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Bond Market News

US Steel Upgraded Two Notches to B1 by Moody’s

June 18, 2021
American integrated steel producer, US Steel, has been upgraded by two notches to B1 from B3 by Moody’s after it materially reduced its leverage. The senior unsecured debt rating has been raised to B3 from Caa1. The secured debt rating of Big River Steel has also been raised to Ba3 from B1 with a positive outlook. Moody’s forecasts the company’s earnings to strengthen in 2021 with adjusted EBITDA of ~$3.5-$4.0bn driven by the recent increase in steel prices on the back of higher demand and US Steel’s dominant position. The price of HRC steel is at a record high of $1,650/ton vs. just $440/ton in July 2020. The company expects to pare debt by ~$2.2bn and annual interest by $155mn in the current year. It has raised $790mn through stock offering and $750mn through the issue of 6.875% bonds due 2029, the proceeds of which were used to redeem its $1.056bn 12% 2025s. The company also used cash on hand to repay a debt of $180mn under the export-import loan facility and $860mn under the US and USSK credit facility. With this, its leverage (debt/EBITDA) is expected to fall to 1.5x and its interest coverage (EBIT/Interest) expected to rise to ~9x. However, these ratios could reverse marginally in the future as the rating agency  expects steel prices to settle to normalized historic levels once the supply demand rebalances. Moody’s last rating action was an upgrade from Caa1 to B3 in April this year.
US Steel’s 6.875% 2025s and 6.65% 2037s were up 0.06 and 0.84 to trade at 102.38 and 107.38 respectively on the secondary markets.
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