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Global Credit Research - 04 Jan 2011
Approximately $500 million of debt rated
New York, January 04, 2011 -- Moody's Investors Service assigned a Baa3 rating to Allegheny Technologies
Incorporated's (ATI) $500 million senior unsecured notes
due 2021. Proceeds will be used for general corporate purposes,
including funding the cash portion of the Ladish acquisition. Moody's
notes that the acquisition remains subject to Ladish shareholder approval.
At the same time, Moody's affirmed the Baa3 rating on ATI's
8.375% notes due 2011 and its 9.375% notes
due 2019 and the Baa3 rating on Allegheny Ludlum's debentures due
2025, which are guaranteed by ATI. The rating outlook is
ATI's Baa3 senior unsecured ratings reflect the company's position
as a leading producer of specialty titanium and titanium alloys,
nickel-based alloys and super alloys and its technological capabilities,
which provide ATI with the ability to fulfill customer's unique
product requests. The pending acquisition of Ladish is viewed as
a strategic opportunity to enhance ATI's strengths by providing the company
with increased forging, casting and maching capabilities.
Approximately 88% of Ladish sales are to the jet engine and aerospace
industry with a reasonable balance between commercial and military sales.
The ratings incorporate our expectation for profitability and adequate
cash flow generation to cover requirements through the economic cycle.
The ratings are supported by the company's solid liquidity position,
self-funded capital investments, good contract positions
for titanium and nickel based products across a broad array of end markets,
and continued shift in its flat rolled operating segments to higher value
added products. The rating also recognizes ATI's cost reductions,
which at $173 million in 2009 exceeded targeted levels.
Through September 30, 2010, the company achieved $102
million in gross cost reductions. While cost creep is expected,
we believe a meaningful level of savings is sustainable and that further
savings will be achieved.
ATI has evidenced improving performance in 2010 as its markets continue
to recover, particularly the important aerospace and defense market
as well as the chemical processing and energy markets. In addition,
the company's increasing footprint in the global markets will provides
greater diversity to its customer base and earnings generation.
While the poor business environment and corollary impact on volume and
prices negatively impacted ATI's credit metrics in 2009, and
the incremental increase in debt to fund this strategic acquisition will
slow the improvement in leverage, as measured by the debt/EBITDA
ratio, the company's business position and performance outlook
remain acceptable for the current rating.
The stable outlook reflects Moody's view that 2010 was a transition year
to an improved and higher sustainable EBITDA run rate. Consequently
we anticipate that ATI will continue to evidence improving earnings performance
and debt protection ratios over the next 12 months as demand recovers
in its key markets. The outlook also captures the expectation that
the company will continue to manage its capital investments and balance
sheet in a disciplined manner and maintain its conservative approach.
Moody's does not envision much upward rating pressure over the near term
given our expectation for slow although continued improvement in earnings
and cash flow generation and the increase in debt in conjunction with
the acquisition. However, the ratings could be favorably
impacted should the company demonstrate the ability to sustain double
digit EBIT margins (at least 13%), maintain Debt/EBITDA below
2.5x, and continue to remain free cash flow generative.
ATI's ratings and/or outlook could be pressured should the company's
liquidity significantly contract or cash flow generation prove materially
insufficient to cover planned capital investments and dividends.
In addition, sustained margin and earnings degradation due to a
further downturn in the global economy could negatively impact the outlook
or ratings. Any further significant debt-financed acquisitions
or share buybacks could also adversely impact the rating.
..Issuer: Allegheny Technologies Incorporated
....Senior Unsecured Regular Bond/Debenture,
Moody's last action on ATI was November 17, 2010 when the
ratings were affirmed following the announcement that the ATI would acquire
Ladish Co. for approximately $778 million.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The principal methodology used in this rating was Global Steel Industry
published in January 2009.
Headquartered in Pittsburgh Pennsylvania, Allegheny Technologies
Incorporated ("ATI") is a diversified producer and distributor of specialty
metals such as titanium and titanium alloys, nickel-based
alloys, and stainless and specialty steel alloys. The company
operates through three business segments: High Performance Metals,
Flat-Rolled Products, and Engineered Products. ATI
generated revenues of $3.8 billion for the twelve months
to September 30, 2010.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Baa3 rating to ATI's new senior notes issue; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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