CSN Cash Burn Seen by Fitch as Raising Restructuring Specter

Cia. Siderurgica Nacional SA probably will keep burning cash even as it sells assets, heightening the risk Latin America’s most-indebted steelmaker will have to restructure within two years, Fitch Ratings said.

“Negative pressures on CSN’s cash flow are not expected to abate in 2016,” Fitch Associate Director Phillip Wrenn wrote in a report Tuesday. “Monetizing assets in this environment will be extremely challenging.”

The Sao Paulo-based company was downgraded to B- from B+, Fitch said in a separate statement Tuesday, amid slumping iron-ore prices, a collapse in Brazilian steel demand and rising interest rates. The steelmaker’s net debt of 11.5 times earnings before interest, taxes, depreciation and amortization is the highest among 70 members of the Bloomberg World Iron/Steel Index after Finland’s Outokumpu Oyj. Its bonds due 2020 are trading at 47 cents on the dollar, with yields at a near-record 28 percent.

CSN, which is also the largest publicly traded iron-ore producer in Brazil after Vale SA, would need to sell about 2 billion reais ($500 million) in assets to be free cash flow neutral in 2016 assuming iron prices average $45 a metric ton, Wrenn wrote in a Fitch series called “10 Most Distressed LatAm Corporates.”

Iron ore rose 1.9 percent to $43.84 a ton on Tuesday, according to a price index compiled by Metal Bulletin.

“Factored into the rating downgrade is Fitch’s view that CSN’s capital structure is unsustainable under current market conditions,” Fitch said. “With approximately 35 percent of its total debt attributed to capital market liabilities, CSN could struggle to refinance this debt before it comes due in 2019 and 2020.”

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