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02 Sep 2009
Up to USD 750 million in debt securities affected
Sao Paulo, September 02, 2009 -- Moody's Investors Service has assigned a Ba1 foreign currency rating to
the proposed issuance of up to USD 750 million in senior unsecured notes
due 2019 by CSN Islands XI Corporation (Cayman Islands), to be unconditionally
and irrevocably guaranteed by Companhia Siderúrgica Nacional ("CSN").
The rating of the notes is not constrained by Brazil's foreign currency
country ceiling of Baa3, currently under review for possible upgrade.
The net proceeds from the proposed issuance will be used to refinance
maturing debt and for general corporate purposes.
Simultaneously, Moody's has assigned corporate family ratings
of Ba1 on the global scale and Aa1.br on the Brazilian national
scale to CSN, with a stable outlook. All existing ratings
were affirmed. The outlook for all ratings is stable.
Ratings assigned are as follows:
- Issuer: CSN Islands XI Corporation
Up to USD 750 million Senior Unsecured Notes Due 2019 Guaranteed by CSN:
Ba1 Foreign Currency Rating
- Issuer: Companhia Siderúrgica Nacional -- CSN
Corporate Family Rating: Ba1 (global scale), Aa1.br
(Brazilian National Scale)
Ratings affirmed are as follows:
- Issuer: CSN Islands VIII Corporation
USD 550 million Senior Unsecured Notes Due 2013 Guaranteed by CSN:
Ba1 Foreign Currency Rating
- Issuer: CSN Islands IX Corporation
USD 400 million Senior Unsecured Notes Due 2015 Guaranteed by CSN:
Ba1 Foreign Currency Rating
Outlook for all ratings: stable
The rating of the proposed notes and the stable outlook assume 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.
CSN's Ba1 rating reflects its 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 40% range,
supported by its solid domestic market position and globally competitive
production costs. CSN's operational efficiency and low costs reflect
the large scale of its integrated steel mill, its own captive iron
ore mine and its self-sufficiency in electricity and 75%
self-sufficiency in coke. Also supporting CSN's high margins
are the company's strategic location in the most industrialized region
of Brazil and its proximity to high-grade iron ore reserves and
port terminals, as well as its efficient logistics. While
we believe that the company is better-positioned than most of its
global peers to face the ups and downs of the cyclical steel industry
from an operational standpoint, as demonstrated by its EBITDA margin
in the low 30% range during the first half of 2009 under extremely
unfavorable market conditions, CSN's ratings are primarily constrained
by its track record of aggressive shareholder return, low operational
diversity, with the concentration of its steel production at a single
site, and by the event risk from its large capex program to expand
iron ore mining, cement and logistics operations.
Following the sale of a 40% interest in Nacional Minérios
S,.A. -- Namisa, CSN's cash position increased
significantly. While part of the cash was used in the second quarter
of 2009 mostly to pay BRL 1.7 billion dividends and for additional
BRL 0.7 billion legal deposit related to the IPI tax contingency,
liquidity remained strong based on a cash position of BRL 6.1 billion
as of June 30, 2009 comfortably covering short-term adjusted
debt of BRL 3.4 billion (including refinanced taxes and pension
liabilities). Although CSN does not have committed credit facilities
in place, similar to the majority of Brazilian issuers, CSN's
liquidity position is supported by its funding sources with BNDES (Brazilian
Development Bank) and pre-export financing based on its large amount
of unencumbered exports after 2009. Moody's believes that CSN will
maintain its prudent liquidity management during the ongoing investment
program. We note that CSN does not have financial covenants on
its debt, which increases financial flexibility. We expect
CSN's debt maturity profile to improve following the issuance of
the proposed notes.
While the Ba1 global scale rating reflects the default and loss expectation
of CSN on a global basis, the Aa1.br national scale rating
reflects the standing of its credit quality relative to other domestic
issuers. National Scale Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs in Brazil are designated by the ".br" suffix. NSRs
differ from global scale ratings in that they are not globally comparable
to the full universe of Moody's rated entities, but only with other
rated entities within the same country.
The stable outlook reflects Moody's expectation that CSN will continue
to report healthy, although lower, operating margins in the
coming quarters in spite of depressed prices and lowered demand for steel
and iron ore globally, reflecting the high level of vertical integration
of its operations. While we anticipate a deterioration in leverage
metrics by virtue of weakened cash flow, we expect CSN will manage
to maintain Consolidated Net Debt to EBITDA below 2.5x (considering
a minimum readily available liquidity cushion of USD 1.5 billion)
and robust liquidity position.
CSN's ratings could be upgraded if the company maintains its high
margins relative to the industry during the current global economic downturn,
a strong liquidity position and moderate leverage during the execution
of its large capex program, with Net Debt (considering a minimum
readily available liquidity cushion of USD 1.5 billion) to EBITDA
below 1.8x. Sustainable Cash From Operations less Dividends
to Net Debt of above 25% would also be necessary for an upgrade.
Conversely, the rating or outlook could be downgraded if CSN's operating
margins and net profits weakened significantly and dividends remain high,
resulting in CFO less Dividends to Net Debt consistently below 15%
or in the case of a substantive deterioration of its liquidity position,
with an inability to cover short term debt with readily available liquidity
and free cash flow. Downward pressure could also affect the ratings
or outlook if Consolidated Net Debt (considering a minimum readily available
liquidity cushion of USD 1.5 billion) to EBITDA remains above 2.5x
for an extended time period. A significant increase in consolidated
secured debt or in debt benefiting from claim priority could negatively
affect the rating or outlook of CSN's senior unsecured debt.
Moody's last rating action on CSN occurred on December 18, 2008
when we changed the rating outlook for its backed notes to stable from
positive reflecting the negative outlook for the global steel industry,
and affirmed the Ba1 senior unsecured long term debt ratings of the notes.
The principal methodology used in rating CSN was Moody's Global Steel
Industry rating methodology, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory (January 2009). Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found in the Credit Policy & Methodologies directory.
Companhia Siderúrgica Nacional is a vertically integrated,
low-cost producer of flat-rolled steel, with an annual
capacity of 5.6 million tons of crude steel and 5.1 million
tons of rolled products. CSN also produces and sells iron ore and
cement. In the twelve months ended on June 30, 2009 CSN recorded
consolidated net revenues of BRL 12.3 billion (USD 5.9 billion
converted using the average exchange rate).
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Moody's assigns Ba1 rating to CSN's notes
Corporate Finance Group
Moody's Investors Service
No Related Data.
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