Fitch rates Rio Oil Finance notes BBB

Fitch Ratings said it assigned a BBB rating to Rio Oil Finance Trust's $1.1 billion series 2014-3 notes.

In addition, the agency affirmed $2 billion series 2014-1 notes at BBB and BRL 2.4 billion series 2014-2 special debt interests notes at AAAsf(bra).

The outlooks are stable.

The ratings address timely payment of interest and principal on a quarterly basis.

The issuances are backed by the royalty flows owed by oil concessionaires, predominantly operated by Petroleo Brasileiro SA, to the government of the state of Rio de Janeiro, who assigned 100% of the flows to RioPrevidencia, the state's pension fund.

Fitch said the rating reflects: (a) The growth in royalty flows supported by the expected increase in oil production in Brazil, backed by Petrobras' capital investment program of $220 billion between 2014 and 2018; (b) the generation of cash flows to meet debt service is not dependent on either Rio de Janeiro or RioPrevidencia; (c) the implied cap imposed by Petrobras' rating as the main obligor of the royalties; (d) the exposure of the collateral to oil price risk; and (e) the irrevocable instructions requiring Banco do Brasil SA to sweep the royalty payments to the transaction account which mitigates redirection risk.

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