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Rating Action:

Moody's assigns a Aa1.br rating to ETEP's BRL 69 million debentures; outlook stable

 The document has been translated in other languages

Global Credit Research - 18 Jul 2014

Approximately BRL 69 million of debt instruments affected

Sao Paulo, July 18, 2014 -- Moody's America Latina Ltda. (Moody's) assigned a Baa3 issuer rating on the global scale and a Aa1.br issuer rating on the national scale to Empresa Paraense de Transmissao de Energia S.A. (ETEP). At the same time, Moody's assigned Baa3 rating on the global scale and a Aa1.br rating on the national scale to 6-year amortizing BRL 69 million senior unsecured debentures to be issued by ETEP in the local market. The outlook for all ratings is stable. This is the first time Moody's has assigned a rating to ETEP.

The debentures will amortize in quarterly installments after a 2-year grace period for the payment of principal and a 6-month grace period for the payment of interest. A major financial covenant embedded in the debenture indenture defines the maximum debt level that ETEP can incur at BRL 235 million through August 2017 and 50% of this amount after that date, which includes the company's consolidated subsidiary debt.

ETEP will use proceeds from the debentures for working capital purposes.

RATINGS RATIONALE

ETEP's Baa3 and Aa1.br issuer ratings reflect the company's stable and predictable cash flow. The cash flow is supported by long-term regulated concession agreement ETEP signed with the Federal Government to operate 323 kilometers of electricity transmission lines in the Brazilian northern state of Para, which expire in 2031.

The relatively long track record of operations, management's expertise in the transmission business, and the company's strong credit metrics further support the ratings.

ETEP's small scale and still evolving corporate governance practices constrain the ratings. The company's concentration in one single asset in the state of Para further constrains the rating.

ETEP's credit metrics could potentially deteriorate within the next three years should the company increase the distribution of dividends during this period. Under this scenario, Moody's forecasts that ETEP's credit metrics would deteriorate slightly in comparison with the previous three years but still remain strong for its rating category.

ETEP's cash flow as measured by funds from operations (FFO) is bound to dramatically reduce after August 2017, when ETEP's Allowed Annual Revenue (RAP) will decrease by 50% as per the company's concession agreement. It is worth noting that ETEP's RAP of BRL77.3 million, as disclosed in the company's 2013 financial statements, represents 87.8% of the company's consolidated RAP.

Moody's expects that by August 2017 ETEP will have reduced its debt to a much more moderate level so that credit metrics and its liquidity position will remain compatible with its rating category.

The major downside risks for Moody's projections are further deterioration in the company's cash flow, higher capital expenditures, or the distribution of dividends above Moody's estimates. A deterioration in cash flow could, for example, stem from an unexpected reduction in net revenues because of potential penalties the regulator might apply for the unavailability of its transmission infrastructure.

The stable outlook reflects Moody's expectation that ETEP will continue to prudently manage capital expenditures and the distribution of dividends in line with its cash flow capacity while maintaining an adequate liquidity position.

The ratings could be upgraded if ETEP's corporate governance practices improve along with a track record of continued strong financial performance, such that the consolidated FFO interest coverage is greater than 5.0x along with a FFO to Net debt above 45% on a sustainable basis.

The ratings or outlook could be downgraded if there is a significant increase in leverage and deterioration of the liquidity profile. Quantitatively, the ratings or outlook could come under downward pressure if the consolidated FFO interest coverage ratio falls below 4.0x and the FFO to net debt stays below 25% for an extended period. A material change in the regulatory framework in Brazil could also cause a downgrade in the ratings or outlook.

ETEP is a transmission company that has a 30-year concession to operate 323 kilometers of transmission lines in the state of Para, which expires in 2031. ETEP is controlled by Alupar Investimentos S.A. (Alupar, Ba1 stable), which has 50.02% of its voting and total capital. The other major shareholder is Transmissora Alianca de Energia Eletrica S.A. (TAESA, Baa3 stable) with 49.98% of ETEPs voting and total capital.

ETEP holds 100% of Empresa Santos Dumont de Energia S.A. (ESDE, not rated), which has a concession to operate a 345 KW transmission substation in the state of Minas Gerais, which expires in 2039.

In 2013, ETEP posted consolidated net sales of BRL87.4 million, which does not include BRL11.1 million construction revenues and EBITDA of BRL73.2 million, calculated in accordance with Moody's standard adjustments, which includes BRL 2 million of cash interest income.

The principal methodology use in this rating was Regulated Electric and Gas Networks published in August 2009. Please see the Credit Policy page on www.moodys.com.br for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please see the special report "Services provided to entities rated by Moody's America Latina, Ltda." on our website www.moodys.com.br for further information.

Entities rated by Moody's America Latina Ltda(and the rated entities' related parties) may also receive products/services provided by parties related to Moody's America Latina Ltda engaging in credit ratings activities. Please go to www.moodys.com.br for a list of entities receiving products/services from these related entities and the products/services received. This list is updated on a quarterly basis.

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

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 rating action on the support provider and in relation to each particular 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.br

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this 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.

Please see ratings tab on the issuer/entity page on moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's rating were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.br for further information on the meaning of each rating category and the definition of default and recovery.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com.br for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.br for additional regulatory disclosures for each credit rating.

Jose Manoel Soares
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Moody's assigns a Aa1.br rating to ETEP's BRL 69 million debentures; outlook stable
No Related Data.
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