Investing.com -- On February 25, 2025, Moody's (NYSE: MCO ) Ratings revised the outlook for Albemarle (NYSE: ALB ) Corporation from stable to negative, while maintaining its Baa3 senior unsecured rating. The ratings also apply to Albemarle New Holding GmbH and Albemarle Wodgina Pty Ltd, both subsidiaries of Albemarle Corporation.
The change in outlook is due to the ongoing challenging conditions in the lithium market. Moody's predicts that unless lithium prices rise or Albemarle takes further cost-saving and portfolio actions, the company's adjusted free cash flow will remain negative and credit metrics weak for a Baa3 rating in 2025-2026.
Despite these challenges, Moody's affirmed the ratings based on the belief that market conditions could improve within the next 12-18 months. This potential improvement, combined with Albemarle's industry-leading, low-cost assets, could allow the company to generate positive free cash flow, reduce debt, and improve its credit profile in a relatively short time.
In response to the challenging market conditions, Albemarle took various actions in 2024, including reducing its capital expenditure by $450 million and targeting a significantly lower capex in the range of $700-800 million for 2025. The company also aims to achieve cost and productivity improvements of $300-400 million by the end of 2025.
Despite lower lithium prices, Albemarle managed to deliver a 26% annual sales volume growth in its Energy Storage segment in 2024, achieving an adjusted EBITDA of $1.1 billion. However, the company's year-end leverage for 2024 increased to 4.3x, and its free cash flow was negative at $1.26 billion.
Moody's anticipates that, under the current lithium prices, Albemarle will generate an adjusted annual EBITDA of about $900 million in 2025-2026 and that leverage will improve modestly to about 4x. If the current market environment persists and the company doesn't take additional actions, Moody's expects that Albemarle may need to raise debt in 2026 to support its liquidity.
Albemarle maintains a good liquidity position, supported by $1.2 billion in balance sheet cash, full availability under its $1.5 billion revolving credit facility which matures in October 2027, and about $100 million available under other credit lines.
An upgrade in the ratings would be considered if Albemarle can generate positive free cash flow and sustain credit metrics. Conversely, a downgrade could occur if EBITDA fails to show meaningful growth, if negative free cash flow persists, or if the company pursues a debt-financed acquisition.
Albemarle Corporation, based in Charlotte, North Carolina, is a global producer of lithium and bromine products, catalysts, and specialty chemicals. The company operates through three business segments: Energy Storage, Specialties, and Ketjen. Revenues were approximately $5.4 billion for the fiscal year ended December 31, 2024.
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