A structured transaction from Mexican-based steel company Ispat Mexicana SA de CV (Imexa), a subsidiary of Ispat International NV (Ispat), is on the brink of default. The future-flow transaction, Imexa Export Trust 1996-1, was originally scheduled to mature at the end of this year. However, the company is now seeking an exchange offering which will extend the life of the deal until 2008.

Moody's Investors Service originally rated the deal Ba2' and Standard and Poor's assigned a BB' rating. The deal has now fallen to a CC' rating from S&P and Ca' from Moody's. The decision on the exchange must be approved by the end of this month, and according to S&P, if the exchange offering occurs, the deal will be in default since the original terms of the transaction will not have been respected, sources say.

In the last year, Imexsa has faced difficult steel slab market conditions, high-energy prices, and a labor strike, which halted all production of steel slabs.

Dresdner Kleinwort Wasserstein is working with Imexsa in accomplishing what market analysts say is the first-ever exchange offering of its kind in the Latin American region. The restructuring entails a moratorium on all capital repayments until 2005. As a result, bondholders would be forced to succumb to this offering and would not receive the originally scheduled payments.

In 1996, the major steel producer issued a $300 million offering backed by sales of steel slabs for a Japanese automobile manufacturer. The slabs were sold to Mitsubishi Corp. of Japan.

Led by Credit Suisse First Boston, Imexsa Export Trust 1996-1 priced with a yield of 10.125%, or 387 basis points over the five-year Treasury. The deal was sold in the U.S. under Rule 144A.

Separately, S&P raised Mexico's sovereign credit rating to BBB-,'a long-awaited boost to investment grade.

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