Fitch Rates NOVA Chemicals' $700MM Senior Notes 'B+/RR4'

Fitch currently rates NOVA as follows:

--Issuer Default Rating (IDR) 'B+';

--Secured Revolver 'BB+/RR1';

--Series 'A' preferred 'BB+/RR1';

--Senior Unsecured Revolver 'B+/RR4';

--Senior Unsecured Notes 'B+/RR4'.

The Rating Outlook is Stable.

The ratings reflect improvements to NOVA's credit profile following the closing of its acquisition by Abu Dhabi-based International Petroleum Investment Company, IPIC (IDR 'AA'/F1+); the still heavy debt-load carried by the company, as well as significant near-term maturity schedule; and lingering weakness in global petrochemical markets, driven by the recession.

NOVA has received tangible credit support from IPIC of $350 million and a $200 million equity injection. In addition, the company has secured covenant relief from lenders for all of its facilities until 2010. Previous covenants, including the restrictive net-debt-to-cash-flow covenant, have now been replaced by a minimum EBITDA test. The revised covenant requires NOVA to have positive EBITDA for the quarter ending June 30, 2009, and a minimum of $50 million EBITDA for the subsequent quarters. In the second quarter of 2009, NOVA reported EBITDA of $16 million and Adjusted EBITDA of $51 million after adjusting for $34 million restructuring charges and $1 million mark-to-market feedstock derivative losses. Fitch expects NOVA to remain in compliance with the minimum EBITDA covenant requirement.

Post-closing of the acquisition, NOVA had approximately $1.7 billion in debt on its balance sheet. Refinancing requirements remain steep, with maturities of $1.2 billion due in 2010. As of Sept. 30, 2009, these maturities include aggregated outstanding $497 million under the company's five revolving credit facilities totaling $765 million. The company also has a $130 million Accounts Receivables securitization program. All of these facilities will mature in the first quarter of 2010. Additionally, a $75 million total return swap will terminate on March 31, 2010 and CAD250 million will mature in August 2010.

In addition to the notes issuances, NOVA is currently in discussion with its banks to restructure its credit facilities. The company intends to replace its core $350 million senior secured revolver with a new senior secured facility, to replace or extend its Accounts Receivables securitization program and to extend the maturities of certain bilateral facilities. NOVA intends to terminate its $150 million senior unsecured revolver.

At June 30, 2009, NOVA's liquidity was $273 million, down significantly from the $573 million reported at the end of last year, consisting of $73 million cash on hand, an aggregated $171 million available under its five revolving credit facilities and $29 million available under its Accounts Receivables Securitization program.

Fitch's Recovery Rating (RR) of '1' on NOVA's secured revolving credit facility and preferred notes issuance indicate outstanding recovery prospects (91%-100%) for holders of these debt issues. These issuances are secured by the net book value of petrochemical plants in Canada, including NOVA's interest in the E1, E2 and E3 crackers in Joffre, Alberta. Note that the preferred notes share in this security on a pari passu basis. The Recovery Rating for NOVA's senior unsecured notes and revolver of '4' indicates average recovery prospects (31%-50%) for holders of these debt issues. Fitch applied a liquidation value analysis for these RRs.

Nova Chemicals is a multinational producer of commodity chemicals including styrene, polystyrene, ethylene and polyethylene. A majority of its assets are located in Canada and the U.S. In North America, Nova is the leading producer of styrene and expandable polystyrene and the fifth largest ethylene producer. The company reports three business segments: olefins/polyolefins, performance styrenics, and the INEOS-NOVA Joint Venture. In the first eight months of 2009, NOVA had net sales of approximately $2.6 billion and Adjusted EBITDA of $85 million. Polyethylene and styrenic polymers are used in rigid and flexible packaging, containers, plastic bags, plastic pipe, electronic appliances, housing and automotive components and consumer goods.

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SOURCE: Fitch Ratings

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