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Rating Action:

Moody's affirms Dow's Baa2 rating; outlook stable

06 Nov 2018

New York, November 06, 2018 -- Moody's Investors Service ("Moody's") affirmed the Baa2 ratings of The Dow Chemical Company, its Prime-2 rating for commercial paper and its stable outlook. This follows the disclosure that Dow will have roughly $16 billion of balance sheet debt once it is spun-out from DowDuPont, Inc. (Baa1 stable) in April 2019.

"While Dow's reduction in balance sheet debt and pension liabilities will be significant, after adjusting for the earnings from businesses transferred to Corteva and the New DuPont, credit metrics will not improve enough to support a higher rating," stated John Rogers, Senior Vice President at Moody's and lead analyst on Dow. "Further debt reduction and better than expected earnings growth in 2019, along with management's commitment to maintain stronger credit metrics could support a higher rating."

Affirmations:

..Issuer: Dow Chemical Company (The)

....Commercial Paper, Affirmed P-2

....Issuer Rating, Affirmed Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

....Senior Secured Bank Credit Facility, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Dow Capital B.V.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Rohm and Haas Holdings Ltd.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Morton International Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Union Carbide Corporation

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Union Carbide Chemicals & Plastics Co. Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Brazos Harbor TX, Industrial Development Corp

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: Brazoria County Brazos River Hrbr. Nav. Dist.

....Senior Unsecured Revenue Bonds, Affirmed Baa2

....Senior Unsecured Revenue Bonds, Affirmed P-2

..Issuer: Iberville (Parish of) LA

....Senior Unsecured Revenue Bonds, Affirmed P-2

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: Kanawha (County of) WV, County Commission

....Revenue Bonds, Affirmed Baa2

..Issuer: Michigan Strategic Fund

....Senior Unsecured Revenue Bonds, Affirmed P-2

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: Midland County Economic Development Corp., MI

....Senior Unsecured Revenue Bonds, Affirmed P-2

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: New Jersey Economic Development Authority

....Senior Unsecured Revenue Bonds, Affirmed P-2

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: Port Freeport, TX

....Senior Unsecured Revenue Bonds, Affirmed P-2

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: West Baton Rouge (Parish of) LA, Ind Dist #3

....Revenue Bonds, Affirmed P-2

....Revenue Bonds, Affirmed Baa2

....Senior Unsecured Revenue Bonds, Affirmed P-2

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: West Side Calhoun Cnty Navigation Distr., TX

....Senior Unsecured Revenue Bonds, Affirmed NP

....Senior Unsecured Revenue Bonds, Affirmed Baa2

Outlook Actions:

..Issuer: Dow Chemical Company (The)

....Outlook, Remains Stable

..Issuer: Dow Capital B.V.

....Outlook, Remains Stable

..Issuer: Morton International Inc.

....Outlook, Remains Stable

..Issuer: Rohm and Haas Holdings Ltd.

....Outlook, Remains Stable

..Issuer: Union Carbide Corporation

....Outlook, Remains Stable

..Issuer: Union Carbide Chemicals & Plastics Co. Inc.

....Outlook, Remains Stable

RATING RATIONALE

Dow's Baa2 rating is supported by its size, operational and geographic diversity, vertical integration into key commodity petrochemicals, significant planned capacity additions, strong market positions in the construction, transportation and plastics packaging industries, and a sustainable low cost position in the commodity chemicals and polymers it produces. The rating also incorporates its profitable joint venture affiliates in the Middle East and Asia, as well as access to advantaged feedstocks in North America, which are expected to provide a sustainable advantage over the foreseeable future.

Despite the expected downturn in ethylene chain margins in the latter part of 2018 and 2019, Moody's expects Dow to demonstrate improved earnings in 2019 due to additional cost reductions, benefits from new capacity and ongoing growth in downstream products. Despite the loss of a number of higher margin and more stable specialty businesses to the DowDuPont, Inc. (New DuPont, Baa1 stable), Dow remains the largest chemical company in the Americas and one of the largest globally. While the loss of these businesses is a credit negative, as Dow's earnings and cash flow will be influenced to a greater degree by commodity prices, Moody's believes that its low cost position in key petrochemical feedstocks and its highly diversified product portfolio will make it much less volatile than most rated commodity or diversified chemical companies.

Pro forma credit metrics at the end of 2018 are expected to be: Debt/EBITDA of 2.9x and Retained Cash Flow/Debt (RCF/Debt) of 19%. Net leverage is expected to be 2.6x and RCF/Net Debt is expected to be 21%. Moody's expects these metrics to improve due to the growth in earnings and cash flow. Debt reduction has not been stated as a high priority for Dow. However, Dow has reduced its debt and made cash contributions to its pension plan by over $2billion since the start of 2017. The metrics provided above include Moody's standard adjustments to financial statements that capitalize pensions, leases and guarantees. Moody's adjustments include roughly $7 billion for pensions, $2 billion of operating leases and $5 billion in guarantees.

Dow is expected to have excellent liquidity supported by an sustained cash balance of roughly $3 billion and significant availability under its credit facilities, tempered by over $2.1 billion of maturities coming due in 2019. In addition, the company is expected to be free cash flow positive in 2018, bolstered by additional earnings from new production capacity.

The company's secondary liquidity is provided by a five-year $5.0 billion committed revolving credit facility maturing October 2023, $1.38 billion of committed bilateral credit facilities maturing between 2019 and August 2020 and $1.3 billion of accounts receivable financing programs. Dow has full availability under its revolver, bilateral credit facilities and its accounts receivable facility. Dow had $594 million of CP outstanding as of September 30, 2018 and is expected to remain an active issuer of commercial paper in the US to fund short term requirements.

Dow Holdings Inc. is expected to be the parent company that issues common equity to the public, but The Dow Chemical Company is expected to remain the primary debt issuer within the capital structure. Both Dow Holdings Inc. and The Dow Chemical Company are expected to be SEC registrants.

The stable outlook reflects the expectation that performance will continue to improve in 2019, despite the downturn in ethylene chain margins. The ratings could be upgraded once the spin is completed, management provides more detailed financial targets, Debt/EBITDA falls sustainably toward 2.5x and Retained Cash Flow/Debt rises toward 25%. Dow's rating could be downgraded if credit metrics weaken sustainably with Debt/EBITDA remaining above 3.0x and Retained Cash Flow/Debt remaining below 20%.

The principal methodology used in these ratings was Chemical Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Dow Chemical Company, based in Midland, Michigan, is one of the largest chemical companies in the world, with annual revenues expected to remain above $50 billion. Dow has global leadership positions in a broad array of commodity and specialty chemicals/advanced materials, including ethylene, polyethylene, polyurethanes, acrylics, engineered plastics, and silicones. Dow is expected to be spun out from DowDuPont Inc. in April 2019. As part of the spin out, Dow will transfer its agricultural seeds and chemicals business and a number of other specialty chemical and polymer businesses to Corteva and the New DuPont.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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