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JW Aluminum Continuous Cast Co. Assigned ‘B-‘ Corporate Credit Rating, Outlook Stable; Senior Notes Rated ‘B-‘

          NEW YORK (S&P Global Ratings) Jan. 25, 2018--S&P Global Ratings today assigned its 'B-' corporate credit rating to Goose Creek, S.C.-based JW Aluminum Continuous Cast Co. The outlook is stable. At the same time, we assigned our 'B-' issue-level rating to the company's proposed $300 million senior secured notes due 2026. 
          The recovery rating is '3', indicating our expectation of meaningful (50%-70%; rounded estimate: 60%) recovery in the event of a payment default. Our 'B-' corporate credit rating reflects JW Aluminum's exposure to the highly competitive and cyclical aluminum rolled products market and related cash flow and working capital volatility as well as its weak credit metrics.
          Furthermore, the incremental debt associated with the company's expansion of its flat rolled aluminum operations, which is mainly debt-financed, will lead to persistently weak credit metrics over the next three years. Specifically, we expect JW Aluminum's adjusted debt balance to increase to about $300 million by year-end 2018 from nearly $200 million as of Sept. 30, 2017, which will generate adjusted debt to EBITDA of 6x and EBITDA interest coverage of roughly 2x in 2018 and 2019. We also view JW Aluminum's cash flow volatility to be an important factor in the company's credit quality, especially considering the negative EBITDA it produced in 2015 due to a decline in liquidity and extreme volatility in the Midwest aluminum premium price. The stable outlook reflects our view that JW Aluminum's operational performance will remain steady given elevated aluminum prices and solid volumes, albeit completing its additional capacity project on time and on budget is a key risk factor.
          We expect adjusted debt to EBITDA of about 6x and adjusted EBITDA margins of about 10% over the next 12 months. We could lower our ratings on JW Aluminum over the next 12 months if credit metrics were to deteriorate due to weak operational performance or cost overruns related to its boilermaker project. Specifically, we could lower our rating if the company produced EBITDA interest coverage approaching 1x, because this would likely represent an unsustainable capital structure.
          This could occur if liquidity were to materially weaken with higher free cash flow deficits. At the 'CCC+' rating, we would view the company as vulnerable and dependent upon favorable business, financial, and economic conditions to meet its financial commitments. Although an upgrade is highly unlikely over the next 12 months, we could raise our ratings on JW Aluminum if it were able to execute its growth strategy or exceed our expectations of operational performance. The company would also need to maintain a lower risk and more diverse asset base with less exposure to aluminum prices. We could also consider an upgrade if the company sustained notably stronger credit metrics and its owners were supportive of lower levels of debt leverage. This could be the result of stronger pricing and demand and successful execution of its expansion project.