Fitch Revises Masisa's Rating Outlook to Negative; Affirms IDRs at 'BB'

Fitch Ratings has affirmed Masisa S.A.'s foreign and local currency Issuer Default Ratings (IDRs) at 'BB', and long-term national scale rating at 'A- (cl)'. In addition, Fitch has revised Masisa's Rating Outlook to Negative from Stable. A full list of Masisa's ratings follows this release.

KEY RATING DRIVERS

Challenging Operating Conditions

The Negative Outlook follows deterioration in the financial performance of Masisa's operations with the expectation that challenging conditions will continue over the medium term. Brazil, a location of recent investments for the company, grew its GDP by just 0.1% in 2014, from 2.9% in 2013, with Fitch projecting minus 1% growth in 2015. Excluding Venezuela and Argentina, Brazil represented 41% of Masisa's EBITDA in 2013, declining to 32% in 2014 with further decline expected in 2015-2016. On a consolidated basis, Brazil's participation in EBITDA declined to 14% in 2014 from 17% in 2013.

The economic and political environment in Venezuela has also worsened with this country representing 29% of the company's total consolidated EBITDA in 2014. Argentina represented 27% of consolidated EBITDA during 2014. Combined these two markets have historically comprised 50% to 55% of Masisa's consolidated EBITDA. Weaknesses in these markets include non-stable currencies, political interference, as well as foreign currency transfer restrictions. During 2014 Masisa repatriated USD12.5 million of dividends from Argentina, down from USD37.9 million in 2013 and USD20 million in 2012. In 2015, Masisa should repatriate around USD12 million.

Weaker Latin American Markets

Masisa's consolidated Recurrent EBITDA (excluding USD145 million non-recurrent EBITDA from the sale of forestry assets to Hancock) declined to USD194 million during 2014, down from USD240 million in 2013, mainly due to the weakening situation in Venezuela and decline in Brazil. The region's economies have been affected by a softer economic environment and the devaluation of local currency against the dollar. In Brazil and Chile the company has also faced competitive pressures which have resulted in lower prices. Mexico has been the only market in which Masisa has shown improved performance in line with the consolidation of Rexcel's assets acquired in 2013.

Fitch expects the company's consolidated EBITDA to be around USD210 million in 2015 following management's actions to improve operational efficiency, reduce corporate expenses, and increase export of MDF moldings to the U.S.

Leverage Ratios Trending Higher

The worsening macroeconomic conditions across the Latam region resulted in Masisa's net debt-to-EBITDA and total debt-to-EBITDA ratios (on recurrent EBITDA basis) increasing to 3.4x and 4.0x as of Dec. 31, 2014, respectively, compared with 3.0x and 3.6x, as of Dec. 31, 2013. These ratios are above the 3.2x and 3.8x, that the company averaged during the period 2010-2013. Net leverage excluding operations in Venezuela and Argentina was 8.7x, versus 8.8x as of Dec. 31, 2013. EBITDA generated outside Venezuela and Argentina decreased to approximately USD88 million in 2014 from an average of USD100 million during the period 2011 to 2013 due to a highly competitive environment in Brazil and Chile and weaker macroeconomics of Latin American markets.

Forestry Asset Sale Bolsters Liquidity

Masisa's liquidity position is adequate with USD114 million of cash and equivalents, of which USD61 million was held outside Venezuela and Argentina as of Dec. 31, 2014. The company sold 32,500 hectares of plantations in Chile to an 80/20 joint venture between Hancock Natural Resource Group (Hancock) and Masisa for USD205 million, received during April 2014. Following the partial use of proceeds to prepay a portion of debt, this sale reduced the company's net debt to USD655 million as of Dec. 31, 2015 from USD729 million as of Dec. 31, 2013. Further supporting liquidity are USD70 million of committed credit lines and USD104 million of available credit lines for working capital financing. The company is also in the process of structuring a USD40 million 8-year amortizing ECA financing.

Masisa's debt is expected to increase to around USD840 million in 2015 to fund the construction of the MDF plant in Mexico. The company had USD55 million of short-term debt and USD713 million long-term debt as of Dec. 31 2014, of which USD629 million is related to the capital markets, USD48 million bank debt, and USD35 million hedging liabilities. Capital market debt comprised USD354 million local currency inflation adjusted bonds issued in Chile, and USD300 million 9.5% senior unsecured notes due in 2019, issued in May 2014.

Capex to Peak in 2015

Masisa's investment program for 2013-2015 decreased to USD452 million, from USD600 million announced during April 2013 following cost optimization initiatives. Masisa's capex is composed of USD152 million of investment in 2015, USD120 million in 2016, USD90 million in 2017 and USD79 million in 2018. The company's maintenance capex is estimated at USD72 million annually, distributed evenly between industrial and forestry maintenance. The company has flexibility to reduce maintenance capex to around USD40 million annually.

Key investments for the company included the acquisition of Rexcel and Arclin's assets (concluded in 2013); increased coating capacity in Chile and Brazil (concluded in 2014); and constructing a new MDF plant in Mexico with annual capacity of 220,000 cubic meters. This mill includes a 100,000 cubic meter melamine facility. Construction of the mill started at the end of May 2014, with 2015 planned to be the most intensive construction period. Total investment should reach USD132 million, of which USD80 million will be spent during 2015. The mill is expected to add USD5 million EBITDA during 2016, USD27 million in 2017 and USD32 million from 2018 and onwards.

Negative FCF Expected

Fitch expects that during the high capex period, Masisa will exhibit negative free cash flow (FCF), returning to positive FCF by 2017 when the investments are mostly concluded. Financing for these investments include the USD100 million capital increase (USD80 million of which was placed in 2013), partial proceeds from the divestiture of non-strategic forestry assets, and cash generated from operations outside Venezuela and Argentina. Masisa has significantly prefunded its capex requirements for the next few years and exhibits a sound liquidity profile in Fitch's base case over the course of the investment period.

Sound Business Position

The ratings of Masisa incorporate its sound business position within Latin America as a leading producer of wood boards with 3.4 million cubic meters of installed capacity. The company's operations are concentrated in Chile, Brazil, Argentina, Venezuela, and Mexico. Masisa has Placentro retail stores throughout the region and commercial offices in Peru, Colombia and Ecuador, and exports to countries outside the region such as to North America. An additional credit consideration is the company's continued use of equity to partially fund growth. Equity increases have occurred in 2003, 2005, 2009 and 2013. Masisa's owns 197,500 hectares of plantations in South America, which along with its forestry land, had a book value of USD628 million as of Dec. 31, 2014.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Modest year-on-year improvement of consolidated EBITDA as a result of corporate restructuring in Chile, efficiencies in production in Chile, Mexico and Brazil, and additional exports of MDF moldings.

--The new MDF plant in Mexico starts operation in 2016 as planned and provides market diversification. The mill should add USD5 million EBITDA in 2016, USD27 million in 2017 and USD32 million in 2018.

--Limited improvement of EBITDA generation in Brazil.

RATING SENSITIVITIES

Negative rating action could occur if the social and political environment in Venezuela deteriorates further, causing damage to Masisa's equity stake in the subsidiary and/or inability to repatriate funds from Argentina. Further sustained deterioration of Brazil's EBITDA contribution could also lead to a downgrade, and/or a delay in achieving projected cash flows from Mexico's MDF plant, currently in the construction stage.

A Stable Outlook could occur with the stabilization of EBITDA in Masisa's relevant markets and should the Mexican plant begin to generate expected cash flows. Absent significant debt reduction, stable rating actions are not likely in the short term due to Masisa's reliance upon Venezuela and Argentina for around 60% of its EBITDA.

Fitch has affirmed the following ratings:

--Foreign and local currency Issuer Default Ratings (IDRs) at 'BB';

--National scale rating of Bond Line No. 356, No. 439, No. 440, No. 560, No. 724 and No. 725 at 'A-(cl)';

--Long-term national scale rating at 'A- (cl)';

--USD300 million senior unsecured 9.5% notes due 2019. The notes are unconditionally guaranteed by Forestal Tornagaleones and Masisa Forestal at 'BB';

--National Short-term rating at 'N1(cl)';

--Equity rating at 'Primera Clase Nivel 3(cl)'.

The Rating Outlook is Negative.

`Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' August 2014'.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983252

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