S&P downgrades unit of Brazil's Odebrecht
Standard & Poor's downgraded Odebrecht Engenharia e Construção (OEC) after the unit of Brazilian construction group Odebrecht decided to exercise its right to a 30-day grace period to pay interest on perpetual bonds of US$550mn.
The ratings agency downgraded OEC to 'CC' from 'CCC'. The interest payment subject to the grace period was due October 25.
"Although we believe there's a very high likelihood of a debt restructuring or de facto default in the short term, we currently don't consider the missed payment a default, because the company has the opportunity to pay interest obligations within its grace period," said Standard & Poor's.
Odebrecht is at the epicenter of the Lava Jato graft probe, which uncovered fraudulently obtained construction contracts at federal oil company Petrobras. This led to a drop in revenue, requiring the company to sell assets to service its debt.
"We estimate OEC as currently having a cash position of US$400-500mn, which combined with about US$150mn in Ebitda for the year, would be sufficient to cover its short-term debt and operating obligations," S&P said. "However, given the still challenging business conditions and continued cash burn, we believe there's a greater risk of debt restructuring in order to match OEC's entire capital structure to its cash flow generation."
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