Fitch Takes Rating Actions on Certain Brazilian Power Companies

  Fitch Takes Rating Actions on Certain Brazilian Power Companies

Business Wire

RIO DE JANEIRO -- December 07, 2012

Fitch Ratings has taken various rating actions on certain Brazilian power
companies to reflect the impact in the companies' credit profile of their
decisions regarding the Federal Government's offer for an early renewal of
some expiring electricity concessions. Fitch considered the results highly
negative for Centrais Eletricas Brasileiras S.A. (Eletrobras) and neutral to
negative for the other affected companies.

Fitch has downgraded Eletrobras' and Furnas Centrais Eletricas S.A.'s (Furnas)
foreign and local Issuer Default Ratings (IDRs) to 'BB' from 'BBB' and their
national scale ratings to 'AA-(bra)' from 'AAA(bra)'. Fitch has also revised
the companies' Outlooks to Negative from Stable. At the same time, revised
Companhia Energetica de Minas Gerais (Cemig) and subsidiaries' Outlook to
Negative from Stable and affirmed the ratings for Companhia Paranaende de
Energia (Copel) and Companhia de Transmissao de Energia Eletrica Paulista S.A.
(CTEEP). A complete list of rating actions follows at the end of this press
release.

The Brazilian government has offered monetary compensation to companies with
concessions expiring between 2015 and 2017 to renew these concessions early in
2013 at tariffs that will generate breakeven EBITDA. 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. Eletrobras has indicated
it will not use the proceeds to repay debt. Certain other companies have
indicated they will use the government payment to repay debt and continue to
have balanced capital structures.

Eletrobras's Credit Metrics Highly Pressured

The downgrade reflects the highly negative impact on Eletrobras' credit
quality due to its decision to accept the early renewal of all of its
generation and transmission electric concessions that expire between 2015 and
2017. The Government, through its Ministry of Mines and Energy (MME) offered
approximately BRL14 billion to Eletrobras 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.

The new concessions would significantly lower revenues, which will result in
zero to negative EBITDA for Eletrobras. The upfront payment for concession
renewal compares unfavorably with the company's net adjusted debt of
approximately BRL33.4 billion and annual capital expenditures requirements of
around BRL10 billion. Eletrobras is expected to use these proceeds as well as
part of its balance sheet cash of BRL11.5 billion to fund capital
expenditures.

Fitch believes Eletrobras' proposed capital structure is unsustainable, absent
government support, based on the expected use of concession renewal proceeds
and the elimination in operating cash flow. Considering cost reductions and
additional concession renewal payments can lead to an EBITDA of up to BRL2
billion annually, leverage levels, as measured by total debt to EBITDA will
significantly increase to more than 15x, and Eletrobras will begin to burn
cash given the lack of operating cash flow and high levels of investment.

The company will not face immediate liquidity constraints with its very high
cash balances and its favorable debt maturity schedule. Nevertheless,
Eletrobras' liquidity will become pressured over time as the company spends
their cash on the development of the country's electricity infrastructure
expansion efforts. Possible access to different government development agency
funding could support the company for a period of time.

Fitch has also weakened its ratings linkage between the Government and
Eletrobras given the Government's indication that it will not support
Eletrobras either through subsidies or equity contributions. While Fitch
ultimately believes the Government will be forced to support Eletrobras over
the medium term, credit default risks are higher given the government's lack
of a clear plan to support the company. The Negative Outlook reflects the
possibility of further pressure on Eletrobras' credit quality should financial
support from the Federal Government not be forthcoming over the medium term.

In the unlikely event the company changes its strategy to significantly
downsize its balance sheet through debt repayment, improves operational cash
flow generation and sharply cuts back on its capex plan, the company could be
sustainable on a standalone basis. Separately, more concrete plans by the
government to support Eletrobras within the new cash flow dynamics of the
company would likely strengthen the ratings linkage between the government and
the company, and could improve the overall credit risk profile of the company.

Eletrobras' consolidated EBITDA, as measured by operating income plus
depreciation, for the last 12 months (LTM) ended Sept. 30, 2012 was BRL6.9
billion The rules established for the concessions renewal will result in a
significant reduction in Eletrobras'consolidated net revenues, of about BRL8.7
billion, or approximately 26% compared to the revenues reported in the LTM
ended Sept. 30, 2012. During this period, net leverage was 4.9x.

CTEEP and ISA Capital: Credit Quality Remains Strong

Companhia de Transmissao de Energia Eletrica Paulista S.A. (CTEEP)'s
acceptance to renew its concession is neutral to its credit profile,
considering the expectation that company will use its upfront payment
compensation to repay significant amount of debt. The MME offered CTEEP
approximately BRL2.9 billion as upfront payment with additional non-defined
amounts, which will likely be paid over the life of the concession period, to
renew in 2013 its concession expiring in 2015 and reduce revenues to a
breakeven level for the next 30 years.

The MME's upfront payment is greater than the company's stand-alone debt of
approximately BRL2.4 billion, which should be enough for CTEEP to repay all
its outstanding debt. The company could also upstream enough dividends to its
controlling shareholder, ISA Capital do Brasil S.A. (ISA Capital), for this
entity to repay its financial debt outstanding, excluding preferred equity, of
approximately BRL64 million. If company decides to use the upfront payment to
invest in projects and not repay debt, its credit quality would deteriorate
significantly.

CTEEP will depend on its current ongoing investments to generate more positive
cash flow in the future. MME's proposal will lower the company's revenues by
approximately BRL1.6 billion to approximately BRL1.3 billion from BRL2.9
billion, which would wipe out the company's EBITDA of BRL1.5 billion as of the
LTM ended Sept. 30, 2012.

Copel: Low Leverage to Remain

The concession renew process does not materially pressure Companhia Paranaense
de Energia (Copel)'s credit profile. The company accepted the government's
offer to renew the concessions expiring between 2015 and 2017 related to
transmission assets with lower revenues, and refused the proposal for the
generation assets.

The company will receive approximately BRL894 million as an upfront payment
and estimates additional BRL180 million to be received in installments. As a
result, EBITDA would decline by approximately 10% to 15% after the company
returns the concessions on due date. As of the LTM ended Sept. 30, 2012, Copel
reported an EBITDA of approximately BRL1.7 billion.

Fitch expects Copel's credit metrics to continue to be in line with its
assigned ratings. As of September 2012, the company's consolidated net
leverage of approximately 0.8x was considered strong for the rating category.
The company can use this proceeds to pay a portion of its BRL2.7 billion of
debt outstanding, pay dividends or reinvest in new projects without
significantly impacting its ratings.

Cemig: Operational Cash Flow Generation Negatively Impacted

The result of the renewal process will moderately pressure Companhia
Energetica de Minas Gerais (Cemig)'s EBITDA and credit metrics. Cemig has
accepted to renew the concessions expiring between 2015 and 2017 related to
transmission assets, with lower tariffs, and refused the proposal for all
generation assets. The government offered BRL285 million as an upfront payment
for the transmission assets, which compares unfavorably with the company's
total net debt of approximately BRL14.2 billion. EBITDA could decline by
approximately 25% after the company returns all the non-renewed assets on due
date.

Cemig had already indicated to the government that it would not participate in
any early renewal offer of approximately 2,542 MW of installed capacity coming
from three hydroelectric plants. The company will let these concessions expire
and is likely going to litigate the renewal of these concessions at similar
terms with the government in court.

The Negative Oulook reflects that Cemig's future credit quality will be
subject to the company's ability to quickly increase revenues and EBITDA from
new projects, reduce costs and maintain adequate liquidity from the potential
sale of assets. The distribution company, Cemig Distribuicao S.A., will have
its tariff review on 2013, which can further pressure the group's consolidated
credit metrics.

Fitch can return the ratings to Stable Outlook in case the company is able to
manage its net leverage bellow 3.0x, which was 2.5x in the LTM ended Sept. 30,
2012. Positively, the company is currently in the processes of selling some
assets to Transmissora Alianca de Energia Eletrica S.A. (Taesa) for
approximately BRL1.8 billion and the company could receive approximately BRL2
billion from the Minas Gerais Government in relation to CRC debt.

Fitch rates the various companies as follows:

Eletrobras

--Foreign Currency IDR downgraded to 'BB' from 'BBB';

--Local Currency IDR downgraded to 'BB' from 'BBB';

--National Scale rating downgraded to 'AA-(bra)' from 'AAA(bra)';

--USD1 billion senior unsecured notes due 2019 downgraded to 'BB' from 'BBB';

--USD1.75 billion senior unsecured notes due 2021 downgraded to 'BB' from
'BBB'.

The Outlook for the corporate ratings was revised to Negative from Stable.

Furnas

--Foreign Currency IDR downgraded to 'BB' from 'BBB';

--Local Currency IDR downgraded to 'BB' from 'BBB';

--National Scale rating downgraded to 'AA-(bra)' from 'AAA(bra)'.

The Outlook for the ratings was revised to Negative from Stable.

Cemig

--National Scale rating affirmed at 'AA(bra)'.

The Outlook for the rating was revised to Negative from Stable.

Cemig Distribuicao S.A.

--National Scale rating affirmed at 'AA(bra)';

--BRL250.5 million 1st debenture issuance affirmed at 'AA(bra)';

--BRL400 million 2nd debenture issuance affirmed at 'AA(bra)'.

The Outlook for the corporate rating was revised to Negative from Stable.

Cemig Geracao e Transmissao S.A.

--National Scale rating affirmed at 'AA(bra)';

--BRL1.35 billion 3rd debenture issuance affirmed at 'AA(bra)'.

The Outlook for the corporate rating was revised to Negative from Stable.

Copel

--National Scale rating affirmed at 'AA+(bra)'.

The Outlook for the rating remains Stable.

CTEEP

--National Scale rating affirmed at 'AA+(bra)' ;

--BRL548 million 1st debenture issuance affirmed at 'AA+(bra)'.

The Outlook for the corporate rating remains Stable.

ISA Capital

--Foreign Currency IDR affirmed at 'BB+';

--Local Currency IDR affirmed at 'BB+';

--National Scale rating affirmed at 'AA-(bra)';

--USD31.6 million outstanding senior secured notes due 2017 affirmed at
'BBB-'.

The Outlook for the corporate ratings remains Stable.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 08, 2012);

--'National Ratings - Methodology Update' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Lucas Aristizabal
Director
+1-312-368-3260
Fitch, Inc.
70 West Madison St.
Chicago, IL 60602
or
Mauro Storino
Senior Director
+55-21-4503-2625
or
Renata Pinho
Director
+55-11-4504-2207
or
Ricardo Carvalho
Senior Director
+55-21-4503-2627
or
Committee Chairperson
Daniel Kastholm
Managing Director
+1-312-368-2070
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com