Moody's rates Momentive loans Ba3, notes B3, Caa2

Moody's Investors Service said it assigned B3 corporate family and probability-of-default ratings and an SGL-2 speculative grade liquidity rating to Momentive Performance Materials Inc.; Ba3 ratings (LGD2, 13%) to the company's $275 million six-year senior secured revolving credit facility, $1.075 billion seven-year senior secured term loan and $35 million seven-year senior secured synthetic letter-of-credit facility; a B3 rating (LGD4, 57%) to its $1.355 billion senior unsecured notes due 2014 and a Caa2 rating (LGD5, 86%) to its $595 million senior subordinated notes due 2016.

The outlook is stable.

Proceeds from the debt offering combined with $500 million equity capital and a $400 million seller note will be used by Apollo Management to acquire the Advanced Materials business of General Electric Co. for roughly $3.8 billion plus expenses. GE will contribute $54 million of the equity capital and receive a 10% equity stake in the company. The transaction is expected to close in early December 2006.

The agency said the ratings take into account Momentive's high leverage with expected adjusted debt to EBITDA of 7.9x at the closing of the transaction, reliance on working capital improvements to generate free cash flow and reduce debt over next one to two years and a credit facility and bond indentures that allow for significant additional secured borrowings.

The ratings are supported Momentive's entrenched competitive position in silicones business, the stability of its operations relative to other chemical companies, strong and relatively stable EBITDA margins, significant barriers to entry in the silicone and quartz markets, global operational footprint, a diverse product portfolio and customer base and modest maintenance capital expenditures, Moody's said.

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