TEXT-Fitch rates Westlake Chemical proposed notes
July 10 - Fitch Ratings has assigned a 'BBB-' rating to Westlake Chemical Corporation's (Westlake; NYSE: WLK) proposed $250 million 10-year notes. The Rating Outlook is Stable. A complete list of ratings follows at the end of this press release. The notes will be senior unsecured obligations of Westlake, guaranteed by material subsidiaries and will rank equally with the company's other senior unsecured debt, totaling $754 million as of March 31, 2012. The company had a total of $765 million of long-term debt at March 31, 2012. Westlake plans to use the net proceeds and cash on hand to fund its redemption of its $250 million 6 5/8% Notes due 2016 and the premium associated with the redemption. The notes are being issued under a supplemental indenture to the company's original indenture dated Jan. 1, 2006. Key covenants included restrictions on secured debt, sale and leaseback transactions, and merger and asset sales. There are no financial covenants. The notes will have make whole call provisions as well as a put option upon a change of control and a downgrade of the notes below investment grade. Fitch affirmed Westlake's ratings on May 18, 2012. The ratings reflect the company's strong liquidity, conservative capital structure, and solid free cash flow generation. Westlake's operations benefit from low-cost ethane based feedstock production and tight polyethylene supply as a result of capacity shutdowns during the recession and recovering demand. Roughly 4% of North American polyethylene capacity was shuttered from 2008 through 2010. Plans to increase Westlake's backward integration should reduce exposure to cost pressures. Fitch expects the vinyls business to remain challenged by excess capacity and weakness in the construction market. For 2012, Fitch expects Westlake to generate at least $650 million in EBITDA and to burn up to $110 million in cash given the capital spending guidance of $400 million. Fitch expects Westlake to return to free cash flow generation thereafter as current projects are completed. Westlake's total debt to latest 12 months (LTM) EBITDA as of March 31, 2012, was 1.3 times. The company has significant liquidity with $895 million of cash and $384 million available after utilization for letters of credit under its $400 million asset-based lending (ABL) revolving credit facility maturing September 2016. The facility has a 1:1 fixed charges covenant at such times that the borrowing availability is less than the greater of (1) 12.5% of commitments and (2) $50 million. The company has no short-term debt maturities. After redeeming its 2016 notes, the company's next maturity will be the proposed notes due in 2022. The Stable Outlook reflects Fitch's expectation that Westlake will generate positive free cash flow on average against a backdrop of benign industry conditions. Fitch would consider a negative rating action should there be a substantial change in the company's strong financial profile whether the result of a sustained cyclical downturn, a sizable leveraged acquisition, or a substantial recapitalization. Fitch would consider a positive rating action if Westlake meaningfully increases its geographic and product diversification while maintaining good margins, consistent free cash flow generation and strong financial profile. Fitch currently rates Westlake as follows: --Issuer Default Rating (IDR) 'BBB-'; --Senior secured ABL facility 'BBB'; --Senior unsecured notes 'BBB-'. The Rating Outlook is Stable.
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