NEW YORK, April 22 (Reuters) - Moody's Investors Service lowered the senior unsecured ratings of Dow Chemical on Wednesday, citing the increase in leverage after it acquired Rohm and Haas and the risks of fully integrating the company.
The Midland, Michigan-based chemical company was downgraded two notches to Baa3, one notch above speculative grade, or 'junk' status. The rating has a negative outlook, meaning it could cut it again within 12 to 18 months, Moody's said in a report.
'We are pleased that Moody's has concluded their ratings review and that we are retaining our investment grade credit rating,' said Geoffery E. Merszei, Dow's Chief Financial Officer.
The agency said, however, that Dow's investment grade rating is 'highly contingent' on management's commitment to substantially reduce the leverage on its balance sheet by the end of 2010.
'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 Haas,' said John Rogers, lead author of the report.
'This is a tall order even for a company as large as Dow,' he said.
Dow Chemical Co on April 1 completed its more than $15 billion acquisition of Rohm and Haas. For details see .
Rogers said Dow's negative outlook is based on its ability to reduce leverage 'given the current operating environment.'
The agency could downgrade Dow further if it believes the company will be unable to reduce its debt to below $15 billion by the end of 2010 or if the combined companies' earnings before interest, taxes, depreciation and amortization falls below $5.5 billion in 2009 or $6.3 billion in 2010.
Moody's also lowered Rohm and Haas' senior unsecured debt maturing in 2013, 2017 and its 9.8 percent bonds maturing in 2020 to Baa3 from Baa1, citing the 'the absolute and unconditional guarantee from Dow.'
Other unsecured debt of Rohm and Haas' was downgraded to Ba1, one notch into 'junk' status. Moody's said these ratings could be withdrawn if Dow does not continue to give the agency Rohm and Haas' financial statements.
Moody's did say, however, that Dow does have a very strong liquidity profile at the current time due to a large cash balance.
(Reporting by Tom Ryan, Editing by Walker Simon) Keywords: DOWCHEMICAL RATINGS/MOODY'S (thomas.j.ryan@thomsonreuters.com; +1-646-223-6826; Reuters Messaging: thomas.j.ryan.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The Midland, Michigan-based chemical company was downgraded two notches to Baa3, one notch above speculative grade, or 'junk' status. The rating has a negative outlook, meaning it could cut it again within 12 to 18 months, Moody's said in a report.
'We are pleased that Moody's has concluded their ratings review and that we are retaining our investment grade credit rating,' said Geoffery E. Merszei, Dow's Chief Financial Officer.
The agency said, however, that Dow's investment grade rating is 'highly contingent' on management's commitment to substantially reduce the leverage on its balance sheet by the end of 2010.
'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 Haas,' said John Rogers, lead author of the report.
'This is a tall order even for a company as large as Dow,' he said.
Dow Chemical Co on April 1 completed its more than $15 billion acquisition of Rohm and Haas. For details see .
Rogers said Dow's negative outlook is based on its ability to reduce leverage 'given the current operating environment.'
The agency could downgrade Dow further if it believes the company will be unable to reduce its debt to below $15 billion by the end of 2010 or if the combined companies' earnings before interest, taxes, depreciation and amortization falls below $5.5 billion in 2009 or $6.3 billion in 2010.
Moody's also lowered Rohm and Haas' senior unsecured debt maturing in 2013, 2017 and its 9.8 percent bonds maturing in 2020 to Baa3 from Baa1, citing the 'the absolute and unconditional guarantee from Dow.'
Other unsecured debt of Rohm and Haas' was downgraded to Ba1, one notch into 'junk' status. Moody's said these ratings could be withdrawn if Dow does not continue to give the agency Rohm and Haas' financial statements.
Moody's did say, however, that Dow does have a very strong liquidity profile at the current time due to a large cash balance.
(Reporting by Tom Ryan, Editing by Walker Simon) Keywords: DOWCHEMICAL RATINGS/MOODY'S (thomas.j.ryan@thomsonreuters.com; +1-646-223-6826; Reuters Messaging: thomas.j.ryan.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.