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Investing.com -- Moody’s Ratings has upgraded the corporate family rating (CFR) of Century Aluminum (NASDAQ:CENX) Company from B3 to B2. The probability of default rating (PDR) was also raised from B3-PD to B2-PD, while the senior secured notes rating improved from Caa1 to B3. The Speculative Grade Liquidity rating (SGL) remains at SGL-2, and the ratings outlook is still positive.
The upgrade and the positive outlook are due to Moody’s expectation of stronger operating earnings and cash flows, and improved credit metrics for Century Aluminum over the next 12-18 months. This is supported by tax credits, higher Midwest premiums due to increased aluminum import tariffs, and improved aluminum product pricing, according to Michael Corelli, Senior Vice President at Moody’s Ratings.
Century Aluminum, the largest domestic primary aluminum producer in the US, saw a significant improvement in its operating performance for the second consecutive year in 2024. Adjusted EBITDA for the year was $218 million, up from $133 million in 2023. This was due to higher alumina prices, manufacturing production credits from the Inflation Reduction Act (IRA), and favorable power price realizations. Despite these improved operating results, the company consumed over $100 million of cash in 2024 due to the accrual of about $150 million of tax credits, which are expected to be paid by the federal government in 2025.
In 2025, Century Aluminum is expected to see another significant improvement in operating earnings. This is due to higher Midwest premiums driven by increased aluminum import tariffs related to an increase in the Section 232 tariffs on aluminum from 10% to 25%, along with the elimination of all exemptions. Higher LME aluminum prices, which are currently well above the average level in 2024, will also contribute to this improvement. As a result, Century’s full year adjusted EBITDA is projected to be around $300 million in 2025, up from the $218 million generated in 2024.
The company is expected to generate strong free cash flow in 2025 due to strong earnings and the receipt of payment for accrued tax credits. A portion of this cash is anticipated to be used to pay down debt, which will result in strong credit metrics for the company. The adjusted leverage ratio (debt/EBITDA) is expected to be about 2.0x and interest coverage (EBIT/Interest) is projected to be around 4.0x.
Century Aluminum’s liquidity position is expected to strengthen in 2025 due to substantial positive free cash flow. The company had about $245.3 million of liquidity as of December 2024, supported by a cash balance of $32.9 million and availability of about $212.4 million under several credit facilities.
The positive ratings outlook reflects Moody’s expectation for improved operating results and cash flows that will result in near term metrics that are strong for the rating. However, an upgrade of Century’s ratings could be considered if the company reduces its debt level to better withstand volatility in aluminum prices during economic downturns, or if it sustains an improved level of earnings and cash flows and demonstrates operational consistency. Conversely, the ratings could be downgraded if EBIT margins are sustained below 3.5%, interest coverage at less than 2.0x and leverage above 4.5x, or if liquidity meaningfully deteriorates.
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