Fitch Revises Itaipu's Outlook to Negative; Affirms IDRs at 'BBB'

SAO PAULO--()--Fitch Ratings has revised the Rating Outlook for Itaipu Binacional (Itaipu)'s Long-term foreign and local currency Issuer Default Ratings (IDRs), as well as the company's Long-term national scale rating to Negative from Stable. Additionally, Fitch has affirmed Itaipu's Long-term foreign and local currency IDRs at 'BBB' and Long-term national rating at 'AAA(bra)'.

KEY RATING DRIVERS

Itaipu's ratings Outlook revision reflects its strong credit profile linkage with the Federative Republic of Brazil (Long-term IDR 'BBB'), whose Outlook was revised to Negative from Stable. Brazil has been historically responsible for the acquisition of 90% to 94% of the energy produced by Itaipu and guarantees, through the National Treasury, nearly all the company's debt. These characteristics reduce Itaipu's exposure to the weaker sovereign risk of the Federative Republic of Paraguay (Long-term IDR 'BB-', Outlook Positive). Brazil and Paraguay equally divide the shareholder control of Itaipu.

The ratings also incorporate Itaipu's adequate liquidity position and cash flow predictability, resulting from the Itaipu Treaty signed between Brazil and Paraguay. This Treaty actually defines the annual tariff as sufficient to cover all operating and maintenance costs, capital expenditures, financial obligations, and has a true-up mechanism to adjust for possible mismatches to be recovered or give backs in the following year; the tariff is in dollars. Itaipu is strategically important for both countries, with the company supplying approximately 17% of the demand for energy in Brazil and 75% of the demand in Paraguay; it has an excellent track record of operating efficiency.

RATING SENSITIVITIES

Future rating actions, either positive or negative, will be highly correlated to the sovereign rating of the Federative Republic of Brazil or negative amendments to the bi-lateral treaty.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982859

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Contacts

Fitch Ratings
Primary Analyst
Adriane Silva
Associate Director
+55-11-4504-2205
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor - Cerqueira Cesar
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Mauro Storino
Senior Director
+55-21-4503-2625
or
Committee Chairperson
Ricardo Carvalho
Senior Director
+55-21-4503-2627
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Adriane Silva
Associate Director
+55-11-4504-2205
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7th floor - Cerqueira Cesar
Sao Paulo - SP - CEP: 01418-100
or
Secondary Analyst
Mauro Storino
Senior Director
+55-21-4503-2625
or
Committee Chairperson
Ricardo Carvalho
Senior Director
+55-21-4503-2627
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com