S&P Affirms Ratings, Outlook on Steel Dynamics (STLD); Liquidity Assessment Revised to 'Exceptional'

Highlights:

• We are revising our liquidity assessment on Fort Wayne, Ind.-based steelmaker Steel Dynamics Inc. to exceptional from strong because we expect its sources of liquidity to notably exceed its uses of funds over the next two years.
• At the same time, we are affirming our 'BB+' corporate credit rating on Steel Dynamics and our 'BB+' issue-level rating on its senior unsecured notes. The recovery rating on the notes remains '3'.
• The stable outlook reflects our expectation for satisfactory revenue growth and substantial EBITDA contribution from the Columbus mill in the next 12 months despite difficult industry conditions. We forecast a decline in adjusted leverage to about 2.8x for fiscal year 2016, compared with 3.1x for 2015.

S&P Global Ratings said it affirmed its 'BB+' corporate credit rating on Steel Dynamics Inc. (Nasdaq: STLD). The outlook remains stable.

At the same time, we affirmed our 'BB+' issue-level rating on the company's senior unsecured notes. Our recovery rating on the notes remains '3', indicating our expectation for meaningful (50% to 70%; at the upper end of the range) recovery in the event of a payment default.

"Our stable outlook on Steel Dynamics reflects our expectation for satisfactory revenue growth and a substantial EBITDA contribution from the Columbus mill in the next 12 months despite difficult industry conditions," said S&P Global Ratings' credit analyst Patricia Mendonca. "We forecast a decline in adjusted leverage to about 2.8x for fiscal year 2016, compared with 3.1x for 2015. We also believe that the company's growth goals will generally keep leverage under 3x."

We could consider raising our rating if we believed Steel Dynamics would sustain adjusted FFO to debt greater than 30%. An upgrade would also depend on the company maintaining strong liquidity as a cushion for unexpected weakness in its volatile operating environment, while at the same time committing to a long-term financial policy that is commensurate with an investment grade rating.

We could lower our rating if we expected leverage higher than 4x and FFO to debt less than 20% on a sustained basis. This could occur if the company adopts more aggressive financial policies or experiences declining demand in key markets or excess steel industry capacity (including imports into the U.S.) that pressures prices or other factors.

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