Moody’s has placed Marfrig’s B2 rating under review for a downgrade, it says, due to deteriorating credit metrics. The Brazilian meatpacker recently announced initiatives to generate working capital savings and reduce debt by BRL2bn ($976m) during 2013. Marfrig generated BRL1.1bn in adjusted negative free cash flow over the last two quarters, Moody’s says, which consumed all of the proceeds from its BRL1.05bn equity follow-on last year. Going forward the company faces BRL3.3bn in maturities in 2014-2015. “The possibility of a covenant breach in its non-convertible debentures in the 2Q13 is high in the absence of asset sales, although the company would probably be able to negotiate a consent, since the debt is concentrated within few creditors, including some of its relationship banks,” Moody’s says. The agency expects to conclude the review process by the time the execution of Marfrig´s deleveraging plan and its respective impact on credit metrics become more evident. A downgrade would be triggered by further deterioration of credit metrics or liquidity position during the next few months. S&P lowered Marfrig to B from B+ last week.
Category: Corporate & Sovereign Strategy
Parana Gets Baa3
Moody’s has assigned a Baa3 rating to the Brazilian state of Parana, it says. The rating joins previous BBB minus/BBB minus marks. Moody’s highlights the state’s improving revenues and declining debt levels. “Considering capital revenues and expenditures Parana has recorded roughly balanced results. Fiscal outcomes have been mainly positive averaging 3.6% of total revenues and only recording a very small deficit in 2012 of 0.5%,” Moody’s says. The outlook is stable. The state has been mentioned as a candidate to follow Minas Gerais into the international debt markets using the pass-through note format to bypass federal restrictions on Brazilian states issuing international bonds directly. In March, the Brazil Minas (BBB/Baa3) SPE vehicle raised $1.27bn from the sale of 2028 bonds backed by a loan from bookrunner Credit Suisse.
S&P Cuts ICA to Single-B
S&P has lowered the ratings on Mexico’s Empresas ICA to B+ from BB minus, it says. The builder’s delays in backlog execution have led to weaker than expected financial metrics, and the company faces greater downside risks to deleverage during 2013 and 2014. “Construction activities could remain sluggish during the second half of the year,” the agency says, likely weakening cash flow generation. The outlook is negative. Moody’s ICA’s ratings to B2 from B1 last week. Both agencies see the recently announced plans to shed a $400m stake in Grupo Aeroportuario del Centro Norte as positive, but not enough to address credit metric problems completely. ICA’s 2017 and 2021 bonds traded in the high 80s Tuesday, according to a trader, having dropped from near par May 16.
UBS Names Brazil CEO
UBS has named Sylvia Coutinho as CEO of UBS Group Brazil, it says, effective June 24. She replaces Lywal Salles, who retires. Coutinho comes to the role from HSBC, where she has been head of retail banking and wealth management for Latin America and asset management for the Americas. Coutinho will become the first woman to be a CEO of the Brazilian business for an international bank, UBS says.
Moody’s Cuts ICA
Moody’s has cut Empresas ICA’s ratings to B2 from B1 and also put the ratings on review, citing debt and liquidity concerns. “Moody’s had expected that by the end of June 2013, at the latest, ICA’s leverage would have been lower than the prior year’s level,” says Moody’s in a note. However, it increased during the first quarter, it says. The agency calls its liquidity risk “high,” citing MXP9bn ($729m) cash as of March 31, versus MXP12.4bn in debt maturities coming in the next 12 months. The rating is under review for further downgrade.
OGX Lowered, OSX Gets Cash
Fitch has downgraded Brazil’s OGX to B minus from B, it says, while sister EBX company OSX has added $120m cash from controlling shareholders though the partial exercise of a put option. In its rating action, Fitch points to concerns about OGX’s liquidity due to its aggressive acquisition last week of 13 exploratory blocks during a time in which the company is implementing an aggressive investment program and struggling to bring oil and gas production on line. “The exploratory blocks acquisition is valued at approximately $190m and has to be paid upfront within the next few months. Committed minimum investments for these blocks amount to $350m in the five-year exploratory period, which will further pressure OGX’s cash needs,” Fitch says. As of March 31, OGX had $4bn of total debt and $1.1bn of cash and marketable securities. OGX’s ambitious capex program of approximately $1.3bn in 2013 and low-to-negative Ebitda is expected to result in a large cash flow deficit during 2013. The agency believes there is a high likelihood that OGX will need to exercise a $1bn put option from its controlling shareholder in 2013 to fund a portion of its negative cash flow. The outlook is negative.
Fitch Raises Emgesa
Fitch has raised the rating of Colombian generation company Emgesa to BBB from BBB minus, it says. “The rating action reflects the strong financial performance of the company, robust cash flow generation and the expectation of a moderate to low financial leverage after the Quimbo project begins operations in 2015,” Fitch says. The 400-megawatt Quimbo hydroelectric plant is expected in commercial operation by 2015. The outlook is stable.
Bank Chairman Leaves Chilean Bolsa Post
Pablo Granifo, the chairman of Banco de Chile, has resigned as a board member with the Bolsa de Comercio de Santiago, the bolsa says. A replacement has not yet been named.
Espirito Santo Americas Head Joins SMBC
Carl Adams has joined Sumitomo Mitsui (SMBC), where he is heading its LatAm operation, according to people familiar with the matter. He started last week, after leaving Espirito Santo, where he had been head of structured finance, project finance and origination for the Americas since 2008. Damian Polla is to fill Adams’ role at Espirito Santo.
Fitch Puts Brazilian Builder in Single-B Territory
Fitch has assigned a first-time B+ rating to Brazilian builder Mendes Junior Trading e Engenharia, it says. The company is focused on heavy construction work for the industrial, infrastructure, oil and gas and power generation sectors. It lands in the single-B category due to its moderate business scale and a concentrated backlog on a small set of large projects linked with public sector clients. The agency also finds it lacks the conservative liquidity policy necessary to support a growing business model that relies on relevant working capital needs and is also exposed to the intense volatility inherent to the heavy construction sector. Liquidity is tight, with BRL89m ($44m) in cash reserves at the end of December 2012, covering 0.63x short-term debt. The outlook is stable.