Credit rating agency Moody’s upgraded the senior unsecured notes ratings of Brazilian flats steelmaker Usiminas to Caa2 from Ca, it said, adding the company’s outlook is stable.
Moody’s said the upgrade reflects both the completion of a debt restructuring plan in September and a BRL 1 billion capital increase in July, which “reduced liquidity pressures in the short-term and will allow the company to focus more closely on its operations.”
Despite the improvement in the company’s ratings, Moody’s said the Caa2 ratings “continue to incorporate the likely default, per Moody's definition, on the bonds due in 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,” Moody’s noted, adding that Usiminas’ balance is “largely restricted” at its 70 percent owned subsidiary Mineracao Usiminas, Musa, and “may not be immediately accessible to meet Usiminas' financial obligations.” Sumitomo Corporation owns the remaining 30 percent stake.
Late last week, shareholders at Musa scheduled an extraordinary meeting for January to discuss whether Usiminas could use some of Musa’s money to pay the steelmaker’s creditors.
Despite the challenges, Moody’s said 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.”
The downsizing process at the steelmaker’s Cubatao mill located in the city of same name in the state of Sao Paulo “significantly” reduced Usiminas’ cost structure and production capacity, according to Moody’s, providing “flexibility to the company amid the deterioration of the steel market in Brazil.”
“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,” the credit rating agency said.