Fitch Ratings Affirms Eastman Chemical at 'BBB/F2'.

CHICAGO -- Fitch Ratings affirms Eastman Chemical Company's (Eastman) debt ratings as follows:

--Issuer default rating 'BBB';

--Senior unsecured credit facility 'BBB';

--Senior unsecured notes and debentures 'BBB';

--Commercial paper 'F2';

At the same time, Fitch assigns a 'BBB' rating to the euro unsecured term loan due December 2011. The Rating Outlook remains Stable.

The rating affirmation is supported by Eastman's strong operating performance, modestly lower debt level, and excellent liquidity. Cash balances have increased during recent years due to several divestitures however free cash flow has been positive as well. The company's diverse product portfolio allows for greater financial flexibility and helps mitigate overall impact of weak results of any one segment. Currently strong operating performance from Eastman's CASPI (Coatings, Adhesives, Specialty Polymers, & Inks), PCI (Performance Chemicals & Intermediates), SP (Specialty Plastics) and Fibers segments have been offsetting the weak performance of its polyethylene terephthalate (PET) business. Fitch expects the company's actions to improve its PET business by lowering its cost structure will be beneficial in the future. However, market conditions for PET producers are expected to continue to be poor as the industry absorbs new capacity and manages volatile raw materials costs specifically, paraxylene in the near term.

The rating rationale also incorporates the company's leading market position in cellulose acetate fibers, and vertical integration. Additionally, the company has a very manageable debt maturity schedule and ample liquidity. High priorities for cash are to fund capital expenditures, modest share repurchases, and maintain the dividend. Debt repayment is likely to occur as it matures. Capital expenditures are expected to increase substantially and consume the majority of free cash flow during the next few years. Cash flow will be applied to multiple growth initiatives related to the Fibers and PET businesses as well as increasing the overall volume of chemicals produced from coal. Potential rating concerns include the potential for softening demand with volatile raw material prices and modestly lower economic growth. If cash from operations is lower than expected, there may be a need for additional debt financing to fund capital initiatives in later years. In the medium term, Fitch expects that cash on hand and cash from operations should be able to fund all cash priorities of the company.

The Stable Outlook reflects strong performance of the CASPI, PCI, SP and Fibers segments. Eastman's credit metrics are strong for the rating category. However, Fitch expects that its credit metrics could trend lower during the next 12 months but remain within the rating category. Overall market conditions remain favorable for North American chemical producers, and even though profitability for the industry may not be as high as 2006, Fitch expects most supply/demand balances to remain firm, allowing producers to experience healthy margins in 2007.

At Dec. 31, 2006, Eastman had a total balance sheet debt and total adjusted debt of $1.59 billion and $2.30 billion, respectively. Total adjusted debt includes accounts receivable balance plus gross rental expense. For the latest 12-months ending Dec. 31, 2006, the company had a total debt to Operating EBITDA of 1.62 times (x), total adjusted debt to Operating EBITDAR of 2.20x, and Operating EBITDA to gross interest expense of 8.76x.

Eastman Chemical Company is a multinational chemical producer with a diverse and broad product portfolio serving the following key markets: packaging, tobacco, transportation, building & construction, durables, pharmaceuticals, personal care, medical devices, food and beverage, agriculture, and consumer electronics. The company generated EBITDA of $981 million on $7.45 billion sales for the latest 12-months ending Dec. 31, 2006. Eastman is also the leading global producer of PET for packaging and one of the world's two largest producers of cellulose acetate fibers.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.