Italy-Based CMC di Ravenna Downgraded To 'D' On Application For Composition With Creditors

  • CMC di Ravenna (CMC) has announced that, on Dec. 4, 2018, it would apply in court for a preventive composition with creditors "with reservation."
  • We consider CMC's current situation to be tantamount to default because the application foresees the suspension of payments related to outstanding obligations.
  • We are lowering our long-term ratings on CMC to 'D' from 'CC'.
  • The ratings will remain at 'D' until payments resume according to the terms of the notes or the financial obligations have been restructured.
PARIS (S&P Global Ratings) Dec. 6, 2018--S&P Global Ratings today lowered its 
long-term issuer credit rating on Italian engineering and construction group 
CMC di Ravenna (CMC) to 'D' (default) from 'CC'.

At the same time, we lowered our issue ratings on CMC's €325 million and €250 
million senior unsecured bonds to 'D' from 'CC'. The recovery rating on both 
instruments remains '4', indicating our expectation of average recovery 
prospects (30%-50%; rounded estimate: 35%) in the event of a payment default. 

The downgrade follows CMC's announcement on Dec. 2, 2018, that its board of 
directors would apply on Dec. 4, 2018 to the Court of Ravenna for a 
composition with creditors "with reservation," in accordance with Italian 
insolvency law. 

We consider these circumstances to be tantamount to a default, because the 
application foresees the suspension of payments related to outstanding 
obligations, unless authorized by the court, during the period related to the 
process of composition with creditors. As such, we do not expect CMC to make 
regular payments on its outstanding debt.

We understand that CMC aims to protect its assets and its stakeholders' 
interests, as well as safeguard the business by seeking the continuity of its 
operations. CMC's liquidity position and credit metrics have significantly 
weakened in the past few months. In September, CMC released its financial 
results for second-quarter 2018 and reported negative cash flow from 
operations of about €124 million, which ultimately increased its reported net 
leverage to 5.3x, from 3.9x at year-end 2017. That was primarily due to six 
delayed project payments totaling about €110 million. As at June 30, 2018, CMC 
reported a net financial position of €825 million. On Oct. 31, 2018, Anas SpA, 
the Italian roads and railways operator and one of CMC's biggest clients in 
Italy, announced that it had made all its overdue payments for work in 
progress with CMC, amounting to about €50.6 million. To date, CMC has not 
published its third-quarter results. On Nov. 9, 2018, CMC announced that, 
because of cash flow pressure, it would not be able to pay on time the 
interest due Nov. 15, 2018, and that it had appointed new financial advisors.

We understand that the composition plan is under preparation and will be 
finalized in the coming months. The issuer credit rating will remain at 'D' 
until payments resume according to the terms of the notes or the financial 
obligations have been restructured.