Moody's lifts Russel Metals notes

Moody's Investors Service said it upgraded Russel Metals, Inc.'s $175 million of 6 3/8% senior unsecured notes to Ba1 (LGD4, 58%) from Ba2 (LGD5, 74%) and affirmed the company's corporate family and probability of default ratings at Ba1.

The outlook is stable.

The upgrade follows a recent review of Russel Metals' debt capitalization and its non-debt liabilities. The agency said the upgrade recognizes the 6 3/8% notes' higher seniority position and priority of payment in the company's capital structure in relation to the C$175 million of senior convertible unsecured subordinated debentures, which in the event of default would disproportionately absorb creditor losses.

The Ba1 corporate family rating reflects Russel Metals' solid market position in the Canadian metal service center industry, its size and scale, a history of stable cash flow generation, relatively low leverage, counter-cyclical working capital investment that enhances liquidity in down markets and a disciplined and successful acquisition track record, Moody's said.

However, the rating also reflects the company's exposure to highly volatile end-markets and pricing and, therefore, volatile earnings generation as evidenced in 2009 and 2010, the agency added.

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