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Rating Action:

MOODY'S CONFIRMS THE DEBT RATINGS FOR GOODRICH CORPORATION (SR AT Baa1), CHANGES RATING OUTLOOK TO NEGATIVE

27 Sep 2001
MOODY'S CONFIRMS THE DEBT RATINGS FOR GOODRICH CORPORATION (SR AT Baa1), CHANGES RATING OUTLOOK TO NEGATIVE

Approximately $1.5 Billion of Debt Securities Affected.

New York, September 27, 2001 -- Moody's Investors Service confirmed the debt ratings of Goodrich Corporation (Goodrich) but changed the outlook to negative. Goodrich Corporation recently announced that it intends to focus on its Aerospace business by spinning off its Engineered Industrial Products (EIP) business, including its Coltec Industries (Coltec) subsidiary, to shareholders in a tax-free transaction. The company will now focus on aerostructures, aviation services, landing systems, engine and safety systems and electronic systems for commercial, military, regional, business and general aviation markets. Moody's notes that Goodrich will be less diverse as a result of the transaction, as well as more leveraged on an adjusted basis.

The rating agency is concerned that the company's OEM related aircraft business will be materially impacted by the declines of civil aircraft deliveries. Its aftermarket related business is also expected to be affected by the slowing airline traffic, worldwide, albeit to a lesser degree than the OEM related business. However, Moody's recognizes the company's diverse mix of customers, products, services and OEM/aftermarket business in the aerospace industry, which should provide a strong platform for future growth and consistent cash flow generation over the long-term.

Ratings confirmed with negative outlook are:

-Goodrich Corporation -- its Baa1 rating on senior unsecured debt; the Baa1 rating on senior unsecured bank credit facilities; the Baa2 rating on trust preferred stock; and the ratings on its shelf registration: the (P)Baa1 for senior securities and the (P)Baa3 for preferred stock.

-Rohr, Inc. -- the Baa2 rating on its senior notes.

-Coltec Industries Inc. -- the Baa2 on its trust preferred stock, guaranteed on a subordinated basis by Goodrich.

As part of its confirmation of the Goodrich ratings on September 4, Moody's left under review for possible downgrade the ratings for Coltec's $300 million 7.5% senior secured notes due 2008 and the ratings for certain Industrial Revenue Bonds, which remain guaranteed obligations of Coltec. These obligations are expected to remain obligations of Coltec following the spin off. Moody's noted that in connection with the spin-off, a new public company (New Entity) will be formed. The ratings for certain IRBs, which are currently guaranteed by Coltec, will become guaranteed obligations of the newly created company. In addition, should Goodrich's exchange offer not be completely successful, stub debt remaining at the Coltec level will become obligations of the New Entity. The review will focus on the business strategy of the new company and its competitive position in the consolidating industrial products arena. The review will also consider the company's growth initiatives in the current business environment, and the flexibility provided by its initial post-spin capital structure to pursue acquisitions. The review will also assess the revenue, earnings and cash flow generation associated with the EIP business, the potential risks and cash usage associated with ongoing asbestos litigation, and the adequacy of insurance coverage for asbestos payments.

Ratings that remain under review for possible downgrade:

Coltec Industries Inc. -- the Baa2 rating on senior, secured debt; and the Baa2 rating for the following IRB's: Beaver (County of) PA, Industrial Development Authority, $12 million Revenue Bonds due June 1. 2008; Allegheny County Industrial Development Authority, PA, $1 million Revenue Bonds due June 1, 2008; Onondaga County Industrial Development Agency, NY, $2.6 million Revenue Bonds due October 1, 2010; Onondaga County Industrial Development Agency due June 1, 2008; and Huntsville City Industrial Development Board, AL, $.6 million Revenue Bonds due October 10, 2010

Moody's rating action for Goodrich occurs along with the initiation of rating reviews and outlook changes for a number of companies in the civil aerospace sector. The rating actions consider the potential for deterioration of the business outlook for these companies as a result of implications of the unprecedented terrorist attacks on the United States. These events have exacerbated the already-weak prospects of the global airline industry, and its respective credit quality, and are resulting in decisions by most carriers to reduce their capacity by about 20%. These developments will result in weakened demand for new commercial and regional aircraft and will put downward pressure on aircraft values over the intermediate term. Moody's also noted that the declines may also result in the grounding of many aircraft as airlines reduce the number of scheduled flights and/or routes, placing pressure on the aircraft maintenance and replacement parts businesses, a lucrative part of the business for many aerospace companies.

In addition, Moody's noted that the financially weak airlines -- even with the government sponsored financial assistance -- may have difficulty honoring their commitments for future aircraft deliveries which could place pressure on the aircraft and aircraft engine manufacturers to provide financing.

Deteriorating global economic conditions are also expected to impact the demand for business jets as corporations and other aircraft-buyers attempt to cut capital expenditures and costs through delaying or canceling orders for new aircraft in the near-to-intermediate term. Moody's noted that the demand for business jets had started to soften even before the September 11 terrorist attack, especially at the low end of the sector. However, the rating agency noted that potential exists for a rebound in business jet demand over the intermediate term as economic conditions stabilize, and corporations reassess travel practices in light of the risk of terrorism and the complexities of airline travel.

Moody's also noted that despite recent events, the rating actions for the civil aircraft sector recognize the benefits of diversification for some industry participants and the more favorable long-term prospects for the industry as a whole, as airline traffic growth is expected to rebound in both the commercial and regional markets over the intermediate term. In addition, the recent approval by the U.S. Congress of the $15 billion airline/aerospace relief package should provide somewhat of an offset to the recent negative developments in the industry.

Goodrich Corporation, headquartered in Charlotte, North Carolina, is a leading aerospace company serving commercial, military, regional, business and general aviation markets.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233

New York
Tassos Philippakos
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233

No Related Data.
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