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Rating Action:

Moody's assigns Ba2 rating to CMC's unsecured notes offering

06 May 2013

Approximately $300 million in new debt rated

New York, May 06, 2013 -- Moody's Investors Service ("Moody's") assigned a Ba2 rating to senior unsecured notes due 2023 ("2023 Notes") being offered by Commercial Metals Company ("CMC"). The 2023 Notes will be issued under a "well-known seasoned issuer" shelf, which will be assigned a provisional (P)Ba2 senior unsecured rating. At the same time, Moody's affirmed the company's Ba1 Corporate Family Rating, Ba1-PD Probability of Default Rating and Ba2 rating on its senior unsecured debt. The SGL-2 Speculative Grade Liquidity Rating remains unchanged. The outlook is negative. CMC intends to use the net proceeds of the offering to tender for and redeem outstanding balances under its 5.625% senior unsecured notes due November 2013 ($200 million outstanding, "2013 Notes") and for general corporate purposes. The rating on the 2013 Notes will be withdrawn once the instruments have been fully redeemed.

Assignments:

..Issuer: Commercial Metals Company

....Senior Unsecured Regular Bond/Debenture, Assigned Ba2, LGD4, 66%

Affirmations:

..Issuer: Commercial Metals Company

.... Probability of Default Rating, Affirmed Ba1-PD

.... Corporate Family Rating, Affirmed Ba1

....Senior Unsecured Regular Bond/Debenture Nov 15, 2013, Affirmed Ba2, LGD4, 66%

....Senior Unsecured Regular Bond/Debenture Jul 15, 2017, Affirmed Ba2, LGD4, 66%

....Senior Unsecured Regular Bond/Debenture Aug 15, 2018, Affirmed Ba2, LGD4, 66%

RATINGS RATIONALE

CMC's Ba1 Corporate Family Rating considers the improving trends in the company's financial results following the 2009 recession but reflects the fact that profit margins and other debt protection metrics remain weak relative to the rating with an EBIT margin of 3.6% (including Moody's standard accounting adjustments) for the twelve months ending February 28, 2013. The rating also reflects our expectations that, despite the absence of the unprofitable CMC Sisak subsidiary in Croatia, and undertaking a number of other right sizing actions, including a focus on reducing costs and the closure of several rebar facilities domestically and internationally, further improvement in debt protection metrics will proceed at a slow pace. This principally reflects our view that the steel industry in the U.S. still faces headwinds and that performance in CMC's Americas Fabrication segment will remain challenged. Although activity in the commercial construction industry is showing improving fundamentals, the rate of improvement remains slow and we expect it will be 2014 before a more solid recovery emerges. In addition, the rating incorporates the company's vulnerability to the volatility in steel demand and prices.

Given still-weak industry dynamics, particularly in non-residential construction which is a major end market for CMC's mills and fabrication facilities, we believe that CMC's operating performance in 2013 will be flat to slightly down relative to 2012. Reflective of the still-challenging environment and normal seasonality in CMC's business, three of the company's five segments reported lower operating profits for the six months ending February 28, 2013 compared with the prior-year period. Results in the Americas Recycling, Americas Mills and International Mill segments continue to be affected by the slow economic recovery and import price competition in the U.S., and ongoing economic and sovereign crisis in Europe. Furthermore, profitability under the International Marketing and Distribution segment has contracted year-over-year during the second fiscal quarter of 2013 due to weaker than expected demand in Australia. While the Americas Fabrication has evidenced improving results in recent periods, the segment reported a loss during the second quarter 2013 as weak construction off-take persisted across the broader U.S. market. Therefore, we do not anticipate that CMC's EBIT margin to exceed 4% in 2013.

The SGL-2 speculative grade liquidity rating reflects our expectation of good liquidity over the next four quarters, during which we expect that CMC's free cash flow and cash balances ($170 million at February 28, 2013) will remain sufficient to fund all working capital and capital expenditure requirements. The company's external liquidity sources include a $300 million revolving credit facility expiring in December 2016 and $200 million accounts receivable securitization program expiring in December 2014. Although the revolver was undrawn at February 28, 2013, there could be some usage from time to time to support seasonal working capital requirements. Furthermore, should the proposed transaction be completed (including the full redemption of the 2013 Notes) under the terms and timing currently being contemplated, CMC will no longer be required to maintain a minimum liquidity of at least $150 million in excess of the outstanding principal under the 2013 Notes -- a requirement that was scheduled to commence on May 15, 2013.

The Ba2 rating of the senior unsecured notes reflects the impact of the revolving credit facility (unrated by Moody's) and priority accounts payables on the liability waterfall in Moody's Loss Given Default (LGD) Methodology and the lower position of the senior unsecured debt in the capital structure. While the revolver currently is secured only by the pledge of stock of material domestic and certain foreign subsidiaries, it requires the pledge of receivables and inventory should the company's ratings be downgraded to levels as specified in the credit agreement. Therefore, under Moody's LGD Methodology, the revolver is treated as having an effectively senior position resulting in potential higher loss absorption for the unsecured debt.

The negative outlook reflects our view of the still-challenging environment facing the steel industry over the next 12 to 18 months as well as our expectations that the commercial construction industry will not show meaningful signs of strengthening until 2014. As a consequence, CMC's performance remains vulnerable to these market conditions. The outlook also reflects the volatility of the steel markets and of steel prices, which we expect to continue to be a factor in calendar year 2013.

CMC's rating could be downgraded if economic weakness and increased competition dampen sales growth, leading to a deterioration in operating performance and credit metrics. Quantitatively, the rating could be downgraded if the EBIT margin does not show improvement towards 4%, and debt-to-EBITDA and EBIT-to-interest expense are likely to be sustained above 4.0 times and below 2.5 times, respectively.

The rating is unlikely to be upgraded in the near term, given the challenges facing CMC. The rating could be upgraded should economic fundamentals in the U.S. strengthen and evidence better sustainability than has been experienced in recent years. Quantitatively, the rating could be upgraded if the debt-to-EBITDA ratio is sustainable at or below 3.0 times, the EBIT-to-interest ratio above 4.0 times and the (operating cash flow less dividends)/debt ratio sustainable above 25%.

The principal methodology used in this rating was the Global Steel Industry Methodology published in October 2012. 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.

Headquartered in Irving, Texas, Commercial Metals Company (CMC) manufactures steel through its four minimills and one micromill in the United States. It also has a presence in Europe through its minimill in Poland after recently exiting and closing its operations in Croatia (CMC Sisak). Furthermore, CMC operates steel fabrication facilities, a copper tube mill, ferrous and nonferrous scrap metal recycling facilities, and is involved in the marketing and distribution of steel, other metals and industrial raw materials. CMC generated revenues of approximately $7.4 billion and shipped approximately 5 million tons of steel in the 12 months ending February 28, 2013.

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.

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
VP - Senior Credit Officer
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 assigns Ba2 rating to CMC's unsecured notes offering
No Related Data.
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