Fitch Downgrades EDC

Fitch has cut Venezuela’s EDC to B+ from BB minus, including $650m in senior unsecured notes due 2018 and $260m of notes due 2014 to B+ from BB minus. The cut is due to increased risk of a financial and economic crisis in the country given its tenuous macroeconomic policy framework, sys Fitch. “EDC’s ratings reflect the company’s strong credit linkage with its majority shareholders, PDVSA, as well as with the Bolivarian Republic of Venezuela, its ultimate shareholder,” the agency says. The Venezuelan government is planning to spin off EDC from PDVSA, says Fitch. The agency expects EDC to continue being a state-owned entity and for the linkage between EDC’s credit quality and that of the government to remain strong. Until this transition is complete, EDC is expected to pay dividends to PDVSA of approximately 90%-100% of net income. In Fitch’s view, these dividends, plus capital expenditures, should weaken a currently strong liquidity position and will lead to even higher leverage. Fitch cut the sovereign to B+ from BB minus the previous day.