S&P lowers Hexion notes to D

Standard & Poor's said it lowered its issue-level ratings on Hexion Specialty Chemicals Inc.'s 9.2% debentures due 2021, 7 7/8% debentures due 2023 and 8 3/8% debentures due 2016 to D from CCC. The recovery rating on these issues remains 5, and the corporate credit rating was affirmed at CCC+.

The outlook is negative.

The downgrade follows the company's recent announcement that it purchased a total of $71 million in face value of these debentures for $31 million. The D ratings reflect S&P's view that the exchange was distressed.

The agency said the negative outlook reflects its concerns about the ongoing deterioration in operating performance, including earnings, without near-term prospects for a meaningful improvement. S&P expects leverage to remain at the current high levels above 10 times in 2009, constraining Hexion's ability to comply with financial covenants.

Still, the ratings factor in a modest improvement in earnings from current low levels, committed liquidity from the company's owners and the expectation that Hexion might be able to obtain equity cures to enable temporary compliance with financial covenants, S&P added.

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