Fitch Rates Gerdau's US$1B Bond due 2017 'BBB-'

Business Wire, Oct 17, 2007

NEW YORK -- Fitch Ratings has assigned a 'BBB-' rating to a proposed US$1 billion 10-year bond due 2017 to be issued by GTL Trade Finance Inc. (GTL), a wholly-owned direct subsidiary of Gerdau S.A. (Gerdau). The bond will be guaranteed by Gerdau and its main Brazilian subsidiaries. The proceeds will be used primarily to repay most of the US$1.15 billion in borrowings under a bridge loan facility at Gerdau Ameristeel Corporation (Ameristeel).

In September 2007, Ameristeel, whose controlling shareholder is Gerdau, funded the US$4.2 billion acquisition of the North American structural steel producer, Chaparral Steel Company (Chaparral) using primarily proceeds from a US$2.75 billion syndicated term loan and US$1.15 billion drawn under a bridge loan facility. Both loans are guaranteed by Gerdau and its main Brazilian subsidiaries.

The acquisition financings weaken Gerdau's credit ratios to the low end of the 'BBB-' rating category. Gerdau's total debt is expected to increase to approximately US$8.5 billion from US$5 billion at June 30, 2007, resulting in a consolidated leverage ratio as measured by total debt to pro forma operating EBITDA of approximately 2.5 times (x), compared with 1.8x as of June 30, 2007. Net debt will climb even further as the company intends to use about US$1 billion of cash to complete the acquisition. This will result in the ratio of net debt to pro forma operating EBITDA increasing to approximately 2x, compared with 0.8x as of June 30, 2007. The post-acquisition leverage ratios are high for the rating category given the current peak in the industry price cycle.

Fitch's recent affirmation of Gerdau's ratings on Sept. 14, 2007 reflects an expectation that the company will use excess cash to reduce debt over the next two years to return to close to 2x and 1.5x on a total debt and net debt basis, respectively. Any additional debt-financed acquisitions would further pressure credit quality and likely result in a rating downgrade.

Fitch expects Gerdau management to maintain its commitment to a conservative credit profile over the long term. Net proceeds, received from third parties from an equity offering to be executed by Ameristeel before the end of the year, are expected to be used to repay a portion of drawings under the term loan. Gerdau's ratings are supported by healthy liquidity. In addition to consolidated cash balances of US$2.7 billion at June 30, 2007, Gerdau benefits from approximately US$1 billion in committed liquidity facilities.

Gerdau has continued its strategy of growth through acquisition with the aim to diversify its offerings and include higher value-added steel products. Chaparral allows Gerdau to broaden its portfolio with a full range of structural steel products and to strengthen its business position in the competitive North American steel market. The combined entity will rank as the fourth largest steel producer in North America with a capacity of more than 10 million tons. Gerdau has a proven ability to successfully integrate acquired companies and capture cost-saving synergies, which for Chaparral, hold the potential to reach US$100 million annually by 2009.

Chaparral is the second largest producer of structural steel products in North America and also manufactures specialty bar and piling products. The company's main production facilities in the states of Texas and Virginia use mini-mill technology and have a combined production capacity of 2.9 million tons of steel per year In fiscal 2007 (ending May 31), Chaparral produced and sold nearly 2.3 million tons generating revenues of US$1.7 billion and EBITDA of US$486 million.

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 13 countries including Brazil, Argentina, Chile, Colombia, Mexico, Peru, Uruguay, Venezuela, the United States, Canada, and Spain, and have a crude steel production capacity of 20.1 million metric tons in 2007. Gerdau owns 89.3% of its Brazilian operating companies, which consist primarily of Acominas and Acos Longos and have a combined production capacity of about 9.8 million tons of crude steel. In North America, Gerdau owns 66.8% of Ameristeel, which ranks as the region's second-largest mini-mill steel producer, with an annual manufacturing capacity of more than 9 million tons of mill-finished steel products from a network of 17 mini-mills, including the 50%-owned Gallatin Steel joint-venture.

Fitch has the following ratings on Gerdau:

--Foreign currency Issuer Default Rating (IDR) 'BBB-';

--Local currency IDR 'BBB-';

--National scale rating 'AA (bra)';

--US$600 million 8.875% guaranteed perpetual notes 'BBB-'.

The Rating Outlook is Stable.

In addition, Fitch simultaneously affirms and withdraws the following ratings of Gerdau Acominas S.A. (Acominas) and Brazilian Steel Importer Ltd. (Brazilian Steel) due to the payoff (effective Oct. 15, 2007) of the outstanding secured export notes (SENs) issued by Brazilian Steel: