Fitch Ratings assigns BBB rating to Grupo Bimbo's proposed senior notes issuance up to US$800M due 2022

Nevin Barich

MONTERREY, Mexico , January 18, 2012 (press release) – Fitch Ratings has assigned a rating of 'BBB' to Grupo Bimbo, S.A.B. de C.V.'s (Bimbo) proposed senior notes issuance up to USD800 million due 2022. Proceeds of the issuance are expected to be used to refinance existing debt.

Bimbo's ratings are supported by its important size and scale within the global bakery industry, its strong brand recognition and positioning in the markets where it operates, and its extensive distribution network that provides a key competitive advantage. The ratings also incorporate the company's geographic diversification, as well as a broad brand product portfolio that covers a wide consumer base. In addition, Fitch considers that Bimbo participates in a relatively stable industry that is less exposed to economic downturns, which has historically led to low volatility in Bimbo's revenues and margins. The ratings are tempered by higher than historical debt levels, as a result of the company's recent acquisitions.

The ratings consider the expected effect on Bimbo's financial position derived from the acquisition of Sara Lee Fresh Bakery Business in North America (NAFB) and Sara Lee Fresh Bakery Business in Spain and Portugal (SPFB), which were closed during the fourth quarter of 2011 (4Q'11). On a pro forma basis, considering both transactions, Fitch estimates that the total debt-to-EBITDA ratio should approximate to 2.5 times (x). Fitch expects that Bimbo will maintain strong cash flow generation that will be used to pay debt, strengthening its financial position.

Bimbo's total debt as of Sept. 30, 2011 increased to MXN40.6 billion from MXN33.2 billion at Dec. 31, 2010. The increase in debt was mainly explained by the syndicated loan obtained in 2Q'11 for USD1.3 billion that was used to refinance approximately USD841 of its indebtedness and to fund the Sara Lee NAFB acquisition. Additionally, the company accessed a revolving credit facility for around USD90 million. For the last 12 months (LTM) ended Sept. 30, 2011, Bimbo's total debt-to-EBITDA was 2.8x, while net debt-to-EBITDA was 1.9x.

The company's liquidity is strong supported by its positive free cash flow generation. For the LTM ended Sept. 30, 2011 free cash flow (FCF) generation (after capital expenditures and dividends) remained strong, reaching around MXN4 billion, excluding non-recurring items associated with Fargo's acquisition and cross currency swaps to cover dollar-denominated debt. In addition, the company's cash and marketable securities as of Sept. 30, 2011 was MXN12.5 billion with a short-term debt of MXN2.1 billion. Bimbo has no significant debt maturities in the next two years, although debt of around USD860 million, USD650 million and USD682 million comes due in 2014, 2015 and 2016, respectively, from bank loans and local issuances. Management plans to refinance a portion of these maturities with the proposed senior notes up to USD800 million. Fitch considers that the proposed issuance would improve Bimbo's liquidity position by extending its debt maturity profile.

Bimbo's operating performance is within Fitch's prior expectation of stable volume growth and pressured operative margins. For the LTM ended Sept. 30, 2011, net sales grew 5% when compared to the same period of 2010, as a result of higher volume in Mexico and Latin America and the implementation of pricing initiatives throughout the year. Meanwhile, LTM EBITDA margin as of Sept. 30, 2011 declined to 12% from 14% when compared to the same period of 2010. Higher commodity prices across all its regions were the main driver of this deterioration. Fitch's expectation is that operating margins will not improve substantially as commodities are likely to remain at higher levels than previous years, whereas the expected synergies from the Sara Lee NAFB acquisition will not be fully reached until 2014.

Fitch currently rates Bimbo as follows:

-- Long-term Issuer Default Rating (IDR) of 'BBB';

-- Long-term Local Currency IDR of 'BBB';

-- USD800 million senior unsecured notes due 2020 of 'BBB';

-- National Scale long-term rating of 'AA+(mex)';

-- Local Certificados Bursatiles Issuances BIMBO 02-2, BIMBO 09, BIMBO 09U and BIMBO 09-2 of 'AA+(mex)'.

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. 12, 2011);

--'National Ratings Criteria' (Jan. 19, 2011).

Applicable Criteria and Related Research:

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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SOURCE: Fitch Ratings

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