Fitch may upgrade DESC debt

Fitch Ratings said it has placed the B+ senior secured and the B unsecured foreign and local currency ratings of DESC SA de CV on Rating Watch positive. Fitch has also placed DESC's BBB- (mex) national scale rating on Rating Watch positive.

These rating actions follow the recent announcement by the company of plans to increase capital by about $248 million, the proceeds of which will be used to reduce debt to about $800 million from $1 billion. On a pro forma basis, this would lower the company's total debt-to-EBITDA ratio to 4 times from 5.3x.

Fitch said it will continue to monitor the company's business environment to determine whether the decreased debt levels merits a rating upgrade. DESC's EBITDA margin has decreased from 18% in 1999 to 10% in 2003. The factors that have hurt the company's margins include reductions in demand and increased pricing pressure from original equipment manufacturers in the auto industry. In addition, the company's petrochemical business has been hurt by increased raw materials prices, as well as overcapacity within the industry.

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