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Gerdau Ameristeel Amends Term Loan Covenants
06/23/2009 - Gerdau Ameristeel reaches agreement with lenders for temporary relaxation of the covenants its Term Loan Facility, which currently has US$ 2.6 billion of borrowings outstanding.
Gerdau Ameristeel Corp. has reached agreement with its lenders for temporary relaxation of the covenants of the company’s Term Loan Facility, which currently has US$ 2.6 billion of borrowings outstanding.
The Term Loan Facility, which has been guaranteed by Gerdau SA and its Brazilian affiliates since its inception in 2007, originally required Gerdau SA (Gerdau Ameristeel’s majority shareholder) to maintain a ratio of consolidated EBITDA to total interest expense of more than 3.0 and a ratio of consolidated total debt to EBITDA of less than 4.0.
The amendment, which is effective immediately, relaxes the financial requirements for Gerdau SA so it is now required (on a consolidated basis) to maintain a ratio of consolidated EBITDA to net interest expense of more than 2.5 and a ratio of consolidated net debt to EBITDA of less than 5.0. The revised covenant levels will remain in effect until September 30, 2010, and can be cancelled by the company at any time without penalty.
The amendment also increases the interest that would be charged on the outstanding borrowings if and when the financial covenants originally contained in the facility are not met. After September 30, 2010 (or upon the company's cancellation of the revised covenants), the interest rate increase would terminate.
Gerdau expects the total cost of the amendment to range from US$ 12.8 million to $41.5 million, depending on the timing of any interest rate increase. The company noted that the amendment does not affect the outstanding amount of borrowings under the Term Loan Facility or its original amortization schedule.
Gerdau Ameristeel, the second-largest mini-mill steel producer in North America, has an annual manufacturing capacity of approximately 12 million tons of mill finished steel products. Through its vertically integrated network of 19 minimills (including one 50% owned joint venture minimill), 23 scrap recycling facilities and 60 downstream operations, Gerdau Ameristeel serves customers throughout the United States and Canada. The company's products are generally sold to steel service centers, steel fabricators, or directly to OEMs for use in a variety of industries. Gerdau Ameristeel's majority shareholder is the Gerdau Group, a 100+-year-old steel company, the leading company in the production of long steel in the Americas, and one of the major specialty long steel suppliers in the world.
