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Rating Action:

Moody's Changes Dow's Outlook to Stable; UCC Ratings raised to Baa3

01 Nov 2010

Approximately $19 Billion of rated debt affected

New York, November 01, 2010 -- Moody's Investors Service changed the outlook on the debt of The Dow Chemical Company to stable from negative. Moody's affirmed Dow's remaining ratings at Baa3 and raised the ratings on Union Carbide Corporation (UCC) debentures to Baa3 reflecting the decline in asbestos liability cases and its large receivable from Dow. Moody's also withdrew the ratings on several issues of legacy Rohm and Haas debt.

RATINGS RATIONALE

Dow's stable outlook reflects the company's stronger than anticipated earnings performance since its acquisition of Rohm and Haas Company in 2009, management's continuing emphasis on debt reduction and Moody's expectation that Dow will be able to generate metrics that would fully support an investment grade rating in 2011. Quarterly EBITDA in 2010 has improved significantly from the recessionary levels of 2009, exceeding $1.8 billion in every quarter. Third quarter EBITDA was much stronger than previously anticipated as cash margins for several key commodities expanded more than offsetting the normal seasonal weakness. Low U.S. natural gas prices and associated liquids will continue to benefit earnings from its Basic Chemicals and Basic Plastics segments over the next several years and lower feedstock costs in its Performance segments. Furthermore, we believe that Dow's advantaged U.S. ethylene position will facilitate the successful formation of a "K-Dow" like venture over the next 12-18 months, greatly accelerating Dow's potential deleveraging.

We raised the ratings on the senior unsecured debentures issued by Union Carbide to Baa3 reflecting Dow's stable outlook, a significant decline in cash costs related to the litigation and settlement of UCC's asbestos claims, and the size of the receivables from Dow on UCC's balance sheet. In 2003, UCC moved to a more aggressive litigation strategy with respect to asbestos product litigation claims, which has resulted in a substantial reduction in large settlements with plaintiffs' lawyers and the dismissal of a much larger number of cases. This strategy has modestly reduced the per claimant cost and allowed the company to reduce the absolute number of individual claimants from over 130,000 to less than 45,000 as of June 30, 2010.

Over this same period, UCC has generated a substantial amount of cash which has been loaned to Dow. With the divestiture of some of UCCs assets in 2009, this receivable has grown to over $4.1 billion as of June 30, 2010. We believe that the size of this receivable dwarfs any reasonable estimation of UCC asbestos liability, the estimated future pension and benefit costs, as well as the $571 million of outstanding debt on the balance sheet. Hence, UCC debenture holders should have the same senior unsecured claim on Dow as Dow's existing bondholders, which is reflected in the Baa3 rating.

The ratings on the Rohm and Haas Euro Notes due 2012 and Notes due 2029, are being withdrawn due to the expectation that information will not be adequate to maintain the rating.

Ratings Assigned:

Issuer: Dow Chemical company

$3 billion Revolving Facility due 2014, at Baa3

Ratings Upgrades:

Issuer: Union Carbide Corporation (UCC)

UCC 7.875% Debentures due 2023, to Baa3 from Ba2

UCC 7.5% Debentures due 2025, to Baa3 from Ba2

UCC 7.75% Debentures due 2096, to Baa3 from Ba2

UCC varioous IRBs, to Baa3 from Ba2

Ratings Withdrawn:

Issuer: Rohm and Haas (R&H)

R&H Euro Notes due 2012

R&H Notes due 2029

Ratings Affirmed:

Dow Long Term Issuer Rating, at Baa3

Dow Commercial Paper, at P-3

Dow Shelf, at Baa3

Dow Notes due in next 12 months, at Baa3

Dow Notes due in 2012, at Baa3

Dow Notes due after 2012, at Baa3

Dow IRB/PCRB, at Baa3

R&H Notes due 2013, at Baa3

R&H Notes due 2017, at Baa3

R&H Notes due 2020, at Baa3

Morton Debentures due 2020, at Baa3

The principal methodology used in rating Dow Chemical was Global Chemical Industry rating methodology published in December 2009.

The Dow Chemical Company (Dow: Baa3 Issuer Rating, stable outlook) is one of the largest chemical companies in the world, with LTM (ending June 30, 2010) revenues over $52 billion. Dow has global leadership positions in a broad array of chemicals, including ethylene, polyethylene, polyurethanes, and epoxies, and many specialty chemicals and materials.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's Changes Dow's Outlook to Stable; UCC Ratings raised to Baa3
No Related Data.
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