NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has downgraded the foreign and local currency Issuer
Default Ratings (IDRs) of Industrias Metalurgicas Pescarmona S.A.I.C. y
F. (IMPSA) and WPE International Cooperatief U.A. (WPEI) to 'CCC' from
'B+'. These rating actions affect IMPSA's USD225 million senior
unsecured international bonds due October 2014 and WPEI's USD390 million
senior unsecured international bonds due September 2020. The bonds'
ratings are being downgraded to 'CCC/RR4' from 'B+/RR4'. In addition,
given the reorganization of the issuers' organizational structure, Fitch
is assigning a new rating of 'CCC' for Venti S.A., the group's ultimate
holding company that acts as guarantor of the IMPSA and WPEI notes.
The ratings for IMPSA and WPEI have been placed on Rating Watch
Negative. For Venti S.A., the local and foreign currency L-T IDR of
'CCC' has also been placed on Rating Watch Negative.
KEY RATING DRIVERS
The downgrade reflects the company's stretched liquidity. 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 1Q'13, cash and marketable securities
declined to USD16 million while short-term debt obligations of USD406
million means cash and equivalents declined to 4% as a percentage of
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 upcoming debt payments for the company over the next two
months total approximately USD45 million including USD9 million in
interest/amortization payments for its local bonds due in September and
a USD20 million amortization payment on its WPEI international bond also
due in September. A failure to make these payments could trigger a
subsequent ratings downgrade.
Delayed Interest Payment in June
Company's recent delayed interest payment highlights liquidity weakness
at the company. On June 25, 2014, the company disclosed to the Comision
Nacional de Valores (CNV) that it would be missing an interest payment
for its local bonds, ON Class 8/9, due on June 26. The company cited
administrative reasons for the delay in payments, and subsequently on
July 3, 2014 the company notified the CNV that it fulfilled its
financial obligations and made the interest/principal payments totaling
approximately USD$7 million. The administrative delays stemmed from a
late payment from client Corpoelec (IDR rated 'B'; Outlook Negative by
Fitch) in Venezuela, though in Fitch's view this event further
highlighted the company's deteriorating credit position and reliance on
cash flow payments from clients with weak credit profiles to fulfill its
Reorganization Reflected in New Ratings
The rated international notes are held at the WPEI and IMPSA entity
levels. WPEI is a direct subsidiary of Wind Power Energia S.A. (WPE),
which in turn is wholly owned by Venti S.A. In 2014, the company
reorganized under a new corporate structure, whereby Venti S.A. is the
overall holding company separately owning 100% of WPE in Brazil and 100%
of IMPSA in Argentina. Previously, IMPSA owned 100% of WPE, but with the
2014 reorganization the Brazilian and Argentinian businesses were put
under separate umbrellas. Given the reorganization, Fitch is assigning
new IDR ratings for the holding company, Venti S.A., at 'CCC', which are
identical to the IMPSA and WPEI ratings.
The WPEI international notes are irrevocably and unconditionally
guaranteed by Venti, IMPSA and WPE on a senior unsecured basis. WPEI's
ratings reflect the credit levels of the guarantors. The IMPSA
international notes' ratings also reflect the credit levels of its
guarantor, Venti S.A. The 'CCC' IDR assumes all WPEI and IMPSA's future
debt issuances would be fully and unconditionally guaranteed by IMPSA,
WPE and Venti S.A.
Difficulties at Brazilian Operations
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.
The company's ratings could be downgraded if further
amortization/interest payments are delayed or missed altogether, and if
liquidity metrics continue to deteriorate. In addition, any material
performance problems that threaten future projects and cash flow, or a
failure to comply with the terms for the operation of the wind farms
(for which long-term PPAs have been signed with Eletrobras and the CCEE
and are financed by BNDES) could also result in a downgrade.
Cash generation exceeding Fitch forecasts, which allows the company to
meet its financial obligations and de-lever, would be viewed positively.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage
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Fitch Ratings, Inc.
New York, NY 10004
Elizabeth Fogerty, New York, +1-212-908-0526
Source: Fitch Ratings