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01 Jul 2019
New York, July 01, 2019 -- Moody's Investors Service ("Moody's") assigned a Ba3 rating to the at
least $500 million proposed senior unsecured notes to be issued
by Usiminas International S.à r.l. and unconditionally
guaranteed by Usinas Siderúrgicas de Minas Gerais S.A.
("Usiminas", Ba3 stable). At the same time, Moody's
América Latina Ltda. upgraded Usiminas' corporate family
ratings to Ba3 from B1 (global scale) and to A2.br from Baa2.br
(national scale). The outlook is stable.
The proposed issuance is part of Usiminas' liability management
strategy and proceeds will be used to pay down existing debt, thus
lengthening the company's debt amortization schedule and improving
its financial flexibility.
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: Usiminas International S.à r.l.
- At least $500 million senior unsecured notes: Ba3
The outlook is stable.
The upgrade of Usiminas' ratings to Ba3/A2.br is supported
by the improvement in the company's liquidity profile coming from
its proposed new issuance of at least $500 million in senior unsecured
notes. The company will use proceeds from the new issuance to pay
down outstanding debt with Japan Bank for International Cooperation (JBIC,
A1 stable), Banco Nac. Desenv. Economico e Social
-- BNDES (BNDES, Ba2 stable) and debentures' holders,
which will lengthen its debt amortization schedule. Pro forma to
the new issuance, Usiminas will have BRL1.7 billion in cash
and approximately BRL 600-700 million in debt maturities per year
from 2020 onwards, compared to an average of about BRL1.1
billion annually previously.
Furthermore, simultaneously to the new issuance, the company
will renegotiate its debt with Banco do Brasil S.A. (Ba2
stable), Banco Bradesco S.A. (Ba2 stable) and Itaú
Unibanco S.A. (Ba2 stable), collectively representing
70% of its total debt, to remove the existing cash sweep,
collateral assignment and investments restriction that were imposed to
Usiminas in 2016. The removal of such features will increase Usiminas'
financial flexibility to pursue growth and additional liability management
The ratings continue to reflect Usiminas' solid position in the Brazilian
flat-steel market, and the measures taken to adjust operations
to the feeble demand in the domestic market over the past few years,
including the temporary halt of two blast furnaces in its Cubatão
mill and interruption of activities of the primary areas of the Cubatão
plant (including sinter and coke plants, blast furnaces and steelworks),
concluded in January 2016. The downsizing process at the Cubatão
steel mill has significantly reduced Usiminas' cost structure and production
capacity, providing flexibility to the company amid the deterioration
of the steel market in Brazil.
The ratings are also supported by Usiminas' adequate credit metrics and
its enhanced financial flexibility to withstand the volatility in its
main end-markets. Going forward, we expect credit
metrics to remain adequate on the back of a gradually recovering demand
environment in Brazil and Usiminas' more efficient cost structure.
We also expect the company to continue to generate mildly positive free
cash flow in the medium term coming from a good operating performance
and low dividends, even as investments increase.
Usiminas' operating performance has recovered significantly since the
beginning of 2017, supported by demand growth, in particular
in the automotive industry, but also by measures taken to adjust
its operations to challenging market conditions. As a result,
the company's EBIT margin increased to 7.4% in the LTM March
2019 from -4.5% at the end of 2016, while leverage
declined to 3.3x from 10.3x in the same period. We
expect the steel industry in Brazil to grow around 4% in 2019,
and Usiminas is well-positioned to benefit from this improvement.
While we acknowledge that there is downside risk to the current growth
forecasts in the country, we expect Usiminas' metrics to remain
adequate due to its lower cost base and debt balance relative to previous
The ratings are mainly constrained by Usiminas' exposure to the volatility
of the automotive industry in Brazil, given its concentration in
flat steel production in the country. The track record of divergences
between its main shareholders and still evolving corporate governance
standards are credit negative, although we believe risks related
to shareholders disputes have abated.
The stable outlook incorporates our assumptions that Usiminas will maintain
adequate liquidity to service its debt obligation in the next 12-18
months and that market conditions for flat-steel products in Brazil
will continue to recover gradually, allowing the company to maintain
credit metrics near the current levels.
The ratings could be upgraded if Usiminas is able to improve its operating
performance sustainably along with market fundamentals, with stronger
EBIT margin, adjusted leverage trending below 2.5x and interest
coverage of at least 3.0x (EBIT/Interest Expense) all on a sustained
basis. Further improvement in liquidity and cash flow generation
that provides Usiminas more cushion to withstand the volatility of its
end-markets would also be required for an upgrade.
The ratings could be downgraded if performance over the near term materially
deteriorates, with leverage increasing to 4.0x and EBIT/interest
declining to levels below 2.0x without prospects for improvement.
The ratings could also be downgraded if liquidity contract meaningfully
or if market conditions deteriorate. Finally, the company's
inability to successfully conclude its bond issuance in the near term
and the consequent cancellation of the renegotiation of its debt with
creditor banks in Brazil would result in a downgrade of the ratings.
Headquartered in Belo Horizonte, Minas Gerais, Usinas Siderúrgicas
de Minas Gerais S.A. - Usiminas (Usiminas) is the
largest integrated flat-steel manufacturer in Latin America,
with production of around 4 million tons of crude steel and rolling capacity
of 9.7 million tons per year, and consolidated net revenues
of BRL 14.0 billion (approximately USD 3.7 billion converted
by the average exchange rate) in the LTM ended in March 2019. Usiminas
also owns iron ore mining properties, steel distribution and capital
goods subsidiaries in Brazil.
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.
Moody's National Scale Credit 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 differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
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For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
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this announcement provides certain regulatory disclosures in relation
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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
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to rated entity, Disclosure from rated entity.
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Please see www.moodys.com for any updates on changes to
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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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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
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No Related Data.
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