Bonds from Aralco SA Acucar & Alcool plunged, leading a decline in debt issued by Brazilian sugar producers, after Standard & Poor’s cut the company’s rating.
The $250 million of Aralco securities due in 2020 fell 14.6 cents to 40 cents on the dollar at 2:00 p.m. New York time, a day after S&P lowered the company’s rating to B-, six levels below investment grade, citing weakening liquidity and the risk it won’t be able to refinance debt. Bonds from rival USJ Acucar e Alcool SA dropped 1.2 cents to an unprecedented 87.89 cents, while debt issued by Grupo Virgolino de Oliveira SA and USJ Acucar e Alcool SA also fell to record lows.
Sugar-producer bonds are plummeting as a glut of the sweetener pushes prices to a three-year low. As of yesterday, bonds issued by five Brazilian sugar producers fell an average of 21 percent in the past year, led by Aralco’s 49 percent decrease. During the same period, emerging-market debt declined 2 percent on average, according to data compiled by Bloomberg.
“If Aralco defaults it could make it very difficult for other players to access financing,” Revisson Bonfim, the head of global emerging markets analysis at Sterne, Agee & Leach Inc. in New York said in an e-mail. “It has implications for the whole sector.”
S&P put Aralco’s rating on credit watch negative on Oct. 28 after the Aracatuba, Brazil-based company cut its production forecasts by 17 percent. After the downgrade, the outlook is negative, which means a cut is more likely than an upgrade.