SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB-' to Odebrecht Finance Ltd's (OFL) proposed senior notes of BRL500 million and USD500 million due to 2018 and 2025, respectively. The proceeds of both issuances are to refinance existing debt. The notes are fully and irrevocably guaranteed by Construtora Norberto Odebrecht S.A. (CNO).
Fitch currently rates CNO and OFL, and their related issuances as follows:
CNO
--Long-term foreign currency Issuer Default Rating (IDR) 'BBB-';
--Local
currency IDR 'BBB-';
--Long-term national rating 'AA+(bra)'.
OFL
--Long-term foreign currency IDR 'BBB-';
--USD800 million
senior guaranteed notes due April 2023 'BBB-';
--USD750 million
guaranteed Perpetual Bonds 'BBB-';
--USD500 million senior
guaranteed notes due April 2020 'BBB-';
--USD200 million senior
guaranteed notes due April 2014 'BBB-';
--USD600 million senior
guaranteed notes due June 2022 'BBB-';
--USD400 million senior
guaranteed notes due June 2042 'BBB-'.
The Rating Outlook for CNO and OFL's corporate ratings is Stable.
Key Rating Drivers
CNO's investment-grade rating reflects its
conservative financial profile, good and consistent track record of
operations, and its leading position in the engineering and construction
sector in Latin America. The ratings also incorporate the company's
margins resilience as demonstrated during the last few quarters within
an operating environment of increasing construction and labor costs and
project postponements. The company has also been successful in raising
funds to lengthen its comfortable debt amortization profile. Fitch
expects that CNO will continue to maintain a conservative capital
structure and strong liquidity for the next few years.
The analysis considers CNO's business risk associated with potential volatility in backlog, revenue concentration in its main clients, and relevant participation of contracts in riskier countries like Venezuela and Argentina. The ratings also incorporate the financial exposure of CNO to other businesses of the Odebrecht Group (ODB), with significant projects carrying risks associated with the pre-operational phase. CNO is expected to continue to at least support the activities of its sister companies - Odebrecht Participacoes e Investimentos (OPI) and Odebrecht Energia (OE) through Odebrecht S.A. (ultimate parent group holding), which should moderately pressure CNO's cash flow throughout 2013. During 2012, the group has issued all the funds with CNO's guarantee required to support OPI and OE. The leverage increase due to equity investments in both companies is already incorporated in current ratings.
Robust Backlog And Resilient Margins
By the end of 2012, CNO's
backlog of projects remained robust and equivalent to 2.4x the company's
net revenue during 2012. Negatively, 54% of the backlog is concentrated
in countries rated non-investment grade. The concentration in the 10
largest projects, representing 46% of the backlog, is also considered
high.
The company continues to register consistent operations growth and reported net revenues of BRL28.7 billion during 2012, which compares positively with BRL21.5 billion in 2011. In spite of cost-increase pressure due to rising inflation and labor pressure, CNO managed to maintain margins that were higher than its peer's on average. The company's adjusted EBITDA grew to BRL2.8 billion from BRL2.3 billion during this time period, with adjusted EBITDA margin of 9.9%. Fitch expects the company to maintain its adjusted EBITDA margin at around 10% in the next few years.
Sound Liquidity
CNO has historically maintained a robust liquidity
position and benefits from a lengthened debt maturity profile. As of
December 2012, cash and equivalents were BRL7.1 billion, enough to cover
CNO's short-term adjusted debt of BRL0,5 billion by 14.9x and the
company's financial obligations until 2020 by 6.0x. CNO's financial
flexibility is enhanced by an unutilized USD850 million standby credit
facility and proven access to debt markets. Fitch expects CNO's cash
position to decrease by the end of 2013 to around BRL5 billion, mainly
due to transfers to support OPI's and OE's operations.
Net Leverage Should Remain Manageable
During 2012, CNO's leverage
increased as the company anticipated all expected issuances to support
equity investments in OPI and OE, and to roll over part of its debt in
order to benefit from favorable market conditions. As of Dec. 31, 2012,
CNO's adjusted leverage, as measured by total adjusted debt/EBITDA, was
2.6x, while adjusted net leverage was 0.0x, in accordance with Fitch's
expectations. These two adjusted leverage ratios were, respectively,
2.2x and (0.8x) by the end of 2011. In December 2012, the company's
total adjusted debt reached BRL7.2 billion, including BRL6.3 billion of
off balance-sheet debt guarantees, compared with adjusted debt of BRL4.9
billion, including the BRL3.6 billion of off balance-sheet guarantees,
in December 2011. Fitch expects adjusted net leverage to remain
conservative, at below 1.0x.
Cash Toward OPI and OE Investments
CNO should support OPI's and
OE's high investments in the next years, based on BRL2.2 billion raised
at OFL, and guaranteed by CNO, that migrated temporarily to CNO through
an intercompany loan. Fitch expects FCF to remain highly positive in the
medium term. During 2012, the company's CFFO of BRL1.6 billion has been
sufficient to cover capital expenditures of BRL736 million, despite
being pressured with higher working capital needs, delivering a free
cash flow (FCF) of BRL887 million. These figures compares with CFFO and
FCF, respectively, of BRL4.8 billion and BRL4.3 billion in 2011
ODB Group Highly Leveraged
CNO is the main cash generator of ODB
Group, which has a diversified operation and high leverage as a result
of investments in recent years. ODB's strategy is to not provide new
guarantees from CNO to affiliates that are not 100% owned by ODB, which
is an important consideration in CNO's current ratings. In December
2012, ODB Group presented total adjusted debt/EBITDA of 6.0x, while
adjusted net debt/EBITDA was 4.3x.
Leading Position in Engineering & Construction in Latin America
CNO
is a leading engineering and construction company in Latin America and
is part of the Odebrecht Group, which is one of the four largest
Brazilian private groups. The company's backlog has been solid and
resilient during the global economic crisis. As of Dec. 31, 2012, CNO's
backlog was USD33.7 billion, a 4% increase from USD32.3 billion in
December 2011.
Rating Sensitivities
The ratings could be affected positively by an
expansion of CNO's business in investment-grade countries and by the
start-up of important projects under ODB Group that will improve
consolidated credit metrics and lower potential support needed from CNO.
CNO and OFL's ratings could be negatively affected by a substantial
reduction of backlog and/or cancellation of projects. A weaker liquidity
position or higher leverage level could also result in a negative rating
action.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating
Methodology' (Aug. 12, 2012);
--'National Ratings Methodology
Update' (Jan. 19, 2011).
Applicable Criteria and Related Research
Corporate Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
National
Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=788797
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