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Rating Action:

Moody's affirms Caa2 corporate family rating of Ineos, upgrades notes to Caa3.

30 Jul 2009

London, 30 July 2009 -- Moody's Investors Service has today affirmed the Caa2 Corporate Family Rating of Ineos Group Holdings plc ("Ineos" or the "company") and upgraded the underlying Probability of Default rating to Caa1 from Caa2 and the ratings assigned to its senior notes to Caa3 from Ca, as detailed below. The outlook on the ratings is stable.

The absolute size of the liabilities and the substantial cash debt service obligations remain one of the main factors underpinning the decision to affirm the current corporate family rating. However, Moody's has upgraded to Caa1 the probability of default rating as a result of Ineos' recent agreement with its senior lenders of a new set of financial covenants and other conditions that are designed to accommodate the expected weakness in the cash flow generation during the next 18 months, allowing some covenant headroom in light of possible near-term volatility. The projected level of covenants is underpinned by the expectation of some recovery in volumes across the chemicals portfolio, while margins are likely to remain weak pending structural adjustments in capacity expected at the trough. Moody's notes that the company has reported a gradual improvement in the level of weekly orders and capacity utilization during the first half of 2009 suggesting a potential recovery in volumes in line with the assumptions. These considerations, together with taking into account the forecast liquidity profile, is the basis for Moody's assessment that default risk has reduced leading to the one notch upgrade of the Probability of Default rating to Caa1 at this time.

The Caa2 corporate family rating also reflects a degree of uncertainty with regard to the potential recovery in chemicals margins expected in 2011 and beyond, to be sustained by timely rationalization in chemicals capacity in Europe and US, particularly in polyolefins, as well as the overall recovery in economic growth and demand for durable goods supporting projected improvements in intermediates. Moody's notes that the amended lending terms anticipate gradual deleveraging through improvement in earnings and reduction in debt, as well as additional requirement to reduce senior debt by EUR 700 m by 2012. We note the company's commentary regarding potential disposals that could support such future debt repayment, as well as the relatively low valuations prevailing at the moment. Overall, the execution risk of the business plan remains relatively high and depends on the timing of the sustained economic recovery. In the medium term, the Caa2 Corporate Family Rating therefore reflects Moody's expectation of lower family recovery rates during the cyclical downturn underpinned by lower market valuations of chemicals assets in trough conditions.

The stable outlook reflects Moody's expectation that the group will continue to maintain its compliance with the new financial covenants and to maintain an adequate liquidity position over the medium term. At the end of 1Q 2009, the group reported a EUR 563 million cash balance and a further EUR 16 million in availability under its EUR 800 million working capital facility. The liquidity position is also supported by the accounts receivable securitization facility. Effective cash management remains one of the key considerations for the management in the downturn, while the amended covenant package also includes an additional liquidity provision, requiring Ineos to maintain a minimum EUR 200 million cash balance. Moody's expects that over the near term the company will broadly remain at least cash flow breakeven after debt service.

The following ratings are affected by the rating action:

Ineos Group Holdings plc:

- Corporate Family Rating: Caa2 / PD -- Caa1

- 2016 senior g-teed notes -- Caa3 / LGD 6 (93);

Ineos Holding Limited

- First-lien senior g-teed bank facilities -- Caa1 / LGD 3 (43);

- Second lien senior loans -- Caa3 / LGD 5 (83);

Ineos Vinyls Finance plc

- Senior g-teed notes -- Caa3 / LGD 6 (98).

For the assignment of this rating, Moody's has used its methodology for the Global Chemical Industry, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Moody's last rating action on Ineos Group was on 26 January 2009 when the rating agency downgraded the corporate family rating to Caa2 in conjunction with adjustments made to other debt instrument ratings and assigned a negative outlook.

Ineos Group Holdings plc is a diversified and integrated chemicals group headquartered in Southampton, the United Kingdom. Ineos reported 2008 Revenues of EUR 31.5 billion.

London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Elena Nadtotchi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Caa2 corporate family rating of Ineos, upgrades notes to Caa3.
No Related Data.
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