OREANDA-NEWS. Fitch Ratings has downgraded Virgolino de Oliveira S.A. Acucar e Alcool's (GVO) foreign and local currency Issuer Default Ratings (IDRs) to 'RD' from 'C', and GVO's national scale long-term rating to 'RD(bra)' from 'C(bra)'. Fitch has also downgraded to 'RD' from 'C' and withdrawn Virgolino de Oliveira Finance S/A's (Virgolino Finance) corporate ratings. Virgolino Finance is a fully-owned subsidiary of GVO and is the issuer of GVO's notes. See the complete list of rating actions at the end of this release.

The downgrade follows the missed payment by GVO of the coupons relating to the USD135 million senior secured notes due 2020 and the USD300 million senior unsecured notes due 2018. The 30-day cure period of these bonds has also expired. Another coupon payment relates to the USD300 million senior unsecured notes due 2022, whose cure period for payment spans from Feb. 9, 2015 to March 9, 2015.

The company has reported no relevant progress in ongoing negotiations with bondholders since it unveiled, on Oct. 19, 2014, its plan to renegotiate terms and conditions of its debt. The main restructuring initiative involves the conversion of GVO's bonds into equity. GVO's liquidity has deteriorated fast with the company not paying wages in full since July 2014 and missing payments for sugar cane supply.. Crushed volumes for the 2014/2015 season fell short of GVO's expectations by some 1.4 million tons to 9.2 million tons due to the loss of credit from suppliers and the sale of sugar cane to third parties.

KEY ASSUMPTIONS

-- Missed payment of coupons relating to the USD135 million senior secured notes due 2020 and USD300 million senior unsecured notes due 2018;
-- No reported progress on the ongoing negotiations to convert the bonds into equity;
-- Fast deterioration of liquidity characterized by unpaid wages, bank debts, and suppliers.

RATING SENSITIVITIES
The company's ratings could be downgraded if the company formally files for bankruptcy protection.
An upgrade is unlikely at this time given the company's difficulties meeting its payment obligations. A large equity injection or the takeover of the company by a peer would be positive.

Fitch has downgraded the following ratings:

Virgolino de Oliveira S.A. Acucar e Alcool
--Foreign and local currency IDRs to 'RD' from C';
--Long term national scale rating to 'RD(bra)' from 'C(bra)'.

Virgolino de Oliveira Finance S/A
--Foreign and local currency IDRs to 'RD' from C';

At the same time, Fitch has withdrawn the corporate ratings for Virgolino de Oliveira Finance S/A.

Fitch continues to rate the following Virgolino Finance's issuances:
--USD300 million senior unsecured notes due 2022 at 'C/RR4'
--USD135 million senior secured notes due 2020 at 'C/RR4'