Global Chemical Industry

www. moodys. com pay bod methodological analysis Table of Contents thick to the highest degree the Rated Universe About This rank methodology The Key prize calculates Assumptions and Limitations and rate Consideproportionns That ar non C overed in the storage-battery control power system Conclusion Summary of the gridIndicated evaluation Outcomes concomitant A orbicular Chemcial effort methodological analysis gene Grid Appendix B methodology GridIndicated arranges Appendix C Observations and Outliers for Grid Mapping Appendix D chemic substance substance constancy over construe Appendix E Key pass judgment Issues over the In preconditi unmatchablediate Term 1 3 5 8 integrated pay celestial latitude 2009 dours orbicular world(prenominal) chemical Industry Summary This evaluation methodology exempts sorrys approach to quantifying cite take chances for global chemical companies. This document replaces a previous outcome from February 2006. T he control control power system for the physique methodology is substanti separately(prenominal)y unaltered from the 2006 publication, with minor updates to depict great clarity regarding covering of the grid. We as well deem provided a cle ber explanation of how evaluates in the chemical manufacturing be derived.This publication is intended to provide a reference tool that dejection be handling when evaluating credit visibilitys within the global chemical persistence, helping get byrs, investors, and oppo rate aro pulmonary tuberculosised merchandise participants understand how key qualitative and quantitative danger characteristics ar likely to affect military rank outcomes. This methodology does not implicate an exhaustive word of all operators that argon reflected in Moodys pass judgments but should modify the reader to understand the qualitative upsetations and fiscal ratios that argon most weighty for estimates in this empyrean.This report intromits a detailed evaluate grid and informative subprogramping of each(prenominal) rated connection in a symboliseative take in of companies once morest the factors in the grid. The purpose of the rating grid is to provide a reference tool that post be apply to jumpy credit profiles within the chemical industry vault of heaven. The grid provides summarized guidance for the factors that atomic number 18 in the main most big in distributeing ratings to chemical companies. The grid is a summary that does not include e actually rating esteem, and our exemplifying mapping engagements historical topics succession our ratings methodology in any grapheme considers forward- brassing medical prognosiss.As a result, the grid-indicated rating is not expected to match the unfeigned rating of each family. 17 18 19 20 21 26 27 Analyst Contacts New York 1. 212. 553. 1653 William Reed transgression chairperson -Senior cite ships officer John Rogers Senior Vice Presiden t James Wilkins Vice President -Senior Analyst Steven Wood Senior Vice President Tokyo 81. 35408. 4100 Noriko Kosaka Vice President -Senior Analyst Analyst Contacts continued on last varlet rating methodology Moodys orbiculate incorporate finance globose chemical substance IndustryThe grid contains five key factors that atomic number 18 outstanding in our assessments for ratings in the global chemical sector 1. cable visibility 2. coat & electrostaticness 3. Cost Position 4. supplement / pecuniary Policies 5. financial say-so Each of these factors also encompasses a number of sub-factors or poetic rhythm, which we explain in detail. Since an issuers scoring on a particular grid factor a unplayful deal leave alone not match its overall rating, in the Appendix we include a brief treatment of outliers companies whose grid-indicated rating for a specific factor differs remarkablely from the authentic(a) rating.This rating methodology is not intended to be an exh austive discussion of all factors that Moodys analysts consider in ratings in this sector. We note that our analysis for ratings in this sector covers factors that atomic number 18 common crossways all industries ( much(prenominal) as ownership, focusing, liquidness, legal mental synthesis in the corporate organization, and corporate governance) as well(p) as factors that dissolve be important on a phoner specific basis. Our ratings consider qualitative contexts and factors that do not lend themselves to a transp bent institution in a grid format.The grid represents a compromise amongst great complexity, which would result in grid-indicated ratings that map to a greater bound closely to actual ratings, and simplicity, which enhances a transp bent presentation of the factors that atomic number 18 most important for ratings in this sector most of the time. Beca mapping this methodology applies globally, it is necessarily general in or so respects and is not intended to be an exhaustive and country-specific discussion of all factors that Moodys analysts consider in every rating.Moodys rating approach considers country-specific differences and at the same time al milds for qualitative evaluation of these factors as well as other factors that cannot be easily presented in grid format. Highlights of this report include ? ? ? An over mint of our rated instauration. A description of the key factors that drive rating quality. Comments on the rating methodologys assumptions and limitations, including a discussion on other rating considerations that atomic number 18 not included in the grid.The Appendices utter the rating grid criteria on unitary page (Appendix A), tables that illustrate the application of the methodology grid to 20 representative rated chemical companies (Appendix B) with explanatory comments on just about of the more significant differences between the grid-implied rating and our actual rating (Appendix C), a brief industry over view (Appendix D), and a discussion of key rating issues for the chemical sector over the in depotediate term (Appendix E). 2 declination 2009 ? place methodology ? Moodys world ample Corporate pay globose chemical Industry pass judgment Methodology Moodys globular Corporate pay pla concludingary chemic Industry About the Rated Universe Moodys order 107 companies globally in the chemicals and allied industries. In the aggregate, these issuers sport approximately $230 zillion of rated debt. Our definition of the chemical industry includes a variety of related industries, such as ? ? ? ? ? ? ? ? ? ? ? ? trade rock-steady organic and inorganic chemicals ? specialisation chemicals ? Plastics, resins and elastomers ? Fertilizers, agricultural chemicals and seeds ? industrial gases ? Architectural and industrial coatings ? Flavors and fragrances ? another(prenominal) food ingredients ? Pharmaceutical intermediates ?Organometallics ? Specialty materials produced from ref inery by- intersection focuss ? Specialty materials that atomic number 18 workd in conglomerates ? These companies develop and produce a encompassing variety of ingatherings including basic chemicals, specialty materials, and industrial gases. Products range from true commodities to super customized products phthisis in technically commanding applications. The rated universe is spread throughout the human being with the highest concentrations in the Americas (68), Europe (24) and Middle East/Asia (15). Companies range in coat from as orotund as $40 one million million million in tax revenues to as small as $100 one thousand million.Some whitethorn be multinational with legion(predicate) manufacturing locations around the globe, while others may operate a single mental quickness with domestic customers solo. The extremely volatilizable character of the industry as well as fairly high levels of air risk bump off it progressively difficult for all but a selec t few companies who are extremely life-sizing and diversified to achieve and maintain a Aa rating. orders of A3 or above are generally restrict to giantr companies or to smaller specialty companies that limited uncommon st strength in financial exertion and sexual relationly menial business risk.The Corporate Family place (CFR) or elder unsecured ratings of the covered issuers range from Aa2 to Caa2 with a concentration in the bleat, Ba and B rating categories. The median rating for chemical companies is Ba1. The vast legal age of companies 81 out of 107, approximately 76%, are in the utter (27), Ba (26), and B (28) range beca lend oneself of the cyclical nature of the industry and our view of the industrys moderate to high business risk. 3 celestial latitude 2009 ? range Methodology ? Moodys ball- underframed Corporate finance globose chemical Industry valuation Methodology Moodys international Corporate finance globose chemical substance Industry Exhibit 1 wo rld(a) chemic Rating Distribution 2009 and 2006 Chemical Industry Ratings Distribution 25 Number of Issuers 20 15 10 5 0 Aa2 Aa3 A1 A2 A3 let loose1 utter2 blate3 Ba1 Ba2 Ba3 Ratings 2009 107 com panies 2006 111 com panies B1 B2 B3 Caa1 Caa2 Caa3 Over the last ten old age, in Europe and in the US, a exploitation number of speculative grade names make water been added to the rated universe. This is attributable in part to incumbents youthful strategic efforts to focus on their core businesses by selling non-core assets as well as to a growing interest from private uprightness sponsors.For the purpose of this methodology we have identified 20 representative issuers out of the companies that we rate globally. These issuers represent twain investment grade and speculative grade issuers. The criteria theatrical roled to select the 20 focuse on the larger, in terms of revenues, well-known issuers. For this reason the proportion of investment grade to non-investment grade issu ers represented is higher than it is in the rated universe. 4 celestial latitude 2009 ? Rating Methodology ? Moodys world(a) Corporate pay global Chemical Industry Rating Methodology Moodys orbicular Corporate pay spheric Chemical Industry Exhibit 2 global Chemical Rating Methodology Representative Sample alliance Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Shin-Etsu Chemical beau monde Ltd BASF (SE) E. I. du Pont de Nemours and Company Kaneka companionship Teijin curb Bayer AG Akzo Nobel N. V. Potash throne of Saskatchewan Inc. Rating Aa3 A1 A2 A2 A3 A3 let loose1 let out1 utter1 let loose2 let loose2 let loose3 Ba1 Ba2 Ba3 Ba3 B1 B1 B1 B3 Outlook Stable Stable electro prejudicial Stable prohibit Stable Negative Stable Stable Stable Stable Negative Stable affirmative Stable Stable Stable Stable Positive NegativeApprox Debt millions $189 $21,347 $7,545 $293 $2,143 $20,215 $5,233 $3,082 $2,716 $1,441 $1,971 $23,073 $4,456 $3,390 $3,156 $1,217 $1,904 $4, 681 $423 $3,451 LG Chem, Ltd. Eastman Chemical Company Yara planetary ASA The Dow Chemical Company Braskem SA Celanese heap Nalco Company ISP Chemco LLC NOVA Chemicals Company Huntsman fraternity PolyOne Corp Hexion Specialty Chemicals Inc. About This Rating Methodology This report explains the rating methodology for chemical companies in sestet sections, which are summarized as follows 1.Identification of Key Rating doers The grid in this rating methodology focuses on five key rating factors. These five commodious factors are further broken down into eleven sub-factors that are as weighted. 5 December 2009 ? Rating Methodology ? Moodys world(a) Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry part burthening Sub- factor Weighting Rating component relevant Sub-factor Operational Diversity Product Diversity geographicalalal Diversity component 1 Business write 9. 09%Commodity/Specialty Market Shares cranky Material Access organisation Impact Revenues 9. 09% 9. 09% 9. 09% 9. 09% 9. 09% 9. 09% 9. 09% 9. 09% 9. 09% 9. 09% Factor 2 surface & perceptual constancy 27. 27% Divisions of concern Size perceptual constancy of EBITDA Factor 3 Cost Position 18. 18% EBITDA allowance account (5 yr Avg. ) ROA EBIT / Avg. Assets (5 yr Avg. ) Factor 4 Leverage / monetary Policies 18. 18% Current Debt / capital letter* Debt / EBITDA (5 yr Avg. )* EBITDA/ by-line Expense Factor 5 Financial Strength 27. 27% kept up(p) upper-case letter menstruum/Debt (5 yr Avg. )* Free notes run away (FCF) /Debt (5 yr Avg. * *Where appropriate wampum adjusted debt may be used (see discussion of Cash Balances and plunder Debt Considerations) 2. Measurement of the Key Rating Factors We explain below how the sub-factors for each factor are calculated. We also explain the principle for using specific rating metric functions, and the ways in which we apply them during the rating act upon. Much of th e entropy used in assessing jacket punishment for the sub-factors is found in or calculated using the communitys financial statements others are derived from observations or stimates by Moodys analysts. Moodys ratings are forward-looking and incorporate our expectations of forthcoming financial and operating(a) writ of execution. We use both historical and projected financial results in the methodology and the rating process. diachronic results help us to understand patterns and trends for a companys mental process as well as for peer analogy. While the rating process includes both historical and anticipated results, this document makes use of historical info only to illustrate the application of the rating methodology.Specifically, un slight otherwise utter, the mapping examples in this report use reported financials for the last three audited fiscal historic period. each of the quantitative credit prosody incorporate Moodys criterion adjustments to income statement , gold attend statement and balance cruise amounts for, among others, off-balance sheet accounts, due securitization programs, under- computer storageed grant obligations, and repeat operating leases. Note For definitions of Moodys most common ratio terms please see Moodys Basic Definitions for Credit Statistics, Users Guide which can be found at www. oodys. com in the Research and Ratings directory, in the Special Reports subdirectory (07 June 2007, document 78480/SP4467). 3. Mapping Factors to the Rating Categories After identifying the posterments for each factor, the emf outcomes for each of the 11 sub-factors are mapped to a enough(a) Moodys rating kinfolk. (abdominal aortic aneurysm, Aa, A, let out, Ba, B, Caa, Ca). 6 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry 4.Mapping Issuers to the Grid and discourse of Grid Outliers In this section ( Appendix C) we provide tables showing how each company maps to grid-indicated ratings for each rating sub-factor and factor. The weighted average of the sub-factor ratings produces a grid-indicated rating for each factor. We highlight companies whose grid-indicated performance on a specific sub-factor is ii or more broad rating categories higher or visit than its actual rating and discuss general reasons for such positive outliers and electro prejudicial outliers for a particular factor or sub-factor. . Assumptions and Limitations and Rating Considerations That are not include in the Grid This section discusses limitations in the use of the grid to map against actual ratings, additional factors that are not included in the grid that can be important in determining ratings, and limitations and key assumptions that denote to the overall rating methodology. 6. Determining the Overall Grid-Indicated Rating To determine the overall rating, we convert each of the 11 factor ratings into a numeric appraise found upon the scale below.Aaa 6 Aa 5 A 4 let loose 3 Ba 2 B 1 Caa 0 Ca -1 The numerical patsy for each factor is weighted equally with the results because summed, and divided by 11, to produce a congeries factor take a leak. The add up factor score is then mapped back to an alphanumeric rating found on the ranges in the table below. Grid-Indicated Rating Aaa Aa1 Aa2 Aa3 A1 A2 A3 bleat1 utter2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca thorough Factor Score X ? 5. 50 5. 17 ? X 5. 50 4. 83 ? X 5. 17 4. 50 ? X 4. 83 4. 17 ? X 4. 50 3. 83 ? X 4. 17 3. 0 ? X 3. 83 3. 17 ? X 3. 50 2. 83 ? X 3. 17 2. 50 ? X 2. 83 2. 17 ? X 2. 50 1. 83 ? X 2. 17 1. 50 ? X 1. 83 1. 17 ? X 1. 5 0. 83 ? X 1. 17 0. 50 ? X 0. 83 0. 33 ? X 0. 50 0. 17 ? X 0. 33 0. 0 ? X 0. 17 x 0. 0 7 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry For exam ple, an issuer with a composite weighted factor score of 1. 5 would have a Ba2 grid-indicated rating. We used a similar procedure to derive the grid-indicating ratings in the tables embedded in the discussion of each of the five broad rating factors. The Key Rating Factors Moodys analysis of chemical companies focuses on five broad factors ? ? ? ? ? Business visibleness Size & Stability Cost Position Leverage / Financial Policies Financial Strength Factor 1 Business indite (9. 09% weight) why It Matters Business Profile is an important indicator of credit quality.The chemical team at Moodys looks at seven factors and aggregates them into a single score which is then mapped to a specific rating. The first three factors focus on diversity. Diversity, whether it be operational, product, or geographic, is a key component of business mental attitude that, can help mitigate the unpredictability in financial performance characteristic of the chemical sector. 1. Operational Diversity S ingle site locations, as an indicator of operational diversity, can expose a company to the look of unanticipated down time.We note that this factor is extremely important. Where a company operates a single site, the risk of that single site failing is deemed to have such a catastrophic equal on the business beat that even the prospect of site insurance or business spread insurance will not provide sufficient mitigation against the potential effects of a stock certificateamental failure of the site. 2. respective(a) Product Lines Diverse product lines can help stem volatility in hard currency flows to the extent that contrastive products can have varied determine dynamics. 3. Geographic DiversityGeographic diversity can also be beneficial as a company with multiple plant sites can still be negatively alter by both economic and weather related events. 4. Commodity Versus Value Added Products In the chemical sector commodity players are typically more vaporific in terms of immediate payment flow multiplication whereas the value added producers practically produce more enduring silver flows. At times, todays value added producers can become more commodity-like in their funds flow generating capabilities, so we will carefully assess where a product or group of products may be in its life pedal. 5.Market Share or Unique Competitive Advantage Large market bundle offers a sustainable business position with the proven ability to weather the volatile market conditions in the chemical cycle. In approximately instances companies with large market shares will adjust their production volumes to help balance the supply and posit dynamics in the markets served as a means to stabilize product pricing. Market share that is protected by patent and unique licensing restrictions can also be a fortified, positive contributor to stable exchange flows and performance. 8 December 2009 ? Rating Methodology ?Moodys Global Corporate Finance Global Chemical Indu stry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry 6. Exposure to Volatile Raw Materials Raw material mental pictures greater than 33% in terms of be of goods sold, for example, can often result in dramatic swings in currency flow. This is specially true in times of supply/demand imbalances, which can create shortages in sensible materials and exaggerate sensible material legal injury movements. Companies with the ability and foresight to settle their production facilities in areas of the world where they can benefit from massive term fixed riced raw materials have a distinct advantage over companies that are caseful to the vagaries of the raw material spot markets. 7. Impact of Government Regulation The final factor we assess is the positive or negative impact of judicature mandate. This factor addresses the positive or negative post that government regulation or policy may have on an individual company or sector of the chemical industry. For many companies, the impact of government regulation may be neutral. For some sectors, such as the ethanol sector in the U. S. the very existence of the sector is a function of government legislated policy. In still other instances, the government has seek to ban the use of genuine products such as MTBE in some markets. This factor is also extremely important and we will, as explained below, overweight it when assessing companies for whom government regulations/mandates are, essentially, the sole driver for the business model. How We Measure it for the Grid The 7 Business Profile criteria are merged into an assessment score, as follows Business Profile legal opinion Score This score is made up of seven criteria.To each we assign a discrete numerical value. The values across the criteria range from (-2) to 2 with many coming in at 0 or 1. Moodys analysts may use a modifier of 0. 5 across the seven criteria to refine the score relative to other companies in the industry. The se values are totaled into a score which is then mapped to a rating category in the following manner Aaa Aa A Baa Ba B Caa Ca = = = = = = = = 6. 0 4. 5 to 6. 0 3. 5 to 4. 5 2. 5 to 3. 5 1. 5 to 2. 5 0. 5 to 1. 5 0. 5 to 0. 5 0. 5 ?Operational diversity We count the number of discrete operating plants that have a globally agonistical scale. A (-2) is appoint for 1 or 2 plants, a 0 is assign for 2 8 plants and a 1 is designate if thither are greater than 8 large manufacturing locations. This is one of three factors with a negative score presumption the impressiveness we assign to operational diversity. A sole site simply leaves the company with too many eggs in one basket. Product diversity We assign a 0 if a legal age of hard interchange flow is feedd from 1-2 key product lines and a 1 if a company relies on 3 or more product lines or product categories.Geographic diversity We assign a 0 if a volume of the production assets are primarily in a single geo graphic region and assign a 1 if production assets are in multiple regions Commodity versus value added products We assign a 0 if a majority of sales are primarily commodity products and assign a 1 if we view products as adding distinct unique additional value. numeric factors such as stability of EBITDA and EBITDA margins are used later as another component in the touchstone of this important factor. ? ? ? 9 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical IndustryRating Methodology Moodys Global Corporate Finance Global Chemical Industry ? Market share We assign a 0 if a market share is inconsequential relative to the next three largest competitors and assign a 1 if a sector or company has large share or few real competitors. We would assign a 2 if the company has a unique competitive advantage (patents, know-how, etc. ) that could stamp down competition significantly. Market share assessments are driven by the definition of the markets se rved. Definitions should be wide enough to represent legitimate alternative products.Raw material access We assign a (-1) or (-2) if we estimate exposure to volatile raw material represents at greater than 33% of costs of goods sold. We assign a 0 if exposure to volatile raw materials costs is from 10% to 33% of costs of good sold. We assign a 1 if the exposure to raw materials is less than 10% and a 2 if the company has a material, demonstrable, long-lived feedstock advantage. Given the grandeur of raw material inputs to ultimate hard silver flows this metric is vitally important. It is one of three metrics with a possible negative value. Given the greatness of this metric, the value can go as high as 2.Impact of governmental regulations or policies For companies subject to significant government regulations or sensitive to changes in government policies, we assign a score reflecting the positive or negative impact of these regulations/policies on the companies long term fin ancial performance. Most of the companies in this industry will score a 0. Ethanol producers in the US would be assigned a (-1) because of their reliance on government regulation to create demand for the product. Companies that would be positively affected over the long term by government regulations could be assigned a 1. ? The importance of the business profile score is highlighted by the fact that, in certain cases, it can outweigh all other factors in the methodology, materially forbidding ratings. The dickens most prominent examples are operations limited to a single site and a business model whose success is passing or solely dependent on government actions or policies. Factor 1 Business Profile (9. 09%) Weight a) Business Position sagaciousness 9. 09% Aaa ? 6. 0 Aa 4. 5 6. 0 A 3. 5 4. 5 Baa 2. 5 3. 5 Ba 1. 5 2. 5 B 0. 5 1. 5 Caa 0. 5 0. 5 Ca 0. 5A chart that illustrates grid mapping results for Factor 1 and a discussion of outliers for companies in the try on is included in Appendix C. Factor 2 Size & Stability (27. 27% weight) Why It Matters This factor includes discrete quantitative measures that flack to measure size, diversity and the stability of a business model. Large revenues combined with large instalments as well as a long history of stable performance suggest sustainable business positions that have been and will be able to demonstrably weather the vagaries of with child(p) and economic cycles. SizeSize can suggest the ability to benefit from a good deal needed economies of scale both in production and access to raw materials on a preferred basis. In addition, size suggests the ability to service large customers globally an important designate as many customers step up efforts to reduce the number of their suppliers. Size also tends to favor the companies that sovereigns, government related entities, and other large companies bring as their joint venture partners or technology suppliers of chemicals that add important val ue added properties to customers products. Number of DivisionsThe presence of multiple large divisions typically signals a balanced diversified product portfolio and, by extension, more stable hard currency flows. Companies with high product concentration may edge more volatile capital flows and may be more open to one time events that can be damaging to credit quality. duplex divisions also provide for discrete assets that can be sold as necessary to provide alternate liquidity. Larger companies 10 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate FinanceGlobal Chemical Industry with many divisions can, for example, sell weaker performing or non-core segments, with the sale proceeds providing funding for debt reduction or growth in other segments. Stability of Business Model (Stability of EBITDA) Given the diversity of this industry, we attempt to gauge the likely level of volatility in ear nings and cash flow. Companies with elevated levels of volatility in earnings and cash flow will require go against liquidity and more robust financial metrics, on average, to compensate for uncertainty over the magnitude and duration of potential downswings.We break up the volatility of EBITDA over a long period of time (7-10 years, when the teaching is available) to get an estimation of the expected volatility of the company relative to its peers in the industry. While there are many problems associated with the use of EBITDA as a measure of either profitability or cash flow, EBITDA is typically less affected by extraordinary items, fluctuations in working capital, and capital expending on newfound readiness than other measures of cash flow. It also allows us to remove the potential impact from differences in capital intensity across the industry.To the extent that a companys EBITDA may contain unusual items, or items that we judge to be one-time, the reported training ma y be adjusted to make wear the quality of the analysis and hence get a better view of the true volatility of the company relative to its peers in the industry. When companies have holy a transformational acquisition or divestiture, or if seven years of data is otherwise unavailable, we estimate this metric found on a comparison to other rated companies and attempt to adjust for differences in product or geographic mix, as well as the impact of feedstock advantages or disadvantages.A transforming transaction is typically defined as the acquisition or divestiture of assets that comprise more that 1/3 of the pre-transaction EBITDA. While we measure the prehistorical 7-10 years of data, we would emphasize that our ratings are a forward view informed by historical volatility. To the extent we look at that future performance might deviate from historical patterns, we will modify this factor. How We Measure it for the Grid Size Measured by Revenues We use the most recent annual reven ues or latest 12 calendar month reported revenues.The current years revenues obviously can be either unpretentious or overstated subject to where the company is in the commodity price cycle. While the commodity price cycle may be distinct for various companies, this metric measures all companies, by and large, at the same point in the economic cycle. For companies whose revenues are on the border between both ratings categories, the analyst would consider the point in the commodity price cycle at which the measurement is taken and the estimate of future revenues. Divisions with Revenues of refer sexual relation SizeThis factor can be stickd from financial statements. We use the segment teaching found in the most recent quarterly report on a latest four quarter basis. We are attempting again to capture both diversity as well as scale. The analyst may adjust segment revenues manually to adjust for non-ordinary items or non-public segment information provided by management. For co mpanies whose divisional revenues are volatile and subject to cycles, the analyst would again consider the point in the pricing cycle at which the measurement is taken.Our focus is to measure diversity of revenue streams. For a company with $1 billion in revenues if all revenues come from a sole division/product it would map to a B. If there were four discrete divisions with $250 million in revenues each (essentially equal in size) it would map to a Baa. For a company with $10 billion in revenues with four discrete divisions/products, if ii divisions had $3 billion in revenues each and 2 divisions had $2 billion in revenues each it would still be judged to be relatively various and equate to a Baa. 1 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry Stability of EBITDA This factor is measured by the averageized ensample actus reus of the companys EBITDA as indomitable by a to the lowest degree squares regression on seven to ten years of data. We utilize standard illusion quite than standard deviation as it is much better at dissimilariating between commodity and specialty chemical companies.Standard deviation is a static measure that cannot clearly differentiate between a stable company growing over time and a commodity company whose volatility is induced by changes in its cash margins. Standard error is a statistical measure of the difference between the companys actual performance versus a theoretical line drawn through the data (hence normal growth in EBITDA over 7-10 years should not have a negative impact on this metric). The normalized standard error is obtained by dividing the standard error obtained from a li full regression by the average EBITDA over the period analyzed.This allows us to compare the standard error of large companies to much smaller companies This measurement is designed to capture dickens types of stabi lity For smaller companies The stability of business or businesses relative to other companies in the industry. The out-and-out(a) size of a company is not considered. For larger companies A very large or diverse commodity company may exhibit more stability based on the number of businesses in its portfolio, especially if the earnings of their individual businesses are not correlated (i. e. , all businesses dont go into a downturn or upturn at the same time).In statistical terms, if the covariance of the companys businesses is low, the companys performance should be more stable although it may be an inherently cyclical commodity chemical business. Companies with a normalized standardized error above 40% (which maps to the Caa category) are most common for companies with very low or negative EBITDA at the bottom of a downturn. Factor 2 Size & Stability (27. 27%) Weight a) Revenue (Billions of US$) b) of Divisions of Equal Size c) Stability of EBITDA 9. 09% 9. 09% 9. 09% Aaa ? $50 8 2% Aa $20 $50 6 to 7 2% 6% A $10 $20 5 6% 12%Baa $5 $10 4 12% 20% Ba $1 $5 2 or 3 20% 30% B $. 2 $1 1 or 2 30% 40% Caa $. 1 $. 2 1 40% 60% Ca $. 1 0. 5 ? 60. 0% A chart that illustrates grid mapping results for Factor 2 and a discussion of outliers for companies in the sample is included in Appendix C. Factor 3 Cost Position (18. 18% weight) Why It Matters Relative cost position is a critical success factor for a chemical company because, in a downturn, (either cyclical or economic) prices often diminution to the point where only companies with first and second quartile cash costs generate meaningful cash flow.Operating cost positions are a function of criteria that include size, access to low cost raw material inputs, location of assets, bear on rates, and capital invested. Further, with low levels of financial leverage, low cost producers are typically better positioned to outperform competitors. Low cost producers, with low leverage, are better able to survive in a downturn and are also better positioned to grow when opportunities arise. A companys cash costs and its position on the industry cost curve, as well as the overall shape of the industry cost curve, are all valuable information.However, true cash cost curve data, while useful, is often proprietary or may be the property of various consultants and difficult to verify. 12 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry Comparisons across the wide variety of commodity and specialty chemical companies make it difficult to blaspheme on relative or absolute costs for rank companies. We use two measures in addition to information provided by companies to assess cost positions ? ?EBITDA Margin Return on Average Assets How We Measure it for the Grid EBITDA Margin This factor is used in part to gauge the quality of the pricing power a company has and is likely to ach ieve. It is measured using EBITDA, which includes recurring other income and excludes non-recurring other income and one time charges. This factor, along with several others, is an important measure of a companys profitability in multiple economic scenarios. We use the past three years actual results along with our expectation for the next two years, and to consider the average as well as the high and low points.For illustrative purposes the measurement used in the company examples herein is based on an average of the past three years EBITDA margin. The choice of EBITDA, versus EBIT, is driven in part by the many and varied depreciation polices used globally and the need for comparability between regions. Nonetheless, we recognize the weaknesses of EBITDA, discussed below, and analysts within regions will also evaluate EBIT margins as well. Another reason for the use of EBITDA is the aterial difference in capital intensity within sub-sectors of the chemical industry. The capital int ensity of a large commodity company can be very different from a smaller specialty player. The use of EBITDA as contend to EBIT has a disadvantage in that EBITDA fails to address the capital intensity of the chemical industry effectively. Clearly an important indicator of a companys ability to generate operating profit should be assessed after the costs of plant maintenance and capacity expansion, as represented by its annual depreciation charges.Experience indicates that while a chemical companys capital consumption often swings with major projects, it will generally need to spend its depreciation over time as it maintains and develops new facilities. We attempt to capture the effect of this capital intensity in our use of throw overboard cash flow metrics in the financial potency rating factor discussion. Return on Average Assets This is a strong measure of a companys ability to generate a consistent and meaningful progeny from its asset base. This metric specifically takes into account the capital intensifier nature of the industry.This is also a five-year average measurement using the past three years of actual results along with our expectation for the next two years. We use total assets, less cash and short term investments rather than tangible assets to provide a more meaningful measure for the universe of speculative grade companies. Factor 3 Cost Position (18. 18%) Weight a) EBITDA Margin b) ROA EBIT / Assets 9. 09% 9. 09% Aaa ? 30% ? 25% Aa 20% 30% 15% 25% A 15% 20% 10% 15% Baa 10% 15% 7% 10% Ba 8% 10% 4% 7% B 4% 8% 2% 4% Caa 1% 4% 0. 5% 2% Ca 1% 0. 5%A chart that illustrates grid mapping results for Factor 3 and a discussion of outliers for companies in the sample is included in Appendix C. 13 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry Factor 4 Leverage / Financial Policies (18. 18% weight) Why It Mat ters Managements willingness to enhance shareholder value via debt financed acquisitions and/or share repurchases, is likely to maturation credit risk. The chemical industry is especially vulnerable given its volatile nature.We learn about financial policies through a discussion with management that includes hypothetical scenarios. Such meetings often examine managements willingness to stretch its balance sheet and/or financial flexibleness. The hypothetical situations often relate to acquisitions or share repurchase appetites. Concerning acquisitions, discussions often focus on size and on the gang of debt and/or lawfulness that will be used to fund a growth initiative. Another key concern is managements approach to managing financial flexibility through a range of cycles.Specifically we look for an approach that emphasizes preparedness for tend times such that strong cash flows, when available, are used to reduce debt. Measurement of leverage and financial policies is based on two different estimates of leverage current debt to capitalization, and debt to EBITDA. We believe that the amount of leverage with which management operates is a choice and a direct result of a companys financial strategy. Issuers, particularly those in the investment grade and high Ba rating categories, often actively manage to these ratios.Certainly these ratios, especially debt to EBITDA, are used by providers of capital in the form of specific covenant tests. Debt to capital is a unprejudiced way to compare the capital structure of companies operating within an industry, and managements often claim to manage to it. This metric is also a way to assess managements willingness to grow via debt financed acquisitions. The debt to EBITDA ratio is a measure that balances the debt to capitalization ratio with a measurement of a companys ability to generate EBITDA both in times of peak pricing and in times of stress.We believe these two metrics provide insight into the companys financ ial policies, including its tolerance for debt and the ability of the company to take out the highs and low of a cycle. How We Measure it for the Grid Debt to Capital This factor can be easily captured from financial statements using the most recent annual or quarterly debt and equity balances (incorporating our standard adjustments). There are certainly situations where this metric becomes less useful particularly in the case of LBOs or spinouts wherein book equity is low or nonexistent. In these instances this metric could be given reduced weight.In the event that a companys book equity is extremely low and the stock is in public traded, the analyst may use the market capital of the company in place of book equity in this ratio. While market capital has its own weaknesses and can be very volatile, this approach can be of some value. Debt to EBITDA For this measure we use a five-year average of the annual debt and EBITDA balances as shown on the financial statements. We look bac k three years and use estimates to make assumptions for two years going forward. Factor 4 Leverage / Financial Policies (18. 18%) * Weight a) Current Debt / Capital b) Debt / EBITDA 9. 09% 9. 09% Aaa lt 15% . 5x Aa 15% 25% . 5x 1. 5x A 25% 35% 1. 5x 2. 25x Baa 35% 50% 2. 25x 3x Ba 50% 70% 3x 4x B 70% 80% 4x 6x Caa 80% 95% 6x 8x Ca ? 95% ? 8x * Where appropriate net adjusted debt may be used (see discussion of Cash Balances and Net Debt Considerations) 14 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry A chart that illustrates grid mapping results for Factor 4 and a discussion of outliers for companies in the sample is included in Appendix C. Factor 5 Financial Strength (27. 7% weight) Why It Matters The three key indicators of financial lastingness are 1) Interest Coverage, 2) Retained Cash move to Debt, and 3) Free Cash Flow to Debt. All of these metrics are averaged over five-year periods to address the volatile nature of the industry. Interest coverage Interest coverage can be particularly meaningful for speculative grade companies. This is especially true if the interest rate environment is in a period of change such as the migration from lower rates to higher rates and an issuer is facing the need to finance debt that is nearing maturity. It is a less important metric for higher-rated companies.The remaining two metrics are useful across the rating spectrum and relate to the amount of cash flow available to cover varied scenarios of both operating involve and financing needs. ? ? Operating needs include major items such as working capital and capital spending. Financing needs refers to the impact of dividends and the cease cash then available to service debt. As discussed above, the use of EBITDA (as opposed to EBIT) in the interest coverage ratio is important for companies in the chemical industry and the decision to use it is a function of the need to make the ratio more comparable globally.Retained Cash Flow and Free Cash Flow The cash flow metrics we use measure two different levels of cash flow retained cash flow and free cash flow and their ratio to total adjusted debt. Retained cash flow is a broader measure of financial flexibility than free cash flow as it excludes the potential noise created by changes in working capital and unusual capital spending programs. This is a helpful measure given the volatility and the variation in capital intensity within the chemical sector.As with other factors in which debt is involved we can look at these cash flow metrics in two ways as a percentage of both debt and of net debt (net of cash balances). We use net debt for companies at which it is either a stated, long-lived policy to hold material cash balances or for which there may be unique scenarios such as recent asset sales whereby cash may be earmarked for use in debt reduction efforts. In so me specific instances we may use a net debt denominator for the free cash flow metric as well. A more detailed discussion of our views on cash balances appears below.Free cash flow is, in many instances, one of the most important and original measures of financial strength and flexibility. This metric reflects a companys primary source of liquidity as it directly speaks to managements ability to service its debt burden after considering both its operating and financial commitments to shareholders. In this metric we often identify where capital spending programs may be extraordinarily large and/or risky. At times, programs can have a direct impact on ratings because of the size of expenditure that may be involved as well as the risks of executing the program on time and on budget.If, for example, a large amount of capital is spent on new greenfield capacity and we believe that such capacity is being added at a time when product prices are low (i. e. , there is a lack of an satisfac tory return on capital) the ratings may be negatively affected. There is also the risk that anticipated operating cash cost benefits upon project completion are different than expected. 15 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry How We Measure it for the GridInterest coverage This metric is a univocal look at EBITDA (adjusted for non-recurring other income and one-time charges) to gross interest expense (including capitalized interest). This is a five-year measure. Cash Flow to Debt ? Retained Cash Flow to Debt Defined as funds from operations (FFO) minus dividends, as a percentage of total debt. This is a five-year measure. Free Cash Flow to Debt Defined as cash flow from operations (by its nature operating cash flow is determined after taking into account working capital) minus capital spending and dividends, as a percentage of total debt.This is a five-year measure. ? Cash Balances and Net Debt Considerations Typically, analysts approach the use of cash balances and the use of cash in net debt calculations in a conservative fashion. As a general command we would not typically consider cash on the balance sheet as a true offset to adjusted total debt in for the purpose of ratio analysis. Reasons that we would not look at cash on the balance sheet as fungible for the debt include concern that ? the cash is easily used for other purposes and debt reduction is only counted hen debt is permanently reduced in some instances cash is actually needed to fund the day-to-day operations of the issuer the cash is stranded overseas and subject to material taxes such that the true cash balance is materially lower than represented in the financial statements there may be other claims on the cash for restructuring efforts or legacy liabilities. ? ? ? There are, however, examples where our analysis for chemical companies incorporates cash bal ances as providing a measure of offset to adjusted total debt balances. Exceptions to the above analytical approach, for which we give credit for cash balances include ? he specific refunding of near term debt maturities wherein management borrows in advance to prefund a near term maturity. cash is held temporarily for legal, tax or other purposes and the company has publicly stated its intention to reduce debt once the temporary period has ended. ? Other instances, typically only for large companies, include situations in which management has a history of maintaining material levels of cash on the balance sheet, it has publicly stated its intention not to pursue largedebt financed acquisitions or share repurchases, and cash is come-at-able without meaningful loss to taxes.In Europe and Latin America, we also generally find oneself that companies are more willing to maintain higher cash balances that may sometimes be linked to tax considerations or more slackly reflect a more con servative style of financial policies. Considering only gross debt may not reflect the real financial strength of these companies and we may prefer in this case to focus on net debt. In these cases, however, we capture the expectation that these cash balances can be liquidated at least at book value and without tax costs.Factor 5 Financial Strength (27. 27%) * Weight a) EBITDA / Interest Expense b) Retained Cash Flow / Debt c) Free Cash Flow / Debt 9. 09% 9. 09% 9. 09% Aaa ? 20x ? 65% ? 40% Aa 15x 20x 45% 65% 25% 40% A 10x 15x 30% 45% 15% 25% Baa 5x 10x 20% 30% 8% 15% Ba 2x 5x 10% 20% 4% 8% B 1x 2x 5% 10% . 5% 4% Caa 0. 5x 1x 1% 5% 0% . 5% Ca 0. 5x 1% 0% * Where appropriate net adjusted debt may be used (see discussion Cash Balances and Net Debt Considerations) 16 December 2009 ? Rating Methodology ?Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry A chart that illustrates grid m apping results for Factor 5 and a discussion of outliers for companies in the sample is included in Appendix C. Assumptions, Limitations and Rating Considerations not Covered in the Grid The rating methodology grid incorporates a trade-off between simplicity that enhances transparency and greater complexity that would enable the grid to map more closely to actual ratings.The five rating factors in the grid do not constitute an exhaustive treatment of all of the considerations that are important for ratings of global chemical companies. In choosing metrics for this rating methodology grid, we did not include certain important factors that are common to all companies in any industry, such as the quality and experience of management, assessments of corporate governance and the quality of financial reporting and information disclosure.The assessment of these factors can be highly subjective and ranking them by rating category in a grid would, in some cases, suggest too much precision in the relative ranking of particular issuers against all other issuers that are rated in various industry sectors. Ratings may include additional factors that are difficult to quantify or that only have a meaningful effect in differentiating credit quality in some cases. Such factors include regulatory and litigation risk as well as changes in end use demand such that todays specialty chemical becomes tomorrows commodity.While these are important considerations, it is not possible to precisely express these in the rating methodology grid without making the grid as well complex and less transparent. Ratings may also reflect circumstances in which the weighting of a particular factor or qualitative issue will be different from the weighting or outcome suggested by the grid. For example, the importance of the business profile score is highlighted by the fact that, in certain cases, it can outweigh all other factors in the methodology materially, lowering ratings significantly. The thre e most prominent examples are ? ? operations limited to a single site, and a business model whose success is highly dependent on government actions or policies. a company with significant litigation related to either environmental or product financial obligation issues. This variation in weighting as a rating consideration can also apply to factors that we chose not to attempt to represent in the grid. For example, liquidity is a rating consideration that can sometimes be critical to ratings and under other circumstances may not have a substantial impact in discriminating between two issuers with a similar credit profile.Ratings can be heavily affected by extremely weak liquidity that magnifies default risk. However, two monovular companies might be rated the same if their only differentiating feature is that one has a good liquidity position while the other has an extremely good liquidity position. This illustrates some of the limitations for using grid-indicated ratings to predi ct rating outcomes. Another consideration is the increase in pension underfunding that occurred at the end of 2008 as a result of large declines in the global equity markets.Increased pension fund liability is unlikely to be the sole driver of ratings downgrades where issuers have adequate liquidity, sufficient resources to alleviate their funding deficiency over time and financial metric compression is modest for their rating category and the metric contraction is expected to only temporarily deviate. In evaluating the impact of an issuers pension liability on ratings, the analyst will consider the magnitude of the shortfall, the ability of the company to reduce the shortfall over time using innate sources and committed external sources of capital, and the plans for doing so.Issuers with higher ratings are likely to avoid a downgrade solely resulting from the increased pension liability if there is a clearly articulated plan for reducing the liability and we believe there are res ources available to meet the plan without putting the core business and financial profile at risk. Issuers with speculative grade ratings and those at the lower end of investment grade rating levels are at greater risk of ratings transition because of higher potential exposure to liquidity issues and weaker sensed capability of eradicating the funding liability without weakening the companys financial or business position. 7 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry In addition, our ratings incorporate expectations for future performance, while the financial information that is used to illustrate the mapping in the grid is historical in practice we look at a crew of prior years and future years usually three years of history and two years looking forward. In some cases, our expectations for future performance may be informed by confidential information t hat we cannot publish.In other cases, we estimate future results based upon past performance, industry trends, demand and price outlook, competitor actions and other factors. In either case, predicting the future is subject to the risk of substantial inaccuracy. Assumptions that can cause our forward looking expectations to be incorrect include unanticipated changes in any of the following the macroeconomic environment and general financial market conditions, industry competition, new technology, regulatory actions, and changes in environmental regulation. Conclusion Summary of the Grid-Indicated Rating OutcomesThe methodology grid-indicated ratings based on last twelve month financial data as of the quarter end closest to September, 30, 2009 map to current assigned ratings as follows (see Appendix B for the details) ? ? 8 companies map to their assigned rating 10 companies have a grid-indicated rating that is one or two alpha-numeric notches from the assigned rating 2 companies hav e a grid-indicated rating that is three notches from their assigned rating ? Overall, the framework indicates that there are an even number of companies whose grid-indicated rating is below their actual rating (6) than above their actual rating (6).This can be attributed to a variety of factors including (a) willingness to look through periods of stronger or weaker body process where appropriate (b) grid metrics do not capture our expectation of lower raw material costs and their benefit to margins and (c) liquidity concerns such as generating cash from working capital in a downturn are not fully captured by the grid. 18 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical IndustryAppendix A Global Chemical Industry Methodology Factor Grid Weight Factor 1 Business Profile a) Business Position Assessment Factor 2 Size & Stability a) Revenue (Billions of US$) b) of Divisions of Equal Size c) Stability of EBITDA Factor 3 Cost Position a) EBITDA Margin b) ROA EBIT / Assets Factor 4 Leverage / Financial Policies * a) Current Debt / Capital b) Debt / EBITDA Factor 5 Financial Strength * a) EBITDA / Interest Expense b) Retained Cash Flow / Debt c) Free Cash Flow / Debt 9. 09% 9. 09% 27. 28% 9. 09% 9. 09% 9. 09% 18. 19% 9. 09% 9. 09% 18. 9% 9. 09% 9. 09% 27. 28% 9. 09% 9. 09% 9. 09% ? 20. 0x ? 65. 0% ? 40. 0% 15. 0x 20. 0x 45. 0% 65. 0% 25. 0% 40. 0% 10. 0x 15. 0x 30. 0% 45. 0% 15. 0% 25. 0% 5. 0x 10. 0x 20. 0% 30. 0% 8. 0% 15. 0% 2. 0x 5. 0x 10. 0% 20. 0% 4. 0% 8. 0% 1. 0x 2. 0x 5. 0% 10. 0% 0. 5% 4. 0% 0. 5 1. 0x 1. 0% 5. 0% 0. 0 0. 5% 0. 5x 1. 0% 0. 0% 15. 0% 0. 50x 15. 0% 25. 0% 0. 50x 1. 50x 25. 0% 35. 0% 1. 50x 2. 25x 35. 0% 50. 0% 2. 25x 3. 00x 50. 0% 70. 0% 3. 00x 4. 00x 70. 0% 80. 0% 4. 00x 6. 00x 80. 0% 95. % 6. 00 8. 00x ? 95. 0% ? 8. 00x ? 30. 0% ? 25. 0% 20. 0% 30. 0% 15. 0% 25. 0% 15. 0% 20. 0% 10. 0% 15. 0% 10. 0% 15. 0% 7. 0% 10. 0% 8. 0% 10. 0% 4. 0% 7. 0% 4. 0% 8. 0% 2. 0% 4. 0% 1. 0% 4. 0% 0. 5% 2. 0% 1. 0% 0. 5% ? $50. 0 8 2. 0% $20. 0 $50. 0 6 to 7 2. 0% 6. 0% $10. 0 $20. 0 5 6. 0% 12. 0% $5. 0 $10. 0 4 12. 0% 20. 0% $1. 0 $5. 0 2 or 3 20. 0% 30. 0% $0. 2 1. 0 1 or 2 30. 0% 40. 0% $0. 1 $0. 2 1 40. 0% 60. 0% $0. 1 0. 5 ? 60. 0% ? 6. 0 4. 5 6. 0 3. 5 4. 5 2. 5 3. 5 1. 5 2. 5 0. 1. 5 0. 5 0. 5 0. 5 Aaa Aa A Baa Ba B Caa Ca * Where appropriate net adjusted debt may be used (see discussion Cash Balances and Net Debt Considerations) 19 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating Methodology Moodys Global Corporate Finance Global Chemical Industry Appendix B Methodology Grid-Implied Ratings Overall Grid Implied Rating Issuer Moodys Rating Business Profile Size & Stability of Divisions of Equal Size Baa Aa Aa Aa Aa A A B A Baa Ba Aa Ba B Ba B Caa Ba B Ba Cost PositionLeverage / Financial Polici es EBITDA/ Interest Expense (3 Yr) Avg Aaa A A Aaa A Ba Baa Aaa A Baa A A B Ba B Ba B Ba B Ca Financial Strength Retained Cash Flow/ Debt (3 Yr Avg) Aaa A Baa A Ba Ba Ba Aaa A Baa Baa Baa B Ba B Ca Ba Ba Ba Caa Free Cash Flow/ Debt (3 Yr Avg) Ca Baa Ba Ca Ca Ba Ba Aa B B Ba Ba Ca Ba Ba Ca Ba Ca Ba Ca Business Position Assessment Shin-Etsu Chemical Company Ltd BASF (SE) E. I. du Pont de Nemours and Company Revenue (Billions of US$) A Aaa Aa Ba Baa Aa Aa Baa A Baa A Aaa Baa Baa Ba Ba Baa A Ba Baa Stability of EBITDA Baa A Baa Ba Baa A Aa Ca Baa Ba Ba Baa Ba Ba A Baa Ca Ba Ba BaEBITDA Margin % (3 stratum Avg) Aaa A A Baa Baa A Baa Aaa Baa A Baa Baa A Aa A A Baa Ba B Ba ROA EBIT / Assets (3 Yr Avg) A A A Ba Ba Ba Ba Aaa A A A A Baa A Baa A Baa Ba Ba Ba Current Debt/Capital Aaa Baa Ba A Ba Baa Baa Baa Baa Ba Ba Ba B Caa Caa Caa Ba B Caa Ca Debt/ EBITDA (3 Yr Avg) Aaa Aa Baa A Ba Ba Ba Aa A Baa Baa Baa Ba Ba B B B B B Ca Aa3 A1 A2 A2 A3 A3 Baa1 Baa1 Baa1 Baa2 Baa2 Baa3 Ba1 Ba2 Ba3 Ba3 B 1 B1 B1 B3 A1 A1 A3 Baa1 Baa3 Baa1 Baa1 A2 Baa1 Baa2 Baa2 A3 Ba3 Ba1 Ba1 Ba3 B1 Ba3 B1 B2 Aa Aa Aa A Aa Aa A A Ba A Baa Aa B Baa A Baa Ca Baa B Baa Kaneka Corporation Teijin circumscribed Bayer AG Akzo Nobel N.V. Potash Corporation of Saskatchewan LG Chem, Ltd. Eastman Chemical Company Yara supranational ASA Dow Chemical Company (The) Braskem SA Celanese Corporation Nalco Company ISP Chemco LLC NOVA Chemicals Corporation Huntsman Corporation PolyOne Corporation Hexion Specialty Chemicals Inc. Positive Outlier Negative Outlier For illustrative purposes most financial metrics used the last three full fiscal years of reported data FYs 2006, 2007 and 2008 20 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating MethodologyMoodys Global Corporate Finance Global Chemical Industry Appendix C Observations and Outliers for Grid Mapping Factor 1 Business Profile The majority of positive outliers for business profile are associated with compan ies whose financial strength, financial policy measures or liquidity are weakly positioned, providing offsets that are more consistent with the overall ratings. Factor 1 Business Profile Issuer Shin-Etsu Chemical Company Ltd BASF (SE) E. I. du Pont de Nemours and Company Kaneka Corporation Teijin Limited Bayer AG Akzo Nobel N. V. Potash Corporation of Saskatchewan Inc.LG Chem, Ltd. Eastman Chemical Company Yara International ASA Dow Chemical Company (The) Braskem SA Celanese Corporation Nalco Company ISP Chemco LLC NOVA Chemicals Corporation Huntsman Corporation PolyOne Corporation Hexion Specialty Chemicals Inc. Positive Outlier Rating Aa3 A1 A2 A2 A3 A3 Baa1 Baa1 Baa1 Baa2 Baa2 Baa3 Ba1 Ba2 Ba3 Ba3 B1 B1 B1 B3 Business Position Assessment Aa Aa Aa A Aa Aa A A Ba A Baa Aa B Baa A Baa Ca Baa B Baa Negative Outlier 21 December 2009 ? Rating Methodology ? Moodys Global Corporate Finance Global Chemical Industry Rating MethodologyMoodys Global Corporate Finance Global Chemical Industr y Factor 2 Size & Stability Here the majority of positive outliers for revenue are associated with companies whose financial strength, financial policy measures or liquidity are relatively weakly positioned, providing offsets that are more consistent with the overall ratings. The negative outliers are largely related to the stability of EBITDA metric and reflect the volatility of cash flows in certain companies and sectors due to unprecedented high raw material prices and the significant global economic downturn in 2008.Factor 2 Size & Stability Revenue (Billions of US$) A Aaa Aa Ba Baa Aa Aa Baa A Baa A Aaa Baa Baa Ba Ba Baa A Ba Baa Issuer Shin-Etsu Chemical Company Ltd BASF (SE) E. I. du Pont de Nemours and Company Rating Aa3 A1 A2 A2 A3 A3 Baa1 Baa1 Baa1 Baa2 Baa2 Baa3 Ba1 Ba2 Ba3 Ba3 B1 B1 B1 B3 of Divisions of Equal Size Baa Aa Aa Aa Aa A A B A Baa Ba Aa Ba B Ba B Caa Ba B Ba Stability of EBITDA Baa A Baa Ba Baa A Aa Ca Baa Ba Ba Baa Ba Ba A Baa Ca Ba Ba Ba Kaneka Corporatio n Teijin Limited Bayer AG Akzo Nobel N. V. Potash Corporation of Saskatchewan Inc. LG Chem, Ltd.Eastman Chemical Company Yara International ASA Dow Chemical Company (The) Braskem SA Celanese Corporation Nalco Company ISP Chemco LLC NOVA Chemicals Corporation Huntsman Corporation PolyOne Corporation Hexion Specialty Chemicals Inc. Positive Outlier Negative Outlier 22 December 2009 ? Rating