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Rating Action:

Moody's confirms John Maneely's B2 CFR; assigns negative outlook

29 Sep 2009

Approximately $1,200 million of debt affected

New York, September 29, 2009 -- Moody's Investors Service confirmed the ratings of John Maneely Company (JMC), including its B2 corporate family rating. A negative rating outlook was assigned to JMC and to its affiliate, 6582125 Canada Inc. This concludes the review for possible downgrade begun on June 10, 2009.

The rating confirmation recognizes that JMC has effectively downsized its operations to ensure profitability, albeit at low levels, even at greatly reduced volumes and capacity utilization, and that it very likely will remain in compliance with its credit agreement covenants, in particular its 5.5x maximum debt to EBITDA covenant, either through (a) having ample EBITDA, (b) applying operating cash flow or cash to repay debt, or (c) a combination of the two. Nevertheless, with the non-residential construction market -- JMC's largest market -- still declining and a recovery possibly several years away, Moody's assigned a negative rating outlook as the company may face restricted earnings and tight covenants for an extended period of time.

The following ratings were confirmed:

For John Maneely Company:

Corporate family rating -- B2

Probability of default rating -- B2

Asset based revolving credit facility due 2011 -- Ba2 (LGD2, 22%)

Term loan facility due 2013 -- B3 (LGD4, 59%)

For 6582125 Canada Inc.:

Asset based revolving credit facility due 2011 -- Ba2 (LGD2, 22%)

JMC's B2 corporate family rating reflects its high leverage, high degree of exposure to the non-residential construction market, and a relatively high reliance on commodity types of products that tend to have aggravated cycles and low margins. The ratings also reflect JMC's high degree of variable costs, focus on right-sizing its operations to the current weak operating environment, and leading market position for many of its pipe products and electrical conduit.

Excluding the $229 million net settlement received from Novolipetsk Steel OJSC (NLMK) in its 2Q09 (the quarter ended March 28, 2009), JMC had approximately negative $40 million of EBITDA for the six months ended March 28, 2009 as it confronted weak end-market demand and inventory de-stocking, which resulted in a 40-45% drop in shipments. However, JMC has rapidly adjusted its manufacturing base, costs and employment and generated $41 million in EBITDA in 3Q09 even though shipments were 46% lower than in the year-ago period. While the demand picture remains unfavorable for most of JMC's markets -- approximately 80% of its sales go into the non-residential construction market, which is widely expected to have another weak year in 2010 -- Moody's believes the company will be modestly profitable and cash flow positive, excluding the potential effects of increased working capital.

The improved operating performance makes it more likely that JMC will continue to comply with the financial covenants found in its credit agreements, in particular its 5.5x maximum debt/EBITDA covenant. Covenant compliance through December 2009 is assured by the inclusion of the NLMK settlement in EBITDA for covenant calculation purposes -- the leverage ratio was 2.2x for the LTM period ended June 27, 2009. Covenant compliance is at risk after December 2009, but will be aided by the approximately $150 million debt reduction that Moody's expects the company to make in December 2009 as it repays debt in accordance with the excess cash flow sweep provisions of the term loan agreement. That should bring gross debt down to approximately $1,060 million. From that point, covenant compliance depends on achieving EBITDA, as defined for covenant calculation purposes, of approximately $47 million per quarter or using cash to retire additional debt. Given the poor prospects for the non-residential construction market, we think the leverage covenant could be tight for an extended period.

Moody's previous rating action for JMC was on June 10, 2009, when the company's ratings were lowered one notch and the ratings were placed under review for possible downgrade. The principal methodology used in rating JMC was Moody's Global Steel Industry rating methodology, published in January 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Beachwood, Ohio, John Maneely Company (JMC) manufactures steel pipe, hollow structural steel (HSS), electrical conduit products and tubular products at ten manufacturing facilities in the U.S. and Canada. The company is number one or two in its key product areas: HSS, standard pipe and electrical conduit. JMC also enjoys leading market positions in the galvanized mechanical tube and fittings markets. Its products are sold principally to plumbing and electrical distributors. JMC's parent, DBO Holdings, Inc., is approximately 55% owned by the Carlyle Partners IV, LP.

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Oman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's confirms John Maneely's B2 CFR; assigns negative outlook
No Related Data.
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