Moody’s Cuts Lupatech

Moody’s has downgraded Lupatech to B1 from Ba3 on a global scale and to Baa2.br from A3.br on the Brazilian national scale. It also cut to B2 from Ba3 the foreign currency rating on $275m in senior unsecured perpetual notes issued by Lupatech Finance. “The 2-notch downgrade of the senior unsecured notes takes into consideration the increased level of secured debt in Lupatech’s debt structure pro-forma for the new loans granted and debentures acquired by the Brazilian Development Bank – BNDES, which are senior to the rated perpetual notes and will represent a substantial portion of the company’s total debt,” says the agency. The downgrade reflects an expectation of the company’s limited ability to reduce leverage over the near term, as a result of weakened operating margins which Moody’s expects will remain constrained by high-cost inventories and operational inefficiencies from current low capacity utilization in all 3 divisions. Net debt to Ebitda and debt to capitalization reached 5.5x and 83%, respectively, as of June 30, and Moody’s expects leverage to peak at 2009 year-end as 2008 quarters roll off, with net debt to Ebitda of around 7x. Headquartered in Caxias do Sul, Brazil, Lupatech is an equipment manufacturer and service provider to the oil & gas industry in Brazil, besides producing industrial valves and casting parts.