Fitch rates Eastman notes BBB

Fitch Ratings said it assigned a BBB rating to Eastman Chemical Co.'s proposed issuance of five-, 10- and 30-year notes.

The outlook is negative.

Proceeds will be used to fund a portion of the cash purchase price of its acquisition of Solutia Inc. for about $4.7 billion in enterprise value, including the acquisition of Solutia's $1.34 billion of outstanding debt.

If the acquisition of Solutia is not completed by Oct. 31, Eastman will redeem the notes at 101 plus accrued interest.

On a pro forma basis immediately following the transaction, debt to EBITDA will rise to about 3.0 times versus 1.3x on a standalone basis as of March 31, pushing credit metrics from levels that were strong for the BBB category to levels that are weak for the category, according to the agency.

Eastman's standalone ratings are supported by the company's portfolio of differentiated chemical products, solid pricing power in key end user markets, good vertical integration of production streams, economies of scale at its focused production site and access to low-cost light feedstocks in North America, the agency said.

Eastman's ratings are also supported by the company's ongoing portfolio high-grading, with shedding of lower margin and commoditized businesses and expansions into higher margin businesses, Fitch noted.

Ratings are balanced by the company's size, cash outflows for expected pension contributions, volatility in raw materials and energy costs, periodically high working capital requirements, an uncertain macroeconomic environment, and the integration risk and higher leverage stemming from the proposed acquisition, the agency said.

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