Moody's Upgrades Global Brass & Copper (BRSS) to 'B1'; Outlook Remains Stable

Moody's Investors Service upgraded Global Brass and Copper, Inc.'s (NYSE: BRSS) Corporate Family Rating to B1 from B2. The upgrade reflects the improvement in GBC's operating results and credit metrics, as well as the company's enhanced liquidity profile with extended maturities and the expectation that the company will be able to maintain leverage below 3.5x over the next 12 to 18 months. In related actions, Moody's upgraded GBC's Probability of Default Rating to B1-PD from B2-PD, and upgraded its 9.5% senior secured notes due 2019 to B2 (LGD4) from B3 (LGD4). Moody's also assigned a B2 (LGD4) rating to the company's proposed $320 million senior secured term loan. Proceeds from the term loan will be used for redemption of the company's 9.5% senior secured notes due 2019 (rating to be withdrawn upon closing), as well as for fees and related transaction expenses. The rating outlook remains stable.

The following is a summary of Moody's ratings and rating actions taken for Global Brass and Copper, Inc.:

- Corporate Family Rating ("CFR"), upgraded to B1 from B2;

- Probability of Default Rating, upgraded to B1-PD from B2-PD;

- Senior Secured term loan, assigned B2 (LGD4);

- Senior Secured notes, upgraded to B2 (LGD4) from B3 (LGD4)

- Speculative Grade Liquidity Rating, upgraded to SGL-2 from SGL-3.

Outlook Actions:

- Outlook, remains stable

RATINGS RATIONALE

The B1 Corporate Family Rating ("CFR") reflects GBC's better than anticipated performance over the last year with corresponding improvement in adjusted debt leverage and interest coverage of 3.0x and 2.4x, respectively, at the end of 1Q 2016. The rating reflects Moody's expectation that the company will continue to improve its overall credit profile following the refinancing of its existing $200 million ABL facility (not rated) and replacement of the company's $310 million senior secured notes with a $320 million senior secured term loan. This refinancing will extend GBC's maturity profile to June 2021. Moody's also considers GBC's stable business profile with ample product and segment breadth, which should allow the company to partially offset metal price volatility while maintaining its margins. The rating is constrained by GBC's overall size and our concern over GBC's ability to continue to grow, as the company has experienced decreasing sales over the past two fiscal years.

The B2 rating assigned to the proposed $320 million senior secured term loan reflects its effective subordination to GBC's revolving credit facility. As the most-junior committed debt in GBC's capital structure, the proposed loan has a first-loss position. The proposed loan will be guaranteed by Global Brass and Copper Holdings, Inc., GBC's parent holding company, as well as by GBC's operating subsidiaries.

The stable outlook considers our expectation that GBC will maintain leverage below 3.5x and generate free cash flow, despite a recent lack of top-line growth, while maintaining its good liquidity profile during the next 12 to 18 months.

WHAT COULD CHANGE RATINGS UP/DOWN

Positive rating actions could ensue if GBC's operating performance exceeds our expectations, resulting in a better liquidity profile and adjusted debt credit metrics as follows:

- Adjusted Debt-to-EBITDA sustained below 3.0x.

- Interest coverage (measured as EBITA-to-Interest expense), approaching 3.5x.

- Free cash flow-to-Debt sustained above 10%.

- Improvements in liquidity profile and reduction in balance sheet debt could support positive rating actions for GBC.

Alternatively, negative rating actions may occur if GBC's operating performance falls below our expectations, including a continuing deterioration in revenues, or if the company experiences a weakening in financial performance resulting in the following adjusted metrics:

- Adjusted Debt-to-EBITDA above 4.5x.

- Interest coverage (measured as EBITA-to-Interest Expense), sustained below 1.75x.

- Large debt-financed acquisitions that do not prove sufficiently accretive relative to incremental debt.

- Deterioration in liquidity profile could pressure the ratings as well.

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