Credit rating agency Standard & Poor's (S&P) has downgraded the global ratings of Brazil pellet producer Samarco to CCC from B at the same time it lowered its national scale ratings to brCCC from brBB. The company’s outlook is negative.
Additionally, S&P has also lowered its stand-alone credit profile (SACP) Samarco to CCC- from CCC. The issue-level ratings of Samarco declined to 'CCC-' from 'B' and is now one notch below Samarco's corporate credit rating.
“The downgrade reflects the company's weakening liquidity, given the depletion of the cash position following cash contributions to the recovery fund, scheduled interest and amortization payments, and operating cash-flow needs to maintain the remaining assets and operations over the next few months,” the credit rating agency said, adding increasing liquidity pressures will “test” Samarco's capacity to meet its financial obligations in the next six months.
S&P also noted that a serious of factors, such as uncertainties regarding the reestablishment of operating licenses, recurrent covenant breaches, and cash outflows for debt payments and settlement disbursements, “have eroded Samarco's liquidity and will likely test shareholders' support to the company in meeting its obligations in the next six months.”
Samarco has recently postponed the restart of its operations from Q4 2016 to 2017.
As uncertainties over the company’s restart remain, Samarco is expected to rely on its shareholders, “specially to cover the cash contributions for the recovery fund of the affected areas, because the company still has about BRL 1.4 billion in contributions to deposit in 2016.”
S&P informed Samarco breached covenants on export prepayment loans, exposing it to debt payment acceleration not only on those loans, but also on the bonds, given cross-acceleration clauses.