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Rating Action:

Moody's upgrades GrafTech to Ba1; rates revolver Baa3

Global Credit Research - 02 Dec 2011

New York, December 02, 2011 -- Moody's Investors Service upgraded GrafTech International Ltd's (GrafTech) Corporate Family Rating (CFR) to Ba1 and rated its $570 million senior secured revolving credit facility Baa3 (LGD3, 35%). Moody's also changed GrafTech's Probability of Default Rating (PDR) to Ba1 from Ba3, and downgraded its speculative grade liquidity rating to SGL-2 from SGL-1. The ratings outlook was moved to stable from positive.

The new facility matures on the earlier of October 7, 2016 (five years), or on August 30, 2015 (almost four years), if GrafTech's $200 million senior subordinated debt is still outstanding and the company does not meet certain minimum liquidity requirements. It replaces the company's previous $260 million facility that would have matured in April 2013.

The following summarizes the ratings:

GrafTech International Ltd.

Ratings upgraded:

Corporate Family Rating -- Ba1 from Ba2

Probability of default rating -- Ba1 from Ba3

Ratings downgraded:

Speculative Grade Liquidity rating -- SGL-2 from SGL-1

GrafTech Finance Inc.

Rating assigned:

Gtd Sr Sec revolving credit facility due 2016 -- Baa3 (LGD3, 35%)

Ratings withdrawn:

Gtd Sr Sec revolving credit facility due 2013 -- Ba1 (LGD2, 24%)

Outlook: Stable

RATING RATIONALE

GrafTech's Ba1 Corporate Family Rating (CFR) is supported by its low leverage, attractive EBITDA margins, leading market positions in graphite electrode sales, as well as geographic and operational diversity with relatively low cost manufacturing facilities located on four continents. The rating also assumes that GrafTech will continue to expand its Engineered Solutions business through new applications and acquisitions to provide greater product and end market diversity. However, the rating is constrained by the company's relatively narrow product line as graphic electrodes still account for the vast majority of earnings and cash flow. Additionally, the company is exposed to cyclical end markets (the steel industry) and volatile raw materials costs (needle coke accounts for approximately 45% of the manufacturing cost of graphite electrodes) and energy costs, which are not correlated with the price of steel. Moody's also believes that supplier and customer concentration can create greater variability in margins over the business cycle. The acquisition of needle coke producer SeaDrift Coke has improved the company's ability to hedge changes in raw material costs. GrafTech remains under levered for its rating category, despite the acquisition of SeaDrift Coke LP and C/G Electrodes LLC in November 2010. The rating incorporates our expectation that the company will continue to grow through bolt-on acquisitions, but will maintain relatively conservative financial policies supportive of the Ba1 CFR. Moody's noted that GrafTech has used equity to partially finance past acquisitions and the Ba1 rating anticipates that it will use equity to partially fund any acquisition larger than $250 million. Furthermore, ongoing elevated capital expenditures and potential acquisitions will result in higher leverage in 2012. Additionally, given the state of the steel markets, Moody's expects the graphite electrode business to be relatively flat in 2012.

The speculative grade liquidity rating was moved to SGL-2 (from SGL-1) based on our expectation that the company will continue to have negative free cash flow in early 2012 as it continues capital expenditures above historical average levels to grow its business. Its liquidity is supported by modest cash balances and approximately $370 million of availability under committed facilities (assuming the new revolving credit facility was in place on June 30, 2011).

Please see ratings tab on the issuer/entity page on Moodys.com for the last credit rating action and the rating history.

The principal methodology used in rating GrafTech International was the Global Chemical Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

GrafTech International Ltd., headquartered in Parma, Ohio, is a leading global manufacturer of graphite electrodes, and other graphite products. Revenues were $1.3 billion for the twelve months ended September 30, 2011.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

James Wilkins
Vice President - Senior Analyst
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

Steven Wood
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 upgrades GrafTech to Ba1; rates revolver Baa3
No Related Data.

 

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