Overview -- U.S. aggregates and road construction company New Enterprise Stone & Lime has launched $250 million in new senior secured notes and a new $170 million asset-based revolving credit facility due 2017 to refinance its existing bank loans and revolving credit facility. -- We are assigning our 'B-' issue-level rating and '3' recovery rating to the new proposed notes and placing all our ratings on New Enterprise on CreditWatch with negative implications pending the outcome of the company's refinancing plans. -- If the transaction is completed as proposed, we would likely affirm the 'B-' corporate credit rating and issue-level rating on the new notes and, at the same time, lower the rating on the company's existing $250 million 11% senior unsecured notes to 'CCC' from 'B-'. -- If the planned transaction does not close, we are likely to lower the corporate credit rating to 'CCC' from 'B-' to reflect constrained liquidity given the existing lack of cushion under bank covenants, as well as the maturity if the company's existing revolving credit facility in less than one year. Rating Action On Feb. 29, 2012, Standard & Poor's Ratings Services placed its ratings on Pennsylvania--based New Enterprise Stone & Lime Co. Inc., including our 'B-' corporate credit rating, on CreditWatch with negative implications. At the same time, we assigned a 'B-' issue-level rating to the proposed $250 million of senior secured notes due 2018 with a recovery rating of '3', indicating that lenders could expect meaningful (50% to 70%) recovery of principal in the event of a default. Rationale The CreditWatch listing follows New Enterprise's announcement that it plans to enter into a new $170 million asset-based revolving credit facility due 2017 and also issue $250 million of 13% senior secured notes due 2018. Based on our initial analysis, we have determined that if the transaction is completed as currently proposed, we would affirm our 'B-' corporate credit rating following the closing of the transaction. We would also lower the rating on the company's $250 million 11% senior unsecured notes due 2018 to 'CCC' from 'B-', given the increased amount of senior obligations, which would reduce recovery prospects for this issue. The rating and stable outlook would reflect the fact that the company would not have any significant maturities until 2017, when its asset-based lending facility matures. In addition, we are projecting that the company will maintain "adequate" liquidity (as defined by our criteria) during this period, given projected availability under its new credit line and the lack of financial ratio covenant requirements in the proposed capital structure. However, should the proposed transaction fail to close, it is likely that we would lower the corporate credit rating to 'CCC' from 'B-', given the likelihood of constrained liquidity due to lack of cushion under financial ratio covenants in the existing bank term loan credit agreements. The lower rating would also reflect heightened refinancing risk associated with the maturity of the existing revolving credit facility in less than one year in January 2013. CreditWatch In resolving the CreditWatch listing, we will monitor New Enterprise's progress in completing the proposed transaction. If the company successfully refinances its bank debt and closes on its new revolving credit facilities, we would likely affirm our current 'B-' corporate credit rating as described above. If the transaction is not completed as planned, we would likely lower corporate credit and issue-level ratings to the 'CCC' category. Related Criteria And Research -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Key Credit Factors: Business And Financial Risks In The Global Building Products And Materials Industry, Nov. 19, 2008. -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008. Ratings List Ratings Placed On CreditWatch To From New Enterprise Stone & Lime Co. Inc. Corporate Credit Rating B-/Watch Neg/-- B-/Negative/-- Senior Unsecured B-/Watch Neg B- Recovery Rating 4 4 New Ratings New Enterprise Stone & Lime Co. Inc. Senior Secured US$250 mil 12.% sr secd nts due 2018 B- Recovery Rating 3 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.