Brazil-based steelmaker Gerdau has been able to gradually reduce debt despite still weak volume demand in Brazil and lower margins in the U.S., the company's two larger operations. We're affirming our 'BBB-' global scale and 'brAAA' national scale ratings on the company, with a negative outlook. The negative outlook reflects that although we see credit metrics improving thanks to Gerdau's efficient working capital management and strong free cash generation, there is a one-in-three likelihood of a downgrade if the company is unable to bring its debt to EBITDA to consistently below 4x and funds from operations (FFO) to debt above 20% in the next few quarters. In addition, Brazil's sovereign rating is a cap on Gerdau's due to its exposure
