Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Action:

Moody's downgrades OEC's rating to Caa2; changes outlook to negative

Global Credit Research - 11 Apr 2017

Approximately USD3.1 billion of Debt Securities Affected

New York, April 11, 2017 -- Moody's Investors Service, ("Moody's") downgraded the foreign currency ratings assigned to the senior unsecured notes issued by Odebrecht Finance Ltd. (OFL) and guaranteed by Odebrecht Engenharia e Construção S.A. (OEC) to Caa2 from Caa1. At the same time, Moody's has downgraded the corporate family rating assigned on its global scale to OEC to Caa2 from Caa1. The outlook for all ratings was changed to negative from positive.

The following rating actions were taken:

Outlook Actions:

..Issuer: Odebrecht Engenharia e Construcao S.A. (OEC)

..Issuer: Odebrecht Finance Ltd.

....Outlook, Changed To Negative From Positive

Downgrades:

..Issuer: Odebrecht Engenharia e Construcao S.A. (OEC)

.... Corporate Family Rating, Downgraded to Caa2 From Caa1

..Issuer: Odebrecht Finance Ltd.

....Backed Senior Unsecured Regular Bond/Debenture (Foreign Currency), Downgraded to Caa2 From Caa1

RATINGS RATIONALE

The downgrade to Caa2 and the change in outlook to negative reflect the company's backlog erosion, higher than expected cash burn in a moment of slow construction activity leading to weak cash conversion. As well, the downgrade incorporates significant project cancelations especially in important markets to the company outside of Brazil with no significant signs of recovery in the near term.

Moody's expected that, after the signature of the lenience agreement by its parent company Odebrecht S.A. (ODB, unrated) with Brazilian federal prosecutors in December, 2016, the company would be able to gradually start replacing its backlog. The expectations did not materialize in Brazil so far while many other countries in Latin America initiated parallel investigations. Going forward, in order to improve liquidity and backlog profile, OEC relies on the sale of assets such as Odebrecht Ambiental for the repayment of USD 450 million in intercompany loans from its parent company ODB, signing of leniency agreements in main countries in Latin America, and on the rebound of the South American economies especially Brazil.

According to OEC, during the last quarter of 2016 project backlog was reduced to about USD 17 billion, a USD 4.3 billion decline in one quarter. The amount is pro-forma for the exclusion of some projects Latin America and represents a steep decrease from USD 28.1 billion in the end of 2015 and well under Moody's expectations of backlog replacement. The backlog reductions have been accompanied by large cash outlays, driven by delays in the collection of receivables, lower book-to-bill ratio reducing the volume of cash advances and foreign exchange losses, which jeopardized the company's liquidity position and intercompany loans to parent ODB. As of June 2016, ODB reported consolidated cash availability of around BRL 17.5 billion and approximately BRL 23.8 billion in short term debt maturities, during the 3Q'16 Odebrecht Agroindustrial concluded the restructuring of its debt reducing ODB's consolidated short term debt by BRL 5.7 billion. During the last quarter of 2016 OEC consumed around USD 250 million in cash further reducing its liquidity to USD 1.3 billion in the end of 2016, which compares to around USD 2.6 billion in the end of 2015. As of December 2016, the cash availability represented around 38% of total debt outstanding (unaudited), including Moody's standard adjustments and off-balance debt guarantees, that compares to 66% in the end of 2015.

OEC's Caa2 ratings reflect the deterioration in the company's business fundamentals, reputational risk since the Lava Jato scandal broke, uncertainties for the near future such as the timing and success of its asset sale program, and closing of leniency agreements with other Latin American countries. Despite the still adequate cash position and long debt tenor, OEC's cash cushion has been weakening fast together with its project backlog and cash conversion cycle increasing the company's probability of default.

The negative outlook reflects our view that OEC's internal cash generation and financial profile will remain weak in the next 12 months as per the challenging environment for infrastructure investments in Latin America and the frustrated expectations that with the conclusion of the leniency the company to be able to gradually resume the normal course of its business.

Further negative pressure could arise if OEC keeps struggling to return to its normal operations, if the company fails to comply with its annual audited reporting requirements, possibly triggering a debt acceleration, or if the company enters into a debt restructuring that results in higher than expected losses to creditors.

Although unlikely in the near term positive pressure on the ratings or outlook would require a sustainable recovery in OEC's operations. A positive rating action would also be dependent on OEC improving and maintaining a stronger liquidity profile along with evidence of improvement in its business environment that translates into a backlog replacement ratio (book-to-bill) above 1.0x on a sustainable basis. The positive conclusion of ongoing negotiations of sisters companies' debt, alleviating ODB liquidity pressures, would also affect OEC's rating positively.

OEC is the largest engineering and construction company in Latin America, with USD 10.5 bn billion in net revenues in the last twelve months ended September 2016. The company's project backlog of USD 17 billion is diversified into contracts comprising large-scale construction projects in the transportation segment, energy and sewage infrastructures, buildings and industrial facilities, located in Brazil, other Latin American countries and Africa.

OEC is a subsidiary of Odebrecht S.A., a family-owned investment holding company for one of the largest non-financial conglomerates in Brazil that controls Braskem S.A. (Ba1 stable), the largest chemical company in Latin America, along with other investments in the oil & gas, energy sectors, toll roads, water sewage concessions and real estate. Odebrecht consolidated net revenues reached BRL 117.7 billion in the LTM 2Q16, of which 41% generated by OEC, 42% by Braskem, and 17% by other subsidiaries. As of June 30, 2016, the group's consolidated cash position was BRL 17.5 billion for a total reported debt of BRL 94.5 billion.

The principal methodology used in these ratings was Construction Industry published in March 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 review.

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 the rating.

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

Marcos Schmidt
Vice President - Senior Analyst
Corporate 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

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit 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 or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.