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Brazil’s Rede Energia Cut to Restricted Default by Fitch

Rede Energia SA’s credit rating was cut to restricted default by Fitch Ratings after the utility extended interest payments and reserved the right to repay debt with equity from its units in a restructuring of local bonds.

Rede Energia’s local- and foreign-currency issuer default ratings and long-term national scale rating were cut one level, Fitch said today in a statement. The company’s dollar-denominated perpetual bonds and real-denominated bonds due 2014 maintain their C rating, Fitch said.

“This significant change in contractual terms characterizes a restricted default,” Renata Pinho, an analyst at Fitch in Sao Paulo, said in a phone interview. “It was probably done to avoid an inevitable default.”

Rede Energia, a holding company that controls power distributors, is seeking to ease its debt burden after its Centrais Eletricas do Para SA unit filed for bankruptcy and defaulted on dollar bonds in February. Creditors holding Rede Energia’s bonds due in 2014 approved a restructuring this month that allows the Brazilian company to repay the securities with shares from its units and extend the maturity by 18 months.

The notes will be repaid by June 2016 after six principal payments are made beginning in December 2013, according to the minutes of a June 5 bondholder meeting.

Rede Energia’s perpetual bonds gained 0.3 cent to 38.25 cents on the dollar at 5:15 p.m. in New York, according to data compiled by Bloomberg.

A Rede Energia spokeswoman declined a request for comment.

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