Fitch Rates Alfa's Proposed up to USD 1B Sr. Notes 'BBB-(exp)'

jueves 20 de marzo de 2014 13:05 GYT

(The following statement was released by the rating agency) MONTERREY, March 20 (Fitch) Fitch Ratings has assigned a long term foreign and local currency Issuer Default Rating (IDR) of 'BBB-' to Alfa, S.A.B. de C.V. (Alfa). The Rating Outlook is Stable. Additionally, Fitch has assigned a 'BBB-(exp)' rating to Alfa's proposed senior unsecured notes up to USD1 billion with a maturity between 10 to 30 years. The proceeds from the debt issuance will be used to fund new energy related projects, to repay existing debt and for general corporate purposes. Alfa's ratings reflect its diversified business portfolio, strong market position in the industries it participates, solid consolidated cash flow generation and strong financial position. The ratings also incorporate the credit quality of its main subsidiaries, debt allocation between holding and operating companies, the expected flow of dividends to the holding, as well as the liquidity position at the holding. The ratings are limited by the cyclicality of its operations in the petrochemical, automotive, and oil and gas industries, and its exposure to the volatility of its main raw materials through its business portfolio. In addition, the ratings are tempered by the standalone credit quality of its subsidiaries. KEY RATING DRIVERS Solid Business Profile: Alfa is one of the largest business groups in Mexico with leading market positions across the industries it participates. Alpek (rate by Fitch 'BBB-'/Outlook Stable), its petrochemical subsidiary, holds leading market positions in PTA and PET in North America, and is the sole producer of PP and CPL in Mexico. In the automotive industry, its subsidiary Nemak ('BB'/Outlook Stable), is a leading producer of high tech aluminum components for the automotive industry in North American, South American and European markets. Sigma Alimentos ('BBB-'/Rating Watch Negative) is the leading producer of processed foods in Mexico that includes processed meats, cheese, yogurt and refrigerated meals, while in the U.S. the company is the leading producer of packaged meats in the value segment under the brand Bar-S. Additionally, Alfa has operations in the IT and telecomm industry with Alestra ('BB'/Outlook Stable), which is an important niche player in Mexico as a provider of value added IT services to the corporate segment, as well as operations in the exploration and production of oil and gas in the South of Texas with its subsidiary Newpek. Diversified Business Portfolio: Fitch considers that diversified revenue and cash flow generation across industries and regions contribute to mitigate the overall risks associated to the volatile industries of its business portfolio. Alfa's petrochemical, automotive and oil and gas businesses are cyclical and exposed to raw material volatility and global economic conditions, while refrigerated food and IT and telecom business are relatively stable and less exposed to economic cycles. However, petrochemical and automotive business cycles have counterbalanced each other through the cycles, stabilizing Alfa's consolidated cash flow. The company's geographical diversification with operations in 18 countries and 62% of consolidated revenues from exports and subsidiaries outside Mexico, bring additional flexibility to mitigate the risk associated to economic downturns or input volatility and maintain consolidated cash flow generation relatively stable. Stable Operating Performance: Fitch expects that Alfa's organic revenues will remain flat in 2014, as the increases in revenues from Nemak, Sigma, Alestra and Newpek, will be partially offset by the expected decrease in sales from Alpek. Including acquisitions on a pro forma basis, Fitch estimates that revenues could increase an additional 15% as a result of the acquisition of Campofrio by Sigma Alimentos, which is expected to close during the second quarter of 2014. In terms of profitability, Fitch anticipates that the company's EBITDA margin will be relatively stable in levels around 12%. During 2013, Alfa's consolidated revenues increased 5% to USD15.9 billion compared to the previous year, whereas reported EBITDA, adjusted for USD193 million mainly from nonrecurring asset impairment related to the closing of Alpek's production site in Cape Fear, N.C., increased 4% to USD1.9 billion. Adequate Leverage: Fitch's expectation incorporated into the ratings of Alfa considers that leverage should be maintained between its target of net debt to EBITDA between 1.5x to 2.5x. On a pro forma basis, including the proceeds from the up to USD1 billion proposed issuance and the acquisition of Campofrio by Sigma Alimentos, Fitch estimates for 2014 that Alfa's total debt to EBITDA on a consolidated basis will increase to around 2.7x and the net debt to EBITDA will stay around in 2.1x. The company's net debt leverage could be higher depending on the investments oriented to fund new energy related projects. For 2013, the company's total debt to EBITDA and net debt to EBITDA, as calculated by Fitch, was 2.6x and 2.1x, respectively. Considering the adjusted EBITDA (for asset impairment) its total debt to adjusted EBITDA and net debt to adjusted EBITDA was 2.3x and 1.9x, respectively. Alfa's total debt as of Dec. 31, 2013 was USD4.4 billion. Ample Liquidity: Fitch considers that Alfa's liquidity position is ample in relation to its short term debt requirements. As of Dec. 31, 2013, the company's consolidated cash balance was USD910 million with short-term debt maturities of USD805 million, of which USD200 million were refinanced last February. The company's liquidity is also supported by the consolidated free cash flow generation (cash flow from operations less capex and dividends) estimated by Fitch which has been positive in the last five years and has averaged around USD430 million. At the holding level Alfa's liquidity is adequate with cash balances of USD114 million, available committed credit facility of USD175 million and short-term debt maturities of USD145 million as of Dec. 31, 2013. Liquidity requirements at the holding company are further supported by available non committed credit facilities of USD225 million, of which USD125 million is available, as well as by an intercompany debt with Nemak for USD183 million that will be paid to the holding in 2014 and 2015. Stable Dividend Cash Flows: Fitch estimates that the flow of dividends coming from the operating subsidiaries to the holding will be close to 300 million on annual basis starting 2015. These levels of dividends should be sufficient to cover the expected debt service related to the proposed up to USD1 billion issuance, as well as corporate expenses, taxes and dividend payments to Alfa's shareholders. In 2014, Fitch expects that Alpek and Alfa will not distribute dividends as they were paid in advance in 2013. Structural Subordination Mitigants: Alfa's subordination of debt at the holding level is mitigated by its liquidity position, diversified business portfolio and dividend control in almost all its subsidiaries, which is reflected in a stable flow of dividends. At the holding level, Alfa relies mainly on the dividends and management fees from some of its subsidiaries to service its debt, while its subsidiaries issue their own debt which is served with the individual cash flow generation from each operation. Alfa has 100% equity ownership of Sigma Alimentos, Alestra and Newpek, whereas in Alpek and Nemak has 82% and 93%, respectively. Dividends distributions from its operating companies are no limited with the exception of Nemak which has a restriction of only 50% of its cumulative net income. RATING SENSITIVITIES Factors that could lead to negative rating actions include a change in the company's financial strategy towards additional debt at the holding level or a sustained deterioration in the flow of dividends from its operating subsidiaries as a result of adverse market conditions or debt funded acquisitions. In addition, a downgrade in the ratings of its operating companies could pressure Alfa's ratings. Considering the structural subordination of the debt at the holding company level and existing ratings of the subsidiaries, a positive rating action is not foreseen in the medium to long term. However, any rating upgrades at the subsidiaries should support Alfa's ratings. Contact: Primary Analyst Rogelio Gonzalez Director Fitch Mexico S.A. de C.V., +52 81 8399 9100 Prol. Alfonso Reyes 2612, Monterrey, N.L., Mexico Secondary Analyst Gilberto Gonzalez Associate Director +52 81 8399 9100 Committee Chair Alberto Moreno Senior Director +52 81 8399 9100 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available at ''. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 5, 2013); --'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013). 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