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Rating Action:

Moody's upgrades Precision Castparts Corp. to A3; outlook stable

22 Oct 2010

$200 million of long-term debt

New York, October 22, 2010 -- Moody's Investors Service upgraded Precision Castparts Corp.'s ("PCP") senior unsecured rating to A3 from Baa1 and affirmed the company's Prime-2 short-term rating. The outlook is stable at the higher rating.

RATINGS RATIONALE

The actions reflect Moody's expectation that PCP's revenue and earnings will begin to strengthen as activity levels in its key end-markets of aerospace and power generation improve. Moody's also anticipates that PCP's free cash flow will remain robust. Debt protection measures already are representative of stronger rating categories with the assigned rating incorporating flexibility for the company's acquisition strategy. In Moody's view, the A3 rating could accommodate significant debt funded acquisitions consistent with PCP's historical transactions.

The A3 rating reflects PCP's sustainable business profile across several business units, strong operating performance and cash flow generation as well as very modest financial leverage. The company's scale has increased over the years although recent end-market conditions and metal prices have pressured PCP's top line. Moody's anticipates the company's primary markets will resume modest growth in fiscal 2011 and beyond particularly as production on the B-787 and A-380 on which it has substantial content begin to ramp to higher levels and build rates on narrow body aircraft increase. The company's strong debt protection measures are evidenced by healthy operating margins, low leverage, substantial interest coverage, and robust cash flow. Collectively, these have established sufficient scope to accommodate sizable acquisitions, an ongoing component of the company's strategy.

PCP's operating margins benefit from efficient manufacturing which incorporates vertical integration and advanced metal forming and processing technologies. The company enjoys incumbency on complex engineered metal products for which a change of suppliers could entail significant costs and risk which establishes material barriers to entry. Its manufacturing processes frequently involve unique equipment which, in turn, creates some capital intensity to its business model. This combination along with high capacity utilization and effective metal cost pass-throughs have sustained operating margins despite recent revenue declines and somewhat insulated its returns from changes in metal costs. Substantial cash flows have been generated and reinvested in core business units, applied to reduce indebtedness, contribute to its pension plans and fund acquisitions.

The stable outlook considers that performance should strengthen as aerospace and power industry fundamentals improve. It is further supported by visibility from a material level of backlog, a strong liquidity profile, a conservative capital structure and solid financial policies.

A rating upgrade or positive outlook is not anticipated over the intermediate term at the new rating level. Sustained operating margins below 10%, retained cash flow to debt under 25%, or an increase in debt/EBITDA above 2 times for prolonged periods could result in revision of the outlook to negative or to lower ratings.

Ratings revised;

Senior Unsecured to A3 from Baa1

Ratings affirmed:

Short-term, Prime-2

The last rating action was on December 23, 2009 at which time the outlook was changed to positive from stable.

The principal methodology used in rating Precision Castparts Corporation was Global Aerospace and Defense published in June 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Precision Castparts Corp., headquartered in Portland, OR, produces castings, forgings and fasteners for aerospace, power generation, and industrial end-markets. Revenues in fiscal 2010 were approximately $5.5 billion.

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, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

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.

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

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

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's upgrades Precision Castparts Corp. to A3; outlook stable
No Related Data.
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