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Rating Action:

Moody's downgrades TMS International's (Tube City IMS) CFR to B2; outlook negative

02 Dec 2015

Approximately $700 million of rated debt securities affected

New York, December 02, 2015 -- Moody's Investors Service downgraded TMS International Corp.'s ("Tube City IMS Corporation") corporate family rating to B2 from B1, its probability of default rating to B2-PD from B1-PD, its senior secured term loan rating to B1 from Ba3 and its senior unsecured notes to Caa1 from B3. The ratings downgrades and negative outlook reflect the recent substantial deterioration in TMS International's operating results and credit metrics and the expectation they will remain weak over the next 12 to 18 months.

The following ratings were affected in this rating action:

Issuer: TMS International Corp.

Corporate Family Rating, Downgraded to B2 from B1;

Probability of Default Rating, Downgraded to B2-PD from B1-PD;

$425 million Senior Secured Term Loan B due 2020, Downgraded to B1 (LGD3) from Ba3 (LGD3);

$275 million Senior Unsecured Notes due 2021, Downgraded to Caa1 (LGD5) from B3 (LGD5);

Outlook Actions:

Outlook, Changed to Negative from Stable

RATINGS RATIONALE

TMS International's B2 corporate family rating is supported by its strong market position, customer and regional diversity, downside protection afforded by the company's long-term contracts and its highly-variable cost structure. It also reflects the high margins generated by its Mill Services Group, its variable maintenance expenditures and ample liquidity. Tube City's rating is constrained by its elevated financial leverage, weak interest coverage, exposure to the highly cyclical steel sector and inconsistent free cash generation due to periodic capital spending at new mill sites in advance of cash flow generation from those sites. The rating also reflects weakness in other key credit measures since its leveraged buyout in late 2013.

The downgrade of TMS International's ratings reflects the recent significant deterioration in its operating results and credit metrics and the expectation this will persist. TMS has been impacted by the substantial decline in US steel production and substantially reduced scrap procurement volumes and prices. US steel production has declined by about 8.5% through November 2015 and is expected to remain under pressure in the near term. The lower level of domestic steel production has weighed on Tube City's recent operating results since it generates about 70% of its revenues in North America (predominantly in the US) and its revenue generation is tied to the production levels of the steel mills that it serves. As a result, the company's revenues and adjusted EBITDA have declined significantly during the first nine months of 2015 and are expected to remain under pressure.

The weak operating performance has resulted in a deterioration in TMS International's credit metrics. Its adjusted leverage ratio (Debt/ EBITDA) has risen to 5.8x as of September 2015 from 5.1x in December 2014 and its interest coverage ratio (EBIT/Interest Expense) has declined to 0.3x from 0.9x. The company's operating results will remain pressured in the fourth quarter of 2015 given the further downward movement in domestic steel production. Operating results could improve in 2016 as new mill sites come on line and if steel production improves from the depressed levels in 2015. It is possible that favorable trade case outcomes on coated, hot rolled and cold rolled steel could result in reduced import levels and higher domestic steel production. However, many of the headwinds for the domestic steel sector are expected to persist including excess global capacity, a strong dollar and subdued worldwide economic growth. Therefore, TMS International's credit metrics are likely to remain weak for its rating in the near term.

TMS has adequate liquidity to support operations in the near-term. The company reported $15 million of cash and net availability of $91 million on its $225 million asset-based revolving credit facility as of September 30, 2015. The company had no borrowings and $11 million of letters of credit outstanding. Moody's expects TMS to generate sufficient EBITDA to cover cash interest, maintenance capital spending and expansionary capital spending associated with new contracts over the next 12 to 18 months. However, free cash flow generation will depend on the extent to which the company is awarded new contracts and whether improved business conditions require investments in working capital. TMS has generated modestly positive free cash flow in 2015 as it significantly reduced working capital in the face of weaker demand.

The negative outlook reflects the likelihood that TMS International's operating results will remain under pressure and its credit metrics weak for its rating in the near term. The outlook could be stabilized if operating results and credit metrics improve and the leverage ratio (Debt/EBITDA) declines below 5.5x or the interest coverage ratio (EBIT/Interest Expense) rises above 1.5x.

TMS International's ratings are not likely to experience upward pressure in the near term. However, the ratings would be considered for an upgrade if the company achieves substantially improved operating results and credit metrics. This would include maintaining a leverage ratio below 4.5x and an interest coverage ratio above 2.0x on a sustainable basis.

The ratings would be considered for a downgrade if the company experiences a material reduction in borrowing availability or liquidity or if its leverage ratio remains above 5.5x or its interest coverage ratio below 1.0x on a sustainable basis.

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.

TMS International Corp. (Tube City IMS Corporation), headquartered in Glassport, PA., provides on-site steel mill services such as raw material sourcing and optimization, material processing and handling, metal recovery, slag processing and logistical services. The company generated $1.6 billion in revenues for the twelve months ended September 30, 2015. Tube City has been owned by The Pritzker Organization since late 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.

Michael Corelli
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 downgrades TMS International's (Tube City IMS) CFR to B2; outlook negative
No Related Data.
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