New York, October 11, 2012 -- Moody's Investors Service assigned B2 ratings to PQ Corporation's ("PQ") proposed $1.25 billion first lien senior secured credit facilities and a Caa1 rating to its proposed $720 million second lien senior secured notes. Proceeds from the transaction will be used to refinance existing debt at PQ, existing debt at unrestricted subsidiary Potters Holdings II LP ("Potters"), which will be become a restricted subsidiary, and pay transaction-related fees and expenses. Moody's affirmed PQ Corporation's B3 Corporate Family Rating ("CFR") and B3 Probability of Default Rating in connection with these rating assignments. The ratings on the existing bank debt at PQ, as well as all ratings at Potters, are unchanged and expected to be withdrawn following the completion of the refinancing transaction.

"The proposed refinancing is credit positive, but the magnitude of improvement is not sufficient to warrant a rating upgrade at this time," said Moody's analyst Ben Nelson.

The transaction improves PQ's debt maturity profile, enhances liquidity, and with the redesignation of Potters as a restricted subsidiary improves PQ's credit measures despite a modest increase in total debt. However, pro forma adjusted financial leverage remains quite high and is weak for the B rating category in the low 7 times Debt/EBITDA. Moody's believes that the substantial debt position, combined with uncertain business conditions in Europe and planned expansionary capital spending, will make it difficult for PQ to generate meaningful free cash flow for at least the next 18-24 months. PQ generated modestly negative free cash flow for the twelve months ended June 30.

Today's actions:

.. Issuer: PQ Corporation

.... Corporate Family Rating, Affirmed B3

.... Probability of Default Rating, Affirmed B3

.... $150 million First Lien Senior Secured Revolving Credit Facility due 2017, Assigned B2 (LGD3 43%)

.... $1.1 billion First Lien Senior Secured Term Loan B due 2017, Assigned B2 (LGD3 43%)

.... $720 million Second Lien Senior Secured Notes due 2018, Assigned Caa1 (LGD4 62%)

... Outlook, Stable

The B3 CFR is principally constrained by high financial leverage and limited prospects for meaningful free cash flow generation. The company's diverse end markets, leading market positions, broad customer base, long-term relationships, and geographic diversity lend stability to the financial performance of the business relative to other rated companies in the chemicals industry, which collectively is a primary factor that supports the rating. Moody's also believes that PQ will have good liquidity to support its operations over at least the next four quarters supported by about $80 million of cash at closing and an undrawn $150 million asset-based revolving credit facility.

The B2 ratings assigned to the proposed senior secured credit facilities and Caa1 rating assigned to the proposed second lien senior secured notes reflect collateral weakness related to a substantial portion of assets located in non-guarantor subsidiaries and joint ventures. These instruments will benefit from first and second lien security interests, respectively, in the property and assets of all domestic guarantor subsidiaries.

The stable rating outlook anticipates modestly positive free cash flow and that adjusted leverage will fall below 7 times by the end of 2013. Moody's could upgrade the ratings with improvement in financial leverage to below 6 times, retained cash flow above 8% of debt, and free cash flow above 3% of debt on a sustainable basis. Conversely, Moody's could downgrade the ratings with expectations for negative free cash flow or deterioration in the company's liquidity position.

The principal methodology used in rating PQ Corp was the Global Chemical Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

PQ Corporation, headquartered in Malvern, Pennsylvania, is a leading provider of inorganic specialty chemicals, including sodium silicate, silicate derivatives, catalysts, reflective glass spheres, and engineered glass materials. PQ was purchased in a secondary buyout transaction by affiliates of The Carlyle Group in July 2007. PQ acquired INEOS' silica business in a leveraged transaction in July 2008. INEOS maintains a minority ownership position obtained through that transaction. PQ is amidst a refinancing transaction that is expected to close in the fourth quarter of 2012 and re-designate Potters and its subsidiaries as restricted subsidiaries. The company generated revenues of about $1.1 billion for the twelve months ended June 30, 2012.

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Benjamin Nelson Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Alexandra S. Parker 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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