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Announcement:

Moody's says DuPont, Chemours and Corteva PFAS liability cost sharing MOU and Ohio MDL settlement will have no impact on any ratings or outlooks

25 Jan 2021

New York, January 25, 2021 -- Moody's Investors Service ("Moody's") stated that the memorandum of understanding ("MOU") regarding the cost sharing of potential future PFAS liabilities between DuPont de Nemours, Inc. ("DuPont"; Baa1 stable), E.I. du Pont de Nemours and Company ("Corteva"; A3 stable) and The Chemours Company ("Chemours"; Ba3 negative) that provides greater certainty over the cash outflows related to these liabilities will not have an impact on ratings or outlooks at this time at any of the three companies. This agreement is a credit positive for Chemours and a modest credit negative for both DuPont and Corteva as cash outflows related to these liabilities will be easily manageable within expected free cash flows. The settlement of the Ohio Multi-District Litigation ("MDL"), which is also included in the MOU, for approximately $83 million (excludes the Abbott claim, which is under appeal) is also a positive for all three companies.

Moody's views the agreement as favorable to Chemours, particularly in the earlier years of the agreement period, as it shifts the legal responsibility for any PFAS liability, including but not limited to settlements, defense costs and remediation expenses from 100% Chemours to 50% within the next 20 years or until the $4.0 billion is spent. This reduces cash demands on Chemours related to these liabilities in the near term, and could also allow ample time for Chemours to further strengthen its financial profile in anticipation of a worse case scenarios in PFAS litigation where the $4.0 billion amount is exhausted in future years.

Despite the benefits of this MOU, the outlook on Chemours' ratings remains negative, reflecting Chemours' remaining $2.0 billion share of this $4.0 billion agreement and its potential exposure to future amounts above this level, as well as the continuing case load growth, the unknown ultimate scale of the PFAS liability and the uncertain pace of incurring litigation costs.

Moody's would consider stabilizing or upgrading Chemours ratings if there's better clarity on the timing and scale of litigation related costs, and if Chemours significantly improves is adjusted gross debt/ EBITDA leverage, which stood at 4.8x at September 30, 2020 on an LTM basis. Moody's would consider stabilizing or upgrading the ratings if gross adjusted Debt/EBITDA were sustained below 3.5x and RCF/Debt remained above 20%, both on a sustained basis.

Moody's would consider a downgrade if the pace of litigation related costs indicates the $4.0 billion ceiling in the agreement will be pierced, if NRD or other cases grow significantly, or it appears Chemours will face liabilities related to the growing firefighting foam cases. A downgrade would also be considered if cash balances and liquidity were to deteriorate, if Debt/EBITDA were to exceed the 4.5x range, or if RCF/Debt falls to single digits, on a sustained basis.

Moody's views the impact on both DuPont and Corteva as modest negatives in that it creates a contractual liability of up to $2 billion that didn't exist prior to the agreement. However, these liabilities, roughly $630 million for Corteva and $1.37 billion for DuPont, are not substantial within the context of their annual or cumulative cash flows over multiple years, and are not likely to alter their strategic efforts or financial flexibility. Over the longer term, however, and under stress scenarios, where the total PFAS liability rises meaningfully above $4.0 billion, Moody's believes that Corteva and DuPont will continue take actions to prevent Chemours from becoming financially distressed, which shields these two companies from direct responsibility for potentially burdensome future liabilities.

The MOU requires that the parties share potential future PFAS liabilities -- 50% by Chemours and 50% by both Dupont and Corteva. This arrangement terminates upon the earlier of $4.0 billion in expenditures or 20 years. Furthermore, the MOU sets up a $1 billion escrow account to fund future large PFAS liabilities (i.e., in the event of third party settlements above $125 million in any of the first five years, above $200 million in years six through ten and for any cost or expenses thereafter). Additionally, if the balance of this escrow account falls below $700 million by December 31, 2028, the companies will make additional annual contributions over the following five or six years to cover the difference between the balance at the end of 2028 and $700 million. If PFAS liabilities are not covered by the escrow fund, the expenses are shared by the companies on the same basis - 50% by Chemours and 50% by DuPont and Corteva. All qualified expenditures count toward the $4.0 billion limit. For DuPont and Corteva their share of the funding will align with the previously agreed 71%/ 29% cost sharing agreement, respectively. If at some point in the future, liability costs were to exceed $4.0 billion, or extend beyond the 20 year period, all additional costs would be the responsibility of Chemours under its amended 2015 separation agreement. The Ohio MDL payment is not part of this escrow arrangement and will be funded roughly equally by all three companies.

These three companies expect to negotiate a definitive agreement by February 28, 2021 that is consistent with this MOU and lays out additional details on how and when payments to cover future liabilities will be made. This MOU also resolves all ongoing litigation between the parties and avoids the current arbitration process.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

John Rogers
Senior Vice President
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

Joseph Princiotta
Senior Vice President
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn B. Eckert
Associate Managing Director
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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