S&P has upgraded the ratings of Brazilian steel company CSN to BBB minus from BB+ to reflect the company’s operating performance, which it says has been stronger than that of its peers even during the market slowdown of 2008 and part of 2009. “We believe CSN will consistently sustain strong liquidity, as it has historically, mitigating its aggressive gross leverage ratios,” S&P says. It adds that its projections suggest that the company’s net debt ratios are adequate for the rating category, even using conservative steel price assumptions, despite CSN’s ongoing large, but partly discretionary, capital expenditures program and aggressive dividend distribution. S&P says the company reported BRL9.7bn in cash as of June, compared with BRL1.4bn in short-term debt.
Category: Corporate & Sovereign Strategy
S&P Affirms Usiminas Rating, Outlook
S&P has affirmed Brazil-based Usiminas’ BBB minus rating and its stable outlook. The agency says the ratings are supported by the steel company’s low gross debt leverage and adequate liquidity as well as favorable growth fundamentals. Total adjusted debt to Ebitda amounted to 2.9x as of June 30. It also has BRL3.6bn in cash and BRL597m in short-term debt. “We believe Usiminas will be able to maintain adequate credit metrics, even assuming higher capital expenditures and conservative price assumptions,” S&P says.
Su Casita Dangles Longer Debt, Equity
Hipotecaria Su Casita has presented a restructuring plan to holders of its MXP8.74bn in debt, offering longer-dated new debt and equity. The troubled Mexican mortgage lender will offer holders of its MXP1.985bn in short-term (less than 12 months) local debt cash worth MXP1.30bn (65%) of the debt, new 3-year debt worth MXP99.2m and an equity position with MXP1bn book value, or 0.02% of total capital. Meanwhile, holders of long-term (1-year+) dollar and peso debt, which totals MXP6.75bn, are offered MXP1.50bn in new 5-year debt paying TIIE plus 250bp, MXP551m in 3-year debt, MXP500m in 10-year subordinated debt paying a 3% coupon that steps up to 8% and is worth 10% of the company in the event of conversion. It also offers an equity stake worth 19.98% of the company. The deal represents recovery value of 70% in the case of short-term debt, and 51% for long-term debt holders, Su Casita says. Su Casita, 40% owned by Spain’s Caja Madrid, has been seeking alternatives since a deal to sell to BBVA Bancomer fell through in September. Rothschild is advising on the restructuring process, according to a company official.
Moody’s Chops Dominican Brewer
Moody’s has downgraded Cerveceria Nacional Dominicana’s (CND) corporate family and senior unsecured ratings to B1 from Ba3. The outlook is stable, up from negative. S&P downgraded the Dominican brewer to B from B+ last month. Moody’s cites weaker than anticipated operating performance and credit metrics compared with expectations, a higher tax burden, competition and softer demand. CND’s revenues have remained flat while earnings were under pressure following changes to the Dominican Republic’s tax regime, while pricing power has been pressured by the economic downturn. The ratings agency reports that the stable outlook reflects expectations the brewer will successfully refinance its $31m bridge facility by issuing local notes in the Dominican market, and begin addressing the maturity of its peso-linked 16% global notes in March 2012.
Independencia Misses Coupon Payment
Independencia will not make an upcoming interest payment on its 15% of 2015 bonds, the meatpacker says. The Brazilian company that emerged from bankruptcy protection proceedings in March cites “ongoing financial challenges” and notes it is in discussions with creditors to restructure debt. “The company has continued to struggle with its working capital requirements and has been unable to resume its operations at the level that will be sufficient to meet its projected obligations,” it says. Independencia has been looking to raise new equity capital as part of a liability management transaction in which its unsecured debt is converted into equity, and new investors brought in. “The default is not entirely unexpected by the market, considering how the bonds were trading,” says Barclays. It adds that holders of the 2015 now need to weigh whether to accelerate to try and liquidate the collateral, or wait for a proposal from the company. “Creditors are more likely to wait for a proposal before reacting. Until that happens, there is really little incentive to get involved in the capital structure,” adds Barclays.
LatAm Erodes Ratings Gap
Latin America has narrowed the ratings gap with other regions and the trend is likely to continue, says Moody’s. “After lagging behind other regions through most of the decade, the sovereign ratings in Latin America have strengthened, thanks to an improving macroeconomic picture, rising economic growth and a trend in favor of diminishing government debt burdens that are better managed,” says Moody’s analyst Sergio Valderrama. Seven LatAm sovereigns were upgraded this year, the most in any region in the world. Another 3 are on review for possible upgrades, indicating the likelihood of further improvements this year. However, Moody’s notes that the median sovereign rating for LatAm is Ba2, 3 notches below the median for all sovereigns it rates. Moreover, the region has the highest share of countries in the B-Caa category and the highest number of defaults since December 2000. “Even though improvements in debt numbers and economic growth vary by subregion, the upward ratings trend is undeniable and we expect it will persist at least for the near term,” says Valderrama.
Enersis and Endesa on Upgrade Track
Moody’s says it has placed the Baa3 ratings of Chile-based electricity companies Enersa and Endesa, both units of Italy’s Enel, under review for possible upgrade. It cites improved macroeconomic factors and lessened concern for the parent company’s dividend policy. “While the parent has publicly committed to reduce leverage in terms of net consolidated debt, we observe that the dividend policy affecting Enersis and Endesa Chile operations has not changed materially within the past year,” Moody’s says. “We also believe that the existence of the minority ownership structure reduces the financial rationale for Enel to greatly increase distributions from its LatAm operations as this would result in a substantial cash outflow to the minority shareholders that would deteriorate it’s consolidated net debt position,” it adds.
FertiNitro Bond Pressure Lingers
Fitch says it is keeping the CCC ratings of Venezuela’s FertiNitro Finance’s $250m 8.29% secured bonds due 2020 on rating Watch Negative. Fitch expects rating pressure to remain through 2011, when the project reaches its maximum annual debt service requirement. The subsequent decline in debt service coincides with the maturity of bank debt separate from the secured bonds. Fitch notes that FertiNitro on September 28 made timely payment of $40.3m in semi-annual debt service. “Overall, FertiNitro continues to make progress since Fitch’s last review in March 2010 with improved operational performance, resulting in positive cashflow and a debt service coverage ratio of 1.98 times,” it adds. FertiNitro is expected to deposit over $36m to the debt service reserve fund after the October debt payment.
JPMorgan Heard Appointing Loan Expert
Rodrigo Gracia will be joining JP Morgan’s syndicated loans team, say people with knowledge of the situation. He was heard to have recently quit as vice president at Credit Agricole’s syndicated loans group after 6 years at the bank. Gracia has previously worked at JPMorgan, from July 2000 to December 2001in the syndicated finance division, where he was involved in structuring and executing syndicated loan transactions in the US and LatAm. He has also worked at Dresdner Kleinwort Wasserstein and Serfin in Mexico. JPMorgan has been without a head of LatAm loan syndications since it made Ricardo Rubio redundant in late 2008 as part of a 10% reduction in global headcount, focused on investment banking and including other senior debt bankers. The bank has long been expected to replace Rubio to support an active DCM, ECM and M&A franchise. However, it is understood to have covered LatAm from its US loan desk over the last few years, given the very low level of activity in regional syndications. A JPMorgan spokeswoman declines to comment and Gracia does not return calls.
LatAm Defaults Down In 2010
Default rates in LatAm have decreased sharply compared to 2009, and are expected to continue to drop, says Moody’s in a report. While in 2009 there were 21 defaults totaling $4.4bn, so far this year there have been just 2 defaults, for a value of $1.2bn. The default rate in 2009 was the highest since 2002, peaking at 10.6% on speculative-grade debt, lower than the global rate of close to 13.5% in H2. Moody’s default rate forecasting model predicts that 1-year LatAm and global speculative default rates will drop to 1.3% and 2.6%, respectively, at the end of 2010. The default rates are expected to decline further to 0.7% and 1.8%, respectively, by the end of July 2011. “There has been a marked reduction in the volatility of rating changes in the Latin American region over the past couple of years and speculative default rates have fallen rapidly from the elevated levels in 2009,” says Steffen Sorensen, Moody’s senior analyst. The report adds that 405 of LatAm issuers were investment grade at the end of July 2010. This is 40% of the total, down slightly year-on-year, but nearly twice as many as at the end of 2000. “Despite lower speculative-grade default rates in Latin America during the recent global recession, Latin American issuers have historically carried lower average ratings and correspondingly higher average default rates relative to global issuers,” says Sorensen. “Latin American corporate credit ratings have performed on par with global ratings,” he adds. The study examines the rating histories and default experience of 434 Latin American corporate issuers which have had Moody’s-rated local and/or foreign currency debt outstanding between January 1990 and July 2010.