Guarantors, pre-payment stir concern over Cemex debt plan
By Cyntia Barrera and Gabriela Lopez
MEXICO CITY (Reuters) - Cemex's plan to refinance its debt was welcomed by investors but doubts remain about the new guarantors the Mexican cement maker will use to back the plan, and its goal of paying down $1 billion ahead of schedule.
Monterrey-based Cemex on Monday unveiled a refinancing plan that calls for a three-year maturity extension, an up-front fee, revised margins, and a bigger guarantor package.
Cemex's unexpectedly early move - its hefty $7.25 billion debt pile falls due in 2014 - sent share prices up by over 7 percent in Mexico and New York on Monday.
Cemex (CMXCPO.MX: Quote) (CX.N: Quote), which was swamped by the 2008 U.S. housing meltdown shortly after paying out some $16 billion to buy Australian peer Rinker, has been working its way out of deep debt obligations for the past three years.
Bank of America Merrill Lynch said the company's additional guarantors could include Mexican subsidiaries, and said it hoped the company would disclose the cash flows of each one.
In the past, Cemex has used its Mexican and Spanish operations as guarantors for debt issuances. But business in Spain has suffered due to Europe's sovereign debt crisis.
The company has tightened its belt with cost cuts and non-core asset sales, mostly from its real-estate holdings. Last year, Cemex committed to unload $1 billion in assets but better-than-expected results allowed it to trim that target to $300 million.
Cemex's plan to reassure its creditors also includes revised operational and financial covenants, which keep tabs on the company's cash generation versus its funded debt, or the sum included in its 2009 refinancing deal. The firm said it was in good shape to meet 2012 covenants, which foresee the reduction of funded debt to 6.5 times earnings before interest, taxes, depreciation and amortization (EBITDA) in June, and an even lower ratio of 5.75 times by December. Continued...