Sao Paulo, May 07, 2021 -- Moody´s América Latina Ltda., ("Moody´s")
today upgraded the Corporate Family Rating (CFR) of Light S.A.
(Light) and the issuer ratings of its operating subsidiaries Light Serviços
de Eletricidade S.A. (Light SESA) and Light Energia S.A.
(Light Energia) to A1.br from A2.br on the national scale.
At the same time, the outlook changed to positive from stable for
all ratings.
LIST OF AFFECTED RATINGS
Issuer: Light S.A.
..Rating changes:
.Corporate Family Rating: upgraded to A1.br from A2.br
(National Scale Rating)
Issuer: Light Serviços de Eletricidade S.A.
..Rating changes:
.Issuer Rating: upgraded to A1.br from A2.br
(National Scale Rating)
Issuer: Light Energia S.A.
..Rating changes:
.Issuer Rating: upgraded to A1.br from A2.br
(National Scale Rating)
RATINGS RATIONALE
The rating action reflects Moody's views on Light consolidated credit
profile amid the company's improved capital structure and evolving credit
metrics. Light performed a capital increase of BRL 1.3 billion,
strengthening its Debt/Capitalization ratio to a threshold of 45%-50%
compared to the 60.7% average in the last three years (as
of FY2020). In addition, Light has been able to reduce its
debt cost leading its leverage ratio to approach our upgrade triggers
in the next 12-18 months.
The positive trend considers a gradual improvement in credit metrics so
that Light's Cash Flow from Operation before Working Capital changes (CFO
pre-WC) to Debt and interest coverage ratios should remain above
15% and 3.0x respectively in 2022. The company's
renewed corporate governance, following the appointment of new executive
officers and changes in the compensation structure that are more closely
aligned with the company's results, should also contribute to the
gradual improvement in operating performance.
The ratings recognize the overall supportive regulatory framework for
Brazil electricity distribution sector and Moody's expectation of
continued timely compensation for energy costs through tariffs increases.
Further supporting the rating is Light's unregulated generation business
that responds for about 30%-40% of the consolidated
EBITDA and provides for revenue diversification. Despite adverse
hydrology conditions in recent years, the commercialization strategy
has contributed to mitigate higher energy cost with positive effect on
Light's consolidated cash flow generation.
Nonetheless, the still high level of energy losses in the distribution
segment (26% in December 2020) and the challenging socioeconomic
conditions of its concession area constrain the ratings. The high
unemployment rate and elevated electricity thefts challenges the growth
in consumption levels and cash flow conversion rate as well as poses additional
risk to affordability within a social perspective.
The pace of deleveraging remains limited by the consolidated capital spending
of approximately BRL1.0 billion per year mainly due to network
expansion and improvement. The investment required ahead of the
upcoming cyclical tariff review process in 2022, may support a revision
of the regulatory asset base, which is not yet reflected in our
current forecast
The Issuer Ratings assigned to Light SESA and Light Energia are in line
with the ratings assigned to its parent company, due to the corporate
guarantee provided by Light and the cross-default clauses embedded
in the debt issued within the group. Because of these financial
and structural linkages, Light SESA and Light Energia's credit profile
are best assessed through Light's consolidated profile, as the holding
company of the group.
RATINGS OUTLOOK
The positive outlook reflects Moody's expectations that Light's consolidated
credit metrics will continue to improve driven by lower leverage and better
operational results, leading Light's CFO pre-WC to Debt and
interest coverage ratios to remain above our upgrade thresholds form 2022
onwards.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade could be considered should the company demonstrate sustained
improvements in operating performance and reduce its leverage position
such that CFO pre WC / Debt exceeds 15% and CFO pre WC Interest
coverage reaches 3.5x on a sustainable basis. A rating upgrade
would also require a comfortable liquidity profile ahead of the company's
working capital needs and debt maturities in the short term.
A rating downgrade could result from Light's failure to improve its operating
performance and cash flow generation or to reduce its debt outstanding,
such that CFO pre WC to Debt falls below 10% and CFO pre-WC
interest coverage remains sustainably below 2.5x. Perception
of a weakening liquidity profile could also exert negative pressures on
the ratings as well as our perception of less supportive regulatory framework
and/or cost past-through mechanism of the tariff reviews.
COMPANY PROFILE
Headquartered in Rio de Janeiro - Brazil, Light is an integrated
utility company with activities in generation, distribution and
commercialization of electricity. Light SESA and Light Energia
are wholly owned subsidiaries of Light. In 2020, Light reported
BRL12.3 billion in consolidated net revenues (excluding construction
revenues) and BRL2.6 billion in EBITDA.
The principal methodology used in rating Light S.A.,
and Light Servicos De Eletricidade S.A. was Regulated Electric
and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530.
The principal methodology used in rating Light Energia S.A.
was Unregulated Utilities and Unregulated Power Companies published in
May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389.
Alternatively, please see the Rating 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_1216309.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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:
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historical performance data, Moody's information, and
regulatory filings.
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/researchdocumentcontentpage.aspx?docid=PBC_1258170.
Moody's considers the quality of information available on the rated entity,
obligation or credit satisfactory for the purposes of issuing a rating.
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Please see the ratings disclosure page on www.moodys.com.br
for general disclosure on potential conflicts of interests.
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The date of the last Credit Rating Action was 04/09/2019.
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, category/class of
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same series, category/class of debt, security or pursuant
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Aneliza Crnugelj
Asst Vice President - Analyst
Infra Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Cristiane Spercel
VP - Senior Credit Officer/Manager
Infra Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
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