Gerdau Gets to Keep I-Grade: Fitch

Gerdau will keep its BBB minus rating from Fitch, says the agency. The decision to keep a stable outlook on the investment grade rating is a small victory for the Brazilian steelmaker, whose executives scrambled earlier this year to avert a downgrade as its revenues tanked, forcing it to renegotiate debt covenants. The call affects $2.1bn in trade finance-backed debt, says the agency. A rapid deterioration in the outlook for global steel at the end of 2008 led to a drop in Gerdau’s revenues, which forced it to put capex on hold and tighten up its cost structure. S&P put the company’s BBB minus rating on negative watch in February and reaffirmed its rating review status in June, citing worrisome credit metrics and a weak outlook for the sector. Later that month, Gerdau said it had successfully renegotiated covenants on $3.7bn worth of loans at a cost to the company of up to $60m. “The ratings are . . . supported by the company swiftly adjusting its production output and cost structure to reflect the deteriorating market conditions since Q408 and ability to swiftly resume operations to meet the gradual increase in steel demand beginning to materialize at the end of Q209,” says Fitch in its note regarding the move Thursday. Bankers in the loan market also remark on Gerdau management’s proactive approach to preemptively renegotiating its debt ahead of a potential covenant trip.