DuPont (DD) Ratings Affirmed by S&P Following Q4 Results, Corp. Update

Standard & Poor's Ratings Services said today it affirmed its ratings, including its 'A' corporate credit rating, on DuPont (E.I.) De Nemours & Co. (NYSE: DD). The outlook is negative.

We base our 'A' corporate credit rating on an upward adjustment to our initial rating outcome (anchor) of 'a-', based on our view that DuPont's competitive position is somewhat better than other companies we deem "strong". In particular, we regard DuPont as having better scale, scope, and diversification than many peers, including Air Products & Chemicals Inc., Sherwin-Williams Co., and PPG Industries Inc. Any potential split that results in a weakening of this particular strength could have negative consequence. Our current view of business strengths is also a key factor in our picking the higher of two possible anchor scores ('a-' or 'bbb+') that the "strong" business risk profile and "intermediate" financial risk profile map to. We believe DuPont is currently at the higher end of the "strong" business risk profile.

"Other business strengths we consider in our rating include a favorable view of operating efficiency, although we expect there will be challenges associated with separating the performance chemicals business from the rest of the company," said Standard & Poor's credit analyst Paul Kurias.

DuPont ranks among the largest seed, chemical, and specialty materials producers in the world and is among the most focused on differentiated and, in some cases, branded products.

The negative outlook reflects our view that credit measures could weaken below our expectations, including our expectation for the key credit ratio of FFO to total debt of 35%. We believe the company has very limited cushion under this ratio for more aggressive share repurchases than we envision, or for operating or other setbacks. Our assumption is that management remains committed to credit quality and will exercise prudence regarding share buybacks or other spending, and strive to maintain credit measures we regard as appropriate for the rating. In addition, we believe there is a slightly increased possibility that either or both the business risk profile and the financial risk profile could weaken due to the risks discussed here, although in our base case we currently do not anticipate any deterioration.

Although all details of the planned separation of the performance chemicals business are not available yet, we believe management will structure the transaction with a view to preserving DuPont's credit quality.

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