Overview -- Huntsman International LLC, a subsidiary of U.S.-based chemical maker Huntsman Corp., plans to increase the amount of its revolving credit facility to $400 million from $300 million and to extend the maturity of its revolving credit facility and up to $652 million in term loans to 2017 from 2014. -- We are affirming all of our ratings, including the 'BB-' corporate credit rating, on Huntsman. -- We are assigning a 'BB' issue-level rating and a recovery rating of '2' to the company's revolver and term loan. -- The positive outlook indicates the potential for a one-notch upgrade during the next several quarters if the company can continue to strengthen earnings and reduce debt, lifting funds from operations to debt above 20% from about 17% currently. Rating Action On Feb. 29, 2012, Standard & Poor's Ratings Services affirmed its ratings, including the 'BB-' corporate credit rating, on Salt Lake City-based Huntsman Corp. and its subsidiary, Huntsman International LLC. The outlook is positive. We have also assigned our 'BB' issue-level and '2' recovery rating to Huntsman International LLC's proposed $400 million revolving credit facility due March 2017 and $652 million term loan B that it intends to extend to April 2017 from 2014. The '2' recovery rating indicates our expectation of a substantial (70% to 90%) recovery in the event of a payment default. Rationale The ratings on Huntsman reflect our assessment of the company's business risk profile as "satisfactory" and financial risk profile as "aggressive" (as our criteria define the terms). Huntsman is a holding company with diverse chemical operations that generated sales of more than $11 billion in 2011. We expect the company's financial policy to support improvement in its credit quality and that its growth strategy will emphasize incremental capacity expansion and bolt-on acquisitions as opposed to large, debt-financed acquisitions that could weaken leverage metrics. We base our assumptions in part on management's goal of reducing net (unadjusted) debt to EBITDA to less than 2.5x compared with actual net leverage of 2.8x as of Dec. 31, 2011. We adjust debt to include about $900 million of tax-adjusted underfunded postretirement employee benefits, capitalized operating leases, and environmental liabilities. The key ratio of funds from operations (FFO) to total adjusted debt was 17% as of Dec. 31, 2011, consistent with our expectations of 15% to 20% at the current rating. Despite a weak fourth quarter, which was negatively affected by customer inventory destocking, raw material price spikes in some product categories, and adverse exchange rate movements, Huntsman generated significantly higher EBITDA in 2011 than 2010. We believe 2012 EBITDA generation should be similar, with positive factors including its U.S. Gulf Coast raw material cost advantage and restructuring benefits offsetting higher ore costs in the titanium dioxide (TiO2) business. This assumes continued moderate global economic growth. We also expect the company to continue to be able to pass on increases in raw material costs, particularly for titanium ore and crude oil-related inputs, albeit with a lag. Huntsman should continue to benefit from its diversified global presence (nearly 70% of sales are outside the U.S.), taking advantage of its presence in fast-growing regions such as Asia (which accounts for about 25% of sales) and reducing expenditures in high-cost locations such as Europe. Huntsman has maintained adequate liquidity levels and gradually extended its debt maturity schedule through several refinancings, including the current proposed revolver and term loan extensions. Through a strategic emphasis on increasing its performance chemicals business, Huntsman has decreased its reliance on commodity products and positioned itself among the largest differentiated chemical companies worldwide. However, tight supply conditions and surging prices for one commodity--TiO2, a pigment used in paints and plastics--has significantly increased the contribution of Huntsman's pigments division during the past year. Its largest segment by revenue is polyurethane chemicals, which constituted 39% of 2011 revenue and 34% of reported segment EBITDA. Key products include MDI (methylene diphenyl diisocyanate) and its input propylene oxide, which Huntsman also produces. In the polyurethane chemicals segment, Huntsman caters to end-market applications such as insulation in consumer durable and nondurable products, as well as construction, which exposes the company to trends in that industry. Other segments include performance products (29% of revenue and 27% of EBITDA), pigments (primarily TiO2; 14% of revenue and 36% of EBITDA), advanced materials, (12% of revenue and 8% of EBITDA), and textile effects (6% of revenue, but negative EBITDA). The company is restructuring the textile effects business, which is suffering from currently weak demand for natural fabrics and home textiles as well as the strong Swiss franc, and expects to realize benefits in the second half of 2012. Liquidity Liquidity is "adequate" under our criteria, and we believe Huntsman has sufficient sources of liquidity to cover its needs in the coming months even if economic conditions deteriorate. As of Dec. 31, 2011, the company had $554 million in unrestricted cash and $481 million of unused borrowing capacity under its $300 million revolving credit facility and two accounts receivable securitization programs that mature in 2014. Our assessment of Huntsman's liquidity is based on the following expectations: -- The company's sources of liquidity, including surplus cash and committed credit availability, will exceed its uses by at least 1.2x despite potential volatility in working capital requirements. -- Cash flow generation should be adequate to cover expected capital spending of $425 million, $85 million of pension funding in excess of expense, and cash restructuring of $70 million in 2012. -- Debt maturities are manageable, in our opinion. The proposed refinancing, if successful, together with the planned redemption of approximately $83 million of senior subordinated euro notes due in 2015, would significantly reduce the amount of debt due before 2016. -- The company's EBITDA cushion under the senior secured leverage covenant, currently about 50%, should remain comfortable. -- Our rating analysis does not factor in sizable debt-financed acquisitions or increases in shareholder rewards. Recovery analysis For the complete recovery analysis, see our recovery report on Huntsman to be published later on RatingsDirect. Outlook The positive outlook reflects our expectation that Huntsman's earnings and debt levels will remain relatively stable over the next 12 months, with some potential for improvement thereafter if demand strengthens and the company can maintain EBITDA margins above 10%. This assumes that Huntsman will be able to pass on raw material cost increases to its customers in a timely fashion. We could consider a modest upgrade in the next several quarters if FFO to total debt exceeds 20% on a sustainable basis. We believe this could occur if revenues increase 5% or more, EBITDA margins are 10% to 11%, and the company reduces debt by a few hundred million dollars. On the other hand, we could revise the outlook to stable if it appears unlikely that the company can achieve and sustain this slight improvement in credit metrics. We could lower the ratings if there were a sharp economic downturn that resulted in EBITDA margins in the high-single-digit percentage area and sales contract by 10% or more with no prospects for immediate improvement. Related Criteria And Research -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- Key Credit Factors: Business And Financial Risks In The Commodity And Specialty Chemical Industry, Nov. 20, 2008 Ratings List Ratings Affirmed Huntsman Corp. Corporate Credit Rating BB-/Positive/-- Huntsman International LLC Corporate Credit Rating BB-/Positive/-- Huntsman International LLC Senior Secured BB Recovery Rating 2 Senior Unsecured B+ Recovery Rating 5 Subordinated B Recovery Rating 6 New Rating Huntsman International LLC Senior Secured US$652 mil term B bank ln due 2017 BB Recovery Rating 2 US$400 mil extended revlv bank ln due 2017 BB Recovery Rating 2 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.