Moody's rates TMS loan Ba3, notes B3

Moody's Investors Service said it assigned a B1 corporate family rating and a B1-PD probability of default rating to TMS International Corp., a Ba3 (LGD3, 37%) rating to its proposed $400 million senior secured term loan B due 2020 and a B3 (LGD5, 82%) rating to its proposed $300 million senior notes due 2021. The outlook is stable.

The proceeds of the proposed financings will help fund a leveraged buyout of the company by some members of the Chicago-based Pritzker family from public shareholders and Onex Corp.

The existing ratings of the current rated entity, Tube City IMS Corp., including its Ba3 corporate family rating, will be withdrawn after the proposed transaction closes and all existing rated debt is repaid in full.

The agency said the B1 corporate family rating is principally constrained by the challenges of operating a leveraged business with exposure to the highly cyclical steel industry and maintaining a relatively aggressive growth strategy that likely will limit free cash flow generation. Pro forma adjusted financial leverage is expected to be nearly 5 times.

The company benefits from good scale, improved customer and regional diversity, contractual downside protection in long-term customer contracts and a highly variable cost structure, Moody's said.

The stable outlook assumes that global steel production will increase slowly, credit metrics will improve modestly and the company will maintain at least adequate liquidity over the next 12 to 18 months, the agency said.

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