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I AGREE
13 Sep 2010
Approximately USD 1 billion debt securities affected
Sao Paulo, September 13, 2010 -- Moody's Investors Service has assigned a Ba1 foreign currency rating and
a stable rating outlook to the proposed USD 1 billion senior unsecured
perpetual notes issuance of CSN Islands XII Corporation (Cayman Islands),
to be irrevocably and unconditionally guaranteed by Companhia Siderúrgica
Nacional ("CSN"). The net proceeds of the issuance
will be used primarily to prepay USD 750 million in outstanding guaranteed
perpetual notes issued in 2005 by CSN Islands X Corporation and for liability
management, thus not affecting CSN's overall leverage metrics
on a net debt basis.
Assignments:
..Issuer: CSN Islands XII Corporation (Cayman Islands)
....Senior Unsecured Guaranteed Perpetual
Notes, Assigned Ba1
RATINGS RATIONALE
The Ba1 rating and stable outlook of the proposed notes 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. The
fact that the notes are rated the same as CSN's corporate family rating
reflects the low level of secured debt on a consolidated basis as well
as the fact that the large majority of consolidated debt is either at
or guaranteed by CSN.
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 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, CSN's ratings are primarily constrained
by its track record of aggressive shareholder return, low operational
diversity, with the concentration of its steel production in a single
site, and by the event risk from its large capex program to expand
iron ore mining, cement and logistics operations.
The stable outlook reflects our expectation that CSN will continue to
report robust operating performance as demonstrated in the last two quarters,
with recurring EBITDA margins (as defined by Moody's) above 40%,
which we believe are sustainable over the near term based mainly on the
company's efficient cost controls and on the continuous expansion of the
high-margin iron ore operations. Although CSN has aggressive
investment plans for the next several years, we expect the company
to manage its modular-in-nature capex and dividends in order
to maintain adequate leverage and liquidity.
CSN's ratings could be positively affected if the company maintains a
strong liquidity position (with cash balance covering 130% of short
term debt maturities) and adequate leverage during the execution of its
large capex program, with Net Debt (considering a minimum readily
available liquidity cushion of BRL 3.5 billion) to EBITDA below
3x. Sustainable Cash From Operations less Dividends to Net Debt
approaching 20% would also be necessary for an upgrade.
Conversely, the rating could suffer downward pressure should CSN's
operating margins weaken significantly and dividends remain high,
resulting in CFO less Dividends to Net Debt consistently in the single
digit range, or in the case of a substantive deterioration of its
liquidity position, with an inability to cover 130% of 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
BRL 3.5 billion) to EBITDA remains above 3.5x for an extended
time period. A significant increase in consolidated secured debt
or debt benefiting from claim priority could negatively affect the rating
or outlook of CSN's senior unsecured debt.
The principal methodology used in rating CSN Islands XII Corporation was
Global Steel Industry rating methodology published in January 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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, 2010 CSN recorded
consolidated net revenues of BRL 13.1 billion (about USD 7.3
billion converted by the average exchange rate).
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information.
Moody's Investors Service considers the quality of information available
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a credit rating.
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independent third-party sources. However, MOODY'S
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Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
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and accurate data may not be available. Consequently, Moody's
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Sao Paulo
Richard Sippli
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
55-11-3043-7300
New York
Brian Oak
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
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Moody's assigns Ba1 rating to CSN's proposed perpetual notes
No Related Data.
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