Fitch Affirms NOVA Chemicals at 'BB+'; Rating Outlook Stable.

CHICAGO -- Fitch Ratings affirms NOVA Chemicals Corporation's (NOVA) issuer default rating (IDR) and senior unsecured debt rating at 'BB+'. At the same time, Fitch affirms the senior secured credit facility rating at 'BBB' and assigned a 'BB+' to the proposed offering of $400 million in new senior floating notes due 2013. Fitch also assigned a 'BBB' rating to the series A preferred shares. The ratings apply to approximately $1.9 billion of debt. The Rating Outlook remains Stable.

Cash proceeds from NOVA's new floating senior unsecured notes due 2013 are expected to be used to repay NOVA's obligations under its accounts receivable (A/R) securitization program and the balance will be used for general corporate purposes.

The ratings are supported by NOVA's size, market position in North America and Europe, low-cost position as a domestic ethylene and polyethylene producer, and significant earnings leverage during the peak of the chemical cycle. NOVA has adequate liquidity and a manageable maturity schedule, and has increased its financial flexibility by extending expiration dates for its senior secured credit facility and A/R securitization program until 2010. Additionally, the availability under NOVA's senior secured credit facility was increased to $375 million from $300 million as well as its A/R securitization program was enlarged to $300 million from $250 million in 2005. The total return swap agreement for NOVA's outstanding series A preferred shares also expires in 2007. In relation to the series A preferred shares, approximately $65 million is held as restricted cash and included in other current assets. As result of the $65 million cash collateral, the notional amount of the total return swap for the series A preferred shares is approximately $126 million.

Fitch's concerns include the cash burn and weak performance in the styrenics business, potential share repurchase activity not supported by operational cash flow, and potential for softening in consumer demand with rapidly increasing product prices.

The Stable Rating Outlook reflects the year-over-year improvement in NOVA's olefin and polyolefins (OPO) business as the petrochemical industry approaches its expected peak in 2006 and 2007. Industry participants continue to face several challenges including high and volatile raw materials, supply constraints, and product availability. With inventory levels low and high operating rates for most chemical commodities, producers are expected to substantially benefit from increased pricing power and margin expansion during the fourth quarter of 2005 and throughout 2006. Fitch remains moderately concerned about the sustainability of economic growth with increasing energy costs and the overall effect of high petrochemical prices on demand throughout the supply chain.

As of Sept. 30, 2005, NOVA's balance sheet debt plus A/R program balance and outstanding series A preferred shares totaled $1.9 billion. The company's credit metrics have weakened slightly for the 12-month period ending Sept. 30, 2005 compared to 2004 year-end primarily due to a decline in EBITDA levels. NOVA had a total debt-to-EBITDA of 3.2 times (x) and total adjusted debt-to-EBITDAR, incorporating gross rent, of 4.2x for the latest 12 months ending Sept. 30, 2005. EBITDA-to-interest incurred was 4.0x for the same period. Fitch expects credit metrics will strengthen in 2006 and beyond, due to both improved EBITDA and some debt reduction. NOVA continues to have sufficient liquidity, with $97 million in cash and cash equivalents as of the end of the third quarter of 2005. The company has access to additional liquidity through an undrawn and committed credit facility (expires June 2010) totaling $375 million, less $62 million in outstanding letters of credit as of Sept. 30, 2005. Additionally, the company has a $300 million A/R securitization program which matures in June 2010. Approximately $285 million was utilized at the end of the third quarter of 2005.

NOVA Chemicals Corporation is a multinational producer of commodity chemicals, including ethylene, polyethylene, styrene, and polystyrene. The company generated EBITDA of $507 million on $5.71 billion sales during the latest 12-months ending Sept. 30, 2005. A majority of its assets are located in Canada and the U.S. In North America, NOVA is the fifth largest producer of ethylene and polyethylene. The company reports two business segments, olefins/polyolefins and styrenics. The U.S. accounts for 72% of sales, Canada accounts for 1%, Europe and rest of the world accounts for 27%. Polyethylene and styrenic polymers are used in rigid and flexible packaging, containers, plastic bags, plastic pipe, electronic appliances, housing and automotive components, and consumer goods.

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