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
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
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."