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Global Credit Research - 04 Nov 2010
Approximately $1.8 billion of debt affected
New York, November 04, 2010 -- Moody's Investors Service assigned a B2 rating to USG Corporation's
("USG") new senior unsecured notes, and affirmed its
Caa1 Corporate Family Rating and Caa1 Probability of Default Rating.
USG's speculative grade liquidity rating remains SGL-3.
The outlook is stable.
The following ratings/assessments were affected by this action:
Corporate Family Rating affirmed at Caa1;
Probability of Default Rating affirmed at Caa1;
$300.0 million senior unsecured notes due 2014 (guaranteed)
affirmed at B2 (LGD2, 28%);
Senior unsecured notes due 2018 (guaranteed) rated B2 (LGD2, 28%);
$500 million senior unsecured notes due 2016 (not guaranteed) affirmed
at Caa2 (LGD5, 76%);
$500 million senior unsecured notes due 2018 (not guaranteed) affirmed
at Caa2 (LGD5, 76%).
Shelf registration: senior unsecured notes (P) Caa2.
$239 million of Industrial Revenue Bonds ("IRB") with various maturities
(not guaranteed) affirmed at Caa2 (LGD5, 76%).
The company's speculative grade liquidity remains SGL-3.
A B2 rating is assigned to the proposed $300 million senior unsecured
notes due 2018, which are pari passu with the company's existing
$300.0 million senior unsecured notes due 2014. The
higher ratings on these debt instruments relative to the other unsecured
debt in USG's capital structure reflects the upstream guarantees provided
by USG's material domestic subsidiaries, which do not provide guarantees
to the other unsecured debt instruments. Proceeds from the note
issuance will be used for general corporate purposes.
The Caa1 Corporate Family Rating results from weak operating performance.
Low capacity utilization rates of approximately 45% at its gypsum
manufacturing facilities make it difficult for USG to overcome its high
fixed costs. Moody's projects that potential demand increases for
wallboard from North American new home construction and repair and remodeling
will not be adequate to generate sufficient volumes and operating profits
to cover USG's interest expense over the intermediate term. Furthermore,
the non-residential construction end market, which accounts
for about 30% of USG's revenues, is expected to face stagnant
growth well into 2011. The amount of profits derived from the company's
worldwide ceilings business is not enough to make up shortfalls in the
gypsum and distribution businesses. For the last twelve months
through September 30, 2010 operating margins remain substandard
at negative 4.9% and leverage is very high at debt-to-EBITDA
of 27.2 times (ratios adjusted per Moody's methodology).
The company's inability to generate positive earnings will result in very
weak credit metrics for the foreseeable future and will require cash to
fund operating shortfalls.
Moody's believes that USG's ongoing restructuring initiatives continue
to be insufficient, leaving its cost position untenably high at
current throughput levels. Notwithstanding efforts to rationalize
its facilities and reduce staff, USG's credit metrics remain untenably
weak. For example, Moody's view that additional interest
associated with the proposed note issuance will extend an already lengthy
period of time before USG is able to generate sufficient free cash flow
to cover (EBITDA - CAPEX)/interest expense at least 1.0
times (adjusted per Moody's methodology).
USG's SGL-3 speculative grade liquidity rating reflects Moody's
belief that the company will maintain an adequate liquidity profile over
the next twelve months. Cash on hand, marketable securities,
and availability under the company's revolving credit facilities aggregate
to about $975 million (equivalent) at 3Q10 pro forma for the proposed
note issuance, providing the company a great deal of ability to
fund future cash shortfalls over the intermediate term.
The stable outlook incorporates Moody's view that the combination of cash
on hand, marketable securities, and revolver availability
gives USG financial flexibility to contend with uncertainties in the North
American economy and the resulting impact on the company's end markets
over the near term. However, longer term stability will depend
upon further cost rationalization or a meaningful improvement in wall
The last rating action was on June 24, 2010, at which time
Moody's downgraded the Corporate Family Rating to Caa1.
The principal methodologies used in this rating were Global Building Materials
Industry published in July 2009, Speculative Grade Liquidity Ratings
published in September 2002, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
USG Corporation ("USG") is a leading producer and distributor
of building materials in the Unites States, Canada and Mexico.
The company manufactures and markets gypsum wallboard and operates a specialty
distribution business that sells to professional contractors. It
also manufactures ceiling tiles and ceiling grids used primarily in commercial
applications. Revenues for the last twelve months through September
30, 2010 totaled approximately $3.0 billion.
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
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
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.
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 assigns B2 rating to USG's notes; Caa1 Corporate Family Rating affirmed; outlook stable
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