Moody's cuts Vitro view to negative

Moody's Investors Service said it changed the outlook for the ratings of Mexico-based Vitro, SA de CV to negative from stable and affirmed the company's B2 corporate family rating and the Caa1 ratings on its senior unsecured notes due 2007 and 2013.

The agency also affirmed subsidiary Vitro Envases Norteamerica, SA de CV's B2 corporate family rating and the B2 rating on its $250 million 10¾% senior secured notes due 2011. The outlook for Vitro Envases is stable.

The change in outlook to negative reflects Moody's concerns that the repayment of Vitro's $152 million 11 3/8% senior notes in May 2007 continues to largely depend on cash sources that are subject to execution risk. Because existing cash reserves and free cash flow will not cover near term debt maturities despite improved operating performance, the agency said it believes that Vitro intends to retire the notes with $50 million in proceeds from its recent secondary offering and $100 million from a potential transaction that so far has not been publicly disclosed in detail.

Moody's said it considers this repayment plan as somewhat aggressive in light of the limited time before the notes' maturity and noted that Vitro could try to access alternative cash sources, such as baskets under Vitro Envases' credit facilities, still outstanding Vitro Crisa sales proceeds, capital market refinancing, or smaller divestitures of ancillary real estate. However, the agency also said that accessing some of these sources simultaneously could be difficult if the above transaction is not consummated as planned.

The affirmation of Vitro Envases' ratings reflects the company's solid operating performance since 2005, its healthy leverage and Moody's expectation of only limited, if any, liquidity support to its parent Vitro.

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