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Rating Action:

Moody's assigns B3 rating to Atkore Int'l's sr. sec'd notes; stable outlook

07 Dec 2010

Approximately $410 million of debt securities affected

New York, December 07, 2010 -- Moody's Investors Service assigned a B3 rating to the proposed $410 million of senior secured notes due 2017 being issued by Atkore International, Inc. (Atkore), and assigned B2 corporate family and probability of default ratings to the company. The rating outlook is stable. Atkore is a new company created from Tyco International's sale of its electrical and metal products business segment. Clayton, Dubilier & Rice (CD&R) is acquiring a 51% interest in Atkore and the remaining 49% will be retained by Tyco International. CD&R's investment is via cumulative convertible participating preferred shares that initially carry a 12% dividend payable in cash or additional shares (PIK), subject to debt covenants. This is the first time Moody's has rated the debt of Atkore.

RATINGS RATIONALE

The B2 corporate family rating reflects Atkore's sensitivity to fluctuating prices of steel and copper, which comprise about 60% of its cost of sales, as well as cyclical variations in demand for its electrical and tubular products. The company operates in a highly competitive market with little ability to differentiate its products. It is currently facing a pronounced weakness in the U.S. non-residential construction market, which represents approximately 60% of its global sales. As a result, the company's recent operating performance (EBIT of $68 million for the 12 months ended September 24, 2010) is well below its long-term averages. Moody's does not see a meaningful recovery in the non-residential construction market before 2012.

Atkore's financial performance is also impacted by, in our opinion, relatively high SG&A costs, which we believe will be addressed by the new management team. However, any contemplated cost savings may be difficult to achieve, there are likely to be cash up-front costs associated with some of the cost saving initiatives, Atkore will incur costs in running the company on a stand-alone basis, which could be higher than expected, and there are substantial closing fees (above $30 million) and annual management fees ($6+ million) that Atkore will pay to CD&R and Tyco. In addition, pro forma interest on the debt and dividends on CD&R's $306 million of preferred stock will be approximately $70 million if the 12% preferred dividend is paid in cash. As a result of these factors and the state of the non-residential construction market, we anticipate Atkore will have limited free cash flow over the next two years.

Atkore's pro forma debt is $695 million as calculated by Moody's, making leverage a high 5.5x adjusted 2010 EBITDA. In addition to the $465 million of funded debt, Moody's adjusted debt figure includes $27 million of underfunded pension obligations, $50 million of debt-equivalent operating leases, and $153 million of imputed debt associated with the CD&R preferred stock.

The rating is supported by the diversity of Atkore's product offering and its market position for many of its products. We also acknowledge that the company's operating profit will fluctuate but should consistently be positive due to its ability to pass through raw material costs over time. We also believe the company will be able to trim its costs and thereby boost operating margins.

The following ratings were assigned to Atkore International, Inc.

Corporate family rating -- B2

Probability of default rating -- B2

Proposed $410 million of senior secured notes due 2017 -- B3 (LGD5, 71%)

The stable outlook reflects the stability provided by Atkore's margin-over-metal operating model, our belief that the current soft non-residential construction market will slowly recover, that Atkore's free cash flow will be close to breakeven, and that potential cost savings will solidify the company's operating margins and cash flow. The rating could be raised if cash flow to debt is sustainably above 5%, EBIT margin exceeds 7% and adequate liquidity is maintained. The rating could be lowered if free cash flow is negative, EBIT margin is less than 5%, or debt to EBITDA exceeds 5 times.

The principal methodologies used in this rating were Global Steel Industry published in January 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Atkore International manufactures and distributes electrical conduit, armored cable, mechanical pipe, tube and other products within the U.S., Canada, Brazil, the UK, France, China, Australia, New Zealand, and Saudi Arabia. Its sales for the 12 months ended September 24, 2010 were $1.4 billion.

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, and confidential and proprietary Moody's Investors Service 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.

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New York
Steven Oman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Brian Oak
MD - Corporate Finance
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 B3 rating to Atkore Int'l's sr. sec'd notes; stable outlook
No Related Data.
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