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Fitch Downgrades Tonon Bioenergia's IDRs to 'C'
May 15, 2015 / 8:52 PM / 3 years ago

Fitch Downgrades Tonon Bioenergia's IDRs to 'C'

(The following statement was released by the rating agency) SAO PAULO, May 15 (Fitch) Fitch Ratings has downgraded Tonon Bioenergia S.A's (Tonon) foreign and local currency Issuer Default Ratings (IDRs) to 'C' from 'CCC'. Fitch has also downgraded to 'C/RR4' from 'CCC/RR4' the ratings on the company's USD300 million senior unsecured notes due 2020 and the USD230 million senior secured notes due 2024 issued by Tonon's fully-owned subsidiary Tonon Luxembourg S.A. The downgrade follows the missed payment by Tonon Luxembourg S.A of the coupon relating to the USD230 million senior secured notes due 2024 in the amount of USD12 million, thus entering a 30-day cure period. The coupon was due May 14 and the issuance is guaranteed by Tonon. The next coupon payment, in the amount of USD14 million, is due on July 24 and relates to the USD300 million senior unsecured notes due 2020. The company has not reported any improvement of its capital structure in the past month. Tonon's short-term liquidity position is deteriorating fast and refinancing risks are rising due to escalating concentration of short-term debt and its inability to generate positive free cash flow (FCF). Tonon has been finding it difficult to roll over its maturing obligations with new long-term loans as bank lending activity in the sector has been focused on short-term borrowings. The company does not own land properties against which to borrow new medium- or long-term loans, which makes the company dependent on the availability of short-term credit lines. As of Dec. 31 2014, Tonon's cash position of BRL159 million compared unfavorably with short-term debt of BRL257 million to yield a 0.62x coverage ratio. In the last 12 months ended Dec. 31 2014, the company posted FCF of negative BRL147 million. Fitch expects Tonon's FCF to remain negative in the next two years. KEY ASSUMPTIONS --Increased systemic risk and scarce availability of medium and long-term finance; --Average sugar prices at USD14 cents/pound in 2015/2016, USD16 cents/pound in 2016/2017 and flat at USD17 cents/pound from 2017/2018 on; --Domestic ethanol prices keeping the historical correlation with international sugar prices. RATING SENSITIVITIES The company's ratings could be downgraded if the company defaults on its scheduled amortization/interest payments and/or formally files for bankruptcy protection. An upgrade is unlikely at this time given the company's difficulties meeting its payment obligations. A large equity injection or the takeover of the company by a peer would be viewed positively. Contact: Primary Analyst Claudio Miori Associate Director +55-11-4504-2207 Fitch Ratings Brasil Ltda Alameda Santos, 700 - 7 andar, Sao Paulo, sp CEP 01418-100 Secondary Analyst Alexandre Garcia Associate Director +55-11-4504-2616 Committee Chairperson Ricardo Carvalho Senior Director +55-21-4503-2627 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (May 28, 2014); Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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