March 1, 2012 / 2:51 PM / 6 years ago

TEXT-S&P cuts

 (The following statement was released by the rating agency)
 Overview	
 -- 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)	
 

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