Fitch Assigns 'BB-' Rating to National Steel's Perpetual Bond Issuance.

CHICAGO -- Fitch Ratings has assigned an international foreign currency rating of 'BB-' to the proposed US$500 million perpetual notes to be issued by National Steel S.A. (National Steel). National Steel is a holding company that is 100% indirectly controlled by Brazil's Steinbruch family and whose sole asset will consist of 100% of the redeemable preferred shares of Vicunha Acos (Acos). Acos, in turn, is a holding company owning 100% of Vicunha Siderurgia S.A. (Vicunha), a holding company that owns a 42.74% controlling interest in Brazilian steel producer Companhia Siderurgica Nacional (CSN). The perpetual notes have no fixed maturity date but will become callable in whole on a quarterly basis after five years. The Rating Outlook is Stable. E[acute accent]The rating of the notes reflects the financial strength of CSN, Vicunha's sole operating subsidiary, and the expectation that CSN's future free cash flow available for dividends will be sufficient to allow National Steel to service its debt obligations. Dividend payments by CSN of approximately US$140 million per year should allow National Steel to meet expected annual debt service obligations of about US$50 million. CSN distributed dividends totaling US$242 million and US$278 million in 2004 and in 2003, respectively. National Steel's obligations are structurally subordinated to those of CSN as its only source of income consists of the dividends received indirectly from CSN. Thus, the rating of National Steel's perpetual notes is linked to CSN's 'BBB-' local currency rating. E[acute accent]National Steel benefits from CSN's solid credit fundamentals. In 2004, CSN generated consolidated operating EBITDA of US$1.5 billion, an increase of 86% compared with that of 2003 due mainly to the strong steel price environment but also to the company's improved value-added product mix with a larger portion coming from galvanized steel. With total debt of US$2.8 billion and cash of US$1.1 billion, CSN had a total debt-to-EBITDA ratio of 1.9 times (x) and a net debt-to-EBITDA ratio of 1.1x in 2004. Due to the company's expected strong cash flow generation, Fitch expects CSN to maintain a total debt-to-EBITDA ratio of less than 2.0 times (x) and a net debt-to-EBITDA ratio of less than 1.5x. CSN's free cash flow in 2005 is expected to be about US$800 million. E[acute accent]The perpetual notes will be directly secured by a pledge from Vicunha of 18% of the total outstanding common stock of CSN (approximately 40% of their ownership position). Based on the 60-day average price of CSN's shares, the collateral currently has an approximate market value of US$1.0 billion, or about two times the perpetual notes issuance. In addition, Acos will unconditionally and irrevocably guarantee the perpetual notes. The obligation to guarantee the notes will rank pari passu with all unsecured and unsubordinated obligations of Acos. The level of debt at Acos is de minimis. While CSN will not financially guarantee the perpetual notes, a change of control at CSN would trigger a prepayment of the notes and failure of CSN or any of its subsidiaries to pay indebtedness of US$25 million or greater would constitute an event of default. E[acute accent]The terms of the perpetual notes prohibit the issuer (National Steel), the guarantor (Acos), and Pledgor (Vicunha) from incurring material additional indebtedness. The issuer will use the net proceeds from the issuance to purchase equity redeemable instruments to be issued by Acos. Acos will use the net proceeds to purchase common shares of Vicunha. Vicunha, in turn, will use the proceeds of this equity contribution from Acos to repay its BRL1.2 billion in debentures due June 2012. Debt service payments on the perpetual notes will be made from the dividends received by National Steel via Acos and Vicunha from CSN. E[acute accent]With annual production capacity of 5.6 million tons of crude steel, CSN ranks as one of the largest steel producers in Latin America. The company's fully integrated steel operations, located in the State of Rio de Janeiro in Brazil, produce steel slabs and hot- and cold-rolled coils and sheets for the automobile, construction, and appliance industries, among others. CSN also holds leading market shares in the galvanized and tin-mill products segments. E[acute accent]A full copy of Fitch's credit analysis report about National Steel and CSN can be found within Fitch Research, Fitch's web site, located at www.fitchratings.com or by contacting products and services at 212-908-0800. E[acute accent]Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.