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Rating Action:

Moody's Upgrades Martin Marietta to Investment Grade

06 Apr 2017

Approximately $1,355 million of rated debt securities affected

New York, April 06, 2017 -- Moody's Investors Service ("Moody's") upgraded the senior unsecured debt ratings of Martin Marietta Materials, Inc. ("Martin Marietta") to Baa3 from Ba1 and the Commercial Paper rating to P-3 from Not Prime. The rating outlook is stable.

The ratings upgrade reflects continued improvement in Martin Marietta's financial ratios resulting from improved operating performance. The company's adjusted debt-to-EBITDA declined to 2.3x for the year-end 2016 from 2.6x at year-end 2015 and 3.3x at year-end 2014. Operating margin has also improved over the same period, increasing to 18.5% from 15.1% and 13.2%, respectively. Moreover, the rating upgrade reflects Moody's belief that Martin Marietta has the willingness and the ability to defend its investment grated rating in a cyclical downturn.

The following ratings actions were taken:

Issuer: Martin Marietta Materials, Inc.:

Senior unsecured notes, upgraded to Baa3 from Ba1 (LGD4);

Commercial Paper, upgraded to P-3, from Not Prime.

The rating outlook is stable.

Note: the CFR, PDR and SGL were withdrawn because they are ratings assigned to non-investment grade companies.

RATINGS RATIONALE

Martin Marietta's Baa3 senior unsecured rating benefits from the company's position as one of North America's leading aggregates producers and leading cement producer in Texas; geographic, product and distribution diversity; typically stable operating performance in most, but not all, economic scenarios; and diverse end-markets including public, private residential and non-residential construction. The rating also benefits from a conservative balance sheet, solid operating margin, and strong free cash flow generation.

The rating also incorporates the highly competitive nature of the industry and volatility from the cement and ready-mixed concrete businesses. Cement and ready-mixed concrete businesses are more volatile than aggregates business. The cement business is capital-intensive and prices can change dramatically even with minor changes to supply and demand. Ready-mixed concrete business has less pricing power and lower profitability than aggregates due to volatile input costs, competition and low barriers to entry. The rating also considers the company's lack of multinational diversity. Martin Marietta effectively derives most of its income from operations in North America, with a concentration of income from Texas, and is smaller in scale than multinational building materials companies.

Martin Marietta's strong liquidity position is supported by $50 million of cash on hand, as of December 31, 2016, $700 million unsecured revolving credit facility which expires December 2021, $300 million trade receivable facility which matures September 2017, and Moody's expectation that the company will generate substantial free cash flow over the next twelve months. For the year ended December 31, 2016, Martin Marietta generated $209 million in adjusted free cash flow. The revolving credit facility does not require the company to represent and warrant a material adverse condition on the borrowing dates. The revolving facility is governed by a net debt to EBITDA ratio not to exceed 3.5x at the end of each fiscal quarter, but the ratio may flex up to 3.75x in the event of certain acquisitions. The trade receivables facility contains a cross-default provision to the company's other debt agreements. Martin Marietta has approximately $600 million of debt maturities through 2018. The company has adequate liquidity to repay this debt from expected free cash flow, cash on hand and revolver availability.

The stable outlook reflects Martin Marietta's improving financial ratios and our expectation that construction end markets will continue to improve through 2017, leading to further improvement in profitability metrics. The rating outlook also assumes the company will maintain strong liquidity and will carefully balance its conservative financial policy against its growth strategies, which may include various "tuck-in" acquisitions.

Martin Marietta's ratings could be upgraded should the company's adjusted operating margin be sustained over 18%, adjusted debt-to-EBITDA decline and be sustained below 2.5x at all points through the construction cycle, adjusted debt-to-book capitalization decline below 30%, adjusted EBIT-to-interest expense increase above 6.0x, and retained cash flow as a percentage of net debt exceed 35%, with the expectation that all metrics are sustainable. Strong liquidity, including the elimination of financial covenants in its revolving credit facility or maintaining very robust cushion in financial covenants, would also support a ratings upgrade.

The ratings would likely be downgraded in the event that Martin Marietta's adjusted operating margins deteriorate below 12%, adjusted debt leverage increases above 3.0x and adjusted EBIT-to-interest expense coverage is below 4.0x over an extended period of time. Additional rating pressures could emerge if construction fundamentals were to deteriorate materially, liquidity deteriorates or if the company pursues a materially levering transaction.

The principal methodology used in these ratings was Building Materials Industry published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Martin Marietta Materials, Inc., headquartered in Raleigh, North Carolina, is a leading producer of aggregates products and cement for the construction industry, including infrastructure, nonresidential, residential, railroad ballast, agricultural, and chemical grade stone used in environmental applications. The Aggregates business also comprises downstream product lines including asphalt products, ready-mixed concrete, and road paving construction services. The Aggregates business accounted for nearly 84% of the company's revenues for the year ended 2016. The Cement business and the Magnesia Specials business accounted for 10% and 6%, respectively. For the year ended 2016, Martin Marietta generated approximately $3.8 billion in revenue.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Karen Nickerson
Senior Vice President
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

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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