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Moody's places all ratings of LafargeHolcim on review for downgrade Montag, 21. November 2016 - 21:38

Frankfurt am Main, November 21, 2016 -- Moody's Investors Service has placed all the ratings of Swiss-based building materials manufacturer LafargeHolcim Ltd and its subsidiaries on review for downgrade.

"Our decision to review LafargeHolcim's ratings for downgrade follows the announcement made by the group to increase its dividend pay-out and to implement share buybacks at a time when we view its credit metrics as already weak for its current rating. Furthermore, we need to evaluate the underlying assumptions underpinning the company's expectations of an operating EBITDA of CHF7 billion to be achieved by year-end 2018 " says Stanislas Duquesnoy, a Moody's Vice President - Senior Credit Officer.

A full list of affected ratings can be found at the end of this Press Release.

RATINGS RATIONALE

Today's rating action was prompted by LafargeHolcim's announcement last Friday that it has updated its operating EBITDA guidance for 2018 to CHF7 billion from previously CHF8 billion (due to a CHF-700 million scope, CHF-500 million FX impact and CHF200 million additional cost savings) and intends to propose a dividend increase to CHF2 per share to be paid out in 2017 from CHF1.5 per share paid in 2016 (more than CHF250 million increase compared to 2016). In addition, the group's decision to distribute CHF1 billion to shareholders through share buybacks over two years will also negatively impact the deleveraging path of LafargeHolcim.

The announcement comes at a time when credit metrics of LafargeHolcim have improved from 2015 pro forma, but are still weak for the current Baa2 rating category. While the company has delivered on its CHF3.5 billion divestment program and made progress in raising operating profitability and cash flow generation through the realisation of synergies and cost savings following the merger of Lafarge and Holcim, improvements in credit metrics are coming through more slowly than expected by Moody's. As a result, it is unlikely that the company will achieve Moody's ratio guidance of debt/EBITDA sustainably below 3.5x and retained cash flow/net debt sustainably above 20% by year-end 2016 and the company's ability to restore metrics consistent with those levels by year-end 2017 still needs to be assessed (especially retained cash flow / net debt due to the material increase in dividend payout ratio).

The review process will mainly focus on the short to medium-term business prospects on a region-by-region basis with a view to assessing LafargeHolcim's ability to swiftly restore credit metrics in line with Moody's guidance for the Baa2 rating. This is particularly important in the context of the group's updated public guidance for 2017-18 with regards to improvements in underlying business activity. The review process will also assess the implications of LafargeHolcim's announcements at last Friday's capital markets day for the group's credit profile.

Moody's would expect that a downgrade, if any, would be limited to one notch.

WHAT COULD CHANGE THE RATING UP / DOWN

Given the review for downgrade just initiated, an upgrade of LafargeHolcim's Baa2 rating within the next 12-18 months is unlikely. Longer term, the rating could be upgraded in the event of an improvement in operating performance and profitability, driven by volume growth and price increases as well as the realization of cost synergies leading to an RCF/net debt reaching at least 25% and a reduction of the debt/EBITDA ratio to below 3.0x on a sustainable basis.

In April 2016, Moody's stated that it would consider downgrading LafargeHolcim if (1) the integration and achievement of synergies would prove difficult or fall materially behind expectations; or (2) such events, as well as weaker-than-expected performance, would result in the inability of the company to achieve RCF/net debt of at least around 20% in 2016 and beyond and maintain a leverage of below 3.5x.

LIST OF AFFECTED RATINGS

On Review for Downgrade:

..Issuer: Holcim Capital Corporation Ltd.

....Backed Commercial Paper, Placed on Review for Downgrade, currently P-2

....Backed Senior Unsecured Regular Bond/Debenture , Placed on Review for Downgrade, currently Baa2

..Issuer: Holcim Finance (Australia) Pty Ltd

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: Holcim Finance (Belgium) S.A.

....Backed Commercial Paper, Placed on Review for Downgrade, currently P-2

..Issuer: Holcim Finance (Luxembourg) S.A.

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: Holcim GB Finance Ltd.

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: Holcim Overseas Finance Ltd.

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....Backed Commercial Paper, Placed on Review for Downgrade, currently P-2

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: Lafarge SA

....Senior Unsecured Bank Credit Facility, Placed on Review for Downgrade, currently Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: LafargeHolcim Albion Finance Ltd

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

..Issuer: LafargeHolcim Continental Finance Ltd

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

..Issuer: LafargeHolcim Finance US LLC

....Backed Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: LafargeHolcim International Finance Ltd

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

..Issuer: LafargeHolcim Ltd

....Issuer ST Rating, Placed on Review for Downgrade, currently P-2

....LT Issuer Rating, Placed on Review for Downgrade, currently Baa2

....Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

..Issuer: LafargeHolcim Sterling Finance (Netherlands)

....Backed Other Short Term, Placed on Review for Downgrade, currently (P)P-2

....Backed Senior Unsecured MTN Program, Placed on Review for Downgrade, currently (P)Baa2

Outlook Actions:

..Issuer: Holcim Capital Corporation Ltd.