Moody's cuts CVRD to Baa3

Moody's Investors Service said it downgraded Companhia Vale do Rio Doce's local-currency issuer rating to Baa3 from Baa1 and confirmed the company's Aaa.br national scale rating, its Baa3 foreign-currency rating, the Baa3 foreign-currency rating of its wholly owned subsidiary Vale Overseas Ltd. and the Baa3 senior unsecured debt rating of Inco Ltd.

This concludes the review begun on Aug. 11, and the outlook is stable.

These actions follow the announcement that Vale do Rio Doce it has acquired 75.7% of the shares of Inco. Vale do Rio Doce has stated its intention to take steps to acquire the remaining shares, which would bring the total consideration value to $18 billion. Within 60 days of the acquisition of 100% of the shares of Inco, Vale do Rio Doce plans to have Inco provide an upstream guarantee to the lenders under Vale do Rio Doce's $18 billion bridge acquisition facilities, and Vale do Rio Doce intends to refinance the bridge facilities in the long-term capital markets at the Vale do Rio Doce level, without provision of an upstream guarantee from Inco.

The agency said the downgrade of the local-currency rating reflects the significant additional debt being incurred to finance the acquisition of Inco, with an absolute level of debt approximating $23 billion on a pro forma basis. The downgrade also reflects challenges over Vale do Rio Doce's ability to integrate Inco in a timely fashion and the possibility that Vale do Rio Doce's substantive capital expansion plans may hamper the planned deleveraging over the next 15 months.

The rating acknowledges, however, Vale do Rio Doce's leading global positions in the iron ore and nickel markets, the improved breadth and geographic scope of its business platform and its important niche positions in bauxite, alumina, aluminum and logistics, Moody's said.

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