Fitch Downgrades Maquinaria Especializada's Secured Notes to 'D'

CHICAGO--()--Fitch Ratings has downgraded the following senior secured notes issued by Maquinaria Especializada MXO Trust Agreement No. F/00762 (GeoMaq):

--US$160 million senior secured notes to 'D' from 'C'; RE40%.

On Nov. 3, Fitch received written notification from The Bank of New York Mellon, as Indenture Trustee, of the intention of the controlling party to use the balance of the cash in the trust accounts to pay current and anticipated fees, expenses and indemnities of the Trust. These payments would be made in lieu of making payment of scheduled principal and interest. These fees and expenses were related to amounts due to legal counsel of the controlling party, the indenture trustee, and financial advisers to the Trust in connection with the ongoing proceedings and negotiations with Corporacion Geo S.A.B. de C.V. (Geo Corp.) in Mexico in an effort to maximize the recovery to the noteholders. This notice was sent to the noteholders on Oct. 22, 2014.

Together with the notice to the noteholders, Fitch received the most recent quarterly report from the Mexican trustee. According to this report, approximately $1.38 million were used to cover fees and expenses. No payment of principal or interest due on the notes was made on November 3rd at the noteholders instruction.

On June 2014, the noteholders directed the trustee to accelerate GeoMaq's senior secured notes. Upon the declaration of an early amortization of the notes, the noteholders had an unsecured claim against Geo Corp. in an amount equal to $155.2 million and the right to dispose of the trust estate, including the repossession and sale of the machinery serving as collateral for this transaction.

KEY RATING DRIVERS

The rating action reflects the missed debt service payment of approximately $5.2 million of principal and interest due on Nov. 3. The outstanding balance of the notes is $150 million. Fitch's rating addresses the timely payment of interest and principal according to the original schedule and does not include any potential acceleration amounts or modifications to the original conditions.

Fitch assigns Recovery Estimates (RE) to all classes rated 'CCCsf' or below. REs are forward-looking, taking into account Fitch's expectations for principal repayments on a distressed structured finance security. Fitch's RE relates to an estimate of the potential cash flows generated by the underlying asset, including the potential liquidation of the machinery and expected recovery on the unsecured claim against Geo Corp.

The RE reflects Fitch's concern related to the potential recoveries on the unsecured claim against Geo Corp. as the company is still going through the bankruptcy process negotiations. An extended period of negotiations with debt holders and the possibility of not including GeoMaq as part of the exit plan increase the uncertainty of potential recovered amounts on the unsecured claim. Fitch's RE does not reflect the possible outcome of a restructuring of the notes.

RATING SENSITIVITIES

The 'D' rating assigned to the senior secured notes could be upgraded upon a restructuring of the notes. Otherwise, the 'D' rating will be withdrawn within 11 months of today's date.

TRANSACTION SUMMARY

The underlying issuance is a securitization of the payment rights related to the leasing of existing and future essential construction machinery pertaining to Geo Corp. Repayment of the notes is supported by quarterly servicer payments paid by Geo Corp. during a 10-year period under the terms of the service agreement (SA) for the operation of the equipment. Upon termination of the SA, the transaction relied on the funds deposited in the reserve accounts to make timely debt service payments

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 16, 2011);

--'Fitch: Noteholders Direct Trustee to Accelerate Maquinaria Especializada's Notes' (June 11, 2014);

--'Fitch Affirms and Withdraws GEO's IDR at 'RD'' (Dec. 18, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Structured Finance Recovery Estimates for Distressed Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=916875

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Cinthya Ortega
Director
+1-312-606-2373
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gregory Lane
Associate Director
+1-312-606-2304
or
Committee Chairperson
Greg Kabance
Managing Director
+1-312-368-2052
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Cinthya Ortega
Director
+1-312-606-2373
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gregory Lane
Associate Director
+1-312-606-2304
or
Committee Chairperson
Greg Kabance
Managing Director
+1-312-368-2052
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com