Moody's may still cut AK Steel ratings;
Approximately $1.2 Billion of debt securities affected

Tue May 6, 2003 04:54 PM ET

(The following statement was released by the rating agency)

NEW YORK, May 6 - Moody's Investors Service will continue to review AK Steel Corporation's ratings for possible downgrade so that it can more closely examine the following developments.

First, as more and more domestic integrated steel producers reshape their labor contracts, manning levels, and pension and healthcare liabilities, AK Steel's prospective cost competitiveness will be analyzed. Second, Moody's will evaluate the expected impact of steel industry consolidation on operating capacity, customer relationships, and selling prices. Third, we will seek to better understand the company's growth plans and acquisition criteria in the current environment. Fourth, Moody's will assess the magnitude and timing of potential cash contributions to AK Steel's underfunded defined benefit pension plans. Moody's expects to complete its review of AK Steel by July 2003. Moody's placed AK Steel's ratings under review when the company announced that it had submitted a proposal to acquire substantially all of the assets of National Steel Corporation. The bankruptcy court has approved U.S. Steel's bid for National Steel and the United Steelworkers of America (USWA) supports the U.S. Steel transaction.

The following ratings remain under review for possible downgrade: (i) Ba2 for AK Steel's $125 million of senior secured notes due 2004, (ii) B1 for its senior unsecured debt, which includes $117 million of 9% guaranteed senior notes due 2007, $33.5 million of 8.875% guaranteed senior notes due 2008, $450 million of 7.875% guaranteed senior notes due 2009, and $550 million of 7.75% guaranteed senior notes due 2012, (iii) Ba3 senior implied rating, and (iv) B1 senior unsecured issuer rating.

Moody's affirmed its SGL-2 speculative grade liquidity rating for AK Steel, as the company is well-positioned from a liquidity standpoint. It ended the March 2003 quarter with $249 million of cash. It had no drawings under its $300 million receivable-based credit facility, although letter of credit usage was $82 million. The company has over $800 million of inventories and believes it can, if needed, arrange a $400 to 500 million inventory-based credit facility. Capex is estimated to be $150 million for 2003 and its only required debt payment is a $62.5 million payment due in December 2003. Excluding any voluntary pension contributions or strategic investments, Moody's expects AK Steel to be cash-flow-positive in 2003.

AK Steel, headquartered in Middletown, Ohio, produces flat-rolled carbon, stainless and electrical steel products for automotive, appliance, construction, and other markets.

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