Moody's rates Tube City loan Ba3, note B3

Moody's Investors Service said it assigned B1 corporate family and probability-of-default ratings and an SGL-2 speculative grade liquidity rating to Tube City IMS Corp., a Ba3 rating with a loss-given-default assessment of LGD3 (38%) to the company's $140 million senior secured term loan due 2014 and a B3 rating with a loss-given-default assessment of LGD5 (81%) to its $250 million senior subordinated notes due 2015.

The outlook is stable.

The proposed financing will be used to fund Onex Corp.'s purchase of Tube City from Wellspring Capital for $653 million. The acquisition consideration includes $440 million of debt and $213 million of new and carryover management equity.

The agency said the ratings reflect Tube City's dependence on sales to customers in the cyclical steel industry, predominantly in the United States, and its relatively high customer concentration, which makes the company vulnerable to the loss of a large customer or a general downturn in the steel industry, although its revenues are typically tied to steel production rather than steel prices. The ratings also reflect the company's high 5.2x pro forma leverage and the modest size of its tangible assets.

Tube City's ratings are supported by the company's role as an entrenched provider of mill services at over 65 North American and European steel mills and its favorable track record of retaining customers and cross-selling services at a broad cross-section of integrated and minimill steel facilities, Moody's said.

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