Bond Traders Ignore Fitch Threat to Cut Office Depot Mexico

  • Yields on company’s notes are hovering near a record low
  • Weak peso may boost Office Depot de Mexico’s leverage: Fitch

Bond investors and Fitch Ratings are coming to radically different conclusions about Office Depot de Mexico.

The company’s $350 million of notes due in 2020, first sold in 2013, have soared 10 percent this year, sending yields near a record low, as the office-supplies giant helps its parent reduce debt even after making acquisitions. The unit of Mexico City-based retailer Grupo Gigante SAB bought RadioShack de Mexico SA and Chile’s Prisa Provedores Integrales SA last year. The yield on the bonds rose 0.01 percentage point to 5.23 percent as of 7:26 a.m. in New York.

Yet Fitch lowered its outlook on the company’s BB+ rating to negative last month, warning that a weakening Mexican currency threatens to drive up Office Depot de Mexico’s leverage levels. While the company has hedged against a decline in the peso, the move isn’t enough, said Fitch analyst Maria Pia Medrano.

“It’s operationally a strong company, but it has a stone in its shoe and it’s a stone we think could be important,” she said from Mexico City. The decline in the Mexican peso since Office Depot de Mexico first sold the bonds in 2013 has pushed up the local-currency value of the bonds by 30 percent and “we do regard that as important.”

Meanwhile, a measure of Gigante’s leverage has dropped in the past year. Its ratio of net debt to earnings before items fell to 2 times in the second quarter from 2.9 times 12 months earlier.

Mariela Anguiano, an analyst at BCP Securities who recommended buying Office Depot de Mexico’s bonds earlier this year, said the unit’s leverage levels don’t reflect how well it has performed. 

“For us, the negative outlook doesn’t have a material impact on the credit story,” she said from Greenwich, Connecticut. “It’s a good story.”

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