Fitch Downgrades Aralco S.A. Industria e Comercio's IDR to 'D'

SAO PAULO--()--Fitch Ratings has downgraded Aralco S.A. Industria e Comercio's (Aralco) foreign currency and local currency Issuer Default Ratings (IDR) to 'D' from 'CCC' and the National long-term rating to 'D(bra)' from 'CCC(bra)'. Fitch has also downgraded the rating for the USD250 million unsecured senior notes due 2020 to 'C/RR5' from 'CCC/RR4'. The issuer of the notes was Aralco Finance S.A. (Aralco Finance), a fully-owned subsidiary of Aralco.

These rating actions follow the announcement by Aralco that it has filed for bankruptcy protection in Brazil. This announcement will result in payment default on some or all of Aralco's debt and result in a debt renegotiation. The revision of the Recovery Rating reflects anticipated recoveries for the unsecured creditors in the range of 10% to 30%. The below-average recovery prospects are due to the high amount of secured debt held by the company, its low land-holdings, and the high levels of distress within the sector. The latter will likely lead to an abundance of production facilities within the sector that will become available for purchase during 2014. This factor, along with the highly leveraged capital structures of many companies within the sector, will lead to low valuations for companies and facilities within the sector during the next couple of years.

Aralco had BRL42 million of cash and cash equivalents as of Dec. 31, 2013. This compares with BRL1.5 billion of total debt. Approximately BRL448 million of the debt is short-term, including BRL188 million with the sugar cooperative Copersucar. Aralco's short-term assets include BRL84 million of inventories and BRL105 million of advances to suppliers. The company's long-term assets include BRL605 million of sugarcane plantations and BRL846 million of PPE, which primarily consists of four mills with a sugarcane crushing capacity of 7.2 million tons per year.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug.5, 2013);

--'National Scale Ratings Criteria' (Oct. 31, 2013).

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=715139

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822839

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Contacts

Fitch Ratings
Primary Analyst
Claudio Miori, +55-11-4504-2207
Associate Director
Fitch Ratings Brasil Ltda
Alameda Santos, 700 - 7 andar, Sao Paulo, sp CEP 01418-100
or
Secondary Analyst
Alexandre Garcia, +55-11-4504-2616
Associate Director
or
Committee Chairperson
Ricardo Carvalho, +55-21-4503-2627
Senior Director
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Claudio Miori, +55-11-4504-2207
Associate Director
Fitch Ratings Brasil Ltda
Alameda Santos, 700 - 7 andar, Sao Paulo, sp CEP 01418-100
or
Secondary Analyst
Alexandre Garcia, +55-11-4504-2616
Associate Director
or
Committee Chairperson
Ricardo Carvalho, +55-21-4503-2627
Senior Director
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com