S&P rates Ak Steel Corp Prop $250 Mil Sr Unsec Notes 'bb-'
March 19 (Reuters) - NEW YORK (Standard & Poor's) March 19, 2012--Standard & Poor's Ratings Services said today that it has assigned its 'BB-' issue-level rating (the same as the corporate credit rating) to West Chester, Ohio-based AK Steel Corp.'s proposed $250 million senior unsecured notes due 2022. The recovery rating is '3' indicating our expectation of a meaningful (50% to 70%) recovery in the event of a payment default. The notes are being issued under the company's shelf registration filed on April 26, 2010. The notes will be guaranteed by AK Steel Holding Corp., the parent of AK Steel, on a senior unsecured basis. The notes will be senior unsecured obligations and will rank equally with all of AK Steel's existing and future senior unsecured indebtedness. The company intends to use the proceeds from this offering to repay borrowings under its asset-backed revolving credit facility. The 'BB-' corporate credit rating and negative rating outlook on AK Steel Holding Corp. reflect our assessment of the company's business risk profile as fair and financial risk profile as aggressive. The ratings also reflect its good market positions in a number of value-added steel products and its adequate liquidity (as defined in our criteria). These positive factors are somewhat offset by the company's relatively small size, high cost position as an integrated steelmaker, lack of backward integration, high exposure to the cyclical automotive market, significant legacy costs, and credit metrics that are currently very weak for the rating. In 2011, adjusted EBITDA was below $250 million due to continued volatile industry conditions and the company's inability to pass through all of its raw material costs. This resulted in adjusted debt to EBITDA of more than 10x and adjusted funds from operations (FFO) to total debt below 10%, well below our expectations for a 'BB-' rating. Although our expectations for 2012 are for continued sluggish demand and volatile pricing, we expect that AK Steel's operating performance in the first half of 2012 will likely improve based on stronger end market demand, in particular, automotive sales. We now expect 2012 EBITDA in the $375 million to $400 million range based on modest price increases, moderating raw material costs and better product mix. This should result in adjusted debt to EBITDA of 5.5x to 6x. However, the negative rating outlook reflects the potential for credit measure to remain weak for the rating if prices and volumes do not improve as expected and operating performance again falls short of our expectations. We expect total adjusted debt to EBITDA to average of 4x to 5x and FFO to total adjusted debt at about 20% through a cycle. RELATED CRITERIA AND RESEARCH -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Key Credit Factors: Methodology And Assumptions On Risks In The Metals Industry, June 22, 2009 -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATINGS LIST AK Steel Corp. AK Steel Holding Corp. Corporate Credit Rating BB-/Negative/-- NEW RATING AK Steel Corp. $250 mil sr unsec notes due 2022 BB- Recovery Rating 3 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Primary Credit Analyst: Marie Shmaruk, New York (1) 212-438-7816; email@example.com Secondary Contact: Maurice Austin, New York (1) 212-438-2077; firstname.lastname@example.org
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