S&P cuts Usina Caete

S&P said it lowered its global scale corporate credit rating on Usina Caete SA - NE to CCC- from B- and the Brazil national scale corporate credit rating to brCCC- from brB-. At the same time, S&P lowered the issue-level rating to CCC from B-. S&P also revised its recovery rating on this debt to 2, indicating an expectation for substantial recovery (70%-90%; upper half of the range) of principal in the event of a payment default, from 3.

S&P also lowered the national scale issue-level rating to brCCC from brB-.

Finally, the agency placed all ratings on CreditWatch negative.

“The downgrade reflects our view that Caete’s capital structure may become unsustainable, absent a debt restructuring, which increases the risk of the company’s failure to pay principal or interest payments in the next six months,” S&P said in a news release.

“Its already weak liquidity position continues to erode, as the share of short-term debt maturities rises, while Caete continues consuming its cash.

“In our view, tightening credit conditions in Brazil and the company’s negative free operating cash flow have hindered its ability to reduce debt or refinance it at longer tenors. This situation also forced Caete to breach its covenants for two years in a row, which exposes it to a potential payment acceleration of its debentures if banks don't provide a waiver to the breach.”

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