Moody's may cut Borden Chemical

Moody's Investors Service said it placed the ratings of Borden Chemical Inc. under review for possible downgrade.

Moody's said the review was prompted by the announcement that Apollo Management LP has signed a definitive agreement to acquire Borden for about $1.2 billion (estimated 8.4 times EBITDA multiple). The transaction is expected to close in third quarter 2004.

Ratings placed under review for downgrade include the $487 million of senior unsecured notes and debentures due 2016 through 2023 at B2, $34 million of senior unsecured industrial revenue bonds due 2009 at B2, the senior implied rating of B1, and the senior unsecured issuer rating of B2.

Moody's said the review will focus on Borden's pro forma capital structure with particular emphasis on contributed equity, pro forma credit metrics and liquidity, as well as Apollo's operating strategy for the company. The review will also examine the improving outlook for the company's end-markets, the intermediate-term outlook for key raw materials (methanol, phenol, urea and poly vinyl alcohol), and recent trends in volume growth and product pricing.

Existing bondholders have very little protection from a change of control or increased leverage. Borden's existing indentures significantly limit the terms under which the company would have to repurchase the debt or bondholders would have a put option, the agency noted.

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