Fitch Downgrades Metrofinanciera's Perpetual Subordinated Notes to 'C/RR6' and Individual to 'F'

MONTERREY, Mexico--(BUSINESS WIRE)--Fitch has downgraded the USD100 million 11.25% perpetual non-cumulative subordinated step-up notes issued by the Mexican mortgage company Metrofinanciera, S.A. de C.V. (Metro) to 'C/RR6' from 'CCC-/RR6', following the deferral of the coupon due on November 18, 2008 for USD 2.8 million. The coupons of this issue are deferrable on a non-cumulative basis and therefore the holders cannot claim future payments on the deferred coupons. As per the notes indenture, Metro is allowed to defer coupon payments when its risk-weighted capital ratio stands below 8%, and this is not considered a default of the company. The company's other issuer and debt ratings were affirmed as indicated below.

In turn, Metro's Individual rating was downgraded to 'F' from 'D/E'. Metros' financial profile reflects continued weakening of asset quality, liquidity, capital adequacy, profitability and business risk. An 'F' rating is retrospective and reflects Fitch's view that, given the continuing pressure on Metro's capacity to refinance its liabilities in the capital markets, the entity would have defaulted absent the support measures put in place by the Sociedad Hipotecaria Federal (SHF). Fitch has indicated in the past that such support was likely, and it has proven critical for Metro's continued operations. For further detail, see Fitch's commentaries 'Fitch Affirms Metrofinanciera's at 'B+' and 'BBB(mex)' with Stable Outlook; Individual Downgraded to 'D/E'' released on Aug. 19, 2008 and 'SHF Support Program Sets a Rating Floor for Non-Bank Mortgage Companies' released on Oct. 22, 2008 for further details.

Metro's Issuer Default Ratings (IDRs) and national-scale ratings are support-driven and continue to reflect the potential support from SHF, in order to sustain continued financing for the socially important housing sector. The company's long-term IDRs are aligned to Metro's support rating floor at 'B+', which in turn is derived from the '4' support rating.

The issue and recovery ratings of the perpetual subordinated notes at 'C/RR6' reflect Fitch's view that recovery prospects are low. While Fitch considers that official support will allow Metro to continue fulfilling its senior unsecured obligations, the notes are unlikely to benefit from external support. Hence, recovery expectations are limited in view of the subordinated nature of this issue and the uncertainty over the foreseeable future on Metro's ability to improve its financial condition while reducing its reliance on external support.

The rating actions are as follows:

--Foreign currency long-term IDR affirmed at 'B+';

--Foreign currency short-term IDR affirmed at 'B';

--Local currency long-term IDR affirmed at 'B+';

--Local currency short-term IDR affirmed at 'B';

--USD100m 11.25% perpetual non-cumulative subordinated step-up notes downgraded to 'C/RR6' from 'CCC-/RR6';

--Individual rating downgraded to 'F' from 'D/E';

--Support rating affirmed at '4';

--Support rating floor affirmed at 'B+';

--Long-term national-scale issuer rating, including local senior debt issues affirmed at 'BBB(mex)';

--Short-term national-scale issuer rating, including the company's commercial paper affirmed at 'F3(mex)'.

The Rating Outlook is Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.