generate negative FOCF of over $100 million in 2025, which will further erode liquidity.

S&P Global Ratings expects that titanium dioxide pricing will improve in 2025 due to more favorable supply-demand conditions. This view is supported by recent announcements of European capacity closures and the implementation of anti-dumping duties on titanium dioxide imported from China. Despite these positive developments, Venator is expected to generate negative EBITDA and FOCF in 2025, due to restructuring costs and negative cash generation.

Without unforeseen positive developments, Venator’s liquidity is expected to be exhausted in the next 12 months, before its first-out term loans mature in July 2026. The company is likely to pursue noncore asset divestments and access to other surplus and refund possibilities with respect to pensions and tax. However, these actions are not entirely within the company’s control.

The negative outlook reflects the risk that Venator’s liquidity will erode, or the company could breach its minimum liquidity covenant within the next 12 months. S&P Global Ratings could lower ratings on Venator if default, a distressed exchange, or redemption appears to be inevitable within six months, or if the company announces its intention to undertake a restructuring that is considered distressed. The outlook could be revised to stable if Venator successfully executes its turnaround plan and market conditions improve faster than expected.

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