NEW YORK, Feb 5 (IFR) - Bonds issued by Brazil’s Gerdau quickly gave back earlier gains on Friday after Moody’s demoted the steel company to junk with a three-notch downgrade.
The company’s bonds fell a good point after Moody’s cut its rating to Ba3 from Baa3 with a negative outlook, citing the downturn in the global steel market and continued pressures on Gerdau’s credit metrics.
The 2044s were being quoted at 57.25-58.25 in early afternoon trading after hitting an intra-day high of 59.00. It was a similar story for the 2023s, which were being spotted at 64.50-65.50, dropping from an earlier high of 65.50-66.00.
Already trading in double-digit yields, the company’s bonds were seen as cheap by some accounts that had been adding exposure to the name.
“It is cheap,” said a New York-based trader. “It is already trading at the BB minus level.”
The issuer has been making efforts to reduce a debt burden that has grown over the last year as the Real has dropped in value against the dollar.
Last year, Metalurgica Gerdau, the holding company that controls Gerdau, raised R$900m, or around US$239m equivalent, through a stock sale to help repay debt.
While the company has about US$5bn of dollar bonds maturing between 2017 and 2044, Moody’s has expressed confidence in its current liquidity.
“Gerdau’s liquidity position remains healthy based on a robust cash position (BRL 6.7 billion at the end of September 2015) and comfortable debt amortization schedule,” it said. (Reporting by Paul Kilby; Editing by Marc Carnegie)