Fitch Downgrades NOVA Chemicals' IDR to 'B-'; Remains on Watch Negative

Business Wire, Feb 2, 2009

CHICAGO -- Fitch Ratings has downgraded the Issuer Default Rating (IDR) of NOVA Chemicals Corporation (NOVA) to 'B-' from 'BB-'. Additionally, Fitch has downgraded the senior secured revolver, unsecured revolver and notes, and preferred shares to 'BB-' from 'BB '. The company's ratings remain on Rating Watch Negative. (A complete list of ratings downgraded follows this release.)

The downgrade is based on the news that the NOVA's bank group has imposed new conditions on the use of the company's main $350 million secured revolver. While NOVA's bank group unanimously voted to provide covenant relief for the company in the first half of 2009, they have also required NOVA to come up with $200 million in new financing over the first half of the year, comprised of a $100 million financing requirement by Feb. 28, 2009 and a second $100 million financing requirement by June 1, 2009. These financing requirements create considerable new hurdles for the company given the difficulties of locating new financing sources in today's high-yield chemicals markets. They also suggest that the company's bank group may be less willing to show forbearance than Fitch had previously considered. Fitch notes that the company's deeply depressed stock price (with equity market capitalization of less than $200 million at Jan. 30, 2009), makes equity financing a very dilutive option for the company at this point.

NOVA has significant maturities due in 2009. Current liquidity remains strong, with total availability across all of NOVA's facilities at Dec. 31, 2008 of $573 million, at the top end of the company's preferred liquidity range, versus $376 million in maturities due this year - including $250 million of 7.4% notes due in April and $126 million in preferreds due in October.

To date, the company has retired $125 million of 7.25% 2028 notes putable by bondholders in August 2008 and rolled over $126 million in preferreds (net of restricted cash) to October 2009. At Sept. 30, 2008, the company had a total of five separate revolvers totaling $683 million and a $300 million A/R securitization facility. Its largest secured revolver ($350 million) matures in June 2010. Maturities across other revolvers vary but generally range from 2010-2013.

Fitch's Recovery Rating (RR) of '1' on NOVA's secured revolving credit facility, unsecured notes and revolver, and preferred issuance indicate outstanding (90%-100%) recovery prospects for holders of these debt issues. Fitch applied a liquidation value analysis for these RRs. The high recovery value for these issues reflects the fact that liquidity stress is the primary driver of the current rating, and asset coverage remains strong.

Nova Chemicals is a multinational producer of commodity chemicals including styrene, polystyrene, ethylene and polyethylene with approximately 3,300 full-time employees. 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 2007, the U.S. accounted for 43% of sales, Canada for 35%, Europe and rest of the world for 22%. 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. Exports to Asia are enabled in part by low-cost back-haul shipping economics from Western Canada.

Fitch has downgraded the following ratings:

--IDR to 'B-' from 'BB-';

--Senior secured revolving credit facility to 'BB-/RR1' from 'BB ';

--Senior unsecured notes and revolving credit facilities to 'BB-/RR1' from 'BB ';

--Preferred shares to 'BB-/RR1' from 'BB '.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.