New York, February 24, 2015 -- Moody's Investors Service today downgraded all ratings for Petrobras S.A.
(including debts rated based on Petrobras' guarantee), including
a downgrade of the company's senior unsecured debt to Ba2 from Baa3,
and assigned a Ba2 Corporate Family Rating (CFR) to the company.
Moody's also lowered the company's Baseline Credit Assessment (BCA) to
b2 from ba2. These rating actions reflect increasing concern about
corruption investigations and liquidity pressures that might result from
delays in delivering audited financial statements, as well as Moody's
expectation that the company will be challenged to make meaningful reduction
in its very high debt burden over the next several years. The ratings
remain on review for downgrade.
Below is a list of affected ratings:
Downgrades:
..Issuer: Petrobras Global Finance B.V.
....Subordinate Shelf, Downgraded to
(P)Ba3 from (P)Ba1; Placed Under Review for further Downgrade
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Baa3; Placed Under Review for further Downgrade
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2 from Baa3; Placed Under Review for further Downgrade
..Issuer: Petrobras International Finance Company
....Subordinate Shelf Shelf, Downgraded
to (P)Ba3 from (P)Ba1; Placed Under Review for further Downgrade
....Senior Secured Shelf, Downgraded
to (P)Ba1 from (P)Baa2; Placed Under Review for further Downgrade
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Baa3; Placed Under Review for further Downgrade
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2 from Baa3; Placed Under Review for further Downgrade
..Issuer: Petroleo Brasileiro S.A. -
PETROBRAS
....Backed Preferred Shelf, Downgraded
to (P)B1 from (P)Ba2; Placed Under Review for further Downgrade
....Preferred Shelf, Downgraded to (P)B2
from (P)Ba3; Placed Under Review for further Downgrade
....Subordinate Shelf, Downgraded to
(P)Ba3 from (P)Ba1; Placed Under Review for further Downgrade
....Senior Secured Shelf, Downgraded
to (P)Ba2 from (P)Baa3; Placed Under Review for further Downgrade
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Baa3; Placed Under Review for further Downgrade
Assignments:
..Issuer: Petroleo Brasileiro S.A. -
PETROBRAS
.... Corporate Family Rating, Assigned
Ba2; Placed Under Review for further Downgrade
Withdrawals:
..Issuer: Petroleo Brasileiro S.A. -
PETROBRAS
.... Issuer Rating, Withdrawn ,
previously rated Baa3
RATING RATIONALE
The downgrade of Petrobras' rating and the lowering of its BCA reflects
continued concern about the potential for serious near term liquidity
pressure, as well as Moody's view that the company is likely
to take longer than previously expected to achieve planned leverage reductions
that are needed for a material improvement in its financial profile.
Moody's does not perceive substantial progress that would significantly
reduce concern about the potential for payment acceleration under debt
agreements that require the provision of audited financial statements.
On February 12, the company informed the local stock exchange commission
that it planned to release audited annual financial statements before
the end of May, which is 30 days after the due date. Moody's
understands that the company is focusing on actions that are under its
control and working with its auditor to provide these statements as soon
as possible and is also taking steps to bolster its liquidity profile.
However, Moody's does not yet see any concrete assurance that
audited statements will be available by any particular date.
The company's high capital spending in recent years resulted in
persistent negative free cash flow and increased debt. Recent years,
in which elevated capital spending led to substantial growth in debt,
were expected to be followed by a period in which the company significantly
deleveraged using the cash flow generated from increased production.
While the maintenance of high prices for refined products in Brazil is
currently helping to cushion Petrobras from the decline in global oil
prices, the gap between domestic and global prices will likely not
be sustainable over a longer period. The company has repeatedly
fallen short of certain financial and production targets and Moody's
no longer expects significant improvement in leverage over the medium
term.
In 2015, Petrobras may generate higher cash flow than in 2014 because
its downstream business is benefitting from the current large spread between
low international crude prices and high domestic refined product prices,
and this may more than offset the negative impact of low oil prices in
its exploration and production business segment. However,
even with planned reductions in capital expenditures, Moody's
expects that cash flow from operations will not cover capital spending,
resulting in yet another year in which free cash flow is negative in the
absence of any substantial asset sales. Curtailment of capital
spending to conserve cash could also lead to production falling short
of previously planned targets in the future. Moody's expects
leverage, as indicated by debt/EBITDA, to remain above 5 times
for a sustained period of time in the absence of substantial asset sales.
Moody's adjusted debt/EBITDA ratio is high at about 5.3x.
The company's ratings also reflect the challenges related to the
corruption investigations, which create management distractions
that may hinder efforts to improve operations as well as ongoing concerns
about corporate governance and the need to sustainably improve internal
controls.
Petrobras' ratings remain on review for downgrade, reflecting continued
concern about potential liquidity pressures that could arise as a consequence
of not providing timely financial statements. The company's obligations
to provide financial statements under the terms of various debt agreements
include the provision of audited annual statements by April 30,
2015. Extended delay carries the risk that creditors could take
actions that lead to a declaration of technical default, followed
by payment acceleration after the relevant cure period under the particular
agreement. Additional rating actions will consider any further
developments in the ongoing corruption investigation along with Moody's
assessment of progress towards timely delivery of audited financial statements
and actions, if any, that are perceived as lessening the risk
of a creditor default notice followed by acceleration.
If the company is able to conclusively address its near term liquidity
risks, its ratings could be upgraded, although likely not
to investment grade because the company is expected to face continuing
stresses related to the corruption investigating and its very high debt
burden.
Petrobras' rating would be sensitive to any change in the government's
rating as well as to Moody's assessment of the strength of support
from the government. Moody's credit assessment of Petrobras takes
into account the expected level and timeliness of government support,
in case of need. Moody's currently assumes a high likelihood of
support and moderate dependence with the government's rating. This
support assumption reflects, inter alia, the government's
stated willingness to stand behind Petrobras should that be needed.
However, Moody's also recognizes that the government could be challenged
to ensure provision of the funding needed to ensure timely payment of
Petrobras' obligations in a scenario in which a substantial portion of
the company's debt was accelerated. Should the likelihood of such
a scenario materializing increase, Moody's would likely lower its
assessment of support to reflect the rising threat to timely support,
even if the government's willingness to ensure ultimate recovery remained
unchanged.
For additional detail about the company's ratings please refer to recent
press releases and Credit Opinion in www.moodys.com.
The principal methodology used in these ratings was Global Integrated
Oil & Gas Industry published in April 2014. Other methodologies
used include the Government-Related Issuers methdology published
in October 2014. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
Petrobras, based in Rio de Janeiro, is an integrated energy
company, with total assets of about USD 341 billion as of September
30, 2014. Petrobras dominates Brazil's oil and natural gas
production, as well as downstream refining and marketing.
The company also holds a significant stake in petrochemicals and a burgeoning
position in sugar-based ethanol production and distribution.
The Brazilian government directly and indirectly owns about 48%
of Petrobras' outstanding capital stock and 63% of its voting shares.
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 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.
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.
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.
Nymia Thamara Cortes de Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
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SUBSCRIBERS:52-55-1253-5700
Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300
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Moody's downgrades Petrobras' ratings to Ba2; maintains review for downgrade
