CORPORACION DURANGO
Press Release
Durango, Mexico June 5, 2002. - Corporacion Durango, S.A. de C.V. (NYSE: CDG,
BMV: CODUSA) (the "Company"), one of the largest integrated paper producers
based in Latin America, today issued the following statement in response to
Moody's Investor Service's decision to confirm the Company's senior implied
rating and lower its senior unsecured note rating.
In its announcement, Moody's stated that the ratings of the senior notes were
lowered to reflect their effective subordination to secured debt and structural
subordination to subsidiary debt. However, over the past year the Company has
undertaken significant steps to improve the bondholders' position through:
o Merging Corporacion Durango, S.A. de C.V. with Grupo Industrial Durango,
S.A. de C.V. thereby increasing the asset base supporting our Senior Notes
due 2003 without increasing the amount of debt to which the Senior Notes
due 2006 or 2008 are effectively subordinated, and
o Reducing the amount of debt to which our Senior Notes are structurally
subordinated by refinancing the notes issued by our subsidiary, Durango
Paper Company, at the Corporacion Durango level.
"We believe that the negative outlook does not reflect the current prospects for
Durango and was based principally on financial results for the first quarter of
2002, which is typically our slowest quarter of the year and which occurred at
the low point in our industry's cycle. Moody's decision will have no impact on
our business operations," said Miguel Rincon, Chairman of Corporacion Durango.
The Company believes that the following factors will lead to improved operating
results during the remainder of 2002:
o The recent announcement by the paper industry of price increases of
approximately 8 to 10% beginning in the month of July. These price
increases have been announced to the Company's customers with respect to
its products.
o The increased demand for the Company's products as a result of the gradual
recovery in the United States and Mexican economies.
o The continuing devaluation of the Mexican peso. The Mexican peso has lost
approximately 6% of its value against the U.S. dollar in the last four
weeks and the Company believes that the Mexican peso will remain under
pressure throughout the remainder of 2002. The devaluation of the peso
enhances the low-cost position of the Company and further strengthens its
competitive position going forward.
o The implementation of a strategic commercial relationship with Sweetheart
Cup Company that will allow the Company to operate the St. Marys mill at
its full capacity beginning in the second half 2002.
"As a result of the increased demand for the Company's products, the Company
expects its financial results for the second quarter to improve compared to the
first quarter of 2002, with EBITDA for the second quarter expected to increase
to more than US$40 million," Mr. Rincon said.
In addition to maintaining its competitive position within the industry, the
Company's objective has been to improve its capital structure, which the company
has accomplished by:
o Refinancing its Senior Notes due 2001 with the proceeds of the issuance of
its Senior Notes due 2006 and exchanged a substantial portion of its Senior
Notes due 2003 for its Senior Notes due 2006 and 2008.
o Committing to disposing up to US$100 million of non-strategic assets during
the next 12 months as part of its strategy to reduce leverage.
o Evaluating potential alternatives with regards to refinancing its Senior
Notes due 2003 with a financial advisor.
Mr. Rincon concluded: "Corporacion Durango continues to be a strong company,
well positioned to take advantage of the industry rebound expected in the second
half of this year. In addition, we have taken significant steps to improve our
capital structure in order to increase our ability to service our debt in the
future."
Corporacion Durango will host a conference call on June 5, 2002 at 2 pm Eastern
Time to discuss this recent development. Participants may access the live
Conference Call by dialing (888) 318-6432 for US Participants or (334) 260-0508
for International Participants with DURANGO as a Security Code. Please dial in
at least 10 minutes prior to the start of the call.
This release contains forward-looking statements that involve risks and
uncertainties. The actual results achieved by the Company may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such differences include general economic, market, or
business conditions, the opportunities (or lack thereof) that may be presented
to and pursued by the Company and its subsidiaries, the availability of raw
materials used by the Company and its subsidiaries, competitive actions by other
companies, changes in laws or regulations, and other factors, many of which are
beyond the control of the Company and its subsidiaries.