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Global Credit Research - 20 Oct 2010
Buenos Aires, October 20, 2010 -- Moody's Latin America downgraded Mirgor's national scale rating
to Baa1.ar from A3.ar, and revised the outlook on
Mirgor's B3 ratings to negative from stable. Mirgor's
weaker margins and lower than expected revenues are driving this action.
Also, the negative outlook incorporates the challenges Mirgor faces
as it enters a new line of business before its core business has stabilized.
The B3 global scale rating continues to reflect Mirgor's position
in the Argentine domestic auto parts business, its relatively flexible
operating platform and long-established and coordinated operations
with local automakers. Nonetheless, the downgrade of the
national scale rating and the change in the outlook to negative reflect
the deterioration in Mirgor's credit metrics over the last eighteen
months and the challenges ahead to recover profitability and ultimately
cash generation capacity.
Mirgor´s sales have been growing at a slower pace than its production
over the last few quarters, as a result of production delays at
its main client, which have created inefficiencies in Mirgor's
production process as well as increased costs and expenses. The
delays have also led to a considerable increase in inventories,
with a subsequent increase in short-term debt, thereby weakening
Mirgor's financial flexibility and liquidity position.
Mirgor´s national scale rating downgrade and negative outlook also
reflect the company's inability to restore margins. Mirgor's
revenues showed significant growth in the first half of 2010, however
margins, which were expected to improve, are still weak,
continuing 2009's trend. Additionally, Mirgor has signed
an agreement with Nokia to produce cell phones, taking advantage
of local tax incentives for the production of electronic goods.
Moody's considers that this entrance into a new business line carries
considerable risk given that it is taking place during a time that Mirgor´s
traditional business line faces some difficulties that still need to be
Mirgor's B3 rating reflects its global default and loss expectation,
while the Baa1.ar national scale rating reflects the standing of
Mirgor's credit quality relative to its domestic peers. Moody's
National Scale Ratings (NSRs) are intended as relative measures of creditworthiness
among debt issues and issuers within a country, enabling market
participants to better differentiate relative risks. NSRs in Argentina
are designated by the ".ar" suffix. Issuers or issues rated
Baa present average creditworthiness relative to other domestic issuers.
NSRs differ from global scale ratings in that they are not globally comparable
to the full universe of Moody's rated entities, but only with other
rated entities within the same country.
The ratings could be downgraded if Mirgor is not able to recover its operating
margins and fails to reduce its short-term debt exposure or improve
its liquidity profile. Quantitatively, if Mirgor EBIT margin
continues to be below 3.0% and EBIT interest coverage below
1.0x, the ratings could be downgraded further.
The ratings or outlook could be upgraded if Mirgor is able to recover
operating margins and generate positive free cash flow and maintain sufficient
cash to cover short-term debt. Quantitatively, an
upgrade of ratings or outlook would require an EBIT margin consistently
higher than 3.0% on a sustained basis and EBIT interest
coverage of above 1.0x.
Headquartered in Tierra del Fuego, Argentina, Mirgor primarily
produces climate control equipment for the auto industry in Argentina.
In addition, through a wholly-owned subsidiary, Mirgor
manufactures residential air conditioners, with an estimated 25%
Argentine market share in that segment. Consolidated revenues for
the last twelve months ending on June 30, 2010 reached ARS 982 million
(approximately USD 245 million) considering an exchange rate of 3.98).
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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MOODY'S considers to be reliable including, when appropriate,
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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Vice President - Senior Analyst
Corporate Finance Group
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Latin America, Calificadora de Riesgo
Moody's changes Mirgor's outlook to negative; downgrades national scale rating to Baa1.ar
Cerrito 1186, 11th fl
Buenos Aires C1010AAX
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