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03 May 2010
Approximately USD 200 million in debt securities affected
Sao Paulo, May 03, 2010 -- Moody's Investors Service assigned a Baa3 foreign currency rating
to the USD 200 million in senior unsecured perpetual notes to be issued
by Odebrecht Finance Ltd (Cayman Islands) and irrevocably and unconditionally
guaranteed by Construtora Norberto Odebrecht ("CNO").
The rating outlook is stable. The net proceeds from the issuance
will be used to repay the outstanding USD 200 million perpetual notes
issued in 2005, thus not increasing CNO's leverage.
The deal is part of CNO's liability management strategy and aims
at reducing its funding cost. The notes rating is not constrained
by Brazil's sovereign ceiling of Baa2 with a positive outlook.
Rating assigned is as follows:
Issuer: Odebrecht Finance Ltd. (Cayman Islands)
- approximately USD 200 million senior unsecured perpetual notes
guaranteed by Construtora Norberto Odebrecht: Baa3 foreign currency
Issuer: Construtora Norberto Odebrecht S.A.
- Senior Unsecured Issuer Rating: Baa3 (global scale);
Aa1.br (Brazilian national scale)
Issuer: Odebrecht Finance Ltd (Cayman Islands)
- USD 500 million in senior unsecured guaranteed notes due 2020:
Baa3 foreign currency rating
The outlook for all ratings is stable.
The rating of the proposed notes and the stable outlook assume that the
final transaction documents will not be materially different from draft
legal documentation reviewed by Moody's to date and assume that these
agreements are legally valid, binding and enforceable.
CNO's Baa3 rating reflects its position as the largest construction company
in Latin America, benefiting from a leading position in major markets
supported by high entry barriers. The company has a conservative
financial policy that translates into strong debt protection metrics relative
to higher rated global peers, although we expect operating margins
to decline in the near term, primarily because of the impact of
lower oil prices on its oil exporting markets. While CNO has a
strong management team with a solid track record of execution of complex
projects and has a large backlog supporting near term revenues,
its considerable exposure to countries with political risk and economic
volatility, and the risk of cash transfer to CNO's holding company
to support the group's investments in new projects are constraining factors
to the rating.
The Baa3 senior unsecured issuer and debt ratings also incorporate effective
subordination of the unsecured debt to CNO's secured debt and the structural
subordination to debt at its subsidiaries and joint ventures, which
do not provide upstream guarantees. Approximately 15% of
CNO's consolidated debt is secured by specific assets and about 30%
of its consolidated cash generation and assets are located at subsidiaries
or joint ventures which do not generally guarantee CNO's senior unsecured
The stable outlook reflects our belief that CNO will maintain efficient
risk management and prudent financial policy in support of healthy liquidity.
Although we anticipate that revenues will likely stabilize at current
level and operating margins will decline in the near term, we expect
that CNO will manage capital expenditures and dividends in order to maintain
strong debt protection metrics for the Baa3 rating category, thus
mitigating the risks inherent in operating in countries with high political
risk and volatile economies.
Given CNO's high exposure to risky countries, our expectation of
lower margins moderately affecting debt protection metrics in the near
term, and the cash drain risks deriving from the group's investments
in new projects, upward pressure on the ratings or outlook is unlikely
in the near term.
The ratings or outlook could come under negative pressure if CNO's credit
metrics deteriorate with Retained Cash Flow less Capex to Total Adjusted
Debt dropping to below 20% without expectation of improving in
the near term, or if liquidity deteriorates, most likely due
to cash drain to support new ventures of the group. A downgrade
in the ratings or outlook could also be triggered by a substantial increase
in secured debt at CNO or its subsidiaries or a proportional decrease
in the percentage of consolidated cash generation or assets located at
CNO, compared to those at the operating subsidiaries or joint ventures.
Moody's last rating action on CNO occurred on December 10, 2009
when senior unsecured issuer ratings of Baa3 on the global scale and Aa1.br
on the Brazilian national scale were assigned.
The principal methodology used in rating CNO was Moody's Global Construction
rating methodology available on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Construtora Norberto Odebrecht S.A. is the largest engineering
and construction company in Latin America, with revenues of about
some BRL 19 billion (USD 9.4 billion converted by the average exchange
rate) in 2009 primarily from large-scale construction projects,
including highways, railways, bridges, power plants,
tunnels, subways, buildings, port facilities,
dams, manufacturing and processing plants, mining and industrial
CNO is a subsidiary of Odebrecht S.A. ("ODB";
unrated), the family-owned investment holding company for
one of the largest non-financial Brazilian conglomerates that also
controls Braskem S.A. (Ba1, outlook stable),
the largest chemical company in Latin America producing olefins and polyolefins.
ODB's consolidated net revenues attained BRL 35.9 billion
(USD 17.9 billion) in 2009, thereof 51% generated
by CNO, 42% by Braskem, and 7% by other subsidiaries
mostly engaged in the infrastructure and energy sectors. The group
has diversified its operations through significant investments in the
oil & gas and energy sectors.
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Moody's assigns Baa3 rating to Construtora Norberto Odebrecht's proposed perpetual notes
Corporate Finance Group
Moody's Investors Service
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