(Source: Business Wire)
Fitch Ratings has assigned 'BB-' local and foreign currency Issuer Default Ratings (IDR) and a 'A-(bra)' National Scale Rating to Cosan S.A. Industria e Comercio (Cosan) and its subsidiary Cosan Combustiveis e Lubrificantes Ltda (CCL). Fitch has also assigned a 'BB-' rating to CCL's proposed US$300 million senior unsecured notes due 2014 issued through its wholly owned subsidiary, CCL Finance Ltd. The notes will be unconditionally and irrevocably guaranteed by CCL. The Rating Outlook for Cosan and CCL is Stable.
Cosan's credit ratings reflect its strong market position as Latin America's largest agroenergy company. This position has enabled Cosan to access both the equity and debt capital markets frequently, mitigating to an extent the company's exposure to commodity price cyclicality, its volatile cash flow generation and its aggressive growth-by-acquisition strategy. Cosan's ratings also reflect the company's high leverage and its exposure to foreign exchange risk, as about 63% of its revenues during the fiscal year ended March 31, 2009 were related to exports.
Cosan's ratings are exposed to event risk in the form of a large debt-led acquisition. The current rating category does not factor in any headroom for acquisitions, and it incorporates an expectation that Cosan's credit measures will gradually strengthen over the next few years as the company benefits from the results of its recent acquisitions and investments. The ratings further incorporate Cosan's attractive cost structure, a result of Brazil's competitive advantage in producing sugar and ethanol, the favorable outlook for ethanol consumption in the country and the strong long-term fundamentals of the sugar market.
On Dec. 1, 2008, Cosan increased the integration of its business when it completed the purchase of Exxon's fuel distribution assets in Brazil (now under the name of CCL). This acquisition increased Cosan's refinancing risk as it was partially funded with BRL1.1 billion promissory notes from Bradesco. This note was originally scheduled to be repaid during November 2009, and Cosan has recently obtained a stand-by credit facility that enables this maturity to be postponed to November 2010 at their discretion. It represents the largest near-term refinancing risk for them.
Given the characteristically tight margins in the distribution business, CCL presents a high refinancing risk on a standalone basis for the proposed USD 300 million issuance of notes.
