S&P downgrades US Hexion on debt reduction efforts

21 April 2009 23:14  [Source: ICIS news]

HOUSTON (ICIS news)--Standard & Poor’s downgraded all of its credit ratings of US Hexion Specialty Chemicals because the company’s recent debt reduction efforts were equivalent to a default, the ratings service said on Tuesday.

Hexion recently said it bought back notes and debentures that had a face value of $196m (€151m) in exchange for just $26m in cash, S&P said. S&P called this transaction a distressed debt exchange, making it tantamount to a default under the rating service’s criteria.

The ‘SD’ corporate credit rating reflects the expectation that Hexion will continue to pay its other creditors following the completion of its recent debt purchase, S&P said.

Additionally, the ‘D’ ratings on the second-priority senior secured notes and debentures reflect the view that the exchange was distressed as the debt and debenture holders received significantly less than the original price, S&P said.

S&P said it could lower or affirm the ratings within the next two weeks, following a reassessment of the default risk and recovery prospects.

Hexion said on Monday that it expected to post a 2009 first-quarter operating income of between $5m and $15m, down 82-94% from the same period of 2008.

Because of the economic downturn and the expected income decline, the company reduced its debt to $3.45bn from $3.73bn through repurchases of debt securities.

Moody’s Investors Service also lowered its credit ratings for Hexion, citing weak end-market demand.

($1 = €0.77)

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By: Ben DuBose
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