22.06.2012 18:41
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Odebrecht Finance Ltd. -- Moody's assigns Baa3 rating to Odebrecht's notes

Sao Paulo, June 22, 2012 -- Moody's Investors Service assigned a Baa3 foreign currency rating to the USD 600 million senior unsecured notes due in 2022 and to the USD 400 million senior unsecured notes due in 2042 issued by Odebrecht Finance Ltd (Cayman Islands), a subsidiary of Odebrecht S.A., and irrevocably and unconditionally guaranteed by Construtora Norberto Odebrecht ("CNO"). The rating outlook is stable. The net proceeds from the issuances will be primarily used for liability management and for additional equity investments in Odebrecht Participações e Investimentos S.A. ("OPI") and Odebrecht Energia S.A. ("OE") to fund infrastructure projects under development that will demand equity contribution of around USD 1 billion from 2012 to 2014.

Rating assigned are as follows:

Issuer: Odebrecht Finance Ltd. (Cayman Islands)

- USD 600 million senior unsecured guaranteed notes due 2022: Baa3 foreign currency rating

- USD 400 million senior unsecured guaranteed notes due 2042: Baa3 foreign currency rating

Existing ratings:

Issuer: Construtora Norberto Odebrecht S.A.

- Senior Unsecured Issuer Rating: Baa3 (global scale); Aa1.br (Brazilian national scale)

Issuer: Odebrecht Finance Ltd (Cayman Islands)

- USD 500 million senior unsecured guaranteed notes due 2020: Baa3 foreign currency rating

- USD 800 million senior unsecured guaranteed notes due 2023: Baa3 foreign currency rating

- USD 750 million senior unsecured guaranteed perpetual notes: Baa3 foreign currency rating

The outlook for all ratings is stable.

RATINGS RATIONALE

The rating of the notes and the stable outlook assume that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and assume that these agreements are legally valid, binding and enforceable.

CNO's Baa3 rating reflects its position as the largest construction company in Latin America, benefiting from a leading position in major markets supported by high entry barriers and strong expertise in the engineering and construction businesses. The company has a conservative financial policy that translates into strong debt protection metrics relative to higher rated global peers. While CNO has a strong management team with a solid track record of execution of complex projects and has a large backlog supporting near term revenues, its considerable exposure to countries with political risk and economic volatility, and the risk of cash transfer to CNO's holding company to support the group's investments in new projects at OPI and OE are constraining factors to the rating. The Baa3 senior unsecured issuer and debt ratings also incorporate effective subordination of the unsecured debt to CNO's secured debt and the structural subordination to debt at its subsidiaries and joint ventures, which do not provide upstream guarantees - that is, CNO's own debt is not guaranteed by any subsidiaries.

In the 1Q12, CNO continued to report robust operational performance in spite of adverse global economic conditions and weaker GDP growth in Brazil. The company expanded its backlog by 4.4% to USD 33.7 billion (37% located in Brazil) up from USD 32.3 billion in 2011 adding significant infrastructure projects, particularly abroad totaling USD 5.5 billion, which includes additional awards to the Moatize mine from Vale S.A. (Baa2/stable) and to the Cinta Costera highway project in Panama, and new projects, such as the Gas Anaco in Venezuela and the Cibao Sur and Ecovias Santiago highways in the Dominican Republic, increasing the proportion of the international backlog. In Brazil, CNO added USD 812 million in new contracts and add-ons to existing projects, however the backlog in the country declined 5% in the period as a consequence of the strong execution of current projects in the backlog. Actually, gross revenues rose 39% to USD 14.1 billion in the LTM ended March 31, 2012 thanks to the strong expansion abroad (+35% YoY) and especially supported by the 45% growth in revenues in Brazil.

The exposure to countries with high political risk is mitigated by the fact that 68% of the credit risk belongs to investment grade customers and 47% to investment grade countries. For countries with high political risk, CNO usually has offshore accounts and/or relies on funding from government banks and agencies (BNDES, multilateral agencies, export credit agencies), thus reducing the credit and exchange rate risks.

Despite the general downward pressure on margins of the global construction industry, CNO was able to marginally improve reported EBITDA margin in comparison to the 1Q11, to 10.2% from 9.9%, while cash flow generation was negatively affected by working capital and a reduction in advances from customers, which also reflects the typical seasonality at the beginning of the year. Therefore, Funds From Operations (FFO) to Total Adjusted Debt (adjusted for off-balance sheet guarantees and debts with non-consolidated consortium affiliates) dropped to 31% compared with 40.5% at the end of the previous fiscal year, but has not affected leverage metrics that remained unchanged with Total Adjusted Debt to Adjusted EBITDA of 2.1x. On a pro forma basis, though, considering the USD 1 billion issuance, Total Adjusted Debt to Adjusted EBITDA would reach 2.8x; however, as part of the total amount will be used to liability management, the actual impact on leverage will be approximately USD 440 million, and pro-forma leverage (measured by Total Adjusted Debt to Adjusted EBITDA) will reach 2.4x which is still commensurate with an investment grade rating. CNO's liquidity is good supported by strong cash position of BRL 4.9 billion as of March 31, 2012 which covers 86% of total adjusted debt of BRL 5.7 billion, in addition to full availability under its USD 500 million committed credit facility.

The stable outlook reflects our expectation that CNO will maintain efficient risk management and prudent financial policy in support of healthy liquidity. Although we anticipate that revenues will remain fairly stable at current level and operating margins will be stable in the near term, we expect that CNO will manage capital expenditures and dividends in order to maintain strong debt protection metrics for the Baa3 rating category, thus mitigating the risks inherent to operating in countries with political risk and volatile economies.

The rating or outlook could face upward pressure in case CNO is able to gradually reduce its exposure to risky countries with volatile economies and political instability, in a way that these countries in the aggregate account for less than 25% of the quarterly reported backlog. Also, upward pressure may come with further diversification of revenues to the extent that the top 10 projects accounts for less than 25% (48% as of March 31, 2012) of the total, and an upgrade would also require CNO to maintain strong credit metrics for a Baa3 rating category with prudent financial policy and to adequately manage capital investments and dividends to support a healthy liquidity.

The ratings or outlook could come under negative pressure if CNO's credit metrics deteriorate with Retained Cash Flow less Capex to Total Adjusted Net Debt (considering a minimum cash position of USD 500 million) dropping to below 20% (44% as of March 31, 2012 LTM) without expectation of improving in the near term, or if liquidity deteriorates, most likely due to cash drain to support new ventures of the group. A downgrade in the ratings or outlook could also be triggered by a substantial increase in secured debt at CNO or its subsidiaries or a proportional decrease in the percentage of consolidated EBITDA or assets located at CNO, compared to those at the operating subsidiaries or joint ventures.

Moody's last rating action on CNO occurred on March 23, 2011 when we assigned a Baa3 foreign currency rating to its guaranteed senior unsecured notes due in 2022 and 2023, which issuance was concluded in April 2011.

The principal methodology used in rating CNO was Moody's Global Construction Industry Methodology published in November 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".br" for Brazil. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

Construtora Norberto Odebrecht S.A. ("CNO") is the largest engineering and construction company in Latin America, with net revenues of about BRL 23.2 billion (USD 13.8 billion converted by the average exchange rate) in the last twelve months ended March 31, 2012 primarily from large-scale construction projects, including highways, railways, bridges, power plants, tunnels, subways, buildings, port facilities, dams, manufacturing and processing plants, mining and industrial facilities.

CNO is a subsidiary of Odebrecht S.A. ("ODB"; unrated), the family-owned investment holding company for one of the largest non-financial Brazilian conglomerates that also controls Braskem S.A. (Baa3, outlook stable), the largest chemical company in Latin America producing olefins and polyolefins. ODB's consolidated net revenues reached BRL 66 billion (USD 39 billion) in the last twelve months ended March 31, 2012, with 35% generated by CNO, 52% by Braskem, and 13% by other subsidiaries mostly engaged in the infrastructure and energy sectors. The group has diversified its operations through significant investments in the oil & gas and energy sectors, as well as roads, water sewage and real estate.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Barbara MattosAsst Vice President - Analyst Corporate Finance Group Moody's America Latina Ltda. Avenida Nacoes Unidas, 12.551 16th Floor, Room 1601Sao Paulo, SP 04578-903 Brazil JOURNALISTS: 800-891-2518 SUBSCRIBERS: 55-11-3043-7300Brian Oak MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's America Latina Ltda. Avenida Nacoes Unidas, 12.551 16th Floor, Room 1601Sao Paulo, SP 04578-903 Brazil JOURNALISTS: 800-891-2518 SUBSCRIBERS: 55-11-3043-7300(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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