Fitch Downgrades Georgia Gulf to 'BB-' Upon Royal Group Acquisition; Outlook Negative.

CHICAGO -- Fitch Ratings has removed Georgia Gulf Corporation's credit ratings from Rating Watch Negative; downgraded the issuer default rating, senior secured credit facility rating, and senior unsecured note rating; and assigned ratings to new issues as follows, upon the closing of the acquisition of Royal Group Technologies earlier this week. These ratings affect approximately $2.0 billion of debt. The Rating Outlook is Negative.

--Issuer default rating (IDR) downgraded to 'BB-' from 'BB';

--Senior secured credit facility downgraded to 'BB+' from 'BBB-';

--Existing senior unsecured notes downgraded to 'BB-' from 'BB';

--New senior unsecured notes 'BB-';

--New senior subordinated notes 'B'.

An IDR of 'BB-' incorporates the benefit of greater integration in the vinyls chain; the potential for greater earnings and cash flow with less volatility; and some success in realizing cost synergies. However, the rating is tempered by concerns regarding high leverage, particularly as the PVC resin market is expected to loosen and residential construction activity may be slowing. Moreover, target integration risk may be higher due to ongoing legal and regulatory investigations at Royal Group, and Georgia Gulf's lack of direct experience integrating a sizeable downstream target.

The 'BB+' rating on the senior secured credit facility reflects the superior collateral position of the term loan and revolver. The rating also considers the high likelihood of principal recovery in a liquidation scenario. The 'BB-' rating on the senior notes, both new and existing, reflects their unsecured position relative to a significant amount of secured debt. Upon closing of the acquisition-related financing, secured debt of $1.175 billion with perfected liens and the $165 million accounts receivable securitization program have priority interest in the assets of the company before the senior unsecured notes and senior subordinated notes. The subordinated notes are rated 'B', two notches lower than the IDR and senior unsecured notes, to reflect their junior position and expected poor principal recovery in bankruptcy scenario.

The Negative Rating Outlook reflects the risk of softer earnings ahead as the homebuilding market slows and new PVC resin capacity hits the market. The next twelve months will be a critical time for Georgia Gulf. Besides the work of integrating and improving Royal Group's businesses, Georgia Gulf could have an opportunity to bring leverage down before earnings soften. Earnings from the PVC resin business may still be buoyant enough to contribute to debt reduction over the next 12 months; Fitch expects earnings from PVC resin to soften quickly beginning in late 2007 as additional PVC capacity comes online. If the integration proceeds well and market conditions keep earnings and cash flow strong, Fitch expects that Georgia Gulf's total debt (including A/R securitization)-to-operating EBITDA could improve to under 4.0 times (x). Conversely, leverage could stay closer to 5.0x if the integration of Royal Group is difficult and market conditions cause earnings and cash flow to soften markedly.

Based in Atlanta, Georgia Gulf is a commodity chemicals producer. Its product portfolio includes VCM, PVC resin, vinyl compounds, cumene, acetone, and phenol. Georgia Gulf earned approximately $279 million of EBITDA on sales of $2.2 billion for the LTM period ended June 30, 2006.

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