Announcement of Periodic Review: Moody’s announces completion of a periodic review of ratings of United States Steel Corporation
Global Credit Research – 28 Aug 2020
New York, August 28, 2020 — Moody’s Investors Service (“Moody’s”) has completed a periodic review of the ratings of United States Steel Corporation and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review in which Moody’s reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since 1 January 2019, Moody’s practice has been to issue a press release following each periodic review to announce its completion.
This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Key rating considerations are summarized below.
United States Steel Corporation’s (U. S. Steel) Caa1 Corporate Family Rating (CFR) captures the deterioration in performance and metrics that occurred in 2019, as the Flat-Rolled Products Segment experienced relatively flat shipments and lower realized prices while U. S. Steel Europe (USSE) saw declines in shipments and lower realized prices due to the slowing in European economies and important end markets such as automotive. The Tubular segment continued to post negative EBITDA on a continued decline in drilling activity and price pressure from increases in OCTG imports. Consequently, U. S. Steel entered 2020 with weaker debt protection metrics and increased leverage, which has left the company more vulnerable to the severe deterioration in market end demand for its products as a result of the coronavirus. The impact on key end markets, such as automotive, which had idled production capacity from approximately mid-March through mid-May, together with reduced drilling activity were contributing factors to the roughly negative $250 million EBITDA (adjusted for Moody’s standard adjustments) in the second quarter ended June 30, 2020. While automotive is showing improvement, this is expected to be slow over the 2021/2022 time frame as will improvement in the oil and gas industry.
The actions taken by U. S. Steel to respond to the extremely negative conditions, include the indefinite idling of operations at Lone Star Tubular, Lorain Tubular, the temporary idling of a number of blast furnaces (although some have been restarted upon resumption of automotive production at the OEM’s) and additional other cost savings measures. Capital expenditures have been reduced to $750 million and include the delay of the Mon Valley Works projects, which we view as strategically important to the company’s competitive position in the industry going forward, as well as the delay of the remaining Gary hot strip mill upgrades among others. Given anticipated expansions by competitors in flat-rolled capacity this could impact U. S. Steel’s competitive position over the next several years.
Against this backdrop, U. S. Steel’s CFR is supported by its liquidity position, which included $2.3 billion in cash and equivalents at June 30, 2020, $190 in availability under the company’s $2 billion ABL facility and $155 million in availability under its USSK facility. Although negative EBITDA moving to breakeven is expected over the next several quarters, the company’s liquidity is expected to cover given working capital release expected in 2020 and absence of near-term debt maturities.
This document summarizes Moody’s view as of the publication date and will not be updated until the next periodic review announcement, which will incorporate material changes in credit circumstances (if any) during the intervening period.
The principal methodology used for this review was Steel Industry published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
This announcement applies only to EU rated and EU endorsed ratings. Non EU rated and non EU endorsed ratings may be referenced above to the extent necessary, if they are part of the same analytical unit.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Carol Cowan Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Glenn B. Eckert Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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