S&P rates Tube City loan B+

Standard & Poor's said it placed its B+ corporate credit rating on International Mill Service Inc. on CreditWatch with negative implications.

At the same time, S&P assigned its B corporate credit rating and stable outlook to International Mill Service's parent, Tube City IMS Corp. In addition, based on preliminary terms and conditions, S&P assigned its B+ rating and recovery rating of 1 to Tube City's proposed $250 million senior secured credit facility.

Proceeds from the proposed credit facility and simultaneous issuance of about $188 million of income-participating securities (consisting of about $90 million of equity and $98 million of subordinated notes) and about $28 million of other subordinated notes will be used to refinance existing debt, pre-fund liabilities and pay a $23 million dividend.

S&P said the CreditWatch placement of International Mill Service reflects a much more aggressive financial policy than had been expected. Previously, IMS had not paid a dividend; however, as a result of the proposed capital structure with income-participating securities, the company plans to distribute almost all of its free cash flow to equity holders. Indeed, holders of income-participating securities expect to receive a steady high yield on their investment. This expectation reduces the likelihood that the company will cut the dividend and, as a result, limits the company's ability to withstand potential operating challenges and reduces the likelihood for future deleveraging.

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