(The following statement was released by the rating agency)
-- We downgraded Brazilian electricity distributor Centrais Eletricas do Para to 'D' from 'CCC+' following its judicial reorganization filing.
-- In our view, this event increases the refinancing risk of other Rede Energia group's subsidiaries, Centrais Eletricas Matogrossenses and Companhia de Energia Eletrica do Estado do Tocantins.
-- We lowered the ratings on these two companies to 'CCC' from 'B-' and placed them on CreditWatch with negative implications. Rating Action On March 1, 2012, Standard & Poor's Ratings Services lowered its corporate credit rating on Centrais Eletricas do Para S.A. (Celpa) to 'D' from 'CCC+'. At the same time, we lowered our ratings on Companhia de Energia Eletrica do Estado do Tocantins (CELTINS) and Centrais Eletricas Matogrossenses S.A. (CEMAT) to 'CCC' from 'B-', and placed them on CreditWatch with negative implications. Rationale The 'D' rating on Celpa reflects its judicial reorganization filing on Feb. 28, 2012. Although the filing does not include other rated subsidiaries of the Rede Energia group, we lowered the ratings on CEMAT and CELTINS to reflect the even more limited financial flexibility that these companies will have. Celpa has struggled to improve its business risk profile, which we see as "vulnerable" (as our criteria define it) in the past few years, reflecting operating challenges stemming from the characteristics of its concession area and poor asset performance. It's the most inefficient electricity distributor in the country, with energy losses of 30%, poor service quality indicators, and frequently not in compliance with the regulator's standards. Celpa's "highly leveraged" financial profile and "weak" liquidity were the main drivers for our previous 'CCC+' rating. A consecutive breach of financial covenants that required constant waiver negotiations exacerbated its refinancing risks. Although Celpa's filing should not affect CEMAT's and CELTINS' concessions, it should put further pressure to roll over their existing debt. CEMAT has been a dividend contributor to Rede group and, in our view, will face not only a greater challenge to roll over outstanding credit lines, but also pressure to upstream cash to the holding company. CreditWatch We expect to resolve our CreditWatch listing on CEMAT and CELTINS during the next 90 days, after performing a comprehensive analysis of the impact of Celpa's judicial reorganization filing on these Rede subsidiaries. We could lower the ratings further if we don't see concrete signs that both CEMAT and CELTINS continue to access some sort of funding. Related Criteria And Research How Standard & Poor's Uses Its 'CCC' Rating, Dec. 12, 2008 Ratings List Downgraded; CreditWatch/Outlook Action
To From Centrais Eletricas do Para S.A. Corporate Credit Rating D/-- CCC+/Stable/-- Centrais Eletricas Matogrossenses S.A. Companhia de Energia Eletrica do Estado do Tocantins Corporate Credit Rating CCC/Watch Neg/-- B-/Stable/-- (Caryn Trokie, New York Ratings Unit)