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I AGREE
07 Dec 2016
New York, December 07, 2016 -- Moody's Investors Service has upgraded the senior unsecured notes ratings
of Usiminas Commercial Ltd. (guaranteed by Usinas Siderurgicas
de Minas Gerais, "Usiminas") to Caa2 from Ca 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) Caa2 from (P) Ca. The outlook for the ratings
is stable.
At the same time, Moody's América Latina upgraded Usiminas'
corporate family rating to Caa2 from Ca (global scale) and to Caa2.br
from Ca.br (national scale), with a stable outlook.
Ratings upgraded:
Issuer: Usinas Siderúrgicas de Minas Gerais S.A.
- USD 500 million backed senior unsecured Global MTN Program:
to (P) Caa2 from (P) Ca
Issuer: Cosipa Commercial Ltd.
- USD 500 million backed senior unsecured Global MTN Program:
to (P) Caa2 from (P) Ca
Issuer: Usiminas Commercial Ltd.
- USD 400 million senior unsecured notes due 2018, guaranteed
by Usiminas: to Caa2 from Ca
- USD 500 million backed Global MTN Program: to (P) Caa2
from (P) Ca
The outlook for the ratings is stable.
RATINGS RATIONALE
The upgrade of Usiminas' ratings to Caa2 reflects primarily the
conclusion of a debt restructuring in September 2016 and a BRL 1 billion
capital increase in July 2016, which has reduced liquidity pressures
in the short-term and will allow the company to focus more closely
on its operations. Usiminas negotiation with creditors representing
92% of its total debt has concluded with a payment extension of
up to 10 years, with a 3-year grace period. The Caa2
ratings continue to incorporate the likely default, per Moody's
definition, on the bonds due 2018 following a planned exchange offer
that would lead to changes in the notes' terms and conditions as
announced in November 2016.
Nevertheless, even with the conclusion of the debt extension and
the capital injection, liquidity challenges remain. Usiminas
had BRL 2.4 billion in consolidated cash at the end of 3Q16,
out of which only about BRL 805 million was available at the parent company.
The balance is largely restricted at its 70% owned subsidiary Mineração
Usiminas S.A. ('MUSA', unrated) and may
not be immediately accessible to meet Usiminas' financial obligations.
In order to access MUSA´s cash balance, either through a return
of capital or intercompany loan, Usiminas needs approval from 30%-owner
Sumitomo Corporation.
The ratings continue to reflect Usiminas' solid position in the
Brazilian flat-steel market, and the measures taken by Usiminas
to adjust operations to the feeble demand in the domestic market.
In May 2015, Usiminas announced the temporary halt of two blast
furnaces in its Cubatão and Ipatinga mills; in June 2015 the
company announced the reduction of working hours in its headquarters in
Belo Horizonte for three months; and in October 2015, the temporary
interruption of activities of the primary areas of the Cubatão
plant (including sinter and coke plants, blast furnaces and steelworks),
concluded in January 2016. The downsizing process at the Cubatão
steel mill has significantly reduced Usiminas' cost structure and production
capacity, providing flexibility to the company amid the deterioration
of the steel market in Brazil. In any case, despite the operational
improvement observed in 3Q16, Usiminas' operations continue
to be challenged by weak market fundamentals for steelmakers in Brazil,
which will continue to constrain the company's ability to generate
positive free cash flows. Credit metrics will remain pressured
-- we expect leverage (measured by total adjusted debt to EBITDA)
to stay above 10x (19.1x in LTM ended September 2016) and interest
coverage to remain negative in the next 12 to 18 months (-0.9x
in LTM ended September 2016).
The stable outlook incorporates our assumption that Usiminas will be able
to meet the conditions set by creditors and will continue to pursue liquidity
alternatives while it gradually recovers its ability to generate sustainable
cash flows from operations.
Additional negative rating actions can be considered if Usiminas fails
to meet the conditions established by creditors under the debt renegotiation
or fails to establish an agreement with bondholders, or enters into
a debt restructuring that results in higher than expected losses to creditors.
Although unlikely in the short term, the ratings could be upgraded
if Usiminas is able to successfully complete the adjustments in its capital
structure, eliminating liquidity pressures, while market fundamentals
for Brazilian steelmakers improve along with Usiminas' cash flow generation.
Quantitatively, this would be the case if Usiminas is able to reduce
adjusted leverage to levels below 6.0x (Adjusted Debt/EBITDA) and
increase adjusted interest coverage to above 1.5x (EBIT/Interest
Expense). The maintenance of a comfortable liquidity profile would
also be required for an upgrade.
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 3.6 million tons of crude steel and consolidated
net revenues of BRL 8.7 billion (approximately USD 2.4 billion
converted by the average exchange rate)in the LTM ended September 2016.
Usiminas also owns iron ore mining properties, steel distribution
and capital goods subsidiaries in Brazil.
The principal methodology used in these ratings was Global Steel Industry
published in October 2012. Please see the Rating Methodologies
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,
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,
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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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No Related Data.
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