Fitch Upgrades Westlake Chemical to 'BBB'; Outlook Stable

Fitch Ratings has upgraded the Long-term Issuer Default Rating (IDR) and senior note rating for Westlake Chemical Corporation (NYSE: WLK) to 'BBB' from 'BBB-'. Additionally, Fitch has affirmed the ratings on the company secured credit facility at 'BBB'. The Rating Outlook has been revised to Stable from Positive. A complete list of ratings actions follows at the end of this release.

KEY RATING DRIVERS

The upgrade reflects continued strong earnings and cash flow, steady supply/demand fundamentals for Olefins and Vinyls combined with advantaged feedstock pricing and an historical conservative financial policy. Westlake has continued to benefit from low feed stock prices, particularly ethane, which has helped to expand the company's EBITDA margins to approximately 30% over the last couple of years from approximately 16% in 2011 and before. As a result, earnings and cash flow have been robust and have produced strong credit metrics. Westlake's debt/EBITDA over the latest-twelve-months (LTM) ending June 30, 2014 was 0.67x and free cash flow after capex and dividends was over $250 million over the LTM versus balance sheet debt of approximately $760 million.

The company has historically been financed conservatively with little debt compared to mid-cycle EBITDA and cash flow generation. The vast majority of Westlake's EBITDA of $1.2 billion LTM comes from the company's Olefins segment.

An offsetting concern is that the industry still can have cyclicality although this has been tempered recently with very low feedstock costs. An additional longer-term concern is that the current feedstock cost advantage enjoyed by many North American chemical companies could be reduced over time as additional ethane crackers get built in the US and ethane exports increase in the latter part of this decade.

FCF and Expectations

Westlake is largely at the end of its growth capital spending phase. As a result, capital spending should amount to no more than approximately $475 million in 2014 and beyond which is down from $680 million in 2013. Because of this reduction and continued expected strong cash flow from operations, we expect FCF after capex and dividends of over $400 million per year for the next couple of years. Fitch expects that EBITDA will continue to be in excess of $1 billion per year during the same timeframe.

Liquidity

At June 30, 2014, pro-forma for the Vinnolit (PVC) acquisition which closed on July 31, 2014, the company had approximately $250 million in cash and $382 million available after utilization for letters of credit under its $400 million ABL revolving credit facility maturing July 2017. Fitch estimates current cash exceeds the aforementioned $250 million due to expected free cash flow during the third quarter as well as the approximately $249 million of net proceeds from the IPO of Westlake Chemical Partner's LP which occurred on August 4. The credit facility has a covenant stating the Company must maintain a minimum fixed charge coverage ratio of 1.0:1.0 for successive 30 day periods after any date on which the borrowing availability under the facility is less than or equal to the greater of (1) 10% of the commitments under the facility and (2) $40 million, until the borrowing availability exceeds the greater of the amount in clause (1) and the amount in clause (2) for a 30-business day period. The company has no short- or medium-term debt maturities. The next maturity is the company's $250 million 3.6% senior unsecured notes due 2022.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Total Debt/EBITDA significantly above 2.0x on a sustained basis

--FFO Adjusted Leverage of 2.5x or higher on a sustained basis

--Leveraging events: debt financed share repurchases, leveraged acquisitions, etc.

Positive: Not anticipated at this time but future developments that may help to lead to a positive rating action include:

--Achieving greater product diversity

--Substantially increased size and scale

Fitch takes the following rating actions:

Westlake Chemical Corporation

--Long-Term IDR upgraded to 'BBB' from 'BBB-';

--Senior unsecured notes due 2022 upgraded to 'BBB' from 'BBB-';

--Secured bank credit facility affirmed at 'BBB'.

The Rating Outlook has been revised to Stable from Positive.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Rating Chemical Companies' (August 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating Chemical Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682313

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=887334

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