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Rating Action:

Moody's affirms Olin's Ba1 ratings; outlook remains stable

19 Oct 2015

New York, October 19, 2015 -- Moody's Investors Service has today affirmed the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR) of Olin Corporation (Olin), the ultimate holding company of the subsidiary guarantors to the group's senior credit facilities and senior unsecured debt obligations. Concurrently, Moody's has affirmed the Ba1 rating to Blue Cube Spinco Incorporated's (Spinco) $1.22 billion senior unsecured notes (new notes) which are guaranteed by Olin on a senior unsecured basis. The new notes are comprised of a $720 million and a $500 million senior unsecured issue, due in 2023 and 2025 respectively. Moody's understands that the proceeds from the new notes are being used to finance the completed combination of Olin and the Dow Chemical Company's (Dow, Baa2 stable) chlor-alkali business known as Dow Chlorine Products (DCP, unrated). Moody's has also assigned a Speculative Grade Liquidity (SGL) rating of SGL-2 to Olin, indicating that Moody's believes Olin's liquidity profile, or ability to meet its short-term (next 12-18 months) cash obligations, is good. The rating outlook remains stable.

In late March 2015, Olin and Dow announced a definitive agreement that will see Olin acquire Dow's U.S. chlor-alkali, global epoxy and global chlorinated organics businesses (Dow's chlor-alkali business) for a total consideration of approximately $5.0 billion. The transaction, which was financed with a combination of debt, equity, and cash, closed on October 5, 2015.

"Relative to Moody's original assumptions, the final debt package put in place for the Olin-Dow transaction increases Olin's gross debt and interest expense by approximately $300 million and $65 million, respectively. The increase in debt and interest expense is credit negative for Olin as it further stresses Olin's financial flexibility during a key period of dramatic change to the company's business profile; however, our projections continue to incorporate meaningful debt reduction over the next 12 months and support the Ba1 rating," says Anthony Hill, a Moody's Vice President -- Senior Credit Officer and lead analyst for Olin.

Below is a full list of Olin ratings affected by today's actions.

Affirmations:

..Issuer: Olin Corporation

...Corporate Family Rating, Affirmed Ba1

...Probability of Default Rating, Affirmed Ba1-PD

....Sr. unsecured notes due 2016, Affirmed Ba1 (LGD4)

....Sr. unsecured notes due 2022, Affirmed Ba1 (LGD4)

Outlook Actions:

..Issuer: Olin Corporation

....Outlook, Remains Stable

..Issuer: Calcasieu Parish Industrial Develop. Bd., LA

....Backed Industrial Revenue bonds due 2016, Affirmed Ba1 (LGD4)

..Issuer: Illinois Development Finance Authority

....Backed Industrial Revenue bonds due 2016, Affirmed Ba1 (LGD4)

..Issuer: Bradley County Industrial Development Brd, TN

....Backed Industrial Revenue bonds due 2017, Affirmed Ba1 (LGD4)

..Issuer: Blue Cube Spinco Incorporated

....Backed Sr. unsecured notes due 2023, Affirmed Ba1 (LGD4)

....Backed Sr. unsecured notes due 2025, Affirmed Ba1 (LGD4)

Outlook Actions:

..Issuer: Blue Cube Spinco Incorporated

....Outlook, Remains Stable

Assignments:

..Issuer: Olin Corporation

...Speculative Grade Liquidity, Assigned SGL-2

RATINGS RATIONALE

Pro forma for the acquisition of Dow's chlor-alkali business, Olin's financial leverage is expected to be weak for the Ba1 rating. Olin has incurred approximately $3.5 billion in additional debt (up from our original assumption of $3.2 billion) as a result of the acquisition. Pro forma for the transaction, Olin's leverage is still expected to be upwards of 5.0x debt/EBITDA excluding synergies, which is weak for the Ba1 rating. However, the company's annual interest expense is now approximately $200 million (up from our original assumption of $180 million) which translates to a coverage of around 5.4x EBITDA/interest expense (versus our original assumption of 6.0x EBITDA/interest expense). The increase in gross debt and the decrease in coverage will pressure the company's financial flexibility, limiting available cash for the required capital expenditures needed for asset rationalization and/or optimization. Without such capital expenditures, the company's synergy and EBITDA targets are at risk.

In Moody's view, Olin's historically conservative financial policies and financial leverage somewhat offsets the increase in gross debt and interest expense. Moody's continues to expect the company to reduce debt over the next 18 - 24 months to just below 3.5x debt/EBITDA, an adequate level for the rating. Other than leverage and coverage, New Olin's credit profile is expected to map to the Baa-rating category in Moody's Global Chemical Industry Rating Methodology. All figures are on a Moody's-adjusted basis.

The chlor-alkali marketplace is inherently cyclical and heavily dependent on global industrial and construction market activities, which are projected to be weak relative to past recovery cycles. Furthermore, during the next 12 - 24 months, integration risk will be significant and Olin's credit metrics will be weak during part of that time. However, Moody's believes the acquisition is credit positive for Olin (over the medium- to long-term) because it increases the company's size and earnings diversity, and establishes a long-term, integrated position into the ethylene feedstock --a key raw material needed for the acquired business. The acquisition significantly expands Olin's presence in chlorine, caustic soda, and bleach production. It also broadens Olin's current customer base and should facilitate ongoing reductions in freight and logistics costs. Additionally, as part of the transaction Olin has signed a long term, exclusive ethylene supply contracts with Dow, allowing it to continue to benefit from Dow's cost-advantaged North American ethylene feedstock.

With an assigned SGL-2 rating, Olin's liquidity profile over the next 12-18 months is expected to be good. Moody's continues to expect Olin to maintain a cash balance of no less than $200 million in 2016 and 2017. In June 2015, Olin entered into a new $1.85 billion senior credit facility consisting of a $500 million senior revolving credit facility (revolver) and a $1.35 billion delayed-draw term loan facility (term loan). The new facility (unrated), which is set to expire in 2020, has two maintenance covenants, (1) a maximum leverage ratio of 4.50x debt/EBITDA subject to traditional step-downs; and (2) a minimum coverage ratio of 3.50x at all times -- these ratios are calculated as per the credit facility documents and are not related to Moody's-adjusted figures. The increase in gross debt and interest expense lowers our assessment of Olin's covenant cushion to a modest level from an adequate level. The revolver will replace the company's previous revolving credit facility of $265 million, and the term loan was used to refinance Olin's existing $415 million senior credit facility and pay any fees associated with the acquisition.

Olin's new revolver includes a $100 million letter of credit sub-facility and the option to expand the borrowing capacity by an additional $100 million. Moody's expects the revolver to be fully undrawn at the close of the transaction. The company has historically maintained large cash balances (above $200 million) and we expect that they will continue to build cash.

Olin's stable outlook reflects weak metrics through 2016 with the expectation that the company will utilize the vast majority of cash flow to repay debt and that metrics will return to levels that support the rating in 2017, and the company will maintain a modest level of covenant cushion. Additionally the stable outlook reflects the expectation that 2016 EBITDA will be in excess of $1 billion.

With the close of the acquisition, Olin's size and lack of diversity no longer limits the rating. However, credit metrics will be weak over the next 6 - 12 months following the transaction. Pressure to upgrade Olin's rating will develop as leverage falls towards 3.0x debt/EBITDA and retained cash flow/debt rises above 20%, both on a Moody's-adjusted basis.

Moody's would consider downgrading Olin's rating if we do not expect progress towards significant deleveraging near term and the company's credit metrics remain below acceptable levels -- (1) leverage above 4.0x debt/EBITDA; (2) retained cash flow/debt below 12%; and (2) annual free cash flow generation is expected to remain below $200 million.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Olin is a Clayton, Missouri (US)-based manufacturer and distributor of commodity chemicals, and a manufacturer of small caliber, firearm ammunition. The company operates through three main segments, (1) chlor-alkali, whose primary products include chlorine and caustic soda, hydrochloric acid, sodium hypochlorite (bleach), and potassium hydroxide; (2) chemical distribution, which primarily manufactures bleach products and distributes these products and caustic soda; and (3) Winchester, whose primary focus is the manufacture and sale of small caliber, firearm sporting and military ammunition.

Olin's fiscal year-end revenues in December 2014 totaled about $2.2 billion, and its EBITDA was approximately $340 million. Pro forma for the acquisition, these figures nearly triple, the new company is expected to have about $7.0 billion in revenues, with EBITDA of around $1.0 billion.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Anthony Hill
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's affirms Olin's Ba1 ratings; outlook remains stable
No Related Data.
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