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Rating Action:

Moody's downgrades ATI's ratings (CFR to Ba3); ratings under review for further downgrade

06 Nov 2015

New York, November 06, 2015 -- Moody's Investors Service downgraded Allegheny Technologies Incorporated's (ATI) Corporate Family Rating (CFR) and Probability of Default rating to Ba3 from Ba2 and Ba3-PD from Ba2-PD respectively. The senior unsecured note ratings of ATI and Allegheny Ludlum Corporation (guaranteed by ATI) were downgraded to B1 from Ba2. The Speculative Grade Liquidity rating was lowered to SGL-3 from SGL-2. The ratings were placed on review for further downgrade.

Downgraded and Placed under Review:

..Issuer: Allegheny Technologies Incorporated

.... Corporate Family Rating, Downgraded to Ba3 from Ba2; Placed Under Review for further Downgrade

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD; Placed Under Review for further Downgrade

.... Speculative Grade Liquidity Rating, lowered to SGL-3 from SGL-2

....Senior Unsecured Regular Bond/Debenture, Downgraded to B1 (LGD4) from Ba2 (LGD4); Placed Under Review for further Downgrade

Outlook Actions:

..Issuer: Allegheny Technologies Incorporated

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Allegheny Ludlum Corporation

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to B1 (LGD4) from Ba2 (LGD4); Placed Under Review for further Downgrade

Outlook Actions:

..Issuer: Allegheny Ludlum Corporation

....Outlook, Changed To Rating Under Review From Stable

RATINGS RATIONALE

The downgrade reflects the greater than expected deterioration in market conditions evidenced in the third quarter of 2015 and consequent impact on ATI's performance with the company reporting an operating loss of $91 million (unadjusted) for the quarter. The Flat Rolled Products segment experienced reduced shipments (sequentially down 25%) and continued deterioration in prices realized. The majority of the quarterly loss can be attributed to the Flat Rolled Products segment, which incurred an operating loss of $91.8 million, although segment operating profit for High Performance of $18.8 million was down almost 56% sequentially. Debt protection metrics such as EBIT/interest weakened to 0.4 x for the twelve months ended September 30, 2015 while leverage, as measured by the debt/EBITDA ratio increased to 9 x from 6.6x in fiscal 2014 (including Moody's standard adjustments, principally for pension).

While revenues from the aerospace market in the third quarter remained relatively flat year-on-year, weakness in a number of important end markets for the company, such as oil and gas, electrical energy, and construction/mining equipment and a weaker contribution from automotive contributed to a material revenue decline in ATI's quarterly revenues relative to the same period the prior year (down approximately 22%). The quarter also had some costs associated with the restart of facilities within the flat rolled segment following the labor lockout. Nonetheless, we expect performance over the next several quarters to remain challenged given fundamental industry conditions. With the low oil prices and inventory glut, which will take several quarters to clear, recovery in this sector is not expected for an extended period, while the overall steel sector is expected to continue to experience weak performance and face a low price environment, with risk to the downside. As such, performance, particularly in the Flat Rolled Products side is expected to experience losses, although at a lower level than seen in the third quarter. Although the company has a good aerospace backlog with improving deliveries expected under the LTA's (long-term agreements), the flow through to material profit improvement is expected to be modest in 2016. We expect leverage could approach between 12x and 15x at year-end 2015. In addition, the duration of the labor lockout and costs and inefficiencies that might be associated remain uncertain.

The review will focus on ATI's ability to reduce costs, expected sales mix, time frame for improvement in value added sales and delivery times to the aerospace market as well as the ability to turnaround the loss making flat rolled products segment. The review will also focus on the end markets to which ATI sells and the expected demand from such markets as well as the time horizon over which an improved performance is likely to be realized particularly given the level of deterioration experienced in 2015.

ATI's Ba3 CFR considers 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 the company with the ability to fulfill customers' unique product requests. ATI's strong LTA position with major aerospace companies is also a favorable consideration and is expected to contribute to improving performance as build rates increase both for aircraft and engines. However, despite the company's favorable relationship and order book with the aerospace industry, weak fundamentals in other end markets will delay the level of improvement that can be achieved in the overall business profile.

The SGL -3 speculative grade liquidity rating reflects expectations that ATI will evidence a cash burn over the next twelve to fifteen months, particularly as recent cash receipts from a federal tax refund and the settlement of certain foreign exchange forward contracts are unlikely to be repeated. As such, the company is likely to borrow under its asset base lending (ABL) revolver.

The B1 rating on the senior unsecured instruments under Moody's loss given default methodology reflects the weaker position of the notes in the capital structure behind the ABL revolver and priority payables.

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

Headquartered in Pittsburgh, Pennsylvania, ATI is a diversified producer and distributor of components and specialty metals such as titanium and titanium alloys, nickel-based alloys and stainless and specialty steel alloys. For the twelve months ended September 30, 2015 the company generated revenues of $4.billion.

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
Senior Vice President
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 downgrades ATI's ratings (CFR to Ba3); ratings under review for further downgrade
No Related Data.
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