OREANDA-NEWS. Fitch Ratings says a combination of narrow product focus, growth strategies, limited-to-moderate execution risk and exposure to cyclical end-markets translates into a high business risk profile for high-yield issuers in the European chemicals sector. Financial profiles are, however, in a better shape than other cyclical sectors such as retail, lodging and restaurants or industrials.

In its inaugural EMEA High Yield Chemicals Handbook with industry analysis and case studies on select EMEA and US issuers with euro-denominated debt., Fitch says issuers rated 'B-' or below represent 42% of the chemical names in Fitch's EMEA leveraged credit opinion portfolio. This compares with around 65% for retail, lodging and restaurants and around 55% for industrials. Currently, there is only one chemicals issuer at risk of being downgraded below 'B-'. in the near term. At present Fitch maintains credit opinions on 19 chemical credits in the European leveraged loan and high-yield bond markets.

The sector remains challenged by weak growth in developed markets. Many emerging market players are expanding production to satisfy rising local demand or increase self-sufficiency. Combined volume and price effects from oversupply can materially impair earnings, particularly for commodity chemicals but also for many specialty products. The report tracks operating rates, economic growth and investment activity by major product groups to distinguish business model and execution risk profiles.

Many speculative-grade chemical businesses have smaller scale and operate in segments of the market that remain fragmented. Consolidation is a common theme, given that cost leadership is a critical competitive advantage to cushion financial stress in a down-cycle. As a result, bolt-on acquisitions or mergers are a preferred strategy with issuers likely to rely on credit market access well into the future. .

The full report 'EMEA High-Yield Chemicals Handbook' is available at www. fitchratings. com. Case studies and credit profiles include Axalta, Coating Systems Ltd., The Chemours Company, Huntsman Corp, Ineos Group Holdings S. A., INOVYN Finance plc, Monitchem HoldCo 2 S. A. and Trinseo S. A..