Dow Chemical sells $2.75B in debt to pay off loan

MIDLAND, Mich. — Dow Chemical Co. said Tuesday it priced a $2.75 billion public debt offering, and will use the proceeds to help repay a loan used to acquire smaller rival Rohm & Haas Co. for $16.5 billion earlier this year.

The offering includes $250 million of floating rate notes due 2011, $1.25 billion of 4.85 percent of notes due 2012, and $1.25 billion worth of 5.90 percent notes due 2015.

Dow said the capital raising effort, together with $3.3 billion in asset sales, will ensure that its bridge loan will be paid off in full before year-end.

“Once again, investor confidence in Dow’s long-term strategic direction has been underscored with the completion of yet another oversubscribed debt offering,” said Andrew N. Liveris, chairman and CEO, in a statement.

BofA Merrill Lynch, Citi, HSBC, and Morgan Stanley are acting as joint book-running managers for the offering.

Midland, Mich.-based Dow, which makes chemicals used in everything from plastic bags to automobiles, completed its contentious buyout of the specialty chemicals manufacturer in April and has aggressively moved to cut its debt burden through selling assets such as Morton Salt, slashing jobs, closing factories and reducing its dividend for the first time in its history.

Dow also is under FTC mandate to divest some assets it acquired when it purchased Rohm & Haas.

Liveris said last week the company reached agreements to sell about $3.3 billion in assets in the second quarter, and has a list of potential assets to divest of up to $26 billion.

Dow had to borrow billions to pay for Rohm & Haas, as the recession shattered consumers’ demand for the thousands of items made using Dow products and a company controlled by the Kuwaiti government backed out of a lucrative joint venture just before 2009. Dow had expected to use the more than $5 billion cash it would have received in that deal to help pay for Rohm & Haas.

After the Kuwaiti joint venture collapsed, Dow tried to delay the Rohm buyout. But that led Rohm to sue, and a compromise was reached in March. The deal closed on April 1.

Paying off the bridge loan will prevent Dow’s borrowing costs from jumping sharply.

On Tuesday, Fitch Ratings assigned a ‘BBB’ rating — the second-lowest investment-grade rating — to Dow’s $2.75 billion debt issues, in line with the company’s long-term issuer default and senior unsecured debt ratings. The outlook is negative.

Fitch said the ratings are based in part on recent actions Dow has taken to strengthen its balance sheet, including debt issuances totaling $6 billion in gross proceeds and $2.25 billion worth of equity offerings in May.

Shares rose 56 cents, or 2.5 percent, to close earlier at $23.03.