Fitch Places SANLUIS Corporacion's Ratings on Watch Negative

Business Wire, June 16, 2008

NEW YORK -- Fitch Ratings has placed on Rating Watch Negative SANLUIS Corporacion, S.A. de C.V.'s (SANLUIS, or the company) 'B-' Foreign and Local Currency Issuer Default Rating (IDR), its 'B-' Senior Secured Restructured Credit Facility rating, its 'RR4' recovering rating, its 'CCC ' Mandatory Convertible Notes rating, 'CCC ' Debenture Notes rating and its 'RR5' recovery rating.

The Negative Watch reflects the company's weak liquidity position, with USD23.2 million of cash and marketable securities on its balance sheet at the end of March 31, 2008 and the continue overall deterioration of the automotive industry in North America (NA) especially as it relates to light truck vehicles. Cash-on-hand plus cash flow generation may be insufficient to continue amortizing debt in the near-term. First-half performance was negatively impacted by a strike at American Axle (GM supplier) and second half is unlikely to make up for it due to lower production by Big Three (GM, Ford, Chrysler) manufacturers. Amortizing debt for the next three fiscal year consist of USD35 million in 2008 (full year), USD36 million in 2009, and USD93 million in 2010. Difficult credit market conditions, beyond management's control, have delayed the company's ability to complete a bond offering announced in October of 2007, which has been put on hold awaiting credit market improvement. However, financial performance deterioration in 2008 may complicate the company's ability to refinance its debt. We expect to resolve the Watch in the next three to six months as we get a better understanding about the company's borrowing options and its ability to complete them.

The ratings of SANLUIS Corporacion, S.A. de C.V. (SANLUIS or the company) have been based on SANLUIS' business position as the leading producer of leaf springs suspension components in the North American Free Trade Agreement (NAFTA) market (United States, Canada and Mexico combined) and Brazil, cost competitive advantages and hard currency generation. The ratings are constrained by high financial leverage and near-term debt maturities, industry cyclicality, cost pressures and a shifting automotive environment in North America.

SANLUIS' ratings reflects its critically business dependency on North America's automobile market (77% of revenues), light truck sales (75% of revenues) and the performance of General Motors Corp. [GM], Ford Motors Co. and DaimlerChrysler (74% of revenues combined) original equipment manufacturers (OEMs). In recent years the company has sought to diversify its client base and expand sales to Asian and European OEMs (15% of revenues) and Brazil's automobile market (23% of revenues). The rating is further constrained by decrease production and sales of automobiles in North America and a shift in consumer preference for smaller vehicles reflecting expectations that fuel cost will remain elevated for the foreseeable future. This environment of higher fuel prices is likely to lead to additional production cuts by GM, Ford and Chrysler.

The ratings has been supported by SANLUIS' unique position as the world's largest designer and manufacturer of leaf springs with 93% of NAFTA market share and 64% of Brazil market share. Such dominant position, unlike in the case of other auto suppliers, has allowed the company the capability to pass-through a large portion of raw material prices in its suspension business since 2004. However, its brake business, which has attractive but not dominant market share, has been unable to pass-through its cost increase.

In 2007, SANLUIS Revenues and EBITDA were positively affected by the launch of new platforms that were obtained in 2006 at both the suspension and brake divisions and cost pass-through at its suspension business. Revenues were up 12% to USD732 million while EBITDA was up 18% to USD 76.7 million. Capital expenditures in 2007 was USD 16.1 million and it is expected to remain moderate (in the USD 10 million to USD20 million range) in the coming years due to restrictions under restructured debt agreements. Positive free-cash-flow generation allowed the company to pay debt amortizations during the year. Credit protection measures improved and total debt-to-EBITDA ratio ended the year at 3.1 times (x) compared to 4.3x the prior year. However, the improvement in credit metrics has been short-lived as the company's performance was negatively impacted during the first quarter of 2008 by lower North America vehicle production and a strike at American Axle (a major GM supplier). Consequently, last-12-months (LTM) total debt-to-EBITDA ratio worsened to 3.4x.

SANLUIS is the world's largest producer of leaf springs, where it is the predominant or sole supplier for the top-selling brands and produce substantially all of GM's, Ford's and Chrysler's leaf spring requirements. The company operates manufacturing facilities in the United States, Mexico, and Brazil.

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