Fitch Downgrades Masisa's IDRs to 'B+'; Outlook Negative
KEY RATING DRIVERS
Significantly Weaker Brazil Operations:
The downgrade of Masisa's ratings reflects lower than expected EBITDA generation in Brazil and Fitch's expectation that the company will continue to struggle in this market during 2016 and 2017. Fitch had previously cited a deterioration of Brazil's EBITDA contribution as a key rating factor for negative rating actions. The Negative Outlook reflects continued concern about economic weakness in the region. Should measures to bolster Masisa's capital structure not materialize additional negative rating actions will be considered.
Due to the deterioration Brazil's economy, Fitch expects that Masisa's Brazilian EBITDA will decrease to below $20 million in 2015, a 28% decline from the prior year. Excluding Venezuela and Argentina, Brazil represented 18% of recurrent EBITDA for the first half of 2015 (1H15), down from 32% in 2014 and 41% in 2013. In the past, Masisa has generated more than $40 million of EBITDA in this market.
Spike in Leverage:
Fitch expects that Masisa's EBITDA will decrease considering weaker results from Brazil and sluggish economic growth throughout the region, while the company's debt levels remain elevated due to a number of recent investments. Fitch's base case expectations for the company's net debt/EBITDA ratio, excluding operations in Venezuela and Argentina but including cash dividends received from Argentina, stand at 8.1x in 2015, 8.2x in 2016, and 7.2x in 2017. Fitch does not include the divestment program of non-core assets for about $100 million that Masisa recently announced in these calculations. It also does not include in EBITDA the non-recurrent sale of standing wood for $23 million during April 2015.
Masisa's total debt increased as of June 30, 2015 to $815 million, up from $768 million as of Dec. 31, 2014. The growth in debt amid difficult macroeconomic conditions across the Latam region resulted in a net debt/EBITDA ratio on a recurrent EBITDA basis (excluding Argentina and Venezuela, but including the Argentine cash dividend) of 7.2x. This remains elevated compared to the 6.2x ratio averaged by the company between 2011 and 2013.
Slow Contribution from Mexico:
Potential cash flow relief provided by the completion of Masisa's new MDF plant in Mexico is not projected to offset the substantial decline in Brazilian operations until 2018. The mill is expected to add $5 million to EBITDA during 2016 as it ramps-up production and has the potential to increase consolidated EBITDA by over $20 million going forward. Capex should reach a peak of $140 million during 2015 of which $80 million is related to completing the MDF plant in Mexico and the balance of $60 million for industrial and forestry maintenance.
The company is expected to revert to maintenance capex levels in 2016 and 2017 of around $50 million per year. The MDF plant in Mexico will have an annual capacity of 220,000 cubic meters. This mill includes a 100,000 cubic meter melamine facility. Construction of the mill started at the end of May 2014, with 2015 planned to be the most intensive construction period. Total cost of the MDF plant is expected to be between $120 million and $125 million.
KEY ASSUMPTIONS
Fitch's assumptions within the rating case for Masisa exclude the recently announced divestment of non-core assets for about $100 million and the non-recurrent sale of standing wood. Fitch's key assumptions include:
-- Brazilian EBITDA declining to below $20 million in 2015 and remaining flat in 2016 and 2017;
--EBITDA contributions from Mexico operations of around $16 million in 2015 and $18 million in 2016;
--EBITDA of around $52 million from Chile in 2015, with flat growth expected, and EBITDA margins of around 11%;
-- Gross debt of around $790 million in 2015, remaining stable in the following years;
--Total capex of $140 million in 2015, $50 million in 2016 and 2017;
--Dividends of around $30 million in 2015, keeping a 30% dividend policy going forward.
RATING SENSITIVITIES
Track Record of Shareholder Support:
Shareholder support has been a key credit consideration as a result of past equity contributions. Masisa's Rating Outlook could be revised to Stable and/or its ratings could be upgraded should the shareholders strengthen its capital structure. Fitch's median total debt/EBITDA ratio for the 'BB' rating category is 4.3x. Fitch excludes Venezuela from its analysis of Masisa, but considers the cash dividends received from Argentina. Faster than anticipated ramp-up of the MDF plant in Mexico with cash generation growth from this country significantly above Fitch's base case expectations may also be a positive rating driver, contributing to sustained positive FCF generation.
Negative Rating Drivers:
Masisa's ratings may be downgraded further should the economic scenario in Brazil continue to deteriorate, resulting in lower than expected EBITDA generation. A delay in the MDF plant in Mexico being completed could further pressure the ratings.
LIQUIDITY
Refinancing of Short-Term Debt Anticipated:
Masisa's liquidity position is adequate for operational purposes with $53 million of cash and equivalents, of which $32 million was held outside Venezuela and Argentina as of June 30, 2015, compared with $61 million as of Dec. 31, 2014. Masisa made a non-recurring sale of standing wood for $23 million during April 2015, which benefited the company's liquidity. The company had $139 million of short-term debt, expected to be refinanced, and $675 million long-term debt as of June. 30 2015, of which, $619 million is related to the capital markets, $16 million bank debt, and $43 million in hedging liabilities.
Capital market debt comprised $316 million local currency inflation-adjusted bonds issued in Chile and $298 million 9.5% senior unsecured notes due in 2019, issued in May 2014. Out of Masisa's long-term debt of $675 million, $56 million is due in 2016, $53 million in 2017, $13 million in 2018 and $325 million in 2019. Additionally, Masisa has $65 million in committed credit lines and $30 million in uncommitted available credit lines. To strengthen the company's liquidity, Masisa has a program to divest non-strategic assets by the first quarter of 2016, expecting to raise around $100 million in proceeds.
FULL LIST OF RATING ACTIONS
Fitch has downgraded the following ratings:
--Foreign and local currency IDRs to 'B+' from 'BB';
--National scale rating of Bond Line No. 356, No. 439, No. 440, No. 560, No. 724, and No. 725, to 'BBB(cl)' from 'A-(cl)';
--Long-term National Scale rating to 'BBB (cl)', from 'A-(cl)';
--USD300 million senior unsecured 9.5% notes due 2019 to 'B+' from 'BB'; the notes are assigned an 'RR4' recovery rating and are unconditionally guaranteed by Forestal Tornagaleones and Masisa Forestal;
--National Short-term rating to 'N2(cl)' from 'N1(cl)'.
The Rating Outlook remains Negative.
In addition, Fitch has affirmed the following rating:
--Equity rating at 'Primera Clase Nivel 3(cl)'.
Комментарии