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04 Jun 2001
MOODY'S LOWERS RATINGS OF HYLSA S.A.; SENIOR UNSECURED RATING DOWNGRADED TO B3
Approximately $300 Million of Debt Securities Affected
New York, June 04, 2001 -- Moody's Investors Service downgraded its ratings for Hylsa S.A.
de C.V., lowering its rating for Hylsa's US$300
million of 9.25% senior unsecured notes due 2007 to B3 from
B2. Moody's also lowered Hylsa's senior implied rating to B2 from
B1 and lowered its senior unsecured issuer rating to B3 from B2.
Hylsa's commercial paper rating is Not Prime. The outlook for Hylsa's
ratings remains negative.
The downgrades were prompted by Hylsa's deteriorating credit measures
in the midst of a lingering North American economic slowdown, low
steel prices, reduced domestic sales, and higher energy costs,
and, in Moody's opinion, the limited prospects for meaningful
improvement in the near term. Hylsa's low interest coverage,
sizable debt, tight liquidity, and possible need to obtain
additional waivers from its bank lenders will keep pressure on its ratings,
hence Moody's negative rating outlook.
The cumulative impact of adverse economic and steel market conditions
and higher energy prices is evidenced by a comparison of Hylsa's results
for the six months ended March 31, 2001 to the six months ended
March 31, 2000. Between these two periods, its steel
shipments fell 26%, to the lowest levels in more than five
years, its revenues fell 27%, and its average costs
rose US$76/ton, from US$356/ton to US$432/ton.
As a result, its EBITDA declined to US$25 million and US$19
million in 4Q00 and 1Q01, respectively, which was less than
quarterly interest expense of approximately US$36 million.
In the year-earlier quarters, Hylsa's EBITDA had been US$53
million and US$62 million, respectively. Hylsa's total
debt has not changed over the last year, but the collapse of cash
flow raised debt to 8.1 times LTM EBITDA at March 31, 2001,
compared to 4.9x at March 31, 2000.
The last two quarters have been marked by sharply lower domestic sales,
a troubling development reflected in Moody's downgrades. Hylsa's
rebar sales have been hurt by an uncharacteristic slowdown in the Mexican
construction market. Its domestic hot rolled band and wire rod
sales have been affected by weakness in the auto parts sector, combined
with higher imports of hot band and wire rod. The company's domestic
rebar and wire rod shipments in the last two quarters were 23%
lower than in the six months ended March 31, 2000. Hylsa's
domestic flat products shipments in the last two quarters were 21%
lower than a year ago.
In addition, energy costs have been much higher in the last year,
especially for natural gas. Hylsa has reconfigured its operations
to lessen the impact of higher natural gas costs, for example purchasing
iron substitutes rather than making direct reduced iron (DRI).
In 1Q01, DRI accounted for 20% of its metallic charge,
compared to 64% a year ago. Still, the net impact
of purchasing metallics and billets, and higher gas and electricity
prices has raised variable costs by approximately US$46/ton from
1Q00. In addition, its operating cost per ton has risen due
to the impact of lower production on its fixed costs. Energy costs
have stabilized but remain high and Hylsa can no longer claim to be one
of the industry's lowest cost steel producers.
This makes its high leverage very burdensome. Hylsa's leverage
grew following a multi-year investment program that ended in 1998.
At March 31, its debt was US$1,215 million.
Almost all of its debt is dollar-denominated and about 70%
is variable rate debt. But maturities of around US$200 million
a year over the next three years will pose a major challenge for the company
given its weak cash flow. This is one reason that the company is
considering possible divestitures and is searching for a strategic partner
for Hylsa or Hylsamex.
Hylsa has negotiated temporary relief from some of its near-term
liquidity concerns. In February 2001, it reached agreement
with lenders that permitted the refinancing of US$115 million in
short-term debt that matured over the first half of 2001 into a
single payment to be made on January 31, 2002. Alfa,
Hylsa's parent company, guaranteed one-third of the amount
and is also providing a US$40 million backstop facility to provide
Hylsa with additional liquidity. As of March 31, Hylsa had
US$31 million of cash and had not required use of the backstop
In February, Hylsa also obtained waivers regarding the 4Q00 breaching
of certain financial ratios included in three syndicated bank loans totaling
US$400 million. These waivers extend through January 31,
However, at the end of 1Q01, Hylsa had breached financial
covenants included in a different set of syndicated bank loans totaling
US$131 million. The company has cured all but US$4
million of the defaulted debt at this time, either by obtaining
waivers or by agreeing to deposit funds equivalent to the loan's next
interest and principal payment.
Hylsa, headquartered in Monterrey, Mexico, is a wholly-owned
steelmaking subsidiary of Hylsamex S.A. de C.V.,
which in turn is 82%-owned by Alfa S.A. de
C.V., one of Mexico's largest industrial conglomerates
with principal activities in the petrochemicals, steel, and
food sectors. Hylsa had sales of US$1.14 billion
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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