Oct. 28, 2009 (Business Wire) -- Fitch Ratings has assigned a rating of 'BBB' to Eastman Chemical Company (Ticker: EMN) issuance of $250 million in senior unsecured notes. Net proceeds from the offering will be used for general corporate purposes, which may include the funding of pension plan obligations.
The current ratings of Eastman Chemical Company (Eastman) are as follows:
--Issuer Default Rating (IDR) 'BBB';
--Unsecured Credit Facility 'BBB';
--Senior Unsecured Debt 'BBB';
--Commercial Paper 'F2';
--Short Term IDR 'F2'.
The Rating Outlook is Stable.
Eastman's ratings incorporate the size, scale and feedstock cost advantages of the company's large vertically integrated facility in Kingsport, TN. The rating also considers Eastman's leading market position in cellulose acetate fibers; its reasonable leverage and credit metrics, solid liquidity position, and ability to adjust its cost structure in the current downturn in order to maintain financial flexibility.
Offsetting considerations center on the impact of the current global economic contraction, which has depressed demand and plant utilization across much of the chemicals sector; the potential financing risk posed by the company's Beaumont gasification project; and acquisition risk.
Eastman recently completed the Front End Engineering and Design (FEED) study for its proposed Beaumont petcoke gasification project. However, the company has indicated that the project will be delayed, given the combination of still-high construction costs, weak product demand, and the collapse in the crude oil-natural gas ratio, which is 6.0 times (x) on a btu-equivalent basis and approximately 9.0x on a normalized basis, but recently has blown out to over 20x. The decision to postpone the project eases Fitch's credit concerns about near-term pressures on Eastman's free cash flow (FCF). In conjunction with this deferral, Eastman reversed a $12 million investment tax credit (ITC) related to the project in the third quarter. Given this deferral, Fitch believes that capex spending on the project will not begin in earnest until 2011 at the earliest.
Eastman's results have held up well given trough conditions in chemicals. For the last 12-month (LTM) period ending Sept. 30, 2009, Eastman's EBITDA was $654 million, while FCF was a very robust $420 million, comprising cash flow from operations of $1,028 million, capex of $480 million, and common dividends of $128 million. Eastman's cash generation has benefited from several tailwinds, including the release of working capital previously tied up in inventory; the ability to manage lower inventory levels going forward; a one-time tax benefit linked to a changed accounting method; and the margin benefit of sticky downward pricing, as feedstock costs have fallen quicker than Eastman's selling prices.
