SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has downgraded Odebrecht Engenharia e Construcao's (OEC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'B+' from 'BB' and Long-Term National Scale Rating to 'A-(bra)' from 'AA-(bra)'.
Concurrently, Fitch has downgraded to 'B+/RR4' from 'BB' the approximately USD3.1 billion issuances of Odebrecht Finance Ltd. (OFL), which OEC unconditionally and irrevocably guarantees. The 'B+/RR4' rating of OFL's unsecured public debt reflects average recovery prospects in the event of a default, ranging between 31% - 50%.
All the ratings were placed on Ratings Watch Negative. A complete list of ratings follows at the end of this press release.
KEY RATING DRIVERS
The downgrade reflects the increased risks and uncertainties associated with the non-publication of OEC's 2015 financial statements at the end of April 2016. OEC's independent auditor requested additional information on the latest phases of the Lava-Jato (Car-Wash) investigation and further checks have delayed the publication of the company's financial statements.
The rating action also reflects the prolonged uncertainty of any potential impact on OEC's credit profile stemming from the investigations on the corruption scandal. This has led to low visibility on the company's short- and medium-term future operating performance and liquidity. Fitch believes these risks are not commensurate with the 'BB' rating category.
The Negative Watch reflects OEC's challenges to mitigate vulnerabilities due to the publishing delay of its 2015 financial statements, with potential debt payment acceleration of USD2.7 billion. Investors of five out of the eight OFL bonds could declare an event of default (EoD) if the bonds reach a low threshold of 25% of the outstanding bond. This would trigger a 60-day cure period for OEC to publish the accounts. Otherwise, bondholders could notify the company of another EoD.
On a preliminary basis, OEC released to the market total debt of BRL3.6 billion and cash of BRL2.5 billion at the end of 2015. Fitch estimates that bondholders could request the anticipated payment of approximately 80% of this debt.
RATING SENSITIVITIES
OEC's and OFL's ratings could be further downgraded should debt acceleration materialize. If the company publishes audited financial statements in a timely manner complying with covenants, the Rating Watch Negative will likely be removed and a Negative Rating Outlook would likely be assigned due to the remaining uncertainties derived from the Lava-Jato investigation, the Brazilian macroeconomic adverse scenario, and maintenance of low oil prices impacting a significant percentage of OEC's clients.
FULL LIST OF RATING ACTIONS
Fitch has downgraded the following ratings:
Odebrecht Engenharia e Construcao S.A. (OEC)
--Long-Term Foreign- and Local-Currency IDRs to 'B+' from 'BB';
--National Scale Rating to 'A-(bra)' from 'AA-(bra)'.
Odebrecht Finance Limited (OFL)
--BRL500 million senior unsecured notes due 2018 to 'B+/RR4' from 'BB';
--USD500 million senior unsecured notes due 2020 to 'B+/RR4' from 'BB';
--USD600 million senior unsecured noted due 2022 to 'B+/RR4' from 'BB';
--USD800 million senior unsecured notes due 2023 to 'B+/RR4' from 'BB';
--USD550 million senior unsecured notes due 2025 to 'B+/RR4' from 'BB';
--USD500 million senior unsecured notes due 2029 to 'B+/RR4' from 'BB';
--USD850 million senior unsecured notes due 2042 to 'B+/RR4' from 'BB';
--USD750 million perpetual bonds to 'B+/RR4' from 'BB'.
All of the ratings were placed on Rating Watch Negative.
Additional information is available on www.fitchratings.com.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003859
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003859
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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