MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a 'B+/RR4' rating to the 7.25% USD250 million notes, due 2020, issued by Grupo Famsa, S.A.B. de C.V. (FAMSA).
Fitch currently rates FAMSA as follows:
--Foreign currency Issuer Default Rating (IDR) 'B+';
--Local currency IDR 'B+';
--Long-term national scale rating 'BBB(mex)';
--Short-term national scale rating 'F3(mex)';
--USD200 million senior unsecured notes due in 2015 'B+/RR4';
--MXN1 billion Certificados Bursatiles issuance due 2014, 'BBB(mex)';
--MXN1 billion short-term Certificados Bursatiles programs 'F3(mex)'.
The Rating Outlook is Stable.
FAMSA's ratings reflect its market position in the Mexican retail sector, geographic and product diversification, broadly stable operating cash flow generation by the retail operation, and a linkage with its banking subsidiary, Banco Ahorro Famsa (BAF; rated 'BBB(mex)' by Fitch). On the other hand, the ratings are constrained by low single-digit same store sales (SSS).
The USD$250 million issuance will be used mostly to pay down existing debt (specifically, the USD$200 million notes due 2015), as well as for general corporate uses. 'RR4' rated securities have characteristics consistent with securities historically recovering 31%-50% of current principal and related interest.
KEY RATING DRIVERS
Fitch expects Mexican retail operations to show low organic growth (with any increases in revenues coming mostly from store and bank openings), for the U.S. division to continue generating positive EBITDA, and for the banking operation to continue facing pressure in its capital adequacy. FAMSA plans to increase total revenues by about 7% to 9% and to open 15 stores/banks and 30 standalone banks in Mexico.
Improving EBITDA
The downsizing of FAMSA USA's footprint resulted in consolidated EBITDA growing 35.4% for 2012, while consolidated revenues shrank 8.4%. FAMSA USA's recent store closures on the West Coast (California, Nevada and Arizona) have resulted in lower revenues, but allowed for U.S. EBITDA generation to reach MXN122 million for 2012, the company's first positive results since 2009, as the western operations had been unprofitable.
Recently, the firm has tried to improve its category mix, attempting to deemphasize lower margin categories such as electronics, and focusing on more profitable categories, such as furniture. The firm has also tried to broaden its geographic footprint within Mexico, while at the same time undertaking store closures and pursuing targeted store openings. FAMSA competes directly with larger Mexican retail chains such as Coppel and Elektra, which also target the low-income segment of the population.
BAF's Profitability Weakening
Fitch believes that BAF is in a process of consolidation, trying to demonstrate its stability. Some of the challenges the firm faces, including the deterioration of its loan portfolio and managing loan-impairment charges, are relevant, due to loan portfolio growth forecasted by BAF for the next two years. Even though profitability is adequate, as of 1Q'13, it was negatively affected due to continued asset deterioration and high operating expenses.
Lower Leverage
In previous years, FAMSA's leverage levels were high, a result of negative cash flow from the U.S. operations. Currently, debt-to-EBITDA and adjusted debt-to-EBITDAR ratios for 1Q'13 LTM (excluding bank deposits) have fallen to 2.8x and 3.9x, respectively (1Q'12 LTM: 3.2x and 4.5x). Including bank deposits, these ratios are 8.6x and 8.2x for 1Q'13 LTM. Since most of the positive effects from the U.S. store closures are already present in current levels, Fitch expects them to remain constant in the short-to-medium term.
Liquidity should be manageable. Prior to this issuance, most large maturities were due in 2014 and 2015. The company has not issued dividends for the last few years and it is projecting about MXN350 million of Capex for 2013. For 1Q'13, FAMSA's debt amounted to MXN6.3 billion and bank deposits totaled MXN12.9 billion. FAMSA's debt is comprised of senior notes, national short- and long-term issuances and bank loans. Short-term debt as of Dec. 31, 2012 was about MXN3.9 billion, with cash holdings of about MXN2.2 billion.
RATING SENSITIVITY
Credit quality could be negatively affected by deterioration in BAF's creditworthiness, by revenue-increasing efforts which might result in lower profit margins, by lowered EBITDA generation by FAMSA USA in 2013 that results in higher leverage levels, as well as by deterioration in the quality of the loan portfolio.
Conversely, creditworthiness would benefit from increased EBITDA generation, from lower debt levels and from SSS more in line with industry.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Relevant Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 13, 2012);
--'Short-Term Ratings for Non-Financial Corporates' (Aug. 9, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);
--'Operating Leases: Updated Implications for Lessees' Credit' (Aug. 5, 2011).
Applicable Criteria and Related Research:
Operating Leases: Updated Implications for Lessees' Credit
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462222
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552
Short-Term Ratings Criteria for Non-Financial Corporates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792077
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