NOVA Chemicals plans to repay $300 million to $400 million of debt, extend preferred shares

By Jennifer Lanning Drey

Portland, Ore., July 24 - NOVA Chemicals Corp. plans to reduce debt by between $300 million and $400 million in the next 12 months, while maintaining liquidity above $450 million, NOVA chief executive officer Jeffrey Lipton said Thursday during the company's second-quarter earnings conference call.

"As we go forward, our first priority for excess cash will be to reduce debt," Lipton said.

NOVA's near-term debt reduction will come primarily through the repurchase of $125 million 7¼% debentures, which have been put to the company and will be repaid on Aug. 15, as well as the repayment of a $250 million bond maturity in April 2009.

"We have planned for the repayment of [the Aug. 15] bond for well over a year and will repay it without compromising our strong liquidity base," Larry MacDonald, NOVA's chief financial officer, said during the call.

The company does not plan to make any large acquisitions in the near term, and its capital budget is not scheduled to increase.

"When we have excess cash beyond our debt-reduction and liquidity needs, we will put it to the best possible use for our shareholders, and at today's stock prices, the choice is pretty clear," Lipton said.

Preferred shares extension

NOVA also said it is working to finalize an extension of $126 million of preferred shares due in October.

"This financing represents one of our lowest cost sources of liquidity, far cheaper than current debt markets, so this extension is a good thing for NOVA," MacDonald said.

The CFO said the company's bank partner has the necessary internal approvals for the extension and is completing related paperwork.

"We have many aggressive initiatives underway, all with one purpose - to ensure NOVA Chemicals, in all events, has a solid foundation of liquidity in these very volatile times," he said.

NOVA ended the second quarter with liquidity of $483 million.

Cash flow reaches $54 million

During the second quarter, NOVA generated cash flow from operations of $54 million, up from $12 million of cash used in operations during the first quarter, despite a $71 million investment in working capital in the current period.

The working capital increase was primarily due to higher accounts receivable as a result of higher selling prices, offset somewhat by higher accounts payable balances related to higher crude oil costs.

NOVA is in negotiations to minimize the working capital tied up in its Corunna feedstock inventory and is optimistic it will be able to negotiate a reduction in the "very near term," MacDonald said.

Record Q2 EBITDA

NOVA reported second-quarter adjusted EBITDA of $258 million, marking the highest second quarter in the company's history. The figure compares with adjusted EBITDA of $251 million in the second quarter of 2007.

"The second quarter was another very strong quarter for NOVA Chemicals, and I firmly believe the second half of '08 and 2009 have the potential to be even stronger," Lipton said.

During Thursday's call, the CEO characterized the company's stock as undervalued and defended NOVA's opportunities for growth in the coming quarters.

"Recent transactions in the chemical industry have made it clear to me that strategic investors are prepared to pay full, intrinsic value for chemical companies, not the price at which equity markets are currently valuing these companies," Lipton said.

His reasons for expected growth included a continued cost advantage for North American light feedstock-based producers that he believes will keep the supply and demand balance strong and inventory lean. Lipton also mentioned expected demand for polyolefin even in an economic slowdown and the company's "Alberta advantage" cost advantage.

Pittsburgh-based NOVA is a producer of plastics and chemicals.

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