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13 Jan 2010
Approximately $700 million of rated debt affected
New York, January 13, 2010 -- Moody's Investors Service assigned a B3 rating on Hexion Specialty
Chemicals, Inc. (Hexion) proposed $700 million Senior
Secured 1.5 Lien Notes due 2018. This rating is subject
to approval by the First Lien lenders and receipt of final documentation.
Moody's also affirmed Hexion's corporate family rating (CFR)
of B3. The ratings outlook on the company is negative, however,
if Hexion is able to complete the partial refinancing and loan extension
as currently proposed then Moody's could move the outlook to stable
as there would be no likely event of default over the next two years.
The Speculative Liquidity Rating (SGL) remains at SGL-3.
Moody's views the debt issuance and amendments as a moderate credit
positive since they extend the debt maturity profile, reduce the
refinancing risk on the term loan, and provide Hexion more financial
flexibility. However, the improvements are not sufficient
to warrant a rating upgrade as the company remains highly levered and
operating environment remains uncertain, despite modest improvements
in demand. This issuance, while increasing liquidity by $180
million, offsets roughly half of the total debt reduction in 2009;
$285 million of the 2009 debt reduction was accomplished through
the purchase of its own debt at distressed prices. Pro forma for
the transaction Net Debt-to-EBITDA is 8.8x and Retained
Cash Flow-to-Net Debt is 2.3% (these metrics
are adjusted using Moody's Global Standard Adjustments to Financial
Statements and are not consistent with Hexion's reported numbers).
The $700 million 1.5 lien notes will rank junior in collateral
to the senior secured term loan and senior in collateral to the second
lien notes and all other unsecured debt. Proceeds from the new
notes will be used to refinance $500 million of the term loan debt
and fund a $180 million increase in cash. The issuance of
the 1.5 lien notes is contingent on the approval by the First Lien
lenders for a two year extension on $500 million of the remaining
term loan. The transaction also includes amendments to the credit
facility to allow for the aforementioned term extension as well as future
pari passu and junior financing that would be used to refinance the term
loan. Hexion has also recently extended $200 million of
their $225 million Senior Secured Revolving Credit Facility by
The negative outlook will remain in place until Hexion receives approval
for this transaction from its lenders, thereafter we would consider
moving the outlook to stable. The positives that would be considered
in reviewing the outlook would be the addition of approximately $180
million to the cash balance, the improvement of the maturity profile
which moderately reduces the refinancing risk, some positive developments
in global economic demand, a strong management team and the reduced
likelihood of default over the next two years. The credit negatives
that remain include the large total debt levels of the company and uncertainties
over the strength of demand improvement, especially in the housing
and construction markets through 2011.
In addition, Moody's affirmed Hexion's Speculative Grade
Liquidity Rating at SGL-3. Financial covenant headroom will
improve substantially as a result of the reduction in term loan debt.
Once the company can demonstrate consistent free cash flow generation
we would raise the rating to SGL2.
Hexion Specialty Chemicals Inc.
Gtd 1.5 Lien Sr Sec Notes due 2/1/2018 B3 (LGD4, 57%)
Gtd. Sr. Sec. Revolving Credit Facility due 02/03/2013
at B1 (LGD2, 24%)
Ratings affirmed and LGD assessments updated:
Hexion Specialty Chemicals Inc.
Corporate Family Rating at B3
Probability of Default Rating (PDR) at B3
Gtd. Sr. Sec. Letter of Credit Facility due 05/31/2011
at B1 (LGD2, 24%)
Gtd. Sr. Sec. Revolving Credit Facility due 05/31/2011
at B1 (LGD2, 24%)
Gtd. Sr. Sec. Term Loan due 05/05/2013 at B1 (LGD2,
9.75% Gtd 2nd Priority Sr Sec Notes due 11/15/2014 at Caa1
Gtd 2nd Priority Sr Sec Flt Rt Notes due 11/15/2014 at Caa1 (LGD5,
7.875% Bkd Senior Unsecured Notes due 02/15/2023 at Caa2
8.375% Bkd Senior Unsecured S.F. Debenture
due 04/15/2016 at Caa2 (LGD6, 91%)
9.2% Bkd Senior Unsecured Debentures due 03/15/2021 at Caa2
Moody's notes that the point estimates for the LGD assessments were changed
to reflect the revised capital structure, and that upon successful
completion of the transaction Moody's would assign a B1 (LGD2, 24%)
to the extended $500 million Guaranteed Senior Secured Term Loan
Moody's last rating action for Hexion was on June 12, 2009 when
Moody's lowered Hexion's PDR due to a distressed exchange;
the PDR was restored to prior levels after three business days.
The principal methodology used in rating Hexion 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
Hexion Specialty Chemicals, Inc., headquartered in
Columbus, Ohio is a leading producer of commodities such as formaldehyde,
bisphenol A and epichlorhydrin, as well as formaldehyde-based
thermoset resins, epoxy resins, and versatic acid and its
derivatives. The company is also a supplier of specialty resins
for inks and specialty coatings sold to a very diverse customer base.
The company reported sales of $4.1 billion for the LTM ending
September 30, 2009.
Corporate Finance Group
Moody's Investors Service
Moody's rates Hexion's proposed 1.5 lien notes
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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