IUSA Notes Hit Default Level

Moody’s has downgraded IUSA’s $200m in 2016 bonds to Caa1 (negative outlook) from B3, indicating a high probability of default. “Moody’s is concerned that the issuer and the guarantors of the notes may not have sufficient cash and operating cash flow to fund all coupon payments due over the next two years,” says the agency. “The rating also incorporates our expectation that IUSA is unlikely to receive dividends or other cash transfers from subsidiaries that do not provide guarantees for the notes,” it adds. Assets reported by IUSA and guarantors provide more than three times coverage of total debt outstanding, although Moody’s expects that the market value would be substantially less than book value. It also cut the ratings of the Mexican industrial group to B3 from B2, and assigned a negative outlook. The agency sees continued volume pressure in the next few years due to weaknesses in the US construction sector. Over 65% of IUSA’s sales are to end markets in the US, mostly in the construction industry. A further downgrade would be likely if IUSA is unable to renew credit facilities available to its US subsidiaries, or if cash drops below 1.7x debt. IUSA is one of Mexico’s largest diversified industrial groups, manufacturing a wide range of copper-based and electrical products for the housing and electrical power sectors mainly in Mexico and the US.