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Rating Action:

Moody's revises Kaiser Aluminum's outlook to positive; assigns Ba3 rating to the proposed senior unsecured notes; affirms Ba2 CFR and Ba2-PD PDR

18 Nov 2019

New York, November 18, 2019 -- Moody's Investors Service ("Moody's") revised Kaiser Aluminum's (Kaiser) ratings outlook to positive from stable. Moody's also assigned a Ba3 rating to the new $500 million senior unsecured notes due 2028 and affirmed Ba2 corporate family rating and Ba2-PD probability of default rating. The proceeds from the proposed notes will be used to refinance the existing notes and for general corporate purposes. The rating of the existing $375 million notes is unchanged and will be withdrawn upon repayment. The Speculative Grade Liquidity rating remains SGL-1.

"The change in the outlook reflects Kaiser's resilient operating performance and Moody's expectations that Kaiser's credit profile will continue to benefit from the strength in the aerospace demand and further productivity gains at its Trentwood facility", said Botir Sharipov, Vice President and lead analyst for Kaiser.

Ratings:

Assignments:

..Issuer: Kaiser Aluminum Corporation

....Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD4)

Outlook Actions:

..Issuer: Kaiser Aluminum Corporation

....Outlook, Changed To Positive From Stable

Affirmations:

..Issuer: Kaiser Aluminum Corporation

.... Probability of Default Rating, Affirmed Ba2-PD

.... Corporate Family Rating, Affirmed Ba2

RATINGS RATIONALE

Despite the weakness in the automotive and general engineering segments driven by lower US automotive and industrial demand, Kaiser was able to generate strong Moody's-adjusted EBITDA of $218 million and free cash flow of $90 million during the LTM ended September 30, 2019. The strength in the performance was underpinned by robust demand for Kaiser's aerospace products and the productivity and efficiency gains at its Trentwood facility which will drive a further increase in its aerospace plate capacity in 2020. The company is also expected to benefit from the launch and the ramp-up of the new auto platforms in 2020. Although Kaiser is taking on more debt, its credit profile is able to accommodate the projected increase in Moody's-adjusted debt/EBITDA to 2.6x post the issuance of the new notes. Moody's expects leverage to decline to about 2.3x by the end of 2020. Furthermore, the company has recently upsized its ABL revolver by $75 million to $375 million which should further support its liquidity profile.

The positive outlook reflects Moody's expectations of continued strength in the demand for the company's aerospace products and Moody's belief that the company will be able to maintain solid metrics, conservative capital structure and leverage profile that help it accommodate the volatility in the aluminum markets and economic cycles in its key end user markets.

Moody's would consider an upgrade of Kaiser's credit ratings if the company continues to evidence strong operating and financial performance, is able to maintain a strong liquidity profile and sustain an adjusted EBIT margin of above 10% and adjusted (CFO-dividends)/debt greater than 25% in different market environments.

Kaiser's ratings could be lowered if metrics deteriorate (specifically, if debt to EBITDA increases to above 3.5x and EBIT to interest falls below 3x on a sustained basis), if aerospace or auto sector fundamentals turn negative from any shock to the global economy, if the company makes debt-financed acquisitions at aggressive multiples, or if available liquidity (measured as cash plus revolver availability) drops below $150 million for more than two quarters.

Kaiser faces a number of ESG risks typical for a producer of flat-rolled and extrusion aluminum products with respect to air emissions, wastewater discharges, site remediation amongst others, and is subject to many environmental laws and regulations in the areas in which it operates. However, Kaiser is also a significant user of aluminum scrap with recycled aluminum and other metals accounting for more than 50% of all material used in its remelt and casting operations. Social risks are relatively acute with 62% of the company's workforce unionized and several labor contracts expiring in 2020. The governance risk is below average - the company has followed a balanced capital allocation policy, remaining disciplined with M&A and shareholder returns while maintaining a conservative financial profile.

Kaiser's SGL-1 speculative grade liquidity rating reflects its very good liquidity profile supported by $172 million in cash as of September 30, 2019 and the new $375 million asset based revolver (ABL) maturing only in October 2024. As of the October 31, 2019, net borrowing availability under the new facility was about $353 million.

The Ba3 rating of the new senior unsecured notes reflects the notes' effective subordination to the secured debt (ABL). The notes will be guaranteed on a senior unsecured basis by each subsidiary guarantor of the asset based revolver.

Kaiser Aluminum Corporation, based in Foothill Ranch, California, currently operates 12 fabricating facilities throughout North America (11 in the US, and 1 in Canada). Kaiser produces value-added sheet, plate, extrusions, rod, bar, and tube primarily for aerospace, automotive, and general engineering market segments. In addition, in September 2018, Kaiser acquired Imperial Machine & Tool company that specializes in multi-material additive manufacturing and machining technologies for aerospace and defense, automotive and general industrial applications. The Company had revenues of $1.54 billion through LTM September 30, 2019.

The principal methodology used in these ratings was Steel Industry published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Botir Sharipov
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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