Fitch Ratings has upgraded Automotores Gildemeister S.p.A.'s (AG) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'CCC-' from 'D' on completion of the company's debt restructuring.

The upgrade reflects AG's financial profile after the debt restructuring execution. Fitch has subsequently withdrawn the ratings for commercial purposes.

Fitch has also withdrawn the 'C'/RR5' ratings on AG's USD510 million senior secured notes as the notes were extinguished /liquidated through the company's recently completed debt restructuring process.

The ratings are being withdrawn for commercial reasons.

Key Rating Drivers

The upgrade to 'CCC-' reflects AG's high leverage and weak financial flexibility, with EBITDA to Interest expense estimated to average 2.4x during 2021-2022, post debt restructuring execution. The company managed to reduce total debt by USD199 million from the original USD510 million of debt outstanding. Further, the refinancing materially extends the company's debt maturity profile and the new bonds allow the company to capitalize interest for up to 3.5 years.

On June 30, 2021, AG was effectively restructured due to the consummation of the restructuring plan it had filed on April 2021, under Chapter 11 of the U.S. Bankruptcy Code. As a consequence of the restructuring, AG changed its capital structure. From June 30, 2021, 100% of AG's equity is indirectly controlled by a group of investors who, at the time of the restructuring, were holders of the company's bonds.

As a consequence of its debt restructuring, AG extinguished / liquidated its current debt until the beginning of the process, for a total amount of USD559 million; and issued new bonds for a total amount of USD360 million. With its current debt structure-and excluding any bank debt financing for inventories-AG will not face any debt principal payment until 2027. AG's available cash, short-term debt, and total debt were USD61 million, USD 60 million, and USD432 million, respectively, as of June 30, 2021. AG's LTM June 2021 adjusted EBITDA level was USD61 million, this calculation is adjusted by USD38 million non-recurring expenses related to AG's debt restructuring process. The company gross debt to EBITDA and net debt to EBITDA ratios were 6.8x and 5.9x, respectively, at LTM June 2021.

AG has an ESG Relevance Score of '5' for Management Strategy. AG also has an ESG Relevance Score of '5' for Group Structure. Both the ESG Relevance Score of '5' for Management Strategy and Governance Structure have resulted in the company entering into a debt restructuring process for a third time during the last five years.

Derivation Summary

Post debt restructuring, AG still exhibits high leverage, negative FCF generation and tight financial flexibility. AG benefits from its exclusive agreement to distribute Hyundai cars in Peru and Chile. The automotive retail industry is sensitive to adverse economic conditions and to the volatility of consumer demand, which is influenced by consumer confidence, discretionary spending, interest rates, credit availability and FX currency rates. AG also faces intense competition from other car manufacturers and distributors.

Fitch does not rate any direct peers for the company. AG's closest peers in other sectors include Brazilian fleet and car rental industry leaders, Localiza Rent a Car S.A. (BB/Negative) and JSL S.A (BB-/Positive), which are considered to have less volatile industry risk. Both companies enjoy higher profitability and scale than AG.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer:

Gradual recovery in AG's operational performance, with revenue and EBITDA trending to levels around USD1 billion and USD70 million in FY2022.

Net debt to EBITDA ratio trending to levels around 6x by YE2022.

Interest coverage trending to levels around 1.7x by YE2022.

RATING SENSITIVITIES

Rating sensitivities do not apply as Fitch has withdrawn the ratings.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Issuer Profile

AG's company headquarters are located in Chile. AG is the sole distributor of Hyundai passenger vehicles and light commercial vehicles in Chile and Peru. The cars sold under this brand represent approximately 75% of the company's total volumes. AG holds the sole importer license to import and distribute Hyundai automobiles since 1986 in Chile and since 2003 in Peru. AG imports and distributes vehicles to retail centers, and also performs the role of retailer, given that it owns part of its retail network.

ESG Considerations

AG has an ESG Relevance Score of '5' for Management Strategy due to its track record of recurring operational and debt restructuring processes during the past years, due to challenges the company has faced in implementing its strategy and maintaining competitive positions within its key markets. AG's below-average execution of its strategy has contributed to a materially weaker operational performance and unsustainable capital structure.

AG also has an ESG Relevance Score of '5' for Group Structure due to its track record of the strong influence on AG's owners on its management, which has resulted in decisions related to the company's operational and financial strategies that have been made to the detriment of its creditors.

Both the ESG Relevance Score of '5' for Management Strategy and Governance Structure have resulted in the company entering into a debt restructuring process for a third time during the last five years.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

RATING ACTIONSENTITY/DEBT	RATING		PRIOR
Automotores Gildemeister S.p.A.	LT IDR	CCC- 	Upgrade		D
	LT IDR	WD 	Withdrawn		D
	LC LT IDR	CCC- 	Upgrade		D
	LC LT IDR	WD 	Withdrawn		D

senior secured

LT	WD 	Withdrawn		C

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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