Titan Cement cut to ‘BBB-/A-3’ on market downturn

Standard & Poor's Ratings Services lowered its long- and short-term corporate credit ratings on Greek cement manufacturer Titan Cement Co. S.A. to 'BBB-/A-3' from 'BBB/A-2' and removed the ratings from CreditWatch where they had been placed with negative implications on May 6, 2008. The outlook is negative.
"The downgrade reflects the expected sharp negative impacts that a combination of severe market conditions in the U.S. and aggressive spending on acquisition and capacity increases will have on the group's key credit metrics from this year onward," said Standard & Poor's credit analyst Xavier Buffon.
"The negative outlook relates to the considerable expected reduction in financial headroom available in respect of financial covenants under the group's outstanding U.S. private placements," said Buffon.
The negative outlook points to the risk of a downgrade should management fail to restore greater headroom under financial covenants or if covenants ratios are weaker than expected at end-June 2008 or in the coming quarters.
Aside from this issue, the group's robust cash flow generation should continue, given more buoyant conditions in emerging markets and still-solid domestic margins, thereby covering significant spending on growth projects. Credit measures should be adequate, with the adjusted ratio of FFO to debt at about 30%.
The combination of a sharper deterioration than expected in the Greek market and weak conditions in the U.S., or price disruption in key markets, could generate additional rating pressure, but this is not anticipated.
Rating upside seems remote at this stage, and would require a significant and resilient improvement in credit metrics after the expected deterioration this year, to compensate for the group's still somewhat limited geographic diversity.