Moody's upgrades Escelsa

Moody's America Latina said it assigned Ba2 global local-currency and Aa3.br Brazilian national scale senior unsecured issuer ratings to Espirito Santo Centrais Eletricas SA - Escelsa, upgraded the company's R$264 million senior unsecured local-currency debentures due 2011 to Ba2/Aa3.br from Ba3 A3.br and upgraded its $114 million foreign-currency senior unsecured Notes due July 2007 to Ba2 from Ba3.

This concludes the review for possible upgrade that began on April 13, and the outlook is stable.

The agency said the assignment of the senior unsecured issuer ratings to Escelsa follows the assignment of Ba3/Aa3.br corporate family ratings to parent company EDP - Energias do Brasil SA.

The upgrade of Escelsa's ratings reflects its overall improved debt protection metrics and liquidity position, including free cash flow to total adjusted debt of 63.2% at March 31. Moody's attributed the improvement to a combination of the gradual recovery in demand for energy in the company's concession territory and consistent tariff adjustments, as well as the replacement of short-term debt with long-term loans over the past several quarters while addressing 2007 refinancing needs on a timely basis.

The Ba2 global local-currency issuer rating balances Escelsa's exclusively regulated power distribution activity under a long-term concession contract against uncertainties related to the Brazilian regulatory environment for power utilities, particularly with regard to potential interference from the federal government, the agency said.

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