Fitch Upgrades Cementos de Chihuahua's Ratings to 'BB-'; Outlook to Stable

martes 20 de enero de 2015 12:59 GYT

(The following statement was released by the rating agency) MONTERREY, January 20 (Fitch) Fitch Ratings has upgraded Grupo Cementos de Chihuahua, S.A.B. de C.V.'s (GCC) local and foreign currency Issuer Default Ratings (IDRs) to 'BB-' from 'B+'. The Rating Outlook has been revised to Stable from Positive. In addition, Fitch has affirmed GCC's USD260 million senior secured notes due 2020 at 'BB-' and has withdrawn the 'RR3' Recovery Rating. The ratings upgrade reflects GCC's strong operating performance over the past several quarters, its significantly improved credit profile following debt repayments during 2014 and the successful debt refinancing during 2013. The upgrade takes into consideration the improvement in the U.S. cement market and an improving outlook for the company's EBITDA and cash flow considering continued robust credit fundamentals. These factors have reduced GCC's refinancing risk, improved company liquidity and lowered the financing cost at which the company can refinance existing debt. GCC's ratings reflect the company's solid business position in the cement, ready mix and aggregates segments in the regions where it has a presence; diversified operations in Mexico and the U.S. in the non-residential and residential sectors; as well as positive free cash flow generation through the recent industry cycle. The ratings are limited by the company's scale relative to industry peers' and by the cyclicality of the cement industry. KEY RATING DRIVERS Solid U.S. Operating Performance Fitch believes robust volumes and improved pricing in the U.S. will likely support GCC's operating results and outweigh sluggish demand growth for cement in Mexico. In the first nine months of 2014, the company's total cement volumes grew 9%, mainly due to a 12% increase in U.S volumes. This compares favorably to 2013, wherein total volume grew a modest 1% and U.S. volumes grew 2%. Price increases announced industry-wide in 2014 in the U.S. have gained traction and several producers have announced pricing increases for 2015. The majority of GCC's markets have shown above-average volume recovery in 2012, 2013 and first nine months of 2014, partly due to their direct and indirect exposure to the agriculture and oil and gas sectors which have shown positive momentum. In Fitch's view, less diversified states such as North Dakota could see lower demand for cement due to cuts to energy infrastructure spending. Cement demand in the larger more diversified states such as Colorado and Texas is expected to remain robust. Leading Market Shares GCC is the largest cement producer in the state of Chihuahua across all product segments. It also has strong cement market positions in Colorado, New Mexico, North and South Dakota, and in the El Paso, TX, area. GCC's contiguous North American footprint allows for economies of scale, distribution optimization and international trading capabilities. According to the Portland Cement Association (PCA), a majority of the states where GCC has presence have a better-than-average outlook for the medium term. The company has an installed annual capacity of 4.4 million metric tons of cement production of which 2.2 million metric tons are distributed among three plants in the U.S. states of New Mexico, South Dakota and Colorado and 2.2 million tons in the state of Chihuahua in Northern Mexico. Positive FCF Through the Cycle With the exception of 2013, cash flow from operations (CFFO) has ranged between USD65 million and USD80 million per year. Fitch projects CFFO for 2014 to be close to USD87 million primarily due to solid performance of the U.S. division. Free cash flow (FCF) in 2014 should be about USD30 million and about USD10 million in 2015, as recovery in GCC's main markets continues and the company invests in deferred maintenance, upgrades and required renovations. Due to modest dividends and conservative capex, the company had positive FCF from 2009 through 2014. GCC's positive FCF generation history, which in conjunction with asset sales has been used to reduce debt levels, is factored into the ratings. Also factored is an expectation that the company will continue to pay dividends conservatively. Leverage Improved Ahead of Expectations GCC's total debt/EBITDA ratio as of Sept. 30, 2014 was 3.3x. Since demand for cement plummeted in the U.S. in 2009, this is the first time the company's leverage has dropped below 4x. Considering debt repayment for the full year of USD20 million, GCC's 2014 total/Debt to EBITDA will be at or below 3.2x, outperforming Fitch's previous expectations and significantly below the 4.3x and 4.1x registered at the end of 2013 and 2012, respectively. The company continues to maintain adequate liquidity as a result of its capacity to generate CFFO, which together with cash and cash equivalents of USD78 million, and available undrawn committed credit lines of USD20 million, should be sufficient to cover USD53 million of principal payments due in 2015. GCC's debt structure primarily consists of an amortizing, variable rate, dual-currency (Mexican pesos and U.S. dollars), syndicated loan with an outstanding balance of USD224 million due 2017, and USD260 million of secured notes due 2020. GCC's debt is 92% denominated in U.S. dollars. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a negative rating action include: --Deterioration of the company's credit metrics and cash position due to weak operational results, reflecting increased price competition or a material slowdown in cement demand in Colorado, South Dakota and New Mexico that leads to EBITDA margins below 18%; --Debt/EBITDA ratio consistently at or above 4.0x will also likely result in a downgrade. --Deterioration in FCF generation due to large dividends or capex Future developments that may, individually or collectively, lead to a positive rating action include: --A rating upgrade could derive from sustained strong operating performance that leads to higher operating margins (above 21%) and EBITDA generation, which in conjunction with scheduled debt amortizations, translates into lower leverage. A firm management commitment to maintain the total debt/EBITDA ratio below 3.0x throughout business cycles, while maintaining adequate liquidity and a manageable debt maturity profile, could have positive implications. --Strong financial performance in a scenario of depressed oil prices; robust FCF relative to debt levels and continued financial discipline under an unsecured debt structure would also be viewed positively. Contact: Primary Analyst Gilberto Gonzalez, CFA Associate Director +52-81-8399-9100 Fitch Mexico, S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L., Mexico Secondary Analyst Alberto de los Santos Associate Director +52 81-8399-9100 Committee Chairperson Sergio Rodriguez, CFA 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' (May 28, 2014). 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