Fitch downgrades General Shopping

Fitch Ratings said it downgraded the ratings of General Shopping Brasil SA’s foreign and local currency issuer default ratings to CC from CCC and national scale rating to CC(bra) from CCC(bra).

The agency also downgraded General Shopping Finance Ltd.’s $250 million perpetual notes to CCC/RR2 from B-/RR2 and General Shopping Investment Ltd.’s $150 million subordinated perpetual notes to C/RR5 from CCC-/RR5.

The downgrade reflects the company’s very high levels of credit risk. Fitch views General Shopping’s liquidity as unsustainable due to its high financial leverage.

The agency’s rating case estimates General Shopping’s 2015 EBITDA, cash interest paid, and cash tax paid at R$198 million; R$258 million; and R$55 million, resulting in funds flow from operations (FFO) of negative R$116 million. The company's total cash flow from operations for 2015 is estimated to be negative at around R$142 million. Without a material change in the company's capital structure and/or Brazil's business environment - including foreign exchange FX volatility – General Shopping’s limited capacity to cover interest expenses and taxes with its operational cash flow is expected to result in a deterioration of its liquidity position during 2016.

The ratings were removed from Rating Watch Negative.

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