Fitch keeps Martin Marietta Materials on negative watch

Fitch Ratings said it maintains Martin Marietta Materials, Inc.'s ratings on Rating Watch negative pending the result of the company's proposal for a business combination with Vulcan Materials Co. The ratings were placed on Watch on Dec. 14 following the announcement of the proposed business combination.

Martin Marietta has a BBB issuer default rating and F3 short-term issuer default and commercial paper ratings, and Fitch rates its senior debt and revolving bank credit facility BBB.

Vulcan's board has rejected the unsolicited offer, and Martin Marietta nominated four independent director candidates for the board. On May 4, the Delaware Chancery Court blocked Martin Marietta for four months from pursuing its proxy contest, making an exchange or tender offer or otherwise taking steps to acquire control of Vulcan. In granting the injunction, the judge found that Martin Marietta had breached confidentiality agreements between the two companies, Fitch said. Martin Marietta plans to appeal.

Fitch views the combination as strategically positive for Martin Marietta but said its issuer default rating is likely to be downgraded by at least one notch given the large amount of debt to be assumed in the combination and the resulting increase in leverage. The agency calculates that the debt-to-EBITDA ratio will increase from 3.0 times for the last 12 months ended Dec. 31 to about 5.5 times on a pro forma basis.

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