Corporates - Fitch Ratings Chile

Transcription

Latin America High Yield
Comprehensive Analysis of ‘B+’ Issuers and Below
Volume IV
2012–2013
Corporates
Table of Contents
Executive Summary .................................................. 1
Grupo Famsa, S.A.B. de C.V. ................................... 127
Latin America Non-Financial Institutions Corporate
Financial Statistics ................................................ 11
Grupo Posadas, S.A. de C.V. ................................... 132
AES Andres Dominicana, Ltd. .................................. 14
Grupo Senda Autotransporte, S.A. de C.V.
(Grupo Senda) ...................................................... 138
Alto Palermo S.A. (APSA) ........................................ 19
Industrias Metalurgicas Pescarmona S.A. (IMPSA) ... 144
Arcor S.A.I.C. ............................................................ 25
Inversiones y Representaciones S.A. ....................... 150
Arendal, S. de R.L. de C.V. ...................................... 31
Maestro Peru S.A. (Maestro) .................................... 156
Axtel, S.A.B. de C.V.................................................. 33
Marfrig Alimentos S.A. .............................................. 160
Bio-PAPPEL, S.A.B. de C.V. .................................... 39
Minerva S.A. ............................................................. 165
Cablevision S.A. ....................................................... 45
OAS S.A. .................................................................. 170
CAP Limited .............................................................. 51
OGX Petroleo e Gas Participações S.A.................... 180
Capex S.A. ............................................................... 56
Pan American Energy LLC ....................................... 185
Ceagro Agricola S.A. ................................................ 62
Petroleos de Venezuela S.A. (PDVSA) .................... 189
Celulosa Argentina Ltda. .......................................... 67
Rede Energia S.A. .................................................... 193
CEMEX, S.A.B. de C.V. ............................................ 71
Rodopa Industria e Comercio de Alimentos Ltda. .... 199
Cimento Tupi S.A...................................................... 77
SANLUIS Rassini S.A. de C.V.. ................................ 203
CLISA Compania Latinoamericana de
Infraestructura y Servicios ..................................... 82
Servicios Corporativos Javer, S.A.P.I. de C.V. ......... 207
Compañía de Transporte de Energía Eléctrica en Alta
Tensión Transener S.A. (Transener)..................... 86
Sifco S.A. .................................................................. 216
Corporacion Electrica Nacional S.A.
(CORPOELEC) .............................................. 92
Corporacion Pesquera Inca SAC .............................. 95
Cresud S.A.C.I.F. y A. .............................................. 100
Digicel Group Limited ............................................... 106
Empresa Generadora de Electricidad Haina, S.A. .... 111
Empresa Generadora de Electricidad Itabo, S.A. ..... 116
Gol Linhas Aereas Inteligentes S.A. ......................... 121
November 8, 2012
Sidetur (Siderurgica del Turbio, S.A.) ....................... 213
Telecom Argentina S.A. ............................................ 221
Transportadora de Gas del Norte S.A. (TGN) .......... 225
Transportadora de Gas del Sur S.A. (TGS) .............. 233
Urbi Desarrollos Urbanos, S.A. B. de C.V. ............... 238
Virgolino de Oliveira S.A. Açúcar e Álcool ................ 243
WPE International Cooperatief (WPEI) ..................... 249
YPF S.A. ................................................................... 255
Fitch Analyst Directory ............................................. 260
Corporates
Comprehensive Analysis of ‘B+’ Issuers and Below
Analysts
Joe Bormann, CFA
+1 312 368-3349
[email protected]
Jay Djemal
+1 312 263-1032
[email protected]
Yolanda Torres
+1 312 606-2301
[email protected]
Juan Pablo Arias
+1 312 606-2329
[email protected]
Ingo Araujo
+55 11 4504-2205
[email protected]
Ana P. Ares
+54 11 5235-8121
[email protected]
Lucas Aristizabal
+1 312 368-3260
[email protected]
Miguel Guzman Betancourt
+52 81 8399-9100
[email protected]
Gabriela A. Catri
+54 11 5235-8129
[email protected]
John C. Culver, CFA
+1 312 368-3216
[email protected]
Gabriela Curutchet
+54 11 5235-8122
[email protected]
Rogelio Gonzalez
+52 81 8399-9100
[email protected]
Debora Jalles
+55 21 4503-2629
[email protected]
Josseline Jenssen
+591 2 277-4470
[email protected]
Viktoria Krane
+1 212 908-0367, x1367
[email protected]
Managing Director of Latin
America Corporates
Daniel R. Kastholm, CFA
+1 312 368-2070
[email protected]
Editorial Advisor
Traci Dixon, Editor
www.fitchratings.com
Credit Outlook Turns Mildly Positive for Speculative Credits
Improving Macroeconomic Backdrop: Fitch forecasts GDP growth to be 3.9% in 2013 in
Latin America, an improvement from 3.0% in 2012. Consumer demand is strong due to low
unemployment levels, rising wages, modest inflation, improving consumer confidence, and
wider access to credit. The key growth engine for 2013 is Brazil, which also has the highest
number of leveraged corporates in the ‘B’ rating category. Fitch expects growth to reach 4.2%
in Brazil during 2013, a sharp improvement from forecasted growth of 1.5% in 2012.
Record Capital Market Activity Lowers Refinancing Risk: Latin America corporates issued
USD48 billion of debt in the international capital markets during the first nine months of 2012.
This figure compares favorably with USD51 billion of issuance activity during the 12 months of
2011. Speculative credits such as Cemex, Digicel, Maestro, Minerva, PDVSA, Virgolino,
Cimento Tupi, OAS, OGX, and VRG Linhas Aereas were very active during 2012, issuing
about USD9 billion of debt.
Eurozone Financial Crisis Should Not Hurt Access to Credit: Concern over the potential for
a disorderly default in the eurozone has diminished. As a result, Fitch’s base case scenario
expects credit market access for Latin America corporates during 2013 to grow versus 2012
due to low interest rates in developed markets and high demand for emerging market debt. The
risk of bank credits being withdrawn from ‘B’ credits in Latin America due to the Euro crisis is
small and manageable.
Downgrades to Upgrade Ratio Should Revert to Normal Levels: The credit quality of highly
speculative corporate ratings in Latin America weakened sharply during the first nine months of
2012. Fitch downgraded nine corporates rated ‘B+’ and lower and upgraded only four similarly
rated companies. This compares with 23 upgrades and 21 downgrades for its broader Latin
America corporate portfolio. The 2.2x ratio of downgrades to upgrades during 2012 should
revert to around 1.0x during 2013.
Negative Leverage Trends: Leverage ratios have been weakening since 2009 for the 48
companies rated ‘B+’ and lower due to USD16 billion of additional debt, which was offset by
only USD1.4 billion of additional EBITDA. Lower levels of capex in 2013 and an improving
operating environment should reverse the trend. During the LTM, the aggregate total
debt/EBITDA ratio for these companies was 4.2x, while their collective net debt/EBTIDA ratio
was 3.4x. In comparison, during 2009 these leverage ratios were 3.4x and 2.5x, respectively.
Modest Direct Exposure to China and Commodities: Direct exposure to China and
commodity prices is low among the weakest credits in Latin America. Only seven of the 48
speculative corporates are in the metals and mining, pulp and paper, or oil and gas sectors.
All of their businesses are focused on their respective domestic markets.
Above-Average Recovery Prospects in the Event of a Default: Fitch’s bespoke analysis for
36 companies that have issued USD20 billion of bonds in the international capital markets
indicates above-average aggregate recovery levels of 70% in the event of a default. Concerns
about the bankruptcy framework in many markets, as well as the application and enforcement
of existing laws, can limit the uplift on issuance ratings.
November 8, 2012
Corporates
Analysts (Continued)
Francisco Mercadal
+5 62 499-3340
[email protected]
Cecilia Minguillón
+54 11 5235-8123
[email protected]
Alberto Moreno
+52 81 8399-9100
[email protected]
Natalia O’Byrne
+57 1 326-9999
[email protected]
Gisele Paolino
+55 21 4503-2624
[email protected]
Renata Pinho
+55 11 4504-2207
[email protected]
Sergio.Rodriguez, CFA
+5281 8399-9100
[email protected]
Indalecio Riojas
+52 81 8399-9100
[email protected]
Jose R. Romero
+55 11 4504-2601
[email protected]
Alberto de los Santos
+52 81 8399-9100
[email protected]
Mauro Storino
+55 11 4503-2625
[email protected]
Fernando Torres
+55 11 5235-8124
[email protected]
Julio Ugueto
+58 212 286-3232
[email protected]
Jose Vertiz
+1 212 908-0641
[email protected]
Liliana Yabiku
+55 11 4504-2208
[email protected]
Strong Balance Sheets but High Government Meddling in Argentina: Argentine corporates
have strong capital structures to mitigate issues such as high inflation, government intervention,
economic uncertainty, and limited access to debt markets. Access to local and international
debt markets is restricted due to concerns about the sovereign.
Brazilian Corporates Should Benefit from Government Actions: Brazilian corporates in the
‘B’ category are the most leveraged in Latin America. A rebound in the Brazilian economy
would be an important step in reversing the negative credit trends that have developed since
2009. Small companies such as Cimento Tupi, Rodopa, Sifco, and Virgolino would benefit
most from improving cash flow trends, as they do not have the business profile to attract
lending under a distressed scenario.
Corporate Governance Remains a Key Concern in Mexico: Many of the weakest credits in
Mexico are controlled by families. Concern about corporate governance is extremely high
among investors due to a bankruptcy regime that allows intra-company loans to be treated pari
pasu with external debt. From a macro perspective, the near-term outlook for Mexican
corporates is positive due to a rebound in its manufacturing sector.
2012 Portfolio Overview and Performance Review
Fitch’s portfolio of corporates rated ‘B+’ and lower grew to 48 issuers in 2012 from 43 during
2011. The growth of the this speculative group of issuers was due to the addition of five new
ratings in the ‘B’ category — Corporacion Electrica Nacional (Corpoelec), Maestro Peru,
Rodopa Industria e Comercio de Alimentos Ltda., SANLUIS Rassini, Virgolino de Oliveira S.A.,
and Acucar e Alcool — and the downgrade of four credits into the ‘B’ category from the ‘BB’
category — Corporacion Pesquera Inca SAC (COPEINCA), GOL Linhas Aereas Inteligentes
S.A., Pan American Energy LLC, and Urbi Desarrollos Urbanos, S.A.B. de C.V.
During 2012, Fitch withdrew the ‘B–’ rating of Agro Industrial Vista Alegre Ltda., the ‘B’ rating of
ODS S.A. and the ‘B’ rating of Galvao Participações. The only company to get upgraded out of
the ‘B’ category was TAM S.A., which was upgraded to ‘BB’ from ‘B+’ following its merger with
LATAM Airlines Group.
The credit performance of these 48 corporates was weaker than Fitch’s broader Latin America
portfolio. During the first nine months of 2012, Fitch upgraded the ratings of 23 corporates in
Latin America and downgraded the ratings of 21 companies. In contrast, among the highly
speculative ratings, downgrades outpaced upgrades by a ratio of 2.2x, as Fitch downgraded
nine corporates and only upgraded the ratings of four companies rated ‘B+’ or lower.
Upgrades included Arendal to ‘B’ from ‘B–’; TGN to ‘CCC’ from ‘D’; Grupo Senda to ‘B’ from
‘B–’; and TAM to ‘BB’ from ‘B+’. Notable downgrades include Urbi to ‘B’ from ‘BB–’; OGX to ‘B’
from ‘B+’; Axtel to ‘B–’, Rating Watch Negative, from ‘B’; and Transener to ‘CCC’ from ‘B–’.
The only defaults among Latin America corporates during 2012 were those of Rede Energia
and its subsidiaries, Centrais Eletricas do Para (Celpa) and Centrais Eletricas Matogrossenses
S.A. (Cemat). Rede Energia had been rated ‘B–’ since 2009 and was downgraded to ‘CCC’ in
2011, while Celpa and Cemat had been rated ‘B–’ since 2011. These defaults were due to the
lethal combination of weak liquidity, high leverage, poor cash flow generation, and large
investments.
November 8, 2012
2
Corporates
GDP Growth USA
Improving Macroeconomic Backdrop; Inflation Is Key Risk
(80%–30% Confidence)
30%
40%
60%
Actual
6
30%
50%
70%
Projected
(%)
(%)
6
4
4
2
2
0
0
(2)
(2)
(4)
(4)
2002
2006
2010
F – Forecast.
Source: Fitch.
2014F
The profile of the lowest rated corporates in Latin America can broadly be broken into two
equal camps — those companies domiciled in Venezuela, Argentina, Jamaica, or the
Dominican Republic that face high systemic risk, and those whose credit profiles reflect specific,
individual corporate risks. Among the second camp, key credit risks may be related to issues
such as poor corporate governance, low liquidity, high leverage, and/or a weak business
position. The common denominator between both camps is that all corporates benefit from
strong regional growth and slow improvements in the global economy.
Fitch’s global growth forecast is 2.1% for 2012, 2.6% in 2013 and 3.0% in 2014%. These
modest growth levels are projected despite forceful monetary policy interventions by the Fed,
ECB, and BoJ during the second half of the year. They highlight sluggish economic growth in
the major advanced economies where economic growth is projected at 1.0% in 2012, followed
by only a modest acceleration to 1.4% in 2013 and 2.0% in 2014.
In contrast to the weak economic outlook in the developed markets, the outlook looks bright for
Latin America. Fitch forecasts GDP growth to be 3.9% in 2013 in Latin America and 3.9% in
2014. These figures represent an increase from forecasted growth of 3.0% in 2012. Key growth
engines for 2012 will be Brazil at 4.2%, Peru at 6.2%, and Colombia at 4.8%. Chile is also
projected to grow at an above-average regional growth rate of 4.6% in 2013, albeit a decline
from 4.8% in 2012. Laggards in the region in terms of projected 2013 GDP growth rates include
Mexico at 3.6%, Argentina at 2.7%, and Venezuela at 1.6%.
At a macro level, central bank reserves are at historically high levels in Latin America, which
should provide a buffer against negative external shocks. Foreign direct investment (FDI) levels
are also robust and foreign currency-denominated sovereign debt obligations are relatively low
for most countries and manageable. At a micro level, demand from consumers has been robust
in most countries due to low unemployment levels, rising wages, modest inflation, and
improving consumer confidence. These factors, which have led to higher disposable income,
have been augmented by the increasing availability of credit in the region.
Real GDP Growth (%)
Country
Argentina
Aruba
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dominican Republic
Ecuador
El Salvador
Guatemala
Jamaica
Mexico
Panama
Peru
Suriname
Uruguay
Venezuela
IDR
B
BBB
BB
BBB
A+
BBB
BB+
B
B
BB
BB+
B
BBB
BBB
BBB
BB
BB+
B+
Outlook
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Positive
Stable
Negative
Stable
Stable
Stable
Stable
Stable
Stable
Positive
Negative
Country Ceiling
B
A
BBBBB+
AA+
BBB
BBB
B+
B
BBB
BBB
B
A
A
BBB+
B+
BBB
B+
2011
8.87
8.90
5.17
2.70
5.99
5.93
4.16
4.48
7.78
1.47
3.87
1.50
3.90
10.56
6.87
4.43
5.70
3.95
2012F
2.01
(2.00)
5.17
1.50
4.83
4.19
3.70
3.90
4.75
1.65
3.06
0.50
3.80
7.69
5.79
4.42
3.90
5.08
2013F
2.71
8.60
5.16
4.20
4.63
4.82
3.87
4.14
3.74
2.35
3.20
0.90
3.60
7.24
6.17
4.88
4.16
1.55
2014F
2.79
2.60
5.28
4.00
4.94
4.96
3.73
4.84
3.98
2.45
3.42
1.20
3.80
6.34
6.27
5.20
4.93
2.56
F – Forecast. IDR – Issuer default rating.
Source: Fitch. Latin America High Yield
November 8, 2012
3
Corporates
Growth in the BRICs
(%)
Brazil
Russia
Indiaᵃ
China
2011 2012F 2013F 2014F
2.7
1.5
4.2
4
4.3
3.5
3.5
4
6.5
6
7
7.5
9.2
7.8
8.2
7.5
a
India forecasts represent fiscal years:
2011 = FY12, 2012 = FY13. F – Forecast.
Source: Fitch.
Inflation remains a key risk for the region as loose monetary and fiscal policies in developed
markets have increased the money supply. Several central banks in Latin America have taken
actions to weaken their currencies in response to the measure taken by the Fed, ECB, and BoJ.
In Latin America, food and energy are a disproportionally high percentage of the consumer
basket. Food, as a percentage of the CPI basket, is more than 35% in Peru and ranges
between 20% and 30% in Brazil, Colombia, and Mexico. Any sharp increase in the prices for
these items could weaken disposable income in the region and could lower demand.
Weakening Leverage Trend Should Abate
BRIC Contributions to
Quarterly Real GDP Growth
Net Exports
Investment
Government Consumption
Private Consumption
GDP
(Year over Year %)
15
Leverage ratios have been trending down since 2009 due to a USD16 billion increase in
aggregate debt levels and only a USD1.4 billion increase in EBITDA. During the last 12 months
(LTM), the aggregate total debt/EBITDA ratio for the companies rated ‘B+’ and lower was 4.2x,
while the net debt/EBTIDA ratio was 3.4x. The former ratio compares unfavorably with ratios of
4.0x in 2011, 3.5x in 2010, and 3.4x in 2009, while the net leverage ratio shows weakness
versus 3.1x in 2011, 2.6x in 2010, and 2.5x in 2009.
Combined, the group of credits rated ‘B+’ and lower have USD12 billion of cash, USD13 billion
of short-term debt obligations and USD63 billion of total debt obligations. These figures
compare with USD15.1 billion of EBITDA generation during the LTM. They exclude PDVSA,
which is owned by the Venezuelan government and is disproportionally large relative to the
other 47 corporates.
10
Leverage is significantly higher for the group if you eliminate the 24 companies domiciled in
countries rated ‘B+’ or lower, whose ratings are capped by the sovereign ceilings of Argentina,
Venezuela, the Dominican Republic, and Jamaica. The trends are also negative for this group
of corporates.
5
0
(5)
Source: IBGE, Fitch.
BRIC Industrial Production
(Year-over-Year Growth)
(%)
25
20
15
10
5
0
(5)
(10)
Source: FGV.
November 8, 2012
During the LTM, the 24 companies domiciled in the investment-grade countries — Brazil,
Mexico, and Peru — generated USD5.4 billion of EBITDA. This compares with USD5.5 billion
in 2011, USD6.2 billion in 2010, and USD5.6 billion in 2009. Total debt for these 24 companies
increased to USD45 billion from USD34 billion during this time period, while cash and
marketable securities declined to USD9 billion from USD10 billion.
As a group, the total leverage ratio of the companies in investment-grade markets climbed to
8.4x from 6.1x, while net leverage rose to 6.8x from 4.4x. These ratios are heavily affected,
however, by the increasing leverage of large companies such as Marfrig, Minerva, OGX, and
CEMEX. Median ratios show far less leverage but similar trends. The median net leverage ratio
of the Brazilian, Mexican, and Peruvian corporates was 3.8x in the LTM, similar to 2011 levels,
but up from 3.2x in 2009.
Robust Debt Capital Market Activity to Continue; History Suggests
Caution
Issuance totals were at elevated levels during 2012, as investors aggressively sought emerging
market corporate debt due to slow economic growth rates and low interest rates in developed
markets. Many Latin America corporates improved their capital structures by accessing
financing with lower rates and longer tenors.
4
Corporates
Non-FI Latin America Corporate Debt Issuance
(First-Quarter 2006–Thrid-Quarter 2012)
International
(USD Bil.)
Domestic
Total
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Source: Fitch Ratings.
During the first nine months of 2012, Latin America corporates issued USD48 billion of debt in
the international capital markets. This compares favorably with the yearly totals for 2011, 2010,
and 2009 of USD 51 billion, USD 44 billion, and USD 40 billion, respectively.
Market activity was widespread and constant throughout the year. Through the first nine
months, 70 different issuances occurred. This total is equal to that for all of 2011 and only
slightly lower than the level achieved in 2010, when 72 different transactions occurred. The
strong volumes heading into the last quarter suggest that new levels of market activity will be
reached. In contrast to 2011, where market activity ground to a halt during the second half of
the year following the acceleration of the euro crisis, cross border debt activity was relatively
constant throughout 2012.
High risk credits benefited from the strong market. Cemex, Digicel, Maestro, Minerva, PDVSA,
Virgolino, Cimento Tupi, OAS, OGX, and VRG Linhas Aereas issued about USD9 billion of
debt in the international capital markets, or about 20% of the cross border market activity.
Local markets have also been a healthy source of funding for Latin America corporates. During
the first nine months of 2012, Latin America corporates raised USD20 billion of debt through
141 issuances in the local debt capital markets. The most robust market in the region was
Brazil, which accounted for USD14 billion of the total activity through 57 separate issuances.
History suggests that Latin America corporates cannot count on market windows being open at
all moments. The market was essentially closed to Latin America corporates during the third
and fourth quarter of 2008 and during the month of August during 2011. Some of the largest
debt amortizations occurring before the end of 2014 are those of Grupo Posadas
(MXN2.250 billion, April 2013), and Digicel (USD510 million, April 2014).
GDP Growth Euro Zone
(80%–30% Confidence)
30%
40%
60%
Actual
6
30%
50%
70%
Projected
(%)
(%)
Eurozone Financial Crisis Should Not Hurt Access to Credit in 2013
6
4
4
2
2
0
0
(2)
(2)
(4)
(4)
2002
2006
2010
F – Forecast.
Source: Fitch.
November 8, 2012
2014F
Risks related to the Euro financial crisis remain the most crucial global risk monitored by Fitch
in terms of urgency and the potential negative impact upon credits globally. As of Sept. 30,
2012, 45% of Western European sovereign ratings had a Negative Outlook, as did 37% of the
financial institutions in the region and 21% of corporates. Weak business and household
sentiment in the region, high unemployment levels, tight financing conditions and the impact of
fiscal consolidation on domestic economic activity will curb growth in the eurozone. For 2012,
Fitch projects that GDP in the eurozone will contract by 0.5%. During 2013 and 2014, Fitch
projects continued weak growth rates of 0.3% and 1.4%, respectively.
5
Corporates
Key euro-related risks for speculative Latin America corporates are whether capital market
access would disappear for a prolonged period of time and if bank lines would be withdrawn.
Secondary risks would be whether economic growth rates in the region would drop sharply if
broad-based support for the euro dissolved, which is not Fitch’s base case, and whether export
opportunities would diminish.
Positively for all corporates, including the ‘B’ rated companies in Latin America, concern over
the potential for a shock to the eurozone from a disorderly default has been lessened as
ongoing negotiations among politicians in Europe represent a willingness to maintain the
European Union. The willingness to make concessions, as well as the aggressive position
taken by the ECB, should result in a gradual normalization of financial market conditions.
Fitch’s base case scenario is that credit market access for Latin America corporates during
2013 will grow vis-à-vis 2012 given low interest rates and strong demand for emerging market
debt. This type of environment suggests that most corporates will have the opportunity to
refinance upcoming debt obligations, including the most speculative credits. It is doubtful,
however, that the pace of market activity will remain as steady as 2012.
The risk of bank credits being withdrawn from ‘B’ credits in Latin America due to the Euro crisis
is small and should be manageable. The largest foreign banking presence in the region is in
Chile, where foreign loans as a percentage of GDP is estimated to be close to 30%. Fitch has
no corporates rated in the ‘B’ range in that country. In contrast, the presence of foreign banks is
low in the countries where 60% of the ‘B’ rated corporates are domiciled — Argentina and
Brazil. In Brazil, foreign bank loans are less than 10% of GDP and in Argentina they are less
than 4% of GDP. If a credit line is withdrawn by a foreign bank in Brazil, most companies with
reasonable business prospects should be able to obtain financing either from a government or
private sector bank. The foreign banking presence in Mexico and Peru ranges between 12%
and 15% of GDP. These two countries combined account for 23% of the lowest rated credits.
Trade Balance with
China Five-Year
Average (20062010)
Country
Chile
Costa Rica
Peru
Venezuela
Brazil
Argentina
Bolivia
Aruba
Dom. Rep.
Jamaica
Colombia
Uruguay
El Salvador
Guatemala
Ecuador
Suriname
Mexico
Panama
LatAm
X/GDP
6.2
3.6
3.0
1.5
1.1
1.7
0.8
0.0
0.3
0.7
0.4
1.0
0.0
0.1
0.4
0.3
0.2
0.0
1.1
M/GDP TB/GDP
3.5
2.7
2.5
1.1
2.6
0.4
1.2
0.3
1.0
0.0
1.8
(0.2)
1.2
(0.5)
0.9
(0.9)
1.4
(1.1)
1.9
(1.2)
1.7
(1.3)
2.4
(1.4)
2.0
(2.0)
2.2
(2.1)
3.0
(2.6)
3.2
(2.8)
3.4
(3.1)
5.6
(5.6)
2.0
(0.8)
X – Exports. M – Imports. TB – Trade
balance.
Source: UNCTAD, Fitch.
November 8, 2012
Modest Direct Exposure to China and Commodities
The slowdown in China’s economy to 7.6% in second-quarter 2012 from 9.3% in 2011 has
refocused attention on the possibility of slower future growth rates. Fitch has trimmed its
expectations for China’s 2012 growth to 7.8% and expects growth to rebound slightly to 8.2%
in 2013 due to some modest quasi-fiscal stimulus.
Direct exposure to China and commodity prices is low among the weakest credits. Only seven
of the 48 speculative corporates are in the metals and mining, pulp and paper, or oil and gas
sectors. All of their businesses are focused on their respective domestic markets. None of them
export to China. Two Brazilian protein producers, Marfrig and Minerva, have a very small
percentage of their revenues linked to China — Minerva through exports and Marfrig via a joint
venture.
Despite modest direct links to China among these credits, the indirect impact upon companies
cannot be underestimated due to China’s size and contribution to global growth. Since 2006,
the level of exports from Latin America to China has increased to USD76 billion in 2010 from
USD25 billion. Nearly 77% of the region’s commodity sales and 70% of its total exports to
China were comprised by only eight primary products: copper, feedstuff, gas, meat, metal ores
and scrap, oil, pulp, and soy.
6
Corporates
Fitch’s Ratings
Actions During the
Commodity Boom
(2003–2011)
Country
Brazil
Argentinaª
Peru
Uruguayª
Bolivia
Chile
Colombia
Panama
Costa Rica
Ecuadorª
Mexico
Suriname
Venezuela
Aruba
Guatemala
Dom. Rep.ª
El Salvador
Jamaicaª
LT FC
IDR
BBB
B
BBB
BB+
B+
A+
BBB
BBB
BB+
B
BBB
B+
B+
BBB
BB+
B
BB
B
Net
Notching
6
5
4
4
2
2
2
2
1
1
1
1
1
0
0
-1
-1
-2
ªTotals are influenced by multi-notch
upgrades/downgrades during sovereign
defaults or restructuring exercises. Note:
Countries in bold have deeper trade and
financial linkages with China. LT – Longterm. FC – Foreign currency. IDR – Issuer
default ratings.
Source: Fitch.
A Decade-Long Commodity Price Boom
(Jan. 2000 = 100)
Oil
700
Soy
Copper
Gold
(Index)
600
500
400
300
200
100
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bloomberg, Fitch.
Five Latin American economies — Brazil, Chile, Costa Rica, Peru, and Venezuela —
accounted for 81% of the total regional sales to the Asian giant in 2010. Among them, Brazil,
Chile, and Peru have achieved the greatest ratings momentum by turning a cyclical upturn into
credit strength, as they strengthened their external liquidity and solvency positions. Colombia
has also benefited. On the other side of the equation, Jamaica and the Dominican Republic
have suffered from rising energy and food costs, as it imports these products. These countries
faced balance of payments imbalances and confidence shocks, making them reliant upon the
IMF.
Higher Government Meddling in Argentina; Strong Balance Sheets
Argentine corporates represent 16 of the 48 companies rated in the ‘B’ category or lower by
Fitch. These companies have strong capital structures to mitigate issues such as high inflation,
government intervention, economic uncertainty, and limited access to debt markets. The
median liquidity ratio (measured by cash plus EBITDA/short-term debt) of these corporates is
2.0x, while the median leverage ratio is 1.6x. These key credit protection measures are much
stronger than that of their ‘B’ rated peer group, which are not constrained by systemic
government risk.
All but two of the corporate ratings in Argentina are capped by the ‘B’ country ceiling of the
Argentine government due to their exposure to the imposition of transfer and convertibility
restrictions on foreign currency. The trend has not been positive for capital controls as the
government has tightened exchange restrictions in response to declining reserve levels.
Several of the ratings were placed on Rating Watch Negative on Oct 31, 2012, following Fitch's
decision to place the ‘B’ foreign currency issuer default rting (IDR) of the Republic of Argentina
(Argentina) on Rating Watch Negative, as a result of increased uncertainty about the
government’s ability to service its international securities issued under New York Law due to a
ruling in a U.S. court about on a timely basis using the U.S. financial system. In and of itself,
this ruling should not directly affect the ability of the Argentine corporates to make payments on
their foreign currency obligations using the U.S. financial system. Indirectly, this ruling may
further affect the willingness of the Argentine government to provide corporates with foreign
exchange to make payments to their cross currency debt obligations.
Debt capital market activity has been limited for Argentine corporates due to concerns about
government interference in the private sector. During 2012, no Argentine corporate issued
bonds in the international markets. International issuances have ground to a halt following the
government’s actions after the 2011 elections — particularly the nationalization of YPF, the
November 8, 2012
7
Corporates
LatAm's Main Trading
Partners
(% of Total Exports and Imports )
China
LatAm
(%)
60
50
40
30
20
10
0
Source: UNCTAD, Fitch.
E.U.
U.S.
imposition of additional capital controls on select industries, and the change in the central
bank’s charter. Among companies with international ratings, only IRSA, IMPSA, Cresud, and
YPF placed bonds in the domestic market during 2012. Many companies are reluctant to tap
the local debt market following the nationalization of the pension funds, as they seek to limit the
government’s ownership of their stock and bonds.
Argentina’s economy is intertwined with Brazil’s through exports, as it ships about 20% of its
exports to Brazil — or close to 40% of its total Latin America exports. These corporates could
benefit from a cyclical rebound in the Brazilian economy that should lead to growth in excess of
4% in Brazil during 2013. Approximately 67% of Argentine exports to Brazil are in the
manufacturing sector. Vehicles and auto parts make up the bulk of this number. This sector
should perform well in 2013. Argentina is also highly reliant upon the export of soybeans, which
should enjoy a good year due to the record drought in the U.S. that has led to elevated soy
prices globally.
Brazil Corporates Should Benefit from Government Actions; Trends
Have Been Negative
Brazilian corporates in the ‘B’ category are the most leveraged in Latin America and the credit
protection measures have been weakening both in relative and aggregate terms. The dozen
speculative credits in Brazil can be roughly divided into two groups: small companies with low
leverage and large companies such as Marfrig, OAS, and GOX that have weak capital
structures.
A rebound in the Brazilian economy would be an important step in reversing the negative
trends that have developed since 2009. Small companies such as Cimento Tupi, Rodopa, Sifco,
and Virgolino would benefit most from improving cash flow trends, as they do not have the
business profile to attract lending under a distressed scenario.
Fitch expects growth to reach 4.2% in Brazil during 2013, a sharp improvement from
forecasted growth of 1.5% in 2012. The poor 2012 performance is a result of the weak
industrial sector, which contracted by 2.4% in the second quarter. This sector’s performance
was hurt by soft external market conditions and rising costs.
Monetary stimulus as well as temporary tax breaks and continued quasi-fiscal stimulus through
the development bank BNDES will be key components of the recovery. Key sales tax breaks
include those on autos and white goods. Cement, steel, and construction companies should
benefit from the government’s USD66 billion plan to improve the country’s infrastructure.
In terms of competitiveness, manufacturing companies should be better able to compete with
their global peers due to measures the government recently took to reduce electricity tariffs.
Exporters should benefit from a Brazilian real that is managed by the government to be in the
range of BRL2.0/USD. This exchange level should also slow the tide of imports, as will import
tariffs on approximately 100 different goods.
The aggregate total leverage ratio for the dozen Brazilian credits rated in the highly speculative
category was 12.6x during the LTM, while the net leverage ratio was 8.5x. These are increases
from 9.5x and 5.8x in 2011. Some of the largest companies — Rede, OGX, OAS, GOL, and
Virgolino — have driven the weakening of aggregate protection measures.
Median ratios, which eliminate the impact of the large and highly leveraged companies, show
lower leverage levels, but also highlight negative trends. For the LTM, the median net leverage
November 8, 2012
8
Corporates
ratio of the Brazilian credits was 5.2x. This ratio compares unfavorably with those of 4.5x in
2011 and 4.0x in 2010 and is about 60% higher than during 2009 when it was 3.2x.
Corporate Governance Remains a Key Concern in Mexico
The 10 credits in Mexico rated in the range of ‘B+’ or lower are in industries such as cement,
home building, auto parts, oil services, food and beverage, packaging, retailing, lodging, and
transportation. This disparate group of credits have few things in common other than high
leverage. Some corporates, such as Arendal and Axtel, are small relative to their competitors.
Others, such as Urbi and Javer, are relatively big companies within fragmented industries that
exhibit high operating risk. Several companies are in the ‘B’ category because their
management teams have made poor strategic or financial decisions. This group includes
companies such as Posadas, Cemex, Bio-Pappel, Senda, and SANLUIS.
Unlike its peers in Brazil, the Mexican credits have been deleveraging during the past few
years. The median net leverage ratio of the Mexican credits during the LTM was 3.3x. This
ratio compares with 3.8x in 2011 and 3.7x in 2010 and 4.3x in 2009.
From a macro perspective, the near-term outlook for Mexican corporates is positive. Mexico’s
exposure to the U.S. is high due to trade and remittances. For 2013 and 2014, Fitch projects
U.S. growth rates of 2.25% and 2.8%, respectively. These growth rates should support growth
levels in Mexico of about 3.6% in 2013 and 3.8% during 2014. Continuing challenges that need
to be addressed to increase Mexico’s low growth rate relative to other emerging economies are
the country’s moderate saving and investment rates, monopolies in important industries, state
ownership of the energy sector, high labor informality, and limited flexibility.
A bright spot for the Mexican economy has been a revival of its manufacturing sector due to
the country’s close proximity to the U.S. market and rising costs in China. The auto sector has
probably been the sector that has benefited to the greatest degree. Unlike several countries in
Latin America that have a high degree of exposure to China and commodity prices, Mexico’s
risks as they relate to those issues are more modest. Exports to China have averaged about
0.2% of GDP during the past five years, while imports have averaged 3.4% of GDP.
While corporate governance is a global credit concern, unease is extremely high among
investors in the weakest credits in Mexico. The bankruptcy regime in Mexico is relatively new
and untested. There is a lack of precedent on many issues and rulings can be unpredictable.
Many of the lowest rated Mexican corporates are controlled by families, despite being publicly
traded companies. The participation of key family members as executives in business
operations is high and there is often a lack of independent members in the board of directors.
Related party transactions are numerous.
The actions of Mexican glassmaker Vitro have elevated concerns about corporate governance
and Mexico’s bankruptcy regime. Vitro defaulted on its debt during 2009 due to declining
demand for glass from construction and auto manufacturers, losses on derivative instruments,
and a weak capital structure. After the default, the company created a very large intracompany
loan. In late 2010, the company filed for bankruptcy and these intracompany loans were
recognized by the judge in the case, which allowed them to vote on the restructuring plan. This
essentially gave the company’s shareholders the ability to impose large losses on external
creditors and retain control.
Vitro’s actions could have repercussions for companies that want to issue bonds in the future.
CEMEX’s new facilities agreement, which was completed in September 2012, had restrictions
and conditions imposed on intercompany loans. Among them, any amount payable under any
November 8, 2012
9
Corporates
intercompany claim of any obligor would be subordinated to claims under the new facilities
agreement and all other senior debt of such obligors in the event of insolvency or similar
proceedings in relation to Cemex. The Intercreditor Agreement established a Mexican-law
regulated voting trust mechanism whereby intercompany claims of Cemex entities incorporate
in Mexico at any time would be voted in a Concurso Mercantil proceeding in accordance with a
trustee that is under instruction from the third-party lenders under the new facilities agreement.
Recovery Prospects Are Above Average in the Event of a Default
Fitch’s bespoke analysis for 36 companies that have USD20 billion of bonds in the international
capital markets (excluding PDVSA) and have USD56 billion of combined debt indicates an
aggregate recovery of 70%. This recovery level is consistent with above-average recovery
expectations in the event of default, or an ‘RR3’ rating.
Despite high anticipated levels of recoveries, many of the rated bonds have been assigned
recovery ratings of ‘RR4’, which is consistent with recoveries in the range of 30%–50%. The
recovery ratings of many of these bonds were constrained due to concerns about the
bankruptcy framework in many markets, as well as the application and enforcement of existing
laws.
Fitch Default Rates by Major Sector: Jan. 1, 2012–June 30, 2012
(%)
AAA
AA
A
BBB
BB
B
CCCᵃ
Global Corporates
0.00
0.00
0.00
0.00
0.00
0.79
15.38
Latin America Corporates
0.00
0.00
0.00
0.00
0.00
2.44
33.33
0.00
1.07
0.33
0.00
1.78
0.96
Investment Grade
Speculative Grade
All
ᵃIncludes ‘CCC’ to ‘C’ for corporates, sovereigns, and public finance.
November 8, 2012
10
Corporates
Latin America Non-Financial Institutions Corporate Financial Statistics
(USD Mil.)
Company Name
AES Andres Dominicana SPV (Aes Dominicana)
Alto Palermo S.A. (APSA)
Arcor S.A.I.C.
Arendal, S. de R. L. de C. V.
Axtel, S.A.B. de C.V.
Bio-PAPPEL, S.A.B. de C.V.
Cablevision S.A.
Capex S.A.
Ceagro Agricola Ltda.
Celulosa Argentina S.A.
CEMEX, S.A.B. de C.V.
Cimento Tupi S.A.
Clarendon Alumina Production Limited (CAP)
Compania de Transporte de Energia Electrica en
Alta Tension Transener S.A.
Compania Latinoamericana de Infraestructura y
Servicios
Construtora OAS Ltda
Corporacion Pesquera Inca SAC (COPEINCA)
Cresud S.A.C.I.F. y A.
Digicel Group Limited
Empresa Generadora de Electricidad Haina, S.A.
Empresa Generadora de Electricidad Itabo, S.A.
GOL Linhas Aereas Inteligentes S.A.
Grupo Famsa, S.A.B. de C.V.
Grupo Posadas, S.A. de C.V.
(Grupo Senda)
Industrias Metalurgicas Pescarmona S.A.
(IMPSA)
Inversiones y Representaciones S.A.
Maestro Peru S.A.
Marfrig Alimentos S.A.
Minerva S.A.
OAS S.A.
OGX Petroleo E Gas Participacoes S.A.
Pan American Energy LLC
Petroleos de Venezuela S.A. (PDVSA)
Rede Energia S.A.
Rodopa Industria e Comercio de Alimentos Ltda.
SANLUIS Rassini, S.A. de C.V.
Servicios Corporativos Javer, S.A.P.I. de C.V.
Siderurgica del Turbio, S.A. (Sidetur)
Sifco S.A.
Telecom Argentina S.A.
Transportadora de Gas del Norte S.A. (TGN)
Transportadora de Gas del Sur S.A. (TGS)
Urbi Desarrollos Urbanos, S.A.B. de C.V.
Virgolino de Oliveira S/A Acucar e Alcool
WPE INTERNATIONAL Cooperatief U.A.
YPF S.A.
LTM as of
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
May 2012
June 2012
June 2012
March 2011
2009
63
17
186
5
107
75
38
24
4
6
1,080
9
1
Cash
2010
2011
120
131
18
42
190
99
5
6
106
102
59
69
100
126
26
45
120
43
6
7
676 1,153
5
28
1
4
2012a
155
31
126
24
51
80
143
6
24
7
611
35
N.A.
Total Short-Term Debt
Total Debt
2009
2010
2011 2012a 2009
2010
2011 2012a
5
N.A.
N.A.
N.A.
161
164
164
164
62
52
30
18
246
226
180
172
178
140
161
154
417
497
449
472
29
31
27
35
31
32
35
37
72
53
27
26
758
844
894
873
3
7
9
9
260
275
282
248
52
33
72
101
542
512
655
652
8
20
20
27
261
199
230
238
10
9
34
31
34
131
156
149
80
69
77
72
212
173
157
159
595
465
381
109 19,381 17,894 18,162 17,251
20
30
26
33
42
63
155
215
128
89
169
N.A.
460
373
424
N.A.
June 2012
16
27
32
28
14
13
4
4
159
148
155
154
June 2012
June 2012
June 2012
June 2012
June 2012
March 2012
June 2012
June 2012
June 2012
June 2012
93
138
12
56
492
40
79
818
131
50
83
312
34
76
1,041
111
72
1,174
90
47
95
608
60
173
613
184
53
1,205
104
30
61
384
43
110
343
149
51
843
134
35
58
19
38
142
350
6
N.A.
340
786
72
107
46
16
272
166
20
N.A.
205
898
17
159
87
48
322
388
48
N.A.
835
890
40
159
98
83
242
228
48
N.A.
300
987
194
192
146
144
372
3,140
202
125
1,801
864
380
268
199
218
490
3,793
207
131
2,219
1,100
471
313
414
266
832
4,528
281
129
2,685
1,162
452
346
571
293
858
4,887
301
129
2,590
1,257
443
June 2012
11
11
12
7
29
30
35
30
222
218
225
216
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
Dec. 2011
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
93
68
4
1,743
244
392
4,216
232
6,981
238
2
13
62
58
49
341
81
271
336
N.A.
93
567
62
86
6
2,299
342
690
2,516
434
6,017
451
15
21
40
51
72
351
124
275
487
23
62
639
53
93
6
1,871
402
788
2,936
958
8,610
369
19
21
30
29
90
658
153
107
395
54
53
341
61
84
6
1,499
405
925
2,942
753
N.A.
221
18
37
27
45
99
521
175
150
432
91
61
102
111
93
29
942
167
185
173
384
2,956
857
8
218
21
19
43
202
381
4
295
N.A.
111
1,238
117
156
19
1,911
141
393
134
381
3,604
1,352
37
208
2
9
141
11
414
4
263
332
117
1,561
169
167
46
1,491
291
521
12
447
2,396
1,939
57
41
8
5
155
4
453
4
461
271
169
1,894
324
578
579
845
127
370
421
597
64
53
55
111
1,698 3,252 6,055 6,437
139
703
972 1,131
635
719 1,554 2,019
43
173
141 2,574
747 1,554 1,759 1,756
N.A. 21,445 24,950 34,892
1,729 3,893 4,600 4,429
79
16
55
92
50
233
364
250
4
201
210
276
5
106
90
83
176
220
360
367
7
217
41
31
473
381
414
453
4
401
380
379
259
603
888 1,067
324
N.A.
717
879
324
578
579
845
2,186 1,804 1,969 2,980
1,343
584
122
6,143
1,204
2,410
3,994
1,874
N.A.
3,725
98
259
275
79
368
29
473
378
1,426
1,092
1,343
2,350
a
LTM. N.A.  Not applicable. Continued on next page.
November 8, 2012
11
Corporates
Latin America Non-Financial Institutions Corporate Financial Statistics (Continued)
Company Name
LTM as of
AES Andres Dominicana SPV (Aes Dominicana) June 2012
June 2012
Arcor S.A.I.C.
June 2012
June 2012
June 2012
June 2012
Cablevision S.A.
June 2012
Capex S.A.
June 2012
June 2012
May 2012
June 2012
Cimento Tupi S.A.
June 2012
March 2011
Compania de Transporte de Energia Electrica en
Alta Tension Transener S.A.
June 2012
Compania Latinoamericana de Infraestructura y
Servicios
June 2012
June 2012
June 2012
June 2012
June 2012
Empresa Generadora de Electricidad Haina, S.A. March 2012
Empresa Generadora de Electricidad Itabo, S.A. June 2012
June 2012
June 2012
June 2012
(Grupo Senda)
June 2012
Industrias Metalurgicas Pescarmona S.A. (IMPSA) June 2012
June 2012
Maestro Peru S.A.
June 2012
June 2012
Minerva S.A.
June 2012
OAS S.A.
June 2012
June 2012
June 2012
Dec. 2011
Rede Energia S.A.
June 2012
Rodopa Industria e Comercio de Alimentos Ltda. June 2012
June 2012
June 2012
June 2012
Sifco S.A.
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
YPF S.A.
June 2012
Operating EBITDA (USD Mil.)
2009
2010
2011 2012a
82
164
183
150
49
113
144
157
210
193
248
265
4
7
18
36
294
261
256
240
71
81
55
68
389
449
464
483
53
34
45
41
19
58
50
49
42
52
65
60
2,768 2,372 2,080 2,321
37
32
34
33
(16)
(14)
(39)
N.A.
Cash/Short-Term Debt (x)
2009
2010
2011 2012a
12.60
N.A.
N.A.
N.A.
0.27
0.34
1.41
1.71
1.04
1.36
0.62
0.82
0.17
0.17
0.24
0.70
1.48
1.99
3.74
1.95
23.23
9.02
7.68
9.25
0.73
3.07
1.76
1.42
3.18
1.25
2.22
0.22
0.36 12.98
1.27
0.78
0.08
0.08
0.09
0.10
1.82
1.45
3.02
5.62
0.46
0.15
1.06
1.05
0.01
0.01
0.02
N.A.
Cash+EBITDA/
Short-Term Debt (x)
2009
2010
2011 2012a
29.00
N.A.
N.A.
N.A.
1.05
2.49
6.27 10.37
2.22
2.74
2.16
2.54
0.30
0.38
0.93
1.75
5.55
6.91 13.13 11.15
45.36 21.34 13.78 17.13
8.22 16.86
8.26
6.22
10.21
2.93
4.44
1.75
2.31 19.31
2.77
2.37
0.60
0.84
0.93
0.93
6.47
6.55
8.48 26.97
2.26
1.23
2.37
2.04
(0.11) (0.15) (0.20)
N.A.
48
54
32
8
1.21
2.05
7.44
7.36
4.72
6.10
14.84
9.48
85
63
60
88
676
45
70
320
119
95
110
19
76
195
753
79
(6)
581
138
83
140
112
100
226
919
112
27
109
121
68
148
21
112
197
1,070
119
43
1
141
71
1.60
7.24
0.33
0.39
1.41
6.59
N.A.
2.40
0.17
0.70
0.78
6.74
2.13
0.28
6.27
5.66
N.A.
5.72
0.10
2.73
0.60
6.98
1.27
0.54
1.58
3.86
N.A.
1.44
0.12
0.76
0.38
3.90
0.52
0.45
1.51
3.13
N.A.
2.81
0.14
0.18
3.06
10.58
1.88
1.01
3.34
14.02
N.A.
3.34
0.32
2.02
1.81
7.14
6.85
1.00
10.80
9.67
N.A.
8.55
0.25
7.57
1.47
8.27
3.36
1.24
3.95
6.21
N.A.
1.57
0.25
2.47
1.31
4.11
1.87
1.27
6.21
5.62
N.A.
2.82
0.28
0.54
40
62
58
99
102
180
114
180
186
19
25
34
471
891
954
107
146
176
92
106
188
(186) (244) (389)
1,487 1,435 1,779
11,065 24,171 18,684
684
723
752
14
16
36
39
86
90
83
71
64
119
33
62
21
51
56
1,032 1,151 1,312
70
48
18
204
175
181
316
329
312
N.A.
180
167
99
102
180
3,130 3,728 3,275
66
N.A.
202
38
1,005
190
110
(448)
1,521
N.A.
607
35
93
72
84
54
1,339
11
173
327
128
N.A.
3,358
0.39
0.84
0.74
0.14
1.85
1.46
2.12
24.38
0.60
2.36
0.28
0.25
0.06
3.01
2.98
1.15
1.69
0.21
68.42
1.14
N.A.
0.84
0.46
0.36
0.34
0.53
0.31
0.55
0.55
0.29
0.13
1.20
1.25
2.43
1.38
1.76
1.51
18.77 248.09
1.14
2.14
1.67
3.59
0.33
0.19
0.40
0.33
0.10
0.51
25.32
3.84
5.81
5.83
0.51
0.58
33.02 148.32
0.30
0.34
74.31 28.98
1.85
0.86
0.07
0.20
0.53
0.31
0.41
0.18
0.24
1.80
2.43
1.98
2.40
0.19
1.72
1.41
1.38
0.19
0.66
1.96
1.70
1.66
2.25
0.09
0.78
1.62
0.86
0.68
0.88
2.35
1.67
1.89
1.47
2.92
2.09
3.47
1.98
4.29
1.46
2.62
2.03
1.88
1.63
68.32 23.31 16.94 215.18 57.92
1.01
4.47
4.90
6.12
3.04
N.A.
6.10
8.38 11.39
N.A.
0.13
1.08
0.87
0.58
0.48
0.23
2.05
0.85
0.96
0.67
0.74
0.24
0.51
2.69
2.60
6.34
7.08 70.55 12.16 23.47
8.94
9.15
9.54 18.17 25.66
0.56
1.65
0.88
0.94
0.87
76.00
6.80 141.48 444.05 271.39
0.37
0.40
0.42
0.38
0.39
40.84 119.88 121.64 77.83 87.89
1.67
2.21
3.10
1.53
2.93
0.28
N.A.
0.61
0.81
0.67
0.19
1.72
1.41
1.38
0.19
0.05
2.99
2.80
1.91
1.58
a
LTM. N.A.  Not applicable. Continued on next page.
November 8, 2012
12
Corporates
Latin America Non-Financial Institutions Corporate Financial Statistics (Continued)
Company Name
AES Andres Dominicana SPV (Aes
Dominicana)
Arcor S.A.I.C.
Cablevision S.A.
Capex S.A.
Cimento Tupi S.A.
Compania de Transporte de Energia Electrica
en Alta Tension Transener S.A.
Compania Latinoamericana de Infraestructura
y Servicios
Empresa Generadora de Electricidad Haina,
S.A.
Empresa Generadora de Electricidad Itabo,
S.A.
(Grupo Senda)
Industrias Metalurgicas Pescarmona S.A.
(IMPSA)
Maestro Peru S.A.
Minerva S.A.
OAS S.A.
Rede Energia S.A.
Rodopa Industria e Comercio de Alimentos
Ltda.
Sifco S.A.
YPF S.A.
Total Net Debt with Equity Credit/
Operating EBITDA (x)
2009
2010
2011
LTM as of
Short-Term Debt/Total Debt (x)
2009
2010
2011
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
May 2012
June 2012
June 2012
March 2011
0.03
0.25
0.43
0.92
0.10
0.01
0.10
0.03
0.29
0.38
0.03
0.48
0.28
N.A.
0.23
0.28
0.98
0.06
0.02
0.06
0.10
0.07
0.40
0.03
0.48
0.24
N.A.
0.16
0.36
0.75
0.03
0.03
0.11
0.09
0.22
0.49
0.02
0.17
0.40
N.A.
0.11
0.33
0.93
0.03
0.03
0.15
0.11
0.21
0.45
0.01
0.15
N.A.
1.19
3.73
1.10
6.93
2.21
2.60
1.30
4.45
1.59
4.87
6.61
0.89
(29.47)
0.27
1.42
1.59
4.06
2.83
2.65
0.92
5.06
0.20
3.20
7.26
1.79
(25.74)
0.18
0.74
1.41
1.57
3.10
3.87
1.14
4.09
2.25
2.33
8.18
3.69
(10.86)
0.06
0.70
1.31
0.35
3.43
2.46
1.05
5.66
2.56
2.52
7.17
5.51
N.A.
June 2012
0.09
0.09
0.03
0.02
2.96
2.25
3.85
15.50
June 2012
June 2012
June 2012
June 2012
June 2012
0.30
0.13
0.27
0.38
0.11
0.40
0.23
0.07
0.55
0.04
0.51
0.21
0.18
0.39
0.09
0.46
0.17
0.28
0.28
0.05
1.16
0.14
2.21
3.60
3.92
1.68
(6.04)
2.42
2.12
3.66
1.56
(1.73)
2.06
2.92
4.26
1.92
9.12
2.24
3.79
4.25
March 2012
0.03
0.09
0.17
0.16
3.65
1.22
0.87
1.28
June 2012
June 2012
June 2012
June 2012
N.A.
0.19
0.91
0.19
N.A.
0.09
0.82
0.04
N.A.
0.31
0.77
0.09
N.A.
0.12
0.79
0.44
0.65
3.08
6.16
3.46
(10.45)
1.80
7.33
5.13
2.81
13.62
8.72
6.24
1.80
1,381.70
7.94
5.77
June 2012
0.13
0.14
0.16
0.14
5.21
3.35
3.67
3.17
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
Dec. 2011
June 2012
0.19
0.25
0.55
0.29
0.24
0.26
1.00
0.25
0.14
0.22
0.20
0.37
0.35
0.32
0.14
0.25
0.95
0.22
0.14
0.29
0.20
0.28
0.42
0.23
0.26
0.26
0.00
0.25
0.07
0.44
0.24
0.22
0.53
0.28
0.12
0.26
0.01
0.40
N.A.
0.46
4.92
2.49
2.61
3.20
4.30
3.54
21.79
0.89
1.31
5.34
5.06
1.77
1.94
4.21
4.33
8.14
9.72
0.92
0.78
5.74
4.39
2.71
3.09
4.78
4.14
6.53
0.93
0.45
1.41
5.40
N.A.
2.48
3.05
4.62
4.22
13.56
(2.35)
0.74
N.A.
5.77
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
0.47
218
0.10
0.18
0.20
0.93
1.00
0.01
0.49
N.A.
0.19
0.69
0.67
208
0.01
0.10
0.39
0.26
1.00
0.01
0.30
0.46
0.20
0.79
0.62
41
0.03
0.06
0.42
0.14
1.00
0.01
0.43
0.31
0.20
0.64
0.81
50
0.02
0.06
0.48
0.23
1.00
0.01
0.18
0.30
0.24
0.93
1.04
5.71
1.67
0.40
8.00
(0.12)
4.28
0.64
0.84
N.A.
4.92
0.40
2.48
4.01
2.40
1.19
5.61
(0.27)
6.05
0.59
1.22
3.85
5.06
0.36
2.04
2.55
3.82
0.86
4.92
(0.48)
16.96
1.51
2.15
4.94
4.39
0.81
2.27
2.39
3.46
0.41
4.95
(0.37)
27.35
1.31
3.04
7.83
N.A.
0.67
2012a
2012a
a
LTM. N.A.  Not applicable.
November 8, 2012
13
Corporates
AES Andres Dominicana, Ltd.
(AES Dominicana)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term Issuer Default Rating
Senior Unsecured
B
B
Rating Outlook
Long-Term Foreign Currency
Issuer Default Rating
Positive
Financial Data
AES Andres Dominicana Ltd.
(USD Mil.)
Total Assets
Total Equity
Net Income
EBITDA
Total Debt
LTM
3/31/12
935,575
612,299
78,316
173,436
164,076
12/31/11
880,405
605,815
85,611
183,411
164,012
High Risk Sector: The Dominican Republic power sector is characterized by low collections
from end users and high electricity losses. Such conditions have undermined distribution
companies’ (DISCOs) cash flow generation, leaving them dependent on government subsidies
to honor their accounts payable to the Dominican generation companies. This links the credit
quality of the distribution and generation companies in the country to that of the sovereign.
Transition Risk Diminishes: The incumbent party’s electoral victory in the presidential
elections held during May 2012 partially diminishes the political uncertainty that had prevailed
during the first half of the year. For AES Dominicana, the results lowered the risk of
noncontinuous policies aimed at strengthening the financial viability of the Dominican electricity
sector, as agreed to under the last IMF Standby agreement that expired in February 2012. Key
political measures needed to achieve a financially viable sector in the medium term include a
gradual adjustment to tariffs, increases in the DISCOs’ cash recovery index (CRI) to 70% from
the historical lows of 50%, and the reduction of days receivables from generating companies to
a 60-day average.
Solid Portfolio of Assets: AES Dominicana’s ratings reflect its high quality assets, consisting of
Andres and DPP. These plants have an aggregate generating capacity of 540 MW. Andres ranks
among the lowest cost electricity generators in the country. Its combined-cycle plant burns natural
gas and is expected to be fully dispatched as a base-load unit as long as the liquefied natural gas
(LNG) price is not more than 15% higher than the price of imported fuel oil No. 6.
Well Structured PPAs: The company’s operating profits are healthy due to well-structured U.S.
dollar-denominated power purchase agreement (PPA) with EDE Este, a Dominican distribution
company. The increase in the participation of nonregulated users in its client base and its
income diversification strategy, which is achieved through incremental sales of natural gas also
support the ratings. AES Dominicana owns the only LNG import terminal in the country with a
storage and daily transportation capacity of 160,000 m3 and 6,000 m3 respectively.
Strong Stand-Alone Credit Profile: AES Dominica has a strong standalone credit profile for
the rating category. The company generated USD173 million of EBITDA during the LTM ended
March 31, 2012. Its EBITDA margin was 37.6%. With only USD168 million of total debt, AES
Dominicana’s leverage, as measured by total debt to EBITDA, is low at 0.9x.
Analysts
Julio Ugueto
+58 212 286-3356
[email protected]
Lucas Aristizabal
+1 312 368-3260
[email protected]
Volatile Cash Flow Generation: Annualized CFFO was USD45 million as of March 31, 2012,
well below the CFFO during fiscal 2011 of USD63 million, showing relative deterioration in
account receivable collections from distribution companies during the first quarter of 2012 (58%)
with respect to the fiscal 2011 collection performance of 70%. Still, the company shows strong
liquidity with cash on hand of USD128 million as of March 31, 2012 and no short-term debt. Debt
service coverage with respect to EBITDA stood at a strong 9.7x.
What Could Trigger a Rating Action
Drivers: Lower dependence of the sector on government subsidies could lead to a rating upgrade.
The ratings would also be positively affected by a positive rating action on the sovereign.
November 8, 2012
14
Corporates
Recovery Analysis
AES Dominicana’s senior notes issuance has been assigned a recovery rating of ‘RR4’. The
recovery was based upon the treatment of AES Dominicana as a going concern, as a
liquidation scenario is considered highly unlikely. The ratings have been capped at ‘RR4’ due
to concerns about the low probability of high recoveries for bondholders of corporates
domiciled in the Dominican Republic.
Fitch currently maintains a positive outlook for the sovereign, and, as such, we do not foresee a
bankruptcy scenario for AES Dominicana unless a low probability event, such as a severe
fiscal crisis that impacts the company’s cash flow to a point that its liquidity is constrained.
As a result we have opted for estimating a distressed enterprise valuation to arrive at the
recovery scenario attached below. The distressed EBITDA is calculated to cover the
company’s fixed charges and critical maintenance capex, which is then adjusted by a
conservative 5x multiple to arrive at a distressed company valuation. This distressed valuation
would be associated with a severe fiscal crisis that would lead to a sustained cash flow drain
for all generating companies in the country and contemplates the low probability event of a
nonfriendly renegotiation scenario of the company’s PPA’s with distribution companies to the
detriment of AES Dominicana. In this hypothetical scenario, it would be reasonable to expect a
low demand for the company’s assets under a competitive bidding process, further supporting
the distressed valuation commented above.
Recovery Analysis  AES Dominicana
(USD Mil.)
IDR:
Going Concern Enterprise Value
LTM EBITDA as of March 31, 2012
Discount (%)
Distressed EBITDA
Multiple (x)
B
173.4
83.9
28.0
5.0
140.0
Post-Restructuring EBITDA Estimation Guidelines
Interest Expense
Rent Expense
Est. Maintenance Capital Expenditures
Total
18
—
10
Distribution of Value by Priority
Greater of Going Concern Enterprise or Liquidation Value
Less Administrative Claims (10%)
Adjusted Enterprise Value for Claims
140.0
14.0
126.0
Distribution of Value
Secured Priority
Senior Secured
Secured
Unsecured Priority
Senior Unsecured
Subordinated
Junior Subordinated
Lien
—
—
Amount
Outstanding
—
164
—
—
Value Recovered
—
—
Value
Recovered
—
126
—
—
Recovery (%)
—
—
Recovery
(%)
—
77
—
—
Concession
Allocation (%)
—
—
—
—
Recovery
Rating
—
—
Recovery Rating
—
RR2
—
—
Notching
—
—
Notching
—
+2
—
—
Rating
—
—
Rating
B
BB–
—
—
Source: Fitch.
November 8, 2012
15
Corporates
Organization Structure — AES Dominicana
The AES Corporation
IDR — B+
(100% Equity Owner)
AES Andres BV
Dominican Power Partners
Operating Subsidiary
Operating Subsidiary
(100% Equity Owner)
AES Andres Dominicana LTD
IDR — B
Senior Unsecured Debt Outstanding (USD Mil.)
168
Source: AES Dominicna.
November 8, 2012
16
Corporates
Debt and Covenant Synopsis  AES Andres Dominicana LTD. (AES Dominicana)
(Foreign Currency Notes)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
AES Andres Dominicana
AES Andres B.V. & Dominican Power Partners
Nov. 12, 2010
Nov. 12, 2020
Senior Unsecured Notes
Financial Covenants
Consolidated Net Debt/
EBITDA (Maximum) (x)
Interest Coverage (Minimum) (x)
3.5
2.25
Acquisitions/Divestitures
Change of Control Provision
Sale of Assets Restriction
Debt Restriction
Additional Debt Restriction
Limitation on Secured Debt
Restricted Payments
Other
Cross Default
Acceleration
Intercompany Loans
Restriction on Purchase of Notes
Change of control clause at 101% of principal.
Generally permits asset sales as long as it is divested at least equal to fair market value, the company receives at least 75% cash
payment and the proceeds are used to reduce debt or are reinvested.
The issuer is not allowed to incur additional debt. The guarantor is not allowed to incur additional debt except permitted debt.
Permitted debt includes debt used to refinance existing or permitted indebtedness, subject to standard limitations. The guarantors
can incur additional indebtedness in an aggregate principal amount not to exceed USD30 million.
AES Dominican’s guarantors’ are not permitted to issue senior secured debt or to create any lien on any asset, property, or income
without providing the same security to the existing notes.
The issuer is not permitted to pay any dividends or make any other distribution to its shareholders, except for dividends payable
solely in their capital stock. The guarantors are not permitted to make any restricted payments if, among other clauses, it cannot incur
additional debt according to its limitation on indebtedness, an event of default has occurred, or if such payment exceeds 100% of
combined net income.
None.
If any event of default occurs and is continuing, the trustee or the holders of at least 25% of the outstanding notes may declare the
notes to be due and payable. Events of default include but are not limited to: breach of any covenant, if the interest reserve is not fully
funded for more than fifteen days and if the issuer, either guarantor or any restricted subsidiary, defaults in any indebtedness of at
least USD20.0 million.
As of March 31, 2011, AES Andres had USD413 million of intercompany subordinated debt with its shareholder that amortizes
Dec. 31, 2016. This debt accrues interest at an annual rate of 9.125%, which can be paid under certain conditions, or else capitalized
at December 31 of each year.
The issuer is allowed to redeem the notes in whole or in part at a preset redemption price.
Disclaimers: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document Date and
Location” section of each covenant summary table. Fitch cannot ensure that the information contained in such documents is either accurate or complete, or that the covenant
summaries, or any particular covenant summary, accurately or completely reflect the key terms of any such document. The information presented in the covenant summaries is
provided “as is” without any representation or warranty and is not a substitute for information provided to investors by an issuer and its agents in connection with a sale of
securities.
Source: Company and Fitch Ratings.
November 8, 2012
17
Corporates
Financial Summary  AES Andres Dominicana Ltd.
(USD Mil., As of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Operating EBITDA Margin (%)
Operating EBITDAR Margin (%)
FFO Return on Adjusted Capital (%)
Free Cash Flow Margin (%)
Return on Average Equity (%)
Coverage (x)
FFO Interest Coverage
Operating EBITDA/Gross Interest Expense
Operating EBITDAR/Interest Expense + Rents
Operating EBITDA/Debt Service Coverage
Operating EBITDAR/Debt Service Coverage
FFO Fixed-Charge Coverage
FCF Debt Service Coverage
(FCF + Cash and Marketable Securities)/Debt Service Coverage
Cash Flow from Operations/Capital Expenditures
Leverage (x)
FFO Adjusted Leverage
Total Debt with Equity Credit/Operating EBITDA
Total Net Debt with Equity Credit/Operating EBITDA
Total Adjusted Debt/Operating EBITDAR
Total Adjusted Net Debt/Operating EBITDAR
Implied Cost of Funds (%)
Secured Debt/Total Debt
Short-Term Debt/Total Debt
Balance Sheet
Total Assets
Cash and Marketable Securities
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Debt with Equity Credit
Off-Balance Sheet Debt
Total Adjusted Debt with Equity Credit
Total Equity
Total Adjusted Capital
Cash Flow
Funds from Operations
Change in Working Capital
Cash Flow from Operations
Total Non-Operating/Nonrecurring Cash Flow
Capital Expenditures
Common Dividends
Free Cash Flow
Net Acquisitions and Divestitures
Other Investments, Net
Net Debt Proceeds
Net Equity Proceeds
Other (Investments and Financing)
Total Change in Cash
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Gross Interest Expense
Rental Expense
Net Income
LTM 3/31/12
2011
2010
2009
2008
173,436
173,436
38
38
9
(4)
26
183,411
183,411
41
41
14
0
15
161,900
161,900
43
43
13
21
19
82,438
82,438
35
35
7
(3)
1
112,253
112,253
31
31
9
(5)
5
3.9
9.7
9.7
9.7
9.7
3.9
(0.1)
7.0
1.5
6.4
10.9
10.9
10.9
10.9
6.4
0.9
8.7
2.2
4.4
7.8
7.8
7.8
7.8
4.4
4.9
10.7
7.6
1.9
3.4
3.4
2.8
2.8
1.9
0.6
2.8
0.7
2.9
5.6
5.6
2.5
2.5
2.9
0.0
0.9
(1.7)
2.4
0.9
0.2
0.9
0.2
0.2
—
—
1.5
0.9
0.2
0.9
0.2
0.1
—
—
1.8
1.0
0.3
1.0
0.3
0.3
—
—
3.5
2.0
1.2
2.0
1.2
0.1
—
0.0
3.1
1.6
1.3
1.6
1.3
0.1
—
0.1
935,575
127,703
—
164,076
164,076
—
164,076
—
164,076
612,299
776,375
880,405
131,130
—
164,012
164,012
—
164,012
—
164,012
605,815
769,827
853,356
119,652
—
163,773
163,773
—
163,773
—
163,773
559,193
722,966
713,062
63,040
5,000
156,000
161,000
—
161,000
—
161,000
458,304
619,304
718,418
40,450
25,000
156,000
181,000
—
181,000
—
181,000
454,676
635,676
51,802
(6,460)
45,342
—
(29,742)
(35,903)
(20,303)
—
7,978
2
—
(1,045)
(13,368)
90,649
(27,823)
62,826
—
(28,617)
(35,903)
(1,694)
—
14,179
7
—
(1,014)
11,478
70,285
22,857
93,142
—
(12,273)
—
80,869
—
(16,277)
(3,492)
—
(3,279)
57,821
20,957
(3,616)
17,341
—
(23,479)
—
(6,138)
—
51,571
(20,000)
—
(1,286)
24,147
37,850
(49,343)
(11,493)
—
(6,743)
—
(18,236)
—
12,155
9,596
—
(1,473)
2,042
461,351
4
146,515
17,872
—
78,316
444,386
18
157,343
16,800
—
85,611
376,738
0151
135,414
20,625
—
53,823
234,536
(35)
66,900
24,399
—
3,493
358,249
26
97,500
19,910
—
21,378
Source: Fitch.
November 8, 2012
18
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B+/RR3
Local Currency
Long-Term IDR
BB–
IDR – Issuer default rating.
Rating Outlooks
Long-Term Foreign Currency IDR RWN
Long-Term Local Currency IDR Stable
RWN – Rating Watch Negative.
Financial Data
Alto Palermo S.A.
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations (CFFO)
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
CFFO/Net Debt (x)
6/30/12
214.7
165.5
6/30/11
214.1
147.7
143.3
130.0
31.1
172.5
41.8
147.6
0.8
1.0
0.7
1.3
0.7
1.2
Linkage to IRSA and Argentina: While debt at Alto Palermo S.A. (APSA) is low in relation to
cash flow, Fitch Ratings has linked the credit quality of APSA with its more highly leveraged
parent company, IRSA Inversiones y Representaciones S.A. (IRSA). APSA’s foreign currency
IDR continues to be constrained at ‘B’ by the ‘B’ country ceiling assigned to Argentina by Fitch.
Its local currency (LC) issuer default rating (IDR) is constrained at ‘BB–’ due to the high degree
of risk associated with operating in Argentina’s real estate industry.
Devaluation Risk: Devaluation risk is also present for APSA as most of its cash flow is
denominated in Argentine pesos and a substantial part of its debt is in U.S. dollars. This risk is
partially mitigated by APSA’s dollar-denominated asset portfolio and its long-term debt profile.
Strong Business Position: APSA’s ‘BB–’ LC IDR is supported by the company’s strong
market position in the Argentine shopping center industry. APSA operates 13 shopping centers
with a gross leasable space of 309,021 square meters. The high quality of these malls and
their strategic locations result in sales per square meter that exceed the market average and
occupancy rates of more than 98%.
Hedge Against Consumer Inflation: APSA’s revenues are partially hedged against consumer
inflation, as the company receives a percentage of the sales made by tenants of its malls. The
company’s high operating margins are due to leases that result in the tenants paying direct
expenses and a percentage of the common expenses.
Cyclical Business: APSA’s results are closely correlated with the performance of the
economy, which has proven to be quite volatile. APSA shows some concentration in the nearterm for its lease agreements (33% of lease contracts expiring in 2013), as the contracts are
generally for 36 months. While this ratio is high for the industry, APSA’s strong market position
allows it to renew contracts updating leasing terms.
Diversified Asset Base: For the real estate industry, the emphasis of Fitch's methodology is
on portfolio quality and diversity, and size of the asset base. APSA’s portfolio of assets is
strong, with an undepreciated book capital as of June 30, 2012 of USD629 million. These
assets are mostly unencumbered, as secured debt represents less than 5% of total debt. The
company’s leverage, as measured by net debt as a percentage of undepreciated book capital,
was 17% as of June 30, 2012. This percentage would be even lower at market values. The
large pool of unencumbered assets at APSA provides financial flexibility and results in aboveaverage recovery prospects in the event of default.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Jose Vertiz
+1 212 908-0641
[email protected]
November 8, 2012
Changes Affecting APSA’s Conservative Financial Structure: The Stable Outlook reflects
Fitch’s expectations that APSA will manage its balance sheet to a targeted ratio of debt-toEBITDA of about 1.5x and interest coverage to be above 5.0x. Fitch estimates that the
company’s EBITDA margin will remain above 70%. Any significant increase in APSA’s targeted
leverage ratio would threaten credit quality and could result in a negative rating action.
Changes in Argentina’s Country Ceiling: APSA’s foreign currency (FC) IDR would be
affected by an upgrade or downgrade of the Argentine country ceiling of ‘B’.
19
Corporates
Recovery Rating
The recovery ratings for APSA’s capital market debt instruments reflect Fitch’s expectation that
the company’s creditors would have above-average recovery prospects in the event of a
default. The recovery analysis anticipates a complete recovery for senior unsecured bond
holders. The notching was capped at ‘RR3’, which resulted in a one-notch uplift from the FC
IDR. The notching above the soft cap of ‘RR4’ for bonds issued by Argentine corporates
reflects the company’s very strong credit profile and its ability to continue to operate should a
potential economic and political crisis occur in Argentina.
In deriving a distressed enterprise valuation to determine the recovery under this scenario,
Fitch discounts the company’s LTM EBITDA to a level that would cover operating leases,
interest expenses, and maintenance capital expenditures. Fitch has applied a 4.0x distressed
EBITDA multiple, which is consistent with the value observed on the Buenos Aires stock
exchange during the last year.
Recovery Analysis  Alto Palermo S.A. (APSA)
(USD Mil.)
June 30, 2012 FYE EBITDA
Discount (%)
Post-Restructuring EBITDA Estimation
Multiple (x)
165.5
25
124.1
4.0
496.5
Interest Expense
Rent Expense
Estimated Maintenance Capital Expenditures
Total
Enterprise Value for Claims Distribution
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
31.1
57.0
1.7
349.7
439.5
Advance Rate
0
80
50
20
Available to
Creditors
—
45.6
0.9
69.9
116.4
16.2
—
8.2
24.4
496.5
49.7
446.9
Concession Payment Availability Table
Less Secured Debt Recovery
Remaining Recovery for Unsecured Claims
Concession Allocation (5%)
Value to be Distributed to Senior Unsecured Claims
446.9
—
446.9
22.3
424.5
Value
Recovery
Recovered
Recovery (%)
Rating
Notching
Rating
—
—
—
—
—
Value
Concession
Recovery
Unsecured Priority
Lien
Recovered
Recovery (%)
Allocation (%)
Ratinga
Notching
Rating
Senior Unsecured
172.4
172.4
100
100
RR3
+1
B+/RR3
a
In accordance with Fitch Ratings’ country-specific treatment of recovery ratings, the recovery ratings of Argentine corporates are capped at ‘RR4’. The strong profile of
APSA has resulted in its one-notch rating uplift from the ‘RR4’ threshold. Note: Numbers may not add due to rounding.
Secured Priority
Senior Secured
November 8, 2012
Lien
—
20
Corporates
Organizational Structure — Alto Palermo S.A.
Summary Statistics
LTM June 30, 2012
Alto Palermo S.A.
USD120 Million Senior Unsecured
Notes due 2017
USD165.5 Million of EBITDA
USD31.1 Million of Cash and
Marketable Securities
USD140.7 Million of Total Debt
Rents and Services
Other
Consumer Financing
100%
Patio Bullrich
20%
Tarshop
100%
Torodur S.A.
100%
Alto Avellaneda
95%
Apsamedia
100%
Patio Olmos
100%
Paseo Alcorta
100%
Torres Rosario
Abasto
100%
100%
Espacio Aereo
Coto/Soleil
100%
Alto Rosario
100%
Alto NOA
100%
Alto Palermo
100%
Mendoza Plaza
100%
Shopping Villa Cabrera
53.68%
ERSA
80%
PAMSA
98.14%
Shopping Neuquen
99.99%
FIBESA S.A.
100%
88.18%
50%
Arcos del Gourmet
Nuevo Puerto Santa Fe
Other
100%
100%
100%
Buenos Aires Design
DOT
Proyecto Neuquen
Soleil Factory
Source: Fitch and Alto Palermo S.A.’s public information.
November 8, 2012
21
Corporates
Debt and Covenant Synopsis  Alto Palermo S.A. (APSA)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
Consolidated Leverage (Maximum)
Alto Palermo S.A.
N.A.
April 20, 2007
2017; Notes issued under USD400 million program
N.A.
Interest Coverage (Minimum)
N.A.
Change-of-Control Provision
Change-of-control clause at 101% of principal.
See Limitations on Consolidation or Mergers or Assets Sale
Debt Restriction
Limitation on Liens
Restricted Payments
Other
Limits on Consolidations or Mergers or
Assets Sale
Transactions with Affiliates
The issuer is not allowed to incur additional debt except permitted debt, unless the consolidated interest coverage exceeds 1,75x.
Permitted debt includes debt used to refinance existing or permitted indebtedness, subject to standard limitations; guarantees;
derivatives as long as used for hedging purposes; debt to finance the acquisition of assets related to the core business of the
company, as long as it is below 5% of total consolidated tangible assets; debt related to labor claims; short term bank debt related to
the normal course of business.
The issuer shall not assume any lien upon its assets (with the exception of 'permitted liens') unless at the same time the obligations
of the company under the notes are secured equally.
With several exceptions, the issuer and restricted subsidiaries are prohibited from making certain investments, including the
acquisitions of stocks, bonds, and notes under certain conditions.
Restrictions on merger or consolidation of issuer. Exceptions include: 1) the merger of other entities with the issuer provided that
surviving entity will be the issuer; 2) if any entity formed by such merger is organized and validly under existing laws, and the
surviving entity assumes responsibility towards the debt service of the existing notes.
Transactions with affiliates are permitted as long as the terms of the transaction are not substantially less favorable than those that
could be achieved with a non-related party. This limitation does not apply to certain transactions with subsidiaries; management,
directors and other fees; loans to directors, employees or any subsidiary, that are related to the core business and do not exceed
USD1 million.
N.A.  Not applicable.
Disclaimer: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document Date and
securities.
Source: Alto Palermo’s public information and Fitch Ratings.
November 8, 2012
22
Corporates
Financial Summary — Alto Palermo S.A. (APSA)
Period-End Exchange Rate
4.5238
4.1100
3.9317
3.799
3.0235
3.0905
Average Exchange Rate
4.3012
3.9998
3.8458
3.7279
3.1247
3.0861
2012
2011
2010
2009
2008
2007
165,548
77.1
43.2
31.3
32.4
147,754
69.0
39.3
26.0
26.1
114,622
56.2
20.2
1.8
12.9
49,202
28.5
17.3
(34.6)
(2.2)
76,548
37.4
17.6
(24.9)
8.6
72,630
46.4
13.7
(5.3)
7.4
10.0
10.2
10.2
4.8
4.8
10.0
2.4
3.3
7.9
7.9
7.2
7.2
3.0
3.0
7.9
1.5
2.4
10.1
3.8
5.0
5.0
1.5
1.5
3.8
0.4
0.6
2.3
4.3
2.8
2.8
0.6
0.6
4.3
(0.5)
(0.3)
0.3
5.6
4.9
4.9
1.4
1.4
5.6
(0.7)
1.1
0.6
6.7
7.2
7.2
2.0
2.0
6.7
0.0
4.3
1.1
0.9
0.8
0.7
0.8
0.7
9.2
—
0.1
0.9
1.0
0.7
1.0
0.7
10.1
—
0.2
2.0
1.5
1.4
1.5
1.4
9.8
—
0.2
2.6
4.0
3.7
4.0
3.7
7.0
—
0.3
2.4
2.7
1.5
2.7
1.5
6.2
0.0
0.1
3.0
2.7
0.6
2.7
0.6
6.2
0.0
0.1
550,063
31,124
18,172
154,290
172,462
31,769
140,693
0
140,693
215,852
356,546
565,931
41,814
29,590
149,757
179,347
31,755
147,592
0
147,592
254,296
401,888
631,928
17,527
51,963
172,481
224,444
47,220
177,224
0
177,224
244,501
421,725
645,305
16,988
62,075
182,188
244,263
47,203
197,060
0
197,060
233,855
430,915
738,248
95,213
38,293
219,051
257,344
47,252
210,092
0
210,092
306,319
516,411
677,467
159,227
27,137
219,625
246,762
47,266
199,496
0
199,496
289,706
489,202
145,850
(2,502)
143,349
0
(18,081)
(58,079)
67,189
0
(40,376)
(36,645)
631
(470)
(9,671)
141,845
(11,790)
130,055
0
(12,920)
(61,473)
55,662
0
(896)
(31,935)
202
0
23,034
63,872
(31,296)
32,576
0
(13,997)
(14,862)
3,716
0
17,481
(21,456)
1,412
0
1,154
58,359
(35,411)
22,948
0
(66,360)
(16,159)
(59,571)
0
(17,535)
8,718
12,886
0
(55,501)
72,078
(18,279)
53,799
0
(86,463)
(18,270)
(50,934)
0
(22,555)
(3,607)
6,998
0
(70,097)
57,051
1,182
58,233
0
(51,137)
(15,419)
(8,323)
0
(8,544)
155,908
0
0
139,041
214,735
0.3
138,799
16,165
76,221
214,128
4.9
118,414
20,488
65,148
204,086
18.4
83,338
23,048
30,969
172,366
(15.9)
24,203
17,627
(5,918)
204,869
30.8
51,912
15,701
25,593
156,583
30.0
50,075
10,024
20,757
(USD 000, Fiscal Years Ended June 30)
Profitability
Operating EBITDA
Coverage (x)
Operating EBITDAR/(Interest Expense + Rental Expenses)
(Free Cash Flow + Cash and Marketable Securities)/Debt Service Coverage
Capital Structure and Leverage (x)
Implied Cost of Funds
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow (FCF)
Net Debt Proceeds
Net Equity Proceeds
Other, Financing Activities
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
November 8, 2012
23
Corporates
Financial Summary — Alto Palermo S.A. (APSA)
(ARS 000, Fiscal Years Ended June 30)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
2012
2011
2010
2009
2008
2007
712,053
77.1
43.2
31.3
32.4
590,985
69.0
39.3
26.0
26.0
440,814
56.2
20.2
1.8
12.9
183,421
28.5
17.3
(34.6)
(2.4)
239,191
37.4
17.6
(24.9)
8.8
224,144
46.4
13.7
(5.3)
7.4
10.0
10.2
10.2
4.7
4.7
10.0
2.4
3.3
7.9
7.9
7.2
7.2
2.9
2.9
7.9
1.5
2.3
10.1
3.8
5.0
5.0
1.5
1.5
3.8
0.4
0.6
2.3
4.3
2.8
2.8
0.6
0.6
4.3
(0.5)
(0.3)
0.3
5.6
4.9
4.9
1.5
1.5
5.6
(0.7)
1.1
0.6
6.7
7.2
7.2
2.0
2.0
6.7
0.0
4.3
1.1
0.9
0.9
0.7
0.9
0.7
9.2
0.0
0.1
0.9
1.0
0.7
1.0
0.7
10.1
0.0
0.2
2.1
1.6
1.4
1.6
1.4
9.8
0.0
0.2
2.6
4.1
3.7
4.1
3.7
7.7
0.0
0.3
2.3
2.7
1.5
2.7
1.5
6.4
0.0
0.1
3.0
2.8
0.6
2.8
0.6
6.2
0.0
0.1
2,488,374
140,801
82,206
697,979
780,185
143,717
636,468
0
636,468
976,473
1,612,941
2,325,978
171,856
121,615
615,503
737,118
130,515
606,603
0
606,603
1,045,155
1,651,758
2,484,550
68,910
204,303
678,145
882,448
185,653
696,795
0
696,795
961,303
1,658,098
2,451,515
64,537
235,824
692,134
927,958
179,324
748,634
0
748,634
888,417
1,637,051
2,232,093
287,875
115,778
662,302
778,080
142,865
635,215
0
635,215
926,156
1,561,371
2,093,711
492,092
83,868
678,752
762,620
146,076
616,544
0
616,544
895,336
1,511,879
627,331
(10,760)
616,571
0
(77,769)
(249,810)
288,992
0
(173,667)
(157,616)
2,716
(2,023)
(41,598)
567,352
(47,159)
520,193
0
(51,676)
(245,879)
222,638
0
(3,582)
(127,734)
808
0
92,130
245,639
(120,360)
125,279
0
(53,829)
(57,158)
14,292
0
67,229
(82,515)
5,432
0
4,438
217,555
(132,008)
85,547
0
(247,384)
(60,238)
(222,075)
0
(65,367)
32,499
48,039
0
(206,904)
225,223
(57,116)
168,107
0
(270,171)
(57,088)
(159,152)
0
(70,477)
(11,272)
21,868
0
(219,033)
176,064
3,648
179,712
0
(157,815)
(47,584)
(25,687)
0
(26,368)
481,148
0
0
429,093
923,618
7.8
597,003
69,527
327,842
856,468
9.1
473,631
81,949
260,578
784,873
22.1
320,500
88,638
119,102
642,565
0.4
90,227
65,713
(22,060)
640,154
32.5
162,208
49,061
79,970
483,231
33.7
154,538
30,935
64,057
November 8, 2012
24
Corporates
Arcor S.A.I.C.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B+/RR4
Local Currency
Long-Term IDR
BB–
Rating Outlooks
Long-Term Foreign Currency IDR
Long-Term Local Currency IDR
RWN
Stable
Financial Data
Arcor S.A.I.C.
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations (CFFO)
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
CFFO/Net Debt (x)
IFRS
3/30/12
253.3
30.1
Local
GAAP
12/31/11
3.051.6
257.3
7.7
161.7
25.5
420.5
98.8
446.9
3.5
1.7
3.3
12.8
1.4
0.5
Strong Business Position: Arcor S.A.I.C.’s (Arcor) ‘BB–’ local currency issuer default rating
(IDR) reflects the company’s strong business position as a leading Latin American producer of
confectionary and cookie products. Arcor enjoys strong brand equity in Argentina due to its
comprehensive distribution network and its presence in the country for more than 60 years.
Foreign Currency IDR Above Country Ceiling: Arcor’s presence extends beyond Argentina
due to exports to 120 countries and its production facilities in Chile, Brazil, Mexico, and Peru.
Arcor’s exports and operations outside of Argentina (30% of total consolidated revenues)
partially mitigate the risks of foreign exchange controls in Argentina. They have resulted in a
foreign currency IDR of ‘B+’ for Arcor, which is one notch higher than the ‘B’ country ceiling that
Fitch has assigned to Argentina.
Cash Flow Concentration in Argentina: Arcor’s ‘BB–’ local currency IDR considers the high
correlation of its cash flow with the Argentine economic cycle. While Arcor’s operations in
investment-grade countries such as Brazil and Chile account for nearly 30% of its consolidated
revenues, the contribution to cash flow generation from operations in these countries is still low.
About 85% of Arcor’s operating cash flow is generated in Argentina.
Ample Liquidity and Low Leverage: The company generated a positive cash flow from
operations of USD161 million during 2011 and had cash and equivalents of USD99 million. As
of Dec. 31, 2011, Arcor’s short-term debt was USD160 million. Funds from operations adjusted
leverage decreased to 1.4x from 1.9x in Dec. 31, 2010. Cash flow is generally high in relation
to capital expenditures and consistently maintains a positive trend.
Changes Affecting Financial Structure: The Stable Outlook reflects Fitch’s expectations that
Arcor will manage its balance sheet to a targeted debt-to-EBITDA ratio of around 2.0x. Under a
conservative scenario, Fitch estimates the company’s interest coverage to be more than 4.0x.
A significant increase in Arcor’s targeted leverage ratio would weaken credit quality and could
result in a negative rating action. Conversely, the local currency IDR could be positively
affected by a better than expected cash flow generation or better than expected operating
results from subsidiaries in investment-grade countries.
Changes in Argentina’s Country Ceiling: Arcor’s foreign currency IDR could be affected by
an upgrade or downgrade of Argentina’s ‘B’ country ceiling.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Viktoria Krane
+1 212 908-0367
[email protected]
November 8, 2012
25
Corporates
Recovery Rating
Arcor’s recovery rating of ‘RR4’ indicates that the company’s creditors would have an average
recovery prospect in the range of 31%−50% of current principal and related interest in the event
of default. This rating reflects a recovery rating cap for Argentine issuers of ‘RR4’.
Fitch has estimated the enterprise valuation in the event of financial distress. This analysis
considers that any debt default by Arcor would likely be the result of the imposition of foreign
exchange or transfer controls and that the company’s operations would remain viable. As a
result, Fitch has not performed a liquidation analysis in the event of bankruptcy. The bespoke
recovery analysis of Arcor’s debt suggests recovery levels consistent with the ‘RR1’ category.
Recovery Analysis  ARCOR S.A.I.C.
(USD Mil.)
IDR:
EBITDA as of Dec. 31, 2011
Discount (%)
Multiple (x)
B+
257
25
193
6.0
1,158
Interest Expense
Rent Expense
Total
42.3
—
30.0
72.3
Secured Priority
Senior Secured
Secured
Lien
5.0
—
Unsecured Priority
Senior Unsecureda
Unsecured
Subordinated
Junior Subordinated
Lien
413.6
0.0
0.0
0.0
Recovery
(%)
100
—
Value Recovered
5
—
Recovery
Rating
RR1
—
Notching
Rating
B+
—
—
—
—
—
—
—
Value
Recovered
413.6
—
—
—
Recovery
(%)
100
0
0
0
Concession
Allocation (%)
100
0
0
0
Recovery
Rating
RR1
—
—
—
Notching
—
—
—
Rating
B+
—
—
—
a
The recovery ratings of Argentine corporates are soft capped at ‘RR4’.
Source: Fitch.
November 8, 2012
26
Corporates
Organizational Structure — Arcor S.A.I.C.
Grupo Arcor S.A.
Others
0.3%
99.7%
December 2011 – Summary Statistics:
Arcor S.A.I.C.
USD257.3 Mil. of EBITDA
USD98.8 Mil. of Cash and Marketable
Securities
USD446.8 Mil. of Total Debt
TD/EBITDA: 1.7x
ND/EBITDA: 1.4x
51.00%
99.98%
Arcor do Brasil
TD: USD33.1 Mil.
TD: USD387.6 Mil.
99.99%
Bagley
Latinoamerica
99.29%
99.99%
Bagley Argentina
Bagley do Brasil
TD: USD3.7 Mil.
Ind. Alim. DEU
99.99%
Bagley Chile
99.99%
99.99%
Cartocor
TD: USD4.2 Mil.
99.98%
Cartocor Chile
TD: USD5.9 Mil.
La Campagnola
TD: USD5.6 Mil.
99.00%
Converflex Arg.
99.99%
Unidad Mexico
50.00%
Mundo Dulce
TD –Total debt. ND – Net debt.
Source: ARCOR S.A.I.C and Fitch.
November 8, 2012
27
Corporates
Debt and Covenant Synopsis — Arcor S.A.I.C.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Arcor S.A.I.C.
N.A.
Oct. 26, 2010
2017
Financial Covenants
EBITDA (Maximum)
N.A.
N.A.
Limitation on Sale of Restricted
Subsidiaries
Debt Restriction
Other
Sale and Leaseback Transactions
The company will not and will not permit any restricted subsidiary transfer, convey, lease, sell, or dispose of any voting
stock of any restricted subsidiary, except: to the company or to other restricted subsidiary; in compliance with covenants
Limitation on Sales of Assets, Limitation on Restricted Payments.
The company will not and will not permit any restricted subsidiary to incur in any indebtedness (other than Permitted Debt).
Exceptions are: 1) on the date of such incurrence, the fixed charge coverage ratio would be no less than 3x and 2) no
default or event of default shall have occurred.
The company will not and will not allow its restricted subsidiaries to enter into a transaction with affiliates, unless: 1) the
transaction is on terms that are no less favorable than those that would have been obtained in a comparable transaction
with a Person that is not an affiliate; 2) the company delivers to the trustee for transactions in excess of USD15 million, a
resolution from its board of directors.
The company or its restricted subsidiaries will not enter into any sale and lease back transactions unless pursuant to the
provisions of the covenant described under 'limitation on Indebtedness'.
FQE – Fiscal quarter-end. FYE – Fiscal year-end. N.A. – Not applicable.
Disclaimer: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document
Date and Location” section of each covenant summary table. Fitch cannot ensure that the information contained in such documents is either accurate or complete, or
that the covenant summaries, or any particular covenant summary, accurately or completely reflect the key terms of any such document. The information presented in
the covenant summaries is provided “as is” without any representation or warranty and is not a substitute for information provided to investors by an issuer and its
agents in connection with a sale of securities.
November 8, 2012
28
Corporates
Financial Summary  Arcor S.A.I.C.
(USD 000, As of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
FCF Margin (%)
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.3786
4.2098
4.3053
4.1295
3.9787
3.9134
3.7990
3.7279
3.4538
3.1631
LTM 3/31/12
2011
2010
2009
2008
30,067
—
11.9
—
—
—
—
257,266
257,266
8.4
0.1
28.4
(0.3)
19.8
195,213
195,213
7.5
7.5
24.3
(0.1)
18.8
212,969
212,969
9.9
9.9
30.2
7.7
16.4
209,562
209,562
9.3
9.3
22.1
0.5
11.6
2.5
2.1
—
0.3
—
2.5
0.3
0.4
1.2
—
2.9
3.5
3.3
—
—
13.4
—
0.4
7.5
6.2
6.2
1.3
1.3
7.5
0.2
0.7
1.3
—
1.4
1.7
1.4
1.7
1.4
0.1
—
0.4
8.2
6.2
6.2
1.1
1.1
8.2
0.2
1.3
1.7
—
1.9
2.5
1.6
2.5
1.6
6.9
—
0.3
9.0
6.2
6.2
1.0
1.0
9.0
0.9
1.8
7.4
—
1.4
2.0
1.1
2.0
1.1
8.0
—
0.4
6.5
5.8
5.8
0.9
0.9
6.5
0.2
0.6
1.5
—
1.9
2.1
1.6
2.1
1.6
8.9
—
0.4
1,182,687
25,549
164,216
256,256
420,472
—
420,472
0
420,472
546,061
966,533
1,624,727
98,813
159,814
287,054
446,868
—
446,868
0
446,868
602,404
1,049,272
1,595,457
189,194
139,003
355,437
494,440
—
494,440
0
494,440
560,462
1,054,902
1,378,776
185,098
177,286
238,068
415,354
—
415,354
0
415,354
580,076
995,430
1,339,669
92,213
188,174
245,486
433,660
—
433,660
0
433,660
530,193
963,853
21,866
(14,163)
7,703
0
(6,319)
0
1,384
98
(10,417)
1,451
—
0
(7,485)
268,865
(107,141)
161,724
0
(129,327)
(41,424)
(9,027)
26,813
(3,408)
(80,425)
(13,238)
0
(79,284)
228,911
(115,089)
113,822
0
(68,229)
(47,643)
(2,051)
3,456
363
49,190
(38,301)
0
12,658
272,439
(56,792)
215,647
0
(29,286)
(20,387)
165,975
3,082
(6,460)
(57,145)
(2,528)
0
102,924
196,890
(110,175)
86,715
0
(56,286)
(19,518)
10,912
3,187
1,580
31,956
(1,401)
0
46,235
253,229
0.0
26,114
14,529
0
32,560
3,051,623
18.0
210,253
41,538
0
115,226
2,586,336
19.9
151,151
31,614
0
107,048
2,156,440
-4.4
165,121
34,104
0
91,117
2,256,580
20.8
151,844
35,851
0
61,708
Source: Fitch.
November 8, 2012
29
Corporates
Financial Summary  Arcor S.A.I.C.
(ARS 000, As of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
FCF Margin (%)
Coverage (x)
Operating EBITDAR/ (Interest Expense + Rental Expenses)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 3/31/12
2011
2010
2009
2008
131,042
131,042
11.9
—
—
—
—
1,062,379
1,062,379
8.4
0.1
28.4
(0.3)
19.7
763,947
763,947
7.5
7.5
24.3
(0.1)
18.9
793,928
793,928
9.9
9.9
30.2
7.7
16.8
662,866
662,866
9.3
9.3
22.1
0.5
11.1
2.5
2.1
—
0.3
—
2.5
0.3
0.4
1.2
7.5
6.2
6.2
1.2
1.2
7.5
0.2
0.7
1.3
8.2
6.2
6.2
1.1
1.1
8.2
0.2
1.3
1.7
9.0
6.2
6.2
1.0
1.0
9.0
0.9
1.8
7.4
6.5
5.8
5.8
0.9
0.9
6.5
0.2
0.6
1.5
2.9
3.5
3.3
—
—
13.5
—
0.4
1.5
1.8
1.4
1.8
1.4
0.1
—
0.4
1.9
2.6
1.6
2.6
1.6
7.0
—
0.3
1.4
2.0
1.1
2.0
1.1
8.3
—
0.4
2.0
2.3
1.8
2.3
1.8
8.5
—
0.4
5,178,515
111,870
719,038
1,122,042
1,841,080
—
1,841,080
—
1,841,080
2,390,981
4,232,061
6,994,938
425,420
688,048
1,235,853
1,923,901
—
1,923,901
—
1,923,901
2,593,529
4,517,430
6,347,845
752,746
553,052
1,414,176
1,967,228
—
1,967,228
—
1,967,228
2,229,910
4,197,138
5,237,969
703,188
673,508
904,420
1,577,928
—
1,577,928
—
1,577,928
2,203,710
3,781,638
4,626,948
318,484
649,916
847,859
1,497,775
—
1,497,775
—
1,497,775
1,831,179
3,328,954
95,302
(61,730)
33,572
—
(27,541)
—
6,031
429
(45,403)
6,322
—
—
(32,621)
1,110,279
(442,438)
667,841
—
(534,055)
(171,061)
(37,275)
110,726
(14,072)
(332,114)
(54,668)
—
(327,403)
895,819
(450,390)
445,429
—
(267,006)
(186,448)
(8,025)
13,525
1,422
192,500
(149,887)
—
49,535
1,015,626
(211,714)
803,912
—
(109,175)
(76,000)
618,737
11,490
(24,083)
(213,030)
(9,425)
—
383,689
622,784
(348,495)
274,289
—
(178,037)
(61,737)
34,515
10,081
4,998
101,081
(4,430)
—
146,245
1,103,672
—
113,814
63,322
—
141,909
12,601,676
24.5
868,240
171,531
—
475,824
10,121,366
25.9
591,514
123,719
—
418,922
8,038,991
12.6
615,556
127,136
—
339,676
7,137,788
22.6
480,298
113,399
—
195,189
Source: Fitch.
November 8, 2012
30
Corporates
Arendal, S. de R.L. de C.V. (Arendal)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
B
Local Currency
Long-Term IDR
B
Rating Outlooks
Long-Term Foreign Currency IDR Stable
Financial Data
Arendal, S. de R.L. de C.V.
(MXN Mil.)
Total Debt
Revenue
EBITDA
EBITDA Margin (%)
Total Debt/
EBITDA (x)
EBITDA/Interest
Expenses (x)
LTM
6/30/12
510
2,477
498
20.1
12/31/11
492
1,263
255
20.2
1.0
1.9
6.2
5.6
Recent Ratings Upgrade: Arendal, S. de R.L. de C.V.’s ratings were upgraded on Sept. 7,
2012 to reflect its strengthened credit profile due to an improvement in its main credit metrics
associated with higher operating and EBITDA margins, which in turn were translated into
positive cash flow from operations in the last 30 months, as well as positive free cash flow
generation in the last 18 months. During 2011 and 2012, Arendal has been developing the
construction of a federal penitentiary in the state of Chiapas, which has diversified the
company’s revenue source, as well as allowed it to increase operative margins compared to
past years. Nevertheless, Fitch Ratings expects that margins will decline in 2013 and 2014 due
to the nature of future projects. The ratings are limited by industry factors, which are highly
linked to economic cycles, project concentration of revenues and cash flow, as well as the
current process to strengthen corporate governance practices.
Small Company with Volatile Liquidity Position: Arendal is a relatively small company that
makes fluid transportation systems and plants in Mexico’s heavy construction industry. The
company’s financial strategy is to secure its debt with the cash from projects, resulting in
almost all of its debt concentrated in the short term. This makes the company’s ability to
continue to operate highly dependent on management’s efforts to obtain new projects and
financing. Tight liquidity also heightens the risk of mismanaging working capital.
Industry Constraints: Fitch believes Mexico’s heavy construction industry is exposed to
economic cycles, which is reflected in the volatility of sales and operating margins throughout
the years. Arendal’s main long-term challenge is the ongoing need to add new projects.
Underdeveloped Corporate Governance: Fitch believes that Arendal’s corporate governance
is below average due to issues such as: the participation of key executives in business
operations, a lack of independent members in the board of directors, and alternative
overseeing committees, as well as multiple related-party transactions.
Stable Profitability: During the last five years, the company has grown organically through the
cycle. Revenues reported by the company in 2011 were MXN1.3 billion, and operating income
was MXN237 million. The compounded annual growth rate (CAGR) of revenues and operating
income during the last five years were 17% and 52%, respectively. These factors reflect
management’s commitment and ability to adjust its operating and business strategies despite
an unfavorable economic environment.
Stronger Credit Metrics and Liquidity: A combination of stronger credit metrics, an improved
liquidity position, and better corporate governance could lead to a positive rating action.
Analysts
Indalecio Riojas
+52 81 8399-9100
[email protected]
+52 81 8399-9100
[email protected]
November 8, 2012
Weak Operating Performance: The ratings could be negatively pressured by a combination of
the following factors, among others: deterioration of Arendal’s credit metrics as a result of a
downturn in the heavy construction industry or a decline in its operative performance. Large
scale projects that are more complex and not in Arendal’s current areas of expertise could
demand additional resources from the company than originally anticipated. A rating downgrade
could also be driven by limited access to financing sources affecting the company’s liquidity
position.
31
Corporates
Organizational Structure — Arendal, S. de R.L. de C.V.
(MXN Million, As of June 30, 2012)
Arendal, S. de R.L. de C.V.
Foreign Currency IDR — B
Local Currency IDR — B
Credit Facilities for Projects
Financial Leases
Total Debt
76.0%
MAKOBIL,
S. de R.L. de C.V.
99.9%
ARB Arendal
Servicios,
S.A. de C.V.
501.3
8.7
510.0
99.9%
ARB Arendal
Construcciones,
S.A. de C.V.
99.9%
Aspica,
S. de R.L. de C.V.
These three companies provide and manage the personnel
services to the sites and corporate offices.
Source: Company reports and Fitch estimates.
November 8, 2012
32
Corporates
Axtel S.A.B. de C.V.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Local Currency
Senior Unsecured
National
B–
B–
B–/RR4
BB–(mex)
Rating Watch
Foreign Currency Long-Term
Rating
Negative
Local Currency Long-Term Rating Negative
National Long-Term Rating
Negative
Financial Data
(MNX Mil.)
6/30/12
12/31/11
Revenue
Operating EBITDAR
Operating
EBITDAR/
Revenues (%)
FFO
Cash Flow from
Operations
FCF
FFO/Interest
Expense Net of
Interest Income (x)
Total Debt
Total Adjusted Debt
with Equity Credit
Total Adjusted
Debt/Operating
EBITDAR (x)
Adjusted
Leverage/FFO (x)
Operating
EBITDAR/Debt
Service Coverage (x)
10,672
3,866
10,829
4,142
30.7
1,948
38.3
2,349
1,660
(606)
2,312
(220)
2.8
11,923
3.3
12,511
16,663
17,054
4.3
4.1
4.6
4.4
1.9
2.1
High Leverage: Fitch Ratings downgraded Axtel on June 24, 2012, reflecting the pressure
over the company’s leverage due to weak operating performance, which resulted in leverage
increasing above Fitch’s previous expectation of 3.5x. Fitch expects a total debt-to-EBITDA
ratio of around 4.0x by year end. Changes in leverage should be linked either to the MXN
fluctuation or to operating issues.
Underperforming Long-Distance Continues: The decrease in international long-distance
(ILD) service prices and volumes continue to affect revenue and EBITDA generation. ILD
services are expected to remain under pressure. The company continues making an effort to
mitigate the impact to EBITDA generation by adjusting their 2012 capex to close to
USD150 million from USD190 million.
Recapitalization Options: The company announced that it is exploring different alternatives to
improve its financial position. Among them are the sale of noncore assets, including the sale
and leaseback of towers, an increase in capital, and a joint venture in a particular business. In
the short term, it is likely that efforts should be centered on the sale of noncore assets.
Strategy Focused on Broadband and ICT Services: Axtel’s strategy aims to strengthen its
service portfolio with a bundle offering of high-end broadband to both residential and corporate
customers, as well as Information and Communications Technology (ICT) services to both
users. Axtel seeks to mitigate voice revenue reduction and strengthen its competitive position
by increasing EBITDA generation from the corporate segment, which is less competitive than
the residential market.
Weakened Liquidity Position: Axtel’s liquidity position has weakened but is partially offset by
its manageable debt maturity profile, as its next sizeable maturity is in 2017. As of June 30,
2012, the company had a cash balance of MXN693 million, down from MNX1,425 million for
year-end 2011. This cash position compares to short-term maturities of MXN355 million and
LTM FFO of MXN2,750 million. If the company manages to reduce debt, cash flow that was
used for debt service and payments can be used for capex.
Favorable Regulatory Rulings: Recent regulatory rulings have favored Axtel’s cost structure.
Nevertheless, ILD prices were down more than expected during the first quarter of 2012,
affecting operating results. Axtel has a disagreement regarding mobile interconnection rates
with Telcel and international long-distance settlements with Telmex that could result in a liability
to Axtel of MXN3,219 million. A negative outcome may result in a nonrecurring expense for
Axtel and could negatively affect its credit quality.
Analysts
Sergio Rodriguez, CFA
+52 81 8399-9100
[email protected]
Natalia O’Byrne
+57 1 326-9999
[email protected]
November 8, 2012
Key Rating Drivers: The Negative Rating Watch is pending on the result of Axtel’s success in
divesting noncore assets. If successful, the proceeds will be used primarily for payment of onbalance sheet debt and, to a lesser extent, for capital expenditures. The inability to improve its
liquidity position or stabilize operating performance, or a MXN devaluation that results in total
debt to EBITDA approaching 4.5x, could also result in further negative rating actions.
33
Corporates
Recovery Analysis
‘RR4’ rated securities have characteristics consistent with securities, historically recovering
31%–50% of current principal and related interest, which is average given default.
Recovery Analysis  Axtel S.A.B. de C.V.
(MXN Mil.)
IDR:
B–
LTM EBITDA as of June 30, 2012
Discount (%)
Multiple (x)
3,274.20
50
1,637.10
3.0
4,911.30
Interest Expense
Rent Expense
Total
1,062
592
—
1,654
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
693.6
2,486.10
124.4
14,934.7
18,238.8
Advance Available to
Rate (%)
Creditors
0
—
80
1,988.90
50
62.2
20
2,986.9
5,038
5,038.00
503.80
4,534.20
Secured Priority
Senior Secured
Secured
Lien
0
0
Value Recovered
0
0
4,534.2
—
4,534.2
226.7
4,307.5
Unsecured Priority
Senior Unsecured
Unsecured
Value
Recovered
—
4,307.5
Lien
0.0
11,923.3
Recovery (%)
0
0
Recovery
(%)
0
36
Concession
Allocation (%)
100
0
Recovery
Rating
0
0
Notching
0
0
Recovery
Rating
—
RR4
Notching
—
0
Rating
0
0
Rating
—
B–
Source: Fitch.
November 8, 2012
34
Corporates
Organizational Structure — Axtel S.A.B. de C.V. and Subsidiaries
(MXN Mil.)
Consolidated Debt
EBITDA
Debt to EBITDA (x)
Instalaciones
Contrataciones, S.A.
de C.V.
11,923
3,274
3.6
Servicios Axtel, S.A.
de C.V.
Avantel, S. de R.L. de
C.V.
Avantel
Infraestructura S. de
R.L. de C.V.
Telecom Network,
Inc.
Source: Fitch and Axtel.
November 8, 2012
35
Corporates
Debt and Covenant Synopsis  Axtel S.A.B. de C.V.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
—
9/22/09
9/22/19
Senior Unsecured Notes guaranteed by all subsidiaries with the exception of Telecom Networks.
Consolidated Leverage
(Maximum)
The company and the subsidiary guarantors consolidated leverage ratio cannot exceed 4.0 to 1.0.
Change of Control
Upon the occurrence of any a change of control event, each holder of the notes shall have the right to require that Axtel repurchase the notes
Provision
at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest. The
purchase date shall be no earlier than 30 days or later than 60 days from the date of the notice. Events considered a change of control are:
(1) any “person,” other than one or more permitted holders, is or becomes the beneficial owner such person shall be deemed to have
“beneficial ownership” of all shares that any such person has the right to acquire, whether this right is exercisable immediately or only after the
passage of time and such person shall not be deemed to have “beneficial ownership” of any shares solely as a result of a voting or similar
agreement entered into in connection with a merger agreement or asset sale agreement), directly or indirectly, of more than 35% of the total
voting power of Axtel’s voting stock. (2) Individuals who on Sept. 22, 2009 constituted the board of directors cease for any reason to constitute
a majority of the board of directors. (3) The adoption of a plan relating to the liquidation or dissolution of Axtel. (4) The merger or consolidation
of the Axtel with or into another person or the merger of another person with or into Axtel, or the sale of all or substantially all the assets of the
company to another Person other than a transaction in which holders of securities that represented 100% of the Voting Stock of the company.
Sale of Assets Restriction Axtel will not, and will not permit any restricted subsidiary to, directly or indirectly, consummate any asset disposition unless: (1) the company
or such restricted subsidiary receives consideration at the time of such asset disposition at least equal to the fair market value, as determined
in good faith by the Board of Directors, of the shares and assets subject to such asset disposition; (2) except in the case of a permitted asset
swap, at least 75% of the consideration thereof received by the Axtel or such restricted subsidiary is in the form of cash or cash equivalents;
and (3) an amount equal to 100% of the net available cash from such asset disposition is applied by the company to prepay, repay, redeem,
purchase, defease or otherwise acquire senior indebtedness of Axtel or indebtedness or repay any Indebtedness that was secured by the
assets sold in such asset disposition, in each case within one year from the later of the date of such asset disposition or the receipt of such net
available cash, to the extent the company elects, to acquire additional assets within one year from the later of the date of such asset
disposition or the receipt of such net available cash or to make an offer to the holders of the notes and to holders of other senior indebtedness
of Axtel to purchase the notes.
Certain Covenants
Limitation on Liens
Axtel will not, and will not permit any restricted subsidiary to, directly or indirectly, incur or permit to exist any lien of any nature whatsoever on
any of its properties, whether owned at Sept. 22, 2009 or thereafter acquired, securing any indebtedness, other than permitted liens, without
effectively providing that the notes shall be secured equally and ratably with the obligations so secured for so long as such obligations are so
secured.
Limitation in
The company will not, and will not permit any restricted subsidiary to, incur, directly or indirectly, any indebtedness; provided, however, that
Indebtedness
Axtel and the subsidiary guarantors will be entitled to incur indebtedness if, on the date of such Incurrence and after giving effect thereto on a
pro forma basis the consolidated leverage ratio would be less than 4.0 to 1.
Notwithstanding the company and the restricted subsidiaries will be entitled to incur any or all of the following Indebtedness: (1) indebtedness
owed to and held by the company or a wholly owned subsidiary; (2) the existing notes, other than any additional notes; (3) indebtedness
outstanding on Sept.22, 2009; (4)refinancing indebtedness in respect of indebtedness incurred, (5) hedging obligations consisting of interest
rate agreements directly related to indebtedness or hedging obligations relating to currency agreements, (6) Obligations in respect of
performance, bid and surety bonds and completion guarantees provided by Axtel or any restricted subsidiary in the ordinary course of
business, (7) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn
against insufficient funds in the ordinary course of business; (8) purchase money obligations and capital lease obligations, in an aggregate
principal amount at any time outstanding not exceeding an amount equal to 10% of consolidated total assets; (9) indebtedness consisting of
the subsidiary guaranty of a subsidiary guarantor and any guarantee by a subsidiary guarantor of indebtedness incurred to the extent the
refinancing indebtedness incurred there under directly or indirectly refinances indebtedness incurred; (10) indemnification, adjustment of
purchase price, earn-out or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any
business or assets provided that (a) any amount of such obligations included on the face of the balance sheet of the company or any
restricted subsidiary shall not be permitted under this clause and (b) in the case of a disposition, the maximum aggregate liability in respect of
all such obligations outstanding under this clause shall at no time exceed the gross proceeds actually received; and (11) indebtedness of the
company or of any of its restricted subsidiaries in an aggregate principal amount which, when taken together with all other indebtedness of the
company and its restricted subsidiaries outstanding on the date of such incurrence does not exceed USD30 million.
Limitation on Sale and
Axtel will not, and will not permit any restricted subsidiary to, enter into any sale/leaseback transaction with respect to any property unless: (1)
Leaseback
the company or such restricted subsidiary would be entitled to (a) incur indebtedness in an amount equal to the attributable debt with respect
to such sale/leaseback transaction pursuant to the covenant described under “Limitation on Indebtedness” and (b) create a lien on such
property securing such attributable debt without equally and ratably securing the notes pursuant to the covenant described under “Limitation
on Liens”; (2) the net proceeds received by the company or any restricted subsidiary in connection with such sale/ leaseback transaction are
at least equal to the fair market value of such property; and (3) the Axtel applies the proceeds of such transaction in compliance with the
covenant described under “Limitation on Sale of Assets and Subsidiary Stock.”
Disclaimers: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document
November 8, 2012
36
Corporates
Debt and Covenant Synopsis  Axtel S.A.B. de C.V. (Continued)
Certain Covenants (Continued)
Limitation on Sale of
Axtel will not, and will not permit any restricted subsidiary to, sell, lease, transfer or otherwise dispose of any capital stock of any restricted
Assets and Subsidiary
subsidiary to any person (other than the company or a wholly owned subsidiary), and will not permit any restricted subsidiary to issue any of its
Stock
capital stock (other than, if necessary, shares of its Capital Stock constituting directors’ or other legally required qualifying shares) to any
person (other than to the company or a wholly owned subsidiary).
Limits on Consolidations Axtel will not consolidate with or merge with or into, or convey, transfer, or lease, in one transaction or a series of transactions, directly or
or Mergers
indirectly, all or substantially all its assets to, any person, unless: (1) the resulting, surviving or transferee person or “Successor Company” shall
be a person organized and existing under the laws of the United Mexican States or the laws of any political subdivision thereof, the laws of the
United States of America, any State thereof or the District of Columbia, or the European Union or any of its member nations and the successor
company (if not the company) shall expressly assume, by an indenture supplemental thereto, executed and delivered to the trustee, in form
satisfactory to the trustee, all the obligations of the predecessor company under the notes and the Indenture; (2) immediately after giving pro
forma effect to such transaction (and treating any Indebtedness which becomes an obligation of the successor company or any subsidiary as a
result of such transaction as having been Incurred by such successor company or such subsidiary at the time of such transaction), no default
shall have occurred and be continuing; (3) immediately after giving pro forma effect to such transaction, the successor company would be able
to incur an additional US$1.00 of indebtedness pursuant to paragraph (a) of the covenant described under “Limitation on Indebtedness”; (4) the
company shall have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the indenture; (5) the company shall have delivered to the trustee an opinion of
counsel to the effect that the holders will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such
transaction and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have
been the case if such transaction had not occurred; and (6) Axtel shall have delivered an opinion of counsel in the United Mexican States to the
effect that the holders will not recognize income gain or loss for income tax purposes of such jurisdiction as a result of such transaction and will
be subject to income tax in such jurisdiction on the same amounts, in the same manner and at the same times as would have been the case if
such transaction had not occurred.
Disclaimers: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document Date
and Location” section of each covenant summary table. Fitch cannot ensure that the information contained in such documents is either accurate or complete, or that the
covenant summaries, or any particular covenant summary, accurately or completely reflect the key terms of any such document. The information presented in the
covenant summaries is provided “as is” without any representation or warranty and is not a substitute for information provided to investors by an issuer and its agents in
connection with a sale of securities.
November 8, 2012
37
Corporates
Financial Summary  Axtel S.A.B. de C.V.
(MXN 000, As of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
3,274,188
3,866,664
30.7
36.2
16.4
(5.7)
(39.6)
3,574,585
4,142,481
33.0
38.3
17.2
(2.0)
(30.3)
3,227,780
3,746,515
30.3
35.2
15.7
(10.5)
(3.6)
3,838,580
4,322,519
35.0
39.4
19.7
(5.6)
2.2
4,210,402
4,624,745
36.4
40.0
21.6
(0.5)
(8.4)
2.8
3.1
2.3
2.3
1.9
2.2
0.3
0.8
0.7
3.3
3.6
2.6
2.6
2.1
2.5
0.6
1.6
0.9
3.2
3.5
2.6
2.0
1.8
2.4
(0.1)
0.7
0.7
4.1
4.1
3.1
2.1
1.8
3.1
0.2
0.9
0.8
5.1
5.3
3.8
3.8
3.1
3.7
0.7
1.7
1.0
4.6
3.6
3.4
4.3
4.1
9.7
—
3.0
4.4
3.5
3.1
4.1
3.8
8.7
—
3.0
4.2
3.2
2.8
3.9
3.5
9.2
—
6.3
3.2
2.6
2.2
3.2
2.9
9.5
—
9.5
2.9
2.3
2.0
2.8
2.6
9.3
—
3.1
21,194,428
693,593
355,810
11,567,479
11,923,289
—
11,923,289
4,739,808
16,663,097
5,322,286
21,985,383
22,277,272
1,425,023
380,880
12,130,494
12,511,374
—
12,511,374
4,543,168
17,054,542
5,740,146
22,794,688
22,408,580
1,308,264
655,996
9,772,835
10,428,831
—
10,428,831
4,149,880
14,578,711
7,734,294
22,313,005
21,603,082
1,402,240
944,553
8,947,650
9,892,203
—
9,892,203
3,871,512
13,763,715
8,200,933
21,964,648
21,569,161
1,105,576
296,106
9,358,464
9,654,570
—
9,654,570
3,314,744
12,969,314
7,931,417
20,900,731
1,948,914
(288,465)
1,660,449
0
(2,267,415)
0
(606,966)
0
(73,921)
229,981
0
(891,109)
(1,342,015)
2,349,429
(36,724)
2,312,705
0
(2,532,772)
0
(220,067)
0
(81,185)
260,904
0
(1,024,460)
(1,064,808)
2,049,242
194,221
2,243,463
0
(3,361,220)
0
(1,117,757)
0
(103,191)
1,088,282
0
38,690
(93,976)
2,909,459
(846,435)
2,063,024
0
(2,674,436)
0
(611,412)
0
(326,603)
777,967
219,662
58,629
118,243
3,295,568
647,383
3,942,951
0
(4,000,615)
0
(57,664)
0
(19,267)
215,842
(277,666)
(27,973)
(166,728)
10,672,129
(0.9)
209,369
1,062,071
592,476
(2,571,236)
10,829,405
1.7
437,487
1,002,580
567,896
(2,042,922)
10,651,961
(2.9)
240,783
933,347
518,735
(286,029)
10,968,877
(5.2)
772,782
925,261
483,939
176,400
11,572,401
(5.1)
1,354,563
801,687
414,343
(700,324)
Source: Fitch.
November 8, 2012
38
Corporates
Bio PAPPEL S.A.B de C.V.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B
IDR  Issuer default rating.
Rating Outlooks
Financial Data
Bio Pappel S.A.B. de C.V.
(MXN Mil.)
Revenue
EBITDA
Total Debt
Gross Interest
Expense
Debt/EBITDA (x)
EBITDA/
Gross Interest
Expense (x)
LTM
6/30/12
12,023
964
3,389
2011
11,008
769
3,939
302
3.5
284
5.1
3.2
2.7
Note: LTM 2Q12 data is LTM IFRS.
Leading Market Position: Bio PAPPEL S.A.B de C.V. (Bio-PAPPEL) is the largest paper and
packaging company in Mexico with some operations in the U.S., and 1.3 million tons of sales
during 2011. The main paper and packaging products manufactured and sold by Bio-PAPPEL
are corrugated containers, containerboard, newsprint, multiwall sacks and bags, uncoated free
sheet paper, and kraft paper. As the largest producer of these products in Mexico, the
company has a diversified customer base.
Weak Debt Repayment Record: Bio-PAPPEL has restructured its debt twice over the last 12
years (in 2002 and 2008). A key driver of these debt restructurings was the company’s
vulnerability to high costs for raw materials and energy. While the company has made efforts to
improve its cost structure and decrease its vulnerability to costs that are outside of its control,
Bio-PAPPEL is currently vulnerable to rising recycled fiber prices, as well as those for
electricity and natural gas.
Mixed Operating Environment: The global economic environment during the past few years
has resulted in relatively high energy and recycled fiber prices, while the Mexican economy has
performed relatively well. The confluence of these factors has translated into a stable
performance by Bio-PAPPEL’s packaging division and a rebound in the performance of its
paper division. Combined, these factors have led to growth in the company’s EBITDA to
MXN935 million for the LTM ended June 30, 2012 from a low of MXN285 million during 2008.
At the end of June 2012, Bio-PAPPEL had MXN1.1 billion of cash and marketable securities
and MXN3.4 billion of total debt.
Financing of Customers: Many of Bio-PAPPEL’s customers are small and are not able to
obtain financing from banks at attractive rates and terms. As a result, the company tends to
have very large account receivables balances relative to EBITDA, as it essentially acts as a
lender for some of its customers.
Diminishing the Debt Burden: A positive factor for credit quality would be a reduction of the
issuer’s debt burden, which could reduce leverage variability under changing EBITDA levels.
Stabilizing Price Cost Spread: The successful widening and stabilization of the spread
between price and cost per ton, thus making EBITDA generation more constant, would be
positive for creditworthiness. Conversely, a consistent weakening of the price versus cost unit
spread would be considered negative for credit quality.
Analysts
+52 81 8399-9100
[email protected]
+52 81 8399-9100
[email protected]
November 8, 2012
39
Corporates
Recovery Rating
Because of the issuer’s restructuring track record, we do not envision a liquidation scenario for
Bio-PAPPEL in the event of financial distress. Consequently, a liquidation analysis was not
performed. The most likely scenario would be a negotiated restructuring of the debt, as was
done in 2002 and 2008.
In deriving a distressed enterprise valuation to determine the recovery under this scenario, we
discounted the company’s LTM EBITDA to historical lows, which in the past have triggered
restructuring efforts. We then applied a 6x distressed EBITDA multiple, which is conservative
for the industry and reflects the harsh industry environment that would result in restructuring
proceedings.
Recovery Analysis  Bio-PAPPEL S.A.B de C.V.
(MXN Mil.)
IDR:
Discount (%)
Multiple (x)
B
964.3
70
289.3
6.0
1,735.7
Interest Expense
Rent Expense
Total
284.2
—
65.0
349.2
1,735.7
173.6
1,562.1
Recovery
Rating
RR3
RR3
Rating
B+
B+
Secured Priority
Senior Secured
Secured
Lien
120.7
258.1
Value Recovered
120.7
258.1
1,562.1
378.8
1,183.3
59.2
1,124.2
Unsecured Priority
Senior Unsecured
Value
Recovered
1,183.3
Lien
3,010.5
Recovery (%)
100
100
Recovery
(%)
39
Concession
Allocation (%)
100
Notching
+1
+1
Recovery
Rating
RR4
Notching
0
Rating
B
Source: Bio-PAPPEL S.A.B de C.V.
November 8, 2012
40
Corporates
Organizational Debt Structure — Bio Pappel S.A.B. de C.V.
(As of 2Q12)
Bio Pappel, S.A.B. de C.V.
Senior Notes due 2016
Bancomer
Notes Payable
GE
99.96%
Porteadores de
Durango, S.A. de C.V.
MXN2,970 Mil.
MXN40 Mil.
MXN221.3 Mil.
MXN119 Mil.
99.99%
Bio Servicios
Corporativos,
S.A. de C.V.
Bio Pappel Nacional,
S.A. de C.V.
99.99% Reciclajes Centauro,
S.A. de C.V.
99.62%
99.99%
Bio Pappel Packaging,
S.A. de C.V.
GE
MXN1.3 Mil.
Notes Payable
MXN36.5 Mil.
99.7%a
52.64%b
Bio Servicios
Printing,
S.A. de C.V.
Bio Pappel
International Inc.
Notes Payable
MXN0.3 Mil.
Lineas Aéreas
Ejecutivas de
Durango, S.A. de C.V.
Bio Pappel
Inmobiliaria,
S.A. de C.V.
99.99%
Bio Servicio de
Empaques,
S.A. de C.V.
99.99%
Bio Servicios de
Papel Kraft,
S.A. de C.V.
Bio Pappel Printing,
S.A. de C.V.
99.99%
100.00%
99.99%
a0.3%
is controlled through Bio-Pappel. b47.35 % is controlled through Bio Pappel Nacional.
Source: Bio Pappel S.A.B. de C.V.
November 8, 2012
41
Corporates
Debt and Covenant Synopsis — Bio-PAPPEL, S.A.B. de C.V.
(As of Dec. 31, 2009)
Overview
Issuer
Guarantors
Corporación Durango, S.A.B. de. C.V. (renamed Bio Pappel, S.A.B. de C.V.)
Each direct and indirect subsidiary of Bio Pappel, S.A.B. de. C.V. including:
Porteadores de Durango, S.A. de C.V., Reciclajes Centauro, S.A. de C.V.,
Administración Corporativa de Durango, S.A. de C.V. (“ACD”) (renamed Bio Servicios Corporativos, S.A. de. C.V.)
Líneas Aéreas Ejecutivas de Durango, S.A. de C.V.
Empaques de Cartón Titán, S.A. de C.V. (“Titán”) (renamed Bio Pappel Packaging, S.A. de C.V.)
Inmobiliaria Industrial Tizayuca, S.A. de C.V. (renamed Bio Pappel Inmobiliaria, S.A. de C.V.)
Servicios Industriales Tizayuca, S.A. de C.V. (merged into Bio Servicios de Papel Kraft, S.A. de C.V.)
Atenmex, S.A. de C.V., Atensa, S.A. de C.V. (merged into Bio Servicios de Papel Kraft, S.A. de C.V.)
Ectsa Industrial, S.A. de C.V. (renamed Bio Servicios de Empaques, S.A. de C.V.)
Eyemsa Industrial, S.A. de C.V. (merged into Bio Servicios de Empaques, S.A. de C.V.)
Cartonpack Industrial, S.A. de C.V. (“Cartónpack”) (merged into Bio Servicios de Empaques, S.A. de C.V.)
Administración Industrial Centauro, S.A. de C.V. (merged into Bio Servicios de Papel Kraft, S.A. de C.V.)
Administradora Industrial Durango, S.A. de C.V. (renamed Bio Servicios de Papel Kraft, S.A. de C.V.)
Ponderosa Industrial de México, S.A. de C.V. (“PIMSA”) (recently sold)
Mexpape, S.A. de C.V. (renamed Bio Servicios Printing, S.A. de C.V.)
Fapatux, S.A. de C.V. (merged into Bio Pappel Printing, S.A. de C.V.),
Servicios Pipsamex, S.A. de C.V. (merged into Bio Servicios Printing, S.A. de C.V.)
Formatodo Industrial, S.A. de C.V. (merged into Bio Servicios Printing, S.A. de C.V.)
Paper International, Inc. (merged into Bio Pappel International, Inc.)
Fiber Management of Texas, Inc. (merged into Paper International, Inc which was later merged into Bio Pappel International, Inc.)
Grupo Pipsamex, S.A. de C.V. (renamed Bio Pappel Printing, S.A. de. C.V.)
McKinley Paper Company (renamed Bio Pappel International, Inc.)
Summafibers Inc. (merged into Bio Pappel International, Inc.)
Empresas Titán, S.A. de C.V. (merged into Bio Pappel Packaging, S.A. de. C.V.)
Compañía Norteamericana de Inversiones en Celulosa y Papel, S.A. de C.V. (merged into Bio Pappel Inmobiliaria, S.A. de C.V.)
Aug. 27, 2009
Aug. 27, 2016
Senior Guaranteed Notes
Document Date
Maturity Date
Description of Debt
Financial Covenants
(Maximum)
N.A.
Interest Coverage
(Minimum)
N.A.
Change-of-Control Provision Change-of-control clause at 101% of principal.
Sale of Assets Restriction Neither the issuer nor guarantors can sell assets other than: 1) worn or obsolete assets with an aggregate value of less than USD100,000;
2) asset sales in the ordinary course of business; or 3) asset sales in which the net proceeds are used to repay the notes. If the issuer or
the guarantors sell capital stock of their subsidiaries, the net proceeds must be used to repay the notes. A fairness opinion is needed if an
equity issuance or asset sale of capital stock of a note issuer involves more than 5% of its capital stock, or if more than 1% if the capital
stock is sold to an affiliate, obligor, or other related entity of any guarantor.
Debt Restrictions
Additional Debt Restriction Neither the issuer nor guarantors are allowed to incur additional debt except permitted debt. Permitted debt includes debt used to refinance
existing or permitted indebtedness, subject to standard limitations. The issuer or its subsidiaries can incur or maintain up to USD30 million
of additional indebtedness through 2012. This figure then escalates annually, reaching USD60 million by 2016. (Debt thresholds shall not
be cumulative.) Debt can also be incurred for finance trade receivables in connection with hedging agreements and in respect to certain
intercompany loans under certain conditions.
Limitation on Secured Debt Beyond customary permitted liens, subject to certain conditions, Durango or its subsidiaries may incur liens: 1) securing permitted
indebtedness provided that liens in respect of such refinanced debt existed prior to such refinancing and do not extend beyond the
collateral securing such debt prior to its refinancing, 2) arising out of letters of credit, or 3) arising out of the sale of goods; 4) statutory liens;
5) arising from ordinary course transactions and activities.
Restricted Payments
With certain exceptions, the issuer or guarantors are prohibited from making certain investments, including the acquisitions of stocks,
bonds, and notes, as well as the making of deposits or loans with certain defined persons and entities. The investment restrictions also
identify certain financial instruments that the company can invest in, such as commercial paper of highly rated entities.
N.A.  Not applicable. Continued on next page.
November 8, 2012
42
Corporates
Debt and Covenant Synopsis — Bio PAPPEL, S.A.B. de C.V. (Continued)
Other
Cross Default
Acceleration
Cross default when an uncured event of default occurs for debt of more than USD10 million.
If any event of default occurs and is continuing, the trustee or the holders of at least 25% of the outstanding notes may declare the notes to
be due and payable. Notes become automatically due and payable upon certain events of insolvency or bankruptcy. Holders of the majority
of the outstanding notes may rescind a declaration of acceleration within 60 days.
PIK Interest Rate
The interest rate for notes is 6% during the first year, 7% during years two through four, and 10% during the fifth, sixth, and seventh year.
During the first two years, 3% of the coupon can be paid with a PIK coupon, and during the third year 2% of the coupon can be paid with a
PIK coupon.
Intercompany Loans
Intercompany loans are subordinated.
Restriction on Purchase of The issuer, guarantor, or affiliates may purchase notes at par provided the notes shall be retired or pledged. Notes purchased shall have no
Notes
voting rights to the extent permitted by law in bankruptcy or any other situation.
Transactions with Affiliates Transactions between issuer or guarantors and affiliates for more than USD100,000 shall require a fairness opinion.
Limits on Consolidations or Restrictions on merger or consolidation of issuer and guarantors. Exceptions include: 1) the merger of guarantors; 2) the merger of other
Mergers
entities with the issuer provided that surviving entity will be the issuer or another corporation existing under the laws of Mexico or the U.S.,
and that no event of default occurs or is continuing, the company’s pro forma net worth increases, and that the company’s debt be rated at
least ‘B+’ prior to the merger and is affirmed at ‘B+’ or higher; or 3) the merger of other entities with a guarantor provided that surviving
entity will be the guarantor or another corporation existing under the laws of Mexico or the U.S., that no event of default occurs or is
continuing, the company’s pro forma net worth increases, and that the company’s debt rating be at least ‘B+’ prior to the merger and is
affirmed at ‘B+’ or higher. Any surviving entity would assume all obligations of the issuer or guarantor under the indenture.
Mandatory Redemption
The note will be redeemed on a pro rata basis if an issuer or guarantor sells assets with a value of at least USD5 million or greater than
USD10 million during a 180-day period through a series of lesser sales. Notes will also be automatically redeemed if equity is issued, using
85% of net cash proceeds.
November 8, 2012
43
Corporates
Financial Summary — Bio PAPPEL, S.A.B. de C.V.
(MXN Mil.)
Profitability
Operating EBITDA
Operating EBITDAR
FFO Return on Adjusted Capital
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Off-Balance Sheet Debta
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
IFRS
LTM 6/30/12
2011
Mexican GAAP
2010
2009
964,281
1,127,882
8.0
9.4
11.4
4.6
(1.7)
768,597
911,763
7.0
8.3
7.1
0.7
(0.9)
1,004,078
1,252,024
8.9
11.1
9.9
(1.6)
4.6
931,953
1,148,881
9.1
11.2
7.4
4.0
28.7
285,061
462,754
2.8
4.5
9.8
(2.4)
(62.2)
5.1
3.2
2.4
2.3
1.9
3.7
2.0
4.6
2.0
2.8
2.7
2.1
1.9
1.6
2.2
0.9
3.2
1.2
4.6
4.2
2.6
3.1
2.2
2.8
0.2
2.4
0.7
6.8
8.4
3.5
6.1
3.1
3.0
3.4
9.8
3.2
1.4
0.4
0.5
0.0
0.1
1.3
0.1
0.2
(0.6)
2.6
3.5
2.4
4.0
3.0
9.9
0.0
0.0
5.2
5.1
3.9
5.4
4.4
7.8
0.0
0.0
3.8
3.4
2.7
4.1
3.5
7.1
0.0
0.0
5.1
3.6
2.6
4.3
3.4
2.1
0.0
0.0
7.6
25.4
22.7
18.3
16.7
10.2
0.0
1.0
16,649,218
1,094,455
118,338
3,270,949
3,389,287
0
3,389,287
1,145,207
4,534,494
9,102,457
13,636,951
16,387,047
966,970
125,944
3,813,312
3,939,256
—
3,939,256
1,002,162
4,941,418
8,548,715
13,490,133
16,036,596
734,802
81,475
3,314,383
3,395,858
—
3,395,858
1,735,622
5,131,480
8,531,632
13,663,112
15,009,789
977,874
42,101
3,356,487
3,398,588
—
3,398,588
1,518,496
4,917,084
8,164,089
13,081,173
15,465,831
773,086
7,094,194
151,743
7,245,937
—
7,245,937
1,243,851
8,489,788
2,911,181
11,400,969
1,247,299
(170,630)
1,076,669
910,457
(529,138)
0
547,531
38,790
87,795
(12,346)
0
(245,994)
415,776
523,466
(39,982)
483,484
0
(404,688)
0
78,796
37,151
1,603
(9,511)
0
124,129
232,168
860,879
(360,489)
500,390
0
(687,194)
0
(186,804)
4,348
(4,282)
(808)
0
(55,526)
(243,072)
645,114
(45,533)
599,581
0
(189,864)
0
409,717
2,015
(1,042)
(100,680)
(6,782)
(98,440)
204,788
260,830
(354,961)
(94,131)
0
(155,787)
0
(249,918)
377,747
51,855
(185,612)
151,154
87,296
232,522
12,022,597
0.0
650,716
301,565
163,601
(153,196)
11,008,110
(2.8)
406,254
284,496
143,166
(73,207)
11,321,693
10.1
674,850
240,617
247,946
385,781
10,287,521
0.7
567,726
111,431
216,928
1,587,859
10,217,378
0.9
(111,092)
677,121
177,693
(2,544,262)
2008
a
Off-balance sheet debt based on gross rental expense (see Related Criteria).
Source: Fitch.
November 8, 2012
44
Corporates
Cablevision S.A.
Full Rating Report
Key Rating Drivers
Negative Outlook: Fitch Ratings revised Cablevision S.A.’s Rating Outlook to Negative from
Stable on July 5, 2012. The Negative Outlook stems from a weakening of the company’s
operating position as a result of restrictions on the import of key products and materials. As a
result of the weak operating environment, Cablevision has limited headroom to improve its
operational performance. Fitch believes that the company’s credit quality is likely to come
under pressure should the unfavorable regulatory and operating environment persist.
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B+
Rating Outlooks
Long-Term Local Currency IDR Negative
Financial Data
Cablevision S.A.
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
3/31/12
12/31/11
(3 Months) (12 Months)
411
1,523
135
478
78
323
156
648
125
489
1.2
1.0
0.9
0.8
Note: Cablevision changed to IFRS in
January 2012. Figures as of March 2012
are three-month figures. Ratios have been
calculated
by
annualizing
income
statement and cash flow items.
Related Criteria
Corporate
Rating
(August 2012)
Methodology
Recovery Ratings and Notching
Criteria for Nonfinancial Corporate
Issuers (August 2012)
Rating Global Telecom Companies
(September 2011)
Analysts
Cecilia Minguillon
+54 11 5235-8123
[email protected]
Alberto Moreno
+54 11 5235-8129
[email protected]
November 8, 2012
Conservative Leverage Is a Key Credit Consideration: Fitch expects that the company will
maintain a conservative capital structure to mitigate existing operational and regulatory risks.
As of March 31, 2012, Cablevision’s total consolidated debt was USD648 million, similar to
year-end 2011, with a manageable maturity schedule. In the short term, the restrictions to trade
would cause credit protection metrics to strengthen, as capex is delayed from previous
forecasts, with net leverage trending below 1.0x and gross leverage around 1.5x.
High Regulatory and Political Risk Among Others: Fitch believes the weak and hostile
regulatory framework has prevented the company from achieving its goals in terms of service
clustering and triple-play offering. This has affected Cablevision’s business model and growth
potential. Other credit concerns include the evolving competitive landscape, costs pressures
derived from double-digit inflation, and currency mismatch between Cablevision’s pesodenominated cash flow generation and its dollar-denominated debt. Cablevision’s foreign
currency issuer default rating is capped by Argentine’s country ceiling of ‘B’, while its Recovery
Rating of ‘RR4’ is constrained by the soft cap of ‘RR4’ for bonds issued by Argentine
corporates.
Competitive Position Could Be Affected: Cablevision’s solid business position is derived
from a comparatively stronger subscriber clustering profile and service penetration rates. The
company’s ability to maintain its competitive position relative to the joint services offered by
incumbents and direct broadcast satellite operators is threatened by restrictions upon its
access to import key products, as well as a law that intends to nullify the merger with Multicanal.
Stable Operating Track Record: Cablevision has leveraged its scale by offering various
digital services coupled with strategic bandwidth initiatives that helped it improve average
revenue per user (ARPU), maintain operating margins and subscriber loyalty, while lowering
subscriber churn levels. For the three-month period ended March 31, 2012 and for the year
ended Dec. 31, 2011, the company’s revenues and EBITDA remain relatively consist with
those of the prior periods.
Key Rating Drivers: Catalysts for a downgrade center on adverse regulatory or legal issues,
including the final application of the Broadcasting law approved in October 2009 and several
legal actions working their way through the judicial process, such as the ones that threaten to
nullify Cablevision’s merger with Multicanal S.A. Fitch will continue monitoring the evolution of
these actions and judicial processes. A negative ruling could trigger a downgrade.
45
Corporates
Recovery Rating
The recovery ratings for Cablevision’s capital market debt instruments reflect Fitch’s
expectation that the company’s creditors would have an average recovery, constrained by the
soft cap of ‘RR4’ for bonds issued by Argentine corporates.
Although EBITDA is vulnerable to the continued legal actions against Cablevision, it should be
noted that the company has financial flexibility as interests, and minimum capital expenditures
are marginal compared to its distressed cash flow generation, considering the negative impact
of any of the existing legal actions. Fitch has applied a 5.0x distressed EBITDA multiple, which
is below the multiple used in the industry.
Recovery Analysis  Cablevision S.A.
(USD Mil.)
March 31, 2012 annualized EBITDA
Discount (%)
Multiple (x)
538
35
350
5.0
1,749
Interest Expense
Rent Expense
Total
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
Advance Rate
0
80
50
20
156.0
76.0
5.7
761.0
998.7
Available to
Creditors

60.8
2.9
152.2
215.9
61
—
80
141
1,749
175
1,574
1,574

1,574
78
1,495
Secured Priority
Senior Secured
Secured
Unsecured Priority
Senior Unsecured
Lien
0.0
0.0
Lien
648
Value
Recovered


Recovery (%)
0
0
Value
Concession
Recovered Recovery (%) Allocation (%)
648
100
100
Recovery
Rating


Recovery
Ratinga
RR4
Notching


Notching

Rating


Rating
B
a
Cablevision’s recovery rating is capped at ‘RR4’ due to concerns about the low probability of high recoveries for bondholders of corporates domiciled in Argentina.
The amount of concession payments is highly dependent on circumstances, but Fitch typically allows up to 5% of the recovery value available to senior unsecured
creditors to be allocated to concession payments.
November 8, 2012
46
Corporates
Organizational Structure — Cablevision S.A.
(USD Mil.)
LTM March 31, 2012 Summary Statistics
EBITDA
Total Debt
538
156
648
Argentina
100%
Paraguay
70%
PEM S.A.
70%
CV Verasategui S.A.
100%
Cable Imagen SRL
100%
Wolves Television
S.A.
60%
Aire Vision
Internacional S.A.
100%
Prima S.A.
100%
Cablevision S.A.
IDR — B/Rating Outlook Negative
70%
Television Dirigida
SAECA
Uruguay
100%
Adesol S.A.
Cablevision
Comunicaciones
SAECA
70%
Consorcio Multipunto
S.A.
100%
Teledeportes
Paraguay S.A.
Fintelco S.A.
Source: Fitch and Cablevision S.A.
November 8, 2012
47
Corporates
Debt and Covenant Synopsis  Cablevision S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
Multicanal S.A.a
N.A.
Indenture as of July 19, 2006; Second Amendment on July 20, 2006; Third Amendment on Sept. 20, 2006; Fourth
Amendment on Dec. 18, 2006; Fifth Amendment on March 30, 2007; Sixth Amendment on Dec. 21, 2007; Eighth
Amendment on June 30, 2009.
July 20, 2016
USD80.3 million Step-Up Sr. Unsecured Notes due 2016 (10-Year Notes)
N.A.
N.A.
Neither the issuer nor subsidiaries cannot sell assets that will result in a material adverse effect and if such sale is higher
than USD10 million, unless an independent financial advisor has delivered a valuation to the board of directors and at a price
consistent with such valuation.
Neither the issuer nor subsidiaries are allowed to incur additional debt except permitted debt if total consolidated debt to
annualized pro forma consolidated operating cash flow is lower or equal to 6.5x. Permitted debt includes debt used to
refinance existing or permitted indebtedness if it is made pari passu or subordinated to the notes, subject to standard
limitations. Debt can also be incurred if its related to performance bonds, obligations under the interest rate agreements and
currency agreements and any other debt for USD25 million or less.
Liens may not be incurred by issuer or any significant subsidiary, unless 1) such subsidiary simultaneously executes and
delivers a supplemental indenture to the notes’ indenture providing for a guarantee by such subsidiary of payment of the
notes and 2) such subsidiary waives and will not claim or take any right against the issuer or any other subsidiary as a result
of any payment by such subsidiary under its subsidiary guarantee.
No material provision noted.
If any event of default occurs and is continuing the trustee or the holders of at least 25% of the outstanding notes may
declare the notes to be due and payable. Notes become automatically due and payable upon certain events of insolvency or
bankruptcy. Holders of the majority of the outstanding notes may rescind a declaration of acceleration within 30 days.
N.A.
Reserve Account
N.A.
Cash Sweep
N.A.
Transactions between issuer and shareholders, affiliates, or subsidiaries other than payments related with programming
agreements for more than USD10 million shall require a fairness opinion.
Restrictions on merger or consolidation of issuer and subsidiaries. Exceptions include 1) merger with a fully owned
Limits on Consolidations or Mergers
subsidiary which has positive net worth and the transaction does not imply any other delivery to shareholders other than
ordinary shares representative of the transaction; 2) any surviving entity would assume all obligations of the issuer under the
indenture; 3) immediately after giving effect to the emerge no event of default occurs.
a
Multicanal S.A. merged with Cablevisión S.A. back in 2006, and the merger was authorized in December 2007. Still, the merger needs to be registered by the
Inspección General de Justicia. N.A.  Not applicable.
November 8, 2012
48
Corporates
Financial Summary  Cablevision S.A.
(ARS 000, Fiscal Year Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
3 Months
3/31/12
2011
2010
2009
2008
2007
2006
586,323
32.7
—
—
—
1,989,315
31.4
28.3
(7.1)
18.4
1,777,571
36.4
31.2
11.3
21.7
1,469,412
34.8
32.0
17.1
18.6
1,157,905
33.9
26.2
6.5
9.3
862,865
33.0
21.1
6.5
7.4
477,892
34.8
11.8
20.6
6.0
7.0
8.8
3.8
7.0
1.2
2.3
1.6
7.0
8.6
3.7
7.0
(0.4)
0.6
1.0
11.0
11.7
6.3
11.0
2.5
3.9
1.8
7.1
6.8
3.6
7.1
2.3
2.6
2.3
5.0
4.6
2.2
5.0
0.9
1.2
1.3
3.9
3.5
2.0
3.9
1.0
1.3
1.3
4.6
4.1
1.7
4.6
1.4
2.1
2.4
1.5
1.2
0.9
10.8

0.1
1.3
1.1
0.8
11.2

0.1
1.2
1.1
0.9
7.5

0.1
1.3
1.4
1.3
9.4

0.1
2.0
2.2
2.0
10

0.1
2.6
2.9
2.7
9.6

0.1
4.9
5.5
5.0
6.1

0.1
8,153,193
683,261
354,641
2,486,894
2,841,535

2,841,535
0
2,841,535
3,827,582
6,669,117
7,804,212
539,943
306,314
1,799,527
2,105,841

2,105,841
0
2,105,841
3,628,548
5,734,389
6,462,002
395,309
128,892
1,898,200
2,027,092

2,027,092
0
2,027,092
3,314,107
5,341,199
5,697,998
143,788
196,174
1,852,661
2,048,835

2,048,835
0
2,048,835
2,770,863
4,819,698
5,525,921
185,434
278,399
2,275,885
2,554,284

2,554,284
0
2,554,284
2,253,883
4,808,167
5,062,025
158,581
182,343
2,318,716
2,501,059

2,501,059
0
2,501,059
2,040,541
4,541,600
4,942,128
212,092
170,226
2,435,108
2,605,334

2,605,334
0
2,605,334
1,864,364
4,469,698
400,642 1,392,524
(59,135)
(47,693)
341,507 1,344,831
0
0
(219,452) (1,390,608)
0 (404,434)
122,055 (450,211)
(5,778)
(43,623)
1,344
6,877
24,895
642,983
0
0
(1,665)
(11,391)
140,851
144,635
1,515,179
38,529
1,553,708
0
(866,808)
(134,031)
552,869
(17,498)
9,469
13,781
0
(311,014)
247,607
1,326,859
(31,808)
1,295,051
0
(572,411)
0
722,640
(400)
18,499
(585,565)
(74)
(187,468)
(32,368)
1,009,335
(41,714)
967,621
0
(747,104)
0
220,517
(13,185)
7,142
(129,280)
0
(57,418)
27,776
710,777
(29,001)
681,776
0
(511,040)
0
170,736
(15,540)
5,056
(198,906)
0
(19,681)
(58,335)
413,204
64,828
478,032
0
(196,001)
0
282,031
(231,266)
0
(163,598)
0
260
(112,573)
1,792,323
—
419,656
66,817
218,133
4,885,061
15.8
1,315,189
151,917
660,153
4,218,974
23.5
1,035,990
215,827
468,022
3,417,476
30.8
809,196
251,661
200,691
2,612,972
90.4
555,321
246,113
143,997
1,372,115
55.3
305,020
116,284
107,447
6,336,886
29.7
1,377,183
230,780
639,907
Note: Numbers may not add due to rounding.
Source: Cablevision S.A. and Fitch.
November 8, 2012
49
Corporates
Financial Summary  Cablevision S.A.
(USD 000, Fiscal Year Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
4.379
4.358
3 Months
3/31/12
4.305
4.160
3.979
3.913
3.799
3.728
3.454
3.163
3.150
3.117
3.061
3.075
2011
2010
2009
2008
2007
2006
134,527
32.7
—
—
—
478,258
31.4
28.3
(7.1)
18.4
454,227
36.4
31.2
11.3
21.6
394,166
34.8
32.0
17.1
18.2
366,067
33.9
26.2
6.5
9.8
276,870
33.0
21.1
6.5
7.4
155,437
34.8
11.8
20.6
5.9
7.0
8.8
3.8
7.0
1.2
2.3
1.6
7.0
8.6
3.8
7.0
(0.4)
0.6
1.0
11.0
11.7
6.4
11.0
2.5
3.9
1.8
7.1
6.8
3.6
7.1
2.3
2.6
2.3
5.0
4.6
2.3
5.0
0.9
1.3
1.3
3.9
3.5
2.0
3.9
1.0
1.3
1.3
4.6
4.1
1.7
4.6
1.4
2.1
2.4
1.5
1.2
0.9
10.8

0.1
1.3
1.0
0.8
11.1

0.1
1.2
1.1
0.9
7.4

0.1
1.3
1.4
1.3
9.1

0.1
1.9
2.0
1.9
10.4

0.1
2.6
2.9
2.7
9.6

0.1
4.9
5.5
5.0
6.1

0.1
1,862,055
156,046
80,994
567,966
648,960

648,960
0
648,960
874,157
1,523,116
1,812,699
125,414
71,148
417,979
489,128

489,128
0
489,128
842,810
1,331,937
1,624,149
99,356
32,396
477,091
509,487

509,487
0
509,487
832,962
1,342,449
1,499,868
37,849
51,638
487,671
539,309

539,309
0
539,309
729,366
1,268,675
1,599,954
53,690
80,607
658,951
739,558

739,558
0
739,558
652,581
1,392,139
1,606,992
50,343
57,887
736,100
793,987

793,987
0
793,987
647,791
1,441,778
1,614,547
69,288
55,611
795,527
851,138

851,138
0
851,138
609,070
1,460,208
91,924
(13,568)
78,356
0
(50,352)
0
28,005
(1,326)
308
5,712
0
(382)
32,317
334,782
(11,466)
323,316
0
(334,321)
(97,231)
(108,237)
(10,488)
1,653
154,582
0
(2,739)
34,772
387,177
9,845
397,022
0
(221,497)
(34,249)
141,276
(4,471)
2,420
3,521
0
(79,474)
63,272
355,927
(8,532)
347,395
0
(153,548)
0
193,846
(107)
4,962
(157,076)
(20)
(50,288)
(8,683)
319,097
(13,188)
305,909
0
(236,194)
0
69,715
(4,168)
2,258
(40,871)
0
(18,152)
8,781
228,069
(9,306)
218,763
0
(163,979)
0
54,785
(4,986)
1,622
(63,824)
0
(6,315)
(18,718)
134,397
21,086
155,483
0
(63,751)
0
91,732
(75,221)
0
(53,211)
0
85
(36,615)
411,234
—
96,287
15,331
50,049
1,523,473
22.0
331,093
55,483
153,842
1,248,291
10.3
336,073
38,820
168,690
1,131,729
4.7
277,902
57,895
125,546
1,080,420
28.9
255,824
79,562
63,448
838,432
87.9
178,187
78,971
46,205
446,289
47.6
99,210
37,822
34,948
Source: Cablevision S.A. and Fitch.
November 8, 2012
50
Corporates
CAP Limited
Clarendon Alumina Production Limited
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B–
B–/RR4
Local Currency
Long-Term IDR
B–
Rating Outlooks
Financial Data
CAP Limited
Total Adjusted
Capital (USD Mil.)
Total Debt
(USD Mil.)
Operating Revenue
(USD Mil.)
Net Income
(USD Mil.)
FCF Margin (%)
ROAE (%)
Total Debt to
EBITDA (x)
3/31/11
3/31/10
242
264
424
373
127
126
(73)
(17)
50
44
37
(33)
(11.0)
(25.8)
Government Support Vital: CAP Limited’s (CAP) ratings are linked to those of Jamaica’s and
reflect its 100% ownership by the government of Jamaica (GoJ), without support from which it
could not continue operating. CAP is the holding company for the Jamaican government’s 45%
ownership in an unincorporated joint venture with a subsidiary of Alcoa Inc. (Alcoa) called
Jamalco, which is a bauxite mining and alumina refining operation in Jamaica. This joint
venture involves the proportionate sharing of production costs and the alumina output of the
Clarendon Alumina Refinery (CAR). CAR’s current production rate is about 1.36 million tons
per year.
Grants Required to Fulfill Financial Obligations: CAP is obliged to fund its share of running
and operating expenses at CAR, and it would be unable to meet these obligations without
support from the GoJ. CAP received grants from the GoJ of USD17 million in fiscal 2011 and
USD107.4 million in fiscal 2010. These grants ensure that CAP is able to meet its supply
agreement obligations with customers. The long-term foreign currency IDR of Jamaica is rated
‘B’ by Fitch Ratings with a Stable Outlook. CAP’s Stable Outlook mirrors the sovereign rating
outlook on Jamaica, to which its ratings are tied.
Weak Stand-Alone Financial Profile: On a stand-alone basis, CAP has an extremely weak
financial profile for its rating category. Total debt has increased to USD424 million in fiscal
2011 from USD373 million in fiscal 2010, while EBITDA has deteriorated further to negative
USD39 million from negative USD14 million over the same period. The decline in EBITDA is
primarily a result of the unfavorable long-term contract the company has with Glencore. Fiscal
2011 revenues of USD127 million were based on total alumina sales of 602,202 metric tons.
This was flat to revenues of USD126 million in fiscal 2010.
Unsecured Notes Guaranteed by Sovereign: CAP’s USD200 million, 8.5% unsecured notes
due November 2021 continue to be supported by an explicit unconditional and irrevocable
guarantee by the GoJ for timely interest and principal on the notes. The GoJ guaranteed
approximately 90% of CAP’s USD424 million of total debt as of the fiscal year-end March 31,
2011. Cash at USD4.1 million is extremely low in relation to short-term debt of USD169 million.
Analysts
Jay Djemal
+1 312 368-3134
[email protected]
Joe Bormann, CFA
+1 312 368-3349
[email protected]
November 8, 2012
Ratings Tied to Sovereign: CAP’s future rating actions are directly linked to Fitch’s actions
taken on Jamaica. If Fitch were to further downgrade the ratings on the sovereign due to
concerns regarding macroeconomic pressures or upgrade the ratings due to liquidity
improvement, then CAP’s ratings would also mirror this action. This rating linkage will continue
as long as the company remains 100% owned by the GoJ.
The GoJ announced in 2009 that it is seeking to sell its 45% stake in Jamalco, and Fitch
understands that this process is ongoing. Fitch notes that Alcoa has a right of first refusal on
buying the shares. CAP’s USD200 million 8.5% unsecured notes due 2021 are subject to a
change-of-control clause, which creditors may choose to activate. Should any potential change
of control result in effective acceleration of the obligation, Fitch will review for possible rating
action.
51
Corporates
Liquidity and Debt Structure
Without the GoJ’s support, CAP has an extremely weak financial profile for its rating category,
and its capital structure would not be sustainable on a stand-alone basis. Total debt increased
to USD424 million in fiscal 2011 from USD373 million in fiscal 2010. CAP received
USD124 million in total grants from the GoJ over the last two years, with USD17 million
received in fiscal 2011 and USD107 million received in fiscal 2010. These grants ensured that
CAP was able to perform to the level required to meet its supply agreement obligations with
customers.
Most of CAP’s long-term debt is comprised of the USD200 million notes issued in November
2006. CAP, via its affiliate, Jamaica Bauxite Mining Limited (JBM), also has a USD33 million
obligation (USD65 million original amount) to Glencore, CAP’s main customer. The proceeds of
this loan were used to fund CAP’s share of an expansion project with Alcoa. As of March 31,
2011, approximately 90% of CAP’s total debt of USD424 million was guaranteed by the GoJ.
Recent Financial Performance
As a result of unfavorable long-term contracts, CAP generated negative EBITDA of
USD39 million during fiscal 2011 and has exhibited negative EBITDA since 2007. Fiscal 2011
revenues of USD127 million were based on total alumina sales of 602,202 metric tons with an
average price per ton of USD209. This compares as a flat performance to fiscal 2010 revenues
of USD126 million. CAR’s current production rate is about 1.36 million tons of alumina per year.
The company’s cash on balance sheet of USD4.1 million is insufficient to meet short-term debt
requirements of USD169 million, indicating that ongoing government assistance will be
required.
CAP’s 2011 capital expenditures were USD11 million, mostly used for Jamalco’s mining
infrastructure. FFO generated for fiscal 2011 was negative USD24 million. This compares with
FFO of USD18 million in fiscal 2010. The negative performance is primarily due to the longterm inflexible supply contracts with CAP’s main customer, Glencore, which have constrained
CAP’s ability to pass on higher caustic soda and fuel input costs. The long-term contracts with
Glencore are a legacy of the AEL Secured Export Notes (10.48%) due in 2010, which were
repaid early in February 2007 and were secured by future alumina receivables. The contract
with Glencore expires in 2016.
Recovery Analysis
The USD200 million, 8.5% unsecured notes due 2021 have a recovery rating of ‘RR4’. CAP’s
unsecured notes are 100% guaranteed by the GoJ. Therefore, Fitch expects the notes will
have the same recovery risk as the sovereign.
November 8, 2012
52
Corporates
Organizational Chart — CAP Limited
Alcoa
(United States)
Alumina Limited
(Australia)
60%
Government of Jamaica
40%
100%
Alcoa World Alumina and
Alcoa Caribbean Alumina Holdings
100%
100%
Alcoa Minerals
(Jamaica)
CAP
JBM and BATCO
45%
55%
Jamalco/CAR
Source: CAP.
November 8, 2012
53
Corporates
Debt and Covenant Synopsis — Clarendon Alumina Production Limited (CAP)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Debt Restriction
Limitation on Liens
Clarendon Alumina Production Limited
The Government of Jamaica
Nov. 9, 2006
Nov. 16, 2021
USD200 Million
Occurs when CAP’s interest in the Jamalco joint venture falls below 50% if at such time the amount of alumina production of the
Jamalco joint venture that CAP is entitled to receive in a calendar year is less than 625,000 metric tons.
CAP will not, and will not permit any subsidiary to, directly or indirectly, issue, assume, or guarantee to exist any lien of any nature
whatsoever on any of its properties or assets without effectively providing that the notes are secured equally and ratably with the
obligations so secured for so long as such obligations are so secured. Security interests may be permitted if they: (1) are existing
or permitted under any existing facility; (2) secure the costs of the acquisition, construction, development, or expansion of any
property or asset; (3) exist on any property or asset at the time of its acquisition or arising after such acquisition; (4) are granted by
CAP to any person with whom CAP enters into a hedging arrangement; or (5) secure indebtedness not expressly permitted above,
provided that the aggregate outstanding principal amount of such secured indebtedness does not exceed USD10 millon or its
equivalent.
Source: CAP Ltd. offering memo and Fitch Ratings.
November 8, 2012
54
Corporates
Financial Summary  Clarendon Alumina Production Limited (CAP)
(USD 000, Years Ended March 31, 2011)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Acquisitions. and Divestitures
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2011
2010
2009
2008
2007
(38,621)
(38,621)
(30.49)
(30.49)
2.24
(16.97)
50.13
(14,464)
(14,464)
(11.5)
(11.5)
18.4
36.6
(33.3)
(15,560)
(15,560)
(11.8)
(11.8)
(10.6)
(125.9)
54.2
(5,862)
(5,862)
(5.0)
(5.0)
25.9
(54.5)
89.4
(11,230)
(11,230)
(8.5)
(8.5)
6.4
(40.3)
3,238.9
0.19
(1.32)
(1.32)
(0.19)
(0.19)
0.19
0.04
0.06
(0.95)
1.6
(0.5)
(0.5)
(0.1)
(0.1)
1.6
0.6
0.6
14.6
(1.1)
(0.5)
(0.5)
(0.1)
(0.1)
(1.1)
(0.9)
(0.9)
(3.2)
2.3
(0.2)
(0.2)
(0.1)
(0.1)
2.3
(0.7)
(0.4)
0.5
0.6
(0.4)
(0.4)
(0.1)
(0.1)
0.6
(0.3)
0.3
0.2
78.21
(10.97)
(10.86)
(10.97)
(10.86)
7.33
—
0.40
7.7
(25.8)
(25.7)
(25.8)
(25.7)
7.3
—
0.2
(14.1)
(29.5)
(29.5)
(29.5)
(29.5)
7.5
—
0.3
5.3
(55.7)
(52.9)
(55.7)
(52.9)
8.6
—
0.1
17.0
(25.5)
(21.3)
(25.5)
(21.3)
12.2
—
0.2
347,261
4,100
169,358
254,219
423,577
—
423,577
0
423,577
(181,998)
241,579
350,496
783
88,872
284,263
373,135
—
373,135
0
373,135
(109,045)
264,090
375,758
929
128,065
331,445
459,510
—
459,510
0
459,510
(152,622)
306,888
362,452
16,057
30,441
295,838
326,279
—
326,279
0
326,279
(87,559)
238,720
332,262
46,773
50,287
235,736
286,023
—
286,023
0
286,023
(24,038)
261,985
(23,791)
13,308
(10,483)
0
(11,009)
0
(21,492)
4
17,004
7,798
0
0
3,314
18,213
31,176
49,389
0
(3,388)
0
46,001
0
107,386
(117,319)
0
0
36,068
(61,965)
(64,492)
(126,457)
0
(39,446)
0
(165,903)
7
59,764
91,004
0
0
(15,128)
35,454
27,311
62,765
0
(126,689)
0
(63,924)
19,145
691
13,372
0
0
(30,716)
(10,617)
24,003
13,386
0
(66,604)
0
(53,218)
919
0
113,526
0
0
61,227
126,662
0.78
(61,629)
29,207
0
(72,953)
125,677
(4.6)
(34,614)
30,444
0
43,577
131,775
12.4
(35,479)
29,295
0
(65,063)
117,221
(11.3)
(23,558)
26,388
0
(49,898)
132,093
5.8
(21,461)
27,476
0
(45,280)
Source: Fitch.
November 8, 2012
55
Corporates
Capex S.A.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B
Rating Outlooks
RWN
Stable
Financial Data
Capex S.A.
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations (CFFO)
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
Total Debt/
CFFO (x)
4/30/12
176.2
32.4
4/30/11
177.2
46.4
43.1
46.7
4.9
237.7
45.3
230.8
7.3
5.0
7.2
4.0
3.2
3.0
Argentine and Regulatory Risks Are High: The ‘B’ ratings of Capex S.A. are constrained by
the ‘B’ country ceiling of Argentina. The ratings are also restricted by the high regulatory risks
associated with operating in the electricity sector in Argentina, which has resulted in electricity
and gas prices that are below market levels. This has discouraged investments in both sectors.
Capital investments for maintenance in the power generation industry depend on discretional
approvals by the regulatory authority.
Volatile Cash Flow and Currency Mismatch: Capex’s cash flow generation is volatile, and
power generation is subject to regulatory issues and weather conditions. The company’s
operating cash flow generation is concentrated in Argentina. Capex is also exposed to
devaluation risk due to the currency mismatch between its peso-denominated cash flows and
its U.S. dollar-denominated debt.
Vertical Integration: Capex is an integrated thermoelectric generating company. Originally
formed as an oil exploration and production company, Capex was transformed into an electric
generation company due to its large discoveries of natural gas in 1991, coupled with the
liberalization of Argentina’s electricity sector. As of April 30, 2012, 65.1% of Capex’s sales were
derived from electric sales and 34.8% from oil and other liquids sales. In the last year, the
gross energy generation was 3,270 GWh, a decline of 14.9% compared to the year before due
to a one-time external event that affected the combined cycle generation for four months.
Investments Key to High Degree of Vertical Integration: For the fiscal year ended April 30,
2012, Capex had CFFO of USD43 million and capital expenditures of USD45 million. The
company has some flexibility to manage capital expenditures in the short term. In the long run,
however, investments are vital to continue a high degree of vertical integration. Proven gas
reserves cover approximately six to eight years of the electric plant’s needs.
Operating Efficiencies: Capex has operating flexibility because it owns natural gas reserves.
As a result, approximately 80% of gas needs at the electric plant are self-supplied. This gives
the company an advantage over other players. Capex’s generating units are efficient, and the
proximity to its natural gas reserves in the Agua del Cajon field reduces the gas supply risk.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Fernando Torres
+54 11 5235-8124
[email protected]
November 8, 2012
Changes Affecting Capex’s Financial Structure: The Stable Outlook reflects Fitch’s
expectation that Capex will manage its balance sheet to a targeted CFFO adjusted leverage
ratio of around 3.0x. Under a conservative scenario, Fitch estimates the company’s interest
coverage to be above 2.5x. A significant increase in Capex’s targeted leverage ratio would
threaten credit quality and could result in a negative rating action.
Sustained Decline in Gas Reserves: The ratings of Capex could be negatively affected by a
sustained decline in gas reserves and production or failure to further develop new fields, which
could threaten the integrated business model in the long term.
Significant Changes in the Regulatory Framework: The ratings could be positively affected
by a significant and sustained improvement in the regulatory environment. Conversely, a poor
framework or a lower sovereign rating could result in a negative rating action.
56
Corporates
Recovery Rating
The recovery ratings for Capex’s capital market debt instruments reflect Fitch’s expectation that
the company’s creditors would have an average recovery in the event of a default. The ratings
have been constrained by the soft cap of ‘RR4’ for bonds issued by corporates domiciled in
Argentina. A liquidation analysis was not performed due to the low probability that the company
would be liquidated, as a default would most likely occur to the imposition of exchange controls
by the government, or an unfavorable tariff regime.
Recovery Analysis  Capex S.A.
(USD Mil.)
April 30, 2012 EBITDA
Discount (%)
Multiple (x)
32.4
25
24.3
6.0
145.8
Interest Expense
Rent Expense
Total
28.8
—
20.0
48.8
145.8
14.58
131.2
131.2
—
131.2
6.6
124.7
Secured Priority
Senior Secured
Unsecured Priority
Senior Unsecured
Lien
0
Lien
237.7
Value
Recovered

Value
Recovered
131.2
Recovery (%)
0
Recovery (%)
55
Concession
Allocation (%)
100
Recovery
Rating

Recovery
Rating
RR4a
Notching

Rating

Notching

Rating
B
a
Capex’s recovery rating is capped at the level of ‘RR4’ due to concerns about the low probability of high recoveries for bondholders of corporates domiciled in
Argentina. The amount of concession payments is highly dependent on circumstances, but Fitch typically allows up to 5% of the recovery value available to senior
unsecured creditors to be allocated to concession payments. Concession payments allocated to subordinated debt should never result in higher recoveries than those
of senior unsecured debt.
November 8, 2012
57
Corporates
Organizational Structure — Capex S.A.
Capex S.A.
FYE April 2012 – Summary Statistics
USD32.4 Million of EBITDA
USD4.9 Million of Cash and Marketable Securities
USD237.7 Million of Total Debt
USD200 Million Senior
Unsecured Notes Due 2018
95.00%
Hychico
15.12%
84.87%
Buproneu
Source: Fitch and Capex S.A.
November 8, 2012
58
Corporates
Debt and Covenant Synopsis  Capex S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Capex S.A.
N.A.
Feb. 23, 2011
2018
N.A.
N.A.
The company will not and will not permit any restricted subsidiary to make any asset disposition unless: 1) the consideration
received at the time of the sale is equal to the fair value of the shares or assets sold; 2) at least 75% of that consideration is
received in the form of cash or equivalents, replacement assets or a combination of the above.
The company will not, and will not cause or permit any of its restricted subsidiaries to, directly or indirectly, incur any indebtedness
(including acquired indebtedness, with the exception of permitted) except that the company may incur indebtedness if, at the time of
and immediately after giving pro forma effect to the incurrence and the application of the net proceeds therefrom, 1) no default or
event of default shall have occurred and be continuing and 2) the consolidated interest coverage ratio would be no less than 2.5x
and the consolidated indebtedness-to-consolidated EBITDA ratio would be no greater than 3.5x.
The company will not and will not permit any of its restricted subsidiaries to: 1) declare or pay any dividend other than: a) dividends
paid in capital stock, b) dividends paid to the company or restricted subsidiary; c) dividends, distributions or returns of capital made
on a pro rata basis to the company and its restricted subsidiaries; 2) purchase, redeem, or otherwise acquire or retire for value any
capital stock of the company held by persons other than the company or any of its restricted subsidiaries; 3) make any principal
payment on, purchase, defease, redeem, prepay, decrease, or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment, or scheduled sinking fund payment, as the case may be, any subordinated debt (other than
subordinated debt between the company and any restricted subsidiary); or 4) make any investments other than permitted
investments.
Other
Limitation on Liens
Sales and Leaseback Transactions
Mergers, Consolidations, Sales, Leases
The company will not and will not permit any of the restricted subsidiaries to assume any lien (except for permitted ones) upon its
property, unless at the same time the obligations under the notes are secured equally.
The company will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, enter into any transaction or series
of related transactions with, or for the benefit of, any of its affiliates, unless 1) the terms of such affiliate transaction are no less
favorable than those that could reasonably be obtained in a comparable transaction at such time on an arm’s-length basis from a
person that is not an affiliate of the company, 2) in compliance with applicable law, and 3) approved by the audit committee of the
company.
The company or its restricted subsidiaries will not enter into any sale and lease back transactions unless pursuant to the provisions
of the covenant described under “Limitation on Indebtedness.”
Not allowed unless: 1) the company is the surviving or continuing corporation; or 2) the person (if other than the company) formed
by such consolidation is a corporation organized and validly existing under the laws of Argentina or any other qualified merger
jurisdiction; and expressly assumes, by supplemental indenture (in form and substance satisfactory to the trustee), executed and
delivered to the trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the notes and
the performance and observance of the covenants of the notes and the indenture on the part of the company to be performed or
observed.
Disclaimer: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document Date and
securities.
November 8, 2012
59
Corporates
Financial Summary  Capex S.A.
(USD 000, Fiscal Years Ended April 30 )
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
4.3786
4.2098
4.0507
3.9559
3.8857
3.8759
3.7140
3.2594
3.1440
3.1440
3.0895
3.0830
2012
2011
2010
2009
2008
2007
32,403
18.4
23.6
(1.1)
6.1
46,476
26.2
23.6
(0.1)
(3.4)
34,106
26.8
18.6
13.4
(9.6)
60,277
33.2
25.1
12.5
(16.2)
75,309
41.4
32.6
13.4
1.6
46,934
37.3
21.3
30.6
0.9
2.6
1.1
0.6
2.6
0.5
0.6
1.0
2.6
1.6
0.9
2.6
0.6
1.5
1.0
2.2
1.4
0.8
2.2
0.9
1.5
1.9
5.9
3.4
2.4
5.9
1.6
2.5
1.4
4.0
2.2
1.8
4.0
1.4
3.0
1.6
4.8
2.7
1.4
4.8
1.7
3.3
2.5
3.2
7.3
7.2
12.3

0.1
3.0
5.0
4.0
13.8

0.1
3.6
5.8
5.1
10.9

0.1
2.4
4.3
3.9
6.9

0.0
1.9
3.4
2.6
13.4

0.0
2.9
5.2
4.1
14.5

0.1
361,599
4,930
25,125
212,572
237,696
237,696
0
237,696
66,904
304,601
371,372
45,354
20,432
210,398
230,830

230,830
0
230,830
89,675
320,505
337,773
25,440
20,271
177,432
197,703

197,703
0
197,703
96,665
294,368
436,882
23,887
7,518
251,916
259,434

259,434
0
259,434
111,504
370,938
492,712
64,869
7,687
251,829
259,516

259,516
0
259,516
154,530
414,046
451,648
53,408
15,085
228,446
243,531

243,531
0
243,531
154,675
398,206
46,022
(2,847)
43,175
0
(45,124)
0
(1,949)
0
(43,621)
7,058
0
(38,512)
47,984
(1,228)
46,756
0
(46,949)
0
(193)
87
(5,799)
27,993
0
22,088
29,936
6,119
36,055
0
(19,063)
0
16,992
173
41,976
(53,017)
0
6,124
88,010
(9,721)
78,289
0
(55,256)
(357)
22,676
163
(67,265)
3,899
0
(40,527)
101,445
(38,236)
63,209
0
(40,696)
1,798
24,311
0
(18,964)
8,056
0
13,403
67,173
(3,334)
63,839
0
(25,411)
0
38,427
82
2
(19,566)
20,546
39,491
176,190
(0.6)
9,432
28,872
4,756
177,241
39.5
10,141
29,557
(3,147)
127,054
(30.0)
(4,412)
24,837
(10,044)
181,534
(0.1)
6,879
17,969
(21,587)
181,697
44.5
30,500
33,649
2,449
125,711

8,555
17,630
663
November 8, 2012
60
Corporates
Financial Summary  Capex S.A.
(ARS 000, Fiscal Years Ended April 30)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
2012
2011
2010
2009
2008
2007
136,410
18.4
23.6
(1.1)
6.1
183,855
26.2
23.6
(0.1)
(3.4)
132,192
26.8
18.6
13.4
(9.9)
196,466
33.2
25.1
12.5
(15.6)
236,771
41.4
32.6
13.4
1.6
144,696
37.3
21.3
30.6
0.9
2.6
1.1
0.6
2.6
0.5
0.6
1.0
2.6
1.6
0.9
2.6
0.6
1.5
1.0
2.2
1.4
0.8
2.2
0.9
1.5
1.9
5.9
3.4
2.3
5.9
1.5
2.6
1.4
4.0
2.2
1.8
4.0
1.4
3.0
1.6
4.8
2.7
1.4
4.8
1.7
3.3
2.5
3.3
7.6
7.5
7.6
7.5
12.3

0.1
3.0
5.1
4.1
5.1
4.1
13.7

0.1
3.6
5.8
5.1
5.8
5.1
11.1

0.1
2.8
4.9
4.5
4.9
4.5
6.6

0.0
1.9
3.4
2.6
3.4
2.6
13.5

0.0
2.9
5.2
4.1
5.2
4.1
14.4

0.1
1,583,298
21,587
110,011
930,766
1,040,777

1,040,777
0
1,040,777
292,947
1,333,724
1,504,315
183,714
82,762
852,258
935,020

935,020
0
935,020
363,247
1,298,267
1,312,483
98,852
78,767
689,446
768,213

768,213
0
768,213
375,610
1,143,823
1,622,578
88,716
27,922
935,616
963,538

963,538
0
963,538
414,124
1,377,662
1,549,087
203,947
24,168
791,750
815,918

815,918
0
815,918
485,843
1,301,761
1,395,366
165,003
46,604
705,783
752,387

752,387
0
752,387
477,867
1,230,254
193,742
(11,984)
181,758
0
(189,964)
0
(8,206)
0
(183,635)
29,714
0
(162,127)
189,819
(4,856)
184,963
0
(185,726)
0
(763)
345
(22,940)
110,737
0
87,379
116,028
23,716
139,744
0
(73,886)
0
65,858
672
162,695
(205,490)
0
23,735
286,859
(31,686)
255,173
0
(180,100)
(1,163)
73,910
531
(219,244)
12,709
0
(132,094)
318,942
(120,213)
198,729
0
(127,948)
5,654
76,435
0
(59,622)
25,327
0
42,140
207,093
(10,280)
196,813
0
(78,343)
0
118,470
254
6
(60,323)
63,344
121,751
741,726
5.8
39,705
121,544
20,020
701,147
42.4
40,115
116,925
(12,450)
492,448
(16.8)
(17,099)
96,265
(38,931)
591,692
3.6
22,423
58,567
(70,361)
571,254
47.4
95,892
105,793
7,700
387,567

26,376
54,352
2,045
November 8, 2012
61
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
Secured
B
B
B
Local Currency
Long-Term IDR
B
National
Long-Term Rating
BBB
Established Business Position: Ceagro Agricola Ltda. (Ceagro) has established long-term
relationships with grain producers, suppliers, and offtakers. The company’s profile has
benefited from an increase in its operating scale between 2010 and 2011, which has allowed it
to purchase fertilizers at lower prices and increase the volume of barter originations. In 2012,
for the third year in a row, the company’s EBITDA margins are expected be strong, in the high
single digits, and above the historical levels of between 3% and 5% (albeit lower than the 12%
in 2010).
Rating Outlooks
Foreign Currency Long-Term IDR
Local Currency Long-Term IDR
Stable
Stable
Stable
Financial Data
(BRL Mil.)
Revenue
Operating EBITDAR
Operating EBITDAR/
Revenues (%)
Cash Flow from
Operations
Free Cash Flow
FFO Interest
Coverage (x)
Total Debt
Total Adjusted
Debt/Operating
EBITDAR (x)
FFO Adjusted
Leverage (x)
LTM
6/30/12 12/31/11
1,050
99
969
94
9.3
10.0
1
(3)
(91)
(101)
5.5
295
5.3
290
3.0
3.1
1.6
1.7
High Commodity Risk and Small Size Limit Rating: Ceagro’s net leverage of 2.6x as of
June 30, 2012 is well below that of most companies rated in the ‘B’ rating category. This ratio
partially reflects a favorable commodity environment during the past year that has led to strong
demand and high prices for grain. The ‘B’ ratings of Ceagro, despite leverage lower than most
of its peers in the rating category, continue to reflect the high volatility of the agriculture
industry. The company’s small size compared to its large and established competitors also
limits the rating.
Working Capital Requirements Impediment to Growth: Trades originated through Caegro’s
barter system grew to 46% of revenue during 2011 from 40% in 2010, as a result of fully
deploying the proceeds from the notes issued in October 2010. The amount of spot trades the
company was able to originate within the limits of its working capital was not sufficient to
maintain the same growth pace. Unlike trades through the barter system, spot market trades
require working capital for shorter periods of time and have lower profit margins.
Asset Light Model: Net of short-term assets, Ceagro has a minimal amount of balance sheet
assets. It depends on rentals for transportation and storage. While this has not been a problem
in the past, the cost of renting equipment may rise in the future and compress operating
margins. The company’s debt has very little tangible support, which hurts recovery prospects.
Fitch notes positively, however, that short-term assets are very liquid and of high quality.
Analysts
Viktoria Krane
+1 212 908-0367
[email protected]
Gisele Paolino
+55 21 4503-2624
[email protected]
November 8, 2012
Key Rating Drivers: Deterioration in Ceagro’s liquidity, or an increase in the company’s
leverage range of 3.0x–5.0x during the cycle could lead to a negative rating action. Leverage
could increase either by weakening profitability, the launch of a large debt-financed investment
program or sudden drop in trading volumes. Changes in its risk management, resulting in a
higher exposure to commodity prices and exchange rate volatility, would also be viewed
negatively. Conversely, a demonstrated ability to maintain margins in the 8%–10% level and an
increase in trading volumes without disproportionately increasing leverage could result in a
positive rating action.
62
Corporates
Recovery Worksheet
Ceagro’s recovery rating of ‘RR4’ indicates that the company’s creditors would have average
recovery prospects in the range of 31%–50% of current principal and related interest in the
event of default. This rating reflects a recovery rating cap for Brazil issuers of ‘RR4’, whereas
Ceagro’s modified recovery analysis suggests a higher recovery level for the unsecured debt
consistent with ‘RR1’.
Fitch has performed a liquidation analysis in the event of bankruptcy. Considering the
enterprise value is not appropriate, because Ceagro is a trading company. Its enterprise value
can go down rapidly. Therefore, recovery analysis focuses on the liquidation value.
Recovery Analysis  Ceagro Agricola Ltda.
(BRL Mil.)
Liquidation Value
June 30, 2011 LTM EBITDA
—
Cash
Discount (%)
25
A/R
Multiple (x)
—
339.5
80
271.6
70.8
—
Inventory
94.4
75
Net PPE
42.2
25
Total
Available to Creditors
0
4.0
—
Advance Rate
48.0
10.5
524.1
352.9
Interest Expense
—
Rent Expense
—
—
Total
—
Greater of Going Concern Enterprise or Liquidation
Value
352.9
35.3
317.6
317.6
204.8
112.8
5.6
Secured Priority
Senior Secured
Secured
107.2
Lien
Value Recovered
Recovery (%)
Recovery Rating
Notching
Rating
204.8
204.8
100
RR1
+3
BB
0.0
—
0
—
—
—
Unsecured Priority
Lien
Value
Recovered
Recovery (%)
Concession
Allocation (%)
Recovery
Rating
Notching
Rating
Senior Unsecured
93.9
93.9
100
100
RR1
+3
BB
The amount of concession payments is highly dependent on circumstances, but Fitch typically allows up to 5% of the recovery value available to senior unsecured
creditors to be allocated to concession payments.
November 8, 2012
63
Corporates
Organizational Structure — Ceagro Agricola Ltda.
(BRL 000, As of June 30, 2012)
Antonio Carlos
Gonçalves Jr.
Christine Crothers
Gonçalves
99.94%
0.06%
Ceagro Participaçoes e
Empreendimentos Ltda.
0.01% 0.01% 0.01%
99.99%
Total Debt
EBITDA
Total Debt/EBITDA (x)
Net Debt/EBITDA (x)
303,303
98,993
3.0
2.6
99.99%
USD100 Mil. Senior Sec.
Notes due 2016
99.99%
Ceagro Armazéns
Gerais Ltda.
Ceagro Exportadora e
Importadora Ltda.
No Debt
No Debt
Source: Fitch and Ceagro Agricola Ltda.
November 8, 2012
64
Corporates
Debt and Covenant Synopsis — Ceagro Argricola Ltda.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Limitation on Indebtedness
Financial Covenant
Ceagro Agrícola Ltda.
Ceagro Participações e Empreendimentos Ltda.
Oct. 20, 2010
May 16, 2016
Senior Secured Notes
USD100 Million
The issuer will not, and will not permit any restricted subsidiary to, incur any indebtedness, provided, however, that the
issuer or any restricted subsidiary may incur indebtedness if on the date of such incurrence and after giving effect thereto
and the application of the proceeds there from, the issuer’s net debt-to-EBITDA ratio would not be greater than 3.25x.
Limitation on Additional Debt
Neither the issuer nor the guarantor may incur indebtedness that is subordinate in right of payment to other indebtedness
of the issuer or the guarantor unless such indebtedness is also subordinate in right of payment to the notes or the note
guarantee on substantially identical terms, provided, however, that no indebtedness will be deemed to be subordinated in
right of payment to any other indebtedness solely by virtue of being unsecured or by virtue of being secured on a senior or
subordinated basis.
Limitation on Lien
The issuer will not, and will not permit any restricted subsidiary to, issue, assume, or guarantee any indebtedness secured
by a lien upon any property or assets of the issuer or any restricted subsidiary without effectively providing that the notes
together with, if the issuer so determines, any other indebtedness or obligations then existing or thereafter created or, in
respect of liens on any property or assets of the issuer, the note guarantee, shall be secured equally and ratably with or
prior to such indebtedness for so long as such indebtedness shall be so secured; provided, however, that any lien created
for the benefit of the noteholders (and, if applicable, holders of such other indebtedness or obligations) pursuant to the
foregoing shall provide by its terms that such lien will be automatically and unconditionally released and discharged upon
release and discharge of the initial lien.
Lien on the Collateral
Except as provided for under the indenture and the other collateral documents, the issuer shall not, and shall not permit
any of its subsidiaries to, create or permit to exist any lien on the collateral.
The issuer will not, and will not permit any restricted subsidiary to make any asset disposition unless: 1) the asset
disposition is for fair market value; 2) at least 75% of the consideration consists of all or part of any of cash and temporary
cash investments or additional assets; 3) within 365 days after the receipt of any net available cash from an asset
disposition, the net available cash is used to permanently repay indebtedness, other than subordinated obligations, of the
issuer or of any of its restricted subsidiaries; to acquire all or substantially all of the assets of a related business, or a
majority of the voting stock of another person that thereupon becomes a restricted subsidiary engaged in a related
business, or to make capital expenditures or otherwise acquire long-term assets that are to be used in a related business
or to acquire additional assets for the issuer or its restricted subsidiaries.
Asset Disposition Restriction
Sale and Lease-Back Transactions Restriction
The issuer will not, and will not permit any restricted subsidiary to, enter into any sale or leaseback transaction.
Transactions with Affiliates Restriction
The issuer will not, and will not permit any restricted subsidiary to, enter into any transaction (or series of related
transactions) with any affiliates, including any investment, either directly or indirectly, unless 1) such transaction or series
of related transactions are on terms no less favorable to the issuer or such restricted subsidiary, as the case may be, than
those that could have been obtained in a comparable arm’s-length transaction with an unrelated third party; and 2) the
issuer delivers to the trustee with respect of any affiliate transaction or series of related affiliate transactions involving
aggregate consideration in excess of USD2 million, an officer’s certificate stating that such affiliate transaction complies
with this covenant and that such affiliate transaction has been approved by the management of the issuer; and with
respect of any affiliate transaction or series of related affiliate transactions involving aggregate consideration in excess of
USD10 million, an opinion as to the fairness to the issuer, or such restricted subsidiary of such affiliate transaction from a
financial point of view issued by an accounting, appraisal or investment banking firm of recognized standing.
Dividends Restriction
The issuer will not, and will not permit any restricted subsidiary to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any restricted subsidiary to pay dividends or make
any other distributions on its capital stock to the issuer or any restricted subsidiary; pay any indebtedness owed to the
issuer or any restricted subsidiary; make loans or advances to the issuer or any restricted subsidiary; or transfer any of its
properties or assets to the issuer or any restricted subsidiary.
Source: Fitch and Ceagro Agricola Ltda.
November 8, 2012
65
Corporates
Financial Summary — Ceagro Agricola Ltda.
(BRL 000, Years Ended as of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Operating EBITDA Margin
Operating EBITDAR Margin
Coverage (x)
Operating EBITDA/Interest Expense
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Change in Operating Working Capital
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Other Financing, Net
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
98,993
98,993
9.34
9.34
36.37
—
7.58
93,794
93,794
9.68
9.68
34.89
(10.00)
17.78
98,397
100,877
11.99
12.29
19.94
0.64
47.67
33,757
35,932
4.69
4.99
8.67
(3.00)
36.15
21,075
22,723
3.19
3.44
26.44
(1.00)
31.79
5.47
2.88
2.88
1.03
1.03
5.47
0.32
0.82
0.28
5.32
2.94
2.94
0.99
0.99
5.32
(1.00)
0.11
(9.00)
3.82
4.87
4.45
2.75
2.64
3.51
0.71
6.36
2.95
4.22
13.85
7.79
1.71
1.64
2.7
(1.00)
(1.00)
(30.00)
9.79
9.29
5.8
3.88
3.21
6.09
(1.00)
(1.00)
(7.00)
1.60
3.04
2.56
3.04
2.56
13.45
—
0.21
1.71
3.10
2.25
3.10
2.25
12.49
—
0.22
2.94
2.25
0.20
2.32
0.32
14.35
—
0.07
5.68
1.78
1.59
1.97
1.80
5.34
—
0.29
1.66
1.49
1.34
1.74
1.61
11.01
—
0.10
745,738
48,040
61,964
239,339
301,303
—
301,303
—
301,303
215,291
516,594
499,960
79,769
62,640
227,808
290,448
—
290,448
—
290,448
197,094
487,542
404,693
201,857
15,550
205,910
221,460
—
221,460
12,400
233,860
164,911
398,771
138,635
6,213
17,339
42,607
59,946
—
59,946
10,875
70,821
72,999
143,820
84,325
3,097
3,157
28,212
31,369
—
31,369
8,240
39,609
50,651
90,260
153,543
(152,233)
1,310
—
(4,744)
—
(3,434)
234
30
(34,721)
—
—
(37,891)
138,157
(229,642)
(91,485)
—
(9,937)
—
(101,422)
234
—
(20,900)
—
—
(122,088)
56,856
(48,868)
7,988
—
(2,704)
—
5,284
—
—
160,359
30,001
—
195,644
7,857
(30,105)
(22,248)
—
(751)
—
(22,999)
(27)
—
26,142
—
—
3,116
19,946
(27,997)
(8,051)
—
(1,096)
—
(9,147)
(14,511)
—
19,491
—
—
(4,167)
1,059,799
9.33
98,282
34,344
—
15,713
969,080
18.07
93,277
31,957
—
32,183
820,801
14.03
98,090
20,192
2,480
56,711
719,820
8.83
33,668
2,437
2,175
22,349
661,412
73.53
20,739
2,269
1,648
Source: Company reports and Fitch estimates.
November 8, 2012
66
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
B
Local Currency
Long-Term IDR
B
Volatile Cash Flow Generation: Celulosa Argentina S.A.’s (Celulosa) small size makes it
more vulnerable to industry cycles due to lower economies of scale. Also, its operating results
are exposed to high levels of volatility in international pulp prices. The company is also
exposed to double-digit inflation in Argentina and other direct and indirect sovereign-related
risks, including devaluation and refinancing risks.
Rating Outlooks
RWN
Stable
Financial Data
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
CFFO/Net Debt (x)
5/31/12
389.6
62.3
5/31/11
365.6
65.8
19.5
22.6
7.0
156.6
7.0
156.4
2.5
2.4
2.4
0.1
2.3
0.2
Business Model Vertically Integrated: Celulosa has pulp and paper mills in both Argentina
and Uruguay, the latter through its subsidiary, Fanapel. Its operations are vertically integrated
through distribution. The company purchases almost all of its fiber requirements from third
parties.
Dependent upon Import Restrictions: Celulosa is small in size compared to its peers in Chile
and Brazil. This results in a cost structure that is above average within South America. The
company benefits from import tariffs and other agreements, such as a bilateral trade
agreement between the governments of Argentina and Brazil that limits Brazilian paper imports
and reduces competition in the domestic market.
Adequate Business Position: Celulosa is one of two market leaders in Argentina with a
market share of 35% in the paper market. Celulosa has a diversified and stable customer base.
Given its high cost structure, Celulosa has little flexibility to compete in the export market,
which makes it highly dependent upon local demand.
Aggressive Growth Strategy: Celulosa plans to increasingly integrate its operations into
forestry and to develop new business lines. The acquisition of forestry assets has lead to
demand from third parties for eucalyptus wood. As of today, 95% of the company’s wood
purchases are done on a spot basis, exposing the company to price and volume risks. Current
market conditions prevent Celulosa from rolling out its growth strategy.
Liquidity Is Tight: As of May 31, 2012, Celulosa had USD7 million of cash and marketable
securities and USD71 million of short-term debt. Historically, the company has had a high
concentration of its financial debt in the short term and has consistently been able to refinance
these trade lines of credit.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Joe Bormann, CFA
+1 312 368-3349
[email protected]
November 8, 2012
Change in Financial Strategy: The Stable Outlook reflects Fitch’s expectations that Celulosa
will manage its balance sheet to a targeted debt-to-EBITDA ratio of about 3.0x for the fiscal
year ended May 30, 2013. Under a conservative scenario, Fitch estimates the company’s
interest coverage to be around 3.0x. Any significant increase in Celulosa’s targeted leverage
would threaten credit quality and could result in a negative rating action.
67
Corporates
Organizational Structure — Celulosa Argentina S.A.
(USD Mil., As of May 31, 2012)
LTM May 2012 Summary Statistics
EBITDA
Total Debt
Net Debt/EBITDA (x)
Tapebicuá, Cayman Ltd.
(Cayman Islands)
62.3
7.0
156.6
2.5
2.4
100.00%
Tapebicuá, LLC.
(Delawere)
Fanapel Investment Corp.
(Bahamas)
15.00%
Tapebicuá Investment Co, S.L.
(Spain)
(Argentina Paper Division)
97.60%
50.00%
Fideicomiso Forestal I
97.74%
Coverpel S.A.a
Comital S.A.a
98.00%
100 %
Fabrica Nacional de
Papel S.A. (Uruguay)a
100.00%
66.42%
Fideicomiso Tapebicua S.A.
75.50%
Casa Hutton S.A.b
2.26%
97.95%
97.74%
TC Rey S.A.c
Rudaco S.A.c
Ivirareta S.A.c
2.05%
2.00%
62.50%
Compania Papelera S.A.b
86.60%
Suministros Graficos
Ltd. (Chile) b
aUruguay
paper division. bArgentine forestry division. cDistribution network.
Source: Fitch and Celulosa Argenitna S.A.
November 8, 2012
68
Corporates
Financial Summary  Celulosa Argentina S.A
(USD 000, As of May 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2012
2011
2010
2009
2008
62,320
62,320
16.0
0.2
13.3
(0.1)
5.2
65,887
65,887
18.0
18.0
15.6
1.8
13.8
52,058
52,058
17.4
17.4
18.5
12.2
7.1
42,117
42,117
14.8
14.8
13.6
1.8
(34.3)
48,596
48,596
15.9
15.9
14.4
(1.9)
6.8
2.5
3.9
3.9
0.7
0.7
2.5
0.2
0.3
1.0
3.3
4.7
4.7
0.7
0.7
3.3
0.2
0.3
1.4
3.7
3.7
3.7
0.6
0.6
3.7
0.6
0.7
5.9
2.6
2.5
2.5
0.4
0.4
2.6
0.2
0.3
1.5
3.4
4.4
4.4
0.7
0.7
3.4
0.1
0.2
0.7
3.9
2.5
2.4
2.5
2.4
10.3
—
0.5
3.4
2.4
2.3
2.4
2.3
8.6
—
0.5
3.2
3.3
3.2
3.3
3.2
7.5
—
0.4
4.8
4.9
4.8
4.9
4.8
10.8
—
0.4
2.7
2.1
1.9
2.1
1.9
10.8
—
0.5
405,272
7,059
70,934
85,626
156,560
—
156,560
0
156,560
128,374
284,934
394,201
7,048
76,818
79,637
156,455
—
156,455
0
156,455
129,927
286,382
370,684
5,595
67,578
102,043
169,621
—
169,621
0
169,621
110,645
280,266
386,114
6,291
78,918
128,781
207,699
—
207,699
0
207,699
102,939
310,638
394,818
8,065
56,204
46,427
102,631
—
102,631
0
102,631
136,348
238,979
23,745
(4,234)
19,511
0
(19,731)
(1,134)
(221)
0
(190)
3,502
35
(1,358)
634
31,730
(9,100)
22,630
0
(16,129)
(128)
6,501
0
3,138
(7,026)
0
(771)
1,713
38,561
5,583
44,144
0
(7,452)
(415)
36,692
0
38
(36,636)
0
(18)
(339)
26,330
(11,577)
14,753
0
(9,600)
(521)
5,152
0
(68,069)
62,597
0
(499)
(1,339)
26,639
(15,621)
11,018
0
(16,870)
0
(5,853)
0
3,592
10,538
0
(2,669)
5,608
389,639
6.6
44,295
16,070
0
6,779
365,657
22.0
47,103
14,044
0
16,547
299,841
5.4
34,768
14,237
0
7,556
284,364
(7.1)
23,768
16,793
0
(41,034)
306,005
32.1
23,246
10,954
0
9,291
Source: Fitch.
November 8, 2012
69
Corporates
Financial Summary  Celulosa Argentina S.A.
(ARS 000, As of May 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.5238
4.3012
4.0869
3.9860
3.9798
3.9134
3.7990
3.7279
3.4538
3.1631
2012
2011
2010
2009
2008
268,050
268,050
16.0
0.2
13.3
(0.1)
5.2
262,626
262,626
18.0
18.0
15.6
1.8
13.6
203,724
203,724
17.4
17.4
18.5
12.2
7.1
157,009
157,009
14.8
14.8
13.6
1.8
(35.5)
153,714
153,714
15.9
15.9
14.4
(1.9)
6.5
2.5
3.9
3.9
0.7
0.7
2.5
0.2
0.3
1.0
3.3
4.7
4.7
0.7
0.7
3.3
0.2
0.3
1.4
3.7
3.7
3.7
0.6
0.6
3.7
0.6
0.7
5.9
2.6
2.5
2.5
0.4
0.4
2.6
0.2
0.3
1.5
3.4
4.4
4.4
0.7
0.7
3.4
0.1
0.2
0.7
4.1
2.6
2.5
2.6
2.5
10.3
—
0.5
3.5
2.4
2.3
2.4
2.3
8.5
—
0.5
3.3
3.3
3.2
3.3
3.2
7.6
—
0.4
4.9
5.0
4.9
5.0
4.9
10.9
—
0.4
3.0
2.3
2.1
2.3
2.1
10.3
—
0.5
1,833,368
31,935
320,890
387,357
708,247
—
708,247
0
708,247
580,737
1,288,984
1,611,059
28,803
313,949
325,468
639,417
—
639,417
0
639,417
530,997
1,170,414
1,474,842
22,261
268,871
405,999
674,870
—
674,870
0
674,870
440,223
1,115,093
1,466,847
23,901
299,809
489,238
789,047
—
789,047
0
789,047
391,067
1,180,114
1,363,622
27,854
194,116
160,348
354,464
—
354,464
0
354,464
470,919
825,383
102,132
(18,212)
83,920
0
(84,869)
(4,878)
(949)
0
(819)
15,063
150
(5,840)
2,727
126,476
(36,272)
90,204
0
(64,291)
(512)
25,913
0
12,510
(28,006)
0
(3,075)
6,830
150,905
21,847
172,752
0
(29,162)
(1,626)
143,590
0
149
(143,372)
0
(69)
(1,328)
98,154
(43,159)
54,995
0
(35,787)
(1,942)
19,208
0
(253,753)
233,354
0
(1,859)
(4,992)
84,261
(49,412)
34,849
0
(53,362)
0
(18,513)
0
11,361
33,332
0
(8,441)
17,739
1,675,915
15.0
190,522
69,122
0
29,156
1,457,510
24.2
187,754
55,980
0
65,955
1,173,399
10.7
136,061
55,716
0
29,570
1,060,082
9.5
88,604
62,604
0
(152,969)
967,925
34.1
73,528
34,649
0
29,388
Source: Fitch.
November 8, 2012
70
Corporates
CEMEX España, Rinker Materials Corporation, C5, C8, C10, C10-EUR Captial (SPV)
Limited, CEMEX Finance Europe B.V., and CEMEX Finance LLC
Full Rating Report
Ratings
Key Rating Drivers
CEMEX, S.A.B. de C.V. and Subsidiaries
High Leverage: The ‘B’ ratings of CEMEX S.A.B. de C.V. (CEMEX) and its subsidiaries reflect
the company’s high leverage. CEMEX had USD17.629 billion of total debt and USD625 million
of cash and marketable securities as of June 30, 2012. During the LTM ended June 30, 2012,
CEMEX generated USD2.418 billion of EBITDA. These figures result in a 7.3x total
debt/EBITDA ratio and a 7.0x net debt/EBITDA ratio.
Foreign Currency
Long-Term IDR
Senior Secured Debt
Senior Unsecured
B
B+/RR3
B+/RR3
Local Currency
Long-Term IDR
B
National
Long-Term Rating
Short-Term Rating
Senior Unsecured
Programa Dual Revolvente de
Certificados Bursatiles
BB–(mex)
B(mex)
BB–(mex)
BB–(mex)
Rating Outlooks
Stable
Financial Data
Cemex, S.A.B. de C.V.
(USD Mil.)
Revenue
Total Adjusted Debt
FFO
EBITDA
Cash and Marketable
Securities
FFO Adjusted
Leverage (x)
Adjusted Net
Debt/EBITDA
EBITDA/Debt Service
Coverage (x)
6/30/12
15,125
19,541
251
2,418
2011
15,187
19,846
743
2,339
625
1,158
10.8
8.8
7.0
7.3
1.4
1.2
Leverage to Remain High through Year-End 2014: Fitch expects CEMEX’s leverage to
remain high through the end of 2014. Fitch projects that CEMEX will generate about
USD2.450 billion of EBITDA in 2012, USD2.550 billion in 2013, and USD2.900 billion in 2014.
Fitch projects free cash flow after capex and the payment of coupons on the company’s
perpetual notes to be negative USD150 million in 2012, neutral in 2013, and positive
USD500 million in 2014. At these levels, absent asset sales, CEMEX’s leverage will continue to
be elevated, and the company will need to focus on cost control and liability management.
U.S. Market Remains Key to Recovery: CEMEX generated USD2.339 billion of EBITDA
during 2011. Its main markets were Mexico (USD1.2 billion), Central and South America
(USD513 million), the Mediterranean (USD439 million), and Northern Europe (USD416 million).
Cemex’s U.S. operations were very weak in 2011, generating a negative EBITDA of
USD100 million. This compares with a pro forma estimated U.S. EBITDA of USD2.6 billion
during 2006 — as though Rinker were consolidated. The company’s will not be able to lower
leverage until the U.S. recovers and free cash flow exceeds USD1 billion annually.
Manageable Debt Amortization Schedule Unless Spring Maturities Triggered: Cemex has a
manageable debt amortization schedule due to the refinancing of its 2009 Financing Agreement
during September 2012 and the successful issuance of a USD1.5 billion note due in 2022 during
October. Following these events, the company has USD137 million of debt maturing in 2013,
USD1.2 billion in 2014, and USD1.4 billion in 2015. The amortization schedule then escalates to
USD3.1 billion in 2016, USD4.8 billion in 2017, and USD2.7 billion in 2018. Cemex’s new
agreement has springing maturities, which could lead to about USD7.4 billion falling due in 2014 if
debt outside of the Facilities Agreement dated Sept. 17, 2012 (New Facilities Agreement) is not
refinanced, extended, or purchased prior to its maturity date.
Analysts
Joe Bormann, CFA
+1 312 368-3349
[email protected]
Alberto Moreno
+52 818 399-9100
[email protected]
November 8, 2012
Positive Rating Actions: Positive drivers include the recovery of the anemic U.S. economy and
improved demand for cement. A stabilization of risks related to the eurozone would also be positive
in terms of improving the overall operating environment of Cemex in Europe and could contribute to
a positive rating action in the future.
Negative Rating Action: Negative drivers include include a downturn in the company’s
businesses in Mexico and Central/South America, which have been crucial to offset weakening
of the company’s Northern European division and Mediterranean divisions. Further weakening
71
Corporates
in Europe or the U.S. would also have a material impact upon cash flow and could lead to a
ratings downgrade.
Recovery Rating
CEMEX and its subsidiaries have issued debt instruments from Mexico, the U.S., the British
Virgin Islands, the Netherlands, and Spain. The guarantors of these instruments are also
domiciled in various countries. As a result of the complexity of the company’s capital structure
and the various legal jurisdictions, we do not envision a bankruptcy scenario for CEMEX in the
event of additional financial distress, as creditors would most likely not want to enter a process
with such a high degree of uncertainty regarding the outcome. Fitch’s opinion is that the most
likely scenario under additional stress would be a negotiated restructuring of the debt.
Consequently, a liquidation analysis was not performed.
In deriving a distressed enterprise valuation to determine the recovery under this scenario, we
discounted the company’s LTM EBITDA to USD2.0 billion, which is a level that would just cover
operating leases, interest expenses, and maintenance capital expenditures. A 20% decline in
EBITDA to this level would most likely be driven by a more marked deterioration of the
eurozone, which would send the U.S. into a double-dip recession, and have a negative impact
upon Cemex’s Mexican operations. Currently, the strong performance of CEMEX’s Central
America, South America, and Caribbean operations, and the gradual improvement of its U.S.
operations, have been able to offset the negative cash flow trajectory of its Mediterranean
operations, comprised mainly of Egypt and Spain, as well as its Northern European division.
We applied a 6x distressed EBITDA multiple. This is a conservative multiple. CEMEX sold its
business in Australia to Holcim during 2009 for a multiple of about 9x the estimated EBITDA
during 2009 of USD200 million or 8x the estimated 2008 EBITDA of USD265 million. The low
6.0x multiple reflects the high leverage within the industry, which would hamper a competitive
bidding process. It also reflects the fact that if Europe would deteriorate to the point that the
U.S. entered a double-dip recession, the core operations of some potential bidders would also
be hemorrhaging cash, limiting their ability to pursue the purchase of CEMEX or some of its
larger assets.
Regarding the specifics of the recovery analysis, the subordinated debt consists of the
subordinated convertible instruments. The priority bank debt consists of the bank debt CEMEX
has with Bancomex, which is secured by property, plant, and equipment. The Euro 2014 notes
have been included in the debt categorized as senior secured despite not having the security
package of the New Facilities Agreement. These notes were issued by Cemex Financed,
Europe B.V. and only have Cemex Espana as a guarantor. The treatment of them in this
manner reflects their relatively favorable position in the amortization schedule, which should
give them a degree of negotiating power in the event of a restructuring.
November 8, 2012
72
Corporates
Recovery Analysis  CEMEX, S.A.B. de C.V.
(USD Mil.)
Discount (%)
Multiple (x)
Interest Expense
Rent Expense
Total
Less Adminstrative Claims (10%)
2,487
20
1,990
6.0
11,938
1,500
250
300
1,950
11,938
1,194
10,744
10,744
10,744
—
Secured Priority
Priority Bank Debt
Senior Secured
Unsecured Priority
Subordinated
Lien
117
15,127
Lien
2,007
Value
Recovered
117
10,627
Recovery (%)
100
70
Concession
Allocation
Value
(%)
Recovered Recovery (%)

0
100
Recovery
Rating
RR1
RR3
Recovery
Rating
RR6
Notching
+3
+1
Notching
(2)
Rating
BB
B+
Rating
CCC
November 8, 2012
73
Corporates
Organizational Structure — CEMEX, S.A.B. de C.V.
(USD Mil., Unless Otherwise Stated)
2011 Summary Statistics
2,339 of EBITDA
$1,196 Mexico
($100) United States
$416 Northern Europe
$513 Central and South America, Caribbean
$439 Mediterranean
$81 Asia
($206) Others
(Mexico)
$41 Sr. Secured Certificados Bursátiles
$800 Sr. Secured Floating Rate Notes Due 2015
$1,650 Sr. Secured Notes Due 2018
$715 Convertible Subordinated Notes Due 2015
$500 Proposed Sr Secured Exchange Notes due 2018
100%
CEMEX Mexico,
S.A. de C.V.
(Mexico)
100%
Empresas Tolteca de Mexico, S.A. de C.V.
(Mexico)
100%
Balance Sheet as of June 30, 2012
$625 Cash and Marketable Securities
Centro Distribuidor de
Cement, S.A. de C.V.
(Mexico)
$17,629 of Total Debt
100%
$7,156 Subject to Financing Agreement
$41 Certificados Bursatiles
$9,501 International Fixed Income Debt
$462 Perpetual Notes
$469 Other Subsidiary Bank Debt
New Sunward
Holding B.V.
(Netherlands)
$1,068 Sr. Secured Notes
Due 2020
EUR115 Sr. Secured Notes
Due 2017
$704 and EUR179 Sr Secured
Notes due 2019
CEMEX Finance LLC
(USA)
$1,750 Sr. Secured Note
Due 2016
EUR350 Sr. Secured Note
Due 2017
100%
100%
CEMEX España, S.A.
(Spain) (issued through
Luxembourg branch)
100%
New Sunward Holding Financial Ventures B.V.
(Netherlands)
100%
100%
CEMEX Corp
(USA)
100%
C-10, Perpetual, EUR730 Dual Currency Notes (EUR81 Outstanding)
C-8, Perpetual, $750 Dual Currency Notes ($140 Outstanding)
(British Virgin Islands)
100%
CEMEX Finance
Europe B.V.
(The Netherlands)
100%
Multiple International
Subsidiaries
EUR900 Unsecured Notes
Due 2014
(EUR 430 Outstanding)
100%
CEMEX Inc.
(USA)
100%
CEMEX Materials LLC
(USA)
$150 Rinker Unsecured
Notes Due 2025
Source: Fitch and CEMEX, S.A.B. de C.V. financial statements.
November 8, 2012
74
Corporates
Financial Summary  CEMEX, S.A.B. de C.V.
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
12.8099
12.6676
13.9298
12.4407
12.3507
12.629
13.0811
13.5002
13.6944
11.1635
LTM 3/31/12
2011
2010
2009
2008
2,418
2,661
16.0
17.6
6.5
2.2
(9.5)
2,339
2,596
15.4
17.1
6.7
1.8
(10.3)
2,321
2,521
16.4
17.9
8.7
7.3
(8.0)
2,678
2,923
18.3
19.9
6.8
6.0
0.7
4,367
4,567
20.0
21.0
8.4
1.2
1.4
1.2
1.5
1.5
1.4
1.4
1.1
1.1
1.5
2.1
1.5
1.5
1.5
1.2
1.2
1.4
0.9
1.5
1.6
2.0
1.6
1.6
1.2
1.2
1.9
1.3
1.7
2.9
1.9
2.2
2.0
1.5
1.4
1.7
1.2
1.8
2.3
4.0
4.8
4.1
0.6
0.6
3.5
0.2
0.3
1.5
10.8
7.3
7.0
7.3
7.1
8.7
8.8
7.8
7.3
7.6
7.2
8.4
6.9
7.7
7.4
7.7
7.4
7.6
9.4
7.2
6.8
7.2
6.9
5.8
6.0
5.0
4.8
5.1
4.9
4.1
38,356
625
111
17,518
17,629
17,251
11,462
31,002
39,362
1,158
383
17,858
18,241
18,241
13,973
33,820
41,706
676
466
17,438
17,903
17,903
15,982
35,315
44,514
1,078
594
18,754
19,348
19,348
16,643
37,760
45,538
993
6,957
15,053
22,010
—
14,296
37,450
251
390
641
—
(310)
—
331
120
20
(142)
1
(429)
(100)
743
1
744
—
(478)
—
267
99
258
458
1
(458)
625
1,386
196
1,582
—
(544)
—
1,037
93
304
(761)
0
(91)
582
1,045
372
1,416
76
(615)
—
877
1,564
(526)
(2,653)
1,774
(862)
175
2,738
63
2,801
0
(1,903)
(628)
270
971
(123)
(494)
609
(792)
442
15,125
(0.9)
1,079
1,562
244
(1,296)
15,187
7.6
963
1,522
257
(1,537)
14,115
(3.7)
859
1,419
200
(1,308)
14,652
(32.7)
1,173
1,201
245
104
21,785
1
2,498
916
201
204
November 8, 2012
75
Corporates
Financial Summary  CEMEX, S.A.B. de C.V.
(MXN Mil., As of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Short-term Debt/Total Debt
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 3/31/12
2011
2010
2009
2008
31,719
34,914
16.0
17.6
6.5
2.2
(10.0)
29,102
32,297
15.4
17.1
6.7
1.8
(9.8)
29,317
31,838
16.4
17.9
8.7
7.3
(8.0)
36,153
39,458
18.3
19.9
6.8
6.0
0.7
48,748
50,987
20.0
21.0
8.4
3.3
1.2
1.2
1.5
1.5
1.4
1.4
1.1
1.1
1.5
2.1
1.5
1.5
1.5
1.2
1.2
1.4
0.9
1.6
1.6
2.0
1.6
1.6
1.2
1.2
1.9
1.3
1.7
2.9
1.9
2.2
2.0
1.5
1.4
1.7
1.2
1.8
2.3
4.0
4.8
4.1
0.5
0.5
3.5
0.2
0.3
1.3
9.7
7.4
7.2
7.5
7.2
0.1
0.0
8.8
8.7
8.2
8.6
8.1
0.1
0.0
6.3
7.5
7.3
7.5
7.2
0.1
0.0
8.2
7.0
6.6
7.0
6.6
0.1
0.0
7.4
6.2
5.9
6.2
6.0
0.0
0.3
512,904
8,351
1,486
234,254
235,740
25,560
261,300
153,267
414,567
548,299
16,128
5,333
248,754
254,087
22,365
276,452
194,648
471,100
515,097
8,354
5,750
215,369
221,119
17,647
238,766
197,393
436,159
582,286
14,104
7,768
245,325
253,093
23,135
276,228
217,711
493,939
623,622
13,604
95,270
206,142
301,412
15,673
317,085
195,772
512,857
3,289
5,121
8,410
—
(4,071)
—
4,339
1,574
263
(1,861)
11
(5,633)
(1,307)
9,241
18
9,259
—
(5,943)
—
3,316
1,232
3,213
5,702
11
(5,700)
7,774
17,504
2,472
19,976
—
(6,875)
—
13,101
1,172
3,841
(9,615)
5
(1,148)
7,356
14,102
5,019
19,121
1,023
(8,303)
—
11,841
21,115
(7,097)
(35,812)
23,953
(11,636)
2,364
30,564
708
31,272
—
(23,291)
—
7,981
10,845
672
(5,511)
6,794
(15,847)
4,934
198,432
10.4
14,151
20,492
3,195
(17,006)
188,938
6.0
11,983
18,937
3,195
(19,127)
178,260
-9.9
10,843
17,926
2,521
(16,516)
197,801
-18.7
15,840
16,217
3,305
1,409
243,201
2.8
27,884
10,223
2,239
2,278
Source: Fitch.
November 8, 2012
76
Corporates
Cimento Tupi S.A.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B
National
Long-Term Rating
BBB–(bra)
Rating Outlooks
Business Model Shift a Challenge: The ability of Tupi to complete its capex plan within the
budget and on time (by first-quarter 2013) will be key to avoiding negative rating actions. Tupi’s
strategy is to expand the unit at its Pedra do Sino plant, which will significantly reduce the
company’s reliance on slag and increase total overall production to 3.2 million tons of cement
per year by 2014 from 2.4 million. The success of this expansion is crucial to the company’s
ongoing activities. Absent this expansion, Fitch Ratings estimates that the company’s annual
nominal capacity would be reduced to 1.6 million tons.
Stable
Financial Data
Cimento Tupi S.A.
(BRL Mil.)
Net Revenue
EBITDA
CFFO
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
LTM
3/31/12
345.8
54.6
82.6
12/31/11
352.2
63.9
87.5
113.7
375.0
51.9
276.2
6.9
4.3
4.8
3.5
Related Research
Fitch Affirms Cimento Tupi’s Ratings
(April 2012)
Small Business Scale and Exposure to Sector Volatility: The ‘B’ ratings of Cimento Tupi
S.A. (Tupi) reflect the volatility of its cash flow generation due to the cyclicality of the cement
industry. As a small producer of cement, Tupi lacks geographic diversification, which heightens
its risk of a local market downturn. Tupi’s cost structure is higher than the largest integrated
Brazilian cement producers. The strong credit profile of these large companies may allow them
to pressure prices during a downturn in the industry in an attempt to sustain volumes, which
would negatively affect Tupi’s ability to service its debt.
Credit Ratio Deterioration Trend and Foreign Exchange Risks: Tupi’s credit metrics will be
under pressure until 2013 due to the aforementioned USD150 million capital expenditure
program. In May 2011, the company issued a USD100 million note. During 2012, they did an
add-on issuance of USD50 million, which was key to supporting the capex program and
diminishing refinancing risks. Fitch expects leverage to increase to around 4.5x in 2012 and
return to below 4.0x during 2013 when the expansion project is completed. Around 65% of
Tupi’s debt is denominated in U.S. dollars and 100% of its cash flow generation is in local
currency, creating debt repayment risk in the event of a sharp fall in the value of the Brazilian
real versus the U.S. dollar.
Favorable Industry Outlook: The Positive Outlook for the cement sector in Brazil, reflecting
the expansion of the real estate segment and infrastructure projects, should benefit Tupi’s
operations, which are largely dependent upon favorable prices and high capacity utilization
levels. Profitability margins should remain relatively flat, however, as a lot of new capacity is
being added by the leading cement producers. Tupi’s end market, which is highly oriented
toward the refurbishment and construction of homes, should not be materially affected by the
high level of infrastructure projects in Brazil, as it is more linked with unemployment and
income levels.
Analysts
Debora Jalles
+55 21 4503-2629
[email protected]
Liliana Yabiku
+55 11 4504-2208
[email protected]
Capacity Expansion Delay: A rating downgrade or Negative Outlook could result from a delay
in the expected timing of the expansion program.
Economic Downturn in Brazil: Tupi’s operations are largely dependent upon favorable
cement prices and high capacity utilization levels, which would be affected by a slowdown of
the Brazilian economy.
Upgrade Unlikely: Given current challenges related to a shift in its business model, an
upgrade of Tupi’s ratings is unlikely in the short to medium term.
November 8, 2012
77
Corporates
Recovery Rating
Tupi’s recovery rating of ‘RR4’ indicates an anticipated recovery for creditors in the event of
default in the range of 31%−50% of current principal and related interest in the event of default.
Fitch has performed a liquidation analysis in the event of a bankruptcy, although this scenario
seems unlikely. In deriving a distressed enterprise valuation to determine the recovery under
this scenario, Fitch discounts the company’s LTM EBITDA by 50% and applied a 5.0x
distressed EBITDA multiple.
Recovery Analysis  Cimento Tupi S.A.
(USD Mil.)
March 31, 2012 LTM EBITDA
Discount (%)
Multiple (x)
54,599
50
27,299
5.0
136,498
Interest Expense
Rent Expense
Total
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
113,681
35,708
37,433
258,782
445,604
Advance Rate
0
80
50
20
Available to
Creditors

28,566
18,716
51,756
99,039
29,515

15,000
44,515
136,498
13,650
122,848
122,848

122,848
6,142
116,705
Secured Priority
Senior Secured
Unsecured Priority
Unsecured
Lien
0.0
Lien
374,979
Value
Recovered

Value
Recovered
116,705
Recovery (%)
0
Recovery (%)
31
Concession
Allocation (%)
100
Recovery
Rating

Notching

Rating

Recovery
Ratinga
RR4
Notching

Rating
B
a
The recovery rating of Tupi was capped at ‘RR4’, which is consistent with an average recovery expectation. Fitch caps most of the recovery ratings in Brazil at ‘RR4’ to
reflect concern about the ability of creditors to have strong recoveries in the event of default.
November 8, 2012
78
Corporates
November 8, 2012
79
Corporates
Debt and Covenant Synopsis  Cimento Tupi S.A.
Overview
Issuer
Document Date
Maturity Date
Description of Debt
Amount
Ranking
Financial Covenants
Limitation on Debt and Disqualified
Stock
Cimento Tupi S.A.
May 6, 2011
May 11, 2017
USD150 Million
The notes will be the issuer’s senior unsecured obligations and will rank equally in right of payment with any future senior
unsecured indebtedness of the issuer (except those obligations preferred by operation of law) and will be senior to any
subordinated indebtedness of the issuer. The notes will effectively rank junior to all secured debt of the issuer to the extent of the
value of the assets securing the debt, and will rank junior to all debt of the issuer’s subsidiaries.
The issuer will not, and will not permit any restricted subsidiary to, incur any disqualified stock (other than disqualified stock of
restricted subsidiaries held by the issuer or a restricted subsidiary, so long as it is so held), provided that the issuer or any of its
restricted subsidiaries may incur debt and disqualified stock if, on the date of the incurrence, after giving pro forma effect to the
incurrence and the receipt and the application of the proceeds therefrom, the net debt-to-EBITDA ratio shall not exceed 1) 4.25
to 1.0 if such incurrence occurs after the issue date and on or prior to Dec. 31, 2014 and 2) 3.75 to 1.0 if such incurrence occurs
on or after Jan. 1, 2015.
Notwithstanding the foregoing, the issuer and any restricted subsidiary may incur the following permitted debt: 1) debt of the
issuer or a restricted subsidiary so long as such debt is owed to the issuer or a restricted subsidiary and which, if the obligor is
the issuer, is subordinated in right of payment to the notes; 2) debt of the issuer or a restricted subsidiary constituting an
extension or renewal of, replacement of, or substitution for, or issued in exchange for, or the net proceeds of which are used to
repay, redeem, repurchase, refinance, or refund, including by way of defeasance (all of the above, for purposes of this clause,
“refinance”) then outstanding debt in an amount not to exceed the principal amount of the debt so refinanced, plus premiums,
fees, and expenses.
Limitation on Restricted Payments
Repurchase upon Change of Control
Others
Limitations on Sales of Assets
Optional Redemption
Debt of the issuer or any restricted subsidiary incurred on or after the issue date not otherwise permitted in an aggregate
principal amount not to exceed at any one time outstanding the greater of 1) USD15 million and 2) 10% of the issuer’s
consolidated net tangible assets. Notwithstanding anything to the contrary in this covenant, the maximum amount of debt that the
issuer and its restricted subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded, with respect to
any outstanding debt, solely as a result of fluctuations in the exchange rate of currencies.
The issuer will not, and will not permit any restricted subsidiary to, directly or indirectly: 1) declare or pay any dividend or make
any distribution on its equity interests, including any payment made in connection with any merger or consolidation involving the
issuer or any subsidiary of the issuer (other than) a) dividends or distributions paid in the issuer’s qualified equity interests and b)
dividends or distributions by a restricted subsidiary payable, on a pro rata basis or on a basis more favorable to the issuer, to all
holders of any class of capital stock of such restricted subsidiary a majority of which is held, directly or indirectly, by the issuer).
If a change of control that results in a ratings decline occurs, each holder of the notes may require the issuer to repurchase all or
a portion of such holder’s notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the
date of purchase.
The issuer will not, and will not permit any restricted subsidiary to, make any asset sale unless the following conditions are met:
1) The asset sale is for fair market value; 2) at least 75% of the consideration consists of cash or cash equivalents received at
closing.
At any time prior to May 11, 2015, the issuer may on any one or more occasions redeem the notes, at its option, in whole, at a
“make-whole” redemption price equal to 100% of the principal amount of such notes plus the greater of 1) 1% of the then
outstanding principal amount of the notes and 2) the excess of a) the present value at such redemption date of i) the redemption
price of the notes at May 11, 2015 plus ii) all required interest payments thereon through May 11, 2015 (excluding accrued but
unpaid interest to the redemption date) discounted to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the treasury rate plus 50 basis points, over b) the then outstanding principal amount of the
notes; plus in each case any accrued and unpaid interest and additional amounts, if any, on such notes to, but excluding, the
redemption date, as calculated by the independent investment banker.
Source: Cimento Tupi S.A. offering memo and Fitch Ratings.
November 8, 2012
80
Corporates
Financial Summary Cimento Tupi S.A.
(USD Mil.)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
FCF Debt-Service Coverage
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2008
2009
2010
2011
LTM Ended
6/30/12
49,765
49,765
15.39
15.39
24.61
8.19
25.41
64,498
64,498
18.52
18.52
11.99
16.91
27.07
54,438
54,438
13.55
13.55
12.95
15.82
23.40
63,916
63,916
18.15
18.15
14.52
3.91
20.98
66,063
66,063
19.53
19.53
11.21
(23)
5.81
—
—
—
0.74
0.74
—
0.39
0.84
3.28
33.38
50.55
50.55
1.75
1.75
33.38
1.63
2.07
6.05
11.92
11.22
11.22
0.98
0.98
11.92
1.23
1.37
5.00
5.35
3.93
3.93
0.98
0.98
5.35
0.46
1.26
1.28
2.86
2.30
2.30
0.69
0.69
2.86
(1.00)
0.20
0.52
1.23
1.87
1.26
1.87
1.26
—
—
0.72
1.74
1.15
0.89
1.15
0.89
1.53
—
0.48
1.82
1.94
1.79
1.94
1.79
5.41
—
0.48
3.31
4.50
3.69
4.50
3.69
8.27

0.17
5.27
6.57
5.51
6.57
5.51
8.00

0.15
377,486
30,440
67,613
25,653
93,266
—
93,266
—
93,266
214,210
307,476
381,548
16,252
35,657
38,232
73,889
—
73,889
—
73,889
281,265
355,154
498,413
7,786
50,777
54,590
105,367
—
105,367
—
105,367
341,411
446,778
637,388
51,985
48,931
238,915
287,846

287,846

287,846
311,790
599,636
755,326
69,780
66,667
367,212
433,879

433,879

433,879
300,286
734,165
75,658
(37,596)
38,062
—
(11,591)
—
26,471
16,376
—
(23,118)
—
—
19,729
41,311
29,264
70,575
—
(11,661)
—
58,914
2,315
—
(75,417)
—
—
(14,188)
53,009
26,405
79,414
—
(15,871)
—
63,543
(15,875)
—
(56,456)
—
—
(8,788)
70,790
16,770
87,560

(68,392)
(5,402)
13,766
(461)
(58,569)
115,462
(25,999)
—
44,199
53,517
16,276
69,793

(135,080)
(13,957)
(79,244)
52,050
(60,855)
82,171

(5,750)
(11,628)
323,356
13.62
41,225
—
—
48,287
348,342
7.73
57,125
1,276
—
67,055
401,671
15.31
54,438
4,853
—
72,861
352,158
(12)
63,916
16,255
—
68,532
338,239

65,807
28,750

17,562
Source: Company reports.
November 8, 2012
81
Corporates
CLISA Compañía Latinoamericana de Infraestructura y Servicios
S.A.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
B
Local Currency
Long-Term IDR
B
Rating Outlooks
RWN
Stable
Financial Data
CLISA
(USD Mil.)
Revenue
EBITDA
CFFO
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
CFFO/
Net Debt (x)
6/30/12
12/31/11
544.0
1,061.4
83.7
145.1
(18.7)
55.3
61.0
345.7
94.3
311.5
2.1
2.1
1.7
1.5
(0.1)
0.3
Note: CLISA changed to IFRS in January
2012. Figures as of June 2012 are sixmonth figures. Ratios have been calculated
by annualizing income statement and cash
flow items.
High Argentine Risk: The ‘B’ ratings of Compañía Latinoamericana de Infraestructura y
Servicios S.A. (CLISA) reflect its exposure to the cyclicality of the construction industry in
Argentina and the level of public works expenditures. While infrastructure spending
requirements in the country remain high, a deceleration in the level of public works or a slower
pace of execution is expected due to limits on the government’s available funding. CLISA is
also exposed to the collection risk derived from having the government as its main counterparty.
The ratings are further limited by the risks associated with generating its EBITDA in Argentina,
which is also rated ‘B’.
High Regulatory and Political Risks: CLISA’s main activities depend on contractual
agreements and government regulations at the national, provincial, and municipal levels.
Exposure to regulatory risk derives from the delays in the renegotiations of public service
contracts. In particular, CLISA’s subsidiary, Metrovias (mass transportation), has heightened
political risk following the national government’s attempt to transfer the subway concession to
the city of Buenos Aires. Most of Metrovias’ income was derived from national government
subsidies. As of today, there is uncertainty surrounding the legal jurisdiction of the concession,
and most of the legal conflicts surrounding this issue are still pending. Fitch Ratings does not
expect cash support from CLISA to Metrovias to take place, but acknowledges that the legal
issues are affecting the economics of the business with this risk incorporated in the current
rating.
Cash Flow Growth Driven by Infrastructure Demand: CLISA operates in four main
businesses: construction and toll road concessions (through Benito Roggio e Hijos [BRH]),
water treatment, waste management (CLIBA), and transportation. Over the last five years,
CLISA’s cash flow generation grew steadily, following positive trends for construction, primarily
driven by public works expenditure. During fiscal year-end 2011, the group reported sales and
EBITDA of USD1,061 million and USD145 million, respectively, an improvement from the
USD737 million and USD111 million at fiscal year-end 2010. Construction represented around
50% of consolidated revenues, evidence of important growth in an election year.
Strong Market Position Drives Large Backlog: The ratings positively reflect CLISA’s strong
market position as one of Argentina’s largest privately owned industrial conglomerates. At the
end of June 2012, BRH’s construction backlog was USD918 million (ARS4,150 million), which
should provide the company with an important source of cash generation for the next two years.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Fernando Torres
+54 11 5235-8124
[email protected]
November 8, 2012
Downturn in Public Works and Deterioration in Collections: In Argentina, a worsening of
the macroeconomic and political environment that could significantly threaten existing levels of
infrastructure investments could result in a negative rating action. Other factors that could
affect CLISA’s credit profile are deterioration in collections from the government counterparties,
the continued negative free cash flow, and an increase in the political risk associated with
Metrovias.
82
Corporates
Organizational Structure — CLISA Compañía Latinoamericana de Infraestructura y Servicios
LTM June 30, 2012 Summary Statistics
USD 83.7 Million of EBITDA (6 Months)
USD 61.0 Million of Cash and Marketable Securities
USD 345.7 Million of Total Debt
Roggio S.A.
97.5%
CLISA S.A.
2.4%
Inversar S.A.
23.1%
46.2%
Polledo S.A.I.C.
y F.
31.8%
Covimet S.A.
29.5%
61.2%
ACSA
97.1%
99.9%
97.2%
Benito Roggio e
Hijos S.A.
48.2%
Benito Roggio
Ambiental S.A.
49.2%
Benito Roggio
Transporte S.A.
Tecsan
18.7%
Metrovias
Coviares S.A.
40.0%
Others
Roggio Brasil
Investimentos
90.7%
95.0%
CLIBA
99.9%
Taym
60.0%
33.3%
UGOFE
Others
Others
Source: Fitch and Companía Latinoamericana de Infraestructura y Servicios S.A.
November 8, 2012
83
Corporates
Financial Summary  Compañía Latinoamericana de Infraestructura y Servicios S.A. (CLISA)
(USD 000, Years Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Total Equity
Cash Flow
Total Non-Operating/Non-Recurring Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
4.5238
4.4110
4.3053
4.1295
3.9787
3.9134
3.7990
3.7279
3.4538
3.1631
3.1500
3.1165
3.0905
3.0861
6 Months
6/30/12
2011
2010
2009
2008
83,772
15.4



145,092
13.7
0.3
(0.0)
0.0
110,920
15.0
33.6
(3.6)
16.5
86,008
15.6
41.7
6.2
16.7
74,134
12.4
24.7
5.2
(37.1)
65,649
11.8
24.2
(7.2)
1.6
54,060
12.0
14.4
(5.6)
2.6
2.5
2.9
0.8
2.5
(0.3)
(0.0)
(0.4)
2.8
3.0
0.7
2.8
0.2
0.6
0.9
3.2
3.1
0.8
3.2
0.1
0.7
0.2
3.1
2.5
0.9
3.1
0.7
1.7
2.1
2.1
2.3
0.7
2.1
0.6
1.2
1.8
2.4
2.4
0.7
2.4
(0.1)
0.3
(0.2)
1.9
2.6
0.6
1.9
(0.1)
0.8
(0.1)
2.5
2.1
1.7
17.1

0.5
2.3
2.1
1.5
16.7

0.5
2.3
2.4
1.7
15.9

0.4
1.8
2.2
1.1
17.8

0.3
2.9
2.6
1.7
33.0

0.4
3.1
3.0
2.3
15.8

0.4
5.3
3.8
2.3
16.1

0.3
1,048,329
61,038
159,500
186,230
345,730
0
345,730
128,621
474,351
901,292
94,379
158,349
153,162
311,511
0
311,511
85,008
396,519
796,637
82,974
106,305
160,112
266,417
0
266,417
77,169
343,586
603,306
92,449
57,845
132,802
190,647
0
190,647
58,430
249,077
598,649
68,078
77,175
117,932
195,107
0
195,107
54,150
249,257
546,937
39,843
71,040
122,853
193,893
0
193,893
64,444
258,337
547,226
80,294
70,598
133,406
204,004
0
204,004
65,647
269,651
41,974
(60,738)
(18,764)
0
(43,601)
0
(62,365)
1,084
(7,607)
36,899
0
1,765
(30,223)
88,410
(33,035)
55,375
0
(60,996)
(3,382)
(9,004)
(767)
(355)
50,459
0
(17,048)
23,286
81,087
(75,845)
5,242
0
(31,570)
0
(26,328)
(1,516)
(6,638)
51,091
0
(8,872)
7,738
71,442
(7,035)
64,407
0
(30,169)
0
34,238
895
(6,643)
2,028
75
(15,099)
15,492
35,160
33,522
68,682
0
(37,881)
0
30,801
1,940
(512)
4,329
0
(7,269)
29,290
36,387
(44,076)
(7,689)
0
(32,142)
0
(39,831)
(774)
(2,914)
41,510
0
(3,678)
(5,686)
18,177
(20,083)
(1,906)
0
(23,323)
0
(25,229)
(884)
(1,277)
89,088
0
1,455
63,153
544,016

69,634
28,398
15,900
1,061,392
44
116,664
48,204
2,613
737,121
34
86,391
36,290
11,203
550,192
(8)
66,209
34,340
9,423
595,933
554,594
53,460
32,168
(10,058)
41,556
26,804
1,022
450,153
123.2
32,359
20,614
1,506
6 Months
12/31/07
6/30/07
Source: Fitch Ratings and Compañía Latinoamericana de Infraestructura y Servicios S.A.
November 8, 2012
84
Corporates
Financial Summary  Compañía Latinoamericana de Infraestructura y Servicios S.A. (CLISA)
(ARS 000,Years Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Net Income
6 Months
6/30/12
2011
2010
2009
2008
6 Months Ended
12/31/07
6/30/07
369,519
15.4



599,156
13.7
33.0
(0.8)
3.2
434,073
15.0
33.6
(3.6)
16.6
320,628
15.6
41.7
6.2
17.2
234,492
12.4
24.7
5.2
(34.0)
204,594
11.8
24.2
(7.2)
1.6
166,835
12.0
14.4
(5.6)
2.6
2.5
2.9
0.8
2.5
(0.3)
(0.0)
(0.4)
2.8
3.0
0.7
2.8
0.2
0.6
0.9
3.2
3.1
0.8
3.2
0.1
0.7
0.2
3.1
2.5
0.9
3.1
0.7
1.7
2.1
2.1
2.3
0.6
2.1
0.5
1.2
1.8
2.4
2.4
0.7
2.4
(0.1)
0.3
(0.2)
1.9
2.6
0.6
1.9
(0.1)
0.8
(0.1)
2.5
2.1
1.7
17.0

0.5
2.4
2.2
1.6
16.6

0.5
2.3
2.4
1.7
15.9

0.4
1.8
2.3
1.2
18.3

0.3
3.2
2.9
1.9
30.2

0.4
3.1
3.0
2.4
15.9

0.4
5.3
3.8
2.3
16.1

0.3
4,742,429
276,123
721,547
842,468
1,564,015
1,564,015
581,855
2,145,870
3,880,331
406,331
681,741
659,408
1,341,149
0
1,341,149
365,985
1,707,134
3,169,578
330,130
422,957
637,037
1,059,994
0
1,059,994
307,033
1,367,027
2,291,961
351,214
219,755
504,516
724,271
0
724,271
221,975
946,246
2,067,613
235,128
266,548
407,313
673,861
0
673,861
187,022
860,883
1,722,852
125,506
223,777
386,988
610,765
0
610,765
202,998
813,763
1,691,202
248,148
218,184
412,291
630,475
0
630,475
202,883
833,358
185,149
(267,916)
(82,767)
0
(192,323)
0
(275,090)
4,783
(33,553)
162,761
—
7,784
(133,315)
365,089
(136,419)
228,670
0
(251,884)
(13,966)
(37,180)
(3,166)
(1,468)
208,371
0
(70,398)
96,159
317,324
(296,810)
20,514
0
(123,545)
0
(103,031)
(5,933)
(25,976)
199,941
0
(34,721)
30,280
266,329
(26,226)
240,103
0
(112,468)
0
127,635
3,335
(24,766)
7,559
280
(56,289)
57,754
111,214
106,035
217,249
0
(119,821)
0
97,428
6,137
(1,618)
13,694
0
(22,993)
92,648
113,399
(137,364)
(23,965)
0
(100,169)
0
(124,134)
(2,412)
(9,080)
129,366
0
(11,461)
(17,721)
56,096
(61,979)
(5,883)
0
(71,976)
0
(77,859)
(2,729)
(3,942)
274,936
0
4,490
194,896
2,399,654
—
307,156
125,263
70,133
4,383,017
51.9
481,764
199,057
10,792
2,884,649
40.6
338,084
142,018
43,843
2,051,059
8.8
246,819
128,017
35,129
1,884,995
9.06
169,099
101,750
(31,813)
1,728,393

129,508
83,535
3,185
1,389,217
129.6
99,862
63,617
4,649
Note: Numbers may not add due to rounding
Source: Fitch Ratings and Compañía Latinoamericana de Infraestructura y Servicios S.A.
November 8, 2012
85
Corporates
Compañía de Transporte de Energía Eléctrica en Alta
Tensión Transener S.A. (Transener)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
CCC
CCC/RR4
CCC/RR4
Local Currency
Long-Term IDR
CCC
Low Financial Flexibility: The potential absence of payments agreed with the regulator over
the next 12 to 18 months could put pressure on the company’s ability to meet operating and
capital expenditures during 2013. Fitch expects that the company’s internally generated funds
and liquidity position of ARS115 million as of March 30, 2012 will be sufficient to meet this
year’s remaining debt interest servicing requirements and capital expenditures.
Financial Data
Compañia de Transporte de Energia
Electrica en Alta Tension Transener S.A.
(USD Mil.)
3/31/12a
Revenue
28
EBITDA
(3)
Cash Flow from
Operations
(10)
Cash and Marketable
Securities
26
Total Debt
153
(11.4)
Net Debt/EBITDA (x)
(9.5)
a
b
Weak Operating Profile: Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener
S.A.’s (Transener) low profitability and cash generation are the direct result of freeze-in tariff
increases since 2002 within a context of double-digit inflation in Argentina. Fitch Ratings anticipates
that EBITDA could be negative in 2012. FCF generation is also likely to remain negative.
12/31/11b
152
33
,262
32
155
4.7
3.7
IFRS. Local GAAP. Note: Transener
changed to IFRS in January 2012.
Figures as of March 2012 are three-month
figures. Ratios have been calculated by
annualizing income statement and cash
flow items.
Reliance on Funds from Government: Transener has partially relied on disbursements from
the Wholesale Electric Market Administrator (CAMMESA) to face its operating needs and
capital expenditures during 2010 and 2011. These disbursements were made under an
agreement reached between the company, the Ente Nacional Regulador de la Electricidad
(ENRE) and the Secretary of Energy in December 2010 on the amount of cost increases
Transener had in the period from June 2005 to November 2010.
Uncertainty in Disbursements Received: The timing of receiving disbursements is uncertain
and subject to the discretion of the regulator and availability of funds at CAMMESA. Transener
has received, as of March 2012, approximately 24% of the amount agreed, reflecting a high
degree of uncertainty with respect to government funding.
High Regulatory Risk: Transener’s full-tariff review has been pending since 2002, highlighting
its exposure to regulatory risk. This exposure is partially offset by the company’s strong
competitive position as the largest transmitter of high voltage electricity in Argentina, and its
priority of payment from its offtaker, CAMMESA.
Exposure to Convertibility and Exchange-Rate Risk: The majority of Transener’s income is
denominated in Argentine pesos, while its debt is denominated in U.S. dollars, exposing the
company to transfer and convertibility risk.
Analysts
Ana Paula Ares
+54 11 5235-8121
[email protected]
Gabriela Curutchet
+54 11 5235-8100
[email protected]
High Leverage: For the first three months of 2012, annualized total and net debt/EBITDA
ratios were negative, indicating a worsening trend. Mitigating the company’s high leverage,
Transener has a favorable debt amortization schedule with no major maturities until 2021.
Deterioration of the Sovereign’s Credit Quality: Deterioration of Argentina’s credit quality
could result in a negative rating action as CAMMESA’s credit quality is closely linked to
Argentina’s. The electricity system relies on public subsidies to fulfill its obligations.
Erosion of Liquidity: A significant deterioration in the company’s liquidity could result in a
Negative Outlook or rating action.
Positive Tariff Review: A tariff increase could result in a Positive Outlook or rating action for
the company.
November 8, 2012
86
Corporates
Recovery Rating
The recovery ratings for Transener’s capital markets debt instruments reflect Fitch’s
expectation that the company’s creditors will have an average recovery constrained by the soft
cap of ‘RR4’ for bonds issued by corporates domiciled in Argentina.
Recovery Analysis  Compañía de Transporte de Energía Eléctrica en Alta Tensión
Transener S.A. (Transener)
(USD Mil.)
IDR:
CCC
Discount (%)
Multiple (x)
(13.4)
35
(8.7)
5.0
(43.6)
Interest Expense
Rent Expense
Total
13.3
—
15.0
28.3
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
26.0
35.7
—
339.0
400.7
Rate (%)
Creditors
0
—
65
23.2
55
—
40
135.6
158.8
158.8
15.9
142.9
Secured Priority
Senior Secured
Secured
Lien
0.0
0.0
Unsecured Priority
Senior Unsecured
Unsecured
Lien
153.6
—
Value Recovered
—
—
Recovery (%)
0
0
Recovery
Rating
—
—
Notching
—
—
Rating
—
142.9
—
142.9
7.1
135.8
Value
Recovered
142.9
—
Recovery
(%)
93
—
Concession
Allocation (%)
100
—
Recovery
Rating
RR4
—
Notching
0
—
Rating
CCC
—
Source: Fitch.
November 8, 2012
87
Corporates
Organizational Structure — Compañia de Transporte Eléctrica en Alta Tensión S.A. (Transener)
(As of LTM March 31, 2012)
Pampa Energía S.A.
Electroingeniería S.A.
ENARSA
50%
25%
25%
Citelec S.A.
Public Float
53%
47%
Transener S.A.
EBITDA, March 2012 (3 Months, Annualized): USD(13.4) Million
Consolidated Total Debt: USD153 Million
Total Debt/EBITDA: (11.4x)
Net Debt/EBITD: (9.5x)
90%
Transba S.A.
99%
Transener
Internacional S.A.
Source: Transener and subsidiaries’ financial statements, and Fitch.
November 8, 2012
88
Corporates
Debt and Covenant Synopsis  Compañía de Transporte de Energia Electrica en Alta
Tension Transener S.A. (Transener)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
PIK Interest Rate
Intercompany Loans
Compañía de Transporte de Energia Electrica en Alta Tension Transener S.A. (Transener)
N.A. — Debt is Senior Unsecured
Dec. 20, 2006
Dec. 15, 2016
N.A.
N.A.
Change of control clause at 100% of principal. Change of control means that the Argentine government directly or indirectly
owns over 50% of Transener’s voting rights.
The company and its affiliates might sell assets as long as 75% of the asset sale is paid in cash.
The issuer is not allowed to incur additional debt except permitted debt. Permitted debt includes debt used to refinance
existing or permitted indebtedness, subject to standard limitations. Transener can incur or maintain up to USD30 million of
additional indebtedness if following such transaction interest coverage is above 2.0x and consolidated debt to EBITDA is
below 3.75x. This figure is USD10 million for Transener’s subsidiaries. Debt can also be incurred to finance trade
receivables, in connection with hedging agreements, and in respect to certain intercompany loans under certain conditions.
The issuer and its subsidiaries are allowed to incur in customary permitted liens related to the normal course of business.
These include a maximum outstanding debt of USD10 million.
The issuer is prohibited from making dividend payments and from making certain investments, including the acquisition of
stocks. The issuer is allowed to make restricted payments for up to USD20 million as long as it is in full compliance with the
terms and conditions of the notes.
N.A.
If any event of default occurs and is continuing, the trustee or the holders of at least 25% of the outstanding notes may
declare the notes to be due and payable. Notes become automatically due and payable upon certain events of insolvency
or bankruptcy.
N.A.
Intercompany loans are permitted and are not subordinated to the notes.
The issuer may rescue the notes since Dec. 15, 2011 at par value plus 0.5 of annual interest rate in 2011, par value plus
0.25 of annual interest rate in 2012, at par value plus 0.125 of annual interest rate in 2013, and at par value in 2014 and on.
Transactions between the issuer and affiliates for over USD5 million require approval from the board of directors and above
USD20 million require a fairness opinion.
Restrictions on merger of issuer and subsidiaries. Exceptions include that the surviving entity will be a corporation existing
under the laws of Argentina or United States, no event of default occurs or is continuing, the company’s pro forma debt
levels allow it to incur additional indebtedness. Any surviving entity would assume all obligations of issuers under the
indenture.
Disclaimer: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents identified in the “Document Date
November 8, 2012
89
Corporates
Debt and Covenant Synopsis  Compañía de Transporte de Energia Electrica en Alta
Tension S.A. (Transener)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
PIK Interest Rate
Intercompany Loans
Compañía de Transporte de Energia Electrica en Alta Tension Transener S.A. (Transener)
N.A. — Debt is Senior Unsecured
Aug. 2, 2011
Aug. 15, 2021
N.A.
N.A.
The company and its affiliates might sell assets as long as 75% of the asset sale is paid in cash.
The issuer is not allowed to incur additional debt except permitted debt. Permitted debt includes debt used to refinance
existing or permitted indebtedness, subject to standard limitations. Transener can incur or maintain up to USD30 million of
additional indebtedness if following such transaction interest coverage is above 2.0x and consolidated debt to EBITDA is
below 3.75x. This figure is USD10 million for Transener’s subsidiaries. Debt can also be incurred to finance trade
receivables in connection with hedging agreements, and in respect to certain intercompany loans under certain conditions.
The issuer and its subsidiaries are allowed to incur in customary permitted liens related to the normal course of business.
These include a maximum outstanding debt of USD10 million.
The issuer is prohibited from making dividend payments and from making certain investments, including the acquisition of
stocks. The issuer is allowed to make restricted payments for up to USD20 million as long as it is in full compliance with the
terms and conditions of the notes.
N.A.
declare the notes to be due and payable. Notes become automatically due and payable upon certain events of insolvency
or bankruptcy.
N.A.
Intercompany loans are permitted and are not subordinated to the notes.
The issuer may elect to redeem the notes at any time after the fifth anniversary of the date of issuance, inclusive, in its
entirety, not partially, rescue at the following prices, expressed as percentages of nominal value: 2016 100% + 50% of
coupon, 2017 100% + 25% of coupon, 2018 100% + 12,5% of coupon, 2019 and thereafter 100%.
Transactions between the issuer and affiliates for over USD5 million require approval from the board of directors, and
above USD20 million require a fairness opinion.
Restrictions on merger of issuer and subsidiaries. Exceptions include that the surviving entity will be a corporation existing
under the laws of Argentina or United States, no event of default occurs or is continuing, the company’s pro forma debt
levels allow it to incur additional indebtedness. Any surviving entity would assume all obligations of issuers under the
indenture.
November 8, 2012
90
Corporates
Financial Summary  Compañía de Transporte de Energía Eléctrica en Alta Tensión
Transener S.A. (Transener)
(BRL Mil., As of Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Other (Inv. and Fin.)
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.3786
4.3584
LTM 3/31/12
4.3053
4.1295
2011
4.3053
4.1295
2010
3.9787
3.9134
2009
3.7990
3.7279
2008
(3,355)
(12.0)
—
—
—
33,184
0.2
0.1
(0.1)
(0.1)
54,464
36.5
7.7
(1.7)
2.1
48,801
31.2
12.6
13.3
4.2
47,209
32.7
10.3
(3.3)
(6.3)
(0.4)
(0.7)
(0.1)
(0.4)
(1.3)
(0.3)
(4.1)
1.7
1.7
1.4
1.7
0.3
1.6
0.0
1.7
2.8
1.7
1.7
0.5
1.3
0.8
2.9
2.5
1.5
2.9
1.2
1.7
2.0
2.6
2.1
2.0
2.6
0.7
1.0
0.9
(19.8)
(11.4)
(9.5)
—
—
13.0
—
0.0
4.7
4.7
3.7
4.7
3.7
0.1
—
0.0
4.4
2.7
2.2
2.7
2.2
12.6
—
0.1
2.8
3.2
2.9
3.2
2.9
10.6
—
0.1
3.6
4.5
4.4
4.5
4.4
10.1
—
0.0
367,830
26,233
7,311
146,047
153,358
0
153,358
0
153,358
137,426
290,784
455,161
32,046
4,305
150,251
154,556
0
154,556
0
154,556
244,979
399,535
494,344
27,043
13,212
134,338
147,550
0
147,550
0
147,550
282,994
430,544
529,577
16,412
13,619
144,322
157,941
0
157,941
0
157,941
290,666
448,607
587,704
6,244
1,393
211,406
212,799
0
212,799
0
212,799
307,120
519,919
(6,942)
(4,006)
(10,948)
0
(2,655)
0
(13,603)
0
0
3,671
0
0
(9,932)
13,919
(13,658)
262
0
(13,005)
0
(12,744)
0
(6,037)
3,681
0
22,279
7,179
14,227
(4,710)
9,517
0
(11,977)
(67)
(2,527)
0
(1,525)
(8,576)
0
24,054
11,425
37,716
3,264
40,980
0
(20,267)
0
20,713
0
71
(20,565)
0
10,624
10,844
36,065
(6,740)
29,325
0
(34,031)
(60)
(4,766)
0
1,757
(12,000)
0
0
(15,009)
28,060
0.0
(7,765)
5,003
0
(3,909)
152,139
2.0
3,492
19,230
0
(16,534)
149,169
(4.5)
23,279
19,265
0
5,930
156,267
8.1
15,880
19,706
0
12,550
144,493
(10.8)
11,115
22,623
0
(20,829)
Source: Fitch.
November 8, 2012
91
Corporates
Corporacion Electrica Nacional S.A.
(CORPOELEC)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term FC IDR
Long-Term LC IDR
Senior Unsecured
B+
B+
B+/RR4
FC – Foreign currency. LC – Local currency.
Rating Outlooks
Long-Term LC and FC IDR
Negative
Ratings Linked to the Government: Corporacion Electrica Nacional S.A.’s (CORPOELEC)
ratings reflect its ownership by the Republic of Venezuela, to which its ratings are tied. The
company is overseen by the Ministry of Popular Power for Electricity (MPPE), its sole
shareholder. CORPOELEC has a public mandate to operate the nation’s electricity sector
according to the planning directives of the MPPE and depends on public sector transfers for
the sustainability of its operations.
Monopolistic Position: CORPOELEC is a vertically integrated public utility responsible for the
operation of the country’s electricity assets and the provision of electricity services in
Venezuela. CORPOELEC was created in 2007 when the government nationalized the
electricity sector. The entity absorbed all of the country’s generation assets along with its
transmission, distribution, and electric power retail infrastructure during the period 2010 to 2011.
This provided CORPOELEC with an installed capacity of 25,655 MW and a client base of
5.7 million users as of December 2011.
Negative Operational Results Expected to Continue: The current tariff regime has been in
place since 2002, and no tariff adjustments are expected in the near future. This situation will
exacerbate CORPOELEC’s negative operational performance and will increase its dependence
on public funding going forward. This status quo will continue to erode the entity’s credit profile
on a standalone basis.
Sovereign Support Needed to Fund Capex: The company receives explicit support from both
the central government through operational and capital expenditure allocations contained in the
nation’s budget, and from PDVSA in the form of subsidized fuel costs. CORPOELEC received
USD3.4 billion of government financing split across various agencies in 2011. For 2012,
CORPOELEC’s capex will be financed with funds from the special indebtedness law, as
contained in the national budget, for approximately USD2.2 billion in addition to financing from
other government sources. These funds will be used to combine 4,329 MW of thermoelectric
generation capacity and associated infrastructure in 2012.
Liquidity Depends on Public Sector’s Current Transfers: CORPOELEC received
USD540 million in current transfers in order to cover operational costs during 2011. For 2012,
the company has resources earmarked from the national budget totaling USD980 million to
meet its day to day operations.
Analysts
Julio Ugueto
+58 212 286-3356
[email protected]
Lucas Aristizabal
+1 312 368-3260
[email protected]
November 8, 2012
Pro Forma Debt Structure: At Dec. 31, 2011, CORPOELEC’s pro forma financial long-term debt
was USD6,688 million, of which USD663 million constituted the absorbed EDC bond issuance,
rated ‘B+/RR4’ by Fitch. C.A. La Electricidad de Caracas’ (EDC) USD663 million senior
unsecured bond issuance due 2014 and 2018 is now a direct obligation of CORPOELEC as the
latter took control of EDC on Dec. 22, 2011. EDC ceased to exist in April 2012. CORPOELEC’s
audited 2011 financial statements were not available at the time of publication.
Key Rating Drivers: A downgrade of the sovereign or lack of sovereign support would lead to
a downgrade of CORPOELEC’s ratings. An upgrade of the sovereign would be viewed
positively and could lead to a positive rating action.
92
Corporates
Recovery Analysis
Fitch’s “Country-Specific Treatment of Recovery Ratings” criteria published June 15, 2012 has
been used to cap the rating at ‘RR4’. In this criteria report, Venezuela is categorized as a
Group D jurisdiction, which has a soft cap for recovery ratings at ‘RR4’. Organizational Structure — CORPOELEC
República Bolivariana
de Venezuela
Ministerio del Poder
Popular para la Energía Eléctrica
Corporacion Electrica
Nacional S.A. (CORPOELEC)
Administradora
Serdeco C.A.
EDC Network
Comunicaciones S.C.S.
Comunicaciones
Moviles ‘‘Conmovil’’
Proccedatos
Aracoy
Source: CORPOELEC.
November 8, 2012
93
Corporates
Debt and Covenant Synopsis  CORPOELEC
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
Consolidation, Merger, Conveyance or Sale
EDC Finance B.V.
CORPOELEC
April 10, 2008
April 10, 2018
CORPOELEC will not, in one or a series of transactions, consolidate or amalgamate with or merge into any corporation
or convey, lease or transfer substantially all of its properties, assets or revenues to any person or entity (other than a
direct or indirect subsidiary of the issuer) or permit any person (other than a direct or indirect subsidiary of the issuer) to
merge with or into it unless:
1)
Limitation on Liens
Either the issuer is the continuing entity, or the person (the "successor company") formed by the
consolidation or into which the issuer is merged or that acquired or leased the property or assets of the issuer
will assume (jointly and severally with the issuer unless the issuer will have ceased to exist as a result of that
merger, consolidation, or amalgamation), by a supplemental indenture (the form and substance of which will
be previously approved by the Trustee), all of the issuer’s obligations under the indenture and the notes;
2)
The successor company (jointly and severally with the issuer unless the issuer will have ceased to exist as
part of the merger, consolidation or amalgamation) agrees to indemnify each holders of notes against any
tax, assessment or governmental charge thereafter imposed on the holders of notes solely as a consequence
of the consolidation, merger, conveyance, transfer or lease with respect to the payment of principal of, or
interest, the notes;
3)
Immediately after giving effect to the transaction, no default or event of default has occurred and is
continuing;
4)
The issuer has delivered to the trustee an Officer’s Certificate and an Opinion of Counsel, each stating that
the transaction and the supplemental indenture, comply with the terms of the indenture and that all conditions
precedent provided for in the Indenture and relating to the transaction have been complied with.
CORPOELEC will not, and will not cause or permit any of its subsidiaries to, incur, permit or suffer to exist any liens (the
"Initial Lien"), other than permitted liens, of any kind against or upon any property or assets of the issuer or any of its
subsidiaries whether owned on the issue date or acquired after the issue date, to secure any indebtedness, unless it has
made or will make effective provision whereby 1) the notes will be secured by such lien equally and ratably with (or prior
to, in the event such indebtedness is subordinated in right of payment to the notes) all other indebtedness of the issuer or
any of its subsidiaries secured by such lien and 2) if such lien secures obligations subordinated to the notes in right of
payment, such lien shall be subordinated to a lien securing the notes in the same property as that securing such lien to
the same extent as such subordinated obligations are subordinated to the notes.
November 8, 2012
94
Corporates
Corporacion Pesquera Inca SAC
(Copeinca)
Full Rating Report
Key Rating Drivers
Ratings
Copeinca
Foreign Currency
Senior Unsecured
B+
B+
Copeinca ASA
Foreign Currency
B+
Solid Market Position: Corporacion Pesquera Inca SAC’s (Copeinca) ratings reflect the
company’s solid market position as the second-largest producer in the Peruvian fishmeal
industry (granted a fishing quota of 10.7% in Peru’s north zone). The company benefits from
the stable business and regulatory environment in Peru due to the implementation of the
Individual Transferable Quota (ITQ) System.
Rating Outlook
Foreign Currency Long-Term Rating
Stable
Financial Data
Copeinca
(USD 000)
Revenue
Operating EBITDAR
Operating EBITDAR/
Revenues (%)
Operating
EBITDAR/Fixed
Charges (x)
Cash Flow from
Operations
Free Cash Flow
Total Debt
Total Adjusted
Debt/Operating
EBITDAR (x)
Total Adjusted Net
Debt/Operating
EBITDAR (x)
12/31/11
6/30/12
254.5
100.0
315.0
111.6
39.3
35.4
4.8
5.2
10.2
(23.80)
266.3
61.4
37.2
292.6
2.7
2.6
2.1
2.2
Limited Diversification: Copeinca has limited product, customer, and production
diversification. Fishmeal and fish oil represents 100% of the company’s sales. China is the
company’s main market, representing approximately 40%–50% of its total sales.
Volatile Earnings and FCF: Inherent exposure to climatic events such as El Niño or ‘La Niña’
result in significant volatility in operating performance and FCF generation from year to year
and can negatively affect the company’s credit profile.
Shareholder Focus: Fitch believes that Copeinca’s financial strategy will continue to result in
high dividend payments relative to its EBITDA and CFFO. This will limit FCF generation and
will prevent a strengthening of Copeinca’s balance sheet.
Expected Strong Performance and Stable Leverage: Following the recovery in the sector
volumes during 2011, Copeinca’s revenue is expected to increase by about 10% to
USD280 million. The company’s FCF is expected to be relatively unchanged in 2012, and the
company should continue to maintain a total debt/EBITDA ratio in the 2.5x–3.0x range during
2012. Leverage stood at 2.6x on June 30, 2012.
Key Rating Drivers: Factors that could result in a negative rating action include deterioration
in the company’s credit metrics, resulting from some combination of the following elements:
adverse climatic conditions and/or declining fishmeal and fish oil prices resulting in increased
financial leverage and a weak cash position. Factors that could trigger a positive rating action
include significant reduction in leverage levels on a sustained basis, consistent positive free
cash flow generation, and product diversification.
Analysts
Viktoria Krane
+1 212 908-0367
[email protected]
Francisco Mercadal
+5 62 499-3340
[email protected]
November 8, 2012
95
Corporates
Recovery Worksheet
The ‘B+/RR4’ rating of the company’s unsecured public debt reflects average recovery
prospects in the range of 31%–50% of current principal and related interest in the event of
default. Fitch uses soft caps on its recoveries in certain markets to reflect concern about
creditor rights or weak enforcement of existing laws. This resulted in a cap of Copeinca’s debt
at the level of ‘RR4’, which is consistent with anticipated recoveries in the range of 30% to 50%.
Recovery Analysis — COPEINCA S.A.
(USD Mil.)
Liquidation Value
Discount (%)
Multiple (x)
112
70
33.5
5
167
Cash
A/R
Licenses
Net PPE
Total
Interest Expense
Rent Expense
Total
21.6
—
15
36.6
391
39.1
352
Advance
Rate (%)
Available to
Creditors
0
—
80
80
—
—
—
180
211.2
391.2
—
—
225
264
489
352.1
117.4
234.7
11.7
222.9
Secured Priority
Lien
Value Recovered
Recovery (%)
Recovery Rating
Notching
Rating
Secured
117
117.4
100
RR1
3
BB+
Unsecured Priority
Lien
Value Recovered
Recovery (%)
Concession
Allocation (%)
Recovery Rating
Notching
Rating
Senior Unsecured
Unsecured
175
0.2
175.0
0.2
100
100
100
100
RR1
RR1
3
3
BB+
BB+
Notes: 1) The amount of concession payments is highly dependent on circumstances, but Fitch typically allows up to 5% of the recovery value available to senior
unsecured creditors to be allocated to concession payments. Concession payments allocated to subordinated debt should never result in higher recoveries than those
of senior unsecured debt. 2) Numbers may not add due to rounding.
November 8, 2012
96
Corporates
Organizational Structure — Corporacion Pesquera Inca SAC
(USD Mil.)
Copeinca ASA
(Norway)
100%
Copeinca International SLU
(Spain)
52.26%
43.38%
Corporacion Pesquera Inca SAC
USD175 Mil. Senior
Unsecured Notes
Due 2017
Total Debt
EBITDA
TD/EBITDA (x)
292.6
111.6
2.2
1.46%
4.36%
100%
PFB Fisheries
(Netherlands)
Note: Corporacion Pesquera Inca SAC is the only operational company. All debt resides in it.
Source: Copeinca.
November 8, 2012
97
Corporates
Debt and Covenant Synopsis  COPEINCA
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Corporación Pesquera Inca S.A.C. (COPEINCA)
Copeinca ASA
Jan. 29, 2010
Feb. 1, 2017
Unsecured and Unsubordinated Debt
USD175 Million
Financial Covenants
Consolidated Net Debt/EBITDA
(Maximum)
Less than 3.75x.
Not later than 30 days following a Change of Control Triggering Event, COPEINCA or Copeinca ASA will make an Offer to
Purchase all outstanding Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to (but not including) the Offer to Purchase Payment Date.
COPEINCA or Copeinca ASA will not sell, convey, transfer, lease or otherwise dispose of all or substantially all of its and its
Restricted Subsidiaries' properties and assets (computed on a consolidated basis) (as an entirety or substantially an entirety in one
transaction or a series of related transactions), unless: (1) the buyer is a corporation in Peru, Norway, USA or EU and expressly
assumes all obligations of Issuer under the Indenture; (2) immediately after the transaction no Event of Default will have accrued;
(3) the buyer has a consolidated net worth equal or greater of the net worth of the issuer immediately prior to the transaction.
Debt Restriction
Limitation on Liens
Limitation on Sale and Leaseback
Transactions
COPEINCA, Copeinca ASA, any Subsidiary Guarantor may Incur each and all of the following: (1) new indebtedness if it is
expressly subordinated in right of payment to the Notes and Note Guarantees; (2) ranks at least parri pasu or below the Notes in
case it is used to partially re-finance the Notes; (3) arises from hedging transactions; worker compensation claims, letters of credit
or completion or performance guarantees and other financing of payables or receivables, or similar obligations in the ordinary
course of business (4) is arising under agreements providing for indemnification, adjustment of purchase price or similar
obligations; (5) is Permitted Subsidiary Indebtedness; (6) Guarantees of permitted indebtedness; (7) Indebtedness Incurred for
inventory or receivables financing with Maturity not exceeding one year from the date of the sale of the Parent Guarantor and its
Restricted Subsidiaries; and (8) Other Indebtedness in an aggregate principal amount not to exceed the greater of (a) US$50
million and (b) 7.5% of the total assets of the Parent Guarantor and its Restricted Subsidiaries.
Copeinca ASA will not, and will not permit any of its Restricted Subsidiaries to directly or indirectly incur, assume or permit to exist
any Lien of any nature whatsoever on any of its assets or properties of any kind, except Permitted Liens, unless the Notes or
Parent Guarantee are equally and ratably secured by (or, if the obligation so secured is subordinated in right of payment to the
Notes or the Note Guarantees, prior to) such Lien for so long as such Indebtedness is so secured.
COPEINCA or Copeinca ASA will not, and will not permit any subsidiary to, enter into any sale and leaseback transaction with
respect to any property unless COPEINCA or such Subsidiary would be entitled to: (i) incur debt in an amount equal to the
attributable debt with respect to such sale and leaseback transaction; and (ii) create a lien on such property or asset securing such
attributable debt without equally and ratably securing the notes.
Other
Copeinca ASA will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (1) declare or pay any dividend or
make any distribution on or with respect to the Copeinca ASA's or any of its Restricted Subsidiaries' Capital Stock other than
dividends or distributions payable in shares of Copeinca ASA's or any of its Restricted Subsidiaries' Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of such Capital Stock); (2) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of Copeinca ASA or any Restricted Subsidiary (including options, warrants
or other rights to acquire such shares of Capital Stock) held by any Persons other than Copeinca ASA, COPEINCA or any of its
Restricted Subsidiaries; (3) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness that is expressly subordinated in right of payment to the
Notes or any Note Guarantees (excluding any intercompany Indebtedness between or among the Copeinca ASA, COPEINCA and
any of its Restricted Subsidiaries); or (4) make any Investment, other than a Permitted Investment.
Limitation on Dividend
The payment of annual dividends is permitted by Copeinca ASA, in an aggregate amount for any fiscal year equal to (1) 100% of
Consolidated Net Income for such fiscal year if the Consolidated Leverage Ratio would be lower than 1.50 to 1.00, (2) 85% of
Consolidated Net Income for such fiscal year if the Consolidated Leverage Ratio would be equal to or greater than 1.50 to 1.00, but
lower than 2.00 to 1.00, (3) 75% of Consolidated Net Income for such fiscal year if the Consolidated Leverage Ratio would be equal
to or greater than 2.00 to 1.00, but lower than 2.50 to 1.00, (4) 50% of Consolidated Net Income for such fiscal year if the
Consolidated Leverage Ratio would be equal to or greater than 2.50 to 1.00, but lower than 3.75 to 1.00; in each case the
Consolidated Leverage Ratio shall be calculated immediately prior to the payment of such dividend on a pro forma basis after
giving effect to the payment of such dividend.
N.A. – Not applicable.
November 8, 2012
98
Corporates
Financial Summary Corporacion Pesquera Inca SAC (COPEINCA)
(USD 000)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2008
2009
2010
2011
LTM Ended
6/30/12
75,671
75,671
30.34
30.34
14.65
31.85
(1.00)
59,540
59,540
28.25
28.25
5.58
9.36
(1.00)
75,704
75,704
32.49
32.49
12.93
(24)
(2.00)
100,014
100,014
39.30
39.30
10.27
(10.00)
13.26
111,626
111,626
35.44
35.44
12.92
(1.00)
17.00
3.55
3.36
3.36
0.89
0.89
3.55
1.20
1.47
8.24
1.95
4.08
4.08
1.13
1.13
1.95
0.65
0.89
3.83
3.03
3.23
3.23
1.92
1.92
3.03
(1.00)
0.05
0.91
3.20
4.76
4.76
1.45
1.45
3.20
—
0.80
0.28
3.99
5.16
5.16
1.07
1.07
3.99
0.18
0.59
2.54
2.57
2.72
2.41
2.72
2.41
9.13
—
0.30
5.04
2.42
2.21
2.42
2.21
8.36
—
0.27
3.06
2.87
2.42
2.87
2.42
12.98
—
0.07
3.96
2.66
2.06
2.66
2.06
8.68
—
0.18
3.39
2.62
2.24
2.62
2.24
7.51
—
0.28
706,910
22,949
62,410
143,141
205,551
—
205,551
—
205,551
339,996
545,547
689,753
12,478
38,239
105,580
143,819
—
143,819
—
143,819
367,057
510,876
669,519
34,201
16,042
201,500
217,542
—
217,542
—
217,542
331,737
549,279
793,514
60,490
47,788
218,488
266,276
—
266,276
—
266,276
388,643
654,919
791,737
43,107
82,674
209,918
292,592
—
292,592
—
292,592
376,133
668,725
57,413
33,007
90,420
—
(10,979)
—
79,441
3,930
4,820
(82,509)
—
—
5,682
13,910
12,812
26,722
—
(6,986)
—
19,736
6,736
24,790
(61,733)
—
—
(10,471)
47,576
9,804
57,380
—
(63,027)
(50,000)
(55,647)
4,991
(91)
73,723
—
(1,523)
21,453
46,267
(36,067)
10,200
—
(36,700)
—(26,500)
—
2,700
50,100
—
—
26,300
64,787
(3,387)
61,400
—
(24,200)
(40,000)
(2,800)
—
—12,100
—
—
9,300
249,425
93.25
49,336
22,522
—
(3,450)
210,765
(16)
41,281
14,601
—
(2,508)
233,042
10.57
59,723
23,457
—
(6,493)
254,478
9.20
85,017
21,007
—
47,769
314,987
41.33
99,838
21,645
—
61,976
November 8, 2012
99
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B
Rating Outlooks
RWN
Stable
Financial Data
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations (CFFO)
Cash and Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/EBITDA (x)
CFFO/Net Debt (x)
6/30/12
641.1
207.7
6/30/11
533.5
231.0
124.9
95.1
110.0
858.4
171.8
827.9
4.1
3.6
0.2
3.6
2.8
0.1
Leading Position in Real Estate and Agribusiness Sectors: Cresud S.A.C.I.F. y A. (Cresud)
owns 64.2% of IRSA (‘BB’ local currency issuer default rating [IDR]), a leading real estate
company in Argentina dedicated to real estate development, office rentals, and shopping mall
operations through its subsidiary, Alto Palermo (APSA). As of June 30, 2012, Inversiones y
Representaciones S.A. (IRSA) represented the total of Cresud’s consolidated EBITDA (due to
negative results in the agribusiness segment), and 66% of consolidated assets. Additionally,
Cresud has a growing presence in the agribusiness sector, acquiring farms with the intent to
benefit from an appreciation of the land’s value over the medium to long term.
Rating Linkage to IRSA Results in Structural Subordination of Credit Rating: Fitch
Ratings links the ratings of Cresud and IRSA. This linkage reflects factors such as strong
strategic and operational ties and the fact that IRSA’s upstream dividends represent a
significant part of Cresud’s cash flow from operations. Cresud’s local currency IDR is notched
down from IRSA’s rating because of the structural subordination of its debt and its weaker
stand-alone financial profile. The dividend flow to Cresud from IRSA is expected to be relatively
stable. During 2011, the company received dividends of USD14 million in June and
USD31 million in November, while in June 2012 it received another USD14 million from IRSA.
Foreign Currency IDR Constrained: Cresud’s foreign currency IDR is constrained at ‘B’ due
to the ‘B’ country ceiling of Argentina, which also has a foreign currency credit rating of ‘B’.
Country ceilings capture the risk of exchange controls being imposed that would prevent or
materially impede the private sector’s ability to convert local currency into foreign currency and
transfer the proceeds to nonresident creditors — transfer and convertibility (T&C) risk.
Cyclical Cash Generation: Cresud’s ratings are constrained by above-average risks
associated with operating in the real estate segment in Argentina. Due to weather conditions
and commodity prices, the cash flow of its agribusiness division is also volatile. Cresud has an
important portfolio of farms in Argentina and also has a presence in Bolivia, Paraguay, and in
Brazil through its 39.64% stake in BrasilAgro.
Strong Asset Portfolio and Moderate Leverage: Cresud’s leverage is moderate and its
liquidity is manageable, as a result of unencumbered assets and land that could be sold.
Regarding the real estate industry, the emphasis of Fitch’s methodology is on portfolio quality,
diversity, and size. Cresud’s consolidated portfolio of real estate assets is strong with
USD1.6 billion of undepreciated book capital as of June 30, 2012. The company’s leverage,
measured by consolidated net debt as a percentage of undepreciated book capital of real
estate assets, was 47%. This percentage would be even lower at market values.
Analysts
Fernando Torres
+54 11 5235-8124
[email protected]
Gabriela Catri
+54 11 5235-8129
[email protected]
November 8, 2012
Key Rating Drivers: The Stable Outlook reflects Fitch’s expectation that Cresud will manage
its balance sheet to a consolidated ratio of net debt-to-EBITDA of around 4.0x. Any significant
increase in Cresud's leverage ratio would weaken credit quality and could result in a negative
rating action. Cresud’s ratings would also be affected by an upgrade or downgrade of the
Argentina’s country ceiling.
100
Corporates
Recovery Rating
The recovery ratings for Cresud’s capital markets debt instruments reflect Fitch’s expectation
that the company’s creditors would have an average recovery of between 30% and 50%. This
recovery was capped at the ‘RR4’ level, which is the common recovery ceiling for debt issued
in Argentina. Absent this cap, Fitch’s bespoke analysis indicates that the leverage of the
company would lead to a recovery of approximately 65%.
EBITDA multiple, which is consistent with the value observed in the Buenos Aires’ stock
exchange during the last year.
Recovery Analysis  Cresud S.A.C.I.F y A.
(USD Mil.)
Discount (%)
Multiple (x)
208
25
156
4.0
623
Interest Expense
Rent Expense
Total
92
—
50
142
623
62
561
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
Advance Rate
0
80
50
20
110.0
140.9
194.7
1,138.8
Available to
Creditors
—
113
97
228
438
561
—
561
28
533
Secured Priority
Senior Secured
Secured
Lien
0.0
0.0
Unsecured Priority
Senior Unsecured
Lien
858
Value
Recovered
—
—
Recovery (%)
0
0
Value
561
65
Concession
Allocation (%)
100
Recovery
Rating
—
—
Notching
—
—
Rating
—
—
Recovery
Ratinga
RR4
Notching
—
Rating
B
a
Cresud’s recovery rating is capped at the level of ‘RR4’ due to concerns about the low probability of high recoveries for bondholders of corporates domiciled in
Argentina. The amount of concession payments is highly dependent on circumstances, but Fitch typically allows up to 5% of the recovery value available to senior
unsecured creditors to be allocated to concession payments.
November 8, 2012
101
Corporates
Organizational Structure — Cresud S.A.C.I.F. y A.
FYE June 2012 Summary Statistics
Cresud S.A.C.F. y A.
USD208 Million of EBITDA
USD110 Million of Cash and Marketable Securities
USD858 Million of Total Debt
64.20%
IRSA S.A.
39.64%
Brasil
Agro
USD60 Million Notes Due
2014
65.85%
FyO COM
Cactus
Argentina
AgroUranga
100.00%
Helmir
S.A.
100%
95.12%
Agrotech
Agropecuaria
A cres del Sud
Pluriagro
Ombu
Agropecuaria
Northagro
Yatay
Agropecuaria
46.84%
Agro
Managers
100%
96.37%
FyO
Trading
35.72%
100.00%
2.2%
Exportaciones
Agroindustriales
Argentinas
(EAASA)
Yutan
Agropecuaria
Source: Fitch and Cresud S.A.C.I.F. y A.’s public information.
November 8, 2012
4.48%
102
Corporates
Debt and Covenant Synopsis  Cresud S.A.C.I.F. y A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Other
N.A.
Aug. 29, 2011
Sept. 7, 2014
N.A.
N.A.
If the issuer at any time ceases to beneficially own, directly or indirectly, at least 45% of the voting power of the Voting Stock
of IRSA or ceases to have the right to appoint at least the majority of the members of the board of directors of IRSA, then,
each holder will have the right to require that the issuer purchase all of the holder’s notes at a purchase price equal to 100%
of the principal amount.
The issuer may only incur additional indebtedness if, and immediately after giving pro forma effect to the incurrence, the ratio
of (i) the amount of the issuer's unconsolidated short-term indebtedness, to (ii) its total assets, as specified in the issuer’s
most recently available basic quarterly financial statements prior to the date of such incurrence, is lower than 0.35x.
Transactions with affiliates are permitted as long as: 1) the terms of the transaction are not substantially less favorable than
those that could be achieved with a nonrelated party; 2) the terms of such transactions are in compliance with the applicable
laws, regulations, and pronouncements.
Restrictions on merger or consolidation of issuer. Exceptions include the merger of other entities with the issuer provided
that surviving entity will be the issuer.
November 8, 2012
103
Corporates
Financial Summary — Cresud S.A.C.I.F. y A.
(ARS 000, Fiscal Year Ended June)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2012
2011
2010
2008
2007
763,736
45.9
9.3
(7.4)
5.4
2009
330,659
26.4
8.7
(4.1)
5.0
893,336
32.4
10.8
5.9
1.8
924,147
43.3
11.0
1.0
5.2
40,977
28.2
(0.6)
(74.4)
1.8
38,817
40.0
2.3
(77.1)
6.8
2.2
2.3
0.6
2.2
0.4
0.7
2.2
3.0
3.2
0.6
3.0
0.2
0.6
2.2
2.8
4.2
0.6
2.8
0.0
0.3
0.9
3.2
2.6
0.5
3.2
0.1
0.4
1.0
(0.5)
1.8
0.2
(0.5)
(0.4)
2.0
(4.1)
1.7
3.1
0.3
1.7
(0.5)
0.2
(2.6)
4.5
4.3
3.8
10.9
—
0.3
3.9
3.7
2.9
10.9
—
0.4
3.7
2.5
2.1
11.0
—
0.6
3.5
4.2
3.6
16.0
—
0.4
(16.3)
4.7
(8.0)
13.7
—
1.0
6.3
3.6
1.4
8.1
—
0.8
9,755,212
497,498
1,095,235
2,787,945
3,883,180
—
3,883,180
0
3,883,180
4,054,059
7,937,239
9,733,418
706,021
1,316,232
2,086,305
3,402,537
—
3,402,537
0
3,402,537
4,559,985
7,962,522
6,837,888
296,797
1,059,736
853,166
1,912,902
—
1,912,902
0
1,912,902
3,593,201
5,506,103
5,976,056
211,676
536,888
866,700
1,403,588
—
1,403,588
0
1,403,588
3,248,866
4,652,454
2,057,714
521,107
193,106
—
193,106
—
193,106
0
193,106
1,762,338
1,955,444
1,065,302
84,925
122,749
24,744
147,493
8,668
138,825
0
147,493
824,953
972,446
460,153
77,034
537,187
0
(241,683)
(134,129)
161,375
(369,683)
(133,031)
107,005
74,079
4,542
(155,713)
587,065
(206,469)
380,596
0
(169,634)
(190,406)
20,556
(703,121)
67,127
1,144,521
808
0
529,891
329,234
(155,139)
174,095
0
(199,674)
(97,262)
(122,841)
(320,548)
(9,703)
397,706
19,363
0
(36,023)
278,410
21,126
299,536
0
(308,328)
(43,065)
(51,857)
(71,338)
12,487
(150,779)
(47,960)
37
(309,410)
(35,175)
(44,995)
(80,170)
0
(19,597)
(8,250)
(108,017)
(313,235)
(65,883)
31,017
881,117
11,455
436,454
9,394
(59,354)
(49,960)
0
(19,393)
(5,500)
(74,853)
(727)
13,007
39,369
0
81,945
58,741
2,757,419
29.2
654,489
396,221
0
78,263
2,133,827
28.2
729,629
290,854
0
212,565
1,664,634
32.7
581,158
181,806
0
185,406
1,254,663
671.7
210,720
128,270
0
124,616
145,267
49.6
35,760
23,339
0
22,948
97,093
(2.9)
34,792
12,699
0
49,362
Note: Cresud has consolidated with IRSA's figures since October 2008.
Source: Company’s financial statements and Fitch Ratings.
November 8, 2012
104
Corporates
Financial Summary — Cresud S.A.C.I.F. y A. Period-End Exchange Rate
4.5238
4.3012
4.1100
3.9998
3.9317
3.8458
3.7925
3.4096
3.0235
3.1247
3.0905
3.0861
2012
2011
2010
2009
2008
2007
207,695
32.4
10.8
5.9
1.8
231,048
43.3
11.0
1.0
5.3
198,590
45.9
9.3
(7.4)
5.4
96,979
26.4
8.7
(4.1)
5.1
13,053
28.2
(0.6)
(74.4)
1.7
12,578
40.0
2.3
(77.1)
6.8
2.2
2.3
0.6
2.2
0.4
0.7
2.2
3.0
3.2
0.6
3.0
0.2
0.6
2.2
2.8
4.2
0.6
2.8
0.0
0.3
0.9
3.2
2.6
0.5
3.2
0.1
0.4
1.0
(0.5)
1.8
0.2
(0.5)
(0.4)
2.0
(4.1)
1.7
3.1
0.3
1.7
(0.5)
0.2
(2.6)
4.3
4.1
3.6
10.9
—
0.3
3.8
3.6
2.8
11.1
—
0.4
3.7
2.4
2.1
11.0
—
0.6
3.1
3.8
3.2
17.3
—
0.4
(16.9)
4.9
(8.3)
13.3
—
1.0
6.7
3.8
1.6
8.1
—
0.8
2,156,420
109,973
242,105
616,284
858,389
—
858,389
0
858,389
896,162
1,754,551
2,368,228
171,781
320,251
507,617
827,868
—
827,868
0
827,868
1,109,485
1,937,353
1,739,168
75,488
269,536
216,997
486,533
—
486,533
0
486,533
913,905
1,400,438
1,575,756
55,814
141,566
228,530
370,096
—
370,096
0
370,096
856,656
1,226,752
680,348
172,295
63,847
—
63,847
—
63,847
0
63,847
582,687
646,534
344,702
27,479
39,718
8,006
47,724
—
47,724
0
47,724
266,932
314,656
106,982
17,910
124,892
0
(56,190)
(31,184)
37,519
(85,949)
(30,929)
24,878
17,223
1,056
(36,202)
146,774
(51,620)
95,154
0
(42,411)
(47,604)
5,139
(175,789)
16,783
286,145
202
0
132,479
85,609
(40,340)
45,269
0
(51,920)
(25,290)
(31,942)
(83,350)
(2,523)
103,413
5,035
0
(9,367)
81,655
6,196
87,851
0
(90,429)
(12,631)
(15,209)
(20,923)
3,662
(44,222)
(14,066)
11
(90,747)
(11,205)
(14,333)
(25,538)
0
(6,242)
(2,628)
(34,408)
(99,779)
(20,987)
9,880
280,673
3,649
139,029
3,044
(19,233)
(16,189)
0
(6,284)
(1,782)
(24,255)
(236)
4,215
12,757
0
26,553
19,034
641,081
20.2
152,164
533,483
23.3
182,416
432,845
17.6
151,115
367,980
607.2
61,802
46,274
47.1
11,391
31,461
(5.6)
11,274
92,119
72,717
47,274
37,620
7,434
4,115
0
0
0
0
0
0
18,196
53,144
48,210
36,549
7,310
15,995
(USD 000, Fiscal Year Ended June 30)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
Cresud has consolidated with IRSA's figures since October 2008.
November 8, 2012
105
Corporates
And Subsidiaries
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
B
Local Currency
Long-Term IDR
Secured (DIFL)
Senior Unsecured (DL)
Subordinated (DGL)
B
B+/RR3
B/RR4
B–/RR5
IDR – Issuer default rating. DIFL – Digicel
International Finance Ltd. DL – Digicel
Ltd. DGL – Digicel Group Ltd.
Rating Outlooks
Financial Data
(USD 000)
Revenue
Operating
EBITDAR
Operating
EBITDAR/
Revenues (%)
Cash Flow from
Operations
Free Cash Flow
Operating
EBITDAR/Fixed
Charges (x)
Total Adjusted
Debt with Equity
Credit/Operating
EBITDAR (x)
6/30/12
3/31/12
2,481,860 2,408,679
1,097,533 1,070,825
44.2
44.5
478,778
(260,567)
505,244
82,620
2.4
2.3
4.7
4.8
High Leverage but Solid Operations: Digicel Group Limited’s (DGL) ratings are supported by
its position as the leading provider of wireless services in most of its markets in the Caribbean
and its strong operating track record. The ratings are constrained by high leverage and the
company’s exposure to low-rated countries, as about 40% of its cash flow is generated in
Jamaica and Haiti.
Acquisitions Improving Competitive Position: The recent acquisitions of Voila in Haiti and
the transaction with America Movil, where the El Salvador division is pending regulatory approval,
will strengthen the company’s competitive position in its top markets, Jamaica and Haiti. In
addition, the company has a minority stake in M-Via (rebranded to Boom Financial), a 51% stake
in Nextar, and a 100% ownership stake in Data Nets, based in Papua New Guinea (PNG).
Jamaica’s New Regulation and Taxes Manageable: Leverage is not expected to materially
change considering the effect on EBITDA of new regulation and taxes in Jamaica. This effect is
expected to be offset by continued growth from Haiti and PNG.
Broadband Strategy: Digicel is pursuing service offerings using Wimax, HSPA+, or 4G
networks for delivering broadband services in the markets where the company participates.
These investments will take advantage of the low fixed-line penetration rates. These initiatives
underpin revenue from value-added services as they accounted for 20% of revenues in the
quarter ended June 30, 2012.
Lower Capex: The capex-to-revenue ratio approached 17.5% during fiscal 2012 and is
expected to trend towards 10% in the next few years. The decline in the capex ratio should
have a positive effect on free cash flow amid a stable dividend policy of USD40 million per year.
DGL paid a USD300 million special dividend during the first quarter of fiscal 2013.
Parent Subsidiary Rating Linkage: Under Fitch’s approach to rating entities within a
corporate group structure, the issuer default ratings (IDRs) of DGL, Digicel Limited (DL), and
Digicel International Finance Limited (DIFL) are the same. The degree of linkage between the
parent company and its subsidiaries is considered strong.
Recovery Prospects: For issue ratings, Fitch rates debt at DIFL one notch higher than DL,
reflecting its above-average recovery prospects. DL’s ratings reflect the increased burden the
DGL subordinated notes place on the operating assets and the loss of financial flexibility. The
ratings of DGL incorporate their subordination to debt at DIFL and DL, as well as the
subordinated notes’ below-average recovery prospects in the event of default.
Analysts
+52 81 8399-9100
[email protected]
John C. Culver, CFA
+1 312 368-3216
[email protected]
November 8, 2012
Increased Leverage/Refinancing Risk: A negative rating action could be triggered if
consolidated leverage at DGL approaches 6.0x. The inability to refinance sizeable bullet
maturities in advance — especially those due in 2014 or 2015 — could also lead to a rating
action. Short-term upside potential is limited. Positive factors for credit quality would be a
sustained reduction in leverage at DGL to about 4.0x or below and an increase in free cash
flow generation.
106
Corporates
Digicel Group Limited — Corporate Structure
(USD Mil.)
(Bermuda)
43.4%
Digicel Holdings Central
America Limited
Unconsolidated Debt 190
Consolidated Debt 4,874
EBITDA 1,070
Consolidated D/E = 4.6x
100%
100%
Digicel Limited
(Bermuda)
Unconsolidated Debt 1,560
Consolidated Debt 2,472
EBITDA 860
D/E = 2.9x
100%
Digicel Pacific Limited
Debt 211
EBITDA 210
D/E = 1.0x
Digicel Holdings
(Bermuda) Ltd
(Bermuda)
100%
Digicel International
Finance Limited
(St. Lucia)
Debt 912
EBITDA 860
D/E = 1.1x
Operating Companies
Debt 0
EBITDA 860
D/E = N.A.
Note: Data for the last 12 months ended June 30, 2012. N.A. – Not applicable. D/E – Debt/EBITDA.
Source: Digicel audited and internal financial statements, Fitch.
Capitalization — Digicel Group Limited
(Capitalization as of June 30, 2012; USD Mil.)
DGL Sr. Unsecured Notes due 2015 including Toggle Notes
DGL Sr. Unsecured Notes due 2018
DPL Debt
DL Sr. Unsecured Notes due 2014
DIFL Secured Credit Facility
Total Debt w/Equity Credit
Minority Interest
Majority Shareholders’ Equity
Total Shareholders’ Adjusted Equity
Total Capitalization
Debt to LTM EBITDA (x)
Debt to L2QA EBITDA (x)
Ratings
B–/RR5
B–/RR5
N.R.
B/RR4
B/RR4
B/RR4
B+/RR3
Amount
1,415
775
212
510
800
250
912
4,874
19
(1,497)
(1,479)
3,395
4.6
4.3
(%)
41.7
22.8
6.2
15.0
23.6
7.4
26.9
143.5
0.6
(44.1)
(43.5)
100.0
Fiscal Year
Scheduled Debt
Maturities
2013
2014
2015
2016
2017
2018
2019
2020
Total
105
613
1,773
295
263
1,575
—
250
4,874
Liquidity
Cash and Cash
Equivalents
343
L2QA EBITDA – Last two quarters’ EBITDA annualized. LTM – Last 12 months. N.R. – Not rated. RR – Recovery rating.
Source: Fitch.
November 8, 2012
107
Corporates
Recovery Analysis  Digicel Group Limited
(USD Mil.)
IDR:
B
Discount (%)
Multiple (x)
Interest Expense
Rent Expense
Total
Unsecured Priority
First Priority Secured
Senior Unsecured
Senior Subordinated
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
1,070.3
35.0
696
5.0
3,478.4
—
—
—
Rate (%)
Creditors
100
342.8
75
357.7
50
18.7
50
929.0
1,648.2
342.8
476.9
37.4
1,858.0
2,715.1
3,478.4
347.8
3,130.6
—
—
—
—
—
Lien
—
1,136.0
1,560.0
2,190.0
Value
Recovered
—
1,136.0
1,560.0
434.6
Recovery
(%)
—
100
100
20
Recovery
Rating
—
RR3
RR4
RR5
Notching
—
+1
0
(1)
Rating
B
B+a
Bb
B–
a
Limited to one notch due to soft cap methodology. bNo notch benefit due to soft cap methodology. PPE – Property, plant, and equipment.
Source: Fitch.
November 8, 2012
108
Corporates
Debt and Covenant Synopsis — Digicel Group Limited
Debt Class
Digicel International Finance Ltd.
(DIFL) New Extended Facility
Digicel Limited (DL) 2014 Senior
Notes
Security
Financial Covenants
First priority lien on all assets.
Total Debt/EBITDA < 4.0x Sr. Secured
debt/EBITDA < 2.25x EBITDA/Interest Expense > Restrictions on investments, debt liens, acquisitions, and
3.0x
restricted payments.
Senior unsecured guaranteed on a
senior subordinated basis by
certain wholly owned Digicel
subsidiaries.
debt/EBITDA < 1.75x
Other
The indenture governing the 2014 notes, among other
things, restricts DL’s ability and the ability of certain of its
subsidiaries to incur additional indebtedness and issue
preferred stock, pay dividends, make investments or
certain other restricted payments, create liens, engage in
sale-leaseback transactions, guarantee debt, and engage
in mergers, consolidations, and certain sales or leases of
our properties and assets. The notes also have a changeof-control clause at 101% of the principal and the same
optional redemption for up to 35% of the aggregate
principal at a redemption price of 112 from April 1, 2012.
DL 2017 Senior Notes
subsidiaries.
debt/EBITDA < 2.25x
DL 2020 Senior Notes
subsidiaries.
debt/EBITDA < 1.75x
our properties and assets.
our properties and assets. The notes also have a changeof-control clause at 101% of the principal and the same
principal at a redemption price of 112 from April 1, 2012.
Digicel Pacific Finance Limited
(DPFL) Facility
All shares and assets of DPFL and
restricted subsidiaries of Samoa,
Total Debt/EBITDA < 2.71x by March 2012
Tonga, Vanuatu and Fiji.
EBITDA/Interest Expense > 4.25x
Customary project finance covenants and a USD28 million
contingent equity commitment.
All shares and assets of Digicel
Digicel Papua New Guinea (PNG) PNG.
Total Debt/EBITDA < 2.0x by March 2012
EBITDA/Interest Expense > 4.0x
DGL 2015 Senior Notes & Toggle
Notes
Total Debt/EBITDA < 6.0x Total Debt/EBITDA of
restricted subsidiaries < 4.5x
Customary project finance covenants and a USD30 million
contingent equity commitment.
Certain covenants limit the company’s ability to incur
additional indebtedness, pay dividends or other
distributions with respect to capital stock, provide
guarantees, or consolidate, merge, or transfer
substantially all assets. The notes also have a change-ofcontrol clause at 101% of the principal and the same
principal at a redemption price of 108.875 for the senior
notes and 108.125 for the toggle notes starting in 2010
and stepping down to 104.438%/104.563% (cash/toggle)
on Jan. 15, 2012.
Total Debt/EBITDA < 6.0x
Certain covenants limit the company’s ability to incur
additional indebtedness, pay dividends or other
distributions with respect to capital stock, provide
guarantees, or consolidate, merge, or transfer
substantially all assets. The notes also have a change-ofcontrol clause at 101% of the principal and an optional
redemption for up to 35% of the aggregate principal at
110.5% of par value prior to April 15, 2013. On and after
April 15, 2014 the notes are redeemable at 105.25% of
par value declining at a rate of 1.75% per year until 2017.
DGL 2018 Senior Notes
Senior unsecured and structurally
subordinated.
Senior unsecured and structurally
subordinated.
Disclaimer: The covenant summaries reflect Fitch’s interpretation and synopsis of information contained in publicly available documents, including bond indentures. Fitch cannot
ensure that the information contained in such documents is either accurate or complete, or that the covenant summaries, or any particular covenant summary, accurately or
completely reflect the key terms of any such document. The information presented in the covenant summaries is provided “as is” without any representation or warranty and is not a
substitute for information provided to investors by an issuer and its agents in connection with a sale of securities.
Source: Company, Fitch.
November 8, 2012
109
Corporates
Financial Summary  Digicel Group Limited
(USD Mil., Year Ended June 30)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Other (Investments and Financial)
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2012
2011
2010
2009
1,070,281
1,097,533
43.1
44.2
0.28
(10.5)
1.1
1,041,572
1,070,825
43.2
44.5
0.25
3.4
(4.1)
918,725
938,258
43.9
44.8
0.24
6.4
(3.7)
752,506
773,741
43.1
44.3
0.26
15.5
12.2
752,506
773,741
43.1
44.3
0.26
15.5
12.2
2.4
2.7
2.6
1.7
1.7
2.4
0.2
0.8
1.1
2.4
2.6
2.5
1.7
1.7
2.3
0.8
1.9
1.2
2.2
2.4
2.4
1.2
1.2
2.2
0.7
1.5
1.5
2.6
2.8
2.7
1.7
1.7
2.5
1.2
3.7
2.7
2.6
2.8
2.7
1.7
1.7
2.5
1.2
3.7
2.7
5.1
4.6
4.2
4.7
4.3
8.5
—
0.0
5.2
4.7
4.1
4.8
4.2
8.4
—
0.0
5.5
4.9
4.3
5.0
4.3
9.0
—
0.1
5.5
5.0
3.7
5.1
3.8
7.6
—
0.0
5.5
5.0
3.7
5.1
3.8
7.6
—
0.0
4,370,699
342,792
227,536
4,659,290
4,886,826
—
4,886,826
218,016
5,104,842
(1,478,954)
3,625,888
4,662,259
656,604
210,548
4,673,624
4,884,172
—
4,884,172
234,024
5,118,196
(1,162,797)
3,955,399
4,219,283
613,335
387,528
4,140,669
4,528,197
—
4,528,197
156,264
4,684,461
(1,153,591)
3,530,870
3,188,219
1,040,848
166,050
3,626,948
3,792,998
—
3,792,998
169,880
3,962,878
(1,173,058)
2,789,820
3,188,219
1,040,848
166,050
3,626,948
3,792,998
—
3,792,998
169,880
3,962,878
(1,173,058)
2,789,820
575,640
(96,862)
478,778
0
(428,469)
(425,876)
(260,567)
(376,710)
138,765
214,873
0
(6,627)
(405,266)
552,863
(47,619)
505,244
0
(421,748)
(115,876)
82,620
(362,733)
114,638
320,861
0
2,883
43,269
456,536
(24,804)
431,732
0
(294,585)
(45,322)
133,918
(766,647)
(109,119)
367,478
0
(11,050)
(427,513)
431,142
4,042
435,184
0
(159,592)
(44,728)
270,854
(273,716)
23,250
585,426
500
(16,048)
550,276
431,142
4,042
435,184
0
(159,592)
(44,728)
270,854
(273,716)
23,250
585,426
500
(16,048)
550,276
2,481,860
14.1
611,780
398,552
27,252
(13,685)
2,408,679
15.1
616,021
394,397
29,253
47,233
2,092,869
19.8
558,838
375,040
19,533
43,158
1,747,415
0.9
464,693
264,890
21,235
(131,679)
1,747,415
0.9
464,693
264,890
21,235
(131,679)
Source: Fitch.
November 8, 2012
110
Corporates
(Haina)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term FC IDR
Long-Term LC IDR
Senior Unsecured
quality of the distribution and generation companies in the country to that of the sovereign.
B
B
B
FC – Foreign currency. LC – Local
currency. IDR – Issuer default rating.
Rating Outlook
Long-Term LC/FC IDR
Positive
Financial Data
Haina S.A.
(USD Mil.)
Revenue
LTM
3/31/12 12/31/11
648
618
EBITDA
EBITDA Margin (%)
119
18.4
112
18.2
FFO
CFFO
FCF
FFO Interest
Coverage (x)
Total Debt
Total Debt/
EBITDA (x)
EBITDA/Debt
Service Coverage (x)
99
82
(24)
83
41
(10)
5.5
301
5.4
281
2.5
2.5
1.7
1.7
Transition Risk Diminishes: The incumbent party’s electoral victory in the presidential
elections held during May 2012 partially diminishes the political uncertainty that had prevailed
during the first half of the year. For Empresa Generadora de Electricidad Haina, S.A. (Haina),
the results lowered the risk of noncontinuous policies aimed at strengthening the financial
viability of the Dominican electricity sector, as agreed to under the last IMF Standby agreement,
which expired in February 2012. Key political measures needed to achieve a financially viable
sector in the medium term include a gradual adjustment to tariffs, increases in the DISCOs’
cash recovery index (CRI) to 70% from the historical lows of 50%, and the reduction of days
receivables from generating companies to a 60-day average.
Competitive Generation Assets: Haina’s ratings are supported by its diversified portfolio
of generation assets, including wind generation, the use of various sources of fuel in its
plants, and its strong market position and operational efficiency. These plants use fuel oil,
diesel, and coal. This diversification provides the company with different positions on the
dispatch merit list. Haina’s operational efficiency compares favorably with other generating
companies in the country, registering an average heat rate of 9.526 British thermal units
(Btu) per kilowatt-hour (kWh). Its most efficient unit registers a 7.800 Btu/kWh heat rate
burning heavy fuel oil, also known as fuel oil No. 6.
Strong Credit Metrics: Haina’s credit metrics are strong relative to other ‘B’ rated
companies. For the LTM ended March 31, 2012, the company reported an EBITDA of
USD119 million (USD112 million in fiscal 2011) and had an 18.4% EBITDA margin.
Respectively, leverage and debt service coverage stood at 2.5x and 1.7x in relation to
EBITDA as of March 31, 2012.
Volatile Cash Flow Generation and Collection: For the LTM ended March 31, 2012, the
company generated USD82 million of CFFO, an increase from USD41 million in 2011.
Like other generators, the company struggles to collect receivables from distribution
companies. At the end of first-quarter 2012, days receivable outstanding totaled 120 days,
which is equivalent to four invoice periods. The collection rate was 54% during this period.
With USD149 million of cash on hand, liquidity is high at 3x short-term debt.
Analysts
Julio Ugueto
+58 212 286-3356
[email protected]
Lucas Aristizabal
+1 312 368-3260
[email protected]
November 8, 2012
Key Rating Drivers: Lower dependence of the sector on government subsidies could lead to a
rating upgrade. The ratings would also be positively affected by a positive rating action on the
sovereign.
111
Corporates
Recovery Analysis
Haina’s issuance has been assigned a recovery rating of ‘RR4’. The recovery was based upon
the treatment of Haina as a going concern since a liquidation scenario is considered highly
unlikely. The ratings have been capped at ‘RR4’ due to concerns about the low probability of
high recoveries for bondholders of corporates domiciled in the Dominican Republic.
Haina’s debt issuance is not guaranteed by any specific asset but rather by all of the
company’s assets with no subordination with respect to any instrument. Fitch currently
maintains a positive outlook for the sovereign, and as such we do not foresee a bankruptcy
scenario for Haina in the near future, unless a low probability event such as a severe fiscal
crisis materializes that would severely impact the company’s cash flow.
The distressed EBITDA of Haina was calculated to cover the company’s fixed charges and
critical maintenance capex. This EBITDA was multiplied by a conservative 5x multiple to arrive
at a distressed company valuation. This distressed valuation would be associated with a
severe fiscal crisis that would lead to a sustained cash flow drain for all generating companies
in the country and contemplates the low probability event of a nonfriendly renegotiation
scenario of the company’s PPA’s with distribution companies to the detriment of Haina. In this
hypothetical scenario, it would be reasonable to expect a low demand for the company’s assets
under a competitive bidding process, further supporting the distressed valuation commented
above.
Recovery Analysis  Empresa Generadora de Electricidad Haina, S.A.
(USD Mil.)
IDR:
B
Discount (%)
Distressed EBITDA
Market Multiple (x)
Enterprise Value
119.0
63.0
44.0
5.0
220.0
Interest Expense
Rent Expense
Principal Amortization (Next 12 Months)
Unsecured Priority
Senior Unsecured
Subordinated
Junior Subordinated
Amount Outstanding
and Available R/C
—
227.0
—
—
22
—
10
12
Value
Recovered
—
198.0
—
—
Recovery
Rate (%)
—
87
—
—
Recovery
Rating
—
RR2
—
—
Notching
—
+2
—
—
220.0
22.0
198.0
Rating
B
BB–
—
—
Source: Fitch.
November 8, 2012
112
Corporates
Organizational Structure – Empresa Generadora de Electricidad Haina S.A.
Basic Energy
Caribe Energy Ltd.
31.08%
Other
24.41%
44.51%
Dominican Republic
(IDR — B)
Haina Investment Company Ltd.
Through FONPER
50.00%
50.00%
Empresa Generadora de electricidad Haina S.A.
Operating Company (Guarantor)
IDR — B
EGE Haina Finance Company (Issuer)
USD175 Mil. Senior Unsecured Notes Rating — B
Source: Empresa Generadora de Electricidad Haina S.A.
November 8, 2012
113
Corporates
Debt and Covenant Synopsis — Empresa Generadora de Electricidad Haina, S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
EGE Haina Finance Company
May 11, 2007
April 26, 2017
Financial Covenants
3.5
2.5
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
Generally permits asset sales as long as it is divested at least equal to fair market value, Haina receives at least a 75%
cash payment, and the proceeds are used to reduce debt or are reinvested.
The issuer is not allowed to incur additional debt. The guarantor is not allowed to incur additional debt except permitted
debt. Permitted debt includes debt used to refinance existing or permitted indebtedness, subject to standard limitations. The
guarantor can incur additional indebtedness in an aggregate principal amount not to exceed $25 million.
Haina is not permitted to issue senior secured debt or to create any lien on any asset, property, or income without providing
the same security to the existing notes.
The issuer is not permitted to pay any dividends or make any other distribution to its shareholders. The guarantor is not
permitted to make any restricted payments if, among other clauses, it cannot incur additional debt according to its limitation
on indebtedness, an event of default has occurred, or if such payment exceed 100% of combined net income.
If the issuer, guarantor, or any restricted subsidiary defaults on any indebtedness of at least USD20 million.
declare the notes to be due and payable. Events of default include, but are not limited to, the interest reserve not being fully
funded for more than five days and if the issuer, guarantor or any restricted subsidiary defaults in any indebtedness of at
least USD20 million.
November 8, 2012
114
Corporates
Financial Summary  Empresa Generadora de Electricidad Haina, S.A.
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 3/31/12
2011
2010
2009
2008
118,846
118,846
18.4
18.4
17.4
(3.7)
18.3
112,243
112,243
18.2
18.2
15.6
(1.7)
18.7
78,649
78,649
18.6
18.6
16.0
12.5
13.6
44,555
44,555
14.5
14.5
9.1
(14.1)
4.7
74,174
74,174
16.1
16.1
18.0
(6.7)
12.6
5.5
5.4
5.4
1.7
1.7
5.5
0.0
2.1
0.9
5.4
5.9
5.9
1.7
1.7
5.4
0.1
2.9
1.1
4.2
3.9
3.9
2.0
2.0
4.2
1.8
4.6
2.7
1.7
1.7
1.7
1.4
1.4
1.7
(0.5)
0.7
(2.9)
3.7
3.1
3.1
2.9
2.9
3.7
(0.3)
0.6
0.4
2.5
2.5
1.3
2.5
1.3
8.6
—
0.2
2.8
2.5
0.9
2.5
0.9
7.8
—
0.2
2.4
2.6
1.2
2.6
1.2
9.9
—
0.09
4.5
4.5
3.7
4.5
3.7
13.6
—
0.03
2.0
2.4
2.1
2.4
2.1
13.1
—
0.01
824,452
149,333
47,700
253,311
301,011
—
301,011
0
301,011
394,305
695,316
741,466
183,879
47,656
233,750
281,406
—
281,406
0
281,406
375,160
656,566
583,385
110,924
19,600
186,967
206,567
—
206,567
0
206,567
324,181
530,748
554,309
39,548
6,000
196,367
202,367
—
202,367
0
202,367
291,804
494,171
584,234
22,340
1,703
175,000
176,703
—
176,703
0
176,703
316,687
493,390
99,035
(16,588)
82,447
0
(92,450)
(13,999)
(24,002)
14
15,649
90,243
0
(5,579)
76,325
83,227
(42,154)
41,073
0
(37,539)
(13,999)
(10,465)
60
9,035
74,840
0
(514)
72,956
64,707
35,110
99,817
0
(37,099)
(9,997)
52,721
0
14,488
4,200
0
(30)
71,379
19,021
(36,323)
(17,302)
0
(5,881)
(20,003)
(43,186)
0
32,978
27,737
0
(322)
17,207
65,116
(58,979)
6,137
0
(17,098)
(20,000)
(30,961)
0
16,986
(10,738)
0
0
(24,713)
647,558
4.9
101,435
22,026
0
67,458
617,540
46.2
95,895
18,922
0
65,470
422,509
37.5
62,567
20,304
0
41,975
307,198
(33.3)
29,015
25,837
0
14,403
460,567
0.3
58,870
23,792
0
38,934
Source: Fitch.
November 8, 2012
115
Corporates
Empresa Generadora de Electricidad Itabo, S.A.
(Itabo)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term FC IDR
Long-Term LC IDR
Senior Unsecured
B
B
B
FC – Foreign currency. LC – Local
currency. IDR – Issuer default rating.
Rating Outlook
Long-Term LC/FC IDR
Positive
Financial Data
Itabo S.A.
(USD Mil.)
Total Assets
Total Equity
Net Income
EBITDA
Total Debt
LTM
3/31/12
580
337
(3)
39
129
12/31/11
570
328
(6)
27
129
quality of the distribution and generation companies in the country to that of the sovereign and
has resulted in historically high levels of volatility in cash flows for the generators.
Transition Risk in 2012: The incumbent party’s electoral victory in the presidential elections
held during May 2012 partially diminishes the political uncertainty that had prevailed during the
first half of the year. For Empresa Generadora de Electricidad Itabo, S.A., the results lowered
the risk that the new government would discontinue policies aimed at strengthening the
financial viability of the Dominican electricity sector, as agreed to under the last IMF Standby
agreement, which expired in February 2012. Key political measures needed to achieve a
financially viable sector in the medium term include a gradual adjustment to tariffs, increases in
the DISCOs’ cash recovery index (CRI) to 70% from the historical lows of 50% in order to
reduce their dependence on government funding to pay for their electricity bill, and the
reduction of days receivables from generating companies to a 60-day average.
Well-Structured PPAs Support the Ratings: Itabo’s ratings are supported by its strong
competitive position as one of the lower cost thermoelectric generators in the country. The
company operates two low-cost coal-fired thermal generating units and sells electricity to three
distribution companies in the country through well-structured, long-term, U.S. dollardenominated power purchase agreements (PPAs).
Financial Profile Evolution: The company’s financial profile improved slightly during the first
quarter of 2012. This improvement occurred following the optimization of its coal cash cost, in a
context of rising electricity prices and moderate demand growth. These factors allowed the
company to register an EBITDA of USD39 million for the LTM ended March 31, 2012. This
compares with USD27 million in 2011. Leverage was 3.3x as of March 31, 2011, which is
relatively low for the category.
Analysts
Volatile Cash Flow Generation: Itabo’s cash flow from operations (CFFO) was USD16 million
during the LTM. This is a moderate improvement versus USD14 million of CFFO in 2011. Itabo
registered an average collection rate from distribution companies of 57% of total account
receivable billing during the first quarter of 2012, slightly above the collection rate achieved
during the same period last year (50%). Days receivables outstanding stood at 106 at the end
of March, a deterioration from 72 at the end of 2011. Liquidity is relatively strong. The company
had USD44 million of cash on hand at the end of March and no short-term debt.
Julio Ugueto
+58 212 286-3356
[email protected]
Lucas Aristizabal
+1 312 368-3260
[email protected]
Key Rating Drivers: Lower dependence of the sector on government subsidies could lead to a
rating upgrade. The ratings would also be positively affected by a positive rating action on the
sovereign.
November 8, 2012
116
Corporates
Recovery Analysis
Itabo’s recovery rating of ‘RR4’ is constrained by the Dominican Republic recovery rating cap.
The recovery analysis uses the average EBITDA reported by the company during the past five
years as a starting point to estimate a stressed enterprise value.
Fitch currently maintains a Positive Outlook for the Dominican sovereign and, as such, does
not foresee a bankruptcy scenario for Itabo except for a low probability event, such as a severe
fiscal crisis that would impact the company’s cash flow to a point of liquidity constraint.
As a result, Fitch has opted for estimating a distressed enterprise valuation to arrive at the
recovery scenario on the following page. The distressed EBITDA is calculated to cover the
company’s fixed charges and critical maintenance capex, which is then adjusted by a
conservative 5x multiple to arrive at a distressed company valuation. This distressed valuation
would be associated with a severe fiscal crisis that would lead to a sustained cash flow drain
for all generating companies in the country and contemplates the low probability event of a
nonfriendly renegotiation scenario of the company’s PPA’s with distribution companies to the
detriment of Itabo. In this hypothetical scenario it would be reasonable to expect a low demand
for the company’s assets under a competitive bidding process, further supporting the
distressed valuation commented above.
Recovery Analysis  Empresa Generadora de Electricidad Itabo S.A.
(USD Mil.)
IDR:
Discount (%)
Distressed EBITDA
Market Multiple (x)
Enterprise Value
B
Interest Expense
Rent Expense
Unsecured Priority
Senior Unsecured
Amount Outstanding
and Available R/C
—
129.0
39.0
46.7
21
5.0
104.0
18
—
8
Greater of Enterprise or Liquidation Value
Value
Recovered
—
93.6
Recovery
Rate (%)
—
73
Recovery
Rating
—
RR2
104.0
10.4
93.6
Notching
—
+2
Rating
B
BB–
Source: Fitch.
November 8, 2012
117
Corporates
Organizational Structure – Empresa Generadora de Electricidad Itabo S.A.
Dominican Republic
The AES Corporation
IDR — B+
IDR — B
Through FONPER
50.00%
50.00%a
Empresa Generadora de Electricidad Itabo S.A.
Operating Company (Guarantor)
IDR — B
Itabo Dominicana (Issuer)
USD116 Senior Unsecured Notes Rating — B
aIncludes former CDE employees share of approximately 0.03%. Does not include intermediate holding companies.
Source: Fitch and Empresa Generadora de Electricidad Itabo S.A.
November 8, 2012
118
Corporates
Debt and Covenant Synopsis — Empresa Generadora de Electricidad Itabo, S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Itabo Dominicana
Empresa Generadora de Electricidad Itabo, S.A. (Itabo)
Nov. 12, 2010
Nov. 12, 2020
Financial Covenants
3.5
2.5
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
Generally permits asset sales as long as it is divested at least equal to fair market value, it received at least 75% cash
payment, and if the proceeds are used to reduce debt or are reinvested.
The issuer is not allowed to incur additional debt. The guarantor is not allowed to incur additional debt except permitted debt.
Permitted debt includes debt used to refinance existing or permitted indebtedness, subject to standard limitations. The
guarantor can incur additional indebtedness in an aggregate principal amount not to exceed USD35 million.
Itabo is not permitted to issue senior secured debt or to create any lien on any asset, property, or income without providing
the same security to the existing notes.
The issuer is not permitted to pay any dividends or make any other distribution to its shareholders. The guarantor is not
permitted to make any restricted payments if, among other clauses, it cannot incur additional debt according to its limitation
on indebtedness, an event of default has occurred, or if such payment exceeds 100% of combined net income.
None.
declare the notes to be due and payable. Events of default include, but are not limited to, the interest reserve not being fully
funded for more than five days and if the issuer, guarantor, or any restricted subsidiary defaults in any indebtedness of at
least USD20.0 million.
November 8, 2012
119
Corporates
Financial Summary  Empresa Generadora de Electricidad Itabo, S.A.
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Other (Investments. and Financing)
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 3/31/12
2011
2010
2009
2008
39,140
39,140
15.3
15.3
9.6
(6.8)
(1.0)
27,050
27,050
10.9
10.9
9.9
(7.5)
(1.8)
(5,243)
(5,243)
(2.6)
(2.6)
17.6
(3.1)
(24.0)
70,484
70,484
32.9
32.9
36.3
16.9
10.4
73,461
73,461
29.2
29.2
1.3
(0.2)
14.1
2.5
2.2
2.2
2.2
2.2
2.5
0.0
2.5
0.5
3.0
1.8
1.8
1.8
1.8
3.0
(0.2)
3.3
0.5
4.5
(0.3)
(0.3)
(0.3)
(0.3)
4.5
0.7
4.6
2.8
7.2
3.2
3.2
3.2
3.2
7.2
2.7
6.3
6.4
0.3
4.2
4.2
4.2
4.2
0.3
1.0
2.2
0.9
2.9
3.3
2.2
3.3
2.2
0.1
—
2.9
4.8
2.8
4.8
2.8
0.1
—
1.6
(24.5)
(10.9)
(24.5)
(10.9)
0.3
—
0.8
1.8
0.7
1.8
0.7
0.2
—
21.9
1.7
1.4
1.7
1.4
0.1
—
579,941
44,436
—
128,852
128,852
—
128,852
0
128,852
337,475
466,327
569,910
52,892
—
128,792
128,792
—
128,792
0
128,792
328,022
456,814
573,293
71,482
—
128,564
128,564
—
128,564
0
128,564
335,688
464,252
503,710
79,150
—
125,000
125,000
—
125,000
0
125,000
305,389
430,389
505,639
20,792
—
125,000
125,000
—
125,000
0
125,000
310,924
435,924
26,853
(10,518)
16,335
0
(31,914)
(1,725)
(17,304)
2,105
330
0
0
(427)
(15,296)
29,911
(15,952)
13,959
0
(30,702)
(1,725)
(18,468)
361
(56)
0
0
(427)
(18,590)
63,480
(20,650)
42,830
0
(15,258)
(33,775)
(6,203)
226
1,986
(1,629)
0
(2,243)
(7,863)
134,635
(75,304)
59,331
0
(9,280)
(13,790)
36,261
850
21,269
0
0
(16)
58,364
(11,905)
15,831
3,926
0
(4,410)
0
(484)
20,100
(3,453)
0
0
(20)
16,143
255,531
—
16,208
18,095
0
(3,193)
247,619
24.1
4,111
15,112
0
(5,963)
199,485
(6.9)
(28,712)
18,217
0
(40,239)
214,370
(14.9)
51,028
21,747
0
32,003
251,778
25.6
54,080
17,622
0
42,095
Source: Fitch.
November 8, 2012
120
Corporates
Gol Linhas Aereas Inteligentes S.A.
Full Rating Report
Key Rating Drivers
Ratings
GOL
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B/RR5
Local Currency
Long-Term IDR
B+
National
Long-Term Rating
BBB(bra)
VRG Linhas Aereas S.A. (VRG)
Foreign Currency
Long-Term IDR
B+
High Financial Leverage: The company’s net leverage, as measured by the total adjusted net
debt/EBITDAR ratio, reached 13.2x by the end of June 2012. This represents a sharp increase
versus the 8.9x and 4.6x levels reached by the end of December 2011 and June 2011,
respectively.
Local Currency
Long-Term IDR
B+
National
Long-Term Rating
Senior Unsecured
BBB(bra)
BBB–(bra)
GOL Finance
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B/RR5
Local Currency
Long-Term IDR
B+
Rating Outlooks
Long-Term Foreign Currency IDR Negative
Negative
Negative
Financial Data
Gol Linhas Aereas Inteligentes S.A.
(Consolidated)
(BRL Mil.)
Revenue
EBITDAR
EBITDAR
Margin (%)
Cash
Short-Term Debt
Total On-Balance
Debt
Total Adjusted Debt
Gross Adjusted
Leverage (x)
Net Adjusted
Leverage (x)
FCF
FCF Margin (%)
6/30/12
8,074
569
12/31/11
7,539
707
7.0
1,703
606
9.4
2,240
1,552
5,233
9,196
4,992
8,527
16.2
12.1
13.2
(969)
(12.0)
8.9
(1,324)
(17.6)
Analysts
José Vértiz
+1 212 908-0641
[email protected]
Liquidity Trend: At the end of June 2012, Gol Linhas Aereas Inteligentes S.A. (GOL) had
BRL1.7 billion of cash and marketable securities, equivalent to 21% of the company’s LTM
June 2012 revenue. During LTM June 2012, GOL’s FCF was negative BRL969 million. This
figure is equivalent to about 57% and 19% of the company’s cash position and on-balance debt,
respectively, at the end of June 2012. Potential liquidity deterioration during the second quarter
of 2012, driven by continued negative free cash flow (FCF) that resulted in lower cash balance
or incremental debt, is GOL’s main credit concern.
Market Position and Limited Diversification: GOL maintained an important market share in
the Brazilian domestic market of 39.6% (including recently acquired Webjet S.A.), measured by
revenue passenger kilometers (RPK), at the end of August 2012. The ratings consider the
company’s business model, which is primarily oriented to the domestic passenger market, and
has limited product and geographic diversification.
Capacity Management: Considering capacity from acquired Webjet S.A., GOL reached a total
capacity of 32.5 billion, measured by available seat kilometers (ASK), during the January–
August 2012 period. GOL’s management is likely to be conservative during the second half of
2012 in an effort to boost profitability and cash flow. This should result in 2012 growth rates for
the company’s capacity in the range of –2% to –4%, which is expected to be positive in terms
of the company’s yields.
Macro and Business Environment: The ratings factor in the high degree of sensitivity of
GOL’s financial performance based on several factors not controlled by the company, such as
competition, performance of the local currency, and fuel price trends. These factors should
continue to put pressure on the company’s margins in the short to medium term, which could
offset the actions taken by management — in terms of capacity management and ex-fuel cost
reduction — to improve its free cash flow generation during 2012.
Subordination of Unsecured Debt Incorporated: The ‘B/RR5’ rating of the company’s
unsecured public debt reflects below-average recovery prospects in the event of a default due
to the subordination of the unsecured debt to secured debt related to aircraft finance.
Liquidity Trend Is Main Rating Driver: The Negative Outlook incorporates Fitch’s concern
regarding a potential scenario of continued negative trends in the company’s FCF that could
result in liquidity deterioration during the second half of 2012. A deterioration of the company’s
liquidity position would likely result in downgrades of the company’s ratings. Conversely, better
operational performance during 2012 could warrant a change in the Rating Outlook to Stable.
Debora Jalles
+55 21 4503-2629
[email protected]
November 8, 2012
121
Corporates
Recovery Rating
GOL’s unsecured public debt is rated ‘B’, one notch lower than the company’s IDR, with a
recovery rating of ‘RR5’ suggesting below-average recovery prospects under a default scenario.
GOL’s recovery ratings reflect Fitch’s belief that the company will be reorganized rather than
liquidated in a bankruptcy scenario, given Fitch’s estimates that the company’s going concern
value is higher than its projected liquidation value due mostly to the value associated with
GOL’s market position in the Brazilian airline industry. In estimating the company’s going
concern value, Fitch applies a valuation multiple of 6.0x to the company’s EBITDA post
restructuring, which is estimated at BRL500 million annual basis and it would be reflecting the
company’s reduced size and capacity post restructuring.
After reductions for administrative and cooperative claims, Fitch arrives at an adjusted
reorganization value of approximately BRL3 billion. Based upon these assumptions, the total
senior secured debt of BRL2.1 billion recovers 100%, resulting in ‘RR1’ ratings for this type of
debt. The unsecured debt, BRL3.1 billion which includes the senior notes, local debentures,
and perpetual bonds recovers approximately 18% resulting in a recovery rating of ‘RR5’,
reflecting the subordination of the unsecured debt to the secured debt.
Recovery Analysis — GOL Linhas Aereas Inteligentes S.A. (GOL)
(BRL Mil., As of June 30, 2012)
EBITDA LTM June 2012
Discount (%)
Multiple (x)
N.A.
—
500
6
3,000
Interest Expense
Rent Expense
Total
400
—
75
475
3,000
300
2,700
Secured Priority
Secured
Lien
2,127
Unsecured Priority
Senior Unsecured
Value
2,127
100
2,700
2,127
573
0
573
Lien
3106
Value
573
18
Concession
Allocation
—
Recovery
Rating
RR5
Notching
(1)
Rating
B
November 8, 2012
122
Corporates
Organizational Structure — Gol Linhas Aereas Inteligentes S.A. (GOL)
(As of June 30, 2012)
Fund de Investimento de
Participacoes Volluto
(Oliveira Family)
62.47%
Free Float
27.29%
Others
9.97%
Gol Linhas Aereas Inteligentes S.A. (GOL)
100.00%
VRG Linhas Aereas S.A.
(VRG)
100.00%
Webjet Linhas Aereas S.A.
(Webjet)
100.00%
Gol Finance Cayman
100.00%
GAC Inc.
100.00%
Sky Finance
Source: GOL.
November 8, 2012
123
Corporates
Debt and Covenant Synopsis  Gol Linhas Aereas Inteligentes S.A. and Subsidiaries
International Issuances (Foreign Currency Notes)
Issuer
GOL Finance
Guarantors
GOL Linhas Aéreas Inteligentes S.A. and GOL Transportes Aéreos S.A.
International Issuance #1:
Issue Date
Maturity Date
Description of Debt
Amount
April 5, 2006
N.A.
Senior Unsecured Guaranteed Perpetual Notes
USD200 Mil.
Issue Date
Maturity Date
Description of Debt
Amount
March 22, 2007
April 3, 2017
Senior Unsecured Guaranteed Notes
USD225 Mil.
Issue Date
Maturity Date
Description of Debt
Amount
July 20, 2010
July 20, 2020
Senior Unsecured Guaranteed Notes
USD300 Mil.
Main Characteristics
The following is a summary of the main characteristics included in the indentures governing the above-indicated international.
Ranking
The notes will be unsecured and will rank equally with the other unsecured unsubordinated indebtedness the Issuer may incur. Gol
Linhas Aéreas Inteligentes S.A. and Gol Transportes Aéreos S.A., — the guarantors — will unconditionally guarantee, jointly and
severally, on a senior unsecured basis, all of the Issuer’s obligations pursuant to the notes. The guarantees will rank equally in right of
payment with the other unsecured unsubordinated indebtedness and guarantees of the guarantors. The notes will be effectively junior to
the issuer’s and the guarantors’ secured indebtedness.
Covenant Summary
Negative Pledge
Change of Control
Limit of Indebtedness
Cross Default
Debt Service Coverage Ratio
Merger Restriction
Limit on Subsidiary Debt
Certain Sales of Assets
No
Yes
No
Yes
No
Yes
No
Yes
Source: Gol Linhas Aereas Inteligentes S.A.
November 8, 2012
124
Corporates
Debt and Covenant Synopsis  Gol Linhas Aereas Inteligentes S.A. and Subsidiaries
Local Debentures
Issuer
Guarantors
VRG Linhas Aéreas
GOL Linhas Aéreas Inteligentes S.A.
Local Issuance #1
Issue Date
Maturity Date
Description of Debt
Collateral
Amount
May 13, 2009
Sept. 13, 2015
4th Issue of Simple, Nonconvertible Debentures – Unsecured Debt
N.A.
BRL 600 Mil.
Local Issuance #2
Issue Date
Maturity Date
Description of Debt
Collateral
Amount
June 20, 2011
June 10, 2017
5th Issue of Simple, Nonconvertible Debentures – Unsecured Debt
N.A.
BRL 500 Mil.
Other Loans and Financings
BNDES Loan
IFC Loan
Covenants Status (Debentures, Loans and
Financings)
Restrictive Covenants
Net Financial Debt / EBITDAR
In Compliance (Jun 2012)
Waiver
Current Assets / Current Liabilities
Waiver
Debt Coverage Ratio.
Waiver
EBITDA/Debt Service
Waiver
BRL15.5 Mil. outstanding as of June 30, 2012
BRL25.6 Mil. outstanding as of June 2012
The following information has been extracted from the notes in the company’s financial statements. VRG has restrictive
covenants (covenants) in its financing agreements with the following financial institutions: IFC, Bradesco and Banco do
Brasil (Debentures IV and V, respectively). The restrictive covenants measures for these loans are: (1) net financial
debt/ EBITDAR, (2) current assets/current liabilities, (3) EBITDA/debt service, and (4) debt coverage ratio. On Dec. 31,
2011, the company and its subsidiaries did not reach the minimum standards established for the financing from the IFC,
BNDES and the debentures IV and V, bond to EBITDA due to accumulated losses in the year ended Dec. 31, 2011.
VRG issued to BNDES a letter of guarantee of BRL15.5 million, whose amount exceeds the current debt, and is not
therefore subject to liquidity problems in case it is required to settle such debts.
The following is a summary of the main restrictive covenants that apply for the VRG debentures (4th and 5th) and the
BNDES and IFC loans above-indicated.
Level as of June 30, 2012: 13x
No
Yes, until December 2012
Level as of June 30, 2012: 1.0x
No
No
No
Source: Gol Linhas Aereas Inteligentes S.A.
November 8, 2012
125
Corporates
Financial Summary — GOL Linhas Aereas Inteligentes S.A.
(BRL 000)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2008
2009
2010
2011
LTM Ended
6/30/12
36,479
681,568
0.6
10.6
5.9
(4.0)
(72.0)
556,145
1,206,828
9.2
20.0
14.1
4.9
48.4
979,399
1,535,061
14.0
22.0
17.2
(2.0)
7.7
202,000
707,058
2.7
9.4
9.0
(18.0)
(29.0)
2,555
568,723
0.0
7.0
10.7
(12.0)
(58.0)
—
0.15
0.77
0.03
0.37
0.60
0.01
0.36
0.47
2.79
1.93
1.29
0.63
0.79
1.55
0.66
2.28
2.82
3.36
2.60
1.65
1.36
1.20
1.95
0.35
3.08
1.09
0.90
0.40
0.70
0.10
0.28
0.95
—
0.69
(1.00)
1.03
—
0.51
—
0.33
1.02
—
1.11
—
14.97
93.38
82.00
11.62
11.01
8.05
—
0.28
5.29
5.63
3.08
6.37
5.19
8.81
—
0.19
4.19
3.82
1.80
4.97
3.68
10.96
—
0.09
8.84
24.71
13.62
12.06
8.89
11.66
—
0.31
8.06
2,048.11
1,381.70
16.17
13.18
11.98
0.41
0.12
7,258,578
414,915
967,452
2,438,881
3,406,333
—
3,406,333
4,515,623
7,921,956
1,071,608
8,993,564
8,720,120
1,422,852
591,695
2,542,167
3,133,862
—
3,133,862
4,554,781
7,688,643
2,609,986
10,298,629
9,063,847
1,978,464
346,008
3,395,080
3,741,088
—
3,741,088
3,889,634
7,630,722
2,929,169
10,559,891
10,655,141
2,239,574
1,552,440
3,439,008
4,991,448
—
4,991,448
3,535,406
8,526,854
2,205,911
10,732,765
10,454,125
1,702,666
605,678
4,627,238
5,232,916
—
5,232,916
3,963,176
9,196,092
1,468,008
10,664,100
(358,041)
524,901
166,860
—
(356,863)
(36,258)
(226,261)
—
397,513
(533,863)
—
(41,180)
(403,791)
514,799
(57,541)
457,258
—
(161,906)
295,352
—
167,328
(42,416)
811,654
(18,841)
1,213,077
887,883
(163,986)
723,897
—
(664,229)
(185,839)
(126,171)
—
(48,990)
638,638
120,861
(10,888)
573,450
(49,226)
(553,294)
(602,520)
—
(670,880)
(50,866)
(1,324,266)
(114,748)
(74,594)
628,187
845
159,005
(725,571)
18,718
(228,560)
(209,842)
—
(759,269)
(9)
(969,120)
(114,748)
193,576
71,151
38
158,824
(660,279)
6,406,193
29.7
(88,648)
242,099
645,089
(1,239,347)
6,025,382
(6.0)
413,292
288,112
650,683
890,832
6,979,447
15.8
697,795
376,743
555,662
214,197
7,539,308
8.0
(244,504)
509,286
505,058
(751,538)
8,073,971
14.3
(399,583)
555,416
566,168
(1,181,247)
November 8, 2012
126
Corporates
Grupo FAMSA S.A.B. de C.V.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured due 2015
B+
B+
Local Currency
Long-Term IDR
B+
National
Long-Term Rating
BBB(mex)
Short-Term Rating
F3(mex)
MXN 1 Billion Cebures due 2014 BBB(mex)
MXN1 Billion Short-Term
Cebures Program
F3(mex)
Rating Outlooks
Stable
Financial Data
(MXN Mil.)
Revenue
EBITDA
Total Debt
Gross Interest
Expense
Debt/EBITDA (x)
EBITDA/
Gross Interest
Expense (x)
6/30/12
14,518
1,932
17,176
2011
15,295
1,698
16,252
1,268
8.9
1,213
9.6
1.5
1.4
Declining U.S. Performance Forces Closures: Driven by poorly performing West Coast
stores, Grupo FAMSA S.A.B. de C.V.’s (Famsa) same-store sales (SSS) of U.S. operations
has declined since 2008, notching double-digit decreases in the last two years, resulting in
negative EBITDA of MXN202 million for 2011. Management plans to wind down all West Coast
operations by the end of 2012. This will likely improve leverage levels by increasing EBITDA
and/or reducing indebtedness.
Low SSS Constrains Revenues: SSS of Mexican operations (including financial revenues)
underperformed that of Famsa’s ANTAD (National Retailers Association of Mexico) peers over
the last few quarters. As of second-quarter 2012, on a LTM basis, consolidated revenues
decreased 5.7%, while EBITDA grew 4.4%.
Retail Strengths and Banking Subsidiary Support Ratings: Famsa’s ratings reflect its retail
operation strengths, including market position in Mexico, geographic and product diversity, and
broadly stable operating cash flow. Famsa’s sales benefit from financing provided by its
banking subsidiary, Banco Ahorro Famsa (BAF, or the Bank), which is rated ‘BBB–(mex)’ by
Fitch Ratings.
BAF’s Asset Quality Remains Weak: The quality of BAF’s loan portfolio, which is mainly
composed of consumer loans (73.5% of total assets), has deteriorated as borrowers’ payment
capacity has suffered from adverse economic conditions. Asset quality remains weak despite
ample past due loans coverage ratios (143.7% in 2011). The bank’s commercial loan portfolio,
which is highly concentrated, grew 22.7% in 2011.
Leverage Is High: LTM consolidated total debt-to-EBITDA and adjusted debt-to-EBITDAR
ratios (excluding bank deposits) have stayed broadly stable at 3.0x and 4.2x, respectively.
Including bank deposit leverage, these ratios are high at 8.9x and 8.3x, respectively.
Improved Sales: Going forward, Fitch would favorably view an increase in SSS, an improved
mix of sales, or an upgrade of BAF.
Decreases in EBITDA: Conversely, Fitch would unfavorably view a decrease in EBITDA
generation by Famsa’s retail operation, failure to deleverage after FAMSA USA’s downsizing,
or an increase in short-term debt as a percentage of total (nondepositary) debt.
Analysts
Miguel Guzmán Betancourt
+52 81 8399-9100
[email protected]
Indalecio Riojas
+52 81 8399-9100
[email protected]
November 8, 2012
Wieldy Short-Term Debt: Short-term debt as of June 30, 2012 was about MXN2.1 billion
(excluding BAF’s customer deposits), a manageable figure when taking into account the
company’s cash flow generation, cash holdings of about MXN1.8 billion (approximately
MXN1.4 billion outside of BAF, a regulated banking entity), and track record of successfully
refinancing short-term debt. The company has not issued dividends over last few years and
projects about MXN350 million of capex for 2012.
127
Corporates
Recovery Rating
After considering potential going concern and liquidation scenarios, Fitch used a liquidation
valuation for recovery calculations because it would represent the most value to debt holders
(as a result of accounts receivables being mostly financed by BAF, and thus, benefitting from
IPAB’s bank deposit insurance). Since BAF’s customer deposits have seniority over other
institutional debt as per regulations, remaining debt (senior notes and bank debt) was rated
‘RR4’ due to a 34% recovery estimate.
Recovery Analysis  Grupo Famsa, S.A.B. de C.V.
(USD Mil.)
IDR:
B+
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
Interest Expense
Rent Expense
Total
1,268.1
1,268.1
1,837.8
17,161.0
1,923.1
2,361.6
23,283.5
Rate (%)
Creditors
0
75
12,870.7
40
769.3
50
1,180.8
14,820.8
14,820.8
1,482.1
13,338.7
Secured Priority
Senior Secured
Secured
Lien
11,397.7
0.0
Unsecured Priority
Senior Unsecured
Unsecured
Lien
5,778.6
—
Value Recovered
11,397.7
—
Recovery (%)
100
—
Recovery
Rating
RR3
—
Notching
+1
—
Rating
BB–
—
13,338.7
11,397.7
1,941.0
97.0
1,843.9
Value
Recovered
1,941.0
—
Recovery
(%)
34
—
Concession
Allocation (%)
100
—
Recovery
Rating
RR4
—
Notching
0
—
Rating
B+
—
Source: Fitch.
November 8, 2012
128
Corporates
Organizational Structure — Grupo Famsa S.A.B. de C.V.
(MXN Mil., As of 2Q12)
Cebures Issues
Other Issuances
Bank Debt
2,682
2,000
536
449
100.00%
99.99%
Famsa USA
Deutche Bank
Banco Ahorro Famsa
53.6
Bank Deposits
Bank Debt
11,398
58
Source: Grupo Famsa S.A.B. de C.V.
November 8, 2012
129
Corporates
Debt and Covenant Synopsis — Grupo Famsa, S.A.B. de C.V.
Overview
Issuer
Guarantors
All major subsidiaries except Banco Ahorro FAMSA, S.A. de C.V.
Document Date
July 20, 2010
Maturity Date
July 20, 2015
Description of Debt
USD200 million aggregate principal amount of 11% senior notes.
Change-of-Control
If a change of control occurs, each holder of notes may require the issuer to repurchase all or a portion of its notes at a purchase price equal to
Provision
101.0% of the principal amount, plus accrued and unpaid interest through the date of purchase.
Limitation on Assets
Under the terms of the indenture, Famsa and its restricted subsidiaries will not realize an asset sale unless:
Sale
1.
Famsa or the applicable restricted subsidiary receives consideration at the time of the asset sale at least equal to the fair market
value of the assets sold; and
2.
At least 75% of the consideration received for the assets sold by Famsa or the restricted subsidiary, in the asset sale shall be in the
form of cash received at the time of the sale.
Notwithstanding, Famsa shall not consummate an asset sale with respect to the capital stock or assets of a bank regulated subsidiary. A
disposition of accounts receivable is not considered an asset sale.
Limitation on
Famsa will not incur any indebtedness, except if the consolidated leverage ratio is not greater than (1) 3.5 to 1.0, if such incurrence occurs prior
Indebtedness
to May 1, 2013, or (2) 3.25 to 1.0, if such incurrence occurs on or after May 1, 2013.
Notwithstanding the paragraph above, Famsa and its restricted subsidiaries, as applicable, may incur the following indebtedness:
1.
Indebtedness in respect of the notes (including any note guarantee in respect thereof) excluding additional notes;
2.
Guarantees by Famsa or any subsidiary guarantor of indebtedness of Famsa; provided that, if any such guarantee is of
subordinated indebtedness, then the note guarantee of such subsidiary guarantor shall be senior to such subsidiary guarantor’s
guarantee; and
3.
Indebtedness incurred by Famsa or any subsidiary guarantor under the credit facilities an aggregate principal amount outstanding at
any one time not to exceed the greater of (x).
Limitation on
Famsa will not permit any restricted subsidiary that is not a subsidiary guarantor to guarantee any indebtedness of the company, unless an
Guarantees
effective provision is made to secure the notes, on an equal and ratable basis with such guarantee or lien.
Limitation on Restricted Famsa and its restricted subsidiaries will not make restricted payments if:
Payments
1.
A default shall have occurred and be continuing;
2.
Famsa is not able to incur at least USD1.00 of additional indebtedness.
3.
The aggregate amount of the proposed restricted payments exceeds the sum of:
a.
50% of Famsa’s cumulative consolidated net income plus
b.
100% of the aggregate net cash proceeds received by Famsa from any:
i. Contribution to equity capital not representing an interest in disqualified capital stock or issuance and sale of
qualified capital stock of Famsa, in each case, subsequent to the issue date, or
ii. Issuance and sale subsequent to the issue of any indebtedness of Famsa or any restricted subsidiary that has
been converted into or exchanged for qualified capital stock of Famsa.
Limitation on Merger,
Upon any merger or any transfer of assets of Famsa and its restricted subsidiaries in accordance with this covenant, in which Famsa is not the
Consolidation, and Sale continuing corporation, the surviving entity formed by such consolidation, will succeed Famsa under the indenture and the notes with the same
of Assets
effect as if such surviving entity had been named as such.
Limitation on
Famsa and its restricted subsidiaries will not enter into any transaction or series of related transactions (including, without limitation, the
Transactions with
(purchase, sale, lease, etc.), unless:
Affiliates.
1.
The terms of such affiliate transaction are no less favorable than those that could reasonably be expected to be obtained in a
comparable transaction at such time on an arm’s-length basis from a person that is not a Famsa affiliate;
2.
In the event that such affiliate transaction involves aggregate payments, or transfers of property or services with a fair market value,
in excess of USD15.0 million, the terms of such affiliate transaction will be approved by a majority of the members of Famsa’s board
of directors.
3.
In the event that such affiliate transaction involves aggregate payments, or transfers of property or services with a fair market value,
in excess of USD25.0 million, Famsa will obtain a favorable opinion as to the fairness of such affiliate transaction to the company
and the relevant restricted subsidiary (if any) from a financial point of view from an independent financial advisor and file the same
with the trustee.
Source: Issuer.
November 8, 2012
130
Corporates
Financial Summary  Grupo Famsa, S.A.B. de C.V.
(MXN 000, Years Ended Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
1,931,665
2,759,783
0.1
0.2
0.1
(0.1)
0.1
1,697,602
2,589,378
0.1
0.2
0.1
(0.1)
0.0
1,701,666
2,595,699
0.1
0.2
0.1
(0.2)
0.1
1,554,429
2,475,328
0.1
0.2
0.1
(0.1)
0.0
1,456,029
2,261,029
0.1
0.2
0.2
(0.2)
0.1
2.5
1.5
1.3
0.1
0.2
1.9
(0.0)
0.1
(10.6)
2.7
1.4
1.2
0.1
0.2
2.0
(0.1)
0.0
(5.8)
1.5
1.6
1.3
0.1
0.2
1.3
(0.2)
(0.1)
(14.3)
1.6
1.4
1.2
0.1
0.2
1.3
(0.1)
0.1
(6.8)
3.5
1.7
1.3
0.1
0.2
2.3
(0.1)
0.0
(2.3)
5.7
8.9
7.9
8.3
7.7
0.1
—
0.8
5.4
9.6
8.7
8.7
8.1
0.1
—
0.8
7.9
8.0
7.3
7.6
7.2
0.1
—
0.8
6.5
7.3
6.2
7.2
6.5
0.1
—
0.9
4.1
6.9
5.9
6.9
6.3
0.1
—
1.0
28,021,785
1,837,782
13,483,198
3,693,086
17,176,284
—
17,176,284
5,796,826
22,973,110
8,566,524
31,539,634
28,293,707
1,451,355
12,449,563
3,802,680
16,252,243
—
16,252,243
6,242,432
22,494,675
9,202,749
31,697,424
25,668,055
1,114,459
11,101,913
2,486,348
13,588,261
—
13,588,261
6,258,231
19,846,492
8,986,100
28,832,592
22,604,443
1,706,086
10,266,716
1,009,640
11,276,356
—
11,276,356
6,446,293
17,722,649
8,367,366
26,090,015
21,007,574
1,448,535
10,054,377
—
10,054,377
—
10,054,377
5,635,000
15,689,377
7,294,969
22,984,346
1,908,138
(3,614,471)
(1,706,333)
—
(160,894)
—
(1,867,227)
38,895
2,014
593,468
—
1,672,706
439,856
2,089,020
(3,808,310)
(1,719,290)
—
(294,653)
—
(2,013,943)
5,081
1,376
815,606
—
1,528,776
336,896
539,230
(3,349,890)
(2,810,660)
—
(196,466)
—
(3,007,126)
5,000
—
2,410,499
—
—
(591,627)
667,170
(2,580,349)
(1,913,179)
—
(280,742)
—
(2,193,921)
11,234
—
1,236,705
1,203,533
—
257,551
2,149,876
(3,738,293)
(1,588,417)
—
(700,682)
—
(2,289,099)
12,485
—
272,657
—
2,858,299
854,342
14,518,433
(6)
1,559,880
1,268,103
828,118
447,005
15,294,907
2
1,292,299
1,213,079
891,776
105,501
14,992,877
0
1,306,870
1,088,829
894,033
705,624
14,946,922
1
1,123,162
1,125,446
920,899
97,355
14,762,221
4
1,036,640
871,166
805,000
560,865
Source: Fitch.
November 8, 2012
131
Corporates
Grupo Posadas S.A.B. de C.V.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured Notes due
2015
B
B+/RR3
Local Currency
Long-Term IDR
B
National
Long-Term Rating
MXN2.25 billion Cebures due
2013
BB+(mex)
BB+(mex)
Rating Outlooks
Stable
Stable
Stable
Financial Data
Grupo Posadas, S.A.B. de C.V.
(MXN Mil.)
Revenue
EBITDA
Total Debt
Gross Interest
Expense
Debt/EBITDA (x)
EBITDA/
Gross Interest
Expense (x)
LTM
6/30/12
7,867
968
6,055
2011
7,296
947
6,329
515
6.3
481
6.7
1.9
2.0
High Leverage: Grupo Posadas, S.A. de C.V. (Posadas) had a total adjusted debt-toEBITDAR ratio of 6.5x as of June 30, 2012 on a LTM basis, a slight increase from 6.0x during
the previous 12-month period. The company’s high leverage reflects a weakening trend, a
result of the depreciation of the Mexican peso (MXN) against the U.S. dollar (USD) and
adverse economic conditions in Mexico.
Negative Free Cash Flow: Posadas had been able to adjust and adapt its operations during
previous economic downturns, but the current economic environment, coupled with security
concerns, has challenged the company. Funds from operations and operating cash flow have
trended downward since 2008 and free cash flow after dividends and capex has been negative
since 2010.
High Correlation to Economic Cycles: The ratings of Posadas consider the industry’s high
correlation to economic cycles, which negatively affects operating trends in downturns and
increases volatility of operating results. The use of multiple hotel formats allows the company
to target domestic and international business travelers of different income levels in addition to
tourists, thus diversifying its revenue base. Geographic diversification is limited, however, as
Posadas’ operations are primarily located in Mexico.
Recent Improvements in RevPAR: The company has been able to improve its operations in
the second quarter of 2012 versus the same quarter last year, mainly due to improved revenue
per available room (RevPAR) in urban and coastal properties, a consequence of high
occupation levels. Increased RevPAR has compensated for soft cash flow in the vacation club
segment. While average daily rates (ADRs) for urban locations have remained broadly flat,
ADRs for coastal locations continue to be under pressure.
Analysts
Miguel Guzmán Betancourt
+52 81 8399-9100
[email protected]
+52 81 8399-9100
[email protected]
November 8, 2012
Decreased Leverage: An inability to refinance the 2013 maturity in advance is considered a
significant credit risk for the issuer. Any nonrecurring cash infusion, which diminishes debt and
assuages liquidity concerns, would be considered beneficial for Posadas’ creditworthiness.
Deterioration of Operating Trends: Fitch would negatively view any weakening of operating
trends or decreases in RevPAR that could lead to lower EBITDA and cash flow levels.
132
Corporates
Recovery Rating
Both a going concern scenario and a liquidation scenario were considered. In deriving a
distressed going concern valuation, Fitch only slightly discounted the company’s LTM EBITDA,
as it is already low by historical standards. We also took into account the potential loss of 19%
of it EBITDA due to the divestiture of the South American operations and then applied a 4.6x
distressed EBITDA multiple. This multiple is at the low end of transactions seen in the industry.
In estimating a liquidation valuation, we discounted accounts receivable heavily, as they mostly
represent time share contracts that could prove to be, for the most part, uncollectable in a
scenario in which the company ceases to exist.
Since bank debt has seniority, due to collateral, the remaining debt (senior notes and local
Cebures issuance) was rated RR4, due to its 38% recovery estimate.
Recovery Analysis  Grupo Posadas S.A.B. de C.V.
(MXN Mil.)
Sept. 30, 2012 LTM EBITDA (Pro Forma)
Discount (%)
Multiple (x)
1,056.0
27
772.4
7.4
5,715.8
Interest Expense
Rent Expense
Total
Less Adminstrative Claims (10%)
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
791.9
1,559.1
50.1
7,719.6
—
Advance Rate (%)
0
80
50
20
Available to
Creditors
—
1,247.3
25.0
2,133.6
2,816.3
340.9
288.7
142.9
772.4
5,715.8
571.576
772.4
5,144.2
899.5
4,244.7
212.2
4,032.4
Unsecured Priority
Senior Unsecured
Lien
3,405.3
Value
Concession
Recovered Recovery (%) Allocation (%)
3,405.3
100
100
Recovery
Rating
RR3
Notching
+1
Rating
B+
November 8, 2012
133
Corporates
Organizational Structure — Grupo Posadas S.A.B. de C.V.
(As of 2Q12)
Certificados Bursatiles Due 2013
MXN2,250 Mil.
Senior Notes 2015
MXN2,676 Mil.
100%
Promoción de Inversiones Hoteleras, S.A. de C.V.
Scotiabank
MXN285 Mil.
100%
Compañia Hotelera Los Cabos, S.A. de C.V.
Bancomext
MXN359 Mil.
100%
Posadas do Brasil
Bradesco
MXN99 Mil.
100%
Fiesta Americana Vacation Credit
Banorte
MXN386 Mil.
Source: Grupo Posadas S.A.B. de C.V.
November 8, 2012
134
Corporates
Debt and Covenant Synopsis  Grupo Posadas, S.A.B. de C.V.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
(Maximum)
All major subsidiaries except Fondo Inmobiliario Posadas, S.A. de C.V.
Feb. 5, 2010
Jan. 15, 2015
USD200 million aggregate principal amount of 9.250% senior notes.
N.A.
N.A.
If Posadas experiences a change of control, holders of the notes may require them to repurchase all or part of the notes at 101% of
their principal amount, plus accrued and unpaid interest and any additional amounts until the redemption date.
Limitation on Assets Sale
Under the terms of the indenture, Posadas will not, and will not permit any restricted subsidiary to consummate any asset sale, unless:
1)
The consideration received by Posadas or such restricted subsidiary is at least equal to the fair market value of the assets
sold or disposed of as determined in good faith by Posadas’ board of directors (including as to the value of all noncash
consideration);
2)
Except in the case of any sale of time share, full or fractional ownership or membership interests in the ordinary course of
the vacation club business, at least 75% of the consideration received by Posadas or such restricted subsidiary, as the case
may be, from such asset sale shall be in the form of cash or temporary cash investments and is received at the time of such
disposition;
3)
An amount equal to 100% of the net cash proceeds from such asset sale is either applied to a) the repayment of
indebtedness of the issuer or any restricted subsidiary, which is secured by a permitted lien (with a corresponding reduction
in the commitment with respect thereto) or b) the investment in or acquisition of assets related to a permitted business, in
each case, within 365 days from the later of the date of such asset sale or the receipt of the net cash proceeds.
1)
Under the terms of the indenture, Posadas will not, and will not permit any of its restricted subsidiaries to, directly or
indirectly, incur anyindebtedness  provided, however, that Posadas may incur indebtedness and any restricted subsidiary
may incur indebtedness if on the date of the incurrence of such indebtedness, the consolidated interest coverage ratio
would be greater than 2.5 to 1.0.
2)
For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of indebtedness,
the U.S. dollar-equivalent principal amount of indebtedness denominated in a non-U.S. currency will be calculated based
on the relevant currency exchange rate in effect on the date such indebtedness was incurred or, in the case of revolving
credit indebtedness, first committed; provided that if such indebtedness is incurred to refinance other indebtedness
denominated in a non-U.S. currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction
to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction will be deemed not to have been exceeded so long as the principal amount of such
refinancing indebtedness does not exceed the principal amount of such indebtedness being refinanced.
3)
For purposes of determining any particular amount of indebtedness: a) guarantees, liens, or obligations with respect to
letters of credit supporting indebtedness otherwise included in the determination of such particular amount shall not be
included and b) any liens granted pursuant to the equal and ratable provisions of the indenture shall not be treated as
indebtedness. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets
the criteria of more than one of the types of indebtedness described herein, Posadas, in its sole discretion, shall classify,
and from time to time may reclassify, such item of Indebtedness.
Limitation on Restricted
Posadas will not, and will not cause or permit any of the restricted subsidiaries to, directly or indirectly:
Payments
1)
Declare or pay any dividend or make any distribution other than a) dividends or distributions payable in qualified capital
sock of Posadas and b) in the case of restricted subsidiaries, dividends, or distributions to Posadas or any other restricted
subsidiary and pro rata dividends or distributions payable to the other holders of the same class of capital stock of such
restricted subsidiary on or in respect of shares of its capital stock to holders of such capital stock;
2)
Purchase, redeem, or otherwise acquire or retire for value any capital stock of Posadas or acquire shares of any class of
such capital stock other than capital stock owned by Posadas or any wholly owned restricted subsidiary (other than in
exchange for its capital stock) which is not disqualified stock;
3)
Make any principal payment on, purchase, redeem, prepay, decrease, or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment (other than the purchase, redemption,
prepayment, or other acquisition of any such subordinated indebtedness in anticipation of any such sinking fund obligation,
principal installment or final maturity, in each case, due within one year of such purchase, redemption, prepayment, or other
acquisition), any indebtedness that is subordinate or junior in right of payment to the notes or the guarantees; or
4)
Make any investment (other than permitted investments), if at the time of such restricted payment or immediately after
giving effect thereto a default or an event of default shall have occurred and be continuing.
N.A.  Not applicable. Continued on the next page.
November 8, 2012
135
Corporates
Debt and Covenant Synopsis  Grupo Posadas, S.A.B. de C.V. (Continued)
Acceleration
Limitation on Transactions with
Affiliates
If an event of default occurs and is continuing under the indenture, either the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding, by written notice to Posadas (and to the trustee if such notice is given by the holders),
may, and the trustee at the request of such holders shall, declare the principal of, and accrued interest (together with any additional
amounts) on the notes to be immediately due and payable. Upon such a declaration of acceleration, such principal and accrued
interest shall be immediately due and payable.
Posadas will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, enter into or permit to exist any transaction
or series of related transactions (including, without limitation, the purchase, sale, lease, or exchange of any property or the rendering of
any service) with, or for the benefit of, any affiliate of posadas (each an “Affiliate Transaction”), other than:
1)
Affiliate transactions permitted; and
2)
Certain affiliate transactions meeting the following requirements:
a)
b)
c)
Limits on Consolidations or
Mergers
Optional Redemption
The terms of such affiliate transaction are no less favorable than those that could reasonably be expected to be
obtained in a comparable transaction at such time on an arm’s-length basis from a person that is not an affiliate of
Posadas;
In the event that such affiliate transaction involves aggregate payments, or transfers of property or services with a fair
market value, in excess of USD5.0 million (or the equivalent in other currencies), the terms of such affiliate
transaction shall be approved by a majority of the members of the board of directors of Posadas or such restricted
subsidiary, as the case may be, such approval to be evidenced by a board resolution stating that such members of
the board of directors have determined that such transaction complies with clause (a) immediately above;
In the event that such affiliate transaction involves aggregate payments, or transfers of property or services with a fair
market value, in excess of USD15.0 million (or the equivalent in other currencies), the terms of such Affiliate
Transaction will be set forth in an Officers’ Certificate delivered to the trustee stating that such transaction complies
with clauses (a) and (b) immediately above; and d) in the event that such Affiliate transaction involves aggregate
payments, or transfers of property or services with a fair market value, in excess of USD20.0 million (or the equivalent
in other currencies), the issuer will, prior to the consummation thereof, obtain a favorable opinion as to the fairness of
such affiliate transaction to the issuer and any such restricted subsidiary, if any, from a financial point of view from an
independent financial advisor and file the same with Trustee.
Posadas will not:
1)
In one or more related transactions, consolidate with or merge into or reorganize with or into, or directly or indirectly,
transfer, convey, sell, lease, or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any
other person or
2)
Permit any guarantor to, in one or more related transactions, consolidate with or merge into or reorganize with or into, or
directly or indirectly, transfer, convey, sell, lease, or otherwise dispose of all or substantially all of its properties and assets
as an entirety to, any other person in each case.
They may redeem the notes, in whole or in part, at a redemption price based on a “make-whole” premium. Prior to Jan. 15, 2013, they
may redeem up to 35% of the aggregate principal amount of the notes with the proceeds from certain qualified equity offerings.
November 8, 2012
136
Corporates
Financial Summary  Grupo Posadas, S.A.B. de C.V.
(MXN Mil., As of Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
968
1,357
12.3
17.2
6.4
(4.4)
(10.4)
947
1,324
13.0
18.1
8.3
(3.9)
(16.9)
1,022
1,382
15.6
21.2
9.4
(2.8)
1.0
1,243
1,621
17.5
22.9
11.2
9.8
5.9
1,531
1,864
22.2
27.1
18.1
20.3
(12.8)
1.2
1.9
1.5
0.3
0.4
1.1
0.1
0.2
(3.7)
1.5
2.0
1.5
0.9
0.9
1.3
0.2
0.6
(1.4)
1.9
2.3
1.7
1.5
1.4
1.5
0.4
1.3
1.2
3.1
3.3
2.2
0.9
1.0
2.0
0.8
1.3
6.1
5.0
3.6
2.5
1.0
1.0
3.2
1.2
1.8
4.6
8.8
6.3
5.8
6.5
6.1
8.7
—
0.4
8.8
6.7
6.2
7.5
7.1
7.9
—
0.1
7.6
5.7
5.1
6.8
6.4
8.4
—
0.0
5.9
4.0
3.5
5.5
5.1
7.3
—
0.2
3.7
3.5
3.0
4.8
4.4
8.7
—
0.2
16,455
473
2,645
3,410
6,055
—
6,055
2,723
8,778
6,818
15,596
12,695
422
554
5,775
6,329
—
6,329
3,549
9,878
3,615
13,493
13,334
575
211
5,609
5,820
—
5,820
3,595
9,415
3,670
13,085
13,261
658
940
4,018
4,958
—
4,958
4,013
8,971
4,586
13,557
13,652
831
1,057
4,307
5,364
—
5,364
3,662
9,026
4,398
13,424
97
(363)
(266)
—
(71)
(12)
(578)
(36)
192
(774)
889
1
196)
261
(418)
(157)
—
(116)
(12)
(285)
(36)
116
(11)
42
18
(156)
422
(134)
288
—
(238)
(232)
(182)
—
(351)
1,018
—
(611)
(126)
769
84
853
—
(139)
(23)
691
—
(443)
(10)
(1)
(410)
(173)
1,681
325
2,006
—
(433)
(174)
1,399
—
(547)
42
—
(444)
450
7,867
13.8
542
515
389
(573)
7,296
11.7
546
481
377
(616)
6,531
(7.8)
590
452
360
40
7,083
2.9
806
375
378
267
6,884
15.2
1,125
420
333
(622)
Source: Fitch.
November 8, 2012
137
Corporates
Grupo Senda Autotransportes, S.A. de C.V. (Grupo Senda)
Full Rating Report
Ratings
Key Rating Drivers
Foreign Currency
Long-Term IDR
B
Senior Secured
B/RR4
Local Currency
Long-Term IDR
B
Liquidity is Main Credit Concern: Grupo Senda Autotransportes, S.A. de C.V. (Grupo Senda)
has limited financial flexibility due to a weak liquidity position. The company remains dependent
upon its creditors to roll over short-term debt due to its weak cash position. As of June 30, 2012,
the company had MXN102 million of cash and marketable securities and MXN417 million of
short-term debt. During the LTM ended in June, the company generated MXN302 million of
cash flow from operations.
Rating Outlooks
Financial Data
Grupo Senda
(MXN Mil.)
Revenues
EBITDA
EBITDA Margin %
CFFO
Capex
FCF
FCF Margin %
Cash
Short-Term Debt
Total Debt
EBITDA/
Total Debt (x)
FCF Debt Service
Coverage (x)
Cash as % of
Revenues
Cash/Revenues
(Days)
6/30/12
3,785
898
23.7
302
214
88
2.3
102
417
2,951
12/31/11
3,665
765
22.2
307
346
(40)
(1.1)
169
496
3,149
3.3
3.9
0.6
0.4
2.7
4.6
10
17
Market Position and Operational Risks Incorporated: The company maintains a strong
market position in Mexico’s highly competitive and fragmented intercity bus transportation
industry. Grupo Senda is exposed to industry-related risks such as seasonal fluctuations in
passengers, cyclicality risk affecting the personnel segment, and volatile fuel costs. Rising
concerns about security in Mexico is also an issue that negatively affects the tourism and
transportation industries.
Foreign Exchange Risk a Constraint: Grupo Senda is exposed to foreign exchange risk as
about 90% of its revenues are in Mexican pesos and approximately 75% of its debt is
denominated in U.S. dollars.
2012 Expectations: Fitch expects the company to close 2012 with an EBITDA margin of
around 23%. The company’s gross leverage is expected to remain stable at around 3.0x and
free cash flow (FCF) generation is anticipated to be neutral during 2012, as Grupo Senda
should implement its capex plan without increasing current debt levels. Liquidity is expected to
remain fragile with significant levels of debt payments scheduled for the next 24 months
relative to its cash position. As of June 30, 2012, Group Senda had MXN2,951 million of debt.
It generated MXN 898 million of EBITDA during the LTM ended in June.
Analysts
Jose Vertiz
+1 212 908-0641
[email protected]
Miguel Guzman
+011 5281 8399-9100
[email protected]
November 8, 2012
Key Rating Drivers: The Stable Outlook reflects the view that the wave of violence affecting
several Mexican states will not interrupt the stable trend in the company’s operating results in
the short and medium term. A negative rating action could be triggered by a combination of the
following: deterioration of the company’s credit protection measures due to sizeable negative
FCF driven by poor operational results and/or unexpected capex levels funded with short-term
debt. Expectations by Fitch of total adjusted debt to EBITDA consistently at 4.5x would likely
result in a downgrade. Increasing competition followed by the return to discounted-price
practices as a key component of the company’s business strategy to gain market share could
also lead to a negative rating action. Conversely, Fitch believes a combination of the following
could trigger a positive rating action: improvement in cash flow generation and significantly
lower leverage. A permanent improvement in the company’s liquidity position would also be
viewed positively.
138
Corporates
Recovery Rating
Grupo Senda’s recovery ratings reflect Fitch’s belief that the company would be reorganized
rather than liquidated in a bankruptcy scenario. In estimating a going-concern value, Fitch
applies a valuation multiple of 3.5x to the company’s discounted EBITDA. Fitch also discounts
Grupo Senda’s normalized operating EBITDAR by approximately 50%, which reflects the
sensitivity of the company’s cash flow generation in a distressed scenario as evidenced during
the first half of 2009.
reorganization value of approximately MXN1.4 billion. Based upon these assumptions, the total
senior secured debt of MXN3 billion  including the senior secured guaranteed notes, finance
leases, and bank loans  recovers approximately 48%, resulting in ‘RR4’ ratings for the
company’s debt.
Recovery Analysis  Grupo Senda Autotransporte, S.A. de C.V.
(MXN Mil., As of June 30, 2012)
EBITDAR
Discount (%)
Multiple (x)
898
50
449
3.5
1,571
Interest Expense
Rent Expense
Total
383

60
443
Secured Priority
Secured
1,571
157
1,414
Lien
2,950
Unsecured Priority
Senior Unsecured
Value Recovered
1,414
Recovery (%)
48
Recovery Rating
RR4
Notching
0
Rating
B
Notching

Rating

1,414
1,414
0.0
0.0
0.0
Lien

Value
Recovered

Recovery

Concession
Allocation

Recovery
Rating

November 8, 2012
139
Corporates
Organizational Structure — Grupo Senda Autotransporte S.A. de C.V. and Subsidiaries
LTM June 2012
Summary Statistics (MXN Mil.)
EBITDA
897.68
Cash and Marketable
Securities
101.94
Short-Term Debt
416.73
Long-Term Debt
2,533.74
Total Debt
2,950.47
Total Debt/ EBITDA
3.29
GRUPO SENDA
USD150 Mil. Senior Secured Guaranteed Notes Due 2015a
Transportes Tamaulipas, S.A. de
C.V.
98%
Servicio Industrial Regiomontano,
S.A. de C.V.
98%
Transportes del Norte MexicoLaredo Y A.S.I., S.A. de C.V.
98%
Servicio Industrial Coahuilense,
S.A. de C.V.
98%
Autobuses Coahuilenses, S.A. de
C.V.
98%
Servicios Integrados de
Transporte, S.C.
98%
98%
Transportes Rodriguez de Saltillo,
S.A. de C.V.
98%
90%
Senda Servicio Industrial, S.A. de
C.V.
98%
98%
Transportes Industriales
Chihuahuenses, S.A. de C.V.
98%
Servicio Industrial Potosino,
S.A. de C.V.
98%
Transporte Industrial Jalisciense,
S.A. de C.V.
98%
Multicarga, S.A. de C.V.
Servicios T. de N., S.A. de C.V.
Servicios Especializados Senda,
S.A. de C.V.
Domestic Passenger Transportation and
Package Delivery Services
Turimex del Norte S.A.
de C.V.
Turimex, LLC
98%
98%
Cross-Border Passenger
Transportation Services
Personnel Transportation Services
aEach
of Grupo Senda’s subsidiaries guarantees notes jointly and severally on a senior secured basis.
Source: Fitch and Grupo Senda Autotransportes S.A. de C.V. and subsidiaries’ (Grupo Senda) financial statements.
November 8, 2012
140
Corporates
Debt and Covenant Synopsis  Grupo Senda Autotransporte S.A. de C.V. (Grupo Senda)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Ranking and Collateral
Grupo Senda Autotransporte S.A. de C.V. (Grupo Senda) and Subsidiaries
Payment of principal of premium, if any, and interest on the notes is guaranteed jointly and severally on a senior secured basis by each of
the following Grupo Senda subsidiaries (subsidiary guarantors): Transportes Tamaulipas, S.A. de C.V.; Transportes del Norte México–
Laredo y Anexas Servicios Internacionales S.A. de C.V.; Multicarga, S.A. de C.V.; Servicio Industrial Regiomontano, S.A. de C.V.; Servicio
Industrial Coahuilense, S.A. de C.V.; Rutas de Saltillo, S.A. de C.V.; Transportes Rodriguez de Saltillo, S.A. de C.V.; Senda Servicio
Industrial, S.A. de C.V.; Transportes Industriales Chihuahuenses, S.A. de C.V.; Servicio Industrial Potosino, S.A. de C.V.; Transporte
Industrial Jalisciense, S.A. de C.V.; Turimex del Norte, S.A. de C.V.; Turimex LLC, Servicios Integrados de Transporte, S.A. de C.V.;
Coach Investments, LLC; Servicios Especializados Senda, S.A. de C.V.; Servicios TDN, S.A. de C.V.; and Autotransportes Adventur, S.A.
de C.V.
Sept. 26, 2007
Oct. 3, 2015
Senior Secured Guaranteed Notes
USD150 Mil.
The notes will rank equally with all of the company and the subsidiary guarantors’ existing and future senior secured indebtedness, and
senior to all of the company and the subsidiary guarantors’ existing and future subordinated indebtedness. If there are any other
nonguarantor subsidiaries in the future, the notes and guarantees will be structurally subordinated to their indebtedness.
The notes will be secured on a first-priority basis (subject to certain permitted liens) by liens: 1) on all capital stock held or beneficially
owned by Grupo Senda, the subsidiary guarantors, and Autobuses Coahuilenses, S.A. de C.V.; 2) on all of Grupo Senda and the
subsidiary guarantors’ inventories and transportation and other equipment; and (3) on all of Grupo Senda and the subsidiary guarantors’
real property, including land and buildings.
Under the terms of the indenture governing the notes, Grupo Senda and the subsidiary guarantors may, from time to time after the date of
issuance of the notes, grant liens on the collateral to secure additional permitted secured obligations, which may only consist of certain
one or more 1) credit facilities to be limited in the aggregate to a principal amount of USD20 million and 2) working capital facilities entered
into with one or more Mexican or international financial institutions that are not Grupo Senda’s affiliates at any time prior to or after the date
of issuance of the notes and certain trade payables to be limited in the aggregate to a principal amount of USD10 million.
Financial Covenants
Limitation on Incurrence of
Additional Indebtedness
Grupo Senda will not, and will not cause or permit any of its restricted subsidiaries to, directly or indirectly, incur any indebtedness,
including acquired indebtedness (such acquired indebtedness having not been incurred in connection with, or in anticipation or
contemplation of, the relevant acquisition, merger, or consolidation), except that 1) any nonguarantor restricted subsidiary may incur
acquired indebtedness (other than acquired indebtedness incurred in connection with, or in contemplation of, the merger with such
nonguarantor restricted subsidiary) and 2) Grupo Senda and any subsidiary guarantor may incur indebtedness, including acquired
indebtedness, if at the time of and immediately after giving pro forma effect to the incurrence thereof and the application of the proceeds
there from, the consolidated leverage ratio of Grupo Senda is not greater than 3.25 to 1:00 and no default or event of default shall have
occurred and be continuing at the time such additional indebtedness is incurred.
During the third quarter of 2010, the company launched a consent solicitation to amend the covenant under the Indenture restricting the
ability of the company to incur additional indebtedness and certain related provisions contained in the indenture. By providing the requisite
consents and allowing the company and the other parties thereto to enter into the supplemental indenture, holders agreed to replace the
definition of consolidated leverage ratio in the Indenture with a definition of consolidated fixed charge coverage ratio, which is the ratio of
consolidated EBITDA to consolidated fixed charges, calculated for four consecutive quarters. The amendments allow the company and
any subsidiary guarantor to incur indebtedness if the incurrence of such indebtedness results in a consolidated fixed charge coverage ratio
greater than 2.00 to 1.00.
Upon the occurrence of a change of control, the holders of the notes will have the right  subject to certain exceptions  to require the
issuer to repurchase some or all of the notes at 101% of their principal amount, plus accrued and unpaid interest, if any, on the repurchase
date.
Certain Covenants
The indenture governing the notes contains covenants that limit future actions to be taken, or transactions to be entered into, by Grupo
Senda and the restricted subsidiaries. The indenture limits Grupo Senda and the restricted subsidiaries’ ability to, among other things:
1) incur additional indebtedness; 2) pay dividends on Grupo Senda’s capital stock or redeem, 3) repurchase or retire Grupo Senda’s
capital stock or subordinated indebtedness; 4) make investments or certain other restricted payments; 5) guarantee debts; 6) create liens;
7) create any consensual limitation on the ability of Grupo Senda’s restricted subsidiaries to pay dividends, 8) make loans or transfer
property to us; 9) engage in sale-leaseback transactions; 10) engage in transactions with affiliates; 11) sell assets, including capital stock
of Grupo Senda’s subsidiaries; and 12) consolidate, merge or transfer assets.
Others
Limitation on
Limitation on
Consolidations or Mergers
Grupo Senda will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the purchase, sale, lease, or exchange of any property or the rendering of any service)
with, or for the benefit of, any of its affiliates (each an “affiliate transaction”), unless: 1) the terms of such affiliate transaction are no less
favorable than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis
from a person that is not an affiliate of the company; 2) in the event that such affiliate transaction involves aggregate payments, or
transfers of property or services with a fair market value, in excess of USD5 million, the terms of such affiliate transaction will be approved
by a majority of the members of the board of directors of Grupo Senda; and, 3) in the event that such affiliate transaction involves
aggregate payments, or transfers of property or services with a fair market value, in excess of USD10 million, the company will, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such affiliate transaction to Grupo Senda and the relevant restricted
subsidiary (if any) from a financial point of view from an independent financial advisor and file the same with the trustee.
Grupo Senda will not, in a single transaction or series of related transactions, consolidate or merge with or into any person (whether or not
Grupo Senda is the surviving or continuing person), or sell, assign, transfer, lease, convey, or otherwise dispose of (or cause or permit any
restricted subsidiary to sell, assign, transfer, lease, convey, or otherwise dispose of) all or substantially all of Grupo Senda’s properties and
assets (determined on a consolidated basis for Grupo Senda and its restricted subsidiaries), to any person unless. This restriction is
subject to several exceptions.
Continued on next page.
Source: Grupo Senda and Fitch Ratings.
November 8, 2012
141
Corporates
Debt and Covenant Synopsis  Grupo Senda (Continued)
Other
Events of Default
Cross Default
Acceleration
Governing Law
Optional Redemption
The main events of default are: 1) default in the payment when due of the principal of or premium, if any, on any notes, including the failure
to make a required payment to purchase notes tendered pursuant to an optional redemption, change of control offer, or an asset sale offer;
2) default for 30 days or more in the payment when due of interest, additional amounts or liquidated damages, if any, on any notes; 3) the
failure to perform or comply with certain provisions related to mergers, consolidation, and the sale of assets; and 4) the failure by Grupo
Senda or any restricted subsidiary to comply with any other covenant or agreement contained in the indenture or in the notes for 30 days or
more after written notice to Grupo Senda from the trustee or the holders of at least 25% in aggregate principal amount of the outstanding
notes.
be due and payable. Notes become automatically due and payable upon certain events of insolvency or bankruptcy.
The indenture, the guarantees, and the notes will be governed by the laws of the state of New York.
On or prior to Oct. 3, 2011, the notes will be redeemable, at the option of the issuer, in whole or in part, on any interest payment date, at a
redemption price equal to the greater of 1) 100% of the principal amount of the notes to be redeemed or 2) the sum of the present values of
the remaining scheduled payments of principal and interest on such notes. After Oct. 3, 2011, the notes will be redeemable, at the option of
the issuer, in whole or in part, on any redemption date, at the redemption prices (expressed as percentages of their principal amount at
maturity  105.25% in 2011, 103.50% in 2012, 101.75% in 2013, and 100% in 2014 and thereafter.
Source: Grupo Senda note documentation and Fitch Ratings.
November 8, 2012
142
Corporates
Financial Summary Grupo Senda Autotransporte, S.A. de C.V. (Grupo Senda)
(MXN 000)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2008
2009
2010
2011
LTM Ended
6/30/12
611,438
611,438
19.72
19.72
12.14
(6.00)
(41.00)
527,568
527,568
16.76
16.76
9.94
(6.00)
(37.00)
765,133
765,133
21.81
21.81
19.84
7.10
(1.00)
812,577
812,577
22.17
22.17
20.94
(1.00)
(55.00)
897,677
897,677
23.72
23.72
21.59
2.32
(32.01)
1.40
1.69
1.69
0.77
0.77
1.40
0.23
0.47
0.43
0.92
1.36
1.36
0.69
0.69
0.92
0.27
0.46
(2.00)
1.77
2.03
2.03
1.02
1.02
1.77
0.84
1.02
4.00
1.91
2.10
2.10
0.92
0.92
1.91
0.39
0.59
0.89
1.94
2.34
2.34
1.12
1.12
1.94
0.59
0.72
1.41
5.96
4.94
4.63
4.94
4.63
13.11

0.14
8.08
5.49
5.21
5.49
5.21
13.13

0.13
4.03
3.52
3.35
3.52
3.35
13.5

0.14
4.25
3.88
3.67
3.88
3.67
13.27

0.16
3.96
3.29
3.17
3.29
3.17
13.61

0.14
4,622,169
191,581
431,846
2,588,235
3,020,081

3,020,081

3,020,081
1,154,169
4,174,250
4,111,073
146,392
375,179
2,521,336
2,896,515

2,896,515

2,896,515
707,812
3,604,327
3,994,662
132,826
370,229
2,326,021
2,696,250

2,696,250

2,696,250
679,173
3,375,423
4,167,989
168,808
495,491
2,653,689
3,149,180

3,149,180

3,149,180
387,965
3,537,145
4,102,580
101,942
416,729
2,533,742
2,950,471

2,950,471

2,950,471
498,438
3,448,909
144,475
(8,228)
136,247

(318,674)

(182,427)


39,451

120,618
(22,358)
(30,134)
(95,165)
(125,299)

(56,434)

(181,733)


(13,389)

149,933
(45,189)
291,958
40,091
332,049

(82,993)

249,056


(262,622)


(13,566)
352,813
(45,947)
306,866

(346,321)

(39,455)


75,437


35,982
361,486
(59,368)
302,118

(214,155)

87,963


(116,960)


(28,997)
3,101,126
4.47
277,964
362,445

(552,222)
3,147,789
1.50
161,611
388,463

(343,772)
3,508,730
11.47
432,046
377,634

(6,033)
3,664,654
4.44
482,996
387,851

(290,982)
3,784,747
4.75
568,970
383,186

(189,719)
November 8, 2012
143
Corporates
Industrias Metalurgicas Pescarmona S.A.I.C y F. (IMPSA)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B+/RR4
Local Currency
Long-Term IDR
B+
Rating Outlooks
Financial Data
Industrias Metalurgicas Pescarmona
S.A.I.C y F.
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations
Cash and
Marketable
Securities
Total Recourse
Debt
Total Recourse
Debt/EBITDA (x)
Net Recourse
Debt/EBITDA (x)
6/30/12
6 Months
451.6
12/31/11
11 Months
1,150.5
107.6
200.0
(143.8)
(318.0)
60.8
95.8
957.8
835.4
4.6
3.8
4.3
3.4
Note: IMPSA changed to IFRS in April
2011 and changed the fiscal year end to
December. Figures as of December 2011
are 11 months and as of June 2012 are
six-month figures. Ratios have been
calculated
by
annualizing
income
statement and cash flow items of
11months and six months, respectively.
Growing Business Presence in Brazil: Industrias Metalurgicas Pescarmona S.A.I.C y F.
(IMPSA) is a manufacturing company based in Argentina, with growing operations in Brazil. For
the last 11 months ended December 2011, 53% of revenues and 38% of EBITDA came from
Brazil. The growth of its business in Brazil has reduced IMPSA’s exposure to more volatile
markets such as Argentina and has increased its access to multiple funding sources. This
increase in funding sources has reduced concerns about IMPSA’s need to finance its working
capital needs in Argentina should trading conditions in that market deteriorate. It has also
enabled the company’s foreign currency rating to exceed the ‘B’ country ceiling of Argentina.
Positive Business Fundamentals: IMPSA’s ‘B+’ ratings reflect the positive trend for the
company’s long-term business fundamentals due to sustained global demand for hydro and
wind power generating equipment. As of June 2012, IMPSA’s backlog was USD 3.6 billion with
79% in wind manufacturing, 61% in projects with third parties, and 43% in Brazil. The actual
backlog shows an improvement from the USD3.16 billion during January 2011. Given the longterm production cycle of IMPSA’s developments (usually in the range of four years for hydro
and 12–18 months for wind farms), this backlog level provides some certainty to the company’s
cash generation in the medium term.
Backlog Concentration Poses Risk: Backlog concentration for this industry is high, with five
projects representing 56% of total backlog at June 2012. The main project in the hydro
equipment business unit is the Belo Monte hydro project in Brazil, whereas the main projects in
the wind equipment unit are Arauco IV (Argentina) and Ceara III (Brazil).
Negative Free Cash Flow: The company’s free cash flow (FCF) is anticipated to remain
negative during 2012 and 2013 due to high capital expenditure levels and growing working
capital needs. Investments in the construction of wind farms are estimated at approximately
USD450 million for fiscal year-end 2012 and USD560 million for fiscal year-end 2013. Much of
the cash deficit will be funded with nonrecourse project financing to develop wind farm projects
in Brazil.
Changes in Financing Strategy: The company’s ratings could be downgraded or a Negative
Outlook could be assigned if recourse financing increases above levels anticipated by Fitch, or
if IMPSA changes its existing strategy of financing the development of wind farms with debt
from nonrecourse project financing.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Fernando Torres
+54 11 5235-8124
[email protected]
November 8, 2012
Operating Issues: Any material performance problems that threaten future projects and cash
flow, or a failure to comply with the terms for the operation of the wind farms (for which longterm PPAs have been signed with Eletrobras and the CCEE and are financed by BNDES)
could also result in a Negative Outlook or downgrade. A sharp decline in demand for wind
farms would also be negative.
144
Corporates
Recovery Rating
The recovery ratings for IMPSA’s capital market debt instruments reflect Fitch’s expectation
that the company’s creditors will anticipate an average recovery of 30%–50%. This recovery
level is constrained by the soft cap of ‘RR4’ for bonds issued by corporates domiciled in
Argentina.
EBITDA multiple, which is slightly below the average ratio observed for many companies
involved in diversified manufacturing and capital goods.
Recovery Analysis  Industrias Metalurgicas Pescarmona S.A.I.C. y F.
(USD Mil.)
June 2012 annualized EBITDA
Discount (%)
Multiple (x)
215.2
40
129.1
4.0
516.5
Interest Expense
Rent Expense
Total
135.8
—
20.0
155.8
516.5
51.6
464.8
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
60.8
51.5
131.9
224.9
469.1
Available to
Creditors
—
41.2
66.0
45.0
152.1
Advance Rate (%)
0
80
50
20
464.8
—
464.8
Secured Priority
Secured
Unsecured Priority
Senior Unsecured
Lien
0.0
Lien
957.8
Value
Recovered
—
Recovery (%)
0
Value
464.8
49
Concession
Allocation (%)
100
Recovery
Rating
—
Notching
—
Rating
—
Recovery
Rating
RR4
Notching
—
Rating
B+
November 8, 2012
145
Corporates
Organizational Structure — Industrias Metalurgica Pescarmona S.A.I.C. Y F.
June 2012 Summary Statistics
USD107.6 Million of EBITDA (6 Months)
USD60.8 Million of Cash and Marketable
Securities
USD1,343 Million of Total Debt
USD958 Million of Total Debt with Recourse
100%
Inverall Constr. SA.
(Brazil)
55%
Energimp
(Brazil)
Industrias Metalúrgicas
Pescarmona S.A.I.C. y F.
USD225 Million Senior Unsecured Notes
Due 2014
100%
Guaranteed
WPE
(Brazil)
100%
Venti Energia
(Brazil)
100%
WPE International
Cooperatief
(Netherlands)
45%
FI-FGTS
Source: Fitch and Industrias Metalúrgicas Pescarmona S.A.I.C. y F.
November 8, 2012
146
Corporates
Debt and Covenant Synopsis  Industrias Metalúrgicas Pescarmona S.A.I.C. y F.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
Consolidated Leverage (Maximum)
Limitation on Sale of Restricted Subsidiaries
Debt Restrictions
Restricted Payments
Other
Limitation on Liens
Mergers, Consolidations, Sales, Leases
Industrias Metalúrgicas Pescarmona S.A.I.C. y F.
N.A.
Sept. 7, 2007
2014
N.A.
N.A.
The company will not and will not permit any restricted subsidiary to make any asset disposition unless: 1) the
consideration received at the time of the sell is equal to the fair value of the shares or assets sold; 2) at least 75% of
that consideration is received in the form of cash or temporay cash investments; 3) the company or the restricted
subsidiary applies 100% of the net cash proceeds within 360 days to: repay senior debt, reinvest, or purchase
additional assets.
The company will not and will not permit any restricted subsidiary transfer, convey, lease, sell, or dispose of any
voting stock of any restricted subsidiary, except: to the company or to other restricted subsidiary; in compliance with
the “Limitation on Sales of Assets” or, “Limitation on Restricted Payments” covenants.
The company will not and will not permit any restricted subsidiary to incur any indebtedness. Exceptions are: 1) on
the date of such incurrance, the interest coverage ratio would be no less than 2x and total debt to EBITDA no
greater than 4x; 2) no default or event of default shall have occurred. This covenant does not prohibit the incurrance
of the following debt: 1) intercompany indebtedness within certain restrictions; 2) indebtedness represented by the
notes, or outstanding on the issue date, or consisting on refinancing indebtedness; 3) hedging obligations; 4)
subordinated indebtedness; 5) debt in an aggregate principal amount not exceeding USD50 million; 6) Short-term
debt for the ordinary course of business not exceeding USD40 million during the first year after the issuance,
USD20 million prior to the second anniversary and USD10 million thereafter; 7) debt in addition to that referred to in
1 not exceeding USD100 million/USD75 million (year one from covenant changes as of May 2011)/USD50 million
(year two)/USD25 million thereafter.
The company will not and will not permit any of its restricted subsidiaries to: 1) declare or pay any dividend other
than: a) dividends payed in shares of its common stock, b) dividends payed on a pro rata basis of the holders of
such common stock; 2) purchase, redeem, or acquire any capital stock of the company or subsidiaries; 3)
purchase, redeem, or retire for value, prior to scheduled maturity, any debt which is subordinated to the notes;
4) make any investments other than permitted investments.
The company will not and will not permit any of the restricted subsidiaries to assume any lien (except for permitted
ones) upon its property, unless at the same time the obligations under the notes are secured equally.
The company will not and will not allow its restricted subsidiaries to enter into a transaction with affiliates, unless:
1) the transaction is on terms that are no less favorable than those that would have been obtained in a comparable
transaction with a person that is not an affiliate; 2) the company delivers to the trustee: a) for transactions in excess
of USD10 million, a resolution from its board of directors, b) for transactions in excess of USD15 million an opinion
as to the fairness of that transaction from a financial point of view, issued by an international investment bank.
The company or its restricted subsidiaries will not enter into any sale and lease back transactions unless persuant
to the provisions of the covenant described under “limitation on Indebtedness.”
Not allowed unless: 1) immmediately after giving effect to that transaction no event of default shall have occurred;
2) any corporation formed by such merger is a “sociedad anonima” organized and validly existing, and expressly
assumes the debt service of the notes; 3) immideately after that merger the company could inccur in USD1 of
additional debt, in line with the “Limitation on Indebtedness” covenant; 4) the successor agrees to indemnify any
holder against (i.e. tax issues); 5) within 180 days the credit ratings of the notes shall not be lower as a result of the
merger.
Source: Industrias Metalúrgicas Pescarmona S.A.I.C. y F. and Fitch Ratings.
November 8, 2012
147
Corporates
Financial Summary — Industrias Metalurgicas Pescarmona S.A.
(USD 000, Fiscal Years Ended Jan. 31 until January 2011; Dec. 31 since December 2011)
Profitability
Operating EBITDA
Coverage (x)
Debt with Recourse/EBITDA
Net Debt with Recourse/EBITDA
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Debt with Recourse
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.5238
4.3053
4.4110
4.1295
6 Months 11 Months
6/30/12
12/31/11
3.9787
3.9134
3.8340
3.7990
3.4855
3.1900
3.0905
3.0857
3.1080
3.0752
2011
2010
2009
2008
2007
107,609
24.12



200.048
17.39



183,805
18.10
(10.70)
(26.70)
41.70
102,070
16.70
0.20
(4.80)
4.00
107,150
22.40
7.80
(51.30)
7.50
69,288
23.70
4.80
(4.80)
14.90
56,732
21.50
6.00
(14.70)
13.10
0.57
1.60
0.46
0.57
(0.46)
(0.33)

(1.74)
2.68
0.64
(1.74)
(0.94)
(0.65)

(2.00)
3.20
0.80
(2.00)
(0.90)
(0.70)
(3.20)
0.00
1.60
0.60
0.00
0.20
0.50
(0.70)
1.20
2.30
0.70
1.20
(1.30)
(0.70)
(6.30)
0.80
2.10
1.40
0.80
0.40
3.40
(1.00)
0.90
2.30
0.40
0.90
(0.10)
0.10
(9.30)
18.06
6.40
6.11
10.13

0.24
4.56
4.27
(8.47)
5.50
5.06
6.79

0.22
3.83
3.39
(7.60)
4.60
4.30
8.00

0.20
3.49
3.20
442.00
5.60
5.00
10.80

0.20
4.30
3.69
10.00
5.40
4.50
9.40

0.20
4.20
2.97
16.40
6.10
4.00
9.40

0.00
5.18
3.03
12.50
5.00
4.50
9.50
0.20
0.40


2,017,386
60,776
324,164
1,019,227
1,343,391

1,343,391
0
1,343,391
957,792
132,297
1,475,687
1,957,000
95,892
258,746
941,875
1,200,621

1,200,621
0
1,200,621
835,446
157,406
1,358,028
1,508,993
53,313
169,816
677,041
846,857

846,857
0
846,857
633,021
180,091
1,026,948
1,004,844
62,417
115,200
461,229
576,429

576,429
0
576,429
438,803
110,700
687,129
909,189
92,969
110,774
464,776
575,550

575,550
0
575,550
411,704
102,638
678,188
754,516
148,688
16,437
407,574
424,011

424,011
0
424,011
358,621
109,349
533,360
531,221
27,791
123,622
158,973
282,595

282,595
0
282,595

89,478
372,073
(29,269)
(114,552)
(143,820)
0
(33,772)
0
(177,592)
0
(1,824)
146,663
0
(32,752)
(204,742)
(113,328)
(318,070)
0
(48,461)
0
(366,531)
0
(1,644)
415,751
0
47,576
(169,477)
(36,434)
(205,911)
0
(64,765)
0
(270,676)
0
159
261,562
0
(8,955)
(60,750)
48,580
(12,170)
0
(17,051)
0
(29,221)
(19,967)
15,631
20,545
0
(13,012)
10,747
(222,510)
(211,763)
0
(33,652)
0
(245,414)
(8,023)
(11,552)
211,685
0
(53,304)
(7,493)
373
(7,120)
0
(6,878)
0
(13,998)
(35,844)
2,114
170,080
647
122,998
(2,226)
(32,640)
(34,866)
0
(3,748)
0
(38,614)
(11,410)
27
52,403
2,189
4,595
451,599
—
89,913
67,875
0
(13,995)
1,150,532
—
169,350
74,735
0
47,858
1,012,939
65.8
160,540
57,312
0
60,963
610,964
27.7
87,098
62,054
0
4,287
478,472
63.8
94,961
46,959
0
7,916
292,163
10.9
55,074
33,356
0
14,807
263,504
8.9
43,863
24,874
0
10,690
Source: Industrias Metalúrgicas Pescarmona S.A.I.C. y F. and Fitch.
November 8, 2012
148
Corporates
Financial Summary  Industrias Metalurgicas Pescarmona S.A.
(ARS 000, Fiscal Years Ended Jan. 31 until January 2011; Dec. 31 since December 2011)
6 Months 11 Months
6/30/12
12/31/11
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2011
2010
2009
2008
2007
474,664
24.1



861.266
17.4



719,302
18.1
(10.7)
(26.7)
41.6
391,337
16.7
0.2
(4.8)
4.2
341,809
22.4
7.8
(51.3)
7.3
213,801
23.7
4.8
(4.8)
14.8
174,461
21.5
6.0
(14.7)
13.0
0.6
1.6
0.5
0.6
(0.5)
(0.3)

(1.7)
2.7
0.6
(1.7)
(0.9)
(0.7)

(2.0)
3.2
0.8
(2.0)
(0.9)
(0.7)
(3.2)
0.0
1.6
0.6
0.0
0.2
0.5
(0.7)
1.2
2.3
0.6
1.2
(1.2)
(0.6)
(6.3)
0.8
2.1
1.4
0.8
0.4
3.4
(1.0)
0.9
2.3
0.4
0.9
(0.1)
0.1
(9.3)
18.1
6.4
6.1
10.1

0.2
4.6
4.3
(8.5)
5.5
5.1
8.2

0.2
3.8
3.4
(7.7)
4.7
4.0
7.3

0.2
3.5
3.2
442.0
5.6
4.4
8.0

0.2
4.3
3.7
10.9
5.9
5.0
11.3

0.2
4.2
3.3
16.4
6.1
4.9
9.0

0
5.2
3.0
12.6
5.0
4.0
9.4
0.2
0.4


9,126,251
274,940
1,466,453
4,610,779
6,077,232

6,077,232
0
6,077,232
4,332,860
598,483
6,675,715
8,425,474
412,844
1,113,981
4,055,053
5,169,034

5,169,034
0
5,169,034
3,596,846
677,682
5,846,716
6,003,831
212,117
675,646
2,693,744
3,369,390

3,369,390
0
3,369,390
2,511,827
716,528
4,085,918
3,852,570
239,306
441,677
1,768,353
2,210,030

2,210,030
0
2,210,030
1,682,369
424,423
2,634,453
3,168,977
324,043
386,103
1,619,978
2,006,081

2,006,081
0
2,006,081
1,434,996
357,745
2,363,826
2,331,831
459,520
50,798
1,259,608
1,310,406

1,310,406
0
1,310,406
1,108,319
337,944
1,648,350
1,651,034
86,374
384,216
494,087
878,303

878,303
0
878,303

278,098
1,156,401
(127,564) (881,476) (663,231)
(499,263) (487,910) (142,580)
(626,827) (1,369,386) (805,811)
0
0
0
(147,190) (208,639) (253,452)
0
0
0
(774,017) (1,578,025) (1,059,263)
0
0
0
(7,948)
(7,076)
622
639,217 1,789,931 1,023,596
0
0
0
0
0
0
(142,748)
204,830
(35,045)
(232,915)
186,255
(46,660)
0
(65,375)
0
(112,035)
(76,554)
59,930
78,770
0
0
(49,889)
34,283
(709,806)
(675,523)
0
(107,349)
0
(782,872)
(25,592)
(36,852)
675,275
0
0
(170,041)
(23,120)
1,150
(21,970)
0
(21,224)
0
(43,194)
(110,605)
6,524
524,815
0
1,996
379,536
(6,846)
(100,375)
(107,221)
0
(11,526)
0
(118,747)
(35,089)
83
161,151
0
6,732
14,130
2,342,436
53.5
333,935
237,915
0
16,435
1,526,327
69.3
302,925
149,798
0
25,252
901,527
11.3
169,943
102,928
0
45,691
810,326
14.2
134,889
76,492
0
32,873
1,968,2479
—
391,876
295,827
0
(60,995)
4,953,384
—
729,102
321,755
0
206,041
3,964,037
69.2
628,256
224,286
0
238,573
November 8, 2012
149
Corporates
IRSA Inversiones y Representaciones S.A.
Full Rating Report
Ratings
Key Rating Drivers
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B+/RR3
Local Currency
Long-Term IDR
BB–
Rating Outlooks
RWN
Stable
Financial Data
IRSA
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations (CFFO)
Cash and
Marketable
Securities
Total Debt
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
CFFO/
Net Debt (x)
6/30/12
364.4
212.0
6/30/11
360.5
190.0
149.4
110.2
84.1
583.9
92.0
593.8
2.8
3.1
2.4
2.6
0.3
0.2
Exposure to Argentina’s Volatile Economy: IRSA Inversiones y Representaciones S.A.’s (IRSA)
local currency issuer default rating is constrained at ‘BB–’ by above-average risks associated with
real estate development in Argentina. These risks include sharp downturns in economic activity and
devaluation risk, as most of its cash flow is denominated in Argentine pesos and a substantial part of
its debt is in U.S. dollars. This is partially mitigated by IRSA’s dollar-denominated asset portfolio,
investments in assets outside of Argentina, and a long-term debt profile.
Transfer and Convertibility Risk: IRSA’s foreign currency issuer default rating (IDR) continues
to be constrained at ‘B’ due to the ‘B’ country ceiling assigned to Argentina by Fitch. Timely
payment of U.S. dollar debt obligations could be constrained by the imposition of transfer or
convertibility (T&C) restrictions in the event of a sovereign stress. The ‘B+/RR3’ rating of the
company’s foreign debt obligations reflects Fitch’s opinion that if IRSA missed the timely payment
of debt obligations due to government restrictions, lenders would have above-average recovery
prospects due to the strong standalone business and financial profile of the company.
Rating Linkage to APSA: Despite lower leverage at Alto Palermo S.A. (APSA), the local
currency IDR’s of APSA and IRSA have been linked at ‘BB–’. This linkage reflects factors that
align the credit quality of the companies, such as strong strategic ties, and the fact that APSA’s
upstream dividends represent a relevant part of IRSA’s cash flow generation.
Strong Business Position: The company’s ‘BB–’ local currency IDR reflects its strong
performance and positive operating trends. IRSA has a leading position in the shopping center
segment within the city of Buenos Aires through its subsidiary, APSA (95.6% owned). The
shopping centers segment accounted for 75% of its consolidated operating EBITDA. IRSA is
also the leader in the development and management of office buildings in Buenos Aires
(14% of consolidated operating EBITDA). The balance of IRSA’s operating results is derived
from three premium hotels, as well as its residential property development division.
Strong Asset Portfolio: The ‘BB–’ local currency IDR rating reflects a moderate level of debt, as
well as a manageable liquidity position due to unencumbered assets and land that could be sold.
For the real estate industry, the emphasis of Fitch’s methodology is on portfolio quality, diversity,
and size. IRSA’s assets portfolio is strong with USD1.2 billion of undepreciated book capital as of
June 30, 2012. These assets are mostly unencumbered, as secured debt represents less than 5%
of total debt. Leverage, measured by net debt as a percentage of undepreciated book capital, was
40% at June 30, 2012. This percentage would be lower at market values.
Gabriela Catri
+54 11 5235-8129
[email protected]
Aggressive Growth Threatening Capital Structure: The Stable Outlook reflects Fitch’s
expectations that IRSA will manage its balance sheet to a targeted total debt-to-EBITDA ratio
of less than 3.5x. Any significant increase in IRSA’s targeted leverage ratio would weaken
credit quality and could result in a negative rating action.
Jose Vertiz
+1 212 908-0641
[email protected]
Changes in Argentina’s Country Ceiling: IRSA’s foreign currency IDR could be affected by
an upgrade or downgrade of the Argentine country ceiling of ‘B’.
Analysts
November 8, 2012
150
Corporates
Recovery Rating
The recovery ratings for IRSA’s notes reflect Fitch’s expectation that the company’s creditors
would have above-average recovery prospects in the event of a default. The recovery analysis
anticipates a 92% recovery for senior unsecured bond holders. The notching was capped at
‘B+/RR3’, which resulted in a one-notch uplift from IRSA’s ‘B’ foreign currency IDR. The
notching above the soft cap of ‘RR4’ for bonds issued by Argentine corporates reflects IRSA’s
strong credit profile and its ability to continue to operate should a potential economic and/or
political crisis occur in Argentina.
interest expenses, and maintenance capital expenditures.
Fitch has applied a 4.0x distressed EBITDA multiple, which is consistent with the value
observed in the Buenos Aires stock exchange during the last year.
Recovery Analysis  IRSA Inversiones y Representaciones S.A.
(USD Mil.)
June 30, 2012 FYE EBITDA
Discount (%)
Multiple (x)
212
25
159.0
4.0
636.0
Interest Expense
Rent Expense
Total
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
84.1
66.6
29.2
733.8
913.7
Advance Rate
0
80
50
20
Available to
Creditors
—
53.3
14.6
146.8
214.6
64.9
—
10.2
75.1
636.0
63.6
572.4
572.4
—
572.4
28.6
543.8
Secured Priority
Senior Secured
Unsecured Priority
Senior Unsecured
Lien
0.0
Value
Recovered
—
Lien
583.9
Value
Recovered
572.4
Recovery (%)
0
Recovery (%)
98
Recovery
Rating
—
Concession
Allocation (%)
100
Recovery
Ratinga
RR3
Notching
—
Rating
—
Notching
+1
Rating
B+
Fitch assigned a ‘B+/RR3’ to IRSA. Note: The ‘RR3’ rating is one-notch higher than the ‘RR4’ soft cap for bonds issued by companies domiciled in Argentina. This is a
result of the very strong credit profile of IRSA and the high probability that any default by the company would be related to transfer or convertibility restrictions imposed
by the government, not a fundamental weakness in the company’s financial or business profile.
November 8, 2012
151
Corporates
Organizational Structure — IRSA Inversiones y Representaciones S.A.
Summary Statistics
USD150 Million Notes Due 2017
USD150 Million Notes Due 2020
USD70 Million Notes Due 2013 and 2014
(USD Mil., FYE June 30, 2012)
EBITDA
Total Debt
212
84
584
95.6%
100%
Alto Palermo S.A.
(APSA)
Tyrus S.A.
5.10%
100%
100%
1.42%
Palermo
Invest
RITELCO
E-Commerce
Latina S.A.
Shopping Centers
Alto Palermo
Paseo Alcorta
Alto Avellaneda
Abasto
Patio Bullrich
Alto NOA
Alto Rosario
Soleil Factory
Villa Cabrera
Mendoza Shopping
98%
Inversora
Bolivar
REIG
50%
9.88%
Baicom
5%
HERSHA
5% 5%
100%
30%
Liveck
Banco
Hipotecario
90%
Zetol & Vista al
Muelle
54%
CYRSA
Hotels
Intercontinental (76.34%)
Sheraton Libertador (80%)
Llao Llao (50%)
Horizons
5%
100%
Solares Santa Maria del Plata (100%)
Terrenos de Caballito (50%)
Puerto Retiro (50%)
Canteras Natal Crespo (50%)
29.77%
50%
Shopping Center
Dot Baires Shopping
Office Buildings
Land Reserves
Metropolitan 885
Third Avenue LLC
80%
50%
Residential Apartments
IRSA International
LLC
Shopping Center
Neuquen
100%
5.19%
64.01%
100%
100%
5%
Banco de
Credito y
70% Securitizacion
Shopping Center
Buenos Aires Design
1.86%
20%
Tarshop
80%
95%
Apsamedia
Others
Source: Fitch and Inversiones y Representaciones S.A.’s public information.
November 8, 2012
152
Corporates
Debt and Covenant Synopsis  IRSA Inversiones y Representaciones S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Limitation on Liens
Other
Non Restricted Subsidiaries
Dividends and Payments Affecting
Restricted Subsidiaries
Limits on Guarantees
IRSA Inversiones y Representaciones S.A.
N.A.
Jan. 11, 2007; program modified on May 7, 2010
2017, 2020; Notes issued under USD400 million program
N.A.
N.A.
Neither the issuer nor its restricted subsidiaries can sell assets unless: 1) the consideration at the time of such asset sale at
least equals the fair market value of those assets or shares sold; 2) at least 75% of the consideration is received in cash or
equivalents, or in assets to be used for permitted business. The company or its restricted subsidiaries should apply 85% of the
net cash proceeds within 24 months to: 1) repay debt; 2) invest in a permitted business.
Neither the issuer nor restricted subsidiaries are allowed to incur additional debt except permitted debt, unless the
consolidated interest coverage exceeds 1,75x, and for guaranteed debt, total guaranteed debt at the company and its
restricted subsidiaries is below 30% of consolidated tangible assets. Permitted debt includes debt used to refinance existing
or permitted indebtedness, subject to standard limitations; guarantees as long as permitted by the “limitation on guarantees”;
derivatives as long as used for hedging purposes; debt to finance the acquisition of assets related to the core business of the
company, as long as it is below 5% of total consolidated tangible assets; debt related to labor claims; short-term bank debt
related to the normal course of business.
With several exceptions, the issuer and restricted subsidiaries are prohibited from making certain investments, including the
acquisitions of stocks, bonds, and notes under certain conditions.
The issuer shall not assume any lien upon its assets (with the exception of “permitted liens”) unless at the same time the
obligations of the company under the notes are secured equally.
The issuer can designate a subsidiary as “nonrestricted” only when: 1) there is no event of default at the time of designating
that subsidiary; 2) at that time, the company can take additional leverage as determined in the “Additional Debt Restriction” of
at least USD1.00; 3) at that time the company is allowed to make a permitted investment as defined in the “Restricted
Payments” that equals the investment of the company in the designated subsidiary.
With several exceptions, the company will not create or allow the existence of any privilege or restriction to the ability of any
restricted subsidiary to: 1) paying dividends or debt to the company or any other restricted subsidiary; 2) granting loans to the
company or any other restricted subsidiary; 3) transferring any of its assets to the company or any other restricted subsidiary.
Restrictions on merger or consolidation of issuer. Exceptions include: 1) the merger of other entities with the issuer provided
that surviving entity will be the issuer; 2) if any entity formed by such merger is organized and valid under existing laws, and
the surviving entity assumes responsibility towards the debt service of the existing notes.
The company will not allow any of its restricted subsidiaries to guarantee IRSA’s debt, unless at the same time they provide
the same guarantee to the notes.
Transactions with affiliates are permitted as long as: 1) the terms of the transaction are not substantially less favorable than
those that could be achieved with a nonrelated party; 2) when total payments involving an affiliate exceed the USD5 million,
the terms of that transaction should be approved by the majority of the company's board of directors; 3) when total payments
involving an affiliate exceed the USD20 million, an independent financial advisor will have to analyze the rational of such
transaction and present his opinion to the trustee.
Source: IRSA’s public information and Fitch Ratings.
November 8, 2012
153
Corporates
Financial Summary — IRSA Inversiones y Representaciones S.A.
4.5238
4.1100
3.9317
3.7925
3.0235
3.0905
4.3012
3.9998
3.8458
3.4096
3.1247
3.0861
2012
2011
2010
2009
2008
2007
211,998
58.2
14.9
15.8
10.2
190,043
52.7
14.0
7.3
9.8
184,591
53.0
10.7
0.9
12.3
126,914
35.4
13.4
(5.6)
6.4
119,748
34.5
12.0
(44.3)
2.4
94,297
39.4
6.3
(37.8)
5.3
3.2
(USD 000, Fiscal Year Ended June 30)
Profitability
Operating EBITDA
Coverage (x)
2.8
3.2
3.4
3.9
4.4
3.3
3.3
4.8
3.2
3.7
4.4
1.1
0.8
0.9
1.0
1.3
1.0
2.8
3.2
3.4
3.9
4.4
3.2
0.6
0.4
0.2
0.1
(1.3)
(0.8)
1.1
4.8
0.8
5.0
0.7
1.4
0.7
0.9
0.1
0.4
1.8
0.4
3.2
3.2
3.2
2.3
3.0
6.2
2.8
3.1
2.3
2.8
3.5
4.6
2.4
2.6
1.8
2.2
2.4
2.1
11.0
11.4
9.8
9.9
7.1
7.1
0.0
0.0
0.0
0.0
0.0
0.1
0.2
0.3
0.4
0.3
0.1
0.1
1,459,075
84,142
127,257
456,657
1,536,572
92,057
166,378
427,474
1,444,472
85,865
156,203
264,494
1,298,944
68,020
92,414
274,928
Total Debt
Equity Credit
583,915
—
593,852
—
420,697
—
367,342
16,164
433,742
15,497
464,849
34,422
583,915
593,852
420,697
351,178
418,245
430,427
0
0
0
0
0
0
583,915
593,852
420,697
351,178
418,245
430,427
787,463
678,571
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Equity
596,447
680,935
760,552
673,696
1,180,362
1,274,787
1,181,249
1,024,874
1,479,071 1,341,174
134,745 229,258
62,892
69,307
370,850 395,542
1,205,708 1,108,998
Cash Flow
119,602
125,956
91,797
113,401
108,190
29,809
(15,713)
(29,740)
(25,374)
(13,448)
48,189
4,661
149,410
110,243
62,057
88,027
94,742
52,850
0
0
0
0
0
0
(31,084)
(21,957)
(44,332)
(101,356)
Dividends
(60,583)
(61,987)
(14,575)
(6,924)
(7,787)
(7,509)
57,744
26,300
3,151
(20,253)
(153,888)
(90,552)
(28,321)
Free Cash Flow
(240,843) (135,892)
(39,220)
0
0
0
(5,164)
(26,098)
(167,343)
(79,406)
(29,072)
1,278
(1,295)
Net Debt Proceeds
Net Equity Proceeds
(10,705)
13,118
181,073
202
54,990
12,163
(24,528)
0
(7,192)
52,298
288,220
8,411
(1,612)
0
0
14,129
10,412
0
(6,773)
40,232
(9,102)
(59,724)
(102,256)
176,463
364,375
360,501
348,244
358,995
346,991
239,382
1.1
3.5
6.4
3.5
45.0
24.3
170,741
146,358
142,034
86,975
81,557
62,445
64,886
57,706
38,527
39,764
32,036
21,594
Net Income
65,117
70,530
88,027
46,657
17,562
34,703
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Source: Fitch and IRSA Inversiones y Representaciones S.A.’s public information.
November 8, 2012
154
Corporates
Financial Summary — IRSA Inversiones y Representaciones S.A.
(ARS 000, Fiscal Year Ended June 30)
2012
2011
2010
2009
2008
2007
Profitability
Operating EBITDA
911,844
760,133
701,446
431,507
374,177
291,009
58.2
52.7
53.0
35.4
34.5
39.4
14.9
14.0
10.9
13.4
12.0
6.3
15.8
7.3
0.9
(5.6)
(44.3)
(37.8)
10.2
9.8
12.1
6.4
2.5
5.3
Coverage (x)
2.8
3.2
3.4
3.9
4.4
3.2
3.3
3.3
4.8
3.2
3.7
4.4
1.1
0.8
0.9
0.9
1.3
1.0
2.8
3.2
3.4
3.9
4.4
3.2
FCF Debt-Service Coverage
0.6
0.4
0.2
0.1
(1.3)
(0.8)
1.1
0.8
0.7
0.7
0.1
1.8
4.8
5.0
1.4
0.9
0.4
0.4
3.3
3.3
3.2
2.6
2.9
6.2
2.9
3.2
2.2
3.1
3.4
4.6
2.5
2.7
1.8
2.5
2.3
2.1
11.0
11.3
9.6
10
7.3
7.1
—
—
—
—
0.0
0.1
0.3
0.3
0.4
0.3
0.1
0.1
Balance Sheet
Total Assets
6,600,565
6,315,310
5,633,441
4,935,987
4,471,972
4,144,899
380,640
378,353
334,872
258,475
407,403
708,523
Short-Term Debt
575,687
683,813
609,190
351,173
190,153
214,193
Long-Term Debt
2,065,826
1,756,919
1,031,528
1,044,725
1,121,264
1,222,423
Total Debt
2,641,513
2,440,732
1,640,718
1,395,898
1,311,417
1,436,616
—
—
63,609
61,424
46,856
106,382
2,641,513
2,440,732
1,577,109
1,334,474
1,264,561
1,330,234
Equity Credit
0
0
0
0
0
0
2,641,513
2,440,732
1,577,109
1,334,474
1,264,561
1,330,234
Total Equity
2,698,208
2,798,641
2,966,153
2,560,043
2,380,893
2,097,124
Cash Flow
5,339,721
5,239,373
4,543,262
3,894,517
3,645,454
3,427,358
148,716
514,431
503,800
348,830
385,563
338,062
128,213
(62,849)
(113,013)
(86,270)
(42,021)
14,383
642,644
0
440,951
0
235,817
0
299,293
0
296,041
0
163,099
0
Dividends
Free Cash Flow
(133,698)
(260,578)
248,368
(87,822)
(247,934)
105,195
(168,460)
(55,385)
11,972
(344,611)
(23,541)
(68,859)
(752,562)
(24,332)
(480,853)
(419,377)
(23,175)
(279,453)
(168,695)
0
0
0
(16,137)
(87,402)
(112,252)
(669,339)
(301,742)
(98,846)
3,994
(3,995)
(46,044)
724,256
208,962
(83,395)
(22,473)
889,475
Net Equity Proceeds
56,424
808
46,220
0
163,416
25,958
(6,935)
0
0
48,038
32,534
0
(29,134)
160,920
(34,588)
(203,062)
(319,519)
544,583
1,567,251
1,441,930
1,323,326
1,220,584
1,084,242
738,756
8.7
9.0
8.4
12.6
46.8
27.9
Operating EBIT
734,390
585,401
539,731
295,716
254,842
192,710
279,086
230,811
146,402
135,196
100,104
66,642
0
0
0
0
0
0
280,081
282,104
334,501
158,635
54,875
107,097
Net Debt Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Rental Expense
Net Income
Source: Fitch and IRSA Inversiones y Representaciones S.A.’s public information.
November 8, 2012
155
Corporates
Maestro Peru S.A. (Maestro)
Full Rating Report
Ratings
Key Rating Drivers
Foreign Currency
Long-Term IDR
B+
Senior Secured
BB–/RR3
Local Currency
Long-Term IDR
B+
Positive Macro and Business Environment: The Peruvian economy is forecasted to post
growth rates of 5.8% and 6.2% during 2012 and 2013, respectively, after growing 6.9% in 2011.
Maestro is expected to continue to benefit from the solid industry fundamentals of Peru’s home
improvement industry as a result of the country’s positive macroeconomic environment, which
is increasing purchasing power of households. Low penetration levels also bode well for the
industry and Maestro.
Rating Outlooks
Financial Data
Maestro
(PEN Mil.)
Revenues
EBITDAR
EBITDAR Margin (%)
CFFO
Capex
FCF
FCF Margin (%)
Cash
Short-Term Debt
Total On-Balance
Debt
Total Off-Balance
Debt
Total Adjusted Debt
Total Adjusted Debt/
EBITDAR (x)
EBITDAR/(Interest
Expense + Rents)
Cash as % of
Revenues
Cash/Revenues
(Days)
Leader Local Player: Maestro Peru S.A. (Maestro) is one of the two largest modern home
improvement retailers in Peru. It has an estimated market share of 43%. The company
maintains an established and recognized brand and is well positioned as a low-price specialist.
6/30/12 12/31/11
1,128
1,019
113
103
10.0
10.1
28
36
155
157
(127)
(121)
(11.3)
(11.9)
16
16
172
125
326
298
76
402
80
378
3.6
3.7
3.3
3.7
1.4
1.5
5
6
Liquidity to Improve Post Issuance: The company is expected to gain financial flexibility with
the proposed transaction by improving its debt payment schedule and rebuilding its cash
position. The company’s liquidity has been relatively weak in the past as the company funded
its negative free cash flow from heavy investments with short-term debt.
High Leverage: Maestro’s FCF is expected to remain negative driven by its capex plan. The
ratings incorporate an expected increase in the company’s gross leverage from 3.6x as of June
30, 2012. Pro forma the transaction amount, which is expected to be up to USD180 million,
Maestro’s leverage will increase to 5.5x.
Limited Diversification and Cyclicality Incorporated: Maestro has limited business and
geographic diversification as the company’s operations are concentrated in one retail business
format in Peru. Competition in the market is increasing, but penetration levels remain low. The
ratings also consider the sensitivity of the construction and home improvements industry to
economic cycles.
Key Rating Drivers: Key rating drivers include the development of the Peruvian
macroeconomic environment, the company’s margins, leverage, liquidity, and FCF trends. The
balance between organic and inorganic growth will also affect credit quality.
The Stable Outlook reflects Fitch Ratings’ expectation that Maestro will continue to deliver
positive operating results based on its solid market position and continued favorable trend for
Peru’s home improvement industry during the next few years. Maestro is expected to complete
its capex plans as scheduled between 2012 and 2014 without a further increase in leverage
(post issuance).
Analysts
Jose Vertiz
+1 212 908-0641
[email protected]
Josseline Jenssen
+591 2 277-4470
[email protected]
November 8, 2012
A negative rating action could be triggered by a deterioration of the company’s credit protection
measures due to sizeable negative FCF levels that would require incremental debt. A
weakening of liquidity and an increase in short-term debt would also be seen as negative to
credit quality. An upgrade is not likely until the company completes its capex plan, reverses its
cash flow trends, and lowers leverage, which is not expected to occur during the next
12-month period ended in September 2013.
156
Corporates
Recovery Rating
Maestro’s recovery ratings reflect Fitch’s belief that the company would be reorganized rather
than liquidated in a bankruptcy scenario. In estimating a going-concern value, Fitch applies a
valuation multiple of 5x to the company’s discounted EBITDA. Fitch also discounts Maestro’s
normalized operating EBITDA by approximately 24%, which would reflect the sensitivity of the
company’s cash flow generation in a distressed scenario.
reorganization value of approximately MXN350 million. Based upon these assumptions, the
total senior unsecured debt of MXN534 million recovers approximately 66%, resulting in ‘RR3’
ratings for the company’s debt. The ‘BB–/RR3’ ratings on the company’s unsecured senior
notes debt reflect good recovery prospects that are anticipated to be in the range of 50%–70%
in the event of a default.
Recovery Analysis  Maestro Peru S.A.
(PEN Mil., As of June 30, 2012)
EBITDA
Discount (%)
Multiple (x)
101,616
24
77,865
5.0
389,325
Interest Expense
Rent Expense
Total
45,795
18,670
13,400
77,865
389,325
38,933
350,392
Unsecured Priority
Senior Unsecured (Pro Forma Debt)
Lien
534,000
Value
Recovered
350,392
Recovery (%)
66
Concession
Allocation

Recovery
Rating
RR3
Notching
+1
Rating
BB–
November 8, 2012
157
Corporates
Organizational Structure — Maestro Peru S.A.
(As of LTM June 30, 2012)
ENFOCA Inversiones S.A.
91.85%
Maestro Peru S.A.
Sales: PEN1,128 Mil.
EBITDA: PEN102 Mil.
Total Debt: PEN326 Mil.
TD/EBITDA (x): 3.2
ATD/EBITDAR (x): 3.6
99%
99.00%
Inmobialiaria Domel
99.00%
Industrias Delta
TD –Total debt. ATD – Total adjusted debt .
Source: Company and subsidiaries’ financial statements and Fitch.
November 8, 2012
158
Corporates
Financial Summary Maestro Peru S.A. (Maestro)
(PEN 000)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
101,606
112,493
0.09
0.10
0.15
(0.11)
0.19
91,345
102,824
0.09
0.10
0.15
(0.12)
0.19
71,375
81,798
0.09
0.10
0.19
(0.01)
0.20
54,752
64,522
0.08
0.10
0.15
(0.02)
0.18
42,272
52,013
0.07
0.09
0.13
(0.15)
0.31
3.90
4.45
3.33
0.52
0.55
2.97
(0.54)
(0.46)
0.18
4.91
5.53
3.67
0.65
0.67
3.31
(0.74)
(0.63)
0.23
5.75
5.69
3.56
1.08
1.07
3.59
0.10
0.34
0.99
2.71
3.28
2.44
0.54
0.58
2.08
0.01
0.12
0.71
2.40
3.62
2.43
0.46
0.52
1.76
(0.82)
(0.71)
0.12
4.02
3.20
3.05
3.57
3.43
0.09
—
0.53
4.09
3.26
3.09
3.68
3.53
0.07
—
0.42
2.75
2.16
1.94
2.77
2.58
0.08
—
0.35
4.05
2.82
2.61
3.45
3.27
0.11
—
0.55
5.83
3.60
3.35
4.24
4.04
0.15
—
0.52
843,394
15,640
171,737
153,803
325,540
—
325,540
76,209
401,749
264,948
666,697
823,004
15,837
124,577
173,488
298,065
—
298,065
80,353
378,418
244,125
622,543
572,058
15,703
53,752
100,207
153,959
—
153,959
72,961
226,920
201,949
428,869
443,636
11,591
84,633
69,813
154,446
—
154,446
68,390
222,836
133,519
356,355
356,088
10,378
79,330
72,772
152,102
—
152,102
68,187
220,289
79,216
299,505
66,313
(38,376)
27,937
—
(155,101)
—
(127,164)
10,264
(3,653)
142,691
—
(15,618)
6,520
64,570
(28,605)
35,965
—
(157,332)
—
(121,367)
—
(6,108)
143,227
—
(15,618)
134
59,561
(3,573)
55,988
—
(56,605)
(5,406)
(6,023)
20,201
(1,134)
1,219
—
(10,151)
4,112
28,586
10,649
39,235
—
(55,073)
—
(15,838)
17,329
(2,622)
2,344
—
16,350
(5,035)
11,315
—
(97,537)
—
(86,222)
24,601
(13,689)
76,091
—
1,213
781
1,128,380
—
88,871
22,847
10,887
45,082
1,019,425
0.28
79,025
16,521
11,479
42,176
797,629
0.21
60,732
12,544
10,423
32,857
659,264
0.15
43,843
16,708
9,770
18,716
575,652
—
35,084
11,663
9,741
12,287
November 8, 2012
159
Corporates
Full Rating Report
Ratings
Key Rating Drivers
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B+
Local Currency
Long-Term IDR
B+
National
Long-Term Rating
BBB+
High Leverage: Marfrig Alimentos S.A.’s (Marfrig) gross and net debt-to-LTM EBITDA ratios
were 6.1x and 4.6x, respectively, as of June 30, 2012. This compares to 6.8x and 4.8x,
respectively, in 2011. Fitch Ratings expects that Marfrig’s leverage ratios will remain high and
relatively unchanged at the end of the year.
Ratings Outlooks
Foreign Currency Long-Term
Rating
Negative
Local Currency Long-Term Rating Negative
Negative
Financial Data
Marfrig Alimentos S.A
(BRL 000)
6/30/12
12/31/11
Revenue
Operating EBITDAR
Cash Flow from
Operations
Free Cash Flow
Cash and Marketable
Securities
Total Adjusted
Debt/Operating
EBITDAR (x)
Net Adjusted
Debt/Operating
EBITDAR (x)
22,361
2,030
21,885
1,774
1,939
1,111
1,502
528
3,028
3,477
6.1
6.8
4.6
4.8
Weak Free Cash Flow Leads to a Negative Outlook: Cash flow generation has been
negative during the past six years, with the exception of 2011. While the first half of 2012
showed an improvement in cash flow, Fitch is concerned that the recent rise in grain prices will
pressure Marfrig’s profitability and reduce cash flow generation in the latter part of 2012 and
through 2013, resulting in free cash flow that is neutral to negative, which inhibits the
company’s ability to deleverage.
Earnings Volatility: Protein prices and demand are volatile. Marfrig’s profit margins are
affected by factors beyond the company’s control. These include domestic and international
supply and demand imbalances resulting from animal disease and weather conditions, global
economic growth, changes in consumption habits, and government-imposed sanitary and trade
restrictions. Competitive pressures from other players also affect the company’s margins.
Strong Business Position: Marfrig is one of Brazil’s largest producers and exporters of beef,
poultry, and pork. The company has a more diversified business profile than most of its peers.
Its production base is diversified and 35% of its sales are from exports. A little over one-third of
its revenues come from higher value-added processed food. As a result of the recent asset
swap with Brazil Foods (BRF), processed and prepared product capacities will more than
double.
Processed Food — Long Term Positive, Short Term Volatility: Marfrig’s strategy of
reducing commodity protein exposure by increasing its share in processed food, which is less
volatile and commands better profit margins, is a credit positive. The asset swap with BRF will
strengthen Marfrig’s competitive position in the value-added protein products market and is
consistent with the company’s previous acquisitions. Achieving full capacity will take time and
the company’s efficiency may decline during the integration period which will pressure margins.
Analysts
Viktoria Krane
+1 212 908-0367
[email protected]
Gisele Paolino
+55 21 4503-2624
[email protected]
Joseph N. Bormann, CFA
+1 312 368-3349
[email protected]
November 8, 2012
Ratings Are Linked: Fitch has linked the ‘B+’ ratings of Marfrig Overseas and Marfrig Holdings
B.V. to those of Marfrig Alimentos S.A. through its parent and subsidiary rating methodology.
Marfrig Alimentos S.A. guarantees the U.S. dollar notes that have been issued by both of these
subsidiaries.
Weakening Credit Profile: A rating downgrade could be triggered by one, or a combination of
the following: deteriorating credit metrics, negative cash flow generation, and tight liquidity.
A revision of the Outlook to Stable could be triggered by a number of factors that could include
financial improvements better than expected given the current operating environment and/or
capital injections to repay debt.
160
Corporates
Recovery Worksheet
Marfrig’s recovery rating of ‘RR4’ indicates that the company’s creditors would have average
event of default.
Fitch has performed a liquidation analysis in the event of bankruptcy. Fitch has also estimated
the enterprise valuation in the event of financial distress. This analysis considers that any debt
default by Marfrig would likely be the result of a sudden deterioration in the business
environment either by import ban on Brazilian meat due to health considerations by a
considerable number of export countries, or by a sharp reduction in meat consumption due to
economic distress abroad. It also considers that company operations will remain valuable, but
at a relatively low multiple of 5x. The bespoke Marfrig recovery analysis suggests a higher
recovery level for the senior unsecured debt that would be consistent with very high recovery
levels. Fitch has capped the company’s recovery at RR4 due to concerns about recovery
prospects for companies domiciled in Brazil.
Recovery Analysis  Marfrig Alimentos S.A.
(BRL Mil.)
IDR:
B+
Discount (%)
Multiple (x)
2,030.1
25
1,522.6
5.0
7,612.9
Interest Expense
Rent Expense
Total
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
3,028.4
1,105.6
2,414.9
7,618.3
14,167.1
Advance Rate
(%)
0
80
50
25
Available to
Creditors

884.5
1,207.4
1,904.6
3,996.5
(1,300.0)

(300.0)
(1,600.0)
7,612.9
761.3
6,851.6
6,851.6
544.8
6,306.8
Secured Priority
Senior Secured
Secured
Unsecured Priority
Senior Unsecured
Unsecured
Convertible Debentures
Junior Subordinated
Lien
0.0
544.8
Lien
3,193.0
7,157.4
594.0
0.0
Value
Recovered

544.8
Value
Recovered
3,193.0
2,798.5


Recovery (%)
0
100
Recovery (%)
100
39
0
0
Recovery
Rating Notching
—

RR1
+3
Concession
Allocation (%)
100
0
0
0
Recovery
Rating
RR1
RR4
RR6

Notching
+3
0
2

Rating

BB+
Rating
BB+
B+
B

Source: Fitch.
November 8, 2012
161
Corporates
Organizational Structure — Marfrig Alimentos S.A.
(BRL Mil., As of June 30, 2012)
(Consolidated — No Debt or
EBITDA on HoldCo Level)
Total Debt
% of Total Debt
Cash + Fin. Inv.
Net Debt
Pf EBITDA
ND/EBITDA
Seara Foods
Total Debt
% of Total Debt
Cash + Fin. Inv.
Net Debt
Pf EBITDA
ND/EBITDA
USD750 Mil. Sr. Notes
due 2018
Marfrig Beef
3,767
32
713.7
3,053
1,517
2.0
Marfrig Hold (Eur) BV
Total Debt
% of Total Debt
Moy Park
Total Debt
% of Total Debt
Cash + Fin. Inv.
Net Debt
Pf EBITDA
ND/EBITDA
Nova Seara (BR)
2,342a
23
Keystone Foods
11,752
100
3,028
8,724
2,456
3.6
Total Debt
% of Total Debt
Seara Holdings
Eur BV
1,425
9
USD375 Mil. Sr. Notes due 2016
USD500 Mil. Sr. Notes due 2020
Marfrig Overseas Ltd .
6,244a
58
1,175
5,069
939
5.4
Total Debt
% of Total Debt
Cash + Fin. Inv.
Net Debt
Pf EBITDA
ND/EBITDA
1,742a
5
1,139
602
0
N.A.
BRL300 Debentures 1st Tranche (IPCA)
BRL300 Debentures 2nd Tranche (CDI)
Secculum
Unifred
Athena
aPrincipal
+ accrued interests. ND – Net debt. Pf – Pro forma.
Source: Marfrig Alimentos S.A.
November 8, 2012
162
Corporates
Debt and Covenant Synopsis  Marfrig Alimentos S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Ranking
Marfrig Overseas Limited
Marfrig Frigoríficos e Comércio de Alimentos Ltda.
Nov. 16, 2006
Nov. 16, 2016
USD375 Million
The issuance is unconditionally and irrevocably
guaranteed by Marfrig and ranks equally with
Marfrig’s senior unsecured indebtedness.
Marfrig Overseas Limited
April 29, 2010
April 29, 2020
USD500 Million
The issuance is unconditionally and
irrevocably guaranteed by Marfrig and ranks
equally with Marfrig’s senior unsecured
indebtedness.
Marfrig Holdings (Europe) B.V.
May 4, 2011
May 4, 2018
USD750 Million
Unconditionally and irrevocably guaranteed
by Marfrig Alimentos S.A. and certain of its
subsidiaries.
Financial Covenants
Net Adjusted Debt/
Pro Forma EBITDA
Less than 4.75x
Less than 4.75x
Less than 4.75x
Limitations on
The company will not: declare or pay any dividend, purchase or redeem any subordinated obligation prior to the scheduled maturity, or make any
Restricted Payments
investment if 1) an event of default has occurred; 2) and the net debt-to-EBITDA ratio is greater than 4.75x.
Change-of-Control
If a change of control occurs, each holder of notes will have the right to If a change of control occurs, each holder of notes will have the right to
Provision
require Marfrig Overseas and the company to repurchase all or any part require Marfrig Holdings (Europe) B.V. and the company to repurchase
of that holder’s notes pursuant to a change of control offer. In the
all or any part of that holder’s notes pursuant to a change of control
change of control offer, Marfrig Overseas and the company will offer a offer. In the change of control offer, Marfrig Holdings (Europe) B.V. and
“change-of-control payment” in U.S. dollars equal to 101% of the
the company will offer a “change-of-control payment” in U.S. dollars
aggregate principal amount of notes repurchased plus accrued and
equal to 101% of the aggregate principal amount of notes repurchased
unpaid interest and additional amounts, if any, on the notes
plus accrued and unpaid interest and additional amounts, if any, on the
repurchased, to the date of purchase.
notes repurchased, to the date of purchase.
Other
Limitations on Sales of The company will not make any asset disposition unless the following conditions are met: the asset disposition is for fair market value; at least
Assets
75% of the consideration consists of cash and temporary cash investments or additional assets; within 360 days after the receipt of any net
available cash from the sale, the net available cash may be used: to permanently repay indebtedness, to acquire all or substantially all of the
assets of a related business or to acquire additional assets for the company. The net available cash of an asset disposition not applied to the
aforementioned within 360 days shall constitute “excess proceeds.” Excess proceeds of less than USD20 million shall be carried forward and
accumulated. When accumulated excess proceeds equal or exceed USD20 million, the company must, within 30 days, make an offer to
purchase notes, at purchase price and in U.S dollars, of 100% of their principal amount plus accrued and unpaid interest thereon, to the date of
purchase.
Optional Redemption
The notes may be redeemed at Marfrig
Overseas’s election, as a whole, but not in part, by
the giving of notice as provided in the indenture, at
a price in U.S. dollars equal to the outstanding
principal amount thereof, together with any
additional amounts and accrued and unpaid
interest to the redemption date.
Prior to May 4, 2013, Marfrig Overseas may,
at its option on one or more occasions,
redeem notes in an aggregate principal
amount not to exceed 35% of the aggregate
principal amount of the notes originally
issued prior to the redemption date at a
redemption price of 109.50%, plus accrued
and unpaid interest to the redemption date.
Prior to May 4, 2015, Marfrig Overseas will
also be entitled at its option to redeem some
or all of the notes at a redemption price
equal to 100% of the principal amount of the
notes plus the applicable premium as of,
and accrued and unpaid interest to, the
redemption date. On and after May 4, 2015,
Marfrig Overseas will be entitled at its option
to redeem all or a portion of the notes upon
not less than 30 nor more than 60 days’
notice, at the redemption price (plus
accrued interest to the redemption date, if
redeemed during the 12-month period
commencing on May 4 of the years ended
Sept. 30: 2015, 104.750%; 2016, 103.167%;
2017, 101.583%; and 2018 and thereafter,
100%.
Some or all of the notes at a redemption price
equal to 100% of the principal amount, plus
accrued and unpaid interest, if any, plus the
“make-whole” premium.
Up to 35% of the notes with the net proceeds
of certain equity offerings at a redemption
price equal to 108.375% of the principal
amount of the notes plus accrued and unpaid
interest to the date of redemption. The
redemption can be made only if, after the
redemption, at least 65% of the aggregate
principal amount of notes issued under the
indenture remains outstanding.
Source: Marfrig Alimentos S.A. and Marfrig Holdings (Europe) B.V. offering memorandums and Fitch Ratings.
November 8, 2012
163
Corporates
Financial Summary  Marfrig Alimentos S.A.
(BRL 000, Years Ended Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
LTM 6/30/12
2011
2010
2009
2008
2,030,090
2,030,090
9.08
9.08
20.09
4.97
(10.00)
1,773,804
1,773,804
8.11
8.11
18.29
2.41
(12.00)
1,502,466
1,502,466
9.46
9.46
8.00
(7.00)
2.62
819,536
819,536
8.52
8.52
8.15
(4.00)
19.55
753,254
762,158
12.14
12.29
5.96
(20.00)
(2.00)
1.82
1.00
1.00
0.37
0.37
1.82
0.58
1.13
2.38
1.70
0.92
0.92
0.38
0.38
1.70
0.52
1.26
1.65
1.03
1.16
1.16
0.33
0.33
1.03
0.03
0.89
0.06
1.29
1.32
1.32
0.36
0.36
1.29
0.09
1.43
0.23
1.01
1.67
1.66
0.43
0.43
1.01
—
0.18
(2.00)
3.37
6.11
4.62
6.11
4.62
17.39
—
0.28
3.66
6.75
4.78
6.75
4.78
17.38
—
0.23
7.64
6.79
4.21
6.79
4.21
16.33
—
0.32
7.04
6.91
3.20
6.91
3.2
12.22
—
0.29
10.89
6.01
4.59
6.67
5.26
13.14
—
0.29
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
23,511,109
3,028,383
3,431,731
8,980,556
12,412,287
—
12,412,287
—
12,412,287
5,946,442
18,358,729
23,823,441
3,476,960
2,771,104
9,193,354
11,964,458
—
11,964,458
—
11,964,458
5,898,521
17,862,979
22,599,586
3,876,356
3,221,873
6,985,898
10,207,771
—
10,207,771
—
10,207,771
6,496,413
16,704,184
11,451,641
3,033,438
1,639,848
4,019,232
5,659,080
—
5,659,080
—
5,659,080
4,197,808
9,856,888
9,155,171
1,071,664
1,306,339
3,223,491
4,529,830
—
4,529,830
553,710
5,083,540
2,747,768
7,831,308
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
1,656,568
282,721
1,939,289
—
(813,265)
(14,900)
1,111,124
—
500,570
(1,783,889)
(14,486)
(151,874)
(338,555)
1,340,774
161,541
1,502,315
—
(912,820)
(61,936)
527,559
—
(33,795)
(72,164)
(6,758)
(76,070)
338,772
40,697
23,857
64,554
—
(1,119,059)
(99,350)
(1,153,855)
—
(2,830,478)
4,844,826
(3,357)
(20,219)
836,917
181,343
(60,334)
121,009
—
(535,483)
—
(414,474)
(190,346)
(5,319)
1,173,271
1,466,549
(67,907)
1,961,774
6,446
(734,903)
(728,457)
—
(485,091)
—
(1,213,548)
(1,477,692)
(43,831)
1,341,916
1,359,120
55,893
21,858
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
22,361,458
13.67
1,564,590
2,031,917
—
(628,649)
21,884,909
37.83
1,032,276
1,927,054
—
(746,012)
15,878,469
65.13
875,742
1,295,787
—
140,092
9,615,740
55.00
545,080
622,427
—
679,079
6,203,797
85.75
724,586
451,542
8,904
(35,500)
Coverage (x)
FFO Fixed Charge Coverage
November 8, 2012
164
Corporates
Minerva S.A.
Minerva Luxembourg Ltd.
Full Rating Report
Key Rating Drivers
Ratings
Minerva, Minerva Overseas Ltd. and
Minerva Overseas II Ltd.
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B+/RR4
Local Currency
Long-Term IDR
Senior Unsecured
B+
BBB(bra)
Minerva National
Long-Term Rating
BBB(bra)
Rating Outlooks
Stable
Financial Data
Minerva S.A.
(BRL Mil.)
Revenue
EBITDA
Cash Flow from
Operations
FCF
Cash and
Marketable
Securities
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
3/30/12
4,041
372
12/31/11
3,977
328
98
(76)
(11)
(183)
846
746
6.3
6.4
4.0
4.1
Strong Business Position: Minerva S.A. (Minerva) is the third-largest Brazilian exporter of
fresh and frozen beef. It has a low-cost structure, and a diversified and flexible export revenue
base. The successful execution of its strategic plan, including an equity issuance during the
challenging operating environment of the last few years, further supports Minerva’s ratings.
Volatility of Earnings: Protein prices and demand are volatile by nature. Minerva’s profit
margins are affected by factors beyond the company’s control  domestic and international
supply and demand imbalances resulting from animal disease and weather conditions, global
economic growth, changes in consumption habits, and government-imposed sanitary and trade
restrictions. Competitive pressures from other Brazilian or international producers and
exporters also affect the company’s margins.
Product Concentration Increases Risks: The ratings incorporate risks associated with
geographic and product concentration in beef protein, the potential for disease outbreaks, and
the potential negative effect of foreign exchange fluctuations. Minerva is more exposed to
these risks than Brazilian competitors such as JBS and Marfrig because of its higher export
concentration. Exports represent 65.6% of its revenue in the first quarter of 2012.
Positive FCF Expected in 2012: Fitch expects Minerva’s operations to improve in 2012,
helped by moderate volume growth in all of its markets. Stronger cash flow from operations
(CFFO) coupled with reduced capital spending should result in weak, but positive, FCF
generation in 2012. Minerva has been FCF negative for the past seven years.
Leverage Expected to Improve: Minerva's net leverage is expected to decrease to
approximately 3.0x by the end of 2012, due to improvements in its operating performance and
mildly positive FCF generation. This leverage ratio is considered appropriate for the rating
category during a positive cycle. However, a temporary increase in Minerva's leverage ratios is
possible due to further weakening of the Brazilian real, as 76.3% of its total debt as of
March 31, 2012 was denominated in U.S. dollars.
Ratings are Linked: Fitch has linked the ‘B+’ ratings of Minerva Luxembourg S.A. through its
parent and subsidiary rating methodology. Minerva guarantees the notes that have been
issued by this subsidiary.
Analysts
Viktoria Krane
+1 212 908-0367
[email protected]
Gisele Paolino
+55 21 4503-2624
[email protected]
November 8, 2012
Negative Rating Action: The ratings are likely to remain stable unless cash flow generation
and leverage ratios trend differently than Fitch’s expectations. A negative rating action could
occur if Fitch’s expectations for positive cash flow generation fail to materialize or net leverage
does not decline below 4.0x on a normalized basis. This could be a result of either a large
debt-financed acquisition or asset purchases, or as a result of operational deterioration.
Positive Rating Action: A positive rating action could be triggered by a significant leverage
decrease from current levels, but is unlikely to be achieved solely by improving operations in
the short-to-medium term.
165
Corporates
Recovery Rating
Minerva’s recovery rating of ‘RR4’ indicates that the company’s creditors would have average
event of default. This rating reflects a recovery rating cap for Brazil issuers of ‘RR4’, whereas
Minerva’s modified recovery analysis suggests a higher recovery level for the unsecured debt
consistent with ‘RR3’.
Fitch has performed a liquidation analysis in the event of bankruptcy. However, this scenario
seems extremely unlikely given the company’s strong business position. Fitch has also
estimated the enterprise valuation in the event of financial distress. This analysis considers that
any debt default by Minerva would likely be the result of a sudden deterioration in the business
environment either by import ban on Brazilian beef due to health considerations by a
considerable number of export countries, or by a sharp reduction in beef consumption due to
economic distress abroad. It also considers that company operations will remain valuable, but
at a relatively low multiple of 5x.
Recovery Analysis  Minerva S.A.
(BRL Mil.)
IDR:
B+
Discount (%)
Multiple (x)
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
372.0
15
316.2
5.0
1,581.0
Interest Expense
Rent Expense
Total
180.0

45.0
225.0
746.4
207.4
216.1
1,127.8
2,297.7
Rate (%)
Creditors

0
80
165.9
50
108.1
25
282.0
555.9
1,581.0
158.1
1,422.9
Recovery
Rating
RR1
Rating
BB+
Secured Priority
Secured
Lien
510.2
Value Recovered
510.2
Notching
3
The amount of concession payments is highly dependent on
circumstances, but Fitch typically allows up to 5% of the recovery
value available to senior unsecured creditors to be allocated to
concession payments. Concession payments allocated to subordinated
debt should never result in higher recoveries than those of senior
unsecured debt.
1,422.9
510.2
912.7
45.6
867.1
Unsecured Priority
Senior Unsecureda
Unsecured
Subordinated
Value
Recovered
—
912.7

Lien
—
1,585.0
182.6
Recovery (%)
100
Recovery
(%)
—
58
0
Concession
Allocation (%)
—
100
0
Recovery
Rating
—
RR3
RR6
Notching
—
1
2
Rating
—
BB
B
a
ACC.
Source: Fitch.
November 8, 2012
166
Corporates
Corporate Structure — Minerva
(As of March 31, 2012)
Vilela de Queiroz Family
(100.0%)
VDQ Holding
Free Float
68.1%
31.9%
Minerva S.A.
LTM EBITDA (BRL Mil.)
Consolidated Total Debt (BRL Bil.)
TD/EBITDA (x)
ND/EBITD
100.0%
Minerva Log
55.0%
Brascasing
92.0%
Friasa
(Paraguary)
100.0%
PULSA
(Uruguay)
80.0%
Minerva
Dawn Farms
372
2.3
6.3
4.0
100.0%
Minerva
Overseas I
Ltd.
100.0%
Minerva
Overseas II
Ltd.
100.0%
100.0%
Minerva
Luxembourg S.A.
Finance Subsidiary
No Revenue
Total Debt (USD Mil.)
Minerva
Colombia
S.A.S.
860
Source: Minerva S.A., Fitch.
November 8, 2012
167
Corporates
Debt and Covenant Synopsis  Minerva S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Financial Covenants
Consolidated Net
Debt/EBITDA (Maximum)
Change of Control
Provision
Minerva Luxembourg S.A.
Minerva S.A.
Jan. 26, 2007
Feb. 1, 2017
USD35.2 Million
Minerva S.A.
Jan. 22, 2010
Nov. 15, 2019
USD373.7 Million
Minerva S.A.
March 22, 2012
March 22, 2022
USD450 Million
Less than 3.5x.
Less than 3.5x.
Less than 3.5x.
Not later than 30 days following a change of control, Minerva Overseas will make an offer to purchase all outstanding notes at a purchase
price equal to 101% of the principal amount plus accrued interest to the date of purchase.
Minerva will not, and will not permit any subsidiary to, make any asset sale unless the following conditions are met: (i) the asset sale is for fair
market value, as determined in good faith; (ii) at least 75% of the consideration consists of cash or cash equivalents received at closing.
Debt Restriction
Additional Debt Restriction Neither Minerva nor any guarantor may incur
any debt that is subordinate in right of
payment to other debt of Minerva or any
Guarantor unless such debt is also
subordinate in right of payment to the notes or
the guaranty on substantially identical terms.
Limitation on Liens
Limitation on Sale and
Leaseback Transactions
Payments
No debt will be deemed to be subordinated
in right of payment to any other debt solely
by virtue of being unsecured or secured on
a first or junior lien basis.
Neither Minerva nor any guarantor may incur
any debt that is subordinate in right of payment
to other debt of Minerva or any Guarantor
unless such debt is also subordinate in right of
payment to the notes or the guaranty on
substantially identical terms.
Minerva will not, and will not permit any subsidiary to, directly or indirectly incur or permit to exist any lien of any nature whatsoever on any of
its properties or assets without effectively providing that the notes are secured equally and ratably with the obligations so secured for so long
as such obligations are so secured.
Minerva will not, and will not permit any subsidiary to, enter into any sale and leaseback transaction with respect to any property unless
Minerva or such subsidiary would be entitled to: (i) incur debt in an amount equal to the attributable debt with respect to such sale and
leaseback transaction; and (ii) create a lien on such property or asset securing such attributable debt without equally and ratably securing the
notes.
Minerva will not, and will not permit any
Minerva will not, and will not permit
Minerva will not, and will not permit any Subsidiary to,
subsidiary to, directly or indirectly: (i) declare any subsidiary to, directly or
directly or indirectly:(i)declare or pay any dividend or
or pay any dividend or make any distribution indirectly: (i) declare or pay any
make any distribution on its Equity Interests held by
on its equity interests held by persons other
dividend or make any distribution on Persons other than Minerva or any of its Subsidiaries
than Minerva or any of its substantially
its equity interests held by persons
(other than (A) dividends or distributions paid in
wholly owned subsidiaries; (ii) purchase,
other than Minerva or any of its
Minerva’s Qualified Equity Interests and (B) dividends
redeem or otherwise acquire or retire for
subsidiaries; (ii) purchase, redeem
or distributions by a Subsidiary payable, on a pro rata
value any equity interests of Minerva held by or otherwise acquire or retire for
basis or on a basis more favorable to Minerva, to all
persons other than Minerva or any of its
value any equity interests of Minerva holders of any class of Capital Stock of such
substantially wholly owned subsidiaries; or
held by persons other than Minerva Subsidiary a majority of which is held, directly or
(iii) repay, redeem, repurchase, defease or
or any of its subsidiaries; or (iii)
indirectly, by Minerva); (ii)purchase, redeem or
otherwise acquire or retire for value, or
repay, redeem, repurchase, defease otherwise acquire or retire for value any Equity
make any payment on or with respect to any or otherwise acquire or retire for
Interests of Minerva held by Persons other than
subordinated debt except a payment of
value, or make any payment on or
Minerva or any of its Subsidiaries; or (iii)repay,
interest or principal at stated maturity (other
with respect to any subordinated
redeem, repurchase, defease or otherwise acquire or
than a repayment, redemption, repurchase,
debt except a payment of interest or retire for value, or make any payment on or with
defeasance or acquisition or retirement in
principal at stated maturity.
respect to, any Subordinated Debt (other than (x) a
anticipation of satisfying a sinking fund
payment of interest or principal at Stated Maturity or (y)
obligation, principal installment or final
a repayment, redemption, repurchase, defeasance or
maturity, in each case, due within one year
acquisition or retirement in anticipation of satisfying a
of the date of such repurchase, defeasance
sinking fund obligation, principal installment or final
or acquisition or retirement)
maturity, in each case, due within one year of the date
of such repurchase, defeasance or acquisition or
retirement);
Limitation on Dividend
Minerva will not, and will not permit any subsidiary to, create or otherwise cause or permit to exist or become effective any encumbrance or
restriction of any kind on the ability of any subsidiary to (i) pay dividends or make any other distributions on any equity interests of the
subsidiary owned by Minerva or any other subsidiary; (ii) pay any debt or other obligation owed to Minerva or any other subsidiary; (iii) make
loans or advances to Minerva or any other subsidiary; or (iv) transfer any of its property or assets to Minerva or any other subsidiary.
Local Currency Debentures Overview
Issuer
Minerva S.A.
Guarantors
VDQ Holdings S.A.
Document Date
July 10, 2010
Maturity Date
July 10, 2015
Description of Debt
Simple, unsecured, and nonconvertible in shares.
Amount
BRL200 Million
Financial Covenants
Consolidated Net
Less than 3.5 x
Debt/EBITDA (Maximum)
November 8, 2012
168
Corporates
Financial Summary  Minerva S.A.
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Operating EBITDA/Debt-Service Coverage
Operating EBITDAR/Debt-Service Coverage
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
Net Income
LTM 3/31/12
2011
2010
2009
2008
371,983
371,983
9.2
9.2
21.9
(1.9)
(6.0)
327,725
327,725
8.2
8.2
13.1
(4.6)
6.1
245,665
245,665
7.2
7.2
2.1
(4.2)
4.3
184,573
184,573
7.1
7.1
1.9
(4.2)
19.5
153,376
153,376
7.2
7.2
6.1
(21.9)
(51.0)
1.2
0.7
0.7
0.4
0.4
1.2
0.6
1.6
0.7
1.1
1.0
1.0
0.4
0.4
1.1
0.2
1.0
(0.1)
0.3
1.5
1.5
0.6
0.6
0.3
0.1
1.5
0.3
0.3
1.8
1.8
0.5
0.5
0.3
0.0
1.1
0.2
1.0
1.5
1.5
0.3
0.3
1.0
(0.8)
0.2
(0.3)
3.5
6.3
4.0
6.3
4.0
0.3

0.1
5.5
6.4
4.1
6.4
4.1
0.2

0.3
36.6
6.7
4.3
6.7
4.3
0.1

0.1
36.6
6.6
4.3
6.6
4.3
0.1

0.2
13.4
9.2
6.2
9.2
6.2
0.1

0.3
3,619,125
846,276
282,669
2,053,283
2,335,952
—
2,335,952

2,335,952
714,268
3,050,220
3,499,191
746,382
541,568
1,561,081
2,102,649
—
2,102,649

2,102,649
819,405
2,922,054
2,628,350
576,464
236,891
1,402,508
1,639,399
—
1,639,399

1,639,399
540,273
2,179,672
2,072,813
424,009
291,071
932,302
1,223,373
—
1,223,373

1,223,373
527,339
1,750,712
2,018,221
466,540
357,840
1,052,083
1,409,923
—
1,409,923

1,409,923
314,373
1,724,296
100,050
(1,178)
98,872

(151,715)
(23,524)
(76,367)

50,031
280,317
(4,455)
72,115
303,836
4,040,658
8.9
326,684
568,862

(37,704)

46,185
(56,771)
(10,586)

(160,850)
(11,762)
(183,198)
(17,805)

271,080
8,946
90,895
169,918
3,976,977
16.7
282,346
335,365

41,715
72
(122,546)
191,427
68,881

(206,122)
(6,555)
(143,796)
(166,166)

464,393
3,914
(5,890)
152,455
3,408,205
31.0
216,846
167,281

22,898
23
(71,382)
100,657
29,275

(138,595)

(109,320)

(305)
(65,641)
158,999
(26,264)
(42,531)
2,602,119
22.7
142,310
104,800

81,992
82
2,648
(116,747)
(114,099)

(351,013)

(465,112)


570,544

(15,338)
90,094
2,120,800
45.0
127,000
102,349

(215,546)
(216)
Source: Fitch.
November 8, 2012
169
Corporates
OAS S.A. (Formerly OAS Engenharia e Participações S.A.)
Construtora OAS Ltda. and OAS Empreendimentos S.A.
Full Rating Report
Key Rating Drivers
Ratings
High Leverage: The ratings of OAS S.A. and its main operating subsidiary, Construtora OAS
Ltda., reflect the group’s high leverage, which is a result of its aggressive expansion strategy.
The OAS group had a net debt-to-EBITDA ratio of 5.9x during 2011.
OAS S.A. and Construtora OAS Ltda.
Foreign Currency
Long-Term Issuer Default
Rating (IDR)
B
Local Currency
Long-Term IDR
National Scale
Long-Term Rating
B
BBB(bra)
OAS S.A.
2nd Debentures, Matures 2013
3rd Debentures, Matures 2016
4th Debentures, Matures 2027
5th Debentures, Matures 2015
BBB(bra)
BBB(bra)
BBB(bra)
BBB(bra)
OAS Empreendimentos S.A.
BB+(bra)
2nd Debentures, Matures 2014 BBB(bra)
IDR – Issuer default ratings.
Rating Outlooks
Stable
Financial Data
OAS S.A.
(BRL Mil.)
Net Revenues
Total Adjusted Debt
FFO
EBITDA
Cash Marketable
FFO Adjusted
Leverage (x)
Adjusted Net
Debt/EBITDA (x)
EBITDA/Debt
Service Coverage
(x)
12/31/11
4,637.5
3,752.8
554.7
385.2
1,465.0
12/31/10
4,517.2
2,619.5
(32.9)
179.0
1,162.6
4.5
20.6
5.9
8.1
0.3
0.2
Analysts
Liliana Yabiku
+55 11 4504-2600
[email protected]
Satisfactory Liquidity: As of Dec. 31, 2011, OAS reported consolidated cash and marketable
securities of BRL1.465 million and total debt of BRL3.753 million. These figures compare with
BRL1.163 million of cash and BRL2.620 million of debt at the end of 2010. Fitch expects that
OAS will be able to preserve a satisfactory cash reserve to face the group’s increased backlog.
Operating Results Need to Improve: Group OAS faces the challenge to continue recovering
its operating margins on a consistent basis. For a recovery to occur, the company will need to
keep heavy construction costs under control, increase the contribution of its infrastructure
segment, and improve the operating results of its real estate construction business, OAS
Empreendimentos S.A.
Construtora OAS: Construtora OAS has historically been the group’s main operating
company and cash generator. The company is 100% controlled and is operationally integrated
with OAS. Construtora OAS also guarantees 47% of OAS’s consolidated corporate debt, net of
“project finance” loans. In 2011, Construtora OAS accounted for 80% of the group’s
consolidated revenue and 54% of EBITDA.
Robust Backlog: During 2011 and first-quarter 2012, the OAS group continued to maintain
high levels of backlog. As of March 31, 2012, Construtora OAS’ backlog was BRL17.4 billion,
which compares to BRL18 billion at year-end 2011 and BRL12 billion on 2010. The current
backlog and the positive scenario for the infrastructure sector should ensure the group’s growth
in the next few years.
Negative Rating Action: The ratings could be negatively pressured by a downturn in heavy
construction activities or increased costs that pressure margins. A weaker cash position and
higher leverage could also result in a rating downgrade.
Positive Rating Action: Ratings upgrades or a change in the Rating Outlook to Positive could
result from a continued improvement in operating results, combined with significant leverage
reduction and an improved liquidity position.
Jose Romero
+55 11 4504-2600
[email protected]
November 8, 2012
170
Corporates
Organizational Structure — OAS Group
Cesar de Araujo
Mara Pires
Jose Adelmario
Pinheiro Filho
100%
100%
CMP Participações
Ltda.
LP Participações
Ltda.
90%
10%
OAS S.A.
100%
100%
OAS Investimentos
S.A.
OAS
Empreendimentos
100%
100%
COESA Engenharia
Ltda.
25%
Invepar S.A.
Construtora
OAS Ltda.
100%
Investimentos
Diretos
SPEs
Consorcios
Sucursais no
Exterior
SPEs
Source: Fitch and OAS Group.
November 8, 2012
171
Corporates
Debt and Covenant Synopsis  First Debenture Issued by OAS S.A.
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Provider of Pledge of Shares
Principal Repayment
(Date/% of Total)
Financial Covenants
EBITDA (Maximum)
Issuer Financial Covenant
Other Relevant Early Maturity Events
OAS S.A.
Construtora OAS Ltda.
Oct. 29, 2010
Debenture Deed: Oct. 18, 2010
Oct. 29, 2018
First Debenture Simple, Not Convertible
BRL400 Million
OAS Investimentos S.A.: 8,531,973 voting shares and 17,063,946 preferential shares of Investimentos e Participações em
Infra-Estrutura S.A. INVEPAR.
Oct. 29 of the following years: 2013 (16.6666%); 2014 (16.6666%); 2015 (16.6666%); 2016 (16.6666%); 2017 (16.6666%);
and 2018 (16.6670%).
Net debt/EBITDA of Construtora OAS not to exceed 3.0x on annual consolidated financial statements.
Net debt/total assets of OAS S.A. not to exceed 60% on annual consolidated financial statements.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Nonpayment of any financial obligation of this issue by the issuer or guarantors at the respective maturity dates;
Noncompliance of any obligation within the established period that may lead to early maturity of any debt obligation of
the issuer or guarantor equal to or above BRL20 million;
Change or transfer of direct or indirect shareholding control of the issuer reducing to less than 50% plus one share of
its voting control or result, by any reason, in the current controlling shareholders not exercising effective control;
Split, merger, or incorporation or any form of corporate reorganization involving the issuer or guarantors without the
previous knowledge and approval by the debenture holders, unless the operation exclusively involves the issuer
and/or guarantors and their subsidiaries and will not result in change of shareholding control of the issuer and/or
guarantors;
Noncompliance of any financial obligation of the issuer or guarantors of amount equal or above BRL20 million, or
equivalent in other currency, or any other obligation that may lead to an early maturity of any financial obligation of the
issuer or guarantors of an amount equal or above BRL20 million or equivalent in other currency;
Protests against the issuer or guarantors equal or above BRL20 million or equivalent in other currency, unless not
legitimate, cancelled, or suspended by judicial decision;
Noncompliance of judicial decision against the issuer or guarantors including fiscal executions of an amount equal or
above BRL20 million or equivalent in other currencies;
Confiscation or pledge of assets of the issuer or guarantors of amount equal or above BRL20 million or equivalent in
other currency, unless, legally contested or suspended, within 15 days of the event, or substituted by a guarantee that
does not affect or bind the issuer assets;
Governmental fiscal or environmental penalties of amount equal or above BRL10 million, unless legally contested
within the established period; not legitimated by the issuer and guarantor or cancelled.
Continued on the next page.
Source: OAS S.A. and Fitch Ratings.
November 8, 2012
172
Corporates
Debt and Covenant Synopsis  Second Debenture Issued by OAS S.A. (Continued)
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Principal Repayment
(Date/% of Total)
OAS S.A.
June 25, 2011
Debenture Deed: May 25, 2011
June 25, 2013
Second Debenture Simple, Not Convertible
BRL200 Million
Dec. 25, 2012 (14.28%); Jan. 25, 2013 (14.28%); Feb. 25, 2013 (14.28%); March 25, 2013 (14.28%); April 25, 2013
(14.28%); May 25, 2013(14.28%) and June 25, 2013 (14.32%)
Financial Covenants
EBITDA (Maximum)
Net debt/total assets of OAS S.A. not to exceed 60% on annual consolidated financial statements.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Nonpayment, by the issuer, of any financial obligation due to the debenture holders at the respective due dates;
Noncompliance, by the issuer, of any nonfinancial obligation as per the debenture deed within the established period
or, if not established, within seven working days;
Change or transfer of direct or indirect shareholding control of the issuer reducing to less than 50% plus one share of
its voting control or result, by any reason, in the current controlling shareholders not exercising effective control;
Split, merger or incorporation, or any form of corporate reorganization involving the issuer or the guarantor without the
previous knowledge and approval by the debenture holders;
Noncompliance of any financial obligation of the issuer or guarantors of an amount equal to or above BRL20 million, or
equivalent in other currency, or any other obligation that may lead to an early maturity of any financial obligation of the
issuer or guarantors of amount equal or above BRL20 million or equivalent in other currency;
Protests against the issuer or guarantors equal to or above BRL20 million or equivalent in other currency, unless not
legitimate, cancelled, or suspended by judicial decision;
Noncompliance of judicial decision against the issuer or guarantors including fiscal executions, of an amount equal to
or above BRL20 million or equivalent in other currencies;
Confiscation or pledge of assets of the issuer or guarantors of amount equal or above BRL20 million or equivalent in
other currency, unless, legally contested or suspended, within 15 days of the event, or substituted by a guarantee that
does not affect or bind the issuer assets;
Governmental fiscal or environmental penalties of an amount equal or above BRL10 million, unless legally contested
within the established period; not legitimated by the issuer and guarantor or cancelled.
November 8, 2012
173
Corporates
Debt and Covenant Synopsis  Third Debenture Issued by OAS S.A. (Continued)
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Principal Repayment (Date/% of Total)
Financial Covenants
Financial Covenant
OAS S.A.
Dec. 12, 2011
Debenture Deed: Nov. 17, 2011
Dec. 12, 2016
Third Debenture Simple, Not Convertible
BRL300 million
Dec. 12, 2014 (20%); June 12, 2015 (20%); Dec. 12, 2015 (20%); June 12, 2016 (20%); Dec. 12, 2016 (20%).
Net debt/EBITDA of Construtora OAS and/or OAS S.A. not to exceed 3.0x on annual consolidated financial statements;
net debt/total assets of Construtora OAS and/or OAS S.A. not to exceed 60%.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Bankruptcy, dissolution, request of self-bankruptcy, or similar of the issuer or guarantor;
Request of extra judicial recovery not eliminated within five days by the issuer or guarantor;
Noncompliance by the issuer of any financial obligation established by the debenture deed not solved within seven
working days;
Noncompliance with the obligation of use of the debenture funds exclusively for debt repayment in accordance with the
terms established for this debenture issue;
Delinquency by the issuer or guarantor of financial obligation of amount equal or above BRL20 million, or equivalent in
other currency, unless proven illegitimate, solved, or legally contested;
Noncompliance, within 30 days, of any judicial decision against the issuer or guarantor of amount above
BRL20 million, or equivalent in other currency;
Protests against the issuer or guarantor of amount above BRL20 million, unless proved to be illegitimate or legally
contested;
Split, merger, or incorporation of any form of corporate reorganization of the issuer or guarantor since such operations
imply the disposal of relevant assets, without agreement from the debenture holders;
Change of activity of the issuer with core business no longer being civil construction and real estate development;
Capital reduction of the issuer above 10% of equity, unless previously authorized by the debenture holders;
Nonrenewal, cancellation, or suspension of authorizations and licenses, including environmental, resulting in adverse
effects for the continuation of activities of the issuer.
November 8, 2012
174
Corporates
Debt and Covenant Synopsis  Fourth Debenture Issued by OAS S.A. (Continued)
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Principal Repayment
(Date/% of Total)
Financial Covenants
Financial Covenant
OAS S.A.
Jan. 13, 2012
Debenture Deed: Jan. 6, 2012
Jan. 13, 2027
Fourth Debenture Simple, Not Convertible, Private (FI FGTS)
BRL250 million
Jan. 13, 2015 (current nominal amount/13); Jan. 13, 2016 (current nominal amount/12);
Jan. 13, 2017 (current nominal amount/11); Jan. 13, 2018 (current nominal amount/10);
Jan. 13, 2019 (current nominal amount/9); Jan. 13, 2020 (current nominal amount/8); Jan. 13, 2021 (current nominal
amount/7); Jan. 13, 2022 (current nominal amount/6); Jan. 13, 2023 (current nominal amount/5); Jan. 13, 2024 (current
nominal amount/4); Jan. 13, 2025 (current nominal amount/3); Jan. 13, 2026 (current nominal amount/2); Jan. 13, 2027
(current nominal amount/1).
Net debt/total assets of the issuer not to exceed 0.6; net debt/EBITDA of Construtora OAS not to exceed 3.0x; cash to debt
service/financial result of the issuer not to exceed 1.2x.
1.
2.
3.
4.
5.
6.
7.
8.
Bankruptcy, dissolution, request of extra judicial recovery, or self-bankruptcy not eliminated within 30 days, decree of
bankruptcy or similar of the issuer, guarantor, OAS Investimentos S.A., or INVEPAR;
Noncompliance, by the issuer of any financial obligation established by the debenture deed not solved within three
working days;
Noncompliance by the issuer any nonfinancial obligation established by the debenture deed, not solved within 10 days;
Noncompliance with the obligation of use of the debenture funds exclusively for development or acquisition of projects
considered eligible in accordance with the terms established for this debenture issue;
Delinquency by the issuer or by the guarantor of financial obligation of amount equal or above BRL20 million, or
equivalent in other currency, unless proven illegitimate, solved, legally contested;
Noncompliance, within 30 days, of any judicial decision against the issuer or the guarantor of amount above
Protests against the issuer or the guarantor of amount above BRL20 million, unless proved to be illegitimate or legally
contested;
Nonrenewal, cancellation, or suspension of authorizations and licenses, including environmental resulting in adverse
effect for the continuation of activities of the issuer or guarantor.
November 8, 2012
175
Corporates
Debt and Covenant Synopsis  Fifth Debenture Issued by OAS S.A. (Continued)
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Principal Repayment
(Date/% of Total)
Financial Covenants
Financial Covenant
OAS S.A.
April 15, 2012
Debenture Deed: May 17, 2012
May 15, 2015
Fifth Debenture Simple, Not Convertible
BRL209 million
Dec. 15, 2013 (5.5556%); Jan. 15, 2014 (5.5556%); Feb. 15, 2014 (5.5556%); March 15, 2014 (5.5556%); April 15, 2014
(5.5556%); May 15, 2014 (5.5556%); June 15, 2014 (5.5556%); July 15, 2014 (5.5556%); Aug. 15, 2014 (5.5556%); Sept.
15, 2014 (5.5556%); Oct. 15, 2014 (5.5556%); Nov. 15, 2014 (5.5556%); Dec. 15, 2014 (5.5556%); Jan. 15, 2015
(5.5556%); Feb. 15, 2015 (5.5556%); March 15, 2015 (5.5556%); April 15, 2015 (5.5556%); May 15, 2015 (5.5548%).
Net debt/total assets of the issuer not to exceed 60%.
1.
2.
3.
4.
Bankruptcy, dissolution, request of self-bankruptcy, decree of bankruptcy or similar of the issuer or guarantor;
Noncompliance, by the issuer of any financial obligation established by the debenture deed;
Noncompliance by the issuer of any nonfinancial obligation established by the debenture deed;
Noncompliance with the obligation of use of the debenture funds exclusively for debt repayment in accordance with the
terms established for this debenture issue;
5.
Delinquency by the issuer or by the guarantor of financial obligation of amount equal or above BRL20 million, or
equivalent in other currency, unless proven illegitimate or solved or legally contested;
6.
Noncompliance of any judicial decision against the issuer or the guarantor of amount above BRL20 million, or
equivalent in other currency;
7.
Protests against the issuer or the guarantor of amount above BRL20 million, unless proved to be illegitimate or legally
contested;
8.
Capital reduction of the issuer or the guarantor above 10% of equity, unless previously authorized by the debenture
holders;
9.
effect for the continuation of activities of the issuer.
November 8, 2012
176
Corporates
Debt and Covenant Synopsis  First Debenture Issued by OAS Empreendimentos S.A.
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Real Guarantees
Principal Repayment (Date/% of Total)
First Debenture Issued by OAS Empreendimentos S.A.
OAS S.A.
Nov. 3, 2010
Debenture Deed: Nov. 3, 2009
Nov. 3, 2014
First Debenture Simple, Not Convertible
BRL300 Million
Fiduciary lien on shares of single-purposes companies (SPCs) constituted for real estate projects eligible for the transaction
and on financial assets related to the debentures; mortgage of real estate assets acquired with the debenture funds;
fiduciary assignment of credit rights represented by eligible receivables and funds as per the terms of the debenture deed.
Nov. 3, 2012 (20%); May 3, 2013 (20%); Nov. 3, 2013 (20%); May 3, 2014 (20%); Nov. 3, 2014 (20%).
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Bankruptcy, dissolution, request of self-bankruptcy not eliminated within 60 days, decree of bankruptcy or similar of the
issuer, guarantor, or any relevant subsidiary;
Request of extra judicial recovery by the issuer, guarantor or any relevant subsidiary;
Disposal, providing of guarantee to third party of any asset linked to the real guarantee agreement without previous
agreement from the debenture holders, unless associated to obligation from judicial determination;
Noncompliance, by the issuer, guarantor, or relevant subsidiary of any financial obligation established by the
debenture deed not solved within two working days;
Noncompliance by the issuer or relevant subsidiary of any nonfinancial obligation established by the debenture deed,
not solved within 30 days;
Noncompliance with the obligation of use of the debenture funds exclusively for development or acquisition of projects
considered eligible in accordance with the terms established for this debenture issue;
Delinquency by the issuer or by any relevant subsidiary of financial obligation of amount equal or above BRL5 million,
or equivalent in other currency, unless proven illegitimate or solved or legally contested within 30 days;
Delinquency by the guarantor of any debt or financial obligation of amount equal or above BRL15 million, or equivalent
in other currency, unless solved or legally contested within 30 days;
Noncompliance, within 30 days, of any judicial decision against the issuer or any relevant subsidiary of amount above
Protests against the issuer or relevant subsidiary not solved or declared nonlegitimate within 30 days, of amount above
BRL5 million, unless proved to be illegitimate or legally contested;
Split, merger, or incorporation or any form of corporate reorganization of the issuer since such operations imply the
disposal of relevant assets, without agreement from the debenture holders;
Change of activity of the issuer with core business no longer being civil construction and real estate development;
Capital reduction of the issuer above BRL5 million, unless previously authorized by the debenture holders;
effect for the continuation of activities of the Issuer or relevant subsidiaries;
More than two notches downgrading of the original national scale ‘BBB’ risk classification in November 2009, unless
the issuer presents within 30 days new guarantees  subject to approval by the debenture holders  in a way as to
maintain a risk classification equivalent to ‘BB+’ on the national scale, which, if not obtained, the issuer will have
additional 30 days to the redemption and cancellation of the total debenture issue;
Sale of the direct or indirect shareholding control of the issuer or the single-purpose companies, which form part of the
real guarantees of the debenture issue without previous authorization from the debenture holders.
Source: OAS Empreendimentos and Fitch Ratings.
November 8, 2012
177
Corporates
Debt and Covenant Synopsis  Second Debenture Issued by OAS Empreendimentos S.A.
(Continued)
Overview
Issuer
Guarantors
Issue Date
Documents Date
Maturity Date
Description of Debt
Amount
Principal Repayment
(Date/% of Total)
Financial Covenants
Second Debenture Issued by OAS Empreendimentos S.A.
OAS S.A.
June 15, 2010
Debenture Deed: June 15, 2010
July 15, 2014
Second Debenture Simple, Not Convertible
BRL60 million
July 15, 2012 (20%); Jan. 15, 2013 (20%); July 15, 2013 (20%); Jan. 15, 2014 (20%); July 15, 2014 (20%).
Net debt (*)/Equity equal or lower than 1.0x on half-yearly consolidated financial statements.
(*) Net debt excludes financings from the Housing Financial System (SFH) and financings with funds from the Brazilian Savings
and Loan System (SBPE) and from the Brazilian Employees Severance Indemnity Fund (FGTS), as well as cash and
equivalents.
1.
2.
3.
4.
5.
6.
7.
8.
Incorporation, merger, split or any form of corporate reorganization or disposal of relevant assets, unless previously
approved by the majority of debenture holders in the market, with the exception of corporate reorganization without
change of the current indirect controlling shareholders of the issuer;
Noncompliance with obligations related to government fiscal environmental authorities during the issue period;
Request of self-bankruptcy or bankruptcy not cancelled within 60 days; decree of bankruptcy, request of judicial or extrajudicial recovery, or any similar procedure;
Nonpayment of principal, remuneration, or any financial obligation of the debentures on the due dates;
Reduction above 10% of the issuer’s capital, unless previously authorized by majority in debenture holders meeting;
Early maturity of any financial obligation of at least BRL5 million;
Delinquency of payment of any issuer’s debt of, at least BRL5 million, unless illegitimate and since proved by the issuer
or legally contested.
Downgrading of national scale risk classification of the debenture issue to below ‘BBB–’, unless the issuer, within 30
days, offers guarantees — subject to the approval of debenture holders — in a way that the risk classification of the
debenture issue is maintained equivalent to ‘BBB–’.
the covenant summaries is provided “as is” without any representation or warranty and is not a substitute for information provided to investors by an issuer and its agents
in connection with a sale of securities.
Source: OAS Empreendimentos and Fitch Ratings.
November 8, 2012
178
Corporates
Financial Summary  OAS S.A.
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 12/31/11
2010
2009
2008
2007
385,217
385,217
8.3
8.3
18.8
(6.6)
7.8
178,990
178,990
4.0
4.0
3.9
(6.9)
(16.7)
203,512
203,512
5.4
5.4
26.6
(6.0)
28.2
179,807
179,807
6.8
6.8
9.1
0.6
(1.7)
115,152
115,152
7.4
7.4
N.A.
N.A.
N.A.
3.0
1.4
1.4
0.3
0.3
3.0
(0.0)
1.2
(0.9)
0.8
1.1
1.1
0.2
0.2
0.8
(0.2)
1.2
(1.4)
6.8
2.7
2.7
0.5
0.5
6.8
(0.4)
1.3
(0.8)
2.4
3.4
3.4
0.6
0.6
2.4
0.2
1.5
2.5
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
4.5
9.7
5.9
9.7
5.9
0.1
N.A.
0.3
20.6
14.6
8.1
14.6
8.1
0.1
N.A.
0.3
2.4
6.2
2.8
6.2
2.8
0.1
N.A.
0.3
5.8
4.0
2.0
4.0
2.0
0.1
N.A.
0.3
N.A.
7,106,914
1,464,995
967,649
2,785,136
3,752,785
—
3,752,785
—
3,752,785
691,261
4,444,046
4,987,003
1,162,565
661,953
1,957,558
2,619,511
—
2,619,511
—
2,619,511
666,486
3,285,997
3,002,987
681,570
322,153
929,494
1,251,647
—
1,251,647
—
1,251,647
681,652
1,933,299
1,964,258
370,043
242,210
481,395
723,605
—
723,605
—
723,605
641,537
1,365,142
1,761,499
246,949
44,875
515,545
560,420
—
560,420
—
560,420
671,789
1,232,209
554,759
(683,404)
(128,645)
N.A.
(148,253)
(30,146)
(307,044)
(349,746)
(87,416)
962,659
64,322
N.A.
282,775
(32,883)
(149,871)
(182,754)
N.A.
(127,659)
—
(310,413)
(755,027)
(80,899)
1,425,533
299,793
(9,422)
569,565
438,528
(520,508)
(81,980)
N.A.
(108,811)
(36,260)
(227,051)
N.A.
(222,136)
719,116
84,035
(813)
353,151
71,425
86,955
158,380
N.A.
(62,967)
(79,365)
16,048
N.A.
(3,959)
108,763
N.A.
2,747
123,599
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
4,637,514
3
276,507
278,898
N.A.
53,225
4,517,154
19
72,217
159,967
N.A.
(112,650)
3,801,666
43
132,690
75,136
N.A.
186,599
2,658,419
71
115,817
52,731
N.A.
(10,859)
1,554,648
N.A.
62,404
N.A.
N.A.
32,489
4.9
2.7
4.9
2.7
—
N.A.
0.1
N.A. – Not available.
Source: Fitch.
November 8, 2012
179
Corporates
OGX Petroleo e Gas Participações S.A. (OGX)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Sr. Unsecured Notes due 2018
B
B/RR4
Local Currency
Long-Term IDR
B
National
Long-Term Rating
BBB–(bra)
Ratings Outlooks
National Long-Term Rating Stable
Stable
Stable
Stable
Financial Data
OGX Petroleo e Gas Participações S.A.
(USD Mil.)
Total Equity
LTM
6/30/12
4,159
12/30/11
4,760
4,015
2,957
—
(695)
—
2,567
2,929
—
(305)
—
Total Debt
Cash and Equivalents
Operating Revenue
Net Income
ROAE (%)
High Expected Leveraged and Negative Cash Flow: OGX Petroleo e Gas Participações
S.A.’s (OGX) ratings are constrained by its high leverage and the risk associated with being a
startup. As of June 30, 2012, OGX had USD2.9 billion of cash and its pro forma debt was
USD3.9 billion. As a startup, the company is not generating positive EBITDA.
Lower than Expected Production Volumes Prolong Deleveraging: OGX’s production
volumes are expected to be significantly lower than initially projected, which prolongs the
expected negative free cash flow and delays the deleveraging process. OGX forecasts a
production volume of 5,000 barrels of oil equivalent per day (boepd) for its first two wells in
Tubarao Azul field, which is well below the 10,000–13,000 boepd initially projected. As a result,
OGX’s production is expected to be below one-half of the initially projected volumes of 730,000
boepd by 2016.
Reduction in EBITDA and Capex Projections: As a result of lower production volume
prospects, Fitch Ratings has reduced its EBITDA projection to approximately USD2 billion by
2015 from approximately USD6 billion, using Fitch’s published midcycle price deck. The
company has also reduced its capital investments to approximately USD3.3 billion in 2012 and
2013, and to less than USD1 billion from 2014 onwards. Should production volumes
materialize at the new indicated levels, Fitch expects OGX to report negative free cash flow
over the next three years. Cash deficits are expected to be funded with current liquidity with no
material increases in debt levels. By 2015, Fitch expects leverage to decline to below 4.0x, as
production comes on line and operating cash flow increases.
Large Contingent and Prospective Resources; No Proven Reserves: OGX estimates it has
a potential portfolio of approximately 10.8 billion of recoverable barrels of oil equivalent (boe)
as of December 2010. The oil is located mainly in shallow waters or onshore in Brazil, and to a
lesser extent in Colombia.
Experienced, Knowledgeable Management: The management team is experienced in the oil
and gas sector, with an average of 31 years of experience in the Brazilian oil and gas industry.
This experience and firsthand knowledge somewhat lowers uncertainty regarding the ability to
execute its production plans.
Analysts
Ana Paula Ares
+54 11 5235-8121
[email protected]
Lucas Aristizabal
+312-368-3260
[email protected]
November 8, 2012
Key Rating Drivers: Catalysts for a negative rating action include a significant delay in
bringing production online, coupled with lower than expected discovery levels and incorporating
reserves, which could result in increased funding needs and a deterioration in OGX’s credit
quality. A positive rating action could result from satisfactory production volumes, coupled with
lower uncertainties regarding reserves.
180
Corporates
Recovery Rating
The recovery ratings for OGX’s capital market debt instruments reflect Fitch’s expectation that
the company’s creditors would have an average recovery, constrained by the soft cap of ‘RR4’
for bonds issued by Brazilian corporates.
Using Fitch’s notching methodology, bondholder recovery value was assessed using the
liquidation value of reserves, in line with Fitch’s sector-specific rating recovery methodology for
oil and gas, detailed in the special report, “U.S. Exploration and Production Recovery Rating
Methodology,” published March 20, 2008. Under this scenario, Fitch used a USD10/boe
reserve value for the company’s prospective resources.
Fitch has considered, for the purpose of the recovery analysis, potential proved reserves
equivalent to 1 billion barrels of oil equivalent given that the company is in its developmental
phase and there are no proven certified reserves up to date. This translates into a gross
liquidation value of USD10 billion prior to administrative claims and concession payments to
junior claimants. The 1 billion boe of potential reserves represents approximately 10% of OGX
estimated prospective resources of 10.8 billion boe as of December 2010.
Recovery Analysis  OGX Petroleo e Gas Participações S.A. (OGX)
(Mil.)
IDR:
B
Discount (%)
Multiple (x)
Liquidation Value
Cash
Accounts Receivable
Inventory
Value of 1P Oil Reserves
Total
—
—
—
—
—
Interest Expense
Rent Expense
Total
—
—
—
—
—
—
10,000
10,000
Rate (%)
Creditors
0
—
80
—
50
—
100
10,000
10,000
10,000
1000
9,000
Recovery
Rating
—
—
Rating
—
—
Secured Priority
Senior Secured
Secured
Lien
—
—
Unsecured Priority
Senior Unsecured
Unsecured
Lien
4,015
—
Value Recovered
—
—
9,000
—
9,000
450
8,550
Recovery (%)
—
—
Notching
—
—
The amount of concession payments is highly dependent on
circumstances, but Fitch typically allows up to 5% of the recovery
value available to senior unsecured creditors to be allocated to
concession payments. Concession payments allocated to subordinated
debt should never result in higher recoveries than those of senior
unsecured debt.
Value
Recovered
4,015
—
Recovery
(%)
100
—
Concession
Allocation (%)
100
—
Recovery
Rating
RR4
—
Notching
0
—
Rating
B
—
Source: Fitch.
November 8, 2012
181
Corporates
Debt and Covenant Synopsis OGX Petroleo e Gas Participações S.A. (OGX)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
OGX Austria GmbH
OGX Austria GmbH
OGX and OGX Petroleo e Gas Ltda.
May 26, 2011
2018
OGX and OGX Petroleo e Gas Ltda.
March 27, 2012
2022
Financial Covenants
Net debt to EBITDA equal or lower than 3.5x or total debt higher
(Maximum)
than USD4 billion.
Interest Coverage (Minimum) N.A.
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
Restriction on Purchase
of Notes
Net debt to EBITDA equal or lower than 3.5x or total debt higher
than USD4 billion.
N.A.
Change of control clause at 101% of principal plus accrued and unpaid
interest.
The issuer and its restricted subsidiaries cannot sell assets unless the
asset sale is for fair market value and at least 75% is paid in cash (some
exceptions are contemplated). If, following 365 days upon receipt,
proceeds from asset sales have not been applied to purchase the notes
or repay debt, proceeds of less than USD50 million will be accumulated
or proceeds equal or in excess of such amount will be applied to make
an offer to purchase the notes at 100% of principal plus accrued interest.
Change of control clause at 101% of principal plus accrued and unpaid
interest.
The issuer and its restricted subsidiaries cannot sell assets unless the
asset sale is for fair market value and at least 75% is paid in cash (some
exceptions are contemplated). If, following 365 days upon receipt,
proceeds from asset sales have not been applied to purchase the notes
or repay debt, proceeds of less than USD50 million will be accumulated
or proceeds equal or in excess of such amount will be applied to make
an offer to purchase the notes at 100% of principal plus accrued interest.
The issuer and restricted subsidiaries may incur permitted debt, subject
to standard limitations, provided that following such transaction total net
debt does not exceed USD4 billion and net debt to EBITDA does not
exceed 3.5x.
The issuer and its restricted subsidiaries are allowed to incur customary
permitted liens, related to the normal course of business. These include
a debt not to exceed the greater of USD1.5 billion and 15% of
consolidated assets.
The issuer and its restricted subsidiaries are allowed to make restricted
payments if, among other things: no event of default occurs or is
continuing, the issuer could incur in additional debt after such
transaction, total restricted payments since the notes issuance do not
exceed a certain amount, and the restricted payment does not exceed
the greater of USD300 million and 3% of consolidated assets. Dividend
payments are limited to 25% of consolidated net income and the
minimum legally required dividend.
The issuer and restricted subsidiaries may incur permitted debt, subject
to standard limitations, provided that following such transaction total net
debt does not exceed USD4 billion and net debt to EBITDA does not
exceed 3.5x.
The issuer and its restricted subsidiaries are allowed to incur customary
permitted liens, related to the normal course of business. These include a
debt not to exceed the greater of USD1.5 billion and 15% of consolidated
assets.
The issuer and its restricted subsidiaries are allowed to make restricted
payments if, amongst other things: no event of default occurs or is
continuing, the issuer could incur in additional debt after such
transaction, and total restricted payments since the notes issuance do
not exceed a certain amount. Dividend payments are limited to 25% of
consolidated net income and the minimum legally required dividend.
Default by the company or significant subsidiary on principal or interest of
USD100 million or more, acceleration of a debt prior to its maturity in the
same amount.
If any event of default occurs and is continuing, the trustee or the holders
of at least 25% of the outstanding notes may declare the notes to be due
and payable. Notes become automatically due and payable upon certain
events of insolvency or bankruptcy.
On or after June 1, 2015, the issuer may elect to redeem the notes in
whole or in part at the following prices, expressed as a percentage of
nominal value: 2015: 104,25%, 2016:102,125%, 2017 and thereafter
100%. Before June 1, 2015, the issuer may also redeem the notes in
whole or in part based on a make-whole premium plus accrued and
unpaid interest. The redemption price will equal 100% of principal
amount plus the greater of: 1) 1% of the outstanding amount of the notes
and 2) the excess of the present value of the redemption Price at 2015
over the outstanding principal amount of the notes. Any redemption of
the notes will be subject to either (1) there being at least USD150 million
in aggregate principal amount of notes outstanding after such redemption
or (2) the issuer redeeming all the then outstanding principal amount of
the notes. In the event of changes in the withholding taxes laws, the
issuer may redeem the outstanding notes in whole, but not in part, at
100% of the principal amount thereof plus accrued and unpaid interest to
the redemption date.
Default by the company or significant subsidiary on principal or interest
of USD75 million or more, acceleration of a debt prior to its maturity in
the same amount.
If any event of default occurs and is continuing, the trustee or the
holders of at least 25% of the outstanding notes may declare the notes
to be due and payable. Notes become automatically due and payable
upon certain events of insolvency or bankruptcy.
On or after April 1, 2017, the issuer may elect to redeem the notes in
whole or in part at the following prices, expressed as percentage of
nominal value: 2017: 104.188%, 2018:102,792%, 2019: 101,396, 2020
and thereafter 100%. Before April 1, 2017, the issuer may also redeem
the notes in whole or in part based on a make-whole premium plus
accrued and unpaid interest. The redemption Price will equal 100% of
principal amount plus the greater of: 1) 1% of the outstanding amount of
the notes and 2) the excess of the present value of the redemption Price
at 2017 over the outstanding principal amount of the notes. Any
redemption of the notes will be subject to either (1) there being at least
USD150 million in aggregate principal amount of notes outstanding after
such redemption or (2) the issuer redeeming all the then outstanding
principal amount of the notes. In the event of changes in the withholding
taxes laws, the issuer may redeem the outstanding notes in whole, but
not in part, at 100% of the principal amount thereof plus accrued and
unpaid interest to the redemption date.
N.A.  Not applicable. Continued on next page.
November 8, 2012
182
Corporates
Debt and Covenant Synopsis OGX Petroleo e Gas Participações S.A. (OGX) (Continued)
Other (Continued)
Limits on Consolidations or
Mergers
Substitution of the Issuer
Transactions between issuer and affiliates for over USD20 million require
the delivery of an Officer’s certificate to the trustee. Those above USD40
million require approval by the majority of the board of directors.
Restrictions on merger or consolidation of issuer and subsidiaries.
Exceptions require that the surviving entity will be a corporation existing
under the laws of certain countries; it expressly assumes the obligations
of the company, no vent of default occurs or is continuing, the company’s
pro forma debt levels allow it to incur in additional indebtedness. OGX
and its restricted subsidiaries may consolidate with, merge into or
transfer all or part of its properties and assets within themselves.
Transactions between issuer and affiliates for over USD20 million
require the delivery of an Officer’s certificate to the trustee. Those above
USD40 million require approval by the majority of the board of directors.
Restrictions on merger or consolidation of issuer and subsidiaries.
Exceptions require that the surviving entity will be a corporation existing
under the laws of certain countries; it expressly assumes the obligations
of the company, no vent of default occurs or is continuing, the
company’s pro forma debt levels allow it to incur in additional
indebtedness. OGX and its restricted subsidiaries may consolidate with,
merge into or transfer all or part of its properties and assets within
themselves.
The notes will be redeemed if the issuer or affiliates sell assets in excess The notes will be redeemed if the issuer or affiliates sell assets in excess
of USD50 million.
of USD50 million.
The issuer may, without the consent of the holders of the notes, be
The issuer may, without the consent of the holders of the notes, be
replaced and substituted by any guarantor or any wholly-owned
replaced and substituted by any guarantor or any wholly owned
subsidiary of a guarantor as principal debtor in respect of the notes.
subsidiary of a guarantor as principal debtor in respect of the notes.
November 8, 2012
183
Corporates
Financial Summary  OGX Petroleo e Gas Participações S.A. (OGX)
(USD Mil., Years Ended Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
(505)
(505)
—
—
0.9
—
(13.9)
(432)
(432)
—
—
(1.5)
—
(5.9)
(234)
(234)
—
—
(2.4)
—
(1.3)
(162)
(162)
—
—
3.1
—
(1.9)
0.4
(2.5)
(2.5)
(2.1)
(2.1)
0.4
(9.3)
2.9
(0.0)
(1.1)
(3.7)
(3.7)
(3.3)
(3.3)
(1.1)
(17.3)
5.3
(0.2)
—
—
—
(1.7)
(1.7)
—
(10.8)
7.9
(0.2)
292.0
(323.0)
(323.0)
(0.9)
(0.9)
292.0
(0.8)
23.6
0.5
48.6
(7.9)
(2.1)
(7.9)
(2.1)
0.1
—
0.0
(20.7)
(5.9)
0.8
(5.9)
0.8
0.1
—
0.0
(1.1)
(0.6)
10.3
(0.6)
10.3
0.0
—
0.9
1.2
(1.1)
25.0
(1.1)
25.0
0.0
—
1.0
8,538
2,957
43
3,971
4,015
—
4,015
0
4,015
4,159
8,174
7,701
2,929
12
2,556
2,567
—
2,567
0
2,567
4,760
7,327
6,017
2,555
136
7
143
—
143
0
143
5,566
5,709
5,600
4,206
173
—
173
—
173
0
173
5,267
5,440
(116)
12
(104)
0
(2,350)
0
(2,454)
0
516
1,395
6
322
(217)
(242)
(137)
(379)
0
(1,979)
0
(2,358)
0
415
2,365
2
344
768
(127)
(96)
(223)
0
(1,253)
0
(1,476)
0
19
0
0
4
(1,452)
146
(34)
112
0
(243)
0
(132)
0
(58)
0
0
0
(189)
0
—
(514)
199
0
(695)
0
—
(438)
118
0
(305)
0
—
(237)
0
0
(70)
0
—
(164)
1
0
(51)
Source: Fitch.
November 8, 2012
184
Corporates
Pan American Energy LLC (PAE)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
BB–/RR3
Local Currency
Long-Term IDR
BB
National
Long-Term Rating
AAA(arg)
Rating Outlooks
Stable
Strong Business Position: Pan American Energy LLC (PAE) has a strong business position
in the Argentine market and its credit metrics are expected to remain strong. Ownership by a
strong parent, reliable cash flow generation, and significant levels of exports support PAE’s
foreign currency issuer default rating (IDR), which is rated one notch above Argentina’s country
ceiling. PAE is 60% owned by BP (rated ‘A’ by Fitch). PAE’s exports totaled USD2.1 billion in
2011 and favorably compare to its long-term debt maturities. In addition, the company has a
track record of meeting payments during stressed sovereign scenarios.
High Transfer and Convertibility Risk: Following the publication of Decree No 1722 on
Oct. 26, 2011, Pan American Energy Sucursal Argentina (PAME, PAE’s Argentine branch) is
obliged to repatriate 100% of its export revenues. Prior to this date, oil and gas producers could
maintain up to 70% of export proceeds abroad, which provided a shield against transfer and
convertibility risk. This change in regulation highlights an increased intervention by the
government in the oil and gas sector and the potential for foreign currency controls. This risk is
one factor that limits the company’s foreign currency IDR to ‘B+’.
Exposure to Government Interference: The Argentine government has been increasing its
interference in the oil and gas sector, as reflected by the recent publication of decree n°1277,
which includes regulations related to investment levels in the oil and gas sector and domestic
price references. The Secretary of Energy has reestablished, with certain modifications, the oil
plus regime suspended in February 2012. This regime provides certain tax benefits for oil
producers that increase production and reserves replacement levels. Due to the uncertainties
regarding the magnitude and timing of such benefits, Fitch has excluded such benefits from its
pro forma analysis.
Large Reserves Base: As of December 2011, PAE had oil and gas reserves of 1.4 billion
barrels of oil equivalent (boe), equivalent to 15.9 years of production (23 years for oil, 8.6 years
for natural gas). The company has historically increased reserves and production volumes
sustainably, despite operating under a challenging environment.
Strong Capital Structure and Good Operating Performance: PAE’s leverage is low at
approximately USD1.40 of debt per barrel of proved reserves as of March 2012. The company
maintained a strong operating performance during the past year despite domestic price caps
and a double-digit inflation rate. For the 12 months ended March 2012, EBITDA was
USD1.6 billion, sufficient to cover its USD1.0 billion capex. In the second half of 2012, EBITDA
is expected to be negatively affected by the seize of PAE’s main producing field, Cerro Dragon,
by some workers in June 2012.
Analysts
Ana Paula Ares
+54 11 5235-8121
[email protected]
Gabriela Curutchet
+54 11 5235-8100
[email protected]
November 8, 2012
Downgrade Triggers: Catalysts for a negative rating action include a material increase in the
government’s interference in the sector, and a significant increase in debt levels without the
associated revenue increase.
Upgrade Triggers: A positive rating action seems unlikely due to the business environment in
Argentina and the fact that PAE is rated one notch above the country ceiling.
185
Corporates
Recovery Rating
Using Fitch’s recovery rating methodology, bondholder recovery value was assessed using the
liquidation value of reserves, in line with Fitch’s sector-specific rating recovery methodology for
oil and gas, detailed in the special report “U.S. Exploration and Production Recovery Rating
Methodology,” published March 20, 2008. Under this scenario, Fitch used a USD10/boe
reserve value for the company’s proved reserves (1P). Due to existing price caps on natural
gas, the Fitch-calculated recover analysis conservatively considers PAE’s oil reserves, which
produced USD9.6 billion in gross liquidation value prior to administrative claims and
concession payments to junior claimants.
The model assumes a standard 10% administrative claims adjustment and 5% concession to
junior claimants. PAE’s senior unsecured notes qualify for an ‘RR3’ (+1 notching) relative to the
IDR, so the senior unsecured rating is notched one level above the IDR.
The recovery rating for PAE’s debt instrument reflects Fitch’s expectation that the company’s
creditors would have extremely high recovery expectations under normal circumstances —
levels consistent with an ‘RR1’. The ratings were capped at ‘RR3’, which is one notch above
the soft cap of ‘RR4’ for bonds issued by corporates domiciled in Argentina, which resulted in
an issue rating of ‘BB–’/‘RR4’.
Recovery Analysis  Pan American Energy LLC (PAE)
(USD Mil.)
IDR:
B+
Discount (%)
Multiple (x)
—
0
—
0
—
Liquidation Value
Cash
Accounts Receivable
Inventory
Value of 1P Oil Reserves
Total
Interest Expense
Rent Expense
Total
—
—
—
—
8,667.0
—
8,667.0
433.4
8,233.7
Unsecured Priority
Senior Unsecured
Value
Recovered
1,923.0
Lien
1,923.0
Recovery
(%)
100
Concession
Allocation (%)
100
—
—
—
9,630.0
9,630.0
Recovery
Rating
RR3
Rate (%)
Creditors
0
—
80
—
50
—
100
9,630.0
9,630.0
Notching
+1
9,630.0
963.0
8,667.0
Rating
BB–
Source: Fitch.
November 8, 2012
186
Corporates
Organizational Structure — Pan American Energy LLC
Bridas Energy Holdings Ltd.
50%
CNOOC International Ltd.
50%
Bridas Corporation
BP plc
60%
40%
Pan American Energy LLC (Delaware)
1Q12 LTM EBITDA: USD1.6 Billion
1Q12 Consolidated Debt: USD 0.9 Billion
TD/EBITDA (x): 1.2
100%
100%
90%
Pan American Energy
Holding Ltd.
Pan American Energy LLC Sucursal
Argentina
Pan American Energy
Chile Limitada
100%
PAE E&P Bolivia
Limited
1Q12 LTM EBITDA: USD1.2 Billion
1Q12 Consolidated Debt: USD1.9 Billion
TD/EBITDA (x): 1.5
90%
1Q12: EBITDA xx 90%
Million
Pan American Fueguina S.A.
Pan American Sur S.A.
TD –Total debt.
Source: Pan American Energy LLC and Fitch.
November 8, 2012
187
Corporates
Debt and Covenant Synopsis  Pan American Energy LLC (PAE)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
Pan American Energy LLC Sucursal Argentina
April 23, 2010
May 7, 2021
Consolidated debt to capitalization is not greater than 45%.
EBITA to financial expenses not lower than 2.0x.
Change of control clause at 101% of principal plus accrued and unpaid interest.
N.A.
The issuer and restricted subsidiaries may incur in permitted debt, subject to standard limitations, provided that following
such transaction EBITA to financial expenses is not lower than 2.0x and consolidated debt to capitalization is not greater
than 45%, and no event of default has occurred.
The issuer and its restricted subsidiaries are allowed to incur in customary permitted liens, related to the normal course of
business.
If any event of default occurs and is continuing, the issuer is restricted to make certain payments including dividends.
Default by the company or significant subsidiary on principal or interest of USD40 million or more.
If any event of default occurs and is continuing the trustee or the holders of at least 25% of the outstanding notes may
declare the notes to be due and payable.
At any time the issuer may redeem the notes in whole but not in part at a price equivalent to the higher of 1) 100% of
principal and 2) the present value of remaining principal and interest payments.
Transactions between issuer and affiliates are permitted should they reflect market conditions and no event of default is
occurring.
Restrictions on merger or consolidation of issuer and subsidiaries. Exceptions require that the surviving entity expressly
assumes the obligations of the company, no event of default occurs or is continuing, the company’s pro forma debt levels
allow it to incur additional indebtedness, among others.
N.A.
November 8, 2012
188
Corporates
Petroleos de Venezuela, S.A. (PDVSA)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B+/RR4
Local Currency
Long-Term IDR
B+
National
Long-Term Rating
AAA(ven)
Rating Outlooks
Financial Data
PDVSA
(USD Mil.)
Total Equity
Total Adjusted Debt
Operating Revenue
Net Income
EBITDA
Total Adjusted
Debt/EBITDA (x)
EBITDA/Interest
Expense (x)
12/31/11
73,833
41,635
124,754
4,496
18,684
12/31/10
75,314
30,201
94,929
3,164
24,171
2.2
1.2
5.1
23.8
Linkage to Sovereign: Petroleos de Venezuela, S.A.’s (PDVSA) credit quality is inextricably
linked to the Venezuelan government. It is a state-owned entity whose royalties and tax
payments have historically represented more than 50% of the government’s revenues, and it is
of strategic importance to the economic and social policies of the country. In 2008, the
government changed PDVSA’s charter and mission statement to allow it to participate in
industries that contribute to the country’s social development, including health care, education,
and agriculture.
Limited Transparency of Sovereign: The Venezuelan government displays limited transparency
in the administration and use of government-managed funds, and in fiscal operations, which poses
challenges to accurately assess the stance of fiscal policy and the full financial strength of the
sovereign. As a direct by-product of being a state-owned entity, PDVSA displays similar
characteristics, which reinforces the linkage of its ratings to the sovereign.
Strong Stand-Alone Credit Profile: PDVSA continues to be an important player in the global
energy sector. The company’s competitive position is strong and supported by its sizeable
reported proven hydrocarbon reserves, strategic interests in international downstream assets,
and private participation in upstream operations. The company also benefits from a strong
balance sheet, which is in line with many of its competitors. These strong credit attributes are
consistent with a higher rating category although sovereign-related risks offset the strength of
the financial profile and constrain the rating to that of the sovereign.
Solid Credit Metrics: PDVSA reported an EBITDA (after royalties and social expenditure
which include most oil bartering agreements) and FFO of approximately USD18.7 billion and
USD30.9 billion, respectively, as of year-end 2011. Total financial debt as of Dec. 31, 2011
increased to USD34.9 billion from USD24.9 billion as of 2010. The leverage level at 1.9x is low
for the rating category, which is limited by the credit quality of the Venezuelan government.
Capital expenditures continue to be high, totaling approximately USD77.3 billion over the past
five years, which have somewhat offset declining production levels from existing fields.
Analysts
Lucas Aristizabal
+1 312 368-3260
[email protected]
Ana P. Ares
+54 11 5235-8121
[email protected]
Julio Ugueto
+58 212 286-3232
[email protected]
November 8, 2012
Large Hydrocarbon Reserves: PDVSA’s reported hydrocarbon reserves continue to increase,
with proven hydrocarbon reserves of 331 billion barrels of oil equivalent (boe) (approximately
89% oil and 11% natural gas) and proven developed hydrocarbon reserves of 20 billion boe as
of December 2011, representing a 15-year proven developed reserve life. Venezuela reported
oil production of approximately 2.99 million barrels per day (bpd) during 2011. Reported
production has declined by approximately 2% per annum on average over the last four years.
Various independent reports have estimated that production levels are lower than reported by
the company, which adds to risk and is incorporated into the ratings.
Key Rating Drivers: Catalysts for an upgrade include an upgrade to Venezuela’s sovereign
rating, real independence from the government, and a sharp and extended commodity price
upturn. Catalysts for a downgrade include a downgrade to Venezuela’s ratings, a substantial
increase in leverage to finance capital expenditures or government spending, and/or a sharp
and extended commodity price downturn.
189
Corporates
Organizational Structure — Petroleos de Venezuela, S.A.
Petroleos de Venezuela,
S.A.
100%
100%
PDVSA
Petroleo
S.A.
Corporacion
Venezolana de Petroleo,
S.A. (CVP)
100%
PDVSA
Gas, S.A.
100%
PDV
Marina,
S.A.
100%
PDV
Holding
Inc.
100%
Propernyn
B.V.
(Holland)
100%
Propernyn
N.V.
(Curaçao)
100%
PMI (Aruba)
100%
100%
“Empresas
Mixtas”
(Light-Medium
Crude Oil)
Refineries
(CITGO
Petroleum
Corporation)
“Empresas
Mixtas”
(Extra Heavy
Crude Oil)
Crude and Gas Assets in Venezuela
PMI (Panama)
100%
100%
100%
PDV Europa
B.V.
(Holland)
50%
Petromar
(Aruba)
100%
Refineria Isla
50%
Hovensa LLC
AB Nynas
Petrolum
(Sweden)
Distribution
Entities
Assets in
North
America
European and
Caribbean Assets
Other Assets Including
Trading Companies
(Latin America
Caribbean)
Source: Fitch and Petroleos de Venezuela, S.A.
November 8, 2012
190
Corporates
Debt and Covenant Synopsis  Petroleos de Venezuela, S.A. (PDVSA)
Overview
Issuer
Guarantors
Documents Date
Maturity Date
Description of Debt
Financial Covenants
Consolidated Net Leverage (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
Petroleos de Venezuela, S.A. (PDVSA)
PDVSA Petróleo, S.A.
April 4, 2007, Feb., 11, 2011, May 11, 2012
April 12, 2017; April 12, 2027; April 12, 2037; Nov. 2, 2017; May 17, 2035
Not included in the indenture’s covenants.
PDVSA is not permitted to issue senior secured debt or to create any lien on any asset, property, or income without
providing the same security to the existing notes.
If the issuer or any of its significant subsidiaries defaults on any indebtedness of at least USD100 million.
If any event of default occurs and is continuing, the holders of at least 25% of the outstanding notes may declare the notes
to be due and payable. Events of default include, but are not limited to failure to pay principal, interest of any additional
amount on the notes; a default in the observance or performance on any covent and which default continues for a period of
60 days; defaults in any indebtedness or judgments against the issuer or significant subsidiaries of at least USD100 million.
Source: PDVSA and Fitch Ratings.
November 8, 2012
191
Corporates
Financial Summary Petroleos de Venezuela S.A. (PDVSA)
(USD Mil.)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2007
2008
2009
2010
2011
28,310
28,310
29.42
29.42
12.02
(12)
11.49
21,232
21,232
16.92
16.92
17.75
(4)
14.88
11,065
11,065
14.99
14.99
11.42
(14)
6.02
24,171
24,171
25.46
25.46
15.55
(2)
4.23
18,684
18,684
14.98
14.98
29.93
(6)
6.03
24.39
76.51
76.51
8.72
8.72
24.39
(3)
(2.00)
0.32
21.30
27.57
27.57
8.60
8.60
21.30
(2)
0.24
0.91
25.04
23.49
23.49
3.23
3.23
25.04
(3)
(1.00)
0.51
16.15
23.79
23.79
5.23
5.23
16.15
—
1.09
0.99
9.52
5.14
5.14
3.10
3.10
9.52
(1)
0.72
0.69
2.11
0.57
0.39
0.67
0.50
3.87
0.40
0.18
1.27
0.71
0.50
0.98
0.77
4.95
—
0.11
2.45
1.94
1.31
2.61
1.98
2.58
—
0.14
1.84
1.03
0.78
1.25
1.00
4.38
—
0.14
1.20
1.87
1.41
2.23
1.77
12.14
—
0.07
107,672
4,880
2,877
13,129
16,006
—
16,006
2,998
19,004
56,062
75,066
135,190
4,483
1,698
13,418
15,116
—
15,116
5,753
20,869
71,513
92,382
149,570
6,981
2,956
18,489
21,445
—
21,445
7,479
28,924
74,389
103,313
151,765
6,017
3,604
21,346
24,950
—
24,950
5,251
30,201
75,314
105,515
182,154
8,610
2,396
32,496
34,892
—
34,892
6,743
41,635
73,883
115,518
8,656
(4,482)
4,174
—
(12,852)
(3,037)
(11,715)
756
(1,091)
13,093
—
—
1,043
15,628
1,077
16,705
—
(18,413)
(2,953)
(4,661)
1,242
1,364
(1,772)
5,000
25
1,198
11,323
(3,428)
7,895
—
(15,333)
(2,948)
(10,386)
(14)
34
10,361
2,000
503
2,498
15,391
(2,748)
12,643
—
(12,824)
(1,803)
(1,984)
(454)
(379)
3,367
—
(1,514)
(964)
30,946
(18,554)
12,392
—
(17,908)
(2,357)
(7,873)
(15)
4,195
6,213
—
73
2,593
96,242
(3)
24,292
370
—
6,273
125,499
30.40
16,022
770
—
9,491
73,819
(41)
5,271
471
—
4,394
94,929
28.60
18,134
1,016
—
3,164
124,754
31.42
11,813
3,633
—
4,496
Source: PDVSA.
November 8, 2012
192
Corporates
Rede Energia S.A.
Centrais Elétricas do Pará S.A. (Celpa) and Centrais Elétricas Matogrossenses S.A. (Cemat)
Full Rating Report
Key Rating Drivers
Ratings
Rede Energia S.A. (Rede)
Foreign/Local Currency IDR
Long-Term National Rating
Perpetual Notes USD575 Mil.
Debentures due 2015
RD
RD(bra)
C/RR4
C(bra)
Celpa
D
D(bra)
C/RR4
Cemat
RD
RD(bra)
RD – Restricted default.
Financial Data
Rede Energia S.A.  Consolidated
(BRL Mil.)
Net Revenues
EBITDA
Funds from
Operations
Total Adjusted Debt
Cash and Marketable
Securities
Total Adjusted
Debt/EBITDA (x)
Net Adjusted Debt/
EBITDA (x)
6/30/12 12/31/11
8,010
7,782
1,226
1,397
1,119
8,088
871
8,390
446
686
6.6
6.0
6.2
5.5
Celpa Under Bankruptcy Protection: The ratings of Centrais Elétricas do Pará S.A. (Celpa), a
subsidiary of Rede Energia S.A. (Rede), reflect its bankruptcy protection filing on Feb. 28, 2012.
The company is discussing alternatives to solve its financial difficulties. Equatorial Energia S.A.
(Equatorial), a holding company in the power sector, has announced a proposal for acquiring a
controlling stake in Celpa. The transaction is subject to various precedent conditions, including,
among others, a recovery plan under terms and conditions acceptable to Equatorial.
Rede’s and Cemat’s Ratings Affected by Celpa: Rede’s and Centrais Elétricas Matogrossenses
S.A.’s (Cemat) already tight liquidity positions were further weakened by Celpa’s default. Both
Rede and Cemat extended the maturity of some of their financial obligations, including some
debenture issues, which resulted in a significant change in the original contractual terms.
These changes were aimed at avoiding a very likely event of default and led to downgrades of
their issuer default ratings (IDRs) to the restricted default (RD) category from ‘C’.
Difficulties to Meet Debt Service: Rede Energia, the holding company, will be challenged to
obtain a sustainable capital structure in the long term. The group, on a consolidated basis, has
failed to grow operational cash flow to the expected extent in the last few years and has faced
pressure from its sizeable planned investments in the short to medium term. The company
depends on dividends from its subsidiaries, which have not been sufficient to meet its debt
service.
Financial Challenges: Fitch believes that the extension of debt repayment schedules in and of
themselves would not be sufficient to improve the group’s financial situation. Only restructuring
measures, such as a capital injection or the sale of a material amount of assets would place
the holding company and the group in a sustainable credit position.
Operational Challenges: Although Rede has had increases in energy sales in the last few
years, following the growth potential of its concession areas, the group faces serious
challenges, including high energy losses, especially for Celpa. Reported losses by this
subsidiary are above the standards set by the regulatory agency, negatively affecting its
operational cash flow. The third tariff review cycle for the Brazilian energy distribution
companies is also a challenge for the group since the new rules should pressure its
consolidated operational cash flow.
Analysts
Renata Pinho
+55 11 4504-2207
[email protected]
Mauro Storino
+55 11 4503-2625
[email protected]
November 8, 2012
Key Rating Drivers: A positive rating action could be driven by restructuring measures, such
as a relevant capital injection and/or the sale of assets that allowed the group to reduce debt to
a level commensurate with its cash flow generation capacity. In addition to debt reduction, the
company would need a more manageable debt amortization schedule to warrant a positive
rating action.
193
Corporates
Recovery Rating
Fitch has performed a liquidation analysis for Rede in the event of bankruptcy. It has also
estimated the enterprise valuation in the event of financial distress. Under this scenario, a
conservative multiple of EBITDA of 5.0x was applied.
The bespoke analysis suggests a higher recovery level of ‘RR3’ for the unsecured debt. The
rating has been capped at ‘RR4’, which is the recovery rating cap for Brazilian issuers. The cap
reflects concern about the bankruptcy laws and the application of the law. A recovery rating of
‘RR4’ indicates that Rede’s creditors should have average recovery prospects in the range of
31%–50% of current principal and related interest in the event of default.
Recovery Analysis  Rede Energia S.A.
(BRL Mil.)
Discount (%)
Multiple (x)
1,226.5
0.0
1,226.5
5.0
6,132.5
Interest Expense
Rent Expense
Total
1,231.8
—
600.0
1,831.8
6,132.5
613.2
5,519.3
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
446.0
1,830.0
54.0
2,304.0
4,634.0
Advance Rate
0
80
50
20
Available to
Creditors
—
1,464.0
27.0
460.8
1,951.8
5,690.3
1,818.0
3,872.3
193.6
3,678.6
Secured Priority
Secured
Unsecured Priority
Senior Unsecured
Lien
1,911.0
Lien
6,177.0
Value
Recovered
1,911.0
Value
Recovered
3,608
Recovery (%)
100
Recovery (%)
58
Concession
Allocation (%)
100
Recovery
Rating
RR1
Recovery
Ratinga
RR4
Notching
+4
Notching
—
Rating
N.A.
Rating
RD
a
The Rede’s recovery rating has been capped at ‘RR4’. RD – Restricted default.
November 8, 2012
194
Corporates
Organizational Structure — Rede Energia S.A.
BNDESPAR
DENERGE
EEVP
OUTROS
68.24%
4.11%
11.79%
15.86%
Rede Energia
(Holding)
Public Company
100%
100.00%
10.11%
EDEVPa
CELPAa
99.98%
QMRA
REDE POWER
(Holding)
(Holding)
51.26%
(Public Company)
39.92%
REDECOMb
REDESERVb
CEMATa
(Public Company)
100.00%
CAIUAa
TANGARA
VALE DO VACARIA
60.48%
99.6%
99.5%
61.67%
(Generation)
(Cogeneration)
50.86%
39.77%
CELTINSa
60.16%
ENERSULa
91.45%
EEBa
98.69%
CNEEa
97.70%
CFLOa
aDistribution. bCommercialization and services.
Source: Fitch and Rede Energia S.A.
November 8, 2012
195
Corporates
Debt and Covenant Synopsis  Rede Energia S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amounts
Financial Covenants
EBITDA (Maximum)
Total Debt/EBITDA (Maximum)
Interest Coverage Ratio (Minimum)
Limitations on Sales of assets or shares
Rede Energia S.A.
N.A.
April 2, 2007
N.A.
Perpetual Bonds
USD575 Million (USD400 Million + USD175 Million)
Less than 4.0x
(The maximum amount of debt that the issuer and its subsidiaries may incur pursuant to this covenant shall not exceed, with
respect to any outstanding debt, solely as a result of fluctuations in the exchange rate of currencies.)
N.A.
N.A.
No later than 30 days following a change of control that results in a rating decline, the issuer will make an offer to purchase all
outstanding notes at a purchase price equal to 101% of the principal amount plus accrued interest to the date of purchase.
The issuer shall not sell, lease, transfer, or otherwise dispose of any direct or indirect interest in the CELPA shares and CELTINS
shares unless the following conditions are met: 1) it receives consideration at least equal to the fair market value of the shares
and 2) at least 75% of the consideration is in the form of cash or cash equivalents.
Debt Restriction
Limitation on Liens
N.A.
Transactions
N.A.
Dividends and Other Payment Restrictions
Limitation on Dividend and Other
Rede Energia will not and will not permit any subsidiary to create or permit to exist or become effective any consensual
Payments
encumbrance or restriction on the ability of any significant subsidiary to 1) pay dividends or make any other distributions on its
capital stock to the issuer or any subsidiary; 2) pay any indebtedness owed to the issuer or any subsidiary; 3) make loans or
advances to the issuer or any significant subsidiary or 4) transfer any of its properties or assets to the issuer or any significant
subsidiary.
Others
Limitation on Transactions with Affiliates
With certain exceptions, the issuer shall not make any payment, or sell, lease, transfer, or dispose of any of its properties or
assets or enter into any transaction or contract for the benefit of any affiliate. This covenant does not apply for cash management
or other financial management functions.
Limitation on Consolidation, Merger,
With certain exceptions, the issuer will not consolidate with or merge with or convey, transfer, or lease all or substantially all of its
Conveyance, Sale, or Lease
assets to any person.
Cross Acceleration
Cross acceleration of other debt with a USD40 million threshold.
November 8, 2012
196
Corporates
Debt and Covenant Synopsis  Centrais Elétricas do Pará S.A. (Celpa)
Overview
Issuer
Guarantors
Document Date
Description of Debt
Amount
Financial Covenants
EBITDA (Maximum)
Limitations on Sales of Assets or Shares
Debt Restriction
Limitation on Liens
Transactions
Restricted Payments
Others
Limitation on Transactions with Affiliates
Celpa
N.A.
May 27, 2011 and June 3, 2016
USD250 Million
4.0x up to June 30, 2013; 3.75x after June 30, 2013 but prior to June 30, 2014; 3.50x after June 30, 2014 but prior to June
30, 2015; 3.25x thereafter.
With certain exceptions, the issuer and its subsidiaries shall not make any asset disposition.
With certain exceptions, the issuer will not, and will not permit any of its restricted subsidiaries to issue, assume, or
guarantee any debt secured by a lien upon any property or assets without effectively providing that the notes are secured
equally and ratably with such debt so long as such debt is so secured.
With certain exceptions, the issuer and its subsidiaries will not enter into any sale and leaseback transaction.
Upon a restricted payment triggering event, the company will not 1) declare or pay any dividend or similar payments to the
direct or indirect holders of its capital stock; 2) purchase, redeem, retire, or acquire any capital stock of the company;
3) purchase, redeem, or acquire prior to scheduled maturity, scheduled repayment, or scheduled sinking fund payment, any
subordinated obligations; or 4) make any investment (other than a permitted investment) in any person.
With certain exceptions, the issuer or its subsidiaries shall not make any payment, or sell, lease, transfer, or dispose of any
of its properties or assets or enter into any transaction or contract for the benefit of any affiliate.
With certain exceptions, the issuer will not consolidate with or merge with, or convey, transfer, or lease all or substantially all
of its assets to any person.
Cross Acceleration
November 8, 2012
197
Corporates
Financial Summary  Rede Energia S.A
(BRL Mil., Years Ended Dec. 31)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
1,226,466
1,226,466
15.3
15.3
23.7
2.4
(83.3)
1,397,418
1,397,418
18.0
18.0
20.2
(3.4)
(30.3)
1,218,147
1,218,147
17.8
17.8
11.3
(14.8)
(14.5)
1,190,910
1,190,910
20.7
20.7
13.2
(7.3)
0.3
1,068,963
1,068,963
26.8
26.8
7.6
(28.2)
8.1
1.9
1.0
1.0
0.3
0.3
1.9
0.3
0.4
1.2
1.7
1.2
1.2
0.3
0.3
1.7
0.2
0.3
0.7
1.3
1.4
1.4
0.4
0.4
1.3
(0.0)
0.2
(0.1)
1.6
1.6
1.6
0.5
0.5
1.6
0.1
0.3
0.4
1.2
1.7
1.7
0.6
0.6
1.2
(0.3)
(0.1)
(0.1)
3.4
6.1
5.8
6.6
6.2
33
—
0.5
4.0
5.9
5.4
6.0
5.5
15
—
0.4
6.6
6.4
5.7
6.4
5.8
12
—
0.3
5.6
5.7
5.3
5.9
5.5
12
—
0.2
9.7
5.8
5.4
6.6
6.2
11
—
0.2
13,607,688
445,886
3,494,273
4,031,981
7,526,254
—
7,526,254
562,111
8,088,365
1,813,890
9,902,255
12,935,830
686,083
3,603,518
4,628,521
8,232,039
—
8,232,039
158,358
8,390,397
1,888,645
10,279,042
12,640,339
759,663
2,279,537
5,474,600
7,754,137
—
7,754,137
16,548
7,770,685
2,649,565
10,420,250
11,532,692
413,953
1,491,413
5,283,803
6,775,216
—
6,775,216
203,198
6,978,414
2,434,026
9,412,440
11,334,177
395,951
1,288,695
4,913,818
6,202,513
—
6,202,513
802,906
7,005,419
2,523,006
9,528,425
1,118,610
27,636
1,146,246
0
(948,466)
(8,280)
189,500
0
3,226
(485,927)
0
(1,558)
(294,759)
870,947
(160,291)
710,656
—
(956,565)
(19,008)
(264,917)
—
(816)
193,704
—
(1,551)
(73,580)
277,469
(364,401)
(86,932)
—
(849,229)
(81,994)
(1,018,155)
—
4,568
728,503
630,794
—
345,710
483,599
(180,994)
302,605
—
(699,779)
(24,131)
(421,305)
—
1,711
437,596
—
—
18,002
104,482
(172,704)
(68,222)
—
(1,059,006)
—
(1,127,228)
(30,596)
118,555
707,736
115,176
—
(216,357)
8,009,871
—
743,051
1,231,785
0
(755,344)
7,782,422
13
923,636
1,210,388
—
(688,035)
6,860,728
20
786,105
898,733
—
(368,845)
5,740,957
44
788,474
758,635
—
8,282
3,995,756
21
727,728
620,260
—
205,338
Source: Fitch.
November 8, 2012
198
Corporates
Rodopa Industria e Comercio de Alimentos Ltda.
Full Rating Report
Key Rating Drivers
Ratings
Foreign and Local Currency
Long-Term Issuer Default
Rating (IDR)
B–
National
Long-Term Rating
BBB–(bra)
Rating Outlooks
Stable
Weak Cash Flow Generation: Rodopa’s ratings reflect a weak cash flow generation over the
last three years due to high interest costs and large working capital needs. Also, the company’s
consolidated free cash flow generation was further depressed by its investment program, which
is expected to remain at an elevated level over the next three years. As a result, free cash flow
is expected to be negative during 2012.
Financial Data
Forte (Consolidated)
Net Revenues
EBITDAR
FFO
Total Adjusted
Debt
Cash and
Marketable
Securities
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
Weak Business Profile: Rodopa Industria e Comercio de Alimentos Ltda. (Rodopa) operates
in a very competitive market characterized by volatile earnings and low EBITDA margins.
These risks are exacerbated by the company’s small operational base and its limited
operational flexibility that relies on only four plants in three Brazilian states. The domestic
market represents 80% of its revenues. Sanitary restrictions or cattle scarcity also tend to affect
Rodopa’s business more than its larger competitors, which benefit from a more diversified
operational base.
LTM
6/30/12
889
76
(7)
12/31/11
820
72
1
201
165
37
36
2.6
2.3
2.2
1.8
Increasing Leverage: Rodopa’s leverage is moderate but it is expected to increase. Leverage,
as measured by total adjusted debt/EBITDAR, was 2.6x as of the LTM ended June 30, 2012,
while the company’s net adjusted debt/EBITDAR ratio was 2.2x. These metrics are strong for
the current rating category. By the end of 2012, net adjusted debt/EBITDAR should rise to
close to 2.5x, as the company will use its cash reserves and will further increase debt to
finance planned investments and working capital.
Tight Liquidity: Rodopa’s liquidity is limited and refinancing risk is high. As of June 30, 2012,
consolidated cash and marketable securities covered only 23% of short-term debt. The ratings
assume that the company will be successful in issuing long-term debt, which will be used to
refinance a large portion of current short-term debt and provide liquidity for the company’s
growth plans.
Operational Improvement Expected: Fitch expects that Rodopa’s consolidated EBITDAR will
continue to improve, led by increasing sales volumes and declining cattle prices, reflecting an
improved cattle cycle in Brazil. The company’s EBITDAR has improved significantly over the
last three years as a result of increased slaughtering capacity (25% since 2009) and the close
of unprofitable operations. The EBITDAR margin also improved as a result of the gains of scale.
Failure to Issue Long-Term Debt: A failure to improve its debt amortization schedule, as
expected by Fitch, may lead to a downgrade.
Analysts
Gisele Paolino
+55 21 4503-2624
[email protected]
Viktoria Krane
+1 212 908-0367
[email protected]
November 8, 2012
Leverage Increase: Increased leverage over and above Fitch’s expectations, as a result of
operational performance deterioration or unexpected cash outflow.
Improved Operations and Capital Structure: The ratings may be positively affected by a
sustained improvement in Rodopa’s business profile, combined with consistent improvements
in both liquidity and debt amortization schedule, and the maintenance of conservative leverage.
199
Corporates
Organizational Structure
Bindilatti Family
100%
6%
Forte Empreendimentos e
Participações Ltda.
94%
100%
Rodopa Indústria Comércio de
Alimentos Ltda.
99%
50%
Rodopa Finance
Curtume Cassilândia Ltda.
Lidera
Source: Rodopa.
November 8, 2012
200
Corporates
Financial Summary — Forte Empreendimentos e Participações
Profitability
Operating EBITDA
Operating EBITDAR
Average Return on Equity (%)
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
74,934
76,254
8.4
8.6
2.9
(8.3)
9.7
71,538
72,064
8.7
8.8
3.8
(8.8)
13.6
29,467
29,989
3.8
3.9
1.6
(5.9)
11.2
24,079
24,614
5.2
5.3
5.5
(1.7)
4.1
0.6
4.2
4.0
0.4
0.4
0.6
(0.3)
(0.1)
(3.2)
1.1
5.5
5.3
0.6
0.6
1.1
(0.5)
(0.2)
(1.3)
0.5
3.6
3.4
0.4
0.4
0.5
(0.5)
(0.2)
(2.7)
2.7
6.3
5.6
1.4
1.4
2.5
(0.2)
(0.0)
0.1

















16.2
2.6
2.1
2.6
2.2
12

0.8
11.3
2.3
1.8
2.3
1.8
11

0.6
18.4
2.8
2.0
2.8
2.0
17

0.7
1.7
0.7
0.5
0.8
0.6
33

0.8







0.7
502,240
37,137
160,259
34,628
194,887

194,887
6,600
201,487
224,847
426,334
472,860
35,518
105,995
59,238
165,233

165,233
2,630
167,863
219,879
387,742
358,621
25,174
61,937
20,836
82,773

82,773
2,610
85,383
198,158
283,541
295,227
3,952
13,235
2,805
16,040

16,040
2,675
18,715
180,839
199,554
314,984
2,824
5,076
1,903
6,979

6,979
8,145
15,124
169,051
184,175
(6,836)
(44,566)
(51,402)
0
(15,858)
(6,526)
(73,786)
0
0
89,259
0
354
15,827
1,203
(38,736)
(37,533)
0
(27,867)
(6,716)
(72,116)
0
0
82,460
0
0
10,344
(4,105)
(29,220)
(33,325)
0
(12,192)
0
(45,517)
0
0
66,739
0
0
21,222
6,525
(5,481)
1,044
0
(9,026)
0
(7,982)
0
0
9,110
0
0
1,128



0









888,791
(13)
66,651
17,927
1,320
21,135
820,295
7
63,718
13,118
526
28,437
768,195
67
46,018
8,223
522
21,171
461,108
—
19,310
3,840
535
7,177





0
Source: Rodopa and Fitch.
November 8, 2012
201
Corporates
Financial Summary — Rodopa Industria e Comercio de Alimentos Ltda.
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
70,972
72,292
8.2
8.4
0.8
(8.6)
13.2
66,563
67,089
8.3
8.3
1.8
(9.0)
17.6
27,476
27,998
3.8
3.9
2.0
(6.2)
15.6
23,823
24,358
5.2
5.3
4.2
(1.4)
8.0
19,194
20,823
3.8
4.2
22.2
1.6
6.4
0.1
4.0
3.8
0.4
0.4
0.2
(0.3)
(0.1)
(3.8)
0.4
5.1
4.9
0.6
0.6
0.5
(0.5)
(0.2)
(1.6)
0.5
3.3
3.2
0.4
0.4
0.5
(0.5)
(0.2)
(2.6)
1.6
6.2
5.6
1.4
1.4
1.5
(0.1)
0.0
(1.3)
16.6
12.0
6.5
2.7
2.4
8.7
1.4
1.8
1.8
70.9
2.8
2.3
2.9
2.4
12
—
0.8
27.8
2.6
2.0
2.6
2.1
10
—
0.6
20.4
3.4
2.5
3.4
2.5
14
—
0.7
4.7
1.2
1.0
1.3
1.1
16
—
0.5
1.0
1.0
0.9
1.3
1.2
12
—
0.3
437,690
36,355
159,708
38,061
197,769
—
197,769
10,560
208,329
177,813
386,142
407,402
34,763
105,903
64,419
170,322

170,322
2,630
172,952
170,593
343,545
291,178
25,013
61,933
31,098
93,031

93,031
2,610
95,641
144,322
239,963
226,653
3,275
13,226
14,886
28,112

28,112
2,675
30,787
123,913
154,700
211,353
2,732
5,423
14,403
19,826

19,826
8,145
27,971
98,289
126,260
(16,310)
(41,247)
(57,557)
0
(15,298)
(1,442)
(74,297)
(396)
1,098
88,709
0
0
15,114
(7,418)
(36,707)
(44,125)
0
(27,232)
(1,442)
(72,799)
(396)
588
82,357
0
0
9,750
(4,057)
(28,131)
(32,188)
0
(12,290)
(529)
(45,007)
0
0
66,745
0
0
21,738
2,177
(5,164)
(2,987)
0
(2,333)
(974)
(6,294)
372
0
6,465
0
0
543
24,851
(1,479)
23,372
0
(13,079)
(2,203)
8,090
0
(500)
(6,428)
0
0
1,162
864,554
6
65,039
17,927
1,320
22,105
806,432
11
61,127
13,118
526
27,713
726,056
57
46,103
8,223
522
20,938
462,226
(8)
20,781
3,840
535
8,859
500,706
39
17,816
1,595
1,629
6,148
Source: Rodopa and Fitch.
November 8, 2012
202
Corporates
SANLUIS Rassini S.A. de C.V.
SANLUIS Rassini
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency Issuer
Default Rating
Local Currency Issuer
Default Rating
Cyclical Industry Affects Financial Profile: SANLUIS Rassini, S.A. de C.V.’s (SLR) ratings
reflect the cyclicality of the industry, its high customer dependence, as well as the company’s
history of debt restructurings. The company restructured its debt in 2010–2011. This was
similar to other auto suppliers, as a steep decline in volumes during 2008–2009 eroded cash
generation and increased leverage.
B
B
Rating Outlook
Stable
Financial Data
SANLUIS Corporacion S.A.B. de C.V.
(MXN Mil.)
Revenue
EBITDA
EBITDA
Margin (%)
Total Debt
Debt/EBITDA (x)
EBITDA/Interest
Expense (x)
LTM
6/30/12
2011
9,615,513 9,353,398
1,271,994 1,255,488
13.2
13.4
3,542,599 3,500,767
2.8
2.8
3.3
3.4
Solid Business Position: SLR, a subsidiary of SANLUIS Corporacion, S.A.B. de C.V. (SLC),
manufactures suspension and brake system components for light and heavy vehicles and has
a leading position in North America and an important presence in Brazil. The positive
momentum in the North American market and the stabilization in the Brazilian heavy trucks
segment are factors that should benefit the company’s cash flow in the near term and should
further strengthen its financial profile.
Concentration of Operations: SLR’s customer base is concentrated. Detroit’s three original
equipment manufacturers (OEMs) represent approximately 60% of total revenues. In 2011,
North America represented 62% of total SLC revenues and 59% of its consolidated EBITDA.
The company’s main product line, leaf springs, accounted for more than 70% of total sales in
2011. Fitch expects these values to remain relatively stable in the next few years.
Low-Cost Structure Provides Flexibility: During the latest industry downturn, SLR
rationalized its operations and reduced the breakeven point from historical levels. Suspension
customers’ long-term contracts provide raw material pass-through to prices and management
has implemented initiatives to maintain plant efficiency and productivity. These actions, in
conjunction with volume recovery, have resulted in EBITDA margins between 12%–14% during
2010 and the first half of 2012. However, the company’s business nature is closely dependent
on volumes and industry cyclicality.
Moderate Leverage After Debt Restructuring: The company’s debt restructuring process, which
was completed in 2010, included the rescheduling of the maturity of USD142 million of secured
bank loans at the North America Suspension Group level until 2014. In 2011, the group also
exchanged USD237 million of the old SANLUIS Co-Inter (SISA) senior notes and mandatory
convertible debentures for USD61.5 million of guaranteed notes due 2017, and USD14.5 million of
new SISA Notes due 2020 plus 30.4 million of SLC shares. This resulted in a debt reduction to
USD260 million from USD420 million. As of June 30, 2012, on a consolidated basis, SLC’s total
debt-to-EBITDA ratio was 2.7x and its net debt-to-EBITDA ratio was 2.3x.
Analysts
+52 81 8399-9100
[email protected]
Velia P. Valdés
+52 81 8399-9100
[email protected]
November 8, 2012
Operating Pressures Affecting Credit Metrics: Negative rating actions could result from a
combination of lower volume sales and profitability as a result of a sharp U.S. recession and/or
the loss of customers, which in turn translates to increased leverage above expected levels.
Significant and Sustained Improvement in Leverage: Conversely, positive rating actions
could be taken if the company consistently maintains leverage levels below 2.5x in conjunction
with a strong liquidity profile and positive free cash flow generation.
203
Corporates
Organizational Structure — SANLUIS Corporation, S.A.B. de C.V.
(USD Mil., As of June 31, 2012)
SANLUIS Corporation, S.A.B. de C.V.
Euro Commercial Paper
Eurobond
7% Sr. Notes due 2017
Total Debt
5.4
2.3
65.8
73.5
100%
SANLUIS Co-Inter S.A. (SISA)
7% Notes due 2020
14.3
100%
SANLUIS Rassini, S.A. de C.V. (SLR)
100%
100%
Suspension Group
Brake Group
Revolving
North America Suspension
Group
RCA due 2014
124.9
100% 51%
21.8
Brazil Suspension
Group
WC Lines
Term Loan 2013
19
RCA – Restructured credit agreement. Note: Total consolidated debt is USD253.5 million.
Source: Company filings, Fitch Ratings.
November 8, 2012
204
Corporates
Financial Summary  SANLUIS Corporation, S.A. de C.V.
(MXN Mil., Fiscal Years End Dec. 31)
LTM 6/30/12
2011
2010
2009
2008
1,271,994.0
1,271,994.0
13.23
13.23
23.79
6.05
7.32
1,255,488
1,255,488
13.40
13.40
18.20
2.80
54.80
1,057,592
1,057,592
13.90
13.90
20.60
3.90
29.30
502,823
502,823
9.20
9.20
13.30
(0.80)
(22.50)
434,287
434,287
6.20
6.20
5.10
2.60
(27.10)
3.9
3.3
3.3
1.2
1.2
3.9
0.9
1.4
2.8
2.9
3.4
3.4
1.3
1.3
2.9
0.7
1.0
2.3
2.7
2.6
2.6
0.4
0.4
2.7
0.2
0.3
2.9
1.7
1.4
1.4
0.2
0.2
1.7
0.1
0.2
0.7
0.7
1.2
1.2
0.6
0.6
0.7
0.8
1.3
1.9
2.3
2.8
2.4
2.8
2.4
11.8

0.2
3.3
2.8
2.6
2.8
2.6
9.1

0.2
4.1
4.3
4.0
4.3
4.0
10.9

0.6
4.9
6.1
5.7
6.1
5.7
12.0

0.9
12.5
7.2
6.5
7.2
6.5
12.4

0.1
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
8,940,453
507,245
682,248
2,860,351
3,542,599

3,542,599
0
3,542,599
2,797,306
6,339,905
8,368,745
297,232
577,999
2,922,768
3,500,767

3,500,767
0
3,500,767
2,346,960
5,847,727
7,539,293
259,129
2,574,292
1,926,792
4,501,084

4,501,084
0
4,501,084
778,915
5,279,999
7,129,619
173,171
2,840,659
202,802
3,043,461

3,043,461
0
3,043,461
1,572,536
4,615,997
7,060,969
323,500
324,890
2,817,622
3,142,512

3,142,512
0
3,142,512
1,781,108
4,923,620
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
1,119,703
(215,339)
904,364
0
(322,993)
0
581,371
0
(53,068)
(37,415)
667
(226,535)
265,020
699,063
(224,122)
474,941
0
(210,282)
0
264,659
0
871
(15,639)
667
(212,455)
38,103
677,264
(221,585)
455,679
0
(159,537)
0
296,142
0
11,384
(38,858)
0
(182,710)
85,958
244,775
(135,105)
109,670
0
(152,116)
0
(42,446)
0
26,917
(114,690)
0
(20,110)
(150,329)
(106,498)
503,951
397,453
0
(213,548)
0
183,905
0
19,919
(134,367)
0
(64,876)
4,581
Profitability
Operating EBITDA
Operating EBITDAR
FFO Return on Adjusted Capital
Coverage (x)
Leverage (x)
Source: Company filings and Fitch calculations.
November 8, 2012
205
Corporates
Financial Summary  SANLUIS Corporation, S.A. de C.V. (Continued)
(MXN Mil., Fiscal Years End Dec. 31)
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 6/30/12
2011
2010
2009
2008
9,615,513
9,353,398
22.7
951,221
364,441
0
856,617
7,620,995
39.6
781,814
409,628
0
344,272
5,458,946
(21.5)
282,220
370,117
0
(377,941)
6,957,807
(13.0)
189,468
357,550
0
(536,526)
—
951,604
388,815
0
179,094
Source: Company filings and Fitch calculations.
November 8, 2012
206
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B+/RR3
Local Currency
Long-Term IDR
B
Rating Outlooks
Negative
Financial Data
Servicios Corporativos Javer,
S.A.P.I. de C.V.
(MXN Mil.)
Revenue
EBITDA
EBITDA
Margin (%)
FCF
FCF Margin (%)
Cash
Short-Term Debt
Total Adjusted Debt
Total Adjusted
Debt/EBITDA (x)
Total Adjusted Net
Debt/EBITDA (x)
6/30/12
5,394
982
12/31/11
4,719
902
18.2
125
2.3
363
57
3,764
19.1
(390)
(8.3)
416
108
3,865
3.8
4.3
3.5
3.8
High Leverage: Javer’s total adjusted debt has increased in the past 18 months by 45% to
MXN3.8 billion from MXN2.6 billion. The increase primarily reflected the company’s large
investments during 2011 in working capital, as the company increased the size of its inventories.
Positively, Javer has no significant debt payments due during the next two years.
Modest Change in FCF in 2012: Javer’s cash flow has begun to improve following its build-up
of working capital during 2011 that resulted in a negative FCF of MXN390 million. During the LTM
ended June 30, 2012, Javer’s FCF was positive MXN125 million. This was a result of slower
growth in units, an improvement in the collection process, and more moderate requirements in
inventories.
Recovery in Margins Expected in the Second Half of 2012: Javer’s EBITDA margin was
15% during the first half of 2012, which is below its normal average. The decline in margins was
due to its product mix being more oriented to the low-income segment in order to take advantage
of available subsidies through CONAVI. Margins are expected to improve for the second half of
the year, as the company product mix shifts slightly to higher end customers.
Sector’s Mortgage Origination Remains Stable: INFONAVIT’s total number of loans granted
was 276,856 during the first half of 2012, which represents 57% of INFONAVIT’s 2012 target.
Two factors that could limit the sector’s growth during the second half of 2012 are the
availability of subsidies, as 72% of the annual target amount was already allocated by CONAVI
and FOMHAPO during the first-half 2012, and potential delays in the origination process due to
new procedures being implemented (scoring system and credit bureau) by the government
agencies for mortgage origination.
Large Regional Player with Limited Diversification: Javer is one of the five largest players
in the Mexican homebuilding industry with total annual units sold around 18,000 units. The
company’s operations in the state of Nuevo Leon represent about 75% of its unit sales. This
concentration increases Javer’s dependence upon specific local and municipal governments to
secure land and permits. Positively, the company accounts for about 15% of the mortgages
granted by Instituto del Fondo Nacional para la Vivienda de los Trabajadores (Infonavit) in
Nuevo Leon.
Analysts
José Vértiz
+1 212 908-0641
[email protected]
Indalecio Riojas
+52 81 8399-9108
[email protected]
November 8, 2012
FCF Generation Is Main Driver: Javer’s leverage increased significantly in 2011. The
Negative Outlook reflects the view that continued high and negative FCF levels — similar to the
levels reached during 2011 — in 2012 would fail to reduce leverage levels to those consistent
with the rating category. Weaker liquidity, as reflected by a decreased cash position or higher
short-term debt levels, would be seen as negative to credit quality and could also lead to a
downgrade. Additional threats to the rating category include a decline in government funding
programs or an erosion of the company’s market position. Conversely, better operational
performance, resulting in the expectation that total adjusted debt to EBITDA would remain
below 4.0x over time, could trigger a revision of the Rating Outlook to Stable
207
Corporates
Recovery Rating
Javer’s recovery ratings reflect Fitch’s belief that under a bankruptcy scenario the company’s
enterprise value, and hence recovery rates for its creditors, would be maximized through a
liquidation scenario rather than a restructuring scenario (as a going concern).
Under this scenario, Fitch applies the industry’s standard discount rates to the company’s cash,
accounts receivable, and net PP&E of 0%, 80%, and 20%, respectively. In the case of
inventories, the industry’s standard discount rate is 55%. However, for this specific case Fitch
utilizes 45%, which reflects the fact that approximately 50% of the company’s long-term
inventories included land from third parties being held through land trust agreements.
The ‘B+/RR3’ rating assigned to the senior notes reflects good recovery prospects in the range
of 50%–70% given default.
Recovery Analysis  Servicios Corporativos Javer, S.A.P.I. de C.V.
Enterprise Value (As of June 30, 2012)
EBITDA
EBITDA Discount (%)
Distressed EBITDA
Market Multiple
Enterprise Value
Interest Expense
Rent Expense
Maintenance Capital Expenditures
Less Administrative Claims
Less Concession Payments
Adjusted Value
Senior Unsecured
Amount Outstanding
and Available R/C

3,579
982
40
589
3.5
2,061
Liquidation Value
Cash
Accounts Receivable
Inventory
PP&E, Net
Total
Balance Recovery Rates (%)
363
0
1,753
80
3,685
45
267
20

6,067
Available to
Creditor

1,402
1,658
53
3,114




3,114
311
0.0
2,802
Value Recovered

2,617
Recovery Rate (%)

73
‘RR’ Rating

RR3
Notching

1
Credit
Ratings
B
B+
Note: According to Fitch Ratings’ country-specific treatment of recovery ratings, Mexico has a soft cap at ‘RR3’, which results in a maximum one-notch benefit over the
issuer default rating.
Source: Javer’s financial statements and Fitch Ratings.
November 8, 2012
208
Corporates
Organizational Structure — Servicios Corporativos Javer, S.A.P.I. de C.V. (Javer)
(As of June 30, 2012)
Proyectos del Noreste,
S.A. de C.V.
Southern Cross
Designees (40.7%),
Evercore Designee (10.7%),
and Arzentia (8.5%)
Promotora de Proyectos
Inmobiliarios Turin,
S.A. de C.V.
38.0%
2.0%
60.0%
(Javer)
USD270 Mil. Senior Notes Due 2021a
99.9%
Impulsora de Viviendas
Javer S.A. de C.V., SOFOM,
E.N.R.
99.9%
Casas Javer S.A. de C.V.
99.9%
Construccion de Viviendas
Javer
S.A. de C.V.
99.9%
Casas Consentidas Javer,
S.A. de C.V.,
SOFOM E.N.R.
99.9%
Servicios Administrativos
Javer, S.A. de C.V.
99.9%
Urbanizaciones Javer S.A.
de C.V.
99.9%
Hogares Javer,
S.A. de C.V.
aEach
of Javer’s subsidiaries guarantees the notes jointly and severally on a senior unsecured basis.
Source: Javer.
November 8, 2012
209
Corporates
Debt and Covenant Synopsis  Servicios Corporativos Javer, S.A.P.I. de C.V. (Javer)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Ranking
Financial Covenants
Servicios Corporativos Javer, S.A.P.I. de C.V. (Javer)
Payment of principal of, premium, if any, and interest on the notes is guaranteed jointly and severally on a senior unsecured basis by each
of the following Javer subsidiaries (Guarantors): Servicios Administrativos Javer, S.A. de C.V.; Casas Javer, S.A. de C.V.; Hogares Javer,
S.A. de C.V.; Viviendas Javer, S.A. de C.V.: Construcción de Viviendas Javer, S.A. de C.V.: Urbanizaciones Javer, S.A. de C.V., Impulsora
de Viviendas del Noreste, S.A. de C.V.: Impulsora de Viviendas Javer, S.A. de C.V.: SOFOM, E.N.R., Desarrollos Integrales Javer S.A de
C.V.; and Casas Consentidas Javer, S.A. de C.V., SOFOM, E.N.R.
April 6, 2011
April 6, 2021
Senior Notes
USD270 Million
The notes and the guarantees rank equally in right of payment with all of the company and the subsidiary guarantors’ existing and future
senior indebtedness; and senior in right of payment to all of the company and the subsidiary guarantors’ existing and future subordinated
indebtedness. The notes and the guarantees will effectively rank junior in right of payment to all of the company and the subsidiary
guarantors’ existing and future secured indebtedness with respect and up to the value of the assets securing such indebtedness. The notes
and the guarantees will be structurally subordinated to all indebtedness (including trade payables) of the company’s non-guarantor
subsidiaries. Furthermore, the notes and the guarantees will rank junior in right of payment to all obligations preferred by statute (such as
tax or labor obligations).
The company may incur in additional indebtedness if, among other conditions provided in the new indenture, the consolidated fixed
coverage ratio is greater than 2.25 to 1.00. Permitted indebtedness includes indebtedness incurred by the company or any subsidiary
guarantor under credit facilities (including construction bridge loans and other seller financing) in an aggregate principal amount at any time
outstanding not to exceed the greater of USD50.0 million or 10.0% of consolidated tangible assets.
Change of Control Provision Upon the occurrence of a change of control, the holders of the notes will have the right  subject to certain exceptions  to require the
issuer to repurchase some or all of the notes at 101% of their principal amount, plus accrued and unpaid interest, if any, on the repurchase
date.
In connection with the company’s change of control occurred during 2009, the company completed a consent solicitation pursuant to a
consent solicitation statement dated Oct. 28, 2009, requesting that holders of the outstanding notes as of a record date waive the change
of control provisions of and consent to an amendment to the indenture governing the outstanding notes (together, the “Waiver and
Amendment”). After receiving valid consents from holders of a majority in aggregate principal amount of the outstanding notes, the Waiver
and Amendment was affected through the execution of a supplemental indenture, dated as of Nov. 9, 2009, to the indenture.
Certain Covenants
The indenture contains certain covenants that, among other things, limit the company’s ability and the ability of its subsidiaries to: (1) incur
additional indebtedness; (2) pay dividends on the company’s capital stock or redeem, repurchase, or retire the company’s capital stock or
subordinated indebtedness; (3) make investments; (4) create liens; (5) create any consensual limitation on the ability of the company’s
restricted subsidiaries to pay dividends, make loans, or transfer property to the company; (6) engage in transactions with affiliates; (7) sell
assets, including capital stock of the company’s subsidiaries; and (8) consolidate, merge, or transfer assets. If the notes obtain investmentgrade ratings from the rating agencies and no default has occurred and is continuing, the foregoing covenants will cease to be in effect with
the exception of covenants that contain limitations on liens and on, among other things, certain consolidations, mergers, and transfer of
assets for so long as each of the foregoing rating agencies maintains its investment grade rating. These covenants are subject to important
exceptions and qualifications.
Others
Limitation on
The company will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the purchase, sale, lease, or exchange of any property or the rendering of any service)
with, or for the benefit of, any of its affiliates (each an “affiliate transaction”), unless:
(1) the terms of such affiliate transaction are no less favorable than those that could reasonably be expected to be obtained in a
comparable transaction at such time on an arm’s-length basis from a person that is not an affiliate of the company;
(2) in the event that such affiliate transaction involves aggregate payments or transfers of property or services with a fair market value, in
excess of USD5 million, the terms of such affiliate transaction will be approved by a majority of the members of the board of directors of the
company; and
(3) in the event that such affiliate transaction involves aggregate payments, or transfers of property or services with a fair market value, in
excess of USD15 million, the company will, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such affiliate
transaction to the company and the relevant restricted subsidiary (if any) from a financial point of view from an independent financial
advisor and file the same with the trustee. This restriction is subject to important exceptions and qualifications.
Limitation on
Javer will not, in a single transaction or series of related transactions, consolidate or merge with or into any person (whether or not the
Consolidations or Mergers
company is the surviving or continuing person), or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
restricted subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the company’s properties and
assets (determined on a consolidated basis for the company and its restricted subsidiaries), to any person. This restriction is subject to
several exceptions.
Events of Default
The main events of default are: (1) default in the payment when due of the principal of or premium, if any, on any notes, including the
failure to make a required payment to purchase notes tendered pursuant to an optional redemption, change of control offer or an asset sale
offer; (2) default for 30 days or more in the payment when due of interest, additional amounts or liquidated damages, if any, on any notes;
(3) the failure to perform or comply with any of the provisions described under “Certain Covenants — Merger, Consolidation, and Sale of
Assets”; and (4) the failure by the company or any restricted subsidiary to comply with any other covenant or agreement contained in the
indenture or in the notes for 45 days or more after written notice to the company from the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding notes.
Source: Servicios Corporativos Javer, S.A.P.I. de C.V. and Fitch Ratings.
November 8, 2012
210
Corporates
Debt and Covenant Synopsis  Servicios Corporativos Javer, S.A.P.I. de C.V. (Javer)
(Continued)
Others (Continued)
Cross Default
Acceleration
Governing Law
Optional Redemption
be due and payable. Notes become automatically due and payable upon certain events of insolvency or bankruptcy.
The indenture, the guarantees, and the notes will be governed by the laws of the state of New York.
The company may, at its option, at any time on or prior to August 2014, use the net cash proceeds of certain equity offerings to redeem in
the aggregate up to 35.0% of the aggregate principal amount of the notes, including any additional notes the company may issue in the
future under the indenture, at a redemption price equal to % of the principal amount thereof, provided, that: (1) After giving effect to any
such redemption at least 65.0% of the aggregate principal amount of the notes (including any additional notes) issued under the indenture
remains outstanding; and (2) the company makes such redemption not more than 90 days after the consummation of such equity offering.
Source: Servicios Corporativos Javer, S.A.P.I. de C.V. and Fitch Ratings.
November 8, 2012
211
Corporates
Financial Summary  Servicios Corporativos Javer, S.A.P.I. de C.V.
(MXN 000)
Profitability
Operating EBITDA
Operating EBITDAR
2008
2009
2010
2011
LTM Ended
6/30/12
1,100,650
1,100,650
24.61
24.61
21.32
(3.00)
47.51
1,090,334
1,090,334
22.11
22.11
22.20
13.63
40.47
878,795
878,795
18.80
18.80
19.84
(13.00)
10.45
902,227
902,227
19.12
19.12
17.66
(8.00)
(2.00)
981,813
981,813
18.20
18.20
21.15
2.33
(1.00)
Coverage (x)
(FCF + Cash and Marketable Securities)/
Debt Service Coverage
2.28
3.17
3.17
0.92
0.92
2.28
0.19
2.57
3.33
3.33
1.83
1.83
2.57
1.68
1.71
2.06
2.06
1.97
1.97
1.71
—
1.87
1.83
1.83
1.50
1.50
1.87
0.17
2.18
1.95
1.95
1.75
1.75
2.18
1.12
0.49
(1.00)
3.03
6.90
0.74
(19.00)
0.86
(13.00)
1.77
8.40
3.05
2.20
1.88
2.20
1.88
14.53

0.35
3.12
2.41
1.67
2.41
1.67
12.98

0.1
3.56
2.96
2.40
2.96
2.40
16.34

0.01
4.19
4.28
3.82
4.28
3.82
15.28

0.03
3.42
3.83
3.46
3.83
3.46
14.46

0.02
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
5,138,574
350,041
845,512
1,578,316
2,423,828

2,423,828

2,423,828
1,299,826
3,723,654
5,205,461
805,927
267,918
2,357,190
2,625,108

2,625,108

2,625,108
1,164,193
3,789,301
5,876,704
491,939
19,428
2,581,131
2,600,559

2,600,559

2,600,559
1,085,405
3,685,964
7,195,147
415,721
108,377
3,756,076.31
3,864,453.31

3,864,453.31

3,864,453.31
1,356,510
5,220,963.31
6,668,372
363,226
57,307
3,706,350
3,763,657

3,763,657

3,763,657
1,437,753
5,201,410
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
446,310
(509,746)
(63,436)

(53,846)

(117,282)

(173)
422,371

(9,442)
295,474
513,387
424,774
938,161

(135,960)
(130,000)
672,201


410,538
(586,000)
(40,853)
455,886
304,361
(861,949)
(557,588)

(28,799)

(586,387)
(14,208)

333,663

(47,076)
(314,008)
428,240
(790,972)
(362,732)

(26,954)

(389,686)

(58,550)
372,399

(8,461)
(84,298)
595,680
(453,314)
142,366

(16,943)

125,423

(50,387)
(87,562)

59,702
47,176
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4,472,945
45
1,059,915
347,724

510,425
4,931,677
10
1,050,215
327,671

498,634
4,673,919
(5)
819,208
426,982

117,571
4,718,574
1
836,621
493,809

(19,637)
5,394,304
4
918,504
504,555

(7,522)
Source: Company reports and Fitch’s calculations.
November 8, 2012
212
Corporates
Sidetur
Siderurgica del Turbio, S.A.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term Foreign Currency IDR B–
Long-Term Local Currency IDR B–
Sidetur Finance B.V.
B–/RR4
National
Long-Term Rating
National Short Term Rating
BB+(ven)
F2(ven)
Rating Outlooks
Financial Data
Sidetur
(LTM)
Total Equity
(USD Mil.)
Total Debt
(USD Mil.)
Operating Revenue
(USD Mil.)
Net Income
(USD Mil.)
FCF Margin (%)
ROAE (%)
Total Debt to
EBITDA (x)
3/31/12
9/30/11
137
125
80
83
451
355
47
3.0
35.0
37
(2.0)
28.0
1.1
1.3
Ongoing Expropriation Process: Siderurgica del Turbio, S.A.’s (Sidetur) ratings reflect the
ongoing developments and uncertainty surrounding the expropriation of Sidetur’s steel mills, in
particular the unknown dollar value that it will receive from the Venezuelan government for
those assets. The ratings also take into consideration the uncertainty surrounding the
timeliness of payment from the government, which could inadvertently lead to the change-ofcontrol clause being triggered.
Higher than Average Recoveries: Recovery in the event of default could be above the ‘RR4’
level due to Sivensa’s strong reputation and conservative management, as well as the low level
of debt in relation to the amount of funds the company is likely to receive from the government.
The recovery was capped at the ‘RR4’ level due to concerns about creditor rights in Venezuela,
as well as the application and legal enforceability of any claim. Please refer to Fitch’s criteria
report, “Country-Specific Treatment of Recovery Ratings,” dated June 15, 2012 for more
guidance on Fitch’s application of national recovery ratings.
Shrinking Volumes Offset by Better Product Mix: Sidetur’s revenues and EBITDA reduced
significantly as a result of lower sales volumes and price controls to USD355 million and
USD62 million in fiscal 2011 from USD647 million and USD119 million in fiscal 2009,
respectively. For the LTM to March 31, 2012, the company’s revenues improved to
USD451 million, and EBITDA showed improvement due to better product mix with a higher
amount of unregulated rebar products at USD74 million, with an EBITDA margin of 16%.
Low Leverage Maintained: In spite of this decline in revenues, the company’s leverage
remained low with its total-debt-to-LTM EBITDA ratio currently at 1.1x and 0.7x on a net cash
basis, as of March 31, 2012. This compares favorably to 2.8x and 1.2x, respectively, in fiscal
2011. Total debt as of the same period was USD80 million compared to USD90 million in fiscal
2010, mainly comprising the outstanding portion of the USD100 million senior unsecured notes
issued by Sidetur through its 100% owned subsidiary, Sidetur Finance B.V. in 2006.
Minimal Cash Position: Sidetur’s cash position is at a historical low. Fitch partly attributes this
to a change in cash management strategy related to the company’s expropriation. The
company held USD32 million of cash and marketable securities as of March 31, 2012, a
significant reduction on USD149 million held in fiscal 2008. USD7 million of the latest cash
position was restricted cash, which guarantees a quote of capital and interest of the bonds.
Sidetur has a manageable debt maturity schedule of USD5 million a year until 2016, providing
headroom.
Analysts
Jay Djemal
+1 312 368-3134
[email protected]
Julio Ugueto
+58 212 286-3232
[email protected]
November 8, 2012
Expropriation of Company Assets: Sidetur’s ratings are dependent on the unfolding events
surrounding the expropriation process. Sidetur’s ratings incorporate the expectation that the
government of Venezuela works to avoid a situation whereby an international default occurs as
a result of the nationalization process of Sidetur’s assets. Sidetur’s ratings therefore reflect
Fitch’s current expectation of the unsecured notes at Sidetur Finance B.V. being prepaid.
213
Corporates
Recovery Analysis
Despite Sidetur’s bespoke recovery analysis indicating a recovery rating of ‘RR1’ for Sidetur’s
USD100 million senior unsecured notes of which USD84 million is outstanding. Fitch’s
“Country-Specific Treatment of Recovery Ratings” criteria published June 15, 2012 has been
used to cap the rating at ‘RR4’ despite the bespoke analysis. In this criteria report, Venezuela
is categorized as a Group D jurisdiction, which has a soft cap for recovery ratings at ‘RR4’.
Recovery Analysis – Siderúrgica del Turbio, S.A. and Sidetur Finance B.V.
(USD Mil.)
Discount (%)
Multiple (x)
74
50
37
4.0
147
Interest Expense
Rent Expense
Total
7
—
5
12
Less Adminstrative Claims (%)
Concession Allocation
Unsecured Priority
Senior Unsecured
Advance Rate Available to Creditors
—
147
10
15
5
7
—
125
Lien
80
Value Recovered
80
Recovery (%)
100
Recovery Rating
RR1
Notching
+3
Rating
BB–
Source: Fitch.
November 8, 2012
214
Corporates
Financial Summary  Sidetur
(USD 000, Years Ended Sept. 30)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 3/31/12
2011
2010
2009
2008
73,695
73,695
16
16
24
3
35
61,743
61,743
17
17
25
(2)
28
32,732
32,732
9
9
1
7
16
119,468
119,468
18
18
34
(15)
10
141,532
141,532
23
23
25
(8)
68
40.9
58.3
58.3
11.8
11.8
40.9
2.2
7.3
42.3
37.9
46.0
46.0
9.7
9.7
37.9
(0.9)
3.7
19.1
0.3
4.6
4.6
2.1
2.1
0.3
2.1
5.3
5.2
4.4
6.6
6.6
3.2
3.2
4.4
(2.2)
(0.6)
1.1
3.8
8.4
8.4
3.3
3.3
3.8
(0.7)
2.8
1.7
1.5
1.1
0.7
1.1
0.7
2.0
0.0
0.1
1.6
1.3
0.9
1.3
0.9
2.0
0.0
0.1
40.6
2.8
1.2
2.8
1.2
7
0.0
0.1
1.3
0.9
0.4
0.9
0.4
16
0.0
0.2
1.8
0.8
(0.2)
0.8
(0.2)
14
0.0
0.2
331,711
31,874
5,000
75,000
80,000
—
80,000
—
80,000
137,303
217,303
310,112
29,126
5,000
77,500
82,500
—
82,500
—
82,500
124,953
207,453
308,972
50,980
8,773
81,250
90,023
—
90,023
—
90,023
133,743
223,766
343,083
57,754
19,364
86,250
105,614
—
105,614
—
105,614
126,519
232,133
405,644
149,356
25,675
91,250
116,925
—
116,925
—
116,925
139,078
256,003
50,401
(1,643)
48,758
—
(1,154)
(34,883)
12,721
—
—
(5,426)
—
3,499
10,794
49,494
746
50,240
—
(2,632)
(54,481)
(6,873)
—
—
(8,401)
—
(291)
(15,565)
(4,886)
42,348
37,462
—
(7,154)
(3,767)
26,541
—
—
(27,595)
—
319
(735)
61,372
(53,608)
7,764
—
(6,971)
(100,364)
(99,571)
—
—
(14,689)
—
22,658
(91,602)
47,352
6,554
53,906
—
(31,210)
(69,618)
(46,922)
—
55,350
14,442
—
(14,273)
8,597
451,367
12
60,949
1,264
—
47,458
355,224
(2)
48,208
1,341
—
36,596
361,469
(44)
18,899
7,104
—
20,858
647,112
(7)
104,439
18,035
—
12,706
605,961
(29)
128,024
16,870
—
80,211
Source: Sidetur financial statements, Fitch calculations.
November 8, 2012
215
Corporates
Sifco S.A.
Full Rating Report
Key Rating Drivers
Ratings
Parent Subsidiary Credit Linkage Incorporated: Sifco S.A.’s ratings incorporate the close
credit linkage of the company and its parent company, G. Brasil Participações (GB), which has
a substantially weaker standalone credit profile.
Foreign Currency
Long-Term IDR
Senior Unsecured
B–
B–
Local Currency
Long-Term IDR
B–
National
Long-Term Rating
BB(bra)
High Leverage: Sifco’s leverage is high but improving. As of March 31, 2012, Sifco’s net
debt/EBITDA ratio was 4.9x, an improvement from 5.6x in 2010. The decrease in leverage was
primarily due to the closing of a commercial agreement with Dana Corporation (Dana) in 2011.
The ratings incorporate the expectation that Sifco’s net leverage will remain in the 4.0x–5.0x
range during the next 12 to 18 months.
Rating Outlooks
Stable
Financial Data
Sifco S.A.
(BRL Mil.)
Revenue
EBITDA
CFFO
Total Debt
Cash and Marketable
Securities
Net Debt/EBITDA (x)
3/31/12
1,080
102
180
642
2010
777
86
100
606
144
6.3
4.9
122
7.0
5.6
Refinancing Risk a Concern: Sifco accounts for about 60% of GB’s consolidated debt. Sifco’s
short-term debt is high in relation to total debt, accounting for about 42% of its total adjusted
debt of BRL681 million at the end of 2011. Refinancing risk is high, as the company’s cash
position of BRL144 million is low relative to BRL286 million of short-term debt as of March 31,
2012.
Cash Flow Needs to Improve to Reduce Refinancing Risk: During the LTM ended March 31,
2012, Sifco’s CFFO was BRL180 million, while its FCF was BRL101 million. The agreement
with Dana increased these figures, as did the incorporation of BR Metals for six months. Sifco
generated BRL101 million of CFFO in 2010 and BRL87 million of FCF.
Positive Free Cash Flow Expected: Despite the company’s volatile operating results, during
the past years, CFFO had been positive, with margins at double digits, which has led to
positive FCF. In the past, that FCF was used to support weaker sister companies through
intercompany loans. The company’s recent bond issuance limits the amount of these loans to
USD15 million. Fitch’s ‘B–’ rating of Sifco incorporates an expectation of positive FCF for the
following three years due to lower capital expenditures levels and no dividend outflows.
BR Metals Acquisition Forecasts Synergies for Sifco’s Operations: Sifco is well positioned
as a tier-two regional player, with revenues of BRL1.08 billion and BRL777 million during the
LTM ended March 31, 2012 and 2010, respectively. The company’s EBITDA improved to
BRL102 million from BRL86 million during this time period. The incorporation of BR Metals
results for the past six months was one of the factors that led to the change in revenues and
EBITDA.
Analysts
Ingo Araújo
+55 11 4504-2205
[email protected]
Jose Vertiz
+55 11 4504-2600
[email protected]
November 8, 2012
Industry Cyclicality and Low Diversification Constrains Ratings: Automotive parts supply
represents over 90% of Sifco’s sales. The automotive industry is highly cyclical, and the
company’s high degree of exposure to the Brazilian market is a rating constraint despite
positive prospects for the domestic automotive industry in the medium term.
GB’s Credit Profile Improvement: As the main constraint for the rating, an improvement in
GB’s credit profile could trigger a positive rating action. Another downturn in this cyclical
industry in the near term could lead to a negative rating action
216
Corporates
Recovery Rating
Sifco’s recovery rating of ‘RR4’ indicates an anticipated recovery for the company’s creditors in
the range of 31%—50% of current principal and related interest in the event of default. The
assigned recovery rating considers recovery of cash that is pledged in escrow accounts and
fixed assets liens.
Fitch has performed a liquidation analysis in the event of a bankruptcy, although this scenario
seems unlikely. In deriving a distressed enterprise valuation to determine the recovery under
this scenario, Fitch discounts the company’s LTM EBITDA to a level that would cover operating
leases, interest expenses, and maintenance capital expenditures. Fitch has applied a 5.1x
distressed EBITDA multiple. This multiple is slightly more conservative than the current 5.8x
multiple for U.S. auto suppliers.
Recovery Analysis  Sifco S.A.
(BRL Mil.)
Discount (%)
Multiple (x)
102,398
25
76,798
5.1
391,672
Interest Expense
Rent Expense
Total
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
143,974.0
142,745.0
98,416.0
556,427.0
941,562.0
Advance Rate
15
80
50
45
Available to
Creditors
21,596
114,196
49,208
250,392
435,392
76,414
—
15,000
91,414
435,392
43,539
391,853
391,853
271,261
120,592
—
120,592
Secured Priority
Senior Secured
Secured
Lien
0.0
271,261.0
Unsecured Priority
Senior Unsecured
Lien
370,845.0
Value
Recovered
—
271,261.0
Value
Recovered
120,592
Recovery (%)
0
100
Recovery (%)
33
Concession
Allocation (%)
0
Recovery
Rating
—
RR1
Recovery
Rating
RR4
Notching
—
+3
Rating
—
BB–
Notching
0
Rating
B–
November 8, 2012
217
Corporates
November 8, 2012
218
Corporates
Debt and Covenant Synopsis  Sifco S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amount
Financial Covenants
EBITDA (Maximum)
Limitations on Sale of Assets or shares
Sifco S.A.
N.A.
May 27, 2011
2016
USD75 Million
Less than 3.75x.
Net debt-to-EBITDA ratio < than (i) 3.75 to 1.0 until March 31, 2012; (ii) 3.50 to 1.0 until March 31, 2013; (iii) 3.25 to 1.0
thereafter.
No later than 30 days following a change of control that results in a rating decline, the issuer will make an offer to purchase all
outstanding notes at a purchase price equal to 101% of the principal amount plus accrued interest to the date of purchase.
The merger, sale of assets or other transaction must not cause a default on the notes, and the issuer must not already be in
default, unless the merger or other transaction would cure the default.
Debt Restriction
Limitation on Liens
Liens in an aggregate principal amount not to exceed 10% of the issuer’s consolidated total assets. Liens to secure permitted
affiliate guarantees.
Dividends and Other Payment Restrictions
Limitation on dividend and other payments The issuer will not and will not permit any subsidiary to create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any restricted subsidiary to (1) pay dividends or make any other distributions on its
capital stock to the Issuer or any subsidiary; (2) pay any indebtedness owed to the issuer or any subsidiary; (3) make loans or
advances to the issuer or any significant subsidiary or (4) transfer any of its properties or assets to the issuer or any significant
subsidiary.
Others
Limitation on transactions with affiliates
With certain exceptions, the issuer and subsidiary shall not make any payment, or sell, lease, transfer, or dispose of any of its
properties or assets or enter into any transaction or contract for the benefit of any affiliate. No new intercompany loans to
affiliates in excess of USD15 million.
With certain exceptions, the Issuer will not consolidate with or merge with or convey, transfer or lease all or substantially all of
Conveyance, Sale or Lease
its assets to any person.
Cross acceleration
November 8, 2012
219
Corporates
Financial Summary  Sifco S.A.
Profitability
Operating EBITDA
Operating EBITDAR
LTM 3/30/12
2011
2010
2009
2008
102,398
102,398
9.5
9.5
20.4
9.4
(14.3)
104,596
104,596
9.8
9.8
19.8
13.6
(0.4)
86,205
86,205
11.1
11.1
18.0
11.2
8.6
37,088
37,088
8.5
8.5
10.9
16.7
26.7
86,211
86,211
13.8
13.8
21.6
4.3
(4.0)
Coverage (x)
2.2
1.3
1.3
0.3
0.3
2.2
0.5
0.9
2.3
2.4
1.4
1.4
0.3
0.3
2.4
0.6
1.1
3.5
2.9
1.7
1.7
0.3
0.3
2.9
0.5
0.9
7.4
3.4
2.1
2.1
0.4
0.4
3.4
1.0
1.9
5.2
6.3
4.7
4.7
0.8
0.8
6.3
0.4
1.0
1.6
3.8
6.3
4.9
6.3
4.9
12

0.4
3.9
6.5
4.9
6.5
4.9
11

0.4
4.2
7.0
5.6
7.0
5.6
10

0.4
6.5
10.3
8.0
10.3
8.0
5

0.2
2.6
3.5
2.8
3.5
2.8
7

0.3
1,491,355
143,974
285,758
356,348
642,106

642,106
0
642,106
190,795
832,901
1,510,217
166,625
288,104
393,217
681,321

681,321
0
681,321
205,387
886,708
1,046,040
122,084
237,764
368,282
606,046

606,046
0
606,046
196,231
802,277
723,445
85,727
74,650
307,643
382,293

382,293
0
382,293
156,722
539,015
732,947
58,710
90,318
213,667
303,985

303,985
0
303,985
227,780
531,765
93,831
86,499
180,330
0
(78,912)
0
101,418
(214)
(80,205)
(64,290)
0
2,529
(40,762)
102,268
102,189
204,457
0
(58,835)
0
145,622
(214)
(121,138)
19,257
0
2,307
45,834
93,838
6,962
100,800
0
(13,690)
0
87,110
0
0
(52,887)
0
21
34,244
41,269
48,454
89,723
0
(17,366)
0
72,357
0
(6,245)
(1,681)
(36,360)
(1,054)
27,017
96,731
(15,308)
81,423
0
(52,330)
(2,500)
26,593
0
(1,396)
25,293
0
(6,042)
44,448
1,080,268

55,497
76,414
0
(13,684)
1,071,495
38
62,735
73,720
0
(877)
777,334
79
63,708
50,645
0
15,228
434,171
(30)
(46,039)
17,551
0
51,288
624,368
12
70,016
18,300
0
(9,067)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
November 8, 2012
220
Corporates
Telecom Argentina S.A. (TEO)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
B
Local Currency
BB
Long-Term IDR
Rating Outlooks
RWN
Stable
Financial Data
(ARS Mil.)
Revenue
EBITDA
Margin (%)
Debt
Debt/EBITDA (x)
EBITDA/Interest (x)
Lines in
Service (000)
Broadband
Accesses (000)
Mobile
Subscribers (000)
IFRS
6/30/12
10,389
3.140
30.2
133
0
448.6
Local
GAAP
12/31/11
18,525
5,619
30.3
134
0
224.8
4,148
4,141
1,594
1,550
20,965
20,324
Argentine Risks Constrain Foreign Currency IDR at ‘B’: Telecom Argentina S.A.’s (TEO) ‘B’
foreign currency issuer default rating (IDR) is constrained by Argentina’s country ceiling of ‘B’.
In addition to transfer and convertibility (T&C) risks that constrain the foreign currency IDR at
‘B’, additional credit constraints related to the Argentine government include high regulatory
risks for fixed-line operators, as well as risks associated with operating in an environment of
high inflation.
Solid Operations and Market Position Support ‘BB–’ Local Currency IDR: The company’s
strong operating performance, solid market position, diversified services portfolio with multiple
platforms, and conservative financial profile all support a local currency rating that is two
notches higher than TEO’s foreign currency IDR.
Diversified Business Mix Lowers Risks: TEO provides both fixed and mobile services in
Argentina. The mobile business unit is the main driver of the company’s operating performance,
accounting for 70% of revenues and EBITDA during the six months ended June 30, 2012.
TEO’s incumbent position in northern Argentina in fixed-line services and mobile services
mitigates potential fixed-line traffic loss due to mobile substitution. Fitch Ratings believes fixedmobile convergence can help integrated operators such as TEO improve customer loyalty,
reduce operating costs, and avoid cannibalization between business segments.
Improved Financial Profile: TEO’s financial profile has improved considerably during the last
seven years, driven primarily by better operating results and the use of free cash flow for debt
reduction. During 2011, the company’s revenues grew by 26.2% when compared with the
previous year, driven by the mobile segment. Fitch expects TEO’s growth to slow as the market
matures. The solid operating performance during 2011 has resulted in almost no leverage.
Changes Affecting Financial Structure: The Stable Outlook reflects Fitch’s expectations that
TEO will maintain a strong operating performance and a conservative financial profile.
Changes in Country Ceiling: TEO’s foreign currency IDR would likely be affected by an
upgrade or downgrade in Argentina’s ‘B’ country ceiling.
Analysts
Fernando Torres
+54 11 5235-8124
[email protected]
+52 81 8399-9100
[email protected]
November 8, 2012
Liquidity Risk for TEO Is Low: As of Dec. 31, 2011, cash balances totaled approximately
ARS2.8 billion, while total debt was ARS134 million. During 2011, free cash flow was
ARS1.5 billion. As of June 30, 2012, TEO’s debt continued to have a minimum amount of debt.
Change of Accounting Rules: TEO’s audited financials up to fiscal 2011 were in Argentinian
GAAP. Since Jan. 1, 2012, the company has adopted IFRS. As a result, Fitch will not show
LTM figures for the company during 2012.
221
Corporates
Organizational Structure — Telecom Argentina S.A.
(ARS Mil., As of Dec. 31, 2011)
Telecom Italia
Grupo Werthein
32.00%
68.00%
Sofora
Telecomunicaciones
74.00%
Estructura de Capital
51.04%
Nortel Inversora
Participación
Económica
54.74%
Amount
Outstanding
2011 EBITDA
2011 Total Consolidated Debt
2011 Cash and Marketable Securities
TD/EBITDA (x)
99.99%
100.00%
99.99%
Micro Sistemas
5,619
140
3,122
0.02
Telecom USA
Telecom Personal
67.50%
Nucleo
(Paraguay)
100.00%
Springville
TD – Total debt.
Source: Fitch and Telecom Argentina financial statements.
November 8, 2012
222
Corporates
Financial Summary  Telecom Argentina S.A.
(ARS Mil.)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
(FCF + Cash and Marketable Securities)/Debt Service
Coverage
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
NIIF 3/31/12
Three Months
2011
LTM
6/30/11
2010
2009
2008
2007
2006
1,648

32.1




5,619
5,619
30.3
0.3
61.9
8.4
0.3
5,093
5,093
30.7
30.7
51.9
10.9
35.9
4,555
4,555
31.0
31.0
49.0
5.5
30.6
3,900
3,900
31.9
31.9
57.0
14.7
29.2
3,330
3,330
31.4
31.4
58.6
14.8
26.7
3,052
3,052
33.6
33.6
52.4
15.5
33.3
2,285
2,285
31.0
31.0
38.1
15.2
11.9
511.3
549.3

183.1

511.3
51.1
200.6
224.8
224.8
127.7
127.7
200.6
35.9
53.0
74.9
74.9
41.4
41.4
53.0
15.3
32.9
47.0
47.0
32.8
32.8
32.9
6.5
24.8
26.7
26.7
4.3
4.3
24.8
2.1
15.3
14.1
14.1
2.1
2.1
15.3
1.1
9.3
8.6
8.6
1.7
1.7
9.3
1.0
5.0
4.7
4.7
1.2
1.2
5.0
0.9
1,926.7
1.5
99.9
2.1
26.9
2.1
16.5
2.0
3.6
2.2
1.8
2.0
1.5
2.2
1.2
2.4
0.0
0.0
(0.5)


8.8

0.2
0.0
0.0
(0.5)
0.0
(0.5)
16.8

0.1
0.1

(0.2)

(0.2)
12.9

0.3
0.1

(0.3)

(0.3)
19.7

0.3
0.2
0.2
(0.1)
0.2
(0.1)
10.2

0.9
0.6
0.6
0.3
0.6
0.3
9.0

0.7
1.0
1.0
0.7
1.0
0.7
9.7

0.5
1.7
1.8
1.5
1.8
1.5
10.7

0.3
15,815
3,122
24
116
140

140

140
8,875
9,015
14,825
2,818
19
115
134

134

134
7,960
8,094
12,069
1,425
55
134
189

189

189
6,756
6,945
11,964
1,387
42
121
163

163

163
6,363
6,526
10,633
1,289
763
58
821

821

821
5,528
6,349
9,649
1,125
1,355
688
2,043

2,043

2,043
4,101
6,144
9,171
992
1,474
1,724
3,198

3,198

3,198
3,109
6,307
8,720
661
1,395
2,703
4,098

4,098

4,098
2,201
6,299
1,531
(229)
1,302

(845)

457
(6)
(156)
(3)


292
4,989
(300)
4,689

(2,220)
(915)
1,554
(135)
59
(45)


1,433
3,537
596
4,133

(1,954)
(364)
1,815
(19)
(320)
(690)
(915)
30
(99)
3,098
562
3,660

(1,803)
(1,053)
804
(27)
25
(690)


112
3,476
(188)
3,288

(1,474)
(19)
1,795
(17)
260
(1,491)

(176)
371
3,364
(230)
3,134

(1,546)
(20)
1,568
(112)
341
(1,353)


444
2,947
(294)
2,653

(1,208)
(38)
1,407
147
(512)
(1,245)


(203)
1,916
30
1,946

(825)
—
1,121
(41)
62
(1,077)

(4)
61
Source: Telecom Argentina S.A.
November 8, 2012
223
Corporates
Financial Summary  Telecom Argentina S.A. (Continued)
(ARS Mil.)
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
NIIF 3/30/12
Three Months
2011
LTM
6/2011
2010
2009
2008
2007
2006
5,126
—
1,033
3

698
18,525
26
4,040
25

2,422
16,578
26
3,625
68

2,172
14,679
20
3,201
97

1,821
12,226
15
2,762
146

1,405
10,608
17
2,041
236

961
9,074
23
1,636
355

884
7,372
30
894
482

244
Source: Telecom Argentina S.A.
November 8, 2012
224
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
USD170.45 Notes
Senior Unsecured
USD56.8 Notes
USD250 Mil. Notes
USD250 Mil. Notes
CCC
CCC/
RR4
CCC/
RR4
C/RR5
C/RR5
Local Currency
Long-Term IDR
CCC
National
Long-Term Rating
USD170.45 Mil. Notes
USD56.8Mil. Debt Program
USD250 Mil. Notes
USD250 Mil. Notes
Equity
CCC(arg)
CCC(arg)
CCC(arg)
D(arg)
D(arg)
Level 4
Financial Data
Transportadora de Gas del Norte S.A.
(ARS Mil.)
Total Equity
Total Debt
Operating
Revenue
Net Income
Net Debt/
EBITDA (x)
6/30/12
1,004
2,142
12/31/11
1,145
1,942
418
(262)
406
(154)
26.0.
16.3.
High Leverage: Fitch Ratings anticipates that TGN’s ability to meet interest payments on its
restructured debt will be extremely limited due to its weak operating profile. TGN continues to
exhibit high leverage as reflected by its pro forma debt-to-EBITDA ratio of 21.4x following the
debt restructuring completed in August 2012. New notes for USD201 million were issued as
part of the restructuring, and total debt was reduced to USD257 million from USD473.5 million.
Weak Operating Profile: The company’s ability to generate cash has been severely affected
by a frozen tariff structure since 1999 compounded by inflation, limitation on natural gas
exports, and peso depreciation. Operational cash flow is expected to be modestly positive in
2012 as the company will receive approximately USD47 million from the settlement of export
related contracts. Invoices will materially decrease in 2013 and 2014 as a result, and
operational cash flow is expected to turn negative. Negative cash generation is expected to
increase in magnitude in the absence of a tariff increase or any additional source of funds.
Uncertain Regulatory Environment: Tariffs have remained frozen since 1999. Although the
government ratified a 20% tariff increase in April 2010, the regulatory entity has failed to
approve the new tariff scheme. In the event that this tariff increase is retrospectively invoiced
by TGN, the monies received would be administered by a special fund and would be used to
finance the company’s capital expenditure. A third-party designated by the regulator has been
overviewing the company’s operations since 2008.
Debt in Default: Approximately USD41.3 million of TGN’s 2012 notes have not been tendered
in the company’s exchange offering and remain in default. The amount of defaulted notes
increases to USD56.6 million after including penalties and capital interest. The ‘C’ rating on the
2012 notes reflects the expectation of below-average recovery prospects given the default. TGN
recently announced its intention to restructure the debt in default.
Implementation of Tariff Increases: A successfully implemented tariff increase, along with a
tangible, positive impact on TGN’s operations, could result in a Positive Outlook or rating
upgrade.
Weaker Financial Performance: A further deterioration in TGN’s operating profile, additional
government intervention in the sector or in the company, and/or failure to fulfill its debt
obligations could result in a Negative Outlook or rating action.
Analyst
Ana Paula Ares
+54 11 5235-8121
[email protected]
Gabriela Curutchet
+54 11 5235-8100
[email protected]
November 8, 2012
225
Corporates
Recovery Analysis
Fitch expects a higher recovery value under a liquidation scenario, as opposed to a goingconcern sale for TGN. Fitch’s recovery analysis applies a 50% discount rate to the company’s
accounts receivables to reflect the deterioration in the credit quality of some counterparties,
particularly natural gas distribution companies. Fitch has also adjusted the discount rate for net
PP&E to 20%, as the value of the assets is expected to decrease in the event of liquidation.
The recovery analysis assumes a standard 10% administrative claims adjustment and 5%
concession to junior claimants. Fitch has included the post-restructuring bonds in this scenario,
including the maximum allowed interest capitalization and the bonds that remain in default.
TGN’s new notes are better positioned than the notes in default as they have been restructured.
The recovery rating for TGN’s new debt instrument reflects Fitch’s expectation that the
company’s creditors would have an average recovery consistent with a recovery rating of ‘RR4’.
The ‘RR4’ indicates a recovery prospect of 31%–50% of current principal and related interest.
It is difficult to anticipate the recovery value for bondholders that did not participate in the debt
restructuring but, in the event of liquidation, the company’s assets should have some value.
Fitch expects that creditors will have a below-average recovery consistent with an ‘RR5’, which
indicates a probability of recovery of 11%–30% of current principal and related interest for the
notes that are still in default.
November 8, 2012
226
Corporates
Recovery Analysis  Transportadora de Gas del Norte S.A. (TGN)
(USD Mil.)
IDR:
CCC
Discount (%)
Multiple (x)
—
0
—
0
—
Interest Expense
Rent Expense
Total
—
—
—
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
Advance
Rate (%)
0
50
50
20
161.0
13.0
4.0
438.0
616.0
Available to
Creditors
—
6.5
2.0
87.6
96.1
96.10
9.61
86.49
Secured Priority
Senior Secured
Secured
Lien
0
0
Unsecured Priority
Restructured Notes
Notes in Default
Lien
224.7
56.6
Value Recovered
—
—
Recovery (%)
0
0
Recovery
Rating
—
—
Notching
—
—
Rating
—
—
86.5
—
86.5
4.3
82.2
Value
Recovered
86.5
—
Recovery
(%)
38
0
Concession
Allocation (%)
100
0
Recovery
Rating
RR4
RR5
Notching
0
–2
Rating
CCC
C
Source: Transportadora de Gas del Norte S.A. (TGN).
November 8, 2012
227
Corporates
Organizational Structure — Transportadora de Gas del Norte S.A.
Tecpint
27.24%
CGC
TGEA
27.34%
RPM
20.60%
18.29%
Blue Ridge
Gasinvest
56.35%
Total
23.53%
6.63%
Free Float
20.00%
Others
0.12%
Transportadora Gas del Norte S.A.
1H12 EBITDA: ARS24 Million
1H12 Debt: ARS2,142 Million
TD/EBITDA (x): 43
TD –Total debt.
Source: TGN’s quarterly results and Fitch’s estimates.
November 8, 2012
228
Corporates
Debt and Covenant Synopsis  Transportador de Gas del Norte S.A. (TGN)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
PIK Interest Rate
Intercompany Loans
Transportadora Gas del Norte S.A. (TGN)
N.A.
Sept. 14, 2006
Dec. 31, 2012 (Defaulted on January 2009)
N.A.
N.A.
The issuer and its affiliates cannot sell assets unless: 1) at least 75% is paid in cash, 2) the issuer remains in
compliance with the terms and conditions of the notes, and 3) net proceeds are used to repurchase outstanding notes.
Neither the issuer nor its affiliates are allowed to incur additional debt except permitted debt. Permitted debt includes
debt used to refinance existing or permitted indebtedness, subject to standard limitations. TGN is allowed to incur or
maintain up to USD15 million of additional indebtedness, and up to USD35 million of additional subordinated debt.
Should the issuer or its affiliates incur additional indebtedness, TGN is required to maintain consolidated debt to
EBITDA (as defined in the indenture) equal to or below 3.5x.
Subject to certain conditions, TGN or its subsidiaries may incur in liens on assets, trade receivables, or future flows
when: 1) the lien is permitted by the concession agreement and 2) if the guaranteed debt is subordinated and the notes
are also secured by such lien.
The issuer and its affiliates are prohibited from paying dividends, technical assistance services above USD1 million in
the event of default, and payments on subordinated indebtedness. The issuer and its affiliates are allowed to make
restricted payments if 1) no event of default occurs or is continuing or 2) there is sufficient liquidity (as defined in the
indenture) to make such payment.
declare the notes to be due and payable. Notes become automatically due and payable upon certain events of
insolvency or bankruptcy.
Intercompany loans are subordinated.
The issuer may purchase Series A notes at par. After the full amortization of Series A, the issuer may purchase Series
B notes at 101% in 2010, 105.5% in 2011, and at par in 2012.
Transactions between the issuer and affiliates should follow good business practices.
Restrictions on merger or consolidation of issuer and subsidiaries. Exceptions require that: 1) bondholders have the
opportunity to oppose such transactions; 2) the surviving entity will be the issuer or another corporation existing under
the laws of Argentina; 3) the surviving entity assumes the existing debt; 4) no event of default occurs or is continuing;
5) the company’s pro forma net worth is similar or higher than an existing one prior to such transaction; and 6) the
resulting consolidated debt-to-EBITDA ratio is equal or below to the one prior to such transaction.
The note will be redeemed on a pro rata basis if the issuer or affiliates sell assets.
November 8, 2012
229
Corporates
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
PIK Interest Rate
Intercompany Loans
Limitation on Capital Expenditures
Transportadora Gas Del Norte S.A. (TGN)
N.A.
July 12, 2012
Seven Years
Senior Unsecured USD170.45 Mil. Step-Up Notes
N.A.
N.A.
The issuer and its affiliates cannot sell assets unless: 1) at least 75% is paid in cash, 2) the issuer remains in
compliance with the terms and conditions of the notes, and 3) net proceeds are used to repurchase outstanding notes.
Neither the issuer nor its affiliates are allowed to incur additional debt except permitted debt. Permitted debt includes:
1) debt used to refinance existing or permitted indebtedness, subject to standard limitations, 2) up to USD15 million of
additional indebtedness, provided such funds are used for purposes related to the operations of the company, 3) other
indebtedness, if proceeds are applied solely to fund permitted capital expenditures, provided that TGN maintains a
leverage ratio of 3.0x after giving effect to such transaction.
Subject to certain conditions, TGN or its subsidiaries may incur liens on assets of up to USD10 million, and on
receivables up to USD30 million.
The issuer and its affiliates are prohibited from paying dividends. Restrictions also apply for technical assistance
services so long as TGN capitalizes interest under the notes and until all capitalized amounts have been paid. The
issuer and its affiliates are allowed to make restricted payments if 1) no event of default occurs or is continuing and 2)
there is sufficient liquidity — as defined in the indenture — to make such payment.
Cross default when an uncured event of default occurs for debt of more than USD 15 million.
insolvency, bankruptcy, or in the event the license is revoked or suspended for at least 120 days.
The new step-up notes will carry a coupon rate that steps up over the course of the notes of 3.5% for years one and
two, 7% for years three and four, and 9% for years five through seven. The interest payment can be picked during the
first three years, and there is a minimum cash interest payment of 3.5% in year four, with the option for TGN to
capitalize the remainder.
Intercompany loans are permitted and are subordinated to the notes.
The issuer may purchase the notes, in whole or in part, at 100% of the principal plus accrued unpaid interest.
Transactions between issuer and affiliates should follow good business practices.
Restrictions on the merger or consolidation of issuer and subsidiaries. Exceptions require that: 1) bondholders have the
opportunity to oppose to such transaction; 2) the surviving entity will be the issuer or another corporation existing under
the laws of Argentina; 3) the surviving entity assumes the existing debt; 4) no event of default occurs or is continuing; 5)
the company’s pro forma net worth is similar or higher than an existing one prior to such transaction; and 6) the
resulting consolidated leverage is equal to or below the one prior to such transaction.
The notes will be redeemed should there be any incremental cash, distributable cash, and creditor cash surplus
available, as defined in the terms and conditions of the notes. The prepayment will be initially applied to any accrued
capitalized interest payment and then to principal. The notes will also be redeemed with proceeds from asset sales and
expropriations of assets with a market value in excess of USD5 million, and with proceeds from an equity issuance.
TGN can invest in permitted capital expenditures provided that immediately afterwards, no event of default has
occurred or is continuing. Permitted capital expenditures include the maintenance of capex for up to USD20 million per
fiscal year, capex related to unscheduled emergency repair, and the maintenance of government-mandated capex.
November 8, 2012
230
Corporates
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
Cross Default
Acceleration
PIK Interest Rate
Intercompany Loans
Limitation on Capital Expenditures
Transportadora Gas Del Norte S.A. (TGN)
N.A.
July 12, 2012
The claim protection notes will be automatically cancelled on the first anniversary of the debt restructuring settlement,
without any payment from TGN, provided that no event of default has occurred. Should they not be extinguished at that
time, the claim protection notes will mature seven years from the final settlement date.
Senior Unsecured USD56.8 Million Claim Protection Notes
N.A.
N.A.
Change of control clause at 101% of principal, if a triggering event has occurred. A triggering event is defined as the
declaration or automatic acceleration of the step- up notes.
The issuer and its affiliates cannot sell assets unless: 1) at least 75% is paid in cash, 2) the issuer remains in compliance
with the terms and conditions of the notes, and 3) net proceeds are used to repurchase outstanding notes, including the
claim protection notes if a triggering event has occurred (as defined in the indenture).
Neither the issuer nor its affiliates are allowed to incur additional debt except permitted debt. Permitted debt includes:
1) debt used to refinance existing or permitted indebtedness, subject to standard limitations; 2) up to USD15 million of
additional indebtedness, provided such funds are used for purposes related to the operations of the company; and
3) other indebtedness, if proceeds are applied solely to fund permitted capital expenditures, provided that TGN maintains
a leverage ratio of 3.0x after giving effect to such transaction.
Subject to certain conditions, TGN or its subsidiaries may incur liens on assets up to USD10 million and on receivables,
up to USD30 million.
The issuer and its affiliates are prohibited from paying dividends and other restricted payments.
Cross default when an uncured event of default occurs for debt of more than USD15 million. Also, if after the occurrence
of a triggering event (as defined in the indenture) TGN fails to pay interest on the new step-un notes during 15 business
days.
insolvency, bankruptcy, or in the event the license is revoked or suspended for at least 120 days.
N.A.
Intercompany loans are permitted and are subordinated to the notes.
The issuer may purchase the notes, in whole or in part, at 100% of the principal.
Transactions between the issuer and affiliates should follow good business practices.
Restrictions on the merger or consolidation of the issuer and subsidiaries. Exceptions require that: 1) bondholders have
the opportunity to oppose such a transaction; 2) the surviving entity will be the issuer or another corporation existing
under the laws of Argentina; 3) the surviving entity assumes the existing debt; 4) no event of default occurs or is
continuing; 5) the company’s pro forma net worth is similar to or higher than the existing one prior to such transaction;
and 6) the resulting consolidated leverage is equal to or below the one prior to such transaction.
If a triggering event has occurred and there is any incremental cash, distributable cash, or creditor cash surplus
available, the notes will be redeemed on a pro rata basis with the new step up notes.
TGN can invest in permitted capital expenditures provided that, immediately after, no event of default has occurred or is
continuing. Permitted capital expenditures include the maintenance of capex for up to USD 20 million per fiscal year,
capex related to unscheduled emergency repair, and the maintenance of government-mandated capex.
November 8, 2012
231
Corporates
Financial Summary  Transportador de Gas del Norte S.A. (TGN)
Period-End Exchange Rate (ARS/USD)
Period Average Exchange Rate (ARS/USD)
(ARS Mil., Years Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.5238
4.3011
4.3053
4.1295
3.9787
3.9134
3.799
3.7279
3.4538
3.1631
LTM 6/30/12
2011
2010
2009
2008
11,475
11.8
21.0
88.2
(22.9)
18,347
18.6
15.8
41.0
(12.6)
48,429
38.3
16.4
37.4
5.7
71,076
49.9
16.8
34.4
(4.0)
89,953
56.4
13.5
28.3
(2.7)
3.4
0.3
0.0
3.4
0.3
0.6
6.9
2.7
0.4
0.0
2.7
0.2
0.5
3.7
3.5
1.4
0.1
3.5
0.2
0.5
3.4
4.1
2.4
0.2
4.1
0.2
0.4
3.3
4.4
3.8
0.2
4.4
0.2
0.3
4.1
3.1
41.3
26.0
10.0
—
1.0
3.8
24.6
16.3
10.1
—
1.0
3.3
8.5
6.0
8.9
—
1.0
3.2
5.3
4.2
8.0
—
1.0
3.3
3.9
3.4
6.7
—
1.0
765,608
175,143
473,531
—
473,531
—
473,531
—
473,531
222,127
695,658
779,888
152,657
451,149
—
451,149
—
451,149
—
451,149
266,106
717,255
800,842
123,270
411,438
—
411,438
—
411,438
—
411,438
326,676
738,114
757,594
80,098
378,867
—
378,867
—
378,867
—
378,867
322,896
701,763
764,159
44,583
351,197
—
351,197
—
351,197
—
351,197
370,093
721,290
108,275
(7,895)
100,380
0
(14,615)
0
85,766
0
(66,953)
0
0
(196)
18,617
74,676
(19,460)
55,215
0
(14,808)
0
40,407
0
(58,310)
0
0
0
(17,903)
88,180
(20,859)
67,321
0
(19,942)
0
47,379
0
(44,823)
0
0
(60)
2,497
90,719
(20,851)
69,868
0
(20,863)
0
49,005
0
(3,078)
0
0
(8,698)
37,229
82,045
(22,460)
59,585
0
(14,400)
0
45,185
0
0
(17,261)
0
159
28,083
97,189
—
(19,999)
45,133
0
(60,805)
98,541
(22.1)
(13,886)
43,440
0
(37,312)
126,550
(11.1)
14,836
35,058
0
18,670
142,430
(10.7)
37,257
29,237
0
(13,827)
159,491
(4.1)
50,843
23,916
0
(10,602)
Source: Fitch.
November 8, 2012
232
Corporates
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured notes due
2017
Local Currency
Long-Term IDR
B
B/RR4
B+
Rating Outlooks
RWN
Stable
Financial Data
Transportadora de Gas del Sur S.A.
LTM
(USD Mil.)
6/30/12 12/31/11
Revenue
497
449
EBITDA
182
187
CFFO
123
107
Cash and
Marketable
Securities
150
107
Total Debt
378
378
Total Debt/
EBITDA (x)
2.1
2.0
Net Debt/
EBITDA (x)
1.2
1.4
Foreign Currency IDR Constrained: TGS’ foreign currency issuer default rating (IDR) is
constrained by Argentina’s country ceiling of ‘B’ and its recovery rating of ‘RR4’ is constrained
by the soft cap of ‘RR4’ for bonds issued by Argentine corporates. Country ceilings capture the
risk of exchange controls being imposed that would prevent or materially impede the private
sector’s ability to convert local currency and transfer the proceeds to nonresident creditors
transfer and convertibility risk (T&C) risk.
High Regulatory Risk: The weak regulatory framework has affected TGS’ original business
model. The company’s core business, its natural gas transportation unit, has been operating
with frozen tariffs since 1999, reducing its share of EBITDA to approximately 35%. Its liquefied
natural gas (LNG) processing unit represents the remaining 65%. The company’s credit quality
would come under additional pressure, should unfavorable regulatory and operating events
affect TGS’ LNG business unit. Recently, a court suspended the application of an increase in a
tariff charge to be paid by natural gas processors.
Conservative Leverage Is a Key Credit Consideration: TGS’ conservative capital structure
mitigates some existing operational and regulatory risks. As of June 2012, debt was
USD378 million, with a debt to EBITDA of 2.1x, which is low for the credit category. Debt is
concentrated in the long term with no debt maturities until May 2014. Until then, the company’s
annual debt service consists of approximately USD30 million in interest payments.
Satisfactory Operating Performance: Despite frozen tariffs for its pipeline business and
rising inflation, TGS has maintained good cash generation levels, which mostly reflect high
international prices for LNG. To a lesser extent an increase in 2011 of its pipeline utilization
factor increased to 81% also helped cash flow. For the LTM ended June 30, 2012 TGS’
EBITDA was 182 million, similar to 2011. Near-term capital expenditures are expected to
remain at approximately USD40 million, which should allow the company to generate
USD40 million to USD55 million of free cash flow and maintain considerable financial flexibility
for the rating category.
Analysts
Ana Paula Ares
+54 11 5235-8121
[email protected]
Gabriela Curutchet
+54 11 5235-8100
[email protected]
November 8, 2012
Natural Gas Unavailability: A prolonged unavailability of natural gas for TGS’ LNG business
could result in a negative rating action. Gas shortages are the result of the redirection of natural
gas for residential consumption. Gas shortages are somewhat mitigated through the
company’s strategy to pursue gas contracts with producers. The maintenance of frozen tariffs
also constitutes one of TGS’ main risks.
Sharp and Sustained Decrease in LNG Prices: A sharp and sustained decrease in LNG
prices could be a catalyst for a negative rating action.
Change in Sovereign Credit Quality: TGS’ ratings would be affected by an upgrade or
downgrade of Argentina’s country ceiling.
233
Corporates
Recovery Rating
interest expenses, and maintenance capital expenditures. Although the EBITDA is vulnerable
to unfavorable regulatory and operating events, it should be noted that TGS has financial
flexibility as interests and minimum capital expenditures are marginal compared to its
distressed cash flow generation. Fitch has applied a 5.0x distressed EBITDA multiple, which
reflects adequate cash generation in an event of distress when compared to interest payments
and capital expenditures. The bespoke recovery analysis indicates extremely high recovery
prospects.
Despite this analysis, the ratings have been constrained by the soft cap of ‘RR4’ for bonds
issued by corporates domiciled in Argentina. This recovery rating is consistent with an
expectation that the company’s creditors would have an average recovery in the event of a
default.
Recovery Analysis  Transportadora de Gas del Sur S.A. (TGS)
(USD Mil., As of June 30, 2012)
IDR:
B
Discount (%)
Multiple (x)
182.0
35
118.3
5.0
591.5
Interest Expense
Rent Expense
Total
30.0
—
40.0
70.0
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
150.0
57.0
—
881.0
1,088.0
Advance
Rate (%)
0
65
55
40
Available to
Creditors
—
37.1
—
352.4
389.5
591.5
59.2
532.4
Secured Priority
Senior Secured
Secured
Lien
0.0
0.0
Unsecured Priority
Senior Unsecureda
Unsecured
Lien
375.0
—
Value Recovered
—
—
Recovery (%)
0
0
Recovery
Rating
—
—
Notching
—
—
Rating
—
—
532.4
—
532.4
26.6
505.7
Value
Recovered
375.0
—
Recovery
(%)
100
—
Concession
Allocation (%)
100
—
Recovery
Rating
RR4
—
Notching
0
—
Rating
B
—
Source: Transportadora de Gas del Sur S.A. (TGS).
November 8, 2012
234
Corporates
Organizational Structure — Transportadora de Gas del Sur (TGS)
(As of LTM June 30, 2012)
Petrobras Group
50%
CIESA Trust
Pampa Energia
10%
40%
CIESA
Public Float
51%
49%
EBITDA: USD182 Million
Consolidated Total Debt: USD378 Million
TD/EBITDA: 2.1x
ND/EBITD: 1.2x
100%
Telcosur S.A.
TD – Total debt. ND – Net debt.
Source: Transener and subsidiaries’ financial statements, Fitch.
November 8, 2012
235
Corporates
Debt and Covenant Synopsis  Transportadora de Gas del Sur S.A. (TGS)
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Debt Restriction
Restricted Payments
Other
N.A. (Debt is senior unsecured)
Jan. 18, 2007
May 14, 2017
N.A
N.A.
N.A.
N.A.
The issuer can incur in new debt only if (1) consolidated leverage coverage ratio known as debt/EBITDA is less or equal
than 2,0x; (2) EBITDA/interest expense is at a minimum of 3.75x after additional debt is assumed; and (3) for refinancing
reasons.
Dividends may be only distributed if the issuer is not in breach of its financial commitments with its debt holders. Additionally,
for the issuer to be able to issue dividends, immediately after such payment, the issuer should be able to assume more debt
without surpassing 2.0x debt/EBITDA and maintain a minimum interest coverage ratio of 3.75x.
Transactions between issuer and affiliates are only permitted if they reflect market conditions or if they are not unfavorable to
the issuer.
Restrictions on the merger of issuer and subsidiaries. Exceptions include that the surviving entity will be a corporation
existing under the laws of Argentina or the U.S., no event of default occurs or is continuing, the company’s pro forma debt
levels, allowing it to incur additional indebtedness. Any surviving entity would assume all obligations of issuers under the
indenture.
November 8, 2012
236
Corporates
Financial Summary  Transportadora de Gas del Sur S.A. (TGS)
(ARS 000, Fiscal Years Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Operating EBITDA/ Debt-Service Coverage
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.5238
4.3012
4.3053
4.1295
3.9787
3.9134
3.7990
3.7279
3.4700
3.1800
6/30/12a
2011
2010
2009
2008
784,354
36.7
16.6
16.7
9.5
773,923
41.7
17.9
(38.0)
8.8
578,689
35.0
7.4
8.9
3.1
770,961
48.2
17.0
20.8
5.7
636,200
44.8
16.0
23.2
5.8
4.1
5.2
4.7
4.1
3.0
7.1
3.1
4.4
5.4
4.8
4.4
(3.5)
(0.6)
2.6
2.8
4.5
4.0
2.8
1.9
9.5
2.2
5.3
5.1
4.6
5.3
2.9
9.1
3.4
5.1
4.5
4.1
5.1
3.0
6.9
2.6
2.7
2.2
1.3
9.2
—
0.0
2.5
2.1
1.5
9.2
—
0.0
4.2
2.6
0.7
8.5
—
0.0
1.9
2.0
0.6
10.3
—
0.0
2.0
2.2
1.3
9.4
—
0.0
5,155,273
680,646
16,668
1,693,207
1,709,875
—
1,709,875
—
1,709,875
2,054,064
3,763,939
5,024,166
459,292
15,846
1,609,799
1,625,645
—
1,625,645
—
1,625,645
1,953,492
3,579,137
5,611,345
1,089,480
14,661
1,487,119
1,501,780
—
1,501,780
—
1,501,780
3,293,020
4,794,800
5,619,190
1,025,142
14,983
1,502,330
1,517,313
—
1,517,313
—
1,517,313
3,221,109
4,738,422
5,033,324
604,690
13,932
1,398,465
1,412,397
—
1,412,397
—
1,412,397
3,072,729
4,485,126
474,214
54,984
529,198
—
(172,260)
—
356,938
—
(109,382)
—
—
70,108
317,664
497,906
(57,470)
440,436
—
(168,299)
(976,000)
(703,863)
—
(109,073)
—
—
70,108
(742,828)
227,511
92,999
320,510
—
(143,770)
(30,325)
146,415
926
—
(83,003)
—
—
64,338
654,353
(142,716)
511,637
—
(149,147)
(30,000)
332,490
—
—
(25,497)
—
113,459
420,452
577,127
4,954
582,081
—
(220,792)
(32,000)
329,289
—
28,386
(191,486)
—
47,183
213,372
2,138,724
27
557,155
150,769
—
212,514
1,853,875
13
552,493
144,517
—
230,679
1,653,001
12
363,393
128,806
—
102,236
1,600,648
13
561,517
151,416
—
178,380
1,419,202
13
431,432
140,944
—
175,091
a
June 30, 2012 six-month figures. Note: Numbers may not add due to rounding.
Source: Fitch.
November 8, 2012
237
Corporates
Urbi Desarrollos Urbanos, S.A. B. de C.V.
Full Rating Report
Ratings
Key Rating Drivers
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B
High Rate of Cash Burn: Urbi Desarrollos Urbanos, S.A.B. de C.V. (Urbi) exhibited a negative
FCF of MXN5.8 billion during the LTM ended June 30, 2012, mainly due to a MXN7 billion
working capital outflow during the period. This level of negative FCF represents 35% and 98%
of the company’s LTM revenue and cash position, respectively.
National
BBB(mex)
F3(mex)
BBB(mex)
Long-Term Rating
Short-Term Rating
Senior Unsecured
Rating Outlooks
Negative
Financial Data
Urbi Desarrollos Urbanos, S.A. B.
de C.V.
(MXN Mil.)
Revenue
EBITDA
EBITDAR
Margin (%)
FCF
FCF Margin (%)
Cash
Short-Term Debt
Total Debt
Total Debt/
EBITDA (x)
6/30/12
16,592
4,475
12/31/11
16,328
4,360
27.0
(5,792)
(34.9)
5,902
3,543
19,482
26.7
(4,070)
(24.9)
5,529
6,445
14,921
4.4
3.4
Tightening Liquidity: The continued decline in Urbi’s cash on balance sheet will result in a
higher short-term debt position for the company. Liquidity could significantly deteriorate during
the next few quarters should the current trend continue. As of June 30, 2012, Urbi maintained
an adequate cash position of MXN5.5 billion, while its short-term debt was MXN3.5 billion,
comprised mostly of bank loans.
Higher Leverage: Urbi funded its cash flow shortfall with additional debt. The company had
MXN19.4 billion of debt at June 30, 2012, an increase from MXN10.9 billion at the end of 2010.
This resulted in an increase in the company’s total debt/EBITDA ratio to 4.4x as of
June 30, 2012 from 2.7x as of Dec. 31, 2010, and an increase in its net debt/EBITDA ratio to
3.0x from 1.2x during this time period.
2012 Growth Expectations Adjusted Down: Fitch Ratings expects Urbi’s 2012 revenues to
decline between 10% and 15% from 2011 levels. After poor FCF generation in second-quarter
2012, the company has announced its intention to reduce growth and improve FCF generation.
Large Player in Fragmented Industry: The ratings reflect Urbi’s business position as one of
the three largest players in the Mexican homebuilding industry, with important participation in
government-related mortgage funding programs.
Business Strategy Incorporated: The ratings are constrained by Urbi’s high working capital
requirements that reflect its business strategy of covering the affiliated and non-affiliated
segments, as well as increasing exposure with corporate clients that require collection periods
of between nine and 36 months. They also reflect the company’s track record of growing
inorganically through opportunistic acquisitions of housing projects in progress (HPPs).
Negative Outlook due to Liquidity Concerns: Urbi’s Negative Rating Outlook reflects the
potential deterioration in its liquidity position should the current cash flow trends continue. The
company’s cash-to- short-term debt ratio is sufficient at 1.7x, but its CFFO plus cash-to-shortterm debt coverage is just 0.1x due to negative CFFO of MXN5.7 billion for the LTM to June 30,
2012.
Analysts
José Vértiz
+1 212 908-0641
[email protected]
Indalecio Riojas
+52 81 8399-9108
[email protected]
November 8, 2012
FCF Generation Is the Main Rating Driver: The ratings are expected to be driven by the
company’s ability to generate FCF and trends in its liquidity. A negative rating action could be
triggered by a deterioration of the company’s credit ratios due to continued sizeable negative
FCF. A continued negative FCF margin during the next few quarters similar to the levels
observed during LTM to June 30, 2012 will likely result in a downgrade. An upgrade is not likely
until the company reverses its current cash flow trends and lowers its leverage.
238
Corporates
Recovery Rating
Fitch’s follows a liquidation scenario rather than a restructuring scenario (as a going concern)
under its recovery analysis for Urbi with the assumption that it provides a higher recovery value
to creditors. Under this scenario, Fitch applies the industry’s standard discount rates to the
company’s cash, accounts receivable, inventories, and net PP&E of 0%, 80%, 55%, and 20%,
respectively.
The ‘B/RR4’ ratings of the company’s unsecured public debt reflect average recovery
prospects in the event of default. The recovery ratings are capped at RR4 due to the ‘soft cap’
applied to the Mexican corporates under Fitch’s criteria, and reflect the subordination of the
public unsecured debt held at the holding company with respect to secured debt being held at
the operating companies.
Recovery Analysis  Urbi Desarrollos Urbanos, S.A.B. de C.V.’s (Urbi)
Enterprise Value (As of June 30, 2012)
EBITDA
EBITDA Discount (%)
Distressed EBITDA
Market Multiple
Enterprise Value
Interest Expense
Rent Expense
Total
Less Administrative Claims
Less Concession Payments
Adjusted Value
Senior Unsecured
Amount Outstanding
and Available R/C

15,940
4,474
40
2,684
3.5
9,395
21.6
—
15
36.6
Cash
Accounts Receivable
Inventory
PP&E, Net
Total
Balance Recovery Rates (%)
5,902
0
9,768
80
29,460
55
526
20

45,656
Available to
Creditor

7,814
16,203
105
24,123
352.1
117.4
234.7
11.7
222.9
24,123
2,412
0.0
21,710
Value Recovered

15,940
Recovery Rate (%)

100
‘RR’ Rating

Capped/RR4
Notching

0
Credit
Ratings
B
B
Source: Urbi’s financial statements and Fitch Ratings.
November 8, 2012
239
Corporates
Urbi’s Organizational Structure
Urbi
IDR: B/Outlook Negative
(Figures for the first six months of 2012)
Consolidated Cash
Stand-Alone Cash
Consolidated Debt
Stand-Alone Debt
Consolidated EBITDA
Stand-Alone EBITDA
Consolidated Debt/EBITDA
Consolidated Sales
Consolidated Account Receivables (AR)
Stand-Alone AR
5,902
168
18,249
15,702
1,916
88
4.35
6,966
10,184
212
6M12 Total Consolidated Units Sold
15,076
URBI’s Main Operating Companies
99.99%
CYD/IOSA/PROMURBI
(Combined)
Cash
% Total Cash
Total Debt
% Total Debt
EBITDA
% Total EBITDA
ST Debt
Sales
% Total Sales
AR
%Total AR
6M 2012 Units Sales
URBI:
99.99%
99.99%
3,796
64
2,547
14
1,624
85
1,853
6,063
87
9,220
91
11,945
CYD
Cash
% Total Cash
Total Debt
% Total Debt
EBITDA
% Total EBITDA
ST Debt
Sales
% Total Sales
AR
%Total AR
6M 2012 Units Sales
99.99%
IOSA
1,627
28
1,321
7
564
29
1,063
2,532
36
3,362
33
4,291
Cash
% Total Cash
Total Debt
% Total Debt
EBITDA
% Total EBITDA
ST Debt
Sales
% Total Sales
AR
%Total AR
6M 2012 Units Sales
99.99%
PROMURBI
1,177
20%
1,043
6%
683
36%
647
2,055
30%
4,432
44%
3,911
Cash
% Total Cash
Total Debt
% Total Debt
EBITDA
% Total EBITDA
ST Debt
Sales
% Total Sales
AR
%Total AR
6M 2012 Units Sales
Other Subs
992
17%
183
1%
377
20%
143
1,476
21%
1,426
14%
3,743
Cash
% Total Cash
Total Debt
% Total Debt
EBITDA
% Total EBITDA
ST Debt
Sales
% Total Sales
AR
%Total AR
6M 2012 Units Sales
1,938
33%
—
0%
204.5
11%
—
903
13%
752
7%
3,131
Urbi Desarrollos Urbanos, S.A.B. de C.V. (parent company)
Main Subsidiaries:
CYD:
Cyd Desarrollos Urbanos, S.A. de C.V.
IOSA:
Ingenieria y Obras, S.A. de C.V.
PROMURBI:
Promocion y Desarrollos Urbi, S.A. de C.V.
ORDURBI:
Obras y Desarrollos Urbi, S.A. de C.V.
TEC:
Tec Diseño e Ingenieria, S.A. de C.V.
PROMSA:
Propulsora Mexicana de Parques Industriales, S.A. de C.V.
METRO:
Constructora Metropolitana Urbi, S.A. de C.V.
PACIFICO:
Urbi Construcciones del Pacifico S.A. de C.V.
FINURBI:
Financiera Urbi, S.A. de C.V., Sofom, ENR
ARMMED:
Desarrolladora Armmed Norte, S.A. de C.V.
CODEO:
Constructora y Desarrolladora del Occidente, S.A. de C.V.
HEROF:
Herof Desarrolladora del Sur, S.A. de C.V.
DEMEX:
Desarrolladora Mex-Centro, S.A. de C.V.
LUFRO:
Lufro Desarrolladora del Bajio, S.A. de C.V.
PACMEX:
Inmobiliaria y Constructora Pac-Mex, S.A. de C.V.
Source: Urbi.
November 8, 2012
240
Corporates
Debt and Covenant Synopsis — Urbi Desarrollos Urbanos, S.A. B. de C.V.
Overview
Issuer
Subsidiary Guarantors
URBI, Desarrollos Urbanos, S.A.B. de C.V.
The payment of principal, interest and premium on the notes will be fully and unconditionally guaranteed on a senior unsecured basis
by Ingeniería y Obras, S.A. de C.V., Obras y Desarrollos Urbi, S.A. de C.V., Cyd Desarrollos Urbanos, S.A. de C.V., Tec Diseño e
Ingeniería S.A. de C.V., Promoción y Desarrollos Urbi, S.A. de C.V., Propulsora Mexicana de Parques Industriales, S.A. de C.V., Urbi
Construcciones del Pacífico, S.A. de C.V., Constructora Metropolitana Urbi, S.A. de C.V. and Financiera Urbi, S.A. de C.V., Sofom
E.N.R., which collectively held approximately 99% of the company’s total assets and accounted for approximately 99% of the
company’s EBITDA as of June 30, 2012.
Issuances
Document Date
April 19, 2006
Jan. 19, 2010
Jan. 27, 2012
Dec. 9, 2011
Maturity Date
April 19, 2016
Jan. 19, 2020
Feb. 3, 2022
Dec. 9, 2014
Description of Debt
International — Senior
Unsecured Guaranteed Notes
Amount
USD150 Mil.
USD300 Mil.
USD500 Mil.
Local — Certificados
Bursatiles (CBs) — Senior
MXN 600 Mil.
Main Characteristics
The following is a summary of the main characteristics included in the indentures governing the above-indicated international and
local issuances.
The international and local unsecured guaranteed notes will rank equally with the company’s existing and future senior unsecured
indebtedness. Certain of the company’s subsidiaries will fully and unconditionally guarantee the notes on a senior basis. Each
guarantee will be unsecured and rank equally with all existing and future senior unsecured indebtedness of the subsidiary guarantors.
The notes will also be effectively subordinated to the company’s and the subsidiary guarantors’ secured indebtedness to the extent of
the value of the assets securing such indebtedness. The notes and guarantees will be structurally subordinated to the indebtedness
(including trade payables) of existing and future nonguarantor subsidiaries.
Ranking
Financial Covenants
The company will not, and will not cause or permit any of its restricted subsidiaries to, directly or indirectly, incur any indebtedness,
including acquired Indebtedness, except that the company and any subsidiary guarantor may incur indebtedness, including acquired
indebtedness, if, at the time of and immediately after giving pro forma effect to the Incurrence thereof and the application of the
proceeds therefrom, the consolidated fixed charge coverage ratio of the company is greater than 2.0 to 1.0.
Notwithstanding clause above, the company and its restricted subsidiaries, as applicable, may incur in additional Indebtedness under
certain circumstances.
Limitations on Guarantees
Upon the occurrence of a change of control, each holder will have the right to require that the company purchase all or a portion (in
minimum principal amounts of USD200,000 and integral multiples of USD1,000 in excess thereof) of the holder’s notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon through the date of purchase.
The company will not permit any restricted subsidiary of the company that is not a subsidiary guarantor to guarantee any
indebtedness of the company or a subsidiary guarantor or to secure any Indebtedness of the company or a subsidiary guarantor with
a lien (other than permitted liens) on the assets of such restricted subsidiary, unless contemporaneously therewith (or prior thereto)
effective provision is made to guarantee or secure the notes on an equal and ratable basis with such guarantee or lien for so long as
such guarantee or lien remains effective, and in an amount equal to the amount of indebtedness so guaranteed or secured. Any
guarantee by any such restricted subsidiary of subordinated indebtedness of the company or a subsidiary guarantor will be
subordinated and junior in right of payment to the contemporaneous guarantee of the notes by such restricted subsidiary.
Others
Limitation on Asset Sales and
Sales of Subsidiary Stock
The company will not, and will not permit any of its restricted subsidiaries to, consummate an asset sale unless: (a) the company or
the applicable restricted subsidiary, as the case may be, receives consideration at the time of such asset sale at least equal to the fair
market value of the assets or capital stock sold or otherwise disposed of, and (b) at least 75% of the consideration received for the
assets or capital stock sold by the company or the restricted subsidiary, as the case may be, in such asset sale shall be in the form of
cash or cash equivalents received at the time of such asset sale.
Limitation on Dividend and Other The company will not, and will not cause or permit any of its restricted subsidiaries to, directly or indirectly, create or otherwise cause
Payment Restrictions Affecting
or permit to exist or become effective any encumbrance or restriction on the ability of any restricted subsidiary to: (1) pay dividends or
make any other distributions on or in respect of its capital stock to the company or any other restricted subsidiary or pay any
Indebtedness owed to the Company or any other restricted subsidiary; (2) make loans or advances to, or guarantee any Indebtedness
or other obligations of, or make any Investment in, the company or any other restricted subsidiary; or (3) transfer any of its property or
assets to the company or any other restricted subsidiary.
The paragraph above will not apply to encumbrances or restrictions existing under certain circumstances.
Limitation on Merger,
The company will not, in a single transaction or series of related transactions, consolidate or merge with or into any person (whether
Consolidation and Sale of Assets or not the company is the surviving or continuing person), or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or
permit any restricted subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the company’s
properties and assets (determined on a consolidated basis for the company and its restricted subsidiaries), to any person unless the
company shall be the surviving or continuing person, or under other specific circumstances.
Source: Urbi Desarrollos Urbanos, S.A.B. de C.V. and Fitch Ratings.
November 8, 2012
241
Corporates
Financial Summary — Urbi Desarrollos Urbanos, S.A.B. de C.V.
(MXN 000)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Net Revenues
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
2008
2009
2010
2011
LTM 6/30/12
4,149,619
4,149,619
27.66
27.66
16.16
(18.00)
15.45
4,132,061
4,132,061
30.16
30.16
15.32
10.98
10.54
4,066,580
4,066,580
27.15
27.15
13.37
(3.00)
11.33
4,360,899
4,360,899
26.71
26.71
8.48
(25.00)
14.22
4,474,439
4,474,439
26.97
26.97
6.71
(35.00)
11.38
3.10
3.53
3.53
1.05
1.05
3.10
—
0.13
(24.00)
3.04
3.80
3.80
0.84
0.84
3.04
0.52
1.41
20.76
2.72
3.09
3.09
0.89
0.89
2.72
0.18
1.50
(2.00)
2.34
3.63
3.63
0.57
0.57
2.34
—
0.35
(24.00)
2.15
3.78
3.78
0.95
0.95
2.15
(1.00)
0.27
(51.00)
1.96
1.72
1.24
1.72
1.24
18.50
—
0.39
2.38
1.91
0.84
1.91
0.84
14.50
—
0.49
3.07
2.70
1.22
2.70
1.22
13.97
—
0.30
5.32
3.42
2.15
3.42
2.15
9.28
—
0.43
7.64
4.35
3.04
4.35
3.04
7.15
—
0.18
30,143,419
1,985,498
2,760,496
4,377,368
7,137,864
—
7,137,864
—
7,137,864
15,413,509
22,551,373
31,414,129
4,389,122
3,855,227
4,018,093
7,873,320
—
7,873,320
—
7,873,320
13,709,110
21,582,430
37,068,785
6,019,226
3,248,926
7,727,169
10,976,095
—
10,976,095
—
10,976,095
15,770,549
26,746,644
43,060,731
5,529,279
6,444,865
8,476,704
14,921,569
—
14,921,569
—
14,921,569
18,174,166
33,095,735
48,420,848
5,902,428
3,542,899
15,940,099
19,482,998
—
19,482,998
—
19,482,998
18,543,970
38,026,968
2,468,190
(5,000,222)
(2,532,032)
—
(107,325)
—
(2,639,357)
—
—
1,225,773
—
7,457
(1,406,127)
2,218,929
(638,436)
1,580,493
—
(76,140)
—
1,504,353
—
58,228
817,375
—
27,668
2,407,624
2,258,250
(2,588,219)
(329,969)
—
(162,204)
—
(492,173)
—
(130,662)
2,395,332
—
(11,024)
1,761,473
1,604,314
(5,510,634)
(3,906,320)
—
(163,311)
—
(4,069,631)
—
557,926
2,911,734
—
(25,345)
(625,316)
1,366,874
(7,048,194)
(5,681,320)
—
(110,439)
—
(5,791,759)
—
588,681
3,467,262
—
41,078
(1,694,738)
15,003,984
17.41
3,937,560
1,177,043
—
2,203,794
13,700,442
-9
2,905,220
1,088,568
—
1,534,223
14,976,836
9.32
3,788,925
1,316,604
—
1,670,323
16,327,800
9.02
4,213,690
1,201,419
—
2,414,032
16,591,914
4.28
4,317,907
1,184,265
—
1,985,476
November 8, 2012
242
Corporates
Virgolino de Oliveira S.A. Açúcar e Álcool
Full Rating Report
Key Rating Drivers
Ratings
Virgolino de Oliveira S.A. Acúcar e Álcool
Foreign Currency
Long-Term IDR
B
Local Currency
Long-Term IDR
B
National Scale
Long-Term
BBB(bra)
First Debenture Issuance due 2014 BBB(bra)
Virgolino de Oliveira Finance S.A.
Foreign Currency
Long-Term IDR
B
Local Currency
Long-Term IDR
Unsecured Notes
B
B/RR4
Rating Outlooks
Stable
Stable
Financial Data
Virgolino de Oliveira S.A. Acúcar e
Álcool
(BRL Mil.)
Net Revenues
EBITDA
EBITDA Margin (%)
Funds from
Operations
Total Debt
Total Adjusted Debta
Cash and Equivalents
Total Debt/
EBITDA (x)
Net Debt/
EBITDA (x)
Total Adjusted Debt/
EBITDAR (x)
Net Adjusted Debt/
EBITDAR +
Dividends (x)
4/30/12
1,053
323
30.7
4/30/11
1,015
265
26.1
144
2,181
2,514
406
305
1,393
1,616
86
6.7
5.3
5.5
4.9
6.4
5.2
5.0
4.8
a
Including off-balance obligations related to
leased land (period of 12 months).
Analysts
Renata Pinho
+55 11 4504-2207
[email protected]
Gisele Paolino
+55 21 4503-2624
[email protected]
November 8, 2012
High Leverage: Virgolino de Oliveira S.A. Açúcar e Álcool’s (GVO) ratings reflect its high
leverage and tight liquidity position. For the LTM ended on April 30, 2012, GVO’s consolidated
net adjusted debt/EBITDAR ratio, considering dividends received from Copersucar, was 5.0x,
slightly above Fitch’s expectations of between 4.3x and 4.5x for this period. This increased
leverage resulted from pressure on free cash flow (FCF) due to higher capital expenditures
during the last harvest, including crop expansion. The strong U.S. dollar versus the Brazilian
real also had a negative impact on foreign exchange variation and GVO’s debt.
Strengthened Business Profile: GVO’s strategic shareholding in Copersucar (10.36% of its
total capital) fundamentally supports its ratings and mitigates the risks derived from its middletier business position within the industry. GVO transfers 100% of its production to Copersucar,
through a long-term exclusivity contract, mitigating demand risk. Prices are linked to the
average sugar and ethanol market prices plus a premium, which is possible due to logistics
savings and scale gains obtained through the partnership with Copersucar. GVO is
remunerated by Copersucar based on the realized production (on a monthly basis) during the
year, independently of the moment the sale to the final customer occurs.
Weak but Improving Liquidity: GVO’s liquidity remains weak despite the long-term bond
issued in February 2012. As of April 30, 2012, the group reported a cash position of
BRL406 million, which covered only 64% of its short-term adjusted debt. Partially mitigating
refinancing risk, GVO’s financial profile benefits from a significant working capital financing line
in the amount of up to 40% of its annual revenues, equivalent to approximately BRL400 million,
granted by Copersucar. This credit line is subject to certain limits in terms of revenues, and it is
linked to guarantees on inventories and/or bank guarantees.
Adequate Business Model: GVO’s business profile is positive, based on the favorable
location of its mills, its diversified production base, and operational flexibility. The group
consists of four industrial units located in the State of São Paulo, conveniently located near the
main consumer markets and export channels. GVO has an installed crushing capacity for
12 million tons of sugar cane, with flexibility to reach up to 60% of total capacity for sugar or
ethanol. The group benefits from sugar cane supply from its own and leased land for around
54% of its needs. The remaining 46% is supplied by third parties through long-term contracts,
and there is no supply concentration above 5%.
Industry Risks: The high volatile sugar and ethanol industry fundamentals; exposure to
climatic conditions;, and challenges related to the ethanol industry’s dynamics in Brazil,
currently strongly linked to gasoline regulated prices and government policies related to this
issue, are further considered in the ratings.
Lower Cash Flow Generation: Negative rating actions could be driven by lower than
expected operational cash flow generation or deterioration of GVO’s operating margins.
Deleveraging Movement: Improvement in the group’s liquidity position coupled with a better
balanced debt maturity profile and lower leverage levels could lead to a positive rating action.
243
Corporates
Recovery Rating
Fitch has performed a liquidation analysis for GVO in the event of bankruptcy. Fitch has also
estimated the enterprise valuation in the event of financial distress. Under this scenario, we
assumed a multiple of 5 times for the EBITDAR.
Secured debt included debt from the Brazilian Economic and Social Development Bank (BNDES)
and part of the group’s outstanding export financing transactions, which count on real guarantees.
Fitch also conservatively assumed as secured debt part of the loans provided by Copersucar,
which was equivalent to the inventories position reported in April 2012 (BRL111 million) since
these loans are always backed by inventories/receivables or bank guarantees.
The analysis suggests a higher recovery level of ‘RR2’ for GVO’s unsecured debt. The rating
has been capped at ‘RR4’, which is the recovery rating cap for Brazilian issuers. The cap
reflects concerns about the bankruptcy laws and the application of the law. GVO’s resulting
recovery rating of ‘RR4’ indicates that the company’s creditors would have average recovery
prospects in the range of 31%–50% of current principal and related interest in the event of
default.
Recovery Analysis  Virgolino de Oliveira S.A. Açúcar e Álcool
(BRL Mil.)
IDR:
B
LTM EBITDAR as of April 2012
Discount (%)
Multiple (x)
390
0
390
5.0
1,949
Liquidation Value
Cash
Accounts Receivable
Inventory
Net PPE
Total
Interest Expense
Rent Expense
Total
(263)
(67)
(100)
(430)
406
17
111
1,877
2,411
Rate (%)
Creditors
0
80
13
50
56
20
375
—
445
1,949
195
1,754
Secured Priority
Senior Secured
Lien
498
Unsecured Priority
Senior Unsecureda
Lien
1,683
Value Recovered
498
Recovery (%)
100
Recovery
Rating
RR1
Notching
+3
Rating
BB
1,754
498
1,257
63
1,194
Value
Recovered
1,257
Recovery
(%)
75
Concession
Allocation (%)
100
Recovery
Rating
RR4
Notching
0
Rating
B
Source: Virgolino de Oliveira S.A. Açúcar e Álcool.
November 8, 2012
244
Corporates
Organizational Structure — Virgolino de Oliveira Group
(As of April 30, 2012)
Oliveira Family
100%
38.22%
Agropecuária Nossa
Senhora do Carmo S.A.
61.78%
Virgolino de Oliveira S.A.
Açúcar e Álcool
99.85%
Agropecuária Virgolino
de Oliveira S.A.
99.35%
Açucareira Virgolino de
Oliveira S.A.
99.94%
Agropecuária Terras
Novas S.A.
100%
Virgolino de Oliveira
Finance S.A.
Source: Virgolino de Oliveira S.A.
November 8, 2012
245
Corporates
Debt and Covenant Synopsis Virgolino de Oliveira Finance S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Amounts
Financial Covenants
Issuer Provisions
Limitations with Respect to the
Issuer
Virgolino de Oliveira Finance S.A. (Luxembourg)
Agropecuária Nossa Senhora do Carmo S.A., Virgolino de Oliveira
S.A. Açúcar e Álcool, Acucareira Virgolino de Oliveira S.A. And
Agropecuária Terras Novas S.A.
Feb. 2, 2012
Feb. 9, 2022
USD300 million
Virgolino de Oliveira Finance Limited (Cayman Islands)
Agropecuária Nossa Senhora do Carmo S.A., Virgolino de
Oliveira S.A. Açúcar e Álcool, Acucareira Virgolino de Oliveira
S.A. And Agropecuária Terras Novas S.A.
Jan. 21, 2011
Jan. 28, 2018
USD300 million
Net leverage lower than 4.0x and 3.5x going forward.
The company or restricted subsidiaries may not incur in additional
debt if the net debt-to- EBITDA ratio is greater than 4.0 to 1.0
between the closing date and Oct. 31, 2012, inclusive, and 3.5 to 1.0
after Nov. 1, 2012.
Net leverage lower than 4.0x and 3.5x going forward.
The company or restricted subsidiaries may not incur in
additional debt if the net debt-to-EBITDA ratio is greater than
4.5 to 1.0 between the closing date and October 31, 2011, 4.0
to 1.0 between Nov. 1, 2011 and Oct. 31, 2012, and 3.5 to 1.0
after Nov. 1, 2012.
The issuer shall not, so long as any of the notes are outstanding, (1)
engage in any business or enter into, or be party to, any transaction
or agreement, with certain exceptions; (2) acquire or own any
subsidiary or other assets or properties, with certain exceptions and
(3) incur or suffer to exist any lien upon any properties or assets
whatsoever, except (a) liens imposed by law and (b) any liens that in
the aggregate are not material to the issuer. In addition, Agropecuária
Nossa Senhora do Carmo S.A. must own, directly or indirectly, at
least 75% of the shares of the issuer.
The issuer shall not, so long as any of the notes are
outstanding, (1) engage in any business or enter into, or be
party to, any transaction or agreement, with certain exceptions;
(2) acquire or own any subsidiary or other assets or properties,
with certain exceptions and (3) incur or suffer to exist any lien
upon any properties or assets whatsoever, except (a) liens
imposed by law and (b) any liens that in the aggregate are not
material to the issuer. In addition, Agropecuária Nossa Senhora
do Carmo S.A. must own, directly or indirectly, at least 75% of
the shares of the issuer.
Debt Restrictions
Limitation on Liens
The company and any restricted subsidiary will not permit to issue or
assume any indebtedness secured by a lien upon any property or
assets without effectively providing that the notes shall be secured
equally and ratable with such indebtedness so long as it shall be so
secured.
Limitation on Sale and Leaseback The company will not and will not permit any restricted subsidiary to
Transactions
enter into any sale and leaseback transaction, unless certain
conditions are met.
Limitations on Sales of Assets or The company and any restricted subsidiary will not make any asset
Shares
disposition unless some conditions are met, including, among others:
(1) the asset disposition is for fair market value, (2) within 365 days
after the receipt of any net available cash, proceeds may be used to
permanently repay indebtedness, other than subordinated
obligations; to acquire all or substantially all of the assets of a related
business or to make capital expenditures. Net cash available not
applied as per item (2) shall constitute “excess proceeds” and in case
the latter reaches the issuer shall, within 30 days, make an offer to
purchase notes, respecting certain conditions.
The company and any restricted subsidiary will not permit to
issue or assume any indebtedness secured by a lien upon any
property or assets without effectively providing that the notes
shall be secured equally and ratable with such indebtedness
so long as it shall be so secured.
The company will not and will not permit any restricted
subsidiary to enter into any sale and Leaseback transaction,
unless certain conditions are met.
The company and any restricted subsidiary will not make any
asset disposition unless some conditions are met, including,
among others: (1) the asset disposition is for fair market value,
(2) within 365 days after the receipt of any net available cash,
proceeds may be used to permanently repay indebtedness,
other than subordinated obligations; to acquire all or
substantially all of the assets of a related business or to make
capital expenditures. Net cash available not applied as per item
(2) shall constitute “Excess Proceeds” and in case the latter
reaches the issuer shall, within 30 days, make an offer to
purchase notes, respecting certain conditions.
Dividends and other Payment Restrictions
Limitation on Dividend and Other With certain exceptions, the company will not, and will not permit any
Payment Restrictions Affecting
restricted subsidiary, to create or permit to exist any consensual
encumbrance or restriction on the ability of any restricted subsidiary
to (1) pay dividends or make any other distributions on the capital
stock of the restricted subsidiary owned by the company, to the
company, or any restricted subsidiary; (2) to pay any indebtedness
owed to the company or any restricted subsidiary; (3) make loans or
advances to the company or any restricted subsidiary; or (4) transfer
any of its properties or assets to the company or any restricted
subsidiary.
With certain exceptions, the company will not, and will not
permit any restricted subsidiary, to create or permit to exist any
consensual encumbrance or restriction on the ability of any
restricted subsidiary to (1) pay dividends or make any other
distributions on the capital stock of the restricted subsidiary
owned by the company, to the company, or any restricted
subsidiary; (2) to pay any indebtedness owed to the company
or any restricted subsidiary; (3) make loans or advances to the
company or any restricted subsidiary; or (4) transfer any of its
properties or assets to the company or any restricted
subsidiary.
The company will not, and will not permit any restricted
The company will not, and will not permit any restricted subsidiary,
subsidiary, directly or indirectly, to (1) declare or pay any
Payments
directly or indirectly, to (1) declare or pay any dividend except
dividend except dividends or distributions payable solely in the
dividends or distributions payable solely in the form of its capital
form of its capital stock and except dividends or dividends
stock and except dividends or dividends payable to the company or
payable to the company or restricted subsidiary (on a pro rata
restricted subsidiary (on a pro rata basis); (2) purchase or redeem
basis); (2) purchase or redeem any capital stock of the
any capital stock of the company held by persons other than the
company held by persons other than the company or restricted
company or restricted subsidiary (except for permitted investment);
(3) purchase, acquire, or retire for value, prior to scheduled maturity, subsidiary (except for permitted investment); (3) purchase or
acquire or retire for value, prior to scheduled maturity, any
any subordinated obligations, with certain exceptions and (4) make
subordinated obligations, with certain exceptions and (4) make
any investment (other than permitted) in any person.
any investment (other than permitted) in any person.
connection with a sale of securities. Continued on the next page.
November 8, 2012
246
Corporates
Debt and Covenant Synopsis Virgolino de Oliveira Finance S.A. (Continued)
Others
Limitation on Transactions with
Affiliates
With certain exceptions, the issuer will not, and will not permit any
With certain exceptions, the issuer will not and will not permit
restricted subsidiary, to make any payment, or sell, lease, transfer or any restricted subsidiary, to make any payment, or sell, lease,
dispose of any of its properties or assets or enter into any transaction transfer or dispose of any of its properties or assets or enter
or contract for the benefit of any affiliate.
into any transaction or contract for the benefit of any affiliate.
Consolidation, Merger,
With certain exceptions, the company will not consolidate with or
With certain exceptions, the company will not consolidate with
merge into another person or convey, transfer or lease all or
or merge into another person or convey, transfer or lease all or
substantially all of its assets to any person.
substantially all of its assets to any person.
Cross Acceleration
November 8, 2012
247
Corporates
Financial Summary  Virgolino de Oliveira S.A. Açúcar e Álcool
(BRL Mil., As of April 30)
Profitability
Operating EBITDA
Operating EBITDAR
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
LTM 4/30/12
2011
2010
2009
2008
323,117
389,817
30.7
37.0
16.5
(18.0)
(20.0)
264,549
309,098
26.1
30.5
28.3
4.7
12.7
311,891
359,391
30.1
34.7
22.3
10.5
3.6
94,788
127,572
14.3
19.3
10.7
(17.0)
(19.6)
62,446
88,846
15.6
22.3
N.A.
N.A.
N.A.
1.5
1.2
1.2
0.4
0.4
1.4
0.1
0.5
0.4
2.2
1.1
1.0
0.4
0.4
2.0
0.4
0.6
1.2
1.9
1.6
1.5
0.4
0.4
1.7
0.4
0.5
1.9
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
0.5
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
0.2
5.3
6.7
5.5
6.4
5.4
0.1
—
0.3
2.7
5.3
4.9
5.2
5.0
0.2
—
0.3
3.5
4.0
3.8
4.1
4.0
0.2
—
0.5
7.2
13.9
12.7
11.6
10.7
N.A.
—
0.5
N.A.
16.6
15.1
14.0
13.0
N.A.
—
0.4
2,773,214
405,746
635,079
1,545,501
2,180,580
—
2,180,580
333,500
2,514,080
364,979
2,879,059
2,268,347
85,598
429,871
963,185
1,393,056
—
1,393,056
222,745
1,615,801
502,519
2,118,320
2,233,871
40,349
574,102
666,697
1,240,799
—
1,240,799
237,500
1,478,299
432,577
1,910,876
2,320,134
111,104
627,221
685,648
1,312,869
—
1,312,869
163,920
1,476,789
441,910
1,918,699
1,425,181
90,622
415,258
618,515
1,033,773
—
1,033,773
211,200
1,244,973
260,051
1,505,024
143,781
(10,567)
133,214
—
(323,087)
—
(189,873)
—
28,381
481,640
N.A.
304,713
(37,716)
266,997
—
(219,761)
—
47,236
—
9,522
(11,509)
N.A.
179,630
55,240
234,870
—
(125,938)
—
108,932
—
4,015
(183,702)
N.A.
172,312
(47,234)
125,078
—
(237,295)
—
(112,217)
—
(20)
108,958
23,761
143,781
(10,567)
133,214
—
(323,087)
—
(189,873)
—
28,381
481,640
N.A.
—
320,148
—
45,249
—
(70,755)
—
20,482
—
N.A.
1,052,795
4
126,817
263,465
66,700
(86,901)
1,014,544
(2)
204,044
249,891
44,549
59,297
1,036,728
57
184,091
198,555
47,500
15,625
661,856
66
33,813
N.A.
32,784
(68,727)
399,267
N.A.
2,636
N.A.
26,400
(46,574)
Source: Fitch.
November 8, 2012
248
Corporates
WPE International Cooperatief (WPEI)
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B+
B+/RR4
Local Currency
Long-Term IDR
B+
Rating Outlooks
Stable
Stable
Financial Data
Industrias Metalurgicas Pescarmona
S.A.I.C y F.
6/30/12
12/31/11
(USD Mil.)
Revenue
451.6
1,150.5
EBITDA
Cash Flow from
Operations
Cash and
Marketable
Securities
Total Recourse
Debt
Total Recourse
Debt/EBITDA (x)
Net Recourse
Debt/EBITDA (x)
107.6
200.0
(143.8)
(318.0)
60.8
95.8
957.8
835.4
4.6
3.8
4.3
3.4
Note: IMPSA changed to IFRS since April
2011 and changed the fiscal year end to
December. Figures as of December 2011
are for eleven months and as of June 2012
are for six months. Ratios have been
calculated by annualizing income statement
and cash flow items of eleven months and
six months, respectively.
Ratings Based on Guarantor’s Creditworthiness: WPE International Coorperatief (WPEI) is
a direct subsidiary of WPE, which in turn is wholly owned by Industrias Metalurgicas
Pescarmona (IMPSA). WPEI’s notes are irrevocably and unconditionally guaranteed by IMPSA
and WPE (IMPSA’s Brazilian subsidiary) on a senior unsecured basis. The ratings reflect the
creditworthiness of IMPSA, which is rated ‘B+’. WPE is a fully owned subsidiary of IMPSA with
strong operating, strategic, and financial ties to its parent company. The ‘B+’ IDR assumes all
of WPEI’s future debt issuances would be guaranteed by IMPSA and will rank pari passu with
IMPSA’s senior unsecured debt.
IMPSA’s Positive Business Fundamentals: IMPSA’s ‘B+’ ratings reflect the positive trend for
the company’s business fundamentals due to sustained global demand for hydro and wind
power generating equipment. As of June 30, 2012, IMPSA’s backlog was USD3.6 billion.
Approximately 79% of the backlog is in wind manufacturing, and 43% of these projects are in
Brazil. This backlog level shows an improvement from USD3.16 billion during January 2011.
The growth of IMPSA’s business in Brazil has reduced its exposure to more volatile markets
such as Argentina and has increased its access to multiple funding sources. This has enabled
IMPSA’s foreign currency rating to exceed the ‘B’ country ceiling of Argentina.
Backlog Concentration Heightens Risk: IMPSA’s backlog concentration is high with five
projects representing 56% of total backlog. The main project in the hydro equipment business
unit is the Belo Monte hydro project in Brazil, whereas the main projects in the wind equipment
unit are Arauco IV (Argentina) and Ceara III (Brazil).
Negative Free Cash Flow: The company’s free cash flow (FCF) is anticipated to remain
negative during 2012 and 2013 due to capital expenditures and growing working capital needs.
Investments in the construction of wind farms are estimated at approximately USD450 million
for FYE 2012 and USD560 million for FYE 2013. Much of the cash deficit will be funded with
nonrecourse project financing for the wind farm projects in Brazil.
Changes in Financing Strategy: The ratings could be downgraded or have a negative outlook
assigned if recourse financing increases above levels anticipated by Fitch, or if IMPSA
changes its existing strategy of financing the development of wind farms with nonrecourse,
project finance debt.
Analysts
Gabriela Catri
+54 11 5235-8129
[email protected]
Operating Issues: Any material performance problems that threaten future projects and cash
flow, or a failure to comply with the terms for the operation of the wind farms (for which longterm PPAs have been signed with Eletrobras and the CCEE and are financed by BNDES),
could also result in a Negative Outlook or downgrade. A sharp demand for wind farms would
also be negative.
Fernando Torres
+54 11 5235-8124
[email protected]
November 8, 2012
249
Corporates
Recovery Rating
The recovery ratings for IMPSA’s capital markets debt instruments reflect Fitch’s expectation
that the company’s creditors would have an average recovery anticipated to be in the range of
30%–50%, which is consistent with Fitch’s RR4.
EBITDA multiple, which is slightly below the average ratio observed for many companies
involved in diversified manufacturing and capital goods.
Recovery Analysis  Industrias Metalurgicas Pescarmona S.A.I.C. y F
(USD Mil.)
June 2012 Annualized EBITDA
Discount (%)
Multiple (x)
215.2
40
129.1
4.0
516.5
Interest Expense
Rent Expense
Total
135.8
—
20.0
155.8
516.5
51.6
464.8
Liquidation Value
Cash
A/R
Inventory
Net PPE
Total
60.8
51.5
131.9
224.9
469.1
Advance Rate (%)
0
80
50
20
Available to
Creditors
—
41.2
66.0
45.0
152.1
464.8
—
464.8
Secured Priority
Secured
Unsecured Priority
Senior Unsecured
Lien
0.0
Lien
957.8
Value
Recovered
—
Recovery (%)
0
Value
464.8
49
Concession
Allocation (%)
100
Recovery
Rating
—
Recovery
Rating
RR4
Notching
—
Rating
—
Notching
Rating
B+
November 8, 2012
250
Corporates
Organizational Structure — WPE International Cooperatief
June 2012 Summary Statistics
USD107.6 Million of EBITDA (6 Months)
USD60.8 Million of Cash and Marketable
Securities
USD1,343 Million of Total Debt
USD958 Million of Total Debt with Recourse
100%
Inverall Constr. S.A.
(Brazil)
55%
Energimp
(Brazil)
Industrias Metalúrgicas
Pescarmona S.A.I.C. y F.
100%
Guaranteed
WPE
(Brazil)
100%
Venti Energia
(Brazil)
45%
FI-FGTS
100%
WPE International
Cooperatief
(Netherlands)
Unsecured Notes Due
2020
Source: Fitch and Industrias Metalúrgicas Pescarmona S.A.I.C. y F.
November 8, 2012
251
Corporates
Debt and Covenant Synopsis  WPE International Cooperatief
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Restricted Payments
Other
Limitation on Business Activity
Other, Relating to the Guarantors
Restricted Payments
Limitation on Liens
WPE International Cooperatief
Industrias Metalurgicas Pescarmona and Wind Power Energia (WPE)
Sept. 30, 2010
2020
N.A.
N.A.
The company will not declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise), whether in cash, property, securities, or a combination thereof, with respect to any shares of its capital stock
or directly or indirectly redeem, purchase, retire or otherwise acquire for value any shares of any class of its capital stock or
set aside any amount for any such purpose, except for transactions in connection with the financing, directly or indirectly, of
the guarantors and their subsidiaries from the net proceeds of the issuance of notes under the indenture and incidental and
related activities, including any related swap transactions.
The company will not engage at any time in any business or business activity other than the financing, directly or indirectly,
of the guarantors and their respective subsidiaries from the net proceeds of the issuance of notes under the indenture and
incidental and related activities, including any related swap transactions or holding investments in marketable securities,
except as the trustee may otherwise approve if so directed by the holders of not less than 25% of the principal amount of the
outstanding notes issued under the indenture.
The company will not and will not permit any restricted subsidiary to incur in any indebtedness. Exceptions are: 1) on the
date of such incurrence, the interest coverage ratio would be no less than 2x and total debt to EBITDA no greater than 4x;
2) no default or event of default shall have occurred. This covenant does not prohibit the incurrence of the following debt: 1)
intercompany indebtedness within certain restrictions; 2) indebtedness represented by the notes, or outstanding on the issue
date, or consisting on refinancing indebtedness; 3) hedging obligations; 4) subordinated indebtedness; 5) debt in an
aggregate principal amount not exceeding USD50 million; 6) short-term debt for the ordinary course of business not
exceeding USD40 million during the first year after the issuance, USD20 million prior to the second anniversary, and
USD10 million thereafter; 7) debt in addition to that referred on 1 not exceeding USD100 million/USD75 million (year one
from covenant changes as of May 2011)/USD50 million (year two)/USD25 million thereafter.
The company will not and will not permit any of its restricted subsidiaries to: 1) declare or pay any dividend other than:
a) dividends paid in shares of its common stock, b) dividends paid on a pro rata basis of the holders of such common stock;
2) purchase, redeem, or acquire any capital stock of the company or subsidiaries; 3) purchase, redeem, or retire for value,
prior to scheduled maturity, any debt which is subordinated to the notes; 4) make any investments other than permitted
investments.
The company will not and will not permit any of the restricted subsidiaries to assume any lien (except for permitted ones)
upon its property, unless at the same time the obligations under the notes are secured equally.
The company will not and will not allow its restricted subsidiaries to enter into a transaction with affiliates, unless: 1) the
transaction is on terms that are no less favorable than those that would have been obtained in a comparable transaction with
a person that is not an affiliate; 2) the company delivers to the trustee: a) for transactions in excess of USD10 million, a
resolution from its board of directors, b) for transactions in excess of USD15 million an opinion as to the fairness of that
transaction from a financial point of view, issued by an international investment bank.
The company or its restricted subsidiaries will not enter into any sale and lease back transactions unless pursuant to the
provisions of the covenant described under “Limitation on Indebtedness.”
November 8, 2012
252
Corporates
Financial Summary — Industrias Metalurgicas Pescarmona S.A.
(USD 000, Fiscal Year Ended Jan. 31 until January 2011; Dec. 31 since December 2011)
Profitability
Operating EBITDA
Coverage (x)
(Free Cash Flow + Cash and Marketable Securities)/Debt Service
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Dividends
Free Cash Flow
Net Debt Proceeds
Income Statement
Net Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.5238
4.4110
4.3053
4.1295
3.9787
3.9134
3.8340
3.7990
3.4855
3.1900
3.0905
3.0857
3.1080
3.0752
6 Months
6/30/12
11 Months
12/31/11
2011
2010
2009
2008
2007
107,609
24.12



200,048
17.39



183,805
18.10
(10.70)
(26.70)
41.70
102,070
16.70
0.20
(4.80)
4.00
107,150
22.40
7.80
(51.30)
7.50
69,288
23.70
4.80
(4.80)
14.90
56,732
21.50
6.00
(14.70)
13.10
0.57
1.60
0.46
0.57
(0.46)
(0.33)

(1.74)
2.68
0.64
(1.74)
(0.94)
(0.65)

(2.00)
3.20
0.80
(2.00)
(0.90)
(0.70)
(3.20)
0.00
1.60
0.60
0.00
0.20
0.50
(0.70)
1.20
2.30
0.70
1.20
(1.30)
(0.70)
(6.30)
0.80
2.10
1.40
0.80
0.40
3.40
(1.00)
0.90
2.30
0.40
0.90
(0.10)
0.10
(9.30)
18.06
6.40
6.11
10.13

0.24
4.56
4.27
(8.47)
5.50
5.06
6.79

0.22
3.83
3.39
(7.60)
4.60
4.30
8.00

0.20
3.49
3.20
442.00
5.60
5.00
10.80

0.20
4.30
3.69
10.00
5.40
4.50
9.40

0.20
4.20
2.97
16.40
6.10
4.00
9.40

0.00
5.18
3.03
12.50
5.00
4.50
9.50
0.20
0.40


2,017,386
60,776
324,164
1,019,227
1,343,391

1,343,391
0
1,343,391
957,792
132,297
1,475,687
1,957,000
95,892
258,746
941,875
1,200,621

1,200,621
0
1,200,621
835,446
157,406
1,358,028
1,508,993
53,313
169,816
677,041
846,857

846,857
0
846,857
633,021
180,091
1,026,948
1,004,844
62,417
115,200
461,229
576,429

576,429
0
576,429
438,803
110,700
687,129
909,189
92,969
110,774
464,776
575,550

575,550
0
575,550
411,704
102,638
678,188
754,516
148,688
16,437
407,574
424,011

424,011
0
424,011
358,621
109,349
533,360
531,221
27,791
123,622
158,973
282,595

282,595
0
282,595

89,478
372,073
(29,269)
(114,552)
(143,820)
0
(33,772)
0
(177,592)
0
(1,824)
146,663
0
(32,752)
(204,742)
(113,328)
(318,070)
0
(48,461)
0
(366,531)
0
(1,644)
415,751
0
47,576
(169,477)
(36,434)
(205,911)
0
(64,765)
0
(270,676)
0
159
261,562
0
(8,955)
(60,750)
48,580
(12,170)
0
(17,051)
0
(29,221)
(19,967)
15,631
20,545
0
(13,012)
10,747
(222,510)
(211,763)
0
(33,652)
0
(245,414)
(8,023)
(11,552)
211,685
0
(53,304)
(7,493)
373
(7,120)
0
(6,878)
0
(13,998)
(35,844)
2,114
170,080
647
122,998
(2,226)
(32,640)
(34,866)
0
(3,748)
0
(38,614)
(11,410)
27
52,403
2,189
4,595
451,599
—
89,913
67,875
0
(13,995)
1,150,532
—
169,350
74,735
0
47,858
1,012,939
65.8
160,540
57,312
0
60,963
610,964
27.7
87,098
62,054
0
4,287
478,472
63.8
94,961
46,959
0
7,916
292,163
10.9
55,074
33,356
0
14,807
263,504
8.9
43,863
24,874
0
10,690
November 8, 2012
253
Corporates
Financial Summary  Industrias Metalurgicas Pescarmona S.A.
(ARS 000, Fiscal Year Ended Jan. 31 until January 2011; Dec. 31 since December 2011)
6 Months 11 Months
6/30/12
12/31/11
2011
Profitability
Operating EBITDA
474,664
861.266
719,302
24.1
17.4
18.1


(10.7)


(26.7)


41.6
Coverage (x)
0.6
(1.7)
(2.0)
1.6
2.7
3.2
0.5
0.6
0.8
0.6
(1.7)
(2.0)
(0.5)
(0.9)
(0.9)
(0.3)
(0.7)
(0.7)


(3.2)
18.1
(8.5)
(7.7)
6.4
5.5
4.7
6.1
5.1
4.0
10.1
8.2
7.3



0.2
0.2
0.2
4.6
3.8
3.5
4.3
3.4
3.2
Balance Sheet
Total Assets
9,126,251 8,425,474 6,003,831
274,940
412,844
212,117
Short-Term Debt
1,466,453 1,113,981
675,646
Long-Term Debt
4,610,779 4,055,053 2,693,744
Total Debt
6,077,232 5,169,034 3,369,390



Equity Credit
6,077,232 5,169,034 3,369,390
0
0
0
6,077,232 5,169,034 3,369,390
4,332,860 3,596,846 2,511,827
Total Equity
598,483
677,682
716,528
6,675,715 5,846,716 4,085,918
Cash Flow
(127,564) (881,476) (663,231)
(499,263) (487,910) (142,580)
(626,827) (1,369,386) (805,811)
Total Non-Operating/Non-Recurring Cash Flow
0
0
0
(147,190) (208,639) (253,452)
Dividends
0
0
0
Free Cash Flow
(774,017) (1,578,025) (1,059,263)
0
0
0
(7,948)
(7,076)
622
Net Debt Proceeds
639,217 1,789,931 1,023,596
Net Equity Proceeds
0
0
0
0
0
0
(142,748)
204,830
(35,045)
Income Statement
Net Revenue
1,968,2479 4,953,384 3,964,037
Revenue Growth (%)
—
—
69.2
Operating EBIT
391,876
729,102
628,256
295,827
321,755
224,286
Rental Expense
0
0
0
Net Income
(60,995)
206,041
238,573
2010
2009
2008
2007
391,337
16.7
0.2
(4.8)
4.2
341,809
22.4
7.8
(51.3)
7.3
213,801
23.7
4.8
(4.8)
14.8
174,461
21.5
6.0
(14.7)
13.0
0
1.6
0.6
0
0.2
0.5
(0.7)
1.2
2.3
0.6
1.2
(1.2)
(0.6)
(6.3)
0.8
2.1
1.4
0.8
0.4
3.4
(1.0)
0.9
2.3
0.4
0.9
(0.1)
0.1
(9.3)
442.0
5.6
4.4
8.0

0.2
4.3
3.7
10.9
5.9
5.0
11.3

0.2
4.2
3.3
16.4
6.1
4.9
9.0

0
5.2
3.0
12.6
5.0
4.0
9.4
0.2
0.4


3,852,570
239,306
441,677
1,768,353
2,210,030

2,210,030
0
2,210,030
1,682,369
424,423
2,634,453
3,168,977
324,043
386,103
1,619,978
2,006,081

2,006,081
0
2,006,081
1,434,996
357,745
2,363,826
2,331,831
459,520
50,798
1,259,608
1,310,406

1,310,406
0
1,310,406
1,108,319
337,944
1,648,350
1,651,034
86,374
384,216
494,087
878,303

878,303
0
878,303

278,098
1,156,401
(232,915)
186,255
(46,660)
0
(65,375)
0
(112,035)
(76,554)
59,930
78,770
0
0
(49,889)
34,283
(709,806)
(675,523)
0
(107,349)
0
(782,872)
(25,592)
(36,852)
675,275
0
0
(170,041)
(23,120)
1,150
(21,970)
0
(21,224)
0
(43,194)
(110,605)
6,524
524,815
0
1,996
379,536
(6,846)
(100,375)
(107,221)
0
(11,526)
0
(118,747)
(35,089)
83
161,151
0
6,732
14,130
2,342,436
53.5
333,935
237,915
0
16,435
1,526,327
69.3
302,925
149,798
0
25,252
901,527
11.3
169,943
102,928
0
45,691
810,326
14.2
134,889
76,492
0
32,873
November 8, 2012
254
Corporates
YPF S.A.
Full Rating Report
Key Rating Drivers
Ratings
Foreign Currency
Long-Term IDR
Senior Unsecured
B
B/RR4
Local Currency
Long-Term IDR
B
National
Long-Term Rating
AA(arg)
Rating Outlooks
RWN
Stable
Stable
Financial Data
YPF S.A.
(USD Mil.)
Revenue
EBITDA
Cash Flow from
Operations
Cash and
Marketable
Securities
Total Debt
Net Debt To
EBITDA (x)
6/30/11
12/31/11
6 Months 12 Months
7,013
13,730
1,862
3,397
1,976
3,092
102
2,351
339
2,965
0.6
0.9
Note: YPF changed to IFRS in January
2012. Figures as of June 2012 are sixmonth figures. Ratios have been
calculated by annualizing income
statement and cash flow items.
Government Controlling Ownership: YPF S.A. is rated at the same level as Argentina
following the government’s expropriation of Repsol’s 51% controlling stake in April 2012. The
government divided the ownership of these shares between the federal government (51%) and
the oil and gas producing provinces (49%). Government ownership generates uncertainty over
the company’s future efficiency and profitability, as state-owned entities tend to incorporate
more social considerations into their business strategy.
Strong Business Position: YPF benefits from its strong business position in the domestic
market and its vertical integration. Fitch Ratings expects that a state-owned YPF will take an
active role in guaranteeing Argentina’s domestic oil and gas supply. This role might include
managing natural gas imports, which in 2011 represented a cost of USD9.4 billion.
Decreasing Reserves and Production Volumes: The historical decrease in reserve levels
has resulted in weak operating metrics, which is reflected in the company reporting 5.6 years of
reserves as of December 2011, which is well below Fitch’s optimal level of 10 years. YPF
significantly improved its one-year reserve replacement (RRR) to 113% in December 2011
from 43% in 2009, although its three year RRR is still low at 80%. YPF has shown a renewed
focus on its upstream business, which suggests the potential existence of significant resources.
Low Debt Concentrated in the Short Term: YPF’s leverage is low at approximately
USD2.3/barrels of oil equivalent (boe) as of June 30, 2012, but is expected to grow modestly
following recent debt issuances. The company has indicated that it will fund a portion of its
aggressive capex plan with additional debt. YPF’s debt profile is composed of 90% short-term
debt, posing a refinancing risk that could result in a negative rating action.
Negative Drivers: Catalysts for a negative rating action include the adoption of political
measures that negatively affect YPF’s efficiency and or profitability, high refinancing risk,
and/or the downgrade of the Argentine sovereign rating.
Positive Drivers: A positive rating action seems unlikely as YPF’s rating is linked to the
sovereign, which is rated ‘B’ with a Stable Outlook.
Analysts
Ana Paula Ares
+54 11 5235-8121
[email protected]
Gabriela Curutchet
+54 11 5235-8122
[email protected]
November 8, 2012
Low Liquidity, High Short-Term Debt: YPF has low liquidity of USD102 million as of June 30,
2012, which compares to short-term debt of USD2.2 billion. Fitch expects the government’s
controlling ownership in YPF to place it in a favorable position to rollover its short-term bank
loans. YPF has recently issued approximately ARS1.5 billion, in three domestic bond
issuances, for general corporate purposes. In July 2012, YPF purchased USD79 million of its
2028 bonds as a result of the activation of the change of control clause following the
nationalization of Repsol’s stake.
255
Corporates
Recovery Rating
The recovery ratings for YPF’s capital markets debt instruments reflect Fitch’s expectation that
the company’s creditors would have an average recovery constrained by the soft cap of ‘RR4’
for bonds issued by Argentine corporates.
Using Fitch’s recovery rating methodology, the bondholder recovery value was assessed using
the liquidation value of reserves, which is in line with Fitch’s sector-specific rating recovery
methodology for oil and gas (detailed in the special report, “U.S. Exploration and Production
Recovery Rating Methodology,” published March 20, 2008). Fitch used a USD10/boe reserve
value for the company’s 1p reserves. Due to existing price caps on natural gas, Fitch has
exclusively considered YPF’s oil reserves, which produced USD5.8 billion in gross liquidation
value prior to administrative claims and concession payments to junior claimants. The model
assumes a standard 10% administrative claims adjustment and 5% concession to junior
claimants.
Recovery Analysis  YPF S.A.
(USD Mil.)
IDR:
B
Rate (%)
Creditors
0
80
50
100
5,840.0
5,840.0
Discount (%)
Multiple (x)
—
0
—
0
—
Liquidation Value
Cash
Accounts Receivable
Inventory
Value of 1P Oil Reserve
Total
Interest Expense
Rent Expense
Total
—
—
—
—
5,840.0
584.0
5,256.0
Recovery
Rating
—
—
Rating
—
—
5,840.0
5,840.0
Secured Priority
Senior Secured
Secured
Lien
0.0
0.0
Value Recovered
—
—
5,256.0
—
5,256.0
262.8
4,993.2
Unsecured Priority
Senior Unsecured
Unsecured
Value
Recovered
2,351.0
—
Lien
2,351.0
—
Recovery (%)
0
0
Recovery (%)
100
—
Concession
Allocation (%)
100
—
Recovery Rating
RR4
—
Notching
—
—
Notching
0
—
Rating
B
—
Source: Fitch.
November 8, 2012
256
Corporates
Organizational Structure — YPF S.A.
(As of June 30, 2012)
Summary Consolidated Statistics
EBITDA
Total Debt
Total Debt/EBITDA
Net Debt/EBITDA
USD1.9 Billion
USD2.4 Billion
0.6x
0.6x
YPF S.A.
(Argentina)
99.91%
50%
45%
A-Evangelista S.A.
(Argentina)
Profertil S.A.
(Argentina)
Pluspetrol
Energy S.A.
(Argentina)
38%
Compania
Mega S.A.
(Argentina)
42.86%
100%
Inversora Dock
Sud S.A.
(Argentina)
YPF Holdings
Inc.
(USA)
50%
30%
50.50%
10%
69.83%
Refineria del Norte S.A.
(Argentina)
Oiltanking
Ebytem S.A.
(Argentina)
Poligas Lujan
S.A.C.I.
(Argentina)
Gasoducto del
Pacifico
(Argentina)
Central Dock
Sud S.A.
(Argentina)
99.99%
36%
99.99%
Operadora de
Estaciones de Servicios
S.A. (Argentina)
Oleoducto
Trasandino S.A.
(Argentina)
YPF Inversora
Energetica S.A.
(Argentina)
33.15%
Terminales Maritimas
Patagonicas S.A.
(Argentina)
18%
Oleoducto
Trasandino Chile
S.A. (Chile)
9.98%
99.99%
YPF International
S.A.
(Bolivia)
45.337%
Gas Argentino
S.A.
(Argentina)
70%
37%
Oleoductos del Valle
S.A.
(Argentina)
Metrogas S.A.
(Argentina)
95%
2.27%
Metroenergia
S.A.
(Argentina)
Source: Fitch and YPF S.A.
November 8, 2012
257
Corporates
Debt and Covenant Synopsis  YPF S.A.
Overview
Issuer
Guarantors
Document Date
Maturity Date
Description of Debt
Financial Covenants
EBITDA (Maximum)
Change-of-Control
Provision/Nationalization
Debt Restriction
YPF S.A.
N.A.
Nov. 10, 1998
2028
N.A.
N.A.
In the event a nationalization takes place and is continuing, bondholders representing 25% of principal can request the
issuer to repurchase the notes at 100% plus accrued interest.
N.A.
N.A.
N.A.
Restricted Payments
N.A.
Other
Cross Default
N.A.
Acceleration
N.A.
The issuer may elect to redeem the notes in whole or in part at 10%.
November 8, 2012
258
Corporates
Financial Summary  YPF S.A.
(ARS Mil., Years Ended Dec. 31)
Profitability
Operating EBITDA
Coverage (x)
Leverage (x)
Balance Sheet
Total Assets
Short-Term Debt
Long-Term Debt
Total Debt
Equity Credit
Total Equity
Cash Flow
Common Dividends
Free Cash Flow
Net Debt Proceeds
Net Equity Proceeds
Income Statement
Revenue
Revenue Growth (%)
Operating EBIT
Rental Expense
Net Income
4.5238
4.3012
4.3053
4.1295
3.9787
3.9134
3.7990
3.7279
3.4700
3.1800
6/30/12a
2011
2010
2009
2008
8,167
26.4
—
—
—
14,029
24.7
42.6
(9.0)
28.0
14,748
33.4
48.7
(1.0)
30.5
11,831
34.5
40.7
(3.3)
17.8
11,440
32.8
51.3
(7.9)
15.7
13.7
11.9
1.4
13.7
0.4
0.4
1.2
12.3
12.8
1.5
12.3
(0.4)
(0.3)
1.0
14.0
15.8
2.1
14.0
0.1
0.4
1.5
10.9
12.3
2.1
10.9
—
0.4
1.7
25.9
23.3
3.1
25.9
(0.6)
(0.3)
1.9
0.6
0.7
0.6
12.7
—
0.9
1.0
0.9
0.8
10.7
—
0.6
0.6
0.5
0.4
12.7
—
0.8
0.7
0.6
0.4
17.0
—
0.7
0.4
0.4
0.3
18.0
—
0.7
66,151
460
9,892
743
10,635
—
10,635
0
10,635
27,219
37,854
55,399
1,461
8,113
4,654
12,767
0
12,767
0
12,767
18,735
31,502
46,589
2,527
6,176
1,613
7,789
—
7,789
—
7,789
19,040
26,829
40,283
2,145
4,679
2,140
6,819
—
6,819
—
6,819
18,881
25,700
39,079
1,216
3,219
1,260
4,479
—
4,479
—
4,479
20,356
24,835
8,754
(40)
8,714
0
(7,308)
0
1,406
0
0
(2,058)
—
0
(652)
12,333
437
12,770
0
(12,289)
(5,565)
(5,084)
0
11
3,994
0
0
(1,079)
12,123
603
12,726
—
(8,729)
(4,444)
(447)
—
105
724
—
—
382
9,513
(99)
9,414
—
(5,636)
(4,897)
(1,119)
—
33
2,016
—
—
930
12,244
1,314
13,558
—
(7,035)
(9,287)
(2,764)
—
(8)
3,140
—
—
368
30,934
—
4,452
688
—
2,127
56,697
28.4
8,563
1,095
0
5,296
44,162
29
9,475
931
—
5,790
34,320
(2)
6,999
958
—
3,486
34,875
20
6,665
492
—
3,640
a
June 30, 2012 six-month figures. Note: 1) YPF changed to IFRS in January 2012. Figures as of June 2012 are six-month figures. Ratios have been calculated by
annualizing. 2) Numbers may not add due to rounding.
Source: Fitch.
November 8, 2012
259
Corporates
Latin America Corporate Finance Team Directory
United States  Fitch Ratings
Daniel R. Kastholm
Group Head, Latin America Corporates
Joe Bormann
Basic Industries, Beverage
Jose Vertiz
Property/Real Estate, Homebuilding
Viktoria Krane
Food, Beverage & Tobacco, Beverage
Lucas Aristizabal
Utilities, Energy (Oil & Gas)
Jay Djemal
Metals & Mining
Yolanda Torres
Analyst
Argentina  Fitch Argentina Calificadora de Riesgos S.A.
Cecilia Minguillón
Sr. Director of Argentinian Corporates, Energy (Oil & Gas), Utilities
Ana Paula Ares
Energy (Oil & Gas), Utilities
Gabriela Catri
Infrastructure, Building Material, Construction
Fernando Torres
Metal & Mining, Building Material & Construction
Juan Martin Berrondo
Electric-Corporate
Gabriela Curutchet
Associate Director
Brazil  Fitch Ratings Brazil Ltda.
Ricardo Carvalho
Sr. Director of Brazilian Corporates, Utilities
Jose Romero
Homebuilding, Building Products
Mauro Storino
Telecom & Media, Utilities
Fernanda Rezende
Homebuilding, Retail, Pulp & Paper
Renata Maria Pinho
Electric-Corporate
Gisele Paolino
Transportation, Retail
Débora Jalles
Basic Materials, Airlines
Gustavo Mueller
Water/Wastewater Utility
Liliana Yabiku
Building Materials & Construction
Ingo Bruno Santos de Araujo
Transportation
Pedro Carvalho
Research Assistant
Central America  Fitch Costa Rica Calificadora de Riesgos, S.A.
Vanessa Villalobos
Utilities, Retail, Building Materials
Allan Lewis
Electric-Corporate
Chile  Fitch Chile Clasificadora de Riesgos Limitada
Rina Jarufe
Sr. Director of Chilean Corporates
Alejandra Fernandez
Building Materials & Construction
Paula Garcia-Uriburu
Natural Resources
Monica Coeymans
Forestry Products, Food & Beverage
Francisco Mercadal
Food, Beverage, & Tobacco
Andrea Jimenez
Property/Real Estate, Retailing
Jorge Fiegelist
Associate Director
Valentina Pardo
Food, Beverage, & Tobacco
Josseline Jenssen
Energy (Oil & Gas), Utilities
Andrea Rojas
Research Assistant
Colombia  Fitch Ratings Colombia
Glaucia Calp
Sr. Director of Colombia Corporates, Utilities
Natalia O’Byrne
Telecommunications, Retail, Water/Waste Utilities
Maria Pia Medrano
Electric-Corporate, Health Care
Jorge Yanes
Telecommunications
Julian Robayo
Water/Waste Utility
Mario Irreno Cardenas
Water/Waste Utility, Health Care
Andres Ricardo Serrano
Health Care
Manuel Solorzano
Research Assistant
Mexico  Fitch Mexico S.A. de C.V.
Sr. Director & Co-Head of Mexican Corporates,
Alberto Moreno
Diversified Manufacturing, Media
Sergio Rodríguez
Sr. Director & Co-Head of Mexican Corporates, Telecom
Rogelio Gonzalez
Food & Beverage, Auto & Related
Retailing
Indalecio Riojas Garza
Natural Gas & Propane
Food, Beverage, & Tobacco, Auto & Related
Velia Valdez
Analyst
Venezuela  Fitch Venezuela, Sociedad Calificadora de Riesgos, S.A.
Julio Ugueto
Food, Beverage, & Tobacco, Homebuilding
Telecom, Building Materials, Property & Real Estate,
Jose Luis Rivas
Energy (Oil & Gas)
November 8, 2012
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
+1 312 368-2070
+1 312 368-3349
+1 212 908-0641
+1 212 908-0367
+1 312 368-3260
+1 312 368-3134
+1 312 606-2301
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
+54 11 5235-8123
+54 11 5235-8121
+54 11 5235-8129
+54 11 5235-8124
+54 11 5235-8127
+54 11 5235-8100
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
+55 21 4503-2627
+55 11 4504-2603
+55 21 4503-2625
+55 11 4504-2618
+55 11 4504-2207
+55 21 4503-2624
+55 21 4503-2629
+55 21 4503-2632
+55 11 4504-2208
+55 11 4504-2205
+55 21 4503-2602
[email protected]
[email protected]
+506 2 296-9182 x29
+506 2 296-9182 x22
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
+56 2 499-3310
+56 2 499-3323
+56 2 499-3316
+56 2 499-3314
+56 2 499-3340
+56 2 499-3322
+56 2 499-3341
+56 2 499-3300
+59 12 277-4470
+56 2 499-3337
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
+57 1 326-9999 x1110
+57 1 326-9999 x1100
+57 1 326-9999 x1130
+57 1 326-9999 x1170
+57 1 326-9999 x 1120
+57 1 326-9999 x1002
+57 1 326-9999 x1190
+57 1 326-9999
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
+52 81 8399-9100 x133
+52 81 8399-9100 x135
+52 81 8399-9100 x134
+52 81 8399-9100 x 144
+52 81 8399-9100 x108
+52 81 8399-9100 x110
+52 81 8399-9100 x149
[email protected]
+58 212 286-3356
[email protected]
+58 212 286-3356
260
Corporates
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE
LIMITATIONS
AND
DISCLAIMERS
BY
FOLLOWING
THIS
LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE
TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT
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Copyright © 2012 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except
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November 8, 2012
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Corporates - Fitch Ratings Chile

Transcription

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