OREANDA-NEWS. Fitch Ratings has downgraded the Long-Term Foreign-Currency (LT FC) and Local Currency (LT LC) Issuer Default Ratings (IDRs) and senior unsecured debt ratings of Samarco Mineracao S. A. (Samarco) to 'C' from 'CCC'. Fitch has also downgraded Samarco's National Long-Term Ratings to 'C(bra)' from 'CCC(bra)' and senior unsecured notes to 'CC/RR3' from 'CCC/RR4'. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The downgrade is due to a change in Fitch's view of the timing regarding the restart of Samarco's operations. Given the political climate surrounding the company and an inability to gain traction in obtaining the necessary licenses to restart its business, Fitch now believes that the company will not restart operations until the second half of 2017. Previously, Fitch assumed that Samarco's operations would be able to restart during the first half of 2017.

The 'C' rating reflects Fitch's view that Samarco will be forced to request a standstill or restructure its debt within the next couple of months, as the company seeks to preserve cash for expenses related to obtaining operating permits. It is not likely that government officials will release cash that is trapped by authorities, which would mitigate some of the cash flow pressure the company faces.

Fitch's RR3 recovery rating for the company's bonds reflect above average recovery prospects. For this to occur, the company will need to be able to restart operations at the level of 50% or more of current capacity. If Samarco is not able to restart its operations, which remains a distinct possibility, recovery prospects would likely be less than 10% and the notes would be downgraded to C/RR6.

KEY ASSUMPTIONS

Fitch's main concern remains the ability for Samarco to restart operations - for the company to be able to comply with its various reparation agreements to date alongside its financial obligations; it requires the ability to generate income.

RATING SENSITIVITIES

Fitch would downgrade Samarco's rating to 'RD' upon completion of a Distressed Debt Exchange, and/or the company has experienced an uncured payment default.

An upgrade is unlikely in the near term absent significant shareholder equity to support debt service payments coming due.

LIQUIDITY

Fitch assumes that the ongoing delay for Samarco to regain its operating licenses will result in the company likely running out of cash at some point during the third quarter or fourth quarter of 2016.

FULL LIST OF RATING ACTIONS

Samarco Mineracao S. A.

--Long-Term Local-Currency IDR to 'C' from 'CCC';

--Long-Term Foreign-Currency IDR to 'C' from 'CCC;

--National Long-Term Rating to 'C(bra)' from 'CCC(bra)';

--Senior unsecured debt rating to 'CC/RR3' from 'CCC/RR4'.