Fitch Downgrades Petrobras' IDRs to 'BB+'; Outlook Negative

NEW YORK--()--Fitch Ratings has downgraded the foreign and local currency Issuer Default Ratings (IDRs) and outstanding debt ratings for Petroleo Brasileiro S.A. (Petrobras) to 'BB+' from 'BBB-'. These rating actions affect approximately USD50 billion of issued debt, including debt issued by Petrobras International Finance Company (PIFCO), Petrobras Global Finance B.V. (PGF), and certain debt issued by Petrobras Argentina S.A., which Petrobras unconditionally and irrevocably guarantees. The Rating Outlook is Negative. A complete list of ratings follows at the end of this press release.

Fitch has downgraded the Brazilian sovereign's foreign and local currency IDRs to 'BB+' from 'BBB-' and the country ceiling to 'BBB-' from 'BBB'. The Rating Outlook for the sovereign is Negative.

Brazil's rating downgrade reflects the economy's deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government's capacity to effectively implement fiscal measures to stabilize the growing debt burden. The Negative Outlook highlights continued uncertainty and downside risks related to economic, fiscal and political developments. The deteriorating domestic backdrop is increasing challenges for the authorities to take timely corrective policy actions to support confidence and improve prospects for growth, fiscal consolidation and debt stabilization.

RATING SENSITIVITIES

A negative rating action on Petrobras could result from a downgrade of the sovereign and/or the perception of a lower linkage between Petrobras and the government.

A positive rating action on Brazil, could lead to a positive rating action on Petrobras.

The Sovereign rating sensitivities include:

--Failure to arrest the pace of increase in the government debt burden. Crystallization of material contingent liabilities would also be negative.

--A deeper and more prolonged recession which further undermines government debt dynamics and stokes political and social instability.

--Erosion of international reserves and deterioration in government debt composition.

The Rating Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a positive rating change. Future developments that could individually, or collectively, result in a stabilization of the Outlook include:

--An improvement in the political environment that is conducive to improved policy implementation and supports confidence, growth and reform prospects.

--Fiscal consolidation that leads to greater confidence in the capacity of the government to achieve debt stabilization.

--Improved investment and growth environment and a reduction in macroeconomic imbalances.

LIQUIDITY

FULL LIST OF RATING ACTIONS

Fitch downgrades the following:

Petroleo Brasileiro S.A. (Petrobras)

--Foreign currency IDR to 'BB+' from 'BBB-'; Outlook Negative;

--Local currency IDR to 'BB+' from 'BBB-'; Outlook Negative;

Petrobras International Finance Company (PIFCO)

--Foreign currency IDR to 'BB+' from 'BBB-', Outlook Negative, and simultaneously withdraws this IDR;

--International debt issuances to 'BB+' from 'BBB-'.

Petrobras Global Finance B.V. (PGF)

--Foreign currency IDR to 'BB+' from 'BBB-', Outlook Negative, and simultaneously withdraws this IDR;

--International debt issuances to 'BB+' from 'BBB-'.

Petrobras Argentina S.A.

--International debt issuances to 'BB+' from 'BBB-'.

Date of Relevant Rating Committee: December 17, 2015.

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

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996987

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996987

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Lucas Aristizabal, +1-312-368-3260
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Mauro Storino, +55-11-4504-2625
Senior Director
or
Committee Chairperson
Daniel R. Kastholm, CFA, +1-312-368-2070
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Lucas Aristizabal, +1-312-368-3260
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Mauro Storino, +55-11-4504-2625
Senior Director
or
Committee Chairperson
Daniel R. Kastholm, CFA, +1-312-368-2070
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com