Fitch Upgrades Camargo Correa's IDRs to 'BB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has upgraded the foreign and local currency Issuer Default Ratings (IDRs) and outstanding debt ratings of Brazilian Conglomerate Camargo Correa S.A. (Camargo) as follows:

Camargo:

--Foreign Currency IDR to 'BB+' from 'BB-';

--Local Currency IDR to 'BB+' from 'BB-';

--National Scale rating to 'AA(bra)' from 'A+(bra)';

--BR300 million Debentures Series 1 (due 2012) to 'AA(bra)' from 'A+(bra)';

--BR700 million Debentures Series 2 (due 2014) to 'AA(bra)' from 'A+(bra)';

--National Short-term credit rating to 'F1+(bra)' from 'F1(bra)';

--BRL3 billion commercial paper (CP) second issuance to 'F1+(bra)' from 'F1(bra)'.

CCSA Finance Limited:

--US$250 million senior unsecured bonds due 2016 upgraded to 'BB+' from 'BB-'.

Fitch has also assigned foreign and local currency Issuer Default Ratings (IDRs)to CCSA Finance Limited at 'BB+'.

CCSA Finance Limited is wholly-owned by Camargo and incorporated in the Cayman Islands. Camargo unconditionally guarantees CCSA Finance Limited's debt.

The Rating Outlook is Stable

The rating upgrade reflects Camargo's decision to execute the disposal of a 4.5% stake in Itausa for BRL2.7 billion. Recently completed, the disposal should strengthen the group's balance sheet and liquidity. Itausa is the holding company that controls Itau Unibanco, Brazil's largest non-government bank. Proceeds from the transaction will support the pay-off of Camargo's BRL3 billion in commercial paper, due in March 2011. Also incorporated in the rating upgrade is Camargo's commitment to complete additional assets disposals for a total amount of BRL840 million during the first six months of 2011. Camargo's decision to sell assets no related to its core businesses (cement, construction, energy, and transport concessions) is seen as a positive as it reflects the company's business strategy to grow organically.

Camargo's credit ratings consider the company's diversified portfolio of operations, solid market position in the industries in which it participates, positive outlook for its core businesses; and adequate liquidity. Camargo's credit ratings also incorporate the structural subordination of the parent company debt to the debt at its operating companies. Camargo relies on dividends, interest and principal payments from operating subsidiaries to service its debt. Approximately 50% of the dividends received are from companies non-fully controlled by Camargo.

The Stable Outlook reflects Fitch's expectations that Camargo - on stand alone and consolidated basis - will improve its liquidity and capital structure during 2011 as a result of continued improving operational performance in its core businesses, sustained levels of received dividends, and the management's commitment to complete additional assets disposal. Also factored in the Stable Outlook is the expectation that Camargo's business strategy will focus on organic growth during 2011, the occurrence of a significant debt-funded transaction affecting the company's capital structure and liquidity is not expected in the near term.

On a Consolidated Basis, Business Expected to Grow 15% and Net Leverage to Remains Stable around 3.0x in 2011:

Camargo's consolidated revenue for the last twelve months (LTM) ended June 30, 2010 was BR16.7 billion, an increase of 6% over the company's revenue in 2009. Camargo's consolidated EBITDA for the LTM ended in June 2010 was BR3.5 billion, which compares positively with the company's EBITDA levels of BRL3.1 billion and BRL2.9 billion during 2009 and 2008, respectively. The ratings incorporate the expectation Camargo's EBITDA for 2010 would be around BRL3.3 billion, supported primarily by the cement, construction, energy concessions, and highway concessions businesses with participations that together would represent approximately 80% of the company's consolidated EBITDA. During 2011, Fitch expects Camargo's consolidated revenue and EBITDA to reach growth rates of around 15%, with EBITDA margins in the 18%-20% range.

As of June 30, 2010, Camargo had BRL15.8 billion of gross debt, an increase from BRL10.8 billion at Dec. 31, 2009. Camargo's debt consists of BRL10.7 billion of bank loans, BRL4.7 billion of debentures, and BRL539 million in debt related to acquisitions. By the end of June 2010, the company's cash position was BRL3.7 billion, resulting in Camargo's net debt of BRL12.1 billion. On a proforma basis, taking in consideration assets disposal taking place, the ratings incorporate the view that the group's consolidated net debt will decline to levels around BRL11 billion, while maintaining similar level of cash. This will result in a net leverage ratio in the 2.75x to 3.00x range for 2011.

On a Stand-Alone Basis, Business Deleverage and Improved Liquidity Expected in 2011:

The ratings factor in the expectation that Camargo's net debt at the holding level will significantly decline during 2011 as cash flow from assets disposal. Received dividends will be primarily oriented to payoff Camargo's debt and strengthen its cash position. As of June 30, 2010, Camargo had BRL6.4 billion of gross debt, an increase from BRL2.5 billion at Dec. 31, 2009. Camargo's cash position was BRL195 million by the end of June 2010, resulting in net debt of BRL6.2 billion. Including cash position of approximately BRL500 million kept by Camargo's non-operating offshore subsidiaries, the company's net debt would be approximately BRL5.7 billion. Camargo's debt consists primarily of bank loans, debentures, and obligations for acquisitions. Assets disposal to occur during 2011 are expected to generate proceeds of BRL3.5 billion, BRL2.7 billion from the sale of 4.5% Stake in Itausa (transaction completed in January 2011) and approximately BRL840 million from the sale of other assets, while Camargo's dividend inflow from subsidiaries is expected to be around BRL1.1 billion each year in 2010 and 2011, respectively. With these proceeds, Camargo's gross leverage and cash (including cash held in non-operating offshore companies) are expected to be around BRL5.7 billion and BRL1.2 billion by the end of December 2011, resulting in a net debt of approximately BRL3.5 billion.

On a stand-alone basis, Fitch views Camargo's net leverage in terms of operational flow over net debt. Camargo's operational flow for 2011 is expected to be around BRL4.5 billion, which included assets disposal (BRL3.5 billion), received dividends (BRL1.1 billion), and other operating expenses (BRL120 million). Camargo's net leverage is expected to be around 0.78x by the end of 2011. Also incorporated in the ratings is the view that the assets disposal is a one-time event. In the medium term - in a normalized scenario excluding assets disposal - Camargo's net leverage should be more related to its ability to received stable levels of dividends from subsidiaries. In that sense, Fitch expects to see a net debt/received dividends ratio around 2.5x during 2011-2012 period.

Ratings Supported by Cement and Construction Businesses' Solid Credit Profiles:

The ratings incorporated the solid credit profile of Camargo's fully controlled Camargo Correa Cimentos S.A. (Camargo Cimentos) and Construcoes e Comercio Camargo Correa S.A. (CCCCSA). These two companies combined represent the main source of dividend inflow from Camargo's fully controlled subsidiaries, with approximately BRL400 million in distributed dividends in 2010, and with expected annual level of distributed dividends to be around BRL300 during the next two years ended by December 2012.

Camargo Cimentos's operational performance during the last 12 month (LTM) period ended June 30, 2010 is solid and reflects its important 10% and 45% market share in the Brazilian and Argentinean markets, respectively. Fitch views Camargo Cimentos' market position solid and sustainable in the medium term supported by the company's brand recognition (Caue and Loma Negra brands) and scale of operations, with approximately 12 million cement tons sold per year. During the LTM June 2010, Camargo Cimentos' consolidated EBITDA and EBITDA margins were BRL602 million and 24.4%, respectively. By the end of June 2010, the company's total cash and debt were BRL398 million and BRL1.3 billion, respectively. Net leverage, measured by the Net Debt / EBITDA ratio, of 1.4X. In addition, Camargo Cimentos' FCF for the LTM June 2010 was positive in approximately BRL257 million.

Incorporated also in the ratings is CCCSA's solid market position as a leading engineering and construction company in Latin America and the second most important company in terms of annual revenue (approximately BRL5 billion). During the LTM June 2010, CCCCSA's consolidated EBITDA and EBITDA margins were BRL654 million and 13%, respectively. By the end of June 2010, CCCCSA's total cash and debt were BRL386 million and BRL1.1 billion, respectively. Net leverage, measured by the Net Debt / EBITDA ratio, of 1.0X. CCCCSA's FCF for the LTM June 2010 was negative in approximately BRL959 million, driven primarily by increase in account receivable (AR). Fitch understands that there is some seasonality in terms of working capital affecting the sector, with AR reaching the peak in midyear and declining by the end of the year.

Significant Dividend Inflow from Non-controlling Businesses Expected to Remains Stable around BRL500 million in 2011:

The ratings factor in Camargo's indirect participations of 25.6% and 17% in CPFL Energia S.A. (CPFL Energia) and Companhia de Concessoes Rodoviarias S.A. (CCR), respectively, and the expectation that the company should continue receiving significant dividend inflow from these operations. During 2010, Camargo's received indirectly approximately a total amount of BRL500 million in distributed dividends from these businesses, the ratings incorporate the expectation that similar levels of distributed dividends should continue during the next years.

CPFL's 'AA+(bra)' National long-term rating reflects the Brazilian energy sector's positive trend as well as the company's solid credit profile. During the LTM September 2010, CPFL's consolidated EBITDA and EBITDA margins were BRL3.3 billion and 29.5%, respectively. By the end of September 2010, CPFL's total cash and debt were BRL1.2 billion and BRL8.8 billion, respectively. Net leverage, measured by the Net Debt / EBITDA ratio, of 2.4X. In addition, for the LTM September 2010, CPFL's cash flow from operations (CFFO), capex. Distributed dividends reached levels of BRL2.5 billion, BRL1.6 billion, and BRL1.4 billion, respectively. This resulted in a negative FCF of BRL505 million.

CCR's 'A+(bra)' National long-term rating reflects the company's strong liquidity and deleveraging balance sheet; leading position within the industry; assets diversification; and improving debt amortization profile. During the LTM September 2010, CCR's consolidated EBITDAR and EBITDAR margins were BRL2.4 billion and 60.1%, respectively. By the end of September 2010, CCR's total cash and adjusted debt were BRL1.2 billion and BRL7.9 billion, respectively. Net leverage, measured by the Net Debt/ Adjusted EBITDAR ratio, of 2.8X. In addition, for the LTM September 2010, CCR's cash flow from operations (CFFO), capex. Distributed dividends reached levels of BRL1.1 billion, BRL1 billion, and BRL853 million, respectively. This resulted in a negative FCF of BRL830 million.

Camargo Correa is one of the largest private industrial conglomerates in Brazil. Camargo is a holding company with full ownership interests in cement, engineering and construction companies. Having control position in homebuilding, textiles, footwear and sportswear manufacturing companies, Camargo also has equity interests in energy, transportation (highway concessions) and steel businesses. A large proportion of Camargo's equity investments are in companies that are publicly traded and liquid. Camargo is controlled by the Camargo family through their direct holdings in Participacoes Morro Vermelho, which in turn owns 100% of Camargo.

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

The ratings reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include:

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2010);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007);

--'Rating Industrial Investment Holding Companies' (May. 22, 2008);

--'Parent and Subsidiary Rating Linkage' (June 19, 2007).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

Rating Industrial Investment Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=387412

Parent and Subsidiary Rating Linkage Criteria Report

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826

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Secondary Analyst
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Contacts

Fitch, Inc.
One State Street Plaza
New York, NY 10004
Primary Analyst
Jose Vertiz, +1-212-908-0641
Director
or
Secondary Analyst
Gisele Paolino, +11-55-21-4503 2600
Associate Director
or
Committee Chairperson
Daniel Kastholm, +1-312-368-2070
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com