Moody's rates Cemig notes Baa3

Moody's America Latina said it assigned a Baa3 global scale rating and an Aa1.br Brazilian national scale rating to Cemig Distribuicao SA's new R$1.6 billion senior debentures, which will be guaranteed by Companhia Energetica de Minas Gerais (Cemig).

At the same time, Moody's changed the outlook for Cemig, Cemig Distribuicao and Cemig Geracao e Transmissao SA to negative from stable, affirmed Cemig's issuer ratings at Ba1/Aa2.br and affirmed the subsidiaries' issuer ratings and senior debt ratings at Baa3/Aa1.br.

Concurrently, Moody's downgraded the baseline credit assessment of Cemig to ba1 from baa3 due to expected lower cash flows as a result of the third periodic tariff review starting in 2013 and the non-renewal of generation concessions expiring over the next several years.

The agency said the ratings reflect the overall investment-grade profile of Cemig on a consolidated basis, the stable and predictable operating cash flows from the electricity distribution business, the good track record in accessing the local bank and capital markets, strong management, above-average corporate governance practices and the support from the State of Minas Gerais to Cemig's consolidated group.

The change in outlook for the note issuer reflects the expected negative impact on operating cash flows from the third periodic tariff review, a lag in tariff adjustments as a result of higher electricity prices due to a tighter domestic electricity supply in 2012 that is expected to persist in the first quarter of 2013, and the continuity in the company's policy of paying out a significant amount of dividends to Cemig, Moody's said.

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