Cemex makes loan prepayment to avoid higher interest rate

Cemex makes loan prepayment to avoid higher interest rate
Published: 20 October 2011

Cemex SAB, the largest cement maker in the Americas, has paid off more than half of a US$15bn bank loan, allowing the company to avoid an increase in interest rates that was set to take effect at year-end.

Cemex made a payment of US$131m, bringing the total amount paid back to US$7.66bn, said Jorge Perez, a spokesman for the Monterrey, Mexico-based company. Cemex restructured the bank debt in 2009 to avoid defaulting amid the global financial crisis.

The cement maker’s bonds rallied after the announcement, extending a rebound as concern abated the company would fail to meet the terms of the loan and be forced into bankruptcy as growth slows in Mexico and the US. Yields on dollar bonds due in 2018 have plunged 580 basis points, or 5.80% points, to 16.3% since reaching a record 22.1% on 4 October, according to data compiled by Bloomberg.

“We have now met the final prepayment milestone under the financing agreement to avoid a 50-basis-point increase in our interest expense,” Fernando Gonzalez, Cemex’s chief financial officer, said in a statement.

Gonzalez said the company continues to comply with its financial obligations and has covered all maturities under the bank financing agreement through December 2013. Cemex has a payment of about US$500m due in December 2013, Perez said.

The company had told investors and analysts it would pay down the loan to avoid higher interest and the move isn’t a surprise, said Eric Ollom, a debt strategist with Citigroup Inc. in New York.

“The expectation has been all along, since they had the cash on the balance sheet, that they would eventually write the check to the banks,” Ollom said.

Cemex struggled to pay debt after it borrowed to acquire Rinker Group Ltd. for US$14.2bn in July 2007 as the US housing market slid into recession and global construction slowed.

Cemex shares trading in Mexico City rose 1.3% to MXN4.87 at 1:30 p.m. local time, after gaining 7.4% yesterday. They had dropped 62% this year before today.