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Moody's Downgrades thyssenkrupp To Ba3

Steel News - Published on Fri, 16 Aug 2019

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Moody's Investors Service downgraded to Ba3 from Ba2 the corporate family rating and to Ba3-PD from Ba2-PD the probability of default rating of German steel and diversified industrial company thyssenkrupp AG. Concurrently, Moody's has downgraded to Ba3 from Ba2 the ratings on the group's senior unsecured debt instruments, including the downgrade to (P)Ba3 from (P)Ba2 of the ratings on the debt issuance programme. Moody's has further affirmed the short-term ratings of tk at NP/(P)NP. The outlook on all ratings has been changed to stable from rating under review. This rating action concludes the review for downgrade, which Moody's initiated on 14 May 2019.

The downgrade to Ba3 follows tk's weak results for the third fiscal quarter ended 30 June 2019 (Q3-18/19), which led to a further deterioration in its Moody's-adjusted leverage and free cash flow metrics. The rating agency also believes that it will take longer than previously anticipated for tk to improve its profitability and negative free cash flow generation in light of an increasingly challenging economic environment. Particularly sluggish demand from the automotive industry negatively impacted profitability in the group's Components Technology, Materials Services and the re-integrated Steel Europe business areas. Margins in SE were additionally burdened by a surge in raw material costs, especially for iron ore, which reached a multi-year high in June due to supply shortages. Although the Elevator Technology business recorded higher sales and better margins in Q3-18/19, and losses in the Industrial Solutions and Marine Systems divisions could be significantly reduced, this was insufficient to offset the material profit decline in the other businesses.

Moody’s said that the stable outlook assumes that tk will retain a healthy liquidity profile and be able to gradually strengthen the profitability across all business areas and return to positive free cash flows by 2020/21. The outlook also reflects Moody's expectation of tk to successfully execute its new strategy, including the proposed IPO of ET, and use related cash proceeds primarily for debt reduction.

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Posted By : Ratan Singh on Fri, 16 Aug 2019
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