Fitch Rates Eastman Chemical's Senior Notes 'BBB'

CHICAGO--()--Fitch Ratings has assigned a rating of 'BBB' to Eastman Chemical's (Eastman) issuance of senior unsecured notes due 2019, 2024 and 2044. A full list of Eastman's rating follow at the end of this release. Eastman's Rating Outlook is Stable.

The senior notes will be used to help finance the $3 billion acquisition of Taminco Corporation when it closes later this year. Fitch affirmed Eastman's ratings on September 11 following its announcement that it had reached an agreement to purchase Taminco.

KEY RATING DRIVERS

Eastman's ratings are based upon expectations of pro-forma debt/EBITDA declining and strong free cash flow after capital expenditures and dividends post-closing of the transaction. Pro-forma debt/EBITDA is expected to rise to approximately 3 times immediately after closing of the Taminco acquisition and should be trending down in 2015 and 2016 from debt repayment from free cash flow generation. Free cash flow after capital spending and dividends is expected to be approximately $1.5 billion over the next two years.

The ratings reflect Eastman's diversity of chemical products, strong market positions in key end user markets, vertical integration of production along its acetyl, polyester and olefin product chains, access to low cost North American feedstocks and consistent operating results coupled with relatively conservative financial strategy.

THE ACQUISITION

Taminco is a global specialty chemical company producing alkylamines for various end market uses including Agriculture (crop protection), Personal & Home Care, Water Treatment, Animal Nutrition and Energy. The acquisition is for approximately $3 billion inclusive of assumed debt. As a result of the transaction, Eastman's balance sheet debt is expected to increase to approximately $7.6 billion from nearly $4.6 billion as of Sept. 30, 2014.

FCF and EXPECTATIONS

Eastman's debt/EBITDA was approximately 2 times as of 9/30/14 and it is Fitch's expectation that debt/EBITDA for Eastman will decrease to 2.0 - 2.5x by the end of 2016 primarily driven by debt reduction from free cash flow (FCF). As stated above, FCF after capital expenditures and dividends is expected to be approximately $1.5 billion over the course of 2015 and 2016. As a point of comparison, Eastman's stand-alone FCF in 2012 and 2013 was a combined $1.14 billion after capital expenditures and dividends.

LIQUIDITY

Liquidity is provided by an upsized and undrawn $1.25 billion unsecured credit facility (due Oct. 2019) and a $250 A/R securitization facility. The credit facility backstops Eastman's commercial paper program. The main financial covenant of the revolver is a debt/EBITDA limit of 4.0x stepping down to 3.75x on Dec. 31, 2015 and 3.5x on Dec. 31, 2016 and thereafter. Near-to intermediate term maturities are $250 million due in December of 2015, $1 billion due June 2017 and $160 million due November 2018.

RATING SENSITIVITIES

Positive: Future developments that could lead to positive rating actions include:

--Total debt to EBITDA of 1.5x on a mid-cycle basis in combination with maintenance of annual FCF over $500 million.

Negative: Future developments that could lead to negative rating actions include:

--Debt/EBITDA above 2.5x on a sustained basis;

--Sustained negative FCF leading to incremental borrowings;

--Leveraging events: debt financed share repurchases, additional leveraged acquisitions, etc.;

--A major operational issue or global recession which pushes EBITDA lower on a sustained basis and is not offset by adjustments in Eastman's cost structure.

Fitch rates Eastman as follows:

--Long-term Issuer Default Rating (IDR) 'BBB';

--Senior unsecured revolving credit facility 'BBB';

--Senior unsecured notes/debentures 'BBB';

--Term Loan A 'BBB';

--Short-term IDR 'F2';

--Commercial Paper 'F2'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Rating Chemical Companies' (August 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating Chemical Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682313

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=919516

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Sean T. Sexton, CFA
Managing Director
+1-312-368-3130
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Mark C. Sadeghian, CFA
Senior Director
+1-312-368-2090
or
Committee Chairperson
Eric C. Ause, CFA
Senior Director
+1-312-606-2302
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Sean T. Sexton, CFA
Managing Director
+1-312-368-3130
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Mark C. Sadeghian, CFA
Senior Director
+1-312-368-2090
or
Committee Chairperson
Eric C. Ause, CFA
Senior Director
+1-312-606-2302
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com