The Associated Press May 27, 2010, 3:41PM ET

Fitch Ratings raises its outlook for Dow Chemical

Fitch Ratings Service raised its outlook on Dow Chemical Co. to "stable" from "negative," as it expects demand for products from the nation's largest chemical manufacturer to continue to recover beyond this year.

Fitch said Thursday strong sales in emerging markets in Asia and Latin American are driving the recovery.

"However, the demand growth is expected to remain slow and gradual until the developed markets will recover more meaningfully," the ratings service said in a note. "As a result, Dow's 2010 sales, profits and cash flow are expected to improve but also to remain well below peak results of 2006 and 2007."

Fitch also affirmed several ratings for the chemical maker, all at investment-grade levels. These include BBB long-term issuer default and senior unsecured revolving credit facility ratings.

Fitch said the company's "highly integrated production streams" create cost advantages that are hard to replicate.

Last year, Dow acquired Rohm & Haas for $16.5 billion, and Fitch said that deal helped increase its exposure to specialty chemicals.

Fitch also noted Dow has fully repaid a $9.2 billion bridge loan related to the deal and has made good progress trimming its high debt levels. But the ratings service said the chemical maker's leverage is still high for its rating, and it expects further debt reduction beyond 2010.

"Another rating constraint is the relatively weak cash flow from operations," Fitch said in a note.

Dow shares rose $1.14 or 4.3 percent to $27.65 in Thursday afternoon trading.


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