Fitch Downgrades Cimento Tupi’s Ratings to ‘C’
May 11, 2015 | By Business Wire News
CHICAGO
Fitch Ratings has downgraded the following ratings of Cimento Tupi S.A. (Tupi):
–Foreign currency Issuer Default Rating (IDR) to ‘C’ from ‘CCC’;
–Local currency IDR to ‘C’ from ‘CCC’;
–Senior unsecured notes due 2018 to ‘C/RR4’ from ‘CCC/RR4’;
–Long-term National Rating to ‘C(bra)’ from ‘CCC(bra)’.
KEY RATING DRIVERS
The downgrade reflects Tupi’s inability to pay its coupon payment which will enter a 30 day cure period on its outstanding notes. The company announced it will miss its USD9 million interest payment on its USD185 million of senior unsecured notes due in 2018.
Tupi hired investment bank Rothschild as its investment advisor as the company seeks relief from its high level of interest expense amid a difficult operating environment. Fitch expects Tupi will have difficulty managing its debt service over the next six-12 months due to its strained cash position, low cash generating ability, and the weakening operating environment in Brazil that has increased refinancing risk for all Brazilian corporates. According to the IBGE’s Monthly Industrial Survey, Brazilian cement production through February 2015 declined 8.9% due to the difficult operating conditions.
Tupi’s poor liquidity position has been persistent during the last 12 months and prospects are poor for improvement during 2015. The company is reliant on banks willingness to refinance its short-term maturities due to its low cash reserves. The levels of short-term debt coverage as measured by cash plus free cash flow (FCF)/short-term debt was -0.2x for latest 12 months (LTM) Sept. 30, 2014 compared to 0.0x at Dec. 31, 2013.
KEY ASSUMPTIONS
Fitch’s key assumptions within the rating case for the issuer include:
–Low single digit revenue growth;
–EBITDA margin between 20%-22%;
–Working capital of need of USD3 million;
–Capital expenditures of USD6 million;
–Net Leverage to remain above 7.0x in 2015;
–Limited improvement in liquidity position.
RATING SENSITIVITIES
Negative Rating Action:
A downgrade would occur if Tupi does not make its bond payment during the 30 day cure period.
Positive Rating Action:
An upgrade is unlikely at this time given the company’s difficulties meeting its payment obligations.
Additional information is available at ‘www.fitchratings.com‘.
Applicable Criteria and Related Research:
–‘Corporate Rating Methodology’ (May 28, 2014);
–‘National Scale Ratings Criteria’ (Oct. 30, 2013);
–‘Evaluating Corporate Governance’ (Dec. 12, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology – Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984447
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Fitch Ratings
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Elizabeth Fogerty, New York
Tel: +1-212-908-0526
Email: elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Debora Jalles
Director
+55-21-4503-2600
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
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