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02 Oct 2008
Moody's Comments on Huntsman's Merger Lawsuit
Approximately $3.1 billion of rated debt securities affected
New York, October 02, 2008 -- On Sept 29, 2008 Huntsman Corp. (Huntsman - Ba3 Corporate
Family Rating - Rating Under Review For Downgrade) issued a press
release announcing the decision of the Delaware Court of Chancery (Court)
to enter judgment in favor of Huntsman denying all declarations sought
by Apollo Management, L.P. and Hexion Specialty Chemicals,
Inc. (Hexion) in their suit requesting that the Court excuse Hexion
from its obligation to consummate the pending transaction. Moody's
views this initial legal outcome as a modest positive for Huntsman's
bondholders. In the event that the merger is consummated,
a likelihood that remains uncertain despite the court ruling, bondholders
are likely to be refinanced. In the event that Huntsman receives
a combination of a break-up fee and monetary damages, an
event that will likely take a considerable amount of time and further
court actions, Huntsman's credit metrics could be bolstered.
Moody's views the potential size and use of such proceeds as currently
difficult to define. Huntsman's ratings remain under review
for possible downgrade reflecting a weak operating environment and uncertainty
regarding the ultimate resolution of the Hexion merger.
In its lawsuit, Hexion alleged that Huntsman was not entitled to
a $325 million break up fee and had suffered a Material Adverse
Effect (MAE) since signing the Merger Agreement (merger) in 2007 and that
a solvency certificate or opinion could not be provided for the combined
Hexion/Huntsman entity at the closing. Both allegations were rejected
by the Court. The Court ordered Hexion to specifically perform
its covenants under the merger, including the obligation to use
its reasonable best efforts to take all actions necessary and proper to
consummate the merger in the most expeditious manner practicable.
The Court further ordered that if the closing has not occurred by October
1, the merger termination date shall be extended until the Court
determines that Hexion has fully complied with the Court's order.
In addition to denying the relief sought by Apollo and Hexion, the
Court also found that Hexion had breached a number of obligations and
covenants under the merger, and the breaches were knowing and intentional.
Huntsman continues to seek damages exceeding $3 billion in its
Texas lawsuit against Apollo and its partners.
Huntsman's financial performance has been negatively impacted by substantial
increases in energy and feedstock prices which appear to be moderating.
In addition, the implementation of on-going price increases
will further boost working capital at Huntsman over the next quarters.
If this negative operating pressure dramatically grows Moody's may
move the outlook to negative or lower Huntsman's CFR by a notch.
Alternatively, given the current difficult market conditions,
Huntsman's ratings will remain under review for possible downgrade
until the company's ultimate position resulting from the finalization
of the merger is known or the outcome in terms of damages can reasonably
Moody's ongoing review for possible downgrade will focus on a number of
new factors including; 1) the length of time the litigation may take,
and 2) the potential cash inflows from settlements, if any,
of the litigation and the use of those proceeds to bolster the capital
structure. Moody's believes that the magnitudes of any such inflows
are subject to great variability due to the potential need to further
litigate. However the possible settlements might be in the range
of at least $325 million (a termination fee in the original merger
agreement) or more if Huntsman can successfully establish with the courts
that damages have been incurred.
Moody's will also begin a reassessment of Huntsman's credit profile on
a stand alone basis in light of current market conditions and management's
future plans to improve pricing, cash flows and the company's credit
measures. Moody's notes that many issuers in the chemical industry,
including Huntsman, have seen sustained increases in costs for energy,
commodity and intermediate feedstocks, and transportation.
In specific response to these pressures Huntsman has initiated plans to
raise prices for all products, some by as much as 25%,
and also impose an energy surcharges across a wide range of products.
Moody's reassessment will also focus on the success of these price increases
and energy surcharges which will vary by product, in accordance
with costs attributed to each product.
Huntsman Corporation is a global manufacturer of differentiated and commodity
chemical products. Huntsman's products are used in a wide range
of applications, including those in the adhesives, aerospace,
automotive, construction products, durable and non-durable
consumer products, electronics, medical, packaging,
paints and coatings, power generation, refining and synthetic
fiber industries. Huntsman had revenues of $10.4
billion for the last twelve months ending June 30, 2008.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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