TEXT - S&P affirms Gruma S.A.B. de C.V. rating

Mon Dec 17, 2012 3:55pm EST

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Overview
     -- On Dec. 14, 2012, GRUMA S.A.B. de C.V. announced the completion of its 
acquisition of the 23.16% stake that Archer Daniels Midland Co. and its 
affiliates held in GRUMA.
     -- We are affirming our 'BB' issuer credit rating on GRUMA. The outlook 
remains stable.
     -- At the same time, we are also affirming our 'BB' rating the company's 
senior unsecured perpetual bonds.
     -- The stable outlook reflects our expectation that GRUMA'S management 
will remain committed to deleveraging the company following the recent 
acquisition.
Rating Action
On Dec. 17, 2012, Standard & Poor's Ratings Services affirmed its 'BB' issuer 
credit rating on Gruma S.A.B. de C.V. (GRUMA). The outlook remains stable. At 
the same time, Standard & Poor's affirmed its 'BB' rating the company's senior 
unsecured perpetual bonds. The recovery rating on the bonds remains unchanged 
at '3'. 

Rationale
The rating on GRUMA reflects the company's "aggressive" (as our criteria 
define the term) financial policy, despite the consistent improvement in its 
credit metrics. The rating also reflects the company's "significant" financial 
profile, which includes our assessment of the increase in the company's 
leverage, its intensive working capital needs, and its exposure to volatile 
raw materials prices. Partly mitigating these risk factors are the company's 
"satisfactory" business profile, which is based on its leading position as a 
corn flour and tortilla producer (staple products) in Mexico, its strong brand 
recognition, and its geographically diverse cash flow. 

On Dec. 14, 2012, GRUMA announced the completion of its acquisition of the 
23.16% stake that Archer Daniels Midland Co. (ADM; A/Watch Neg/A-1) and its 
affiliates held in GRUMA. The transaction, which will be financed with debt, 
will result in a deterioration of GRUMA'S key financial metrics by year-end 
2012. Although this leveraged buy-out of ADM's stake was not incorporated in 
our base case scenario when we upgraded GRUMA in March 2012, we see this 
decision as strategic and not a deviation in the company's commitment to a 
more prudent financial strategy. We expect that GRUMA will continue to 
generate positive free operating cash flow (FOCF) in the next few years and 
use these resources to pay down debt, returning the company's total 
debt-to-EBITDA ratio to less than 3x by 2014. 

The acquisition of ADM's stake in GRUMA consisted of an upfront payment of 
$450 million and an additional payment of up to $60 million in 3.5 years, 
subject to certain conditions. GRUMA used the proceeds from a $400 million 
senior unsecured bridge loan and $50 million available under its $250 million 
committed credit line facility to fund the transaction. 

For the 12 months ended Sept. 30, 2012, GRUMA'S total debt to EBITDA (adjusted 
for operating leases and postretirement pension liabilities), funds from 
operations (FFO) to total debt, and EBITDA interest coverage were 2.7x, 22%, 
and 5.9x, respectively. After the transaction, we expect the company's total 
debt to EBITDA to increase to 3.9x by year-end 2012, and the FFO to total debt 
and EBITDA interest coverage ratios to weaken to 13.5% and 5.4x, respectively. 

The cash flow contribution from the company's operations in Venezuela remains 
uncertain, given the expropriating measures the government of Bolivarian 
Republic of Venezuela (foreign and local currency ratings B+/Stable/B) has 
enacted since 2010. The Venezuelan government has not taken operational or 
managerial control of GRUMA, and the company continues to operate in the 
ordinary course of business. However, our base case scenario assumes that the 
company would receive some compensation if expropriation occurs, and that it 
would use the proceeds to support its deleveraging strategy. Still, we will 
continue to monitor the impact of the potential expropriation will have on the 
company's financial metrics.

Our base case scenario for the next two years assumes that management will be 
highly focused on improving profitability and using FOCF to reduce leverage. 
The company has established specific measures to achieve this, such as 
reducing capital expenditure mainly only for maintenance and improvements on 
certain facilities, eliminating certain products that have lower margins, 
increasing operating efficiencies, and making no dividend payments until 2016. 
We expect that the implementation of these strategies will lead to FOCF 
generation of about $130 million and $150 million in 2013 and 2014, 
respectively, and total debt to EBITDA ratio lower than 3.0x by 2014.

Liquidity
We have revised our assessment of GRUMA'S liquidity position to "less than 
adequate" from "adequate." Our assessment incorporates the following 
assumptions:
     -- GRUMA will be able to refinance the $400 million short-term bridge 
loan during the next few months, though the company still faces some 
refinancing risk.
     -- GRUMA'S sources of liquidity, including cash in hand, the committed 
credit facility, and FFO, may fall to less than 1.2x during the next 12 months 
to 18 months, especially if the company faces certain volatility in its 
working capital requirements, which could also lead to sources minus uses of 
about zero. 
     -- GRUMA has sufficient covenant headroom to comply with its financial 
covenants--even if EBITDA declines by 10%. However, in order to execute the 
acquisition from ADM, the company was granted covenant amendments in 
connection with its credit facilities. These amendments include a change in 
the leverage covenant to a maximum total debt to EBITDA of 4.75x from 3.5x. 
     -- GRUMA has $157 million of short-term debt, which mostly comprises 
revolving credit lines, which we believe that it will be able to refinance. 
GRUMA has demonstrated adequate access to bank lines, as evidenced by the bank 
loans it recently obtained to finance the acquisition. 

Outlook
The stable outlook reflects our expectation of GRUMA'S management commitment 
to deleverage following the recently announced acquisition. We could lower the 
rating if management's commitment to improve the company's financial profile 
is not evidenced during the quarters following the transaction, or if the 
potential expropriation of the company's operations in Venezuela results in a 
further deterioration of its credit metrics, with total debt to EBITDA of more 
than 4.0x on a consistent basis. We don't anticipate an upgrade in the near 
term, since the company's aggressive financial policy limits the rating. 

Related Criteria And Research
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
Sept. 18, 2012
     -- Methodology and Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Business And Financial Risks In The Branded 
Consumer Products Industry, Sept. 10, 2008
     -- 2008 Corporate Ratings Criteria, April 15, 2008

Ratings List
Ratings Affirmed

GRUMA S.A.B. de C.V.
 Corporate Credit Rating                BB/Stable/--       
 Senior Unsecured                       BB                 
  Recovery Rating                       3
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