Moody's rates Kloeckner bonds B3

Moody's Investors Service said it assigned a B1 senior implied rating to Kloeckner & Co. International GmbH, a holding company established for the acquisition of Kloeckner & Co. AG and its businesses.

Moody's has also assigned a provisional B3 rating to the subordinated secured bond at Kloeckner Investment SCA and a Caa1 issuer rating to Kloeckner & Co. International GmbH.

The outlook is positive.

According to Moody's, the B1 senior implied rating reflects (i) Kloeckner's relatively high leverage and limited equity in the capital structure; (ii) refinancing risk related to the bullet repayment of the bond since the debt amortization is structured in line with the expected relatively limited free cash flow generation of the company; (iii) contingent risks from litigation issues; and (iv) limited geographical reach into emerging markets.

Moody's said its ratings also consider: (i) Kloeckner's leading European market share in steel distribution and its growing position in North America; (ii) the relative stability, particularly in comparison with the steel industry, of the group's cash flows and margins; (iii) the diversity of Kloeckner's customers, suppliers, products and geographies; (iv) anticipation of further outsourcing of steel distribution in Europe; (v) the group's know-how with regard to supply chain management and logistics processes; and (vi) experienced management having achieved significant cost savings and potential for further savings from coordination of group shared services.

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