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Rating Action:

Moody's assigns Baa3 sr. unsec. rating to ATI's notes issue; outlook stable

09 Jul 2013

New York, July 09, 2013 -- Moody's Investors Service assigned a (P)Baa3 rating to Allegheny Technologies Incorporated's (ATI) shelf for senior unsecured debt issuance and a Baa3 rating to the senior unsecured notes being issued under the shelf. Proceeds will be used for general corporate purposes. Moody's notes that the interest rate on ATI's note issue is subject to adjustment should the company be downgraded below an investment grade rating, up to a maximum of 2%. Subsequent upgrades would result in a corresponding downward interest rate adjustment. All other ratings remain unchanged.

Assignments:

..Issuer: Allegheny Technologies Incorporated

.... Senior Unsecured Shelf, Assigned (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Assigned Baa3

RATINGS RATIONALE

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 customers' unique product requests. Through its ATI Ladish subsidiary, the company also has capabilities in forging, casting and machining, particularly to the aerospace industry. In addition, the company's increasing global footprint provides greater diversity to its customer base and earnings generation.

The ratings incorporate our expectation for improving profitability and strengthening debt protection metrics as well as adequate cash flow generation to cover requirements through the economic cycle. However, following the contraction in revenues and earnings during the recession, we expect that the return to more robust metrics will occur gradually, driven by continued strengthening in higher value-added product sales and strength in the aerospace markets, a key end market for the company. In addition with the construction of the Hot-Rolling and Processing Facility nearing completion and production start-up anticipated in early 2014, we expect capital expenditures to moderate in 2014 and performance of the Flat-Rolled Products segment to benefit in 2014 from the better cost position and expanded product offerings. Other factors captured in the rating include the volatility of the company's end markets and its relatively moderate size.

Despite near-term market and economic challenges, favorable trends in the aerospace sector, supported by improved order rates and lengthening lead times, and good order levels from the oil, gas and chemical industry, together with the company's success in improving its value added sales performance and focus on cost control are expected to support growth over the extended time horizon. However, the High Performance Metals segment's performance will be impacted by lower defense spending in the U.S. and Europe and weakness in nuclear markets.

The stable outlook reflects our view that ATI's performance will not meaningfully deteriorate over the next 12 to 18 months, although we anticipate that material improvement in earnings and debt protection metrics will likely be slowed until a global economic recovery in key end markets materializes and is sustained. 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 financial policies

We do not envision much upward rating momentum over the near term given our expectation for muted earnings improvement and cash flow generation in the near term and subsequently low likelihood of material debt reduction. However, the ratings could be favorably impacted should the company demonstrate the ability to sustain double digit EBIT margins (at least 13%), maintain debt-to-EBITDA below 2.5 times, and demonstrate an ability to be free cash flow generative.

ATI's ratings and/or outlook could face negative pressure 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. Ratings could also be negatively impacted should EBIT/interest and Debt/EBITDA not evidence improving trends and be viewed as sustainable at less than 4x and more than 3x respectively. In addition, any further significant debt-financed acquisitions or share buybacks could also adversely impact the rating.

The principal methodology used in this rating was the Global Steel Industry Methodology published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Allegheny Technologies Incorporated ("ATI"), headquartered in Pittsburgh, PA, 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 ("HPM", 44% of 2012 revenue), which tends to have mostly high value-added products, including titanium-based products, nickel-based alloys and superalloys; Flat-Rolled Products ("FRP", 47% of 2012 revenue), which has a mix of value-added and commodity products; and Engineered Products ("EP", 10% of 2012 revenue). ATI generated revenues of just under $5 billion for the twelve months ended March 31, 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.

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
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 Baa3 sr. unsec. rating to ATI's notes issue; outlook stable
No Related Data.
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