OREANDA-NEWS. Fitch Ratings has upgraded the foreign and local currency Issuer Default Ratings (IDRs) of Bio-PAPPEL, S.A.B. de C.V. (Bio-Pappel) to 'B+' from 'B' and revised the Rating Outlook to Stable from Positive. Subsequently, Fitch has withdrawn the ratings as the company has paid in full its USD200 million senior notes. Fitch will no longer provide rating or analytical coverage of this issuer.

The upgrade reflects Bio-Pappel's successful refinancing of the USD 200 notes due 2016 as part of its acquisition of Corporacion Scribe (Scribe). The refinancing, with a syndicated 5 year USD 255 million loan, also financed USD 55 million of the acquisition, with the remainder to be paid in cash. As mentioned before by Fitch, Bio-Pappel's ratings were limited by Fitch's concerns about the company's ability to refinance its senior note maturity in 2016. After the transaction, debt to EBITDA will increase to around 3x on a pro forma basis, from 1.8x as of March 31, 2015, on a LTM basis.

Scribe is dedicated to the manufacture and marketing of printing and writing paper and notebooks. It has four production plants located in Mexico, as well as one in Colombia. The company has two business lines: a paper business (printing and writing paper) and a notebook business (notebooks and notepads).

Fitch believes that the transaction was generally positive for credit quality, as the refinancing addresses concerns about Bio-Pappel's ability to refinance due to a previously weak debt repayment record. The acquisition, while diversifying Bio-Pappel's operation into new segments (mainly notebooks), exposes Bio-Pappel to Scribe's higher business risk and higher leverage levels. Nonetheless, in Fitch's opinion, these concerns are superseded by the notable improvement in Bio-Pappel's repayment record.

Bio-Pappel's ratings incorporated its leading market position in the pulp and paper sector in Mexico, improved cost structure related to its strategy of using only recycled fibers, geographical and product line diversification of revenues, low level of environmental/political risks and improved EBITDA generation due to operational efficiencies. The latter has translated into a stable performance of its packaging division and a recovery in the performance of its paper division. The ratings were constrained by Bio-Pappel's leverage relative to the stress upon its cash flow when raw material and energy costs increase, small scale when compared to international players, and a tough competitive environment.