Nov 5 - As Standard & Poor's Ratings Services previously announced, on Nov. 2, 2012, we assigned our 'BBB' issue-level rating to Kennametal Inc.'s proposed senior unsecured notes due 2019. The company expects to use the proceeds to repay its outstanding revolving credit facility balance of approximately $300 million and the balance for general corporate purposes. The proposed notes contain a change-of-control provision. The 'BBB' rating and stable outlook on the U.S.-based metalworking tools manufacturer reflects our assessment of the company business profile as "satisfactory" and its financial risk profile as "intermediate" under our criteria. The satisfactory business risk assessment is based on our expectation that Kennametal's product innovation and global footprint will enable the company to maintain its good position in the global metalworking tools industry. We expect that its profitability, while structurally improved since the last downturn, will remain volatile because of the cyclical and competitive nature of its markets. Weakening demand in global industrial markets has started to hurt performance. We assume revenues could decline by mid-single digits in fiscal 2013 and adjusted EBITDA margins could be 16%-17%, down from a peak of close to 20% in 2012. The intermediate financial profile reflects Kennametal's moderate debt and credit metrics that likely will continue to fluctuate with the industry cycle and potential acquisition activity. Leverage of about 1.7x debt to EBITDA as of Sept.30, 2012, pro forma for the proposed debt issuance, could in our view increase to around 2x in the coming quarters, but we expect it will remain less than 2.5x and that funds from operations to debt will be above 35%, which we view as commensurate for the rating. The company will have less debt capacity to fund additional growth or shareholder initiatives, however. RELATED CRITERIA AND RESEARCH -- Summary: Kennametal Inc., July 19, 2012 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATINGS LIST Kennametal Inc. Corporate credit rating BBB/Stable/-- New Rating Kennametal Inc. Senior unsecured notes due 2019 BBB
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