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Fitch Affirms United States Steel Corporation at 'BBB-'; Outlook Stable

Posted on: Friday, 8 August 2008, 15:00 CDT

Fitch Ratings has affirmed the ratings of United States Steel Corporation (U.S. Steel) securities as follows:

--Issuer Default Rating (IDR) 'BBB-';

--Senior unsecured notes 'BBB-';

--Senior unsecured revolving credit facility 'BBB-';

--Senior unsecured term loan 'BBB-'.

The Rating Outlook for is stable.

Fitch's ratings reflect U.S. Steel's relatively strong balance sheet and the strategic advantages associated with acquisitions made in 2007: U.S. Steel acquired Lone Star Technologies, Inc. on June 14, 2007 and Stelco Inc. on Oct. 31, 2007. The ratings reflect Fitch's view that:

--The steel market should remain relatively strong over the near term.

--Raw materials price inflation will continue to constrain earnings.

--Earnings will continue to be affected by the cyclical nature of the steel market.

U.S. Steel's performance has exceeded expectations on resilient domestic pricing, operating flexibility and discipline. The outlook for domestic steel pricing is supported by tight raw materials supply which constrains production, as well as high transportation costs and the weak U.S. dollar, which discourages imports. The latest 12 months' operating EBITDA topped $2.2 billion. While fourth-quarter 2008 results are expected to show seasonal weakness, the third quarter should show sequential improvement.

In 2008, Fitch expects U.S. Steel to generate ample operating cash flow to cover $940 million in capital expenditures, $129 million in dividends, the $140 million voluntary pension contribution, of which $70 million was made in the first half, and $80 million in debt retirements, of which $44 million remain. In the near term, we expect leverage as measured by total debt to EBITDA to range between 1.1 times (x) and 1.5 x.

The Stable Rating Outlook reflects Fitch's view that the company will continue to maintain its asset base while preserving its strong liquidity and flexible capital structure over the next 12-18 months. The Rating Outlook assumes that the labor agreement expiring Sept. 1, 2008 is satisfactorily renegotiated. The rating and affirmation assumes that any future acquisitions will be financed in a conservative manner.

U.S. Steel ranks in the world's top steel producers with raw steel capability of 31.7 million tons per year. The company produces a wide variety of steel products, is a leading supplier of carbon sheet to the automotive and appliance industries, and is the second-largest tin mill product producer in North America. U.S. Steel is the largest North American producer of seamless oil country tubular goods used in oil/gas drilling. In addition, U.S. Steel is the second largest North American iron ore producer.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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