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Global Credit Research - 17 Sep 2010
Approximately $740 million of debt affected
New York, September 17, 2010 -- Moody's Investors Service affirmed Armstrong World Industries,
Inc.'s ("Armstrong") Ba2 Corporate Family Rating
and Ba3 Probability of Default Rating. In a related rating action,
Moody's upgraded the company's senior secured bank credit
facilities to Ba1 from Ba2 driven by secured debt repayment. Armstrong's
speculative grade liquidity rating remains SGL-1. The outlook
The following ratings/assessments were affected by this action:
Corporate Family Rating affirmed at Ba2;
Probability of Default Rating affirmed at Ba3; and,
$300 million Senior Secured Revolving Credit Facility due 10/02/2011
upgraded to Ba1 (LGD2, 23%) from Ba2 (LGD3, 32%);
$250 million Senior Secured Term Loan A due 10/02/2011 upgraded
to Ba1 (LGD2, 23%) from Ba2 (LGD3, 32%);
$190 million Senior Secured Term Loan B due 10/02/2013 upgraded
to Ba1 (LGD2, 23%) from Ba2 (LGD3, 32%).
The company's speculative grade liquidity rating remains at SGL-1.
Armstrong's Ba2 Corporate Family Rating considers the company's
market position as a leader in providing flooring to the North American
residential and commercial end markets and its wide customer base.
Armstrong is not beholden to any specific distribution channel as no customer
accounted for more than 10% or more of total net sales, affording
the company flexibility to shifting end market demands. The rating
also incorporates expectations that earnings derived from its WAVE joint
venture will remain robust, contributing to tolerable debt leverage
characteristics. EBITA-to-interest expense stood
at 2.6 times for LTM 2Q10 and debt-to-EBITDA was
3.7 times (as adjusted by Moody's).
Although WAVE is a significant contributor to earnings, Armstrong's
operating margins remain weak with adjusted EBITA margin of 3.6%
for LTM 2Q10. Additionally, Armstrong is continuing with
cost reduction initiatives that will likely result in more charges,
further dampening operating performance. Moody's adjusts for some
restructuring costs and asset impairments. Another constraint to
the company's rating is the potential that Armstrong will become
more leveraged over the intermediate term. Armor TPG Holdings LLC
("TPG"), Armstrong's largest shareholder after
the Asbestos Personal Injury Settlement Trust, may have Armstrong
pursue debt-financed acquisitions or shareholder friendly activities
such as special dividends or share repurchases. Nevertheless,
Armstrong's very good liquidity profile with about $860 million
of combined cash and revolving credit availability gives it significant
financial flexibility to contend with ongoing economic uncertainties.
The upgrade in ratings to the senior secured bank credit facilities result
from secured debt repayments resulting in a lower proportion of secured
debt versus unsecured claims, and lower secured claims against available
A rating upgrade is unlikely over the intermediate term due to Armstrong's
ongoing cost reduction initiatives and the potential of the company becoming
more leveraged. However, when market conditions within the
North American economy show signs of noticeable improvement and operating
efficiencies appear sustainable, then an upgrade may be considered.
Over time, EBITA-to-interest expense trending towards
4.5 times or debt-to-EBITDA sustainable near 3.0
times would suggest a potential for upwards ratings movement.
A rating downgrade could result from evidence that Armstrong is not benefiting
from its cost reduction programs or financial performance is negatively
impacted by an unexpected decline in the company's end markets.
EBITA-to-interest expense falling towards 2.0 times
or debt-to-EBITDA sustained above 4.5 times (all
ratios adjusted per Moody's methodology) for an extended period of time
could pressure the ratings. Debt-financed transactions,
shareholder friendly activities, or a deterioration in the company's
liquidity profile would also stress Armstrong's ratings.
The principal methodologies used in rating Armstrong World Industries,
Inc. were Moody's Approach to Global Standard Adjustments in the
Analysis of Financial Statements for Non- Financial Corporations
- Part I published in February 2006, Global Manufacturing
Industry published in December 2007, Speculative Grade Liquidity
Ratings published September 2008, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published June 2009. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found on Moody's website.
Armstrong World Industries, Inc., headquartered in
Lancaster, PA, is a global producer 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. Revenues for the last
twelve months through June 30, 2010 totaled approximately $2.8
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Armstrong's Ba2 Corporate Family Rating; outlook stable
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New York, NY 10007
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