Moody's lowers credit ratings of US Dow due to Rohm deal

22 April 2009 21:50  [Source: ICIS news]

HOUSTON (ICIS news)--Moody’s Investors Service lowered the senior unsecured credit ratings on US major Dow Chemical to Baa3 from Baa1 as a result of the company’s debt-financed acquisition of Rohm and Haas, the ratings service said on Wednesday.

The downgrade reflects the “substantial increase in leverage” as a result of the Rohm and Hass deal and the significant integration risk with such a large transaction, Moody’s said.

“There is no silver bullet for Dow, they must successfully execute on numerous projects simultaneously to free up cash, while aggressively pursuing further cost reductions and quickly integrating their specialty businesses into Rohm and Hass,” said John Rogers, senior vice president at Moody’s.

“This is a tall order, even for a company as large as Dow,” he added.

Moody's affirmed Dow's investment grade credit rating.

Meanwhile, Moody’s lowered the credit ratings on Rohm and Haas, while issuing a negative outlook on all other continuing ratings.

“Moody’s analysis of Dow’s de-leveraging plans assumed that many commodity businesses would not generate sufficient after-tax proceeds to meaningfully improve Dow’s credit metrics prior to the end of 2010,” the report said.

If Dow is able to reduce debt faster than anticipated or monetise over $10bn (€7.7bn) in assets, the rating outlook could be revised to stable within the next 12 months, Moody’s said.

However, if at any point Dow appears unable to reduce its debt to below $15bn by the end of 2010 or if the combined companies’ EBITDA (earnings before interest, tax, depreciation and amortisation) were to fall meaningfully below $5.5bn or $6.3bn in 2010, the rating could be further lowered, Moody’s said.

"While we are disappointed with Moody's decision to downgrade our credit rating, Dow remains sharply focused on maintaining financial discipline while implementing the critical tasks of successfully integrating Rohm and Haas, realising significant cost synergies, and executing our plans to reduce debt," said Dow chief financial officer Geoffery Merszei.

($1 = €0.77)

For more on Dow Chemical and Rohm and Haas visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Ben DuBose
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