SGL Carbon SE's New €250 Million Secured Bond Due 2024 Rated 'B' (Recovery Rating: '2')

PARIS (S&P Global Ratings) April 1, 2019--S&P Global Ratings said today that 
it assigned its 'B' issue rating and '2' recovery rating to the new €250 
million secured bond due in 2024 issued by Germany-based graphite and carbon 
materials producer SGL Carbon SE.

The '2' recovery rating reflects our expectation of about 70%-90% recovery on 
the proposed issue.

We understand that SGL Carbon intends to use most of the proceeds from the 
notes issue to prefund the future repayment of its convertible bond due in 
2020 and its €86 million automotive carbon fiber loan (loan agreements with 
BMW related to its SGL-BMW joint venture).
Key analytical factors
  • The pro forma capital structure will include three debt instruments at the parent level: the first lien debt of €28 million of financial leases; the €250 million senior secured notes; and the €175 million senior credit facility.
  • The issue rating on SGL Carbon's secured notes due 2024 is 'B', one notch higher than the issuer credit rating, and the recovery rating is '2', indicating our expectation of 75% recovery for debtholders in the event of a default.
  • We understand that the note will be pari passu with the company's new €175 million senior credit facility. We view the security package as relatively weak, comprising first priority security interests on the shares of the subsidiary guarantor.
  • Under our hypothetical default scenario, we assume adverse macroeconomic conditions leading to a sharp drop in demand from the company's end markets and lower pricing and margins, and subsequently material negative free operating cash flow.
  • Based on our calculations, we assume that 85% of the senior credit facility will be drawn at the point of default.
  • We value SGL Carbon as a going concern, underpinned by its well invested asset base, leading market position in its graphite materials and systems end markets, and solid customer relationships. While the company invested quite heavily in its asset base over the last few years, we believe that the book value of the assets may not necessarily reflect the potential value for the lenders in an event of a default, as some of facilities are not fully utilized.
Simulated default assumptions 

  • Year of default: 2021
  • Jurisdiction: Germany
Simplified waterfall 

  • Emergence EBITDA: €97 million
  • Multiple: 5x
  • Gross recovery value: €339 million
  • Net recovery value for waterfall after administrative expenses (5%): €322 million
  • A material pension deficit, of which we take 50% as a priority liability in the case of default.
  • Estimated first-lien debt claim: approximately €411 million*
  • Recovery range: 70%-90% (rounded estimate: 75%)
  • Recovery rating: 2
*All debt amounts include six months of prepetition interest. 
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