Fitch Revises Outlook on Brazilian Subnationals to Negative on Sovereign Revision

SAO PAULO--()--Fitch Ratings has revised the Rating Outlook to Negative from Stable for the following issuers:

--State of Sao Paulo (Sao Paulo)

--State of Rio de Janeiro (ERio)

--State of Santa Catarina (Santa Catarina)

--State of Maranhao (Maranhao)

--City of Rio de Janeiro (CRio)

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

KEY RATING DRIVERS - IDRS

The rating actions follow the recent revision of the Outlook of Brazil's sovereign ratings to Negative from Stable (see 'Fitch Revises Brazil's Rating Outlook to Negative; Affirms IDRs at 'BBB'', dated April 9, 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 for Sao Paulo and CRio, whose ratings are currently equalized with the sovereign at 'BBB'.

In Fitch's opinion, ERio's ratings are under pressure given its above average reliance on oil related activities thus leveraging on the implicit debt support Fitch believes the state should receive from the Brazilian Federal Government in case of need.

For Santa Catarina, the Negative Outlook reflects the weakening of the implicit debt support the state should receive from the Federal Government in case of need. The Federal Government remains the state's main creditor, corresponding to 68.5% of the state's total debt in 2014. For the case of Maranhao, there is above average reliance on federal transfers, corresponding to more than 50% of the state's operating revenues in 2014.

RATING SENSITIVITIES - IDRS and NATIONAL RATINGS

The Outlook revision for these subnationals reflects the potential for them to be downgraded should Brazil's sovereign ratings be downgraded.

Sao Paulo, ERio, Santa Catarina, Maranhao and CRio's IDRs should move in tandem with Brazil's sovereign ratings. They would be affected by further changes in the sovereign's 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 in case of need.

Fitch has taken the following rating actions:

State of Sao Paulo

--Long-term Foreign and Local Currency IDRs affirmed at 'BBB', Outlook revised to Negative from Stable;

--Short-term Foreign and Local Currency IDRs affirmed at 'F2';

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

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

State of Rio de Janeiro

--Long-term Foreign and Local Currency IDRs affirmed at 'BBB-', Outlook revised to Negative from Stable;

--Short-term Foreign and Local Currency IDRs affirmed at 'F3';

--National Long-term Rating unchanged at 'AA-(bra)', Outlook Stable;

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

State of Santa Catarina

--Long-term Foreign and Local Currency IDRs affirmed at 'BBB-', Outlook revised to Negative from Stable;

--Short-term Foreign and Local Currency IDRs affirmed at 'F3';

--National Long-term Rating unchanged at 'AA-(bra)', Outlook Stable;

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

State of Maranhao

--Long-term Foreign and Local Currency IDRs affirmed at 'BB+', Outlook revised to Negative from Stable;

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

--National Long-term Rating unchanged at 'AA-(bra)', Outlook Stable;

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

City of Rio de Janeiro

--Long-term Foreign and Local Currency IDRs affirmed at 'BBB', Outlook revised to Negative from Stable;

--Short-term Foreign and Local Currency IDRs affirmed at 'F2';

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

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

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

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (August 2012);

--'International Local and Regional Governments Rating Criteria' (April 2014);

--'National Ratings Criteria' (October 2013).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

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

International Local and Regional Governments Rating Criteria - Outside the United States

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719656

National Scale Ratings Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982916

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.

Contacts

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
Committee Chairperson
Humberto Panti
Senior Director
+52 (81) 8399 9152
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

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
Committee Chairperson
Humberto Panti
Senior Director
+52 (81) 8399 9152
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com