The Pescarmona group’s dollar-denominated bonds fell by a record after a Brazilian judge declared one of its units in bankruptcy.
The $390 million of 10.375 percent notes due 2020 plunged 15 cents to 30 cents on the dollar in New York. The risk premium rose to 4,218 basis points from 2,553 basis points a month ago, the biggest increase among Latin American corporate bonds tracked by Bloomberg in that period. The notes are guaranteed by Wind Power Energy SA and Industrias Metalurgicas Pescarmona SA, both owned by Pescarmona through Venti SA.
WPE was declared in bankruptcy on July 30 by Rafael Jose de Menezes, a judge based in Pernambuco, northeastern Brazil. The decision was in response to requests from two creditors, Libra Terminal Valongo SA and Libra Terminais SA, which said the company hadn’t paid debts of 10.6 million reais ($4.7 million), according to the ruling on the court’s website.
Pescarmona spokesman Ismael Jadur said in an e-mail that the company doesn’t have any comment. Mendoza, Argentina-based turbine maker Impsa is reviewing the WPE case to determine what action to take, it said in a regulatory filing today. WPE hasn’t been notified by the court, according to the filing.
Impsa, which owned WPE prior to a group restructuring last year, was late paying its peso bonds last month and was downgraded by Fitch to CCC, eight levels below investment grade, from B+. The distress for Pescarmona comes on the heels of a default by the Argentine government after a U.S. judge blocked debt payments after the nation failed to comply with his ruling to also pay holders of defaulted bonds.
“I certainly declared the company in bankruptcy because they refused to pay,” Judge Menezes said yesterday in a telephone interview from Recife, Pernambuco state. “They have now 15 days to appeal this ruling to the Justice Tribunal. If they don’t, the bankruptcy process will continue.”
He appointed Jose Azevedo Neto to oversee the process. WPE will have to identify all of creditors and the full amount owed.
Pescarmona said earlier this year that it’s seeking to sell assets to cut debt, which stood at $1.24 billion, as of June 30. The wind and hydro turbine manufacturer faces an estimated $40 million debt service in September.
According to Impsa’s second-quarter earnings report filed in June with Argentina’s regulator, the Pescarmona group expects to collect $62 million from Corporacion Electrica de Venezuela, which owes a total of $483 million.
The company, which has 330 megawatts of wind farms in operation in Brazil and 480 megawatts under construction, is the third-biggest producer of wind energy in Brazil with a market share of 6.4 percent, according to Bloomberg New Energy Finance. Wind turbines account for 90 percent of its revenue.
Standard & Poor’s said today that while the judge’s decision doesn’t immediately warrant any change in credit rating, it will monitor further developments. The 2020 bonds were issued by WPE International Cooperatief UA.
“The CCC- ratings already reflect the group’s increased vulnerability to nonpayment amid weak liquidity and financial flexibility in the short term,” S&P analysts Cecilia Fullone and Luciano Gremone wrote in the report. “If the process proceeds, we might downgrade IMPSA and WPEIC in light of existing cross-default clauses.”
In 2013, the Pescarmona group completed a reorganization, under which Impsa transferred WPE to new Luxembourg-based holding company Venti. The two companies’ debt have cross guarantees that Venti guarantees.
(A previous version of this story was corrected to reflect that Impsa and WPE are sister companies after the 2013 restructuring and proper credit rating description.)