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MONTERREY, Mexico--([ BUSINESS WIRE ])--Fitch Ratings has upgraded Grupo Petrotemex, S.A. de C.V. (Petrotemex) ratings as follows:

--Long-Term Issuer Default Rating (IDR) to 'BBB-' from 'BB+';

--Local Currency IDR to 'BBB-' from 'BB+'.

Petrotemex's Rating Outlook is Stable.

In addition, Fitch upgraded DAK Americas, LLC's Long-Term IDR 'BBB-' from 'BB+'. The Outlook is Stable.

Fitch has also upgraded the following ratings for Petrotemex and DAK Americas, LLC:

--Petrotemex US$75 million privately placed senior notes due 2012 (outstanding balance of US$11 million) to 'BBB-' from 'BB+';

--Petrotemex US$275 million senior notes due 2014 (outstanding balance of US$121 million) to 'BBB-' from 'BB+';

--DAK Americas US$115 million privately placed senior notes due 2014 (outstanding balance of US$33 million) to 'BBB-' from 'BB+'.

The rating upgrades reflect Petrotemex's earlier than anticipated deleverage process and Fitch expectations that the company will maintain a net debt to EBITDA ratio around 1.5x over the long term, in line with its parent's financial target. The combination of a net equity injection of USD279 million with improved cash flow from operations and synergies gained from past acquisitions has allowed Petrotemex to reduce its indebtedness. Event risks is still present for Petrotemex, nevertheless Fitch's analysis incorporates the company's strong commitment to support a robust financial profile going forward and that any likely acquisition, that could weaken its capital structure from current levels, should be financed with a mix of capital and debt. Net leverage may increase to approximately 2.0x but with a gradual reduction to 1.5x once the projects mature.

Petrotemex ratings are supported by the company's strong domestic and global competitive position, its long-term supply and customer arrangements and geographically diversified operating base. The resilience of the company's client base, which consists of many food, beverage and personal care products, to economic downturns is also factored into the company's ratings.

Strong Business Profile

Petrotemex growth through acquisitions and organic expansions has positioned it as a major player in the polyester chain in North America, which strengthens its business profile and allows it to operate in a less volatile market. The exit of some participants in U.S. has resulted in market rationalization and ease competitive pressures. Volumes in the region should be driven by stable customer demand and the expectation of no additional capacity in the near term. Fitch expects the company will continue investing in efficiency projects, as well as capacity growth, with a combination of green field investments and potential acquisitions.

Increasing Cash Flow From Operations.

During the last twelve months ended in June 30, 2012, Petrotemex registered Revenues and EBITDA of approximately USD5.9 billion and USD560 million, respectively. In addition, Free Cash Flow was in excess of USD50 million after capex and dividend payments. Fitch believes Petrotemex is well positioned to continue generating positive free cash flow in the next years. Funds flow from operations is expected to cover working capital and normal capex requirements.

Low leverage and Adequate Liquidity

Petrotemex leverage is low. On a pro forma basis after the debt reduction coming from the equity injection, the company's Total Debt to EBITDA will strengthen to 1.5x and Net Debt to EBITDA 1.0x, from 2.0 and 1.5x as of June, 2012, respectively. Fitch expects these credit metrics will remain relatively stable in the future.

As of 30 June, 2012, Petrotemex's cash and marketable securities was USD283 million, short term debt was USD151 million and total debt at USD1.1 billion. Pro forma total debt balance is expected to be approximately USD900 million and debt maturities during 2013 are manageable at approximately USD90 million. The company's liquidity is further supported by committed credit lines in excess of USD200 million; availability under these facilities on a pro forma basis after debt repayment is approximately USD190 million.

Key Rating Drivers

A negative rating action could arise from a combination of sharp and consistent reductions in volumes, profitability and cash flow generation resulting in lower fixed-cost absorption and weaker main credit metrics. A larger than expected debt-financed acquisition that impacts the company's capital structure away from the target net debt to EBITDA of 1.5x on the long term should also pressure the ratings.

Positive rating actions are limited at the time and could be supported by consistent positive free cash flow generation through economic cycles combined with the expectation of lower leverage levels in the mid to long term.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 08 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460 ]

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