Gerdau Stays Under Ratings Gun

Brazil-based steel maker Gerdau has implemented actions to reduce total debt and adjust its cost structure to the more adverse market conditions, but the ratings remain on negative credit watch, says S&P. The agency is worried about weakening cashflow and credit metrics and is monitoring the company’s actions to improve its cost position and sustain liquidity as it aggressively reduces fixed costs and capital expenditures. “We believe the success of these actions is critical for the company to significantly and consistently reduce total debt in 2009 and 2010, and thus diminish negative pressure on its credit metrics,” says S&P. Gerdau has been affected by declining profitability in LatAm subsidiaries and, to a lesser extent, weaker performance in Brazil. It has implemented several initiatives to reduce fixed costs and adjust capex levels to preserve liquidity. Debt reduction amounts to $300m in Q1, says S&P, which expects to resolve the credit watch listing in coming months. “Although the company may not be able to adjust its credit metrics immediately to our expectations for year-end 2009, we would expect significant reduction in gross debt throughout 2009 and comfortable cash reserves to affirm the ratings,” says S&P.