S&P cuts Eletropaulo

Standard & Poor's downgraded Eletropaulo Metropolitana Eletricidade de São Paulo SA to D from SD (selective default).

S&P said the action reflects Eletropaulo's announcement that it has defaulted on a $25 million amortization due April 15 on a $305 million syndicated deal, resulting in a more generalized default situation.

Although Eletropaulo presents capacity to generate an EBITDA roughly of BrR1.3 billion in 2003, this is not enough for the company to meet projected interest expenses of approximately BrR1 billion and amortizations of about BrR1.5 billion in the same period, S&P said.

A still tight cash flow for 2003 and a tougher debt renegotiation scenario indicate a broader default scenario, S&P commented.

Fitch says TFM transaction neutral

Fitch Ratings said it does not expect the purchase of TFM, SA de CV by Kansas City Southern to have a material impact on TFM's overall credit quality.

Although the financing structure of the transaction has not been finalized, TFM's debt levels are not expected to increase over the near term, absent complete refinancing, due to the existence of significant debt covenants that limit the company's ability to pay dividends and/or complete inter-company transactions with its shareholders, Fitch noted.

The transaction is a mild positive to the extent that it will ultimately replace controlling shareholder Grupo TMM, SA, which is currently under financial distress, with KCS, which is financially stronger, but also highly leveraged.

Fitch currently rates TFM's senior unsecured obligations at BB- including its $150 million senior notes due 2007, $443 million senior notes due 2009 and $180 million senior notes due 2012.

Fitch said it expects KCS to fund the cash portion of the acquisition with $200 million of incremental debt. The acquisition financing will likely take place at either the NAFTA Rail holding company level or the KCS operating company level due to the existing debt structure in place at TFM.

KCS also needs to finance a put option by the Mexican government to sell its 20% economic stake in TFM to KCS. The put option is estimated at approximately $480 million and is exercisable in October 2003.

Fitch said it still believes it will be difficult for TMM to avoid a default on its $177 million bullet maturity on May 15, 2003 due to the limited amount of time by which TMM must amend the debt exchange offering and receive sufficient participation by bondholders.

Nevertheless, TMM creditors may benefit from the transaction by ultimately receiving higher recovery rates.

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