New York, December 09, 2021 -- Moody's Investors Service ("Moody's") upgraded United States Steel Corporation's
("U. S. Steel") Corporate Family rating to Ba3 from B1,
its Probability of Default rating to Ba3-PD from B1-PD,
its senior unsecured debt rating to B1 from B3, its senior unsecured
shelf rating to (P)B1 from (P)B3, and Big River Steel LLC's ("Big
River Steel") secured debt rating to Ba2 from Ba3.The ratings outlooks
for U. S. Steel and Big River Steel remains stable.
U. S. Steel's Speculative Grade Liquidity Rating was
changed to SGL-1 from SGL-2.
Upgrades:
..Issuer: United States Steel Corporation
.... Corporate Family Rating, Upgraded
to Ba3 from B1
.... Probability of Default Rating,
Upgraded to Ba3-PD from B1-PD
.... Speculative Grade Liquidity Rating,
Upgraded to SGL-1 from SGL-2
....Senior Unsecured Shelf, Upgraded
to (P)B1 from (P)B3
....Senior Unsecured Conv./Exch.
Bond/Debenture, Upgraded to B1 (LGD5) from B3 (LGD5)
....Senior Unsecured Regular Bond/Debenture,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Allegheny County Industrial Dev.
Auth., PA
....Senior Unsecured Revenue Bonds,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Bucks County Industrial Development Auth.,
PA
....Senior Unsecured Revenue Bonds,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Hoover (City of) AL, Industrial Devel.
Board
....Senior Unsecured Revenue Bonds,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Indiana Finance Authority
....Senior Unsecured Revenue Bonds,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Ohio Water Development Authority
....Senior Unsecured Revenue Bonds,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Southwestern Illinois Development Authority
....Senior Unsecured Revenue Bonds,
Upgraded to B1 (LGD5) from B3 (LGD5)
..Issuer: Big River Steel LLC
....Senior Secured Regular Bond/Debenture,
Upgraded to Ba2 (LGD2) from Ba3 (LGD3)
..Issuer: ARKANSAS DEVELOPMENT FINANCE AUTHORITY
....Senior Secured Revenue Bonds, Upgraded
to Ba2 (LGD2) from Ba3 (LGD3)
Outlook Actions:
..Issuer: United States Steel Corporation
....Outlook, Remains Stable
..Issuer: Big River Steel LLC
....Outlook, Remains Stable
RATINGS RATIONALE
U. S. Steel's Ba3 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. 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 an historically
strong operating performance through 2022 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 as supply and demand
come into balance.
U. S. Steel's operating results have materially strengthened
in 2021 and we anticipate it will generate adjusted EBITDA of about $6.0
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 a 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 surged in 2021
with hot rolled coil prices (HRC) hitting a record high of about $1,960
per ton in November 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, the replenishment
of steel inventories and elevated raw material prices.
U. S. Steel has taken advantage of the favorable steel sector
dynamics and accommodative capital markets and has used its strong free
cash flow along with the proceeds from debt and equity offerings and asset
sales to materially reduce its outstanding debt, significantly lower
its interest costs and to push out its debt maturities. We anticipate
further debt reduction in Q4 which will result in about a $3 billion
pay down of its outstanding debt in 2021 including the debt assumed from
the Big River Steel acquisition. Further debt reduction is unlikely
considering the company's extended debt maturity profile and its
lack of near-term callable debt, as well as its plans to
add a new 3-million-ton EAF mill for about $3 billion,
new coating capabilities ($280 million) and a non-grain
oriented electrical steel line ($450 million) at Big River Steel
and since it recently announced a new $300 million share repurchase
program and raised its quarterly dividend.
If U. S. Steel can produce adjusted EBITDA of $6.0
billion and retires additional debt in Q4, then its leverage ratio
(debt/EBITDA) will be less than 1.0x and its interest coverage
(EBIT/Interest) above 10.0x. These metrics will be strong
for the Ba3 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 somewhat ebb as inventories are replenished and supply
will continue to ramp up as new capacity comes online, and imports
rise due to the wide spreads between domestic and overseas prices and
the possibility of further tariff rate quota agreements like the recent
deal with the European Union. This will cause prices to gradually
decline, but anticipate they will settle above the 10-year
average price range of about $600 - $700 per ton
and that metal spreads will remain historically wide due to sector consolidation
and decarbonization initiatives.
U. S. Steel has a speculative grade liquidity rating of
SGL-1 since it is expected to maintain very good liquidity.
It had $2.0 billion of unrestricted cash and borrowing availability
of $1.746 billion on its $1.75 billion asset
based revolving credit facility as of September 30, 2021.
The company amended this facility in July 2021 and reduced its size to
$1.75 billion from $2.0 billion but maintained
the maturity date of October 2024. The facility had no borrowings
outstanding and $4 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 $175 million.
The company also has a $350 million undrawn revolver at Big River
Steel and an undrawn Euro 300 million ($347 million equivalent
on September 30, 2021) unsecured credit facility at its U.
S. Steel Kosice (USSK) subsidiary in Europe, both with a
maturity date in 2026.
Big River Steel's secured debt is rated one notch above U. S.
Steel's CFR due to its priority position in the consolidated capital
structure and the benefit of U. S. Steel redeeming all its
secured notes and issuing additional unsecured debt in 2021, which
enhances the loss absorbing buffer below the secured debt. The
B1 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 an historically
strong operating performance through 2022 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 for All" 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 can sustain leverage of no more than 3.0x
through varying steel price points and its CFO less dividends is in excess
of 30% 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
4.0x, its CFO less dividends falls below 15% of its
outstanding debt, or it fails to maintain a strong 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 September 30, 2021 were $17.2
billion.
The principal methodology used in these ratings was Steel published in
November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296098.
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
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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
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and whose ratings may change as a result of this credit rating action,
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to rated entity, Disclosure from rated entity.
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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_1288235.
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,
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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
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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
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U.S.A.
JOURNALISTS: 1 212 553 0376
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