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Rating Action:

Moody's assigns Baa1 rating to Nucor's note issuance

23 Apr 2018

New York, April 23, 2018 -- Moody's Investors Service, ("Moody's") assigned a Baa1 rating to Nucor Corporation's (Nucor) $1.0 billion senior unsecured notes. The notes will be issued under the company's well-known seasoned issuer shelf registration ("WKSI") (rated (P)Baa1 for senior unsecured debt securities). All other ratings remain unchanged. The outlook is stable.

Proceeds will be used to repay the $500 million 5.850% notes due June 1, 2018 and for general corporate purposes. "The $500 million incremental increase in debt is comfortably accommodated within the company's leverage and coverage metrics", said Carol Cowan, Moody's Senior Vice President and lead analyst for Nucor.

Assignments:

..Issuer: Nucor Corporation

....Senior Unsecured Regular Bond/Debenture, Assigned Baa1

RATINGS RATIONALE

Nucor's Baa1 senior unsecured rating considers the company's broad footprint in the US, its diversified product mix, and leading or strong position in its markets served. Furthermore, the electric arc furnace (EAF) model and variable cost structure provides Nucor with the flexibility to adjust production levels to demand changes more easily than integrated producers and contributes to a lower all in cost position. Nucor continues to focus on moving up the value add chain to enhance profitability. The rating is also supported by the company's excellent liquidity position.

US steel industry fundamentals improved in 2017 on strengthening demand, particularly in construction and the recovering OCTG markets. Nucor's operating rates at its steel mills were 85% in 2017 versus 78% in 2016 with tons sold of roughly 26.5 million up almost 9%. Despite a number of favorable trade rulings, imports remained high in 2017 with an approximate market share of 27% and drove margin compression on competitive pricing pressure. Nonetheless, on better overall realized prices and higher shipments Nucor achieved a strong growth in EBITDA, which increased almost 23% to approximately $2.7 billion. Net earnings also increased from the benefit from deferred taxes due to the Tax Reform Act of 2017. The improved earnings performance and continued debt reduction resulted in leverage declining to 1.5x from 2.1x at December 31, 2016. The company's performance for the quarter ended March 31, 2018 continued to evidence the strength of Nucor's market position and improved operating profile as tons sold, composite sales price/ton and earnings improved.

We expect the better steel industry fundamentals seen in 2017 to continue in 2018, although the pace of demand growth may not be as strong. The imposition of a 25% tariff on steel imports under Section 232 will benefit the industry in the near term although a number of countries have been exempted until May 1 when further determinations will be made. While prices have risen significantly following the announcement (hot-rolled coil averaged around $862/ton in March 2018), we expect some moderation as the year progresses. Additionally, Nucor has announced a number of investments, including building rebar micro mills in Florida and Missouri as well as a merchant bar mill at Nucor Steel Kankakee. These represent at least $670 million in investments over the next several years. Although free cash flow (after acquisitions and dividends but before debt repayment) was negative in 2017 on the growth in working capital requirements, deferred tax adjustment, and acquisitions, the company is expected to return to positive free cash flow generation in 2018. Nucor is expected to have a strong year in 2018 with metrics remaining solid for the Baa1 rating category. Leverage, as measured by the debt/EBITDA ratio is expected to remain within the 1.5x to 2x range.

The stable outlook reflects our expectation that Nucor's performance will be solid and metrics will remain consistent with the Baa1 rating over the next 12-18 months. Nucor will benefit from the improved steel demand and price environment, but volatility is expected to remain a hallmark for the industry.

Given the volatility inherent in the industry and potential for wide swings in profitability, upward ratinig 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% and debt/EBITDA of less than 2x, be free cash flow generative and maintain an excellent liquidity position.

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 liquidity contract materially.

Headquartered in Charlotte, North Carolina, Nucor Corporation ("Nucor") is a leading domestic producer of carbon and alloy steel and steel products including bar, beam, sheet, plate, joists, and joist girders. Through its subsidiary The David J. Joseph Company (DJJ),

Nucor is also a leading scrap company, brokering and processing ferrous and nonferrous scrap metals among other products. Reporting business segments are: steel mills, steel products, and raw materials. Operating primarily as a collection of mini-mills, Nucor utilizes scrap steel as its primary raw material for producing steel although its sheet mills also require higher quality iron units. With its DRI facilities in Trinidad and Louisiana and DJJ, Nucor has an increased level of vertical integration, in keeping with a strategic objective of controlling approximately one-third of its iron consumption requirements.

Nucor has total annual flat-rolled [sheet] production capacity of about 12.1 million tons. For the twelve months ended March 31, 2018, Nucor had revenues of $21 billion.

The principal methodology used in this rating 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 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 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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