Fitch Ratings has upgraded
The Rating Outlook is Positive. Fitch has also upgraded U. S. Steel's ABL credit facility to 'BB+'/'RR1' from 'BB'/'RR1' and upgraded the unsecured notes and unsecured environmental revenue bonds to 'BB-'/'RR4' from 'B'/'RR4'.
The upgrade reflects U. S. Steel's significant debt repayment over the near term, solid steel market conditions, including historically high steel prices, which result in significantly higher EBITDA generation and significantly lower leverage metrics.
The ratings also reflect U. S. Steel's shifting focus to lower-cost, more-efficient mini mills as evidenced by the acquisition of
The Positive Outlook reflects the possibility that total debt/EBITDA could be sustained below 2.5x and the new mini mill could be self-funded and constructed over the rating horizon.
Key Rating Drivers
Significant Debt Repayment: In 1Q21, U. S. Steel completed an equity offering for proceeds of approximately
Improved Leverage Expectations: Total debt/EBITDA was 2.9x at 2Q21 driven by significantly higher EBITDA generation and debt repayment. Fitch expects total debt/EBITDA to improve to below 2.0x by YE21 in line with solid steel market conditions, including historically high steel prices, the company's near-term focus on debt repayment and Fitch's expectation for approximately
Solid Steel Market Conditions: HRC prices have recovered dramatically to historical highs and are supported by solid supply/demand dynamics, low imports and relatively high raw material costs. In its flat-rolled segment, U. S. Steel's shipments and realized prices improved 30% and 50% respectively in 2Q21 compared with the low point over the past year in 2Q20. The significantly improved domestic steel environment has led to stronger-than-expected EBITDA generation and lower leverage. EBITDA in 1H21 was more than
Big River Steel Acquisition: In
Additionally, U. S. Steel recently announced a new three million-ton mini mill, with construction expected to begin in 2022 and production to begin in 2024 with the current expected investment to be
Asset Monetization: U. S. Steel granted
In addition, U. S. Steel sold its
Derivation Summary
U. S. Steel is similar in size compared with
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer
Flat-rolled steel prices decline from historical highs through the ratings horizon;
Flat-rolled steel shipments of around 10 million tons in 2021 declining to around 9.5 million tons per year thereafter;
Mini Mill Segment shipments of around 2 million tons in 2021 gradually improving thereafter;
Capex around
Conservatively, no production from the new mini-mill in the forecast period;
No significant dividends, no share repurchases and no acquisitions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Total debt/EBITDA sustained below 2.5x;
EBITDA margins sustained above 10%;
Visibility into substantial de-risking of the
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Total debt/EBITDA sustained above 3.5x;
EBITDA margins sustained below 8.5%;
A material weakening of domestic steel market conditions leading to materially weaker than expected EBITDA;
Prolonged negative FCF.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Solid Liquidity: As of
Issuer Profile
U. S. Steel is an integrated steel producer of flat-rolled steel and tubular products with operations in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING RECOVERY PRIOR
United States Steel Corporation LT IDR BB- Upgrade B
senior unsecured
LT BB- Upgrade RR4 B
senior secured
LT BB+ Upgrade RR1 BB
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Additional information is available on www.fitchratings.com
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