PPG Industries Rtgs Afmd,Off S&PWatch Neg;Outlk Stable.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/22/98 -- Standard & Poor's today affirmed its single-'A' corporate credit and senior unsecured debt ratings of PPG Industries Inc., as well as its 'A-1' commercial paper ratings of PPG Industries Inc. and PPG Holdings B.V. (guaranteed by PPG Industries Inc.). The ratings are removed from CreditWatch, where they were placed with negative implications May 14, 1998.

The ratings outlook is stable.

The actions follow the announcement that PPG has terminated discussions with DLJ Merchant Banking Partners regarding a possible joint offer for Courtaulds plc that would have allowed PPG to purchase Courtauld's coatings and sealants operations. The decision to not pursue the acquisition (which likely would have been mostly debt financed) restores prospects for continued strong credit quality. Additional acquisition opportunities are seen in coatings and specialty chemicals, particularly in light of the ongoing consolidation of the coatings industry. However, most remaining targets are more moderate in size than the Courtaulds operations (revenues of about UK1 billion or about US$1.6 billion). In the event of a relatively large acquisition, Standard & Poor's expects management to temper share repurchases and take other steps to preserve credit quality.

PPG is a diversified company with strong competitive positions in flat glass, fiberglass, automotive coatings, and an array of chemical products. The company participates in industry sectors that mostly are mature and capital intensive, but a proven dedication to cost efficiency, as well as a focus on higher-growth product areas (such as specialty chemicals) and emerging markets, should sustain above-average cash flow protection and profitability.

Glass and coatings operations (which account for about 42% and 30%, respectively, of operating profit) depend on construction and automotive markets, and the fundamental cyclicality of these markets is a risk factor. However, significant aftermarket business provides a solid base of earnings during economic downturns, and both segments benefit from continual operating efficiency enhancements. Commodity chlor-alkali products, which represent the majority of chemical operations revenues, are prone to sharp cyclical swings, but a low manufacturing cost profile aids profitability at industry troughs. Moreover, growth of several key specialty chemical businesses (now about one-third of segment sales) provides a meaningful buffer to segment volatility.

Overall, pretax return on permanent capital (ROPC), bolstered by volume gains and productivity enhancements, has risen to a superior 30%-35% range, despite periodic softness in key economic regions and adverse foreign currency effects, as well as occasionally higher raw material and energy costs. Thus, with moderate acquisition activity and business cyclicality, cash flow protection and profitability should remain above average over the course of the business cycle. Funds from operations to total debt and ROPC should average about 50%-55% and more than 20%, respectively. Key coverage ratios now are strong for the rating, so the firm has sufficient financial flexibility to fund operating needs, midsize acquisitions, and an active common share repurchase program while maintaining a strong capital structure. Debt to capital should average in the 35%-40% range.

OUTLOOK: STABLE

Strong competitive positions and an improving business mix, together with a focus on cost reduction and maintenance of a strong balance sheet, provide ratings stability. -- CreditWire

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