Thursday, 26 February 2009

Metrofinanciera Cut to CC by S&P After Debt Restructuring Announcement

Metrofinanciera, the Mexican non bank-bank (or SOFOM), yesterday announced it would carry out a debt restructuring after reporting losses of 3.05 billion Mexican pesos in 2008. Standard and Poor's lowered the long-term counterparty credit rating on Metrofinanciera SA, to CC from CCC- following the announcement. The ratings company also trimmed its long- and short-term national scale counterparty credit, senior unsecured debt and asset-backed debt ratings on Metrofinanciera. The company has 4 billion Mexican pesos of tradable debt, 5.03 billion pesos in bank obligations and 9.35 billion pesos of deb backed by a collateral (ABS or MBS and all that.) We had information that about 335 million pesos were to come due today, Feb. 26.

S&P and Fitch, another ratings company, warned for months about the likelihood of a restructuring and that such situation could eventually take the form of a distressed debt exchange, basically a coercive restructuring, not a negotiated one. Often, distressed debt exchanges take place when terms of the restructured debt are different and more damaging to debt holders than the original terms; it can also be considered a DDE when the step is ''de facto necessary even if technically voluntary,´´ according to Fitch. Watered-down terms of the debt can stem from a reduction in the principal or interest the company will pay debt holders, an extension of maturity dates, or the imposition of a ''stand-still´´ arrangement with creditors.

The construction industry in Mexico has been facing serious problems over the past 18 months. The slowdown experienced in the sector has affected certain regions of Mexico more than others. Flattening home prices over the past year, especially for the low-income segment, have created stress for some mortgage lenders ( like Metrofinanciera.) Loan concessions, albeit increasing, are slowing drastically. Housing demand may not react to the lower prices anytime soon, as unemployment climbs and exports to the U.S. decline in the back of that nation's recession.

Metrofinanciera's limited liquidity position, deteriorating cash-flow generation, and high debt burden led to this. Investors saw this thing coming -- analysts have been warning that the amount of assets on hand for additional financing would be insufficient to cover Metrofinanciera's unsecured and bank debt. Assets were 24.5 billion pesos at the end of 2008, liabilities 24.7 billion pesos and equity was a negative 194.5 million pesos. The negative patrimony stems from the heavy losses posted last year -- which compared with earnings of 363 million pesos in 2007. Provisions for bad loans rose 435 percent last year to 2.2 billion pesos, also helping widen the losses.

1 comment:

  1. I’m trying to understand how this company went from being apparently one with a huge income mainly from commissions and other income – I wonder for what concept other income was – to mid 2007 and accrued profits from previous years. Besides, it seemed like its capital along with accrued profits was just seating in cash. Sort after, apparently later in the same year the company is sold and in the next year the company is loosing a great deal of money and having financial troubles. shows the financials to June 2007 – Thank you.-