Fitch Downgrades Oi S.A.'s Ratings to 'D'

CHICAGO--()--Fitch Ratings has downgraded Oi S.A.'s (Oi) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'D' from 'C'. Fitch has also downgraded the company's National Long-Term Rating and local debentures rating to 'D(bra)' from 'C(bra)'. Fitch has affirmed the existing ratings for Oi's senior notes. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The downgrades reflect Oi's filing for a request for judicial reorganization with the Court of the State of Rio de Janeiro, as disclosed by the company on June 20, 2016. The request also includes Oi's subsidiaries, Oi Movel S.A., Telemar Norte Leste S.A., Copart 4 Participacoes S.A., Copart 5 Participacoes S.A., Portgual Telecom International Finance BV, and Oi Brasil Holdings Cooperatief U.A.

Oi, beset by its debt-laden precarious capital structure and consistently negative FCF generation in recent years, was seeking to reach an agreement with its creditors for potential debt restructuring. However, the negotiation fell through and the company decided to file for judicial reorganization as an alternative for financial restructuring.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Oi include:

--Fitch believes that the court will accept Oi's filings.

RATING SENSITIVITIES

The company's ratings have reached the lowest level on Fitch's rating scale. An upgrade is unlikely at this time given the group's judicial reorganization filing.

FULL LIST OF RATING ACTIONS

Oi S.A.

--Long-Term Foreign-Currency and Local-Currency IDRs downgraded to 'D' from 'C';

--National Long-Term Rating downgraded to 'D(bra)' from 'C (bra)';

--Telemar Norte Leste, S.A.'s (Telemar) senior notes, originally due 2017, 2019, and 2020, affirmed at 'C/RR4';

--All outstanding senior unsecured notes affirmed at 'C/RR5';

--Local debentures downgraded to 'D(bra)' from 'C(bra)'.

Oi Brasil Holdings Cooperatief U.A. (Oi Netherlands)

--EUR600 million senior notes due 2021 affirmed at 'C/RR5'.

Telemar notes, rated 'C/RR4', reflect average recovery prospects in the event of default, given Telemar's position as the main cash flow generator with operating assets. Securities rated 'RR4' have characteristics consistent with securities historically recovering 31% - 50% of current principal and related interest. However, despite structural seniority compared to Oi's other unsecured notes, Fitch has low visibility as to whether these notes would be entitled to seniority under Brazil's legal system upon judicial reorganization. Oi's other senior unsecured notes, with Recovery Ratings of 'RR5', represent average recovery prospects of 11% - 30% given default.

Additional information is available on 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=1007801

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1007801

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

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Contacts

Fitch Ratings
Primary Analyst:
Alvin Lim, CFA, +1-312-368-3114
Director
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst:
Mauro Storino, +55-21-4503-2625
Senior Director
or
Committee Chairperson:
Ricardo Carvalho, +55-21-4503-2627
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Alvin Lim, CFA, +1-312-368-3114
Director
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst:
Mauro Storino, +55-21-4503-2625
Senior Director
or
Committee Chairperson:
Ricardo Carvalho, +55-21-4503-2627
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com