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Fitch downgrades Samarco Mineração on restart delays, depleting cash

Fitch Ratings on July 15 downgraded 's long-termforeign- and local-currency issuer default ratings as well as its seniorunsecured debt ratings to C from CCC, based on the assumption that it will notbe able to restart operations by the second half of 2017.

The action reflects the rating agency's view that Samarcowill be forced to request a standstill or restructure its debt within the nextfew months, as the company seeks to preserve cash for expenses related toobtaining operating permits.

Fitch expects Samarco to deplete its cash position duringthe third quarter or fourth quarter of this year.

Samarco's rating would be further downgraded to RD uponcompletion of a distressed debt exchange, or the company has experienced anuncured payment default.

An upgrade is unlikely in the near term given a lack ofshareholder support to meet due debt obligations.

Samarco is seeking capital investments from its owners andVale SA as the ironore joint venture's cash reserves are expected to dry out in August.

The Brazilian venture has halted production since theNovember 2015 damburst at the Samarco iron ore mine and its stockpiled ore has run out.

At the same time, the rating agency lowered its nationallong-term ratings on the company to C(bra) from CCC(bra) and senior unsecurednotes to CC/RR3 from CCC/RR4.

The RR3 recovery rating for the company's bonds reflectsabove average recovery prospects, if the company manages to restart operationsat 50% or more of current capacity.

If the company fails to resume operations, recoveryprospects would likely be less than 10% and the notes would be downgraded toC/RR6.