OREANDA-NEWS. Fitch Ratings has assigned an expected rating of 'BB- (EXP)' to CEMEX S.A.B. de C.V.'s (CEMEX) proposed USD secured notes. Proceeds from the issuance will be used for general corporate purposes, including the repurchasing and/or redemption of a portion of the company's outstanding notes due in 2018 and 2019.

The guarantors for the notes will be CEMEX Mexico, S.A.B. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca de Mexico, S.A. de C.V., New Sunward Holding B.V., CEMEX Espana, S.A., Cemex Asia B.V., CEMEX Corp., CEMEX Finance LLC, Cemex Egyptian Investments B.V., Cemex Egyptian Investments II B.V., CEMEX France Gestion (S.A.S.), Cemex Research Group AG, Cemex Shipping B.V. and CEMEX UK. The notes will enjoy the same collateral package as the creditors under CEMEX's Credit Agreement.

KEY RATING DRIVERS

FX Impact on Deleveraging:

CEMEX's ability to lower its high net leverage position has been hampered by the depreciation of key currencies such as the Mexican peso and Colombian peso. Net leverage was 5.2x as of Dec. 31, 2015 which remained relatively flat when compared to fiscal year end 2014. Fitch projects CEMEX's net leverage to be around 5.0x for 2016. Based on Fitch's calculations, a 10% depreciation of the Mexican peso would increase net leverage by 0.3x in 2016.

Leverage to Remain High

CEMEX's net leverage will remain unchanged in 2016. Challenges to deleveraging include low single digit volume growth in many markets and the weak performance of CEMEX's equity. For 2016, Fitch projects CEMEX's free cash flow to be below USD200 million. Lower interest expenses and taxes, alongside improved working capital, will be offset by sluggish volumes in Mexico, Colombia and Europe. Targeted asset sales of approximately USD1.0 - 1.5 billion over the next 18 - 24 months would lower leverage by around 0.5x.

Weak Stock Performance

The poor performance of CEMEX's stock price has lowered the probability that the company will be convert more than USD1 billion of debt to equity. CEMEX has USD352 million of convertible debt due in 2016 and USD690 million due in 2018. The strike prices for these conversions are both USD9.27/ADS, which compares with a current stock price of USD6.25.

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.

Growth in EBITDA Margins:

CEMEX's EBITDA margins was 18.7% during 2015 which was a 110 basis point (bps) improvement compared to 2014. Fitch projects CEMEX's EBITDA margins will remain above 18% in 2016 as continued EBITDA growth in the U.S. coupled with continued companywide cost reductions will result in sustained profitability.

Improvements in U.S. Market:

CEMEX's main markets during 2015, in terms of EBITDA, were Mexico (34%), Central and South America (20%), the U.S. (20%), northern Europe (11%), the Mediterranean (9%) and Asia (6%) before others and intercompany eliminations. CEMEX's U.S. EBITDA was USD565 million during 2015 which compared favourably to USD421 million for the prior period. However, the company's U.S. operations continue to operate below its potential.

KEY ASSUMPTIONS
--U.S. cement sales volumes increase mid-single digits in 2016;
--Mexico cement sales volumes increase low-single digits in 2016;
--Consolidated sales volume growth of low-single digits in 2016;
--Capital expenditures of approximately USD700 million in 2016;
--Additional asset sales of approximately USD0.7-1.5 billion over the next 18 months.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Rating downgrades are not likely during 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 sluggishness in other key markets.

--A loss of the positive momentum in the U.S. market 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 USD650 million by 2016 from USD565 million in 2015. This projection incorporates an expectation that single-family and multi-family housing starts in the U.S. will total 1.2 million in 2016. 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 the U.S., as well as in Asia. EBITDA generated by CEMEX in Mexico declined approximately 3% to USD966 million in 2015 compared to USD999 million in 2014. Fitch currently projects EBITDA in this market to remain relatively flat in 2016. A turnaround in the Mexican market to EBITDA levels of around USD1.0 billion could also accelerate debt reduction.

LIQUIDITY
CEMEX has a manageable amortization schedule as a result of its aggressive refinancing efforts over the past few years. The company had USD887 million of cash and marketable securities compared to short-term debt of USD377 million as of December 31, 2015. Most of the company's marketable securities are held in U.S. and Mexican government bonds. Approximately 83% of CEMEX's debt is denominated in USD and 16% in Euros. CEMEX also had full availability under its USD735 million committed revolving credit facility as of Dec. 31, 2015.

Fitch currently rates CEMEX as follows:

CEMEX
--Foreign and local currency long-term IDR's at 'BB-';
--Senior secured notes due 2018, 2019, 2021, 2022, 2023, and 2025 at 'BB-';
--National scale long-term rating 'A-(mex)';
--Senior unsecured certificates due 2017 at 'A-(mex)';
--National scale short-term rating 'F2(mex)'.

In addition to the aforementioned ratings of CEMEX, Fitch also maintains 'BB-' ratings on the guaranteed debt issued by:

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.