Grupo Famsa B de C : Credit And Debt Ratings Cut To 'D' On Bankruptcy Protection Filing In Mexico And U.S.

Research Update:

Grupo Famsa Credit And Debt Ratings Cut To 'D' On Bankruptcy Protection Filing In Mexico And U.S.

August 7, 2020

Rating Action Overview

• Mexico-basedretailer Grupo Famsa, S.A.B. de C.V. (GFamsa) filed for bankruptcy in Mexico and the U.S. to protect its assets in both jurisdictions.
• This follows GFamsa's missed principal and interest payments on its senior unsecured notes due June 1, 2020, liquidation of its banking unit on July 2, 2020, and subsequent missed debt service payments on several of its local notes.
• On Aug. 7, 2020, S&P Global Ratings lowered its issuer credit rating on GFamsa to 'D' from 'SD'. At the same time, we lowered our issue-level rating on the company's senior secured notes due 2024 to 'D' from 'CCC-' and removed it from CreditWatch with negative implications, where we placed it on July 2. The recovery rating on the 2024 notes remains at '3', indicating a meaningful recovery expectation of 50%-90%.

PRIMARY CREDIT ANALYST

Santiago Cajal

Mexico City

+ 52 55 5081 4521

santiago.cajal

@spglobal.com

SECONDARY CONTACT

Alexandre P Michel

Mexico City

+ 52 55 5081 4520

alexandre.michel

@spglobal.com

Rating Action Rationale

The downgrade follows GFamsa's announcement that it filed for bankruptcy protection in Mexico and the U.S., through Concurso Mercantil and Chapter 15 filings, respectively, in order to protect its assets in both jurisdictions. The company intends to reach an agreement and a comprehensive solution with its creditors through a restructuring of its liabilities.

GFamsa defaulted on its 2020 senior unsecured notes on June 1, 2020, and initially sought a pre-packaged Chapter 11 filing, with an exchange for new notes. However, on July 2, 2020, Mexican authorities announced the liquidation of Banco Ahorro Famsa (BAF), which operated as the company's captive finance unit, enhancing the retail sales through credit. The unit represented a significant portion of the company's balance sheet. As a result, GFamsa missed several debt service payments in the past month and withdrew its pre-packaged Chapter 11 solicitation on July 14, 2020. GFamsa is now seeking to restructure all of its liabilities, resulting in a generalized default on all of its debt obligations.

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Research Update: Grupo Famsa Credit And Debt Ratings Cut To 'D' On Bankruptcy Protection Filing In Mexico And U.S.

Issue Ratings - Recovery Analysis

Key analytical factors

• We lowered our issue-level rating on GFamsa's 9.75% senior secured notes due 2024 to 'D' and maintained our recovery rating on the notes at '3', indicating a meaningful recovery prospect (50%-90%; rounded estimate 55%).
• The senior secured notes will have a first-priority security interest in the collateral. As defined in the 2024 notes indenture, the collateral consists of: 100% of the shares of the common capital stock of certain subsidiaries, related intercompany debt, and any proceeds from the sale of the former two. Moreover, any claim for the difference between $80.9 million outstanding of the 2024 notes and the potential realized proceeds from the collateral will rank pari passu with GFamsa's all other unsecured unsubordinated debt obligations.
• We value GFamsa on a discrete asset valuation basis, given our belief of a potential liquidation of the company, due to a hampered business model from its banking unit liquidation.

Simulated default assumptions

• Simulated year of default: 2020
• Jurisdiction: Mexico

Simplified waterfall

• Gross enterprise value at default: about MXN9.5 billion
• Administrative costs: about MXN500 million
• Net enterprise value at default: about MXN9.0 billion
• Priority claims: about MXN7.7 billion.
• Realized proceeds from collateral value available to secured notes creditors: about MXN1.3 billion*
• Senior secured notes and indebtedness at subsidiary level: MXN2.3 billion
• Recovery expectations for secured debt creditors: 50%-90% (rounded estimate 55%)**

• Notes: All debt amounts include six months of prepetition interest. **Rounded estimate down to the nearest 5%.

Related Criteria

• General Criteria: Group Rating Methodology, July 1, 2019
• Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
• Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate

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Research Update: Grupo Famsa Credit And Debt Ratings Cut To 'D' On Bankruptcy Protection Filing In Mexico And U.S.

Issuers, Dec. 7, 2016

• Criteria | Corporates | Recovery: Methodology: Jurisdiction Ranking Assessments, Jan. 20, 2016
• Criteria | Corporates | General: Methodology: The Impact Of Captive Finance Operations On Nonfinancial Corporate Issuers, Dec. 14, 2015
• Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
• General Criteria: Methodology: Industry Risk, Nov. 19, 2013
• General Criteria: Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Oct. 24, 2013
• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Ratings List

Downgraded

	To	From
Grupo Famsa S.A.B. de C.V.
Issuer Credit Rating	D/--/--	SD/--/--
Downgraded; CreditWatch/Outlook Action
	To	From
Grupo Famsa S.A.B. de C.V.
Senior Secured	D	CCC-/Watch Neg
Recovery Rating	3	3

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

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Research Update: Grupo Famsa Credit And Debt Ratings Cut To 'D' On Bankruptcy Protection Filing In Mexico And U.S.

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