Fitch Downgrades Samarco's Ratings to 'C'

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded the Long-Term Foreign-Currency (LT FC) and Local Currency (LT LC) Issuer Default Ratings (IDRs) and senior unsecured debt ratings of Samarco Mineracao S.A. (Samarco) to 'C' from 'CCC'. Fitch has also downgraded Samarco's National Long-Term Ratings to 'C(bra)' from 'CCC(bra)' and senior unsecured notes to 'CC/RR3' from 'CCC/RR4'. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The downgrade is due to a change in Fitch's view of the timing regarding the restart of Samarco's operations. Given the political climate surrounding the company and an inability to gain traction in obtaining the necessary licenses to restart its business, Fitch now believes that the company will not restart operations until the second half of 2017. Previously, Fitch assumed that Samarco's operations would be able to restart during the first half of 2017.

The 'C' rating reflects Fitch's view that Samarco will be forced to request a standstill or restructure its debt within the next couple of months, as the company seeks to preserve cash for expenses related to obtaining operating permits. It is not likely that government officials will release cash that is trapped by authorities, which would mitigate some of the cash flow pressure the company faces.

Fitch's RR3 recovery rating for the company's bonds reflect above average recovery prospects. For this to occur, the company will need to be able to restart operations at the level of 50% or more of current capacity. If Samarco is not able to restart its operations, which remains a distinct possibility, recovery prospects would likely be less than 10% and the notes would be downgraded to C/RR6.

KEY ASSUMPTIONS

Fitch's main concern remains the ability for Samarco to restart operations - for the company to be able to comply with its various reparation agreements to date alongside its financial obligations; it requires the ability to generate income.

RATING SENSITIVITIES

Fitch would downgrade Samarco's rating to 'RD' upon completion of a Distressed Debt Exchange, and/or the company has experienced an uncured payment default.

An upgrade is unlikely in the near term absent significant shareholder equity to support debt service payments coming due.

LIQUIDITY

Fitch assumes that the ongoing delay for Samarco to regain its operating licenses will result in the company likely running out of cash at some point during the third quarter or fourth quarter of 2016.

FULL LIST OF RATING ACTIONS

Samarco Mineracao S.A.

--Long-Term Local-Currency IDR to 'C' from 'CCC';

--Long-Term Foreign-Currency IDR to 'C' from 'CCC;

--National Long-Term Rating to 'C(bra)' from 'CCC(bra)';

--Senior unsecured debt rating to 'CC/RR3' from 'CCC/RR4'.

Date of Relevant Rating Committee: 15, July 2016

Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor must be disclosed (in bullet points). Analysts should refer to the relevant section of the Data Control Form and discuss and agree the proposed disclosure at the rating committee. This disclosure should appear after the analyst contact information.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009028

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009028

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160715005840/en/

Fitch Ratings
Primary Analyst
Phillip Wrenn
Associate Director
+1-312-368-2075
Fitch Ratings, Inc.
70 West Madison St
Chicago, IL, 60602
or
Secondary Analyst
Debora Jalles
Director
+1-312-606-2338
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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