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Rating Action:

Moody's upgrades Carmeuse's rating to Ba3; stable outlook

11 Apr 2013

Approximately EUR 591 million equivalent of rated debt affected

London, 11 April 2013 -- Moody's Investors Service has today upgraded the corporate family rating (CFR) of Carmeuse Holding S.A. ("Carmeuse") and its Probability of Default Rating (PDR) to Ba3 and Ba3-PD, respectively, from B1 and B1-PD respectively. Concurrently, Moody's has upgraded the rating on the company's $450 million of senior secured notes and the EUR250 million of floating-rate notes (FRNs) to Ba3 (LGD3, 44%) from B1. The outlook on all ratings is stable.

RATINGS RATIONALE

"Today's rating action was driven by our positive assessment of the developments of Carmeuse's credit profile since we maintained a positive outlook on the company's ratings in April 2011," says Gianmarco Migliavacca, a Moody's Vice President and lead analyst for Carmeuse. In particular, the upgrade reflects (1) the materially lower amount of debt reported by Carmeuse as of December 2012, after the company used a large portion of the cash proceeds of the March 2012 disposal of its sand division to reduce outstanding debt and (2) the company's resilient operating and financial performance in 2012, despite a weak macroeconomic environment negatively affecting its reference end-user markets, namely the European and US steel and construction sectors.

Moody's also notes management's reiterated commitment to retain adequate flexibility and liquidity at all times, targeting a net debt/EBITDA ratio, on reported figures, consistently below 3.0x. In Moody's view, this focus on prudent leverage, coupled with the executed debt reduction, highlights a more conservative financial approach by Carmeuse, which the rating agency had considered as a main prerequisite for an upgrade. As a result of this more disciplined financial policy, and of the lower debt amount, Moody's expects Carmeuse will manage to maintain adjusted gross debt/EBITDA and retained cash flow (RCF)/net debt in the region of 3.0x-3.5x and 18%-22%, respectively, over the next 12-18 months.

Nevertheless, the Ba3 rating factors in the currently low visibility with regard to the evolution of demand in Carmeuse's reference markets in 2013 and beyond. Moreover, the rating reflects Moody's expectation that Carmeuse's performance could moderately deteriorate in the first half of 2013, mainly due to the seasonally weaker first quarter, the protracted weakness of the steel industry in both Europe and US (for which the rating agency maintains negative regional industry outlooks) and the stagnation in the European building materials industry (for which Moody's has a stable outlook), which is the second-largest end-user market for Carmeuse after steel, accounting for nearly 17% of its 2012 revenues.

Carmeuse's liquidity position is supported by EUR35 million of cash on the balance sheet and committed undrawn revolving credit facilities amounting to EUR325 million as of December 2012. Moody's expects these resources, and the positive operating cash flows the business will continue to generate, will be adequate to cover the main cash outflows scheduled in the coming 18 months, namely (1) maintenance capital expenditure (capex) in the region of EUR100 million per annum; (2) expansionary capex for 2013 in the region of EUR80 million, which can be reduced when/if needed as most of it is not committed; and (3) a modest ordinary dividend. Carmeuse's scheduled debt repayments over the next 18 months mainly include the EUR183 million Floating Rate Notes (FRNs) outstanding, due in July 2014. However, EUR120 million of the revolving facilities are already committed to be used to repay the FRNs, when due, and the remainder could be covered with existing cash and any residual availability under the revolving credit facilities.

OUTLOOK

The stable outlook on the ratings assumes that Carmeuse will maintain a prudent approach to implementing its investment strategy. The outlook also reflects Moody's expectation that the company will focus on maintaining credit metrics aligned with its rating and an adequate liquidity profile through the cycle, by materially reducing expansionary capex and fixed costs, if needed under a downside scenario.

WHAT COULD CHANGE THE RATING UP/DOWN

Although unlikely, Moody's could upgrade the rating if Carmeuse can further improve its operating and financial performance such that it (1) further reduces its adjusted debt/EBITDA ratio sustainably below 2.5x; (2) achieves an RCF/net debt ratio in excess of 30%; and (3) further strengthens its liquidity position, proactively managing its forthcoming debt maturities and keeping a comfortable headroom for financial covenants compliance at all times. An upgrade would also require Carmeuse to successfully complete its expansion project in Oman, allowing a meaningful geographic diversification outside of Europe and North America, aimed primarily at serving the Indian market.

Conversely, Moody's could downgrade the rating if Carmeuse's operating performance deteriorates materially, leading to (1) adjusted debt/EBITDA rising above 3.5x on a sustained basis, hence reducing headroom under the company's financial covenants; and (2) RCF/net debt dropping below 15%. Furthermore, higher than anticipated execution risks for the expansion project in Oman would also be considered for a possible downgrade if they were leading to significant cost overruns and weaker liquidity.

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.

Carmeuse Holding SA (holding company for the Carmeuse Group) is one of the world's leading producers of lime and lime-related products. The group is active in approximately 90 locations spread over 13 countries in North America, Europe and Africa. It maintains a global market share of around 10%, with leading positions in most of its markets, and a number one position in North America in terms of revenues, which has been further strengthened after the acquisition of Oglebay Norton in 2008. Carmeuse is a privately held company majority owned by the founder family, with the remainder being held by the Belgian investment company Cobepa and by other individual and institutional shareholders. The company operates in a niche industry with only a handful of large players globally, while its operations are subject to licences and are difficult to replicate. In 2012, Carmeuse reported EUR1.13 billion in revenues and an EBITDA of EUR248 million.

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.

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.

Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Carmeuse's rating to Ba3; stable outlook
No Related Data.
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