Research Update: Fomento Economico Mexicano Downgraded To 'BBB+' From 'A-' On Valora Acquisition And Increased Leverage; Outlook Stable

Mexico-based and leading Latin American retailer, Fomento Económico Mexicano S.A.B. de C.V. (FEMSA), has completed its acquisition of food service and convenience store retailer Valora Holding AG (Valora: not rated) for about $1.2 billion, with cash from its balance sheet. We now forecast FEMSA's adjusted pro forma leverage to be about 2.3x by year-end 2022, before improving below 2.0x in the next 24 months considering a rapid integration. This signals a departure from FEMSA's financial policy of leverage below 1.5x that has supported the 'A-' rating. On Oct. 18, 2022, S&P Global Ratings lowered its global scale long-term issuer credit and issue-level ratings on FEMSA to 'BBB+' from 'A-' and removed them from CreditWatch with negative implications. The outlook is

...- Mexico-based and leading Latin American retailer, Fomento Econ=mico Mexicano S.A.B. de C.V. (FEMSA), has completed its acquisition of food service and convenience store retailer Valora Holding AG (Valora: not rated) for about $1.2 billion, with cash from its balance sheet. - We now forecast FEMSA's adjusted pro forma leverage to be about 2.3x by year-end 2022, before improving below 2.0x in the next 24 months considering a rapid integration. This signals a departure from FEMSA's financial policy of leverage below 1.5x that has supported the 'A-' rating. - On Oct. 18, 2022, S&P Global Ratings lowered its global scale long-term issuer credit and issue-level ratings on FEMSA to '###+' from 'A-' and removed them from CreditWatch with negative implications. The outlook is stable. We also affirmed our 'mxAAA' long-term and 'mxA-1+' short-term national scale ratings. The outlook remains stable on the national scale. - The stable outlook reflects our expectation that steady EBITDA growth, strong...

Research Update