Bloomberg News

Cemex Bonds Fall Most on Record on Debt Covenant Concerns

October 04, 2011

(Updates to add company’s comment in the fourth paragraph.)

Oct. 4 (Bloomberg) -- Bonds sold by Cemex SAB, the largest cement maker in the Americas, fell the most on record as concern mounted that the company will fail to meet debt covenants.

Yields on the bonds due in 2020 jumped 392 basis points, or 3.92 percentage points, to 21.39 percent at 4 p.m. New York time, the biggest increase since the securities were issued in April 2010, according to data compiled by Bloomberg. The bonds’ price sank 10.96 cents to 53.09 cents on the dollar.

The global economic slump is fueling concern that Cemex’s sales will slow in the U.S. and Europe while an 11 percent plunge in the peso in the past month drives up the cost of servicing its dollar-denominated debt. Cemex would seek to renegotiate year-end covenants that apply to $15 billion of bank loans if it weren’t able to comply with the rules, said Maher Al-Haffar, chief of communications and investor relations.

“We would have to do what we need to do to continue our businesses,” Al-Haffar said. “It’s very difficult for us to assume that, if need be, our bankers would not be supportive of Cemex.”

The company’s total funded debt relative to earnings before interest, taxes, depreciation and amortization rose to 7.16 times at the end of June. A covenant under Cemex’s bank agreement calls for the ratio to be 7 times or less at the end of December.

If the covenant isn’t met, the banks could force Cemex into default.

Seventh Loss

Cemex, which reported a net loss of $294 million in the second quarter, the seventh straight quarter of losses, obtained a $15 billion bank loan in 2009 to head of default. The company doesn’t have any large maturities until the end of 2013, Al- Haffar said, giving it two years to sell assets, reduce costs and wait for demand to recover.

“They don’t have another option” except to renegotiate the covenants, said Alejandro Hernandez, who helps manage about $1.5 billion of debt at Interacciones Casa de Bolsa SA in Mexico City. “For now I don’t think the company will go bust, but obviously it looks delicate.”

Chief Executive Officer Lorenzo Zambrano said during a Sept. 29 meeting with analysts and investors in New York that the company would meet the covenant through cost cuts, asset sales and lower fuel prices. Al-Haffar said analysts are over- estimating the impact of the weaker peso on the debt-to-Ebitda ratio.

More than 70 percent of Cemex’s $18.4 billion of total debt plus perpetual notes was denominated in dollars at the end of June.

Shares Gain

Shares climbed 6.5 percent to 3.96 pesos in Mexico City trading after earlier dropping as much as 12.6 percent. They fell 16.2 percent yesterday and are down 69 percent this year, the worst performer on the benchmark IPC index of 35 Mexican stocks.

Cemex will work with banks to make sure it meets covenants and can refinance debt maturing in 2014, said Al-Haffar.

“At the end of the day, we’re going to work through these challenges,” he said. “Nobody wins if we don’t and everybody gains if we do.”

--With assistance Boris Korby in New York. Editors: David Papadopoulos, Brendan Walsh

To contact the reporter on this story: Thomas Black in Monterrey at; Jonathan J. Levin at

To contact the editor responsible for this story: David Papadopoulos at

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