Fitch Places State of Rio de Janeiro's Ratings on Negative Watch

SAO PAULO & BOGOTA, Colombia--()--Fitch Ratings has placed the State of Rio de Janeiro's ratings on Rating Watch Negative. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The placement of Rio de Janeiro's (Rio) ratings on Negative Watch reflects a fast deteriorating liquidity position that may lead to further delays in debt services. Fitch believes this event to be incompatible with the current ratings assigned to the state.

Earlier this week, Rio missed a USD8 million worth of debt service payment owed to a foreign creditor. As of December 2015, total external debt of the state totalled the equivalent of BRL14.3 billion (USD4.1 billion).

Fitch notes that all the external debt is fully guaranteed by the federal government. This guarantee includes the defaulted portion. Fitch expects the federal government payment within the grace period defined in these types of external contracts.

Fitch will thoroughly study the state's liquidity position and fiscal performance in the coming weeks and will likely downgrade the state by one or more notches.

RATING SENSITIVITIES

A downgrade of one or more notches of Rio's ratings is expected over the short term. Fitch does not anticipate affirming the ratings unless liquidity and fiscal positions demonstrate significant improvement.

KEY ASSUMPTIONS

The ratings and Outlooks are sensitive to following assumptions:

--Fitch assumes a strong level of sovereign support for the Brazilian States such as Rio given that their most relevant creditor is the federal government;

--Fitch assumes that any political transition to a new government during the impeachment process will be smooth and peaceful. However, some delays will occur in the implementation of the government's legislative agenda, especially as it concerns subnationals.

Fitch places the following ratings on Rating Watch Negative:

State of Rio de Janeiro:

--Long-Term Foreign and Local Currency IDRs B+;

--Short-Term Foreign- and Local-Currency IDRs B;

--National Long-Term Rating 'A-(bra)';

--Short-Term National Long-Term Rating 'F1(bra)'.

Date of Relevant Rating Committee: May 09, 2016

Additional information is available on www.fitchratings.com

Applicable Criteria

International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878660

National Scale Ratings Criteria (pub. 30 Oct 2013)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Additional Disclosures

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005108

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.

Contacts

Fitch Ratings
Paulo Fugulin, +55 11 4504-2206
Director
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, Brazil
or
Carlos Ramirez, 571 307-5180 ext.1240
Senior Director
or
Committee Chairperson
Humberto Panti, +52 81 8399-9132
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Paulo Fugulin, +55 11 4504-2206
Director
Fitch Rating Brasil Ltda.
Alameda Santos 700
Sao Paulo, Brazil
or
Carlos Ramirez, 571 307-5180 ext.1240
Senior Director
or
Committee Chairperson
Humberto Panti, +52 81 8399-9132
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com