TEXT-Fitch: Cemex restructuring positive, but challenges remain
Sept 17 - Mexican cement producer CEMEX Monday said it had completed its $7.2 billion debt restructuring plan. Fitch Ratings believes this is positive overall to the company's credit quality, but challenges remain that are outside of the company's control. We anticipated the successful conclusion of the restructuring in early August, when we affirmed the company's ratings. We maintain a rating of 'B' for CEMEX and several of its subsidiaries and 'B+'/RR3 for the securities issued through CEMEX and its subsidiaries. The ratings of CEMEX and its subsidiaries continue to reflect the company's high leverage and limited free cash flow prospects through 2014. As of June 30, 2012, CEMEX had $17.629 billion of total debt and $611 million of cash and marketable securities as of June 30, 2012. For the last 12 months, CEMEX generated $2.418 billion of EBITDA. The refinancing proposal reduces CEMEX's refinancing risk by pushing back the maturity of $7.2 billion of debt that fell due during 2013 and 2014. In exchange for rescheduling the maturity of $500 million of this debt until 2016 and $5.2 billion to 2017, holders of the debt received guarantees from six additional debt guarantors; 100 basis points of fee payments; prepayment incentives that will likely result in additional equity or assets sales, and about 75 basis points of additional spread on the interest payment. Taking into consideration a relatively weak outlook for the U.S. economy and a declining outlook for the company's operations in Europe, we expect the company's leverage to remain high through the end of 2014. We also expect the company to continue to spend considerable efforts on liability management. We project CEMEX will generate about $2.45 billion of EBITDA in 2012, $2.55 billion in 2013 and $2.90 billion in 2014. Free cash flow (FCF) after capex and the payment of coupons on the company's perpetual notes is projected to be negative $150 million in 2012, before turning slightly positive during 2013. At these levels, absent asset sales, CEMEX's leverage will continue to be elevated. For 2014, we project the company's FCF will be about $500 million. The projections incorporate the assumption that the company's South, Central America and Caribbean division will continue to increase cash flow, while the U.S. operations will benefit from a gradual recovery in sales volumes. Offsetting these positives is an expected deterioration in CEMEX's Northern European operations between 2012 and 2014, and a weak performance of its Mediterranean division during 2012 and 2013. We believe a positive rating action is unlikely as long as the U.S. economic recovery remains sluggish. Factors that could contribute to consideration of an upgrade or Positive Rating Outlook include significant debt reduction through asset sales, free cash flow or additional equity and a resolution of the Eurozone crisis. With that said, a number of factors could lead to a negative rating action, including a downturn in the company's businesses in Mexico and Central/South America that have been crucial to offset weakening of the company's Northern European and Mediterranean divisions. Additional information is available on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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