Fitch Upgrades Gerdau's Debt Issuances to 'BBB-'.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has upgraded to 'BBB-' from 'BB+' the US$600 million 8.875% guaranteed perpetual senior notes issued by Gerdau S.A. (Gerdau) in September 2005. Fitch has also upgraded to 'BBB-' from 'BB+' the rating of the proposed senior unsecured 10-year bond to be issued by GTL GTL - Gunning Transceiver Logic Trade Finance Inc. (GTL), a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of Gerdau. These ratings actions follow today's upgrade by Fitch of the foreign currency issuer default rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) of Gerdau's Brazilian operating subsidiary An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , Gerdau Acominas S.A. (Acominas) to 'BBB-' from 'BB+'. The perpetual notes and bonds are unconditionally and irrevocably, jointly and severally Jointly and Severally 1. A legal term describing a partnership in which individual decisions are bound to all parties involved and thus undivided. 2. A term used in underwriting syndicates to refer to the distinct responsibility of individual companies to sell a certain guaranteed by Gerdau and its four majority-owned Brazilian operating subsidiaries: Acominas, Gerdau Acos Longos S.A. (Acos Longos), Gerdau Acos Especiais S.A. and Gerdau Comercial de Acos S.A. In addition, Fitch maintains a 'BB+' foreign currency IDR for Gerdau. The Rating Outlook is Stable. The rating reflects the favorable business positions of Gerdau's main steel production subsidiaries, Acominas, Acos Longos and Gerdau Ameristeel Corporation (Ameristeel), as well as the group's strong consolidated financial profile characterized by low leverage and healthy liquidity. In 2005, Gerdau continued its strong performance, generating consolidated net revenues of US$8.9 billion and operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become of US$2.0 billion. Compared with the prior year, revenues and operating EBITDA increased by 28% and 3%, respectively mainly due to the continuing high spread between steel prices and scrap prices as well as the inclusion in consolidated 2005 results of acquired assets such as North Star Steel, Diaco and Sipar. With total consolidated debt of about US$3.4 billion (including an adjustment of about US$200 million for operating leases and guaranteed debt) and cash of US$2.3 billion at Dec. 31, 2005, Gerdau's leverage, as measured by net debt to operating EBITDA, decreased to 0.6 times (x) from 1.0x in 2004, and the ratio of total debt to operating EBITDA increased to 1.7x from 1.3x. Liquidity remains manageable, as cash and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has cover short-term debt Short-term debt Debt obligations, recorded as current liabilities, requiring payment within the year. by 4.1x. Although Gerdau is geographically well diversified, with 54% of its total production capacity outside Brazil, approximately 64% of the company's consolidated operating EBITDA was generated by its Brazilian operating subsidiaries - Acominas, Acos Longos, Gerdau Acos Especiais S.A. and Gerdau Comercial de Acos S.A. This exposure, as well as the overall risk of the cyclical steel industry, is factored into Gerdau's ratings and the credit assessment of its operating subsidiaries. Gerdau's 'BB+' foreign currency IDR exceeds Brazil's country ceiling rating of 'BB' due to the benefits of owning 65.2% of Ameristeel, the second largest producer of long-steel products in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. ; significant exports by its Brazilian subsidiaries; and substantial cash balances both in Brazil and outside of the country. The combination of these three factors, plus management's long-term commitment to maintaining a conservative credit profile, should allow the company to make payment on its foreign currency obligations in a timely manner in the event of capital and exchange controls being imposed by the Brazilian government during a sovereign crisis. Headquartered in Porto Alegre, Brazil, Gerdau is a holding company for the group's steel production facilities in North and South America and Europe. The Gerdau companies operate mini-mill and integrated-steel facilities in Brazil, Argentina, Chile, Colombia, Uruguay, the United States, Canada, and Spain and have a crude steel production capacity of 18.7 million tons in 2006. Gerdau owns 89.3% of its Brazilian operating companies, which consist primarily of the Acominas and Acos Longos and have a combined production capacity of about 9.0 million tons of crude steel. In North America, Gerdau owns 65.2% of Ameristeel which ranks as the second-largest producer of long-steel products with an annual production capacity of 8.3 million tons, including the Gallatin Steel joint-venture. A full copy of Fitch's Credit Analysis report about Gerdau can be found within FitchResearch, Fitch's subscription-based web site, located at 'www.fitchratings.com' or by contacting Products & Services at +1-212-908-0800. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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