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A 100bp Question

21 June 2019 by jbchevrel

Nova Chemicals Corp (NCX) produces plastics and other chemical polymers (incl. ethylene, polyethylene, etc) with various industrial applications (incl. packaging, construction, etc). Headquartered in Canada, it serves clients in both Canada and the US. Today its 5y CDS notably tightened by -100bp to 120bp, making it the best performing name in the CDX HY s32 index, almost halving the cost of 5y protection. The 10y range of the 5y has roughly been [40,600] counting after the huge selloff of 2009 on that credit, when Abu Dhabi’s sovereign wealth fund Mudabala stepped in to rescue NCX from restructuring due to its large amount of debt. Today’s tightening (talking London closes) came after the JV Chevron-Phillips offered to acquire NCX for >$15 B including debt. NCX isn’t doing super well, so far this year. Indeed, in Q1, NCX had reported (in May) revenues -17% YoY and EBITDA -39% YoY, both missing the Street’s estimates. With liquidity of $2.8B (incl. cash $0.9B), leverage then came up to 1.8x. NCX had been required by a court ruling to make a $1B payment to The Dow Chemical Company (DOW) related to damages in the 2001-2012 timeframe. Mubadala, still the owner of NCX, had been reportedly wanting to attain IG rating on NCX. That was challenging, because of NCX’s decision to increase secured debt to boost liquidity ahead of the pending DOW litigation payments, plus CapEx, plus dividends, etc... So then Mubadala has been exploring a sale since this Q1 (Bloomberg, March). The deal may seem early stage, as, according to the anonymous sources cited by yesterday’s Reuters note, there is no certainty that Mubadala will accept the offer from Chevron-Phillips, another bidder may also emerge, and/or Mubadala may decide to keep a stake in NCX.