Fitch Maintains Metrofinanciera's IDRs at 'RD'

MONTERREY, Mexico--()--Fitch Ratings has maintained the ratings for Metrofinanciera, S.A.P.I. de C.V., SOFOM, E.N.R. (Metrofinanciera) as follows:

--Foreign and Local Currency long-term Issuer Default Ratings (IDRs) at 'RD';

--Foreign and Local Currency short-term IDR at 'RD'.

Based on National scale ratings definitions, Metrofinanciera's long- and short-term national scale ratings were modified to 'RD(mex)' from 'D(mex)'.

KEY RATING DRIVERS

Metrofinanciera's ratings remain on default status because the debt exchange of METROFI 10 has not yet been fully completed. At present, roughly 81% of those bonds have been exchanged for the combination of new senior notes (METROFI 12), subordinated notes (METROFI 12-2) and equity shares.

RATING SENSITIVITIES

On Sept. 26 2013, Fitch indicated that Metrofinanciera's IDRs and national-scale ratings would be revised when more than 90% of the METROFI 10 bonds have been tendered and exchanged.

CREDIT PROFILE

In February 2014, the issuer began the process of distressed debt exchange of METROFI 12-2 bonds to shares of equity. This due to the capitalization ratio (calculated based on the methodology of the local development bank Sociedad Hipotecaria Federal) was below of 10% as of December 2013 (1Q'14: 12.9%). The conversion took place in 100% of those bonds. At the 1Q'14, the capitalization ratio measured as tangible equity to tangible assets, stood at low 4.3%. In Fitch's view, an equity loss greater than 20% would put the issuer into insolvency.

During 1Q'14, improvements in the debt profile and lower loan impairment charges, allowed Metrofinanciera to reduce net losses by 22.9% over the same period of 2013. Nevertheless, the recent suspension of residential mortgage loans originations could, in Fitch's opinion, shrink the interest income of the entity.

Metrofinanciera's asset quality remains weak. As of March 2014, the impairment ratio stood at a high 41.7%; also, the reserve coverage relative to impaired loans was 60.5% (average of 2009 to 2013) and it is considered low by Fitch. Moreover, the issuer has an important amount of foreclosed assets, which represented 87.4% of total equity.

In Fitch's opinion, the liquidity risk of Metrofinanciera is partially mitigated. This is due to the fact that the METROFI 12 bonds have a two year grace period on interest payments and a significantly more benign amortization schedule, given that principal payments will be contingent on Metrofinanciera's cash flow capacities. Also, the issuer's liabilities are still largely associated with credit lines from Sociedad Hipotecaria Federal. Nonetheless, Fitch perceives as a material source of risk the upcoming end of the grace period by the end of 2014.

As of March 2014, Metrofinanciera's gross loan portfolio amounted to MXN 8,550.2 million (USD 653.5 million). It was composed of residential mortgage loans (59.5%) and commercial loans (40.5%).

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'National Ratings Criteria' (Oct. 30, 2013);

--'Distressed Debt Exchange Rating Criteria' (Aug. 2, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

National Scale Ratings Criteria

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

Distressed Debt Exchange

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715005

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=832010

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Contacts

Fitch Ratings
Primary Analyst
Gilda de la Garza, +52 818 399 9160
Associate Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Alejandro Garcia, CFA, +52 818 399 9146
Senior Director
or
Committee Chairperson
Franklin Santarelli, +1 212-908-0739
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Gilda de la Garza, +52 818 399 9160
Associate Director
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Alejandro Garcia, CFA, +52 818 399 9146
Senior Director
or
Committee Chairperson
Franklin Santarelli, +1 212-908-0739
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com