Fitch rates Virgolino de Oliveira Finance notes B

Fitch Ratings said it assigned B foreign- and local-currency issuer default ratings and a BBB(bra) long-term national scale corporate rating to Virgolino de Oliveira SA Acucar e Alcool and a BBB(bra) rating to its debentures due 2014.

The agency also assigned B foreign- and local-currency issuer default ratings to Virgolino de Oliveira Finance SA and a B/RR4 rating to its proposed $200 million issue of senior notes with a tenor of up to 10 years.

The outlook is stable.

The proceeds of the proposed notes will be used for general corporate purposes, including debt repayment, capital expenditures and to strengthen cash reserves.

The agency said Virgolino de Oliveira's ratings are supported by its adequate business model, the geographical location of its production units and its strategic shareholding position in Copersucar.

The ratings also reflect the group's leveraged capital structure, tight liquidity position, exposure to the cyclicality of the sugar and ethanol commodities' price cycle, the volatility of cash flow generation, the exposure of its sugar cane production business to volatile weather conditions, foreign-currency risk relative to a portion of its debt and the risk of governmental interference in the ethanol commercialization policies within the local market, Fitch said.

The company's leverage ratio for the last 12 months ended April 30, 2011 was 4.4 times. The agency expects the ratio to be around 4.3 times for the last 12 months ending April 30.

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