Standard & Poor’s debt ratings group is raising a red flag which could cause some added skepticism over the Apollo-backed Hexion Specialty Chemicals’ acquisition of Huntsman Corp. (NYSE: HUN).  S&P has lowered the credit ratings on Hexion Specialty Chemicals Inc. over litigation risks and over concerns of how the company will perform during the slower economy.  S&P cites the risks from a judge’s ruling and over break-up fees of $325 million.

This debt downgrade is a further cut into junk bond status territory byone notch to "B-" from the prior "B" rating.  Unfortunately, all of thecompany’s ratings are still on review possibly for more downgrades.S&P also said the ratings of Huntsman Corp. also face thelikelihood of ratings downgrades.  Both companies had been placed on credit review for downgrades afterHexion announced its proposed buyout of Huntsman for some $6.5 billion.

The problems in this deal are far from new.  Hexion had problems financing the deal and there were morethan allegations that Hexion did not want to close the merger untilshareholders stepped in to offer assistance after a court ruling thatthe new slowdown affecting Huntsman did not constitute a materialchange in the merger terms. 

A New York State judge has also recently denied Hexion’s request toextend a lending commitment by two banks necessary to close the deal.Another wrench in the machine is that Apollo may face untold damages inclaims by Huntsman in legal cases if this deal cannot close.

This deal is still far from over and the outcome is still far from known. Stay tuned.

Jon C. Ogg
November 4, 2008

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