07.12.2012 21:20
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WP CPP Holdings, LLC -- Moody's assigns B2 CFR to CPP; Outlook stable

$700 million of senior secured credit facilities rated

New York, December 07, 2012 -- Moody's Investors Service assigned a B2 corporate family rating to WP CPP Holdings, LLC (CPP), along with B1 ratings for its proposed first lien bank credit facilities and a Caa1 rating for its proposed second lien term loan. The rating outlook is stable.

Proceeds from the proposed financing and an equity contribution from CPP's sponsor, Warburg Pincus LLC, will be used to refinance existing debt and pay for the acquisition of the Turbine Technologies Group (TTG) from ESCO Corporation.

The following ratings were assigned to CPP (subject to review of final documentation):

B2 corporate family rating (CFR);

B2 probability of default rating;

B1 (LGD3, 35%) rating for the $100 million senior secured revolving credit facility due 2017;

B1 (LGD3, 35%) rating for the $415 million senior secured term loan B due 2019; and

Caa1 (LGD5, 86%) rating for the $185 million senior secured second lien term loan due 2020.

RATINGS RATIONALE

With proforma leverage just above 6.0x at close of the TTG acquisition, on a Moody's adjusted basis, CPP is weakly positioned at the B2 rating level. The rating incorporates Moody's expectation that high aircraft delivery forecasts by airframe builders will drive demand for CPP's and TTG's products over the next 12-18 months, which should support earnings growth, cash flow generation and balance sheet deleveraging to a more appropriate level for the rating.

The B2 CFR reflects CPP's small scale relative to competitors, exposure to potential cuts in military spending by the US Department of Defense, a sector that accounts for roughly a quarter of proforma 2012 sales, and an elevated level of integration risk following the TTG acquisition, the largest deal in company history. These factors are balanced against CPP's consistently high margins, its sole source position with many customers, a diversified customer base, limited exposure to any one aircraft platform in its aerospace business (50% of proforma 2012 sales), and a good liquidity profile.

Moody's expects the acquisition of TTG to add scale to CPP's castings manufacturing capabilities and enhance customer, end-market and product diversification. Further, we expect integration efforts to be focused mainly on back-office redundancies, and that TTG's margins, which are meaningfully lower than CPP's, will trend upwards as integration efforts are completed.

The stable outlook is prospective in that it anticipates meaningful deleveraging will occur over the next 12-18 months and that CPP will be successful in managing its integration of TTG. Further, the stable outlook reflects our view that strength in commercial aerospace, industrial gas turbines and energy end-markets will more than offset potential weakness in military business over this period.

At close, Moody's expects CPP to maintain a good liquidity profile benefiting from modest annual cash flow generation and a sizeable, undrawn $100 million revolver that doesn't matures until 2017. We expect capital spending to be manageable and do not expect integration plans to consume much cash. The deal is covenant-lite, with no covenants unless revolver borrowings reach $20 million. At $20 million, the company would be required to meet a net first lien leverage covenant, although we note considerable headroom even if this covenant becomes effective. We do not, however, anticipate that the company will require $20 million of borrowings over the next year.

The B1 rating on the term loan and revolver reflect their seniority position in the consolidated capital structure, including the benefits of all-asset liens and both upstream and downstream guarantees. The Caa1 rating on the second lien loans reflects their junior position relative to the aforementioned first lien lenders, with an explicit second lien status and the same guarantees as provided to first lien lenders.

The ratings are unlikely to be upgraded prior to the completion of the TTG integration efforts and a reduction in leverage to around 4.5x on sustainable basis. An upgrade would also require strengthening of margins and a demonstrated ability to generate consistently strong cash flows. A rating downgrade would likely occur if integration efforts were to be more challenging than initially anticipated and margin improvements at TTG are prolonged, with resultant leverage approaching 6.5x.

The principal methodology used in rating CPP 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.

CPP, headquartered in Pomona CA, is a castings manufacturer of engineered components and sub-assemblies for the commercial aerospace military and defense and energy markets. TTG is a supplier investment cast components provider for the aerospace, power generation, M&D, and industrial end-markets. Combined revenues are expected to total roughly $485 million for 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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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