Credit rating agency Moody's upgraded the senior unsecured notes ratings of Brazilian flats steelmaker Usiminas to Caa1 from Caa2, following the conclusion by the local steel producer of “important steps” toward its full debt restructuring plan, Moody’s said.
“The upgrade to Caa1 reflects primarily the conclusion of important steps towards Usiminas' full debt restructuring, including the BRL 1 billion capital increase concluded in July 2016, the renegotiation with banks completed in September 2016, and more recently, the BRL 1 billion capital reduction approved at Mineracao Usiminas S.A,” the credit rating agency said in a press release.
The credit rating agency noted those events “contribute” to diminishing “liquidity pressures” for the local steelmaker in the short-term and will allow it to “focus more closely on its operations.”
Despite the positive steps taken by Usiminas, Moody’s noted the flats producer still has other challenges ahead, including the exchange offer for the $180 million outstanding senior unsecured notes, which needs to be completed by June 30, 2017.
“Failure to complete the exchange offer for at least 50 percent of the existing amount outstanding could trigger an event of default under the debt restructuring agreement,” Moody’s warned.
However, a successful conclusion of the full debt restructuring program will enable Usiminas to “improve its capital structure, further eliminating short-term liquidity pressures, while market fundamentals in Brazil's steel industry start to gradually recover.”
Despite the challenges, Moody’s said Usiminas still benefits from a solid position in the local flats steel market.
As for the stable outlook, Moody’s said it “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.”