New York, June 05, 2012 -- Moody's Investors Service assigned the following ratings to HNC Acquisition, Inc., which will be merged with and into HCO Holding I Corporation, the parent company of Henry Company LLC ("Henry"), in connection with the acquisition of Henry by affiliates controlled by Graham Partners and other private equity fund companies: Corporate Family and Probability of Default Ratings - B2; proposed 1st lien senior secured bank debt -- B1; proposed second lien senior secured term loan -- Caa1. The rating outlook is stable.

Proceeds from the bank debt and second lien term loan, together with an equity contribution, will be used to finance the purchase of Henry by affiliates controlled by Graham Partners and other private equity companies from the current equity sponsor, AEA Investors LP. Henry's existing bank debt and second lien term loan will be redeemed upon closing of the transaction, at which time the ratings for these credit facilities will be withdrawn.

The following ratings/assessments were affected by this action:

Corporate Family Rating affirmed at B2;

Probability Default Rating affirmed at B2;

Proposed First Lien Sr. Sec. RCF due 2017 assigned B1 (LGD3, 43%);

Proposed First Lien Sr. Sec. Term Loan due 2018 assigned B1 (LGD3, 43%); and,

Proposed Second Lien Sr. Sec. Term Loan due 2019 assigned Caa1 (LGD5, 78%).

RATINGS RATIONALE

Henry's B2 Corporate Family Rating reflects its highly leveraged capital structure. On a pro forma basis through March 31, 2012 for the acquisition, we calculate interest coverage (EBITA-to-interest expense) to be around 1.8 times while debt-to-EBITDA is moderately below 5.0 times (all ratios incorporate Moody's standard adjustments). This acquisition is essentially leverage neutral. Almost one third of the purchase will be new equity in the form of common stock, and the proposed first lien debt will likely be financed at a lower interest rate versus the interest rate for the existing first lien term loan. Additionally, Henry has considerable negative tangible net worth. The rating also incorporates Henry's small size relative to other manufacturing companies based on revenues and absolute EBITA levels, leaving little cushion for earnings variability. Significant distribution channel concentration with the big box retailers constrains the rating as well.

However, we recognize Henry's resilient performance during the economic and housing downturn, and its well-established brand names for roofing and sealant products, resulting in solid EBITA margins. Additionally, the company is expanding its product offerings for building envelope systems and performance additives for gypsum board, reducing reliance on the big box retailers. We also expect the company to generate high single-digit percentages of adjusted free cash flow-to-debt metrics on an annual basis.

The stable outlook reflects our views that better operating efficiencies and demand for roofing and energy efficient related products will continue to be a source of revenue stability, resulting in modest improvement in the company's key credit metrics. Some revolver availability and the absence of significant near-term maturities give Henry the ability to contend with ongoing economic uncertainties and the resulting impact on its end markets.

The B1 rating assigned to the proposed $150 million first lien, senior secured bank credit facility, one notch above the corporate family rating, reflects the priority of payment it has in a recovery scenario. This credit facility will have a first priority security interest in substantially all of the company's assets and benefits from $50 million in junior capital.

The Caa1 rating assigned to the proposed $50 million second lien, senior secured term loan, two notches below the corporate family rating, has a second priority interest in substantially all of the company's assets. We view the second lien term loan as effectively unsecured debt since Henry would have very little remaining tangible assets remaining after first lien debt holders are repaid in a recovery scenario.

A rating upgrade is possible over the long term if Henry grows its revenue base while improving its operating performance, with EBITA-to-interest trending towards 3.0 times and debt-to-EBITDA sustained below 4.5 times (ratios adjusted per Moody's standard adjustments). A better liquidity profile would be supportive of positive rating actions as well.

Factors which might result in downward rating pressures include erosion of the company's financial performance, debt-financed acquisitions, dividends to shareholders or a deteriorating liquidity profile. Debt-to-EBITDA sustained above 5.5 times or EBITA-to-interest expense trending below 1.5 times (all ratios adjusted per Moody's standard adjustments) could result in negative rating actions.

The principal methodology used in rating Henry was the Global Manufacturing Industry Methodology, published December 2010. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Henry Company, LLC ("Henry"), headquartered in El Segundo, CA, develops, manufactures and markets materials for the construction industry focusing primarily on roofing and other building envelope applications. Henry's business is primarily operated and conducted in the U.S. and Canada. Graham Partners, through its affiliates, will be the majority owner of Henry. Revenues for the twelve months through March 31, 2012 totaled about $308 million.

REGULATORY DISCLOSURES

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Peter Doyle Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Brian Oak 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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