Kem One Struggles Amid Prolonged Demand Recovery, Intense Competition; Fos Project Strains Liquidity, Springing Covenant Limits RCF Access; Faces Further Downgrade Risk; 2028 SSNs Yield 11%

Credit Research: Mengdi Zhang, CFA Relevant Items: Q2’2024 Earnings Sustainability-Linked 2028 SSNs- Prelim OM Covenant Analysis Historical Financials Kem One, a French commodity chemical producer specializing in polyvinyl chloride, or PVC, caustic soda and chloromethanes, has seen a significant decline in revenue and profitability after its peak performance in 2022. This downturn is primarily due to commodity chemical price normalization, coupled with weak global demand driven by slowdown in the construction industry and fierce competition from both European suppliers and lower-cost oversea producers in the U.S. and China. As a result of the persistent pressure on margins and thus negative cash generation, Moody’s downgraded Kem One’s corporate family rating by two notches on Oct. 15, to B3 from B1, and downgraded its €450 million senior secured notes due in 2028 to Caa1 from B2. The outlook remains negative. Since the downgrade, the senior secured notes, or SSNs, have dropped about 4.6 points to around 83, yielding almost 11%, according to Solve. Further Downgrade Risk Fitch and S&P have maintained the issuer’s rating at B, one notch higher than Moody’s rating. However, in May this year, S&P revised its outlook to negative, while Fitch retained the group’s stable outlook. If Kem[...]