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Rating Action:

Moody's changes Harsco's Rating Outlook to negative

Global Credit Research - 18 May 2010

Approximately $900 million of rated long-term debt

New York, May 18, 2010 -- Moody's Investors Service affirmed Harsco Corporation's ("Harsco") ratings of Baa1 senior unsecured and Prime-2 short-term, but revised the rating outlook to negative from stable. The revision follows a lowering in the company's guidance for 2010 earnings which reflect more challenging utilization and pricing conditions in its Infrastructure group, the impact of a stronger US dollar in translating results of its international operations, and partially offset by strengthening results in its Metals and Rail units.

Harsco's Infrastructure segment faces weak demand for its scaffolding and concrete forming equipment as non-residential and multi-family construction activity contracts across its major geographic markets in Europe and North America. Expected rental equipment utilization rates have been guided lower and the slack market conditions have caused pricing to sequentially deteriorate. Although the company has focused on expanding its presence in higher growth countries, the bulk of its revenues continue to be sourced in developed regions in which Moody's expects the timing of any significant resumption of construction demand to be further out in time with low rental equipment pricing likely to continue for a protracted period. The recent strength of the US dollar will exacerbate this impact.

A recovery in global steel production along with cost reduction initiatives has improved the profitability in Harsco's Metal segment. But, margins in that segment have yet to recover to levels experienced prior to the downturn and prospectively may be challenged to do so. Demand for rail maintenance equipment has been robust and is likely to remain so over the near term. The newly separated Rail segment represented less than 15% of consolidated revenues in the most recent quarter but contributed slightly more than 70% of operating profits during that period given the loss experienced in the larger Infrastructure unit. While mixed, on balance these developments are seen as establishing adverse pressure on Harsco's profitability, which, extrapolating from the company's updated EPS guidance, could amount to a shortfall of some $40-$50 million in EBIT for 2010 compared to previous expectations.

Nonetheless, Harsco should generate material free cash flow over the balance of the year given the expected level of capital expenditures compared to depreciation and continued profitability, albeit at reduced levels. As the company has a GBP200 million (roughly $301 million) note maturing in October as well as other short-term obligations, this establishes some capacity to reduce indebtedness. In the absence of improving business conditions, Moody's ratings anticipate that free cash flow will largely be used to improve the balance sheet and strengthen the business rather than be used for shareholder returns. Any more aggressive shareholder return initiatives that deviate from that expectation would likely result in a rating change.

The negative outlook considers the directional implications on earnings-based measures of both leverage and interest coverage. These could approach or penetrate thresholds previously cited as representative of lower ratings. The affirmation of the senior unsecured and short-term ratings incorporates Harsco's ongoing diversified business profile, modest but increasing leverage, and flexibility provided through the significant level of free cash flow generation which could restore some cushion to Harsco's credit metrics.

More specifically, Moody's would consider debt/EBITDA levels that approached 4 times or EBITA/interest sustained below 3 times as quantitative measures pointing towards lower ratings. A stable outlook or higher ratings could develop if debt/EBITDA were on course to fall below 2.5 times while EBITA/interest was consistently above 4 times.

Ratings affirmed:

Harsco Corporation

Senior Unsecured, Baa1

Short-term, Prime-2

Multiple priority shelf filing; senior unsecured, (P)Baa1; subordinated, (P)Baa2; and preferred, (P)Baa3

Harsco Finance B.V.

Senior Unsecured, Baa1

The last rating action was on May 20, 2009 at which time Harsco's long-term rating was downgraded to Baa1 from A3.

The principal methodology used in rating Harsco was the Global Business & Consumer Service Industry Methodology, published in August 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Harsco Corporation, headquartered in Camp Hill, PA is a diversified industrial service company addressing global markets for infrastructure access, outsourced services to metal industries, metal recovery & mineral-based products, railway track maintenance and certain industrial equipment. Revenues for fiscal 2009 were approximately $3 billion.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's changes Harsco's Rating Outlook to negative
No Related Data.
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