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Fitch Ratings Affirms Grupo Minero Mexico's SENs Ratings; Upgrades Yankees.

Business Editors

CHICAGO--(BUSINESS WIRE)--April 30, 2003

Fitch Ratings has affirmed the following ratings for Grupo Minero Mexico, S.A. de C.V. (GMM): the 'B' ratings for GMM's Grupo Mexico Export Master Trust No. 1 (SEN) Series C and Series D notes; and the 'AAA' rating for GMM's Series E SEN notes.

Fitch has upgraded GMM's guaranteed senior notes due in 2008 and 2028 (the Yankee bonds) to 'B' from 'B-' due to a new security interest provided to all creditors under the recent restructuring agreement. The bondholders were unsecured prior to the debt restructuring; all other terms and conditions are unchanged. GMM has continued to remain current with all payment obligations associated with the Yankee bonds.

The Rating Outlook for all of GMM's ratings is now Stable. Series C and Series D notes and the guaranteed senior notes due in 2008 and 2028 are no longer on Rating Watch Negative. Fitch has withdrawn the 'B+' rating of GMM's Series B1 SEN notes as this obligation has been paid in full.

These rating actions follow the successful closing of a restructuring agreement between GMM and its creditors (banks and SENs holders). The agreement includes the requirement that GMM's indirect parent company, Grupo Mexico S.A. de C.V. (Grupo Mexico), inject approximately US$110 million of new capital into GMM primarily for working capital purposes. GMM's liquidity will also be strengthened by the releasing of approximately US$50 million in exports revenues that had been trapped and under the control of the SENs holders/trustee. GMM has faced major liquidity problems since the downgrade of its SENs obligations on Oct 5, 2001, which triggered an early amortization event that led to the trapping of export cash flows by the trustee.

The restructured obligations total approximately US$879 million, including US$473 million of secured export notes (SENs) and US$406 million of bank debt. The restructured debt has two tranches. Tranche A totals US$270 million and amortizes in years 2004-2007. Tranche B totals US$609 million and amortizes entirely in March 2007.

The rating of the Series C SENs were affirmed at 'B' based on the terms at restructuring, which in Fitch's view provide incremental compensation for extending the maturity of the notes sufficient to prevent a loss of present value to the original noteholders. Series C Noteholders will be receiving a higher interest rate of 10.26% (vs. the original rate of 8.51% at issuance), an additional payment-in-kind (PIK) due at maturity of 0.75% and a 0.5% restructuring fee. The current spread to comparable treasury bonds represents an increased risk premium when compared to the spread at issuance. Although the final maturity of this series is still in 2007 as under the original terms, more principal (US$145 million) is scheduled to amortize in 2007 than was originally scheduled (US$11 million). Noteholders also benefit from a new security package given to all creditors shared on a pari-passu basis. The new security package includes a security interest in substantially all the assets of GMM except domestic receivables. SENs holders will continue to maintain an exclusive security interest in existing and future export receivables as well as control of the cash from export sales.

The ratings of the Series D SENs were affirmed at 'B' since holders will be receiving a higher interest rate of 11.18% vs. the original rate of 9.43% at issuance and a final amortization payment in 2007 (vs. 2010 under the original terms). Such terms, in Fitch's judgement, provide incremental compensation sufficient to prevent a loss of present value to the original noteholders. In addition, holders of Series D SENs are entitled to a make-whole payment (up to a maximum of US$10 million) in the event of early amortization.

The rating of 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.

The rating of the guaranteed senior notes due in 2008 and 2028 (Yankee bonds) were upgraded to 'B' from 'B-'. These bonds were not involved in this restructuring. However, as a result of the restructuring, holders of these originally unsecured bonds will have a security interest, together with essentially all creditors, in the assets of the entire company, except for domestic and export receivables. As prior to the restructuring, only the SENs holders will continue to benefit from the existing and future export receivables and from the right to control of such cash flows should certain cash trapping events occur.

The 'B' rating continues to reflect GMM's high leverage post restructuring. GMM should generate about US$130 million in EBITDA in 2003. Should copper prices continue to remain depressed in the $0.70 to $0.80 per pound range, the company's leverage, as measured by total debt-to-EBITDA, could range from approximately 10.0 times (x) to 7.0x and interest coverage could range from approximately 1.0x to 1.5x.

Following this restructuring, GMM's copper mining assets, competitive cost structure and long-term business fundamentals should allow the company to produce reasonably healthy cash flows at more normal copper prices versus today's depressed prices.

GMM is a wholly owned subsidiary of Grupo Mexico, Mexico's largest mining company, with assets in the United States (Asarco) and Peru (Southern Peru Copper Company). GMM's principal copper mining facilities, Mexicana de Cobre and Mexicana de Cananea, are located in northern Mexico and include two open-pit copper mines with a cash cost of production of about $0.54 per pound in 2002. Copper sales of about 279,673 tonnes in 2002 accounted for approximately two-thirds of GMM's revenues. Through Industrial Minera Mexico (IMMSA), which operates several underground polymetallic mines, GMM also produces zinc, gold, silver, molybdenum, lead, and sulfuric acid.
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Publication:Business Wire
Geographic Code:1MEX
Date:Apr 30, 2003
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