TEXT-S&P cuts USEC corporate credit rating to 'CCC'

Overview
-- Near-term industry fundamentals are making it highly uncertain if
U.S.-based USEC Inc. will be able to continue its current enrichment
operations after it completes its multiparty arrangement due to expire in May
2013.
-- We have lowered our ratings on USEC Inc, including the corporate
credit rating, to 'CCC' from 'CCC+' and removed all ratings from CreditWatch.
-- At the same time, we are lowering the issue-level rating on the senior
convertible notes to 'CC' from 'CCC-' and maintaining the recovery rating at
'6'.
-- The outlook is negative, reflecting our view that near-term industry
fundamentals will continue to affect operating performance as USEC faces
competitive pressures with an oversupplied market and the continued delay of
the Department of Energy loan guarantee.

Rating Action
On Aug. 15, 2012, Standard & Poor's Ratings Services lowered its ratings on
Bethesda, Md.-based USEC Inc., including the corporate credit rating to
'CCC' from 'CCC+'. The outlook is negative.

We also lowered our issue-level rating on the senior convertible notes due
October 2014 to 'CC' from 'CCC-'. The recovery rating remains '6', indicating
our expectation for negligible (0%-10%) recovery in the event of a payment
default.

At the same time, we removed all of the USEC-related ratings from CreditWatch,
where we placed them with negative implications on May 15, 2012, to reflect
the continued uncertainty regarding whether USEC Inc. can secure the second
phase of funding for a research, development, and demonstration program prior
to a conditional commitment for a loan guarantee.

Rationale
The downgrade reflects our assessment of USEC's long-term viability after the
company publicly stated that it will be difficult to continue enrichment
operations at the Paducah Gaseous Diffusion Plant (GDP) after a one-year
multiparty agreement to extend operations expires in May 2013. This reflects
the near-term supply and demand imbalance related to the 2011 earthquake and
tsunami that severely damaged four nuclear reactors in Fukushima, Japan. The
company has also publicly stated that it may pursue discussions with certain
creditors and key stakeholders regarding ways to improve its capital
structure, including the potential restructuring of its balance sheet.

In addition, USEC is working with customers to advance sales orders to
accelerate the receipt of cash and enhance its liquidity position, which we
consider to be "less than adequate." The advancement of orders effectively
accelerates receipt of cash from such advanced sales, although the amount of
cash and profit received from such sales may be reduced because of the terms
it agreed upon with customers in connection with advancement. However, due to
the increase of supply from the Japanese incident, USEC has not been able to
replace many of the order advancements with additional sales. This has reduced
its sales backlog, which we expect will negatively affect future sales.

The downgrade also reflects our assessment of the delay and uncertainty
surrounding the approval of the company's U.S. Department of Energy's (DOE's)
loan guarantee application, which is affecting the company's ability to fund a
new, more cost-effective technology (the American Centrifuge Plant {ACP}).
Instead of moving forward with a conditional commitment for a loan guarantee,
the DOE proposed a $350 million two-year cost share research, development, and
demonstration (RD&D) program for the project to enhance the technical and
financial readiness of the centrifuge technology for commercialization. The
DOE has not yet authorized the remaining funding of $192.3 million and is
subject to the availability of congressional appropriations. Even if funding
for the RD&D program is included in fiscal 2013 appropriations legislation,
USEC will need additional funding to complete the RD&D program. If USEC is
unable to secure funding for the RD&D program beyond November 2012, we would
expect USEC to begin demobilizing the project.

The rating on USEC reflects the combination of what Standard & Poor's
considers to be USEC's "highly leveraged" financial risk profile and
"vulnerable" business risk profile. These assessments incorporate the
challenges that the company faces from an intensely competitive market for
uranium enrichment; the uncertainty regarding the success of financing the
RD&D program to enhance the technical and financial readiness of the
centrifuge technology for commercialization; limited operating diversity,
given that half of its supply comes from its single-site uranium enrichment
operating facility; and "less-than-adequate" liquidity. Still, USEC benefits
from its position as the U.S. government's executive agent for the Megatons to
Megawatts program, a 20-year $8 billion commercially funded nuclear
nonproliferation initiative of the U.S. and Russian governments. The rating
and outlook reflect our assessment regarding the long-term viability of USEC's
enrichment operations and the approval of USEC's loan guarantee application
with the U.S. DOE.

In the aftermath of the March 2011 earthquake and tsunami in Japan, the
process of restarting the reactors has taken longer than expected. In fact,
more than 50 reactors were off line in Japan and Germany during the second
quarter. According to USEC, this has resulted in excess SWU supply in the
market, and the supply and demand imbalance for low enriched uranium (LEU)
could increase over time depending on the length and severity of delays or
cancellations of deliveries. Based on the current lack of near-term demand,
excess supply in the market and uncertainty regarding the pace of restarting
reactors in Japan, USEC believes there will be an unfavorable imbalance
between supply and demand for LEU until at least the second half of the
decade. These market conditions have challenged USEC's efforts to continue
enrichment operations at the Paducah GDP. On May 15, 2012, the company entered
a multiparty arrangement with Energy Northwest, the Bonneville Power
Administration, the Tennessee Valley Authority, and DOE to support a one-year
extension of enrichment operations at the Paducah plant through May 31, 2013.

Uranium enrichment is a highly competitive and concentrated industry
comprising four major producers, including USEC, which accounts for about 90%
of the global market. Under the Megatons to Megawatts agreement, USEC
purchases enriched uranium recovered from dismantled Russian nuclear weapons
for resale in the U.S. However, we expect USEC's purchases under the 20-year
Megatons to Megawatts program to be completed in 2013. After that time, the
limited quotas imposed under terms of a treaty and law will increase so that
Russia will be able to sell LEU directly into the U.S. equal to approximately
20% of the U.S. demand from 2014 through 2020, with additional quantities
eligible to be imported for use in the initial fueling of new U.S. reactors,
providing a low cost direct competitor to USEC.

We believe USEC has a very high-cost position (electric power accounts for
about 70% of overall production costs) due to its older, less-efficient
enrichment technology, which requires substantially more energy than the
centrifuge enrichment technology used by most competitors. USEC faces
additional competition from Urenco Ltd. and AREVA, both of which are in
various stages of developing new uranium enrichment facilities. Completion of
the new facilities poses a significant threat to USEC's competitive market
position because both facilities plan to use lower-cost centrifuge technology,
and both have applied to double the capacity of their U.S.-based facilities
from initial requirements.

On May 8, 2012, USEC received notice from the NYSE that the average closing
price of its common stock was below the NYSE's continued listing criteria
relating to minimum share price. Even if USEC meets the numerical listing
standards, the NYSE reserves the right to assess the suitability of the
continued listing of a company on a case-by-case basis. In accordance with the
NYSE's rules, on May 14, 2012, USEC provided written notice to the NYSE of its
intent to cure this deficiency. USEC has six months from receipt of the notice
to regain compliance with the NYSE's price criteria (or by no later than
USEC's next annual meeting of shareholders, April 2013, if shareholder
approval is required).

Liquidity
In our view, USEC's liquidity is "less than adequate." Total liquidity was
about $324 million as of June 30, 2012, and consisted of about $230 million in
cash on hand and about $94 million in availability under its $235 million
credit facility due May 2013 (after accounting for about $11 million of
letters of credit). We expect an additional $85 million cash inflow in 2012
related to the return of cash collateral and removal of depleted uranium
disposal obligations, all related to the RD&D program.

Our view of the company's liquidity profile incorporates the following
expectations:
-- Liquidity sources (including cash and internally generated cash flow)
will exceed uses by more than 1.2x over the next 12 months; and
-- The company likely would not be able to absorb high-impact, low
probability events.

Free operating cash flow was negative $151 million for the 12 months ended
June 30, 2012, mainly as a result of recent weak operating performance and the
expensing of all project costs related to the development of ACP. Based on the
current rate of project spending and other anticipated cash needs--and without
a DOE loan guarantee or other financing--USEC expects cash, internally
generated cash flow from operations, and available borrowings under the
revolving credit facility to be sufficient for at least the next 12 months.
This assumes it repays the $85 million term loan portion of the credit
facility when it matures in May 2013. The company also has $530 million 3%
convertible senior notes due in October 2014. The notes were not eligible for
conversion to common stock on June 30, 2012, or Dec. 31, 2011.

With limited allowances, the credit facility includes a requirement that the
company maintain a ratio of 1.75x of certain eligible collateral (less
reserves) to the amount of the credit facility. As of June 30, 2012, this
ratio was 1.71x. However, the credit agreement allows USEC to dip below the
1.75x ratio (but yet still above 1.5x) one time in 2012 and three times in
2013. We expect USEC to remain in compliance in the near term based on the
timing of inventory receipts from the Megatons to Megawatts program.

Recovery analysis
For the complete recovery analysis, please see our forthcoming recovery report
on USEC, to be published over the next few weeks on RatingsDirect on the
Global Credit Portal.
Outlook
The negative outlook reflects our view that near-term industry fundamentals
will continue to affect operating performance as USEC faces competitive
pressures with an oversupplied market and the continued delay of the DOE loan
guarantee, calling into question USEC's long-term viability as a going concern.

We could lower the rating on the company if USEC is unsuccessful in securing
the necessary capital to complete the RD&D program for the American Centrifuge
technology, if the NYSE delists the stock, or if there is a significant
deterioration in its credit facility availability such that availability
declines below $45 million or its borrowing base collateral declines below
$350 million and is maintained below this level.

We could raise the rating if USEC is approved for the DOE loan guarantee
program and the company obtains additional financial support via strategic
alternatives.
Related Criteria And Research
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- Our Rating Process, April 15, 2008

Ratings List
Downgraded; Off CreditWatch/Outlook Negative
To From

USEC Inc.
Corporate Credit Rating CCC/Negative/-- CCC+/Watch Neg/--
Senior Unsecured CC CCC-/Watch Neg
Recovery Rating 6 6

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