New York, December 02, 2011 -- Moody's Investors Service upgraded GrafTech International Ltd's
(GrafTech) Corporate Family Rating (CFR) to Ba1 and rated its $570
million senior secured revolving credit facility Baa3 (LGD3, 35%).
Moody's also changed GrafTech's Probability of Default Rating
(PDR) to Ba1 from Ba3, and downgraded its speculative grade liquidity
rating to SGL-2 from SGL-1. The ratings outlook was
moved to stable from positive.
The new facility matures on the earlier of October 7, 2016 (five
years), or on August 30, 2015 (almost four years), if
GrafTech's $200 million senior subordinated debt is still
outstanding and the company does not meet certain minimum liquidity requirements.
It replaces the company's previous $260 million facility
that would have matured in April 2013.
The following summarizes the ratings:
GrafTech International Ltd.
Ratings upgraded:
Corporate Family Rating -- Ba1 from Ba2
Probability of default rating -- Ba1 from Ba3
Ratings downgraded:
Speculative Grade Liquidity rating -- SGL-2 from SGL-1
GrafTech Finance Inc.
Rating assigned:
Gtd Sr Sec revolving credit facility due 2016 -- Baa3 (LGD3,
35%)
Ratings withdrawn:
Gtd Sr Sec revolving credit facility due 2013 -- Ba1 (LGD2,
24%)
Outlook: Stable
RATING RATIONALE
GrafTech's Ba1 Corporate Family Rating (CFR) is supported by its
low leverage, attractive EBITDA margins, leading market positions
in graphite electrode sales, as well as geographic and operational
diversity with relatively low cost manufacturing facilities located on
four continents. The rating also assumes that GrafTech will continue
to expand its Engineered Solutions business through new applications and
acquisitions to provide greater product and end market diversity.
However, the rating is constrained by the company's relatively
narrow product line as graphic electrodes still account for the vast majority
of earnings and cash flow. Additionally, the company is exposed
to cyclical end markets (the steel industry) and volatile raw materials
costs (needle coke accounts for approximately 45% of the manufacturing
cost of graphite electrodes) and energy costs, which are not correlated
with the price of steel. Moody's also believes that supplier
and customer concentration can create greater variability in margins over
the business cycle. The acquisition of needle coke producer SeaDrift
Coke has improved the company's ability to hedge changes in raw
material costs. GrafTech remains under levered for its rating category,
despite the acquisition of SeaDrift Coke LP and C/G Electrodes LLC in
November 2010. The rating incorporates our expectation that the
company will continue to grow through bolt-on acquisitions,
but will maintain relatively conservative financial policies supportive
of the Ba1 CFR. Moody's noted that GrafTech has used equity
to partially finance past acquisitions and the Ba1 rating anticipates
that it will use equity to partially fund any acquisition larger than
$250 million. Furthermore, ongoing elevated capital
expenditures and potential acquisitions will result in higher leverage
in 2012. Additionally, given the state of the steel markets,
Moody's expects the graphite electrode business to be relatively
flat in 2012.
The speculative grade liquidity rating was moved to SGL-2 (from
SGL-1) based on our expectation that the company will continue
to have negative free cash flow in early 2012 as it continues capital
expenditures above historical average levels to grow its business.
Its liquidity is supported by modest cash balances and approximately $370
million of availability under committed facilities (assuming the new revolving
credit facility was in place on June 30, 2011).
Please see ratings tab on the issuer/entity page on Moodys.com
for the last credit rating action and the rating history.
The principal methodology used in rating GrafTech International 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.
GrafTech International Ltd., headquartered in Parma,
Ohio, is a leading global manufacturer of graphite electrodes,
and other graphite products. Revenues were $1.3 billion
for the twelve months ended September 30, 2011.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 31 January
2012. ESMA may extend the use of credit ratings for regulatory
purposes in the European Community for three additional months,
until 30 April 2012, if ESMA decides that exceptional circumstances
arise that may imply potential market disruption or financial instability.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
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James Wilkins
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
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Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
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Moody's upgrades GrafTech to Ba1; rates revolver Baa3
