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Rating Action:

Moody's upgrades American Rock Salt's ratings to B2; outlook stable

15 May 2015

New York, May 15, 2015 -- Moody's Investors Service has today upgraded American Rock Salt Company LLC's (American Rock Salt) corporate family rating (CFR) to B2 from B3, and the company's probability of default rating (PDR) to B2-PD from B3-PD. Concurrently, Moody's has upgraded the company's senior secured first-lien term loan to B2 from B3. The senior secured first-lien term loan is comprised of an outstanding $347.4 million due 2021, and a proposed $80 million incremental add-on to the outstanding first-lien term loan. The proceeds of the proposed incremental first-lien tern loan will be used, in conjunction with an additional $40 million of cash, to repay the company's existing $120 million senior secured, second-lien term loan due 2022. Once repaid, Moody's will withdraw the rating assigned to the second-lien term loan. The outlook on all ratings remain stable.

The rating upgrade follows American Rock Salt's recently announced, transaction that aims to reduce leverage and interest expense by prepaying the company's outstanding second-lien term loan with an incremental first-lien term loan add-on and excess cash.

"By using excess cash to reduce leverage and lower interest expense, instead of pursuing an outsized equity-holder distribution, American Rock Salt is signaling the adoption of a financial policy and leverage target more appropriate for the company's small scale and weather-dependent business model," says Anthony Hill, a Moody's Vice-President -- Senior Credit Officer and lead analyst for American Rock Salt.

American Rock Salt ratings affected as a result of today's action:

Upgrades:

.... Corporate Family Rating, Upgraded to B2 from B3

.... Probability of Default Rating, Upgraded to B2-PD from B3-PD

.... Senior Secured 1st Lien Term Loan due 2021, Upgraded to B2 from B3

Outlook Actions:

....Outlook, Remains Stable

American Rock Salt's B2 CFR is constrained primarily by the company's high debt levels relative to its scale and weather-dependent business model. For fiscal year-end September 2014, the company's leverage was 6.6x debt/EBITDA, on a Moody's-adjusted basis. Pro forma for the proposed transaction and the strong 2014/2015 snow fall season, Moody's expects American Rock Salt's leverage to be significantly lower -- around 3.8x debt/EBITDA at fiscal year-end September 2015. With a single-site profile and annual revenues of less than $500 million, American Rock Salt's scale is small relative to other rated companies in the chemical industry.

Previously, Moody's had noted American Rock Salt's equity-accommodative financial policy that saw a prioritization of equity-holder distributions ahead of leverage reduction. However, the company has (1) recently set an average leverage target of around 6.0x debt/EBITDA (on a normalized basis, adjusting for outlier snow fall years), and is (2) executing a transaction that will show a modest reduction in debt. By fiscal year-end September 2015, American Rock Salt will have nearly $50 million in excess cash available for distribution to its equity-holders; however, the proposed transaction will see the equity-holders forgo around half of this excess cash, with the balance going towards pre-paying the company's more expensive second-lien debt.

Demand volatility for rock salt can be high as it depends on snow fall levels throughout the year. As a result, the company's profitability and cash generation can be equally volatile. American Rock Salt's improved financial policy and capital structure will help offset this volatility and support the B2 rating. The rating is also supported by high barriers to entry in rock salt mining, and cost advantages due to the company's relatively new mine near Rochester, N.Y. Additionally, there is a lack of economical alternatives for rock salt -- which creates a relatively benign competitive market that yields solid profit margins in the company's primary markets of upstate New York and central/western Pennsylvania. The company also benefits from the potential to generate substantial free cash flow during periods of strong snowfall and an enterprise value that creates a strong incentive for sponsor support during periods of exceptionally weak snowfall (e.g., two or more consecutive warm winters).

The stable outlook reflects Moody's expectation that American Rock Salt's credit measures and liquidity will remain appropriate for the rating category over a multi-year snow fall cycle. Additionally, Moody's expects American Rock Salt to continue to reduce debt somewhat with excess cash balances.

Moody's sees limited upside to American Rock Salt's ratings due to its scale and weather-dependent business model.

However, there could be negative pressure on the ratings if the company were not able to maintain its sales volumes and EBITDA to levels that could support its debt service requirements, or if adequate liquidity is not maintained. The ratings also assume that the company will adhere to its newly established financial policy and leverage targets. Certainly any significant debt-financed transactions or equity-holder payments that result in a substantial increase in leverage or decrease in liquidity would likely have a negative impact on the company's ratings.

American Rock Salt Company LLC produces highway deicing rock salt. The company operates a single mine in Upstate New York and sells primarily to state and local government agencies in the northeastern United States. The firm is a wholly-owned subsidiary of American Rock Salt Holdings LLC, which is closely-held by private investors including some members of management. Headquartered in Retsof, N.Y., American Rock Salt generated approximately $291 million in revenue for the twelve months ended 31 March 2015.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. 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.

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.

Anthony Hill
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

Brian B Oak
MD - Corporate Finance
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 upgrades American Rock Salt's ratings to B2; outlook stable
No Related Data.
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