Fitch Upgrades MRS Logistica's Ratings

Business Wire, Nov 6, 2001

Business Editors

CHICAGO--(BUSINESS WIRE)--Nov. 6, 2001

Fitch has upgraded the senior unsecured local currency credit rating of MRS Logistica (MRS) to `BB' from `B '. Fitch has also upgraded the senior unsecured foreign currency rating of MRS to `BB-' from `B ' Rating Outlook Negative. The foreign currency rating of MRS applies to the series A and series B notes due 2005 issued by MRS in 1997. MRS' senior unsecured foreign currency rating is constrained by Brazil's `BB-', Rating Outlook Negative foreign currency credit rating.

The ratings for MRS Logistica S.A. are supported by the company's position as the sole provider of rail services for its major customers and limited competitive threats. An improving ownership structure composed of industry leading companies with strong credit fundamentals further supports MRS' ratings. The ratings are constrained by MRS' high leverage, its exposure to conditions in the iron ore and steel industries and its susceptibility to catastrophes due to a single track along portions of its major service areas.

Caemi Mineracao e Metalurgica S.A. (Caemi), a Brazilian mining and minerals holding company, indirectly owns about 32% of MRS' equity through its 85% stake in Brazil's second-largest iron ore producer, Mineracoes Brasileiras Reunidas (MBR). In April 2001, Mitsui & Co. (Mitsui) of Japan, which owns 40% of the common stock of Caemi, agreed to jointly purchase the remaining 60% of Caemi together with Companhia Vale do Rio Doce (CVRD). CVRD, located in Brazil, is the world's largest iron ore producer and exporter and has significant interests in Brazil's railway sector.

The upgrade of MRS' ratings follows the approval by the European anti-trust authorities for the joint acquisition of Caemi by Mitsui and CVRD. Such approval is subject to certain conditions that should not directly affect MBR, such as the divestiture of Caemi's joint holdings in Quebec Cartier Mining Company (QCM), a Canadian iron ore producer. Once Caemi's new ownership structure is in place, the implicit support MRS has always received will be stronger as a result of the partnership between these two financially strong indirect controlling shareholders. MRS will continue to benefit from the support of Companhia Siderurgica Nacional (CSN), the largest integrated steel producer in Latin America.

MBR, together with CSN, accounted for about 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. Although MRS has maintained a highly levered capital structure since its inception, financial risks are mitigated by the need for captive shareholder customers, primarily MBR and CSN, to maintain ownership control, thereby ensuring a reliable transportation service.

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.