Fitch Assigns `BBB-' LC And `BB+' FC Debt Rtgs To Desc

    CHICAGO--Jan. 7, 2002--Fitch has assigned a 'BBB-' senior unsecured local currency debt rating to Desc S.A. de C.V. (Desc).
    In conjunction with this rating action Fitch has assigned a 'BB+' senior unsecured foreign currency rating to Desc. The Rating Outlook for the foreign currency rating is Stable and the Rating Outlook for the local currency rating is Negative.
    The ratings are supported by Desc's diversified revenue stream, strong business position in its main business sectors, joint ventures and strategic alliances with international industry leaders and the generation of a majority of revenues in US dollars or US dollar-indexed terms. The ratings are also supported by a solid financial profile and management's commitment to its preservation. The ratings also consider Desc's exposure to a weakening U.S. economy and to international commodity prices. The Negative Rating Outlook on the local currency rating is based on the continued uncertainty surrounding the recovery of the U.S. and Mexican economies and on the significant impact that further macroeconomic weakness has on revenues at both the autoparts and chemical businesses.
    Starting in the second half of 2000, Desc's performance has been negatively affected by lower demand in its autoparts and chemical business due to economic weakness in the U.S. and Mexico, coupled with a strong peso. In 2000, sales grew by 2.1% to reach US$2.4 billion. EBITDA declined by 14% to reach US$350 million. For the nine months ended Sept. 30, 2001, revenues, in dollar terms, declined by 7% and EBITDA declined by 16%.
    Despite a very difficult economic environment, management has been able to achieve a reduction in net debt of US$170 million for the nine months ended Sept. 30, 2001. During 2001, Desc sold non-core and/or non-productive assets which include Unik's heavy and medium duty clutch unit, its 51% stake in the Santa Fe Shopping Center and the Four Seasons Hotel in Punta Mita, and applied all cash proceeds to repay debt. At Sept. 30, 2001, total debt reached US$1.126 billion, representing a reduction of US$140 million from Dec. 31, 2000. The debt profile improved throughout 2001 and was as follows: 29% in short-term debt and 71% in long-term debt, as well as 78% in dollar-denominated debt and 22% in peso-denominated debt. The dollar-denominated portion of the debt is hedged with Desc's export revenues, which in 2000 reached over US$1 billion. Desc has also reduced significantly its capital expenditures and working capital, and implemented cost and expense control programs, supporting the debt repayment program with strict cash preservation policies.
    These measures have contributed to the stability of credit protection measures since the end of 2000, despite sharp declines in revenue and EBITDA. Interest coverage remains strong at slightly above 3 times (x) and total debt-to-EBITDA reached 3.7x for the nine months ended Sept. 30, 2001.
    Desc will continue to face a challenging environment in 2002. Production cutbacks by original equipment manufacturers (OEMs) will continue to exert pressure at Unik. The chemical business will also remain under pressure due to the weak economic environment in the U.S. and Mexico coupled with excess world capacity. In 2002, Desc plans to implement a company-wide program to reduce administrative costs, achieving synergies with the administrative areas. The recent merger into Desc of the chemical operations, formerly held by Girsa S.A de C.V. (Girsa), a holding company wholly owned by Desc, is part of such a centralization plan and other Desc's subsidiaries may follow. Management also intends to continue to divest non-core assets in 2002 and apply proceeds for debt repayment. Under such conditions, and assuming a recovery of the U.S. economy starting by mid-year 2002, Fitch expects credit protection measures to remain at current levels. Under a delayed economic recovery scenario, Fitch expects to see a weakening in credit protection measures during 2002.
    Desc is a diversified holding company and one of Mexico's largest industrial conglomerates, with operations in the autoparts, chemical, food, and real estate businesses. Desc is controlled by the Senderos family. Desc has been listed in the Mexican Stock Exchange since 1975 and in the NYSE (via ADRs) since 1994. In 2000, DESC had sales of US$2.4 billion, EBITDA of US$350 million, exports of US$1.0 billion and net income of US$29 million.
    Unik is Desc's autoparts division and is the leading business segment, accounting for 47% of sales in 2000 and 63% of EBITDA. Unik oversees 26 plants, (one of which is located in Tennessee, U.S.) manufacturing 42 different types of automotive products. Unik is the largest Mexican independent autoparts manufacturer and North America's second largest producer of manual transmissions. Unik sells its products to original equipment manufacturers (OEMs) for installation in new cars and trucks and to distributors for resale in the automotive parts after-market. Desc's petrochemical and consumer goods division, formerly held by Girsa, accounted for 34% of sales and 24% of EBITDA in 2000. Desc manufactures petrochemicals, phosphates, animal feed pigments and additives, particleboard and laminates, and consumer products (such as adhesives, glues, waterproofing additives and sealant, all of which are household brands in Mexico). The food operations accounted for 15% of total sales and 7% of EBITDA in 2000 and comprise the production and sale of pork, shrimp and shelf-stable branded food products. The real state operations accounted for 4% of total sales and 7% of EBITDA in 2000 and comprise the acquisition and development of land for upper income commercial, residential, and tourism use.