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Rating Action:

Moody's downgrades Rinker to B1; rating remains on review for downgrade.

 The document has been translated in other languages

20 Feb 2009

USD150 million of debt securities affected.

Mexico City, February 20, 2009 -- Moody's Investors Service downgraded the rating of Rinker Materials LLC's senior notes to B1 from Ba3. The rating remains on review for further downgrade.

The downgrade primarily reflects the imminent refinancing risk that Rinker's ultimate parent, Cemex, S.A.B. de C.V. (Cemex), faces in 2009 amid difficult credit market conditions and negative performance trends across Cemex's major markets. Moody's notes that Rinker's rating reflects Cemex's consolidated credit profile due to both companies' operational and financial integration and the cross default clauses in Cemex's existing debt agreements.

"Cemex's January bank debt restructuring was a positive but at the same time the company provided a weak 2009 EBITDA guidance and still has to address major additional near term debt maturities," said Moody's Vice President Sebastian Hofmeister. According to the analyst, Cemex will have to rely on asset disposals and access to external funding sources in order to meet near to medium term debt obligations, which include USD4.1 billion of debt maturities in 2009 that significantly exceed cash reserves and expected free cash flow.

The rating review will primarily focus on Cemex's ability to generate cash from asset disposals over the coming months in order to meet its 2009 debt maturities. To a lesser extent, the review will also consider the company's plans for addressing its 2010 and 2011 refinancing needs and reducing debt in order to return to a healthier capital structure.

Cemex's operating performance continued to deteriorate in 4Q08 as aggressive company-wide cost reductions and generally resilient pricing could not fully offset challenging economic conditions in key U.S. and Spanish markets. Reported EBITDA only dropped a modest 5% for the full 2008 because of a favorable comparison base with 2007 (when Rinker was only consolidated for the six months starting July 1, 2007) but was down 14% in 2H08 and 27% in 4Q08 vs. the same periods in 2007. Full year 2008 EBITDA was modestly affected by the deconsolidation of Venezuela as of August 1, 2008 but also included USD310 million related to the sale of emission allowances in the EU. In 4Q08, Cemex reported a USD1.5 billion impairment loss, mainly related to goodwill incurred with the 2007 Rinker purchase and reported below EBITDA in other expenses.

In early February, Cemex stated that it expects EBITDA for 2009 in the range of USD3.5 billion to USD3.7 billion, which would imply a 15% to 19% drop from 2008. The USD700 million of cost savings the company now expects under its global, already largely implemented "internal PMI" program is not expected to fully mitigate continued volume decline and negative exchange rate effects. Cemex stated that its earnings guidance excludes the potential benefits from infrastructure components of government stimulus packages. Moody's believes that meaningful benefits from higher public spending are unlikely to be felt before 2010. Moody's also believes that Cemex's important Mexican market could come under increasing pressure in 2009 as local economic growth decelerates.

Weaker earnings and the abrupt depreciation of the Mexican peso in 4Q08 caused leverage to increase markedly, with Debt/EBITDA adjusted for perpetual notes and off balance sheet debt rising to 5.3 times at year-end 2008 from about 4.8 times in 3Q08. EBIT/Interest adjusted for perpetual coupon dividends was 2.3 times, down from 3.3 times in 2007, while adjusted Free cash flow/Debt came in at 3%. Under Moody's building materials methodology, these metrics map to single-B scores, with the exception of EBIT/Interest which is in line with a Ba. For 2009, Moody's expects credit metrics to remain weak even if Cemex meets its current earnings, asset disposal and debt reduction targets. Adjusted Debt/EBITDA will likely remain well above 5 times, while adjusted EBIT/Interest could potentially drop below 2 times.

Despite the successful conclusion of recent refinancing efforts in January, Cemex's liquidity remains tight because cash and expected free cash flow only cover a portion of upcoming debt maturities. Cemex continues to rely on achieving major asset disposals amid currently uncertain market conditions -- it expects about USD2 billion in divestiture proceeds in 2009 -- and on the availability of external financing.

Moody's estimates that Cemex faces a USD2 billion funding gap in 2009, with USD2.1 billion in expected cash sources excluding uncommitted divestitures covering about half of the USD4.1 billion in 2009 debt maturities. Estimated cash sources mainly include USD1.2 billion free cash flow after perpetual coupon dividends and the new, low USD650 million capex budget, about USD500 million in cash available for debt reduction (USD990 million at year-end 2008 adjusted for estimated operational needs) and around USD400 million in proceeds from the Austrian and Hungarian divestitures (both are contractually committed but the antitrust approval is still pending for the Austrian assets). Cemex's 2009 divestment program includes the Australian concrete pipe business as well as a range of other non-core assets which the company has not specified publicly. Cemex may also obtain payments related to the nationalization of its Venezuelan operation in 2008, although related amounts and timing remain uncertain.

Cemex' currently weak liquidity also reflects Moody's expectation of a tight cushion under the amended max Net Debt/EBITDA covenant in 2009 and additional major debt maturities of about USD3.5 billion in 2010 and USD7.7 billion in 2011. The Net Debt/EBITDA covenant threshold will increase from 4.5 times in 1Q09 to 4.75 times in 2Q09 and then gradually step down to 3.5 times by 3Q11. Net Debt/EBITDA was 4.0 times in 4Q08, vs. 3.4 times in 3Q08. Cemex intends to address its 2010 and 2011 debt maturities as soon as markets permit. Moody's believes that the company currently does not maintain meaningful availability under credit facilities.

As of December 31, 2008, Cemex's total adjusted debt was USD24.2 billion, flat vs. September 30, 2008. Adjusted debt included USD18.8 billion in reported debt (as per Mexican GAAP), USD3 billion in perpetuals (down from USD4 billion but offset by a similar increase in reported debt because of the reclassification of a perpetual loan facility), and USD2.4 billion in adjustments for securitization, capitalized leases and under-funded pension obligations. In 2009, Cemex intends to reduce reported debt by about USD3.6 billion using free cash flow and asset divestiture proceeds. Under its hybrid methodology, Moody's treats Cemex's perpetuals as 100% debt, in line with the treatment under U.S. GAAP.

Rinker's rating continues to reflect Cemex's strong business profile, with leading market positions and solid diversification across a number of major countries and product lines. Cemex's business consists of cement, ready mix and aggregates with most of the earnings coming from North America and Europe. In 2008, Mexico generated 33% of consolidated EBITDA, the U.S. 16% and Spain 11%. The UK's EBITDA contribution was only 1% although the country accounts for 8% of revenues. South/Central America and the Caribbean contributed about 15% and other Europe (which besides France and Germany also includes several Central and Eastern European countries) accounted for 12% of EBITDA.

The last rating action on Rinker was a downgrade to Ba3 from Ba1 on December 19, 2008.

The principal methodology used in rating Rinker is Moody's Global Building Material Rating Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Rinker Materials LLC (Rinker, formerly Rinker Materials Corporation), a U.S. entity, is owned by Cemex, Inc., which is the intermediate holding company of Cemex, S.A.B. de C.V.'s (Cemex) U.S. operations and in turn is owned by Cemex Espana, the holding for Cemex's non-Mexican business. Cemex, headquartered in Monterrey, Mexico, is a leading global building materials company that manufactures and distributes building products such as cement, ready mix concrete and aggregates, with customers in more than 50 countries. Cemex gained control of Australia-based Rinker Group Limited, Rinker's former parent company, in June 2007. In 2008, Cemex reported revenues and EBITDA reached of USD21.7 billion and USD4.3 billion, respectively.

Mexico City
Sebastian Hofmeister
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Telephone:+52-55-1253-5700

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Rinker to B1; rating remains on review for downgrade.
No Related Data.
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