Fitch Downgrades Tonon's Ratings to 'RD'

SAO PAULO--(BUSINESS WIRE)-- Fitch Ratings has downgraded Tonon Bioenergia S.A's (Tonon) foreign and local currency Issuer Default Ratings (IDRs) to 'RD' from 'C'. At the same time, Fitch has affirmed at 'C/RR4' the ratings on the USD300 million senior unsecured notes due 2020 and the USD230 million senior secured notes due 2024 issued by Tonon's fully-owned subsidiary Tonon Luxembourg S.A. The senior unsecured notes due 2020 were transferred to Tonon Luxembourg from Tonon. A full list of ratings actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrade follows the conclusion of the debt exchange offer for the USD300 million senior unsecured notes due 2020, with approximately 95% adhesion. New notes have a step-up coupon starting at 7.25% for the first two years, moving to 9.25% from Jan. 24, 2017 until Jan. 24, 2020. Tonon Luxembourg will accrue interests from Jan. 24, 2015 and the issuer has the option to defer cash payments of interest due on any interest payment under the New Notes. Fitch understands the conditions for bondholders deteriorated compared to the previous Notes and the company chose this option to avoid entering in bankruptcy proceedings.

KEY ASSUMPTIONS

--Increased systemic risk and scarce availability of medium and long-term finance;

--Average sugar prices at USD14 cents/pound in 2015/2016, USD16 cents/pound in 2016/2017 and flat at USD17 cents/pound from 2017/2018 on;

--Domestic ethanol prices keeping the historical correlation with international sugar prices.

RATING SENSITIVITIES

An upgrade to the C to CCC category is plausible over the short-term, following the conclusion of the Debt Exchange Offer and the consequent improvements in company's liquidity. Upgrades to higher categories are not expected given the maintenance of above-average leverage indicators and the operational and financial challenges surrounding the sugar and ethanol sector.

The company's ratings could be downgraded to 'D' if the company defaults on its scheduled amortization/interest payments and/or formally files for bankruptcy protection.

FULL LIST OF RATING ACTIONS

Tonon Bioenergia S.A.

--Foreign currency IDR downgraded to 'RD' from 'C';

--Local currency IDR downgraded to 'RD' from 'C'.

Tonon Luxembourg S.A.

--Rating of the USD230 million senior secured notes, due 2024, affirmed at 'C/RR4';

--Rating of the USD300 million senior unsecured notes, due 2020, affirmed at 'C/RR4'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988059

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988059

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/20150716006446/en/

Fitch Ratings
Primary Analyst
Claudio Miori
Associate Director
+5511-4504-2207
Fitch Raings Brasil Ltda
Alameda Santos, 700 - 7 andar
Sao Paulo, sp CEP 01418-100
or
Secondary Analyst
Alexandre Garcia
Associate Director
+5511-4504-2616
or
Committee Chairperson
Ricardo Carvalho
Senior Director
+5521-4503-2627
or
Media Relations
Alyssa Castelli, New York, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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