According to Reuters, Fitch Ratings Agency has downgraded the ratings of U.S. Steel Corporation (X) to junk status on account of a lack of visibility about the company’s return to profitability. Fitch has lowered the steelmaker’s issuer default rating and senior unsecured notes rating to “BB+” from “BBB-“, one step below the investment grade. Fitch has also lowered U.S. Steel’s senior secured credit facility to “BBB-” from “BBB”. Fitch considers debt rated “BB+” to be more prone to changes in the economy. “BBB” rated debt are medium class debt, which is satisfactory at the moment. The agency revised the company’s ratings outlook to stable from negative, according to Reuters.
On Tuesday, U.S. Steel had posted a fourth consecutive quarterly loss of $1.86 per share. For the full year 2009, U.S. Steel losses totaled $1,401 million, or $10.42 per share, compared with full year 2008 net income of $2,112 million, or $17.96 per share. Revenues plunged 25% to $2.9 billion, driven by a significant decline in total steel shipments. The company saw lower volumes and prices across all major segments on the back of a slump in the economy. Additionally, increasing competition from China and weak demand in major markets, especially Europe, resulted in lower capacity utilization, impacting results.
The outlook for overall demand remains uncertain amid the credit crisis and the economic slowdown. U.S. Steel still sees each of its businesses posting an operating loss for the upcoming quarter. The company expects to report an overall first quarter 2010 operating loss in line with the latest quarter.
Reuters stated that Fitch is expecting U.S. Steel to report negative free cash in 2010 and that the company may seek new financing in the near term to cover part of its capital spending for the next one to two years. The company, however, has sufficient liquidity to support operations if economic recovery remains weak for the next 12 to 18 months.
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