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Rating Action:

Moody's downgrades ArcelorMittal to Ba1, outlook stable

08 May 2020

Frankfurt am Main, May 08, 2020 -- Moody's Investors Service, ("Moody's") has today downgraded ArcelorMittal's senior unsecured ratings to Ba1 from Baa3. Concurrently, Moody's has assigned a Ba1 corporate family rating and a Ba1-PD probability of default rating to ArcelorMittal.

Moody's has further downgraded the senior unsecured rating on the company's medium-term notes (MTN) programme and senior unsecured shelf to (P)Ba1 from (P)Baa3, the short-term rating on its Commercial Paper to NP from P-3, and its other short-term rating to (P)NP from (P)P-3. The outlook on all ratings has been changed to stable from negative.

A full list of affected ratings will can be found at the end of this press release.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The steel sector has been one of the sectors strongly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in ArcelorMittal's credit profile, including its exposure to cyclical end-markets such as the automotive, machinery and construction industries have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and ArcelorMittal remains vulnerable to the outbreak continuing to spread.

The steel industry is a highly cyclical industry with strong exposure to general economic conditions, which Moody's expects to materially worsen this year amid the spreading coronavirus globally, which will dampen activity in many of ArcelorMittal's end-markets. This has been particularly evidenced by recent significant production cuts in the automotive sector in Europe and North America, while Moody's currently forecasts global light vehicle sales to contract by around 14% this year (see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219788). But also demand in other steel-using sectors such as machinery and construction will stifle due to local work restrictions, government-imposed site closures or disrupted supply chains. The rating agency therefore expects ArcelorMittal's steel shipments to fall by more than 20% in 2020, compressing margins and cash flows in the coming months, albeit mitigated by cost saving initiatives. Such measures include economic unemployment schemes, temporary staff reductions and lower maintenance and SG&A costs, besides the idling of capacity at several plants to align supply with the expected demand slowdown.

ArcelorMittal's rating had been very weakly positioned already before the coronavirus outbreak against subdued demand and deteriorating profitability during 2019, caused by narrowing steel spreads on falling steel prices, structural overcapacity of the steel industry and surging raw material costs. As a result, Moody's outlook change to negative in November 2019 reflected its expectation that ArcelorMittal's leverage, as defined in gross debt/EBITDA, will not reduce towards the 3x upper limit for a Baa3 rating by the end of 2021 While the group's increased leverage also reflects significant guarantees provided on behalf of at-equity accounted entities, including the AMNS India joint-venture since its acquisition in December 2019, ArcelorMittal remains highly levered for the Ba1 rating category. The Ba1 rating with a stable outlook reflects Moody's expectation that the company should be able to restore metrics back to the requirements for the current rating over the next years. Moody's now forecasts leverage to decline towards 4x debt/EBITDA by the end of 2021 at the earliest, provided demand will strongly recover next year, which is difficult to predict as the coronavirus continues to spread with still uncertain consequences for ArcelorMittal at this stage.

More positively, however, Moody's recognizes the group's $2.1 billion free cash flow (FCF) generation during 2019 and only modest working capital consumption in the first quarter of 2020, which helped it reduce reported net debt to $9.5 billion at the end of March 2020 from $11.1 billion in the prior year. The rating agency also expects the group to protect positive FCF this year, primarily thanks to a material cut in capital expenditures to $2.4 billion for 2020 versus its previous guidance of $3.2 billion. Together with lower income taxes and sizeable working capital reductions of up to $1 billion, this should enable positive FCF in the low to mid three-digit million US dollar range in 2020, supporting the stable outlook.

LIQUIDITY

Moody's expects ArcelorMittal to retain a strong liquidity profile. At the end of March 2020, the group had $4.3 billion of cash on the balance sheet and access to its fully undrawn $5.5 billion revolving facility, maturing in 2024. In addition, in April 2020, the group secured from its main relationship banks a new $3 billion credit facility, maturing in April 2021, which helps further bolster its liquidity in case of need. These funds comfortably cover short term debt maturities, including lease liabilities, of $3.1 billion as of 31 March 2020, forecast capital expenditures of around $2.4 billion in 2020 and only minor dividends. Moody's also expects ArcelorMittal to ensure compliance with its leverage maintenance covenant (maximum 4.25x net debt/EBITDA ratio) at all times.

ESG CONSIDERATIONS

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on ArcelorMittal of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

OUTLOOK

The stable outlook balances ArcelorMittal's currently weak and further deteriorating credit metrics during 2020, with the expectation of a distinct recovery from 2021, allowing for an improvement of currently stretched credit metrics, consistent positive free cash flow generation and its strong liquidity profile. It further reflects the group's prudent financial policy with a clear focus on debt reduction and no material dividend payments. However, the failure to further reduce debt driven by significantly growing earnings after 2020 and the continuation of positive free cash flow generation, supporting de-leveraging towards 4x Moody's-adjusted debt/EBITDA, or a weakening liquidity profile over the next two years would exert negative rating pressure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure on the ratings would build, if ArcelorMittal's (1) profitability improved sustainably, exemplified by Moody's-adjusted EBIT margins of well above 6%, (2) leverage could be reduced to 3x Moody's-adjusted debt/EBITDA and below on a sustained basis, (3) Moody's-adjusted (CFO -- dividends) / debt ratios of 20% or higher could be maintained.

Moody's could downgrade ArcelorMittal's ratings, if (1) the group's operating performance were to deteriorate more strongly than currently foreseen against more negative implications of the spreading coronavirus, (2) its leverage remained well above 4x Moody's-adjusted debt/EBITDA throughout 2022, (3) Moody's-adjusted (CFO -- dividends) / debt ratios fell towards 15%, (4) liquidity were to contract.

LIST OF AFFECTED RATINGS:

..Issuer: ArcelorMittal

Assignments:

.... LT Corporate Family Rating, Assigned Ba1

.... Probability of Default Rating, Reinstated to Ba1-PD

Downgrades:

....Commercial Paper, Downgraded to NP from P-3

....Other Short Term, Downgraded to (P)NP from (P)P-3

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba1 from (P)Baa3

....Senior Unsecured Shelf, Downgraded to (P)Ba1 from (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 from Baa3

Withdrawals:

.... LT Issuer Rating, previously rated Baa3

.... ST Issuer Rating, previously rated P-3

Outlook Actions:

....Outlook, Changed To Stable From Negative

PRINCIPLE METHODOLOGY

The principal methodology used in these ratings was Steel Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1074524. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

ArcelorMittal is the world's largest steel company, with an annual production of around 90 million tons (mt) of crude steel, steel shipments of 84.5 mt, $71 billion revenue and company-adjusted EBITDA of $5.2 billion (7.4% margin) in 2019. The group operates in more than 60 countries worldwide, with steelmaking operations in 19 countries on four continents. The group also operates iron ore and coking coal mines in several geographies for its own consumption and external sales.

ArcelorMittal's largest market is Europe, which accounted for 50% of its sales in 2019 (22% of EBITDA). NAFTA accounted for 24% of sales (15% of EBITDA), Brazil for 11% (21%), Africa and Commonwealth of Independent States (ACIS, Eastern Europe and South Africa) for 9% (10%) and mining for 6% (32%).

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their 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 in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Goetz Grossmann, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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