Unsurprisingly, five-year credit default swap contracts on Ineos were trading at distressed levels – i.e. in points upfront – on Tuesday. It would cost more than $7m to insure against $10m worth of Ineos debt over a 5-year period, according to Markit data, on top of a running coupon of $500,000 annually.

Company results announced yesterday showed EBITDA fell 26 per cent in the nine months to September. On the balance sheet, cash stood at €1.3 billion with another €500 million available under a revolving credit facility.

First, the company is greatly indebted, with a debt to earnings ratio of roughly four times at €7.29bn. The debt was taken on to fund a mega acquisition-fest through the boom of the naughties – the key to the firm’s core strategy.

In nine years the group went from nothing to a 70- site business, spread across 14 countries and employing 16,000 people. Before the credit crunch, many saw its strategy as visionary – creating an independent chemicals empire out of the unwanted assets of large multinational energy majors like BP. The assets came cheap and ripe for cost-cutting. The financing came via the bond markets.

Moneyweek described the company as bearing all the hallmarks of a classic private-equity operation.

Yet the group chose to specialise in an industry most majors’ were escaping for a reason. Hugely complex, heavily staffed, massively unionised and relatively low yield, even despite Ratcliffe’s drastic cost-cutting policies.

And now, restricted by its large debt, the group is at the mercy of a capsizing naphtha price – naphtha being the worst hit out of all refined petroleum products due to its connection to the plastics manufacturing industry. At the latest count, Ineos expects a total inventory loss of €560m in the fourth quarter alone.

Ineos’ own view on the commodity price doesn’t go beyond:

In recent weeks, it has become clear that the entire industry is now facing a period of unprecedented market turmoil caused by the declining price environment and driven by general macro-economic uncertainty. This is resulting in severe customer de-stocking. While this reduces short-term visibility, we believe that the picture will become much clearer at the end of Q1 2009.

The view from commodity analysts, however, is bleaker. They see continued weakness in naphtha cracks, as they drive negative momentum across the whole products spectrum, spilling through to gasoline and jet.

To survive, the group says it will have to strip costs by another €250m. But first it must convince up to two thirds of the 230 banks connected to its syndicated debt to vote in favour of its covenant waiver proposal.

The likelihood things get better, though, is not looking good according to Creditsights:

Prudently, the company has taken further steps to shield itself from the downturn, which includes reducing fixed costs by €200 million, trimming capital expenditures to the maintenance level of €250 million, and taking steps to improve working capital. Still, Ineos remains vulnerable to the current economic environment given its leveraged capital structure and we maintain our underweight on the credit.