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TEXT-Fitch: Brazil's banks insulated from Celpa bankruptcy protection
March 14, 2012 / 2:52 PM / 6 years ago

TEXT-Fitch: Brazil's banks insulated from Celpa bankruptcy protection

March 14 - Fitch Ratings believes that a partial or full default of
Celpa's and Grupo Rede's debt should have a mild impact on the
Brazilian financial system as banks' exposure to Grupo Rede's companies is well
dispersed and relatively low.	
We recently downgraded the national and international ratings of Rede Energia
S.A. (Rede Energia) and its subsidiary Centrais Eletricas Matogrossenses S.A
(Cemat) to 'C'. This action followed the filing for bankruptcy protection of
Centrais Eletricas do Para (Celpa), which is also part of the group, and led to
downgrades on Celpa's ratings to 'D'.	
We believe that the impact of a possible default by these companies on the
Brazilian banking system will be small, since the outstanding amount of debt
totaled less than 1% of the main creditor banks' combined net interest income
and 2% of the combined equity.	
Even in a case of full credit default, the profitability and capitalization of
banks exposed to Grupo Rede risk will not be affected materially given the
limited size of exposure in comparison with their capital bases and total
revenues.	
In cases, where exposure to the default is relatively high, we believe that
potential losses can be managed effectively without any impact on the banks'
ratings.	
In light of the bankruptcy protection filing's impact on the credit quality of
Grupo Rede, short-term obligations of affected banks may become difficult to
roll over. This will force some banks to raise loan loss reserves even if a
default does not occur. Many of these loans have not been reclassified as they
have not become delinquent due to a failure to pay interest or principal, being
still classified in rating classes with a low provisioning cushion required by
the Brazilian Central Bank	
Fitch will remain focused on the need to monitor the Celpa bankruptcy protection
case and the possible impact on other Grupo Rede companies given the likelihood
of lengthy debt negotiations. In particular, we will focus on the bankruptcy
protection's impact on smaller creditor banks with relatively large exposure to
Celpa and Grupo Rede.	
	
Related Research	
--'Fitch Downgrades Celpa's IDR to 'D'' (Feb. 28, 2012);	
-- 'Fitch: Brazilian Power Sector Fundamentals Still Strong Despite Celpa
Default' (March 5, 2012);	
-- 'Fitch Downgrades Rede Energia's and Cemat's IDRs to 'C'' (March 9, 2012).	
	
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.

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