SAO PAULO & BOGOTA, Colombia--(BUSINESS WIRE)--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
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