NOTE: On January 18, 2018, the press release was corrected as follows: Changed the by-line city to New York; in the Regulatory Disclosures section, replaced Moody's
America Latina disclosures with Moody’s Investor Services disclosures; and at the end of the press release, changed the releasing office to New York. Revised release follows.
New York, December 04, 2017 -- Moody's Investors Service, ("Moody's") affirmed
the Ba3 rating of Centrais Eletricas Brasileiras SA - Eletrobras,
including the company's senior unsecured debt and corporate family rating
(CFR). Simultaneously, Moody's raised the company's baseline
credit assessment (BCA) to b1 from b2 and changed the outlook for all
ratings to stable from negative. This action reflects Eletrobras'
liquidity improvement, evolving operating profile and strengthened
..Issuer: Centrais Eletricas Brasileiras SA --
...Corporate family ratings (CFR), Affirmed
$1750M Global Notes due 2021, Affirmed at Ba3
Outlook for all ratings changed to stable from negative
The upgrade of Eletrobras' BCA reflects the company's better credit metrics
on a stand-alone basis, and the ongoing progress of its corporate
restructure plan to enhance internal controls and improve profitability.
It also considers Moody's perception of improved liquidity through
September 2017, specifically related to a more robust cash position
to meet upcoming debt maturities over the next 12 months. Constraining
Eletrobras' credit profile are the high debt levels and large contingent
Eletrobras' Ba3 ratings consider Moody's joint default analysis
for the company as a government-related issuer and therefore,
it incorporate our expectations on the credit profile of the Brazil's
government (Ba2 negative) and assumptions for moderate support and high
dependence levels from the government of Brazil. Eletrobras' dominant
position in the Brazilian electricity market along with its strategic
role for regional economic development given the participation in most
of the country's relevant energy projects further support the ratings.
The stable outlook on Eletrobras' ratings incorporates Moody's view
that the company's credit profile will continue to gradually improve counterbalancing
the negative outlook on the government of Brazil's Ba2 rating.
The government's plan to dilute its participation in Eletrobras
through an equity offering and the changes in the concession framework
under discussion, provide opportunities for the company to further
strengthen its operating and financial profile. At the same time,
Moody's recognizes high uncertainties for this process to be completed
in 2018, thus any potential benefits of the privatization have not
been incorporated it into the ratings at this time.
Over the last year, Eletrobras made significant progress to build-up
its internal controls through the implementation of a shared service center
and an integrated computer-network management system for consistency
in the reporting of all its subsidiaries. The company's also
implemented an extraordinary retirement plan, reaching about 86%
of its employee reduction target. Together, those initiatives
are expected to generate consolidated savings of approximately BRL1.5
billion per year for Eletrobras.
In terms of corporate governance, the company took several initiatives
to bring its internal practices in line with local and international regulatory
standards, such as updating the code of ethics to comply with stricter
governance laws in Brazil and alignment of its bylaws for an uniform approach
towards approval levels for existing and future investments across the
There are other pending developments to achieve a leaner operating structure,
including the divesture of six distribution companies: CEPISA,
CEAL, Eletroacre, CERON, Boa Vista Energia and Amazonas
D, and the sale of ownership stakes in 77 special purpose entities
(SPEs) comprising 3,354 kilometers of transmission lines and 862
MW of wind power generation projects. The restructuring plan also
includes the transfer of indirect equity interests at certain SPEs to
the holding-company level, with the elimination of intercompany
loans. Moody's base case scenario considers those initiatives
to be mostly completed during first half of 2018.
As of September 30, 2017, Eletrobras reported a cash outstanding
balance representing 146% of short term debt maturities up from
99% in fiscal year-end 2016. The company's
leverage, as measured by the Cash from operations before working
capital change (CFO pre WC) to debt ratio, reached 5% in
the last twelve months ended September 30, 2017, up from 0.3%
in December 31, 2016. Meanwhile, the CFO pre WC interest
coverage ratio improved to 1.3x from 1.0x. Those
levels are sustainable over the next 3 to 4 years with the ongoing developments
of its business restructuring plan.
Constraining the credit profile improvement is Eletrobras' high
debt burden. For the most recent reporting period, the company
accounted for about BRL46 billion in consolidated debt outstanding.
The company also has approximately BRL16 billion in past due obligations
with suppliers (mainly Petrobras). Although part of those liabilities
are covered by reimbursement credits from sector charges, there
are disputes with the regulator ANEEL to determine the exact credit amount
and the timing for compensation. Eletrobras also has BRL23 billion
in provisions to address probable losses in lawsuits of the company and
its subsidiaries are parties underway in the courts; but it will
not materialize all at the same time in the next 12-18 months,
which mitigates the impact on the company's liquidity.
The unfavorable performance of the distribution companies has been hurting
Eletrobras' credit metrics. The successful exit of those
businesses will enhance the consolidate profitability, but balance
sheet leverage will likely increase, since the proposed privatization
model considers Eletrobras providing equity increases or upstream debt
lying at the level of the operating distribution companies. As
such, Moody's estimates Eletrobras consolidated debt to book
capitalization ratio will reach 53% in 2018, up from the
current 47%, and will probably stay in the low fifties towards
the end of this decade.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward ratings pressure could result from a sustained trend of stronger
internal cash generation and the extension of the company's debt
maturity profile. Quantitatively, the ratings could be upgraded
if we see an upturn in the company's overall metrics so that the cash
from operations before changes in working capital (CFO pre-WC)
to total debt ratio approaches 10% and the interest coverage remains
above 1.5x on a sustainable basis. Moody's may also consider
an upgrade of Eletrobras ratings following a material reduction of the
uncertainties around the company's contingent liabilities or the government's
Downward rating pressure could come with a deterioration in the company's
liquidity profile resulting from challenges in refinancing its short term
debt obligations and/or an unexpected large cash outlays related to the
company's contingent liabilities. Moody's would consider a downgrade
if such pressures were not mitigated by an extraordinary financial support
from its shareholders or upcoming asset sales. A weakened support
of the regulatory framework could also prompt a downward action,
as well as further deterioration in the sovereign's credit quality.
Headquartered in Rio de Janeiro, Eletrobras is a holding company
controlled by Brazil´s federal government with 51% of Eletrobras'
voting capital and 41% of its total capital. Eletrobras
is the largest Brazilian generation and transmission company, in
the twelve months ended September 30, 2017 the company reported
BRL28.1 billion in net revenues (excluding construction revenues,
CELG-D and the RBSE). Eletrobras' transmission lines
comprise 70,148 kilometers, or 47% of the country's
total high-voltage transmission lines. Eletrobras'
electricity generation has installed capacity of 47 gigawatts, which
accounts for 31% of Brazil's total generation installed capacity,
besides, the company also has 22.4 GW in projects under construction
to be completed by 2023. The distribution business, largely
composed of small distribution companies in the north and center west
portions of Brazil, represents around 5% of the total energy
distributed in the country.
The methodologies used in these ratings were Regulated Electric and Gas
Utilities published in June 2017, and Government-Related
Issuers published in August 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes
to the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Project Finance Group
Moody's America Latina Ltda.
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16th Floor, Room 1601
Sao Paulo, SP 04578-903
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Michael J. Mulvaney
MD - Project Finance
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653