New York, December 12, 2012 -- Moody's Investors Service downgraded Masco Corporation's ("Masco") Corporate Family and Probability of Default Ratings to Ba3 from Ba2. The downgrade results from our view that Masco will have difficulty generating the levels of earnings necessary to significantly improve key debt leverage credit metrics, which will remain weak for the foreseeable future. The company's speculative grade liquidity rating remains SGL-1. Also, the rating outlook is changed to stable from negative.

The following ratings/assessments were affected by this action:

Corporate Family Rating downgraded to Ba3 from Ba2;

Probability of Default Rating downgraded to Ba3 from Ba2;

Senior unsecured notes ratings downgraded to Ba3 (LGD4, 52%) from Ba2 (LGD4, 52%);

Various shelf securities downgraded to (P)Ba3/(P)B2 from (P)Ba2/(P)B1.

The company's speculative grade liquidity rating remains SGL-1.

RATING RATIONALE

The downgrade of Masco's Corporate Family and Probability of Default Ratings to Ba3 from Ba2 reflects our view that the company's level of earnings relative to its debt service requirements and the amount of debt utilized in its capital structure will result in key credit metrics that are in line with lower rated entities. However, we anticipate improvement in the home repair and remodeling as well as new home construction sectors, the main drivers of the company's revenues and earnings. We forecast Masco's interest coverage defined as EBITA-to-interest expense could near 2.0 times by mid-2014 from 1.5 times for LTM 3Q12 and debt-to-EBITDA may trend towards 5.0 times from 6.1 times at September 30, 2012 (all ratios incorporate Moody's standard adjustments). Despite our expectations of improving results, key credit metrics will remain under pressure for an extended period of time, and weaker than those that we previously identified as thresholds for potential negative rating actions. At the extreme end of the discretionary home repair spectrum is Masco's cabinets division, which we anticipate will continue to be a drag on earnings for the foreseeable future. Its installation and other services segment's ability to generate significant operating earnings will remain constrained although our forecast estimates that new housing starts will rise steeply to 750,000 in 2012 and up to 875,000 in 2013 from 610,000 in 2011. Cash interest payments remain high and are currently about $245 million per year. But this amount will fall by $14.25 million (on an annualized basis) once the 7.125% $200 million senior unsecured notes that mature in August 2013 are fully redeemed. Our forward-looking estimates incorporate this possibility.

The change in rating outlook to stable from negative reflects our view that Masco is better positioned at the lower rating. The company's very good liquidity profile, characterized mainly by about $1.2 billion of cash on hand and $1.0 billion of revolver availability at 3Q12, provides an offset to its inadequate debt credit metrics.

The downgrade of Masco's senior unsecured debt to Ba3 from Ba2 results from the lowering of the company's corporate family rating. The senior unsecured notes, which are pari passu to each other, represent the preponderance of debt in Masco's capital structure, and are therefore rated in line with the corporate family rating.

Positive rating actions are improbable until Masco demonstrates its ability to generate significant earnings, resulting in EBITA-to-interest expense approaching 3.5 times or debt-to-EBITDA trending towards 3.75 times (all ratios incorporate Moody's standard adjustments). Over the longer term Masco must also address the maturity of $500 million senior unsecured notes due June 2015 and $1 billion senior unsecured notes due October 2016, a significant wall of maturing debt even for a company with Masco's robust liquidity profile.

Negative rating pressures are unlikely over the near term, as we anticipate some improvement in Masco's core operating performance while the company maintains its excellent liquidity profile. However, any deterioration in the company's liquidity profile without offsetting debt reduction could pressure the ratings.

The principal methodology used in rating Masco 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 these methodologies.

Masco Corporation ("Masco"), headquartered in Taylor, MI, is one of the largest North American manufacturers producing a myriad of home improvement and building products including faucets, cabinets, architectural coatings and windows. It is also one of the largest installers of insulation and other products for the new home construction market. The Company distributes products through multiple channels including home builders, wholesale and retail distribution chains. North American operations generated slightly less than 80% of its total sales. Revenues for the twelve months through September 30, 2012 totaled about $7.6 billion.

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Peter Doyle Vice President - Senior 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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