Companhia Siderurgica Nacional 'CCC+' And 'brBB+' Ratings Placed On Watch Positive On Debt Refinancing Announcement


  • Brazil-based integrated steel producer Companhia Siderurgica Nacional (CSN) has announced the issuance of $750 million in notes to tender the outstanding amounts of its 2019 and 2020 bonds.
  • If the company is successful in placing the notes and use the proceeds to pay down debt due 2019 and 2020, liquidity pressures will diminish sharply.
  • On April 5, 2019, S&P Global ratings placed its ratings on CSN on CreditWatch with positive implications, including its 'CCC+' global scale and 'brBB+' national scale ratings.
  • The positive CreditWatch listing reflects a potential one-notch upgrade if the company successfully places the proposed notes and use the proceeds to prepay short-term debt maturities, alleviating liquidity pressures and strengthening its capital structure, enabling CSN to address the vast majority of its obligations until the end of 2020.
SAO PAULO (S&P Global Ratings) April 5, 2019—S&P Global Ratings took the 
rating action described above. The CreditWatch placement reflects our view 
that the issuance of the proposed notes, along with the currently stronger 
operating performance, will improve the company's capital structure and 
relieve liquidity pressures for at least the next 18-24 months. This comes 
along with CSN's recent bilateral debt refinancing through Brazilian banks, as 
well as the sale of CSN LLC in the U.S. and the prepayment transaction with 
Glencore, which brought about R$3.5 billion of cash to meet the company's 2019 
obligations.

The gradual recovery in the domestic steel demand and the price adjustments 
the company was able to apply, combined with the spike in iron ore prices in 
the past few months, will help to boost its cash generation in 2019. We 
believe CSN continues focusing on deleveraging, including asset sales to 
strengthen its liquidity and capital structure on a sustainable basis. 
According to our calculations, there would still remain a liquidity gap of R$1 
billion – R$2 billion (depending on the proposed issuance amount) until the 
end of 2020. The company could address the gap through further debt 
refinancing or a combination of the sale of its German operations, the sale of 
Usiminas' preferred shares, or an iron ore streaming transaction in the 
upcoming months. CSN could also meet the liquidity gap if iron ore prices 
remain above $80 per ton and steel volumes in the domestic market increase 
faster than expected.

In our view, the upgrade potential is limited to one notch. We understand CSN 
has significant maturities at its holding companies (Vicunha Aços and Rio 
Iaco) that require dividend payments to meet amortization schedules. 
Conservative financial policies and the maintenance of smoother debt 
amortization profile will be main rating drivers.
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