S&P Lowers Financial Risk Profile on Methanex Corp (MEOH) to Intermediate

Standard & Poor's Ratings Services today said it affirmed its rating on Vancouver-based (Nasdaq: MEOH) including its 'BBB-' long-term corporate credit rating on the company. The outlook is stable.

"We have revised our financial risk profile assessment on Methanex to intermediate from significant based primarily on our expectation that cash flow/leverage volatility will be more muted than in the past due to favorable methanol supply-demand fundamentals," said Standard & Poor's credit analyst David Fisher.

We also expect Methanex's unplanned downtime to decrease as its Geismar, La., facilities ramp up in the next few years, with the first expected to commence operations in late 2014. These facilities are located in a high natural gas production region, thereby reducing the risk of gas curtailments which historically have been a source of volatility. Based on our current assumptions –- and after factoring in spending on potential shareholder returns and capacity expansion projects –- we believe that adjusted debt-to-EBITDA will likely remain below 3x even if methanol prices moderately decline relative to our base-case scenario.

"We have also revised our liquidity assessment on Methanex to strong from adequate based on our expectation that the company will maintain strong near-term liquidity," Mr. Fisher added.

Our "intermediate" financial risk profile and "satisfactory" financial risk profile result in a split 'bbb/bbb-' anchor score. We have selected the 'bbb-' anchor based on our view that Methanex's business risk profile is somewhat weaker on a comparative basis due to the company's limited product diversity and smaller scale relative to peers in the chemicals space.

Our view of Methanex's business risk profile as "satisfactory" reflects what we view as the company's solid market position as the largest methanol producer in the world. The company's geographically diverse network of low-cost facilities and extensive global distribution and marketing network support its leading global merchant market share position of approximately 18% (based on 2013 total sales to non-integrated consumers of methanol).

The stable outlook reflects our expectation that Methanex will benefit from favorable near-to-medium term methanol supply-demand fundamentals, which should support adjusted debt-to-EBITDA of about 2x-3x during this time frame. Incorporated in this view is our belief that shareholder distributions will increase over the next several years, and that methanol prices will remain volatile, albeit to a lesser degree than in the past given favorable market fundamentals.

We could raise the ratings if Methanex's expansion projects remain largely on track from a timing and budget perspective, and emerging methanol applications (such as transportation fuel, olefins) appear likely to drive solid methanol demand growth in the near-to-medium term. This would result in Methanex becoming a larger company with improved operational and end-market diversity, and could result in an upgrade, provided credit measures were commensurate with a higher rating.

Standard & Poor's could lower the ratings if lower demand and methanol prices, natural gas supply curtailments, unplanned outages, a prolonged shutdown of Methanex's Egypt facility, or project execution challenges at the Geismar relocations lead to an adjusted leverage ratio of more than 3.5x on a sustained basis.

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