OREANDA-NEWS. Fitch Ratings has upgraded the Foreign and Local currency Issuer Default Ratings (IDRs) of Trinidad Cement Limited (TCL) to 'B-' from 'D' and assigned an expected rating to the company's proposed senior secured term loan of 'B-(EXP)/RR4'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.

The upgrade reflects the restructuring steps TCL has taken under the increased ownership, support and strategic guidance from CEMEX S.A.B. de C.V. (CEMEX; 'B+'/Stable Outlook) following the default on its bank loans in September 2014. Fitch expects that the company will refinance its existing bridge loan with a long-term financing agreement within the next three to six months.

TCL's 'B-' ratings also reflect its business position in the relatively small Caribbean cement market, high leverage, weak liquidity, and volatility of its cash flow generation due to the cyclicality of the cement industry. TCL has relatively small operations with total capacity across its three cement operating facilities of 2.4 million tonnes. Fitch believes the company will be able to slowly deleverage through improved operating cash flow driven by higher volumes and sales price increases. Further factored into the ratings is the favorable outlook for the Caribbean cement industry over the medium term driven by the region's positive macroeconomic and business environment.

KEY RATING DRIVERS

Increased Ownership and Support from CEMEX

Fitch views the increased ownership by CEMEX as tacit support for TCL and its strategic market position. CEMEX increased its ownership in TCL following the company's rights issue for its existing shareholders on March 31, 2015 at TT$2.90 per share. CEMEX's ownership increased to 39.5% from 20% at a cost of USD44.8 million (total equity injection of USD57 million from rights issue). In addition, CEMEX entered into a Technical Services Agreement with TCL on April 23, 2015 which provides TCL with a restructured management team, technical assistance to support the operations of TCL's trading and shipping departments, along with additional support. The agreement has a three-year term.

Restructuring Following Default in September 2014

TCL has undergone numerous changes over the last nine months, following the moratorium the company gave to its creditors. The default in September 2014 was the result of a failed bond issuance, weak liquidity, and an unfavorable ruling which resulted in labor backpay of USD23 million. Following the default, TCL took numerous steps including hiring a new management team, an equity rights issue, negotiating with labor unions, and refinancing its previous debt with a bridge loan. The ratings for TCL reflect the expectation of a successful refinancing of its bridge loan which matures in February 2016.

Improved Credit Metrics Expected

Fitch projects TCL will achieve a total debt/EBITDA ratio of around 3.3x during 2015, an improvement on 4.6x in 2014, contingent upon a successful refinancing of its bridge loan. TCL's free cash flow (FCF) was approximately USD20 million during 2013 and 2014, and should remain positive over the near term. TCL's net leverage peaked at 18.5x at Dec. 31, 2011, and declined to 13.2x at Dec. 31, 2012, and eventually to 4.3x at Dec. 31, 2014. The high leverage in 2011 and 2012 was attributable to the poor macroeconomic environment during the period. This resulted in the first of two legal defaults in the last five years for all loan agreements on Dec. 31, 2011.

Weak Liquidity Projected to Remain

Fitch projects TCL's cash balance to be approximately USD40 million by Dec. 31, 2015. Liquidity will likely remain weak over the next four years as projected positive FCF generation is used to service debt obligations on its expected term-loan refinancing. TCL reported cash and cash equivalents of approximately USD86 million compared to total debt of USD245 million as of March 31, 2015.

Leading Caribbean Producer of Cement

TCL is the leading producer of cement with eight operating companies in Trinidad, Barbados, Guyana, Jamaica and Anguilla. TCL has a dominant market position in the CARICOM region and 100% and 82% of the market share in Trinidad and Jamaica, respectively. The region had annual total cement demand of 11.4 million tonnes in 2014, and the Caribbean Development Bank is projecting regional economies to grow by an average of 2.0% in 2015.

Significant Barriers to Entry

A majority of the demand for shipments of cement to Caribbean islands is for smaller quantities and, coupled with the shallow ports at most of the islands, makes it cost prohibitive for many of the larger cement players to penetrate the market. The small size of the cement market in the Caribbean, as well as the difficulty of logistics in this region, has limited the impact of imports and provided TCL with an EBITDA margin of 19% for 2014. TCL's strategic locations and strong reputation in the region translate into cost advantages that are difficult for competitors to replicate.

KEY ASSUMPTIONS:
--Successful refinancing of bridge loan;
--Modest cement volumes sold growth of 1%-3%;
--EBITDA margin above 20%;
--Positive FCF generation to be applied to debt service requirements

RATING SENSITIVITIES

Negative Rating Action: TCL's rating could be negatively affected if the company is unable to refinance its bridge loan with longer-term debt, significant deterioration in the Caribbean macroeconomic and business environment resulting in declining profitability and an inability to deleverage from its current leverage position; increasing competition resulting in the company's EBITDA margin deterioration; or significantly higher levels of capital expenditures. TCL's ratings could also be downgraded if Fitch perceives deterioration in the level of support from CEMEX.

Positive Rating Action: TCL's rating or Outlook could be affected positively by a successful refinancing of its bridge loan, improved liquidity position with FCF + cash and marketable securities / debt service coverage ratio above 1.0x on a sustained basis, gross leverage below 4.0x on a sustained basis, and/or significant improvement in profitability metrics. An increase to over 80% ownership by CEMEX could also lead to a ratings upgrade.

LIQUIDITY AND DEBT STRUCTURE

TCL's liquidity position has generally been weak over the last several years due to the company's high debt service payments coupled with poor cash management strategies. Going forward, TCL is expected to be more conservative with its liquidity position with better cash management given the technical support from CEMEX and the new management team in place.

In January 2011, TCL initiated a debt restructuring in which interest that accrued over 2011 and 2012 on the debt would be capitalized, increasing the debt balance to just over USD300 million. On Dec. 31, 2011, all loan agreements were in legal default through non-payment of interest and principal and non-compliance with other covenant terms. On May 10, 2012, TCL executed the various agreements on its debt restructuring and on June 15, 2012 all conditions and requirements were satisfied.

On May 6, 2014, TCL announced to the market its intentions to raise USD325 million senior secured notes to refinance its previously restructured debt in 2012. Following the announcement, the company did not receive adequate investor appetite and terms/pricing were unfavorable, so the issuance failed. In September 2014, a scheduled payment of USD14 million in principal and interest was due and TCL informed creditors of a moratorium on payments. TCL still made interest payments for the third and fourth quarters of 2014. In May 2015, TCL received a bridge loan of USD245 million which repaid its outstanding bank debt and reduced total debt outstanding to USD245 million from USD291 million due to USD16 million of internal cash used to pay creditors plus an 11% discount agreed upon with previous creditors.

FULL LIST OF RATING ACTIONS

Fitch has taken the following rating actions:

Trinidad Cement Limited
--Foreign Currency Issuer Default Rating upgraded to 'B-' from 'D';
--Local Currency Issuer Default Rating upgraded to 'B-' from 'D';
--Expected Senior Secured Term Loan rated 'B-(EXP)/RR4'.