Fitch affirms Eletropaulo

Fitch Ratings said it affirmed Eletropaulo Metropolitana Eletricidade de Sao Paulo SA's foreign- and local-currency issuer default ratings at BB-, long-term national scale rating at A(bra), senior unsecured notes due 2010 at BB- and bank credit certificate due 2015, eighth issuance of debentures due 2010 and ninth issuance of debentures due 2013 at A(bra).

The outlook is stable.

The ratings reflect the issuer's adequate financial profile, moderate leverage and manageable debt levels and improved free cash flow the past three years, Fitch said. The assessment also represents the moderate regulatory risk for the electric power sector and the agency's expectations that Brazil's economic growth will favor increased demand for the company's power production.

The ratings also reflect concerns about a possible change in ownership after the Brazilian National Development Bank announced that it would sell its interest in Companhia Brasiliana de Energia and exercise its drag along clause to force AES Group to sell its participation together, if it does not use its preference right, the agency said.

The company's rate adjustment this year is expected to cut its operating cash flow but is expected to remain adequate for debt service, investments and dividend distributions, the agency said.

The company's total adjusted debt-to-EBITDA ratio was 2.6 times as of March and as of December 2006, versus 4.2 times in 2005. The adjusted EBITDA ratios were 2.2 times and 2.5 times, respectively. After the rate revision, the company is expected to present a more leveraged capital structure in 2007 and 2008, with total adjusted ratios above 3 times.

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