March 7, 2014 / 5:13 PM / 3 years ago

Recovery rate looks grim for Aralco

NEW YORK, March 7 (IFR) - Debt investors are growing increasingly pessimistic about how much money they will get back as embattled sugar and ethanol company Aralco begins a debt restructuring.

Buffeted by sugar prices at multi-year lows as well as struggles to maintain cash flow, Aralco last week filed to restructure USD250m of debt. Its sole outstanding dollar bond, the 2020s, was spotted trading with a wide bid-ask spread on Friday morning, at 8.50-11.50, or around 10.00 mid-market.

This was a touch higher than the level it was trading on Wednesday after news broke that Aralco had filed for restructuring, but was still at an extremely distressed price.

An investor had shown IFR an email from Aralco investor relations official Yutaka Lima saying that it had filed for restructuring on February 28.

On Thursday, Fitch downgraded the company's 2020s to C from CCC and the company's IDR rating to D, putting a recovery rate for unsecured creditors at 10%-30%, something the distressed debt investor said was unrealistic.

"I'd be surprised if the recovery value is above single digits," said the investor, who had listened to a call with the company on Friday.

"The problem is they have no cash and they're selling on a forward basis to keep things running for now unless someone magically puts in some equity, which I don't see happening."

VULNERABLE AFTER COPERSUCAR EXIT

Aralco's troubles have forced it to leave sugar cooperative, Copersucar, in which it had a 5.8% stake - a move that has left it even more vulnerable.

Back in January when Fitch downgraded Aralco to CCC, it said that the company's stake in the Copersucar co-op mitigated risk, lowered logistic costs and provided stability in collection flow.

It said Copersucar would have remunerated Aralco for years, based on realized production on a monthly basis - irrespective of the final sales to customers.

"Copersucar has said it doesn't like taking risk so it behoves them not to have involved any longer," said the distressed debt investor. "It's clear that without them Aralco will have to spend more on marketing."

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