The negative rating action was motivated by the continuing deterioration of the company's financial strength due to its tremendous loan debt exceeding 7.8 billion US dollars. Furthermore, being saddled with heavy debts, Mechel posted 9-month net consolidated operating loss of 1,218 million US dollars, its consolidated revenue shrinking by almost 25%. As a result, the Company's retained loss on its consolidated balance sheet soared almost 4 times exceeding 1,650 million US dollars. 

For three quarters of 2014, Mechel OAO's consolidated assets decreased by 17.4%, the company's equity capital going below zero for the first time in five years in the fourth quarter 2014 (-221 million US dollars). Although the company managed to reduce consolidated debt by almost 1,146 million US dollars (12.7%) for 9 months of 2014, the Company remains excessively indebted.

The adverse market conditions for the Company's business on the short-term horizon is aggravating the high debt burden on Mechel OAO.

In AK&M Rating Agency's view, the opportunities for the Company to settle its debt without restructuring and change of ownership are almost entirely gone, as proven by the hard line of Mechel's principal lenders in this respect. VTB and Sberbank are filing claims to courts seeking to recover debts on the loans provided, insisting that a substantial part of Mechel OAO shares belonging to the majority shareholder be transferred to them in exchange for debt relief, which is indirectly proven by the majority owner's actions – obviously taken without seeking prior approval of the creditors – to reduce the equity stake in Mechel OAO.

Mechel OAO founded 2003 is one of the largest mining and metallurgical companies in Russia and worldwide. The Company is on the list of the backbone enterprises of Russia. Mechel OAO is a vertically integrated holding comprising four business segments (mining, metallurgical, ferroalloy industry and power engineering) with production assets in Russia and abroad. The Company's mining enterprises produce and sell coal, iron-ore concentrate and coke. Mechel's metallurgical companies are engaged in the production and sale of steel, rolled metal products, cast iron, and metal goods. The ferroalloy unit specializes in the production of ferrosilicon, ferrochrome and nickel. The group also owns commercial ports, as well as marketing, transport and power companies. At the beginning of Q4 2014, Mechel's US GAAP assets exceeded USD 11.3 billion.

Official Company name: Mechel OAO.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC Analysis, Consulting and Marketing Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

CJSC AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

www.akmrating.ru

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.