Outlook On Gerdau Revised To Stable From Positive On Expected Volatile Metrics; 'BBB-' And 'brAAA' Ratings Affirmed

  • The operating disruptions resulting from the COVID-19 outbreak will affect Brazilian steel producer Gerdau's credit metrics in the next few months, because the company has had to suspend or reduce its activities in most countries where it operates.
  • In this context, the gradual improvement in the company's credit metrics we previously expected will be hampered, and leverage would temporarily pick up, although mitigated by the company's potential countercyclical actions.
  • As a result, on March 25, 2020, S&P Global Ratings revised the outlook on Gerdau S.A. (Gerdau) and Gerdau Ameristeel Corp. to stable from positive, and affirmed the global scale 'BBB-' issuer credit ratings on both companies. We also affirmed our 'brAAA' Brazil national scale rating on Gerdau, and the outlook on this rating remains stable.
  • At the same time, we affirmed all of our 'BBB-' global scale and 'brAAA' national scale issue-level ratings on Gerdau.
  • The stable outlook reflects our view that despite the EBITDA reduction in the next few months due to the impact of the COVID-19 outbreak, Gerdau will take countercyclical actions, including capex cuts and working capital management, to mitigate the effects to leverage, and would maintain its strong liquidity position as a cushion during the pandemic.
SAO PAULO (S&P Global Ratings) March 25, 2020--S&P Global Ratings today took the rating actions detailed above.
Gerdau announced that its Brazilian, U.S., Peruvian, and Argentinean operations have been suspended or are currently working at a reduced pace, given the sudden slowdown in several economic segments, such as the automotive segment. Although the extent of the impact is uncertain at this point, we believe it could take several months for the situation to return to normal.
Reduced revenues and EBITDA generation should be partly offset with capital expenditure (capex) reductions and working capital management, considering Gerdau's proven ability to quickly adjust operations amid economic slowdowns. A gradual recovery should begin by the third quarter of the year, when the pandemic effects would be controlled, according to our base-case scenario.
The company had a sound cash position of about R$6.3 billion as of Dec. 31, 2019, plus access to a committed revolving credit facility totaling $800 million. This, coupled with a smooth debt maturity profile with only R$1.5 billion due in 2020 also as of Dec. 31, 2019, as well as potential capex cuts, provides a cushion for the company to withstand the impact of the COVID-19 outbreak in terms of lower operating cash flow generation in the next few months.
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