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Braskem Idesa was downgraded to B+ from BB- by Fitch citing a “material reduction in the outlook for polyethylene (PE) and a slower-than-expected market recovery path”. Polyethylene demand in North America has fallen 10% over the last few months amid increased supply. This combined with high cost capacity shutting down saw Fitch estimate a lower EBITDA and subsequently weaker liquidity. The rating agency expects EBITDA interest coverage to be weak at 0.9x in 2023 and 0.6x in 2024. Braskem’s net leverage is expected to to be very high in 2023 and 2024 at 13x and 20x. Braskem is vulnerable to price swings in polyethylene, raw material costs and single product dependence. Braskem is also constructing an important ethane terminal (40% complete) but that faces execution risk through 2024.
Despite the downgrade, Braskem Idesa’s dollar bonds were trading higher with its 7.45% 2029s up 2.7 points to 66.86, yielding 15.9%.