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Rating Action:

Moody's upgrades Controladora Comercial Mexicana's corporate family rating to Ba1, outlook positive

14 Sep 2012

Approximately MXN2,984 million of debt affected

Mexico, September 14, 2012 -- Moody's de México, S.A. de C.V. (Moody's) has upgraded Controladora Comercial Mexicana, S.A.B. de C.V.'s (Comerci) corporate family ratings to Ba1/Aa3.mx from Ba3/Baa1.mx. At the same time Moody's has upgraded to Ba1 from Ba3 the senior secured debt ratings. The rating outlook is positive. This concludes the review initiated on June 15, 2012.

Ratings affected:

- Corporate Family Rating (CFR): Upgraded to Ba1 and Aa3.mx (Mexican National Scale) from Ba3 and Baa1.mx (Mexican National Scale). Positive outlook.

- First Lien Sr. Secured Restructured MXN5,255 million loans (Tranche 1), upgraded to Ba1 from Ba3. Positive outlook

- First Lien Sr. Secured Restructured MXN3,408 million loans (Tranche 2), upgraded to Ba1 from Ba3. Positive outlook

- Sr. Secured Restructured MXN1,951 million global bonds due in 2018, upgraded to Ba1 from Ba3. Positive outlook

The date of the last Credit Rating Action was June 15, 2012.

RATINGS RATIONALE

The upgrade reflects Comerci's much stronger credit metrics following the paydown of debt from proceeds of the sale of its ownership in Costco de Mexico. The company repaid MXN12,715 million of debt and is expected to refinance its remaining debt under much better conditions that will ultimately provide the company with financial and operating flexibility that was restricted under the restructured debt.

"The Ba1/Aa3.mx ratings reflect Comerci's improved financial profile, adequate liquidity, the benefits of a fairly defensive business model typical of a food retailer, and the company's significant market position in central Mexico with the longer term challenge of preserving its market share in an increasingly competitive local retail sector." said Alonso Sánchez Rosario, a Moody's Assistant Vice President. Also incorporated in the ratings is our expectation that Comerci will be able to execute its planned store expansion while sustaining its current margins and strong credit metrics.

Comerci's financial profile has improved substantially after debt paydown with the proceeds from the Costco sale and an extraordinary dividend from Costco de Mexico. We estimate that as of August 31, 2012 total debt dropped to around MXN4,440 million from MXN17,751 million as of June 30, 2012 and we expect debt/EBTIDA (as adjusted by Moody's for pensions and operating leases) to decline below 2.0 times in 2012 (down from 4.5x as of June 30, 2012).

Comerci's debt reduction not only benefits its credit metrics but also gives the company with operating and financial flexibility. The company plans to refinance all its remaining debt at Controladora Comercial Mexicana level with the proceeds of a syndicated unsecured term loan. This will provide Comerci with more room under its covenants and will release the collateral that currently secures its restructured debt.

The positive rating outlook assumes Comerci will maintain strong credit metrics, solid operating trends as shown by margin stability and continued growing same store sales, and our expectation that Comerci will be able to successfully refinance its remaining secured debt at the holding company level.

Upward rating pressure could occur if the company is able to successfully refinance its restructured secured debt and continues to show solid operating trends sustaining its current margins and strong credit metrics with leverage (adj. debt/EBITDA) below 2.0x and interest coverage above 5.0x. In addition, the company should be able to carry out its projected expansion program while maintaining positive free cash flow generation.

Going forward, ratings could come under pressure if same store sales growth is negative or operating margins deteriorate resulting in weakening credit metrics with interest coverage approaching to 4.0x. A deterioration in the company's liquidity could also pressure the ratings.

The principal methodology used in rating Controladora Comercial Mexicana, S.A.B. de C.V. was the Global Retail Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com.mx for a copy of this methodology.

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 differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings.

Controladora Comercial Mexicana, S.A.B. de C.V. (Comerci), headquartered in Mexico City, is an important food and general merchandise retailer in Mexico with revenues of MXN44,957 million over the last twelve months ended June 30, 2012. As of the same date, Comerci operated 199 stores under seven formats with a total selling area of 1.3 million square meters. Comerci has a nationwide presence with about 70% of its selling floor concentrated in the Mexico City metropolitan area and the country's central region. The company is also present in Mexico's family-style convenience restaurant segment with its "California" restaurants and in the casual-dining segment with its "Beer Factory" restaurants throughout the country. Comerci is family controlled, by the González Nova family, with approximately 36% of its shares traded on the Mexican stock exchange.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity prior to public dissemination.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.mx for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Alonso Sanchez
Asst Vice President - Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's upgrades Controladora Comercial Mexicana's corporate family rating to Ba1, outlook positive
No Related Data.
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