May 4, 2009 / 1:28 PM / 9 years ago

UPDATE 2-Russel Metals ups credit facility; shares rise

* Increases credit available to C$252.5 mln

* Amended facility expires in April 2011

* Shares rise 11 percent (Adds analyst comments, updates share movement)

BANGALORE, May 4 (Reuters) - Canadian metals distributor Russel Metals Inc (RUS.TO) said it amended its credit facility, raising the borrowing limit to C$252.5 million and allowing it to pay a dividend.

The amendment also provides for an adjustment to earnings used in the fixed charge coverage ratio for up to $200 million of non-cash inventory write-downs, it said in a statement.

The company said it expects an inventory write-down for a portion of the $200 million in the first quarter of 2009, but does not expect utilizing the adjustment to the fixed charge coverage ratio until the second half of the year.

Russel Metals is required to maintain a fixed charge coverage ratio of 1.1 to 1, which is measured at the end of each quarter.

The amendments provide sufficient liquidity to allow it to pay a dividend and manage its operations through this business cycle, Chief Financial Officer Marion Britton said.

The amended loan facility expires on April 29, 2011.

“(The amendment) certainly takes a bit of worry out of the market,” Fraser Mackenzie analyst John Safrance told Reuters.

The increase will allow them to take delivery of some tubular goods inventory, which has shown some softness in early 2009, and pay 2008 year-end bonuses while meeting its dividend obligation, Safrance added.

Analyst Safrance expects the writedown will probably be somewhat larger than what the market currently anticipates.

The analyst, who has a “buy” rating on the stock, said steel producers in North America are taking measures required to protect their balance sheets and ultimately emerge from this reasonably well.

“However, there is still a bit of pain to go before we can start to see the industry rebound,” Safrance said.

Russel Metals shares were up C$1.23 at C$14.08 in afternoon trade Monday on the Toronto Stock Exchange.

$1=1.179 Canadian Dollar Reporting by Isheeta Sanghi; Editing by Anne Pallivathuckal and Gopakumar Warrier

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