Hoover (City of) AL, Industrial Devel. Board -- Moody's upgrades United States Steel's CFR to B3; outlook positive

Rating Action: Moody's upgrades United States Steel's CFR to B3; outlook positiveGlobal Credit Research - 07 Apr 2021New York, April 07, 2021 -- Moody's Investors Service ("Moody's") upgraded United States Steel Corporation's ("U. S. Steel") Corporate Family rating to B3 from Caa1, its Probability of Default rating to B3-PD from Caa1-PD, and its senior unsecured debt rating to Caa1 from Caa2. At the same time, Moody's assigned a rating of (P)Caa1 to U. S. Steel's senior unsecured shelf and upgraded Big River Steel LLC's ("Big River Steel") secured debt rating to B1 from B3. U. S. Steel's and Big River Steel's ratings outlook was changed to positive from stable to reflect the likelihood its credit metrics will be strong for the rating over the next 12 months and that further ratings upside is possible if they are sustained at a similar level. The Speculative Grade Liquidity Rating was upgraded to SGL-2 from SGL-3."The upgrade of U. S. Steel's ratings reflects the materially improved steel sector fundamentals along with its recent debt and interest expense reduction initiatives, which will support a strong near term operating performance and sustainably stronger credit metrics." said Michael Corelli, Moody's Senior Vice President and lead analyst for U. S. Steel.Assignments:..Issuer: United States Steel Corporation....Senior Unsecured Shelf, Assigned (P)Caa1Upgrades:..Issuer: United States Steel Corporation.... Corporate Family Rating, Upgraded to B3 from Caa1.... Probability of Default Rating, Upgraded to B3-PD from Caa1-PD.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3....Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)....Senior Unsecured Regular Bond/Debenture, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Allegheny County Industrial Dev. Auth., PA....Senior Unsecured Revenue Bonds, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Bucks County Industrial Development Auth., PA....Senior Unsecured Revenue Bonds, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Hoover (City of) AL, Industrial Devel. Board....Senior Unsecured Revenue Bonds, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Indiana Finance Authority....Senior Unsecured Revenue Bonds, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Ohio Water Development Authority....Senior Unsecured Revenue Bonds, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Southwestern Illinois Development Authority....Senior Unsecured Revenue Bonds, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)..Issuer: Big River Steel LLC.Gtd. Senior Secured Regular Bond/Debenture, Upgraded to B1 (LGD2) from B3 (LGD3)..Issuer: Arkansas Development Finance Authority..Senior Secured Revenue Bonds, Upgraded to B1 (LGD2) from B3 (LGD3)Outlook Actions:..Issuer: United States Steel Corporation....Outlook, Changed To Positive From Stable..Issuer: Big River Steel LLC....Outlook, Changed To Positive From StableRATINGS RATIONALEU. S. Steel's B3 corporate family rating reflects its high debt level and somewhat elevated leverage and weak interest coverage in a normalized steel price environment, as well as its inconsistent free cash flow which will continue to be impacted by its elevated capital investments in its "Best of Both" strategy. It also reflects its highly variable operating performance due to its exposure to cyclical end markets and volatile steel prices. The rating also incorporates the company's large size and scale and strong market position as a leading US flat-rolled steel producer and whose footprint is further enhanced by its diversification in Central Europe. It also considers our expectation for a significantly improved operating performance in 2021 that will result in near term metrics that are strong for the rating, but are not likely sustainable as steel prices return to a more normalized level when supply and demand comes into balance later this year.U. S. Steel's operating results are expected to materially strengthen in 2021 and adjusted EBITDA could rise to $2 billion or higher due to a quicker than anticipated recovery in its key end markets, with the exception of the oil & gas sector, along with the addition of Big River Steel and the recent surge in steel prices. Its U. S. Steel Europe segment will also benefit from the same improved fundamentals as its domestic operations. Domestic steel prices have surged with hot rolled coil prices (HRC) at a record high of about $1,300 per ton in April 2021 after declining to a 4.5 year low around $440 per ton in July 2020 due to the effects of the pandemic. The price surge has been attributable to a temporary dislocation of supply and demand, low steel inventories and rising iron ore and scrap prices. However, we anticipate that demand will ebb as inventories are replenished and supply continues to ramp up as productivity improves and new capacity comes online and for the worldwide supply/demand imbalance to still exist and for prices to gradually decline towards their 10-year average price range of about $600 - $700 per ton. Steel prices have historically overshot to the upside and the downside for short periods of time before returning to more normalized price levels.U. S. Steel has taken advantage of the favorable steel sector dynamics and accommodative capital markets and completed significant financing actions in the first quarter of 2021 to pay down its debt, reduce its interest costs, maintain a good liquidity profile, enhance its financial flexibility and push out its debt maturities. The company raised $790 million in a secondary stock offering and issued $750 million of 6.875% Senior Notes due 2029 and used the proceeds from these transactions to redeem all of its $1.056 billion of 12% Senior Secured Notes due 2025. It also used a portion of its cash balance to repay the remaining $180 million of borrowings under the Export-Import loan and $621 million of borrowings under the US and USSK credit facilities. These actions have reduced debt by approximately $1.1 billion and annual run-rate interest expense by around $90 million, excluding the impact of the Big River Steel debt assumed in connection with the acquisition in January 2021.If U. S. Steel is able to produce adjusted EBITDA of more than $2 billion and uses its free cash flow to pay down debt, then its leverage ratio (debt/EBITDA) could decline to about 3.0x and its interest coverage (EBIT/Interest) could rise to around 4.0x. These metrics will be strong for the B3 corporate family rating and the company's rating could be considered for further upgrade if it continues to generate free cash flow and pays down debt, steel prices stabilize at a higher than historical level and it successfully integrates Big River Steel and executes on its "Best of Both" strategy.U. S. Steel has a speculative grade liquidity rating of SGL-2 since it is expected to maintain good liquidity. It had about $2.0 billion of unrestricted cash and borrowing availability of $944 million on its $2 billion asset based revolving credit facility as of December 31, 2020. The credit facility matures in October 2024 and had $505 million of borrowings outstanding. The facility requires the company to maintain a fixed charge coverage ratio of 1.0x should availability be less than the greater of 10% of the total aggregate commitment and $200 million. The company's borrowing availability was effectively reduced by $200 million since it would not be able to meet the fixed charge coverage ratio. Additionally, due to the level of receivables and inventory qualifying for inclusion in the borrowing base being less than the facility total, availability was reduced by a further $351 million. We anticipate the company's cash balance materially declined in the first quarter since a portion was used to pay down borrowings and to fund the acquisition of the remaining ownership interest in Big River Steel for an aggregate purchase price of approximately $773 million in January 2021. However, its borrowing availability likely increased significantly as covenant restrictions were potentially removed and the borrowing base rose along with higher inventories and receivables.The company also has a Euro 460 million ($564 million equivalent at December 31, 2020) secured credit facility at its U. S. Steel Kosice (USSK) subsidiary in Europe, which matures in September 2023. Euro 300 million (roughly $368 million) was outstanding as of December 31, 2021.The two-notch upgrade of Big River Steel's secured debt reflects its priority position in the consolidated capital structure and the benefit of U. S. Steel redeeming all of its secured notes and issuing additional unsecured debt which enhances the loss absorbing buffer below the secured debt. The Caa1 ratings on U.S. Steel's convertible notes, senior unsecured notes and IRB's reflects their effective subordination to the secured ABL, secured notes and bonds as well as priority payables.The positive ratings outlook incorporates our expectation for a significantly improved operating performance in 2021 that will result in credit metrics that are strong for the company's rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSU. S. Steel's ratings could be considered for an upgrade if steel prices are sustained above historical averages, Big River Steel is successfully integrated and the strategic benefits of the "Best of Both" strategy is achieved. Quantitatively, if U. S. Steel is able to sustain leverage of no more than 4.5x through varying price points and (CFO-dividends) in excess of 13% of its outstanding debt, ratings could be positively impacted.The company's ratings could be downgraded should steel sector conditions materially deteriorate such that its leverage ratio is sustained above 6.0x or (CFO-dividends) below 8% of its outstanding debt, or it fails to consistently generate free cash flow or maintain an adequate liquidity profile.Headquartered in Pittsburgh, Pennsylvania, United States Steel Corporation is the third largest flat-rolled steel producer in the US in terms of production capacity. The company manufactures and sells a wide variety of steel sheet, tubular and tin products across a broad array of industries including service centers, transportation, appliance, construction, containers, and oil, gas and petrochemicals. It also has an integrated steel plant and coke production facilities in Slovakia (U. S. Steel Kosice). Revenues for the twelve months ended December 31, 2020 were $9.7 billion.The principal methodology used in these ratings was Steel Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1074524. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Michael Corelli, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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