S&P cuts Enviva

S&P said it lowered its ratings for Enviva Inc. to B+ from BB- and its senior unsecured debt to B from B+. The 5 recovery rating on the notes is unchanged. The agency also revised the outlook to stable from negative.

Enviva's deferred gross margin transaction hurt credit metrics in 2022. The DGMT required Enviva to recognize a sale as a financing transaction instead of revenue. The change narrowed Enviva’s gross margin $89 million, which the agency said affected its calculation of S&P Global Ratings-adjusted EBITDA in 2022 and resulted in S&P Global Ratings-adjusted debt to EBITDA ratio of about 18x.

“Excluding this impact, S&P Global Ratings-adjusted leverage would have been significantly lower. We expect an additional $12 million negative impact to EBITDA from the DGMT transaction in the first fiscal quarter of this year. The DGMT impact will reverse, and we expect the company to recognize 50% of the deferred revenues in 2024 and the remainder in 2025,” S&P said in a statement.

The agency said it now projects S&P Global Ratings-adjusted debt to EBITDA to be about 6.5x-6.75x in 2023 and 5.75x-6x in 2024.

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