Fitch Ratings has downgraded
Fitch has also downgraded the rating of the senior unsecured global notes issued by its wholly owned subsidiaries JSM Global S.a.r.l. and B2W Digital Lux S.a.r.l. to 'CC'/RR4 from 'BB', and the rating of Americanas' unsecured debentures to 'CC(bra)' from 'AA+(bra)'.
The downgrade to 'CC' follows Americanas' disclosure that inconsistencies were detected in accounting entries that reduced the balance of its suppliers' accounts over several years by an estimated
Fitch believes it is likely that Americanas will enter a standstill agreement with its creditors given the unsustainable capital structure that now exists and the reputational damage that has occurred. The company's ratings would be downgraded to 'C' if this should transpire.
Key Rating Drivers
Unsustainable Capital Structure: Americanas' capital structure is deemed to be unsustainable with an addition of an estimated
Limited Financial Flexibility: Americanas' unsustainable capital structure and damaged reputation severely impairs its financial flexibility and ability to cope with operational and financial obligations. Support from creditors will be critical to improving its flexibility. This could come in some combination of waivers of potential covenants breaches, the non-acceleration of financial obligations, and the rolling over of financial facilities. Operationally, the company may struggle to maintain some of its existing suppliers. A material capital injection in a timely manner to avoid default is highly uncertain.
ESG Affected: Weak Corporate Governance negatively affects Americanas' ratings. The accounting inconsistencies announcement highlights several years of material weakness in the quality of the company's financial statements, as well as the lack of transparency in its financial reporting, as reverse factoring information has not been adequately disclosed in its financial statement notes. The event raises questions about the financial controls of the company, and pressures the company's ability to raise additional debt with banks, capital market and other third parties, including suppliers.
Derivation Summary
The current IDRs derive from the relevant fact announced and the very likely process standstill in the near future.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A positive rating action is unlikely and depends upon the company's ability to raise a substantial amount of equity and the company's ability to maintain credit lines.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Entering into a standstill agreement;
The formal announcement of a distressed debt exchange or bankruptcy protection process.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Challenges to Protect Liquidity: The ability of Americanas' shareholders to inject a material amount of capital into the company is crucial to support working capital needs and to avoid defaulting on financial obligations, but remains highly uncertain. Cash and equivalents were
Issuer Profile
Americanas is one of the largest diversified retail chains in
Summary of Financial Adjustments
Fitch uses a multiple of 5x to capitalize Brazilian companies leasing adjusted debt;
Fitch includes the factoring of account receivables on debt. Fitch adjusts short-term and long-term marketable securities back to cash and equivalents. Fitch considers the financing to the marketplace sellers as finance activity. Applying methodology, the finance service activity has a debt/equity leverage ratio of 2.0x. The asset of the financial service activity corresponds to the receivables related to the marketplace business, so, half of this asset is financed by debt, which is deconsolidated from total debt.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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