Fitch Downgrades USJ's IDRs to 'RD'
OREANDA-NEWS. Fitch Ratings has downgraded the Foreign and Local Currency Issuer Default Ratings (IDRs) of U.S.J. - Acucar e Alcool S.A. (USJ) to 'RD' from 'C' and the National Scale Rating to 'RD(bra)' from 'C(bra)'. Fitch has also upgraded USJ's USD275 million senior unsecured notes due 2019 to 'CCC/RR2' from 'C/RR4'.
KEY RATING DRIVERS
The downgrade follows the conclusion of a debt exchange offer for the USD275 million senior unsecured notes due 2019, with approximately 90% adhesion. According to Fitch's methodology, this offer is viewed as a distressed debt exchange (DDE). The rating upgrade on the unsecured notes reflects the implicit 75% recovery that followed the 25% haircut taken by the bondholders.
According to the terms of the new notes, the company will have the option to defer coupon payments in 2016 and 2017 and pay accrued interest at maturity, which has been extended to 2021 from 2019. If USJ defers coupon payments in 2016 and 2017, the coupon rate will increase to 12% for these two years and return to the original 9.875% in the following years. New notes will be secured by a fiduciary lien on USJ's Araras mill, lien on land and pledge of sugar cane.
--Crushed sugar cane volumes of 3.2 million tons in 2015/2016 and gradual increases of 5% thereafter;
--Mix relatively unchanged at 66% sugar and 34% ethanol for the projected period;
--Average sugar prices at USD13 cents/pound in 2015/2016, USD15 cents/pound in 2016/2017 and USD16 cents/pound onward;
--Domestic ethanol prices keep their historical correlation with international sugar prices;
--No dividends coming from SJC Bioenergia (SJC) in 2015/2016;
--Up to BRL60 million in land sales in the State of Goias have been forecast for 2015/2016.
USJ's IDRs and National Scale ratings will be downgraded to 'D' and 'D(bra)', respectively, if the company formally files for bankruptcy protection. An upgrade to the 'C' to 'CCC' range is plausible over the short-term, following the conclusion of the Debt Exchange Offer and the consequent improvements in company's liquidity and capital structure. Upgrades to higher categories are not expected given the maintenance of above-average leverage indicators and the operational and financial challenges surrounding the sugar and ethanol sector
FULL LIST OF RATING ACTIONS
U.S.J. - Acucar e Alcool S.A:
--Foreign and local currency long-term IDRs downgraded to 'RD' from 'C';
--Long-term National Scale rating downgraded to 'RD(bra)' from 'C(bra)';
--USD275 million senior unsecured notes due 2019 upgraded to 'CCC/RR2' from 'C/RR4'.