S&P rates Grupo Famsa notes B

Standard & Poor's said it assigned a B global scale issue-level rating to Grupo Famsa SAB de CV's proposed dollar-denominated medium- to long-term senior unsecured notes.

The agency also said it assigned a recovery rating of 3 to the proposed notes, indicating 50% to 70% expected default recovery.

The proceeds will be used to fund the tender offer for the outstanding $200 million notes due 2015.

The ratings reflect the company's weak business risk profile and highly leveraged financial risk profile due to the company's smaller scale compared to its Mexican peers in a highly competitive retail industry, S&P said.

The ratings also consider an expectation that the company will generate negative free operating cash flow for the next three years, the agency said.

The offsetting factors are the company's favorable profitability levels, geographic and client diversification despite its smaller scale and expectations that Banco Ahorro Famsa's deposits will continue to fund most of the company's shortfalls related to its high working capital needs, S&P said.

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