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S.A. Usina Coruripe Acucar e Alcool -- Moody's assigns (P)B1 ratings to S.A. Usina Coruripe Açúcar e Álcool and its proposed Senior Secured Notes

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Rating Action: Moody's assigns (P)B1 ratings to S.A. Usina Coruripe Açúcar e Álcool and its proposed Senior Secured NotesGlobal Credit Research - 31 Jan 2022New York, January 31, 2022 -- Moody's Investors Service ("Moody's") has assigned a (P)B1 Corporate Family Rating to S.A. Usina Coruripe Açúcar e Álcool ("Coruripe"). At the same time, Moody's assigned a (P)B1 rating to the company's proposed up to USD400 million senior secured notes to be issued by Coruripe Netherlands B.V. and guaranteed by Coruripe and GTW Agronegócios S.A. The outlook is stable. The proposed issuance is part of Coruripe's liability management strategy, proceeds will be used to repay existing indebtedness as well as general corporate purposes.The provisional designation for the ratings will be removed once the notes have been issued, assuming no material changes have occurred to the draft documentation reviewed by Moody's, and Coruripe's guarantee is in full force and effect. The notes will be secured by collateral including: the Iturama mills and equipment, and a second lien on receivables relating to the IAA claims (indemnity credits from a judicial process against by the Brazilian Federal Government as successor to the Brazilian Institute of Sugar and Ethanol -- IAA). GTW Agronegócios S.A. will be the original guarantor with Coruripe effective guarantee coming into effect in up to 45 days from the issuance date after certain debt repayments and restriction removals.Assignments:..Issuer: Coruripe Netherlands B.V.....Senior Secured Regular Bond/Debenture, Assigned (P)B1..Issuer: S.A. Usina Coruripe Acucar e Alcool.... Corporate Family Rating, Assigned (P)B1Outlook Actions:..Issuer: Coruripe Netherlands B.V.....Outlook, Assigned Stable..Issuer: S.A. Usina Coruripe Acucar e Alcool....Outlook, Changed To Stable From Rating WithdrawnRATING RATIONALECoruripe's (P)B1 ratings incorporate its scale as the 9th largest sugar-ethanol group in Brazil with a crushing capacity of over 15 million tons of sugarcane per harvest and capacity utilization of around 95% to 99%, cluster organization with ample access to sugarcane and logistic infrastructure. The ratings are also supported by the company's production in two distinct regions that allow a more stable production throughout the year, because of different harvest periods in each region. It also incorporates an improved debt amortization schedule and lower interest burden following the issuance of USD400 million (BRL2.2 billion) in senior secured notes.The (P)B1 ratings are constrained by Coruripe's exposure to the volatile sugar-ethanol sector coupled with its reliance on the Minas Gerais cluster which concentrates 78% of total crushing capacity. Coruripe has a lower cost than Brazil's average, but higher than close peers such as Adecoagro S.A. (Ba2) and São Martinho. Despite the higher cost profile, agreements with local farmers associations allow Coruripe costs to fluctuate along with its selling prices, mitigating market volatility and increasing flexibility for the company to create a long-term hedging curve. Coruripe also presents a lower production mix flexibility than peers, being more focused on sugar than ethanol, which Moody's perceives as a competitive disadvantage. Coruripe is a family-owned private company, with developing governance.Historically Coruripe's liquidity has been weak with large short-term amortizations and large exposure to dollar denominated debt entailing high refinancing risks. Following the issuance of the proposed notes Moody's believes Coruripe will have an adequate liquidity profile with much lower yearly amortizations. In September 2021 cash balance was of BRL227 million and readily marketable inventory BRL524 million, compared to BRL1 billion in short-term maturities. After the issuance of USD400 million short-term maturities should reduce to around BRL182 million.Coruripe has a good cash flow from operations to debt metric at an average 18.9% in the last three years and relatively low gross leverage at an average 3.6x. Gross leverage should remain lower in the two harvests with increased sales and higher EBITDA generation in 2022-23 and 2023-24. In 2021-22 Moody's expects EBITDA to be in-line with that observed in 2020-21 because of higher selling prices for ethanol and sugar compensating the lower crushing volumes, following a drought and frost events which compromised plantations. Moody's expects an EBITDA of BRL1.3 billion in 2021-22, as of March 2022, and 3.0x gross leverage. In the last 10 years Coruripe has averaged a 1.25x (EBITDA-Capex)/Interest Expense and Moody's expects it to maintain the metric above 1.0x.The stable outlook considers that Coruripe will maintain an adequate liquidity profile with a cash balance that will always be enough to cover its short-term maturities through commodity price cycles.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSA rating upgrade would require the maintenance of a strong liquidity profile represented by a cash position consistently above short-term debt levels during the harvest cycle. Also, an increase in effective crushing levels, remaining consistently above 15 million tons per harvest. Quantitatively, the maintenance of Cash/ST Debt above 1.00x, Debt/EBITDA below 3.9x, Cash flow from operations/debt above 20%, and an improvement in interest coverage with EBITA/Interest Expense above 2.5x.A rating downgrade could result from Coruripe's inability to conclude its liability management process and a deterioration of liquidity profile, with Cash/ST Debt below 1.00x coupled with expected negative free cash flow. Quantitatively: EBITA/Interest Expense below 1.5x, Debt/EBITDA expected to remain above 4.5x, and Cash flow from operations/debt below 10%.The principal methodology used in these ratings was Protein and Agriculture published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296919. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in the State of Alagoas, Brazil, Coruripe is a sugar and ethanol producer and electricity cogenerator. It has five crushing units, one in the State of Alagoas and other four in the State of Minas Gerais. During the 2020-21 harvest, the company generated revenue of BRL3.0 billion and Moody's adjusted EBITDA of BRL1.4 billion. Coruripe financial statements year coincides with the harvest starting in April and ending in March.REGULATORY DISCLOSURESFor 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.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Erick Rodrigues Vice President - Senior Analyst Corporate Finance Group Moody's America Latina Ltda. 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