Atotech bonds sag post 3Q18 earnings, despite EBITDA spike

Atotech’s generally illiquid bonds traded down post-3Q earnings last week amid high-yield market weakness, although its EBITDA jumped in the quarter, two buysiders and a trader said.

The borrower’s USD 300m 8.75%/9% senior holdco PIK toggle notes due 2023 traded at 98.75 after the earnings report on 13 November to yield 9.09%, down from 99.5 at the beginning of November, according to MarketAxess. Its USD 425m 6.25% senior unsecured notes due 2025 were quoted by a trader today at 94.5 to yield 7.5% after last trading in size on 8 November before earnings at 96.75 to yield 6.899%.

The specialty chemicals company issued the PIK toggle notes and a USD 200m TLB due 2024 in May to fund a USD 500m dividend to its sponsor Carlyle, as reported by Debtwire.

“The PIK toggle notes were marketed as ‘a bridge to the IPO,’ so now we’re waiting for Caryle to keep its word,” the first buysider said.

Carlyle is expected to take the company public next year at a value of roughly USD 5bn, according to a Reuters report.

The rest of the company’s capital structure consists of a USD 1.65bn term loan facility due 2024. The TLB1 is quoted in the 99.438/99.875 context today, down about half a point since Monday (12 November), according to Markit.

The specialty chemicals company reported USD 106m of adjusted EBITDA for the quarter, up 10% from USD 96m year-over-year. Revenue for the quarter ticked down to USD 306m from USD 309m for corresponding period.

As of 30 September, the company’s liquidity stood at USD 587.5m, based on USD 337.5m of cash and an undrawn USD 250m revolver due 2022, the buysiders said.

Atotech’s leverage at quarter-end was 6.1x, based on USD 2.4bn in debt and USD 395m in LTM adjusted EBITDA, the sources said. Taking cash on hand into account, net leverage comes to 5.2x.

Third quarter gross profit was flat year-over-year at USD 204m, credited to lower R&D expense, the first buysider said.

“Gross profit matters, as the price of metals fluctuates. It usually shows in the revenue being up or down, but if gross profit is stable, it means the company is doing okay,” the buysider said.

Atotech’s general metal finishing revenues were up 3% year-over-year to USD 143m, driven by the general auto market slowdown linked to US-China trade tensions, temporary Chinese shutdowns and European end-market restraints and environmental standards, one of the buysiders said.

The company’s electronics segment revenues were down 11% to USD 163m from USD 184m for the corresponding period, driven by lower equipment volumes, delayed deliveries and delayed customer investment decisions, the buysider added.

The company declined to comment.

2018 Debtwire

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