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S&P upgrades Usiminas on stronger cash flows

S&P Global Ratings on June 12 raised Usinas Siderúrgicas de Minas Gerais SA's global scale corporate ratings to B from B- and its national scale ratings to BBB from BB, on expected stronger cash flowed expected for the company in the next few quarters. The outlook remains positive.

The rating agency also raised the issue level national scale rating on Usiminas' senior secured debentures to BBB from BB and the recovery rating to 3 from 4.

The upgrade reflects the company's improving financial metrics, which continue to be supported by gradually increasing demand for flat steel in the domestic market, slightly higher flat steel prices as demand recovers, higher output of iron ore to be sold to third parties from mining subsidiary Mineração Usiminas SA, and a focus on a higher margin product mix and lean operations to optimize cash generation.

As Usiminas' operations continue to improve, S&P expects the company to continue to pay down debt in accordance with a cash sweep mechanism in its debt restructuring agreement, which requires it to use all cash generated in the year to prepay future amortizing debt.

A shareholders' agreement reached between controlling shareholders Nippon Steel & Sumitomo Metal Corp. and Ternium SA, which settled a long-running dispute and sets rules for how senior roles are filled, is also a positive for the company, the rating agency said.

S&P forecasts Usiminas' debt to EBITDA at below 3.0x and funds from operations to debt of around 30% this year, and close to 2.0x and 35%, respectively, in 2019.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found in the sources section.