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I AGREE
27 Jan 2016
New York, January 27, 2016 -- Moody's Investors Service has today downgraded the ratings of the senior
unsecured notes issued by Usiminas Commercial Ltd. (guaranteed
by Usinas Siderurgicas de Minas Gerais, "Usiminas") to Caa1 from
B2 and the ratings of the backed senior unsecured global MTN programs
of Usinas Siderurgicas de Minas Gerais S.A., Cosipa
Commercial Ltd and Usiminas Commercial Ltd to (P) Caa1 from (P) B2.
The ratings remain on review for downgrade.
At the same time, Moody's América Latina downgraded Usiminas's
global scale rating to Caa1 from B2 and the national scale rating (NSR)
to Caa1.br from Ba2.br. The ratings remain on review
for downgrade.
Ratings downgraded:
Issuer: Usinas Siderúrgicas de Minas Gerais S.A.
- USD 500 million backed senior unsecured Global MTN Program:
to (P) Caa1 from (P) B2
Issuer: Cosipa Commercial Ltd.
- USD 500 million backed senior unsecured Global MTN Program:
to (P) Caa1 from (P) B2
Issuer: Usiminas Commercial Ltd.
- USD 400 million senior unsecured notes due 2018, guaranteed
by Usiminas: to Caa1 from B2
- USD 500 million backed Global MTN Program: to (P) Caa1
from (P) B2
The ratings are on review for downgrade.
RATINGS RATIONALE
The downgrade to Caa1 reflects primarily the continued deterioration of
the market fundamentals for steelmakers in Brazil and Usiminas'
diminishing ability to generate cash flow from its operations, which
increases liquidity pressures. At the current level of operations
and free cash flow generation, it will become increasingly difficult
for Usiminas to meet its financial obligations. Usiminas posted
negative gross margin in the third quarter of 2015 and announced capacity
shutdowns to reduce fixed costs and improve profitability in a lower demand
environment. This strategy is currently being implemented and at
this point it is uncertain if it will suffice to overcome the contraction
of the domestic demand for steel in Brazil and improve the company's
free cash flow generation.
Usiminas' operations should remain pressured at least until the
end of 2016, as a result of timid economic activity and struggling
industrial performance in Brazil, as well as much weaker fundamentals
for the domestic steel industry. Furthermore, global oversupply
of steel will constrain exports' profitability. This, combined
with the impact of the devaluation of the Brazilian real on the company's
foreign currency debt (about 48% of total debt) and on its costs,
will result in persistently weak credit metrics throughout 2016,
particularly margins, leverage and interest coverage
Although Usiminas breached financial covenants applicable to 88%
of its total debt at the end of December 2015, the company was able
to negotiate waivers, which reduces the risk of debt acceleration
in the short term. Historically, Usiminas has been able to
maintain an adequate liquidity profile, as evidenced by an adequate
cash position (BRL 2.4 billion cash balance at the end of 3Q 2015,
sufficient to cover short term debt by 1.3x), but cash balance
relative to short term maturities has declined overtime due to weaker
cash flow generation, and a substantial part of the company's
cash balance is restricted as it is at the subsidiaries and may not be
immediately available to meet the company's financial obligations.
With the challenging outlook for the steel industry and our expectations
that free cash flow generation will remain weak, Usiminas could
face liquidity pressures to meet its short term debt.
The ratings remain on review for downgrade reflecting our ongoing concern
over Usiminas' ability to meet its short term financial obligations.
Additional negative rating actions can be considered if Usiminas fails
to meet short term financial obligations, breaches covenants or
enters into a debt restructuring that results in losses to creditors.
Headquartered in Belo Horizonte, Minas Gerais, Usinas Siderurgicas
de Minas Gerais S.A. - Usiminas (Usiminas) is the
largest integrated flat-steel manufacturer in Latin America,
with production of 5.3 million tons of crude steel and consolidated
net revenues of BRL 10.4 billion (approximately USD 3.5
billion converted by the average exchange rate) for the LTM period ending
September 30, 2015. Usiminas also owns iron ore mining properties,
steel distribution and capital goods subsidiaries in Brazil.
The principal methodology used in these ratings was the Global Steel Industry
published in October 2012. Please see the Credit Policy 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,
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to rated entity, Disclosure from rated entity.
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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.
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Usiminas to Caa1; ratings remain under review
No Related Data.
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