labels: corus group, steel, standard & poor's, tata steel
Tata Steel UK rated ''BB-/B'', outlook ''positive''; Corus L-T CCR cut to ''BB-'', outlook ''stable''news
11 July 2007

Standard & Poor''s said today that it had assigned its ''BB-'' long-term and ''B'' short-term corporate credit ratings to the UK-based steel producer Tata Steel UK Ltd (TSUK), the new intermediate parent holding company of UK-based steel manufacturer Corus Group PLC and wholly owned subsidiary of Tata Steel Ltd. (BB/Positive/--) India''s second-largest integrated steel producer.

The outlook is positive.

Standard & Poor''s also assigned its ''BB'' senior secured debt rating and a recovery rating of ''2'' to the £3.67-billion senior secured debt issued by TSUK and subsidiaries, indicating our expectation of substantial (70 per cent - 90 per cent) recovery in the event of a payment default.

The issue rating is one notch above the corporate credit rating.

At the same time, the long-term corporate credit rating on Corus Group was lowered to ''BB-'' from ''BB'' and removed from CreditWatch with developing implications. The outlook is stable. The short-term corporate credit rating on Corus Group was affirmed at ''B'' and removed from CreditWatch with positive implications.

Both ratings were initially placed on CreditWatch on Oct. 18, 2006. The lowering of the long-term rating reflects Corus Group''s much higher leverage following the completion of its takeover by Tata Steel.

The senior unsecured debt ratings on Corus Group''s €800 million 7.5% bonds due 2011 and Corus Finance PLC''s £200 million 6.75 per cent guaranteed bonds due 2008 have been lowered to ''B+'' from ''BB-'' and removed from CreditWatch with developing implications.

The one-notch downgrade maintains the existing one-notch differential with the corporate credit rating, reflecting structural subordination.

"The positive outlook on TSUK reflects the likelihood of a one-notch upgrade should Tata Steel complete its planned longer term financing including proposed hybrid securities and new equity," said Standard & Poor''s credit analyst Alex Herbert.

This would signal stronger evidence of Tata Steel''s ability to provide financial support to TSUK in a potential distress situation. Separately, we expect TSUK to continue to benefit from favorable steel prices and to improve its business profile.

"We do not, however, expect material enhancements to its operations, despite new ownership by Tata Steel, which will limit further upside potential," Herbert added. "In addition, much higher leverage will act as a constraining factor in coming years."

A ratio of FFO to adjusted debt of 20 per cent-25 per cent over the cycle is in line with the rating. Downside risk could develop if the steel market should markedly weaken.

"The stable outlook on Corus Group reflects our expectation that the outstanding bonds will be repaid from drawings under TSUK''s new senior secured bank facilities, which is likely in the coming months. We then expect to withdraw all ratings on Corus Group," he said.

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Tata Steel UK rated ''BB-/B'', outlook ''positive''; Corus L-T CCR cut to ''BB-'', outlook ''stable''