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S&P downgrades Compass Minerals on corporate credit concerns

S&P Global Ratings on May 11 lowered its corporate credit rating on Compass Minerals International Inc. to BB- from BB, with a negative outlook, as the company's leverage is expected to remain in the 4x to 5x range over the next year.

The rating agency noted that Compass has not been able to restore its credit measures since its debt-financed acquisition in 2016 of Brazilian specialty plant nutrient manufacturer and distributor Produquímica Indústria e Comércio SA.

The Kansas-based company said its salt and plant nutrition business segments were pressured by mild winter weather and unfavorable farming conditions, resulting in lower-than-expected margins.

S&P expects the company's credit metrics to improve and adjusted leverage to decline to the lower end of the 4x to 5x range, from 4.7x currently, on the back of a more normal winter and better prices in 2018; however, cash flows during the year will remain negative and may decline further if it fails to achieve its cost-cutting goals.

"If the company cannot implement ongoing efficiency initiatives, credit measures could deteriorate further," S&P wrote.

The negative outlook reflects the view that the company's return to positive discretionary cash flow might be slowed due to ongoing operational and cost challenges, even as demand for salt and plant nutrition products is expected to increase in the next 12 to 18 months.

Meanwhile, the issue-level rating on the company's senior secured notes was lowered to BB from BB+. The recovery rating for the secured debt remains 2, indicating an expectation of about 80% recovery in the event of a default.

The issue-level rating on the company's senior unsecured debt was lowered to B+ from BB-, with a 5 recovery rating, indicating expected recovery of about 25%.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.