Crisis Over For Dow

Fitch Ratings has raised its outlook on Dow Chemical’s ‘BBB’ credit rating from negative to stable. The change is as incremental as it gets. It merely suggests that the company is no longer in imminent danger of a credit downgrade. But for Dow Chemical, it is a little like the Bulletin of Atomic Scientists shaving a minute off the Doomsday Clock. The company, beaming from the news, forwarded the Fitch press release to me. “Our credit rating remains a solid investment grade,” the company remarked in an e-mail. There is only one wrung lower for an investment grade rating, so the distinction is a bit like the one between Schaefer and Schlitz. Fitch downgraded Dow’s credit rating from ‘BBB+’ to ‘BBB’ back in March, 2009, the same week that Dow hashed out a deal to salvage its acquisition of Rohm and Haas. And the downgrade came three months after the Kuwaiti government scuttled the sale of half of Dow’s commodity chemicals business to Petrochemical Industries Co. of Kuwait to form the K-Dow joint venture. Without the $7.5 billion from the JV formation, the Rohm and Haas purchase put about $10 billion in debt on Dow’s books with few apparent prospects--at the height of the financial crisis--to get financing. In a report issued yesterday, Fitch analyst Sean Sexton said that since last April, Dow has done a good job in handling its debt crisis. It generated $3.4 billion selling Morton Salt, a stake in a Dutch refinery, its share of a Malaysian petrochemical JV, and calcium chloride. I doubt that any of these divestitures were all that painful for Dow. And the company did avoid selling Dow AgroSciences—as CEO Andrew Liveris intimated he might during the crisis. And, Dow didn’t have to sell the K-Dow assets for a song at the bottom of the business cycle. Otherwise, Dow did what a lot of companies did—it raised more debt and issued equity. But Dow did it on a grander scale: $8.75 billion in new debt and $3.25 billion in equity. Fitch is looking forward to Dow raking in another $1.63 billion from the sale of its Styron styrenics and polycarbonate business to Bain Capital. (Word around the campfire is that Bain is paying a very full price for those assets.) The Fitch report came with a couple of warnings, though. “Fitch notes that the leverage is still high for the rating,” Sexton wrote. And, despite cutting its dividend last year, Dow still has relatively weak cash flows.

Author: Alex Tullo

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