Rating & Debt

Due to the fact that the sector is regulated and that the rating agency S&P downgraded Brazil’s sovereign rating for a second time on February 17, 2016, the corporate credit ratings of Neoenergia, Coelba, Celpe and Cosern were downgraded from ‘brAA+’ to ‘brAA-’ on the Brazil National Scale, with a negative outlook. On the same date, Itapebi, Termopernambuco and NC Energia’s issuer ratings were lowered from ‘brAA’ to ‘brA+’.

 

On March 27, 2017, S&P confirmed the corporate credit ratings set by the previous review for Neoenergia and its subsidiaries, maintaining them at ‘brAA-’ on the Brazil National Scale, with a negative outlook.

 

On July 26, Fitch Ratings Ltda. gave Elektro Redes its first long-term rating on the national scale, with a classification of ‘AA+(bra)’, Outlook Negative. On September 4, 2017, after the completion of the corporate restructuring, Fitch removed the negative outlook and downgraded the company to ‘AA-(bra)’, Outlook Stable.

Rating

2017
03/28/2017

*Available in Portuguese only.

 

In September 2017, Neoenergia’s consolidated net debt, including loans, debentures and financial instruments, stood at R$17,346,582 thousand (net debt R$12,923,431 thousand), 31% (R$3,038,548 thousand) more than in December 2016. The effect of the merger of Elektro was to increase gross debt by R$3,674,032 and net debt by R$2,578,069. Neoenergia’s total debt in September 2017 was 68% long-term and 32% short-term.

 

The Net Debt/EBITDA ratio rose from 3.68 on December 31, 2016 to 4.58 on September 30, 2017.

 

At the time of the merger of Elektro Holding S.A. by the Company, on August 24, 2017, and pursuant to Technical Pronouncement CPC 36 – Consolidated Statements, the Company included all Elektro’s balance sheet items, including total debt, in its consolidated figures. However Elektro’s results were consolidated with those of the Company only as from the date of the merger. As a result of this imbalance between the balance sheet and the income statement there is a temporary mismatch in the consolidation, and this has a disproportional effect on the calculation of EBITDA and Financial Income. As a result the Company breached the covenants in its loan agreements, because it fell short of the ratios calculated on the basis of EBITDA and Financial Income.

 

Accordingly, for all the loan agreements which provide for financial ratios to be calculated on the basis of the consolidated financial statements of Neoenergia S.A., consent was given for calculation of these ratios to be suspended for 12 months, or the agreements were amended, or the lenders agreed to change the method of calculation (proforma calculation) to include the last 12 months’ results in the case of mergers. As a result, the covenants were not breached.

 

The proforma calculation gives a Net Debt/EBITDA ratio of 3.53 for September 2017.