June 21 - Overview
-- U.S.-based chemical company Cabot Corp. has announced that it
has entered into a definitive agreement to acquire Norit N.V., the parent
company of Norit Holding B.V. for approximately $1.1 billion in cash.
-- We are placing all our ratings on Cabot Corp, including our 'BBB+'
corporate credit rating, on CreditWatch with negative implications.
-- We expect to resolve the CreditWatch listings when further details are
On June 21, 2012, Standard & Poor's Ratings Services placed its ratings,
including the 'BBB+' corporate credit rating, on Boston, Mass.-based Cabot
Corp., on CreditWatch with negative implications. The rating action follows
the company's announcement that it has entered into a definitive agreement to
acquire Norit N.V. the parent company of Norit Holding B.V. (B+/Watch Pos/--)
for approximately $1.1 billion in cash.
In conjunction with this action, we placed our 'B+' corporate credit rating,
and all issue-level ratings, on Norit Holding B.V. on CreditWatch with
The CreditWatch placement on Cabot Corp. reflects the increased likelihood
that we will lower our ratings on Cabot Corp. and its debt issues following
its acquisition of Norit because of an expected increase in the company's debt
leverage as a result of the transaction. We believe that Cabot's financial
profile is likely to be stretched beyond our expectations at the current
ratings, including the ratio of funds from operations to total debt at 40%,
given the large size of the proposed acquisition relative to Cabot's
operations. Though Cabot has announced that it will fund the $1.1 billion
transaction with $200 million in cash, this will be insufficient to avoid
stretching the financial profile beyond expectations at the current ratings.
As of March 31, 2012, the ratio was at our expectations.
Cabot's is a global leader in the carbon black segment with considerable
geographic diversity; about 80% of sales come from outside the U.S. and it is
well-positioned to benefit from a global increase in carbon black consumption.
To benefit from rapidly growing emerging markets, Cabot announced in 2011 that
it will invest to expand capacity in China, Indonesia, Brazil, and Argentina
through 2013. The company also invests in research to boost new product
development as a means of increasing the proportion of higher-value-added
applications in its products. The acquisition could accelerate its strategic
objectives and provide a measure of diversity in revenue and earnings streams.
The company's EBITDA margins have been in the 13% to 16% range in the recent
past, except during the economic downturn in 2008 and 2009, and the company is
likely to benefit from higher margins at Norit, which is currently privately
The CreditWatch placement on Norit reflects the increased likelihood that we
will raise our ratings on the company following its acquisition by higher
rated Cabot. Norit is the largest global producer of activated carbon--in a
market valued at about $1.5 billion globally--with approximately half of its
revenues generated in the U.S. Private equity firm Doughty Hanson & Co. and
Euroland Investments B.V. currently own Norit and its parent holding company,
Norit's activated carbon products are generally critical inputs into its
customers' products and processes, with demand resulting from the high value
proposition, existing and pending legislation, and a growing awareness of
environmental issues. The company's global market leadership position and
well-diversified geographic markets contribute to a favorable competitive
position. Norit's operations benefit from long-term contracts for key raw
materials and the capability to manufacture a wide range of activated carbon
grades for diverse applications including the removal of pollutants and
impurities from water, air, and other liquids and gases. Customers, including
power-generating plants, food and beverage producers, and automobile
producers, use Norit's products to meet pollution regulations and improve
product quality. These factors contribute to the company's high profitability,
with EBITDA margins above 25%, stability in earnings, and predictable
We will monitor developments relating to this transaction and will resolve the
CreditWatch listings on both companies once further details related to the
transaction become available. We could lower the ratings on Cabot Corp. if
debt levels increase as expected following the transaction. If the transaction
is completed through an all cash transaction as announced, we believe that
Cabot will be unlikely to meet our expectations at the current rating.
Related Criteria And Research
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- Corporate Ratings Criteria 2008, published April 15, 2008.
Ratings Placed On CreditWatch
Corporate Credit Rating BBB+/Watch Neg/NR BBB+/Stable/NR
Senior Unsecured BBB+/Watch Neg BBB+
Cabot Finance B.V.
Senior Unsecured BBB+/Watch Neg BBB+
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