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Rating Action:

Moody's assigns B1 rating to U.S. Steel's unsecured notes offerings; outlook stable

20 Mar 2013

Approximately $500 million in new debt rated

New York, March 20, 2013 -- Moody's Investors Service ("Moody's") assigned a B1 rating to each of the proposed $250 million senior unsecured convertible notes due 2019 and $250 million senior unsecured notes due 2021 being offered by United States Steel Corporation (U.S. Steel). The notes will be issued under the company's well-known seasoned issuer shelf registration ("WIKSI"), (rated (P)B1 for senior unsecured debt securities. At the same time, Moody's affirmed U.S. Steel's Ba3 corporate family rating, Ba3-PD probability of default rating and B1 rating on its outstanding senior unsecured notes. The SGL-2 Speculative Grade Liquidity Rating remains unchanged. The rating outlook is stable.

The company intends to use the net proceeds for debt repayment, focusing on near-term maturities, and for general corporate purposes.

..Issuer: United States Steel Corporation

....Senior Unsecured Conv./Exch. Bond/Debenture, Assigned B1, LGD4, 65%

....Senior Unsecured Regular Bond/Debenture, Assigned B1, LGD4, 65%

Affirmations:

..Issuer: United States Steel Corporation

.... Probability of Default Rating, Affirmed Ba3-PD

.... Corporate Family Rating, Affirmed Ba3

....Senior Unsecured Conv./Exch. Bond/Debenture May 15, 2014, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Jun 1, 2017, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Jun 1, 2037, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Feb 1, 2018, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Apr 1, 2020, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Mar 15, 2022, Affirmed B1

....Senior Unsecured Shelf Feb 14, 2016, Affirmed (P)B1

..Issuer: Allegheny County Industrial Dev. Auth., PA

....Senior Unsecured Revenue Bonds Nov 1, 2016, Affirmed B1

....Senior Unsecured Revenue Bonds May 1, 2017, Affirmed B1

....Senior Unsecured Revenue Bonds Nov 1, 2024, Affirmed B1

....Senior Unsecured Revenue Bonds May 1, 2030, Affirmed B1

....Senior Unsecured Revenue Bonds Dec 1, 2027, Affirmed B1

....Senior Unsecured Revenue Bonds Dec 1, 2027, Affirmed B1

....Senior Unsecured Revenue Bonds Aug 1, 2042, Affirmed B1

..Issuer: Bucks County Industrial Development Auth., PA

....Senior Unsecured Revenue Bonds Jun 1, 2026, Affirmed B1

..Issuer: Fairfield (City of) AL, I.D.B.

....Senior Unsecured Revenue Bonds Jun 1, 2015, Affirmed B1

..Issuer: Gulf Coast Waste Disposal Authority, TX

....Senior Unsecured Revenue Bonds Sep 1, 2017, Affirmed B1

..Issuer: Indiana Finance Authority

....Senior Unsecured Revenue Bonds Dec 1, 2019, Affirmed B1

....Senior Unsecured Revenue Bonds Dec 1, 2026, Affirmed B1

....Senior Unsecured Revenue Bonds Aug 1, 2042, Affirmed B1

..Issuer: Lorain County Port Authority, OH

....Senior Unsecured Revenue Bonds Dec 1, 2040, Affirmed B1

..Issuer: Ohio Air Quality Development Authority

....Senior Unsecured Revenue Bonds Nov 1, 2015, Affirmed B1

..Issuer: Ohio Water Development Authority

....Senior Unsecured Revenue Bonds May 1, 2029, Affirmed B1

..Issuer: Southwestern Illinois Development Authority

....Senior Unsecured Revenue Bonds Aug 1, 2042, Affirmed B1

..Issuer: Utah (County of) UT

....Senior Unsecured Revenue Bonds Nov 1, 2015, Affirmed B1

RATINGS RATIONALE

The Ba3 corporate family rating reflects U.S. Steel's position as a major steel producer with a good diversity of products serving a number of end users. It also recognizes that performance will fluctuate quarterly given the composition of the company's fixed price contracts and spot sales leading to inter reporting period volatility. The company's good liquidity position provides further support to the rating.

However, the rating also reflects the weak metrics exhibited by the company and our view that the return to stronger pre-recession metrics will be slow and erratic and will only trend slowly upward over the next 12 to 18 months. We expect that operating performance and debt protection metrics will remain constrained over this time horizon for the following principal reasons: 1) the remaining European operations (after the sale of USSS) will continue to be challenged given the weakness in the European markets, concerns over sovereign debt issues and banking issues, and volatile raw material costs given that these operations are not self sufficient for all inputs; 2) flat rolled performance in the US will remain under pressure due to range bound price levels, over capacity in the market and steady but relatively soft demand, and 3) performance in the tubular segment, already facing headwinds from slowing drilling activity, will not be sufficient to offset the vulnerabilities in the other key segments. Notwithstanding these near-term challenges, we recognize that operating performance will benefit over time from the January 2012 sale of the U.S. Steel Serbia (USSS) loss making subsidiary and recent declining trends in raw material prices, particularly iron ore and coking coal. However, the compression on realized steel prices is likely to overshadow any benefit from reduction in the price of key input materials.

The rating also incorporates our view that recovery in the steel industry over the longer term will continue to be choppy but that conditions will not fall to recessionary levels experienced in late 2008 and 2009. The company's ability to continue to maintain a solid liquidity profile, including a strong cash position will be an important factor in the rating as the industry only slowly continues to recover.

Although the loss drag on U.S. Steel's earnings evidenced in prior years has been mitigated by the sale of USSS to the Serbian government, we anticipate that overall operating performance will not evidence significant improvement over the next 12 to 18 months given unfavorable steel industry dynamics, including softness in the company's remaining European operations and lingering industry-wide overcapacity. Revenues and profits will experience continued pressure from relatively weak steel prices and a protracted return to more robust demand levels. Therefore, during this period, we expect that debt protection metrics will show limited improvement, and could weaken from current levels with debt-to-EBITDA trending above 4.3 times and EBIT-to-interest below 2.0 times. These ratios remain on the weak side for a Ba rating under Moody's Global Steel Methodology.

The SGL-2 speculative grade liquidity rating reflects our expectations of good liquidity over the next four quarters with U.S. Steel likely reporting positive free cash flow assuming steel prices were to trend at the $650/ton range at a minimum. However, working capital requirements could increase in advance of earnings generation if steel industry fundamentals improve and prices increase; however, we believe the company's liquidity profile can support such positive upward movement. Furthermore, liquidity is supported by cash balances of $570 million at December 31, 2012, an $875 million inventory-based facility (ABL) expiring in July 2016 and a $625 million Accounts Receivable facility expiring in July 2014. In addition the company has facilities supporting its European operations including a EUR 200 million unsecured credit facility expiring August 2013 at its U. S. Steel Kosice (USSK) subsidiary. We expect that there could be some usage from time to time under the domestic facilities to support seasonal working capital requirements.

The stable outlook reflects our view that the company's operating performance, and consequently its debt protection metrics, will not deteriorate meaningfully in the next 12 to 18 months notwithstanding our expectations for prolonged weakness in the steel industry. U.S. Steel's position in the automotive industry, mix of spot and contract sales, some of which have a lag impact on quarterly performance, divestment of USSS, and tubular position should continue to support performance.

The B1 rating on U.S. Steel's senior unsecured debt reflects the junior position of these instruments to the company's ABL and priority accounts payables.

The rating could be downgraded if conditions in key areas such as tubular and automotive deteriorate and debt protection measures weaken meaningfully from current levels such that debt/EBITDA remains greater than 6.0 times and EBIT/interest less than 1.0 times. In addition, a material contraction in the company's liquidity position could have a negative impact on the rating.

Given where the company's key metrics are relative to its rating and the challenging operating environment for the broader steel sector, it is unlikely that there could be an upward rating movement in the next 12 to 18 months. The ratings could be upgraded should economic conditions in the US and Europe strengthen to the point that higher demand levels across the company's business units results in a sustainable debt/EBITDA ratio of 3.0 times and an EBIT/interest ratio of 2.5 times as well as maintenance of solid liquidity.

The principal methodology used in this rating was the Global Steel Industry Methodology published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Pittsburgh, Pennsylvania, United States Steel Corporation (U.S. Steel) is the second largest flat-rolled steel producer in North America in terms of production capacity. The company manufactures and sells a wide variety of steel sheet, tubular and tin products across a broad array of industries, including service centers, transportation, appliance, construction, containers, and oil, gas and petrochemicals. Through its major production operations in North America and Central Europe, U.S. Steel has a combined annual raw steel capacity of approximately 29 million tons. Firm contract and index based sales accounted for approximately 68% of domestic flat rolled shipments in 2012. Total consolidated shipments of 21.7 million tons for the fiscal year ending December 31, 2012 were down 2.6% versus fiscal 2011. Revenues for fiscal 2012 were approximately $19.3 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Carol Cowan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B1 rating to U.S. Steel's unsecured notes offerings; outlook stable
No Related Data.
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