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Ryerson Holding Corporation -- Moody's upgrades Ryerson's CFR to Ba3; assigns Ba3 rating to Joseph T. Ryerson & Son's revolving credit facility

·17 min read

Rating Action: Moody's upgrades Ryerson's CFR to Ba3; assigns Ba3 rating to Joseph T. Ryerson & Son's revolving credit facilityGlobal Credit Research - 12 Aug 2022New York, August 12, 2022 -- Moody's Investors Service ("Moody's") upgraded Ryerson Holding Corporation's ("Ryerson") corporate family rating to Ba3 from B1 and its probability of default rating to Ba3-PD from B1-PD. Moody's maintained the Speculative Grade Liquidity Rating of SGL-2 and the ratings outlook for Ryerson Holding Corporation remains stable. At the same time, Moody's assigned a Ba3 rating to Joseph T. Ryerson & Son's $1.3 billion revolving credit facility with a stable outlook. Moody's previously withdrew the rating on Joseph T. Ryerson & Son's senior secured notes since they were repaid in full in July 2022."The upgrade of Ryerson's rating reflects corporate governance considerations since the company has pursued aggressive debt reduction supported by its strong free cash flow that has resulted in an improved credit profile. This will enable the company to maintain a stronger credit profile even when end market demand and metals prices decline to more sustainable levels," said Michael Corelli, Moody's Senior Vice President and lead analyst for Ryerson Holding Corporation.Assignments:..Issuer: Joseph T. Ryerson & Son....GTD Senior Secured Revolving Credit Facility, Assigned Ba3 (LGD3)Upgrades:..Issuer: Ryerson Holding Corporation....Corporate Family Rating, Upgraded to Ba3 from B1....Probability of Default Rating, Upgraded to Ba3-PD from B1-PDOutlook Actions:..Issuer: Joseph T. Ryerson & Son....Outlook, Assigned Stable..Issuer: Ryerson Holding Corporation....Outlook, Remains StableRATINGS RATIONALERyerson's Ba3 corporate family rating is supported by the company's recent debt pay downs, which along with a materially stronger operating performance supported by improved end market demand and substantially higher product pricing, has resulted in substantially stronger credit metrics. The rating also incorporates the company's product and customer diversification and overall size and scale, its limited capital spending requirements, countercyclical working capital needs and good liquidity profile. The rating also reflects the risks related to its private equity ownership and its recent focus on shareholder returns, its exposure to cyclical end markets, volatile steel and metals prices and the competitiveness of the metals distribution sector which results in somewhat weak and volatile profit margins through the cycle.Ryerson's operating performance significantly improved in 2021 due to stronger end market demand and substantially higher product prices. Its adjusted EBITDA surged to a record high level of about $525 million despite the negative impact of $366 million of LIFO expense related to increased prices for all product lines. This compares to adjusted EBITDA of only around $150 million in 2020 when the pandemic weighed heavily on demand and product pricing.Ryerson's operating performance has further strengthened during the first half of 2022 due to substantially higher product prices which have more than offset weaker end market demand. This enabled the company to generate free cash flow of $117 million despite working capital investments of $221 million. It used this free cash along with revolving credit facility borrowings to repurchase $250 million of its 8.5% senior secured notes and redeemed the remaining $50 million in July 2022. Therefore, the company repurchased the entire $500 million of senior notes issued in July 2020 within two years by capitalizing on redemption options and utilizing its free cash flow, sale-leaseback proceeds and lower cost revolver borrowings. These actions have materially strengthened the company's credit profile.Ryerson's debt reduction initiatives along with its robust operating performance have reduced its leverage ratio (Debt/EBITDA) to only 0.9x in June 2022 from 6.8x in December 2020, while its interest coverage (EBITA) has risen to around 16.1x from 1.0x. These metrics are strong for the Ba3 corporate family rating and that has been reflected in the stable ratings outlook. However, they are expected to weaken over the next 12 to 18 months as metals prices decline and end market demand softens. If the company maintains metrics that are commensurate with a higher rating as business conditions weaken and Platinum Equity reduces its ownership position below the 30% threshold that changes the composition of the Board to a majority of independent directors, then additional upgrades are possible. Platinum's ownership interest declined to 43% from 54% in May 2022 when it sold 5.1 million shares with Ryerson repurchasing 1.6 million of that total as it has ramped up its focus on shareholder returns. Ryerson initiated an $0.08 per share quarterly dividend in August 2021 and established an initial $50 million share repurchase program. It subsequently increased the quarterly dividend to $0.15 per share in August 2022 and established a new $75 million repurchase authorization after completing the initial authorization. The company has maintained a balance between creditor and shareholder interests to date and a continuation of that posture will be necessary for additional upgrades to be considered.Ryerson's SGL-2 speculative grade liquidity rating reflects its good liquidity profile consisting of $41.4 million of unrestricted cash and $817 million of availability on its revolving credit facility as of June 30, 2022. This facility was amended in late June 2022 and was upsized to $1.3 billion from $1.0 billion while its maturity date was extended to June 2027 from November 2025. The revolver had $468.5 million of outstanding borrowings and $15 million of letters of credit issued as of June 2022. The company is expected to continue to generate free cash flow in the near term supported by the countercyclical nature of working capital investments for metals distributors which becomes a source of cash during downturns and could enable the company to further reduce debt by paying down its revolver borrowings.Ryerson's stable ratings outlook reflects our expectation that its operating performance will weaken over the next 12 to 18 months, but its credit metrics will remain commensurate with its rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade of Ryerson's ratings could be considered if it sustains an adjusted leverage ratio below 3.0x and EBIT margins of at least 8.0% while maintaining a good liquidity profile. An upgrade would also be contingent on a reduction in Platinum Equity's ownership position and the company having a majority of independent directors.Ryerson's ratings could come under pressure if its operating performance and credit metrics materially weaken, and it sustains a leverage ratio above 4.0x and EBIT margins below 6.0% or experiences a significant deterioration in its liquidity. More aggressive financial policies such as debt financed dividends or acquisitions could also result in a downgrade.Ryerson Holding Corporation, through various operating subsidiaries, is the second largest metals service center company in North America, with about 91 locations in the US, Canada and Mexico. The company also has four locations in China. Ryerson provides a full line of carbon steel, stainless steel and aluminum products to approximately 40,000 customers in a broad range of end markets. The company generated revenues of approximately $6.6 billion for the 12-month period ended June 30, 2022. Ryerson was controlled by Platinum Equity since 2007 but Platinum reduced its ownership interest from 54% to about 43% in May 2022.The principal methodology used in these ratings was Distribution & Supply Chain Services Industry published in June 2018 and available at https://ratings.moodys.com/api/rmc-documents/55403. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.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 issuer/deal page for the respective issuer on https://ratings.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. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. 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