S&P downgrades subsidiary to ‘default’ after court order suspends payments to creditors – Money Times

risk rating agency S&P World Rankings This Wednesday (12) downgraded the issuer’s credit and debt rating Light Electricity Services (Light Sesa)controls it a light (LIFT3), on the Brazilian national scale from “brCCC-” to “D”. The short-term issuer’s rating was also downgraded from “brC” to “D”.

This change comes after Light obtained an urgent precautionary measure stopping the group from meeting its financial obligations in the next 30 days, including total debt service of approximately R$435 million on April 15, 2023.

According to S&P, although it is an extrajudicial protection, the action “constitutes the formalization of a debt payment suspension (freeze), which we view as analogous to a default.”

The agency explains that the credit rating “D” is given to companies that fail to fulfill a financial obligation or break a calculated promise. It is also used when filing for bankruptcy.

S&P Light Sesa and the subsidiary are generally in default. In a report released on Wednesday, the agency states that the precautionary measure is part of the group’s strategy in order to maintain its cash position.

In the document, S&P indicates that the group should prioritize investments of about R$1 billion annually, of which R$800 million is needed to maintain and expand distribution networks and maintain quality of service to ensure the renewal of the distribution concession that expires in June 2026.

“However, given the urgency of finding a long-term solution to the capital structure of Light Group, the company announced its intention to renew the distribution franchise in advance,” he adds.

“From our point of view, such negotiations with the granting authority, the federal government, and the National Electric Energy Agency (NEA)snake) for early renewal of the franchise must extend throughout 2023 and 2024, the agency completes.

S&P will reassess Light’s capital structure and review the ratings once a debt restructuring plan has been submitted and approved.