Fitch downgrades Usiminas

Fitch Ratings said it downgraded the foreign- and local-currency issuer default ratings of Usinas Siderurgicas de Minas Gerais SA (Usiminas) to C from B- and national rating to C(bra) from BBB-(bra).

Fitch also said it removed the issuer default ratings from Rating Watch negative.

The agency also downgraded the company’s senior unsecured notes to C with recovery rating of RR4 from B- with recovery rating of RR4.

The downgrades reflect an expectation that Usiminas will likely enter into an agreement with its creditors that will allow for sufficient time to receive a capital injection, Fitch said.

The high probability of Usiminas entering into a standstill agreement with its creditors is commensurate with a rating of C, the agency explained.

However, Fitch said it views the R$1 billion capital increase approved by the company’s board of directors to be insufficient for curtailing the company’s level of cash flow burn in the long term.

The company’s capital structure is unsustainable and will likely need additional resources to survive a prolonged period of stagnant demand, the agency said.

A debt restructuring would be unavoidable if Usiminas is unable to refinance its bank maturities and complete its capital injection in the near term, Fitch added.

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