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05 Apr 2019
New York, April 05, 2019 -- Moody's Investors Service ("Moody's") assigned a B3 rating to the $750
million proposed senior unsecured notes due up to 7 years to be issued
by CSN Resources S.A. and unconditionally guaranteed by
Companhia Siderurgica Nacional (CSN) (B3 stable). The outlook is
The proposed issuance is part of CSN's liability management strategy and
proceeds will be used to fund a tender offer of $750 million for
CSN's notes maturing in 2019 and 2020.
The rating of the proposed notes assumes that the final transaction documents
will not be materially different from draft legal documentation reviewed
by Moody's to date and assume that these agreements are legally valid,
binding and enforceable.
Issuer: CSN Resources S.A.
- $750 million Gtd Senior Unsecured Notes due up to 7 years:
B3 (global scale)
The outlook is stable.
CSN's B3 ratings reflect 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 Moody's adjusted EBITDA margin at 20%-30%
(20% in 2018), supported by its solid domestic market position,
wide range of products through different segments and globally competitive
production costs in both steel and iron ore.
However, the ratings are constrained by the company's unsustainable
capital structure and weakened credit metrics, namely, high
leverage, low interest coverage and deteriorated cash flow metrics.
Despite the company's debt refinancing efforts that addressed short to
medium-term maturities and the expected improvement in cash flows,
gross debt to EBITDA will remain in the 4.5x to 5.5x range
until 2019 (6.3x in 2018). Accordingly, CSN relies
on asset sales or a capital increase to be able to reduce debt levels
in a more meaningful magnitude.
Since the beginning of 2018, CSN has pursued several initiatives
to address its short-term debt and improve liquidity, including
(i) debt renegotiations with Banco do Brasil S.A. and Caixa
Economica Federal (CAIXA) — collectively BRL14 billion and equal
to 47% of CSN's total reported debt; (ii) a $350 million
bond issuance; (iii) the refinancing of BRL1.0 billion in
debt due in 2019 with Banco Santander (Brasil) S.A.;
(iv) a BRL1.95 billion issuance of debentures due in 2023;
and (v) an iron ore prepayment deal of $500 million.
The proposed transaction is part of CSN's liability management strategy
and proceeds will be used in a tender offer mainly for CSN's outstanding
notes due 2019 and 2020, thus lengthening the company's debt amortization
schedule. Pro forma to the proposed transaction and to the iron
ore prepayment deal concluded in February 2019, CSN's cash position
of BRL5.0 billion will cover short term debt maturities of BRL3.3
billion by 1.5 time, compared to a 1.0 time coverage
at the end of 2018 (considering only the iron ore prepayment).
Despite the improvement, CSN will still have sizeable debt maturities
of approximately BRL9 billion in 2020-21. Accordingly,
the company will need to keep pursuing additional alternatives to reduce
liquidity pressures and leverage.
Besides all the transactions announced by CSN to date, the company
is also contemplating additional liquidity events such as a roughly $1
billion iron ore stream deal and the sale of assets, namely its
long steel assets in Germany. If the company is able to refinance
the majority of its notes due 2019 and 2020 with the proposed issuance,
and announces any of these additional liquidity events, CSN would
achieve a material gross debt reduction and a sustainably enhanced liquidity
profile, which would support an improvement in its credit quality.
The stable outlook reflects our expectations that CSN's 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 (1.4x in 2018).
The ratings would suffer additional negative pressure if the company's
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.
With an annual capacity of 5.9 million tons of crude steel,
Companhia Siderurgica Nacional (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 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 22.9
billion ($6.3 billion) in 2018.
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.
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.
Asst Vice President - Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
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JOURNALISTS: 800 891 2518
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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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