S&P downgrades Essar Steel

Standard & Poor’s said it lowered the long-term corporate credit rating on Essar Steel Algoma Inc. to CCC+ from B-, along with the rating on its senior secured asset-based revolving facility and term loan to B from B+.

The 1 recovery rating on the debt is unchanged, indicating 90% to 100% expected default recovery.

The agency also said it lowered the rating on the company’s senior secured notes to B- from B+ and revised its recovery rating to 2 from 1. A 2 recovery rating indicates 70% to 90% expected default recovery.

S&P also lowered the rating on the company’s junior secured notes to CCC- from CCC+ and revised the recovery rating to 6 from 5. A 6 recovery indicates 0 to 10% expected default recovery.

The downgrades follow the sharp deterioration in North American steel prices, which have declined by about 30% since late 2014, the said.

The outlook is negative.

Excess industry capacity, soft demand and relative U.S.-dollar strength are key contributors to the price weakness, which is showing no signs of abating in the near term, S&P said.

Based on the company’s modest cash position and credit availability, the agency said it believes Essar will have limited flexibility to fund its operations over the next 12 months absent an improvement in steel prices from current depressed levels.

The company is vulnerable and dependent on favorable business, financial and economic conditions to meet its financial commitments over the next 12 months, which is consistent with the agency’s criteria for CCC+ ratings, S&P added.

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