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05 Apr 2007
Moody's upgrades Allegheny Technologies's ratings (CFR to Ba1); outlook stable
Approximately $450 million of debt instruments affected
New York, April 05, 2007 -- Moody's Investors Service upgraded Allegheny Technologies Inc.'s
("ATI") corporate family rating to Ba1 from Ba2 and its probability
of default rating to Ba1 from Ba2. In a related rating action,
Moody's raised the ratings on ATI's $300 million 8.375%
notes to Ba2 from B1 and upgraded the ratings on Allegheny Ludlum's
(a wholly owned subsidiary) $150 million 6.95% debentures
to Ba1 from Ba2. The rating outlook is stable.
The upgrade reflects the strengthening in ATI's operating performance
and debt protection metrics over recent years, driven by improved
market conditions in key end use segments of its high performance metals
and flat rolled operating segments, sustainable cost reductions,
particularly in its legacy obligations, and emphasis on value added
products in its flat rolled products segment. Moody's expects
ATI to continue to benefit from a robust operating environment,
driven principally by the strength of its key end markets and management
of its commodity exposures, to demonstrate a sustainable level of
improved performance, and to continue to fund its capital investments
in a disciplined fashion.
ATI's stable outlook reflects Moody's expectation that the
company will continue to evidence strong earnings performance and cash
flow generation over the next twelve to fifteen months given its backlog
in the high performance segment, reflecting key long-term
agreements with key customers, and its management of its commodity
flat rolled segment business. A key impediment to an upgrade to
an investment grade rating remains the secured nature of the company's
revolving credit facility.
ATI's Ba1 corporate family rating reflects its position as a leading
producer of specialty titanium and stainless steel products, its
technological capabilities, which contribute to its ability to provide
necessary product to markets served, its moderate leverage,
its improved sustainable cost position relative to its historical position,
and the favorable business environment for many of the key end markets
upon which the company is focused. ATI's strategic refocusing
on its higher value added business in its flat rolled segment and its
solid business focus and financial profile, together with improved
fundamentals in markets served, particularly aerospace, defense,
chemical processing and power generation are expected to contribute to
a sustainable level of improved earnings and cash flow generation and
debt protection metrics. Additionally, the company significantly
improved its underfunded pension position in 2006. This funding
position is expected to reduce retirement benefit expense in 2007 by $50
million in 2007.
However, the corporate family rating also considers the company's
limited scale in flat-rolled products (55% revenues in 2006)
relative to other North American producers, which is expected to
contribute to operating volatility, particularly during downcycles,
end markets that are characterized by a high degree of cyclicality,
and its relatively high, although improving, legacy costs.
In addition, the corporate family rating considers ATI's medium
exposure to the aerospace and defense industry (30% of 2006 sales)
but acknowledges the strength of this business over the next two years
based upon backlog levels and order lead times. We note that ATI
has managed to lower its cost profile over recent years, primarily
the result of headcount reductions and renegotiated labor agreements,
which should help mitigate the degree of performance volatility relative
to historical levels.
The ratings on ATI's (holding company) debt issuance and on its
operating subsidiary Allegheny Ludlum, reflect the application of
Moody's loss given default rating methodology and the position of
the respective debt issuances in the waterfall structure, with the
obligations at Allegheny Ludlum, as an operating subsidiary,
ranking ahead of the obligations of its parent holding company,
..Issuer: Allegheny Ludlum Corporation
....Senior Unsecured Guaranteed Debenture,
Upgraded to Ba1 (LGD 4, 55%) from Ba2 (LGD 4, 53%)
..Issuer: Allegheny Technologies Inc.
....Probability of Default Rating, Upgraded
to Ba1 from Ba2
....Corporate Family Rating, Upgraded
to Ba1 from Ba2
....Senior Unsecured Notes, Upgraded
to Ba2 (LGD 5, 89%) from B1 (LGD 6, 90%)
Moody's previous rating action on ATI was on December 5, 2005,
when Moody's upgraded its corporate family rating to Ba2, its senior
unsecured notes to Ba3, and Allegheny Ludlum's debentures
to Ba2. The ratings on the senior unsecured notes were revised
to B1 following the implementation of Moody's Loss-Given-Default
(LGD) rating methodology in September 2006.
ATI, headquartered in Pittsburgh, PA, is a producer
and distributor of flat-rolled stainless steel and specialty metals,
including nickel alloys, titanium alloys, and superalloys,
as well as various engineered products. ATI generated revenues
of $4.9 billion in 2006.
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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