U.S. markets open in 3 hours 39 minutes
  • S&P Futures

    3,397.50
    +4.00 (+0.12%)
     
  • Dow Futures

    27,576.00
    -5.00 (-0.02%)
     
  • Nasdaq Futures

    11,528.25
    +36.00 (+0.31%)
     
  • Russell 2000 Futures

    1,599.70
    -2.40 (-0.15%)
     
  • Crude Oil

    38.81
    +0.25 (+0.65%)
     
  • Gold

    1,901.70
    -4.00 (-0.21%)
     
  • Silver

    24.43
    +0.01 (+0.04%)
     
  • EUR/USD

    1.1819
    +0.0006 (+0.05%)
     
  • 10-Yr Bond

    0.8010
    0.0000 (0.00%)
     
  • Vix

    32.52
    +4.97 (+18.04%)
     
  • GBP/USD

    1.3017
    -0.0004 (-0.03%)
     
  • USD/JPY

    104.6110
    -0.2240 (-0.21%)
     
  • BTC-USD

    13,122.86
    +13.32 (+0.10%)
     
  • CMC Crypto 200

    261.09
    -2.32 (-0.88%)
     
  • FTSE 100

    5,782.20
    -9.81 (-0.17%)
     
  • Nikkei 225

    23,485.80
    -8.54 (-0.04%)
     

Dow Chemical Company (The) -- Moody's assigns Baa2 ratings to Dow's new notes; outlook stable

·15 mins read

Rating Action: Moody's assigns Baa2 ratings to Dow's new notes; outlook stable

Global Credit Research - 17 Aug 2020

New York, August 17, 2020 -- Moody's Investors Service, ("Moody's") has assigned Baa2 ratings to Dow Chemical Company (The)'s ("Dow") $2.0 billion issuance of senior unsecured notes due 2030 and 2050. Proceeds from the issuance are expected to be used to refinance a similar amount of existing debt, including its $1.25 billion Term Loan due 2023.

"Dow is taking advantage of the low interest rate environment to extend maturities and keep interest costs low," stated John Rogers, Senior Vice President at Moody's Investors Service. "Credit metrics are likely to remain very weak relative to 2019 despite the expectation for a substantial improvement in performance in the back half of the year from second quarter levels."

Assignments:

..Issuer: Dow Chemical Company (The)

....Senior Unsecured Regular Bond/Debenture, Assigned Baa2

RATINGS RATIONALE

Dow's Baa2 rating is supported by its size, operational and geographic diversity, vertical integration into key commodity petrochemicals, strong market positions in the construction, infrastructure and plastics packaging industries, and a low cost position in the commodity chemicals and polymers. The rating is tempered by a sizable dividend that constrains free cash flow and financial flexibility during a downturn. However, the credit profile incorporates the benefits of such a large company, including its ability to generate a substantial amount of cash from non-core asset divestitures and one-time items during a period of unusually weak profitability. The Baa2 rating assumes that oil prices get back to $50/bbl by 2023, ensuring that North American petrochemical producers have a more significant feedstock advantage.

During the first half of 2020, Dow faced significant headwinds as a result of the weakness in global industrial demand caused by the coronavirus outbreak. Lower commodity prices, reduced volumes, and the slump in oil prices caused by curtailed industrial activity led to a significant decline in the profitability in all of Dow's business segments. This weakness was exacerbated by significant operating capacity reductions to prevent a build-up of inventory and reduce pressure on selling prices.

While Moody's anticipates that Dow's credit metrics will be outside the expected range for the rating in 2020 and 2021, management's actions to reduce net debt, maintain solid free cash flow generation (working capital and capex reductions) and discontinuing share repurchases amid the downturn support the company's financial policies. More recently, higher polyethylene prices and increasing sales volumes as the economy slowly recovers are expected to lead to a substantial improvement in financial performance in the second half of the year, although metrics will remain significantly weaker than 2019 levels. Although Moody's expects Dow's metrics to improve in 2021, they will remain above the 2.5x-3.0x net leverage target on a rating agency adjusted basis.

Dow's excellent liquidity profile is supported by over $12 billion in available cash and committed liquidity, which includes a $3.7 billion in cash and $8.7 billion of committed credit facilities. Dow had full availability under its revolver and committed facilities as of June 30, 2020, and the company continues to maintain a solid liquidity position in the midst of the pandemic. Dow had $500 million of commercial paper outstanding as of June 30, 2020 and issued an additional $500 million subsequent to the reporting period.

The stable outlook reflects the expectation that management will take additional actions to move toward its targeted net leverage of 2.5x-3.0x by 2022; with net leverage declining to roughly 3.5x in 2021.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Net Debt/EBITDA falls sustainably toward 2.5x and Retained Cash Flow/Net Debt rises toward 25%. Dow's ratings could be downgraded if Net Debt/EBITDA remains above 3.0x and Retained Cash Flow/Net Debt remains below 20% for more than two to three years.

Moody's has not moved to a negative outlook on Dow as the company has been pro-active in generating cash and reducing net debt during the global pandemic. Additionally, financial performance is expected to improve significantly in 2021 along with the rest of the chemical industry.

ESG CONSIDERATIONS

Environmental, social, and governance considerations were not material to this rating action. However, Dow's credit profile incorporates elevated environmental risk due to the number of plant sites and the age of some of its largest manufacturing facilities. Dow's exposure to hazardous substances, waste materials, and greenhouse gas emissions adds to its above-average environmental risk. The company is exposed to social risks related to rising public scrutiny around single-use plastics and plastic waste that has fostered legislation that will significantly increase recycling and adversely impact demand for polyethylene and polypropylene. As a large public company, Dow's governance risks are low, especially given its relatively conservative and consistent financial policies supportive of its investment-grade rating. The 2020 suspension of share repurchases supports Dow's prudent financial policies during a downturn.

The Dow Chemical Company (Dow) is one of the largest chemical companies in the world, with annual revenues expected to remain above $40 billion. Dow has global leadership positions in a broad array of commodity and specialty chemicals/advanced materials, including ethylene, polyethylene, polyurethanes, acrylics and silicones. Dow was spun out from DowDuPont Inc. on April 1, 2019. As part of the spin off, Dow lost its agricultural seeds and chemicals business and a number of other specialty chemical and polymer businesses.

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating have been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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 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

© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.

MOODY'S CREDIT RATINGS,ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. 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 or in preparing its Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​​​​​