North American Building Materials Outlook Stable Despite Economic Weakness

RatingsDirect report says economic forecast will see gradual economic recovery and a slight improvement in new residential construction in 2011.

April 13, 2011

STANDARD AND POOR'S FINANCIAL SERVICES LLC ("S&PZZ-L") - North American Building Materials Outlook Is Stable - Despite Lingering Economic Weakness

NEW YORK, April 12, 2011--The credit outlook for the North American building products sector is stable, based on Standard &Poor's Ratings Services' baseline 2011 and 2012 economic projections, according to a report just published on RatingsDirect. The article, "North American Building Materials Outlook Calls For Slow Recovery From Still-Weak Levels," says our economic forecast considers a gradual economic recovery in the U.S. and a slight improvement in new residential construction beginning in 2011 after a steep and prolonged downturn. Higher energy and raw material-related costs could cause consumers to reduce spending on home improvements, which could dampen improvement in the sector. Still, we believe ratings on most companies in the sector can withstand potentially lower sales because most companies have already lowered their cost structures. Also, most companies maintain adequate liquidity, and near-term debt maturities are manageable.

We expect housing starts in 2011 to increase to 610,000 total units from approximately 590,000 in 2010. But we do not expect new residential construction to return to historical norms--approximately 1.5 million units annually--until 2014 at the earliest, given the large inventory of "shadow housing," continued high foreclosures, and high unemployment. Nevertheless, the overall stability we expect in the building materials sector is within the broader context of a sluggish economic recovery.

In addition, we believe most companies are well-positioned to remain cash flow positive, even amid weak demand, due to continued aggressive cost-cutting and still moderate capital spending plans because of excess capacity. We also believe many companies possess a fair degree of positive operating leverage that should result in additional upgrades or positive outlook revisions, more likely in 2012 when end markets should have recovered more fully.

The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to [email protected] Ratings information can also be found on Standard &Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

Standard &Poor's, a part of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of credit ratings. With offices in 23 countries, Standard &Poor's is an important part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with information and independent benchmarks for their investment and financial decisions. For more information, visit www.standardandpoors.com.