S&P rates Gerdau notes BB+

Standard & Poor's said it affirmed its BB+ corporate credit rating on Brazil-based Gerdau SA and assigned a BB+ rating to the forthcoming $400 million bonds due 2016 to be issued by GTL Trade Finance Inc., a wholly owned indirect subsidiary of Gerdau. The outlook is stable.

The bonds will be unconditionally and irrevocably guaranteed by Gerdau, as well as by its main operating subsidiaries in Brazil. Gerdau expects to use the proceeds partly for the repayment of existing debts.

S&P said the ratings on Gerdau reflect the company's exposure to the volatile and cyclical commodity long steel industry, an acquisitive growth strategy that may cause some peaks of financial leverage in the future and a heavy capital budget during the next three years to be invested in both brownfield and greenfield capacity expansions.

These negatives are partly mitigated by Gerdau's adequate geographic diversification through the Americas, an improving financial profile and the increasing profitability of its North American operation and the expectation that the company will follow a prudent acquisition policy in the long term that should not jeopardize capital structure improvements accomplished in the past couple of years, the agency said.

Total debt to EBITDA is 1.8x.

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