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Rating Action:

Moody's upgrades CSN's ratings to B2; stable outlook

29 Apr 2019

New York, April 29, 2019 -- Moody's Investors Service ("Moody's") upgraded to B2 from B3 the ratings 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 upgraded CSN's global scale ratings to B2 from B3 and the National Scale Ratings (NSR) to Ba1.br from B2.br. The outlook is stable.

Ratings upgraded:

- Issuer: CSN Islands XI Corporation

USD 750 million 6.875% BACKED Gtd Senior Unsecured Notes Due 2019: to B2 from B3

- Issuer: CSN Islands XII Corporation

USD 1 billion 7.0% BACKED Gtd Senior Unsecured Perpetual Notes: to B2 from B3

- Issuer: CSN Resources S.A.

USD 1.2 billion 6.5% BACKED Gtd Senior Unsecured Notes Due 2020: to B2 from B3

USD 600 million 7.625% BACKED Gtd Senior Unsecured Notes Due 2026: to B2 from B3

USD 750 million 7.625% BACKED Gtd Senior Unsecured Notes Due 2023: to B2 from B3

Outlook Actions:

Issuers: CSN Islands XI Corporation, CSN Islands XII Corporation, & CSN Resources S.A.

Outlook, remains stable

RATINGS RATIONALE

The upgrade of CSN's ratings to B2 reflects primarily the improvement in the company's liquidity profile coming from several actions taken since the beginning of 2018. After renegotiating its debt with Banco do Brasil S.A. and Caixa Economica Federal (CAIXA) — collectively BRL14 billion and equal to 47% of CSN's total reported debt — and issuing USD350 million in bonds due 2023 in early 2018, CSN refinanced BRL1.0 billion in debt due in 2019 with Banco Santander (Brasil) S.A., issued BRL1.95 billion in debentures due in 2023 and entered an iron ore prepayment deal of USD500 million. More recently in early April 2019, CSN successfully raised USD1 billion with a new issuance of USD600 million in notes due 2026 and a USD400 million retap of its 2023 notes. Proceeds from the issuances will be used to fund a tender offer of USD1 billion for CSN's notes maturing in 2019 and 2020, which will significantly reduce the company's refinancing needs for the next three years.

Pro forma to the tender offer and all other initiatives taken in 2019, namely the debentures issuance and the iron ore prepayment deal, CSN's cash position of BRL5 billion will cover short term debt maturities of BRL3.3 billion by 1.5x, compared to a 1.0x coverage at the end of 2018 (considering only the iron ore prepayment deal). Moreover, the company will also have reduced its debt maturities for 2020-21 to BRL7-7.5 billion from BRL9.3 billion prior to the tender offer.

CSN's B2 ratings reflect the company's 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 Moody's adjusted EBITDA margin at 20%-30% (20% in 2018), supported by its solid domestic market position, wide range of products through different segments and globally competitive production costs in both steel and iron ore.

However, the ratings remain constrained by the company's highly leveraged capital structure and weakened credit metrics. Despite the company's debt refinancing efforts that addressed short to medium-term maturities and the expected improvement in cash flows coming from a better economic environment in Brazil and higher iron ore prices that will reduce leverage in 2019, gross debt remains high. Accordingly, CSN still relies on external liquidity events to be able to reduce debt levels in a more structural and meaningful magnitude.

CSN is still contemplating additional liquidity events such as a roughly USD1 billion iron ore stream deal. If concluded, the stream deal would support a material debt reduction and would support an additional improvement in the company's credit quality.

The stable outlook reflects our expectations that CSN's liquidity will remain adequate to service its debt obligations. It also reflects our expectation that market conditions for steel producers in Brazil will gradually recover, allowing CSN to direct cash flows from operations to reduce debt levels.

An upward rating movement would require additional improvements in liquidity profile and recovery in operating performance. An upgrade would also be dependent on further adjustments in CSN's capital structure, with total leverage trending towards 4.0x total adjusted debt to Ebitda and interest coverage ratios (measured by EBIT to Interest expenses) above 2.5x on a sustainable basis (1.4x in 2018).

The ratings would suffer negative pressure if the company's liquidity position deteriorates, reducing CSN's ability to address upcoming debt maturities. The ratings could be downgraded if performance over the next 12 to 18 months does not improve such that leverage does not moderate to at least 5.0x and EBIT/interest remains below 1.5x.

With an annual capacity of 5.9 million tons of crude steel, Companhia Siderurgica Nacional (CSN) is a vertically integrated, low cost producer of flat-rolled steel, including slabs, hot and cold rolled steel, and a wide range of value-added steel products, such as galvanized sheet and tinplate. In addition, the company has downstream operations to produce customized products, pre-painted steel and steel packaging. 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 Portugal, along with long steel assets in Germany through its subsidiary Stahlwerk Thüringen GmbH (SWT). The company also has a long steel line (500,000 tons capacity) in the Volta Redonda plant. CSN is a major producer of iron ore (the second-largest exporter in Brazil) besides steel, with a sales volume of 34.8 million tons in 2018. The company has operations in other segments too, such as cement, logistics, port terminals and power generation. CSN reported revenues of BRL 22.9 billion (USD6.3 billion) in 2018.

The principal methodology used in these ratings 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 meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

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 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.

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.

Carolina Chimenti
Asst Vice President - Analyst
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
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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