Approximately $475 million of rated debt obligations affected
New York, May 18, 2012 -- Moody's Investors Service downgraded American Rock Salt Company LLC's
("ARSC") corporate family ("CFR") and probability
of default ratings ("PDR") to B3 from B2. At the same
time, Moody's downgraded the company's senior secured
1st lien term loan to B3 and its 8.25% senior secured 2nd
lien notes to Caa1. The outlook is negative.
The downgrade reflects weaker than anticipated revenue and profitability
as a result of unseasonably warm winter months and a lack of substantial
snow and ice in ARSC's regions of operation. A substantial increase
in leverage and anticipated reduction in liquidity levels as a result
of reduced demand for the company's de-icing salt underpin
the downgrade to B3 and the negative outlook. While the company
may experience greater demand for its de-icing salt in the future
if winter weather patterns normalize, its leverage is likely to
be sustained at levels more reflective of a B3 rating because of a high
debt burden and financial policies that have tended to favor shareholder
distributions. In addition, reduced free cash flow will likely
prompt greater reliance on revolver borrowings to fund operations.
The following ratings/assessments have been affected:
Corporate Family Rating, downgraded to B3 from B2;
Probability of Default Rating, downgraded to B3 from B2;
$300 million sr. sec. 1st lien term loan due 2017,
downgraded to B3 (LGD4, 52%) from B2 (LGD4, 51%);
$175 million 8.25% 2nd lien notes due 2018,
downgraded to Caa1 (LGD4, 61%) from B3 (LGD4, 58%);
The outlook is negative.
RATINGS RATIONALE
ARSC's B3 CFR reflects the company's very high leverage and high
balance sheet debt relative to the size of the company. In addition,
ARSC's ratings are limited by its business profile which includes a single
mine operation (Hampton Corners Mine), weather influenced demand
fluctuations, focused product line (rock salt for highway de-icing),
and a geographically narrow market (primarily western Pennsylvania and
upstate New York).
The company's rating is supported by its historically strong margins,
cost advantages associated with operating a relatively new mine,
historically favorable meteorological conditions in its markets including
"lake effect" snow, relatively stable (although highly seasonal)
yearly cash flows that are insulated from economic cycles, modest
capex requirements and a diverse customer base. The rating is further
supported by the rock salt industry's relatively benign industry competitive
dynamics, natural cost advantages ARSC enjoys over competitors in
the markets adjacent to its mining operations and barriers to entry for
new competitors.
The negative outlook reflects Moody's expectation that the company's
liquidity profile, primarily excess revolving credit facility capacity,
will begin to tighten based on reduced free cash flow which could prompt
additional revolver borrowings and possible testing and violation of the
company's springing fixed charge coverage covenant.
A downgrade of the ratings could result if the company is unable to comply
with its covenants and maintain liquidity and/or operating performance
does not improve to more historical levels in the upcoming winter season.
An upgrade to the rating is unlikely given the company's business
profile (including risks associated with operating a single mine),
modest size, high leverage, and weak metrics. A stabilization
of the outlook could occur if the company is able to improve its liquidity
levels driven by a recovery in operating performance.
The principal methodology used in rating American Rock Salt Company LLC
was the Global Chemical Industry Methodology published in December 2009.
Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
American Rock Salt Company LLC, headquartered in Retsof, New
York, is a producer of highway deicing rock salt. It operates
a single mine (Hampton Corners Mine) in upstate New York and sells its
product primarily to state and local government agencies in the northeastern
US. The firm is a wholly owned subsidiary of American Rock Salt
Holdings LLC, which is closely held by private investors,
including some members of management.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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Arvinder Saluja
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
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U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades American Rock Salt's CFR to B3; outlook negative