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Related Issuers
Rating Action:

Moody's assigns Ba3 rating to BMCA's proposed senior unsecured notes

26 Apr 2011

Approximately $2.0 billion of debt affected

New York, April 26, 2011 -- Moody's Investors Service assigned a Ba3 to Building Materials Corporation of America's ("BMCA") proposed $1.0 billion Senior Unsecured Notes due 2021, and affirmed its Ba3 Corporate Family Rating and Ba3 Probability of Default Rating. Proceeds from the notes issuance will be used to make a $500 million dividend to G-I Holdings Inc.(unrated), BMCA's indirect parent holding company, to repay the company's existing term loan due 2014, and to pay interest rate swap termination fees and other expenses. In a related rating action, Moody's upgraded the company's existing Senior Secured Notes due 2020 to Ba1 from Ba2 and its Senior Unsecured Notes due 2018 and 2020 to Ba3 from B1. The rating outlook is stable.

The following ratings/assessments were affected by this action:

Corporate Family Rating affirmed at Ba3;

Probability of Default Rating affirmed at Ba3;

$250 million Sr. Sec. Notes due 2020 upgraded to Ba1 (LGD2, 16%) from Ba2 (LGD3, 33%);

$450 million Sr. Unsec. Notes due 2018 upgraded to Ba3 (LGD4, 50%) from B1 (LGD5, 73%);

$325 million Sr. Unsec. Notes due 2020 upgraded to Ba3 (LGD4, 50%) from B1 (LGD5, 73%);

$1.0 billion Sr. Unsec. Notes due 2021 rated Ba3 (LGD4, 50%); and,

The Ba2 (LGD3, 33%) rating for the $498.4 million (originally $975.0 million) Sr. Sec. Term Loan due 2014 has been withdrawn.

RATINGS RATIONALE

The Ba3 Corporate Family Rating is supported by the company's strong market position in the roofing repair and remodeling sector and expectations that the company will continue to generate strong operating performance resulting from stable demand for roofing repair, the main driver of BMCA's revenues. Additionally, its adjusted EBITA margins are likely to remain well above 20%, aided by improved operating efficiencies and an ability to mitigate cost increases. Key credit metrics will deteriorate modestly due to the net increase of about $500 million of balance sheet debt from the proposed debt issuance, but remain supportive of the rating. Moody's calculates that the company's EBITA-to-interest expense will fall to 3.75 times from 4.0 times on a pro forma basis for 2010. Debt-to-EBITDA will be about 3.5 times, inclusive of the proposed note issuance and debt issued by G-I Holdings Inc.

Constraining BMCA's rating is its business profile with predominately reliance on a single line of business with minimum international exposure. Also, the company has negative tangible net worth and a high debt-to-book capitalization ratio, which are characteristics of highly speculative grade ratings. Although Moody's recognizes that some portion of the proposed dividend will remove BMCA from a contingent liability, in aggregate, the company will have dividend in excess of $625 million within the last three fiscal quarters, exhibiting a change in financial policy by the company. However, BMCA's ability to generate strong cash flows and a very good liquidity profile give it flexibility to offset some of the company's credit weaknesses, and positions it well relative to the Ba3 Corporate Family Rating.

Proceeds from the notes issuance will be used to make a dividend of approximately $500 million to G-I Holdings Inc., to repay the company's entire $498.4 million senior secured term loan due 2014, to terminate an interest rate swap associated with the term loan, and to pay related fees and expenses. At least $284.5 million of the dividend will be used to secure letters of credit issued by G-I Holdings Inc., which will release BMCA from providing credit enhancements provided in the form letters of credit issued under the revolving credit facility. The repayment of the existing term loan extends company's debt maturity profile. Except for the revolving credit facility with no borrowings outstanding that will likely be addressed by year-end, BMCA will have no maturities until 2018.

The Ba3 rating assigned to the proposed $1.0 billion Senior Unsecured Notes due 2021, and the rating upgrades of the Senior Unsecured Notes due 2018 and 2020 to Ba3, same rating as the corporate family rating, from Ba1 incorporate their position as the majority of committed capital in BMCA's capital structure. The unsecured notes will be pari passu to each other. They also benefit from the debt issued by G-I Holdings Inc., which Moody's considers as junior capital until defeased or fully repaid.

The upgrade of BMCA's $250 million Senior Secured Notes due 2020 to Ba1, two notches above the corporate family rating, from Ba2 results from the amount of senior debt in BMCA's capital structure. BMCA's partial recapitalization reduces its secured committed credit facilities by approximately $498.4 million. This reduction in other secured debt improves the recovery values for these notes, albeit on a second lien basis to the company's revolving credit facility, in a recovery scenario. These notes also benefit from $1.0 billion of additional junior capital, warranting the lift in the rating.

Management has performed admirably in the downturn with operating performance expected to improve. The company could be considered for positive rating momentum if retained earnings after dividends result in a stronger equity position. Over time, debt-to-book capitalization trending towards 60% (adjusted per Moody's methodology) would support consideration of higher ratings.

Factors that might pressure the ratings include erosion in the company's financial performance due to a decline in the repair and remodeling sectors, deterioration in the company's liquidity profile, large dividends, or significant cash outflows supporting parent company debt obligations. Adjusted EBITA margins trending below 20% or EBITA/interest expense nearing 3.5 times (adjusted per Moody's methodology) could result rating pressures.

The principal methodology used in rating Building Materials Corporation of America 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.

Building Materials Corporation of America, headquartered in Wayne, NJ, is a national manufacturer and marketer of a broad line of asphalt roofing products and accessories for the residential and commercial roofing markets. The company also manufactures specialty building products and accessories for the professional and do-it-yourself remodeling and residential construction industries. BMCA operates under the trade name GAF Materials Corp. Ronnie F. Heyman, through various trusts and holding companies, is the beneficial owner of BMCA. Revenues for 2010 totaled approximately $2.5 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, 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 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.

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

New York
Glenn B. Eckert
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 Ba3 rating to BMCA's proposed senior unsecured notes
No Related Data.
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