S&P lowers Elementia, notes to BB

S&P said it lowered its long-term corporate credit rating on Elementia, SAB de CV to BB from BB+.

The agency also downgraded its long-term issue-level rating on the company’s senior unsecured notes due 2025 to BB from BB+. The recovery rating of 4H continues to indicate an expectation of average (30%-50%; higher band of the range) recovery prospects for the bondholders in the event of a payment default.

At the same time, S&P removed the ratings from CreditWatch negative, where it placed them on Oct. 19 following the announcement that Elementia signed a letter of intent with Cementos Portland Valderrivas to acquire 55% of Giant Cement Holding.

The outlook is stable.

S&P said the downgrade reflects its belief that following the buyout of a 55% stake in Giant, Elementia will post weaker-than-expected credit metrics, leading the agency to revise its financial risk profile assessment on the company to significant from intermediate.

To fund the acquisition, Elementia used the proceeds from its capital increase through a rights offering, raising about Ps. 4.4 billion of new equity from existing shareholders. As part of the transaction, Elementia incorporated Giant's $305 million existing debt into its balance sheet, and used part of its committed credit lines to refinance it at a lower financing cost.

The agency said it now estimates that Elementia's pro forma adjusted net leverage will increase sharply to about 3.9 times at the end of 2016 from 2.9 times before the transaction, and remain above 3 times until the end of 2017.

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