CHICAGO--(BUSINESS WIRE)--Trading conditions support stable operating profiles as rated North American chemical issuers have solid financial profiles and robust liquidity, according to Fitch Ratings. As such, we have both a stable rating outlook as well as a stable sector outlook for 2015. Still, activist investor activity and overall shareholder-friendly actions, as well as a prolonged decline in oil prices, could pressure the sector going forward.
Issuers tend to generate healthy operating cash flows, which had been accumulating following the global financial crisis to support liquidity and acquisition strategies. More recently, activist shareholders are looking for a return of capital and, in some cases, recapitalization or break up. Against this, chemical producers seek to keep strong liquidity and flexible capital structures given the value of these to venders, off-takers, and parties approving permitting and reclamation.
Many chemical issuers have sizable share repurchase programs, and in the first nine months of 2014, share repurchases aggregated $17.1 billion for North American, publicly Fitch-rated chemicals companies. Fitch expects that share repurchases will drop to about $5 billion in 2015, but remain a credit consideration going forward given solid free cash flow, asset dispositions and the prospects for continued low interest rates.
Ethylene is priced off of Brent crude oil and a secular decline reduces the advantage of U.S. producers using light feed stocks. However, non-integrated manufacturers of coatings, materials and composite should benefit from low oil prices. Producers of petrochemical intermediates, methanol and industrial gases are more modestly leveraged to energy prices.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Applicable Criteria and Related Research: 2015 Outlook: North American Chemicals (Strong Domestic Growth)