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Investing.com -- Moody’s Ratings has downgraded Algoma Steel Group Inc.’s corporate family rating to Caa1 from B3, while maintaining a negative outlook for the company.
The rating agency also downgraded Algoma Steel Inc.’s backed senior secured second lien notes to Caa1 from B3 and lowered the company’s speculative grade liquidity rating to SGL-4 from SGL-2.
The downgrade reflects significant weakness in Algoma’s operating results, substantial cash burn, and a potential liquidity crunch due to the 50% tariffs imposed on steel imports into the United States. Moody’s expects negative EBITDA generation through fiscal 2026, which will drive continued cash depletion.
Algoma has applied for a CAD 500 million loan from the Canadian federal government under the Large Enterprise Tariff Loan facility program, which Moody’s expects will enhance the company’s liquidity. However, any borrowings will further increase the company’s already high financial leverage.
Without support from the LETL facility, Moody’s believes Algoma could face a liquidity shortfall over the next 12 to 18 months. The company’s current liquidity sources total about CAD 410 million compared to uses of approximately CAD 350 million through mid-2026.
The Caa1 rating is constrained by weak credit metrics, challenging operating conditions due to uncertain pricing and tariffs, weak liquidity, and execution risks related to the company’s Electric Arc Furnace project. More than half of Algoma’s revenue comes from exports to the U.S., which are now subject to the 50% tariffs.
Moody’s noted that Algoma’s rating benefits from its relatively low-cost hot rolled steel making capabilities, access to government financing for its EAF project, and strategic importance to the Canadian government as the largest independent Canadian steel producer.
The negative outlook reflects continued challenging operating conditions and uncertain tariff environment, while liquidity and credit metrics remain weakly positioned.
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