S&P rates Owens Corning's new senior notes 'BBB-'
Oct 17 - Standard & Poor's Ratings Services said today that it assigned its 'BBB-' issue-level rating to Owens Corning's new senior unsecured notes due 2022. The company is offering the notes under its shelf registration filed Feb. 16, 2012. The company plans to use net proceeds from the sale of the notes to purchase up to $250 million of its $650 million 6.5% senior notes due 2016 and up to $100 million of its 9% senior notes due 2019. Owens Corning plans to use the remaining proceeds to reduce revolving credit borrowings and for general corporate purposes. After adjusting for the proposed transactions and for pension and other obligations, we expect the company will have debt of about $2.6 billion at year end. This implies that leverage, as measured by debt-to-EBITDA, will increase to about 4x by year-end 2012. We expect funds from operations (FFO)-to-debt to drop below 20% to the high teens, which we consider somewhat weak for the current rating. However, we expect operating results and credit measures to improve in 2013 under our baseline scenario, which takes into account our economists' projections of: -- 930,000 housing starts in 2013, compared with 760,000 in 2012; -- Modest GDP growth near 2% over the next 15 months; and -- Nonresidential construction holds flat (up 0.6%) for 2013. We further assume that Owens Corning will benefit from cost-cutting measures and new plant efficiencies in its composites segment in 2013. Under this scenario, we expect sales to increase about 5% in 2013 to $5.5 billion and EBITDA to improve to $700 million or higher, resulting in debt-to-EBITDA of 3.5x and FFO-to-debt of about 20%, both of which we would consider to be in line with the current rating. Owens Corning is a leading manufacturer and distributor of asphalt- and fiberglass-based roofing shingles, fiberglass insulation, and composite fiberglass materials, the latter of which has wide product applications in industrial segment. For the corporate credit rating rationale, see the research update on Owens Corning published Oct. 10, 2012) RATINGS LIST Owens Corning Corporate credit rating BBB-/Stable New Rating Owens Corning Senior unsecured notes BBB- RELATED CRITERIA AND RESEARCH -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.