International credit ratings agency Fitch Ratings has announced that it has downgraded the long-term foreign currency and long-term local currency issuer default ratings and senior unsecured debt ratings of Brazilian pellets producer Samarco Mineracao S.A. to 'CCC' from 'BB-', as well as its national long-term ratings to 'CCC' from 'A’.
The downgrade reflects Fitch’s view that Samarco will not regain the necessary licenses to restart operations before it runs out of cash in this year. Fitch also believes that Samarco will run out of cash to repay its short-term debt obligations between August and October without these licenses, which would lead to a restructuring of its short-term debt obligations to creditors without an equity infusion from its parents. In addition, Fitch stated that Samarco’s parent companies Brazilian miner Vale and Australian miner BHP Billiton will not inject cash for working capital purposes and debt repayment without a clear path to a restart of operations in the near term.
According to Fitch, receiving an operating license within the next two months would likely lead to material positive rating actions, as Fitch believes that Vale and BHP Billiton would support Samarco financially if it were able to restart operations before the end of 2016. Restarting operations would likely also open the company up to receive export financing, which would further fortify its working capital position and debt servicing needs.