Fitch Ratings has affirmed the Issuer Default Rating (IDR) and notes issued by CSN Export Trust at 'BBB'. In conjunction, Fitch has assigned a Negative Outlook on the transaction.
Fitch has affirmed the following ratings:
CSN Export Trust
--IDR at 'BBB';
--Series 2003-1 at 'BBB';
--Series 2004-1 at 'BBB';
--Series 2005-1 at 'BBB'.
The program is backed by the sale of receivables generated by the future sales of certain steel products from Companhia Siderurgica Nacional (CSN) to CSN Export. Eligible products under the master export contract include exports generated from the sale of slabs and hot-rolled, cold-rolled, tinplate and galvanized products. The ratings reflect the credit quality of CSN, the strategic importance of the company's export business and the underlying structure of the transaction, which mitigates certain sovereign and corporate risks.
The Negative Outlook reflects deterioration in CSN's export operations due to the global recession, declining commodity prices abroad, and lower international demand for steel products. In the past year, total collections for the CSN Export transaction have fallen as both volumes and prices have declined. Although in the quarter ending November 2008, the CSN Export transaction fell below trigger levels on both the quarterly and 6 month required Debt-Service Coverage Ratios (DSCR), in the most recent quarter ending February 2009, flows stabilized above the required levels.
This future flow transaction is rated one notch above the local currency IDR of CSN due to its particular structure, the level of collateral, and the size of the future flow debt relative to the underlying company's overall debt. The outstanding future flow debt of approximately US$366 million represents approximately 8% of CSN's overall outstanding debt. Fitch believes this debt size is relatively small compared with the level of exports and the overall capital structure. The transaction size, vis-a-vis CSN's overall capital structure, puts investors in a relatively senior position to the company's other unsecured debt. Additionally, on an ongoing basis Fitch will monitor CSN's export business, which generates the underlying receivables, in order to gauge its strategic importance to the company's overall operations. Historically, the export flows have relied on a diversified product base and have represented 15%-20% of CSN's overall revenue.
CSN's corporate ratings are supported by the company's competitive position as one of the industry's lowest cost flat steel producers and the increasing importance of its profitable iron ore business. CSN benefits from its modern steel production facilities, vertical integration and diverse product mix. CSN holds leading positions in the value-added galvanized and tin mill products sectors of the Brazilian steel industry with an overall market share of about 25%. CSN's low-cost structure, which allows the company to remain profitable during troughs in the industry cycle, is due largely to the ownership of the Casa de Pedra mine, one of the world's largest high-quality iron ore bodies.
With annual production capacity of 5.6 million tons of crude steel and 5.1 million tons of rolled products, CSN ranks as one of the largest steel producers in Latin America. The company's fully integrated steel operations, located in the state of Rio de Janeiro in Brazil, produce steel slabs and hot- and cold-rolled coils and sheets for the automobile, construction and appliance industries, among others. CSN holds leading market shares in the galvanized and tin-mill products segments. CSN also produces iron ore mainly from its Casa de Pedra mine, which has a current production capacity of about 16 million tons.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Fitch Ratings
Mark Salgado, 312-368-2080 (Chicago)
Sam Fox,
312-606-2307 (Chicago)
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sandro.scenga@fitchratings.com