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Rating Action:

Moody's lowers Huntsman to B1: outlook stable

07 Aug 2009

Approximately $4.7 billion of debt securities affected

New York, August 07, 2009 -- Moody's Investors Service lowered the Corporate Family Ratings (CFR) for Huntsman Corporation (Huntsman) and Huntsman International LLC (HI), a subsidiary of Huntsman, to B1 from Ba3, and lowered other ratings as shown in the ratings list below. We also assigned a B1 rating to HI's existing $600 million of 5.5% senior unsecured notes due June of 2016. The ratings on recently redeemed debt have been withdrawn. This concludes the rating review of the companies that was initiated in June of 2007 after Huntsman's announcement that it had entered into a definitive agreement to be purchased. The outlook for Huntsman's ratings is stable.

Huntsman's CFR was lowered to B1 as the company is expected to continue, over the intermediate term, to face significant negative margin pressure resulting from declining sales volumes across virtually all businesses units. We expect that this pressure will result in cash flow and credit metrics that, in the intermediate term, are more consistent with a rating in the low end of the B category. The B1 rating and stable outlook reflect Huntsman's announced plan to use the cash proceeds of recent legal settlements, net of reductions in debt, including the committed revolver, to maintain an initial liquidity balance of between $800 million to $1 billion.

"The stable outlook reflects Huntsman's enhanced liquidity profile evidenced by the lack of sizeable near term debt maturities until 2013. However if its cash balance becomes depleted before sales volumes recover, there would be negative pressure on the outlook and/or ratings." said Moody's analyst Bill Reed.

The following summarizes the ratings activity:

Rating Assigned:

..Issuer: Huntsman International LLC

....Senior Unsecured Regular Bond/Debenture, Rated B1, LGD4, 55%

Ratings Lowered:

..Issuer: Huntsman Corporation

....Corporate Family Rating, Downgraded to B1 from Ba3

..Issuer: Huntsman International LLC

....Corporate Family Rating, Downgraded to B1 from Ba3

....Probability of default, Downgraded to B1 from Ba3

....Senior Secured Bank Credit Facility, Downgraded to Ba2 from Ba1, LGD2, 20%

....Senior Subordinated Regular Bond/Debenture, Downgraded to B3 from B2, LGD5, 88%

Outlook Actions:

..Issuer: Huntsman Corporation

....Outlook, Changed to Stable from rating under review down

..Issuer: Huntsman International LLC

....Outlook, Changed to Stable from rating under review down

The downgrade of Huntsman's CFR reflects the greater than anticipated decline in business performance over the last three quarters and the expectation for a slow recovery in several of Huntsman's key end markets. The decline is evidenced by a 40% drop in adjusted LTM EBITDA to $391 million. This level of EBITDA results in gross debt/EBITDA of close to 13X (including pension and lease adjustments to debt of $725 million and $288 million respectively).

This unusually high leverage is offset by a substantial amount of liquidity and the potential for additional cash receipts. In total, Huntsman has received some $2,732 million in legal settlement proceeds in the form of $1,382 million of cash and $1,350 million in incremental debt obligations with favorable terms relative to current markets. To date some $500 million in debt has been repaid and we believe that a further amount, at least another $300 - $400 million of debt (aided by an insurance settlement), could be repaid with a combination of insurance settlements and cash on the balance sheet.

In connection with an ongoing insurance claim related to an April 2006 Port Arthur, Texas fire, Huntsman has received partial insurance proceeds to date of $365 million and has claimed an additional $243 million plus interest. We expect that the settlement of insurance claims will continue during 2009 and that arbitration to settle these claims is expected to occur in November of 2009. Any additional anticipated recoveries are expected to be used to repay secured debt.

The ratings take into account Huntsman's strong competitive position in key businesses and significant competitive barriers, including process know-how and requirements for world scale production capabilities. The ratings are nevertheless tempered by very high leverage at this point in the chemical cycle, exposure to rising prices in some feedstocks, and weakness in many key end markets, notably automotive and housing. The stable outlook reflects Moody's expectation that Huntsman's substantial liquidity will enable it to withstand the current downturn. Furthermore it incorporates our current expectation that excess cash on the balance sheet combined with the paydown of additional secured debt should enable Huntsman to avoid a potential financial covenant problem until demand returns to more normal volumes in 2010.

The notching of the senior secured credit facilities at Ba2, two levels above the CFR, reflects the combination of anticipated debt reduction at the secured level along with the benefit of a substantial cushion of subordinated debt.

Moody's most recent announcement concerning the ratings for was on June 19, 2008 when we reiterated that the debt ratings and the corporate family ratings for Huntsman and HI remained under review for possible downgrade following the announcement by Hexion Specialty Chemicals and Apollo in which Hexion/Apollo claimed they would not be required to consummate the previously announced merger agreement between the two companies.

The principal methodology used in rating Huntsman and HI was Moody's Global Chemical Industry rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory (February, 2006, document #96180). Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Credit Policy & Methodologies directory.

Huntsman Corporation is a global manufacturer of differentiated and commodity chemical products. Huntsman's products are used in a wide range of applications, including those in the adhesives, aerospace, automotive, construction products, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining and synthetic fiber industries. Huntsman had revenues of $8.3 billion for the LTM period ending June 30, 2009.

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
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's lowers Huntsman to B1: outlook stable
No Related Data.
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