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20 Sep 2010
New York, September 20, 2010 -- Moody's Investors Service assigned an A2 rating to the proposed senior
unsecured notes offering of E. I. du Pont de Nemours and
Company (DuPont, A2 senior unsecured; Prime-1 commercial
paper). Proceeds from the offering (proposed to be issued in multiple
maturities) will be used for general corporate purposes, which Moody's
assumes will likely include repayment and refinancing of commercial paper
and other debt.
Proposed Senior Unsecured Notes - A2
The outlook for the ratings is negative. The negative outlook reflects
our expectation that DuPont's financial performance may come under pressure
as a result of the prospect of deteriorating market conditions in 2011.
This concern is notwithstanding both the modest recovery in some markets
in the first half of 2010 along with a number of successful proactive
measures announced by management that have cut costs and generated cash.
DuPont's A2 and Prime-1 ratings reflect its sizeable standing as
a leading science and technology company with strong positions in chemicals,
polymers, specialty materials, and agricultural products.
Well-developed brands and disciplined portfolio management have
enabled the company to maintain strong market positions in all of the
company's major businesses. The combination of technology,
process expertise, economies of scale and ongoing cost reductions
provide a competitive advantage in many of the company's markets.
Diversity of customers and end-markets are also expected to provide
a measure of stability to earnings and cash flow. As an example
of this, the current strength of the agricultural platform and the
prospect, longer term, of growth in overseas markets among
various segments along with the historic ability to implement price increases
offsetting increasing raw material costs are likely to help to mitigate
weakness in the DuPont businesses that serve the global construction and
In 2010, DuPont is experiencing gradual sequential improvement on
a quarterly basis. In 2009 difficult conditions included a global
decline in construction, motor vehicle sales and consumer spending,
that resulted in customer inventory reductions across most supply chains.
DuPont has successfully completed actions, specifically designed
to bolster cash flow addressing these market challenges. Moody's
views these actions as a positive step in protecting DuPont's credit profile.
However, we will monitor the ongoing success of these and follow-on
actions, taken in such challenging market conditions, and
assess their relative impact on key credit metrics over the near term.
We remain concerned that future earnings growth may not be high enough
to limit the negative impact from the loss of pharmaceutical royalties
in the 2010-2012 time frames although the prospect for continued
growth in the agricultural business offsets some of this concern.
These royalties have increased over time and in 2009 represented 30%
of pretax operating income (before significant items) versus 22%
in 2008. In addition, the current dividend payout in the
range of $1.5 billion also remains a significant call on
cash pressuring Moody's definition of free cash flow.
The negative outlook also reflects Moody's belief that management is not
expected to take actions that would increase shareholder returns at the
expense of bondholders. Moody's had been concerned that long term
weak stock performance could potentially cause management to take actions,
such as further large debt funded share repurchases, that would
increase shareholder returns and further weaken credit metrics.
If DuPont's credit metrics are persistently weaker than expected we could
review DuPont's ratings in light of then current market conditions and
management's ongoing and incremental efforts to bolster cash flow.
We currently expect net balance sheet debt to remain in the $5
- $6 billion range by year end 2010. Additionally,
negative pressure on the rating could develop if: 1) financial metrics
are weaker than anticipated, (i.e. net balance sheet
debt were to materially exceed $6 billion at year end 2010,
and for several quarters retained cash flow to net debt were to drop below
or remain in the low 20% range while net debt to EBITDA were to
be in excess of 2.5x. On a LTM basis for the period ending
June 30, 2010 these metrics were 27% and 2.2x respectively,
a material improvement over September 30, 2009 when these metrics
were 15% and 4.0x respectively). 2) shareholder remuneration
efforts outpace "financial discipline"; 3) substantial replacement
of pharmaceutical cash flows does not take place; or 4) business
profile changes significantly as a result of further portfolio dispositions.
DuPont's increased pension liability, $5.6 billion
at the end of 2009, is a concern but we look also to the prospect
of an improvement in asset values over time as a means to mitigate the
current impact of this adjustment. We also note that DuPont's rating
outlook could revert to stable, over time, if the company
is able to weather the global macroeconomic downturn and pursue its cash
generating strategies while retaining ample financial flexibility.
Proposed Senior Unsecured Notes - A2
Moody's most recent announcement concerning the ratings for DuPont was
on November 4, 2009 when Moody's rated a proposed note offering.
The principal methodology used in rating E.I. du Pont de
Nemours and Company was Global Chemical Industry rating methodology published
in December 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.
Headquartered in Wilmington, Delaware, E. I.
du Pont de Nemours and Company is one of the largest US chemical companies
with a diverse portfolio of specialty materials, chemicals,
polymers and agricultural products. The company reported sales
of $29.5 billion for the last twelve months ending June
30, 2009 an increase of 13% relative to full year 2009 sales
of $26.1 billion.
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.
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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates DuPont proposed notes issue A2; outlook remains negative
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