S&P Downgrades GrafTech (GTI) to 'B+'; Notes Highly-Leverages Financial Risk Profile

Standard & Poor's Ratings Services lowered its corporate credit rating on GrafTech (NYSE: GTI) one notch to 'B+' from 'BB-'. The rating remains on CreditWatch with negative implications where we placed it on May 1, 2015.

At the same time, we also lowered the issue-level rating on the company's $300 million senior unsecured notes one notch to 'B+' from 'BB-', in line with GrafTech's corporate credit rating, and kept the rating on CreditWatch with negative implications where we placed it on May 1, 2015. Our recovery rating on the unsecured notes remains '4', indicating our expectation for average (30% to 50%; at the upper end of the range) recovery in the event of a payment default.

"The downgrade reflects our view that GrafTech's credit measures are under pressure and are commensurate with a 'highly leveraged' financial risk profile due to persistent weakness in the global steel market, which is hurting graphite electrode demand resulting in lower volumes, prices, and EBITDA levels," said Standard & Poor's credit analyst Michael Maggi.

As a result, we expect elevated levels of leverage for the remainder of 2015 and into 2016, and revise our assessment of GrafTech's financial risk profile to "highly leveraged" from "significant." We consider GrafTech's liquidity to be "adequate," under our criteria.

The ratings remain on CreditWatch, reflecting the potential for a downgrade due to the possibility that GrafTech might have to repurchase its $300 million senior unsecured notes if Brookfield becomes the new owner and a downgrade event as defined in the indenture has occurred. If this were to occur, GrafTech's liquidity could come under pressure. We plan to resolve the CreditWatch when GrafTech's potential obligation with respect to the notes and how it would address the notes repurchase becomes clear.

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