The credit rating agency Moody’s Investors Service has downgraded its outlook for Chemours’s debt to negative from stable. The change reflects heightened litigation risks in multiple states associated with the per- and polyfluoroalkyl substances (PFAS) that the chemical maker and its former parent company, DuPont, used for years to process fluoropolymers such as Teflon for nonstick cookware.
Chemours “has ample resources to handle near-term litigation and remediation costs,” notes Joseph Princiotta, a Moody’s senior vice president. But in the long term, liabilities associated with natural resource damage suits could be very costly and ultimately make it difficult for Chemours to operate.
For instance, Chemours faces suits from attorneys general in four states—New Jersey, Ohio, New Hampshire, and Vermont—alleging environmental damage, Princiotta notes. The firm also faces lawsuits from public water suppliers in North Carolina, where emissions from the firm’s plant outside of Fayetteville have tainted drinking water.
In addition, the Moody’s analyst notes, Chemours is the target of a number of lawsuits over firefighting foams. PFAS used in the foams have affected water supplies around the country.
Chemours’s liability will depend not only on how litigation shakes out but also on how successful it is in getting former parent DuPont to share in the cost. Court documents unsealed in late June revealed that Chemours is suing DuPont to force it to take on more of the PFAS litigation risks.
Success in that case “would be welcome news for Chemours,” Princiotta says. In 2017, DuPont set a precedent when it agreed to pay half the $670 million cost to settle 3,550 lawsuits in Ohio over PFAS exposure. But the outcome of the Chemours suit against DuPont is far from certain and “is also likely several years away,” he says.
A positive for Chemours is strong growth in fluorochemical refrigerants and “favorable fundamentals” in its titanium dioxide business, Princiotta says. An actual credit downgrade would come if PFAS litigation leads, for instance, to costly trial outcomes or expensive settlements with states or municipalities.