S&P Cuts GrafTech (GTI) Two Notches to 'BB-'; Outlook Negative

Standard & Poor's Rating Services said today it lowered its corporate credit rating on Parma, Ohio–based GrafTech International Ltd. (NYSE: GTI) two notches to 'BB-' from 'BB+'. The outlook remains negative.

At the same time, we also lowered the issue rating on the company's senior unsecured debt to 'BB-' from 'BB+', in line with the corporate credit rating. The recovery rating remains '4', indicating our expectation for average (30% to 50%) recovery in the event of a default.

The negative rating outlook reflects the fact that current credit measures remain weaker than those typically consistent with the indicated significant financial risk profile, including adjusted leverage above 4x.

"Although we anticipate credit measures will improve and fall in line within a year, we recognize the execution risk inherent in ongoing rationalization initiatives and the price volatility in GrafTech's markets," said Standard & Poor's credit analyst Chiza Vitta. "In our view, these risks translate into more than a one in three chance that improvements in credit measures may fall short or take longer than anticipated."

We could downgrade GrafTech if operating results remain suppressed in 2015. Specifically, if gross margins (excluding depreciation and amortization) remain below 20% or quarterly EBITDA does not climb above $30 million. This could be the result of an increasingly competitive operating environment, prolonged weakness in markets, or ongoing challenges in the Engineered Solutions segment.

A stable outlook will be predicated on reducing adjusted leverage below 4x. This would most likely be associated with sales and margin expansion such that quarterly EBITDA climbs back to about $40 million without a significant increase in debt.

You May Also Be Interested In

• Tenable Holdings, Inc. (TENB) to Join S&P SmallCap 600
• BofA Securities on Meta Platforms Inc. (META): 'Settlement reduces uncertainty; AI catalysts back in focus'
• JPMorgan Downgrades Perseus Mining Limited (PRU:AU) (PMNXF) to Neutral