S&P Lowers Rating on Cosipa to ‘BBB-‘

July 5, 2005

Standard & Poor’s Ratings Services announced that it has lowered its rating on Cosipa Overseas Ltd.’s $175 million senior floating-rate notes to “BBB-” from “A” and removed it from CreditWatch with negative implications, where it was placed May 9, 2005.

S&P said: “The ‘A’ rating on the notes was based, in part, on the expectation that the insurer, Liberty Mutual Insurance Co., would pay all claims covered by its surety bond in a full and timely manner. Given Liberty Mutual’s decision not to participate in Standard & Poor’s recently revised financial enhancement rating (FER) analysis, Standard & Poor’s is unable to assume that Liberty Mutual will make immediate and uncontested payments under the surety bond. In the absence of an FER analysis, Standard & Poor’s evaluated the actual surety bond agreement issued in connection with the floating-rate notes and gained some comfort from the strength of the language.”

S&P also indicated that the “lowered rating reflects some uncertainty that full and timely payments will be made under the surety bond, but also considers the reduced possibility that the surety bond would be called upon given the improved financial profile of Usinas SiderĂºgicas de Minas Gerais S.A. (Usiminas) (foreign currency BB-/Stable; local currency BB/Positive), the controlling company of the exporter, Companhia SiderĂºgica Paulista (Cosipa).

“The rating action also considers the ‘A’ corporate credit and financial strength ratings assigned to Liberty Mutual, as well as the type of enhancement supporting the transaction (a surety bond covering performance).”

S&P noted that in December 2004 it had “updated its policy regarding transactions supported by external FERs and now assigns an FER to all insurers that have provided financial enhancement to Standard & Poor’s rated transactions and that have committed to paying and waiving all defenses. A copy of the article, ‘Insurance Criteria: Financial Enhancement Rating,” published Dec. 10, 2004, is available on RatingsDirect, Standard & Poor’s Web-based credit analysis system, at: www.ratingsdirect.com.

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