S&P Downgrades Allegheny Technologies (ATI) to 'B+'; Outlook Negative

Standard & Poor's Ratings Services said it lowered its corporate credit rating on Allegheny Technologies (NYSE: ATI) to 'B+' from 'BB-'. The outlook is negative.

At the same time, we lowered our issue-level rating on the company's senior unsecured notes to 'B+' from 'BB-'. The recovery rating on the unsecured notes remains '3', indicating our expectation for meaningful (50% to 70%; lower half of the range) recovery in the event of a payment default.

"The negative outlook reflects the risk that continued weakness in the company's credit metrics over the next 12 months could lead to a lower rating," said Standard & Poor's credit analyst William Ferara. "A weak pricing environment and deteriorating demand trends are pressuring ATI; however, cost reduction efforts and additional long-term agreements in the aerospace segment could provide some offset to these challenges in 2016. We expect debt to EBITDA of about 8x and EBITDA interest coverage of roughly 2x in 2016."

We could lower the rating if the company's business risk profile deteriorates to fair from satisfactory or we expect debt to EBITDA will be sustained notably above 8x and EBITDA interest coverage of below 1.5x throughout 2016 and 2017. This could occur if shipments to ATI's key aerospace, energy, or other markets continue to weaken, competitive pressures further erode prices and margins, or it does not achieve targeted cost reductions.

We could revise the outlook to stable if ATI is able to improve its operating and financial performance and we believe the improvement will be sustained. Specifically, we would expect improved market conditions and for debt to EBITDA to be notably less than 8x with EBITDA interest coverage of above 2x in 2016. We view this scenario to be less likely over the next year given our expectation for continued pricing pressure and challenging demand conditions in this timeframe. We do not view an upgrade as likely in the next 12 months given market conditions and stainless steel price expectations.

You May Also Be Interested In

• HSBC Downgrades Bayerische Motoren Werke AG (BMW:GR) (BMWYY) to Hold
• Bernstein SocGen Group Upgrades Quanta Services (PWR) to Outperform
• BofA Securities Starts MGE Energy (MGEE) at Neutral