Algoma Steel Inc. Ratings Placed On CreditWatch Negative On Liquidity Concerns

  • We believe Algoma Steel Inc. faces heightened liquidity risk this year following a challenging 2019 that exhausted its cash position.
  • S&P Global Ratings expects a global economic recession in 2020, which in tandem with the uncertain impact of the COVID-19 outbreak, could lead to weaker-than-expected North American steel market conditions.
  • In the event Algoma generates earnings and cash flow modestly below our expectations this year, we believe the company could generate a material free-cash-flow deficit funded by draws on its credit facility that limit the company's financial flexibility.
  • As a result, S&P Global Ratings placed all of its ratings on Algoma, including its 'B-' issuer credit rating on the company, on CreditWatch with negative implications.
  • We expect to resolve the CreditWatch within the next few months, at which time we would expect to have greater visibility on the effect of prospective steel market conditions on Algoma's cash flow and liquidity, and its capacity to mitigate a potential period of sustained pressure.
TORONTO (S&P Global Ratings) March 26, 2020--S&P Global Ratings today took the rating actions listed above. We estimate Algoma will generate a free-cash-flow deficit in fiscal 2021, which could materially constrain the company's liquidity position. We believe Algoma faces heightened liquidity risk through 2020, based on the potential for significant draws under its US$250 million asset-based revolving loan facility (ABL). We expect the company will end fiscal 2020 (March 31) with a negligible cash position at a time when steel market conditions could be poised for a downturn. S&P Global Ratings estimates a global economic recession this year, with a significant contraction in the (calendar year) second quarter, and the impact of COVID-19 on Algoma's operations is uncertain. We estimate the company will generate a free-cash-flow deficit this year funded with draws on its ABL, but maintain excess borrowing capacity. However, we view there to be increased downside to our cash-flow forecasts.
The CreditWatch negative placement reflect our view of the risk that Algoma will face materially weaker liquidity through 2020 that limits its financial flexibility. We expect a global economic recession this year that, in tandem with the uncertain impact of the COVID-19 outbreak, could result in Algoma's earnings and cash flow being below our current expectations for fiscal 2021. In this scenario, we anticipate a higher-than-expected free-cash-flow deficit that leads to elevated draws under Algoma's credit facility.
S&P Global Ratings expects to resolve the CreditWatch within the next few months, at which time it would expect to have greater visibility on the potential impact of prospective steel market conditions on Algoma's cash flow and liquidity, as well as the company's capacity to mitigate a potential period of sustained pressure.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com