The Successful Investor Hotline – Friday, February 6, 2009

Article Excerpt

NOVA CHEMICALS CORP., $1.99, Toronto symbol NCX, fell sharply after it renegotiated the conditions of its lending agreements. To avoid breaching certain covenants, which would require Nova to repay all of its loans immediately, the company must now raise $100 million U.S. in new financing by February 28, 2009, plus an additional $100 million U.S. by June 1, 2009. To meet these conditions, the plastic and chemical maker may have to issue new shares at depressed prices. (Demand for plastics is highly cyclical, and the slowing economy has hurt Nova’s sales and earnings.) This could substantially dilute the current value of its shares. As well, if Nova needs to borrow more money, it would likely have to pay much higher rates, which would drive its interest costs up. Nova has significant operations in Alberta, so it may receive temporary assistance from the Alberta government. As part of any refinancing plan, Nova would probably have to suspend its quarterly dividend payments of…