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Rating Action:

Moody's confirms Martin Marietta's Corporate Family Rating at Ba1 with a stable outlook

23 Jun 2014

Approximately $1,375 million of rated debt securities affected

New York, June 23, 2014 -- Moody's Investors Service confirmed Martin Marietta Materials Inc.'s ("Martin Marietta") Corporate Family Rating at Ba1 with a stable outlook. The action concludes the review for possible downgrade placed on the ratings January 28, 2014, which was prompted by the announcement of Martin Marietta and Texas Industries, Inc. ("TXI") entering into a definitive merger agreement. Moody's also assigned Ba1 ratings to Martin Marietta's proposed senior unsecured notes. Martin Marietta's Corporate Family Rating and senior unsecured ratings are Ba1, Probability of Default Rating is Ba1-PD, Speculative Grade Liquidity assessment is SGL-2 and commercial paper rating is Not Prime. The ratings for TXI remain under review for possible upgrade.

On June 23, 2014, Martin Marietta announced that it would raise a total of $700 million in senior unsecured notes. The net proceeds from the offering, along with cash on hand and drawings under its trade receivables facility and/or its revolving credit facility, will be used to redeem all $650 million in principal amount of the outstanding TXI notes. Martin Marietta and TXI are expected to consummate their merger on July 1, 2014, and TXI will become a wholly-owned subsidiary of Martin Marietta. At that time, Moody's will raise TXI's note ratings to Ba1 with a stable outlook, consistent with the ratings of Martin Marietta. Moody's will withdraw the TXI note ratings following the repayment of the TXI notes.

The following ratings actions were taken:

Issuer: Martin Marietta Materials, Inc.:

Ba1 Corporate Family Rating, confirmed at Ba1;

Ba1-PD Probability of Default Rating, confirmed at Ba1-PD;

$300 million senior unsecured notes, assigned at Ba1 - LGD4;

$400 million senior unsecured notes, assigned at Ba1 - LGD4;

Ba1 -- LGD4 rating on senior unsecured notes, confirmed at Ba1 - LGD4;

Speculative Grade Liquidity assessment is SGL-2;

Commercial paper rating is Not-Prime.

The rating outlook is stable.

RATINGS RATIONALE

On January 27, 2014, Martin Marietta entered into a merger agreement with Texas Industries, Inc. ("TXI") in a stock-for-stock transaction valued at $2.7 billion. The transaction, which is expected to close on July 1, 2014, will give Martin Marietta roughly 69% ownership of the combined company, and Texas Industries shareholders the remaining 31%. The merged company will operate under the Martin Marietta name and management. As of December 31, 2013, the combined company has pro forma annualized revenues of approximately $2.9 billion.

Martin Marietta's Ba1 ratings benefit from the company's position as one of North America's leading aggregates producers; expanded geographic footprint, product diversity and distribution network; typically stable operating performance in most, but not all, economic scenarios; and diverse end-markets including public, private residential and non-residential construction. Following the TXI merger, Martin Marietta will become a leading cement producer in Texas. The rating also incorporates the highly competitive nature of the industry, added volatility from the cement and ready-mixed concrete businesses, and the company's lack of multinational diversity. Martin Marietta effectively derives all of its income from operations in North America, with a concentration of income from Texas, and is smaller in scale than more highly rated multinational building materials companies. Merging with TXI will expose Martin Marietta to a new business line - the capital-intensive cement business - and adds to its ready-mixed concrete business, the latter of which has less pricing power and lower profitability than aggregates. These factors historically have made cement and ready-mixed concrete companies more volatile performers.

Moody's notes that the company's adjusted debt leverage increases to 4.1x pro forma for the acquisition, from 3.0x for LTM March 31, 2014. However, we expect this metric to decline, mostly through EBITDA growth, over the near-term. The ratings incorporate our expectation that Martin Marietta will operate with adjusted debt-to-EBITDA in the 2.5x-3.0x range.

The company's SGL-2 reflects good liquidity over the next 12 to 18 months. At March 31, 2014, the company's liquidity was supported by $36 million of cash on hand, availability of $330 million under its unsecured revolving credit facility, and Moody's expectation that the company will remain operating cash flow positive over the next twelve months. The company's liquidity is also supported by absence of near-term debt maturities, with its revolving credit facility coming due in March 2018. The company's assets are largely unencumbered by liens, providing a significant amount of alternative financial flexibility if needed. The company's credit facility is governed by a debt to EBITDA ratio of 3.5x. We expect the company to be in compliance with this covenant over the next 12 to 18 months.

The stable outlook presumes that the company will carefully balance its financial policy including maintaining acceptable liquidity and debt leverage and other credit metrics against its growth strategies, which may include various "tuck-in" acquisitions. Furthermore, it reflects our expectations that Martin Marietta's operating performance will improve as construction activity continues to recover and that Martin Marietta will be able to smoothly integrate TXI's operations.

Moody's indicated that upward rating consideration would follow debt reduction and improved and sustained operating margins and cash flow. Ratings upgrade could occur if adjusted debt-to-EBITDA is sustained comfortably below 2.5x, adjusted EBIT-to-interest expense is consistently above 4.0x, and liquidity is abundant.

Martin Marietta's ratings could be pressured downward in the event that the company's liquidity deteriorated or if adjusted debt-to-EBITDA exceeds 4.0x and adjusted EBIT-to-interest expense declines below 2.5x. The rating could also be downgraded should the company experience integration issues or if it pursues a materially levering transaction.

The principal methodology used in this rating was the Global Building Materials Industry published in July 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Martin Marietta Materials, Inc. ("Martin Marietta"), headquartered in Raleigh, North Carolina, is one of the leading U.S. producers of aggregates for infrastructure, commercial, agricultural and residential construction. Aggregates account for nearly 88% of the company's revenues. The company also manufactures magnesia-based chemical products, and dolomitic lime in its Specialty Products segment. In the LTM period ending March 31, 2014, Martin Marietta generated approximately $2.2 billion in revenues.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Karen L Nickerson
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Glenn B Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's confirms Martin Marietta's Corporate Family Rating at Ba1 with a stable outlook
No Related Data.
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