New York, October 29, 2019 -- Moody's Investors Service ("Moody's") has affirmed
Nucor Corporation's (Nucor) Baa1 senior unsecured ratings including
the backed industrial revenue bond ratings, the (P)Baa1 senior unsecured
shelf rating, the Prime -2 short-term rating and the
VMIG 2 short-term rating on certain industrial revenue bonds as
indicated in the debt list below. The outlook is stable.
"The affirmation reflects Nucor's continued strong debt protection
metrics and liquidity position despite the reduction in shipments and
contraction in earnings evidenced over the course of 2019" said
Carol Cowan, Senior Vice President and lead analyst for Nucor.
"The low cost nature of the company's electric arc furnace
(EAF) steel making process and broadly diversified product offerings contributes
to the company's good performance even during down cycles,"
Cowan added.
Affirmations:
..Issuer: Nucor Corporation
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Senior Unsecured Commercial Paper,
Affirmed P-2
....Senior Unsecured Bonds, Affirmed
Baa1
..Issuer: Berkeley (County of) SC
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
....Senior Unsecured Revenue Bonds,
Affirmed VMIG 2
..Issuer: Blytheville (City of) AR
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
....Senior Unsecured Revenue Bonds,
Affirmed VMIG 2
..Issuer: Box Elder (County of) UT
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: Darlington (County of) SC
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: Decatur Industrial Development Board,
AL
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: Hertford Conty of Ind Fac & Pol Ctrl
Fin Aut
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: Jewett Economic Development Corporation
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: Memphis-Shelby Cnty Ind. Dvlpmt
Board, TN
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: St. James (Parish of) LA
....Senior Unsecured Revenue Bonds,
Affirmed P-2
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: Stanton (County of) NE
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
....Senior Unsecured Revenue Bonds,
Affirmed VMIG 2
..Issuer: Tuscaloosa County Industrial Dev Auth,
AL
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
Outlook Actions:
..Issuer: Nucor Corporation
....Outlook, Remains Stable
RATINGS RATIONALE
Nucor's Baa1 senior unsecured ratings reflect the company's
low cost position in the US steel industry as an EAF steel producer,
together with its broad geographic footprint in the US and product breadth.
The EAF model and variable cost structure provides Nucor with the flexibility
to adjust production levels to demand more easily than integrated producers
and contributes to a lower cost position, given the use of steel
scrap as a key input. While costs will increase as Nucor moves
up the value chain in its product offerings and the input mix changes,
requiring more iron units depending on the product, the higher price
realizations will enhance earnings. Nucor also benefits from a
degree of vertical integration sourcing scrap from its David J.
Joseph (DJJ) subsidiary and selling substrate from its mills to its downstream
fabrication facilities.
Our outlook for the US steel industry is negative reflecting the contraction
in Purchasing Managers Index (PMI) statistics, flat to softening
automotive sales, general manufacturing slowing and reduced rig
count numbers. The construction industry however, continues
to show reasonable performance, which will support Nucor's
long products business as well as its steel products businesses.
The fall in hot-rolled coil steel prices that has been fairly ongoing
since around mid-2018 is also a consideration. However,
scrap prices have also come down measurably over the last several months
and are expected to remain around the current lower levels until into
2020. Scrap prices are a major driver in hot band prices.
The rating anticipates that steel industry conditions in the US for the
balance of 2019 and into 2020 will remain challenging and that Nucor's
fourth quarter performance will be down sequentially to the third quarter
albeit more modestly relative to the decline in prior quarters.
Metal spreads, EBITDA, and cash flow generation will decrease
relative to 2018 given the fall in steel prices including hot-rolled
and rebar and the lag period through which such price reduction is realized.
Estimated unadjusted EBITDA for the quarter ended September 30,
2019 is around $590 million, down roughly 23% from
the prior quarter. EBITDA of around $2.75 billion
is expected for 2019 which still results in strong debt protection metrics
with EBIT/interest of around 12.5x and debt/EBITDA of around 1.6x.
While year-on-year earnings and cash flow generation are
down significantly, this was anticipated as the run-up in
prices in 2019 was not viewed as sustainable. Nonetheless,
the operating environment in 2018 provided Nucor the opportunity to increase
its cushion to withstand weaker industry conditions.
The company has a number of strategic investments that it is undertaking.
These include building two rebar micro mills at a capital cost of around
$250 million each (startups in late 2019 and mid 2020), and
an approximate $650 million investment to expand its flat-rolled
sheet capacity at Gallatin. Additionally, the company is
investing $1.35 billion to build a new plate plant facility
in Kentucky with startup expected in late 2022. While the number
of new capacity announcements in the US have contributed to concerns as
to the market's ability to absorb, Nucor has the cash flow
and liquidity to support its strategic investments and is expected to
continue to exhibit a disciplined approach in its capital allocation framework.
Liquidity is supported by the company's $1.9 billion
cash and short-term investments position at September 30,
2019 and its unused $1.5 billion unsecured revolving credit
facility expiring in April 2023. The next significant note maturity
is in 2022.
The stable outlook reflects our expectation that Nucor's performance
will continue to be solid and that metrics will remain consistent with
the Baa1 rating over the next 12-18 months. Nucor's
strong performance in 2018 provides a good cushion to absorb the weakening
in industry fundamentals. Volatility is expected to remain a hallmark
for the industry.
Given the volatility inherent in the industry and potential for wide swings
in profitability and debt protection metrics, upward rating pressure
could be limited. A rating upgrade could be possible should Nucor
be able to evidence the ability to sustain EBIT margins of at least 13%,
debt/EBITDA of less than 2x, be free cash flow generative and maintain
an excellent liquidity position. Additionally, clarity of
the company's financial policies with respect to its capital structure,
level of absolute debt as well as acquisition appetite will also be considerations.
The rating could come under pressure for a downgrade should EBIT margins
be sustained at less than 10%, leverage, as measured
by the debt/EBITDA ratio breach 2.5x on a sustainable basis or
if liquidity were to contract materially.
Nucor, like all producers in the global steel sector faces pressure
to reduce greenhouse gas and air pollution emissions, among a number
of other sustainability issues and will likely incur costs to meet increasingly
stringent regulations. Nucor indicates that capital expenditures
with respect to complying with environmental regulations are less than
$100 million in each of 2019 and 2020. Nucor, as a
US company, is subject to numerous regional, state and Federal
regulations, including but not limited to the Clean Air Act,
the Clean Water Act, the Comprehensive Environmental Responsible
Compensation & Liabilities Act (CERCLA). Producers such as
Nucor who utilize the electric arc furnace (EAF) process (use a greater
percentage of scrap, i.e. recycled steel) to make
steel have lower greenhouse gas emissions than the integrated producers
who produce steel using the blast furnace process (use primarily coal
and iron ore to produce steel). Additionally, through its
David J. Joseph Company (DJJ) subsidiary, Nucor is a significant
recycler of ferrous and nonferrous metals.
From a governance perspective Nucor has performed well through various
troughs in the industry in recent years and remained focused on its capital
structure, free cash flow generation and discipline as to level
of debt given industry volatility. The company has exhibited a
balanced approach to deployment of its cash flow between growth,
debt reduction and shareholder returns. Nucor's goal is to
return a minimum of 40% to shareholders based upon earnings generation
and at the same time maintain a strong Investment Grade Rating.
Headquartered in Charlotte, North Carolina, Nucor operates
through 3 segments: Steel Mills, Steel Products and Raw Materials
(effective in 2018 the tubular products and piling business is reported
in Steel Products -- previously was in Steel Mills). Nucor
is a leading domestic producer of carbon and alloy steel and steel products
including bar, beam, sheet, plate, joists,
joist girders, hollow structural section tubing and electrical conduit
tubing. Through its subsidiary, The David J. Joseph
Company, Nucor is also a leading scrap company, brokering
and processing ferrous and nonferrous scrap metals among other products.
For the twelve months ended September 30, 2019, Nucor shipped
23.4 million tons of steel and had revenues of $23.7
billion.
The principal methodology used in these ratings was Steel Industry published
in September 2017. Please see the Rating Methodologies page on
www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Carol Cowan
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653