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Rating Action:

Moody's changes its rating on Carmeuse to B1 from B2 and assigns a provisional (P) B1 rating to Carmeuse new USD 375 million senior secured notes. Outlook on all ratings remains positive.

14 Apr 2011

London, 14 April 2011 -- Moody's Investors Service has today changed its rating on Carmeuse Holding S.A. to B1 and has assigned a provisional (P) B1 rating to Carmeuse's new Senior Secured notes. The outlook on all ratings remains positive.

RATINGS RATIONALE

The change in the rating was prompted by a positive operating performance in 2010 and by the announced refinancing of the portion of its existing debt with shorter maturities with a new HY bond and bank loans with longer maturities.

As a result of the refinancing, we note the factors previously constraining Carmeuse's corporate family rating, and namely the group's challenging debt amortization schedule and high refinancing risk profile over the period 2011 to 2014, related to high debt repayments scheduled, the expiration of the existing Revolver facility in 2012 and of the FRNs in 2014, are addressed by the new envisaged debt structure. The new debt structure resulting from the refinancing a) extends the average debt maturity profile of the Group; b) improves the debt repayment schedule, reducing the related short term refinancing risks, and notably the refinancing risk on the FRNs maturing in 2014, as the new financing package includes a committed Back Stop Facility which will be entirely used in 2014 to repay a substantial amount of the FRNs; and c) provides a larger and longer term Revolver facility, compared to the current Revolver which will be refinanced in full.

Despite the improvements noted above, the rating still factors in the relatively high level of financial debt in absolute terms and also compared to the overall size of the group, and Carmeuse still relatively high exposure to the North American market (which accounted for 55% of revenues in 2010) and to the steel industry (the major end market, accounting for 30% of revenues in 2010), which has been identified as a threat in the past due to its relatively high cyclicality. However, Moody's acknowledges the leading positions the group holds in its reference markets, the long term relationships with its mainly blue chips customers.

The liquidity position of Carmeuse has improved from adequate to good, as a result of both the positive cash flow generated during 2010, and assuming the refinancing plans are successful. In particular, we consider positively the expected positive operating cash flow generation during 2011, and the new improved debt structure in place, which includes a larger committed Revolver facility available. Reasons for a still cautious assessment, in spite of the abscence of debt amortisation in 2011, are the substantial cash outflows planned in 2011 for capex and, to a lower extent, for working capital and dividends, which will translate into a substantial drawing under the new Revolver facility in 2011. However, we note the relatively high financial flexibility the Group will be able to display, if needed. Based on the recent downturn experience, it would be possible to reduce capex requirements to lower amounts than planned in order to still adequately support existing operations, as demonstrated during 2009 and 2010. Furthermore, additional cash could also be made available, if needed, from either a disposal of non-core assets or the sale of excess CO2 emission rights owned by the Company.

The outlook on the CFR remains positive, as we believe the Group is on a positive trajectory to achieve better credit metrics over the next 12 to 18 months. The expected successful execution of the announced refinancing should provide a more solid foundation for a strategy focused on further operating cash flow generation and debt reduction, which would be needed to see an improvement in the credit metrics. The positive outlook also reflects Moody's expectation that the group will maintain a cautious approach in the implementation of its investment strategy and will focus on keeping a solid financial structure and liquidity profile through the cycle.

The assignment of a definitive rating to the new Senior secured Guaranteed Notes is subject to a review of the final associated documentation. Moody's issues provisional ratings in advance of the final issue of securities, and these ratings only represent Moody's preliminary opinion. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavor to assign definitive ratings to the securities. A definitive rating may differ from a provisional rating. The new 7-years Senior secured Guaranteed Notes included in the refinancing plan will be used by Carmeuse to partially repay its existing debt and will rank pari passu with the new senior secured bank debt and the existing FRNs and share the same security package. Moody's is assigning a (P) B1 rating to these new notes. The outlook remains positive for all notes.

The rating could be downgraded if the announced refinancing is unsuccessful and/or a fast deterioration in the operating performance occurs, leading to substantial negative free cash flow generation, with adjusted Debt / EBITDA rising above 3.5x hence reducing the headroom on the financial covenants, and with RCF / Net debt dropping below 15%.

The rating could be upgraded if the Group can further improve its operating and financial performance, managing to further reduce adjusted Debt/EBITDA ratio sustainably below 3x, either via internal positive free cash flow generation or via disposal of non-core assets. An upgrade would also require Carmeuse to produce stronger annual FFO and display RCF / Net debt in excess of 20% and FCF / Debt in the mid single digits.

The principal methodology used in rating Carmeuse Holdings SA was Moody's Global Building Materials Industry, published in July 2009 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.

Carmeuse Holding SA is the holding company for the Carmeuse Group, one of the world's leading producers of lime and lime-related products enjoying leading positions in a number of European markets and a number one position in North America, which has been further strengthened after the acquisition of Oglebay Norton in 2008. The company operates in a niche industry with only a handful of large players globally, while its operations are subject to licenses and are difficult to replicate. Carmeuse reported EUR 1,129 million in revenues in 2010 and an EBITDA of Eur 247 million.

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.

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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.

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.

London
Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Olivier Beroud
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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Moody's changes its rating on Carmeuse to B1 from B2 and assigns a provisional (P) B1 rating to Carmeuse new USD 375 million senior secured notes. Outlook on all ratings remains positive.
No Related Data.
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