S&P puts Russel Metals on positive watch

Standard & Poor's said it placed Russel Metals Inc.'s BB long-term corporate credit rating and BB- senior unsecured debt rating on CreditWatch with positive implications after the company announced that it would issue C$257 million of equity in a bought deal transaction, which could increase to C$283 million under an underwriter's option.

Proceeds will be used to repay some debt and maintain cash reserves for future acquisitions. The equity issue could lower the company's pro forma total debt to capital to 23% from an already low 30% as of Dec. 31, the agency said.

Russel Metals faces considerable volatility in its business of steel distribution, and the company's margins and cash flow fluctuate significantly because it generates a fairly stable percentage margin over its unstable cost of purchased steel.

S&P said the company has historically maintained adequate financial performance, however, because of its good market position, which has permitted it to exert pricing power over its broad base of suppliers and customers.

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