(Source: Business Wire)
Fitch Ratings has taken the following rating actions on the Issuer Default Rating (IDR) and outstanding debt ratings of NOVA Chemicals Corporation (NOVA) after the closing of its acquisition by the International Petroleum Investment Company (IPIC), the investment arm of the Emirate of Abu Dhabi. The company's Rating Outlook is Stable.
Fitch took the following actions:
--IDR upgraded to 'B+' from 'B-';
--Secured revolver upgraded to 'BB+/RR1' from 'BB-/RR1';
--Series 'A' preferred notes upgraded to 'BB+/RR1' from 'BB-/RR1';
--Senior unsecured revolver revised to 'B+/RR4' from 'BB-/RR1';
--Senior unsecured notes revised to 'B+/RR4' from 'BB-/RR1'.
The rating action reflects the improvements to NOVA's credit profile following the closing of its acquisition by IPIC (IDR 'AA/F1+' by Fitch). To date, NOVA has received tangible credit support from IPIC of $350 million, comprising a $150 million backstop facility (used to repay a portion of NOVA's $250 million 7.4% notes due earlier this year) and a $200 million equity injection at closing. In addition, the company has secured covenant relief from lenders for all of its facilities until 2010. Previous covenants, including the restrictive net-debt-to-cash-flow covenant, have now been replaced by a minimum EBITDA test.
Fitch notes that IPIC has a track record of supporting its investments - including a shareholder loan and dividend forbearance for its investment in petrochemical company Borealis, and the extension of working capital credits for Hyundai Oilbank in Korea. While we believe it likely that IPIC would offer additional credit support to NOVA in the case of further downside in the chemicals markets, several features of the deal suggest that the parent-subsidiary linkage in this case is weak, which limits the ratings uplift associated with the link to the parent. In terms of legal ties, there are no explicit credit guarantees from IPIC to NOVA, and the company anticipates that any refinancing of current debt will take place at the subsidiary rather than parent level. In addition, feedstock integration does not appear to be a key driver of the deal, as feedstock supplies at NOVA's main Joffre, Alberta olefins/polyolefins plant will continue to be sourced locally (i.e. AECO natural gas).
Post-closing, NOVA is expected to have $1.7 billion in debt on its balance sheet, comprising approximately $610 million in bank debt and $1.1 billion in senior notes. Refinancing requirements are expected to remain steep, with maturities of $814 million expected due in the first quarter of 2010 as of the transaction close.
