Famsa gets downgraded after missing debt payment

Famsa gets downgraded after missing debt payment

Debt Capital Markets Corporate & Sovereign Strategy Fixed Income Mexico

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Mexican retailer Grupo Famsa's credit rating was downgraded to default status by both S&P Global Ratings and Fitch Ratings on Tuesday after the company missed the payment on its 7.25% senior notes due June 1, 2020.

The decision by the credit rating agencies comes after the company announced on May 29th its decision to commence the restructuring of its outstanding $59.1 million bond.

“The company expects to continue its operations in the ordinary course of business (subject to any mandated or necessary closures due to the COVID-19 outbreak). Furthermore, the company also expects to continue meeting its obligations to its suppliers and employees, who will not be impacted in any way by this process," Famsa CEO Humberto Garza Valdez said in the company's May 29 statement.

In S&P's nomenclature, the credit was put on Selective Default while Fitch called it Restricted Default. 

The company said that under the reorganization plan, holders of record on the 2020 notes as of May 28, 2020 who vote in favor of the company's plan will receive both new bonds and a cash distribution.

The new debt is in the form of 10.25% senior notes due December 15, 2023, otherwise referred to as the “New Series A Notes” in a principal amount that is "equal to the principal amount of 2020 Notes that they hold, plus the amount of interest accrued on the 2020 Notes up to the effective date of the Plan. They cash portion will be in the "amount of  $10 per $1,000 principal amount of 2020 Notes held by them."

Famsa said that "all other 2020 Notes holders will receive new 9.75% senior notes due December 15, 2024 (the “New Series B Notes” and, together with the New Series A Notes, the “New Notes”) in a principal amount equal to the principal amount of 2020 Notes that they hold.

"We affirmed our 'CCC-' issue-level rating on the company's senior secured notes due 2024, as we expect the company to meet its semiannual coupon payment on June 15, 2020, for its 9.75% senior secured notes, and other upcoming debt obligations, including its local short-term debt certificates," S&P Global said in its report on Tuesday.

Fitch said the company had been pursuing a number of initiatives to improved its financial profile.

"However, the increasingly challenged environment along with a still weak portfolio quality, have hindered those initiatives to materialize. Fitch believes the company's operational challenges are high and need to be achieved despite the current macroeconomic scenario," Fitch said.

Shares of the company's stock trading on the Mexican stock exchange rose 1.05% on Tuesday to MX1.92, according to data provider Refinitiv. Shares are down nearly 57% year-to-date.