NEW YORK -- Moody's Investors Service has downgraded the credit ratings of USG Corp. and its subsidiary United States Gypsum Co. (senior to B2).

Moody's said its action reflects USG's ongoing exposure to asbestos litigation and the continuing, accelerated downward impact on operating performance caused by price deterioration in the wallboard markets and higher fuel costs in the manufacturing process.

With respect to the asbestos litigation, sizeable settlement payments are anticipated going forward. Insurance proceeds are likely to cover only a minor portion of expected future payments and will be exhausted in the near term.

A further consideration is the June 29, 2001 expiry date of USG's $200 million 364 day bank facility. USG's ability to renew this facility on comparable terms is unlikely given the company's current operating fundamentals, Moody’s said.

The outlook remains negative given the uncertainty surrounding the extension of the maturing bank facility, the period of time for capacity and price correction in the wallboard markets, and the continuing asbestos exposure, Moody’s said.