���������ֳ�

���������ֳ� - New York - 25 Apr 2025: ���������ֳ� has assigned a 'BB+' rating to Commercial Metals Company's (CMC) $150 million of multimodal private activity bonds proposed to be issued through the West Virginia Economic Development Authority on behalf of CMC. The financing has been assigned a Recovery Rating of 'RR4'. Proceeds will be used to fund a portion of CMC's steel micro mill under construction in Berkeley County, WV.

The rating reflects ���������ֳ�'s expectation that CMC's (BB+/Positive) EBITDA leverage will be sustained below 2.5x and that EBITDA margins will be sustained above 8% on average through fiscal 2028.

Key Rating Drivers

Conservative Leverage Profile: Despite expectations for a slightly weaker rebar price environment in 2025, ���������ֳ� expects CMC's EBITDA leverage, which was 1.3x for LTM ended Feb. 28, 2025, to remain below 2.5x over the rating horizon barring any material leveraging acquisitions. CMC has a long track record of conservative leverage and has maintained EBITDA leverage below 2.0x in the last five years, even during the pandemic-induced downturn in 2020. Management targets 2.0x net leverage through the cycle. This supports ���������ֳ�'s view that the company will continue to maintain low financial leverage.

New Mills Improve Operational Profile: CMC constructed a new 500,000-ton micro mill in Arizona for roughly $300 million. The mill began rebar production in 4Q23 and started producing merchant bar in 2Q24. This is the first micro mill globally that can produce merchant bar quality products through a continuous production process. The mill produces a wide variety of shapes and sizes of long steel and was designed with the latest technology in electric arc furnace (EAF) power supply systems.

In December 2022, CMC announced plans to construct a 500,000-ton micro mill in West Virginia, which is expected to cost between $550 and $600 million, net of $75 million of government assistance and begin operations in late 2025. The construction of the facility also qualifies for a net tax credit under the Inflation Reduction Act of approximately $80 million. ���������ֳ� views the new mills positively, as they are low-cost facilities that provide margin support and increase CMC's size and scale. ���������ֳ� expects the West Virginia mill to be funded primarily with a combination of cash on hand, the proposed notes and future cash flow generation.

Emerging Businesses Segment Supports Margins: In fiscal 2022, CMC acquired Tensar, a global provider of engineered solutions for subgrade reinforcement and soil stabilization used in road, infrastructure and commercial construction projects, for approximately $550 million. In fiscal 2023, CMC also acquired BOSTD America, LLC, a geogrid manufacturing facility and EDSCO Fasteners, LLC, a leading provider of anchoring solutions for the electrical transmission market. These businesses are reported within CMC's Emerging Businesses Segment and tend to have higher margins than CMC's core steel business margins.

Europe Segment Near-Term Weakness: CMC's Europe EBITDA generation declined significantly in fiscal 2023-2024, driven by challenging European market conditions, including an about 21% decline in average selling prices over the period from fiscal 2022 levels, inflation, and rising interest rates. This negatively affected consumer sentiment and industrial production, delayed European construction starts, and led to negative EBITDA margins over the last three quarters of fiscal 2024. EBITDA margins have since improved to about 6.5% YTD Feb. 28, 2025.

Europe Segment Expectations: ���������ֳ� expects continued economic weakness in Europe during CMC's fiscal 2025 but expects EBITDA margins to gradually improve over the next few years. CMC primarily operates in regions with strong nonresidential construction demand regions within the U.S., and secondarily in Central Europe, despite near-term economic challenges. CMC's operations in Poland account for approximately 20% of total mill capacity, have historically been profitable with healthy margins, and provide diversification from U.S. construction exposure.

Peer Analysis

CMC is smaller in terms of annual shipments than EAF steel producers Nucor Corporation (A-/Stable) and Steel Dynamics, Inc. (BBB+/Stable), and majority blast furnace producers United States Steel Corporation (BB/Stable) and Cleveland-Cliffs Inc. (BB-/Stable). However, the flexible operating structure of its EAF production and CMC's low-cost position results in much less profit volatility and more consistent leverage metrics compared with majority blast furnace producers.

CMC has less product and end-market diversification than Nucor, Steel Dynamics, U. S. Steel, and Cleveland-Cliffs given its concentration in rebar and construction. However, CMC has geographic diversification through its European operations. CMC generally has more stable, through-the-cycle margins and favorable leverage metrics than U. S. Steel and Cleveland-Cliffs, and less-favorable margins than Nucor and Steel Dynamics, given CMC's concentration in rebar, a commoditized product.

Key Assumptions

-- Declining rebar prices in fiscal 2025, which are expected to remain relatively flat on average thereafter;

-- Annual North American external shipments at around 3.0 million tons in fiscal 2025 increasing thereafter as the new West Virginia mill begins operations in 2026;

-- Europe segment earnings remain challenged in fiscal 2025 and recovers slightly over the forecast period;

-- EBITDA margins decline in fiscal 2025, then trend to around 11%-12% thereafter;

-- Elevated capex of $650 million-$660 million in fiscal 2025 associated with the construction of the new West Virginia mill, trending toward around $300 million annually thereafter;

-- Steady dividends and no additional acquisitions;

-- Excess cash allocated to share repurchases.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

-- EBITDA leverage sustained above 3.5x;

-- Prolonged negative FCF, driven by a material reduction in steel demand or an influx of rebar imports, causing rebar prices to be depressed for a significant period;

-- Depressed metal margins, leading to overall EBITDA margins being sustained below 6%.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

-- Commitment to maintaining a conservative financial policy and investment-grade credit profile;

-- EBITDA leverage sustained below 2.5x;

-- EBITDA margins sustained above 8%, representing a sustainably higher pricing environment for rebar, further cost reduction, or an expansion of its product portfolio into higher value-add mix.

Liquidity and Debt Structure

As of Feb. 28, 2025, CMC had cash and cash equivalents of $758 million, and $599 million available under its $600 million secured RCF due 2029. The company had around $71.3 million under its PLN288 million ($71.3 million as of Feb. 28, 2025) Poland accounts receivable facility. CMC had $146.5 million of availability under its PLN600 million ($148.5 million) Poland credit facilities. CMC has no material maturities until its $300 million 4.125% senior unsecured notes mature in 2030.

Issuer Profile

CMC manufactures, recycles, and markets steel and metal products, related materials and services through a network of facilities in the U.S. and Poland. The company manufactures long steel products, primarily rebar, which is particularly tied to construction demand.

Date of Relevant Committee

26-Nov-2024

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

to access ���������ֳ�'s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. ���������ֳ�'s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

Additional information is available on

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

ADDITIONAL DISCLOSURES

• Solicitation Status
• Endorsement Policy

ENDORSEMENT STATUS