Fitch Affirms U.S. Steel's IDR at 'BB-'; Outlook Stable
NEW YORK -- May 1, 2013
Fitch Ratings affirmed United States Steel Corporation's (U.S. Steel; NYSE: X)
Issuer Default Rating (IDR) and debt ratings at 'BB-'. A full list of rating
actions follows at the end of this release.
The Rating Outlook is Stable.
Key Rating Drivers:
The ratings reflect U.S. Steel's leading market positions in flat-rolled and
tubular steel in the U.S., together with its high degree of control over its
raw materials offset by the high fixed costs of integrated steel producers.
U.S. Steel is the second largest North American flat-rolled steel producer
with capacity of 24.3 million tons; 2012 shipments were 16 million tons. U.S.
Steel is the largest integrated North American tubular producer with capacity
of 2.8 million tons; 2012 shipments were 1.9 million tons.
U.S. Steel's production of iron ore pellets from its own operations was 21.4
million tons and from its share of joint ventures was 2.9 million tons in 2012
accounting for a significant share of its needs.
The U.S. steel industry is challenged by low capacity utilization (about 76%
on average for 2012 and year to date 2013) as a result of slow recovery in
manufacturing and construction. Fitch believes that margins are vulnerable
when capacity utilization is below 80%. Fitch expects capacity utilization to
remain below 80% in 2013.
Continued softness in the construction markets should constrain the rebound in
steel demand over the next 12 - 18 months. The domestic market has shown
supply discipline but global overcapacity and lack of discipline elsewhere has
limited pricing power while bidding up raw material prices.
U.S. Steel generated operating EBITDA of $887 million and $263 million of free
cash flow after capital expenditures of $650 million and dividends of $29
million for the latest 12 months (LTM) ended March 31, 2013. As of March 31,
2013, cash on hand was $733 million; total debt was $3.9 billion; the $875
million inventory facility maturing July 20, 2016 and the $625 million
receivables facility maturing July 18, 2014 were fully available. The
inventory facility has a 1.00:1.00 fixed-charge coverage ratio requirement
only at such times as availability under the facility is less than $87.5
Total Liquidity of $2.5 billion compares with 2013 guidance of capital
expenditure at $750 million, cash pension and other benefits at $550 million,
and Fitch estimated net financial costs at $235 million.
As of Dec. 31, 2012, defined benefit pension plans were under funded by $2.7
billion on a GAAP basis. Pension and other post-employment benefit costs were
$512 million for 2012 and cash payments were $707 million including the $140
million voluntary contribution to the main U.S. defined benefit pension plan.
Costs guidance for 2013 is $440 million. The company has voluntarily
contributed $140 million per year to the main defined pension plan over each
of the past seven years. U.S. Steel expects that it will not be required to
make mandatory contributions through 2016 as long as it makes $140 million in
annual voluntary contributions and assuming future asset performance is
consistent with U.S. Steel's long-term return assumption of 7.75% on its U.S.
Fitch expects leverage to remain below 4x through 2013 with scant debt
repayment. Near-term scheduled maturities of debt are $2 million in 2013; $321
million in 2014; and $190 million in 2015. The 2014 maturity is a convertible
issue with an initial conversion price of $31.875 per share.
Fitch expects EBITDA of at least $1 billion and negative free cash flow
generation as much as -$160 for 2013. Fitch believes that U.S. Steel's
liquidity is sufficient to support operations should the recovery remain weak
for the next 12-18 months.
The Stable Outlook reflects Fitch's view that U.S. Steel's liquidity is
sufficient to support operations should the recovery remain weak for the next
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--Deterioration in liquidity coupled with cash burn greater than $300 million;
--Weaker than expected operating results resulting in Total Debt/EBITDA
greater than 4.5x;
--A debt financed recapitalization or debt financed acquisition. Fitch views
these events as unlikely;
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--Sustained positive free cash flow generation and debt repayment.
Fitch affirms U.S. Steel's ratings as follows:
--Long-term IDR at 'BB-';
--Senior secured credit facility at 'BB';
--Senior unsecured notes at 'BB-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Corporate Rating Methodology' dated Aug. 8, 2012.
Applicable Criteria and Related Research
Corporate Rating Methodology
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Monica M. Bonar, +1-212-908-0579
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Sean T. Sexton, CFA, +1-312-368-3130
Jason Pompeii, +1-312-368-3210
Brian Bertsch, +1-212-908-0549 (New York)
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