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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.
- 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
Issuers: CSN Islands XI Corporation, CSN Islands XII Corporation,
& CSN Resources S.A.
Outlook, remains stable
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
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Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
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please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
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