Fitch rates Eletropaulo notes AA-(bra)

Fitch Ratings said it assigned a national long-term rating of AA-(bra) to Eletropaulo Metropolitana Eletricidade de Sao Paulo SA's proposed 20th debenture issuance up to the amount of R$700 million and due in 2021.

The proposed issuance is guaranteed by a pledge of receivables collections, Fitch said.

The funds raised will be used for the rescheduling of the company's debt maturities and working capital reinforcement, if balance is available, the agency said.

The company has a long-term foreign- and local-currency issuer default ratings of BB and long-term national scale rating of AA-(bra).

The outlook is stable.

The ratings reflect its moderate leverage, strong liquidity position and lengthened debt-maturity profile, Fitch said.

The company benefits from its business risk profile due its exclusive rights to distribute electricity within its concession area in the Metropolitan region of Greater Sao Paulo, the agency said.

Fitch said its expectations that Eletropaulo's free cash flow will be negative in the next two years limit the company's ratings.

This assumption is based on the company's need for high capital expenditures and operating expenses, the agency said, and also on the possible repayment from July 2017 onwards.

The ratings also incorporate the moderate regulatory and hydrological risk of the Brazilian electricity sector, Fitch said.

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