Downgrade that puts Americanas rating in default is out of the ordinary, says S&P

The six notch downgrade of Americanas’ credit rating made by S&P Global —which took the company’s rating to the non-payment position— has no recent parallels in Brazil, according to the agency’s measurements.

On Monday (16), S&P Global downgraded Americanas’ credit rating from “B” (on the global scale) and from “brA-” (on the Brazil national scale) to “D”, for default, which demonstrates the severity and degree of uncertainties surrounding the retailer.

Within the methodology, with the downgrading to a “D” grade, the company does not pay or does not honor its obligations with creditors on time, breaching the contracts.

Last Friday (13), S&P had already reduced Americanas’ rating from ‘BB’, one grade below investment level, to ‘B’ and placed the rating in negative perspective, signaling that further cuts would be possible in the short term.

“The previous downgrade had already been important. Depending on any event, the rating can change multiple levels up or down, going to the level we deem appropriate. The most common is always to move one point up or down, this movement [da Americanas] this is not what usually happens”, says Luisa Vilhena, one of the S&P analysts who signed the document.

In the report, the agency’s analysts mention that the change in the note occurs after the company has received legal protection, allowing the suspension of debt payment within 30 days. “The agency understands that, despite being a measure approved by the Court, the company is breaking with the original promises of payment within that period”.

The degree of default, in the Portuguese definition, is a grade that goes beyond the risk of non-payment and in which it is already characterized that the company is not fulfilling its financial obligations, which can be translated as “default”, says Vilhena.

“The closer to ‘D’, the greater the risk of non-payment, but the default is already a definition that it is not fulfilling its obligations.”

During Operation Lava Jato, there were downgrades in several steps of several companies. But, according to the agency, there is no recent history of downgrading another Brazilian company by S&P, at the same level and going straight to the default step, as happened with Americanas.

The rating is always an independent assessment, although the agency maintains contact with the companies and the relationship is close, in order to obtain as much information as possible. In this case, according to the agency, it was a surprise for the entire market and it was not something that analysts had on their radar.

Since the 2008 crisis, when the US investment bank Lehman Brothers went bankrupt, risk agencies have reviewed their internal procedures for assigning risk ratings.

The analyst says she believes, however, that the Americanas case, at least with the information available so far, should not lead to a review of the agencies’ procedures.

“Since 2008, we have had regulatory changes globally by all agencies and we have implemented new procedures to adapt. In my opinion, this is a very specific case that does not reveal a specific failure, speaking for S&P. It is a totally abnormal situation , I don’t remember any other case of such dramatic inconsistency.”

There is an expectation that Americanas will file a request for recovery in court in the coming days in the amount of approximately R$ 20 billion. According to the agency’s report, even if the company does not enter into recovery, the debt restructuring would already occur under conditions different from the original contracts, justifying the default classification.

The risk rating agency Fitch had also downgraded Americanas’ credit rating, on the global scale, from ‘BB’ to ‘CC’, and from ‘AA+’ to ‘CC’ on the national scale, two levels above the default threshold (‘D ‘).

This Tuesday (17th), Fitch Ratings again cut Americanas’ credit rating, this time to ‘C’.

“In case Americanas formally announces a restructuring plan, the ratings will be downgraded to ‘RD’ to reflect a restricted default or ‘D’ if the company files for bankruptcy,” the agency said in a report.

Fitch claims that Americanas’ capital structure is considered unsustainable. “The announced additional liability almost doubled Fitch’s calculation of the company’s adjusted net debt to R$46 billion from R$26 billion.”

For Lucas Serra, analyst at Toro Investimentos, there is an important risk for the funds. “Those who decide to sell the securities will incur relevant losses. With the downgrade of the company’s rating, reinforcing the significant increase in credit risk observed, the PU [preço unitário] of these titles dropped a lot.”

According to Serra, for those who decide to hold these bonds, there is a risk of default. “In the event of non-payment, the funds holding these securities must enter into an agreement with the other creditors, following priority rules, and it is unlikely that they will receive the total amount initially agreed upon.”

collaborated Renato Carvalhowith Reuters