MIAMI -- Fitch Ratings has downgraded the ratings for Industrias Metalurgicas Pescarmona S.A.I.C. y F. (IMPSA), WPE International Cooperatief U.A. (WPEI), and the companies' ultimate holding company, Venti S.A. (Venti) as follows:
--IMPSA foreign and local currency Issuer Default rating (IDR) to 'RD' (Restricted Default) from 'C';
--WPEI foreign and local currency IDR to 'RD' from 'C';
--Venti foreign and local currency IDR to 'RD' from 'C'.
Fitch has affirmed WPEI's 10.375% USD390 million senior unsecured international bonds due September 2020 at 'C/RR4'.
KEY RATING DRIVERS
Grace Period Expiration
The downgrades follow the expiration of the 30-day grace period after the non-payment of the company's interest payments for its WPEI 10.375% September 2020 bond. Payment of the bond was due on Sept. 30, 2014 with the thirty day grace period expiring on Oct. 30, 2014. On Nov. 11, 2014, the Bourse de Luxembourg indicated it immediately suspended trading in WPEI's 10.375% bonds as the notes are in default.
Interest Payment Postponement Previously Announced
On Sept. 16, 2014, Fitch downgraded the company's IDRs and Bond Ratings to 'C' following the company's announcement of interest payment postponements. The company has since gone on to miss both its local and international debt payments. On Sept. 15, 2014, IMPSA announced to the Argentine Comision Nacional de Valores (CNV) that it would be postponing interest payments corresponding to its local ON Class 10/11 local bond obligations due Sept. 18, 2014. Furthermore, the company declared that it was postponing its interest/coupon payments for all its other financial obligations with multiple financial creditors. This followed the company's delayed interest payments the company disclosed to the CNV on June 25, 2014. On that occasion, the company made its payments for the local ON Class 8/9 bonds with a one week delay.
The company faces stretched liquidity which renders it unable to meet its financial obligations. At the IMPSA level, which encompasses the company's Argentina business, the company's cash and marketable securities were equivalent to USD28 million as of YE2013 versus short-term debt obligations of USD411 million or 7% of short-term obligations. As of 2Q'13, cash and marketable securities declined to USD8 million while short-term debt obligations of USD444 million means cash and equivalents declined to 2% as a percentage of short-term debt.
At the Venti S.A. holding company level, the company's cash position is still stretched, though relatively better than at the IMPSA operating company level, as it held USD50 million in cash which is 17% of USD299 million in short-term debt as of 1Q'14. The company's financial strategy has revolved around meeting its debt obligations with a mix of cash from operations and the rollover of existing debt, however IMPSA's recent struggle to make minor interest payments suggest difficulties in raising additional financing to roll-over its obligations.
Meaningful debt payments for the company in September, which went unfulfilled, totaled allion including USD9 million in interest/amortization payments for its local bonds due in September and a USD20 million interest payment on its WPEI international bond also due in September. As previously noted by Fitch in its press release dated Sept. 16, 2014, the company's 'ratings could be downgraded if the company defaults on its scheduled amortization/interest payments and/or does not fulfill its financial obligations following the late-payment grace period'.
Difficulties in Brazil; Low Credit Profile Offtakers
IMPSA's previous ratings incorporated the company's growing business presence in Brazil. However, the company's Argentine operations continue to be a significant driver for free cash flow generation at the company while Fitch estimates that the Brazilian operations are negatively impacting cash flow at the company. The company's high leverage, aggressive capital expenditure program and its backlog concentration on a few large projects in developing countries has contributed to the company's current difficulties, and should continue to have these effects in the short-to-medium term. In addition, the company's reliance on payments from weak credit profile offtakers such as Corpoelec (IDR rated 'B'; Outlook Negative by Fitch) in Venezuela, highlights the company's deteriorating credit position.
The company's IDRs and debt ratings will be reviewed once it announces and executes the next steps related to its debt restructuring process.