S&P cuts Parmalat Finanziaria to junk

Standard & Poor's said it lowered its corporate credit ratings on Italy-based leading global fluid-milk processor Parmalat Finanziaria SpA and its main operating subsidiary Parmalat SpA, to B+/B from BBB-/A-3, following severe concerns about the group's liquidity.

The ratings remain on CreditWatch with developing implications.

"The downgrade and continuing CreditWatch listing reflect significant concerns as to Parmalat's willingness and effective capacity to honor its financial commitments, and more broadly to follow financial policies and behavior consistent with the previous ratings," said S&P credit analyst Hugues de la Presle.

S&P said that up until last week, Parmalat disclosed authoritative information in writing to S&P, in addition to public communications, demonstrating an adequate liquidity position. Recent events -including failure so far to pay on the due date the principal on a bond, as well as contradictory communication on the group's ability to monetize its $590 million investment in the Epicurum Fund - seriously bring into question the size and availability of the group's reported liquidity of €4.2 billion at Sept. 30.

S&P noted the ratings on Parmalat were placed on CreditWatch on Nov. 11 due to concerns about the quality of the group's accounts and how the group invests its liquidity. At the end of September, the group reported gross debt of €6 billion.

Although the short-term liquidity of the company is now the key driver of the ratings, Parmalat's business lends itself to higher ratings, if concerns on liquidity and financial management were allayed.

S&P said if Parmalat were not to honor the €150 million bond, however, the ratings would be lowered to D. The ongoing CreditWatch placement also reflects S&P's concerns about the group's accounting quality and financial disclosure.

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