The Long and Short
Trade policy risk for Nemak SAB de CV
This material is a Marketing Communication and does not constitute Independent Investment Research.
With trilateral talks scheduled to begin shortly on the US-Mexico-Canada Agreement on trade, Nemak remains a credit worth some attention. Despite a 6.5% yield, the company’s 2031s debt looks rich ahead of likely headline volatility in the coming months. And despite Nemak’s strong competitive position, protected by contracted relationships and difficult-to-replace manufacturing expertise, the combative negotiating process looks likely to target auto parts in particular, increasing price volatility for the 5-year paper.
Contractual ‘give backs’ in late 2024 as the company scaled back electric vehicle strategies create challenging comps for the second half of 2025. To that end, third quarter 2025 results included a flat top line of $1.23 billion while EBITDA came in 15% below the corresponding period of last year. The company’s cost cutting initiatives continue to yield results, though margin was depressed in the period as Nemak incurred launch expenses and the margin decrease was exacerbated by some mix impacts. Nonetheless, management reiterated expectations to meet full year EBITDA guidance of $600 million, which steered investors to the upper end of the previous $580 million to $600 million range. Capital expense is anticipated to be $290 million for the full year, which is the mid-point of the guided range. Expected $600 million in EBITDA would imply the need to decrease net debt by about $90 million in the fourth quarter of 2025, the majority of which we’d anticipate from working capital cash release. The leverage reduction narrative was a key foundation in the relative value of Nemak’s credit profile versus Mexican corps and general ‘BB’ credit in Latin America, broadly – though the previous cheapness diminished, with the bonds up 5 to 6 points since mid-2025. This follows a period of negative sentiment towards the credit post the EV strategic miss and particularly the initial first half 2025 Mexican tariff overhang.
In the upcoming fourth quarter results, Nemak should provide an update on the balance sheet impacts of the GF Casting Solutions acquisition, following the initial payment of $160 million in the third quarter of 2025, with incremental assumption of vendor lines and other liabilities. The initial payment will be from Nemak’s existing credit lines and the pro-forma net leverage should increase slightly on closing.
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