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Rating Action:

Moody's assigns (P)Ba1 to Chemtura's term loan; (P)Ba3 CFR

11 Aug 2010

Approximately $750 million of proposed debt securities rated

New York, August 11, 2010 -- Moody's Investors Service assigned a provisional (P)Ba1 rating to a proposed $300 million, six-year, senior secured term loan credit facility for Chemtura Corporation (Chemtura). Moody's also assigned a provisional (P)B1 rating to proposed $450 million senior unsecured notes due 2018, a provisional (P)Ba3 Corporate Family Rating (CFR) and Probability of Default Rating, and a SGL-3 Speculative Grade Liquidity Rating. The outlook for the ratings is stable.

Moody's understands that the proposed debt offerings will primarily be used to repay the DIP loans of $300 million, financing fees, and distributions under Chemtura's plan of reorganization when the company exits from bankruptcy. The provisional ratings are assigned pending the emergence from bankruptcy and the closing of the proposed exit financing. The company is expected to emerge from bankruptcy in early October 2010.

The ratings assigned are subject to a complete review by Moody's of the final credit facility, term loan and senior note documents and are also subject to the transactions being closed in a manner and with terms that are substantially identical to those that have been shared with Moody's.

Assignments:

Issuer: Chemtura Corporation

Corporate Family Rating, Assigned (P)Ba3

Probability of Default Rating, Assigned (P)Ba3

Speculative Grade Liquidity Rating, Assigned SGL-3

Senior Secured Bank Term Loan, Assigned (P)Ba1 (LGD2, 17%)

Senior Unsecured Note, Assigned (P)B1 (LGD4, 68%)

The (P)Ba3 CFR reflects the company's initial moderately high leverage and weak credit metrics along with the possible uncertainty surrounding the company's future performance upon exiting bankruptcy. An additional concern centers on the high amount of restructuring the firm and its employees have been subject to and the prospect of modest additional restructuring efforts. A final concern centers on the still developing board of directors and a desire to better understand the financial philosophy of the board with a specific focus on the makeup of the shareholder base and what their goals are for their investment in Chemtura.

Following the refinancing and exit from bankruptcy, Chemtura will have moderately high leverage, particularly after adjusting debt for operating leases and pensions, which add some $197 million and $441 million, respectively. At the end of calendar year 2008 Chemtura's balance sheet debt totaled roughly $1.2 billion versus the expected balance sheet debt of about $750 million upon emergence. Chemtura's leverage is still markedly lower than many companies that have exited bankruptcy in the past. Moody's projected coverage for fiscal year 2010 (based on our debt adjustments), as measured by EBITDAR/Interest, is about 3.0 times while projected leverage as measured by Debt/EBITDAR is approximately 4.2 times. In Moody's forecast, adjusted debt is projected at slightly above $1.4 billion at year end 2010 post-emergence. Pro forma debt to book capital would be just above 50%. As mentioned above, these ratios are generally more favorable than the weaker historic metrics of other companies coming out of bankruptcy. Moody's notes that with fresh start accounting, tangible net worth is likely to be a positive number in excess of $350 million which is also unique for companies exiting bankruptcy.

Chemtura's business profile and annual revenues in excess of $2.5 billion in 2010 are consistent with the Baa rating category. Chemtura's strong business profile reflects its operational, geographic and product diversity in the numerous businesses that it operates in. With operating plant sites in North and South America, Europe, Africa and the Middle East, and Asia-Pacific, Chemtura has both operational (31 sites in 13 countries) and geographic diversity befitting a strong business profile. Revenues are split between its four main business segments - with Industrial Performance Products segment representing the largest business with some 45% of revenues for the 12 months ending June 30, 2010. Chemtura also scores relatively high in terms of market positions within the end markets of its main products.

Additional positive factors supporting the ratings include the reduction in pre-bankruptcy liability exposure and the relative stability of EBITDAR margins over the last four years (excluding reorganization costs) with margins never dropping below 11%. Management's track record and actions to effectively cut costs and to improve Chemtura's business profile during the bankruptcy period are positive factors supporting the ratings. These efforts resulted in the reduction in work force by some 32% since the end of 2006 and the reduction (via closure or sale) of six facilities.

The stable outlook reflects Moody's expectation that management will continue to focus on improving global cost positions and generating free cash flow. Additionally, it assumes that management's financial policies will be relatively conservative. The board has yet to be determined and the ultimate shareholders of the company and their relative voting power is also unclear. Thus a limiting factor for further upward rating movement is the need to understand what changes, if any, the new board will institute in management's aspirations to de-lever, reduce pension underfunding, and achieve higher credit ratings.

If Moody's were to become comfortable with management's financial goals and Chemtura were to maintain total debt/EBITDA of less than 3.2x and RCF/total debt of 20%, Moody's would consider a positive outlook or the appropriateness of a higher rating. If, however, total debt/EBITDA were to rise above 5.0x, Moody's could change the outlook to negative.

The Speculative Grade Liquidity Rating of SGL-3 reflects the company's adequate liquidity and Moody's expectation of reasonable free cash flow generation, in excess of $60 million, during 2011. The rating is supported by Chemtura's favorable debt maturity profile and expected flexibility under the financial covenants for the company's asset backed credit facility. A factor supporting a higher SGL rating is the cash balance in excess of $100 million, in combination with a revolver that is not expected to be accessed over the long term provides good liquidity. However, seasonal working capital growth needs in the first half of 2011 will likely be financed by the revolver, which could be repaid by the end of 2011 with the corresponding working capital inflows. Until a permanent board with an enumerated financial philosophy is made public it is difficult to provide full credit for the excess cash on the balance sheet. The SGL-3 also reflects the fact that final drafts of the credit agreements along with the financial covenants were not yet available.

The unrated asset-based credit facilities are secured by a first lien on inventory and receivables and a second lien on assets securing the term loan. The term loan has second priority liens on the inventory and receivables and first priority liens on property, plant and equipment that suggests adequate collateral coverage. In our opinion, the collateral package for the term loan may at the current time adequately cover the term loan in a default scenario. The (P)B1 rating on the unsecured notes reflects its subordination to a substantial amount of first lien debt and potential debt at international subsidiaries. The rating on the unsecured notes also recognizes the high proportion of notes in Chemtura's capital structure and reflects their junior position in the capital structure and the prospect of limited protection after the first and second lien lenders have been provided for in a distressed scenario.

This is the first time that Moody's has rated the debt of Chemtura on a monitored basis since withdrawing its Ca CFR in March of 2009 after the company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

The principal methodology used in rating Chemtura was Moody's Global Chemical Industry rating methodology, published in December 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Chemtura Corporation manufactures and sells innovative, application-focused specialty chemical and consumer products offerings. The company's principal executive offices are located in Philadelphia, Pennsylvania and Middlebury, Connecticut with a large portion of the headquarters function residing in Middlebury. Chemtura operates in a wide variety of end-use industries, including automotive, transportation, construction, packaging, agriculture, lubricants, plastics for durable and non-durable goods, electronics, and pool and spa chemicals. Pro-forma net sales for the twelve months ending June 30, 2010 are estimated to be $2.6 billion.

New York
William Reed
VP - Senior Credit Officer
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
USA

Moody's assigns (P)Ba1 to Chemtura's term loan; (P)Ba3 CFR
No Related Data.
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