Fitch Affirms Eletrobras and Furnas' IDRs at 'BB'; Outlook Negative

  Fitch Affirms Eletrobras and Furnas' IDRs at 'BB'; Outlook Negative

Business Wire

SAO PAULO -- December 6, 2013

Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) of Centrais
Eletricas Brasileiras S.A. (Eletrobras) and its wholly owned subsidiary,
Furnas Centrais Eletricas S.A. (Furnas) at 'BB'. The Rating Outlook is
Negative. See the complete list of rating actions at the end of this release.

Key Rating Drivers

Eletrobras' IDRs reflect the severe negative impact on its cash generation as
a result of the early renewal of its electric concessions which were initially
scheduled to expire between 2015 and 2017. The company accepted the Ministerio
das Minas e Energia (MME) offering for all those concessions to anticipate the
renewal for a 30-year period starting at the beginning of 2013 with a sharp
decline in revenues and an initial compensation of BRL14 billion. Credit
metrics are high for the rating category due to negative EBITDA, while
significant capital expenditures (capex) should continue to pressure free cash
flow (FCF) in the next few years. Positively, Eletrobras has a strong
liquidity position and an extended debt maturity profile.

Eletrobras is exposed to political interference risks given its status as an
entity controlled by the Brazilian government. The Brazilian government can
use the company to help it achieve certain macroeconomic and social objectives
through price controls and/or subsidies and as manager of sector funds.
Eletrobras is important to the country because of its market share in
electricity generation, transmission and distribution, and strong presence in
the auctions promoted by the government to reinforce the electric sector in
the country. Regulatory risk for the power sector is considered moderate in
Brazil.

Furnas' ratings are linked with its parent company (Eletrobras). Furnas is one
of Eletrobras' largest subsidiaries, representing approximately 24% of the
group's installed generation capacity and 32% of its transmission coverage in
kilometers. Eletrobras has a centralized cash management policy and is the
primary funding provider for Furnas. Furthermore, Eletrobras sets the
company's strategic targets, such as corporate governance standards and
investment plans.

The Negative Outlook reflects Eletrobras' need to continue reducing costs and
add new cash generation, as the group's current capital structure is not
sustainable in the long term. The company had already implemented cost
reduction measures, mainly linked with personnel expenses, with an estimated
impact of BRL1 billion on its EBITDA in 2014.

Operational Cash Generation Still Weak

The anticipated renewal of several concessions highly reduced the group's
EBITDA and had a negative impact on its credit profile. Eletrobras was the
company most exposed to concession renewal rules established by the Federal
Government through the MME, which affected approximately 93% and one-third of
its cash flow generated by its transmission and electricity generation
businesses, respectively. In the first nine months of 2013, consolidated net
revenues of BRL18.5 billion, excluding construction revenues, and negative
EBITDA of BRL618 million compared unfavorably with BRL21.9 billion and BRL4.6
billion presented at the same time in 2012. Until September 2013, EBITDA is
negatively pressured by non-recurring items in the net amount of BRL652
million. On a recurring basis, EBITDA would be BRL34 million.

Eletrobras has the challenge to reduce costs and eliminate inefficiencies in
the coming years. This will be crucial to reinforce its cash flow generation.
The group is in the process of reducing its workforce by more than 4,000
employees before year end 2013 and has two other initiatives to identify
further potential gains in its operations and to define the best measures to
be implemented in the distribution business. Eletrobras' six distribution
subsidiaries generated negative EBITDA of BRL221 million in the first nine
months of 2013. Elections scheduled for the second half of 2014 can delay the
implementation of such measures.

Aggressive Capex Program Should Pressure FCF

The adequate management of Eletrobras' ambitious investment program over the
next few years while obtaining further operational efficiency in its existing
assets continues to be challenging. Eletrobras' FCF generation is expected to
remain negative, mainly as a result of high capex to support its expansion
plans and the country's growing energy infrastructure needs. Eletrobras has
announced a capex program of BRL53 billion for 2013-2017, which the company
expects to finance with 70% project finance debt and 30% equity contribution.
Considering that Eletrobras will hold close to 50% of the future projects,
additional equity contribution is approximately BRL5 billion.

In the first nine months of 2013, cash flow from operations (CFFO), excluding
the non-recurring BRL8.8 billion received as part of the initial compensation
for the early concessions renewal, was negative BRL102 million due to lower
revenues. Capex and equity contributions of BRL6.7 billion and dividend payout
of BRL4.2 billion resulted in a pro forma negative FCF of BRL10.9 billion.
Dividends are expected to be low in the next two years.

High Leverage; Debt Guarantees from Government Positive

Fitch expects Eletrobras' leverage to remain high for the rating category in
the medium term even if the company successfully reduces its operating costs
as planned. As per Fitch criteria, as of Sept. 30, 2013, Eletrobras'
consolidated leverage, as measured by total adjusted debt (excluding Reserva
Global de Reversao (RGR)) to recurring EBITDA and net adjusted debt to
recurring EBITDA, were very high at 615x and 359x, respectively. The recurring
EBITDA of BRL45 million used for the credit metrics calculations is based on
the annualized recurring EBITDA for the first nine months of the year, as it
better reflects the new cash generation capacity after the concession
renewals. Considering an EBITDA of BRL2.5 billion in 2014, gross leverage
would reduce to around 12x and net leverage to 8x.

Positively, the Federal Government guaranteed BRL2 billion of Eletrobras' debt
with Banco Nacional de Desenvolvimento Economico e Social (BNDES) at the end
of the third quarter of 2013. This shows the government's willingness to
continue providing support to the group. As of Sept. 30, 2013, total adjusted
debt excluding RGR amounted to BRL27.7 billion. The debt was mainly composed
of loans from BNDES (BRL7.2 billion) and international bonds (BRL7.0 billion).
Approximately 39% of Eletrobras' consolidated debt is foreign-currency
denominated, with the exchange risk somewhat mitigated by USD-denominated
revenues.

Manageable Debt Maturity Profile and Strong Liquidity

Eletrobras' risk profile benefits from a robust liquidity position and
extended debt maturity schedule. As of Sept. 30, 2013, the consolidated cash
and marketable securities amounted to BRL11.5 billion, which compares
favorably to BRL2.1 billion of consolidated short-term debt. Approximately
BRL4 billion of its cash position was allocated to the holding company, which
was enough to cover its short-term debt of BRL1 billion by 3.9x. Eletrobras'
liquidity can be reinforced by an additional BRL12 billion compensation for
the early renewal of the transmission concessions to be received over 30
years. Eletrobras has the possibility of anticipating this receivable through
a future flow securitization transaction.

High Importance to Brazil

Eletrobras has a strong position as the largest electricity generation and
transmission company in Brazil, representing approximately 34% of installed
generation capacity and around 52% of transmission lines as of Sept 30, 2013.
Its size and active presence in the most relevant energy projects under
construction in Brazil makes it strategically important to the country's
economy and development.

Rating Sensitivities

A negative rating action could result from the company's failure to achieve a
more solid financial profile, coupled with a weakening in its liquidity
position and any evidence of additional financial support from the Federal
Government.

The Brazilian government's continuous support to Eletrobras through future
debt guarantees or direct capital injections would strengthen the linkage
between the group and the Federal Republic of Brazil and lead to a revision of
the Outlook to Stable or a potential upgrade of the IDRs. The sustainable
recovery of the group's operational cash flow generation and more robust
credit metrics could also positively affect the ratings.

Fitch has affirmed the following ratings:

Eletrobras

- Foreign Currency IDR at 'BB';

- Local Currency IDR at 'BB';

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

- USD1 billion senior unsecured notes due 2019 at 'BB';

- USD1.75 billion senior unsecured notes due 2021 at 'BB'.

Furnas

- Foreign Currency IDR at 'BB';

- Local Currency IDR at 'BB';

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

The Rating Outlook is Negative.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 5, 2013.

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

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http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=810965

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Contact:

Fitch Ratings
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Mauro Storino
Senior Director
+55-21-4503-2625
Fitch Ratings Brasil Ltda., Praca XV de Novembro, 20 - Sala 401 B - Centro -
Rio de Janeiro - RJ - CEP: 20010-010
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