Cash-stressed firms may have to sell prize assets - Moody's

15 January 2009 14:26  [Source: ICIS news]

LONDON (ICIS news)--Financially stressed chemical producers may be forced to sell off their strongest businesses to survive the economic downturn, significantly impairing their ability to recover profitability, a report released by Moody’s said on Thursday.

The weak credit environment and declining profitability has reduced debt-laden companies' ability to sell assets and generate liquidity, said the credit watchdog.

If credit markets remain inaccessible longer than expected, only the very attractive specialty and high-margined commodity businesses, such as salt and industrial gases, will be saleable at reasonable multiples in 2009,” said analyst John Rogers.

“This will likely force companies needing to restructure, or facing a liquidity event, to sell their best businesses, which would greatly impair their ability to recover in a weak operating environment,” he added.

Highly leveraged commodities companies, as we have seen with LyondellBasell and INEOS, have been especially stressed by the global economic downturn.

According to Moody’s, US chemicals group Chemtura was the largest high-yield company facing sizeable debt maturity in 2009.

“In order to avoid a substantial reduction in financial flexibility, we expect this company will need to sell one of its best businesses, thereby slowing any future improvement in its credit profile,” said Rogers.

If high-yield credit markets fail to recover in 2009, the number of companies facing near-term debt maturities or potential liquidity events would rise significantly in 2010, he added.

Last week Moody’s further downgraded LyondellBasell, saying it expected to withdraw its ratings for the international petrochemicals major.

The downgrade came after LyondellBasell’s US subsidiaries and one of its non-Dutch holding companies in Europe filed for reorganisation under US bankruptcy laws.

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By: Mark Watts
+44 20 8652 3214

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