Moody's lowers Vulcan Materials

Moody's Investors Service said it downgraded Vulcan Materials Co.'s issuer rating and senior unsecured regular bonds to A3 from A1 and its short-term rating to Prime-2 from Prime-1.

This concludes the review for possible downgrade that began on Feb. 20, 2007 following the company's announcement that it agreed to acquire Florida Rock Industries Inc. for $4.2 billion, and the outlook is negative.

Vulcan will finance its acquisition of Florida Rock through a combination of commercial paper and borrowings under its $4 billion of new bank facilities. Vulcan intends to refinance a portion of the commercial paper with senior unsecured notes of varying maturities.

The agency said the downgrade reflects the level of debt being incurred to finance the acquisition and the related contraction in coverage ratios, as well as the integration risk associated with combining Florida Rock into the larger organization. The pro forma debt-to-EBITDA ratio is estimated to be about 3.3 times at closing, compared with 0.9 times at the end of 2006.

The new A3 issuer rating incorporates Moody's expectation that Vulcan will apply free cash flow to debt reduction and is supported by the company's position as the largest producer of construction aggregates in the United States, its strong presence in the southern region of the country where construction activity is especially robust and its expansion into Florida.

The negative outlook reflects Moody's concerns that moderation in volumes and prices due to softening in economic conditions and demand for aggregates could reduce operating cash flow and contribute to a slower debt repayment profile.

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