Fitch Ratings - New York - 20 May 2020: Fitch Ratings has affirmed Unites States Steel Corporation's Long-Term Issuer Default Rating (IDR) at 'B-'. The Rating Outlook remains Negative. Fitch has also affirmed the asset-backed loan (ABL) credit facility at 'BB-'/'RR1' and downgraded the senior unsecured notes to 'CCC'/'RR6' from 'B-'/'RR4'. Additionally, Fitch has assigned the new first lien secured notes a 'BB-'/'RR1' rating. The downgrade of the unsecured notes is due to the issuance of up to roughly $700 million of secured debt which receives priority in the recovery waterfall.
The ratings reflect Fitch's expectation that key steel end markets, particularly automotive and energy will be materially weaker in 2020 in addition to the uncertainty associated with the coronavirus global pandemic's longer term impact on the economy. In response to the coronavirus pandemic, U. S. Steel announced a number of strategic decisions including the decision to idle a number of facilities, draw an additional $800 million under its ABL credit facility and to defer capex. Additionally, the company is looking to issue up to $700 million of secured notes to further supplement its liquidity position. Although Fitch views the decisions as prudent to preserve liquidity, the significant reduction in earnings, increase in debt and uncertain timing of an economic recovery results in expectations that total debt/EBITDA will be highly elevated in the near term to medium term.
The Negative Outlook reflects the uncertain ultimate economic impact of the coronavirus pandemic, the uncertain timing and magnitude of a recovery in the economy leading to the possibility that total debt/EBITDA will be sustained above 7.5x. Fitch views U. S. Steel's elevated financial leverage as partially offset by its significant liquidity position.