Fitch takes Rating Action on Grupo Minero Mexico & Related Entities.

Business Editors

CHICAGO--(BUSINESS WIRE)--Sept. 13, 2002

Fitch Ratings has downgraded Grupo Minero Mexico, S.A. de C.V.'s (GMM) senior unsecured local currency rating to 'B-' from 'B'. In conjunction with this rating action, the Grupo Mexico Export Master Trust No. 1 (SEN) Series C and Series D Notes have been downgraded to 'B' from 'B+'. Fitch has also downgraded GMM's Guaranteed Senior Notes due in 2008 (the Yankee bonds) and Guaranteed Senior Notes due in 2028 (the Yankee bonds) to 'B-' from 'B'. These ratings remain on Ratings Watch Negative.

Fitch has affirmed the 'B+' rating of GMM's Series B1 SEN notes and the 'AAA' rating of the Series E SEN notes.

The downgrade of GMM's senior unsecured local currency rating and the company's public debt reflects an expectation that the company's indirect parent, Grupo Mexico, S.A. de C.V. (GM), will add approximately $100 million of new capital to the company by the end of 2002 and that $50 million will be released from a collateral account, figures somewhat lower than previously expected. Given low copper prices, the new capital will not reduce the company's heavy debt burden and will be used primarily for working capital. The new ratings also incorporate the expectation that the company will be able to complete its debt restructuring shortly with a debt structure that will extend debt maturities and allow the company to service its debt obligations, consistent with the new rating category.

Fitch has affirmed the Series B1 SEN notes, which mature on Nov. 28, 2002, because the cash necessary for all principal and interest payments has been trapped in a collection account. The Series E Export Master Trust No. 1 notes were affirmed at 'AAA' due to a surety bond provided by MBIA that guarantees the timely payment of interest and the ultimate payment of principal. The claims paying ability of MBIA Insurance is rated 'AAA' by Fitch.

GMM has faced major liquidity problem since Fitch downgraded its SEN notes on Oct 5, 2001, which, in turn, triggered an early amortization event that has led to the trapping of export cash flows by the trustee. As of the end of June 2002, the company had $1.3 billion of debt and $80 million of cash and marketable securities, most of which was restricted in the SEN's collateral account. The public debt is comprised of $476 million of SEN notes and $441 million of unsecured Guaranteed Senior Notes.

While GMM has kept current on the interest payments for its bank loans during 2002, GMM did not pay principal on maturities dates for loans with Bank of America (BofA) and the Export Development Corporation (EDC) beginning in the first quarter of the year. The company was unable to refinance or extend these loans with the existing lenders at the maturities dates and are currently in default; the banks have not accelerated on the loans. The loans are not rated by Fitch. GMM has kept current on its principal and interest payments with loans from the Export-Import Bank of the United States of America during 2002.

GMM also has a $100 million loan from the Bank of Nova Scotia and a $50 million loan with the Banco Nacional de Comercio Exterio, S.N.C. These loans mature in August 2004 and February 2007, respectively. Interest expense was paid in a timely manner on these loans during 2002.

GMM continues to negotiate extensions of its credit agreements with the holders of its SENs, as well as the Bank of Nova Scotia, BofA and the EDC. As a result of the continued negotiations, all of GMM's ratings remain on Rating Watch Negative. GMM's liquidity problems will escalate on Jan. 28, 2003, if an agreement is not reached because the Series E SEN notes ($220 million) and the Series C SEN notes ($200 million) begin to amortize on that date. This date is a result of a recent amendment between the holders of the SENs and GMM, which pushed back the amortization date of the Series E SEN notes from Sept. 28, 2002 and the Series C SEN notes from Dec. 28, 2002.

Fitch's 'B' rating of the SENs reflects an expectation that the principal of those notes will not be written down, as a result of the negotiations. Should the terms and conditions of those notes be weakened they would be considered a distressed debt exchange and downgraded to 'DD'. The differing terms and conditions among the different SEN series could result in different rating actions of the SEN series depending on the outcome of the renegotiation.

During 2002, GMM has kept current on all principal and interest payments for its public debt. On Oct. 1, 2002, the company will need to make a $19 million interest payment on its Guaranteed Senior Notes Series A and B. The funds from this payment are expected to come from the capital increase that should be slightly more than $100 million. Absent a failure to reach an agreement with the SEN holders and the BofA and EDC, Fitch does not expect GMM will default or restructure these Guaranteed Senior Notes Series A and B given the tenor and coupon of these securities.

Concurrent to the aforementioned rating actions, Fitch has downgraded the credit ratings of GM to 'B-' from 'BB'. This downgrade reflects weakened business fundamentals in the company's main copper operating subsidiaries and the anticipated debt profile of the group post-debt restructuring for all of the entities. Fitch has also assigned a 'CCC-' rating to Asarco's 7 3/8% notes due in 2003, the 7 7/8% debentures due in 2013 and the 8 1/2% debentures due in 2025. These ratings have been placed on Rating Watch Negative. They reflect Asarco's high debt leverage, relatively high-cost position in the copper mining industry and the restructuring of debt with creditor banks, which is currently in default.

Finally, Fitch has withdrawn the 'BBB-' senior secured local currency rating of Southern Peru Copper Corporation (SPCC) due to the prepayment of its secured export notes during 2002. SPCC is owned by Asarco. Fitch maintains its 'BB-' foreign currency rating of SPCC. The Rating Outlook for this rating is Negative. This rating is the same as that of the Republic of Peru.