Moody’s downgrades Dow to Baa2 from Baa1; outlook negative

Investing.com -- Moody’s Ratings has downgraded The Dow Chemical (NYSE:DOW) Company’s senior unsecured credit rating to Baa2 from Baa1 while affirming its Prime-2 short term rating for commercial paper. The rating outlook remains negative.

The downgrade, announced Monday, reflects Dow’s depressed earnings and weakened credit metrics amid a prolonged market downturn. Moody’s cited governance concerns as a key driver, particularly Dow’s history of elevated dividend payouts and share repurchases despite weakened earnings performance.

Moody’s expects Dow’s earnings to decline further in 2025 from already low 2024 levels due to lower selling prices, unfavorable feedstock costs, and restructuring expenses. The rating agency noted that demand is currently depressed by weak construction and industrial activities amid high U.S. interest rates, a sluggish property sector in China, and subdued industrial activities in Europe.

Dow’s credit metrics have deteriorated significantly over the past three years, with adjusted Net debt/EBITDA rising to 5.2x at the end of March 2025, compared to 1.9x at the end of 2022. Moody’s expects these metrics to remain depressed for several more quarters before improving with a demand recovery.

For 2025, Dow’s management expects nearly $6 billion in cash support, including at least $2.4 billion from infrastructure assets divestiture, $1 billion less capital expenditure by delaying the Path2Zero project, an anticipated $1 billion award from Nova litigation, and $1 billion in annualized cost reduction.

Dow’s credit profile benefits from its large business scale, operational diversity, vertical integration into key commodity petrochemicals, and strong market positions in chemicals used in construction and packaging industries. The company also maintains excellent liquidity with $1.5 billion in cash, $340 million in marketable securities, and $8.4 billion in available credit facilities as of March 31, 2025.

The negative outlook reflects expectations of slow recovery in chemical demand, weaker earnings, resulting negative free cash flow, and elevated debt leverage over the next 12-18 months.

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