TEXT-Fitch rates Dow Chemical's proposed notes 'BBB'

Tue Nov 6, 2012 4:51pm EST

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Nov 6 () - Fitch Ratings has assigned a 'BBB' rating to Dow Chemical
Company's (Dow) proposed $2.5 billion issuance of notes with 10 and 30
year maturities. The Rating Outlook is Stable. A complete list of ratings is
provided at the end of this release.

The notes will be senior unsecured obligations of Dow and will rank equally with
other senior unsecured obligations which comprise most of the company's $20.4
billion of debt as of Sept. 30, 2012. However, $4.7 billion of subsidiary
indebtedness would be structurally superior to the notes. Dow plans to use the
proceeds to repay debt and for general corporate purposes. The notes are being
issued under the company's indenture dated May 1, 2008. Key covenants include
restrictions on secured debt, restrictions on sale and leaseback transactions,
and mergers 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.

The ratings reflect Dow's position as the largest North American chemical
company with approximately $57 billion of revenues in the last 12 months (LTM)
ending Sept. 30, 2012, its highly integrated production streams, which result in
significant economies of scale and scope, and leading market positions in many
commodity and specialty chemicals segments. These ratings strengths are partly
offset by the moderately levered capital structure, following the Rohm and Haas
acquisition, and moderate cash flows impacted by significant working capital
requirements.

The ratings are constrained by moderate cash flows, particularly when considered
in relation to debt. LTM to Sept. 30, 2012, Dow's cash flow from operations
totaled $4.5 billion after Fitch calculated high negative working capital
changes of $2.6 billion. Free cash flow (LTM) was $289 million after $2.7
billion of capital expenditures and $1.6 billion of dividends including
preferreds.

Fitch expects the company to marginally improve operating cash flow generation
over the next several quarters, given longer-term favorable volume and margin
trends. Fitch also notes that the company has pulled back on capital
expenditures and will execute a restructuring program, which should improve cash
flow. However, a portion of the expected improvements will be offset by the
company's 28% dividend increase announced earlier this year and cash outlays
incurred related to the restructuring. This drives Fitch's expectation for Dow
being free cash flow neutral in 2012. Fitch expects Dow to generally produce
material positive FCF in future years.

Dow has announced multiple expansions of its North American ethylene and
propylene capacity in order to take advantage of low feedstock costs. These
expansions are expected to increase the company's capital expenditures over the
next few years. However, the risks are mitigated by opportunities in domestic
and export markets for Dow's downstream products, which likely offer good
margins and competitive advantages from low feedstock costs.

The Stable Outlook reflects Dow's robust liquidity. As of Sept. 30, 2012, Dow's
liquidity totaled $8.9 billion, consisting of $3.9 billion cash on hand and $5.0
billion available under its undrawn revolving credit facility. The facility is
governed by a debt to capital covenant maximum of 65%. The covenant is only
applicable, if more than $500 million are outstanding under the facility. The
revolver will expire in October 2016.

The company's robust liquidity makes upcoming debt maturities manageable. Dow
has maturities of $1.1 billion remaining in 2012, $0.7 billion in 2013, $2.4
billion in 2014, $1.5 billion in 2015, and $1.0 billion in 2016. Another risk
mitigant is the company's proven ability to execute sizeable capital markets
transactions to refinance debt as necessary.

Union Carbide is a wholly-owned subsidiary of Dow Chemical, and its rating is
based on the high degree of financial, legal and business integration into Dow's
operations. While the close integration would justify equalizing the rating, the
one notch rating difference reflects Union Carbide's still sizeable exposure to
asbestos litigation.

The rating of the Rohm and Haas' notes and debentures is based on the
unconditional and irrevocable guarantee from Dow Chemical.

WHAT COULD TRIGGER A RATING ACTION

Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--Material progress in deleveraging the balance sheet;
--Operating performance improvements which strengthen Dow's cash flow
generation.

Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--A return of adverse economic conditions for the chemical industry leading to
deteriorating sales and profits;
--Expectations for prolonged meaningful negative FCF.

Fitch currently rates Dow as follows:

Dow Chemical Company
--Long-term IDR 'BBB';
--Senior unsecured revolving credit facility 'BBB';
--Senior unsecured debt 'BBB';
--Short-term IDR 'F2';
--CP ratings 'F2'.

Dow Capital BV
--Long-term IDR 'BBB';
--Senior unsecured debt 'BBB'.

Union Carbide Corporation (Union Carbide)
--Long-term IDR 'BBB-';
--Senior unsecured debt 'BBB-'.

Rohm and Haas Company (Rohm and Haas)
--Senior unsecured debentures and notes guaranteed by Dow Chemical 'BBB'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Chemical Companies,' (May 13, 2010).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Chemical Companies
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