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Rating Action:

Moody's affirms Global Brass & Copper's B2 CFR; rating outlook changed to stable

19 Jun 2013

Approximately $375 million of rated debt securities affected

New York, June 19, 2013 -- Moody's Investors Service affirmed the ratings of Global Brass and Copper, Inc. ("GBC"), including the Corporate Family Rating (CFR) at B2, but changed the outlook to stable from positive. Moody's also assigned a Speculative Grade Liquidity rating of SGL-3. The stabilization of the outlook reflects Moody's expectation that demand for GBC's copper and brass products will be less robust than originally anticipated due the modest pace of economic growth in North America. As a result the company's margins, cash generation and debt protection measures are unlikely to support a higher rating. We also note that the company's aggressive distributions to shareholders will contribute to leverage remaining high.

The following ratings/assessments were affected by this action:

Corporate Family Rating affirmed at B2;

Probability Default Rating affirmed at B2-PD; and,

Senior secured notes due 2019 affirmed at B3 (LGD4, 68%).

Speculative grade liquidity rating of SGL-3 is assigned

RATINGS RATIONALE

GBC's B2 Corporate Family Rating reflects the cyclicality of the company's end markets, as well as its exposure to volatility in metals prices. Although the company's "balanced book" approach to managing its inventory dampens the impact of fluctuations in raw materials prices, GBC remains highly sensitive to declines in sales volumes. Recent operating performance is less robust than we expected due to reduced demand, resulting in credit metrics that do not support a higher rating at this time. The rating also takes into consideration GBC's leveraged capital structure and its ability to generate significant levels of earnings, and hence, free cash flow relative to its debt service requirements and debt outstanding. We forecast interest coverage -- measured as EBITA-to-interest expense -- remaining below 2.5 times, and free cash flow-to-debt below 5.0% over the next 12 months. Debt-to-book capitalization will remain elevated at close to 80% (all ratios incorporate Moody's standard adjustments).

However, we recognize the company's broad range of products and its end market diversification as strengths. GBC manufactures an extensive array of brass and copper products that are sold into a wide range of end markets including defense, automotive, building and households, machinery and transportation and electronics. Also, availability under GBC's $200 million asset-based revolving credit facility is substantial, providing the company financial flexibility to meet seasonal working capital needs and capital expenditures, and also to support potential growth opportunities.

The change in rating outlook to stable from positive reflects our view that GBC's key debt credit metrics will remain below levels previously identified as those that could result in positive rating actions. Also, by opting to apply 100% of the company's IPO proceeds to pay a dividend, KPS Capital Partners, GBC's majority owner, missed an opportunity to reduce balance sheet debt and improve credit metrics to levels that could have supported higher ratings.

The SGL-3 speculative grade liquidity rating reflects our view that GBC will maintain an adequate liquidity profile over the next 12 months, as we forecast the company will need to rely on its revolving credit facility to fund seasonal working capital needs. The company's principal liquidity source is its largely undrawn $200 million asset-based revolving credit facility, which was fully collateralized with approximately $175 million of remaining availability as of March 31, 2013. There are no material debt maturities during the coming twelve months and the company's free cash generation should be modestly positive after capital expenditures and working capital requirements.

Positive rating actions are possible once GBC operating performance improves such that EBITA-to-interest expense is sustained above 3.0 times and free cash flow-to-debt sustained above 7.5% (all ratios incorporate Moody's standard adjustments). A better liquidity profile would support positive rating actions as well.

A rating downgrade could be triggered by an unexpected decline in GBC's end markets or performance falling below our expectations. EBITA-to-interest expense remaining below 2.0 times and free cash flow-to-debt sustained below 2.5% for an extended period of time (all ratios incorporate Moody's standard adjustments) could pressure the ratings. Deterioration in the company's liquidity profile could negatively impact the ratings as well.

The principal methodology used in this rating was the Global Manufacturing Industry Methodology published in December 2010. 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.

Global Brass and Copper, Inc., headquartered in Schaumburg, IL, is North America's leading manufacturer and distributor of copper and brass products, operating through three businesses - Olin Brass, Chase Brass, and A.J. Oster. KPS Capital Partners, through its affiliates, is the majority owner of GBC. Revenues for the twelve months through March 31, 2013 totaled about $1.7 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Peter Doyle
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Global Brass & Copper's B2 CFR; rating outlook changed to stable
No Related Data.
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