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01 Nov 2001
MOODY'S CONFIRMS SENIOR UNSECURED RATINGS OF COMMERCIAL METALS COMPANY; REVISES OUTLOOK TO NEGATIVE
Approximately $385 Million of Debt Securities Affected.
New York, November 01, 2001 -- Moody's Investors Service confirmed its Baa1 senior unsecured ratings
and Prime-2 short term rating of Commercial Metals Company (CMC).
At the same time, Moody's assigned a Baa1 rating to CMC's new $135
million senior unsecured credit facility, comprised of a $90
million 364-day revolving credit agreement and a $45 million
three-year revolving credit agreement. The rating outlook
has been revised to negative from stable.
Moody's negative outlook reflects the expectation that the ongoing economic
downturn will result in continued weak levels of demand and pricing for
steel and commodity metals over the near-to-intermediate
term, pressuring CMC's operating margins. Low pricing on
mill rebar, merchant and light structural products, and steel
joists, coupled with a possible return to higher energy costs,
could impact operating margins for CMC's manufacturing and recycling segment
through FY2002 (ended August 31). While the company's global marketing
and trading segment contributed comparatively strong operating income
to CMC during FY2001, going forward the margins for this business
segment may be pressured by U.S. import restrictions and
a stabilization of finished goods prices. A protracted economic
slowdown could further pressure CMC's debt protection measurements that
are weak for the Baa1 rating category.
CMC's ratings are supported by the vertical integration of its copper
tube mill, steel and commodity-metals businesses and by its
tight financial and operational controls. Also, CMC's cash
flow is cushioned by its regional and increasingly international geographic
diversification. The company has operations in the Southwestern
and Southeastern U.S., Europe, Asia and,
following a recent acquisition, an expanded presence in Australia.
Moreover, the company has stated its intention to broaden its vertical
integration through the acquisition of additional downstream fabrication
capacity. Moody's believes these acquisitions will be relatively
The ratings also reflect the anticipated benefit that Federal infrastructure
projects (such as TEA 21) and economic stimulus packages should have on
CMC's steel manufacturing segment. While import restrictions may
lower the profitability of CMC's marketing and trading segment,
they should positively impact CMC's rebar and structural products.
During FY2001, CMC's operating profit declined to $68 million,
or 2.7% of revenues, from $100 million,
or 3.8% of revenues, during FY2000. At mid-year,
the company's working capital requirements had elevated borrowings to
nearly $430 million. However, a strict focus on inventory
reduction and working capital management lowered CMC's total debt (including
securitized accounts receivable) to $306 million by August 2001.
The company's debt protection measure of 2.8 times EBIT to interest
remains below its three year average of 3.9 times interest coverage.
The Baa1 rating on CMC's credit facility reflects its pari passu ranking
with CMC's three outstanding senior unsecured note issues. Moody's
believes CMC's back-up credit facility is adequate to support its
funding needs over the short-term, although it is reduced
in both amount and tenor. Financial covenants in the facility include
minimum interest coverage of 3.0 times, based on EBITDA (as
defined), and maximum leverage of 55%. At FY2001,
CMC reported 41% debt to capitalization.
Commercial Metals Company, based in Dallas, TX, manufactures,
recycles, and markets steel and metal products and related materials
and services through a global network of over 130 locations. The
company had consolidated sales of approximately $2.4 billion
for the fiscal year ended August 31, 2001.
Michael J. Mulvaney
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
Asst Vice President - Analyst
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
No Related Data.
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