Nemak S.A.B. de C.V.#s Proposed $500 Million Senior Unsecured Notes Rated #BB+# (Recovery Rating: #3#)

Stocks and Financial Services Press Releases Friday January 12, 2018 08:54
MEXICO CITY--12 Jan--S&P Global Ratings

MEXICO CITY (S&P Global Ratings) Jan. 11, 2018--S&P Global Ratings assigned today its 'BB+' issue-level rating to Nemak S.A.B. de C.V.'s (BB+/Stable/--) proposed $500 million senior unsecured notes due 2025. At the same time, we assigned our recovery rating of '3' to the notes, indicating our expectation for a meaningful (50%-90%; rounded estimate: 55%) recovery in the event of a payment default. Our ratings on Nemak, including our 'BB+' long-term corporate credit rating, are unchanged. Nemak plans to use the proceeds to refinance its existing $500 million senior unsecured notes due 2023.

We expect the proposed transaction to improve Nemak's debt maturity profile by extending the average debt term to about six years from about five, further supporting our capital structure assessment on the company. Additionally, we consider that the transaction will reduce Nemak's cost of debt and will equalize covenants with those of its euro-denominated senior unsecured notes due 2024. In connection with the notes offering, the recovery rating on Nemak's outstanding senior unsecured notes remains unchanged at '3', which indicates our expectation for a meaningful (50%-90%; rounded estimate: 55%) recovery in the event of payment default.

We take additional comfort from the fact that Nemak's debt instruments are fully, unconditionally, and irrevocably guaranteed on a senior unsecured basis by its most important subsidiaries, which accounted for 69.8% and 78.4% of the company's consolidated assets and EBITDA, respectively, as of Sept. 30, 2017. Alfa S.A.B. de C.V. (BBB/Stable/--) owns 75.24% of Nemak.

We view Nemak as a moderately strategic subsidiary to Alfa because we believe it's important to the group's long-term strategy and is likely to receive support, if necessary. For the complete corporate credit rating rationale, see "Nemak S.A.B. de C.V. Outlook Revised To Stable From Positive; 'BB+' Ratings Affirmed," published on June 15, 2017.

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