Moody's cuts Vivo Energy to junk

Moody's Ratings said it downgraded to Ba1 from Baa3 the long-term senior unsecured rating of Vivo Energy Ltd.'s $350 million bond maturing in September 2027. Vivo Energy Investments BV issued the bond.

Concurrently, the agency said it withdrew Vivo Energy's Baa3 long-term issuer rating and assigned a Ba1 corporate family rating and Ba1-PD probability of default rating, in line with the rating agency's practice for corporates with non-investment grade ratings. The outlook on all entities has been changed to stable from negative.

The downgrade reflects Vivo Energy’s weaker metrics, Moody’s said. Vivo’s Moody’s adjusted leverage increased to 4.7x as of December from 2.1x in 2021.

“The increase in leverage is a combination of weaker operating performance impacted by exceptional provisions and higher Moody's adjusted gross debt than initially forecasted by Moody's, following the debt push down from Vitol and an increase of non-recourse debt levels in local operating subsidiaries. Vivo Energy's adjusted debt has increased to $1.8 billion as of December 2023 from $0.9 billion two years before, which has resulted in increased pressure in the company's credit metrics. The increase in gross debt exposes the company to weaker cash flows under the current high-interest rate environment,” the agency said in a press release.

The improved outlook reflects the view that Vivo Energy will preserve its liquidity buffers and that credit metrics will stabilize within the Ba1 rating category following the Engen South Africa acquisition. The agency added, “The stable outlook also assumes the company will reduce its Moody's adjusted debt to EBITDA to below 4x and interest cover (measured as Moody's adjusted EBIT to interest expense) above 4x.”

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