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Global Credit Research - 15 Jun 2010
Approximately $100 million of newly issued debt
New York, June 15, 2010 -- Moody's Investors Service upgraded the Corporate Family Rating (CFR) of
Westlake Chemical Corporation (Westlake) to Ba1 from Ba2 due to better
than expected performance in 2009 and the expectation that credit metrics
will improve in 2010, largely due to better than expected margins
in the first half of the year. Moody's also assigned a Ba2
rating to the $100 million Louisiana Local Government Environmental
Facilities and Community Development Authority ("LCDA") Revenue Bonds
due August 2029, which are guaranteed by Westlake. The ratings
outlook is stable.
Moody's also raised the ratings for Westlake's $250
million guaranteed senior unsecured notes due 2016 and $250 million
LCDA Revenue Bonds due 2032 to Ba2. The LGD point estimates for
these notes were also revised.
"Westlake continues to perform well despite exposure to extremely
volatile commodity plastics and the rating could move higher if further
investments by the oil and gas industry increases the availability,
and lowers the relative cost of ethane on the Gulf Coast over the next
several years," commented John Rogers, Senior Vice President
The upgrade reflects better than expected performance in 2009 and in the
first half of 2010, with the expectation that 2010 and 2011 full
year EBITDA will remain above $200 million, despite the anticipation
of a global trough in ethylene and polyethylene in 2011, due to
new international capacity. Westlake's improved outlook is
largely due to the advantaged price of North American natural gas liquids
feedstocks relative to international naphtha or other crude oil-based
feedstocks over the next several years. This advantage should allow
Westlake and other North American producers to generate higher cash margins
in the coming trough than in the prior trough (2000/2001). The
upgrade also reflects Moody's expectation that management will be
guided by conservative fiscal policies, which include the pre funding
of any large capital expenditures and the maintenance of elevated cash
Westlake's Ba1 CFR reflects its strong liquidity, vertical integration,
disciplined investment policy, higher operating rates and less commoditized
downstream product portfolio (LDPE, Epolene and PVC pipe).
The ratings are tempered by its exposure to volatile feedstock and selling
prices, the capital required to build new ethylene or chlor alkali
capacity, limited product diversity, its size relative to
other commodity plastics producers (polyethylene and PVC), the regional
nature of its operations, the limited number and locations of its
commodity chemical facilities, and the worsening of global supply/demand
dynamics in ethylene and polyethylene over the next year.
The combination of its smaller size and substantial vertical integration
allows the company to maintain higher operating rates over the cycle than
many of its competitors. Westlake also benefits from its position
as the only fully back-integrated producer of PVC resins (produces
ethylene and chlorine) in North America, as well as its forward
integration into PVC fabricated products. which provide a captive
outlet for its resins. Furthermore, Westlake's polyethylene
(PE) assets are skewed toward LDPE (60%), which usually generates
higher margins, especially in the trough of the cycle.
The stable outlook reflects Moody's belief that Westlake's financial metrics
will remain at levels near investment grade levels over the next two years,
largely due to the benefit from low natural gas (energy costs) and related
feedstock prices, as well as a fairly robust export market for these
commodities, especially South America.
..Westlake Chemical Corporation
.Corporate Family Rating to Ba1 from Ba2
.Probability of Default Rating to Ba1 from Ba2
.6.625% Guaranteed senior unsecured notes,
$250 million due 2016 to Ba2 (LGD4, 68%) from Ba3
..Louisiana Local Government Environmental Facilities and
Community Development Authority
.6.75% Senior unsecured tax-exempt
revenue bonds, $250 million due 2032 to Ba2 (LGD4,
68%) from Ba3
..Louisiana Local Government Environmental Facilities and
Community Development Authority
. Series 2009A Senior unsecured tax-exempt revenue
bonds, $100 million due 2029, Ba2 (LGD4, 68%)
Moody's last rating action for Westlake was on November 8, 2007,
when Moody's assigned a Ba3 rating to the $250 million LCDA Revenue
Bonds (Westlake Chemical Corporation Projects) Series 2007.
The principal methodology used in rating Westlake was Moody's Global Chemical
Industry rating methodology, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab (December 2009; document #121271). 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 website.
Westlake Chemical Corporation (Westlake), headquartered in Houston,
TX, is a producer of commodity petrochemicals (ethylene and styrene),
plastics (polyvinyl chloride and polyethylene), and fabricated products
(pipes, films and profiles). Revenues were $2.6
billion for the LTM ended March 31, 2010.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Corporate Finance Group
Moody's Investors Service
Moody's upgrades Westlake Chemical to Ba1; rates new revenue bonds Ba2
No Related Data.
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