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Rating Action:

Moody's upgrades United States Steel's CFR to B1; outlook stable

17 Jun 2021

New York, June 17, 2021 -- Moody's Investors Service ("Moody's") upgraded United States Steel Corporation's ("U. S. Steel") Corporate Family rating to B1 from B3, its Probability of Default rating to B1-PD from B3-PD, its senior unsecured debt rating to B3 from Caa1, its senior unsecured shelf rating to (P) B3 from (P) Caa1, and Big River Steel LLC's ("Big River Steel") secured debt rating to Ba3 from B1. U. S. Steel's and Big River Steel's ratings outlook was changed to stable from positive. The Speculative Grade Liquidity Rating remains SGL-2.

Upgrades:

..Issuer: United States Steel Corporation

.... Corporate Family Rating, Upgraded to B1 from B3

.... Probability of Default Rating, Upgraded to B1-PD from B3-PD

....Senior Unsecured Shelf, Upgraded to (P)B3 from (P)Caa1

....Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to B3 (LGD5) from Caa1 (LGD5)

....Senior Unsecured Regular Bond/Debenture, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Allegheny County Industrial Dev. Auth., PA

....Senior Unsecured Revenue Bonds, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Bucks County Industrial Development Auth., PA

....Senior Unsecured Revenue Bonds, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Hoover (City of) AL, Industrial Devel. Board

....Senior Unsecured Revenue Bonds, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Indiana Finance Authority

....Senior Unsecured Revenue Bonds, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Ohio Water Development Authority

....Senior Unsecured Revenue Bonds, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Southwestern Illinois Development Authority

....Senior Unsecured Revenue Bonds, Upgraded to B3 (LGD5) from Caa1 (LGD5)

..Issuer: Big River Steel LLC

....Senior Secured Regular Bond/Debenture, Upgraded to Ba3 (LGD3) from B1 (LGD2)

..Issuer: ARKANSAS DEVELOPMENT FINANCE AUTHORITY

....Senior Secured Revenue Bonds, Upgraded to Ba3 (LGD3) from B1 (LGD2)

Outlook Actions:

..Issuer: United States Steel Corporation

....Outlook, Changed To Stable From Positive

..Issuer: Big River Steel LLC

....Outlook, Changed To Stable From Positive

RATINGS RATIONALE

U. S. Steel's B1 corporate family rating reflects its inconsistent historical operating performance due to its exposure to cyclical end markets and volatile steel prices, and its inconsistent free cash flow which will continue to be impacted by elevated capital investments in its "Best of Both" strategy. The rating also incorporates the company's large scale and strong market position as a leading US flat-rolled steel producer and whose footprint is further enhanced by its diversification in Central Europe, as well as our expectation for moderate financial leverage and ample interest coverage in a normalized steel price environment due to significant debt reduction in 2021. It also considers our expectation for a significantly improved operating performance in 2021 that will result in near term metrics that are strong for the rating, but are not likely sustainable as steel prices return to a more normalized level when supply and demand come into balance.

U. S. Steel's operating results will materially strengthen in 2021 with adjusted EBITDA in the range of about $3.5 - $4.0 billion due to a quicker than anticipated recovery in its key end markets, with the exception of the oil & gas sector, along with the addition of Big River Steel and the recent surge in steel prices. Its U. S. Steel Europe segment will also benefit from the same improved fundamentals as its domestic operations. Domestic steel prices have surged with hot rolled coil prices (HRC) at a record high of about $1,650 per ton in June 2021 after declining to a 4.5 year low around $440 per ton in July 2020 due to the effects of the pandemic. The price surge has been attributable to industry consolidation, a temporary dislocation of supply and demand, low steel inventories and elevated iron ore and scrap prices, which have also benefited U. S. Steel since it sells excess iron ore to other steel producers.

U. S. Steel has taken advantage of the favorable steel sector dynamics and accommodative capital markets and completed significant financing actions in the first half of 2021 to pay down its debt, reduce its interest costs, maintain a good liquidity profile, enhance its financial flexibility and push out its debt maturities. The company raised $790 million in a secondary stock offering and issued $750 million of 6.875% Senior Notes due 2029 and used the proceeds from these transactions to redeem all of its $1.056 billion of 12% Senior Secured Notes due 2025. It also used cash on hand to repay the remaining $180 million of borrowings under the Export-Import loan, about $860 million of borrowings under the US and USSK credit facilities and around $82 million of its 2025 and 2026 unsecured notes. The company also announced on June 17, 2020 its intention to use cash on hand to redeem all $718 million of its outstanding 6.875% senior notes due 2025 on August 16, 2021 when the redemption premium declines to 101.719% of the principal amount. These actions will have reduced net debt by approximately $2.2 billion and annual interest expense by about $155 million excluding the impact of the Big River Steel debt assumed in connection with the acquisition in January 2021, and further debt reduction could be pursued this year funded by additional free cash generation and proceeds of about $640 million from the sale of its Transtar rail subsidiary.

If U. S. Steel is able to produce adjusted EBITDA of $3.5 - $4.0 billion and uses its free cash flow and the Transtar proceeds to retire additional debt, then its leverage ratio (debt/EBITDA) could decline to about 1.5x and its interest coverage (EBIT/Interest) could rise to around 9.0x. These metrics will be strong for the B1 corporate family rating, but are expected to return to a level more commensurate with its rating when steel prices and metal spreads decline towards more normalized historical levels. We anticipate that demand will ebb as inventories are replenished and supply continues to ramp up as productivity improves and new capacity comes online and for the worldwide supply/demand imbalance to still exist and for prices to gradually decline towards their 10-year average price range of about $600 - $700 per ton. Steel prices have historically overshot to the upside and the downside for short periods of time before returning to more normalized price levels.

U. S. Steel has a speculative grade liquidity rating of SGL-2 since it is expected to maintain good liquidity. It had $753 million of unrestricted cash and borrowing availability of $1.543 billion on its $2 billion asset based revolving credit facility as of March 31, 2021. The credit facility matures in October 2024 and had no borrowings outstanding and $5 million of letters of credit issued. The facility requires the company to maintain a fixed charge coverage ratio of 1.0x should availability be less than the greater of 10% of the total aggregate commitment and $200 million. The company's borrowing availability was effectively reduced by $200 million since it did not meet the fixed charge coverage ratio for the LTM period ended March 31, 2021. Additionally, due to the level of receivables and inventory qualifying for inclusion in the borrowing base being less than the facility total, availability was reduced by a further $252 million. We anticipate its borrowing base will increase as covenant restrictions are removed and the value of its inventories and receivables rise along with increased demand and higher steel prices.

The company also has a Euro 460 million ($539 million equivalent at March 31, 2021) secured credit facility at its U. S. Steel Kosice (USSK) subsidiary in Europe, which matures in September 2023. Euro 175 million (roughly $205 million) was outstanding as of March 31, 2021, but the company repaid this debt with cash on hand during the second quarter.

Big River Steel's secured debt is rated one notch above the CFR due to its priority position in the consolidated capital structure and the benefit of U. S. Steel redeeming all of its secured notes and issuing additional unsecured debt which enhances the loss absorbing buffer below the secured debt. The B3 ratings on U. S. Steel's convertible notes, senior unsecured notes and IRB's reflects their effective subordination to the secured ABL, secured notes and bonds as well as priority payables.

The stable ratings outlook incorporates our expectation for a significantly improved operating performance in 2021 that will result in credit metrics that are strong for the company's rating, but that its credit metrics will return to a level more commensurate with its rating when steel prices and metal spreads decline towards more normalized historical levels.

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

U. S. Steel's ratings could be considered for an upgrade if steel prices and metal spreads are sustained above historical averages, the strategic benefits of the "Best of Both" strategy is achieved and the company demonstrates a clearly defined and more conservative financial policy and pursues further debt reduction. Quantitatively, if U. S. Steel is able to sustain leverage of no more than 3.5x through varying steel price points and its CFO less dividends is in excess of 23% of its outstanding debt, then its ratings could be positively impacted.

The company's ratings could be downgraded should steel sector conditions materially deteriorate such that its leverage ratio is sustained above 4.5x, its CFO less dividends falls below 13% of its outstanding debt, or it fails to maintain an adequate liquidity profile.

Headquartered in Pittsburgh, Pennsylvania, United States Steel Corporation is the third largest flat-rolled steel producer in the US in terms of production capacity. The company manufactures and sells a wide variety of steel sheet, tubular and tin products across a broad array of industries including service centers, transportation, appliance, construction, containers, and oil, gas and petrochemicals. It also has an integrated steel plant and coke production facilities in Slovakia (U. S. Steel Košice).Revenues for the twelve months ended March 31, 2021 were $10.7 billion.

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.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Michael Corelli, CFA
Senior Vice President
Corporate Finance Group
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

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
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.
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