Fitch has also downgraded Vitro's national scale ratings to 'BBB(mex)' from 'A+(mex)'. The ratings have been removed from Rating Watch Negative and have been placed on Stable. Fitch has also affirmed the short-term national scale rating at 'F2(mex)'.
Additionally, Fitch has assigned a rating of 'B+' to the recent issue of senior secured guaranteed notes by Vitro Envases Norteamerica, S.A. de C.V. (Vena). Fitch has also assigned a rating of 'B-' to the 2007 11 3/8% notes issued by SOFIVSA and the 2013 11 3/4% issued by Vitro.
Continued pressures on free cash flow have limited debt repayment and leverage remains high. The challenging environment deteriorated operating fundamentals and credit protection measures to levels not commensurate with the prior rating categories. Notwithstanding, Fitch believes that the ongoing recovery in Vitro's markets and the company's internal cost-reducing efforts should help stabilize financial indicators at current levels.
The ratings also incorporate the structural subordination of the unsecured local bonds. Last July 23, 2004, VENA, the holding company of Vitro's glass containers division, issued senior secured guaranteed notes for US$170 million due 2011. The notes are secured by first priority liens on most assets of Vena's Mexican subsidiaries' and of Vitro Packaging, Vena's U.S.-based subsidiary. Fitch believes that the completion of this transaction is a positive event that will improve Vitro's debt maturity profile and enable the company to mitigate short-term liquidity risk. However, the refinancing of debt with facilities that include collateral security reflect certain limitations on the company's financial flexibility.
During 2004, Vitro expects to generate a modest free cash flow after covering fixed-asset investments and working capital requirements. Fitch will continue to monitor the company's developments and the ratings closely.
Vitro is the leading producer of flat glass, glass containers and glassware in Mexico, servicing the construction, automotive, beverage, retail, and service industries. Approximately one-half of revenues are derived from exports and sales from foreign subsidiaries located in the U.S., Spain, Portugal, Central America, and Bolivia. In 2003, the company had sales of US$2.2 billion, EBITDA of US$364 million, exports of US$580 million, and foreign sales by subsidiaries of US$638 million. Vitro is headquartered in Monterrey, Mexico.