Fitch Ratings has downgraded Cemex, S.A.B. de C.V. (Cemex) and related entities’ ratings as follows:
–Foreign currency Issuer Default Rating (IDR) to ‘BB’ from ‘BB+’;
–Local currency IDR to ‘BB’ from ‘BB+’;
–Long-term national scale rating to ‘A+(mex)’ from ‘AA-(mex)’;
–MXN5 billion Certificados Bursatiles program to ‘A+ (mex)’ from ‘AA- (mex)’;
–MXN30 billion Programa Dual Revolvente de Certificados Bursatiles program to ‘A+(mex)’ from ‘AA-(mex)’;
–Senior unsecured debt obligations to ‘BB’ from ‘BB+’;
–Unsecured debt issued through the Certificados Bursatiles program to ‘A+(mex)’ from ‘AA-(mex)’.
Cemex Espana S.A. (Cemex Espana)
–IDR to ‘BB’ from ‘BB+’;
–Senior unsecured debt obligations to ‘BB’ from ‘BB+’.
Rinker Materials Corporation
–US$150 million senior unsecured notes due 2025 to ‘BB’ from ‘BB+’.
In addition, Fitch has affirmed Cemex’s ratings as follows:
–Short-term national scale rating at ‘F1(mex)’;
–MXN2.5 billion short-term portion of Programa Dual Revolvente de Certificados Bursatiles program at ‘F1(mex)’.
The Rating Outlook for all of Cemex’s ratings remains Negative.
The rating downgrades reflect Fitch’s expectation that Cemex’s total adjusted net debt to EBITDAR ratio will remain above 5.0 times (x) during 2009 and 4.0X during 2010. Fitch’s definition of adjusted debt includes the perpetual debt instruments issued by Cemex, which are treated as equity under Mexican GAAP, as well as operating leases. This level of leverage is due to unprecedented downturns in three of the company’s key markets: the United States, Spain and the U.K. The rating actions also take into consideration an expected weakening of some of the company’s markets that performed well in 2009 such as Central and South America, Asia and Mexico. Together these factors could result in Cemex generating less than US$3.4 billion of EBITDAR during 2009, a historical low for the company and a level viewed to be below the typical trough in the company’s cash flow cycle.
Further considered in the rating actions are the challenges the company will face as it seeks to divest approximately $2 billion of assets in 2008. These sales are crucial as the company faces debt maturities of approximately $4.1 billion, $3.8 billion and $7.8 billion during 2009, 2010 and 2011, respectively. Obstacles the company will have to overcome as it seeks to sell assets include: the high debt burden of several leading producers of cement and ready mix; tight credit conditions and high cost of capital; and the ability of the company to obtain attractive bids given the current economy uncertainty.
The Negative Rating Outlook reflects the challenges that all companies in the cement, ready-mix and aggregate industries will face during 2009 and 2010, particularly those that are reliant upon the U.S. and European markets. While the recently passes stimulus package in the U.S. could help spur demand in the U.S. for the company’s products, much of the impact will not be felt during the 2009.
Fitch’s ratings of Cemex continue to take into consideration the company’s strong global business position as an integrated cement player and its ability to continue to generate free cash flow during the worst economic downturn in recent history. The ratings positively factor in the Mexican government’s support of Cemex due to the size of the company and its importance to the country’s economy.
Cemex’s credit ratings also take into consideration the banks continued support of the company. On Jan. 27, 2009, the company reached agreement with its banks to reschedule $2.3 billion of short-term bilateral loans that fell due during 2009 and 2010 into terms that will result in $607 million maturing in 2009, $536 million in 2010 and about $1.2 billion in 2011. The company was also able to extend the maturity of $1.7 billion of a $3 billion obligation that was due in December 2009 until 2011.
Cemex had total adjusted debt of US$23 billion as of Dec. 31, 2008 and cash and marketable securities of US$993 million; adjusted debt includes total debt plus perpetual debt and operating leases. During 2008, Cemex generated US$4.6 billion of EBITDAR, resulting in a total adjusted debt to EBITDAR ratio of about 5.0x. During the fourth quarter of 2008 the company’s EBITDAR declined to about US$860 million from about US$1.35 billion during the prior quarter. Factoring in seasonality, the numbers were still substantially lower than those during the last quarter of 2007, when Cemex’s EBITDAR was US$1.15 billion. The drop-off in EBITDAR was driven by steep declines in sales volumes and the devaluation of the Mexican peso, British pound and Euro versus the U.S. dollar.
For 2009, Cemex projects an EBITDAR range of about US$3.7 billion to US$3.9 billion. Through free cash flow and asset sales, the company intends to reduce debt by US$3.6 billion. To achieve these goals the company has scaled back its 2009 capital expenses to US$650 million from around US$2 billion during both 2007 and 2008. The company has also implemented a restructuring program aimed at achieving US$700 million of recurring synergies.
Cemex is the third-largest cement producer in the world based on production capacity of approximately 97 million metric tons and operates in more than 50 countries. The company is also the global leader in the ready mix concrete market with sales of over 80.5 million cubic meters and an important global player in the aggregates business with sales of 222.7 million tons. In 2008, Cemex generated US$4.37 billion of EBITDA on US$21.8 billion of sales revenues.