On Friday, IFF (IFF) received a favorable assessment from corporate bond research firm Gimme Credit, which initiated coverage with an "improving" credit score and an "outperform" rating on the company's 3.268% notes due in 2040 at a spread of +164 basis points.
The company, a global specialty chemical provider, recently announced an agreement to divest its Pharma Solutions business to Roquette, a company based in France, for a sum that could reach $2.85 billion. This transaction, which is anticipated to finalize in the first half of 2025, values the Pharma Solutions business at approximately 13 times its EBITDA. The proceeds from this sale are earmarked for debt reduction, a move that is seen as a positive step for IFF's credit standing.
Analysts have recognized the sale, along with a recent reduction in dividend payments, as foundational moves to secure IFF's investment-grade credit profile. Following the divestiture, IFF will focus on its three main segments: Nourish, Health & Bioscience, and Scent, which contribute 60%, 20%, and 20% to sales, respectively. The fourth-quarter results have shown promising signs of recovery from the volume and earnings challenges faced in 2023, although the company still faces significant execution risks.
Gimme Credit views IFF's business profile as stronger than average within the chemical industry, citing its differentiated product portfolio, customer and geographic diversity, and relatively stable markets. The firm believes that the company's valuation, with a 15 times EV/EBITDA multiple and the premiums paid for recent asset sales, reflects this strength. The cut in dividend payments has been perceived as a strategic move to boost free cash flow, and the pending asset sales are expected to significantly reduce IFF's leverage, even if EBITDA remains constant.
The research firm sees potential for a narrowing of the spread under their base scenario and recommends the 2040 notes within IFF's capital structure. This preference is based on the notes' lower price and significant spread advantage compared to the 2030 notes, and their comparable spread to the longer-dated 2050 notes. The positive outlook on the notes is tempered by the fact that there are still multiple asset sales to be completed and that the company is navigating operational challenges under new leadership.