Fitch Assigns BBB Rating to Brasil Telecom's Proposed Senior Notes

Rating agency Fitch Ratings announced that it assigned a 'BBB' foreign currency issuer default rating (IDR) to Brasil Telecom (News - Alert), a telecom service provider in Brazil, and its proposed $583.09 billion senior unsecured notes due 2016.

Brasil Telecom will utilize proceeds from the issuance for general corporate uses, capital expenditures and refinancing needs. The senior notes will be issued in BRL and will be payable in BRL at market exchange rates.

Brasil Telecom is comprised of three group companies including Tele Norte Leste Participacoes (TNE), Telemar Norte Leste (TMAR) and BTM (collectively refer to as Oi). These companies have operational and strategic ties and historically there have been cross defaults and debt guarantees from the parent, according to a press release.

Oi's ratings incorporate its strong market position, business scale, diverse service platforms, moderate regulatory risk, solid cash flow generation and a manageable debt maturity profile.

Fitch rating reflects Brasil Telecom’s position in a competitive environment that resulted in modest operating results and gross leverage levels. The ratings also reflect the solid progress made by Oi towards a long term target of net debt to EBITDA of 1.7 times (x).

According to Fitch, the proposed corporate reorganization of TNE and its subsidiaries is positive. It will simplify the ownership structure and will strengthen its financial profile. The resulting entity will have full ownership of the cash flows of the operating companies, including BTM.

As of June 30, 2011, total consolidated debt at TNE was $15. 6 billion; composed of 52 percent of the debt by financial institutions, 22 percent by BNDES, 18 percent local debentures and 8 percent of other debt.

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