Moody’s Flags Usiminas Risk

Moody’s has downgraded the Brazil national scale rating for Usiminas to Aa1.br from Aaa.br amid concerns about operating performance and fears that the global steel industry will be slow to recover. The demotion affects BRL500m in subordinated unsecured debentures due 2013. Moody’s also cuts the outlook to negative from stable on Usiminas’ Baa3 global scale senior unsecured issuer rating. Moody’s says the issuer’s gross margins are being affected by high-cost iron ore and coal inventories, which are likely to continue to impact results. “The rating action also reflects a reduction in covenant cushion at Usiminas, which has slightly weakened its liquidity profile,” says the agency. “We anticipate an increase in its indebtedness in the near term to fund capex, which, when combined with the weaker operating performance affecting cash flow, will result in tightened headroom under financial covenants of certain of the company’s outstanding debt instruments,” it adds. Moody’s notes that Usiminas maintains a strong cash position of BRL2.8bn, which compares well with short term debt of BRL1.0bn.