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22 Nov 2002
MOODY'S ASSIGNS PRIME-2 RATING TO ARCELOR FINANCE; CONFIRMS Baa2 LONG TERM SENIOR UNSECURED RATINGS FOR ARCELOR GROUP, OUTLOOK STABLE.
Approximately $2.0 Billion of Debt Securities Affected.
Frankfurt, November 22, 2002 -- Moody's Investors Service today assigned a Prime-2 short term rating
to Arcelor Finance SCA for its Euro 2 billion Billet de Tresorerie (Commercial
Paper) program, which will replace Usinor's Euro 1.5 billion
Billet de Tresorerie Program (rated Prime-2). At the same
time, the rating for the Euro 600 Mio Eurobond due in 2008 of Usinor
was confirmed after the announcement of the planned transfer of the bond
from Usinor to Arcelor Finance. The Baa2 rating for Usinor's US$
300 Mio Yankee Bond due in 2006 was also confirmed in anticipation of
near term measures to ensure, that these bonds will benefit from
the full credit of the Arcelor group. The Baa2 rating for Usinor's
largely exchanged convertible Eurobond due in 2006 was withdrawn.
The outlook for the ratings is stable.
The ratings reflect Arcelor's strong European positioning and diversification
within the steel sector, expected further performance improvements
as a result of price increases and realization of synergies and cost cutting,
which are to be achieved by further integration of the three predecessor
companies. Management's focus on debt reduction and the progress
achieved in centralizing the group's debt structure are also factored
into the rating. Concerns remain regarding the state of the steel
industry with continued over-capacities, soft demand trends,
rising scrap costs as well as a potential for renewed weakening in steel
prices. Over the longer term, pressures from steel producers
in lower cost countries and a prolonged softening in industry trends could
lead to additional restructuring needs, legacy costs and asset write-offs,
which could weaken Arcelor's financial profile.
Today's rating action reflects Arcelor's recent steps to centralize its
debt structure and ensure common credit quality and pari-passu
ranking of debtors within the group. Moody's notes that Arcelor
Finance, the issuer of the new CP program and the proposed new issuer
of the EURO 600 Mio Eurobond (2008) will function as the group's main
financing company going forward supported by the full liability of the
four central group companies. Moody's understands that management
plans to centralise the group's financing structure to reduce remaining
structural subordination issues to a moderate extent capping subsidiary
borrowing at maximum of 20% of group debt.
With regards to the legal structure of Arcelor Finance, Moody's
believes that the company is a limited partnership with shares ("societe
en commandite par actions") incorporated in Luxembourg with four fully
liable partners, Arcelor SA, the ultimate holding company,
and the three amalgamation partners Usinor, Arbed and Aceralia.
Moody's notes that the four partners are jointly, severally and
indefinitely liable for any debts of Arcelor Finance, that cannot
be satisfied by Arcelor Finance and for which a notification to pay has
been received from the creditor. In the unexpected case,
that a partner should leave the partnership, he would continue to
be liable for any debts incurred during the time he was a partner.
In terms of ranking, it is Moody's understanding that the corporate
liability for Arcelor Finance should rank pari-passu with debt
of the individual partners, namely Arcelor, Aceralia,
Arbed and Usinor. Any debt, which is issued individually
by any of the four partners and is supported by a guarantee from Arcelor
Finance, would also benefit indirectly from the full liability of
the three other partners. Based on the above, Moody's expects
structural subordination issues to remain soley with regards to debt raised
by operating subsidiaries of the partners. Upon completion of the
centralization and reorganization of Arcelor's debt, such subsidiary
borrowings should remain moderate as a percentage of group debt.
Arcelor's liquidity situation is supported by the company's policy to
cover all funding needs by committed financing instruments and keep sufficient
headroom available under committed credit lines or cash to cover refinancing
needs under the CP program. The group is currently in the process
to negotiate the transfer of a significant part of its financing agreements
to the new Arcelor Finance entity. It is Moody's expectation that
the new loan agreements would provide sufficient headroom and flexibility
in its covenant structure and not expose the company to confidence sensitive
The stable outlook for the ratings is based on Moody's expectations that
announced price increases in flat carbon will support the group's profit
development over the next quarters and help offset weakening trends in
stainless steel and margin pressures in long products reflecting higher
scrap prices. In addition, further efficiency and performance
improvements are expected from tight cost management and further synergies
to be realized in relation with the merger. Furthermore,
Moody's expects the group's debt reduction efforts to continue sourced
by improved working capital management and operating cash flow generation
in order to increase the group's flexibility going forward.
Arcelor is the world's largest steel group with leading market positions
in flat carbon steel and stainless steel. The group generated annual
pro-forma sales of Euro 27 billion in 2001 and has nearly 108,000
Senior Vice President
European Corporates Group
Moody's Deutschland GmbH
+49 69 707 30 700
Vice President - Senior Analyst
European Corporates Group
Moody's Deutschland GmbH
+49 69 707 30 700
No Related Data.
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