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Rating Action:

Moody's downgrades Ineos to B1, outlook is stable.

09 Aug 2007
Moody's downgrades Ineos to B1, outlook is stable.

London, 09 August 2007 -- Moody's Investors Service has today downgraded corporate family rating of Ineos Group Holdings plc to B1 from Ba3. The ratings on its existing senior first lien facilities were downgraded to Ba3, second-lien facilities to B3, and the rating on its senior guaranteed notes were downgraded to B3. Legacy notes at Ineos Vinyls were also downgraded to B3. Outlook is stable.

The rating action reflects slower than expected deleveraging of the LBO and the agency's cautious view of the company's modest prospects of an accelerated debt reduction in the near future.

Ineos operating performance in 2006 was affected by exceptional operating issues, such as unplanned closures at its Scottish refinery that affected Ineos EBITDA margins. Profitability and cash flow generation remained below Moody's initial expectations, notwithstanding fixed cost reduction remaining ahead of 2006 plan and before taking into account exceptional items. At the end of 2006, the Debt / EBITDA leverage stood at 6.1x on adjusted basis (after exceptional items), with FCF / Debt at 5%. At the peak of the current extended petrochemical cycle, Moody's views this level of leverage as elevated, given that the Ba3 corporate family rating of the group was underpinned by an expectation of strong de-leveraging before the cycle turns.

The rating outlook is stable reflecting Moody's expectation for some improvement in cash flow generation in 2007 supported by successful fixed cost reductions, higher utilization rate of the refineries and improvement in working capital management targeted by the group. Moody's notes that Ineos management has taken measures to mitigate reliability problems at Grangemouth refinery in 2007, and that operating performance is expected to be also supported by improving margins in key Chemical Intermediaries, continuous strength in the European polyolefins and sound outlook for the European refining. Moody's notes that the recently announced acquisition of polymer assets from Norsk Hydro presently remains outside of the rated group.

Moody's cautions that a deterioration in global market conditions could likely pressure the highly leveraged capital structure. Weak cash flow debt coverage metrics with FFO plus Interest / Interest falling below 2.0x or weakening FCF are likely to put negative pressure on the current rating. Sustained reduction in leverage closer to 4x on adjusted basis or strong cash flow generation with FCF / Debt in high single digits, would put pressure on the current corporate family rating.

The ratings affected are:

Ineos Group Holdings plc:

- Corporate Family Rating of B1

- Probability of Default Rating at B1

- EUR 1,750 million and USD 750 million 2016 senior guaranteed notes to B3 (LGD5, 89%) from B2 (LGD5, 89%)

Ineos Holdings Limited

- EUR 4,310 million and USD1,930 million first-lien senior guaranteed bank facilities to Ba3 (LGD3, 34%) from Ba2 (LGD3, 34%);

- EUR 650 million second lien senior secured loans to B3 (LGD5, 78%) from B1 (LGD5, 78%);

Ineos Vinyls Finance plc

- EUR 160 million senior guaranteed notes to B3 (LGD6, 96%) from B2 (LGD6, 96%)

Ineos Group Holdings plc is a diversified and integrated chemicals group headquartered in Southampton, the United Kingdom. Ineos reported 2006 Revenues of EUR 26.6 billion and 3 months 2007 Revenues of EUR 6.6 billion and EBITDA for 2006 of EUR 1.7 billion and EUR 0.6 billion for 3 months of 2007 (after exceptionals).

London
Elena Nadtotchi
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

No Related Data.
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