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By John Helmer in Moscow

Fitch, the international ratings agency owned by the Paris-listed Fimalac, has issued a downgrade notice for Severstal, lowering its issuer default and senior unsecured ratings from BB to BB-. The agency has also placed Severstal on a further watch for the possibility of deteriorating financial information leading to a further downgrade.

A report issued by Fitch says the action reflects the “view that Severstal’s profitability and credit metrics will deteriorate in 2009-2012 to levels that are not consistent with a ‘BB’ rating. EBITDA margin dropped to -5.7% and 7.4% in Q109 and Q408 respectively, from an average 23%-24% in 2006-2008. Fitch forecasts that EBITDA margin will remain in single digit in 2009-2010. Fitch is also concerned about uncertainty surrounding steel product volume and pricing trends over 2009-2010, especially in the automotive and construction sectors to which Severstal is most exposed. ”

Responding to Severstal’s financial report this month, disclosing that Severstal North America made a $243 million Ebitda loss in the first quarter, and to this site’s publication last week of borrowing covenants in Severstal’s 2013 and 2014 Eurobonds, Fitch has announced: “Severstal’s attempts to restructure its US assets have failed to improve the performance of its North America division, which in Q109 reported an EBITDA margin of -25%… Fitch expects Severstal’s 2009 profitability to remain under pressure and to materially weaken from 2006-2008 levels. As a result, the agency believes that Severstal could breach covenants under various facilities.”

Fitch told the market it will “assess expected developments in Severstal’s key markets and the adequacy of anti-crisis measures announced by management to reduce financial and operational risks.”

Fitch is owned, through an 82% stake in the Fimalac holding, by Marc Ladreit de Lacharrière, a French financier from Ardeche; until recently, he was also president of the association to preserve Vicomte-le-Vaux, one of the finest monuments to financial manipulation ever built. In the six months to March 31, this year, Fitch Ratings reports its revenues fell 14%, year on year, to €213 million.

Severstal spokesman in Moscow, Olga Antonova, said there will be no comment from Severstal on the downgrade. Associated Press reported Greg Mason, chief executive of Severstal North America, as claiming: “We are not actively marketing any of our assets.”

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