DBRS Places NOVA Chemicals Corporation Under Review with Developing implications

DBRS Limited (DBRS) has today placed the BBB (low) Issuer Rating and Unsecured Notes & Debentures rating of NOVA Chemicals Corporation (NOVA or the Company) Under Review with Developing Implications following Nova’s announcement that it intends to buy a majority interest in a U.S. olephins plant.

NOVA has agreed to acquire Williams Partners L.P.’s (Williams) 88.46% ownership interest in the Geismar, Louisiana, olefins plant, approximately 525 acres of undeveloped land adjacent to the plant, and Williams’ interest in the Ethylene Trading Hub in Mont Belvieu, Texas. NOVA will pay USD 2.1 billion for the business, subject to working capital adjustments. Upon closing, the Company and Williams will enter into a long-term arrangement for Williams to transport and supply ethane feedstock to support the plant. The plant produces approximately 1.95 billion pounds of ethylene annually and is located in the U.S. Gulf Coast region. The transaction is expected to close in summer 2017.

The debt-financed acquisition would increase pro forma debt to approximately $3.1 billion from $1.0 billion as at December 31, 2016; however, the acquisition of the fully functioning plant would immediately contribute to earnings and cash flows. Moreover, NOVA currently carries only modest leverage. That said, upon closing, the additional leverage would materially weaken the Company’s financial profile. The impact on the business risk profile is likely to be modestly positive as NOVA adds to its overall scale with a modernized, lower-cost facility with access to lower-cost U.S. shale gas feedstock and diversifies its asset base away from its current primary locations in Alberta and Ontario, Canada.

As part of the review, DBRS will assess the Company’s prospects for reducing leverage going forward and will determine more precisely what the acquisition’s overall business risk impact is likely to be. DBRS notes NOVA’s continued implied support from its parent, International Petroleum Investment Company, which is wholly owned by the Government of the Emirate of Abu Dhabi, but will reassess the strength of this implied support. DBRS also notes that today’s acquisition announcement is consistent with the Company’s strategic goal of firmly establishing a presence along the U.S Gulf Coast.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Industrial Products Industry (February 2017) and DBRS Criteria: Guarantees and Other Forms of Support (February 2017), which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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