Mexico Tilemaker Enters Debt Renegotiation

Mexican tilemaker Lamosa is in talks with multiple lenders to renegotiate terms on $900m in debt raised just over a year ago to help it acquire competitor Porcelanite. A much celebrated December 2007 loan package to back the purchase included a $675m 4.7-year average life dual currency senior syndicated loan at TIIE/Libor plus 200bp out of the box. It also incorporated a $225m 7-year second lien bullet loan from Ontario Teacher’s (OTPP) paying up to 450bp over Libor. An equity follow-on of up to $300m via JPMorgan and Citi was planned to accompany the debt, but poor market conditions blocked it. A banker on the deal says Lamosa’s debt to Ebitda stood at around 4.8x a year ago, but has since spiked to around 6.2x, thanks in part to MXP depreciation and an LNG hedge that locked the company in just before a drop in the commodity. Lamosa wants to obtain waivers for leverage ratio covenants tripped on senior and subordinated loans. But at some point, likely in the second half of the year, it will probably have to extend tenors and renegotiate terms to avoid getting squeezed by the amortization schedule. The latter is seen as manageable for 2009-2010, but picks up dramatically in 2011, say bankers on the transaction. In 2009, Lamosa’s principal amortization amounts to just 5.0% of the $675m loan. “The company would be better off if the debt were repackaged,” says the banker in the lending group, noting that he expects Lamosa to stay current with payments and amortizations. Scotia, which structured and ran the syndication last year, is leading discussions with lenders. A Lamosa executive declines to comment on details of the talks.