State oil company Petroperú had its credit rating cut deeper into C territory by Fitch, which cited weakened government support for the company amid a “liquidity crunch” that raises the risk of a default.

Fitch lowered the company’s rating by three notches to CCC+ from B+, it said in a report published Tuesday. The firm’s standalone rating was revised to CC from CCC-. Fitch said that when Petroperú is evaluated on a standalone basis, “default of some kind appears probable due to liquidity constraints.”

The downgrade was driven in part by the drop in the company’s share of the market for refined products to 25% from 45% following a stoppage at its flagship Talara refinery. The loss of market share suggests there are other sources available for the country as there has been minimal disruption to supply, the agency said, undermining the case for the government to provide financial support.

Fitch also said Peru’s government has a record of providing immediate assistance to the company “but not for the long-term improvement of capital structure.”

The strain on the Petroperú’s liquidity, meanwhile, raises the possibility of a “default-like event,” the agency said.

“Petroperú faces a severe liquidity crunch as the cash forecasted to be generated within the year will not suffice to cover its debt repayments. Consequently, the company is compelled to depend extensively on external funding sources to prevent defaulting,” Fitch said.

GOVERNMENT ASSURANCES

The downgrade came despite assurances from Peru’s government that it will continue to provide funding for the company amid a corporate restructuring.

The financial aid could come in the form of capital contributions, loans and guarantees and/or hybrid solutions, Finance Minister José Arista said in a letter to Fitch Ratings that was made public on Monday as part of a securities filing.

“We reaffirm our commitment to continue providing financial and economic support to Petroperú with the aim of fostering its sustainability and overcoming the obstacles created by the current challenges facing the sector and the company,” the minister wrote.

Fitch also downgraded the company’s credit rating in January by three notches, saying it did not expect “meaningful” government support for the company’s capital structure in the near term.

In late February, Arista said the company had an “enormous” liquidity problem and would receive financing from state-owned lender Banco de la Nación.