Moody’s Keeps Eye on Lupatech

Moody’s has placed on review for possible downgrade Brazil-based Lupatech’s Ba3 corporate family ratings and the Ba3 foreign currency rating of the $275m senior unsecured perpetual notes. “The rating action reflects our view that Lupatech has limited ability to reduce leverage over the near term, which takes into consideration the weakened operating margins in the past two quarters and our expectation that margins should remain constrained by high-cost inventories and lower demand for industrial valves and cast parts,” the agency explains. It adds that net debt to Ebitda of 5.4x as of March 31 is excessively high for Lupatech’s rating category. Moody’s expects free cash flow will continue to be constrained by the high fixed expenses related to its excessive leverage, making it less likely that net debt to Ebitda will decline substantially in the near term. Lupatech manufactures equipment for Brazil’s oil and gas industry.