Ineos' Loan Problem

Ineos, the world's fourth largest chemical maker, is crashing against the financial-crisis brick wall. Built by industry executives who borrowed heavily to fund a series of acquisitions, Ineos is seeking a waiver of the covenants on its bank loans until May 2009.

In a report on third-quarter results, Ineos' chief financial officer, John Reece, said the company has seen "an unprecedented fall in demand due to destocking and plant closures by customers."

Ineos' lead bankers—Barclays Capital and Merrill Lynch—have already approved the waivers and the company's other bankers are expected to follow suit. Ineos has pledged to submit a new business plan in April 2009. The firm expects the waivers agreements to be wrapped up by the end of the year.

The request is a turnaround from earlier in the month, when in response to media speculation Ineos said it had "never breached any of its banking covenants." Even now, the firm insists that its debt of nearly $9.2 billion—roughly four times its operating earnings over the past 12 months—is no cause for alarm.

Ineos is not relying solely on covenant waivers, however. It has implemented programs to cut some $250 million in costs, $75 million of which will come this year. And the company plans to slash capital spending from $750 million in 2008 to $315 million in 2009.

For 2008, Ineos forecasts operating earnings of roughly $1.43 billion.