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Rating Action:

Moody's confirms the B1 global scale ratings, upgrades the national scale ratings of Light S.A and its subsidiaries to Baa1.br from Baa2.br/Baa3.br, outlook is positive

 The document has been translated in other languages

Global Credit Research - 05 May 2017

Sao Paulo, May 05, 2017 -- Moody's America Latina Ltda. ("Moody's") today confirmed the B1 global scale Corporate Family Rating (CFR) of Light S.A. ("Light" or "the company") and the B1 global scale issuer ratings of its operating subsidiaries Light Serviços de Eletricidade S.A. ("Light SESA") and Light Energia S.A ("Light Energia"). At the same time, Moody´s upgraded the national scale ratings of Light and Light SESA to Baa1.br from Baa3.br, and of Light Energia to Baa1.br from Baa2.br. The outlook is positive for all ratings.

RATINGS RATIONALE

The upgrade of the national scale ratings for Light and its wholly-owned subsidiaries Light SESA and Light Energia to Baa1.br, and the positive outlook reflects Moody's expectation that Light SESA's fourth tariff review and concession contract amendments will result in an improved liquidity profile for the company leading to a sustainable headroom under financial covenants in the coming quarters. The rating action also reflects the agency's expectation that Light's credit metrics will progressively strengthen as a result of the stronger Cash Flow from Operations before working capital change (CFO pre WC) that will result from the tariff review and improved consumption trends.

The B1/Baa1.br also reflects : (i) the positive trends that the company has shown in reducing non-technical losses as illustrated by an additional 937 GWh energy recovered in the five quarters to Q1 2017 compared to only 288 GWh in the previous five quarters; and (ii) the relatively stable cash flow profile in Light´s hydropower generation business, which in 2016 accounted for 31% of the company's consolidated EBITDA.

On the other hand the B1/Baa1.br incorporates : (i) the still high energy loss rates in the distribution segment which at 40% for low voltage non-technical losses compares poorly to rated peers; (ii) more stringent regulatory requirements of the amended distribution concession contract which will absorb a significant portion of Light's operating and capital expenditures in the coming years; (iii) the company´s relatively high leverage evidenced by a consolidated Net Debt/EBITDA ratio of 3.7x as of December 2016; and (iv) debt maturity profile relatively concentrated on the short term.

While Light's operating performance in the distribution segment (under Light SESA) weakened further in 2016, driven by a 2.3% year on year decline in energy consumption and leading to a reduction in CFO pre WC to Debt to 8.2% in 2016, from 8.9% in 2015, and in CFO pre WC interest coverage to 1.8x in 2016 compared to 1.9x in 2015, Moody's anticipates a progressive improvement in Light's credit metrics on the back of the new tariff structure and early progress in loss reduction strategy in the context of a more supportive macroeconomic environment.

Moody's regards Light's liquidity profile as modest but manageable. As of 31 December 2016 the company had a consolidated cash position of BRL 682 million (including BRL 13 million of marketable securities), and around BRL 1.9 billion of financial debt maturing in the next 12 months. While in the four months to 30 April Light was able to roll-over a significant portion of its 2017 debt maturities, the company's debt maturity profile remains relatively concentrated in the short term, with 47% of outstanding debt due in 2019.

In anticipation that Light's free cash flow generation will remain moderate in 2017 Moody's expects that the company will continue to partly rely on debt refinancing to cover its upcoming debt maturities, in line with the track record of successful debt refinancing that Light and its subsidiaries have completed over the recent years. The maintenance of debt at the level of Light's subsidiaries is subject to the company's ability to comply with a net debt/EBITDA ratio of 3.75x tested on a quarterly basis. In December 2016 the company reported a ratio of 3.72x, very close to the required covenant levels. However Moody's anticipates that the EBITDA impact of the tariff review will create a more comfortable headroom under financial covenants in the coming quarters.

WHAT COULD CHANGE THE RATING UP/DOWN

A rating upgrade could be considered should the company successfully extend the average tenor of its debt maturity profile while demonstrating its ability to meet the qualitative indicators and loss rates target requirements imposed by the new concession contract and tariff cycle. Sustained improvements in operating performance and reduction in leverage resulting in visible improvements in credit metrics such that CFO pre WC / Debt exceeds 15% and CFO pre WC Interest coverage reaches 3.0x would also exert upward rating pressure.

In light of the positive outlook a rating downgrade is unlikely in the near term. A rating stabilization could result from a weakening of the company's metrics such that CFO pre WC interest coverage remains sustainably below 2.5x and/or CFO pre-WC to Debt remains below 14% on a sustainable basis.

Headquartered in Rio de Janeiro - Brazil, Light S.A is an integrated utility company with activities in generation, distribution and commercialization of electricity. In 2016 Light SA reported BRL8.8 billion in net revenues (excluding construction revenues) and close to BRL 1.4 billion in EBITDA respectively.

Light S.A is ultimately controlled by Companhia Energetica de Minas Gerais ("CEMIG", rated B1/Baa1.br, negative), the company's major shareholder with a direct and indirect stake of 43.4% in Light S.A.

The principal methodology used in rating Light S.A., and Light Servicos De Eletricidade S.A. was Regulated Electric and Gas Utilities published in December 2013. The principal methodology used in rating Light Energia S.A was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Rating Methodologies 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 ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

Information types used to prepare the rating are the following: financial data, economic and demographic data, operating data, and public information.

Sources of Public Information: Moody's considers public information from many third party sources as part of the rating process. These sources may include, but are not limited to, the list available in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_193459.

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 go to the report "Ancillary or Other Permissible Services Provided to Entities Rated by Moody's America Latina Ltda." in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195459 for detailed 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 within the 12 months preceding the credit rating action. Please go to the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_195460 for a list of entities receiving products/services from these related entities and the products/services received.

The date of the last Credit Rating Action for Light S.A. was 17/3/2017

The date of the last Credit Rating Action for Light Servicos De Eletricidade S.A was 17/3/2017

The date of the last Credit Rating Action for Light Energia S.A. was 17/3/2017

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 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.br.

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.

Please see ratings tab on the issuer/entity page on www.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 ratings 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 Ratings Definitions 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.

Paco Debonnaire
Analyst
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
Client Service: 1 212 553 1653

Michael J. Mulvaney
MD - Project Finance
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 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
Client Service: 1 212 553 1653

No Related Data.
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