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