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Kaltex Nearing Default Following Failed Refinancing Attempts

Groupo Kaltex is seeing signs of trouble.

The Mexican textile producer was the subject of a Bloomberg report detailing its recent financial turbulence, which included dropping bond rates and two failed refinancing attempts. Investors are projecting a default, in which the company fails to meet its debt obligations, in the near future.

Requests for comment from Kaltex were not immediately returned.

According to Bloomberg, Kaltex’s bonds, or corporate loans, dipped 40 cents since mid-February when investors snubbed its second attempt to refinance its bond payments due this month. The producer previously attempted to refinance debt payment in November through an asset sale, which refers to the selling of tangible and intangible parts of a business to pay off debts or mitigate asset-related risk.

In early 2021, the company sold its retail store, Milano, for $80 million, followed by its home subsidiary, Revman International, for another $66 million.

As of Sept. 30, Kaltex had $28 million in cash. On April 11 it reportedly owes investors $218 million in notes, which are valued at 60.5 cents on the dollar.

American credit rating agencies Fitch Ratings and S&P Global Ratings both lowered Kaltex’s score—which measures the probability of default or recovery for issues—following news of its latest refinancing attempt. Fitch Ratings expects the next step for the company will be a debt exchange, in which bondholders receive 31 to 50 cents on the dollar.

Last February, around the time of the company’s first refinancing attempt, Kaltex announced it made “big investments” in sustainable production and more efficient machinery in order to lower its water and energy consumption and ramp up U.S. exports.

Following the height of the Covid-19 pandemic, nearshoring became a top strategy for companies looking to neighboring countries to fulfill orders. As one of Mexico’s largest suppliers, Kaltex benefitted from the shift, and even outperformed others in the market as the industry’s exports fell in 2020. Central America—the region bordered by Mexico and Colombia, and home to Panama, Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala and Belize—has emerged as a top alternative to Asian sourcing.

Despite the demand for more local sourcing, cotton’s surging prices may cancel out the positive. In the wake of the Great Recession in February 2011, cotton prices topped $2 per pound—a rate experts say is possible if droughts continue and wars escalate.

Kaltex’s bonds are continuing to trade at normal levels while the market waits to see whether it will recover.