TEXT-S&P rates Taminco Acquisition notes

Fri Dec 14, 2012 1:09pm EST

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Overview
     -- Allentown Pa.-based Taminco Global Chemical Corp.'s parent company 
Taminco Acquisition Corp. is issuing $250 million in senior unsecured notes. 
The company will use proceeds to pay a cash distribution to equity sponsors 
Apollo Global Management and its affiliates.
     -- We are assigning our 'B-' rating to the proposed notes. 
     -- We are affirming our existing ratings on Taminco Global Chemical 
Corp., including the 'B+' corporate credit rating.
     -- The stable outlook indicates our expectation that credit measures will 
remain appropriate for the ratings despite an increase in debt due to the 
proposed issue, as well as our belief that management and ownership will 
support credit quality.
 
Rating Action
On Dec. 14, 2012, Standard & Poor's Ratings Services assigned its 'B-' issue 
rating and '6' recovery rating to Taminco Global Chemical Corp.'s parent 
company Taminco Acquisition Corp.'s proposed $250 million unsecured notes due 
2017. The proposed notes have pay-in-kind (PIK) options on interest payments. 
The '6' recovery rating indicates our expectation for negligible (0%-10%) 
recovery for creditors in the event of a payment default. Ratings are based on 
preliminary terms and conditions.

We expect proceeds from the issue to fund an approximately $244 million cash 
distribution to the equity sponsor Apollo Global Management and its 
affiliates. 

At the same time, we affirmed our existing ratings--including our 'B+' 
corporate credit rating on the company. The outlook is stable. We also 
affirmed our 'BB-' issue rating and '2' recovery rating on the company's 
existing first-lien senior secured facility consisting of a $194 million 
revolving credit facility and $509 million term loan. In addition we affirmed 
our 'B-' issue rating and '6' recovery rating on the company's $400 million 
second-priority notes. The '2' and '6' recovery ratings indicate our 
expectation for substantial (70%-90%) recovery for the first-lien creditors 
and negligible (0%-10%) recovery for second-lien creditors, in the event of a 
payment default. 

Rationale
Standard & Poor's Ratings on Allentown Pa.-based Taminco Global Chemical Corp. 
reflect the company's "aggressive" financial risk profile, and its 
"satisfactory" business risk profile as a market leading producer of 
alkylamines and alkylamine derivates in a niche global market. 

Our assessment of the financial risk profile reflects our expectation that the 
ratio of total debt-to-EBITDA will remain below 5x in 2013. We include the 
proposed debt at Taminco's parent company in our assessment of its credit 
quality. Accordingly, we anticipate that this key credit metric will remain 
appropriate at the rating despite the increase in debt as a result of the 
proposed debt issue. This is partly because we assume a modest improvement in 
EBITDA and cash flow in 2013 relative to 2012. We also anticipate that new 
products, and ongoing attempts at improving product mix, will contribute to 
this improvement. Over the years, Taminco has increased the proportion of 
value-added derivatives in the overall product mix, a trend that should 
support its high margins. We view financial policy as aggressive and do not 
expect a meaningful improvement in the financial risk profile as a result. 
However, we do not anticipate significant increases in debt for shareholder 
rewards or to fund growth investments. Apollo acquired privately owned Taminco 
in February 2012. 

In our view, Taminco has a favorable, sustainable, recession-resilient market 
position that has contributed to stable EBITDA margins around the 20% level 
over the past few years, including during the recession of 2008 and 2009. We 
expect Taminco to remain resilient to economic downturns partly due to the 
relatively stable demand from its end markets, including nutrition, oil and 
gas production, water treatment, and agrochemicals. During the 2008-2009 
global economic downturn, EBITDA and volumes held up reasonably well. The 
company has a diversified end market mix and favorable long-term growth 
prospects. Contributing to growth in some measure is a trend in at least some 
sections of Taminco's potential customer base to replace in-house sourcing of 
its amine and amine derivative requirements with external sourcing from 
producers such as Taminco. The company's large and well-integrated production 
capacity is an important competitive advantage that provide economies of scale 
in sourcing raw material, and contributes to its market leadership position. A 
highly concentrated industry with generally rational pricing supports the 
company's margins. Taminco has robust market shares in most of its markets. It 
is able to pass on feedstock and energy prices because of contractual clauses 
in many (but not all) of its contracts, which supports high margins. In 
addition, the industry operates on a regional basis because transportation 
costs are high. Taminco is well-positioned in terms of geographic mix, with a 
significant presence in North America and Europe and a growing manufacturing 
base in China. 

These strengths are tempered by our opinion that the company operates in a 
niche industry with a relatively narrow product focus on alkyl amines and 
their derivatives, and therefore should continue to have a moderate revenue, 
EBITDA, and FFO base. Though its products do not currently appear to have 
economical substitutes, the future development of potential substitutes is a 
modest risk in the long term given the product concentration. While the 
industry is concentrated, the group competes against some very large players. 
Chinese firms have so far been only modest competitors, but this might change 
in the long term.

Taminco was spun off from UCB (Union Chimique Belge; not rated) in 2003. 

Liquidity
We classify the company's liquidity as "adequate." 

Under our base-case credit scenario, we expect sources to comfortably surpass 
needs by more than 1.2x. Our assessment assumes the proposed notes offering 
will proceed in line with the terms and conditions presented to us.

We incorporate the following assumptions in our base-line scenario:

     -- We expect liquidity to remain adequate, with access to long-term 
committed bank lines, reasonable cushions under a springing maximum net 
first-lien ratio of 3.75x, and a long-dated debt maturity profile; 
     -- There will no material dividends or shareholder rewards or capital 
spending changes that weakens liquidity; 
     -- The company's $194 million revolving credit facility maturing 2017 and 
its Euro 100 million factoring facility are important sources of liquidity. 
The revolving credit facility has remained largely undrawn, and is mainly 
utilized for letters of credit;
     -- We expect generally positive free cash flow generation on an annual 
basis though there may be seasonal variability in cash flow; and
     -- We anticipate only modest growth related capital spending needs. The 
business is not very working capital intensive and nondiscretionary capital 
needs are not high.
 
Recovery analysis
Please see our recovery report on Taminco Global Acquisition Corp. to be 
published shortly on RatingsDirect following this report.

Outlook
The stable outlook reflects our assumption that the company's EBITDA will 
remain resilient to potential economic downturns, and will grow modestly in 
2013. We anticipate positive free cash flow generation. Importantly, we assume 
management will remain committed to credit quality and exhibit prudence in the 
use of debt so that credit metrics remain appropriate for the rating. 

We could lower ratings if acquisitions or shareholder distributions weaken 
credit metrics. More specifically, we could lower ratings if management 
actions or unexpected earnings weakness such as a decline in EBITDA margins to 
levels below 20% or flat to negative revenue growth caused the ratio of total 
debt-to-EBITDA to increase above 5x without prospects for improvement over the 
next 12 months. 

We consider an upgrade to be unlikely at this time especially given the 
proposed debt funded shareholder distribution. The company's private-equity 
ownership and our view of its financial policies as aggressive currently 
constrain ratings. We could reassess and raise ratings if the company goes 
ahead with its planned public offering of shares and uses proceeds to lower 
debt levels in a sustainable manner.

Related Criteria And Research
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
Sept. 18, 2012 
     -- Key Credit Factors: Business And Financial Risks In The Commodity And 
Specialty Chemical Industry, Nov. 20, 2008 
     -- Corporate Ratings Criteria 2008, April 15, 2008
 
Ratings List
Ratings Affirmed

Taminco Global Chemical Corporation
 Corporate Credit Rating                B+/Stable/--       

Taminco Global Chemical Corporation
 Senior Secured                         BB-                
  Recovery Rating                       2
 Senior Secured                         B-                 
  Recovery Rating                       6

New Rating

Taminco Acquisition Corp.
 Senior Unsecured
  US$250 mil PIK toggle nts due 2017   B-                 
   Recovery Rating                      6                  
 
 
 
Temporary Contact Information: Paul Kurias (917 880 4230)
 Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
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