Petrobras’s Bonds Advance as S&P Affirms Ratings, Cuts Outlook
By Julia Leite
8:16 PM BRT
March 23, 2015
(Bloomberg) — Petroleo Brasileiro SA bonds rallied after Standard & Poor’s held off on downgrading the company’s credit rating, cutting only the outlook on the grade as the oil producer faces difficulties in financing investments.
The state-controlled company’s $2.5 billion of notes due 2024 climbed 1.41 cent to 93.31 cents on the dollar as of 9:46 a.m. in New York. S&P changed the outlook on Petrobras’s BBB-rating, the lowest investment grade, to negative from stable Monday. Moody’s Investors Service chopped its rating on the state-run oil producer by two levels to junk on Feb 24.
The government is likely to provide support to the company if needed, bolstering the producer’s creditworthiness, S&P said. Petrobras should have weaker cash flow and higher leverage in 2015 and 2016 and capital markets remain “restricted” amid a federal investigation into whether executives sought bribes in exchange for work contracts, S&P said.
“The ongoing corruption investigations not only squeezed financing of Petrobras’s investment plan, but also weakened its main contractors’ creditworthiness and slowed the construction of the oil rigs to ramp-up production,” S&P analysts led by Renata Lotfi wrote. “We expect that cash flows could deteriorate further.”
While S&P affirmed the oil producer’s credit grade, the ratings company cut Petrobras’ stand-alone credit profile, which doesn’t take into account government support, to B+, four levels below investment grade. Petrobras has delayed releasing an audited earnings report because of difficulties deciding on the size of corruption-related writedowns.
The plunge in the real, which has dropped 15 percent this year, is likely to have an additional negative impact, S&P said.
The ratings company also affirmed Brazil’s BBB- sovereign rating Monday, with a stable outlook.