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Rating Action: Moody's assigns Caa2 (sf) / Caa2.br (sf) ratings to the 1st series and Caa3 (sf) / Caa3.br (sf) ratings to the 2nd series of the 7th issuance of agribusiness certificates issued by Eco Securitizadora
Global Credit Research - 20 Aug 2020
BRL 688.4 million of certificates rated
Sao Paulo, August 20, 2020 -- Moody's América Latina (Moody's) has assigned definitive ratings of Caa2 (sf) (Global Scale, Local Currency) and Caa2.br (sf) (Brazilian National Scale) to the 1st series of agribusiness certificates ("certificados de recebíveis do agronegócio" or CRAs) and Caa3 (sf) (Global Scale, Local Currency) and Caa3.br (sf) (Brazilian National Scale) to the 2nd series of agribusiness certificates issued by Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. (Eco Securitizadora). The 1st series of CRA is backed by the 1st series of debentures rated Caa2 (Global Scale, Local Currency) and Caa2.br (Brazilian National Scale) and the 2nd series of CRA is backed by the 2nd series of debentures rated Caa3 (Global Scale, Local Currency) and Caa3.br (Brazilian National Scale). Both debentures were issued by S.A. Usina Coruripe Açúcar e Álcool (Coruripe, Caa1, long-term Global Scale, Local Currency; and B3.br, Brazilian National Scale).
Issuer: Eco Securitizadora de Direitos Creditórios do Agronegócio S.A.
1st series of the 7th issuance, assigned definitive ratings of Caa2 (sf) (Global Scale, Local Currency) / Caa2.br (sf) (Brazilian National Scale).
2nd series of the 7th issuance, assigned definitive ratings of Caa3 (sf) (Global Scale, Local Currency) / Caa3.br (sf) (Brazilian National Scale)
The Caa2 (sf) (Global Scale, Local Currency) and Caa2.br (sf) (Brazilian National Scale) ratings assigned to the 1st series of CRAs and the Caa3 (sf) (Global Scale, Local Currency) and Caa3.br (sf) (Brazilian National Scale) ratings assigned to the 2nd series of CRAs reflect primarily the willingness and ability of Coruripe to honor the remaining payments defined in the transaction documents, which is reflected by the Caa2 (Global Scale, Local Currency) and Caa2.br (Brazilian National Scale) ratings of the 1st series of debentures, and the Caa3 (Global Scale, Local Currency) and Caa3.br (Brazilian National Scale) ratings of the 2nd series of debentures, each of which backing the 1st and 2nd series of CRAs, respectively. Further, the 2nd series of debentures is subordinated to the 1st series of debentures in the hierarchy to receive any proceeds triggered by a default event and is therefore rated one notch below. Any change in the ratings of the underlying debentures will lead to a change in the ratings of the CRAs. In addition, Coruripe is responsible for covering all transaction expenses.
The 1st series of CRAs pay a floating interest rate equivalent to DI rate (cumulative daily average accrual of interbank deposits) plus a spread of 300 bps. Interest is paid on a monthly basis, followed by payments of the scheduled remaining principal according to the transaction documents.
The 2nd series of CRAs pay a floating interest rate equivalent to DI rate (cumulative daily average accrual of interbank deposits) plus a spread of 900 bps. Interest is paid on a monthly basis, followed by payments of the scheduled remaining principal according to the transaction documents.
The definitive ratings on the CRAs are based on a number of factors, among them the following:
- The willingness and ability of Coruripe to make payments on the underlying debentures.
- Pass through structure: the payment schedule of each series of the CRAs replicate the scheduled cash flow of the underlying debentures, with a one-day lag, which allows adequate timing to make payments on the CRAs. The CRAs make payments that mirror the payments to be made by the underlying debentures. Also, the coupon is calculated considering the same interest rate and accrual period.
- The events of default (EOD) on the CRAs mirror those of the underlying debentures. Therefore, mitigating the risk of having an EOD on the certificates while the underlying assets are current. Further, in case early amortization is triggered due to an EOD, the debentures´ waterfall switches to sequential and, therefore, the 1st series of debentures is fully amortized first followed by the 2nd series of debentures. The waterfall of payments is mirrored in the CRAs with the 1st series fully amortizing first followed by the 2nd series of CRA.
- Coruripe pays the CRAs expenses: Coruripe is ultimately responsible, under the transaction documents, for all CRAs expenses.
- No commingling risk: Coruripe makes the payments due on the two series of debentures directly to the respective account of the CRAs held at Banco Bradesco S.A. (Ba2 long-term bank deposit rating, Global Scale, Local Currency; and Aa1.br, Brazilian National Scale).
- Segregated assets: The CRAs benefit from a fiduciary regime ("regime fiduciário") whereby the assets backing each series of CRAs are segregated. These segregated assets are destined exclusively for payments on the CRAs as well as certain fees and expenses, and will be segregated from all of the other assets on the issuer's balance sheet. However, the transaction is subject to residual legal risk because Eco Securitizadora agribusiness credits can be affected by the securitization company's tax, labor and pension creditors. (For more information, see the "Fiduciary Regime and Segregation of Assets" section in the New Issue Report.)
Founded in 1925 and headquartered in Coruripe, State of Alagoas, Usina Coruripe is a sugar and ethanol producer and electricity cogenerator with five crushing units, one in the State of Alagoas and other four in the State of Minas Gerais. In the 2019/2020 harvest, the company generated BRL 2.4 billion in revenues. The company currently has the largest plant in the Northeast region of Brazil with 3,000 ton capacity.
Coruripe's ratings also incorporate its scale as one of the 10 largest sugar-ethanol groups in Brazil with a crushing capacity of 15.0 million tons of sugarcane per harvest and a very high capacity utilization, over 97%. The ratings also reflect its cluster organization with ample access to sugarcane and logistic infrastructure and its geographic diversification that provides some protection against weather and other localized event risks, while allowing for a more stable production throughout the year, because of different harvest periods. Historic high capacity utilization and low land lease costs are among the elements that contribute for Usina Coruripe´s competitive production costs. Coruripe's has a more flexible cost structure to reduce cost volatility since the price paid to sugarcane providers is linked to the company's selling prices instead of a general price index -- such as Consecana.
Coruripe ratings reflect a weak liquidity profile despite the recently announced debt extension. By extending debt maturities relating to a total of BRL1.7 billion in bank debt to 5 yearly amortizations instead of 3 yearly amortizations the company reduced its imminent refinancing risk and improves its debt amortization schedule. In March 2020, end of the 2019/2020 harvest year, Coruripe had BRL605 million in cash, compared to BRL316 million in the end of the prior harvest. Proforma to the debt extensions Coruripe will have around BRL843 million in maturities for the 2020/2021 harvest, of which an estimated BRL455 million relating to working capital and export finance lines which we expected to be rolled over. Before the announced debt extension the amortization schedule, in the 2020/2021 harvest, amounted to BRL1.3 billion.
Eco Securitizadora was established in 2009 and is headquartered in São Paulo. The securitization company specializes in designing and structuring CRAs to assist companies in the agribusiness sector. Eco Securitizadora is audited by KPMG Auditores Independentes and since the beginning of its operations, the securitization company has issued BRL 21.7 billion of CRAs.
Factors that would lead to an upgrade or downgrade of the ratings:
Any changes in the unsecured ratings of the underlying debentures will lead to a change in the ratings on the CRAs.
The principal methodology used in these ratings was "Moody's Approach to Rating Repackaged Securities" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230078. Alternatively, please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
This transaction is considered as structured finance product in accordance with Instrução CVM nº 521.
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Moody's did not use any models, or loss or cash flow analysis, in its analysis.
Moody's did not use any stress scenario simulations in its analysis.
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