Moody's cuts Aleris, rates Aurora loans B2, notes B3, Caa1

Moody's Investors Service said it downgraded Aleris International, Inc.'s corporate family rating to B2 from B1 and assigned a B2 (LGD3, 46%) rating to Aurora Acquisition Merger Sub, Inc.'s proposed senior secured term loan, a B3 rating (LGD4, 63%) to its proposed senior unsecured notes and a Caa1 (LGD6, 93%) rating to its proposed senior subordinated notes. The agency also assigned a B2 rating (LGD3, 46%) to Aleris Deutschland Holding GmbH's proposed senior secured term loan and a B2 probability-of-default rating to Aurora.

This concludes the review for possible downgrade begun on Aug. 8, and the outlook is stable.

The rating actions were prompted by the merger of Aleris International with Texas Pacific Group in a leveraged transaction under which Texas Pacific will acquire the outstanding stock of Aleris for $1.7 billion plus the assumption of $1.6 billion in debt. Upon consummation of the merger, Aurora will merge with and into Aleris and Aleris will be the continuing company, legally assuming all obligations of Aurora.

The agency said the downgrade of Aleris' corporate family rating reflects the substantial increase in debt resulting from the leveraged acquisition of the company (pro forma leverage of roughly 4.8x), its weakened debt protection metrics and the execution risks for timely deleveraging, particularly for a company with relatively thin margins and high sensitivity to volume levels.

However, the corporate family rating reflects Aleris' broadened diversity and size following the acquisition of certain aluminum rolling assets from Corus, its improving cost position and favorable demand trends expected to continue in many of the company's end markets into 2007, Moody's said.

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