Fitch Places MRS Logistica On Rating Watch Positive.

Business Editors

CHICAGO--(BUSINESS WIRE)--Feb. 16, 2001

Fitch places the `B+' senior unsecured local currency rating and the `B+' foreign currency rating of MRS Logistica (MRS) on Rating Watch Positive.

The foreign currency rating of MRS applies to the series A and series B notes due 2005 issued by MRS in 1997.

The rating action follows the announcement by Australia's Broken Hill Proprietary Co. (BHP), the world's third-largest iron ore producer, that it had reached an agreement to purchase 60% of the common stock of Brazil's mining and minerals holding company Caemi Mineracao e Metalurgica S.A. (Caemi) for $332 million.

Mitsui & Co. of Japan, which owns 40% of the common stock of Caemi, has 60 days to exercise its pre-emptive rights. Such an action could involve an alliance with Brazil's Companhia Vale do Rio Doce (CVRD), the world's largest iron ore producer and exporter.

Caemi, in turn, indirectly owns approximately 18.4% of MRS' voting shares and 30.6% of its equity through its 85% stake in Brazil's second-largest iron ore miner, Mineracoes Brasileiras Reunidas S.A. (MBR). During 2000, MBR accounted for approximately 53% of Caemi's revenue and 59% of its operating income.

The rating action reflects the strong credit fundamentals of BHP, Mitsui, and CVRD and the increased support MRS should receive from BHP or Mitsui-CVRD as a result of a change in the ownership structure of Caemi.

The two largest shareholders of MRS are also the railroad's most significant customers. Companhia Siderurgica Nacional (CSN), the largest integrated steel producer in Latin America, is the second-largest owner of MRS with a voting stake of 13.3% and an equity stake of 27%. MBR, together with CSN, accounted for approximately 54% of MRS' revenues and 51% of its cargo volumes in 2000.

Both companies rely exclusively upon MRS for the transportation of iron ore as no other alternative transportation service is available in the vicinity of their mines. CSN also depends upon the railway for transportation of imported coal to its steel mill in Volta Redonda.

Although MRS has maintained a highly levered capital structure since its inception, financial risks are somewhat mitigated by the need for captive shareholder customers to keep the railroad operating as a viable entity.

MRS was incorporated in 1996 by a consortium formed for the purpose of acquiring the concession to operate the Southeast Railway (SER). The consortium included iron ore and steel companies CSN, MBR, Ferteco, Usiminas, Ultrafertil, Cosipa, Gerdau, Celato, and ABS. MRS provides freight transportation in the Brazilian states of Sao Paulo, Rio de Janeiro, and Minas Gerais.

Three principal rail lines of approximately 1,700 kms connect Rio de Janeiro to Belo Horizonte and Sao Paulo and serve as key transportation links to the region's main ports of Rio, Sepetiba, and Santos. Brazil's largest industrial complexes, principally mining and steel, are located in this region which accounts for about two-thirds of the country's GDP.