Eletrobras Cut to HY

Fitch has lowered the credit rating of Brazil’s Centrais Eletricas Brasileiras (Eletrobras) to BB from BBB, it says, reflecting the state-owned utility’s decision to accept the early renewal of concessions expiring 2015-2017. Brazil’s government offered Eletrobras approximately BRL14bn ($6.73bn) as an upfront payment to renew its concessions for a period of 30 years beginning in January 2013, with additional non-defined amounts, which will likely be paid over the life of the concession period. Eletrobras has indicated it will not use the proceeds to repay debt, unlike other utilities offered similar deals. “The upfront payment is not enough for Eletrobras to adjust its capital structure to a level that will still be in line with the company’s credit quality,” Fitch says. The outlook is negative. “Moody’s and S&P are very likely to follow, which should trigger index exclusion and a fair degree of forced selling [of Eletrobras bonds],”Barclays says in a note that recommends selling the bonds.