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05 Feb 2018
New York, February 05, 2018 -- Moody's Investors Service ("Moody's") assigned a B3 rating to the proposed
senior unsecured notes that will be issued by CSN Resources S.A.
and fully guaranteed by Companhia Siderurgica Nacional S.A.
- CSN (CSN). Net proceeds will be used for liability management,
primarily the tender offer for the 2019 and 2020 senior unsecured notes,
which together have a total amount outstanding of USD 1.95 billion.
The outlook is stable.
The rating of the notes assumes that the final transaction documents will
not be materially different from draft legal documentation reviewed by
Moody's to date and that these agreements are legally valid, binding
- Issuer: CSN Resources S.A. (Luxembourg)
Proposed senior unsecured notes: B3
CSN's B3 ratings reflect primarily the conclusion of the refinancing
of CSN's bank debt with Banco do Brasil S.A. ("BB",
Ba2 negative) and the expectation that the company will conclude the refinancing
of its maturities with Caixa Economica Federal (CAIXA) ("CEF",
Ba2 negative) soon. Together, both banks hold a substantial
portion of CSN' bank debt (about BRL 14 billion or 48% of
the total reported debt). The debt refinancing removes more immediate
liquidity pressures and allows CSN to focus on additional measures to
address the upcoming debt maturities. At the end of September 2017,
about 75% of CSN's BRL 29 billion in reported debt was due
in the 2018-2020 period.
In this context, proceeds from the proposed bond issuance will be
mainly used for liability management purposes. On February 1,
2018, CSN has announced that its subsidiary CSN Resources has commenced
a tender offer for the 6.875% senior unsecured notes due
2019 issued by CSN Islands XI Corporation (USD 750 million outstanding)
and for the 6.5% senior unsecured notes due 2020,
issued by CSN Resources S.A. (USD 1.2 billion outstanding),
for an aggregate amount of USD 750 million. Accordingly,
the proposed notes and the tender offer will not have any material effect
on CSN's leverage but will allow the company to lengthen its debt maturity
schedule and increase its financial flexibility.
The ratings incorporate the company's position as a leading manufacturer
of flat-rolled steel in Brazil, with a favorable product
mix focused on value-added products. Historically,
the company has reported a strong EBITDA margin (as defined by Moody's)
in the 20-30% range, supported by its solid domestic
market position, wide range of products through different segments
and globally competitive production costs both in steel and iron ore.
The B3 ratings incorporate the expectation that credit metrics will gradually
improve in the next 12 to 18 months, supported by a steady recovery
in Brazil's steel industry, and the company will be able to
generate positive free cash flows through 2019.
However, the ratings continue to reflect its weakened credit metrics,
namely high leverage, low interest coverage and deteriorated cash
flow metrics. CSN's unsustainable capital structure remains
an important constraint to the ratings. Despite the debt refinancing
that addresses short to medium-term maturities and the expected
improvement in cash flows, leverage (gross debt to EBITDA) will
remain in the 4.5x to 5.5x range until 2019. CSN
will need to rely on asset sales or a capital increase to be able to reduce
debt levels in a more meaningful magnitude.
The stable outlook reflects our expectations that CSN's will be
able to conclude the debt refinancing with CEF and that liquidity will
remain adequate to service its debt obligations. It also reflects
our expectation that market conditions for steel producers in Brazil will
gradually recover, allowing CSN to direct cash flows from operations
to reduce debt levels.
An upward rating movement would require additional improvements in liquidity
profile and recovery in operating performance. An upgrade would
also be dependent on further adjustments in CSN´s capital structure,
with total leverage trending towards 4.5x total adjusted debt to
Ebitda and interest coverage ratios (measured by EBIT to Interest expenses)
above 2.0x on a sustainable basis.
The ratings would suffer additional negative pressure if the company is
not able to conclude the debt refinancing with CEF, and its liquidity
position deteriorates, reducing CSN's ability to address upcoming
debt maturities, in particular the 2019 and 2020 bonds. The
ratings could be downgraded if performance over the next 12 to 18 months
does not improve such that leverage does not moderate to at least 5.5x
and EBIT/interest remains below 1.5x.
The principal methodology used in this rating was Steel Industry published
in September 2017. Please see the Rating Methodologies page on
www.moodys.com for a copy of this methodology.
With an annual capacity of 5.9 million tons of crude steel,
Companhia Siderúrgica Nacional S.A. - CSN
("CSN") is a vertically integrated, low cost producer
of flat-rolled steel, including slabs, hot and cold
rolled steel, and a wide range of value-added steel products,
such as galvanized sheet and tinplate. In addition, the company
has downstream operations to produce customized products, pre-painted
steel and steel packaging. CSN sells its products to a broad array
of industries, including the automotive, capital goods,
packaging, construction and home appliance sectors. CSN owns
and operates cold rolling and galvanizing facilities in the U.S.
and Portugal, along with long steel assets in Germany through its
subsidiary Stahlwerk Thüringen GmbH (SWT). The company also
has a long steel line (500,000 tons capacity) in the Volta Redonda
plant. CSN reported revenues of BRL 18 billion (USD 5.6
billion) in the last twelve months ended in September 2017.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Barbara Mattos, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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