Mon 07/19/2021 08:08 AM
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An approximate €3.5 million piece of Swiss tobacco filter manufacturing company Cerdia’s term loan B changed hands earlier this month at about 90-91, sources told Reorg.

Cerdia’s loans have been illiquid with little to no supply available in the market so far, one source said. Continue reading for our EMEA Core Credit and Americas Core Credit teams' reporting on Cerdia's term loan B, and request a trial for access to reporting and analysis on hundreds more stressed, distressed and performing credits. 

The group recently reported its first-quarter results, with revenue marginally down and EBITDA marginally up year over year, the sources added. Cerdia generated $111.6 million of sales in the first quarter, down slightly from $114.8 million the same quarter last year, while EBITDA increased to $32.6 million from $31.1 million over the same period.

Those figures include the contribution of business unit Accoya, which Cerdia disposed of last year. Excluding Accoya, revenue increased to $111.6 million from $107.9 million, while EBITDA inched up to $31.5 million from $31 million the same quarter last year.

Cerdia had generated $473 million of revenue and $116 million EBITDA in 2020, one of the sources said.

Cash generation over the quarter increased by $4.8 million compared to the first quarter of last year. Cerdia generated $21 million of operating cash flow after capex and about $10 million of free cash flow after interest payments. However, the group faced a one-off payment of $11.4 million for the closure of its flakes production plant in Roussillon, France, during the quarter, more than consuming the cash it generated. As a result, the group ended the quarter with $29 million of cash and $10.6 million drawn under its €65 million RCF. The revolver is subject to a springing net leverage covenant set at 5.8x first lien net debt to consolidated EBITDA when the facility is 35% drawn.

Cerdia reported 4.5x net leverage as of the first quarter - in line with its 2020 year-end - based on LTM adjusted EBITDA of $132 million, which includes some pro forma adjustments for expected cost-savings. Clean LTM EBITDA for the quarter was around $120 million, which suggests actual leverage is 4.9x, sources noted.

The group was about 3.75x net levered at the time of its syndication back in 2017, but leverage jumped after Cerdia lost a large contract during 2018. With limited capex, the deal was supposed to be highly cash-generative, driving deleveraging. However, in practice, the structurally declining traditional cigarette market has meant that the group has had to constantly invest in optimizing costs, resulting in little to no free cash generation, the sources added. Given the continuing pressure from the e-cigarettes market, its topline will remain flat at best.

The closure of the Roussillion plant this year should boost capacity utilization, which Cerdia expects to result in an EBITDA jump, the sources said.

S&P expects annual cost savings from the Roussillon closure of about $24.5 million on a run-rate basis, and a significant decline in restructuring costs. It estimates that the closure will cost some $30 million in 2021, on top of $15 million already spent in 2020, with a further cash outflow of about $10 million in 2022 and $4 million to $8 million per year in 2023-2026. Overall, the total project cost is estimated at $70 million to $75 million, with most of the costs related to decontamination, dismantling, and OSIRIS (chemical platform) fees.

Moody's notes that while the closing of the Roussillon plant will lead to a meaningfully lower cost base, Cerdia is the smallest competitor in an oligopolistic and structurally declining industry. Hence, it might be difficult for it to remain cost competitive in the future given its lower economies of scale compared to its competitors as it only operates four plants and has already achieved material cost reductions over the past three years, the rating agency cautioned.

Cerdia’s almost fully drawn RCF matures next year, while its €565 million-equivalent term loan B falls due in 2023. Given the increased focus on ESG issues since the group’s buyout, refinancing the term loan in the leveraged finance market looks all but impossible. Therefore, sponsor Blackstone’s only chance to exit is likely via a trade sale to a peer and, if that fails, to try to push through an amend-and-extend to term out the debt, sources speculated.

The company’s debt includes:

  • A €350 million term loan due 2023 paying E+4.75% with a floor of 1%;

  • A $230.4 million term loan due 2023 paying L+5.5% with a 1% floor; and

  • A €65 million RCF due 2022.

A small minority of the loans are held by Blackstone-owned GSO, sources noted.

According to Reorg’s CLO Database, the largest holders of the term loans include;

  • Bardin Hill Loan Management (€31.5 million of the E+475 bps facility);

  • Blackrock Liquid Credit Strategies (€29.7 million of the E+475 bps facility);

  • Alcentra (€28.1 million of the E+475 bps facility);

  • Credit Suisse AM (€20.8 million of the E+475 bps facility); and

  • Accunia Credit Management (€20.2 million of the E+475 bps facility).

  • Credit Suisse AM ($54.7 million of the L+550 bps facility)

  • MJX AM ($35.6 million of the L+550 bps facility)

  • Blackstone Liquid Credit Strategies ($25.2 million of the L+550 bps facility)

  • ZAIS Group ($23.7 million of the L+550 bps facility)

  • King Street Capital Management ($17.1 million of the L+550 bps facility).

Cerdia, which was known as Rhodia Acetow at the time, was acquired by Blackstone from Solvay in 2017 for about €1 billion. The group operates production sites in Germany, Brazil, France, Russia and the U.S. and produces acetate tow, a derivative of wood pulp that is used in cigarette filters and other products.

Blackstone declined to comment.

Reorg Debt Explained analyzed the group’s legal documentation at the time of the deal. For a copy of the full report click HERE.

--Robert Schach
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