Advanced Theory & Practice of Bonds

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Brazil’s largest integrated steel producer Companhia Siderurgica Nacional’s (CSN) long term issuer default rating has been upgraded to BB from BB- by Fitch. CSN’s senior unsecured notes of CSN Inova Ventures, CSN Islands XII Corp, and CSN Resources SA (all guaranteed by CSN) have also been upgraded to BB with a positive outlook on its international ratings. The rating agency cited CSN’s strong iron ore business, strong position in Brazil’s flat steel market and its cost competitiveness as reasons for the upgrade. Fitch also credited the company with being able to trim its net debt to $2.4bn from $7.7bn as at 2017-end and expects the company to further deleverage by $1.3bn over the next 12-18 months. The rating agency expects CSN to generate BRL 24.5bn ($4.71bn) of EBITDA and BRL 13.8bn ($2.65bn) of free cash flow in 2021, after capex of BRL 2.8bn ($538mn) in 2021. It forecasts a net debt to EBITDA of 0.2x for end-2021 with the ratio weakening in the following years on the back of falling iron ore prices – $100/ton in 2022, $80/ton in 2023, $70/ton in 2024 (from $200/ton in 1H 2021). CSN’s 6.75% 2028s are trading stable at 109.5 currently.

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