TEXT-S&P rates Buzzi Unicem SpA notes

(The following statement was released by the rating agency)

Sept 24 - Standard & Poor's Ratings Services today said it assigned its 'BB+' issue rating to the proposed EUR350 million 6.25% euro-denominated senior unsecured notes to be issued by Italy-based cement manufacturer Buzzi Unicem SpA (BB+/Stable/B). The issue ratings are in line with the corporate credit rating on Buzzi. We have also assigned a recovery rating of '3' to the notes, indicating our expectation of meaningful (50%-70%) recovery in the event of a payment default. Recovery prospects for the debt issued by Buzzi are at the low end of the range. The ratings are subject to our satisfactory review of the final documentation. At the same time, we left unchanged the 'BB+' issue rating on the rated existing unsecured debt facilities issued by Buzzi Unicem SpA and its subsidiaries Dyckerhoff AG (BB+/Stable/B) and RC Lonestar Inc. The '3' recovery rating on these instruments remains unchanged, reflecting our expectation of meaningful (50%-70%) recovery for debtholders in the event of a payment default. We understand that Buzzi will use the proceeds of the proposed notes issuance to refinance existing indebtedness, diversify its funding sources, raise its average debt maturity profile, and for other general corporate purposes. The terms of the proposed issuance are similar to those governing the company's previous unsecured bond issues. Recovery prospects for the proposed notes are supported by our expectation that, in a default, the company would be reorganized rather than liquidated. We have revised the timing of the hypothetical payment default compared with our previous analysis, and assumed that the default would occur in 2016 as a result of a severe and prolonged decline in the group business on the back of unfavorable general economic and industry conditions and an inability to refinance debt maturing in that year. Our estimate is based on the assumption that debt maturing prior to 2016, except the mezzanine debt which we assume will be repaid, will largely be refinanced with similar ranking instruments. Our scenario leads to a default in 2016, with EBITDA declining to about EUR290 million. To calculate the enterprise value of the wider Buzzi group (including Dyckerhoff) at the hypothetical point of default, we apply the market multiple approach using a stressed EBITDA multiple of 5.5x. On this basis, we estimate the stressed enterprise value at the hypothetical point of default in 2016 at approximately EUR1.6 billion. After deducting priority liabilities of EUR365 million comprising enforcement costs, pension liabilities, debt located at subsidiaries (mainly the various U.S. private placements), and prepetition interest, the residual value of the Buzzi Group (including Dyckerhoff and the rest of Buzzi's subsidiaries) would be about EUR1.2 billion. We treat Dyckerhoff's senior unsecured debt as having a senior claim on Dyckerhoff's earnings and assets, ranking ahead of the debt borrowed at Buzzi level. In our view, Buzzi's debt has claims on the earnings and assets of subsidiaries, other than Dyckerhoff, through intergroup loans, as well as through an equity interest in Dyckerhoff. The recovery prospects for the various unsecured debt instruments, including the proposed notes, are in the 50%-70% range, leading to a recovery rating of '3' on these instruments. Cover is at the low end of the range. (Caryn Trokie, New York Ratings Unit)