Moody’s Drops Lupatech Rating

Moody’s has chopped the rating on Brazil’s Lupatech to B2 from B1, amid continued cashflow and operating margin pressures. “Even though Lupatech has likely benefited from the resumption of bids for equipment and services in late 2009 by its most important client Petroleo Brasileiro, the conversion of the additional backlog into sales and cash flow should only materialize over the longer term,” it says. Moody’s notes that operational inefficiencies derived from persistent low capacity utilization are likely to continue. It sees total adjusted debt to Ebitda peaking at 13.0x in the first half 2010, up from 8.8x in September. The agency put the oil and gas equipment manufacturer under review in November. At the time, Lupatech was wrapping up a 7-month liability management operation that featured a BRL121m credit facility from the BNDES and a BRL320m 2018 convertible debenture sale that was 90% bought by BNDES. Lupatech also recently got debentures holders to waive breached financial covenants and postpone the next verification date to December 2010, when Moody’s expects Lupatech to be back in compliance with financial covenants. Lupatech has $275m outstanding in 9.875% coupon perpetuals. The rating outlook is stable.