New York, September 16, 2020 -- Moody's Investors Service, ("Moody's") upgraded
Centrais Eletricas Brasileiras SA-Eletrobras ratings to Ba2 from
Ba3, including the company's senior unsecured debt and corporate
family rating (CFR). Simultaneously, Moody's raised the company's
baseline credit assessment (BCA) to ba3 from b1. The outlook for
all ratings was changed to stable from positive.
...Corporate family rating (CFR), upgraded
to Ba2 from Ba3
$625 (outstanding) million Senior Unsecured Global Notes
due 2021, upgraded to Ba2 from Ba3
Outlook was changed to stable from positive
The upgrade of Eletrobras' BCA to ba3, reflects the company's
improved credit profile following its business turnaround initiatives
implemented since 2016, allowing the company to resume an investment
path to sustain its dominant market position in the Brazilian electricity
sector. The ratings consider an increased visibility into the company's
investment strategy, as highlighted on its long-term business
plan released in August, with management's commitment to a
disciplined financial approach, where the consolidated net leverage
to the reported EBITDA remains below 2.5x under difference scenarios.
The upgrade also incorporates notable improvements on the company's
liquidity position, stemming from the completion of liability management
initiatives that extended the debt maturity profile. In addition,
recent regulatory allowances on transmission assets will further contribute
to stronger credit metrics through incremental cash generation of approximately
BRL3 billion per year until 2024.
Eletrobras' standalone credit profile remains constrained by the
significant amount of outstanding liabilities and execution risks associated
to Angra 3, a 1.4-gigawatt nuclear power plant project
owned through the subsidiary Eletronuclear. About BRL14 billion,
or 43% of the total investments budget through 2024 will be allocated
to the completion of this project, which has been halted since in
2015. The company has already committed BRL3.5 billion of
equity resources to the recovery of construction works through 2021,
but the viability studies, contract renegotiations and financial
settlement are still pending. The process of hiring a new engineering
consortium to complete this project by 2026 may translate into cost overruns
and further delay the project's completion, which is not fully
reflected in the rating's scenario.
For the twelve months ended June 2019, Eletrobras' consolidated
leverage as measured by the cash flow from operations pre-working
capital (CFO pre-WC) to net debt ratio reached 15%,
up from 11% in the three-year average between 2017 and 2019.
At the same time, the cash interest coverage has improved to 2.8x
from 2.1x. The improvement relates to the successful sale
of unprofitable businesses, along with enhanced controls and other
initiatives to support operating efficiency gains, leading to a
recurring EBITDA around BRL8 billion per year, calculated according
to Moody's standards. The rating's scenario considers
that the (CFO pre-WC) to net debt ratio will remain in the 15 to
20% range through 2024 with the interest coverage in the 2.5x
to 3.0x range.
We expect that the company will further pursue its deleveraging trajectory,
supported by the extraordinary transmission revenues and disciplined execution
of its large capex plan -BRL32.5 from 2020 to 2024,
despite our expectation of above-historical dividend distributions
given increased profitability. Eletrobras' total outstanding
debt was approximately BRL57 billion according to Moody's standard
adjustments, not including BRL30 billion in off-balance guarantees
to debt issued by unconsolidated subsidiaries or BRL24 billion in contingent
Eletrobras' liquidity position has significantly improved.
As of June 30th, the company reported BRL14.7 billion of
short-term cash and cash equivalents that compare to BRL15.5
billion in debt obligations through December 2021. About 38%
of outstanding debt matures in 2025 or beyond. Moody's expects
the company's cash generation to cover mandatory cash obligations
and maintenance capital expenditures of its existing assets in the next
As a government-related issuer, Eletrobras' Ba2 rating takes
into consideration the application of Moody's Joint Default Analysis,
which results in one notch uplift from its standalone credit profile.
This framework incorporates assumptions of high interdependence with the
Government of Brazil (Ba2 stable), the controlling shareholder,
and a moderate level of support. Moody's view on the support
considers Brazil's fiscal consolidation efforts and potential budget
restrictions, which could hinder timely financial support should
Eletrobras face a financial distress. However, we expect
that some level of support from the federal government would still be
forthcoming because of the company's relevance as the main electric company
in Brazil - accounting for 30% of the country's generation
capacity and 45% of the installed transmission lines - and
strategic position for regional and economic development. Historically,
evidence of support from the sovereign has been in the form of cash transfers
for equity increase, deferral on dividend payments, debt guarantees,
and loans granted from state owned banks.
The government plans to dilute its participation in Eletrobras through
an equity offering that will provide the company additional resources
to support its investment strategy. This plan would also improve
profitability based on the repricing of certain generation contracts and
reduction in the exposure to the Angra 3 project. Nonetheless,
the terms and conditions for this capitalization plan remain unclear and
subject to a complex political approval process. Hence, Moody's
has not incorporated any potential implications of the privatization into
Eletrobras' ratings at this time. A privatization will lead us
to reassess the assumptions on the dependence and support levels coming
from Brazil's government. A material reduction of the Brazilian
government's ownership to less than 20% and limited control
could lead us to assess Eletrobras' credit quality in line with
its standalone operating and financial profile.
The stable outlook on Eletrobras' ratings follows the stable outlook on
the Brazilian government's Ba2 rating. It also incorporates our
view that the company's stand-alone credit profile will continue
to gradually improve over the next 12 to 18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Eletrobras' Ba2 rating would depend on a similar action
on Moody's ratings on the government of Brazil. Upward rating pressure
on Eletrobras' BCA could result from further improvement on its
overall credit metrics, continued financial discipline towards new
investments and operating expenses, along with a predictable regulatory
environment for its electricity businesses. Quantitatively,
a positive action can occur upon clear indications that CFO pre-WC
to net debt and Interest coverage ratios approaching 25% and 3.0x,
respectively, on a sustainable basis.
Negative rating pressure could result from a rapid deterioration in the
company's liquidity profile resulting from unexpected large cash outlays
or deterioration in its operating performance. Moody's would consider
a downgrade if such pressures were not mitigated by an extraordinary financial
support from its shareholders. Deterioration in the sovereign's
credit quality or perception of weakened governance could also prompt
a downward action. Quantitatively, the ratings could be downgraded
if the CFO pre-WC to total net debt ratio falls below 10%,
or the interest coverage Ratio remains below 2.0x for two consecutive
Headquartered in Rio de Janeiro, Eletrobras is a holding company
controlled by Brazil's federal government with 51.8%
of Eletrobras' voting capital and 42.6% of its total capital.
Eletrobras is the country's largest energy company with a total
installed capacity of 51.3 gigawatts (GW), equivalent to
30% of Brazil's total power generation segment and interests on
a total of 71,503 kilometers (km) high voltage transmission lines,
equivalent to 45% of the country's electricity network.
Investments are held mainly under separate subsidiaries, being Furnas,
Chesf and Eletronorte the largest ones. In the last twelve months
ended June 30, 2020, the company's adjusted net revenues
reached BRL27.2 billion, of which 67% derived from
the generation business and 31% from the transmission segment.
The methodologies used in these ratings were Unregulated Utilities and
Unregulated Power Companies published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
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.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653