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Announcement:

Moody's affirms Armstrong's B1 Corporate Family Rating; outlook stable

15 Mar 2012

Approximately $1.3 billion of debt affected

New York, March 15, 2012 -- Moody's Investors Service affirmed Armstrong World Industries, Inc.'s ("Armstrong") B1 Corporate Family Rating and B1 Probability Default Rating. Moody's also affirmed the B1 ratings assigned to the company's bank credit facilities, including its Term Loan B. Armstrong is proposing a $250 million add-on to Term Loan B maturing March 2018. Proceeds from the add-on term loan and about $250 million from cash on hand will be used to pay a special cash dividend to Armstrong's shareholders. The rating outlook is stable.

The following ratings/assessments were affected by this action:

Corporate Family Rating affirmed at B1;

Probability of Default Rating affirmed at B1;

$250 million Senior Secured Revolving Credit Facility due 2015 affirmed at B1 (LGD3, 42%);

$250 million Senior Secured Term Loan A due 2015 affirmed at B1 (LGD3, 42%); and,

$800 million (originally $550 million) Senior Secured Term Loan B due 2018 affirmed at B1 (LGD3, 42%); and,

The company's speculative grade liquidity assessment remains SGL-2.

RATINGS RATIONALE

Armstrong's B1 Corporate Family Rating reflects its highly leveraged capital structure as the result of its aggressive financial strategy. The proposed $500 million dividend follows a previous dividend totaling about $800 million paid in December 2010. These two dividends represent almost twenty years of Armstrong's 2011 reported GAAP free cash flows. The company is financing the proposed $500 million dividend with about $250 million from cash on hand and the remaining balance of $250 million from the proceeds of new debt. This net increase in balance sheet debt will result in deterioration in key credit metrics due to higher debt service requirements. On a pro-forma basis for last twelve months through December 31, 2011, interest coverage defined as EBITA-to-interest expense will weaken to about 2.8 times from 3.2 times and debt-to-EBITDA will increase to about 4.2 times from 3.5 times at FYE11 (all ratios adjusted per Moody's standard adjustments).

Despite the increase in balance sheet debt, pro forma financial metrics remain consistent with the current rating. Also, the company's operating margins are improving. Armstrong continues to benefit from the WAVE JV, a critical earnings and cash contributor. Its strong North American market position among providers of flooring to the new construction and remodeling end markets positions it to benefit from an eventual economic and construction recovery. Weakened credit metrics on a pro forma basis, and potential for future shareholder friendly activities such as share repurchases or dividends constrain the rating. Overall, Armstrong is positioned appropriately relative to its current rating, and has the financial flexibility to contend with ongoing uncertainties in its domestic and European end markets.

Armstrong's SGL-2 speculative grade liquidity rating reflects our view that the company will maintain a good liquidity profile over the next twelve months, despite the use of cash on hand to partially fund the $500 million dividend. Pro forma for the proposed dividend, cash on hand would be $230.6 million at December 31, 2011. Also, Armstrong should be able to maintain sufficient cash on hand remaining and revolving credit availability to support potential operating short-falls, since the company usually has negative cash flows from operations during the first quarter of its fiscal year due to working capital investments to meet seasonal demands.

The stable outlook incorporates our view that Armstrong's operating performance will continue to improve, resulting in credit metrics that are more supportive of the current rating. The company's good liquidity profile and the absence of any near-term maturities beyond manageable term loan amortization also support the rating.

A rating upgrade is unlikely over the intermediate term as we believe that Armstrong will continue to pursue shareholder friendly activities as its operating earnings continue to improve. However, if operating performance results in EBITA-to-interest expense trending towards 4.0 times and debt-to-EBITDA improving towards 3.0 times (all ratios include Moody's standard adjustments), then positive rating actions could ensue. Ongoing cash dividends commensurate with the strong equity earnings from the WAVE JV are critical to supporting an upgrade.

Factors that could result in a downgrade of the ratings include operating performance below expectations or erosion in the company's financial performance due to an unexpected decline in Armstrong's end markets. EBITA-to-interest expense trending below 3.0 times or debt-to-EBITDA sustained above 4.5 times (all ratios incorporate Moody's standard adjustments) could pressure the ratings. Deterioration in the company's liquidity profile, significant shareholder return activities, such as debt-financed dividends or share repurchases, or debt-financed acquisitions may stress Armstrong's ratings too. Also, any disruption in the reported equity earnings from the WAVE JV could pressure Armstrong's operating margins, potentially resulting in negative rating actions.

The principal methodology used in rating Armstrong was the Global Manufacturing Industry Methodology, published December 2010. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Armstrong World Industries, Inc. ("Armstrong"), located in Lancaster, PA, is a global manufacturer of flooring products and ceiling systems for use primarily in the construction and renovation of residential, commercial and institutional buildings. The company also designs, manufactures and sells kitchen and bathroom cabinets for the U.S. market. Armor TPG Holdings LLC is Armstrong's largest shareholder after the Asbestos Personal Injury Settlement Trust. Revenues for the twelve months through December 31, 2011 totaled approximately $2.9 billion

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Peter Doyle
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

Brian Oak
MD - Corporate Finance
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

Moody's affirms Armstrong's B1 Corporate Family Rating; outlook stable
No Related Data.
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