Metal Consolidator Company
Identifies the account we are providing the Credit Limit Advisory on. A city and state is provided to assist in verifying that we are reviewing the account you are selling to.
Pittsburgh, PA
Credit Evaluation:
Metal Consolidation Co. is primarily involved in ferrous and non-ferrous scrap recycling and processing. The company also runs a dealing and trading operation.
- The company has been in business since 1975 under current management/control.
- The company submitted is a wholly owned subsidiary of Metal
Consolidator Group, Pittsburgh, PAWhere relevant, we will identify parent company linkage or related entities that might impact the overall credit risk.
- The company's ProfitGuard Credit Risk Score is 3.4 (scale of 1 to 10, with 10 being the lowest risk).
- The company's ProfitGuard Probability of Default Score is 22 (scale of 1 to 100, with 100 being lowest probability).
- The company's payment experience has remained consistent over the past 12 months - paying its vendors approx. slow to 25-30 days beyond payment terms.
- We find the presence of (1) open suit, liens, or judgments.
- The following financial highlights are based on the company's 6/30/03 three-month period ended results:
- Net Sales $410.5 million, down 27.5% over prior year period.
- Net Loss of $3.4 million, compared to net income of $12.6 million in the prior year period.
- The company stated that the steel business segment yielded an operating loss of $13.9 million. Operating income for the last year's quarter of $32.7 million included $38.5 million of pretax settlement income.
- Scrap product shipments were even with those of a year ago while realized structural prices declined 8%. Scrap costs increased 13%.
- Current ratio 1.91:1 with working capital of $172.9 million.
- Total Liabilities $948.9 million with tangible net worth of $413 million.
- The Company has available a $250 million revolving credit facility that expires in March 2004.
- At June 30, 2003, $30.0 million was outstanding under the credit facility and an additional $114.4 million had been utilized to support letters of credit
- The credit facility agreement limits the Company's total debt based on the ratio of debt to earnings before interest, taxes, depreciation and amortization.
- At June 30, 2003, $62.8 million of additional debt could have been incurred.
- The Company has an agreement to sell, on a revolving basis, an interest in a defined pool of trade accounts receivable of up to $125 million.
- The maximum amount outstanding varies based upon the level of eligible receivables.
- At June 30, 2003, the maximum amount of eligible receivables, $119.3 million, had been sold.
- The Company's contractual obligations for long-term debt, operating leases and preferred securities of subsidiary are essentially unchanged from March 30, 2003 except for the $40 million reduction in the outstanding balance on the revolving credit facility.
- On July 10, 2003 Standard & Poor's Ratings Services revised its outlook on the company to negative from stable. Standard & Poor's also affirmed its 'BB+' corporate credit rating on the company. The Pittsburgh, PA based company has $570 million in total debt.
- The outlook revision reflects Standard & Poor's concern that currently difficult conditions in MCC's Structural steel and cement, aggregates and concrete (CAC) markets may be prolonged and further strain the company's credit measures. Weak demand and excess supply have put significant pressure on structural steel prices and prevented the company from increasing its operating rate beyond 50% at its new Chicago-based steel plant.
- As a result, the plant has yet to turn a profit and will be further challenged by new capacity being brought on-line by new market entrant-Steel Static's Inc.
- According to S&P, the company's steel beams segment has been challenged by a confluence of factors including excess supply from high imports earlier in the year (structural steel products were not included in the U.S. government's section 201 tariffs) and weak demand due to lower nonresidential construction activity. A weakened U.S. dollar and low selling prices have subsequently helped to stem the tide of imports; however, lackluster demand together with the ramp-up of structural beam production at Steel Static's new structural mill is likely to further disrupt the market by increasing supply and weakening prices. Scrap costs have also risen through November and are likely to remain at higher levels, putting additional pressure on margins.
- S&P states that MCC has typically maintained a moderate financial profile, targeting total debt to local capitalization of 25%-30%.
- The company had breached these targets in the past couple of years, spending heavily on expansion programs and meaningfully increasing debt.
- Since completing its growth spending last year, the company has focused on reducing costs and generating excess cash flows to reduce debt.
- From March 31, 2002 to June 30, 2003, the company paid down debt by $380 million and restored its debt to capital to 20%.
- However, despite these actions, the company's EBITDA interest coverage declined to 2.2x for the quarter ended June 30, 2003, from 2.3x in the previous quarter ended March 31, 2003, due to its weakened profitability levels.
- The company is expected to restrict its spending while its markets remain weak and continue to generate excess cash flow to reduce debt levels. However, additional debt reduction will be at more moderate levels as most working capital reduction plans have been completed and profitability challenged by weakened market conditions.
