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Rating Action:

Moody's rates ABGF B1/Baa1.br and FGIE Ba3/A1.br for insurance financial strength

 The document has been translated in other languages

06 Nov 2018

First-time insurance financial strength ratings assigned to Brazilian-based financial guarantors

New York, November 06, 2018 -- Moody's Investors Service (Moody's) has assigned a B1 insurance financial strength (IFS) rating to Agencia Brasileira Gestora de Fundos Garantidores e Garantias S.A. (ABGF) and a Baa1.br IFS rating on Brazil's national scale (NS). The outlook for the ratings is stable.

In the same rating action, Moody's assigned a Ba3 IFS rating to Fundo Garantidor de Infraestrutura (FGIE) and an A1.br IFS rating on Brazil's NS. The outlook for the ratings is stable.

RATINGS RATIONALE

Moody's said that ABGF's B1 IFS rating considers Moody's joint default analysis for the company as a government-related issuer and therefore, it incorporates our assumptions for moderate support and very high dependence levels from the government of Brazil (Ba2 stable). The integration and support are illustrated by ABGF's status as a major holding company with subsidiaries that provide guarantees for risks in lending operations that support a variety of sectors and activities that are of the interest to the national government, including Brazilian exports, financing of infrastructure projects and housing. ABGF's baseline credit assessment (BCA) of b2 reflects the company's credit profile on a stand-alone basis, which considers the company's lack of operational history in providing financial guarantees at the entity level, as well as uncertainty regarding its business plan for future operations. The rating agency went on to say that ABGF's investment portfolio is mostly comprised of illiquid assets, which creates much uncertainty in the event that the company begins issuing guarantees. ABGF's Baa1.br NS IFS rating is based on the application of Moody's mapping criteria for a B1 rating to the Brazilian national scale. ABGF's Baa1.br rating is positioned at the top of the range of possible outcomes on the Brazilian national scale for B1 rating, indicating its stronger creditworthiness relative to other B1-rated issuers in Brazil.

According to Moody's, FGIE's Ba3 IFS rating primarily reflects the fund's low expected operating leverage, adequate capitalization and strong profitability levels. The rating is also based on the fund's investment portfolio, mostly composed of Brazilian government bonds, which provides an important source of liquidity. Additional rating considerations include the fund's limited financial and operational history, as well as its evolving business strategy and Brazil's moderate operating risk level. Expanding on the rating rational, Moody's considers that, because FGIE will provide guarantees to infrastructure projects, the fund's product profile will be exposed to low granular risks and high-severity losses, which constrains FGIE's overall credit profile. FGIE's A1.br NS IFS rating is based on the application of Moody's mapping criteria for a Ba3 rating to the Brazilian national scale. FGIE's A1.br rating is positioned at the top of the range of possible outcomes on the Brazilian national scale for Ba3 rating, indicating its stronger creditworthiness relative to other Ba3-rated issuers in Brazil.

Commenting on factors that could result in an upgrade for ABGF's ratings, Moody's cited the following: 1) an upgrade of Brazil's sovereign rating; 2) improved asset quality with a substantial increase of fixed income assets in the company's investment portfolio; 3) a consistent business plan to develop financial guarantee products at ABGF level with clear objectives, including (but not limited to) future business strategy, product risk profile, and expected operating leverage; and/or 4) increased implicit or explicit parental support. Conversely, among the factors that could lead to a downgrade of the company's ratings are the following: 1) downgrade of Brazil's government bond rating; 2) deterioration in the country's insurance operating environment; and/or 3) decline in support from the Brazilian government to ABGF.

Moody's mentioned that FGIE's rating could be upgraded in case of an upgrade of Brazil's sovereign rating, a multi-notch upgrade of ABGF, or a significant business expansion while maintaining strong profitability and capitalization metrics. Conversely, among the factors that could lead to a downgrade of the fund's ratings are the following: 1) downgrade of Brazil's government bond rating; 2) deterioration in the country's insurance operating environment; 3) deterioration in fund's profitability; and/or 4) deterioration in fund's capital adequacy, with a leverage higher than 5x shareholders' equity.

Headquartered in Brasilia, Brazil, ABGF is a state-owned financial institution that was established in 2012, and through the funds it manages and holds, provides guarantees for risks in lending operations in areas that are perceived to have economic and social importance. The entity supports a variety of sectors and activities, including Brazilian exports, financing of infrastructure projects and housing. As of December 31 2017, its total assets amounted to BRL2,821 million ($852 million) and shareholders' equity totaled BRL 2,569 million ($776 million). The entity recorded a net income of BRL46 million ($14 million) in 2017.

Based in Brasilia, Brazil, FGIE is a wholly-owned subsidiary of ABGF and was established in November 2014 with the objective to guarantee, directly or indirectly, credit risk, performance risk, obligation risk, and engineering risk coverages in operations that involve infrastructure projects. As of December 31, 2017, its total assets amounted to BRL569 million ($171.9 million) and shareholders' equity was BRL568.6 million ($171.8 million). The company recorded a net income of BRL60 million ($18.2 million) in 2017.

The principal methodologies used in rating Agencia Brasileira Gestora de Fundos Garantidores e Garantias S.A. were Government-Related Issuers published in June 2018, and Financial Guarantors published in May 2018. The principal methodology used in rating Fundo Garantidor de Infraestrutura was Financial Guarantors published in May 2018. 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_1113601.

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.

Diego Kashiwakura
Vice President - Senior Analyst
Financial Institutions 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

Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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