Cemex Avoids Jump in $15 Billion Loan Rates by Reaching Repayment Target

Cemex SAB, the largest cement maker in the Americas, has paid off more than half of a $15 billion bank loan, allowing the company to avoid an increase in interest rates that was set to take effect at year-end.

Cemex made a payment of $131 million today, bringing the total amount paid back to $7.66 billion, said Jorge Perez, a spokesman for the Monterrey, Mexico-based company. Cemex restructured the bank debt in 2009 to avoid defaulting amid the global financial crisis.

The cement maker’s bonds rallied after the announcement, extending a rebound as concern abated the company would fail to meet the terms of the loan and be forced into bankruptcy as growth slows in Mexico and the U.S. Yields on dollar bonds due in 2018 have plunged 580 basis points, or 5.80 percentage points, to 16.3 percent since reaching a record 22.1 percent on Oct. 4, according to data compiled by Bloomberg.

“We have now met the final prepayment milestone under the financing agreement to avoid a 50-basis-point increase in our interest expense,” Fernando Gonzalez, Cemex’s chief financial officer, said in a statement.

Gonzalez said the company continues to comply with its financial obligations and has covered all maturities under the bank financing agreement through December 2013. Cemex has a payment of about $500 million due in December 2013, Perez said.

Balance Sheet

The company had told investors and analysts it would pay down the loan to avoid higher interest and the move isn’t a surprise, said Eric Ollom, a debt strategist with Citigroup Inc. in New York.

“The expectation has been all along, since they had the cash on the balance sheet, that they would eventually write the check to the banks,” Ollom said.

Cemex struggled to pay debt after it borrowed to acquire Rinker Group Ltd. for $14.2 billion in July 2007 as the U.S. housing market slid into recession and global construction slowed.

Cemex shares trading in Mexico City rose 1.3 percent to 4.87 pesos at 1:30 p.m. local time, after gaining 7.4 percent yesterday. They had dropped 62 percent this year before today.

Investors dumped the company’s bonds earlier this year as concern mounted that it may need to renegotiate a bank covenant that specified total funded debt must be no more than seven times earnings before interest, taxes, depreciation, amortization, a measure of cash flow known as Ebitda. Cemex reported the ratio at 7.16 times at the end of June.

Asset Sales

Lorenzo Zambrano, Cemex’s chairman and chief executive officer, said during a Sept. 29 meeting with investors and analysts in New York that the company will meet the year-end covenant with cost savings and asset sales without having to renegotiate it.

Today’s payment is small and doesn’t have a significant bearing on the covenant ratio, Ollom said. The company may “scrape by” this year, but will face more difficulties meeting a lower covenant of 6.5 times Ebitda for the end of June and 5.75 times in December 2012, he said.

“If they need a waiver, I’m fairly confident that given the long-term relationship they have with their banks that the banks would waive it,” Ollom said.

The cement maker is scheduled to report earnings on Sept. 26 before the market opens. The average estimate of eight analysts surveyed by Bloomberg is for the company to post a loss of 11 cents per American depositary receipt.

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.