Fitch Rates Gerdau's US$500MM Bond due 2017 'BBB-'

Business Wire, May 8, 2008

NEW YORK -- Fitch Ratings has assigned a rating of 'BBB-' to the proposed bond of up to US$500 million 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. Most of the proceeds of this new issuance will be used to partially repay a US$1 billion bridge loan taken on to fund the acquisition by Gerdau of the Quanex Corporation (Quanex) for approximately US$1.7 billion in cash.

Fitch has affirmed and removed the following ratings from Rating Watch Negative. The Rating Outlook is Stable.

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

-- Local currency IDR at 'BBB-';

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

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

-- US$1 billion 7.25% guaranteed bonds due 2017 at 'BBB-'.

The affirmation of Gerdau's 'BBB-' ratings and the removal of the Negative Watch reflect the successful completion of a US$1.6 billion equity offering by Gerdau in April 2008. The company intends to use these proceeds to replenish cash balances and reduce debt. Debt levels became elevated in 2008 when the company purchased Quanex's Vehicular Products business, MACSTEEL, for US$1.7 billion in cash. This transaction followed the US$4.2 billion acquisition of the Chaparral Steel Company (Chaparral) by Gerdau's subsidiary, Ameristeel Corporation, in September 2007.

In 2007, Gerdau generated pro forma EBITDA (as if the acquisition of Chaparral had occurred at the beginning of the year) of approximately US$3.5 billion. At Dec. 31, 2007 Gerdau had total debt of about US$9 billion and cash and marketable securities of US$2.9 billion, resulting in a total debt to pro forma EBITDA ratio of about 2.6 times (x) and a net debt to pro forma EBITDA ratio of about 1.7x.

Fitch expects Gerdau to generate EBITDA between US$4.3 billion and US$4.8 billion in 2008 from the sale of 22 million tons of steel, an increase of approximately 30% due to the incorporation of acquired companies and the completion of expansion projects. The recent equity issuance should allow the company to return to close to 2.0x and 1.5x on a total debt and net debt basis, respectively, in 2008. Such credit metrics are in line with historical levels.

Headquartered in Porto Alegre, Brazil, Gerdau is a holding company for the group's steel production facilities in North and Latin America, Europe and Asia. The Gerdau companies operate mini-mill and integrated-steel facilities in 13 countries including Brazil, Argentina, Chile, Colombia, Dominican Republic, India, Mexico, Peru, Uruguay, Venezuela, the United States, Canada, and Spain and have a crude steel production capacity of 24.8 million tons in 2007. In 2007, Gerdau sold 17.2 million tons of steel, 41% of which was generated by Gerdau's operations in Brazil and 40% of which was generated by Gerdau's operations in North America. Gerdau owns 93% of its Brazilian operating companies, which consist primarily of Acominas, Acos Especiais, and Acos Longos and have a combined production capacity of about 11.4 million tons of crude steel. In North America, Gerdau owns 66.5% of Gerdau Ameristeel (Ameristeel), which ranks as the region's second-largest mini-mill steel producer with an annual manufacturing capacity of approximately 10.4 million tons of mill-finished steel products from a network of 19 mini-mills, including the 50%-owned Gallatin Steel joint-venture. Ameristeel owns 100% of Chaparral.

With crude steel capacity of 2.5 million tons, Chaparral is the second largest producer of structural steel products in North America and also manufactures specialty bar products. MACSTEEL, located in the United States, is a long specialty steel producer that manufactures value-added materials and components for the vehicular products markets and has an annual production capacity of 1.2 million tons of crude steel.

Note: Throughout this press release, the word 'tons' refers to metric tons.

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