S&P may lower NOVA on tight liquidity, weaker earnings

22 January 2009 23:21  [Source: ICIS news]

HOUSTON (ICIS news)--Standard & Poor's Ratings Services (S&P) may lower its ratings for NOVA Chemicals as the Canadian plastics producer contends with tightening liquidity, the firm said on Thursday.

In addition, NOVA could violate its bank covenants later in the year, S&P said.

Bank covenants are often based on a ratio that includes a company's earnings before interest, taxes, depreciation and amortisation (EBITDA).

S&P expects that NOVA will report weak fourth-quarter earnings on 29 January. If the company's EBITDA remain weak, NOVA could violate its bank covenants later in the year, S&P said.

At the same time, NOVA has $376m (€290m) in debt maturing this year, including $250m in bonds that will mature on 1 April, S&P said. The amount also includes $126m due on 31 October.

NOVA has enough liquidity to pay down the debt, as the company had $575m in liquidity at the end of 2008, mostly under credit facilities, S&P said. Moreover, NOVA has said that it has full access to those facilities.

Nonetheless, S&P put NOVA on it's CreditWatch status, under which the firm is reviewing NOVA's ratings for a possible downgrade.

"The CreditWatch action reflects our concerns about the company's tightening liquidity in 2009 due to upcoming debt maturities and lower cash flow generation, as well as heightened risk of covenant violations later in the year," according to a statement by Jatinder Mall, credit analyst.

NOVA's management is in talks with banks to amend its covenants, S&P said. In addition, NOVA is trying to extend the swap maturity on its preferred shares.

A spokeswoman for NOVA referred to a statement that the company released on Wednesday, which discussed the company's $575m in liquidity.

Shares of NOVA traded at $3.77 as of 16:04 hours New York time (21:04 GMT) on the New York Stock Exchange, up 6.50%.

($1 = €0.77)

For more on NOVA visit ICIS company intelligence
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By: Al Greenwood
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