Moody's cuts Samarco rating to junk
By Paul Kilby
NEW YORK, Nov 10 (IFR) - Moody's cut its ratings on US$2.2bn of Brazilian miner Samarco's debt to Ba1 from Baa3 on Tuesday, and put it on review for a further downgrade.
Bonds issued by the company, jointly owned by Vale and BHP Billiton, have suffered multi-point drops since Thursday when a dam burst at a mine and caused widespread destruction in the state of Minas Gerais.
Samarco's bonds were being spotted at around 60 on Tuesday after falling to around 55 cents on the dollar on Monday.
"While the extent of the damage is still unclear, the accident will have a material impact on the company's operations," said Moody's.
With Samarco suspending operations in the area, Moody's has voiced concern about the loss of production and liquidity pressures.
"Depending on the extent of the damage to operations and to the company's ability to generate cash flows, a multiple notch downgrade may occur," it said.
This follows Fitch's decision on Monday to place Samarco's BBB long-term foreign currency rating on watch negative.
Fitch calculates net debt to Ebitda reaching 3.5-4x in the event that production levels are 30% lower. If production is 50% lower, leverage ratios could hit 6-6.5x, it said.
"Samarco has no immediate liquidity issues in the short to medium term, with its next significant amortization of over US$1 billion due in 2018," it said. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)
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