OREANDA-NEWS. Fitch Ratings has downgraded Spanish engineering and construction group Abengoa, S.A.'s Issuer Default Rating (IDR) to 'CC' from 'B' and its senior unsecured rating to 'C' from 'B'. The Recovery Rating on its senior unsecured debt has been revised to 'RR5' from 'RR4'. Simultaneously, Abengoa Finance, S.A.U's and Abengoa Greenfield, S.A.U.'s senior unsecured ratings have been downgraded to 'C'/'RR5' from 'B'/'RR4'.

This rating action reflects this morning's announcement that Abengoa intends to seek protection under Article 5 bis of the Spanish Insolvency Law (Ley Concursal) and will negotiate with its creditors a debt restructuring.

This unexpected announcement follows the release of third-quarter results that saw the company suffer a significant working capital outflow, which impacted its liquidity and leverage. Fitch's lower recovery estimate of 'RR5' reflects a higher amount of 3Q15 debt, as well as a lower valuation of listed and non-listed assets due to, and encompassing, the distressed profile of the company.

KEY RATING DRIVERS

Capital Increase Terminated
Fitch understands from management that Abengoa's planned EUR650m capital increase is no longer expected to take place. This follows today's announcement that the framework agreement with Gonvarri Corporacion Financiera (Gonvarri), which would have seen the Spanish industrial group as the main investor in this capital increase, subject to a significant liquidity package being provided by financial institutions, has been terminated as condition precedents have not been satisfied. In Fitch's view, this may have been due to insufficient funding from Abengoa's banks and other creditors, relative to the group's liquidity requirements.

Protection of the Spanish Insolvency law
Following the cancelation of the framework agreement with Gonvarri, the company decided to apply for the protection of the Spanish Insolvency Law. It will allow the company to negotiate with its creditors over the coming months within a defined framework.

3Q15 capital outflows
The company disclosed a EUR412m working capital outflow at the corporate level at end-3Q15 and clarified its working capital outflow, affecting available cash, was EUR604m for 1H15. This means the company saw a cash outflow of more than EUR1bn from its working capital during 9M15 compared with its guidance of flat working capital for the full year. Supportive seasonal factors should normally drive working capital inflow in 4Q15; however, it remains unclear how the ongoing events might impact this part of the company's liquidity profile.

Very Tight Liquidity
Immediately available cash decreased to EUR346m at end-3Q15 (end-2Q15: EUR831m). Abengoa had a negative corporate free cash flow (FCF) of EUR597m for 9M15 (3Q15: minus EUR510m), due to working capital outflows. This compares with EUR374m of debt maturing for the remainder of 2015 (including EUR43m of non-recourse debt in process). Further working capital unwinding could further weigh on liquidity. Abengoa has indicated some progress on its asset disposal plan (non-binding offers), which could be supportive.

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating actions include:
-An improved liquidity profile, most likely from significant asset sales or an equity injection from a current investor or third-party

Negative: Future developments that could lead to a downgrade include:
-Payment default and further deterioration in liquidity
-Debt restructuring measures or formal insolvency

FULL LIST OF RATING ACTIONS

Abengoa, S.A.
Long-term IDR: downgraded to 'CC' from 'B'
Senior unsecured rating: downgraded to 'C'/'RR5' from 'B'/'RR4'

Abengoa Finance, S.A.U.
Senior unsecured rating: downgraded to 'C'/'RR5' from 'B'/'RR4'

Abengoa Greenfield, S.A.U.
Senior unsecured rating: downgraded to 'C'/'RR5' from 'B'/'RR4'