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Moody's: Progroup's acquisition of combined heat and power plant is credit positive

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Moody's: Progroup's acquisition of combined heat and power plant is credit positive

December 09, 2015 - 13:45
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FRANKFURT, GERMANY, Dec. 7, 2015 (Press Release) -Last Wednesday, Progroup AG, a majority-owned subsidiary of JH-Holding GmbH (B1 stable), agreed to acquire EnBW Energie Baden-Wuerttemberg AG’s (A3 negative) combined heat and power plant (CHP) in Eisenhüttenstadt, Germany for a total purchase price of €183.9 million (excluding transaction costs) and expects to complete the transaction on or around 31 December 2015.

The acquisition is credit positive for JH-Holding GmbH because of its solid strategic rationale and because it will reduce Progroup’s energy costs and secure the company’s independent power and energy supply. In the past, EnBW owned and operated the CHP vehicle Propower GmbH under a contracting agreement with Progroup. Progroup paid a fixed fee to the owner, reflecting the operating costs of the power plant.

Following the acquisition, JH-Holding’s EBITDA will improve by approximately €30 million per year and Progroup’s annual cash flow will increase by up to €23 million (before tax and working capital) from 2016 onwards. We understand that this transaction will be financed by a mix of cash on the balance sheet and additional debt, for which the company has fully secured commitments from its main banks.

The transaction will not weigh on the company’s credit metrics, given the €30 million EBITDA improvement and the prudent mix of cash and debt funding. For 2016, we have forecast an EBITDA margin of around 20%, which positions the company strongly compared to some of its main peers, including Smurfit Kappa (Ba1 stable) or DS Smith. As of September 2015, the group posted cash on balance sheet of €91 million and Moody’s-adjusted debt of €552 million.

Progroup is a leading European manufacturer of containerboard and corrugated board focusing on producing standardized small batch series for small- and medium-sized costumers. The group generated sales of €661 million and reported EBITDA of €125 million as of 2014 (19% reported EBITDA margin). Headquartered in Germany, the company has 853 employees and nine production plants across five countries.