Rothschild Hiring Spurs Tumble in ICA Bonds After Earnings Miss

  • Traders betting builder will have to restructure debt
  • Shares also decline after worst quarterly results in 14 years

Empresas ICA SAB’s bonds sank to record lows and shares tumbled as Mexico’s biggest builder said it hired Rothschild & Co. as a financial adviser, spurring speculation that it will restructure debt after posting the largest net loss since 2001.

ICA’s $500 million in debt due in 2021 dropped 19.06 cents to 25.17 cents on the dollar. The shares plummeted 24 percent to 7.13 pesos, the most since October 2008 and leading declines on the IPC stock benchmark. Rothschild is helping ICA evaluate options, but the company isn’t planning to file for bankruptcy protection, Chief Executive Officer Alonso Quintana said Thursday.

“Rothschild is known as being a rather aggressive financial adviser and restructuring firm,” Jason Trujillo, a fixed-income analyst at Invesco Advisers Inc., said from Atlanta. “So when you hire them, typically it’s not a great sign for bondholders or outside investors.”

Investors have punished ICA this year as cutbacks in government infrastructure projects reduce demand for the builder’s services, and the sinking peso drives up its leverage. Mexico has trimmed spending after a decline of about 50 percent in the price of oil during the past year. Crude historically accounts for a third of public revenue.

The Mexico City-based builder said late Wednesday it lost 2.51 billion pesos ($151 million) last quarter, citing non-cash financial expenses from the peso’s decline against the dollar. Sales were dragged down by “the condition of the Mexican economy, especially in the civil construction area,” the builder said. While the company’s backlog of contracts rose 3.6 percent from the previous quarter to 35 billion pesos, it remains below its level at the end of 2014.

“When we see these results, of course one has to think about ‘what’s next’ and understand that such ‘next’ may very well be a restructure,” Rafael Elias, head of emerging-market strategy at Cantor Fitzgerald, said in a note to clients. “The company is just not adding anything meaningful to backlog that could give us any sense of comfort about its ability to generate enough revenues to service its debt in the future.”

ICA’s $150 million in dollar bonds due in 2017 fell 5.61 cents to 54.78 cents on the dollar, and and its $700 million of 2024 debt declined 12.38 cents to 29.82 cents.

In response to a question on a conference call Thursday about whether he can confirm ICA will make bond coupon payments in the next two quarters, the company’s Chief Financial Officer Gabriel de la Concha said that while it’s in the company’s plans to do so, he “cannot guarantee anything at all.” He also said the company wouldn’t meet its 2015 target for leverage reduction.

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