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Rating Action:

Moody's affirms all ratings for Nucor; outlook stable

29 Oct 2019

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

No Related Data.
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