TEXT - S&P revises Metrofinanciera S.A.P.I. de C.V. SOFOM E.N.R. outlook

Fri Dec 28, 2012 11:36am EST

OVERVIEW

-- We affirmed our AVERAGE and BELOW AVERAGE rankings on Metrofinanciera S.A.P.I. de C.V. SOFOM E.N.R. (Metrofinanciera) as a residential mortgage and construction loans servicer, respectively.

-- We revised our outlook on the company as a construction loans servicer for the Mexican market to positive from developing.

-- The outlook for the residential mortgage servicer ranking remains stable.

-- Our financial position for Metrofinanciera is Insufficient. Dec 28 - Standard & Poor's Ratings Services today affirmed its AVERAGE and BELOW AVERAGE rankings on Metrofinanciera S.A.P.I. de C.V. SOFOM E.N.R. (Metrofinanciera) as a residential and construction loan servicer, respectively. At the same time, we revised our outlook on the company as a construction loans servicer to positive from developing. The stable outlook on Metrofinanciera as a residential mortgage servicer remains unchanged. Metrofinanciera is a Mexico-based mortgage and construction lender that has been in the market for 16 years. The company, as most of the nonbank financial institutions in the Mexican market, was severely affected by the recent financial crisis (2008-2010). During the downturn, the company's operational and financial capabilities were weakened, leading the company to enter a chapter 11 phase, which was overcome in June 2010. However, the company continues to present a financial position that we consider as INSUFICIENT, and is reflected in its counterparty rating of Selective Default ('SD'), because it has not completed the bonus exchange derived of the restructure of its private issuance METROFI 10. At the end of 2010, the company renewed the senior management team and the board of directors, aiming to overcome the period of financial distress. To date, Metrofinanciera is going through a phase of financial and organizational restructure, which includes positioning the company as an originator and substitute servicer in the Mexican market. The outlook change reflects the different initiatives that the company has addressed since the new administration was established. In our opinion, the projects are having some positive results over the company's overall managerial, organizational, and loan administration capabilities that could lead the construction loan servicer to achieve servicing capabilities that correspond to our AVERAGE ranking, while allowing the residential mortgage servicer to maintain its current AVERAGE ranking. The rankings are supported by our AVERAGE management and organization subrankings, which reflects the high level of industry experience of the management team, an adequate organizational structure, a robust IT platform that support servicer's requirements, new stringent internal control mechanisms, and policies and procedures that aim to mitigate high levels of operational risk that were identified in the past. The loan administration subrankings are affirmed at AVERAGE and BELOW AVERAGE for the residential mortgage and construction loans servicing, respectively. We believe that the recently reorganization of the servicing areas and collection policies and procedures are adequate. However, it is still too soon to perceive a consistent positive effect of these strategies on the performance of the company's portfolios and the portfolios in which the company participates as a substitute servicer. KEY RANKING FACTORS STRENGTHS:

-- New senior management team and board of directors with excellent levels of industry experience;

-- A renewed collections area focused on recovery management for both in balance sheet and securitized residential and construction loans;

-- New policies and procedures that enable the company to have a more robust organizational structure as well as stringent internal controls; and

-- New IT applications that strengthen its IT platform. WEAKNESSES:

-- High nonperforming ratios for their diverse portfolios;

-- The new collections strategies have not yet reduce in a consistent way the nonperforming assets' levels;

-- Insufficient financial position, reflected in our counterparty rating in national scale for long and short term of Selective Default ('SD'), for Metrofinanciera;

-- The new contingency plans have not been tested by the current management; and

-- The quality of the specialized reports produced by Metrofinanciera is not optima, which was evidenced in some of the reports requested by S&P for the servicers' assessment. OUTLOOK The outlooks for residential and construction loans servicing are stable and positive, respectively. We believe Metrofinanciera have implemented initiatives that could continue to strength it's managerial, organizational, and loan administration capabilities. Therefore, we will monitor the performance of the recently implemented initiatives to assess their effect over both the company's servicing capabilities and the portfolio delinquency trends.

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