OREANDA-NEWS. S&P Global Ratings today affirmed its 'B-' corporate credit ratings on Vantage Specialty Chemicals Inc. The outlook remains stable.

At the same time, we are affirming our 'B-' issue-level rating on the company's first-lien term loan (including the proposed $85 million add-on) and on the company's revolving credit facility and we are revising the recovery rating to '4' from '3'. The '4' recovery rating indicates our expectation of average (higher end of the 30% to 50% range) recovery in the event of a payment default. As part of this transaction, we expect that the company will extend the maturities on the credit facility and the first-lien term loan to 2019 and 2021, respectively.

We are also assigning our 'CCC' issue-level and '6' recovery ratings to Vantage's proposed $40 million secured second-lien term loan due 2022. The '6' recovery rating indicates our expectation of negligible recovery (0% to 10%) in the event of payment default.

The company will be issuing an $85 million add-on to the company's existing secured first-lien term loan and a new $40 million secured second-lien term loan. The company will also seek to extend the maturity dates on its existing revolving credit facility and on its first-lien term loan. We based all ratings on preliminary terms and conditions.

"Our ratings reflect our assessment of Vantage's financial risk as highly leveraged and its business risk profile as weak," said S&P Global Ratings credit analyst Allison Schroeder. The stable rating outlook on Vantage reflects our expectations of reasonably predictable EBITDA and cash flow generation over the next year. Despite our assessment of the company's financial profile as highly leveraged, we view Vantage's annual cash-based debt-servicing obligations as being manageable relative to its cash flow generation because a large portion of the company's debt is in the form of PIK preferred (at a parent holding company) equity on which we anticipate no cash interest outflow. We expect the company's EBITDA and cash flow generation to improve as the company continues to integrate acquisitions in relatively stable end markets and based on our overall outlook for modest economic growth and our expectation that the company's strengths in the domestic market and its presence in Latin America will contribute to better overall volumes.

We assume that management and the company's owners will support credit quality and, therefore, we have not factored into our analysis any distributions to shareholders or significant debt-funded capital spending. We expect that the company will maintain leverage credit measures within our range of expectations, with debt to EBITDA at or above 7x, pro forma for acquisitions, over the next year.

We could lower the ratings if Vantage's organic revenue growth stalled or turned negative, or if its margins declined to single-digit levels. In addition, we could lower ratings if liquidity weakened to less than adequate or if cash flow turns negative. At the current rating, there is no room for additional debt funded acquisitions, which could push debt to EBITDA above 9x (pro forma for acquisitions and including PIK preferred equity) over the next twelve months. We could also lower ratings should the company decide to pursue any more large debt-funded acquisitions or if our assessment of management's financial policy were to deteriorate so that we no longer viewed management as supportive of credit quality.

Given current leverage levels, we view an upgrade as unlikely over the next year. We could, however, consider an upgrade if the company reduces leverage using cash flows or equity to pay down debt--improving the FFO to total adjusted debt ratio to above 12%--and we believe that the owners and management would be committed to maintaining leverage at these improved levels. In addition, we could take a positive rating action over the next year if debt to EBITDA falls to levels at or below 6x (including PIK preferred equity) for what we expect to be a sustainable period.

This news release contains forward-looking statements. Company has identified some of these forward-looking statements with words such as "anticipates," "believes," "expects," "estimates," "is likely," "predicts," "projects," "forecasts," "objectives," "may," "will," "should," "plans" and "intends" and the negative of these words or other comparable terminology. These forward-looking statements include statements relating to status of the separation process, the plan to pursue an IPO of up to 20 percent of the common stock of Company and the expected completion of the separation through the subsequent distribution of Company common stock, the anticipated timing of completion of the planned IPO and subsequent distribution of the remaining Company common stock, the plan to reorganize under a new public holding company to be called Company Global Holdings Inc. and Company's and Company's ability to pursue their long-term strategies. In addition, Company may from time to time make forward-looking statements in its annual report, quarterly reports and other filings with the SEC, news releases and other written and oral communications.