Moody's on April 4 downgraded 'snotes to Ca, mainly reflecting the standstill agreement that left suspended the principal paymentsof Usiminas' debt and covenant compliance requirements for 120 days startingMarch 18.
More specifically, the rating agency downgraded to (P) Cafrom (P) Caa1 the three US$500 million global medium-term note programs issuedby Usiminas, Cosipa Commercial Ltd. and Usiminas Commercial Ltd., as well asthe US$400 million senior unsecured notes due 2018, guaranteed by Usiminas, toCa from Caa1.
At the same time, Moody's América Latina downgradedUsiminas' corporate family rating on a global scale to Ca from Caa1 and thenational scale to Ca.br from Caa1.br.
The outlook on the ratings is stable.
"[T]he company has an untenable capital structure andany distressed restructuring [is] likely to entail significant losses to thebondholders," Moody's said.
"Furthermore, the ratings continue to incorporate thecontinued deterioration of market fundamentals for steelmakers in Brazil andUsiminas' diminishing ability to generate cash flow from its operations, whichwill keep credit metrics pressured for a prolonged period of time and liquidityrisks high absent major debt restructuring."
Usiminas called on Itau Unibanco Holding SA, Banco BradescoSA, Banco Santander Brasil SA and Banco do Brasil SA to agree to an immediatestandstill deal. It was said that the banks will only agree if shareholders ofthe steel producer agree to inject US$1 billion into the company.
Nippon Steel& Sumitomo Metal Corp. was eager to a capital injection of up to1 billion Brazilian reais. Techint Group, the other major shareholder, agreed tosubscribe for up to 500 million reais worth of new shares.
The recently announced capital increase will partiallyrelieve short-term liquidity pressures amid very challenging market conditions,Moody's said.
Further negative ratings actions may be in the cards shouldUsiminas fail to proceed with the capital increase or enters into a debtrestructuring that results in higher than expected losses to creditors.
As of April 4, US$1was equivalent to 3.59 Brazilian reais.