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Rating Action:

Moody's assigns ratings to Pittsburgh Glass Works, Corporate Family at B2

04 Apr 2011

Approximately $300 million of rated debt obligations affected

New York, April 04, 2011 -- Moody's Investors Service assigned ratings to Pittsburgh Glass Works (PGW) - Corporate Family and Probability of Default Ratings, B2. In a related action Moody's assigned a B2 rating to the new $300 million senior secured note. The rating outlook is stable.

Ratings assigned:

Corporate Family Rating, B2

Probability of Default, B2

$300 million senior secured note, B2 (LGD4, 55%)

RATING RATIONALE

The new senior secured note will be used to redeem PGW's existing seller notes, fund a distribution to the company's unitholders (Kohlberg and Company, and PPG Industries, Inc.) of approximately $180 million, and add some cash to the balance sheet. Concurrent with the transaction, PGW will amend and extend the existing ABL revolving credit facility, extending the maturity to 2016 from 2013.

The B2 Corporate Family Rating incorporates the company's high leverage and moderate interest coverage following the proposed recapitalization and unitholder distribution. As automotive demand recovers in North America, PGW is anticipated to make substantial capital reinvestments in its plant and equipment over the intermediate-term in order to support industry growth and new business wins, resulting in negative free cash flow. The ratings also incorporate some execution risk of implementing this capital reinvestment, as PGW is currently operating close to full capacity. Yet, the company's credit metrics should continue to support the assigned rating as the company has taken significant restructuring actions over the recent years to close high cost manufacturing facilities, reduce headcount, and improve financial reporting systems.

PGW is a leading player in the market for OEM and aftermarket automotive glass. The company's exposure to the Detriot-3 is approximately 49% of its OEM revenues, and 24% of total revenues. The aftermarkets segment (about 44% of total revenues) and insurance services segment (about 7% of total revenues) provide important revenue streams that support more stable operating performance compared to other companies in the auto parts sector.

The stable outlook reflects Moody's expectation that PGW will maintain its leading positions in the automotive OEM and replacement glass markets over the intermediate-term and the benefits of recovering automotive production in North America. Availability under the company's liquidity facility is expected to be sufficient to support operating flexibility in the event industry growth trends temporarily stall. On a pro forma basis, initial leverage (using Moody's standard adjustments) is estimated to approximate 4.0x, and EBIT/Interest, 1.9x.

PGW is expected to have an adequate liquidity profile over the near-term supported by a new $180 million asset based revolving credit facility. Pro forma for the refinancing and shareholder distribution, PGW's cash balances are anticipated to be modest. Availability under the revolving credit is anticipated to support modest negative free cash flow over the near-term, as additional manufacturing locations are built to support new business wins and industry growth. Yet, the revolving credit facility is expected to remain largely available over the next twelve months subject to borrowing base limitations. The senior secured notes will not have financial maintenance covenants. The asset based revolving credit facility will have springing fixed charge coverage test of 1.0 when availability fall below certain levels. Alternative liquidity will be limited as essentially all the company's domestic assets will secure the revolving credit and senior secured notes.

Future events that have the potential to drive PGW's outlook or ratings higher include: continued improvement in operating performance which results in Debt/EBITDA approaching 3.5x, and EBIT/Interest consistently above 2.2x, combined with positive free cash flow generation.

Future events that have the potential to drive PGW's outlook or ratings lower include: reduced automotive demand which results in significantly lower revenues and profit margins; market share losses in any of the company's segments, disruptions in the company's operations resulting from planned manufacturing expansions; a significant deterioration in liquidity, or acquisitions requiring debt funding. Consideration for a lower rating could arise if any combination of these factors results in Debt/EBITDA approaching 5x, or EBIT/interest coverage approaching1.5x.

PGW manufactures, fabricates and delivers glass products and solutions to automotive OEMs directly or through third party suppliers; manufactures replacement auto glass and distributes related sundries to the glass replacement aftermarket; and provides a suite of software and services that manages the auto glass insurance claims process, inventory and work flow for glass retailers. Net Sales in 2010 approximated $832 million.

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

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 assigninga credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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New York
Timothy L. Harrod
Vice President - Senior 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 ratings to Pittsburgh Glass Works, Corporate Family at B2
No Related Data.
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