EFTA01385456.pdf

3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite Steel Dynamics, Inc. (STLD): Reiterate Hold Ratings due to the increased likelihood of a debt-funded acquisition On October 19, 2017 we published an earning's update for Steel Dynamics, Inc. ISILDA Excerpts from that publication are supplied below for review. 3(117 lkiTning:. Sun !Mai': STLD announced 3Q17 results largely in line with consensus' expectations. EBITDA of $347mn (-3% y/y) came in 1% lower than consensus' $352mn estimate as average scrap costs expanded more than average selling prices in the period, resulting in some near-term margin compression. Revenue of $2.443bn (+16% y/y) outperformed consensus' estimate for $2.389bn by 2% due to stronger infrastructure shipments that offset softening auto volumes. Cesh Flow. Le/rage F., Liquidity OCF before changes in W/C of $245mn was $8mn lower y/y primarily owing to increased cash taxes. W/C consumed $18mn resulting in OCF of $226mn. We estimate STLD generated organic FCF of -$183mn after subtracting capex of $43mn from OCF. STLD also spent $6mn on acquisitions, paid dividends of $37mn and repurchased S99mn of stock bringing net cash flow to -$41mn. Cash was $1.1bn against debt of $2.534bn, resulting in 1.0x net and 1.8x total leverage off $1.377bn of LTM EBITDA. Liquidity was substantial at $2.1bn. Recommendation STLD's cash balance ballooned to over $1.0bn in 3017 and management made it clear to investors that they are evaluating several inorganic opportunities in the market but would seek to keep a lid on leverage -3.0x should they proceed with one. Hence, given the increasing likelihood STLD executes a debt-funded acquisition that could prime or layer existing senior notes (which are already trading at tight spreads), we maintain our Hold recommendations on SILOS existing notes despite our opinion that STLD is a great operator with a solid >20% FCF yield. Risks Upside and downside risks to our recommendation include: growth or declines in the value between scrap steel prices and market selling prices, which in turn benefits/hurts profits at STLD; possible leveraging acquisitions given STLD's modest 1.0x of net leverage, robust cash balance and pristine balance sheet; high exposure to cyclical end markets including the automotive sector, the construction sector, energy and manufacturing; any rise/decline in imported steel products into the U.S., which could impact STLD's capacity utilization, sales volumes, selling price realizations and, in turn, credit metrics. Figure 6: Steel Dynamics. Inc. (STLD) 3017 Capitalization Qrnitilliketil Ammon Bid aa !AU'S rrw i in Cash & Equivalents as of 9/29/17 51,102 51.102 IL-.150) $1.28N Sr FICF due Nov-19 0 0 Other Secured Debt • Se Seemed Debt 81541 10.8x) $34 10.8x) 4700MM 5.125% Sr Ms due Oct-21 700 102.250 700 3.8% 4400MM 5.250% Sr Nts due Apr-23 400 102.750 400 4.3% $500MM 5.500% Sr Ms due Oct-24 500 105.750 500 3.6% 4350MM 4.125% Sr Ms due Sep-25 350 100.375 350 40% 4400MM 5.000% Sr Ms due Dec-26 400 105.500 400 4.1% Other Debt 150 150 Tote! Debt 82.534 1.0x *534 1.0x Market Capitalization as of 1222/17 $10.251 .74x $10,251 7.4x Tole! EntsrprIss Value $12.7•5 8.5x $12,715 8.5x Sane OrtetcA• (Mt Crony Repass Page 182 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086741 CONFIDENTIAL SDNY_GM_00232925 EFTA01385456