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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.
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
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.
Issuer: Dow Chemical company
$3 billion Revolving Facility due 2014, at Baa3
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
Issuer: Rohm and Haas (R&H)
R&H Euro Notes due 2012
R&H Notes due 2029
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.
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.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Changes Dow's Outlook to Stable; UCC Ratings raised to Baa3
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