Sequa Corporation -- Moody's upgrades Sequa's CFR to B2; Assigns B1 to proposed credit facilities

New York, December 10, 2012 -- Moody's Investors Service has upgraded the corporate family rating of Sequa Corporation (Sequa) to B2 from B3 to reflect its improved operating performance, debt reduction and expected benefits from its proposed refinancing. Concurrently, Moody's assigned a B1 rating to Sequa's proposed $1.3 billion senior secured term loan and $200 million senior secured revolver and Caa1 to its proposed $350 million notes. Proceeds from the proposed refinancing will be used to refinance the existing capital structure. The rating outlook is changed to stable from positive.

The following ratings have been assigned (subject to review of final documentation):

B1 (LGD3, 36%) to the $200 million senior secured revolving credit facility due 2017;

B1 (LGD3, 36%) to the $1.3 billion senior secured term loan due 2017; and

Caa1 (LGD5, 88%) to the $350 million senior unsecured notes due 2017.

The following ratings have been upgraded:

Corporate family rating (CFR) to B2 from B3; and

Probability of default rating to B2 from B3.

The ratings on all existing debt will be withdrawn upon completion of the refinancing.

RATING RATIONALE

The upgrade of the CFR to B2 reflects a meaningful reduction in leverage from over 7.0x to just under 6.0x through a combination of debt reduction, with proceeds from the recent sale of its Automotive business, and earnings growth. While leverage will be high for the B2 rating at close, we expect earnings growth to continue and a steadier cash flow profile going forward due to a reduction in restructuring costs, the completion of integration efforts following the 2011 acquisition of Roll Coater and benefits from the proposed refinancing. The refinancing is expected to result in a substantial reduction in cash interest costs, an extended maturity profile and an increased revolver size.

The B2 rating reflects Sequa's high leverage, weak historical cash flow metrics, and its exposure to cyclical end-markets. The ratings recognize the company's well-established market position in its niche segments, commercial aviation engine maintenance, repair and overhaul and protective and decorative coatings for steel and aluminum coil, and its longstanding customer relationships. Moreover, the ratings recognize the recent corporate-wide earnings growth, the positive effects of its restructuring programs and cost-cutting activities and improvements in US commercial construction spending which position the company for improved financial performance during the next 12-18 months despite modest headwinds in its commercial aerospace and military repair businesses.

The stable outlook reflects Moody's expectation that leverage and cash flow metrics will improve in 2013 which will better position Sequa in the rating category. Further, the outlook anticipates that Sequa will maintain its good liquidity profile which will allow for debt reduction.

Sequa's liquidity profile benefits from cash balances that are expected to be at or above $100 million in 2013, solid cash flows and the undrawn $200 million revolver, an increase of $50 million from Sequa's existing facility. The credit facility is not expected to have any financial covenants other than a springing net first lien leverage covenant in any quarter in which 25% of the revolver is drawn.

The B1 rating on the bank credit facilities, one notch above the CFR, reflect their seniority in the capital structure, including the benefits of all-asset liens and both upstream and downstream guarantees. The senior unsecured notes are rated Caa1 due to their junior position to the bank facilities.

The ratings could be downgraded if Sequa's earnings were to deteriorate or if the company failed to generate free cash flow. Incremental leverage added to the capital structure would likely result in a downgrade whether due to acquisitions, shareholder distributions or earnings deterioration. We do not anticipate a ratings upgrade prior to meaningful deleveraging such that debt-to-EBITDA is permanently reduced below 4.5x and the company demonstrates the consistency of its post-refinancing cash flows.

The principal methodology used in rating Sequa was the Global Aerospace and Defense Industry Methodology published in June 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Sequa Corporation, headquartered in Tampa, FL, is a diversified industrial company operating in two continuing business segments: Aerospace through Chromalloy Gas Turbine, and metal coating through Precoat Metals. Sequa was purchased via a $2.8 billion LBO by affiliates of Carlyle Partners V, L.P. in December 2007.

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Brian GrieserAsst Vice President - Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Michael J. Mulvaney MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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