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Global Credit Research - 01 Feb 2011
Approximately $500 million of debt securities rated
New York, February 01, 2011 -- Moody's Investors Service assigned a Ba3 corporate family rating
and probability of default rating to Aleris International, Inc.
("Aleris"). At the same time, we assigned a B1
rating to the company's proposed $500 million senior unsecured
notes due 2018. Proceeds are expected to be used to pay a $300
million dividend to its shareholders and for general corporate purposes.
The outlook is stable.
On June 1, 2010, Aleris emerged from Chapter 11 bankruptcy
protection (where it had operated since February 12, 2009) and completed
a financial and operational restructuring. As part of the emergence
plan, the company completed a $609 million rights offering
(backstopped by and taken up by its three sponsors: Oaktree Capital
Management, L.P., Apollo Management, L.P.,
and Sankaty Advisors, LLC), which was comprised of $564
million of new equity and $45 million of senior unsecured notes.
As a result of the restructuring, Aleris extinguished approximately
$2.7 billion of debt, leaving it with a virtually
debt-free capital structure.
The Ba3 corporate family rating reflects Aleris's moderate leverage
(pro-forma for the notes issue) following its substantial deleveraging
upon emerging from bankruptcy. As a consequence of the debt extinguishment,
Aleris's capital structure is now more appropriately balanced given
the cyclical nature of its business. In addition, the rating
acknowledges the company's strong market position as a major global
supplier of aluminum rolled products, its geographic and end market
diversity, and its long-term customer relationships.
Lastly, the rating recognizes the company's currently solid
At the same time, the corporate family rating reflects Moody's
expectation that the recovery in Aleris's key end markets will continue
to be uneven and that its exposure to the building and construction industries
will remain a weakness in 2011. In addition, while we acknowledge
the success that the company's private equity sponsors had in helping
it navigate through bankruptcy in a relatively short period of time,
there is still some uncertainty regarding future financial policies,
especially given the proposed debt-financed dividend payment.
Additional transactions of this type or aggressive debt-financed
acquisitions, as have been undertaken in the past, could stress
Aleris's stable outlook reflects Moody's expectation that
the end markets which the company serves will continue to show improving
fundamentals and demand requirements over the next 12-24 months
and that the company's key credit metrics, including adjusted
debt to EBITDA, debt to capitalization, and EBIT to interest,
will remain within acceptable ranges even if growth rates are slower than
anticipated. In addition, the company's strong position
in the aerospace and transportation industries should partially offset
the ongoing weakness in the building and construction end markets.
At this time, an upgrade is unlikely given Aleris's limited
post-bankruptcy operating history, the lingering uncertainty
regarding future financial policies, and the current weakness in
the building and construction end markets. However, should
the company's operating performance improve such that it achieves
a sustainable debt to EBITDA of less than 3.5x, EBIT margins
of higher than 7% and free cash flow to debt of greater than 6%,
an outlook or favorable rating movement could be considered.
Going forward, the company's ratings could be lowered if its
negative free cash flow persisted longer than anticipated or its private
equity sponsors completed another debt-financed dividend.
In addition, if debt to EBITDA increases to greater than 4.0x,
EBIT margins drop to less than 6% or EBIT to interest falls to
less than 2.5x, a change in outlook or downgrade could be
..Issuer: Aleris International Inc.
....Senior Unsecured Regular Bond/Debenture,
Assigned B1, LGD4, 67%
..Issuer: Aleris International Inc.
.... Probability of Default Rating,
Reinstated to Ba3
.... Corporate Family Rating, Reinstated
..Issuer: Aleris International Inc.
....Outlook, Changed To Stable From
The principal methodologies used in this rating were Global Steel Industry
published in January 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Aleris International, Inc. is a global manufacturer of aluminum
products, serving primarily the aerospace, building and construction,
containers and packaging, metal distribution, and transportation
industries. Through its 42 production facilities located across
North America, Europe, and China, the company specializes
in the manufacture and sale of aluminum rolled and extruded products;
aluminum recycling; and specification alloy manufacturing.
Its operations are split into three reporting segments: Rolled Products
North America (30% of fiscal 2009 revenues), Recycling and
Specification Alloys Americas (19%), and Europe (51%).
During the 12 months ended September 30, 2010, Aleris generated
approximately $3.9 billion of revenues.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
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 a Ba3 CFR to Aleris International, Inc.; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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