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Global Credit Research - 08 Dec 2010
Approximately EUR 4.5 billion of long-term debt instruments affected
Frankfurt am Main, December 08, 2010 -- Moody's has today changed the outlook on ThyssenKrupp's (TK)
long term rating of Baa3 and the short-term rating of P-3
to stable from negative.
The change in outlook has been prompted by the quick and strong turnaround
that TK has achieved in the last financial year.
The improvement in profitability and cash flow has helped TK to achieve
a debt/EBITDA ratio per financial year ended September 2010 of 4.3x
(net debt/EBITDA per September 2010: 3.4x) despite the fact
the gross adjusted debt level remained broadly stable in the last financial
year. Given the continued positive development and outlook for
TK's customer industries, Moody's expects TK's
leverage to improve further leading to a stable positioning in the Baa3
rating category in the current financial year.
In addition, Moody's expects that the reduction in capex,
that is offset by ongoing high net working capital investments and ramp
up costs of the new plants in Brazil and the US, will result only
to a slightly negative free cash flow generation in the current financial
year, and in the next financial year to a clearly positive free
cash flow that would lead to a reduction in the company's net indebtedness.
The rating also takes into account TK's commitment to an investment
grade rating which is evidenced by a prudent dividend policy and the ongoing
disposal programme which is aimed not only to dispose of non-core
assets, but also to generate cash flows that can be used to pay
down debt, as well as the very broad product portfolio, which
classifies TK not only as a major producer of flat steel in Europe but
also with leading market positions in the elevator, plant engineering
and materials distribution business. All these businesses help
TK to generate more stable, albeit somewhat lower, margins
than its peers that are pure steel producers.
Weighing negatively on the rating is the limited vertical integration
into raw materials which makes TK largely dependent on the development
of iron ore and coking coal prices, and leads to more volatile,
and sometimes higher, overall production cost for steel than for
its integrated competitors in the industry. However, TK continues
to maintain a technological advantage which to some extent also offsets
the higher cost structure. It is key for TK's success to
maintain its technological leadership in the high quality flat steel segment.
TK's excellent short term liquidity situation is supporting the
company's investment grade rating. With limited debt maturities
in the next two years of around EUR 1.6 billion and the high cash
balance, coupled with the availability of long-term committed
credit lines with only one covenant which is not performance related with
significant headroom, TK has more than sufficient cash sources available
to cover for cash outflows for the next 24 months.
The rating could be downgraded if TK would be unable to evidence its ability
to further improve its leverage ratios more commensurate with an investment
grade rating, namely debt/EBITDA to around 3.5x and CFO-dividends/debt
above 20% in the next 12 months.
Given the continued high, albeit reduced, capex and the high
ramp-up costs associated to TK's steel plants in Brazil and
the US, leading to continued negative free cash flows in the current
financial year a rating upgrade is unlikely. Moody's would
consider an upgrade if TK would be able to report a CFO-dividends/debt
ratio of well above 25% and debt/EBITDA well below 2.0x
on a sustainable basis.
For the assignment of this rating, Moody's has used its methodology
for the Global Steel Industry, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. 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.
Moody's last rating action on ThyssenKrupp was to downgrade the Baa2/P-2
ratings to Baa3/P-3 with a negative outlook on 27 May 2009.
ThyssenKrupp AG is a diversified industrial conglomerate with operations
in the carbon steel, stainless steel, elevator, technology
and materials distribution industries. TK has leading market positions
in each division and is one of the largest steel producers worldwide.
The group generated sales of EUR 42.6 billion in the financial
year ending in September 2010.
Frankfurt am Main
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's changes the outlook on ThyssenKrupp's Baa3 rating to stable from negative
An der Welle 5
Frankfurt am Main 60322
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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