04.07.2012 13:52
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Kloeckner & Co. SE. -- Moody's downgrades ratings of Kloeckner & Co (CFR to Ba3); stable outlook

London, 04 July 2012 -- Moody's Investors Service today downgraded the corporate family (CFR) and probability of default ratings (PDR) of Kloeckner & Co SE to Ba3 from Ba2. The downgrade reflects the persistently low profitability of the company, the deteriorating outlook for steel and metals over the next year, especially in Europe, and the company's high level of gross debt, which has remained elevated since the mid-2011 closing of the Macsteel and Frefer acquisitions. The rating outlook remains stable, reflective of the company's strong liquidity and the actions it is taking to adapt its European business to subdued market conditions.

RATINGS RATIONALE

Moody's expects Kloeckner will have net losses and an EBIT/interest ratio below 1x every quarter of 2012. Price and demand pressures will persist and make it difficult for the company to expand its EBIT margin, which has been below 2% for the last four quarters. We expect metal demand to decline in Europe, which represents approximately 67% of Kloeckner's sales. In North America, market conditions and the company's profit margins should be relatively better but are nevertheless expected to be negatively impacted by economic problems in Europe, excess steelmaking capacity, and difficulty in raising prices. Challenges will persist in Brazil due to intense competition and imports of steel, reflecting a fundamental change in the Brazilian market.

In response to these conditions, we expect Kloeckner to continue to reduce headcount and rationalize its European footprint. It has already announced that it will exit from Eastern Europe where market conditions are expected to remain weak and/or the company's presence is relatively minor. These steps, while positive in the medium term, may lead to one-time charges. With mill-owned competitors in Europe struggling to keep mills more fully utilized and metal prices languishing, we expect Kloeckner's consolidated as-reported EBITDA to be approximately EUR200 million in 2012, excluding any unusual charges. This is similar to 2011 when the results included Macsteel and Frefer for only the second half of the year.

At the same time, we expect Kloeckner to generate cash from the release of working capital that accompanies a drop in turnover. This will bolster its liquidity, which is strong and helps support the Ba3 CFR. At 31 March 2012, Kloeckner had cash of EUR937 million and unused committed credit facility availability of about EUR1 billion under various multi-year facilities. It will use cash to repay EUR325 million of convertible bonds maturing in July 2012.

At 31 March 2012, Kloeckner had adjusted debt of EUR2,144 million and its ratio of gross debt to EBITDA was a very high 9.1x. This includes Moody's standard adjustments, which add 2.2 turns of leverage. Pro forma for the repayment of the convertible bond, gross adjusted leverage will drop to 7.8x. Kloeckner's debt looks more appropriate for the Ba3 rating when compared to its net working capital, which was EUR1,655 million at 31 March, or when viewed net of cash, which makes leverage 5.1x EBITDA for the LTM period ended 31 March 2012.

Additionally, Kloeckner's Ba3 CFR is supported by the company's strong market position as a leading independent distributor of metals in Europe and the Americas, its good liquidity, and the countercyclical nature of its working capital investment, which generates strong cash flow during business downturns.

The stable outlook reflects Kloeckner's good liquidity and the resilience of its distributor business model, which in a downturn should enable it to avoid large operating losses and benefit from cash stemming from reduced working capital. The stable outlook considers the potential for charges and moderately sized write-downs if the market doesn't strengthen, but also the maintenance of strong liquidity and ample covenant headroom on financial covenants. The company's liquidity profile and its path to restoring its EBIT or EBITDA margins will determine the rating over the next year. A further downgrade could occur if it appears that the company's EBIT margin will remain less than 2%, retained cash flow to net debt will be less than 15%, or if liquidity were to significantly deteriorate. There is no upward rating pressure at this time.

The principal methodology used in rating Kloeckner & Co. SE was the Global Distribution & Supply Chain Services Industry Methodology published in November 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Kloeckner is a leading mill-independent multimetal distributor with strong market positions in Europe and the Americas. The company operates more than 290 warehouses in 20 countries. In 2011, Kloeckner had revenues of EUR7.1 billion and EBITDA of EUR217 million.

REGULATORY DISCLOSURES

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

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.

Steven P Oman Senior Vice President Corporate Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Olivier Beroud Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.

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Analysen zu Klöckner & Co

  • Alle
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19.11.2014KlöcknerCo kaufenNorddeutsche Landesbank (Nord/LB)
19.11.2014KlöcknerCo UnderperformCredit Suisse Group
12.11.2014KlöcknerCo HoldCommerzbank AG
07.11.2014KlöcknerCo kaufenDZ-Bank AG
07.11.2014KlöcknerCo HoldClose Brothers Seydler Research AG
19.11.2014KlöcknerCo kaufenNorddeutsche Landesbank (Nord/LB)
07.11.2014KlöcknerCo kaufenDZ-Bank AG
06.11.2014KlöcknerCo kaufenIndependent Research GmbH
06.11.2014KlöcknerCo buyHauck & Aufhäuser Privatbankiers KGaA
06.11.2014KlöcknerCo buyWarburg Research
12.11.2014KlöcknerCo HoldCommerzbank AG
07.11.2014KlöcknerCo HoldClose Brothers Seydler Research AG
07.11.2014KlöcknerCo NeutralJP Morgan Chase & Co.
07.11.2014KlöcknerCo NeutralCitigroup Corp.
06.11.2014KlöcknerCo HoldCommerzbank AG
19.11.2014KlöcknerCo UnderperformCredit Suisse Group
15.10.2014KlöcknerCo UnderperformMerrill Lynch & Co., Inc.
23.07.2014KlöcknerCo SellUBS AG
01.07.2014KlöcknerCo UnderperformCredit Suisse Group
30.06.2014KlöcknerCo VerkaufenBankhaus Lampe KG
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