U.S. Steel upgraded to BBB- by Fitch after Nippon Steel acquisition

Investing.com -- Fitch Ratings has upgraded United States Steel Corporation’s (NYSE:X) Issuer Default Rating (IDR) to ’BBB-’ from ’BB’ with a Stable outlook on Friday. The rating agency also upgraded the company’s unsecured notes and environmental revenue bonds to ’BBB-’ from ’BB’.

The upgrade follows the completion of Nippon Steel Corporation’s acquisition of U.S. Steel. Fitch views the combined entity’s size, scale, and geographic diversification as positive factors for U.S. Steel’s business profile.

According to Fitch, U.S. Steel will gain access to Nippon Steel’s technology and intellectual property, which may improve operations and increase profitability. Nippon Steel’s annual steel capacity of approximately 69 million tons is more than triple U.S. Steel’s annual capacity of about 25.4 million tons.

The $11 billion in new investment in U.S. Steel’s business could be credit positive, assuming it does not reduce liquidity, increase leverage, or create overcapacity in the North American steel market.

Fitch rates U.S. Steel using the Stronger Parent path under its Parent and Subsidiary Linkage Rating Criteria. The agency assessed U.S. Steel’s Standalone Credit Profile at ’bb’ and Nippon Steel’s as investment grade.

U.S. Steel’s strategy of investing in flexible, lower-cost, less capital-intensive, and more efficient assets supports its credit quality. Fitch believes this will improve EBITDA and the company’s overall cost position and operating profile.

The company completed construction on a $450 million nongrain-oriented electrical steel line at Big River Steel in the third quarter of 2023. U.S. Steel is one of two producers of NGO electrical steel in the U.S., which is a critical component of motors used in hybrid and electric vehicles.

Fitch expects U.S. Steel’s EBITDA leverage, approximately 4.1x as of March 31, 2025, to be at or below 2.5x on average from year-end 2025 through year-end 2027. The agency projects standalone EBITDA to average between $1.5 billion and $2.0 billion annually over that period.

In comparison to peers, U.S. Steel is similar in size to Cleveland-Cliffs (NYSE:CLF) Inc. but has more electric arc furnace production and greater product and geographic diversification. The company is larger than Commercial Metals Company (NYSE:CMC) in terms of annual shipments and has higher product and end-market diversification.

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