NEW YORK (Standard & Poor's CreditWire) March 2, 2001 —- Standard
& Poor's today affirmed its triple-'B' local currency
and its double-'B'-plus foreign currency corporate credit
ratings on Unik S.A. de C.V. Unik's foreign currency outlook is
positive and mirrors the United Mexican States' foreign currency
outlook. The local currency outlook is stable.
     The ratings on Unik reflect the company's strong market shares,
enhanced by broad value-added product lines, significant export abilities,
modern technology, associations with leading international producers, and
guidance from its holding company, Desc S.A. de C.V. The holding company
has a moderate financial profile (local currency
triple-'B'-minus/Stable/-- and foreign currency
double-'B'-plus/Positive/--). The ratings also reflect the
cyclical, competitive nature of the global automotive industry, and the
threats and opportunities within the North American Free Trade Agreement
(NAFTA). It is expected that Mexican auto parts producers such as Unik,
will inevitably experience consequences derived from the des-acceleration
of the U.S. economy; on current perspectives, however, it is considered
that Unik should be able to cope with the industry's current dynamics
preserving its current credit profile.
     Unik is engaged in the growing Mexican auto parts industry as one of
its largest independent auto parts producers. The company has strong
positions in the domestic market in the original-equipment and aftermarket
segments. Benefiting from Mexico's proximity to the U.S. market,
above-average operating efficiency, and good product quality, Unik's
exports are significant (62% of 2000's sales). A subholding company
fully owned by Desc, Unik's operations are conducted through several
operating subsidiaries. As of year-end 2000, the most important
subsidiaries are Spicer S.A. de C.V., a 51%-49% joint venture with Dana
Corp. (triple-'B'/Watch Negative/--); Moresa S.A. de C.V., a
60%-40% joint venture with TRW Inc. (triple-'B'/Stable/--); and
Velcon S.A. de C.V., the owners of which are Unik (43%), GKN PLC (39%;
single-'A'-minus/Stable/--), and Dana Corp. (18%). Together,
these companies account for approximately 85% of Unik's sales. Unik
made several acquisitions in the last few years: Tremec in 1994; 49% of
Robert Bosch GmbH's and 100% of Borg-Warner's manual
transmissions lines in 1996; and Dana's heavy transmission operations
in September 1997. With these acquisitions, Unik (through Spicer) has
strengthened its position in the transmission systems segment.
Furthermore, Unik has become a leading producer of transmissions, constant
velocity joints, rear axles, motor valves, tappets and pistons, pickup
truck bodies, and other stamped products for the NAFTA market. These
product lines account for approximately 75% of Unik's sales and
operating income.
     Despite the challenging economic conditions in Mexico in 1995, which
took away 75% of new vehicles sales, and roughly 60% of Unik's
domestic sales, Unik rapidly more than doubled its exports contribution to
total sales (to 46% as of year-end 1995, from year-end 1994's 18%).
Notwithstanding that, total sales in 1995 were still 40% lower than
1994's. Unik's EBITDA, however, increased to a respectable
margin of 19.3% in 1995, from 16.7% the year before. Exports led to a
partial sales recovery in 1996 (though still 13% smaller than year-end
1994's), and its EBITDA margin increased to 22.1%. After 1996, sales
continued growing, but Unik's EBITDA margin decreased somewhat
because of the gradual consolidation of businesses acquired in 1996 and
1997. By the end of 1999, Unik's sales were practically twice as much
as its 1996 revenues (US$1.05 billion and US$558 million, respectively),
and the company's EBITDA margin got back to the 21% level. Growth
came from both a recovered domestic market and higher export sales volume,
despite the appreciation of the Mexican peso in 1995-1996, and again
during 1999 and 2000. In addition, it should be noted that a good portion
of this growth is derived from Unik's new transmission businesses,
acquired in 1996 and 1997. Unik's 15% sales growth during the first
nine months of 2000 was offset by a sales decline in November and
December, in line with the industry's slowdown in the U.S., which
took full-year numbers to a 1% growth (if measured in constant pesos; 11%
in dollar terms). The company's EBITDA margin decreased to 20% for
the full year, compared to 21% during 1999. Because of the U.S. economic
slowdown, by year-end 2001 Unik's sales and margins might be similar
to those reported as of year-end 2000, or they might even experience a
decline in the neighborhood of 10%. This range expectation is based on the
ongoing integration with U.S.-based original equipment manufacturers under
the NAFTA environment and, to a lesser extent, to incipient new dynamics
under the recently signed free-trade agreement between Mexico and the
European Union.
     Unik's cash flow protection measures are strong, as reflected by
EBITDA interest coverage of 8.6x and 11.4x by the end of 1998 and 1999,
respectively (11x as of third quarter 2000). Likewise, debt to EBITDA
remains low, slightly higher than 1.0x. Unik's financial leverage,
measured by debt to capitalization, has remained in the vicinity of 33% in
the last few years. In the very probable absence of new significant
investments and acquisitions, internally generated cash and some earnings
retention will help bring this ratio down in the next few years, toward
the 30% level.
     OUTLOOK (LOCAL CURRENCY): STABLE
     OUTLOOK (FOREIGN CURRENCY): POSITIVE
     The local currency outlook reflects competitive, cyclical market
conditions, and ongoing acquisition activities that limit upside
potential. It also factors-in the expectation that Unik's moderate
financial policies and strong business position will likely temper the
possible impact of the U.S. automotive slowdown, preserving a credit
profile in accordance with the current ratings. The foreign currency
outlook reflects that of the United Mexican States. -- CreditWire