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Rating Action:

Moody's upgrades Rockwood Specialties' CFR to Ba2 -- Outlook Stable

Global Credit Research - 25 Jan 2011

Approximately $2 billion of debt affected

New York, January 25, 2011 -- Moody's upgraded Rockwood Specialties Group, Inc.'s (Rockwood) Corporate Family Rating (CFR) to Ba2 from Ba3. Rockwood's proposed new bank facilities are rated Ba1 and these ratings are assigned subject to a final review of documents and the proposed refinancing and repayment of existing credit facilities closing with terms as presented to Moody's.

The adjustments to other ratings are outlined in the ratings list below. The outlook for the ratings is stable.

RATINGS RATIONALE

The upgrade to a Ba2 CFR reflects the repayment of over $400 million of debt leading to a sustainable and significant improvement in credit metrics generated by Rockwood over the next several years. This view of improved metrics is supported by Rockwood's relatively stable operating performance combined with past and current plans for debt reduction and the prospect for additional material debt reduction in the long term. Moody's expects that over the next twenty-four months Rockwood will have the capacity to repay debt and generate EBITDA such that the ratio of balance sheet debt to EBITDA will approach 2.0X. This is based on the likelihood of continued generation of free cash and the prospect of an increase in Rockwood's excess cash on the balance sheet. At September 30, 2010 Rockwood's balance sheet debt was about $2.2 billion and cash on the balance sheet was in excess of $280 million.

"As we suggested in our December 2010 upgrade of Rockwood's CFR to Ba3 with a positive outlook it appears that Rockwood is committed to improving its financial profile on a sustainable basis with regard to further debt reduction," stated Bill Reed, Vice President at Moody's.

Issuer: Rockwood Specialties Group, Inc,

New ratings:

....Senior Secured Revolving Credit Facilities due 2016, Ba1 - LGD2, 24%

....Senior Secured Term Loan B Credit Facilities due 2018, Ba1 - LGD2, 24%

..Upgrades:

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

.... Probability of Default Rating, Upgraded to Ba2 from Ba3

....Senior Subordinated Regular Bond/Debentures Upgraded to B1 from B2 -- LGD6, 90% from LGD6, 91%

....Senior Secured Bank Credit Facilities, Ba1 - LGD2, 24% from Ba2 LGD2, 28% *

*Ratings to be withdrawn upon closing of the refinancing

....Outlook, Stable

Moody's believes that Rockwood's business profile, combined with its size and relative stability supports a Ba2 CFR. Rockwood's operating stability is evidenced by EBITDA margins averaging in the high teens over the last four years with the margin for the LTM period ending September 30, 2010 at 20%. We expect margins to approach 23% over the next several years. FCF has been positive since 2005 with FCF to debt of 11% for the LTM period. Debt to EBITDA was still high at 4.2X at the end of September 2010, although we expect it to trend to 3.0X by the end of 2011.

Moody's indicated in December 2010 that if management initiates a further $500 million of incremental debt reduction over the next two quarters leading to a sustainable debt to EBITDA ratio approaching 3.3X, we would consider upward movement to the rating. The current expected debt pay down is estimated to approach about $450 million with additional debt reduction to follow over time.

Further positive rating action will depend on management's financial strategy. Specifically, Moody's will assess if management has the board of directors' support to establish a financial profile for Rockwood that produces sustainable financial metrics that would support a goal of achieving a rating in the upper level of the Ba category.

We would consider possible downward pressure on the ratings if the free cash flow ratio drops below 4% or if debt levels rise. While we recognize that Rockwood has a history of bolt-on acquisitions any significant debt financed acquisitions could also have a negative effect on the rating and outlook.

Moody's most recent announcement concerning the ratings for Rockwood was on December 20, 2010, when the CFR was moved to Ba3 from B1 and the outlook for Rockwood's ratings was moved to positive.

The principal methodology used in this rating was Moody's Global Chemical Industry rating methodology published in December 2009.

Rockwood Specialties Group, Inc., headquartered in Princeton, New Jersey, is a global producer of a variety of specialty chemicals and materials, including pigments, additives, specialty compounds, ceramics, and electronics for use in businesses ranging from life sciences to automotive manufacturing. Rockwood operates through the following three business sectors: Specialty Chemicals, Pigments and Additives, and Advanced Materials. Revenues were $3.4 billion for the LTM ended September 30, 2010.

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 information, and 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.

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.

New York
William Reed
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Rockwood Specialties' CFR to Ba2 -- Outlook Stable
No Related Data.
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