JW Aluminum Continuous Cast Co.

The stable outlook reflects our view that JW Aluminum's operational performance will remain steady given solid volumes and favorable pricing, albeit completing its additional capacity project on time and on budget is a key risk factor. We expect adjusted debt to EBITDA of 4x-5x and EBITDA interest coverage of about 2x over the next 12 months. We could lower our ratings on JW Aluminum over the next 12 months if credit metrics deteriorate because of weaker-than-expected volumes and conversion margins, or cost overruns related to its Mount Holly expansion project. Specifically, we could lower our rating if EBITDA interest coverage approached 1x because this would likely represent an unsustainable capital structure. We could raise our ratings on JW Aluminum if

...We forecast debt leverage will remain 4x-5x throughout the Mount Holly expansion project. We believe the existing high debt load will limit further improvement in JW Aluminum Continuous Cast Co.'s credit metrics. We notably expect capital expenditures to remain significant, leading to a free cash flow deficit of about $50 million over the next 12 months. However, improving pricing in its metal conversion sales has led to higher EBITDA and slight deleveraging from the company's previous 5x-6x leverage. JW Aluminum is exposed to cyclical end markets, metal price variations, and project execution risks. Competitive pressures from slowing demand, unexpected price changes, and changing trade policies could reduce the company's ability to pass through conversion charges and volatile metal costs. We estimate a 10% decline in volumes sold by JW Aluminum, combined with a 10% contraction in its metals conversion spread (i.e., the difference between conversion sales price and cost per pound) would...

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