Befesa S.A.

The stable outlook reflects the company's ability to generate solid results, even under less supportive market conditions. The company's headroom under the rating could further improve unless the current economic uncertainties turn into a global recession. Under our base case, we expect Befesa to report an EBITDA of €230 million-€250 million in 2022 and positive free cash flow translating into adjusted debt to EBITDA of 2.0x-2.5x, within the 2x-3x range that we consider commensurate with the 'BB+' rating. We see a downside to be somewhat remote in the coming 12 months. We could lower the rating if we expected adjusted debt to EBITDA above 3x without any prospect of a quick recovery, coupled with negative discretionary cash flow. According to

...Supportive prices should translate into more favorable profitability in 2022 and build headroom on the existing rating. The steel industry recovered quickly from the decline caused by the COVID-19 pandemic, resulting in high metal prices at an all-time and the recent revision of metal prices. In particular, we expect that the tight supply dynamics for zinc will result in prices of $3,200 per metric ton in 2022, before potentially softening in 2023 and reaching a sustainable price in 2024. We believe that the high zinc market prices will more than offset energy inflation. As a result, our new base case now points to 2.0x-2.5x leverage, a level we see as commensurate for the rating. Befesa's global footprint has further enhanced thanks to the acquisition of American Zinc Recycling (AZR) and is supported by potential growth in China. Last year's AZR acquisition was EBITDA accretive and resulted in more geographical diversity. At this stage, the company has not encountered any hiccups. The...

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