Neon Parent Inc. (d/b/a Nexeo Plastics) Assigned 'B' Issuer Credit Rating; Debt Also Rated

  • U.S.-based plastics distributor Neon Parent Inc. (d/b/a Nexeo Plastics) plans to issue a $150 million asset-based loan (ABL) revolver and $410 million of senior secured notes. Proceeds will be used to fund the acquisition of Nexeo Plastics by One Rock Capital Partners, LLC (One Rock).
  • S&P Global Ratings assigned a 'B' issuer credit rating to Nexeo Plastics. The outlook is stable.
  • We also assigned a 'B' issue-level rating to the company's proposed notes. The recovery rating is '3' and indicates our expectation for meaningful (50%-70%; rounded estimate 55%) recovery of principal in the event of a default. Neon Holdings, Inc. will be the issuer of the notes. We do not rate the ABL facility.
  • The stable outlook reflects our belief that mid-single-digit revenue growth, driven by growth in the global plastics and distribution market, should contribute to the company maintaining credit measures of about 5x over the next 12 to 18 months.
NEW YORK (S&P Global Ratings) March 15, 2019—S&P Global Ratings today took the 
rating actions listed above.  Nexeo Plastics, previously a business of Nexeo 
Solutions LLC, which was recently acquired by Univar Inc., is being sold to 
One Rock for $640 million. The transaction will be funded by the proposed ABL, 
senior secured notes, and equity from the sponsor.

The stable outlook on Nexeo Plastics reflects S&P Global Ratings' view that 
credit measures will remain appropriate for the current rating over the next 
12 months. Based on the rating, we expect the company to maintain pro forma 
weighted-average debt to EBITDA of about 5x and FFO to debt between 9%-12%. We 
expect that favorable demand trends, including growing demand for plastics, 
capacity expansions at plastic producers, and increased outsourcing to 
distributors, will allow the company to sustain EBITDA growth. We expect 
mid-single-digit revenue growth, supported by low-single-digit GDP growth in 
the U.S. We do not believe the company will significantly increase debt to 
fund large acquisitions or return cash to owners.

We could lower the ratings within the next year if an unfavorable product-mix 
shift or unexpected volume deterioration leads to revenue contracting by 4% 
and EBITDA margins 100 basis points below our expectations. This could happen 
if a key supplier unexpectedly outsources its products to a competing 
distributor or if demand for the products Nexeo Plastics distributes declines. 
This could also happen if the company encounters additional costs or 
difficulties transitioning to a stand-alone company. Such a scenario would 
result in pro forma debt to EBITDA above 6.5x and FFO to debt below 9%, with 
limited likelihood of improvement within 12 months. We could also lower 
ratings if the owners take a dividend or pursue acquisitions, causing 
additional debt to push leverage to this same level.

We could take a positive rating action over the next 12 months if the 
company's operating performance were much better than expected, such that it 
sustained debt leverage below 5x or maintained FFO to debt above 12% on a 
consistent basis. We could see such improved performance if the underlying 
plastics industry grows well beyond our expectations, if the product mix or 
selling prices improve, or if cost reductions occur. Before considering an 
upgrade, we would also need to believe that management's financial policies 
would support maintaining leverage below 5x.

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