NOVA shells out USD 1bn damages payment, bonds soften on weak earnings

NOVA Chemicals has tapped its liquidity to fund a USD 1.08bn damages payment while it awaits the results of its appeal against the litigation, according to three sources following the situation. The payment, to Dow Chemicals, came after NOVA reported disappointing 3Q19 earnings, the sources said.

In September, the Court of the Queen’s Bench in Alberta, Canada signed an order for NOVA to pay Dow USD 1.08bn on 10 October for damages incurred by Dow from 2001-2012 at the companies’ jointly-owned ethylene plant in Joffre.

Last year, the court ruled that Mubadala-owned NOVA failed to operate the ethylene asset at full capacity. NOVA appealed the decision in April 2019, but oral arguments are not scheduled to begin until June 2020, as reported in NOVA’s 3Q19 earnings last week.

NOVA used its USD 500m delayed draw term loan, USD 100m of its US securitized accounts receivable facility and USD 480m of cash on hand to fund the payment. Pending the results of the litigation, sources expect the company to pay roughly USD 250m-350m for additional damages potentially incurred in the period after 2012, the sources said.

The payment leaves NOVA with USD 1.734bn of liquidity, through USD 279m of cash and USD 1.455bn of revolver availability, two of the sources said.

NOVA reported adjusted EBITDA of USD 199m for the quarter, down 41% from last year and below investor expectations of USD 230m-240m, the sources said. That puts leverage at 4.2x based on USD 3.953bn of total debt and USD 940m of LTM EBITDA, they added.

Revenue for the quarter totaled USD 846m, down 26% from USD 1.14bn in 3Q18. The drop was attributed to lower ethylene and polyethylene prices as well as weaker ethylene sales volumes, the sources said.

Sources said they expect the company to burn roughly USD 720m-USD 820m in 2020. That’s based on USD 900m-1.1bn of EBITDA, USD 220m of interest expense, USD 1bn of capex, USD 250m-USD 350m for the potential DOW litigation payment and USD 250m for a dividend payment.

NOVA’s bonds have leaked slightly since the report, according to MarketAxess. The USD 1.05bn 5.25% senior unsecured notes due 2027 traded today at 101 to yield 5.085%%, down from trades at 103-104 early last week. The USD 1.05bn 4.875% senior unsecured notes due 2024 to trade at 101 to yield 4.617% today, from trades at 101-102 early last week.

Trading levels have been bolstered by a potential sale of NOVA, the sources said. Earlier this year, Reuters reported that the company had received a bid from CP Chemical valuing it at USD 15bn.

2019 Debtwire

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