U.S. Steel ratings under review for upgrade at Moody’s after Trump approval

Investing.com -- Moody’s Ratings has placed United States Steel (NYSE:X) Corporation’s ratings under review for upgrade following President Trump’s executive order approving the company’s acquisition by Nippon Steel Corporation.

The review includes U.S. Steel’s Ba3 corporate family rating, Ba3-PD probability of default rating, and B1 senior unsecured debt rating. Big River Steel LLC’s Ba2 secured debt rating was also placed under review for upgrade. Previously, both companies had stable outlooks.

President Trump issued the executive order on Thursday, approving the acquisition and the signing of a national security agreement between the U.S. government, U.S. Steel, Nippon Steel North America, Inc., and Nippon Steel Corporation.

According to the executive order, while the acquisition could pose national security risks, these risks can be adequately mitigated through compliance with the national security agreement on terms determined by the U.S. government.

The national security agreement requires Nippon to invest approximately $11 billion in new investments by 2028, including an initial investment in a greenfield project to be completed after 2028. The agreement also includes commitments related to governance, including a Golden Share to be issued to the U.S. Government, domestic production, and trade matters.

With all required regulatory approvals reportedly received, the transaction remains subject to customary closing conditions and is expected to be completed promptly.

The transaction is based on a definitive agreement reached on December 18, 2023, for an all-cash transaction at $55.00 per share. This represents an equity value of approximately $14.1 billion plus the assumption of debt, for a total enterprise value of $14.9 billion.

Moody’s placed U.S. Steel’s ratings on review for upgrade based on the benefits of ownership by Nippon, which has a stronger credit profile, larger and more diversified asset base, and greater financial resources. U.S. Steel’s American assets complement Nippon’s regional holdings and provide further geographic diversity from its operation in Slovakia.

The review will examine the final organizational and capital structure after the transaction closes, the level of parental support from Nippon, the Golden Share construct, and potential governance constraints posed by the national security agreement. The review will also consider Nippon’s credit rating, U.S. Steel’s standalone credit profile, and the state of the U.S. steel market, including potential benefits from steel tariffs.

After three consecutive years of EBITDA declines following record high earnings in 2021, U.S. Steel’s earnings could increase in 2025 as it begins to realize benefits from recent capital investments in expanded capacity and enhanced capabilities. These investments are expected to improve the company’s product mix and earnings potential.

U.S. Steel will also benefit from current import protections, which could lead to stronger domestic demand, higher steel prices, and greater cash flow generation. These effects might be moderated by existing high U.S. import protections, excess domestic steelmaking capacity, and potential retaliatory tariffs.

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