Sao Paulo, November 05, 2018 -- Moody's América Latina Ltda., ("Moody's") downgraded
to C.br from Caa2.br the corporate family rating assigned
on its Brazilian National scale to Odebrecht Engenharia e Construção
S.A. (OEC). At the same time, Moody's Investors
Service downgraded to C from Caa2 the corporate family rating assigned
on its global scale to OEC.
Ratings downgraded:
Issuer: Odebrecht Engenharia e Construcao S.A. (OEC)
-Corporate Family Rating (National Scale Rating), Downgraded
to C.br from Caa2.br
Outlook Actions:
Issuer: Odebrecht Engenharia e Construcao S.A. (OEC)
No outlook assigned
RATINGS RATIONALE
The downgrade follows OEC's decision to not make the interest payment
of approximately $12 million related to its $550 million
4.375% senior unsecured notes due 2025 on time. The
company mentioned it will use its 30-day grace period to analyze
alternatives for its short and long term financial position amidst a challenging
market environment for the engineering and construction industry.
We view the missed payment as a signal that the company would likely pursue
a deeper debt restructuring in the near term, with severe losses
to creditors. OEC has been burning about $150 million in
cash per quarter and as of June 2018 had $456 million in cash for
a total debt amounting to $3.1 billion. Accordingly,
OEC's capital structure is untenable vis-à-vis
the company's current small size in terms of revenues, shrinking
backlog and challenging industry prospects. Also liquidity is tight
to service its debt while meeting its operating requirements.
According to OEC, in the end of the second quarter of 2018 project
backlog was reduced to about $9.8 billion from $12.1
billion in December 2017. The backlog reductions have been accompanied
by large cash outlays, driven by delays in the collection of receivables,
lower book-to-bill ratio reducing the volume of cash advances
and foreign exchange losses, which jeopardized the company's liquidity
position.
The ratings could be upgraded if the company is able to strengthen its
capital structure, improve its liquidity profile and meet financial
obligations on a timely basis.
OEC one of the largest engineering and construction company in Latin America,
with $2.5 billion in net revenues in the last twelve months
ended June 2018 and had an estimated project backlog of around $9.8
billion located in Brazil, other Latin American countries and Africa.
OEC is a subsidiary of Odebrecht S.A., a family-owned
investment holding company for one of the largest non-financial
conglomerates in Brazil that controls Braskem S.A. (Ba1
stable), the largest chemical company in Latin America, along
with other investments in the oil & gas, energy sectors,
toll roads, water sewage concessions and real estate.
The principal methodology used in this rating was Construction Industry
published in March 2017. Please see the Rating Methodologies page
on www.moodys.com.br for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
REGULATORY DISCLOSURES
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's information.
Information types used to prepare the rating are the following:
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historical performance data, public information, Moody's
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from many third party sources as part of the rating process. These
sources may include, but are not limited to, the list available
in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_193459.
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Please see the ratings disclosure page on www.moodys.com.br
for general disclosure on potential conflicts of interests.
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12 months preceding the credit rating action. Please go to the
report "Ancillary or Other Permissible Services Provided to Entities Rated
by Moody's America Latina Ltda." in the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147430
for detailed information.
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The date of the last Credit Rating Action was 11/04/2017.
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Marcos Schmidt
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
