Corporate bond research firm Gimme Credit upgraded the rating of chemical company Celanese Corp. (NYSE:CE) to "Improving" from "Stable." The firm anticipates Celanese will experience a slight increase in leverage during the first quarter due to seasonally negative working capital flows and a modest decrease in EBITDA. However, for the entirety of 2024, Gimme Credit expects a stable Seasonally Adjusted Annual Rate (SAAR), decreasing raw material costs, and gains from self-help measures to contribute to an increase in EBITDA.
Despite the forecasted challenges in the first quarter, Gimme Credit predicts that Celanese will achieve better leverage metrics throughout the year, moving from 4.9 times to 4.5 times. This improvement is expected to result from another year of strong free cash flow, projected to be $650 million after dividends, which the company plans to use for debt reduction. Nonetheless, Gimme Credit does not foresee Celanese reaching its net leverage target of 3.0 times in the short term, within 1 to 2 years, without a cyclical upswing in its Acetyl business.
Celanese's net leverage has shown sequential improvement but remains high following the debt-financed acquisition of DuPont's Mobility & Materials (M&M) business in 2022. The company concluded 2023 with a net leverage of 4.9 times on a trailing twelve-month basis. This figure is a reduction from over 5.5 times earlier in the year, which was achieved through a robust free cash flow of $1 billion and proceeds from asset sales amounting to $480 million. These financial maneuvers helped reduce gross debt balances, counterbalancing a weaker full-year performance in the Acetyl Chain sector and initial challenges in the newly acquired M&M business.
Celanese is expected to see the end of customer inventory destocking soon, although forecasting an improvement in macroeconomic tailwinds that would boost volumes, such as auto builds which are crucial for the Engineered Materials segment, remains uncertain. Despite these economic headwinds, Celanese is projected to benefit from significant self-help initiatives starting in 2024. These include the realization of synergies from the M&M acquisition, targeted at $150 million, and the benefits from new low-cost acetyls production capacity at Clear Lake, which is expected to contribute a $100 million run rate benefit following its completion in the first quarter of 2024.