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Fitch lowers US Steel deeper into junk territory

Associated Press Published: May 3, 2012

NEW YORK (AP) — Fitch Ratings downgraded United States Steel Corp.'s credit one notch deeper into junk-bond territory, saying the company faced pressures on steel prices and high capital spending.

Fitch lowered the company's default rating to "BB-" from "BB." It listed the outlook as "stable," saying that the company has enough cash and financing to keep operating even if the economic recovery remains weak for 12 to 18 more months.

The lower ratings could boost the company's borrowing costs. A lower rating indicates the agency feels there is more risk for a buyer to be repaid in full. In addition, some big bond investors such as pension funds are not permitted to hold securities with non-investment, or junk, ratings.

The ratings agency estimated that US Steel's free cash flow in 2012 could range from flat to negative $160 million partly due to high capital spending as the company works on projects to improve costs or develop new products.

Fitch also said that earnings have been under pressure because steel mills in North America have been running far below full capacity — around 80 percent for the industry and 83 percent for U.S. Steel in the first quarter. It noted that no steel is being produced at Hamilton, Ontario, which it said accounts for 9.5 percent of the company's North American capacity.

Fitch estimated that US Steel's earnings before interest, taxes, depreciation and amortization would be about $1.5 billion in 2012, improving eventually to around $2 billion a year. Last year it was $836 million.

Last month, the company reported that its first-quarter loss widened on a charge for the sale of its Serbian manufacturing plant for $1 to the Serbian government. The quarterly loss of $219 million compared with a loss of $86 million a year earlier, although revenue rose 6.3 percent to $5.17 billion.

Steel makers provide a snapshot of the economy because they sell products to so many kinds of companies.


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