Perp Loan Seen Addressing Leverage

At first blush, a $1.05bn perpetual loan facility for Mexico-based cement giant Cemex appears to be an act of clever financial engineering – a move to potentially reduce short term debt with new obligations that have a minor impact on leverage. Cemex has repeatedly told investors that the goal is to get the net debt to Ebitda ratio to 3.0x by year-end. As of Q1, the ratio was 3.7x, up from 1.2x a year prior, and virtually unchanged from Q4. The company has also waived two bank covenants that require leverage to be at or below 3.5x, according to an analyst. “Their leverage is very high for the ratings category,” says Sebastian Hofmeister, vp at Moody’s’ corporate finance department in Mexico. “The rating is based on the assumption that leverage will come down quickly,” he adds. Moody’s rates Cemex unit Rinker Baa2 with a negative outlook, reflecting the credit profile of the parent. Cemex officials were not immediately available for comment.