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Rating Action:

Moody's places the ratings of Light S.A, Light SESA and Light Energia under review for upgrade

 The document has been translated in other languages

Global Credit Research - 17 Mar 2017

Sao Paulo, March 17, 2017 -- Moody's America Latina has placed the Corporate Family Rating (CFR) of Light S.A (CFR at B1/Baa3.br), as well as the issuer ratings of its wholly-owned subsidiaries Light Serviços de Eletricidade S.A. ("Light SESA" or "the company", B1/Baa3.br) and Light Energia S.A.("Light Energia", B1/Baa2.br) under review for upgrade.

The rating action follows a decision from Brazil´s electricity regulator ANEEL to anticipate Light SESA´s tariff review by 19 months. ANEEL granted the company a tariff increase of 10.45% and revised the loss rates targets and quality requirements for the period 2018-2022. Moody´s understands that the tariff revision will help Light SESA to recover a number of costs incurred as well as investments made by the company that were not incorporated in the previous tariff cycle.

RATINGS RATIONALE

Moody´s will use the review period to analyze the impact that the revised tariff structure and revised quality indicators and energy loss rates will have on the company's cash flow generation and overall credit metrics. In particular, Moody´s will assess the impact on the company's cash flow from operations before working capital change (CFO pre WC) interest coverage and CFO pre WC to debt ratios (2.0x and 11% respectively in the last twelve months ending September 2016). Through its review, Moody's will determine if the improved credit metrics warrant a rating upgrade. The agency aims to conclude the review in short order.

The ratings of Light SA, Light SESA and Light Energia could be upgraded as a result of visible improvements in operating performance of those companies such that CFO pre WC interest coverage exceeds 3.0x and CFO pre WC to debt stays above 25% on a sustained basis. A rating upgrade would also require the maintenance of adequate liquidity profile of those companies. In light of the review for upgrade, downward rating pressure is unlikely to emerge in the short term.

Headquartered in Rio de Janeiro - Brazil, Light S.A is an integrated utility company with activities in generation, distribution and commercialization of electricity. The electricity distribution business is Light S.A's largest segment, which accounted for around 62% of its consolidated EBITDA in 2015. Light S.A's distribution business is operated by its wholly owned subsidiary Light SESA through a thirty-year concession granted by the Brazilian Federal Government on June 4, 1996, expiring in June 2026. Light SESA's operations cover thirty one municipalities in the state of Rio de Janeiro (not rated), including the municipality of Rio de Janeiro (Ba2/ Aa1.br stable) serving a population of approximately 10 million. Light S.A's second largest segment is the hydro generation business which, through its direct subsidiary Light Energia represented 29% of Light SA's consolidated EBITDA in 2015. A third business segment accounting for around 8% of Light SA's 2015 consolidated EBITDA involves the trading of energy in the free electricity market.

In the twelve months ended 30 September 2016 Light S.A reported BRL9.7 billion in net revenues (excluding construction revenues) and BRL 1 billion in adjusted EBITDA (as reported by Light S.A) respectively. Light S.A is ultimately controlled by Companhia Energetica de Minas Gerais (rated B1/Baa1.br, negative), the company's major shareholder with a direct 26.1% and a 17.32% stake, respectively, in Light SA.

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 for a copy of these methodologies.

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, operating data, public information, and regulatory fillings.

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_194573 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_194574 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 Energia S.A. was 21/7/2016

The date of the last Credit Rating Action for Light S.A. was 21/7/2016

The date of the last Credit Rating Action for Light Servicos De Eletricidade S.A. was 21/7/2016

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
SUBSCRIBERS: 55-11-3043-7300

Michael J. Mulvaney
MD - Project Finance
Project 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

No Related Data.
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