September 07, 2008

Fitch affirms US Steel\'s IDR at BBB- on acquisition announcement

Fitch Ratings has affirmed the Issuer Default Rating and senior unsecured ratings of United States Steel Corporation following the announcement that it is acquiring Stelco Inc. for USD 1.1 billion. As of June 30th 2007, Stelco had approximately USD 760 million of net debt on its balance sheet. The Rating Outlook is Stable.

Fitch rates US Steel as follows
--Issuer Default Rating 'BBB-'
--Senior Unsecured Notes 'BBB-'
--Senior Unsecured Revolving Credit facility 'BBB-'
--Senior Unsecured Term Loan 'BBB-'

US Steel intends to pay for the acquisition and retire the majority of Stelco's existing debt through a combination of cash on hand, utilization of existing liquidity facilities and proceeds under two new fully committed senior credit facilities totaling USD 900 million.

The affirmation is based upon the strategic advantages associated with the transaction, coupled with US Steel's solid capital structure, and strong pro forma liquidity. Stelco's operations are very complementary and management expects to realize annualized pre-tax synergies of more than USD 100 million by the end of 2008. The transaction is expected to close in the fourth quarter.

Expected leverage based on USD 3.5 billion in debt at year end 2007 will be approximately 1.8 times. The Stable Outlook reflects Fitch's view that the company will continue to maintain its asset base while preserving its strong liquidity and conservative capital structure over the next 12 to 18 months. It said “We would expect the company to use free cash flow over this period to repay some of the debt used to acquire both Lone Star and Stelco.”