Fitch Affirms Cobre del Mayo at 'C' Following Exchange Offering

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings of Cobre del Mayo S.A. de C.V. (CdM) following the announcement of an exchange offering for the 2018 senior notes as follows:

--Foreign currency Issuer Default Rating (IDR) at 'C';

--Local currency IDR at 'C';

--USD217 million 10.75% senior unsecured notes due 2018 at 'C/RR4';

--Long-term National Scale Rating at 'C(mex)'.

KEY RATING DRIVERS

The ratings affirmation follows CdM's proposed exchange offering today subsequent to Fitch's expectation that the company would not be able to meet its next coupon payment due in May 2016. According to Fitch's methodology, the proposed offering imposes a material reduction in terms vis-a-vis the original terms of the 2018 notes, resulting in a distressed debt exchange.

The offering proposes to voluntarily exchange US$217 million senior notes due 2018 for new USD119.5 million senior secured PIK toggle notes due 2021 plus additional secured notes in the amount of accrued and unpaid interest plus USD97.8 million junior non-interest bearing 2045 notes. The offering is contingent to the consent of more than 50% of the holders of the existing note.

If successful, the exchange offering will result in a recovery of approximately 101% of the principal in the form of deeply subordinated quasi-equity instruments depending on holders' election to early tender. Note holders validly tendering the existing notes may, as part of the exchange offer, elect to sell the junior notes portion of their exchange consideration to a subsidiary of CdM's parent company, Frontera Copper Corp, equal to a 2% recovery of this instrument.

Existing note holders that do not participate in the exchange will remain outstanding and subject to existing terms, but subject to an as yet unspecified amendment of the existing note indentures. The ratings continue to reflect pressure on liquidity to service debt if the exchange is unsuccessful.

RATING SENSITIVITIES

The successful completion of the exchange will result in the IDRs being downgraded to Restricted Default 'RD'. Shortly after the distressed debt exchange is completed, the IDRs will be re-rated and raised to a performing level, which usually is still in the low speculative grade. The tender expiration date is Jan. 20, 2016.

Date of Relevant Rating Committee: Dec. 18, 2015.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997080

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997080

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151218005934/en/

Fitch Ratings
Primary Analyst
Jay Djemal
Director
+1-312-368-3134
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Alberto Des los Santos
Associate Director
+52 81 8399 9100
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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