News Column

Fitch Affirms Camargo Correa's IDRs at 'BB'; Outlook Stable

June 18, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings of Brazilian conglomerate Camargo Correa S.A. (Camargo) and its subsidiaries as follows:

Camargo:

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

--Local currency IDR at 'BB';

--National scale rating at 'AA-(bra)';

--BRL1 billion debentures 2nd issuance (due 2014) at 'AA-(bra)'.

CCSA Finance Limited:

--Foreign currency IDR at 'BB';

--Local currency IDR at 'BB';

--US$250 million senior unsecured bonds due 2016 at 'BB'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Business Diversification & Stable Dividend Flow:

Camargo's ratings incorporate its broad business diversification and an expectation of continued stable dividend flow from its main business segments. Business diversification is reflected in the composition of its 2013 consolidated EBITDA of BRL3.6 billion with the cement, energy, transportation, engineering & construction, and footwear segments representing 44%, 19%, 13%, 12%, and 11%, respectively. The ratings consider the diversification and credit quality of Camargo's dividend flow, with approximately 78% of the company's dividend receipts expected to come from its cement, toll road concession (CCR), energy concession businesses (CPFL), and engineering & construction (E&C). During 2013, Camargo received dividends of BRL1.2 billion; this dividend flow is expected to remain similar in 2014.

Adequate Liquidity and Debt Service Coverage:

Camargo maintains adequate liquidity with BRL7.1 billion of consolidated cash and marketable securities as of Dec. 31, 2013. The companies directly controlled by Camargo face debt amortizations of BRL3 billion during 2014, which is comfortably covered by BRL7.1 billion of cash at these subsidiaries; most of this cash is held within the company's cement division. On a stand-alone basis, Camargo faces debt amortizations of BRL575 million and BRL687 million during 2014 and 2015, which will be mostly covered by its received dividends levels, which are expected to remain stable at around BRL1 billion the next two years. Camargo's liquidity is further supported by the company's access to credit, as well as by its capacity to execute non-core assets sales if required.

Moderate Leverage:

Camargo has steadily deleveraged since the Cimpor acquisition by InterCement; however, leverage still remains moderate for its rating category. Net leverage declined to 3.6x at Dec. 31, 2013 from 4.8x at Dec. 31, 2012 due to a strong improvement in adjusted EBITDA coupled with a BRL600 million reduction in debt outstanding. Adjusted EBITDA improved to BRL3.4 billion for 2013 from BRL2.9 billion for 2012 due to improved financial results in all businesses during the year, with the exception of platforms within the shipbuilding business unit. Camargo is focused on reducing net leverage to 3.0x by 2014 through a combination of strong cash flow generation, amortization of outstanding debt, reducing capital expenditures, and no acquisitions during the year. Fitch projects Camargo will have difficulty reaching its net leverage target of 3.0x by Dec. 31, 2014 and that the company will finish the year with net leverage more towards 3.3x.

Cement Business Performance Key Credit Factor:

The cement division accounted for 29% of Camargo's consolidated revenues and 44% of its EBITDA during 2013. Net leverage within this business unit was 3.3x. In Brazil, which is the fourth-largest global cement market, Camargo is the second-largest cement producer, with a market share of 18%. Fitch views Camargo's market position in Brazilian cement as solid and sustainable for the medium term due to its scale of operations, with approximately 28 million tons in annual sales, regional diversification within the country, and strong brand recognition. Brazil accounts for 53% of the EBITDA of the company's cement division. Other important regions for the company are South America (ex-Brazil), Africa, and other markets, representing 19%, 16%, and 12% of the cement division EBITDA, respectively. The company maintains 40 cement production units globally with an estimated annual installed production capacity of 46 million tons. Camargo is well-positioned to capture growth in the Brazilian market as a result of its 16 plants with approximately 18 million tons of capacity in the region.

RATING SENSITIVITIES

Camargo's ratings could be affected positively by significant improvement in its cash flow generation, sustained net leverage below 3.0x and strong liquidity metrics.

Fitch would view a combination of the following as negative to credit quality: the company's lack of capacity or willingness to maintain its net financial leverage in line with those levels considered in the ratings; adverse macroeconomic trends leading to weaker credit metrics; debt-funded acquisitions; and/or a change in the company's received dividends from those levels incorporated in the ratings.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', May 28, 2014;

--'National Ratings Criteria', Oct. 30, 2013.

Applicable Criteria and Related Research:

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835229

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.



Fitch Ratings

Primary Analyst

Phillip Wrenn, +1 312-368-2075

Associate Director

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

Gisele Paolino, +55-21-4503-2624

Director

or

Committee Chairperson

Dan Kastholm, CFA, +1 312-368-2070

Managing Director, Latin America Corporates

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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