Moody’s downgrades CSN Islands

Moody's Investors Service said it downgraded to Ba2 from Ba1 the foreign currency rating assigned to the senior unsecured notes of CSN Islands XI Corp., CSN Islands XII Corp. and CSN Resources SA that are guaranteed by Companhia Siderurgica Nacional.

At the same time, Moody's America Latina downgraded CSN's global scale local currency rating to Ba2 and the national scale rating (NSR) to Aa3.br from Aa1.br.

The outlook was changed to negative from stable.

Moody’s said the downgrade reflects the deterioration in market fundamentals for the steel industry in Brazil and, more recently, for iron ore, the main operations of CSN (88% of total revenues and 86% of fiscal year 2014 EBITDA).

Steel demand levels, steel prices and iron ore prices are expected to remain under pressure and as a consequence, CSN's credit metrics, particularly leverage (due to the lower EBITDA), interest coverage and cash flow metrics will continue to be challenged.

Even with a reduction in capex in 2015 and lower dividend payout from 2015 onwards, the cash generation ability of CSN will be diminished given the outlook for weak steel and iron ore market fundamentals through 2015 and at least 2016 for iron ore, the agency said.

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