Fitch Downgrades Algoma's IDR to 'B-'; Outlook Revised to Negative

Published: 2026-05-11 06:19:11 ET ASTL

Published on 05/11/2026 at 06:19 am EDT

Fitch Ratings has downgraded Algoma Steel Group Inc.'s and Algoma Steel Inc.'s Long-Term Issuer Default Ratings (IDRs) to 'B-' from 'B'.

Fitch has also downgraded Algoma Steel Inc.'s first-lien secured ABL credit facility to 'BB-' from 'BB' with a Recovery Rating of 'RR1' and its second-lien senior secured notes, due 2029, to 'B+'/'RR2' from 'BB-'/'RR2'. The Rating Outlook has been revised to Negative from Stable.

Algoma Steel Group Inc.'s (Algoma) downgrade to 'B-' reflects the negative effects on earnings, cash flows and leverage of the U.S. Section 232 tariffs and an uncertain economic environment. This is partially offset by sufficient liquidity to support the remaining transition to electric arc furnace production.

The Negative Outlook reflects Fitch's expectation that earnings, cash flow and EBITDA leverage will remain under pressure unless the Canadian steel market improves or U.S.-Canada trade agreements support profitable steel exports to the U.S. The Outlook could be revised to Stable if profitability and FCF generation turn sustainably positive or if EBITDA leverage trends toward the 4.5x to 5.5x range.

Key Rating Drivers

Challenged by 232 Tariffs: The current Section 232 tariff environment has severely constrained Canadian steel exports, resulting in an oversupply in the Canadian market. Algoma states 2025 direct tariff costs were CAD225.0 million. In addition, Canadian scrap prices reflect U.S. prices rather than Canadian steel prices because Canadian scrap imports into the U.S. are not subject to U.S. tariffs. Fitch expects 2026 EBITDA to show a loss of around CAD120 million. Prior to the reduction in exceptions and increase in tariff rates to 50% from 25% in June 2025, Algoma exported more than 50% of its production to the U.S.

EAF Transition Accelerated: Fitch believes Algoma's transition to electric-arc-furnace-only (EAF) production improves its operating profile in the longer term. The transition will increase capacity and create a lower, more flexible cost structure. It will also reduce capital intensity and improve the company's environmental footprint. Algoma is ramping up its first EAF unit and expects to complete construction of the second EAF in 1H26. The transition to EAF steelmaking has replaced production from Blast Furnace No. 7, which was decommissioned in January 2026. Blast Furnace No. 6 remains idle. Margins will be pressured during the ramp-up and decommissioning.

Elevated Leverage: Fitch expects Algoma to continue to borrow under government loan facilities to fund operations and capital spending through 2028 due to low production during the rampup, weak pricing in the Canadian market, and high raw material pricing. Thereafter, the company will likely use excess cash flow to repay debt. The rating case indicates that the USD375 ABL credit facility will need to be extended beyond 2028 and the 2029 USD350 million second lien notes will need to be refinanced.

Limited Size/Production Concentration: Algoma is a relatively small steel producer with about 2.8 million tons of annual capacity, expected to increase to about 3.7 million tons as the EAF project is completed. Hot-rolled coil (HRC) accounted for 70% of total shipments in 2025 with around 51% of shipments to the U.S and 48% to Canada. Algoma's product concentration is partially offset by its plate shipments (23% of 2025 shipments) and the company's position as the only supplier of discrete plate in Canada. Plate products command a premium to HRC. The company guides 2026 shipments to 1.0 million-1.2 million tons.

Peer Analysis

Algoma is significantly smaller and has less product diversification, higher operational risk and weaker credit metrics than majority blast furnace flat-rolled steel producers United States Steel Corporation (BBB-/Stable) and Cleveland-Cliffs Inc. (B+/Stable). Algoma is also significantly smaller and has weaker credit metrics than long steel EAF steel producer Commercial Metals Company (BB+/Stable).

Fitch's Key Rating-Case Assumptions

Average selling prices improve to around CAD1200/ton on average through 2029;

Annual shipments at 1.1 million tons in 2026 ramping-up to 2.8 million tons by 2028;

Capex of CAD125 million in 2026 and around CAD120 million per year thereafter;

LETL facilities and Asset-based lending (ABL) drawn as needed;

ABL maturity is extended;

No dividends, share repurchases or acquisitions through 2029.

Corporate Rating Tool Inputs and Scores

Fitch scored the issuer as follows, using our Corporate Rating Tool (CRT) to produce the Standalone Credit Profile (SCP):

Business and financial profile factors (assessment, relative importance): Management (bbb, Lower), Sector Characteristics (bbb+, Lower), Market and Competitive Positioning (b, Moderate), Diversification and Asset Quality (b-, Moderate), Company Operational Characteristics (ccc+, Higher), Profitability (b-, Moderate), Financial Structure (b-, Higher), and Financial Flexibility (b-, Moderate).

The quantitative financial subfactors are based on custom CRT financial period parameters: 10% weight for the historical year 2023, 40% for the forecast year 2027, 30% for the forecast year 2028 and 20% for the forecast year 2029.

Assessments of the quantitative financial subfactors also include bespoke calculations.

B+ to CC considerations apply in our analysis and result in no adjustment.

The Governance assessment of 'Good' results in no adjustment.

The Operating Environment assessment of 'aa-' results in no adjustment.

The SCP is 'b-'.

Recovery Analysis

The recovery analysis assumes that Algoma would be organized as a going concern in a bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. Fitch has also assumed a bankruptcy exit going concern EBITDA of CAD200 million. The going concern EBITDA estimate reflects a midcycle sustainable EBITDA level upon which the agency bases the enterprise valuation.

A bankruptcy scenario could occur from some combination of a period of sustained low steel prices and/or weak demand which results in low capacity utilization over a sustained period of time and drains FCF.

Fitch generally applies EBITDA multiples that range from 4.0x to 6.0x for metals and mining issuers, given the cyclical nature of commodity prices. Fitch applied a 5.0x multiple to the going concern EBITDA estimate to calculate a post-reorganization enterprise value of CAD900 million after an assumed 10% administrative claim.

The valuation compares with Algoma Steel Inc.'s (B-/Stable) purchase of substantially all the operating assets and select liabilities of Essar Steel Algoma Inc. for CAD890.7 million.

We have assumed the ABL credit facility is 80% drawn in the recovery analysis and that the LETL CAD500 million facility is fully drawn. The LETL facility is 20% third-lien secured and 80% unsecured and therefore ranks junior to the first-lien ABL and second-lien notes.

The allocation of value in the liability waterfall results in a recovery rating of 'RR1' for the first-lien secured asset-backed loan credit facility resulting in a 'BB-' rating and a recovery rating of 'RR2' for the second-lien secured notes resulting in a 'B+' rating.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Deteriorating liquidity position driven by anticipated cumulative cash burn approaching 80% of committed facilities;

EBITDA interest coverage below 2.0x;

EBITDA margins sustained below 3%.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

EBITDA leverage sustained below 4.0x;

Sustained positive FCF;

EBITDA margins sustained above 8%.

Liquidity and Debt Structure

As of Dec 31, 2025, Algoma had cash and cash equivalents of CAD78 million and CAD195 million available under its USD375 million asset-backed loan credit facility (ABL) due May 2028, after accounting for CAD170 million drawn and CAD66 million outstanding in letters of credit. The ABL has a 1.0x fixed charge covenant when availability falls below the greater of (i)10% of the lesser of the facility amount and the borrowing base and (ii) USD20 million.

The company secured loan facilities under the Large Enterprise Tariff Loan (LETL) program comprising CAD400 million from the Government of Canada and CAD100 million from the Province of Ontario due in seven years. At Dec. 31, 2025, CAD83 million was drawn and CAD417 million was available, in aggregate under the LETL facilities.

Issuer Profile

Algoma is a flat-rolled steel producer in North America and the only producer of discrete plate in Canada, with an estimated annual liquid steel production capacity of approximately 2.8 million tons as of Dec. 31, 2025.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The results of our Climate.VS screener did not indicate an elevated risk for Algoma Steel Group Inc.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

RATING ACTIONS

Entity / Debt

Rating

Recovery

Prior

Algoma Steel Inc.

LT IDR

B-

Downgrade

senior secured

BB-

Downgrade

RR1

Senior Secured 2nd Lien

B+

Downgrade

RR2

BB-

Algoma Steel Group Inc.

LT IDR

B-

Downgrade

Page

of 1

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 03 Aug 2024) (including rating assumption sensitivity)

Corporate Rating Criteria (pub. 10 Jan 2026) (including rating assumption sensitivity)

Sector Navigators - Addendum to the Corporate Rating Criteria (pub. 10 Jan 2026)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

Corporate Monitoring & Forecasting Model (COMFORT Model), v8.2.0 (1)

ADDITIONAL DISCLOSURES

Dodd-Frank Rating Information Disclosure Form

Solicitation Status

Endorsement Policy

ENDORSEMENT STATUS

DISCLAIMER & DISCLOSURES

All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and disclaimers. Please read these limitations and disclaimers by following this link: https://www.fitchratings.com/understandingcreditratings. In addition, the following https://www.fitchratings.com/rating-definitions-document details Fitch's rating definitions for each rating s

Solicitation Status

The ratings above were solicited and assigned or maintained by Fitch at the request of the rated entity/issuer or a related third party. Any exceptions follow below.

Fitch's solicitation status policy can be found at www.fitchratings.com/ethics.

Endorsement Policy

Fitch's international credit ratings produced outside the EU or the UK, as the case may be, are endorsed for use by regulated entities within the EU or the UK, respectively, for regulatory purposes, pursuant to the terms of the EU CRA Regulation or the UK Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019, as the case may be. Fitch's approach to endorsement in the EU and the UK can be found on Fitch's Regulatory Affairs page on Fitch's website. The endorsement status of international credit ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.