Huntsman continues cutting debt as it restructures, eyes eventual investment-grade profile

By Paul Deckelman

New York, Oct. 27 - Huntsman Corp. said Friday that it continued to slash away at its debt load in the recently completed third quarter, and has cut its overall net debt by fully one third since the chemical company's initial public offering two years ago.

And Huntsman, based in The Woodlands, Texas, told analysts on a conference call following the release of its numbers that it aims to continue major debt cutting, using the proceeds of asset sales as it sheds its less-profitable commodity petrochemicals business and reinvent itself as a manufacturer of higher-margin differentiated chemicals, less cyclical than the commodity chemicals business and less dependent on the volatile cost swings of the petroleum markets.

The company's founder and chairman, Jon M. Huntsman, said that the company "is currently experiencing a major restructuring program," including the recent sale of its European base chemicals and polymers operations to Saudi Basic Industries Corp., and its ongoing efforts to sell the United States arm of its commodity petrochemicals business. "Excellent progress was achieved in the third quarter to advance these goals and to permit Huntsman Corp. to be become the world's leading differentiated chemical company."

The company says that it is working with "multiple parties" on divesting the U.S. commodity chemicals assets, although it has not publicly identified any of them. Chairman Huntsman said that an announcement regarding the sale of those U.S. assets "will be made prior to the end of the year."

'Substantial' repayments

He said that sale of those businesses "will permit the company to repay substantial amounts of debt" - although he noted that Huntsman has already reduced its debt by $2 billion in just two years, "and with the proceeds from our upcoming divestitures, we expect to repay considerably more debt, and our credit statistic profile should be consistent with that of an investment-grade company."

Huntsman's corporate credit, and subsidiary Huntsman International LLC's bank debt and secured bonds are rated BB- by Standard & Poor's, while its unsecured bond debt is at B. The parent company's corporate family rating with Moody's Investors Service is B1, and its unsecured debt is at B2. Fitch Ratings does not rate Huntsman debt.

As of the end of the third quarter, Huntsman's total debt stood just under $4.326 billion, including $2.176 billion of senior credit facilities, $1.188 billion of subordinated notes, $450 million of senior unsecured notes, almost $294 million of secured notes and $216 million of other debt. Total cash, including restricted cash, was just under $246 million, for a net debt figure of $4.080 billion.

Interest costs down $12 million in Q3

Huntsman's chief financial officer, J. Kimo Esplin, said on the call that during the third quarter, the company had redeemed all $100 million of its outstanding senior floating-rate notes due 2011 - which carried an interest rate of 725 basis points over Libor - using borrowings under its expanded credit facility priced at Libor plus 175 bps.

The company also bought back $200 million of its 9 7/8% senior notes due 2009, and repaid $50 million of term loan B debt, using available liquidity. Esplin said that those refinancing activities will reduce Huntsman's annual interest costs by about $12 million.

As of Sept. 30, the company had total net debt - that is, total debt less cash - of $4.1 billion, a full one-third below the roughly $6 billion of net debt which Huntsman had at the end of 2004.

He said that the company expects to further reduce its debt by some $675 million by year-end, following completion of the Sabic transaction.

May refinance 10 1/8s

"We continue to be opportunistic in our approach to optimizing the composition and cost of our capital structure, while at the same time continuing to reduce the level of our debt," Esplin declared.

He said the company was considering "taking advantage of the continued strong conditions in the bond market," by refinancing a portion of its outstanding 10 1/8% senior subordinated notes due 2009, which "would allow us to substantially reduce our interest expense and push out the 2009 maturity by several years."

Esplin noted that Huntsman is slated to get total consideration from the Sabic deal of $826 million - $700 million in cash, plus the buyer's assumption of another $126 million in unfunded pension liabilities - "all in all, a very good transaction value for this business."

He said the deal would likely close by year-end, subject to receipt of necessary regulatory approvals, and said that the planned use of all of the cash proceeds of the deal would allow the company to redeem the remaining $250 million of outstanding 9 7/8% 2009 notes, with the balance to be used to repay a portion of Huntsman's credit facilities.

Cutting debt, capex

With those additional debt reductions on top of the debt the company has already taken out, he said, Huntsman's interest expense should be reduced by about $55 million per year.

Huntsman's finances should further be helped by Sabic's assuming the costs of completing a new low-density polyethylene plant which the former company has been building in Wilton, in the United Kingdom, on which it has already spent some $200 million. Sabic's assumption of the remaining costs will reduce Huntsman's 2007 capital spending needs by over $125 million, Esplin said.

During the third quarter, Huntsman posted a net loss of $83.3 million (36 cents per share), widening out from year-earlier red ink of $29.9 million (14 cents per share). The loss was primarily due to charges related to the sale of the European petrochemicals business. Excluding the impact of discontinued operations and other charges, adjusted net income from continuing operations was $87.3 million (37 cents per share), down slightly from $89.7 million (38 cents per share).

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