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Ratings & Assessments
Air Products and Chemicals, Inc.
Air Products Manufacturing Corporation
Air Products, L.P.
California Pollution Control Financing Auth.
Gulf Coast Waste Disposal Authority, TX
Louisiana Public Facilities Authority
Michigan Strategic Fund
Port Arthur Navigation District Ind Corp, TX
Credit Opinion: Air Products and Chemicals, Inc.: Macro recovery and new projects support strong earnings in 2021; net debt metrics to weaken as capital is deployed.
Credit Opinion: Air Products and Chemicals, Inc.: Strong balance sheet and a highly resilient business creates opportunities during challenging times
Credit Opinion: Air Products and Chemicals, Inc.: Capital deployment estimates increased following strong quarter; credit metrics remain very strong today
Credit Opinion: Air Products and Chemicals, Inc.: Credit Opinion ahead of fiscal year 2018 results
Rating Action:
Moody's affirms Air Products' A2 ratings
New York, November 02, 2021 -- Moody's Investors Service ("Moody's") affirmed Air Products and Chemicals, Inc.'s (Air Products) A2 senior unsecured ratings. The affirmation follows the company's announcement that the asset acquisition and project financing for the company's Jazan project has been completed. The rating outlook is stable.
"Air Products' clear and public commitment to the A2 rating is a critical factor driving the affirmation despite expectations for significant capital deployment in the coming years," said Ben Nelson, Moody's Vice President -- Senior Credit Officer and lead analyst for Air Products and Chemicals, Inc.
Affirmations:
..Issuer: Air Products and Chemicals, Inc.
.... Commercial Paper, Affirmed P-1
.... Issuer Rating, Affirmed A2
....Senior Unsecured Regular Bond/Debenture, Affirmed A2
..Issuer: California Pollution Control Financing Auth.
....Senior Unsecured Revenue Bonds, Affirmed A2
....Other Short Team Senior Unsecured Revenue Bonds, Affirmed P-1
..Issuer: Gulf Coast Waste Disposal Authority, TX
..Issuer: Louisiana Public Facilities Authority
.... Other Short Team Senior Unsecured Revenue Bonds, Affirmed P-1
..Issuer: Michigan Strategic Fund
..Issuer: Port Arthur Navigation District Ind Corp, TX
Outlook Actions:
....Outlook, Remains Stable
RATINGS RATIONALE
Air Products announced on 27 September 2021 a definitive agreement for the asset acquisition and project financing of a joint venture in Jazan Economic City (Saudi Arabia). The joint venture is purchasing the air separation units, gasification, syngas cleanup, utilities, and power assets from Aramco. The joint venture will operate the facility under a 25-year contract for a fixed monthly fee. Aramco will supply feedstock and the assets will produce power, steam, hydrogen, and other utilities for Aramco's Jazan Refinery, a project that produces ultra-light sulfur diesel, gasoline, and other products. Air Products announced on 27 October 2021 the details of the joint venture's financing, including non-recourse project financing and a $2.4 billion cash contribution split between 2021 ($1.5 billion) and 2023 ($0.9 billion). Increased reliance on joint ventures with substantial non-recourse financing could prompt re-dimensioning of the appropriate credit metrics and liquidity to support the rating.
Air Products has a significant pipeline of additional capital projects, including two major "blue" hydrogen projects announced recently and a major "green" hydrogen project. Hydrogen production is an energy intensive business that typically involves significant greenhouse gas emissions. The environmental benefit of blue hydrogen projects involves capturing and sequestering a substantial portion of the carbon emissions. Air Products announced major blue hydrogen projects in Alberta, Canada, ("net-zero hydrogen") and Louisiana, USA. The environmental benefit of green hydrogen projects involves using renewable energy without the same emissions profile as fossil fuel. Air Products announced major green hydrogen project in NEOM, Saudi Arabia. Moody's does not expect these projects will come on stream for at least several years.
Air Products' A2 ratings are supported by the company's size and scale, strong profitability, relatively stable cash flow generation through economic cycles compared to most rated chemical and industrial companies. Key credit metrics are appropriate for the rating, including adjusted financial leverage of 2.2x (Debt/EBITDA) and retained cash flow-to-debt of 25% (RCF/Debt) for the twelve months ended 30 June 2021. The company reported roughly $7.7 billion of debt and $4.3 billion of cash at 30 June 2021. Moody's expects that capital will be deployed toward assets that generate additional earnings and cash flow. While the company has maintained very strong credit metrics for the rating over the past few years, the rating is tempered by an expectation for significant capital deployment within management's public commitment to maintain an A2 rating and an expectation that credit metrics will weaken in the coming quarters. Increased reliance on joint ventures with substantial non-recourse financing could also prompt re-dimensioning of the appropriate credit metrics and liquidity to support the rating.
Environmental, social, and governance factors influence Air Products' credit quality. The company is exposed to ESG-related issues typical for a company in the industrial gas industry. Industrial gas firms have lower direct environmental risks related to manufacturing processes compared to other specialty chemical companies. However, some customer end markets carry higher risks, and, in some cases, industrial gas firms' assets are integrated into these facilities. End markets with higher environmental and social risks include commodity and specialty chemicals, metals, refining, and steel. Governance-related risk is below average based on the company's publicly-traded status and commitment to the current rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook assumes that the company will maintain a healthy cash balance and appropriate credit metrics while deploying capital aggressively toward major projects. Moody's could upgrade the ratings with expectations for adjusted financial leverage to be sustained below 2.0x (Debt/EBITDA), retained cash flow-to-debt sustained above 35% (RCF/Debt), and a public commitment to a higher rating. Moody's could downgrade the rating with expectations for adjusted financial leverage sustained above 2.5x (Debt/EBITDA) or retained cash flow-to-debt sustained below 25% (RCF/Debt). Given the lag between cash outflows and cash inflows from major projects, the rating incorporates some flexibility for gross debt credit metrics to weaken slightly beyond established thresholds with continued strength in net debt-based credit metrics, clear line of sight regarding EBITDA and cash flow contributions from major projects, and continued clear and public commitment to the A2 rating. Any material escalation in risks related to joint ventures or projects in emerging markets in an environment of weaker credit metrics could also have negative rating implications.
Headquartered in Allentown, Pennsylvania, Air Products and Chemicals, Inc. is the third-largest global supplier of industrial gases by reported revenue. Air Products CEO, Seifi Ghasemi, was appointed in July 2014. Air Products generated roughly $9.8 billion of revenue for the twelve months ended 30 June 2021.
The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Benjamin Nelson
VP - Senior Credit Officer
Moody's Investors Service, Inc.
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