Brazilian Infrastructure Group Invepar Downgraded To 'CCC+' On Unsustainable Capital Structure, Still On Watch Negative

AlgorithmBinary Data setRank
Rating Monitoring Algorithm Trust Rate42004
Correlation with Binary Sources41000.92
Bartlett Correction Factor4200.21
Time Seriesn,(n-2),f(r-1)0.11
  • Brazil-based infrastructure operator Invepar still faces short-term refinancing risks at the holding level because the company is still set to rollover approximately R$1 billion of debt maturing on March 11, 2019, after several attempts to refinance, indicating its weak access to both banking and capital markets.
  • At this point, we don't expect a permanent solution in the next few months to address the company's currently unsustainable capital structure because dividends received by the holding company aren't enough to service its sizable debt. The group now depends on positive outcomes of events that it doesn't control, including reducing debt with the proceeds from fresh equity or asset sales.
  • On Feb. 11, 2019, S&P Global Ratings downgraded Invepar and its subsidiaries to 'CCC+' from 'B' on the global scale and to 'brBB-' from 'brA-' on the Brazilian national scale.
  • The ratings remain on CreditWatch with negative implications, reflecting the risk of a multiple-notch downgrade if the company doesn't avoid a debt acceleration at subsidiary CART's level that could be triggered if it doesn't obtain a waiver from its debenture holders.
SAO PAULO (S&P Global Ratings) Feb. 11, 2019--S&P Global Ratings today took 
the rating actions listed above.

The downgrade of Invepar reflects our view that its capital structure is 
unsustainable. Since mid-2018, the company has attempted to refinance about 
R$1 billion of debt issued by the holding company Invepar, which matures on 
March 11, 2019. Even assuming that the group will manage to extend this debt, 
a permanent solution would depend on deleveraging using fresh equity or asset 
sales, options with outcomes outside the company's control. Although its 
consolidated cash position was R$1.4 billion as of September 2018, only R$400 
million was at the holding level and the rest was liquidity at subsidiaries 
that the holding company doesn't have full access to. Moreover, the amount of 
dividends received isn't enough to service its sizable debt, and we don't 
expect this to change in the near future.

The negative CreditWatch listing reflects the risk of multiple downgrades in 
the case of a debt acceleration, considering that the debt documents of CART's 
two series of debentures--totaling R$1 billion as of September 2018--contain a 
clause stating that a downgrade to below 'brA-' is a non-automatic 
acceleration. The downgrade of CART to 'brBB-' will require a waiver by at 
least 75% of the debenture holders, and as mentioned above, we believe 
executing this may be difficult.

The CreditWatch also reflects the default risk if Invepar is required to make 
unforeseen payments because of cross-default clauses, if it's unable to 
refinance the holding company's debt that matures on March 11, 2019, or if it 
performs an exchange that we believe is distressed.

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