BVI company proposed bonds ‘BB+’ rated by Fitch, ‘BB+’ maintained for company

A 'BB+' foreign currency rating has been assigned by Fitch Ratings to the proposed senior unsecured bond issuance by GTL Trade Finance Inc. (GTL), a wholly owned subsidiary of Gerdau S.A. (Gerdau). Gerdau is a company incorporated in the BVI. In 2016, the bonds will be unsecured obligations of GTL. They will be irrevocably, unconditionally, jointly and severally guaranteed by the BVI incorporation Gerdau and its four Brazilian operating subsidiaries – Gerdau Acos Longos S.A., Gerdau Acominas S.A, Gerdau Acos Especiais S.A. and Gerdau Comercial de Acos S.A. Proceeds of the offering are about to be used for general corporate purposes – primary purpose is the repayment of outstanding debt obligations.

Fitch also maintains a 'BB+' foreign currency issuer default rating (IDR) for this BVI corporation. The Rating Outlook is Stable. The rating of Gerdau reveals quite favorable business positions of its main steel production subsidiaries – Acominas, Acos Longos and Gerdau Ameristeel Corporation (GNA), as well as the group's strong consolidated financial profile distincting with low leverage and healthy liquidity.

Following its strong performance, in 2005 Gerdau generated consolidated net revenues of $ 8.9 billion and operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $ 2 billion. To compare with the previous year, revenues and operating earnings before interest, taxes, depreciation, and amortization increased by 28% and 3%. This happened mostly due to the continuing high spread between steel prices and scrap prices and due to including in consolidated 2005 results of acquired assets.

As many BVI International Business Companies, Gerdau is geographically well diversified. This company operations are mostly located in South America – Brasil as well as North America and Europe.

Although Gerdau incorporated in the BVI is geographically varied, approximately 64% of the company's consolidated operating EBITDA was evolved by its Brazilian operating subsidiaries, with 54% of its total production capacity outside Brazil. The exposure and risk are taken into account for the ratings and the credit assessment of Gerdau's subsidiaries.

Gerdau's 'BB+' foreign currency IDR exceeds Brazil's country ceiling rating of 'BB-' due to the benefits of owning Ameristeel, large exports by its Brazilian subsidiaries and big cash balances not only in Brazil but also outside it. These 3 factors as well as management's long-term commitment to maintaining a conservative credit profile should allow Gerdau to pay on its foreign currency obligations in time in case the Brazilian government imposes capital and exchange controls during a sovereign crisis.

Gerdau is a holding company for the group's steel production facilities in North and South America and Europe. As mentioned before it is incorporated in the British Virgin Islands and headquartered in Brazil – in Porto Alegre. Its companies deal with mini-mill and integrated-steel facilities in Brazil, the United States, Canada, Chile, Argentina, Chile, Colombia, Spain and Uruguay. In 2006, Gerdau's companies have a crude steel production capacity of 18.7 million tons. 89.3% of its Brazilian operating companies are owned by Gerdau. As to North America, 65.2% of Ameristeel belomg to Gerdau (Ameristeel is the second-largest producer of long-steel products with an annual production capacity of 8.3 million tons).