Fitch Downgrades Seven Brazilian Subnationals; Outlooks Negative

SAO PAULO & RIO DE JANEIRO--(BUSINESS WIRE)-- Fitch Ratings has downgraded the State of Sao Paulo, Santa Catarina and Parana's Issuer Default Rating (IDR) to 'BB+' from 'BBB-'. Fitch has also downgraded the ratings for the cities of Sao Paulo and Rio de Janeiro to 'BB+' from 'BBB-'. In addition, Fitch has downgraded the IDRs for Maranhao and State of Rio de Janeiro to 'BB-' from 'BB'. The Rating Outlooks Remain Negative.

Fitch has revised the national scale ratings of the states of Santa Catarina, Maranhao and Rio de Janeiro to maintain the consistency of ratings relativities.

A full list of actions follows at the end of this release.

KEY RATING DRIVERS - IDRs

The rating actions follow the recent downgrade of Brazil's ratings to 'BB+' from 'BBB-'(see "Fitch Downgrades Brazil to 'BB+'; Outlook Negative", dated Dec. 16, 2015 at www.fitchratings.com). Considering the features of the Brazilian institutional framework, Fitch does not believe any subnational entity to be rated higher than the sovereign. This is the case of Sao Paulo (state and city), the city of Rio de Janeiro, Parana and Santa Catarina, whose ratings were equalized with the sovereign at 'BB+'.

For Maranhao, there is above average reliance on federal transfers, corresponding to more than 50% of the state's operating revenues in 2014. The State of Rio's ratings downgrade reflects its relatively higher reliance on oil related activities. Since State of Rio is short on oil royalties given the historical low oil prices, Fitch believes the state will further leverage on the implicit support from the Brazilian Federal Government when it comes to the federal debt portion payment.

RATING SENSITIVITIES - IDRs

The IDRs of the seven Brazilian subnationals should move in tandem with Brazil's sovereign ratings. They would be affected by further changes in the sovereign ratings or Outlooks and/or in the government's willingness to provide support. Nevertheless, Fitch does not expect a change in the government's willingness to provide support for subnational debt if needed.

KEY ASSUMPTIONS

The ratings and Outlooks are sensitive to these assumptions:

--Fitch assumes a strong level of sovereign support for the Brazilian States and large cities given that their most relevant creditor is the Federal Government. Fitch's base case does not assume a severe change in the subnationals' key structural features.

--Fitch assumes that Brazil maintains international and domestic market access even if there is return of higher international financial volatility and further domestic confidence shocks.

--Fitch assumes that political uncertainty will continue to hamper progress on the government's legislative agenda specially the ones affecting subnationals.

Fitch takes the following actions:

State of Sao Paulo:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB+' from 'BBB-'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs downgraded to 'B' from 'F3';

--National Long-term Rating affirmed at 'AA+(bra)'; Outlook Stable;

--National Short-term Rating affirmed at 'F1+(bra)'.

City of Sao Paulo:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB+' from 'BBB-'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs downgraded to 'B' from 'F3';

--National Long-term Rating affirmed at 'AA+(bra)'; Outlook Stable;

--National Short-term Rating affirmed at 'F1+(bra)'.

City of Rio de Janeiro:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB+' from 'BBB-'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs downgraded to 'B' from 'F3';

--National Long-term Rating affirmed at 'AA+(bra)'; Outlook Stable;

--National Short-term Rating affirmed at 'F1+(bra)'.

State of Santa Catarina:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB+' from 'BBB-'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs downgraded to 'B' from 'F3';

--National Long-term Rating upgraded to 'AA(bra)' from 'AA-(bra)'; Outlook Stable;

--National Short-term Rating affirmed at 'F1+(bra)'.

State of Parana:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB+' from 'BBB-'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs downgraded to 'B' from 'F3';

--National Long-term Rating affirmed at 'AA(bra)'; Negative Outlook;

--National Short-term Rating affirmed at 'F1+(bra)'.

State of Maranhao:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB-' from 'BB'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs affirmed at 'B';

--National Long-term Rating downgraded to 'A+(bra)' from 'AA-(bra)'; Outlook Stable;

--National Short-term Rating downgraded to 'F1(bra)' from 'F1+(bra)'.

State of Rio de Janeiro:

--Long-term Foreign and Local Currency IDRs downgraded to 'BB-' from 'BB'; Outlook Negative;

--Short-term Foreign and Local Currency IDRs affirmed at 'B';

--National Long-term Rating downgraded to 'A(bra)' from 'A+(bra)'; Outlook Stable;

--National Short-term Rating affirmed at 'F1(bra)'.

Additional information is available on www.fitchratings.com

Applicable Criteria

International Local and Regional Governments Rating Criteria (pub. 18 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865254

National Scale Ratings Criteria (pub. 30 Oct 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997230

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997230

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151222005739/en/

Fitch Ratings
Paulo Fugulin
Director
+55 11 4504-2206
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, Brazil
or
Carlos Ramirez
Senior Director
571 307-5180 ext. 1240
or
Martha Gonzalez
Associate Director
+52 81 8399-9132
or
Committee Chairperson
Christophe Parisot
Managing Director
+ 33 1 44 29 91 34
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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