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Fitch Downgrades ThyssenKrupp to 'BBB-'; Assigns Negative Outlook
20 May 2009 10:17 AM (EDT)
Fitch Ratings-Frankfurt/London-20 May 2009: Fitch Ratings has today downgraded Germany-based ThyssenKrupp AG's (TK) Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB-' from 'BBB+', respectively, and downgraded its Short-term IDR to 'F3' from 'F2'. At the same time, Fitch has removed the Long-term IDR, senior unsecured rating, and the Short-term IDR from Rating Watch Negative (RWN), and assigned the Long-term IDR a Negative Outlook.
The downgrade reflects Fitch's expectation of a material deterioration of the group's credit metrics, partly mitigated by TK's ongoing good liquidity situation. Fitch continues to take into account the group's diversified structure as a positive rating factor.
However, the severe and highly synchronised global downturn, which is affecting most of TK's operations, will have a significant impact on profitability and cash flow generation, and the agency does not expect TK's financial profile to recover to pre-crisis levels in the foreseeable future. The rating action concludes a review of TK's ratings, which were placed on RWN on 19 March 2009 on the expectation of a much weaker operating performance compared to previous assumptions.
It also takes into consideration the expected development of the group's credit profile some 18-24 months after the trough of the current global recession.
TK expects net debt to rise markedly to some EUR5bn at FYE09 from EUR1.6bn at FYE08 and it will be heavily impacted by ongoing high capital expenditure of EUR4.5bn-5bn, mainly for its steel investments in the Americas. In addition, the group's asset disposal plans, including the sale of its industrial services business unit, continue to be exposed to execution risks with an uncertain outcome. Fitch expects the group's lease adjusted net debt/EBITDAR ratio to exceed 4x in FYE09, followed by a gradual deleveraging afterwards.
While TK's sales decreased by 16% yoy to EUR21.4bn in the first half of FY09, the sales contraction accelerated during Q209 to 25% yoy, chiefly on falling demand and a sharp decline in prices for carbon and stainless steel and materials services.
Reported H109 EBITDA dropped to EUR906m versus nearly EUR2.3bn in the prior year, translating into EBITDA margins of 4.2% and 9%, respectively.
TK has revised its full FY09 expectations further downwards, and is now anticipating a pre-tax loss in the range of a EUR mid-to-high three-digit million before major non-recurring items.
In addition, earnings will be significantly affected by project costs for new steel plants, restructuring measures and impairments. To preserve liquidity and earnings, TK has implemented several steps to reduce costs, lower net working capital and adapt its investment program. The group also will reorganise its operations and aims to achieve cost savings of EUR500m per year, which are not expected to materialise in the short-term.
The Negative Outlook reflects the risk of a deeper and more protracted global recession, which could constrain the group's expected mild recovery from 2010 onwards, particularly when TK's new low cost steel capacity will come on stream.
In its latest global economic outlook, Fitch revised downward significantly its forecast for GDP in 2009, reflecting the abrupt fall in activity and trade at the end of last year (for further detail, see the 31 March 2009 report entitled "Global Economic Outlook", which is available on the agency's subscriber website, www.fitchresearch.com).
Further rating pressure could arise if Fitch anticipates that the group's recovery and deleveraging efforts are unlikely to materialise in the next 12-24 months, or if financial flexibility is materially affected.
The group's solid liquidity of some EUR6.5bn as at H109, including cash and equivalents of EUR3.7bn, continues to be a key supporting factor for TK's credit profile and provides a cushion to weather the global recession.
The group's debt maturity profile is well balanced with the bulk of total debt of EUR7.5bn at H109 maturing after FY13; short-term debt was at a moderate EUR942m at H109.
TK is a diversified industrial group. The conglomerate, which employs nearly 200,000 people worldwide, has leading global market positions in steel and elevators, as well as in selected engineering and services activities. TK realised sales of EUR53.4bn in FY08
20 May 2009 10:17 AM (EDT)
Fitch Ratings-Frankfurt/London-20 May 2009: Fitch Ratings has today downgraded Germany-based ThyssenKrupp AG's (TK) Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB-' from 'BBB+', respectively, and downgraded its Short-term IDR to 'F3' from 'F2'. At the same time, Fitch has removed the Long-term IDR, senior unsecured rating, and the Short-term IDR from Rating Watch Negative (RWN), and assigned the Long-term IDR a Negative Outlook.
The downgrade reflects Fitch's expectation of a material deterioration of the group's credit metrics, partly mitigated by TK's ongoing good liquidity situation. Fitch continues to take into account the group's diversified structure as a positive rating factor.
However, the severe and highly synchronised global downturn, which is affecting most of TK's operations, will have a significant impact on profitability and cash flow generation, and the agency does not expect TK's financial profile to recover to pre-crisis levels in the foreseeable future. The rating action concludes a review of TK's ratings, which were placed on RWN on 19 March 2009 on the expectation of a much weaker operating performance compared to previous assumptions.
It also takes into consideration the expected development of the group's credit profile some 18-24 months after the trough of the current global recession.
TK expects net debt to rise markedly to some EUR5bn at FYE09 from EUR1.6bn at FYE08 and it will be heavily impacted by ongoing high capital expenditure of EUR4.5bn-5bn, mainly for its steel investments in the Americas. In addition, the group's asset disposal plans, including the sale of its industrial services business unit, continue to be exposed to execution risks with an uncertain outcome. Fitch expects the group's lease adjusted net debt/EBITDAR ratio to exceed 4x in FYE09, followed by a gradual deleveraging afterwards.
While TK's sales decreased by 16% yoy to EUR21.4bn in the first half of FY09, the sales contraction accelerated during Q209 to 25% yoy, chiefly on falling demand and a sharp decline in prices for carbon and stainless steel and materials services.
Reported H109 EBITDA dropped to EUR906m versus nearly EUR2.3bn in the prior year, translating into EBITDA margins of 4.2% and 9%, respectively.
TK has revised its full FY09 expectations further downwards, and is now anticipating a pre-tax loss in the range of a EUR mid-to-high three-digit million before major non-recurring items.
In addition, earnings will be significantly affected by project costs for new steel plants, restructuring measures and impairments. To preserve liquidity and earnings, TK has implemented several steps to reduce costs, lower net working capital and adapt its investment program. The group also will reorganise its operations and aims to achieve cost savings of EUR500m per year, which are not expected to materialise in the short-term.
The Negative Outlook reflects the risk of a deeper and more protracted global recession, which could constrain the group's expected mild recovery from 2010 onwards, particularly when TK's new low cost steel capacity will come on stream.
In its latest global economic outlook, Fitch revised downward significantly its forecast for GDP in 2009, reflecting the abrupt fall in activity and trade at the end of last year (for further detail, see the 31 March 2009 report entitled "Global Economic Outlook", which is available on the agency's subscriber website, www.fitchresearch.com).
Further rating pressure could arise if Fitch anticipates that the group's recovery and deleveraging efforts are unlikely to materialise in the next 12-24 months, or if financial flexibility is materially affected.
The group's solid liquidity of some EUR6.5bn as at H109, including cash and equivalents of EUR3.7bn, continues to be a key supporting factor for TK's credit profile and provides a cushion to weather the global recession.
The group's debt maturity profile is well balanced with the bulk of total debt of EUR7.5bn at H109 maturing after FY13; short-term debt was at a moderate EUR942m at H109.
TK is a diversified industrial group. The conglomerate, which employs nearly 200,000 people worldwide, has leading global market positions in steel and elevators, as well as in selected engineering and services activities. TK realised sales of EUR53.4bn in FY08
outlook negativo.
