OREANDA-NEWS. Fitch Ratings has downgraded the foreign and local currency Issuer Default Ratings (IDRs) for Galvao Participacoes S.A. (GalPar) to 'D' from 'CCC' and the national long-term rating to 'D(bra)' from 'CCC(bra)'. Fitch has also downgraded the national long-term rating for GalPar's fully owned subsidiary, Galvao Engenharia S.A. (GESA), to 'D(bra)' from 'CCC(bra)'. A complete list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrades reflect GalPar's and GESA's file for bankruptcy protection after unsuccessful refinancing negotiations with financial creditors. The request for bankruptcy protection is limited to the two aforementioned entities and was not extended to other GalPar's subsidiaries.

The group had been facing relevant difficulties in obtaining funding to operate, pay suppliers, and lengthen its debt maturity profile. Allegations of involvements in the Lava-Jato investigation and potential heavy fines, has led banks to become more restrictive towards the group. Important projects, such as the BR-153 toll road, are on hold as Banco Nacional de Desenvolvimento Economico e Social (BNDES) is demanding additional guarantees to provide the long term financing. The challenging conditions and delays in receiving payments for completed projects and recognizing claims related to contract amendments with Petroleo Brasileiro S.A. (Petrobras), worth more than BRL500 million, have also negatively impacted GESA's cash flow generation and sharply deteriorated the group's liquidity condition.

Latest financials available for GalPar and GESA are from June 2014, which reported weak credit metrics. At that time, GalPar and GESA reported cash positions of BRL272 million and BRL183 million, respectively, on a consolidated basis, which covered only 32% and 49% of their short term debts of BRL847 million and BRL371 million. In the same period, the consolidated total debt for GalPar was BRL2.1 billion and for GESA BRL597 million, which resulted on net leverages of 3.8x and 3.2x, respectively.

RATING SENSITIVITIES

The company's ratings reached the lowest level in Fitch's rating scale. An upgrade is unlikely at this time given the group's bankruptcy protection filling.

Fitch has downgraded the following ratings:

Galvao Participacoes S.A.
--Foreign currency IDR to 'D' from 'CCC';
--Local currency IDR to 'D' from 'CCC';
--National scale rating to 'D(bra) from 'CCC(bra)';
--BRL300 million senior unsecured debentures due 2020 to 'D(bra)' from 'CCC(bra)'.

Galvao Engenharia S.A.
--National scale rating to 'D(bra) from 'CCC(bra)'.