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 September 16, 2015 - 11:52 AM EDT
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Fitch Rates Albemarle's New Term Loans 'BBB-'

Fitch Ratings has assigned a rating of 'BBB-' to Albemarle Corporation's (NYSE: ALB, Albemarle) new $300 million 364-day senior unsecured term loan and new $950 million five-year term loan. Proceeds of the term loans are to be used to finance the redemption of Rockwood Specialties Group, Inc.'s $1.25 billion, 4.625% senior notes due 2020. The term loans have substantially the same covenants as the revolving credit facility. A complete list of ratings follows at the end of this release.

Albemarle's ratings reflect the company's leading market position in bromine, lithium, refining catalysts, and surface treatment chemicals which generate high margins and strong cash flow. The ratings also reflect high initial leverage following the January 2015 acquisition of Rockwood Holdings, Inc. and Fitch's expectation that asset sales and free cash flow (FCF) will be applied to debt reduction, lowering leverage below 3x by the end of 2018.

KEY RATING DRIVERS

OLIGOPOLISTIC MARKETS

The markets for bromine and lithium are highly concentrated and Albemarle is a key player benefiting from low-cost production and pricing power. The company is the second largest bromine producer after Israel Chemicals Ltd. and the second largest lithium producer after Sociedad Quimica y Minera de Chile S.A. (SQM). As filed in the SEC form 8K dated April 13, 2015, adjusted EBITDA was $225 million with a 28% margin and $180 million with a 38% margin for bromine and lithium, respectively, in 2014.

FAVORABLE GROWTH TRENDS

Growth in catalysts should benefit longer-term from rising fuel consumption and more stringent air quality mandates. Fluid catalytic cracking (FCC) catalysts are associated with heavy oil upgrading and demand should benefit over time from the trend toward heavier fuel. Growth in lithium should benefit from growth in fuel storage applications including for consumer electronics, electric vehicles and grid storage. Bromine is expected to benefit from use in mercury control at power generators longer term. Surface treatment products should grow with aerospace and automotive production.

LARGE COMPETITORS IN CATALYSTS

While the company has strong niche positions in refining catalysts and polymer catalysts, competitors include Shell, Chevron, and BASF.

EXPOSURE TO HYDROCARBON DRILLING

Demand for bromine for drilling completion fluids slowed in the fourth quarter of 2014 and first half of 2015 as a result of lower offshore drilling activity driven by the sharp decline in oil prices. Beyond 2015, this activity should stabilize and resume solid growth.

EXPECTATIONS

Fitch expects adjusted EBITDA of about $900 million for 2015 reducing in 2016 to the degree that assets are sold. Fitch expects annual FCF beyond 2015 to be on the order of $400 million. Fitch expects management to repay debt with FCF generation but believes leverage could remain above target until 2018.

KEY ASSUMPTIONS

--Asset sales of businesses with aggregate 2014 adjusted EBITDA of $100 million are sold for an average multiple of 4.5x in 2016;

--Aggregate sales growth of 3% per annum generally on a pro forma combined basis;

--Pre-synergy margins consistent with historical pro forma combined margins;

--Anticipated synergies at 100% and 85% of management's expectations in 2015 and 2016, respectively;

--Excess cash flow applied to debt reduction.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action are not expected over the next 18 months but include:

--Total debt-to-operating EBITDA sustainably below 2x.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Failure to make substantial progress toward de-levering over the next 18 months;

--Expectations of total debt/EBITDA above 4x at the end of 2016;

--Failure to generate positive FCF in 2015 and expectations that it would be below $400 million in 2016 without some combination of additional asset sales or equity raising.

LIQUIDITY AND DEBT STRUCTURE

On Jan. 12, 2015, Albemarle completed the acquisition of Rockwood Holdings, Inc. for a purchase price of approximately $5.7 billion comprising approximately $3.6 billion in cash and approximately $2 billion in equity. Albemarle assumed the $1.25 billion notes issued by Rockwood Specialties Group, Inc. Albemarle guarantees the notes and Rockwood Specialties and Rockwood Holdings guarantee Albemarle notes and credit facilities. On Sept. 14, 2015, Albemarle announced its intention to redeem the notes with proceeds of the new term loans.

DE-LEVERING

At June 30, 2015, total debt was $4 billion compared to pro forma adjusted LTM EBITDA of $958 million at 4.2x. At June 30, 2015, $50.8 million of the debt was at non-guarantor subsidiaries. Albemarle is in the market to sell non-core assets with aggregate EBITDA of $100 million and proceeds earmarked to reduce debt. The company expects net debt/adjusted EBITDA of around 4x at the end of 2015 and targets 2.5x between the third quarter of 2017 and the end of 2018. The company has suspended its share repurchase program until leverage reaches that level.

SUFFICIENT LIQUIDITY

Of the $207.2 million in cash on the balance sheet at June 30, 2015, $201 million was held by foreign subsidiaries. Pro forma for the redemption of the notes and issuance of the term loans, cash was $164 million at June 30, 2015. Deferred tax liabilities of $102.6 million relate to the expected future repatriation of prior-period earnings of Rockwood that are planned to be repatriated in 2015. The company has a $1 billion revolving credit facility to support its commercial paper (CP) program and for general corporate purposes. The facility expires in February 2019 and availability is reduced by outstanding CP ($418 million as of June 30, 2015 classified as current portion of long-term debt). The leverage covenant is 4.50x for 2015 and then steps down by 0.25 each quarter in 2016 until reaching 3.50x. Availability under the revolver and CP program was $582 million at June 30, 2015.

Fitch expects the company to be modestly FCF positive in 2015 after capital expenditures of $230 million and common dividends of $119 million. Albemarle guides to annual capital expenditures of 4%-6% of revenues plus spending for the lithium hydroxide plant. Capital expenditures for 2015 are expected to be slightly over 6%.

Pro Forma for the redemption of the notes and issuance of the term loans, Fitch estimates annual maturities of debt over the next five years to be $428 million in 2015 (CP of $418 million), $316 million in 2016, $63 million 2017, $98 million in 2018, and $353 million in 2019.

FULL LIST OF RATING ACTIONS

Fitch currently rates Albemarle as follows:

Albemarle Corporation

--Long-term Issuer Default Rating (IDR) 'BBB-';

--Short-term IDR 'F3';

--CP 'F3';

--Senior unsecured credit facilities 'BBB-';

--Senior unsecured notes 'BBB-'.

Rockwood Specialties Group, Inc.

--Senior unsecured notes 'BBB-'.

The Rating Outlook is Stable.

Date of Relevant Rating Committee: May 28, 2015.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990870

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Monica M. Bonar
Senior Director
+1-212-908-0579
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gregory Fodell
Associate Director
+1-312-368-3117
or
Committee Chairperson
Mark Sadeghian, CFA
Senior Director
+1-312-368-2090
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com


Source: Business Wire (September 16, 2015 - 11:52 AM EDT)

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