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Moody’s Cuts Credit Ratings Of Bethlehem and Two Other Steel Makers

November 24, 1992

NEW YORK (AP) _ Moody’s Investors Service Inc. lowered the credit ratings of Bethlehem Steel Co. and two other major steel makers Monday, citing the downturn in the industry and a lagging recovery.

Moody’s said it downgraded the ratings of about $500 million in Bethlehem securities including revenue bonds, which are paid off from specific projects, and debentures, which are backed only by a company’s promise to pay.

It also cut ratings of about $625 million in mortgage bonds, revenue bonds and preferred stock held by Chicago-based Inland Steel Industries Inc.

Senior notes and industrial revenue bonds held by Weirton, W.Va.-based Weirton Steel Corp. were also downgraded.

For Bethlehem, the key concerns were with the company’s financial strength and flexibility due to the downturn in the steel industry, said Steve Treanor, chief analyst for the industry at Moody’s.

″Our projection is that the cyclical recovery of the industry will be delayed and relatively week.″

The Bethlehem, Pa.-based company is also bogged down by higher levels of debt than most of its domestic competitors, Treanor said. In addition, the company’s performance is hampered by labor cost pressures, especially pension and health benefits, he said.

The steel industry faces growing pressure from its customers, such as automakers, to hold down the cost of its products. Cost-containment makes it more difficult for steel companies to realize the type of rebounded earnings that typically accompany recoveries, Treanor explained.

To ensure ongoing viability of the company, Bethlehem needs to keep investing cash into its capital improvement program, which cuts the amount of money or equity that otherwise would shield debt holders, he said.

″The requirement of reduced but still substantial capital expenditures may prevent any meaningful credit improvement over the near term,″ he said.

As for Weirton, Treanor said, ″The conclusion of a large capital improvement program has substantially reduced the company’s funding requirements since 1991, but very low levels of operating cash flow have necessitated further borrowings and increased financial leverage.″

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