Fitch Ratings has affirmed Regal Forest Holding Co. Ltd ratings (Grupo Unicomer) as follows:

--Long-term Local currency Issuer Default Rating (IDR) at 'BB-';

--Long-term Foreign currency IDR at 'BB-'.

The Rating Outlook is Stable.

The ratings reflect the company's leading business position in most of the countries where it operates. The ratings incorporate Grupo Unicomer's geographic and format diversification that have contributed to positive consolidated cash flows from operations throughout economic cycles. The ratings incorporate Grupo Unicomer's track record of stable operational results based on a business model that targets low-income to middle-income segments, which represent the majority of the population in those countries where the company operates, through several retail formats. The ratings also consider the operating experience, track record and solid financial position of its shareholders Milady Group (Milady) from El Salvador and El Puerto de Liverpool, S.A.B. de C.V. (Liverpool) from Mexico (rated 'BBB+'/Outlook Positive).

Grupo Unicomer's ratings are limited by its operating environment considering the countries where it operates and its growth strategy through acquisitions, funded mainly with debt. The ratings also factor the company's credit risk from its consumer finance unit with around 37% overdue accounts receivable (1+ days overdue) as of last 12 months (LTM) Sept. 30, 2015 (past due accounts for 90 days or more were 7.7%); although this risk is mitigated somehow by the company's collection procedures and the portfolio's financial spreads.

KEY RATING DRIVERS

Operating Environment and Geographic & Format Diversification Incorporated:

Grupo Unicomer has commercial operations in 21 countries around Central America, South America and the Caribbean. The company maintains a leading business position in the commercialization of consumer durables goods in most of the countries where it operates, supported by economies of scale in terms of purchasing power and logistics.

Geographic diversification allows Grupo Unicomer to have a broad revenue base supported by different economic dynamics and somehow mitigates the company's country risk of most of its markets, within the B rating category. The company has more than 15 years of track record in the consumer durables commercialization, which has enabled to develop long-term relationships with suppliers and to have competitive advantages in terms of location of its stores within small countries where prime retailing points of sale are very limited.

Positive Cash Flow from Operations:

Historically, Grupo Unicomer has consistently maintained positive cash flow from operations (CFFO) throughout economic cycles. The company had adjusted its operations well during economic downturns by restricting credit origination, reducing bank debt and improving its product mix in order to protect its operating cash flows. Grupo Unicomer's CFFO has been robust enough to fund capex and dividend payments during the years. However, new acquisitions have been financed mostly with debt.

For the LTM ended September 2015, the company generated USD74.5 million of CFFO, which financed capex of USD22.8 million and dividends of USD16.5 million, resulting in a free cash flow (FCF) of USD35.2 million.

The company's CFFO is expected to remain positive during 2016-2019. Grupo Unicomer is executing an important investment plan during the next four years in order to keep its business position and recover the profitability margins it had in the past (14% of EBITDA margin). Capex levels should be around USD36.7 million per year during the medium term excluding potential acquisitions.

Shareholders' Sound Financial Position:

The ratings consider the sound financial position of Grupo Unicomer's shareholders Milady (50%) and Liverpool (IDR 'BBB+'/Outlook Positive; 50%), with a proven track record in retail since 1847. Milady's operations include real estate developments, department store chains and all Inditex's franchises in Central America. Liverpool, a department store with 109 units and 25 shopping malls in Mexico, had USD5.8 billion in total revenues in the LTM ended September 2015 with 16.3% of EBITDA margin. Liverpool's total adjusted debt/EBITDAR was 1.2x for the same period.

Ambitious Growth Funded Mainly with Debt:

Historically, Grupo Unicomer has expanded its operations through a combination of organic and inorganic growth. Since its beginnings, the company has done five important acquisitions that increased its size and coverage. While organic growth was primarily funded with internal operating cash flows, acquisitions were funded mainly with debt.

The last important acquisition was Gollo in Costa Rica (115 stores by the time of acquisition in 2012), which increased the company's adjusted leverage to 4.6x from 3.8x. Grupo Unicomer has been slowly improving this ratio through the years. As of September 2015, lease adjusted debt to EBITDAR was 4.3x and Fitch expects the company to maintain this ratio in the 3.5x to 4.5x range over the medium term.

Moderate Level of Overdue Accounts Offset by Financial Spread:

The company's consumer finance strategy includes enough financial spreads to cover credit risks associated with the portfolio. During the last four years, the portfolio yield after deducting uncollectable expenses and write offs has been 40% on average.

As of Sept. 30, 2015, Grupo Unicomer's portfolio had an average of 37% of overdue accounts (more than one day overdue) and 7.7% of non-performing loans (past due accounts for 90 days or more). These compare negatively to 34% and 6.7% presented in March 2015, respectively, due to a reduction in the portfolio as well as the challenging economic and political conditions in the region. As of September 2015, the company has reserves equivalent to 93% of those non-performing loans. The level of overdue accounts is partially offset by the company's efficient collection program and portfolio yield.

KEY ASSUMPTIONS

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

--Revenue growth of 4.4% on average for 2016-2019;

--EBITDA margin of 12% for year-end 2016 and close to 13% going forward;

--Positive CFFO for 2016 and going forward;

--Adjusted leverage to EBITDAR of 3.7x-4.5x in the medium term;

--Dividends payment of 25% of net income for 2016-2019;

--Stable portfolio credit quality;

--Acquisition of Electro Facil in Paraguay during December 2015.

RATING SENSITIVITIES

Future developments that may individually or collectively lead to a positive rating action include: adjusted leverage below 3.5x on a sustained basis, significant reduction on its current maturities that result in a consistent ratio of cash plus CFFO-to-short-term debt of 1.0x.

Future developments that may individually or collectively lead to a negative rating action include: deterioration in overdue accounts from the consumer finance business, significant reduction in cash flow generation, further debt-financed acquisition activity resulting in an adjusted debt to EBITDAR ratio above 5x and/or deterioration of liquidity compared to short-term debt.

LIQUIDITY

Liquidity is adequate for the rating category. The company's main source of liquidity is internal cash generation consisting of positive CFFO. Cash and equivalents of USDD44 million and a short-term receivables portfolio of USD529 million further support the company's liquidity. The company's liquidity ratio, measured as FCF plus cash and marketable securities over debt service coverage was 0.4x as of Sept. 30, 2015; including account receivables in the calculation the ratio increases to 2.2x.

As of Sept. 30, 2015, Grupo Unicomer reported total adjusted debt of USD1 billion, of which USD250 million was classified as short-term. This level of current debt compares with USD44.3 million of cash and marketable securities and USD60 million of uncommitted undrawn revolving credit facilities. The company benefits from sales coming during the holiday season (approximately 34% of total revenues) and from potential liquidity of its USD529 million of current account receivables from the consumer finance unit.

Date of Relevant Rating Committee: Jan. 8, 2016.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

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