PQ Group Holdings Inc. has successfully launched an IPO, raising over $500 million

  • US–based specialty catalysts, materials, and chemicals company PQ Group Holdings Inc. (parent company to PQ Corp.) has successfully launched an IPO, raising over $500 million in gross proceeds, a transaction that reduces CCMP Capital Advisors L.P.'s ownership share to approximately 45%.
  • PQ Corp. will use proceeds from the transaction to repay the majority of its $525 million unsecured floating-rate notes due 2022, reducing overall balance sheet debt by nearly 20%.
  • We based the stable outlook on our view that PQ will continue to reduce leverage through modest EBITDA growth and free cash flow generation and maintain funds from operations greater than 12% on a weighted-average basis.

At the same time, we raised our issue-level ratings on the company's senior 
secured debt to 'BB-' from 'B+'. The recovery ratings remains '2', indicating 
our expectation of substantial (70%-90%; rounded estimate: 85%) recovery in 
the event of payment default. We also raised our issue-level rating on the 
company's unsecured debt to 'B' from 'B-'. The recovery rating remains '5', 
indicating our expectation of modest (10%-30%; rounded estimate: 15%) recovery 
in the event of payment default.

The upgrade reflects our expectation that the company will operate with lower 
leverage going forward, given the use of proceeds from the recent IPO repaying 
nearly 20% of the company's debt. Additionally, the company's debt service 
costs have improved, given the repayment of most of the company's $525 of 
unsecured floating-rate notes, which will improve cash flow generation. PQ's 
balance sheet debt is being reduced to approximately $2.2 billion from $2.7 
billion given the debt reduction from the IPO proceeds. If PQ exercises the 
greenshoe provision, we expect it to use the additional proceeds to repay 
additional debt. Pro forma for the transaction, we expect debt to EBITDA of 
between 5.0x and 5.5x (compared with over 6x currently) and weighted-average 
funds from operations (FFO) of above 12%. We expect that, given the partial 
public ownership, PQ's financial policies will be more conservative because 
the company has established a long-term leverage target of net debt/EBITDA of