Moody's puts Gerdau, Chaparral on review

Moody's Investors Service said it placed the ratings of Gerdau Ameristeel Corp. and Gerdau SA under review for possible downgrade and the ratings of Chaparral Steel Co. under review with direction uncertain following the announcement that Gerdau Ameristeel has signed a definitive merger agreement to acquire Chaparral for $86 per share in cash.

On review are Gerdau Ameristeel's Ba1 corporate family and probability-of-default ratings and Ba2 (LGD5, 74%) senior unsecured bond ratings; Gerdau's Ba1 corporate family rating; and Chaparral Steel's Ba3 corporate family and probability-of-default ratings, Baa3 (LGD2, 13%) senior secured bank credit facility and B1 (LGD4, 65%) senior unsecured bond rating.

In addition, the agency affirmed the Ba1 global local-currency corporate family rating of the Brazilian operations of Gerdau, affirmed the Ba1 foreign-currency rating of Gerdau's $600 million perpetual bonds, and placed the perpetual bonds under review with direction uncertain.

The agency said that the review for downgrade of Gerdau Ameristeel and Gerdau was prompted by its view that the acquisition, if successful, will likely be funded by a significant amount of new debt. If fully debt-financed, Gerdau Ameristeel's estimated pro forma debt-to-EBITDA ratio would be around 4x.

Chaparral's ratings were placed under review with direction uncertain given the potential benefit that could be derived from having Gerdau Ameristeel as its parent and its inclusion in the Gerdau group, as well as the company's continued strong performance, Moody's said.

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