Fitch Affirms Kennametal Senior Unsecured Debt at 'BBB-'.

Business Editors

CHICAGO--(BUSINESS WIRE)--April 1, 2003

Fitch Ratings has affirmed its rating of 'BBB-' for Kennametal Inc.'s senior unsecured debt. The rating affects $300 million of debt securities. The Rating Outlook is Negative.

The rating incorporates Kennametal's leading market positions, conservative financial policies and stable cash flow as well as concerns about reduced EBITDA that has resulted from continuing weakness in the company's cyclical end markets of which approximately 20% is automotive related. The company's recent announcement of a recent sharp drop-off of demand in Europe and North America confirms uncertainties related to the worldwide economy and the war in Iraq. The lack of visibility surrounding volatile end-market demand reinforces the possibility that credit metrics will continue to be weak for the rating. Supporting the rating is Kennametal's history of solid free cash flow, progress integrating Widia, and the issuance of debt and equity in 2002. The issuance demonstrated Kennametal's access to the capital markets and improved its financial flexibility by reducing reliance on revolving bank debt. In addition, ongoing restructuring efforts, expected to be substantially completed by the end of calendar 2003, have reduced Kennametal's costs and can be expected to strengthen EBITDA margins, although margins can be expected to remain below historical levels while end markets are still weak. Cash flow has benefited from disciplined capital expenditures and working capital management and should be adequate to further reduce debt even in the event of further economic weakness. While improved credit protection measures could be delayed by adverse economic conditions, Fitch believes that, over the long term, Kennametal will remain focused on strengthening its credit profile.

The integration and financial performance of Widia has progressed as initially forecast with Widia being folded into Kennametal in February, 2003. Cost savings could be higher than Kennametal's original forecast although recent weaker-than-anticipated demand in Europe could potentially offset some of the cost benefits in the short run. These cost savings will be essential to bringing Widia's margins in line with the rest of Kennametal and helping to maintain overall margin improvement and the capacity to generate cash flow needed to reduce debt and leverage over the long term.

Kennametal's net proceeds of approximately $116 million from the issuance of equity in June, 2002 was equivalent to more than two-thirds of the purchase price for Widia and moderated the acquisition's impact on leverage. Still, total adjusted debt/EBIDTA of 3.8 times (x) (including the receivables program) for the most recent 12 months ended December 31, 2002 was above the levels of recent years but should decline as EBITDA benefits from ongoing restructuring, both at Kennametal's existing operations and at Widia. Debt issuance of $300 million, also in June of 2002, was well received and represented the company's first issuance of public debt. The debt, which matures in 2012, allowed Kennametal to reduce the borrowings under its bank revolver and strengthen its liquidity position. No major acquisitions are anticipated as Kennametal focuses on reducing leverage, and any asset sales would likely be used to pay down debt. The Negative Outlook could be revised to Stable once favorable trends become evident in end-market demand and in the operating performance at Widia.