International rating agency Moody’s cuts US Steel rates
Moody's Investors Services downgraded the senior unsecured debt ratings of United States Steel Corporation (U.S. Steel) to B1 from Ba3. At the same time, Moody's assigned a rating of B1 to U.S. Steel's proposed $350 million senior unsecured notes issue. Proceeds from the new notes issue will be applied toward U.S. Steel's purchase of the assets of National Steel Corporation (National). Moody's rating actions reflect concerns regarding U.S. Steel's increased pro forma leverage, risks related to its integration of National, and potential downward pressure on steel prices due to continuing weakness in steel demand. The outlook for the ratings is stable.
Moody's rating actions reflect that total consideration for the purchase of National will be $1.05 billion, inclusive of $200 million of liabilities that will be assumed by U.S. Steel. As the purchase of National Steel is expected both to increase U.S. Steel's debts and EBITDA.
According to Moody's, this combination of increased debt and sizeable near-term cash outflows may be exacerbated by rising input costs or by a weakening in steel demand from key end-user markets or from lower shipment volumes due to the restart of previously idled industry capacity. Both these factors would exert pressure on spot market pricing and potentially offset, to a degree, the benefits of U.S. Steel's reduced cost structure. U.S. Steel's ratings are supported by its sizeable market position. Inclusive of the purchased assets, U.S. Steel will have nearly 25 million tons of
steelmaking capacity, about 19 million of which will be domestic, and will increase its capacity for higher value-added products.
United States Steel Corporation, headquartered in Pittsburgh, PA, is the largest U.S. steel producer with worldwide
production capacity, pro forma for its acquisition of National Steel, of about 25 million tons and pro forma 2002 revenue of $9.6 billion.