Action follows the downgrade of the state of Minas Gerais to B1 from Ba3 with a negative outlook, and the outlook change on the state of Parana (Ba3/A1.br) to negative from stable.
Sao Paulo, July 05, 2016 -- Moody´s America Latina Ltda. ("Moody's") took the following
rating actions on specific electric and water utilities as a result of
the downgrade of the global scale issuer rating of the state of Minas
Gerais to B1 from Ba3 with a negative outlook, and of the outlook
change for the issuer ratings of the state of Parana (Ba3/A1.br)
to negative from stable. For more information, please see
[https://www.moodys.com/research/Moodys-downgrades-Minas-Gerais-issuer-rating-to-B1-from-Ba3--PR_351488]
and [https://www.moodys.com/research/Moodys-downgrades-ratings-of-the-state-of-Bahia-to-Ba3A2br--PR_350980]
The issuers and ratings impacted are as follows :
Companhia Energética de Minas Gerais (CEMIG)
Issuer ratings downgraded to B1/Baa1.br from Ba3/A1.br (on
the global scale and on the national scale, respectively) with a
negative outlook on all ratings.
CEMIG Distribuição S.A. (CEMIG-D)
Issuer ratings downgraded to B1/Baa1.br from Ba3/A2.br.
Ratings of backed senior unsecured Brazilian debentures downgraded to
B1/Baa1.br from Ba3/A2.br, with a negative outlook
on all ratings.
CEMIG Geração e Transmissão S.A. (CEMIG-GT)
Corporate Family Ratings (CFR) downgraded to B1/Baa1.br from Ba3/A1.br
Ratings of backed senior unsecured Brazilian debentures downgraded to
B1/Baa1.br from Ba3/A1.br, with a negative outlook
on all ratings.
Companhia de Saneamento de Minas Gerais S.A. (COPASA)
CFRs downgraded to B1/Baa1.br from Ba3/A2.br.
Ratings of senior unsecured Brazilian debentures downgraded to B1/Baa1.br
from Ba3/A2.br, with a negative outlook on all ratings.
Companhia de Saneamento do Paraná -- (SANEPAR)
Issuer ratings affirmed at Ba3/A1.br.
Ratings on senior unsecured Brazilian debentures affirmed to Ba3/A1.br.
Outlook changed to negative from stable on all ratings.
RATINGS RATIONALE
The downgrade of ratings for CEMIG, CEMIG-D, CEMIG-GT
and COPASA reflects primarily the downgrade of the state of Minas Gerais
to B1 from Ba3 with a negative outlook as a result of the quick deterioration
of the state's fiscal position. Likewise the outlook change
for the ratings of SANEPAR follows the change in the outlook of the Ba3/A1.br
ratings for the state of Parana to negative from stable.
Moody's believes that because of the strong influence the regional
government as the controlling shareholder exerts on these utilities'
governance and financial condition, the rating of these utilities
is constrained by the ratings of their controlling parent, respectively
the Brazilian states of Minas Gerais for CEMIG, CEMIG-D,
CEMIG-GT and COPASA; and the state of Parana for SANEPAR.
Those issuers are Government-Related Issuers or GRIs, as
defined in Moody's rating methodology "Government-Related Issuers:
Methodology Update", published in October 2014. Moody's methodology
for GRIs incorporates into the rating both the stand-alone credit
risk profile or Baseline Credit Assessment (BCA) of the company as well
as an assessment of the likelihood that its government owner would provide
extraordinary support to the company's obligations.
In addition to the impact from the change in the supporting regional government's
ratings, the downgrade of CEMIG, CEMIG-GT and CEMIG-D's
ratings also reflects materially lower operating margins, as a result
of the ongoing challenging domestic economic conditions, as well
as significantly higher leverage and cost of capital, which we expect
will continue throughout the next 18 -- 24 months. According
to Moody's standard adjustments, in the last 12 months ended
on 31 March 2016, CEMIG's Net Debt to EBITDA increased to
4.7x from 3.0x in FY2015, while cash flow from operations
(CFO) pre-working capital (W/C) to Debt decreased to 21.0%
from 24.7%, and interest coverage ratio decreased
to 3.4x from 3.8x. The ratings also reflect a more
pressured liquidity position. As of 31 March 2016, CEMIG
reported cash and cash equivalents of BRL1,989 million against debt
maturing in the next 12 months of BRL4,911 million.
While directly exposed to the continuing effects from Brazil's economic
recession, Moody's expects some improvements in COPASA's
credit metrics going forward driven by a return to revenues growth resulting
from more favorable hydrology conditions and by the benefit of cost cutting
measures taken by the company late in 2015. COPASA's ratings
continue to be constrained by high leverage position, evidenced
by a debt/EBITDA ratio (as adjusted by Moody's) of 4.3x in
the last twelve months ended 31 March 2016. The Ba3/A1.br
issuer ratings for SANEPAR have been affirmed, based on Moody's
view that the company's credit metrics evidenced by a FFO to Net
Debt ratio of 32% and an interest coverage ratio of 4.3x
in the last twelve months ended 31 March 2016 remain strong for the rating
category.
WHAT COULD CHANGE THE RATING UP/DOWN
In light of the rating actions with the maintenance of the negative outlook,
an upgrade of the ratings is unlikely in the short to medium term.
A deterioration of Brazil's sovereign credit quality could exert
downward pressure on the assigned ratings. Further deterioration
in the respective sub-sovereign's credit quality could exert downward
pressure on these issuers. A sustained deterioration in the relevant
credit metrics of the issuers on a standalone basis and/or, perception
of a material deterioration in the regulatory frameworks under which these
companies operate could also exert downward pressure.
The principal methodology used in rating Cemig Distribuicao S.A.
and Cemig Geracao e Transmissao S.A. was Regulated Electric
and Gas Utilities published in December 2013. The methodologies
used in rating Companhia Energetica de Minas Gerais - CEMIG were
Regulated Electric and Gas Utilities published in December 2013,
and Government-Related Issuers published in October 2014.
The methodologies used in rating Companhia de Saneamento do Parana -
SANEPAR and Companhia de Saneamento de Minas Gerais - COPASA were
Regulated Water Utilities published in December 2015, and Government-Related
Issuers published in October 2014. Please see the Ratings Methodologies
page on www.moodys.com.br 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_189530.
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.
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 see the special
report "Services provided to entities rated by Moody's America Latina
Ltda." on our website www.moodys.com.br for
further 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. Please go to www.moodys.com.br
for a list of entities receiving products/services from these related
entities and the products/services received. This list is updated
on a quarterly basis.
The date of the last Credit Rating Action for Cemig Distribuicao S.A.
was 25/2/2016
The date of the last Credit Rating Action for Cemig Geracao e Transmissao
S.A. was 9/5/2016
The date of the last Credit Rating Action for Companhia Energetica de
Minas Gerais - CEMIG was 9/5/2016
The date of the last Credit Rating Action for Companhia de Saneamento
do Parana - SANEPAR was 9/5/2016
The date of the last Credit Rating Action for Companhia de Saneamento
de Minas Gerais was 25/2/2016
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com.br,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
Alexandre De Almeida Leite
VP - Senior Credit Officer
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
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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
Moody's takes rating actions on specific issuers of the Brazilian infrastructure sector
