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Rating Action:

Moody's Affirms CST's B2 CFR; Outlook Remains Negative

25 Aug 2009

Approximately $170 million of rated securities affected

New York, August 25, 2009 -- Moody's Investors Service affirmed the B1 ratings on CST Industries, Inc's ("CST") recently upsized $147.4 million senior secured term loan and increased $20 million revolving credit facility (up from $15 million). Simultaneously, Moody's affirmed CST's B2 Corporate Family Rating (CFR) and B2 Probability of Default Rating (PDR). The rating outlook remains negative. Proceeds from the $20 million add-on to the term loan in addition to approximately $5 million of balance sheet cash will partially fund a mid-sized acquisition.

Moody's expects CST's acquisition to strengthen the company's position in its existing product lines. Moreover, the acquisition is being financed with a combination of debt and equity, providing a further credit enhancement.

However, the negative outlook continues to reflect Moody's concerns about the challenging operating conditions across certain CST end markets. Over the past year, total order backlog has steadily declined as revenues have exceeded order volumes—raising the prospect of future revenue declines absent an improvement in overall order activity. Moody's believes business lines focused on industrial end markets (approximately 35% of pro-forma sales) will be significantly challenged over the near-term and any recovery in these end markets could be protracted. While the acquisition will enhance financial performance, weakness across certain end markets could pressure cash flows. The outlook could be stabilized if order activity improved such that adjusted leverage is not expected to exceed 5 times.

The B2 rating continues to reflect the company's small size, high leverage, and acquisitive financial philosophy. The ratings are supported by Moody's expectation for breakeven to positive free cash flow, the company's leading position in a segment of the pre-fabricated tank market, and its broad customer base and diverse end markets. Proprietary technologies, including glass-fused-to-steel and epoxy coating products, provide the company with a competitive advantage over many of its less differentiated, smaller competitors.

Today's actions include:

-$20 million senior secured bank credit facility, affirmed B1 (point estimate changed to LGD 3, 37% from LGD 3, 35%)

-$147.4 million senior secured first lien term loan, affirmed B1 (point estimate changed to LGD 3, 37% from LGD 3, 35%)

-Corporate Family Rating of B2 affirmed

-Probability of Default Rating of B2 affirmed

-Outlook remains negative

For more information, please see the credit opinion posted on Moodys.com

The last rating action was on March 12, 2009, when the ratings of CST Industries were affirmed (including the B2 corporate family rating) with the outlook revised to negative from stable.

CST's ratings were assigned by evaluating factors we believe are relevant to the credit profile of the issuer, such as i) the business risk and competitive position of the company versus others within its industry, ii) the capital structure and financial risk of the company, iii) the projected performance of the company over the near to intermediate term, and iv) management's track record and tolerance for risk. These attributes were compared against other issuers both within and outside of CST's core industry and CST's ratings are believed to be comparable to those of other issuers of similar credit risk.

CST Industries, Inc., headquartered in Kansas City, Kansas, is a global manufacturer and erector of pre-engineered factory-coated storage tanks and aluminum geodesic domes, covers and roofing systems. CST's products are used in municipal water, agricultural, wastewater, oilfield, alternative energy, plastics, chemicals, dry bulk and architectural markets.

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Dhruv Khanna
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms CST's B2 CFR; Outlook Remains Negative
No Related Data.
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