Financial

Moody’s upgrades Petrobras’ ratings to B1; changes outlook to positive

New York, April 10, 2017 — Moody’s Investors Service upgraded all
ratings of Petroleo Brasileiro S.A. (Petrobras)’s and ratings based on
Petrobras’ guarantee, including the company’s senior unsecured debt and
corporate family rating (CFR), to B1 from B2 given lower liquidity risk
and prospect of declining debt leverage. At the same time, Moody’s
raised the company’s baseline credit assessment (BCA) to b2 from b3. The
outlook for all ratings was changed to positive from stable.

Upgrades:

..Issuer: Petrobras Global Finance B.V.

….Backed Senior Unsecured Shelf, Upgraded to (P)B1 from (P)B2

….Backed Senior Unsecured Regular Bond/Debenture, Upgraded to B1 from
B2

..Issuer: Petrobras International Finance Company

….Backed Senior Secured Shelf, Upgraded to (P)Ba3 from (P)B1

….Backed Senior Unsecured Shelf, Upgraded to (P)B1 from (P)B2

….Backed Subordinate Shelf, Upgraded to (P)B2 from (P)B3

….Backed Senior Unsecured Regular Bond/Debenture, Upgraded to B1 from
B2

..Issuer: Petroleo Brasileiro S.A. – PETROBRAS

…. Corporate Family Rating, Upgraded to B1 from B2

….Senior Secured Shelf, Upgraded to (P)B1 from (P)B2

….Senior Unsecured Shelf, Upgraded to (P)B1 from (P)B2

….Subordinate Shelf, Upgraded to (P)B2 from (P)B3

….Preferred Shelf, Upgraded to (P)Caa1 from (P)Caa2

Outlook Actions:

..Issuer: Petrobras Global Finance B.V.

….Outlook, Changed To Positive From Stable

..Issuer: Petrobras International Finance Company

….Outlook, Changed To Positive From Stable

..Issuer: Petroleo Brasileiro S.A. – PETROBRAS

….Outlook, Changed To Positive From Stable

RATINGS RATIONALE

The actions on Petrobras’ ratings, BCA and outlook reflect Moody’s
expectation of continued improvement in the company’s liquidity profile
and financial metrics over the next 12 months, which reduces Petrobras’
credit risk. Liquidity and financial metrics have improved further over
the last few quarters as a result of lower capex in 2016 than planned;
gains from disciplined operating management and local currency
appreciation, which positively affected operating costs; and the
company’s new fuel pricing policy, which increased flexibility to
sustain downstream margins and wholesale market share. These factors
helped Petrobras maintain access to the capital markets and refinance
debt: so far in 2017 the company has tendered approximately $6 billion
in notes and issued $4 billion in new notes, which allowed it to reduce
debt and extend its debt maturity profile. The regulatory environment
has also improved in Brazil, supporting better return on investment in
the long term. Moody’s recognizes that Petrobras’ management has shown
commitment to its financial and operating targets, as shown in recent
debt refinancing transactions, disciplined use of cash, increasing crude
production and declining costs.

Despite the material improvements, liquidity risk remains a concern. As
of December 31, 2016, Petrobras’ maturing debt in 2017 and 2018 was $8.8
billion and $11.3 billion, respectively, for a total of $19 billion in
the next 2 years. Other threats to Petrobras’ liquidity, as well as to
its operating and financial performance, include execution risk related
to the 2017-21 business plan and potential delays in fully executing its
asset sales plan. It is positive, however, that the company has managed
to settle with 19 out of 27 individual investors on legal disputes
related to the Car Wash investigation, somewhat reducing uncertainty
about the amounts of additional settlements and fines, including the
ones related to the U.S. Securities Exchange Commission (SEC)’s the U.S.
Department of Justice (DoJ)’s investigations.

Petrobras’ b2 BCA, which indicates Moody’s view of the company’s
standalone credit strength, considers its high debt, low to negative
free cash flow, high refinancing risk, local currency volatility risk
and operating challenges in a difficult industry and economic
environment; for instance, debt maturing over the next five years
amounts to $75 billion. In addition, free cash flow will remain under
pressure in the next couple of years as its upstream business suffers
from low oil prices and downstream operations are hurt by still low
demand, high competition and local currency volatility, at the same time
that the fuel pricing strategy evolves.

Petrobras’ b2 BCA and B1 rating are supported by the company’s solid
reserve base and dominance in the Brazilian oil industry, and its
importance to the Brazilian economy. Furthermore, the ratings reflect
the company’s sizeable reserves at 9,677 Mboe, its renown high
technological offshore expertise and potential for continued growth in
production over the long-term.

Petrobras’ B1 ratings also consider Moody’s joint-default analysis for
the company as a government-related issuer. Petrobras’ ratings reflect
Moody’s assumption for a moderate likelihood of timely extraordinary
support from the government of Brazil. Despite its stated willingness to
stand behind Petrobras, Moody’s believes that the government’s current
fiscal situation tempers its capacity to support Petrobras sufficiently
to avoid a default. Petrobras’ rating incorporates one notch of uplift
between Petrobras’ BCA and its senior unsecured rating given the
company’s lower liquidity risk and thus lower need of support, which is
favorable in the context of government’s persistently tight fiscal
position. Moody’s continues to assume moderate default dependence
between Petrobras and the government.

Petrobras’ ratings have a positive outlook, reflecting Moody’s
expectation that, in the next 18 months, if the company’s liquidity and
overall credit risk continues to improve, further positive rating
actions could occur.

Positive rating actions could be considered if the company raises
sufficient sums through asset sales or new debt arrangements to reduce
debt and refinance upcoming maturities and significantly strengthen its
liquidity profile while also improving operating and financial
performance. In addition, for a rating upgrade to occur, Petrobras’
leverage as adjusted by Moody’s should move sustainably closer to 4
times.

Negative actions on Petrobras’ ratings could result from deterioration
in operating performance or external factors that increase liquidity
risk or debt leverage from current levels. Downgrades could also be
prompted if negative developments from the corruption investigations or
litigation against the company appear to have the potential to
significantly worsen the company’s liquidity or financial profile.

The principal methodology used in these ratings was Global Integrated
Oil & Gas Industry published in October 2016. Other methodologies used
include the Government-Related Issuers methodology published in October
2014. Please see the Rating Methodologies page on www.moodys.com for a
copy of these methodologies.

Petrobras is an integrated energy company, with total assets of $247
billion as of December 31, 2016. Petrobras dominates Brazil’s oil and
natural gas production, as well as downstream refining and marketing.
The company also holds a significant stake in petrochemicals and a
position in sugar-based ethanol production and distribution. The
Brazilian government directly and indirectly owns about 46% of
Petrobras’ outstanding capital stock and 60.5% of its voting shares.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this
announcement provides certain regulatory disclosures in relation to each
rating of a subsequently issued bond or note of the same series or
category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody’s
rating practices. For ratings issued on a support provider, this
announcement provides certain regulatory disclosures in relation to the
credit rating action on the support provider and in relation to each
particular credit rating action for securities that derive their credit
ratings from the support provider’s credit rating. For provisional
ratings, this announcement provides certain regulatory disclosures in
relation to the provisional rating assigned, and in relation to a
definitive rating that may be assigned subsequent to the final issuance
of the debt, in each case where the transaction structure and terms have
not changed prior to the assignment of the definitive rating in a manner
that would have affected the rating. For further information please see
the ratings tab on the issuer/entity page for the respective issuer on
www.moodys.com.

For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action, and
whose ratings may change as a result of this credit rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures, if
applicable to jurisdiction: Ancillary Services, Disclosure to rated
entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the
credit rating and, if applicable, the related rating outlook or rating
review.

Please see www.moodys.com for any updates on changes to the lead rating
analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.

Nymia C. Almeida
VP – Senior Credit Officer
Corporate Finance Group
Moody’s de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 – 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Marianna Waltz, CFA
MD – Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

(C) 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s
Analytics, Inc. and/or their licensors and affiliates (collectively,
“MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY’S INVESTORS SERVICE, INC. AND ITS RATINGS
AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE
CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT
OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT
COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT
RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL
OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE
EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,
INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR
PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN
MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT.
MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES
OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S
ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT
CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS
AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO
PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS
NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR
ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES
MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH
INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH
SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE
BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR
RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS
WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR
FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT
LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR
OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,
DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR
ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY
MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources
believed by it to be accurate and reliable. Because of the possibility
of human or mechanical error as well as other factors, however, all
information contained herein is provided “AS IS” without warranty of any
kind. MOODY’S adopts all necessary measures so that the information it
uses in assigning a credit rating is of sufficient quality and from
sources MOODY’S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY’S is not an auditor and
cannot in every instance independently verify or validate information
received in the rating process or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers,
employees, agents, representatives, licensors and suppliers disclaim
liability to any person or entity for any indirect, special,
consequential, or incidental losses or damages whatsoever arising from
or in connection with the information contained herein or the use of or
inability to use any such information, even if MOODY’S or any of its
directors, officers, employees, agents, representatives, licensors or
suppliers is advised in advance of the possibility of such losses or
damages, including but not limited to: (a) any loss of present or
prospective profits or (b) any loss or damage arising where the relevant
financial instrument is not the subject of a particular credit rating
assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers,
employees, agents, representatives, licensors and suppliers disclaim
liability for any direct or compensatory losses or damages caused to any
person or entity, including but not limited to by any negligence (but
excluding fraud, willful misconduct or any other type of liability that,
for the avoidance of doubt, by law cannot be excluded) on the part of,
or any contingency within or beyond the control of, MOODY’S or any of
its directors, officers, employees, agents, representatives, licensors
or suppliers, arising from or in connection with the information
contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,
COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY
MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency
subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most
issuers of debt securities (including corporate and municipal bonds,
debentures, notes and commercial paper) and preferred stock rated by
Moody’s Investors Service, Inc. have, prior to assignment of any rating,
agreed to pay to Moody’s Investors Service, Inc. for appraisal and
rating services rendered by it fees ranging from $1,500 to approximately
$2,500,000. MCO and MIS also maintain policies and procedures to address
the independence of MIS’s ratings and rating processes. Information
regarding certain affiliations that may exist between directors of MCO
and rated entities, and between entities who hold ratings from MIS and
have also publicly reported to the SEC an ownership interest in MCO of
more than 5%, is posted annually at www.moodys.com under the heading
“Investor Relations — Corporate Governance — Director and Shareholder
Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of
this document is pursuant to the Australian Financial Services License
of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003
399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105
136 972 AFSL 383569 (as applicable). This document is intended to be
provided only to “wholesale clients” within the meaning of section 761G
of the Corporations Act 2001. By continuing to access this document from
within Australia, you represent to MOODY’S that you are, or are
accessing the document as a representative of, a “wholesale client” and
that neither you nor the entity you represent will directly or
indirectly disseminate this document or its contents to “retail clients”
within the meaning of section 761G of the Corporations Act 2001. MOODY’S
credit rating is an opinion as to the creditworthiness of a debt
obligation of the issuer, not on the equity securities of the issuer or
any form of security that is available to retail investors. It would be
reckless and inappropriate for retail investors to use MOODY’S credit
ratings or publications when making an investment decision. If in doubt
you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a
wholly-owned credit rating agency subsidiary of Moody’s Group Japan
G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a
wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a
wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a
Nationally Recognized Statistical Rating Organization (“NRSRO”).
Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings.
Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO
and, consequently, the rated obligation will not qualify for certain
types of treatment under U.S. laws. MJKK and MSFJ are credit rating
agencies registered with the Japan Financial Services Agency and their
registration numbers are FSA Commissioner (Ratings) No. 2 and 3
respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt
securities (including corporate and municipal bonds, debentures, notes
and commercial paper) and preferred stock rated by MJKK or MSFJ (as
applicable) have, prior to assignment of any rating, agreed to pay to
MJKK or MSFJ (as applicable) for appraisal and rating services rendered
by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese
regulatory requirements.

-0- Apr/10/2017 17:00 GMT

Categories: Financial, Petrobras

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s