Brazilian Steel Producer CSN Upgraded To 'B-' From 'CCC+' And Off Watch On Successful Debt Refinancing, Outlook Positive


  • Brazil-based integrated steel producer Companhia Siderurgica Nacional (CSN) has announced the issuance of a $600 million bond due 2026 and a $400 million add-on to its existing 2023 bond to tender the outstanding amounts of its 2019 and 2020 bonds.
  • As a result, liquidity pressures on the company for the next 24 months have diminished sharply.
  • On April 12, 2019, S&P Global raised its global and national scale ratings on CSN to 'B-' from 'CCC+' and to 'brBBB+' from 'brBB+', respectively. At the same time, we raised our issue-level ratings on CSN Islands XI Corp., CSN Islands XII Corp., and CSN Resources S.A.'s senior unsecured notes to 'B-' from 'CCC+'. We also removed the ratings from CreditWatch with positive implications, where we placed them on April 5, 2019. The issue-level ratings remain at the same level as the long-term issuer credit rating, reflecting the holding company's unconditional guarantee and the recovery rating of '4', given the expected average recovery of 40% (rounded estimate).
  • The positive outlook reflects our expectation that the company will continue improving its operating performance, which coupled with the monetization initiatives in place, such as asset sales and debt refinancing, and a more conservative financial policy, will enable it to address the vast majority of its obligations until the end of 2020 and deleverage gradually over time.
SAO PAULO (S&P Global Ratings) April 12, 2019—S&P Global Ratings took rating actions described above. The upgrade reflects our view of improved overall credit profile following the company's successful issuance of a $600 million bond and a $400 million add-on to its 2023 bond, which the company will mostly use to tender the outstanding amounts of its 2019 and 2020 bonds. This, coupled with the improving operating performance and the already announced bilateral debt refinancing with Brazilian banks, the sale of CSN LLC in the U.S., and the prepayment transaction with Glencore, will cover most of the company's liquidity gap for the next 24 months.
The positive outlook reflects the potential further improvement in CSN's creditworthiness stemming from its stronger cash flows following the gradual recovery in the domestic steel market volumes and international prices that allow price adjustments, as well as the recent spike in iron ore prices. The company also announced that it could sell its German operations and preferred shares in Usinas Siderurgicas de Minas Gerais S.A. (B/Positive/--). These actions, which in combination with the higher cash generation, will allow CSN to deleverage over the next few years, although the still high debt and interest burden remain an issue.
However, an upgrade would only be possible if the company maintains a track record of more conservative financial policies, including shareholder remuneration and investments, focus on deleveraging, and if CSN addresses the amortization schedules at its holding-company level without jeopardizing its own balance sheet.
Despite the substantial improvement following with the recent bond issuance, we continue to view CSN's liquidity as less than adequate. Sources over uses of cash for the next 24 months are evenly matched, due to the improving operating performance, asset sales, and debt refinancing, including the new bond issuances totaling $1 billion.
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