S&P revises SMU to positive

Standard & Poor's said it revised its rating outlook on SMU SA y Filiales to positive from stable. At the same time, the agency affirmed its CCC+ corporate credit and issue-level ratings on the company.

The outlook revision follows SMU's Dec. 30 announcement that its board of directors approved a 230 billion Chilean peso capital increase. SMU plans to use the proceeds to pay subordinated debt it owes to its major shareholder, local bonds, and for working capital needs.

While this should partly improve the company's capital structure, stronger operating results are necessary to raise cash flow generation in order to reduce company's still high leverage.

The company continues to improve its operating performance, with sales growth and stronger EBITDA margin of 6% to 6.5% in the past few quarters. Despite the benefits stemming from the capital increase, S&P expects SMU's leverage to remain high, with debt to EBITDA above 7 times.

Also, the company's exposure to dollar-denominated debt, which is not hedged, might drag down cash generation amid higher interest costs if the Chilean peso further depreciates.

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