S&P rates Peņoles notes BBB-

Standard & Poor's said it assigned a BBB- rating to Mexico-based Industrias Peņoles SA de CV's $377 million notes, of which $342 million is due 2018 and $35 million is due 2021. The agency also affirmed the company's BBB- long-term corporate credit rating and the BBB- rating on its outstanding $122 million 8.39% structured silver payable notes due 2012. The outlook is stable.

The affirmation follows Peņoles' announcement that it will increase its current debt by $119 million. Although the debt increase has a slightly negative effect on Peņoles' leverage ratios, S&P said this is offset by the improvement in its debt maturity profile, as the refinancing will extend the company's average debt life to 10.2 years from 3.2 years and reduce its interest rate to 6.55% from 8.39% on the refinanced notes.

Nevertheless, the overall effect of lower interest rate and higher debt will add around $7 million to interest expenses. Therefore, and even after the aforementioned debt increase, S&P said it expects interest coverage and total debt to EBITDA ratios of at least 6.0x and at most 1.8x, respectively, by the end of 2006.

The agency said the rating on Peņoles reflects its low-cost operating position, vertically integrated operations, relative product diversification and position as the world's largest refined silver producer.

These factors are counterbalanced by the cyclicality of the industry, commodity price volatility and an aggressive dividend policy, the agency said.

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