July 20, 2017 / 9:56 PM / a year ago

Fitch Affirms Masisa's IDRs at 'B+'; Outlook Negative

(The following statement was released by the rating agency) RIO DE JANEIRO, July 20 (Fitch) Fitch Ratings has affirmed the Foreign and Local Currency Issuer Default Ratings (IDRs) of Masisa S.A. (Masisa) at 'B+' and National long-term rating at 'BBB(cl)'. The Rating Outlook remains Negative. See the full list of rating actions at the end of this release. KEY RATING DRIVERS The affirmation of the ratings follow the announcement that Masisa signed an agreement to sell its Argentine industrial unit for USD155 million. The loss of EBITDA generation from Argentina more than offsets the debt reduction with the proceeds from the asset sale, and lower interest expenses. As a result, the deleveraging impact of this sale will be limited. On a pro forma basis, excluding only Argentina, net leverage would be 5.2x, or 6.2x excluding Venezuela. These numbers compare with 5.4x and 6.2x, respectively, during the LTM ended March 2017. Masisa signed the agreement to sell the industrial business unit of Masisa Argentina to EGGER Holzwerkstoffe GmbH (EGGER, Austria) for USD155 million on July 17th. Proceeds will be used to reduce the company's indebtedness. The transaction includes the sale of about 280,000 m3 of MDF's annual production capacity, 165,000 m3 of particleboard, 274,000 m3 of melamine, and 74,000 m3 of MDF mouldings. The company also announced its intention to sell its industrial assets in Mexico and Brazil. It will concentrate its business strategy on value-added board products in the Andean Region, Central America, the United States, Canada and other export markets. Masisa believes it could generate more than USD500 million from these sales, including the USD155 million from Argentina's operation, which is expected to be used to reduce debt. These asset sales would lower Masisa's leverage to more conservative levels of 3x, or 4x excluding Venezuela. Negatively, they would weaken the company's geographic diversification, making it more susceptible to downturns in one market. DERIVATION SUMMARY Masisa has diversified operations in Latin America, with a presence in Chile, Brazil, Mexico, Argentina and Venezuela. Masisa is one of the largest producers of wood boards in Latin America, with 3.5 million cubic meters of installed capacity of particle boards, MDP and MDF and 691,000 cubic meters of sawn wood installed capacity. Masisa is exposed to exchange controls in its Venezuelan operations, although its operations are self-sufficient in the country. Masisa's main competitors are Brazil's Duratex (not rated), the leader in the segment in Latin America, and the Chilean Celulose Arauco ('BBB'/Negative Outlook). In Latin America, Masisa is the second-largest player in terms of production capacity of boards, while Arauco is the second-largest market pulp company in the world. Among the Latin America forestry products companies, like Celulosa Arauco, Empresas CMPC, Fibria, Suzano and Klabin, Masisa is more exposed to the economic weakness in Latin America, and has higher leverage and has a more limited liquidity position. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Sale of industrial assets in Argentina for USD155 million in 2017. Proceeds will be used to amortize debt. - No impact on leverage ratios following the sale assets in Argentina. - Fitch did not consider the potential sale of industrial assets in Mexico and Brazil. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action --The conclusion of the divestitures of Argentina, Brazil and Mexico, improving capital structure and reducing net debt/recurring EBITDA, excluding Venezuela, to below 5.0x, would likely result in a revision of the rating Outlook to Stable. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action --Net debt/recurring EBITDA ratio, excluding Venezuela, above 7.0x. LIQUIDITY Masisa's liquidity position is manageable for operational purposes with USD107 million of cash and equivalents, of which only USD0.5 million was held in Venezuela as of March 31, 2017, compared with USD64 million as of Dec. 31, 2016. Masisa made a non-recurring sale of non-core assets for USD62 million in 2016, which benefited the company's liquidity. In February 2017, Masisa disbursed a USD65 million long-term loan in a Club Deal up to USD100 million due in five years. Proceeds will be used to extend debt maturity profile, reducing refinancing risk in the short term. As of March 31, 2017, Masisa had USD142 million of debt maturing up to end 2017 and USD59 million in 2018. The company has higher debt maturities of USD258 million in 2019. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: --Long-Term Foreign and Local Currency IDRs at 'B+'; --National scale rating of Bond Lines at 'BBB(cl)'; --Long-term National Scale rating at 'BBB(cl)'; --USD200 million senior unsecured 9.5% notes due 2019 at 'B+/RR4'; the notes are unconditionally guaranteed by Forestal Tornagaleones and Masisa Forestal; --National Short-term rating at 'N2(cl)'. --National Equity rating at 'First Class Level 3(cl)'. The Rating Outlook remains Negative. Contact: Primary Analyst Fernanda Rezende Director +55-21-4503-2619 Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20 - Sala 401 B - Centro - Rio de Janeiro - RJ - CEP: 20010-010 Secondary Analyst Rodolfo Schmauk Director +56-2-2499-3341 Committee Chairperson Joe Bormann, CFA Managing Director +1-312-368-3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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