RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB-' rating for the proposed notes up to USD500 million issued by Odebrecht Finance Limited (OFL) with maturity equally split in 2022 and 2023. OFL is a wholly owned subsidiary of Odebrecht S.A. (Odebrecht), the holding company of Construtora Norberto Odebrecht S.A. (CNO). The notes are fully and irrevocably guaranteed by CNO. The proceeds of the issue will be used to purchase part of the notes maturing in 2014, 2017 and 2020.
Fitch currently rates CNO and OFL as follows:
Construtora Norberto Odebretch S.A. (CNO)
--Long-term foreign currency Issuer Default Rating (IDR) 'BBB-';
--Local currency IDR 'BBB-';
--Long-term national Scale rating 'AA+(bra)'.
Odebrecht Finance Ltd (OFL)
--Long-term foreign currency IDR 'BBB-'.
The Rating Outlooks for CNO and OFL are Stable.
CNO's investment grade ratings reflect its conservative financial profile and leading position in the engineering and construction sector in Latin America. The ratings incorporate the growth of its cash flow and backlog of projects and the company's sound credit metrics. The ratings build in an expectation that the company will continue to maintain a conservative capital structure as it develops these projects. The ratings also consider the decreased financial exposure of CNO to other businesses of Odebrecht Group, as it has made a strategic decision to not provide new guarantees of sister companies. Fitch's forecast of projected growth in Brazil during 2011 of 4.5% and during 2012 of 5% bodes well for the company and has also been factored into the ratings.
The 'BBB-' foreign currency IDR of OFL has been directly linked to that of its parent company CNO through Fitch's parent and subsidiary methodology. The debt issued by OFL has been unconditionally joint and severally guaranteed by CNO.
Leading Position in the Engineering and Construction Sector in Latin America:
CNO is a leading engineering and construction company in Latin America and is part of Odebrecht Group, one of the 10 largest Brazilian private groups. The company's backlog has been solid and resilient to the global economic crisis, growing to USD26.1 billion as of Dec. 31, 2010 from USD7 billion in 2006. In 2010, CNO's backlog grew 29% compared to 2009. Approximately 55% of the backlog is allocated in investment grade countries, with Brazil accounting for 45% of the total backlog. The recent unrests occurred in the Middle East and North Africa (MENA) region is not expected to materially affect the company's activities and cash flow as these operations represent only about 1% of the backlog.
CNO has expertise in diverse industries such as hydroelectric power plants, railways, tunnels, metro lines, energy transmission lines, highways, among others. CNO's excellent track record is viewed as sustainable by Fitch and the company should continue to benefit from the potential growth of infrastructure projects in Brazil and abroad.
Robust Liquidity:
CNO has historically maintained a strong liquidity position due to its conservative financial strategy. As of Dec. 31, 2010, CNO had BRL4.7 billion of cash and marketable securities and BRL4.3 billion of total adjusted debt, including BRL2.7 billion of off balance sheet debt guarantees. The company's liquidity is strengthened by an un-utilized USD500 million standby credit facility that matures in 2013. CNO's comfortable liquidity position and cash flow generation capacity is high relative to the only BRL706 million of short-term debt and BRL425 million maturing in 2012.
Leverage Should Reduce in the Short Term:
CNO has demonstrated its ability to preserve low leverage. As of Dec. 31, 2010, leverage, measured by total adjusted debt-to-EBITDA, was 2.2 times (x), while net leverage was -0.2x. This low level of leverage is appropriate for highly cyclical and volatile industries such as heavy construction. These ratios compare to 1.5x and 0.5x, respectively, in 2008. The increase in total leverage was mostly due to the additional debt of related companies of the group guaranteed by CNO. Fitch expects leverage to reduce to below 1.7x by the end of 2011, as CNO's strategy is to reduce debt levels and guarantees for related companies' debt.
Resilient Backlog and Increased Operations in Brazil to Sustain Revenues Growth:
CNO's net revenues increased to BRL16.2 billion during 2010 from BRL8.6 billion in 2007, while its EBITDA expanded to BRL1.9 billion from BRL877 million during this time period. The outlook for the Brazilian economy is favorable and should support CNO's revenue growth in the next five years. Key infrastructure projects include those related to the growth of the oil sector, the World Cup (2014) and the Olympic Games (2016).
Brazil's share of CNO's total backlog of USD26.1 billion has grown to 45% as of Dec. 31, 2010 from 21% in 2007. The remaining backlog include projects located in Venezuela (21%), Angola (8%), Argentina (6%), Panama (4%), Peru (4%), Colombia (3%), Dominican Republic (3%), Cuba (2%), United States (1%), Libya (1%), Mozambique (1%) and Portugal (1%). CNO's exposure and concentration to more volatile emerging market countries have been partially mitigated by its expertise and positive track record of operating in these markets, as well as the strategy of requesting advanced payments from customers.
Potential Ratings and Outlook Drivers:
The ratings and Outlook of CNO and OFL could be negatively affected by a substantial reduction of backlog and/or the cancellation of key projects. A weaker liquidity position or higher leverage could also result in a negative rating action. CNO and OFL's ratings could be positively affected by the growth of their business in investment grade countries.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 13, 2010;
--'Parent and Subsidiary Rating Linkage', July 14, 2010.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826
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