Fitch: Significant Credit Risk Related to TMMCB 10 Bonds

MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)-- TMMCB 10, a securitization of cash flows related to the use of offshore vessels, remains highly levered and is increasingly exposed to liquidity risk, according to Fitch Ratings. The current oil sector downturn could exacerbate these risks as asset values and day rates have declined and re-contracting of charter agreements mostly depends on a single offtaker. Fitch does not rate TMMCB 10 but believes the credit risk to be high. The transaction is currently rated 'HR AA (E)' en Revision Especial by HR Ratings. The opinions expressed herein are based on public information and are intended to provide transparency to the market.

The transaction is a securitization of cash flows generated by a dynamic pool of charter agreements between subsidiaries of Grupo TMM S.A.B. de C.V. (TMM) and various offtakers, including Petroleos Mexicanos (Pemex) as the largest one. The underlying contracts relate to the use of various offshore vessels by the offtakers for specified activities and time periods. Bondholders also benefit from a pledge over these assets through a Fideicomiso de Garantia (guarantee trust).

Based on public information, TMMCB 10's loan-to-value (LTV) ratio was approximately 152.2% in January 2011. As of January 2015, the LTV had increased to 158%, reflecting asset value declines and virtually no debt amortization. These LTVs imply limited credit protection should bondholders need to liquidate collateral to fully recover principal. Pursuant to TMMCB 10's 2014 annual report, the pool of 28 existing assets in the guarantee trust was valued at USD435.4 million in January 2015, down from USD565.3 million reported in January 2011. Fitch believes the continued oil market slump coupled with very modest debt amortization in 1H15 have further swelled LTVs.

Low net cash flows caused the transaction to deplete the contingency reserve to pay the February 2015 coupon and a portion of previously deferred principal and interest on July 2015. Interest on the notes accrues on a semi-annual basis at TIIE+245 basis points while full amortization is mandatory at the legal final maturity date (August 15, 2030). While the legal documentation allows for deferral of debt service, the original amortization schedule permitted 5% amortization per year. More than four years later, there has been virtually no amortization. The outstanding balance represents 99.4% of the original balance as of today and the contingency fund has been partially refilled with account receivables.

Intrinsic net cash flows would need to improve for the notes to pay debt service. But this seems challenging in the short term as three of the top five assets (top five assets/agreements represented 42.8% of total revenue in 2014) are scheduled for drydocking in 2015, according to public information. Also, vessel operational and maintenance expenses appear to be both volatile and relatively high, on average representing 69.3% of monthly revenues in 2014. According to the transaction documentation, the notes cannot defer interest after November 2015 (the 10th payment date) and the bonds have already deferred a proportion of interest payments twice since closing.

This securitization is TMM's largest source of funding and the securitized assets represent approximately 85% of total company assets, according to TMM's June 2015 financial statements. Additionally, the securitization remains closely linked to TMM's ability to renew the underlying contracts with Pemex and other offtakers as the securitized charter agreements mature prior to the bonds. Positively, the transaction has a good track record with respect to renewing underlying contracts. Although recent changes to coupon payment dates (to May and November from February and August) provide liquidity support in the very near term, the bonds would remain significantly challenged.

Additional information is available on www.fitchratings.com

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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Fitch Ratings
Rene Ibarra
Senior Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612,
Monterrey, N.L. Mexico
+52 81 8399 9130
or
Greg Kabance
Managing Director
+1-312-368-2052
or
Gregory Lane
Director
+1-312-606-2304
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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