Fitch lowers GVO, Virgolino Finance

Fitch Ratings said it downgraded Virgolino de Oliveira SA Acucar e Alcool's (GVO) and Virgolino de Oliveira Finance SA's (Virgolino Finance) foreign- and local-currency issuer default ratings to B- from B.

GVO's long-term national scale rating also was downgraded to BB+(bra) from BBB(bra), along with the ratings on its R$100 million senior unsecured debentures due 2014 to BB+ (bra) from BBB(bra).

All of the ratings remain on Rating Watch negative.

The agency also downgraded Virgolino Finance's $300 million senior unsecured notes due 2022 to B- with a recovery rating of RR4 from B with a recovery rating of RR4.

The downgrades are based on GVO's weaker financial profile in the volatile sugar and ethanol business, underpinned by increasing leverage ratios, low liquidity position and high short-term debt concentration, Fitch said.

The company still faces a stressed scenario for the sugar and ethanol prices, which adds challenges to GVO to improve its operational cash flow generation in order to benefit its credit metrics, the agency said.

In addition, unusually dry weather conditions in Sao Paulo in early 2014 are likely to affect agricultural yields in the 2014to 2015 season, Fitch added.

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