AIP MC Holdings LLC

Sources: S&P Global Ratings, company reports. The stable outlook reflects our expectation that Molycop will end 2020 with adjusted leverage in the 5.0x-5.5x range, driven by lower production volumes partially offset by reduction in conversion costs and lower procurement costs. In 2021, we expect Molycop's leverage to decrease to 4.5x-5x range driven by improvement in sales volumes and cost management. We could lower the rating if: EBITDA margins dropped below 12% causing us to view profitability and overall business risk as weaker, or Estimated liquidity sources no longer covered estimated uses by at least 1.2x, causing us to view liquidity to be less than adequate. These scenarios could occur if steel material costs increase materially and the company cannot pass

...Leverage was high at more than 6x EBITDA in 2019 and we expect this key ratio to remain above 5x in 2020. We anticipate AIP MC Holdings LLC, doing business as Molycop, will end fiscal 2020 with leverage of about 5x-5.5x and operating cash flow to debt of less than 10%. This assumes a 15%-20% drop in sales this year related, in part, to lower steel prices. We forecast some recovery in 2021, with leverage improving to the 4.5x-5.0x range driven by volumes growth and stable EBITDA margins. Molycop will continue to mitigate steel price volatility with a steel cost pass-through mechanism for its grinding media business. Steel ballstock is the primary input for the production of grinding balls. Some level of steel cost pass-through with customers and sales tied to steel prices allow Molycop to mitigate steel price volatility. In the past, when steel price fluctuated between $890 and $450 per ton, the company generated stable EBITDA margins in the range of 10%-13%. In addition, we expect the sale...

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