Fitch Downgrades Usimnas's IDRs to 'RD'
KEY RATING DRIVERS
The downgrades follow the conclusion of Usiminas' debt restructuring agreement. According to Fitch's methodology, a Debt Distressed Exchange is applicable when the company's restructuring of its debt imposes a material reduction in terms compared with the original contractual terms, and the restructuring is conducted in order to avoid bankruptcy, similar insolvency or intervention proceedings, or a traditional payment default.
After a short period of time when further information is available, Fitch expects to re-rate Usimnas' IDRs and debt issuance ratings and raise them to a performing level, which usually is still in the low speculative grade. The restructuring agreement will result in a significant extension of the maturity date of 92% of the company's debt. This debt is expected to be collateralized by assets consisting of its hot and cold coils units of the Ipatinga mill within 90 days.
Fitch understands that Usiminas' USD400 million unsecured notes due in 2018 were not part of the debt restructuring. The indenture for these notes includes a limitation on lien clause that typically requires the unsecured notes to be equally and ratably secured if relevant secured debt is created, thereby subordinating unsecured bondholders. If pari passu status does not occur, Fitch understands that the bond trustees or bondholders of at least 25% of the outstanding notes could notify the company of a default and, if not cured, this would lead to an event of default.
A positive rating action may follow after Fitch completes the assessment of the company's credit profile post-completion of its new debt profile.