PNC METALS INDUSTRY UPDATE

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1 SECOND QUARTER 2017 PNC METALS INDUSTRY UPDATE IN THIS ISSUE M&A Remains Alive and Well 1 Plate and Pipe & Tube Rise, Other Directional Moves Unclear 4 Pricing for Public tes and Bonds 5 Syndicated Bank Loan Financing 6 FOR MORE INFORMATION Contact the PNC Metals Group: David B. Gookin Executive Vice President Metals Group Diversified Ind. PNC Financial Services Group One rth Franklin Street Suite 2500 Chicago, Illinois Phone: Cell: david.gookin@ Alex Mack Vice President Metals Group Diversified Ind. PNC Financial Services Group The Tower at PNC Plaza 300 Fifth Avenue Floor 10 Pittsburgh, Pennsylvania Phone: Cell: alex.mack@ Welcome to the sixteenth issue of the PNC Metals Industry Update. Our cover story recaps M&A activity over the past year. M&A remains a key strategy for many companies trying to achieve their long-term strategic plans. Next, you will find our recurring sections offering insights into the latest metal pricing, conditions in the public debt markets and activity in the syndicated bank loan market. We still believe the outlook for the metals sector remains positive, despite the realization that the new administration will not be able to make changes as quickly as previously hoped. We continue to appreciate the opportunity to share this information with you. Our goal remains to offer relevant information in an easy-to-use format. Thank you for your thoughts and comments, as you help us improve the Update with each new issue. M&A REMAINS ALIVE AND WELL Mergers & Acquisitions have long been effective growth engines for businesses operating in the metals sector. While much of the historical activity has been the opportunistic purchases of distressed businesses, most of the recent activity has been the purchase of well-operating businesses that meet the strategic needs of the buyer. While the value of every acquisition has not been reported, this article will review closed deals with a reported dollar value of almost $5 billion and a few more with values that have not been reported or closed. The conclusion is that M&A is very much alive and well. American Axle acquired Metaldyne for $3.3 billion. This acquisition creates one of the largest Tier 1 automotive suppliers: a unique business with broad capability for gray and ductile iron castings, closed die forgings, and specialty machining. Nucor has completed six acquisitions totaling approximately $950 million. Nucor purchased three tubing businesses (Republic Conduit, Southland Tube and Independence Tube) paying EBITDA multiples between 6 and 8 times based on averages of prior years results. These companies will help consume excess HRC capacity at the Company s existing sheets mills and expand its range of products that support the commercial construction market. In addition, Nucor spent $29 million to acquire a steel plate mill in Longview, Texas. This mill will allow Nucor to participate in new segments of the specialty plate market. Finally, Nucor expanded their Blythville, Arkansas, campus by doing a sale leaseback with Russel Metals for C$40 million and added to their joist and decking business by buying the assets of Omega Joist from Samuel, Son & Co. Reliance does not surprise anyone when they complete an acquisition. During 2016, Reliance purchased three companies: Alaska Steel Company, Best Manufacturing and Tubular Steel. While the purchase price of each acquisition was not reported, the Company s 10K did report the total value of acquisitions to be $354 million.

2 PNC METALS INDUSTRY UPDATE 2 M&A REMAINS ALIVE AND WELL (Continued) Steel Dynamics continued their strategy of investing in pull-through volume with their acquisition of Vulcan Threaded Products. As a large producer of threaded rod products, Vulcan will expand SDI s valueadded businesses and provide the opportunity for expanded sales volume for SDI s SBQ business in Pittsboro, Indiana. SDI spent $144 million, including $30 million in working capital. Ryerson continues to actively look for value-added processors to complement their portfolio of businesses. Two such deals have been completed this year including Guy Metals, which processes stainless and nickel alloy products for food and beverage applications, for $35 million and Laserflex, which specializes in laser fabrication of industrial metals, for $25 million. Real Alloy completed an asset purchase and a minority investment of select assets of Beck Alloys and Beck Trading. The total investment was reported to be $24 million. This purchase gives Real Alloy better access to high-purity foundry alloys and prime aluminum. Carpenter Technology has acquired the assets of Puris LLC for $35 million. This purchase takes the place of a planned $20 million strategic capital investment and jump-starts the expansion into titanium powders for additive manufacturing. New Castle Stainless Plate was acquired from Outukumpu (and renamed) by D Orazio Capital Partners for a purchase price of 28 million euros. The plant s senior leadership team becomes minority owners in the new business. Synalloy Corporation,through its subsidiary Bristol Metals, acquired the stainless steel pipe and tube operations of Marcegaglia USA. Synalloy announced the purchase price of $14.95 million. Including the acquisition, the market share for Bristol Metals is approaching 40% with 70 million pounds of manufacturing capacity. TRANSACTIONS WITHOUT DISCLOSED PURCHASE PRICES Purchase prices were not disclosed for much of the first quarter M&A activity. Nevertheless, these were meaningful acquisitions that continued to push forward the strategic direction of the respective firms. In a few cases, they have transformed the business. Zekelman Industries has completed two acquisitions that provided geographic expansion. American Tube Manufacturing in Birmingham, Alabama, will expand the structural tubing operations of Atlas Tube in the southeast. Western Tube & Conduit will extend Zekelman s reach for electrical conduit, fence and mechanical products into the western United States and Canada. When these acquisitions are considered along with the actions of Nucor, the landscape for the tubing markets has changed dramatically in just a few months. Dynacast International expanded its rth American footprint with the acquisition of Signicast, a leading investment casting manufacturer with the capability to produce over 150 alloys, including carbon and alloy steel, stainless, tool steel, nickel and cobalt alloys. While the size of this acquisition was not disclosed, Dynacast did put in place a new financing of $928 million to help execute the purchase. Alter Trading added nine processing facilities to its existing 52 sites with the acquisition of Rockford, Illinois based Behr Iron & Metal. This acquisition works to further strengthen Alter s position in the central United States. Commercial Metals Co. (CMC) purchased seven feeder yards from Omnisource, strengthening their position in the Southeast. These yards will improve CMC s ability to support the scrap needs of the rebar mill located in Cayce, South Carolina. In addition, CMC added to the fabrication business by acquiring Continental Concrete Structures, Inc. (CCS). CCS is a fabricator of post tensioning cable.

3 PNC METALS INDUSTRY UPDATE 3 M&A REMAINS ALIVE AND WELL (Continued) Flack Global Metals has combined with Kenwood Painted Metals in a 100% stock merger. The new business on a combined basis had 2016 annual revenues of $330 million and estimates sales of over $400 million for This transaction expands both geographic reach and product offerings. SB Specialty Metals purchased the assets of Eagle Metals. The addition of the Eagle Metals Elk Grove location expands SB locations to seven service centers across the United States. SB is a leading provider of tool steel and high speed steel in both conventional and powder forms. TRANSACTIONS IN THE WORKS Perhaps of equal interest are three transactions that are in the works but have not yet been completed. These transactions are significant because they will impact the ownership of over 11 million tons of steel-making capacity. U. S. Steel Canada has been operating under CCAA protection since This operation has about 2 million tons of steel-making capacity. It was announced in early vember 2016 that Bedrock Industries Group had reached an agreement to purchase the business subject to court approvals. The closing is thought to be tied up by the lack of an agreement with the local steelworkers union. Algoma Steel has been operating under CCAA protection since As that process works itself out, it is unclear whether Golden Tree and Bain Capital, who are reported to be the two largest secured creditors, will take control of the business. Some are speculating that Algoma and its 4 million tons of steel-making capacity may be liquidated. Ternium SA has entered into an agreement with Thyssenkrupp to purchase their Brazilian-based slab mill. This is the facility that was designed to supply slabs to the Calvert, Alabama, finishing facility that is now a joint venture between ArcelorMittal and Nippon Steel. The slab mill has annual capacity of 5 million tons. The deal includes a 2-million-ton-per-year slab supply agreement with the joint venture. The purchase price has been reported as 1.5 billion euros or approximately 6 times EBITDA. Quite frankly, recent M&A activity didn t seem all that busy until we took the time to add it all up. The value of announced active and closed deals exceeds $6.5 billion. When you add to that the possible consideration for undisclosed transactions, the value is substantially larger. As a result, our conclusion is that not only is M&A alive and well, but it remains an important part of the story in metals. Sources: Financial information based on website and publicly released content.

4 PNC METALS INDUSTRY UPDATE 4 PLATE AND PIPE & TUBE RISE, OTHER DIRECTIONAL MOVES UNCLEAR The pricing dynamic during the first quarter of 2017 feels much different than the minicycles of the last half of Pricing issues seem to be more product-specific with less influence from major moves in overall commodity prices. The exception was for discrete plate and pipe and tube. Pricing increased $100 per ton for the different plate products we track, $130 per ton for OCTG J55 and $170 per ton for ERW line pipe. Otherwise, product pricing just bounced around during the quarter with relatively small percentage changes. Below is the monthly price detail during the quarter. METALS PRICING Carbon Flat-Rolled Steel $/NT Product Jan Feb Mar Hot-Rolled Cold-Rolled Galvanized Discrete Plate $/NT Product Jan Feb Mar A A AR Wide Flange Beam $/cwt. Size Jan Feb Mar 24"x12¾" "x6" MBQ $/cwt. Shape Jan Feb Mar 1" 1018 round Rebar $/cwt. Grade 60 Size Jan Feb Mar 16 mm - # SBQ $/cwt 1 round Grade Jan Feb Mar HR 4140 Q&T Pipe & Tube $/NT Product Jan Feb Mar OCTG J Linepipe, ERW Aluminum $/lb Alloy Jan Feb Mar Stainless $/lb Cold-Rolled Coil Grade Jan Feb Mar Copper $/lb Jan Feb Mar Comex Avg Ferrous Scrap Prices $/GT Midwest Grade Jan Feb Mar. 1 HMS Shredded Nickel $/lb Jan Feb Mar LME Avg The metals market price guide is courtesy of Sector3 Appraisals, Inc., provider of asset valuation and advisory services for ABL lenders, specializing in metals, chemicals and commodities. For more information, contact: Michael Dawson Editor, Market Research mdawson@sector3appraisals.com

5 PNC METALS INDUSTRY UPDATE 5 PRICING FOR PUBLIC NOTES AND BONDS The first quarter saw six new issues come to market for a total of $3 billion. Details on new issues are shown below. During the quarter, we did see a flight to quality. Spreads as measured by the PNC IG Metals Bond Index narrowed by 23 basis points, while spreads as measured by the PNC HY Metals Bond Index widened by 56 basis points. This reverses the trend we saw during the prior quarter that was influenced in part by the Trump Bump. NEW PUBLIC NOTE ISSUES Ferroglobe PLC (B3/B+) $350,000,000 senior unsecured notes, 5-year NC-2 at 9.375% Aleris (B2/B) $50,000,000 add on to senior notes due 2021, priced at 107 to yield 6.954% Cliffs Natural Resources (B3/B) $500,000,000 senior unsecured notes, 8-year NC-3 at 5.575% American Axle & Manufacturing (B2/B) $700,000,000 senior notes, 8-year NC-3 at 6.25% $500,000,000 senior notes, 10-year NC -5 at 6.50% AK Steel (B3/B-) $400,000,000 senior unsecured notes, 10-year NC-5 at 7.00% Glencore Funding (Baa2/BBB) $1,000,000,000 senior unsecured notes, 10-year at 4.00% METALS BOND INDEX* PNC IG Metals Bond Index PNC HY Metals Bond Index As of Date 4/13/17 1/13/2017 Change 4/13/2017 1/13/2017 Change Members Effective Maturity (Years) Composite Rating BBB+ BBB+ none B+ B+ 0 Weighted Avg. Coupon 4.80% 4.79% 0.01% 7.01% 7.64% -0.63% Yield to Worst 3.16% 3.38% -0.22% 7.57% 6.70% 0.87% Option Adjusted Spread to Treasuries (bps) *Index members are market-value weighted. Source: Bloomberg

6 PNC METALS INDUSTRY UPDATE 6 SYNDICATED BANK LOAN FINANCING The bank market began 2017 with improved results when compared to Q Q has more deals (12 vs. 7) and more volume ($4.0 billion vs. $2.41 billion). The single largest deal was a $928 million financing done by Dynacast to support their acquisition of Signacast. The next largest transaction was Zekelman s $921 million TLB, which was a repricing of a previous issue and a $100 million increase to help finance two acquisitions. Below are details for some of the past quarter s transactions. Source: Thomson Reuters, LPC Date: Deal Size: Facility Type: Maturity: Purpose: Ratings: S&P Moody's Pricing at close (bps): All-in Spread LIBOR Margin Commitment Fee Pricing Grid: Financial Covenants: Max. Debt to Capitalization Min. Interest Coverage Secured: Carpenter Technology Corporation Debt Rating $400,000,000 Revolver (Corp. Fam. / Sr. Unsecured) BBB- / BBB- Ba2 / Ba LIBOR Spread: BBB+/Baa LIBOR Floor: 1% BBB/Baa OID: 100 BBB-/Baa Call Protection: BB+/Ba BB/Ba $180,000,000 ABL Revolver Wise Alloy LLC $200,000,000 ABL Revolver September / LIBOR Spread 55% 3.50x Comm. Fee EMR Inc Flack Steel LTD $105,000,000 Revolver Exal Corp $55,000,000 / $170,000,000 Revolver / Term Loan / / - rth American Stainless Inc February-17 $150,000,000 Revolver February NLMK Pennsylvania Corp February-17 $250,000,000 ABL Revolver February Zekelman Industries January-17 $921,000,000 Term Loan B June-21 1 (Corp. Fam. / Sr. Secured) B+ / B B2 / Caa Term Loan B Pricing 101 soft call 6 months Covenant-Lite 1 Jan-17 transaction represented a repricing of The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. The newsletter you read was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and does not purport to be comprehensive. Under no circumstances should any information contained in this newsletter be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. The opinions expressed in this newsletter are not necessarily the opinions of PNC Bank or any of its affiliates, directors, officers or employees. PNC is a registered mark of The PNC Financial Services Group, Inc. ( PNC ) The PNC Financial Services Group, Inc. All rights reserved. PNC Bank, National Association. Member FDIC CIB ENT PDF