Sept 26 (Reuters) - (The following statement was released by the rating agency) Overview -- Chicago-based-based Ryerson Holdings Corp.'s subsidiaries, Ryerson Inc. and Joseph T. Ryerson & Son Inc., intend to issue $600 million of new senior secured notes due 2017 and $300 million of new senior unsecured notes due 2018. The company expects to use the proceeds to refinance all of the its existing holding company and operating company notes and reduce its revolver borrowings by $50 million. -- We are affirming our 'B-' corporate credit rating on Ryerson. At the same time, we are assigning 'CCC+' issue-level rating to the proposed senior secured notes with a recovery rating of '5' and a 'CCC' issue-level rating to the senior unsecured notes with a recovery rating of '6', which will be issued by Ryerson Inc. and Joseph T. Ryerson & Son Inc. -- We anticipate that we will withdraw our ratings on the existing senior secured notes and senior discount notes upon successful completion of the refinancing. -- The stable outlook reflects our assessment that, although the company's credit measures have improved, sluggish steel markets will likely keep the company from achieving credit metrics that we view as consistent with a higher rating during the next year. For a higher rating, we would expect debt-to-EBITDA to fall below 6x and FFO-to-total debt to be above 10%. Rating Action On Sept. 26, 2012, Standard & Poor's Ratings Services affirmed its 'B-' corporate credit rating on metals service center Ryerson Holding Corp. (Ryerson). The outlook is stable. At the same time, we assigned our 'CCC+' issue-level rating (one notch lower than the corporate credit rating) to the proposed $600 million senior secured notes due 2017. The recovery rating is '5', indicating our expectation for modest (10% to 30%) recovery in the event of a payment default. At the same time, we assigned a 'CCC' issue-level rating (two notches lower than the corporate credit rating) to the proposed $300 million senior unsecured notes due 2018. The recovery rating is '6', indicating our expectation of a negligible (0% to 10%) recovery in the event of a payment default. The secured notes and unsecured notes will be issued by Ryerson Inc. and Joseph T. Ryerson & Son Inc. We expect the company to use the proceeds of the proposed notes issuance to repay the company's existing floating-rate senior secured notes due 2014, its 12% senior secured notes due 2015, its senior discount notes due 2015, a portion of the outstanding amount on its senior secured revolving credit facility, and related fees and expenses. We anticipate that we will withdraw our ratings on Ryerson's existing notes upon successful completion of the refinancing. Rationale The ratings and stable outlook on Ryerson reflect the combination of what we consider to be the company's "highly leveraged" financial risk profile and "vulnerable" business risk profile. These assessments take into account the company's high debt leverage and thin interest coverage, slow steel demand growth, low margins relative to some of its peers, and participation in the highly cyclical and volatile steel industry. Still, we expect its near-term liquidity position to remain adequate to meet its obligations despite the likelihood that the company will draw on its revolving credit facility as demand improves and increases inventory to service customers. Given our current market expectations for sluggish steel markets, we expect the company's volumes to be flat to declining and for prices to weaken through 2012. In 2013, we would expect that markets would improve slowly along with the general economy. In addition, we expect the company's recent margin improvement, to above 6%, to continue to modestly improve as the company continues to reposition its business. Under these assumptions we expect 2012 EBITDA to be about $220 million (compared with about $180 million in 2011), rising to the mid to high $200 million range in 2013, and estimate that the company's debt to EBITDA will be about 8.0x in 2012, improving to about 6.5x in 2013---levels in line with the current rating. In our view, the company has adequate liquidity to fund its operations if markets change significantly from these assumptions. Ryerson's operations are highly cyclical and working-capital intensive, which results in a high degree of volatility in profitability and cash flow. The company's operating margins (before depreciation and amortization) of about 5% for the 12 months ended June 30, 2012, are lower than those of some other service centers, which typically average in the high-single digits. We attribute this difference to Ryerson's inventory mix, which has been skewed towards lower-margin products, and to its customer mix, roughly half of which is under contract. Historically, about 60% of the product mix has been flat metal products. Ryerson has been repositioning its business would like to increase its sales of long and plate metal products, which are now about 44% of its product mix. These goods tend to have higher margins and more stable pricing. The company would like to increase its percentage of higher-margin transactional business as market demand improves. Liquidity We view Ryerson's liquidity as "adequate". Pro forma for the transaction pro forma liquidity as of June 30, 2012, was about $370 million, consisting of balance sheet cash of about $45 million and about $325 million available under its foreign debt facilities and its $1.35 billion revolving credit facility due 2016. Our view of the company's liquidity profile incorporates the following expectations: -- Liquidity sources (including cash, FFO, and credit facility availability) over the next 12 to 18 months will exceed uses by more than 1.2x; and -- Sources of cash would continue to exceed uses even if EBITDA were to decline by 15% to 20%. Working capital requirements are significant and can vary widely because Ryerson adjusts inventory levels based on market conditions. As demand improves, the company has to maintain higher inventory levels. Ryerson will probably need to fund this through credit facility borrowings. We expect Ryerson Holdings to generate modest amounts of free cash flow (we estimate between $25 million to $40 million) after estimated capital expenditures of about $40 million and our expectation that working capital will be modest in a slow growth environment. The company's ABL credit facility is governed by a single financial covenant--a fixed-charge coverage ratio of 1.1x if excess availability falls to 10% of the borrowing base, $125 million for five consecutive days, or $100 million at any time. Ryerson was in compliance with this covenant as of June 30, 2012, and we expect it to remain so in the coming months, given our operating assumptions. Recovery analysis We rate Ryerson's senior secured notes 'CCC+' (one notch lower than the corporate credit rating) with a recovery rating of '5'. The '5' recovery rating indicates our view that lenders would experience modest (10% to 30%) recovery in the event of a payment default. At the same time, we assigned a 'CCC' rating (two notches lower than the corporate credit rating) to the company's senior unsecured notes due 2018. The recovery rating is '6', indicating our expectation of a negligible (0% to 10%) recovery in the event of a payment default. For the complete recovery analysis, see our recovery report on Ryerson, to be published shortly following this report on RatingsDirect. Outlook The outlook is stable. We expect Ryerson's operating performance to continue to gradually improve into 2013--in line with a moderate economic recovery and increased end-market demand and better margins. However, we expect credit measures to remain in line with the current rating, with pro-forma debt-to-EBITDA of about 8.0x, declining to below 7.0x in 2013, still more in-line with the current rating. A negative rating action could occur if operating performance were to deteriorate from poor execution of management's strategic direction and leverage climbs to and is sustained at levels above 10x or the company's ABL availability declines--specifically, to less than $125 million. We could take a positive rating action if prices and volumes were to continue to increase, resulting in better operating performance and much stronger credit measures--for example, if debt-to-EBITDA were to strengthen to less than 6x and we believe it would remain there. This could occur if a there is a sustainable improvement in margins to well above 6%.