MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Metrofinanciera, S.A.P.I. de C.V.'s (Metrofinanciera) foreign and local currency Issuer Default Ratings (IDRs) at 'CCC' (long-term) and 'C' (short-term). The long-term and short-term national scale ratings were also affirmed at 'CCC(mex)' and 'C(mex)', respectively. A list with detailed rating actions follows at the end of this press release.
Metrofinanciera's ratings reflect its yet weak financial profile, following the successful completion of a previously agreed distressed debt exchange through a bankruptcy process in 2010. This exchange largely mitigated refinancing and liquidity risk. Liabilities were significantly reduced and debt maturities over the short and medium term are minor, which provides Metrofinanciera with flexibility and a relatively ample timeframe to rebuild its financial and business profile. However, Metrofinanciera still shows sizeable losses, very weak asset quality metrics, and a heavily encumbered balance sheet.
Metrofinanciera still has 45% of its total assets in the land properties that triggered Metrofinanciera's default in 2009 and only a small fraction of those are productive. In addition, roughly 85% of its construction loans (which account for 29% of total loans) were impaired at 3Q'11. Therefore, the ratio of earning assets to interest-bearing liabilities is yet a weak 45% as of 3Q'11, which has resulted in negative net interest income in the first nine months of 2011, and also in sizeable operating and net losses, although the trend is positive when adjusting 2010 figures for non-recurring gains underpinned by the ample cancelation of liabilities in that year.
Positively, Metrofinanciera has significantly enhanced its dedicated work-out unit and there are early signs that the proportion of earning assets could potentially increase at a reasonable pace. Coupled with Metrofinanciera's recent ability to resume construction lending drawing on ample credit lines granted by the housing development bank Sociedad Hipotecaria Federal (SHF), the company expects to report minor losses, if any, during 2012, an objective that Fitch considers achievable. However, the adverse economic environment and the particularly weak prospects in the housing sector, pose challenges that will be critical on Metrofinanciera's ability to restore its financial profile and its overall credit quality.
In Fitch's view, any potential rating upgrade in the future is contingent upon Metrofinanciera's ability to restore a recurring earnings stream that prevent further depletion of its capital base, which in turn is dependent on Metrofinanciera's capacity to rebuild its business and commercial profile and increasing the relative contribution of productive assets. In turn, if Metrofinanciera were unable to restore its earnings capacity in a time frame that prevents further material declines of its equity base, its ratings could potentially be downgraded in line with a higher probability of default.
Fitch has affirmed Metrofinanciera's ratings as follows:
-- Foreign and Local Currency Long-term IDR at 'CCC';
-- Foreign and Local Currency Short-term IDR at 'C';
-- Individual Rating at 'E';
-- Support Rating at '5';
-- Support Rating Floor at 'NF';
-- Long-term national-scale issuer rating at 'CCC(mex)';
-- Short-term national-scale issuer rating at 'C(mex)'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
-- 'Global Financial Institutions Rating Criteria', dated Aug. 16, 2011;
-- 'Finance and Leasing Companies Criteria', dated Dec. 13, 2010;
-- 'National Ratings Criteria', dated Jan. 19, 2011.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=587245
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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