Huntsman cuts debt, pushes out maturities, aims for investment grade

By Paul Deckelman

New York, May 11 - Huntsman Corp. has undergone a major transformation in key areas since the Salt Lake City-based chemical company went public in early 2005, not the least of which has been a sharp reduction in its debt levels - and its chief financial officer said that Huntsman continues to have as one of its goals the achievement of investment-grade-worthy credit metrics.

In his presentation at the Wells Fargo Securities Industrial and Construction Conference in New York on Wednesday, CFO J. Kimo Esplin told potential investors that besides changing its product mix since 2005, including a move away from low-margin commodity chemicals and into a diversified mix of more profitable specialty products, and making itself less dependent upon sales in the United States and Canada by upping its activities in Europe and especially Asia, Huntsman has also greatly altered its debt profile.

Debt nearly halved

"We had a lot of debt" at that time, he acknowledged. The company's debt net of cash and equivalents stood at about $6.3 billion. Fast forward six years and "our debt is [about] half of what it used to be." Net debt was $3.42 billion at the end of this year's first quarter on March 31.

Besides cutting the absolute amount of debt using the company's free cash flow after payment of about $100 million annually in dividends, Esplin noted that "we've really pushed maturities out" via a series of transactions, including two completed recently.

In March, the company amended its credit agreement to push the maturity of $650 million of term loan B debt out by three years to April 2017, although the extended loan includes a springing maturity to March 31, 2016 - 90 days prior to the scheduled expiration of the company's $600 million of 5½% senior notes due on June 30 of that year - if those notes have not been refinanced by that time.

The extended amount represents about half of the outstanding $1.3 billion of such borrowings. Huntsman agreed to up the pricing on the extended portion of the loan to 250 basis points over Libor, versus the price on the unextended portion of Libor plus 150 bps. The lenders were also offered a 10 bps amendment fee.

After extending the term loan, Huntsman similarly extended $250 million of accounts receivable securitization borrowings out by three years to April 2014 while reducing the applicable margin on borrowings to a range of 150 bps to 165 bps.

As of the end of first quarter, Huntsman had total debt of $4.06 billion, including $163 million slated to be paid this year, following the extension of the ARS facility, $56 million due next year and $195 million due in 2013. About $952 million is due in 2014 and $233 million due in 2015, and $2.46 billion is maturing after that, including the extended portion of the term loan, as noted, and much of its junk bond debt - the aforementioned 2016 bonds, $350 million of 8 5/8% senior subordinated notes due 2020 and $530 million of 8 5/8% subordinated notes due in 2021. The total debt carries an average interest rate of 5%.

Investment grade the goal

With last-12-month adjusted EBITDA of $1.05 billion as of the end of the quarter, Huntsman's debt-to-EBITDA ratio was 3.25 times.

Esplin said during the question-and-answer portion of his presentation that Huntsman aims to bring that ratio down to between 2.0x and 2.5x, the company's definition of investment-grade credit statistics. To that end, he said Huntsman has refrained from spending any kind of major money on acquisitions.

"Some folks are surprised to hear that we haven't done an acquisition greater than $200 million in probably six or seven years. [Huntsman's M&A strategy] has been small bolt-on deals," he said, such as a recently completed acquisition of a niche company in India, Laffans Petrochemicals Ltd., for about $35 million.

"So those are the kinds of things we are looking at. ... They're not smokestack big kind of businesses, they're fairly small, and nothing that would change, certainly, our credit profile, which we've stated, in terms of leverage, we want to bring it down and get to investment-grade credit stats."

Esplin said that the company expects to reach that goal in "two to three years."

Sara Rosenberg contributed to this article

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