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Rating Action:

Moody's assigns Ba1 rating to CSN's notes

 The document has been translated in other languages

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).

Sao Paulo
Richard Sippli
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
55-11-3043-7300

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba1 rating to CSN's notes
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