Bank of America and Scotia Capital are arranging a $2.9 billion credit facility that has a securitization component to it for Ashland.

Ashland is a Covington, Ky.-based chemical company that makes resins, polymers and adhesives used in cars. The debt will help fund the company's $3.3 billion acquisition of Hercules, a Wilmington, Del.-based chemical company that specializes in water-treatment chemicals used in latex paints and printing inks.

The facility consists of a $600 million term loan A, an $850 million term loan B, $750 million in senior unsecured notes, a $500 million revolver and two $100 million term loans that can be put into an accounts receivable securitization program.

The banks will launch the loans this week or next, sources said. The launch date for the bonds could not be determined, and calls to the banks were not returned by press time. An Ashland spokesman declined to comment.

"[The acquisition] will create a defined core for Ashland composed of three specialty chemical businesses with strong market positions and promising global growth potential: specialty additives and ingredients, paper and water technologies and specialty resins," Ashland Chairman and Chief Executive James O'Brien said in a release. "In addition, we expect our financial profile to be enhanced significantly through reduced earnings volatility, improved profitability and stronger cash-flow generation." The transaction could help save the company $50 million a year by eliminating redundancies and streamlining operations, according to the release.

Despite the positive outlook, Standard & Poor's has predicted that the credit quality for the North American chemical sector will deteriorate because of raw material pressures and a lackluster economy. Also, this deal has the weak auto sector factor going against it.

Ashland and Hercules are both rated ‘BB+' by S&P. In mid-July, the rating agency placed its ratings on Ashland on CreditWatch, with negative implications, citing potential problems with the structure of the Hercules transaction.

However, the deal would be a strong positive for Ashland, S&P analysts said. It would add substantial specialty chemical assets with investment-grade business characteristics, creating a company with more than $10 billion in annual revenues. Furthermore, the acquisition should result in more favorable growth prospects, the rating agency added.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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