Moody's upgrades Ipiranga notes to Ba3

Moody's Investors Service said it upgraded Companhia Brasileira de Petróleo Ipiranga's outstanding $134 million step-up senior unsecured notes due 2008 to Ba3 from B1 and changed the outlook on the notes to stable from positive.

Moody's said the rating is supported by Ipiranga's position as the second-largest fuel distribution company in Brazil and its demonstrated ability to defend and expand its market share in the Brazilian fuel distribution market while maintaining acceptable operating margins. In addition, the rating incorporates the company's efficient logistics and strong brand recognition and the improved competitive environment for the diesel and gasoline markets in Brazil.

At the same time, the rating is constrained by Ipiranga's volatile working capital needs, its high dependence on Petrobras' for fuel supply, the increased capex and dividends distribution which have negatively impacted its free cash flow generation and by the fierce competition in the fast-growing ethanol market, the agency said.

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