Approximately $575 million of rated debt affected
New York, October 25, 2010 -- Moody's Investors Service assigned a Caa1 rating to the guaranteed senior
secured second lien notes due 2020 of Momentive Specialty Chemicals Inc.
(MSC; formerly known as Hexion Specialty Chemicals Inc.).
Proceeds from the notes will be used to fund the repayment of $533
million of guaranteed senior secured second lien notes due 2014 under
the tender offer announced last week. These new notes have access
to the same collateral package as the remaining second lien notes due
in 2014. Moody's also raised MSC's speculative Grade
Liquidity Rating to SGL-2 from SGL-3 and changed MSC's
outlook to positive.
"With this refinancing Hexion will have refinanced or extended the
maturities on the vast majority of the debt that was originally slated
to mature prior to 2015. There is less than $600 million
of this debt remaining, which should be much easier to for the company
to refinance as its credit metrics improve further," stated
John Rogers, Senior Vice President at Moody's.
Moody's affirmed MSC's other ratings (Corporate Family Rating
at B3) and adjusted the LGD assessments to reflect the slight increase
in debt as a result of this transaction.
MSC's B3 Corporate Family Rating reflect its elevated, albeit
declining, leverage, exposure to volatile commodities,
limited presence in developing markets (North America and Europe account
for roughly 80% of sales) and the absence of consistent free cash
flow generation. The rating benefits from its size (estimated $5
billion in revenues in 2010), growing presence in Asia and Latin
America, meaningful product diversity, and a seasoned management
team that has demonstrated the ability to successfully manage through
difficult economic and end market conditions.
MSC's credit metrics are still weak but have improved rapidly in
2010. Net Debt/EBITDA fell from 10x at year end 2009 to an estimated
8x at the end of the third quarter based on the company's third
quarter guidance. This metric could fall to roughly 7x by year
end if the company continues to demonstrate strong year-on-year
profit growth. To the extent that leverage falls meaningfully below
7x and Retained Cash Flow /Net Debt rises toward 8%, Moody's
will consider the appropriateness of a B2 CFR. The aforementioned
metrics reflect Moody's Global Standard Adjustments which include
the capitalization of pensions and operating leases.
The positive outlook reflects the strong rebound in MSC's financial performance
despite significant exposure to housing and auto markets in North America
and Europe. Additionally, margins have improved significantly
despite volumes remaining well below peak levels. There is limited
downside to the rating at the current time as the company's liquidity
and lack of debt maturities have substantially reduced the probability
of a default. Only some exogenous event that greatly reduces its
cash balance and raises Net Debt/EBITDA back above 10x could trigger a
downgrade.
Moody's raised MSC's Speculative Grade Liquidity Rating to
SGL-2 from SGL-3 due to the expectation that it will generate
meaningful free cash flow over the next four quarters due to the reduction
of inventory built to carry it through an unusually large number of turnarounds
in the third quarter of 2010.
Ratings assigned:
Momentive Specialty Chemicals Inc.
..Guaranteed senior secured second lien notes due 2020 at
Caa1 (LGD5, 72%)
..Speculative grade liquidity rating to SGL-2 from
SGL-3
Ratings affirmed:
Momentive Specialty Chemicals Inc
..Corporate Family Rating at B3
..Probability of Default Rating at B3
..Guaranteed senior secured revolver due 2012 at Ba3 (LGD2,
17%)
..Guaranteed senior secured term loan due 2013 at Ba3 (LGD2,
17%)
..Guaranteed senior secured 1.5 lien notes due 2018
at B3 (LGD4, 58%)
..Guaranteed senior secured second lien floating rate notes
due 2014 at Caa1 (LGD5, 72%)
..Guaranteed senior secured second lien fixed rate notes
due 2014 at Caa1 (LGD5, 72%) *
..Senior unsecured notes at Caa2 (LGD6, 91%)
*: These ratings will be withdrawn upon successful completion
of this transaction.
The principal methodologies used in rating Momentive Performance Material
Inc were the Global Chemical Industry rating methodology published in
December 2009, and the Loss Given Default methodology for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Momentive Specialty Chemicals, Inc., headquartered
in Columbus, Ohio, is a leading producer of thermoset resins
(epoxy, formaldehyde and acrylic). The company is also a
supplier of specialty resins for inks and specialty coatings sold to a
diverse customer base as well as a producer of commodities such as formaldehyde,
bisphenol A (BPA), epichlorohydrin (ECH), versatic acid and
related derivatives.
REGULATORY DISCLOSURES
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's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
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
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
Moody's assigns Caa1 rating to MSC's (Hexion's) second lien notes; outlook positive
