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Related Issuers
Rating Action:

Moody's assigns B1 rating to TMS International's term loan B add-on; affirms all ratings

06 Jan 2021

New York, January 06, 2021 -- Moody's Investors Service, ("Moody's") has assigned a B1 rating to TMS International Corp.'s ("TMS International") proposed $150 term loan B add-on. At the same time, Moody's affirmed TMS International's B2 Corporate Family Rating, B2-PD Probability of Default Rating, B1 rating on its existing senior secured term loan B and the Caa1 rating on its senior unsecured notes. The ratings outlook is stable. The proceeds from the term loan add-on will be used to pay off bridge financing that partly funded the acquisition of The Stein Companies along with a portion of the company's cash balance in December 2020. It will also be used to replenish the company's cash balance, cover fees and expenses and to fund another potential acquisition.

Assignments:

..Issuer: TMS International Corp.

....Senior Secured Bank Credit Facility, Assigned B1 (LGD3)

Affirmations:

..Issuer: TMS International Corp.

.... Probability of Default Rating, Affirmed B2-PD

.... Corporate Family Rating, Affirmed B2

....Senior Secured Bank Credit Facility, Affirmed B1 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

Outlook Actions:

..Issuer: TMS International Corp.

....Outlook, Remains Stable

RATINGS RATIONALE

"The affirmation of TMS International's ratings reflects its resilient operating performance and free cash flow generation during a difficult year for the steel sector, which tempers the impact of debt funded acquisitions and will enable the company to maintain a credit profile that is commensurate with its B2 corporate family rating," said Michael Corelli, Moody's Senior Vice President and lead analyst for TMS International Corp.

TMS International's B2 corporate family rating is supported by its strong market position, customer and regional diversity, downside protection afforded by its long-term contracts and its highly variable cost structure. It also reflects the high margins generated by its Mill Services Group and its good liquidity. TMS International's credit profile is constrained by its somewhat elevated financial leverage, weak interest coverage, exposure to the highly cyclical steel sector and inconsistent free cash generation due to periodic capital spending at new mill sites in advance of cash flow generation from those sites.

Steel industry conditions materially deteriorated during most of 2020 due to the impact of the coronavirus on key steel consuming end markets. The materially lower levels of steel production along with temporarily idled and permanently closed customer mill sites weighed on TMS International's Mill Services Group. In addition, declining scrap prices and lower volumes negatively impacted the operating performance of its Raw Materials and Optimization Group. However, the company's variable cost structure enabled it to quickly reduce costs while the downside protection of its contracts, which include base fees and tiered pricing that provides higher revenues per ton at lower volumes, enabled it to temper the impact on its operating performance. As a result, Moody's expects TMS to report adjusted EBITDA of about $150 million versus $156 million in 2019. The operating performance of its core business should strengthen in 2021 as steel production rises after a weak 2020.

TMS acquired The Stein Companies in December 2020. The Stein Companies is a US focused steel mill services competitor of TMS and appears to be a good strategic fit and enhances the company's scale and customer diversity. The company is also considering another acquisition. These debt financed acquisitions could raise the company's leverage profile depending on their post-acquisition operating performance and the synergies achieved. However, TMS International's credit metrics should remain commensurate with its rating with a pro forma leverage ratio (debt/EBITDA) around 5.0x.

TMS has a good liquidity profile with $70.5 million of unrestricted cash and net availability of $102.9 million on its $125 million asset-based revolving credit facility as of September 2020, which had no borrowings outstanding and $11.2 million in letters of credit. The eligible accounts receivable and inventory that comprise the collateral under the ABL facility supported a gross borrowing base of $114.1 million. The company plans to upsize the revolver to $150 million to accommodate its increased scale after the Stein deal and another potential acquisition and to extend the maturity to December 2025 from December 2021. Moody's expects TMS to generate positive free cash flow over the next 12 to 18 months. However, its free cash generation depends on the extent to which the company is awarded new contracts and whether business conditions require investments in working capital.

The stable outlook reflects the expectation that TMS International's operating performance and credit metrics will strengthen in 2021 as it uses a portion of its free cash flow to pay down debt.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

TMS International's ratings are not likely to experience upward pressure in the near term. However, the ratings would be considered for an upgrade if the company achieves substantially improved operating results and credit metrics. This would include maintaining a leverage ratio (Debt/EBITDA) below 4.5x and cash flow from operations above 13% of outstanding debt.

The ratings would be considered for a downgrade if the company experiences a material reduction in borrowing availability or liquidity, or if its leverage ratio is sustained above 5.5x or cash flow from operations below 10% of outstanding debt.

TMS International Corp., headquartered in Pittsburgh, PA., provides on-site steel mill services such as scrap management and preparation, semi-finished and finished material handling, metal recovery, slag handling, processing and sales, surface conditioning, raw materials procurement and logistics and raw material cost optimization. The company generated $1.1 billion in revenues for the twelve months ended September 30, 2020. TMS has been owned by The Pritzker Organization since late 2013.

The principal methodology used in these ratings was Steel Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1074524. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Michael Corelli, CFA
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

Glenn B. Eckert
Associate Managing Director
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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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