Fitch downgrades Dow's IDR to BBB': outlook stable

Fitch downgrades Dow's IDR to BBB': outlook stable

Fitch Ratings has downgraded Dow Inc. and Dow Chemical Company’s Long-Term Issuer Default Rating (IDR) to 'BBB' from 'BBB+' with a Stable outlook, reflecting sustained weak operating performance due to soft end-market demand, particularly in construction and automotive sectors [1]. The downgrade comes amidst high leverage and negative free cash flow (FCF), with Fitch projecting Dow’s EBITDA leverage to approach 4.0x in 2025 before recovering to approximately 3.0x by 2027 [1].

Union Carbide Corporation’s IDR was also downgraded to 'BBB-' from 'BBB', and Dow Chemical Company’s Short-Term IDR was lowered to 'F2' from 'F1' [1]. Despite a $1 billion annual dividend cut, Dow is projected to have negative FCF exceeding $2.6 billion for 2025, even after accounting for proceeds from the Diamond Infrastructure Solutions transaction [1].

The ratings agency anticipates industry margins to remain under pressure due to continued ethylene capacity additions that will likely outpace demand over the next five to six years, exacerbated by China’s supply additions coinciding with slowing domestic demand [1]. However, Dow maintains strong liquidity with $2.4 billion in cash and access to $8.4 billion in committed and available credit facilities, with debt maturities through 2026 being modest [1].

Fitch acknowledges Dow’s significant scale and diversification, with 2024 revenue balanced across North America, EMEA, and other global markets [1]. Factors that could lead to a further downgrade include EBITDA leverage durably above 3.0x or persistent negative FCF generation, while an upgrade could be triggered by EBITDA leverage sustained below 2.3x, consistent FCF margins above 1.5%, or EBITDA margins approaching 15% [1].

References:
[1] https://www.investing.com/news/stock-market-news/fitch-downgrades-dows-rating-to-bbb-amid-weak-market-conditions-93CH-4164016