Commercial Metals Co.

The stable outlook reflects our expectations that CMC will maintain adjusted debt to EBITDA of 2x-3x, with EBITDA margins of about 10%-11% by the end of fiscal 2020. We expect CMC to benefit from nonresidential construction growth and incremental synergies from the Gerdau assets. We could lower the rating on CMC if its adjusted debt to EBITDA increases above 3x with no expectation of improvement. This could occur if EBITDA margins decline below 6% from significant problems integrating the newly acquired assets or depressed steel prices resulting from prolonged weak end-market demand. We could also lower the rating if CMC undertakes an additional significant, debt-financed acquisition. We do not anticipate an upgrade over the next 12 months. CMC's exposure to

...Commercial Metals Co.'s (CMC's) improved margins reflect the combined result of incremental EBITDA from acquired assets and higher realized metal margin. . The company's addition of certain Gerdau assets significantly expanded its rebar capacity and U.S. market share, following the acquisition of four rebar mills and 33 fabrication facilities. However, in our view, the company's intensified exposure to cyclical construction end markets partially offsets this benefit. Rebar is also vulnerable to competition from cheap imports and subject to volatile prices. CMC's operational performance in fiscal 2019 (year ended Aug. 31, 2019) was better than our expectations with higher margin realization and incremental volumes from acquired asset integration. We expect to EBITDA contribution from these assets to increase to about 25% over the medium term from about 10% in fiscal 2019, as acquired assets in the fabrication segment turn profitable in 2020 and steel mills benefit from cost synergies. CMC...

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