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Rating Action:

Moody's downgrades GVO to Caa3; changes outlook to negative

21 Oct 2014

New York, October 21, 2014 -- Moody's Investors Service has today downgraded Agropecuária Nossa Senhora do Carmo S.A. ("GVO")'s corporate family rating and senior unsecured debt ratings to Caa3 from B3, as well as its senior secured debt ratings to Caa2 from B2. The outlook was changed to negative from stable.

Ratings downgraded as follows:

Issuer: Agropecuaria Nossa Senhora do Carmo S.A.

- Corporate Family Ratings: to Caa3 from B3

Issuer: Virgolino de Oliveira Finance S.A.

- $135mm senior secured notes due 2020: to Caa2 from B2

Issuer: Virgolino de Oliveira Finance Limited

- $300mm senior unsecured notes due 2018: to Caa3 from B3

- $300mm senior unsecured notes due 2022: to Caa3 from B3

The outlook for all ratings is negative.

RATINGS RATIONALE

The downgrade reflects the deterioration in GVO´s liquidity and it follows the company's announcement that it hired financial advisory firm Moelis & Company and Lawyers Santos Neto Advogados and Kirkland & Ellis LLP to engage in actions to reinforce its capital structure.

The low price environment observed in the sugar and ethanol sector over the last few quarters reduced credit availability for Brazilian producers. In the case of GVO, it restricted the access to the letters of credit it needs to maintain its working capital lines with Copersucar, implying the need for the paying back of part of these lines and, thus, a relevant additional pressure on the company's liquidity. On the operational side, the difficulties are consequence of a sharp drop in sugar prices and depressed ethanol prices, coupled with the low availability of sugar cane, given the drought that hit Brazilian Center-south producing region. The recovery in sugar prices, initially expected on the back of a reduced 2014/15 harvest coming from Brazil, has not materialized and it will translate into lower than expected Revenues and EBITDA for GVO.

GVO's rating is still supported by the good medium-term prospects for the sugar-ethanol industry as a consequence of constantly increasing consumption and a less steady global supply growth, despite recent build-up in global inventories. On the other hand, the company´s ratings have historically reflected its weak liquidity profile, high leverage and relatively small size when compared to large Brazilian companies operating in this industry. Although Virgolino benefits from the advantages of operating in one of the world's highest yielding sugar cane regions, the rating reflects its raw material concentration in the state of São Paulo, which increases the risks related to plant diseases and weather-related events. Moreover, the region's good climate and better soil are reflected in its higher lease costs, which translate into a high operational leverage that negatively affects the company's performance in low production years.

The negative outlook reflects the company´s very tight liquidity profile and the likelihood of a debt restructuring over the short term. Accordingly, a downgrade would be triggered by any capital structure adjustment that translates into missed or delayed disbursement of interest and/or principal, or a distressed exchange.

Although unlikely in the short term, the ratings could be upgraded if the company is able to strengthen its capital structure without defaulting in any of its financial obligations and improve its liquidity profile.

Headquartered in São Paulo, Brazil, Agropecuária Nossa Senhora do Carmo S/A ("Virgolino" or "GVO") is a privately-held sugar and ethanol producer, controlled by the Oliveira family. The company has a sugarcane crushing capacity of 12.0 million tons per harvest and posted revenues of BRL 1.5 billion (approximately USD 629 million converted by the average exchange rate) for the fiscal year ending in April, 2014.

The principal methodology used in these ratings was Global Protein and Agriculture Industry published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Erick Figueiredo Rodrigues
Asst Vice President - Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
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Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

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Moody's downgrades GVO to Caa3; changes outlook to negative
No Related Data.
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