Moody’s also upgraded the rating of SIP’s senior unsecured guaranteed notes to Baa3 from Ba2 and the senior secured term loans of SIP and its subsidiaries to Baa2 from Baa3.

The outlook for all ratings is stable.

Moody’s said the upgrade of SIP’s ratings reflects: 1) the further strengthening in the company’s financial profile that will result from the early redemption of the $975 million senior unsecured notes due to take place on Aug. 15 and 2) its expectations that under normalized trading conditions, SIP will be able to sustain the improvement in operating performance achieved over the past two years with the support of comprehensive cost-cutting measures.

The redemption of the senior unsecured notes remains conditional upon the completion of a capital infusion from SIP’s parent company.

Moody’s notes that this refinancing exercise, which represents a further step in the implementation by Saudi Basic Industries Corp. (SABIC) of its policy of centralizing its international liquidity funding through its guaranteed subsidiary SABIC Capital BV and provides a further demonstration of the full commitment of SABIC to its 100 percent-owned subsidiary, will help strengthen SIP’s financial profile.

In the past three years, and following the repayment of the senior notes, SABIC will have made capital contributions to SIP, which will have paid down approximately two-thirds of SIP’s initial borrowings of $8.1 billion.

These contributions include a mix of equity, subordinated non-cash pay notes (70 percent of which subsequently converted into equity) and subordinated floating rate notes.

Looking ahead, while Moody’s notes that SIP’s strong operating results in 2010 benefited from the benign trading conditions prevailing within the polycarbonate sector during the period, and that some pressure on margins may re-emerge considering the raw material cost pressures fueled by stronger oil prices and slowdown in global economic recovery, Moody’s believes that SIP’s underlying operating profitability should be underpinned by the savings achieved through the restructuring action implemented in the past two years, which has helped trim the company’s fixed cost base and resulted in a headcount reduction in excess of 1,000 employees.

The one notch uplift of SIP’s senior secured term loans to Baa2 relative to the Baa3 issuer rating reflects Moody’s expectations that the senior unsecured notes will shortly be redeemed and refinanced via intercompany funding in the form of deeply subordinated notes, which will provide a significant cushion for the claims of the secured lenders.

The outlook is stable reflecting Moody’s expectation that the recalibration of SIP’s capital structure combined with a sustained improvement in the company’s underlying operating performance and financial results, will help underpin SIP’s credit profile.

Upward pressure on the ratings may arise should the stand-alone financial profile of SIP further strengthen underpinned by a sustained improvement in operating results, which would help position net debt to EBITDA close to 4 times on average throughout the cycle.