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April 22, 2008 |
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METROFINANCIERA SA: Moody's Holds Global Scale ID Rating at B1 Moody's de Mexico has downgraded Metrofinanciera, S.A. de C.V.'s short-term national scale rating to MX-3 from MX-2. Concurrently, Moody's also affirmed the company's Not Prime global local currency short-term rating, Baa2.mx national scale issuer and B1 global scale local currency issuer rating. The ratings outlook was revised to negative from stable. The downgrade of Metrofinanciera's short-term national scale rating to MX-3 from MX-2 reflects the company's still high exposure to short-term maturities with more than MXN1.6 billion in commercial paper due in 2008. The impact of the United States subprime crisis in Mexico has translated into a higher cost of borrowing as well as into reduced liquidity in the system via more constrained rollovers of commercial paper. Furthermore, Moody's believes that the medium-term access to the domestic and international capital markets will likely be constrained as a result of the uncertainties related to the U.S. economy. Thus, the company will be challenged in the medium- term to refinance its maturities. Nevertheless, Moody's believes that the company will be able to meet its short-term debt maturities, but a higher cost to its growth plans and future profitability. The revision of the ratings outlook to negative reflects Moody's expectations of continued pressure on Metrofinanciera's profitability due the company's more aggressive growth strategy and refinancing needs. Furthermore, with both foreign and domestic capital markets under pressure, Sofoles/Sofomes in general have increasingly turned to warehousing facilities and securitization to finance lending growth, which translates to higher funding costs that are weighing on the company's margins and pressuring its profitability. Nevertheless, its exposure to short-term debt has been substantially reduced in the past 12 months, by almost 50% of total outstandings. Metrofinanciera has also become more reliant on Sociedad Hipotecaria Federal for warehouse lending and indirect support to its mortgage backed securities. SHF acquired 100% of the company's transaction placed in December 2007 and 65% of the transaction placed in February 2008. Its bad debt provisions also substantially increased at year-end 2007, while concentration of construction loans showed little change during the year. They remain at high levels, with construction loans representing approximately 56% of its total loan portfolio on and off balance sheet. Moody's will also closely monitor Metrofinanciera's land bank, which is now fully integrated into the company's balance sheet. The current ratings still reflect Metrofinanciera's position as the third largest mortgage Sofom (Sociedad Financiera de Objeto Multiple) in Mexico in terms of total loan portfolio, on and off-balance sheet, and its solid technology processes/systems and servicing, continued earnings growth, solid margins and stable portfolio performance. A return to a stable outlook would reflect the company's success in the next six to twelve months in terming out its short-term debt, replacing it with longer-term debt, and successfully funding its growth plans, while maintaining if not improving its operating margins with stable bad debt provisions and portfolio quality. In the intermediate term, a ratings upgrade would be challenging given the company's crimped operating margins, leveraged capital structure and concentrated loan portfolio mix. Positive ratings movement would reflect individual loans as a percentage of total loans moving to 50% of the lending book, and improvement of operating margins in mid-70% range. Additional steps supporting a rating upgrade include continued progress with regional expansion and brand recognition. Downward rating pressure would reflect construction loans to total loans growing to or exceeding 70% of total loans, with a drop in operating margins -- EBITDA/Revenues well below 60%. Additional negative ratings pressure would result from an increase in delinquent loans to more than 4% of the total portfolio, sustained leverage above 90%, a failure to term out its debt, or an adverse shift in governmental housing policy. Rating downgraded: -- short term national scale rating to MX-3 from MX-2 These ratings were affirmed with a negative outlook: -- Baa2.mx national scale issuer rating, -- (P)Baa2.mx National Scale senior unsecured long-term debt shelf rating, -- B1 global scale local currency issuer rating, and -- (P)B1 global local currency senior unsecured long-term debt rating on an MTN Program Rating affirmed: -- Not Prime short-term rating As of Dec. 31, 2007, the company reported assets of MXN24.9 billion, and equity of MXN1.9 billion. Headquartered in Monterrey, Mexico, Metrofinanciera, S. A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad no Regulada -- http://www.metrofinanciera.com.mx/ -- specializes in real estate credit and housing development in Mexico. Founded in 1996 in Monterrey, it offers financial services and consulting for all phases of real estate projects: housing construction, advance sales, public works and commercialization. The company also offers products in life, damage and unemployment insurance. |
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