OREANDA-NEWS. Fitch Ratings has upgraded CEMEX, S.A.B. de C.V.'s "CEMEX" Issuer Default Rating IDR to 'BB-'from 'B+'. The upgrade is supported by the strengthening of CEMEX's capital structure during the past two years due to the conversion of about $820 million of convertible bonds to equity plus the refinancing of around $8.6 billion of debt that has lowered the company's annual interest expense by approximately $200 million per year. Also factored into the upgrade is the improvement in the U.S. cement market, which has more than offset weakness in other divisions. In conjunction with these rating actions, Fitch has upgraded the company's National Scale rating to 'A- (mex)' from 'BBB (mex)' and the company's short-term National Scale rating to 'F2 (mex)' from 'F3(mex)'. The Rating Outlook remains Stable. For a complete list of related rating actions, please refer to the end of this press release.

In addition to these rating actions, Fitch affirms the 'BB-' ratings of the company's outstanding notes and removes the 'RR3' Recovery Rating from all debt issuances. As a result, these notes will no longer be rated one-notch higher than the company's IDR, as they were when the company was rated in the highly speculative single 'B' rating category. For credits in the 'B' category, Fitch publishes its expectation of recovery in the event of a default and Cemex's notes were deemed to have above-average recovery prospects, which led to the one-notch uplift. Going forward, any positive rating action on CEMEX's IDR would be accompanied by an equivalent upgrade of the notes.

KEY RATING DRIVERS

Strong Business Position:

CEMEX's 'BB-' IDRs continue to reflect its strong and diversified business position. The company is one of the largest producers of cement, ready-mix, and aggregates in the world. Key markets include the U.S., Mexico, Colombia, Panama, Spain, Egypt, Germany, France, Poland and the U.K. The company's product and geographic diversification offset some of the volatility associated with the cyclical cement industry.

Leverage Constrains Ratings:

CEMEX's ratings remain constrained by the company's high leverage; CEMEX had USD15.6 billion of net debt as of June 30, 2015. This figure compares with USD2.8 billion of EBITDA for LTM June 30, 2015, and results in a net debt/EBITDA ratio of 5.4x. Net leverage improved from 6.3x during 2013 due to around USD1.6 billion of debt reduction and an increase in EBITDA to USD2.8 billion from USD2.6 billion in 2013. Continued EBITDA growth in key markets such as the U.S. and Mexico would aid in further net leverage reduction going forward, as would the conversion of USD352 million of convertible debt in 2016 and USD690 million in 2018. The strike prices for these conversions are USD9.27/ADS and USD9.27/ADS, which compares with a current stock price of USD7.83.

Modest Credit Improvements Projected:

Fitch projects that CEMEX will generate about USD2.9 billion of EBITDA in 2015 and USD3.2 billion in 2016 and that the company's net leverage will be around 5.4x in 2015 and 4.4x in 2016. Fitch's projections include asset sales of around USD1 billion over the next 6-18 months. Improved cement demand in the U.S. and Mexico are also key drivers of Fitch's projected improvement in CEMEX's credit metrics.

Improving Cash Flow Generation:

CEMEX recorded its highest annual free cash flow (FCF) generation since 2010 during 2014 and is on pace to remain FCF positive during 2015. Keys to strong cash flow generation have been higher profitability, successful cost reduction measures, and reduced working capital days. Fitch projects CEMEX will maintain positive FCF over the next 3-5 years, which will lead to further reductions in gross debt levels.

Strong Growth in EBITDA Margins:

CEMEX's EBITDA margins were above 18% through June 30, 2015, which was a 170 basis point (bps) improvement for the same prior year period. CEMEX has taken strategic initiatives to reduce its cost of sales and operating expenses which have resulted in stronger profitability. Fitch projects CEMEX's EBITDA margins will likely remain above 18% in 2015 and beyond as continued volume growth and price increases coupled with continued cost reductions will result in continued profitability improvement.

Continued Improvements in U.S. Market:

CEMEX's main markets during 2014 in terms of EBITDA were Mexico (36%), Central and South America (27%), the U.S. (15%), Northern Europe (13%), the Mediterranean (12%), and Asia (5%). CEMEX's U.S. operations continue to improve, as EBITDA grew 50% to USD220 million for the first six months of 2015 from USD147 million during the comparable period in 2014. The company's U.S. operations, however, continue to operate at well below their potential capacity. On a pro forma basis, Fitch estimates that the U.S. operations generated around USD2.3 billion of EBITDA in 2006. U.S. cement demand recovered to an estimated 89 million metric tons in 2014 from a low of 71 million metric tons in 2009, but still remains well short of the 127 million metric tons of demand in 2006.

KEY ASSUMPTIONS

--U.S. cement sales volumes increase 5% in 2015;
--Mexico cement sales volumes increase 7% in 2015;
--Consolidated sales volumes are lower than management guidance;
--Net debt declines approximately USD570 million during 2015 and approximately USD1 billion in 2016;
--Capital expenditures are approximately USD700 million in 2015;
--Combined asset sales are approximately USD1 billion in 2015 and 2016.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--Rating downgrades are not likely during 2015 and 2016 as CEMEX's credit protections remain consistent with the category despite the underperformance of some key business units. CEMEX received an unfavorable ruling by the Spanish tax authorities during 2014 that could result in a payment of EUR455 million. If the company is unsuccessful in its appeal, this fine would hinder its ability to deleverage and could lead to a negative rating action if the payment coincides with continued sluggishness in other key markets.

--A loss of the positive momentum in the U.S. or Mexico markets would have a material impact upon the company's credit profile and could pressure leverage to around 6.0x, which could result in a negative rating action.

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Net leverage at or less than 4.0x could lead to an upgrade of both the IDR and the company's notes to 'BB'.
--Fitch is projecting that CEMEX's EBITDA in its U.S. operations will grow to USD550 million by 2015 from USD421 million in 2014. This projection incorporates an expectation that single-family and multi-family housing starts in the U.S. will total 1.1 million in 2015. Growth beyond this figure would be positive for the company's U.S. business and would accelerate its deleveraging process.
--Cement demand in Mexico has underperformed Fitch's expectations since 2014 and this has offset improvements in operating cash flow in Northern Europe, as well as in the U.S. EBITDA generated by CEMEX in Mexico remained relatively flat at USD999 million in 2014 compared to USD1 billion in 2013. Fitch currently projects EBITDA in this market will rebound to USD1.1 billion by 2015. Growth faster than this could also accelerate debt reduction.
--CEMEX's stock currently trades at USD7.83 per ADS. The company has issued subordinated convertible notes that mature in 2016 (USD352 million), 2018 (USD690 million), and 2020 (USD521 million). The conversion prices for these notes are USD9.27/ADS, USD9.27/ADS, and USD11.90/ADS, respectively. Conversion of these subordinated notes into equity would further reduce net leverage and could lead to future positive rating or Outlook actions.

LIQUIDITY AND DEBT STRUCTURE

CEMEX has a manageable amortization schedule as a result of its aggressive refinancing efforts during the past few years. The company had USD496 million of cash and marketable securities compared to short-term debt of USD395 million as of June 30, 2015. Most of the company's marketable securities are held in U.S. and Mexican government bonds. CEMEX has an average life of debt of 5.8 years with no significant maturities coming due until 2018. CEMEX also had approximately USD367 million available under its committee line of credit as of June 30, 2015.

FULL LIST OF RATING ACTIONS

Fitch has upgraded the following ratings:

CEMEX
--Foreign and local currency IDR to 'BB-' from 'B+';
--Senior Secured Notes due 2018, 2019, 2021, 2022, 2023, and 2025 to 'BB-' from 'BB-/RR3'; --National Scale long-term rating to 'A-(mex)' from 'BBB(mex)';
--Senior unsecured certificates due 2017 to 'A-(mex)' from 'BBB(mex)';
--National scale short-term rating 'F2(mex)' from 'F3(mex)'.

Fitch has affirmed the following ratings at 'BB-':

CEMEX Espana S.A. (CEMEX Espana)
--Senior Secured Notes due 2017 and 2019.

CEMEX Materials LLC, a limited liability company incorporated in the U.S.
--Senior Notes due 2025.

CEMEX Finance LLC, a limited liability company incorporated in the U.S.
--Senior secured notes due 2021, 2022, and 2024.

C5 Capital (SPV) Limited, a British Virgin Island restricted purpose company
--Senior secured perpetual notes.

C8 Capital (SPV) Limited, a British Virgin Island restricted purpose company
--Senior secured perpetual notes.

C10 Capital (SPV) Limited, a British Virgin Island restricted purpose company
--Senior secured perpetual notes.

C-10 EUR Capital (SPV) Limited, a British Virgin Island restricted purpose company
--Senior secured perpetual notes.