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Rating Action:

Moody's assigns B2 Corporate Family Rating to Brock Holdings

Global Credit Research - 25 Feb 2011

Approximately $805 million of debt affected

New York, February 25, 2011 -- Moody's Investors Service assigned first-time public rating of B2 Corporate Family Rating and B2 Probability of Default Rating to Brock Holdings III, Inc. ("Brock"). In related action Moody's assigned a B1 rating to the proposed 1st Lien Senior Secured Bank Credit Facility and a Caa1 rating to the proposed 2nd Lien Senior Secured Bank Credit Facility. The rating outlook is stable.

The following ratings/assessments were affected by this action:

Corporate Family Rating assigned B2;

Probability of Default assigned B2;

$105 million Senior Secured Revolving Credit Facility due 2016 rated B1 (LGD3, 39%);

$490 million 1st Lien Senior Secured Term Loan due 2017 rated B1 (LGD3, 39%); and,

$210 million 2nd Lien Senior Secured Term Loan due 2018 rated Caa1 (LGD5, 89%).

Ratings Rationale

Brock's B2 Corporate Family Rating is constrained by the high leverage and resulting modest interest coverage ratios that result from a large debt-financed dividend to Lindsay Goldberg and other Brock equity owners and the merged debt refinancing totaling about $455 million. Once the transaction closes Moody's determines leverage will be near 5.0 times and annualized interest coverage will be below 1.5 times (ratios adjusted per Moody's methodology). Moody's calculates that the size of the dividend represents a substantial amount of the expanded Brock's future free cash flow. However, Brock's long established significant market presence combined with its good liquidity profile gives it some flexibility to contend with the volatility in the petrochemical and oil refinery end markets, primary drivers of Brock's revenues.

The rating is supported by Moody's view that folding Atlantic and Steeplejack into Brock should result in a company with improved economies of scale and operating efficiencies to compete more effectively in a highly fragmented market. Atlantic and Steeplejack are presently separate entities also controlled by Lindsay Goldberg with similar business models. Additionally, Atlantic will expand Brock's U.S. footprint while Steeplejack will give Brock a presence in Western Canada and its oil sands. Moody's believes that integration risk is minimal, since all three companies have the same senior management team.

The petrochemical and oil refinery end markets are improving albeit from historically low levels. Business expansion from new and existing clients is expected through the balance of 2011 and into 2012, enabling the company to generate sufficient earnings to cover higher interest costs associated with the higher debt levels. Moody's expects the company to generate at least high single-digit percentages of free cash flow-to-debt metrics on an annual basis, with free cash flow expected to be used for debt reduction.

The stable outlook reflects Moody's expectation that the company will generate relatively consistent operating profits, and will maintain debt leverage and interest coverage ratios appropriate for its rating category, including a good liquidity profile supported by its revolving credit facility and the absence of near-term maturities.

Moody's does not anticipate rating pressures over the intermediate term until Brock demonstrates that it can generate expanded earnings and free cash flow, resulting in improved credit metrics. Over the longer term, EBIT-to-interest expense trending towards 3.0 times and debt-to-EBITDA sustained below 4.0 times (ratios adjusted per Moody's methodology), while maintaining a good liquidity profile, could result in a positive rating action.

Factors which might stress the ratings include erosion in the company's financial performance, debt financed acquisitions or dividends, or a deteriorating liquidity profile. EBIT-to-interest expense trending towards 1.0 times or debt-to-EBITDA increasing towards 6.0 times (all ratios adjusted per Moody's methodology) could result in negative rating pressures.

The B1 rating assigned to the proposed $595 million first-lien senior secured bank credit facility, one notch above the corporate family rating, reflects the priority of payment in a recovery scenario. This credit facility will have a first priority security interest in substantially all of the company's assets and benefits from $210 million in junior capital.

The Caa1 rating assigned to the proposed $210 million senior secured bank credit facility, two notches below the corporate family rating, has a second priority interest in substantially all of the company's assets and is the most junior committed debt in Brock's capital structure.

The principal methodology used in this rating is Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Brock Holdings III, Inc. ("Brock"), headquartered in Houston, TX, through its operating subsidiaries, is a multi-craft specialty services company providing scaffolding, insulation, coatings and other services supporting the refining, chemical and power industries. Lindsay Goldberg, through affiliated funds, is the primary owner of Brock. Revenues for the combined entities are estimated at about $1.3 billion on an annualized basis.

REGULATORY DISCLOSURES

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 information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning 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 for further information.

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.

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

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

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

Moody's assigns B2 Corporate Family Rating to Brock Holdings
No Related Data.
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