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Rating Action:

Moody's upgrades Unifrax's CFR to B2 from B3; rates new bank credit facilities

17 Mar 2017

Approximately $735 million of rated debt affected

New York, March 17, 2017 -- Moody's Investors Service, ("Moody's") upgraded the Corporate Family Rating of Unifrax I LLC (Unifrax) to B2 from B3 and the Probability of Default Rating to B2-PD from B3-PD. Moody's also assigned a B2 rating to the new bank credit facilities, including a $50-$75 million revolving credit facility due 2022 (expected to be undrawn at close), a $460 million senior secured USD Term Loan B due 2024 and a $200 million (USD Equivalent) senior secured EUR Term Loan B due 2024. The proceeds from the proposed bank credit facilities and $36 million of cash on hand will be used to repay the existing bank facilities and $250 million of 7.5% senior notes due 2019. Moody's will withdraw the ratings on the existing facilities once the transaction closes. The rating outlook is stable.

"The upgrade reflects improved credit metrics and liquidity pro forma for the transaction, " said Anastasija Johnson, Moody's analyst. "In addition, completed restructuring and cost saving initiatives combined with some recovery in end markets should support the company's earnings improvements and free cash flow generation going forward."

..Issuer: Unifrax I LLC

Upgrades:

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

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

Assignments:

....Senior Secured Bank Credit Facility, Assigned B2 (LGD4)

Outlook Actions:

....Outlook, Remains Stable

RATINGS RATIONALE

The upgrade reflects improved financial performance and credit metrics after the company realized some pricing improvement and the majority of its cost saving initiatives initiated at the end of 2015, even though volumes were down. The company generated free cash flow and used some of its cash on hand to pay down outstanding debt as part of the refinancing. Pro forma for the refinancing, debt/EBITDA as adjusted by Moody's was approximately 5.1 times in the twelve months ended December 31, 2016, in line with a B2 rating. Leverage declined from 6.5 times at the end of 2015. The upgrade reflects expectations that completed cost savings combined with some recovery in end markets, particularly steel, should support the company's earnings improvement and free cash flow generation going forward. The upgrade also reflects improved liquidity, including projected full access to the revolver.

The B2 corporate family rating reflects the company's modest scale, high leverage and narrow product line of ceramic and glass fiber products. The rating also reflects exposure to cyclical automotive and industrial end markets, which together account for over 80% of the company's sales. The ratings reflect expectations that demand in key end markets, such as steel, has stabilized, which should support performance along with completed cost savings programs. Moody's expects the company to continue to benefit from strong margins indicative of a specialty materials company. Moody's expects the company to continue to generate free cash flow in 2017 despite higher projected capital spending and to maintain good liquidity. Unifrax's margins are supported by the vertically integrated business model and company's strong positions in some markets. The rating also benefits from Unifrax's operational and geographic diversity as well as broad customer base. However, Moody's continue to see foreign currency translation risk as about two-thirds of sales are generated outside the US.

The stable outlook reflects our expectations that credit metrics will further improve as a result of completed cost savings and key end markets stabilizing in the next 12 to 18 months.

Moody's expects Unifrax to have good liquidity for the next four quarters, supported by cash on balance sheet, expected free cash flow generation, and availability under its proposed $50-$75 million revolving credit facility, which expires in 2022. The company had about $64 million of cash as of December 31, 2016, of which approximately half is held domestically. The company is expected to use $36 million of cash as part of the refinancing. Moody's expects positive free cash flow in the next 12 months though there could be some quarterly variation in cash flow generation due to working capital movements. The new revolver is expected to be undrawn at the close of the transaction. The company has no near-term maturities and annual term loan amortization is $6.6 million. The revolver has a springing total net leverage ratio covenant if borrowings exceed 30% of the revolving commitments. The covenant level is expected to be set with a 35% cushion. There are no covenants on the term loans. The company has limited alternate liquidity as non-guarantor international subsidiaries would only be sold in a distressed scenario and the minority stake in Luyang (unrated) has one more year on its lock-in holding period.

Moody's could upgrade the ratings if Moody's adjusted debt/EBITDA declines below 4.5x and retained cash flow/debt rises above 10% on a sustained basis. An upgrade would require a commitment to more conservative financial policies from the sponsor and management.

Moody's could downgrade the ratings if operating performance deteriorates or if the company undertakes a significant debt-financed acquisition or dividend recapitalization, causing debt/EBITDA to rise above 5.5x on a sustained basis. Moody's could also downgrade the ratings if free cash flow turns negative and liquidity deteriorates.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Tonawanda, N.Y., Unifrax I LLC produces heat-resistant ceramic fiber products and specialty glass microfiber materials for a variety of industrial applications. Unifrax has been a portfolio company of American Securities since 2011. Unifrax generated revenues of approximately $498 million for the twelve months ended December 31, 2016.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Anastasija Johnson
Asst Vice President - Analyst
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 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

No Related Data.
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