TEXT-S&P assigns OJSC NLMK loan participation notes 'BBB' rating
Sept 18 - Standard & Poor's Ratings Services said today it assigned its 'BBB-' long-term rating to the proposed loan participation notes (LPNs) to be issued by Ireland-based special-purpose vehicle Steel Funding Ltd. for the sole purpose of financing a loan to Russian steel producer OJSC NLMK (NLMK; BBB-/Negative/--; national scale rating ruAAA). The rating on the notes is equalized with the long-term issuer credit rating on NLMK. The amount, maturity, and coupon are to be determined at placement. The rating on the proposed notes is conditional on successful issuance and our satisfactory review of the final documentation. We believe the level of contractual and structural subordination for future holders of the notes to be issued is low because most of NLMK's debt is issued by the holding and main operating company of the NLMK group, and NLMK's secured debt is low. Also, most of the debt that is secured and outside the parent company is located in NLMK subsidiary Steel Invest & Finance, which we see as a weaker entity. The ratings on NLMK reflect our assessment of its business risk profile as "satisfactory" and its financial risk profile as "intermediate," as our criteria define the terms. The business risk profile is supported by the company's superior cost position, partial vertical integration into iron ore, and the wide diversity of its export markets. Constraining factors are weaker margins impaired by the sluggish steel industry environment and the cyclicality of the global steel sector. NLMK also lacks vertical integration in coking coal, has most of its production flow assets concentrated in the city of Lipetsk, and faces country risk associated with operating in the Russian Federation (foreign currency BBB/Stable/A-2, local currency BBB+/Stable/A-2; Russia national scale 'ruAAA'). We view NLMK's financial risk profile as "intermediate" because the company has moderate debt and a conservative financial policy. Constraining factors are NLMK's current cyclically weak cash flow generation, typical for the steel industry, and its substantial debt maturities starting from the fourth quarter of 2012. RELATED CRITERIA AND RESEARCH -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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