GrafTech International Ltd.

The stable outlook reflects our expectation that GrafTech's credit metrics will remain steady as it benefits from favorable take-or-pay contracts and maintains its current financial policy. We expect stable operating performance to lead to adjusted debt to EBITDA of 1.5x-2x over the next 12 months. We could lower our rating if debt leverage rises above 3x. This could be caused by a combination of weaker market conditions in which contract renewals pressure operating margins due to lower realized prices, or if GrafTech pursues additional debt-financed, shareholder-friendly activities. While unlikely, we could raise our rating if Brookfield significantly reduces its ownership and GrafTech maintains strong cash flow and modest debt leverage. In this scenario, we would expect Brookfield's equity stake to

...We expect stable pricing and volumes to result in EBITDA of about $1 billion until the take-or-pay contracts begin to roll off in the next two to three years. GrafTech International Ltd. has already contracted two-thirds of its volumes at a weighted average realized price of $9,600 per metric ton (mt), supporting this EBITDA level. We expect slightly lower graphite electrode spot prices of $8,500/mt to $9,500/mt in 2020 based on declines in spot prices in the second half of 2019 and ongoing inventory destocking. We estimate that such earnings generation will sustain stable debt leverage of 1.5x-2x in 2020. However, one-third of the company's volume is still exposed to potential volume risk or prolonged inventory buildup, which is heightened given current steel market conditions and declining steel production in China. GrafTech's financial sponsor ownership by Brookfield Asset Management is a key determinant of the company's financial risk. We generally view companies owned by financial...

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