S&P Upgrades AK Steel (AKS) to 'B'; Outlook Stable

S&P Global Ratings said it raised its corporate credit rating on AK Steel Corp. (NYSE: AKS) to 'B' from 'B-'. The outlook is stable.

We also assigned our 'BB-' issue-level rating to the company's proposed $380 million senior secured notes, with a recovery rating of '1', indicating our expectation for very high (90% to 100%) recovery in the event of payment default. We also raised the issue-level rating on the company's senior unsecured notes to 'B-' from 'CCC+'. The recovery rating on the notes remains '5', indicating our expectation of modest (10%-30%; upper half of range) recovery in the event of a default.

"We expect AK Steel's operating performance and credit measures will improve in 2016 because of higher steel prices (driven by lower import levels) and stable end market demand," said S&P Global Ratings credit analyst William Ferara. "We expect debt to EBITDA of about 7.5x and EBITDA interest coverage of nearly 2x."

We could lower the rating if AK Steel's credit ratios were to weaken, such as debt to EBITDA of greater than 8x on a sustained basis. We could also lower the rating if the liquidity position were to deteriorate, resulting in availability under its ABL revolving credit facility falling below $200 million. This could result if steel prices fell significantly or if volumes declined due to economic conditions or end-market weakness in automotive or nonresidential construction.

We could consider a higher rating if steel price improvements coupled with increasing volumes resulted in sustainable adjusted debt to EBITDA below 6x while maintaining a strong liquidity position over the next 12 months. This could cause us to revise our comparable rating analysis modifier to neutral from negative.

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