S&P Global Ratings upgrades Russel Metals to ’BBB-’

Investing.com -- S&P Global Ratings has upgraded Russel Metals Inc. to ’BBB-’ from ’BB+’ with a stable outlook, citing the company’s track record of maintaining low leverage and commitment to conservative financial policies.

The rating agency noted that Russel has materially improved its cash flow and leverage measures since 2020, primarily through robust earnings and cash flows generated in 2021-2023 on strong steel prices. This enabled the company to build up its cash balance, which S&P nets against debt in its adjusted calculations.

According to S&P, Russel’s adjusted debt to EBITDA stood at less than 0.5x in 2021-2024. The company has historically managed its balance sheet conservatively, maintaining year-end adjusted debt to EBITDA of just below 1.5x on average since 2017.

S&P expects Russel’s adjusted debt to EBITDA will be about 1x over the next few years, which incorporates C$300 million of unsecured notes issued earlier this year. The agency also projects the company will generate free operating cash flow of about C$130 million this year, improving to about C$250 million in 2027 as it increases earnings and moderates capital expenditure.

These estimates assume Russel will continue paying annual dividends of about C$100 million and opportunistically undertake tuck-in acquisitions and share repurchases without raising additional debt.

S&P believes Russel will exhibit reduced earnings and cash flow volatility. The company has improved operating efficiency by rationalizing its facility network, including selling real estate and reducing invested capital. Management’s investments in value-add and facility modernization initiatives are expected to support resilient margins and increase return on capital.

The rating agency noted that Russel recently announced it will acquire Kloeckner Metals Corp.’s seven service centers in the U.S. for US$119 million, subject to working capital adjustments. The acquisition, expected to contribute annual EBITDA of about US$20 million, will likely be funded with cash on hand.

S&P’s stable outlook reflects expectations that Russel will maintain its conservative financial policies and strong credit measures over the next couple of years.

The agency indicated it could lower its rating if Russel demonstrates an increased appetite for outsize debt-financed acquisitions or share repurchases that increase its adjusted debt to EBITDA above 2.0x for a prolonged period.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.