Fitch drops Petrobras, debt to BBB-

Fitch Ratings said it downgraded the foreign and local currency issuer default ratings and outstanding debt ratings of Petroleo Brasileiro SA (Petrobras) to BBB- from BBB.

Concurrently, the agency placed all of Petrobras' international and national scale ratings on Rating Watch Negative.

These actions affect about $50 billion of issued debt, including debt issued by Pifco and PGF, which Petrobras unconditionally and irrevocably guarantees.

Fitch said the downgrade reflects the increased and prolonged uncertainty regarding Petrobras' ability to estimate and record an adjustment to its fixed assets in a timely manner, which could allow a significant portion of Petrobras' creditors to accelerate debt payments.

Petrobras' third quarter financial statements, while allowing it to comply with covenants, did not include any adjustments to fixed assets. The lack of clarity prolongs the uncertainty surrounding the company's ability to make the necessary adjustments to comply with covenants that require it to report audited year-end financials within 120 days of the period's end, plus a 60-day grace period. Without audited financials, the company lacks access to debt capital markets.

The decision to delay the recording of an impairment highlights the difficulties of estimating the magnitude of the corruption overpayments and fair value of fixed assets, Fitch said.

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