Fitch Rates Odebrecht Finance Ltd's Proposed Notes 'BBB-'
SAO PAULO -- April 17, 2013
Fitch Ratings has assigned a 'BBB-' to Odebrecht Finance Ltd's (OFL) proposed
senior notes of BRL500 million and USD500 million due to 2018 and 2025,
respectively. The proceeds of both issuances are to refinance existing debt.
The notes are fully and irrevocably guaranteed by Construtora Norberto
Odebrecht S.A. (CNO).
Fitch currently rates CNO and OFL, and their related issuances as follows:
--Long-term foreign currency Issuer Default Rating (IDR) 'BBB-';
--Local currency IDR 'BBB-';
--Long-term national rating 'AA+(bra)'.
--Long-term foreign currency IDR 'BBB-';
--USD800 million senior guaranteed notes due April 2023 'BBB-';
--USD750 million guaranteed Perpetual Bonds 'BBB-';
--USD500 million senior guaranteed notes due April 2020 'BBB-';
--USD200 million senior guaranteed notes due April 2014 'BBB-';
--USD600 million senior guaranteed notes due June 2022 'BBB-';
--USD400 million senior guaranteed notes due June 2042 'BBB-'.
The Rating Outlook for CNO and OFL's corporate ratings is Stable.
Key Rating Drivers
CNO's investment-grade rating reflects its conservative financial profile,
good and consistent track record of operations, and its leading position in
the engineering and construction sector in Latin America. The ratings also
incorporate the company's margins resilience as demonstrated during the last
few quarters within an operating environment of increasing construction and
labor costs and project postponements. The company has also been successful in
raising funds to lengthen its comfortable debt amortization profile. Fitch
expects that CNO will continue to maintain a conservative capital structure
and strong liquidity for the next few years.
The analysis considers CNO's business risk associated with potential
volatility in backlog, revenue concentration in its main clients, and relevant
participation of contracts in riskier countries like Venezuela and Argentina.
The ratings also incorporate the financial exposure of CNO to other businesses
of the Odebrecht Group (ODB), with significant projects carrying risks
associated with the pre-operational phase. CNO is expected to continue to at
least support the activities of its sister companies - Odebrecht Participacoes
e Investimentos (OPI) and Odebrecht Energia (OE) through Odebrecht S.A.
(ultimate parent group holding), which should moderately pressure CNO's cash
flow throughout 2013. During 2012, the group has issued all the funds with
CNO's guarantee required to support OPI and OE. The leverage increase due to
equity investments in both companies is already incorporated in current
Robust Backlog And Resilient Margins
By the end of 2012, CNO's backlog of projects remained robust and equivalent
to 2.4x the company's net revenue during 2012. Negatively, 54% of the backlog
is concentrated in countries rated non-investment grade. The concentration in
the 10 largest projects, representing 46% of the backlog, is also considered
The company continues to register consistent operations growth and reported
net revenues of BRL28.7 billion during 2012, which compares positively with
BRL21.5 billion in 2011. In spite of cost-increase pressure due to rising
inflation and labor pressure, CNO managed to maintain margins that were higher
than its peer's on average. The company's adjusted EBITDA grew to BRL2.8
billion from BRL2.3 billion during this time period, with adjusted EBITDA
margin of 9.9%. Fitch expects the company to maintain its adjusted EBITDA
margin at around 10% in the next few years.
CNO has historically maintained a robust liquidity position and benefits from
a lengthened debt maturity profile. As of December 2012, cash and equivalents
were BRL7.1 billion, enough to cover CNO's short-term adjusted debt of BRL0,5
billion by 14.9x and the company's financial obligations until 2020 by 6.0x.
CNO's financial flexibility is enhanced by an unutilized USD850 million
standby credit facility and proven access to debt markets. Fitch expects CNO's
cash position to decrease by the end of 2013 to around BRL5 billion, mainly
due to transfers to support OPI's and OE's operations.
Net Leverage Should Remain Manageable
During 2012, CNO's leverage increased as the company anticipated all expected
issuances to support equity investments in OPI and OE, and to roll over part
of its debt in order to benefit from favorable market conditions. As of Dec.
31, 2012, CNO's adjusted leverage, as measured by total adjusted debt/EBITDA,
was 2.6x, while adjusted net leverage was 0.0x, in accordance with Fitch's
expectations. These two adjusted leverage ratios were, respectively, 2.2x and
(0.8x) by the end of 2011. In December 2012, the company's total adjusted debt
reached BRL7.2 billion, including BRL6.3 billion of off balance-sheet debt
guarantees, compared with adjusted debt of BRL4.9 billion, including the
BRL3.6 billion of off balance-sheet guarantees, in December 2011. Fitch
expects adjusted net leverage to remain conservative, at below 1.0x.
Cash Toward OPI and OE Investments
CNO should support OPI's and OE's high investments in the next years, based on
BRL2.2 billion raised at OFL, and guaranteed by CNO, that migrated temporarily
to CNO through an intercompany loan. Fitch expects FCF to remain highly
positive in the medium term. During 2012, the company's CFFO of BRL1.6 billion
has been sufficient to cover capital expenditures of BRL736 million, despite
being pressured with higher working capital needs, delivering a free cash flow
(FCF) of BRL887 million. These figures compares with CFFO and FCF,
respectively, of BRL4.8 billion and BRL4.3 billion in 2011
ODB Group Highly Leveraged
CNO is the main cash generator of ODB Group, which has a diversified operation
and high leverage as a result of investments in recent years. ODB's strategy
is to not provide new guarantees from CNO to affiliates that are not 100%
owned by ODB, which is an important consideration in CNO's current ratings. In
December 2012, ODB Group presented total adjusted debt/EBITDA of 6.0x, while
adjusted net debt/EBITDA was 4.3x.
Leading Position in Engineering & Construction in Latin America
CNO is a leading engineering and construction company in Latin America and is
part of the Odebrecht Group, which is one of the four largest Brazilian
private groups. The company's backlog has been solid and resilient during the
global economic crisis. As of Dec. 31, 2012, CNO's backlog was USD33.7
billion, a 4% increase from USD32.3 billion in December 2011.
The ratings could be affected positively by an expansion of CNO's business in
investment-grade countries and by the start-up of important projects under ODB
Group that will improve consolidated credit metrics and lower potential
support needed from CNO. CNO and OFL's ratings could be negatively affected by
a substantial reduction of backlog and/or cancellation of projects. A weaker
liquidity position or higher leverage level could also result in a negative
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2012);
--'National Ratings Methodology Update' (Jan. 19, 2011).
Applicable Criteria and Related Research
Corporate Rating Methodology
National Ratings Criteria
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