DBRS Confirms NOVA Chemicals Corporation at BBB (low), Stable Trend

DBRS Limited (DBRS) has today confirmed both the Issuer Rating and the Unsecured Notes & Debentures Rating of NOVA Chemicals Corporation (NOVA or the Company) at BBB (low) with Stable trends, based on the implied support provided by its parent, International Petroleum Investment Company (IPIC), which is wholly owned by the Government of the Emirate of Abu Dhabi. DBRS notes that certain of NOVA’s credit metrics have weakened modestly but remain above the current rating range. However, NOVA needs to maintain a stronger financial profile through a cycle to compensate for its relatively weak business profile before achieving the current ratings on a stand-alone basis.

NOVA’s operating performance in 2015 was weaker compared to 2014. Revenues fell on lower selling prices of ethylene, polyethylene and co-products, as well as reduced co-product sales, offset somewhat by the cost benefits associated with the lower natural gas liquid feedstock prices and increased volumes. A drop in financing charges more than offset a higher tax expense.

While dividends normalized in 2015, capital spending remains elevated, although at a slightly lower level, due to the Company’s NOVA 2020 strategic growth plan. As a result, the Company returned to a free cash flow positive position, which led cash to increase to $942 million. The overall liquidity position of NOVA remains strong at year-end 2015, as in addition to the cash, the Company had mainly undrawn credit facilities of $550 million and minimal debt repayments due until 2023.

While NOVA’s cost advantage versus crude oil-based (naphtha) producers remains intact, the continued low cost of global oil has made these competitors more cost-competitive. As a result, DBRS expects some near-term earnings and cash flow weakening due to pricing pressures. NOVA 2020 capital spending is expected to remain elevated and normalized dividends are expected to continue, with a special dividend expected for 2016, and DBRS anticipates free cash flow deficits. DBRS expects the Company to use its substantial cash reserves and available credit facilities to finance these deficits. DBRS also expects NOVA’s credit metrics to weaken modestly in the medium term, yet remain above the current rating range.

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 applicable methodology is Rating Companies in the Industrial Products Industry, which can be found on our website under Methodologies.

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