S&P Places USG Corp. (USG) Ratings on CreditWatch Positive

August 30, 2016 6:39 AM EDT

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S&P Global Ratings said it placed its ratings, including the 'BB' corporate credit rating, on USG Corp. (NYSE: USG) on CreditWatch with positive implications.

The CreditWatch listing follows USG's announcement that it has entered into a definitive agreement to sell its building product distribution subsidiary, L&W Supply Corp., to building materials distributor ABC Supply Inc. for total cash consideration of $670 million. The company expects to complete the transaction before the end of 2016. After divestiture, USG will operate through three main business segments: Gypsum, Ceilings, and its gypsum wallboard joint venture USG Boral Building Products.

We expect USG will use proceeds from the sale to retire debt, including its 2020 senior notes and 2021 senior notes, which they plan to call in December 2016. In addition, the company plans to organically retire the remaining $308 million of senior notes due in November 2016, mainly using cash on the balance sheet.

The company's revenues for the rolling twelve months through June 30, 2016, totaled approximately $3.9 billion. L&W Supply has been USG's lowest-producing EBITDA segment and has generated annual EBITDA of approximately $50 million. With USG planning to reduce debt by $900 million by the end of 2016, debt leverage is likely to improve from 3x as of the second quarter of 2016 to about 2x by the end of fiscal 2016.

"We will discuss with USG management its strategic and financial policy plans, including potential returns to shareholders, after the divestiture of L&W Supply Corp.," said S&P Global Ratings credit analyst Kimberly Garen. "We will resolve the CreditWatch listing upon the closing of the sale of L&W, which is subject to customary closing conditions, including regulatory approvals. Assuming the transaction closes as planned and the expected debt reduction takes place, we may either raise or affirm its ratings on USG."

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