DuPont de Nemours Inc. Downgraded To 'BBB+' On Weaker Macroeconomic Conditions; On Watch Negative; Debt Ratings Lowered

  • We anticipate that a global economic slowdown in 2020 will dampen demand and earnings at DuPont de Nemours Inc.'s specialty chemicals businesses.
  • We are lowering our issuer credit rating on the company to 'BBB+' from 'A-'. We are also lowering the issue-level ratings to 'BBB+' from 'A-'.
  • Our previous rating analysis of the company had incorporated global growth in 2020 due to factors such as general positive economic activity in each of the company's main geographic regions and single-digit percentage revenue growth in its key end markets. We now expect economic contraction, which hurts demand for DuPont's products.
  • We currently anticipate that funds from operations (FFO) to total debt will be at the high end of the 20%-30% range. This compares to our previous expectations for a range of 30%-45% that we considered to be appropriate at the higher rating.
  • All of our long-term ratings on the company remain on CreditWatch, where we placed them with negative implications on December 16, 2019. The placement of the ratings on CreditWatch with negative implications reflects risks that macroeconomic conditions could weaken more than we anticipate. The listing also reflects our view of uncertainty around the close of the sale of the Nutrition & Biosciences (N&B) business to International Flavors & Fragrances Inc. as planned (expected to close 1Q 2021) in light of the current macroeconomic situation.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above. The rating action reflects the very challenging macroeconomic conditions we believe DuPont de Nemours Inc. (DuPont) will face over the next 12 months and the resulting weakening of credit metrics relative to previous expectations. We now anticipate funds from operations (FFO) to total debt will be on the upper end of the 20%-30% range over the projected forecast period. Previously, at the higher rating, we had expected FFO to debt to be on the lower end of the 30%-45% range.
The placement of the ratings on CreditWatch with negative implications reflects risks that macroeconomic conditions could weaken more than we anticipate and that credit metrics could be lower than what we have considered in our base case ratings. More specifically, we believe that FFO to total debt could no longer be on the higher end of the 20% to 30% range that we consider appropriate for the rating. The CreditWatch placement also reflects the potential uncertainty related to the N&B transaction as planned in light of the macroeconomic economic situation.
Our base case assumes a U.S. economic contraction, which hurts demand for DuPont's products. The company's global operations would also be hurt by lower than previously projected GDP growth rates globally. We base these assumptions on our belief that demand in key end markets will shrink in 2020 because of global recessionary conditions. Despite these assumptions, we believe the uncertainty related to the ongoing impact of the coronavirus on various sectors of the economy could portend a greater economic slowdown than we factor into our ratings. We reflect this uncertainty in our CreditWatch listings. We do not assume any large acquisitions, debt-funded shareholder rewards, or sale of any additional significant businesses in our base case scenario.
We could resolve the CreditWatch upon a review of a combination of factors, including if DuPont's earnings weaken less than we anticipate or if we believe end markets could bounce back quickly and if we believe that the transaction will go ahead as planned. Our base case forecast assumes that the company meets its 2020 maturity.
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