Investing.com -- Moody’s Ratings has adjusted the outlook for Kronos Acquisition Holdings Inc. from stable to negative, while maintaining its B3 corporate family rating (CFR) and B3-PD probability of default rating (PDR). The ratings for Kronos’ B2 senior secured first lien notes, backed senior secured first lien term loan, and Caa2 senior unsecured notes have also been confirmed.
The change in outlook is due to the operational disruption caused by a chemical fire at Kronos’ Conyers warehouse facility and the risks associated with its relocation. These challenges are expected to lead to negative free cash flow, increased financial leverage, and weaker liquidity until early 2026, according to Moody’s Ratings analyst Dion Bate.
Despite these disruptions, Moody’s expects the elevated financial leverage and liquidity strain to be temporary. It anticipates that debt/EBITDA will increase to around 9x in 2025 but improve towards 7x in 2026, provided Kronos can relocate its Conyers facility and restart production by the end of 2025.
Kronos faces several challenges including the risks of relocating the Conyers facility, low organic growth in mature markets and product categories, limited product diversity, and the company’s ownership by a private equity firm, which tends to favor shareholders.
On the other hand, Kronos has some advantages such as its moderate scale with revenue of $1.5 billion, good brand recognition, and relatively high normalized EBITDA margins of around 20%.
The negative outlook reflects the risks and costs associated with the closure and timely relocation of its Conyers facility by end 2025. These factors are expected to keep free cash flow negative, elevate financial leverage, and constrain liquidity through Q1 2026.
Kronos has adequate liquidity for the next four quarters to June 2026 with sources approximating $200 million while the company has uses of $95 million. Its sources of liquidity include cash of around $43 million at March 2025 and the $157 million availability under its $325 million of asset-based lending (ABL) revolver expiring November 2027. Uses reflect $9.25 million term loan amortization and a free cash flow consumption estimate of around $85 million through June 2026.
Kronos’ debt structure consists of three classes of debt: an unrated $325 million ABL revolver, B2 rated $925 million senior secured first lien term loan due 2031 and B2 rated $550 million senior secured first lien notes, and Caa2 rated $450 million senior unsecured notes. All three classes of debt are guaranteed by all material US operating subsidiaries.
Ratings could be upgraded if Kronos demonstrates more conservative financial policies, sustains adjusted Debt/EBITDA below 5.5x, and maintains good liquidity. Conversely, ratings could be downgraded if the relocation of the Conyers facility is delayed leading to adjusted Debt/EBITDA above 7x, or if liquidity deteriorates due to negative free cash flow or inability to extend its ABL.
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