U.S. Steel Plans $196 Million Tax-Exempt Conduit Bond Sale

U.S. Steel Corp., the nation’s biggest producer of the metal by volume, plans to sell $196 million of tax-exempt conduit bonds as soon as tomorrow through eight municipal authorities in six states.

The proceeds will be used for refunding, according to the preliminary official statement. Last week Moody’s Investors Service lowered the company’s credit rating one level to Ba3, three steps below investment grade, citing the European sovereign-debt crisis and high raw-material costs.

Under terms of its separation from Marathon Oil Corp. in 2001, the Pittsburgh-based steelmaker must repay $196 million of environmental-revenue bonds by year-end, Gretchen Haggerty, U.S. Steel’s chief financial officer, said on an Oct. 25 earnings conference call.

“We believe that the tax-exempt bond market currently offers the best opportunity for a potential transaction,” Haggerty said. The company had been evaluating the taxable and tax-exempt bond markets for refunding opportunities this year, she said.

U.S. Steel has more than $3 billion of bonds outstanding, with yields as high as 7.375 percent, according to data compiled by Bloomberg. The company estimated $25 million of savings by using tax-exempt financing through the Indiana Finance Authority, according to its application.

Refunding Plan

Erin DiPietro, a spokeswoman for U.S. Steel, declined to comment on the bond sale beyond what was said during last week’s conference call.

The latest issue will be used to redeem the outstanding principal of previous refunding bonds. That past debt refunded another series of bonds that helped “pay a portion of the cost of acquiring, constructing, installing and equipping certain pollution-control facilities,” according to the preliminary official statement.

Conduit bonds allow state and local governments to issue tax-exempt debt on behalf of private entities, which helps those companies borrow at lower rates. A municipal authority lends its name to the bond sale and doesn’t pledge any of its own revenue, which means the repayment depends solely on the borrower, known as the obligor.

The sale involves eight municipal authorities. Indiana Finance Authority is offering the most debt, followed by Utah County, Utah; Allegheny County (Pennsylvania) Industrial Development Authority; Ohio Water Development Authority; Bucks County (Pennsylvania) Industrial Development Authority; the Industrial Development Board of the City of Fairfield (Alabama); Gulf Coast Waste Disposal Authority (Texas); and the Ohio Air Quality Development Authority.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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