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Rating Action:

Moody's downgrades CSN to Caa1; outlook remains negative

03 Feb 2016

New York, February 03, 2016 -- Moody's Investors Service (Moody's) has today downgraded to Caa1 from B1 the foreign currency rating assigned to the senior unsecured notes of CSN Islands XI Corporation, CSN Islands XII Corporation and CSN Resources S.A. that are guaranteed by Companhia Siderurgica Nacional (CSN). At the same time, Moody's América Latina downgraded CSN's global scale rating to Caa1 and the National Scale Rating (NSR) to B2.br from Baa3.br. The outlook remains negative.

Ratings downgraded:

- Issuer: CSN Islands XI Corporation

USD 750 million 6.875% Senior Unsecured Notes Due 2019: to Caa1 from B1

- Issuer: CSN Islands XII Corporation (Cayman Islands)

USD 1 billion 7.0% Senior Unsecured Perpetual Notes: to Caa1 from B1

- Issuer: CSN Resources S.A. (Luxembourg)

USD 1.2 billion 6.5% Senior Unsecured Notes Due 2020: to Caa1 from B1

The outlook for all ratings remains negative.

RATINGS RATIONALE

The downgrade reflects primarily the low likelihood that CSN's operations and credit metrics will recover in the next 12 to 18 months and its unsustainable capital structure. Accordingly, the company will need to rely either on asset sales, a capital increase or a debt restructuring to reduce debt levels. CSN's free cash flow generation will remain limited by the current weak steel market conditions in Brazil and global iron ore market, combined with a heavy interest burden given CSN's current capital structure and debt levels. In addition, global oversupply of steel will continue to constrain expansion of exports and the low price outlook for iron ore will limit results from this segment as well.

Although 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 weakened credit metrics, namely high leverage, low interest coverage and deteriorated cash flow metrics. In addition, the rating also incorporates the heightened risks faced by the steel industry in Brazil due to the economic contraction, tight credit availability and low business confidence, which directly impact steel consuming industries such as automotive, construction and consumer durables. Besides, the deceleration in China's GDP growth and additional iron ore supply coming online at a lower cost basis will continue to pressure iron ore prices.

CSN's ratings and credit profile are supported by the company's adequate liquidity to meet financial obligations over the next couple of years and by the announced strategy to reduce leverage and liquidity risks in the medium term, including the renegotiation of debt maturing in 2016 and 2017 with local banks and the planned asset divestitures. Nevertheless, the company still needs to address mid-term debt maturities and very high leverage in a period of limited cash flow generation.

CSN's ratings continue to reflect 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 20-30% range, supported by its solid domestic market position, wide range of products through different segments and globally competitive production costs both in steel and iron ore. Moreover, margins have been relatively high compared to steel peers as mining benefited from higher iron prices in the past few years -- and even though margins have declined, they are still healthy compared to global peers (adjusted EBITDA margins at 27% in the last twelve months ended September 2015).

The negative outlook reflects our expectations that market conditions for steel producers in Brazil and iron ore producers globally will remain challenging, with further risk to the downside, and that credit metrics will likely remain pressured for the next 12 to 18 months.

The ratings could suffer additional negative pressure if the company enters a debt restructuring process that entails significant losses to creditors.

An upward rating movement would require that CSN to adequate its capital structure, with adjusted leverage trending towards 6.0x total adjusted debt to Ebitda and interest coverage ratios (measured by EBIT to Interest) remain above 1.5x on a sustainable basis. An adequate liquidity profile and operating performance would be further considerations in a rating upgrade or outlook change.

Companhia Siderúrgica Nacional ("CSN") is a vertically integrated, low-cost producer of flat-rolled steel, long-steel, iron ore and cement. With an annual capacity of 6.7 million tons of crude steel, 6.0 million tons of rolled products and 1.6 million tons of long steel, CSN sells its products to a broad array of industries, including the automotive, capital goods, packaging, construction and home appliance sectors. CSN owns and operates cold rolling and galvanizing facilities in the U.S. and long steel assets in Germany, besides substantial iron ore, limestone, dolomite and tin reserves, railroads, port terminals and power generation assets. In the last twelve months ended September 2015, CSN reported consolidated net revenues of BRL 15.5 billion (USD 5.2 billion converted at the average exchange rate).

The principal methodology used in these ratings was the Global Steel Industry published in October 2012. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Barbara Mattos, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades CSN to Caa1; outlook remains negative
No Related Data.
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