Moody’s Investors Service has upgraded the corporate family rating (‘CFR’) to B3 from Caa1 and probability of default rating (‘PDR’) to B3-PD from Caa1-PD of Glasstank B.V.
Concurrently, Moody’s has upgraded to B3 from Caa1 the rating on the EUR185 million senior secured notes due May 2019.
The upgrade to B3 reflects the significant progress the company has made upgrading its manufacturing plants to improve its operating performance, which Moody’s expects will result in a build-up of cash and gradually improving credit metrics in the run up to 2019 when the senior secured notes are due. Moody’s expects EBITDA to increase significantly over the next 12-18 months reducing Moody’s adjusted leverage towards 4.0x by the end of FY 2016. Increasing positive free cash flow will reduce the company’s reliance on its short term local facilities.
The upgrade programme will materially increase Glasstank’s furnace output capacities and improve the efficiency of the company’s production facilities primarily through lower energy consumption. These benefits will be supported by energy and labour costs that are among the lowest in Europe, providing the company with a significant barrier to entry in its home markets and a competitive advantage further afield. The upgrade programme is due to complete in Q1 2016 following the reconstruction of the one remaining furnace at the company’s Drujba Glassworks site and the reconstruction of the New Glass furnace, both of which are located in Bulgaria. No further furnace upgrades are expected before 2021.
Glasstank produced an encouraging set of H1 2015 trading results over the same period a year earlier with strong revenue growth of 14.1%, EBITDA of EUR27.6 million, up from EUR21.9 million and an EBITDA margin of 30.7% up from 27.8%. Improvements were driven by a positive combination of higher volumes, price increases, efficiencies from the recent furnace upgrades as well as lower natural gas prices.
The short term nature of the company’s local credit facilities and weak liquidity remain factors constraining the rating. The company relies on its rolling 12 month credit facilities that comprise a material proportion of the group’s funding to finance its operations. This reliance is expected to reduce as cash generation increases with the completion of the furnace upgrade programme, resulting in improving liquidity. These local facilities are secured on trade receivables and therefore dilutes the security available to lenders of the senior secured notes.
The stable outlook reflects Moody’s expectation that Glasstank will utilise the anticipated build-up of cash in reduction of drawings on its short term, local facilities and not enter into debt-financed M&A activity, or fund dividend payments. It also incorporates Moody’s expectation that the company’s profitability will continue to improve and this is reflected in improving credit metrics.
Glasstank B.V., registered in The Netherlands, is a supplier of glass packaging containers based in Romania and Bulgaria. The group’s reported net sales and EBITDA for the year ended 31 December 2014 were EUR157 million and EUR45.1 million respectively.
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