Fitch Ratings has downgraded the Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) of OAS S.A. and Construtora OAS S.A. to 'C' from 'B+' and their long-term National Scale ratings to 'C(bra)' from 'BBB+(bra)'. In conjunction with these rating actions, Fitch has downgraded the National Scale rating of OAS Empreendimentos S.A. to 'C(bra)' from 'BBB-(bra)'. All issuances related to these three companies, as well as the perpetual bonds issued by OAS Finance Ltd. and the senior unsecured notes issued by OAS Investments GmbH and OAS Finance Ltd., were also affected by this rating action.
The ratings were removed from Negative Watch. A complete list of the rating actions follows at the end of this release.
KEY RATING DRIVERS
These downgrades follow the announcement by OAS that it did not pay the interest on its USD400 million senior unsecured notes due 2021, in the amount of USD16 million, issued by OAS Finance Ltd. due today, thus entering the 30-day cure period. This issuance is guaranteed by OAS S.A., Construtora OAS S.A. and OAS Investimentos S.A. Since Nov. 19, 2014, all OAS company ratings have been on Negative Watch, reflecting Fitch's concerns as to the financial and business impacts on these corporates from corruption allegations on contracts between Petrobras and several companies in the sector and the ensuing federal investigation.
OAS and its subsidiaries' 'C' ratings reflect the company's imminent default on this issuance and other financial obligations to mature within the next days. The principal and interest payment of OAS S.A.'s 9th debenture issuance will mature on Jan. 5, 2015 and most likely will not be paid, which may lead to an event of default depending on the investor's behavior. An event of default can also accelerate the maturity of other debts at OAS S.A., Construtora OAS S.A. and OAS Empreendimentos S.A., putting additional pressure on the OAS Group's liquidity.
OAS Group is facing difficulties in accessing credit lines and, in the case of Construtora OAS S.A., in dealing with its clients in terms of receiving payments and recognition of claims from important projects. The company has chosen a strategy to preserve its liquidity, opting to not pay its financial obligations in the short term. With such a strategy, OAS intends to retain enough liquidity to fund its working capital needs and keep its operational activities as close to the regular pace as possible. At the same time, the company will have the challenge to renegotiate new terms and conditions of the payments with several debtholders; such decisions are not managed by the company. Disappointments in negotiating with creditors could lead the company to file for bankruptcy protection. OAS also mentioned its intention to explore the sale of certain assets in its portfolio.
According to OAS, its cash and marketable securities are expected to reach BRL1 billion at Dec. 31, 2014. At the end of September 2014, OAS S.A. reported total recourse debt of BRL7.7 billion and unrestricted cash and marketable securities of BRL1.4 billion, under Fitch's methodology. Coverage ratio, measured by cash over short-term debt was 1.4x.
RATING SENSITIVITIES
Absent a material new event, OAS S.A. and its subsidiaries are likely to default on their debt in the near future. Fitch considers the agreement of all creditors to renegotiate their debt as unlikely.
Fitch has downgraded the following ratings:
OAS S.A.:
--FC IDR to 'C' from 'B+';
--LC IDR to 'C' from 'B+';
--National scale rating to 'C(bra)' from 'BBB+(bra)';
--BRL300 million debentures 3rd issuance due 2016 to 'C(bra)' from 'BBB+(bra)';
--BRL250 million debentures 4th issuance due 2027 to 'C(bra)' from 'BBB+(bra)';
--BRL300 million debentures 5th issuance due 2015 to 'C(bra)' from 'BBB+(bra)'.
Construtora OAS S.A.:
--FC IDR to 'C' from 'B+';
--LC IDR to 'C' from 'B+';
--National scale rating to 'C(bra)' from 'BBB+(bra)'.
OAS Investments GmbH:
--FC IDR to 'C' from 'B+';
--USD850 million senior unsecured notes due 2019 to 'C/RR4' from 'B+/RR4'.
OAS Finance Ltd.:
--USD500 million perpetual bonds to 'C/RR4' from 'B+/RR4';
--USD400 million senior unsecured notes due 2021 to 'C/RR4' from 'B+/RR4'.
OAS Empreendimentos S.A.:
--National scale rating to 'C(bra)' from 'BBB-(bra)'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014);
--'National Scale Ratings Criteria' (Oct. 30, 2013).?
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=962995
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