Fitch Assigns Initial Rating to Trinidad Cement Limited Group of 'B-'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned the following initial ratings to Trinidad Cement Limited Group (TCL Group):

--Foreign currency Issuer Default Rating (IDR) 'B-';

--Local currency IDR 'B-';

--Expected senior secured note issuance of up to USD325 million 'B-'.

The Rating Outlook is Stable.

TCL Group's 'B-' ratings reflect its business position in the relatively small Caribbean cement market, high leverage, weak liquidity, and volatility of its cash flow generation due to the cyclicality of the cement industry. TCL Group has relatively small operations with total capacity across its three cement operating facilities of 1.5 metric tons (MT). Fitch believes the company will be able to slowly deleverage, as operating cash flow should continue to improve as volumes and sales prices increase. Further factored into the ratings is the favorable outlook for the Caribbean cement industry over the medium term driven by the region's positive macroeconomic and business environment.

TCL Group's financial performance and cash flows stabilized in 2013 since the economic downturn during 2011-2012 with progressive momentum into 2014. In addition, the company has no significant or immediate capital expenditures required in the medium-term, which should allow TCL to use its cash flow to repay debt and rebuild its cash balances.

KEY RATING DRIVERS:

High Leverage and Poor Credit Metrics Compared to Industry Peers

TCL Group had net leverage peak at 18.5x at Dec. 31, 2011, which declined to 13.2x at Dec. 31, 2012, and to 4.5x at Dec. 31, 2013. The high leverage in 2011 and 2012 was attributable to the company issuing additional debt to finance its capital expenditures coupled with the poor macroeconomic environment during the period. This resulted in a legal default for all loan agreements on Dec. 31, 2011. The TCL Group executed various agreements and restructured its debt on May 10, 2012. Since then all terms of the restructured debt have been met including all loan payments and maintenance of specific financial ratios and negative covenants. Despite the improvement in leverage, credit metrics are still quite weak for TCL Group as evidenced by EBITDA/gross interest expense coverage of 1.9x, funds from operations interest coverage of 2.0x, and free cash flow (FCF) debt service coverage of 0.8x at Dec. 31, 2013. Fitch projects TCL Group will achieve a net leverage ratio of 3.8x during 2014. TCL's FCF was USD20 million during 2013 and should remain positive over the near term.

Tight Liquidity Compared to Short-Term Debt

TCL Group reported cash and marketable securities of USD9 million, which compared unfavorably to short-term debt of USD30 million as of Dec. 31, 2013. The expected note issuance of USD325 would refinance a majority of the company's short- and long-term obligations and free up cash flow to improve the company's cash position. Nevertheless, liquidity is projected to remain tight over the next several years as the TCL Group is projected to continue to use cash flow to repay debt.

Leading Caribbean Producer of Cement

TCL Group is the leading producer of cement with eight operating companies in Trinidad, Barbados, Guyana, Jamaica and Anguilla. Its product lines include various types of cement, concrete, packaging, slings, and marketing. The company has a dominant market position in the CARICOM region with market shares in Trinidad & Tobago, Guyana, and Jamaica of 100%, 97%, and 85%, respectively. Estimated CARICOM cement demand for 2014 is projected to grow approximately 1.5% from 14MT for 2013 to 14.2MT driven primarily by the general overall economic improvement in the region. Regional prices are projected to increase by approximately 3%.

Significant Barriers to Entry

A majority of the demand for shipments of cement to Caribbean islands are for smaller quantities and, coupled with the shallow ports at most of the islands, makes it cost prohibitive for many of the larger cement players to penetrate the market. The small size of the cement market in the Caribbean, as well as the difficulty of logistics in this region, has limited the impact of imports and provided TCL Group with an EBITDA margin of 22% for 2013. TCL Group's strategic locations, modernized facilities, and strong reputation in the region translate into cost advantages that are difficult for competitors to replicate.

RATING SENSITIVITIES:

Positive Rating Actions: TCL's rating could be positively affected by significant improvement in its cash flow generation, leverage, liquidity, and profitability metrics driven by higher than expected volumes and stable prices.

Negative Rating Actions: TCL's rating could be negatively affected by some combination of the following: significant deterioration in the Caribbean macroeconomic and business environment resulting in declining profitability and an inability to deleverage from its high leverage position; increasing competition resulting in the company's EBITDA margin deterioration; significantly higher levels of capital expenditures.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

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Contacts

Fitch Ratings
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
phillip.wrenn@fitchratings.com
or
Secondary Analyst
Jay Djemal
Director
+1-312-368-3134
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
phillip.wrenn@fitchratings.com
or
Secondary Analyst
Jay Djemal
Director
+1-312-368-3134
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com