Fitch Affirms Ryerson's IDR at 'BB'; Outlook Stable

Published: 2025-04-03 10:32:14 ET RYI

Fitch Ratings has affirmed Ryerson Holding Corporation's (Ryerson) and Joseph T. Ryerson & Son, Inc.'s Long-Term Issuer Default Ratings at 'BB'.

Fitch has also affirmed the company's first lien secured asset-based lending (ABL) credit facility at 'BBB-' with a Recovery Rating of 'RR1'. The Rating Outlook is Stable.

Ryerson's ratings reflect its large size and scale within the industry, which provides operating leverage, strong working capital management, product diversification, the counter-cyclical cash generating ability of its business model and Fitch Ratings' expectation that EBITDA leverage will be sustained at or below 2.5x through 2028.

The Stable Outlook reflects Fitch's expectation EBITDA margins will average above 5% through 2028.

Key Rating Drivers

Conservative Leverage Profile: Fitch believes EBITDA leverage peaked at around 4.1x at Dec. 31, 2024 driven by lower prices and a decline in EBITDA margins. Fitch expects EBITDA leverage to decrease in 2025 driven by improved EBITDA margins and be sustained at or below 2.5x through 2028. As of Dec. 31, 2024, the company's only material debt consisted of $470 million outstanding on its $1.3 billion asset-based lending (ABL) credit facility due 2027. Ryerson targets 0.5x-2.0x net leverage through the cycle, supporting Fitch's view the company will remain committed to maintaining low leverage.

Near-Term Margin Headwinds: EBITDA margins averaged about 2.5% in 2024 compared with EBITDA margins averaging about 6% in 2023. The decline in margins was largely driven by an about 10% reduction in average selling prices. Fitch expects EBITDA margins to remain slightly challenged in 2025 but to recover to about 5.5%-6.0% on average thereafter.

Investment Cycle Completed: In 2024, Ryerson completed its three-year investment cycle, which focused on organic growth through the expansion and modernization of existing facilities, new state-of-the-art facilities, and additional processing equipment to support value-added business. From 2022-2024 capex averaged around $110 million per year compared to average annual capex of around $45 million during the three years prior. Fitch expects capex to average around $50 million-$60 million after 2024, barring any material new projects. Fitch believes the company's significant investments will improve EBITDA and support EBITDA margins.

Positive FCF Expectations: Gross margins are relatively stable, fluctuating between 18% and 21% over the last four years, through a significant decline in steel prices and aluminum price volatility. Stable gross margins and minimal capital intensity, despite a three-year period of elevated capital investment, support consistently positive FCF. Even though capex was high from 2022-2024, capital intensity was less than 2.5% of sales and FCF was positive. Fitch expects FCF to average around $100 million through 2028. This provides deleveraging capacity through ABL repayment and liquidity to pursue organic and inorganic growth opportunities.

Countercyclical Cash Generation: Ryerson has solid financial flexibility, supported by its ability to generate cash in periods of weakening demand or lower prices by managing working capital and liquidating inventory. Ryerson has a history of strong working capital management, which enables it to generate cash during periods of falling prices and shipments. The company demonstrated strong working capital management in 2023, when average selling prices declined over 15%, and in 2020 during the pandemic. Ryerson generated $213 million and $245 million in 2023 and 2020 respectively, primarily through working capital liquidation.

Significant Size and Scale: Ryerson is the second largest metals service center company in the U.S., distributing more than 75,000 metal products to about 40,000 customers in a broad range of industries. Fitch believes Ryerson's size and scale provides purchasing power and operating leverage, which drives a competitive advantage relative to peers.

Credit Conscious M&A: The highly fragmented nature of the industry also provides acquisition growth opportunities, supporting Fitch's expectation that Ryerson will continue to be a consolidator. The $163.5 million acquisition of Central Steel and Wire Company in 2018 was Ryerson's largest since 2005, supporting our view that a near-term sizable transaction is unlikely. Fitch believes Ryerson will remain selective in M&A and execute acquisitions in a credit-conscious manner, focusing on companies that enhance its diversification with an emphasis on higher margin specialty products and value-added processing capabilities.

Peer Analysis

Ryerson's operational profile compares closest with metals service center company Reliance, Inc. (BBB+/Stable). Both have leading market shares within the highly fragmented U.S. metals service center industry, similar underlying volumetric risk given their exposure to cyclical end markets, relatively stable margins, and low annual capex requirements. Ryerson is considerably smaller and has lower margins and higher EBITDA leverage than Reliance.

Ryerson's operational profile is also comparable with specialty alloy producer Carpenter Technology Corporation (BB+/Stable) and aluminum fabricator Kaiser Aluminum Corporation (BB-/Stable). Ryerson is similar in terms of EBITDA to Kaiser and smaller than Carpenter. Carpenter has lower forecast EBITDA leverage and higher margins than Ryerson. Ryerson has comparable margins but lower leverage metrics than Kaiser.

Key Assumptions

Total volume growth, including acquired volumes, of about 3% a year;

Slightly moderating average selling prices;

EBITDA margins improve to around 4% in 2025, then average about 5.5%-6.0% over 2026-2028;

Capex of around $50-$60 million on average;

Modest opportunistic share repurchases.

RATING SENSITIVITIES

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

EBITDA leverage sustained above 4.0x;

EBITDA margins sustained below 5%;

Sustained negative FCF.

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

Increase in size and scale;

EBITDA margins sustainably at or above 7%, driven by increasing levels of value-added processing;

EBITDA leverage sustained below 3.0x.

Liquidity and Debt Structure

As of Dec. 31, 2024, Ryerson had cash and cash equivalents of approximately $28 million and $376 million available under its $1.3 billion ABL credit facility due 2027. The company also had $47 million of availability under its foreign credit lines. Ryerson must maintain a fixed-charge coverage ratio of 1.0x when availability under the ABL credit facility is less than the greater of a) 10% of aggregate commitments and b) $60 million.

Issuer Profile

Ryerson is the second largest metals service center in the U.S. with 110 facilities across North America and four facilities in China. The company carries a line of nearly 75,000 products including stainless steel, aluminum, carbon steel and alloy steels.

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

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch'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. Fitch'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 Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.