OREANDA-NEWS. Fitch Ratings has downgraded Ukraine-based agricultural producer Mriya Agro Holding Public Limited's (Mriya) Long-term foreign currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'C'.

The downgrade to 'RD' follows the uncured default on a coupon payment in September 2014, following the expiry of a 30-day grace period, and no subsequent coupon payment or public announcement about material progress of debt restructuring discussions with its creditors. As a result Fitch believes that a distressed debt exchange (DDE) is inevitable, which is likely to lead to significant losses for Mriya's bondholders and other creditors.

On 24 October Mriya presented a restructuring plan and its revised financial model to its creditors. Fitch understands from press reports that a large part of the creditors are not satisfied with the suggested restructuring terms, thus making the timeframe and the outcome of the restructuring uncertain. Fitch has no access to the offered terms of the debt restructuring.

In line with Fitch's "Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers" Fitch continue to expect average recovery prospects for Mriya's bondholders but these are no longer capped by the Ukrainian jurisdiction and have been calculated under the liquidation approach. Calculations are based on the most recent IFRS accounts available (end-2013), adjusted by Fitch on expected asset devaluation due to hryvnia depreciation. In the recovery analysis Fitch also assumed contingent liabilities of USD200m, which became known only recently and were not disclosed in the last audited IFRS accounts.

Taking into account the company's low corporate transparency, the lack of more recent financial information, its track record of related-party transactions, and potential leakage from Mriya's consolidated assets, as highlighted by a number of Mriya's creditors, recoveries to creditors may be lower than Fitch have estimated.

After spending most of its cash balance (USD186m at 2013-end) on spring sowing and harvesting campaigns due to limited access to working capital credit facilities, Fitch estimate that Mriya has a weak cash balance. This is likely to be significantly short of its short-term debt maturities (above USD200m) and the missed debt payments (above USD130m). Its liquidity position is aggravated by reduced cash flows from operating activities in 2014 due to lower soft commodity prices.

Liquidity shortage is likely to put pressure on Mriya's operations in 2015, which is at risk of a volume reduction or even of a cancellation of harvesting plans due to insufficient working capital financing. If commodity prices remain at current low levels, and input costs including seeds, fuel, fertilisers continue to be on the rise (affected by the hryvnia depreciation) Fitch would expect a further substantial decline in EBITDA next year relative to our forecasts.

RATING SENSITIVITIES
Negative: Future developments that could lead to a downgrade include:
-Bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedures

Positive: Future developments that could lead to positive rating action include:
-Ability to service debt, demonstrated effective treasury management and adequate liquidity back-up to support the business operations and maintain a viable business performance. Management's willingness to embrace higher standards of corporate governance and information transparency will also be key rating factors.