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Rating Action:

Moody's rates NOVA's new notes at Ba2

Global Credit Research - 19 May 2017

New York, May 19, 2017 -- Moody's Investors Service, ("Moody's") assigned Ba2 ratings to $2.1 billion of 7 and 10 year senior unsecured notes to be issued by NOVA Chemicals Corporation (Ba1 CFR). Proceeds from the new debt will be used to finance the acquisition of an ethylene plant in Geismar, Louisiana and related assets from Williams Partners L.P. (Williams, Baa3 stable) for $2.1 billion. This transaction is expected to close in the summer of 2017 once all customary regulatory approvals are received. The outlook is stable.

"This acquisition diversifies NOVA's large Canadian asset base and provides the ability to expand operations on the Gulf Coast over time, while keeping leverage fairly low," stated Joe Princiotta, VP and Senior Credit officer at Moody's.

Rating Assigned:

..Issuer: NOVA Chemicals Corporation

....Senior Unsecured Notes due 2024 at Ba2 (LGD4)

....Senior Unsecured Notes due 2027 at Ba2 (LGD4)

RATINGS RATIONALE

The Ba2 rating on the new unsecured notes is one notch below the Ba1 Corporate Family Rating (CFR), reflecting their subordination to the secured credit facility. NOVA's Ba1 CFR is supported by relative low net leverage and low cost assets in Joffre and Geismar, offset by its relative narrow commodity product portfolio and the expected reduction in ethylene chain margins over the next two years.

The assets to be acquired consist of an 88.46% ownership interest in Williams's Geismar, Louisiana-based ethylene plant and Williams Ethylene Trading Hub business in Mont Belvieu, Texas. This transaction will increase debt to roughly $3.1 billion. However, the balance sheet has been under-levered so the leverage increases to a still comfortable level of 2.4x, including Moody's standard adjustments. Moreover, with its elevated cash balance, net leverage is only 1.7x.

The acquisition provides a modest but immediate source of diversification to NOVA's historically narrow asset profile consisting of its two large facilities in Joffre and Corunna, with the majority of NOVA's EBITDA historically concentrated at Joffre. Moreover, the acquired cracker provides a foothold into the important US Gulf region as well as the potential for future investment in polyethylene and possibly an additional ethylene cracker longer term. The Williams cracker was originally built in 1968, and despite the plant's age and storied history, it underwent considerable refurbishment and expansion from 2013-2015, which modernized much of its infrastructure and upgraded key ethylene process equipment.

The acquisition of the Williams cracker comes on the heels of the recent announcement that NOVA and sister company Borealis AG had entered into a preliminary agreement to form a joint venture with Total Petrochemicals and Refining USA, Inc. ("Total") to construct a 1.0 million ton per year (TPY) ethylene cracker in Port Arthur, Texas and a 650 million TPY polyethylene (PE) plant in Bayport, Texas. Costs to construct the project over the next four years would be shared by the partners, with start-up slated for late 2020. A final investment decision is expected in late 2017.

If NOVA proceeds with the JV project, combined with near-term cyclical weakness, Moody's would expect NOVA's free cash flow to be limited or negative, at least for the next two years. Moody's expects NOVA's earnings to come under pressure as new ethylene capacity in the US reduces operating rates and impacts margins for North American ethylene and PE producers, including NOVA. However, the impending trough is not expected to be as severe as historical troughs and margins are expected to bottom, probably in 2018 or 2019, at relatively healthy levels given the sustained NA feedstock advantage, Moody's added.

NOVA's stable outlook reflects its relatively conservative balance sheet tempered by the expected decline in ethylene margins though 2019 as well as the expected increase in investment necessary to fund the new venture with Total and Borealis. Moody's would consider raising NOVA's rating to Baa3 if NOVA exhibits reliable performance in operating the Williams ethylene cracker, continuing adherence to conservative balance sheet policies and strong liquidity, a resolution of the patent and E3 litigation with Dow Chemical that does not result in a significant increase in leverage, and evidence that the JV project, if pursued, has a capital expenditure profile that does not meaningfully deplete cash balances during the industry trough. Moody's would consider a downgrade if leverage is expected to sustainably exceed 3.0x, if free cash flow is negative for multiple quarters, or if liquidity is materially impaired as a result of the ethylene cycle or aggressive capital spending.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

NOVA Chemicals Corporation (NOVA), headquartered in Calgary, Alberta (Canada), is a producer of ethylene, polyethylene plastics, and expandable polystyrene. The company's plastics and chemicals are used in a variety of applications including rigid and flexible packaging, containers, building and construction materials, housewares and other industrial consumer goods. NOVA is owned by Mubadala Investment Company of Abu Dhabi; it generated over $3.5 billion in revenues in 2016.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joseph Princiotta
VP - Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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