Madrid, April 06, 2011 -- Moody's Investors Service has today downgraded the ratings of a number
of Portuguese government-related issuers following the recent downgrade
of the ratings of the government of the Republic of Portugal ("RoP") from
A3 to Baa1, on review for further possible downgrade. All
ratings remain on review for further possible downgrade, in line
with the ratings of the government of RoP.
The rating downgrades are as follows:
- Parpublica-Participacoes Publicas (SGPS), SA ("Parpublica")
to Ba1 from Baa1
- Rede Ferroviaria Nacional REFER, EPE to Ba2 from Baa2
- REFER's bonds that are guaranteed by the government of RoP to
Baa1 from A3
- Radio e Televisao de Portugal S.A. ("RTP") to Ba2
from Baa3
- Comboios de Portugal ("CP") to Ba2 from Baa3
The rating agency has also lowered to 18 (Caa2 equivalent) from 17 (Caa1
equivalent) the Baseline Credit Assessment ("BCA") of RTP,
and to 19 (Caa3 equivalent) from 18 the BCAs of REFER and CP. The
BCA is a measure of the company's stand-alone financial strength
(without the assumed benefit of government support).
The rating agency has also assigned corporate family ratings and probability
of default ratings to Parpublica, REFER, RTP and CP in line
with the relevant bond ratings, and the issuer ratings of all of
the above companies are being withdrawn in accordance with Moody's
ratings policy.
All of the above companies are government-related issuers ("GRIs"),
which have a very strong element of government support incorporated within
their ratings in accordance with Moody's rating methodology for such entities.
RATINGS RATIONALE
Today's rating actions follow Moody's downgrade from A3 to Baa1,
on review for further downgrade of the ratings of the government of the
RoP, which was driven by the following: (1) the uncertain
political outlook following the resignation of the government, after
the rejection by the parliament of the additional budget measures announced
on 11 March and resulting reduction in the speed and decisiveness of policy
making; (2) the short- and medium-term funding challenges,
set in the context of the recently agreed European Stability Mechanism
(ESM), which contemplates debt restructuring as a distinct possibility;
and (3) the medium-term implications of last week's revisions
to the estimates for the budget deficit and outstanding government debt
for fiscal consolidation.
It is very unlikely that the long term debt markets will reopen to the
Portuguese government or to the Portuguese banks to any meaningful extent
until the government is able to take action to dispel doubts over its
commitment and ability to implement the fiscal programme. That
in turn raises the probability that the government will remain reliant
on its Eurozone partners for support once the EFSF expires and the ESM
is introduced. While the review period is intended to allow time
to assess the implications of recent announcements by the European authorities
for the medium term credit environment in Europe, it seems increasingly
clear that any ESM lending will first require a solvency analysis undertaken
by EU officials, and if there are doubts over a government's
solvency -- which could be the case if Portugal were to
remain reliant on support funding for a sustained period -- private
creditors would be expected to bear losses as a condition of continued
support.
In that context Moody's has widened the rating differential of all of
the above companies with the sovereign. The rating differentials
between these GRIs and the sovereign is now three notches for Parpublica,
and four notches for REFER, CP and RTP. The widening of these
rating differentials primarily reflects Moody's view that it is
now somewhat less likely that RoP would provide timely financial support
to the GRIs (expressed as a move in Moody's support assumption from
"very high" to "high" for CP, REFER and
RTP), given the possible claims on RoP's increasingly stretched
resources in current financial conditions. Moody's notes
that the Portugal government rating is currently sustained by the agency's
view that Eurozone members assistance would be forthcoming if Portugal
needed funds on an expedited basis. At the same time the GRI's
could become one step removed in such a case as their own access to government
support could become contingent to EU decision makers.
At the same time Moody's has concluded that debt market conditions
in Portugal are such that it is increasingly likely that the GRIs will
require support from RoP over the short to medium term and the risk of
such support being provided on a timely basis is the primary driver of
this rating action. The risk that timely financial support will
not be provided to all GRIs is considered higher at a time when demand
for such support is more acute combine to make it somewhat less likely
that support will be forthcoming on a timely basis; nonetheless such
support is still highly likely to be provided. Moody's does
not see a material difference in the level of support potentially available
to REFER, CP and RTP, and given the weak standalone credit
quality, the Moody's support assumption embedded within the
rating has the highest weight in our decision. Hence, while
standalone credit profiles differ slightly, final ratings are at
the same level. Parpublica continues to be rated through credit
substitution (ie as, in effect, an arm of government) and
is rated one notch higher than the other GRIs reflecting primarily its
lower short-term funding needs.
Parpublica is the government's industrial holding arm in strategic companies
and therefore relies on political objectives. Its Ba1 rating is
notched down from the sovereign bond rating, reflecting Moody's
view that the company's ownership structure (100% state-owned)
together with the very significant financial, strategic and management
control exerted by the government (which, for example, appoints
members of the Management Board and Audit Committee) justifies determination
of the rating through credit substitution. Parpublica's greater
self-sufficiency for funding justifies a marginally higher rating
than that applied to the other GRIs covered by this action.
REFER's Ba2 rating reflects the following combination of inputs:
(a) A BCA of 19 (Caa3 equivalent), (b) the Baa1 local currency rating
of RoP, (c) Very High Dependence, and (d) High Support.
REFER's BCA has been downgraded to 19 (Caa3 equivalent) from 18
(Caa2 equivalent), reflecting its worsening liquidity position and
high likelihood that it will require extraordinary support from RoP in
the near term to fund cash requirements. The BCA reflects Moody's
view that, on a standalone basis, REFER would be very challenged
to cover its financing requirements given the constraints in the debt
markets and increased debt costs in Portugal. REFER has a very
weak financial profile and a debt burden which is substantially more than
can be supported by generated cash flow. REFER has significant
funding requirements over the next 12 months to meet interest expense,
its capital expenditure programme, and debt refinance requirements
and very little alternate liquidity and is dependent on the continued
availability of short term funding. The maturity of a Government
guaranteed EUR300 million Schuldshein loan in early April 2011 is highlighted.
CP's Ba2 rating reflects the following combination of inputs: (a)
A BCA of 19 (Caa3 equivalent), (b) the Baa1 local currency rating
of RoP, (c) Very High Dependence, and (d) High Support.
REFER's BCA has been downgraded to 19 (Caa3 equivalent) from 18
(Caa2 equivalent), reflecting its worsening liquidity position and
high likelihood that it will require extraordinary support from RoP in
the near term to fund cash requirements. The BCA reflects Moody's
view that, on a standalone basis, CP would be very challenged
to cover its financing requirements given the constraints in the debt
markets and increased debt costs in Portugal. It also reflects
that CP has a very weak financial profile and a debt burden which is substantially
more than can be supported by generated cash flow. It is therefore
dependent on the continued availability of short term funding to meet
its interest costs over the next 12 months, finance its capital
expenditure programme and refinance maturing debt including EUR260 million
of banks loans in the third quarter 2011.
RTP's Ba2 rating reflects the following combination of inputs: (a)
A BCA of 18 (Caa2 equivalent), (b) the Baa1 local currency rating
of RoP, (c) Very High Dependence, and (d) High Support.
RTP's BCA has been downgraded to 18 (Caa2 equivalent) from 17 (Caa1
equivalent), reflecting its worsening liquidity position as a result
of a covenant breach under its senior unsecured bank facility.
The covenant breach, which was due to the downgrade of the rating
of the RoP, will imply a renegotiation of some terms of the loan
with the lenders, primarily an increased interest rate. As
part of the review process, Moody's will assess the impact
on RTP's financial profile of an increased interest expense on its
debt.
In line with the today's action and the ratings remaining on review
for further possible downgrade, Moody's does not expect positive
pressure to be exerted on the ratings of these entities in the short term.
The ratings remain on review for further possible downgrade, and
the review will not be concluded until the review of the rating of the
government of RoP is concluded. The trajectory of the GRIs'
ratings in the future could be impacted inter alia by any future downwards
moves in the rating of the government of RoP, and Moody's
perception of the likelihood of extraordinary support being provided to
the GRIs by RoP though the agency underlines that each of the GRIs own
liquidity situation, as well as the contingency plans of each company
will need to be assessed separately. Any expectation that such
extraordinary support will not be forthcoming on a timely basis could
cause further downwards moves in the GRI's ratings to close to their
standalone credit quality.
For additional information on rating factors, please refer to the
individual issuer credit opinions, available on www.moodys.com.
PREVIOUS RATING ACTION & METHODOLOGY USED
Please see the ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history of each issuer.
The principal methodologies used in this rating were Global Broadcast
Industry published in June 2008, and Government-Related Issuers:
Methodology Update published in July 2010.
Parpublica is a state-owned industrial holding company domiciled
in Lisbon, Portugal. Parpublica's main role is the management
of equity stakes held by the Portuguese state in Portuguese companies
of public or strategic interest in terms of restructuring of the corresponding
sector. The Minister of Finance acts on behalf of the state,
in its capacity as sole shareholder of Parpublica. As of March
2011, Parpublica's direct equity holdings portfolio had a book value
of approximately EUR5 billion. The largest holdings are in Energias
de Portugal, S.A. (EDP), GALP Energia,
REN -- Redes Energeticas Nacionais, TAP airline and
ANA.
Rede Ferroviária Nacional - REFER, E.P.E.
is a special status corporation set up by Portuguese Decree Law to upgrade,
operate and maintain substantially all of Portugal's heavy rail infrastructure.
REFER is owned 100% by the Republic of Portugal and has a special
legal status (Entidade Pública Empresarial, or "EPE") that
defines its role as a company undertaking activities of public interest.
By law, REFER may not be privatised, and Moody's does not
consider likely any change of status and subsequent privatisation given
the company's financial position, its role within the railway industry,
and its public policy mandate.
CP, headquartered in Lisbon, Portugal, is the national
railway incumbent, controlling 90% of the passenger market.
CP is 100% owned by the Portuguese government though the Ministry
of Finance and it has a special legal status (Entidade Pública
Empresarial, or "EPE") that defines its role as a company undertaking
activities of public interest. In fiscal year 2009, CP reported
revenues of EUR312 million.
RTP is a corporation, duly incorporated under domestic law,
and therefore subject to standard Portuguese commercial law. RTP
is 100% owned by the Portuguese state through the General Directorate
of Treasury and Finance, and has operated Portugal's public service
broadcasting channels under a concession from the government since 1996.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
On our website www.moodys.com, you can find further
information and any updates on the Lead Analyst to a specific Credit Rating,
and the office from which the credit rating was issued.
In addition to the above general contact information please find,
for each of the Credit Ratings affected, Moody's regulatory
disclosures on the lead analyst and the Moody's office that has
issued the Credit Rating on the ratings tab of the issuer page at www.moodys.com.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Madrid
Ivan Palacios
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
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Moody's downgrades certain Portuguese government-related issuers
