Fitch Rates Reopening of Odebrecht Finance Ltd.'s Senior Notes 'BBB-'

RIO DE JANEIRO--(BUSINESS WIRE)--Odebrecht Finance Ltd (OFL) has announced the reopening of its senior notes due in 2023. The reopening will carry the same rating as the original deal of 'BBB-'. Proceeds from the add-on issuance of USD300 million senior notes will finance general corporate purposes and equity investments in OPI and Odebrecht Energia during 2012.

The notes are unconditionally guaranteed by Construtora Norberto Odebrecht S.A. (CNO) and the guarantee is ranked pari passu with other senior guaranteed notes of OFL.

Fitch currently rates CNO and OFL and related issuances as follows:

CNO

--Long-term foreign currency IDR 'BBB-';

--Local currency IDR 'BBB-';

--Long-term national Scale rating 'AA+(bra)'.

OFL

--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-';

--Two senior guaranteed notes of USD200 million each due October 2017 'BBB-'.

The Rating Outlooks for CNO and OFL are Stable.

CNO's investment grade ratings reflect its conservative financial profile, excellent track record of operations and leading position in the engineering and construction sector in Latin America. The ratings incorporate the growth of its cash flow and backlog of projects along with the company's continued strong credit metrics. The ratings build in an expectation that CNO will continue to maintain a conservative capital structure and strong liquidity as it develops these projects. The leverage increase due to equity investments in OPI and Odebrecht Energia is already incorporated in current ratings. Fitch's forecast for projected GDP growth in Brazil during 2011 of 3.6% and during 2012 of 3.7% bodes well for the company and has also been factored into the ratings.

The 'BBB-' foreign currency IDR of OFL has been directly linked to that of CNO. Also, the debt issued by OFL has been unconditionally joint and severally guaranteed by CNO.

Leading Position in Engineering and Construction Sector 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 5 largest Brazilian private groups. The company's backlog has been solid and resilient to the global economic crisis. These projects benefit from their social and economic relevance to the respective countries. As of Sept. 30, 2011, CNO's backlog was USD33.0 billion, a 40% increase from Sept. 30, 2010. Approximately 44% of the backlog is related to projects in countries rated investment grade, with Brazil accounting for 39% of the total portfolio of projects. The recent unrest that occurred in the Middle East and North Africa (MENA) region is not expected to materially affect the company's activities and cash flow, as the operations in this region represent less than 1% of the company's total backlog.

Robust Liquidity:

CNO has a conservative financial strategy and has historically maintained a strong liquidity position. As of September 30, 2011, the company had BRL3.2 billion of cash and marketable securities and had total adjusted debt of BRL4.4 billion, including BRL3.1 billion of off-balance-sheet debt guarantees. CNO's cash position covers its short-term debt obligations of BRL757 million by 4.3 times (x). The company's financial flexibility is enhanced by an un-utilized USD500 million standby credit facility that matures during February 2013. CNO's liquidity also benefits from the company's strong access to debt markets.

Leverage Should Remain Manageable Within the Next Few Years:

CNO has also historically maintained low leverage. As of Sept. 30, 2011, leverage, as measured by total adjusted debt-to-EBITDA, was 2.0x, while net leverage was 0.6x. This low level of leverage is considered appropriate for highly cyclical and volatile industries such as heavy construction. In spite of increasing leverage trend, Fitch expects leverage to remain low, around 1.0x on net basis.

OPI Investments:

CNO should continue to support OPI's and Odebrecht Energia's activities. These companies' main investments include an indirect participation of 17.6% in the concessionaire Santo Antonio Energia, which is responsible for the construction and operation of UHE Santo Antonio. OPI also is responsible for the enlargement and operations of toll roads in Colombia (Ruta Del Sol S.A.S. - 37%), Peru (IIRSA Norte - 83% and IIRSA Sul - 70%) and Panama (Madden Collon S.A. - 100%). OPI is also developing two arena projects in Brazil for the World Cup in 2014. The ODB Group intends to increase OPI's and Odebrecht Energia's capital between 2011 and 2012, with part of the funds coming from CNO. Part of this total amount was already disbursed by CNO during the first half of 2011. In the near- to medium-term, CNO will benefit from new projects originated by OPI activities.

Resilient Backlog and Increased Operations in Brazil to Sustain

Revenue Growth:

CNO's net revenues were BRL19.4 billion during the latest 12 months (LTM) ended September 30, 2011. This figure is similar to the BRL16.2 billion in revenue generated in 2010. CNO's EBITDA grew to BRL2.2 billion from BRL1.9 billion during this time period. Fitch expects the company to maintain EBITDA margins of about 11%, which is higher than the Brazilian industry average. The company is facing some cost increase pressure due to rising inflation and the shortage of skilled labor in Brazil.

Potential Ratings and Outlook Drivers

The ratings could be positively affected by an expansion of CNO's business in investment grade countries. CNO and OFL's ratings could be negatively affected by a substantial reduction of backlog and/or the cancellation of key projects. A weaker liquidity position or higher leverage level could also result in a negative rating action

Additional information is available at 'www.fitchratings.com' or 'www.fitchratings.com.br'. 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. 12, 2011);

--'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=647229

National Ratings Criteria

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

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