June 23, 2015 / 10:30 PM / 4 years ago

S&P cuts Odebrecht rating following CEO arrest

SAO PAULO, June 23 (Reuters) - Standard & Poor’s on Tuesday cut the rating of Odebrecht Engenharia e Construcao, Brazil’s largest engineering and construction company, after the arrest of its chief executive and four other directors last week.

S&P cited “reputational risks” to cut Odebrecht’s rating by one notch to BBB-minus, its lowest investment grade and in line with Brazil’s sovereign credit rating.

It assigned a negative outlook on the new rating, saying there is a one-in-three likelihood of another downgrade over the next 18-24 months.

Previously, S&P said there was an “appreciable likelihood” that Odebrecht would keep honoring its bonds even if the Brazilian government defaulted on its debt. That may no longer be the case, it warned.

“Although the corruption investigations’ potential implications on (Odebrecht) are still uncertain, we’re now less certain that the company could pass our hypothetical stress test related to a sovereign default based on qualitative factors,” S&P analyst Renata Lotfi wrote in a report.

Brazilian police on Friday arrested Marcelo Odebrecht, the head of Latin America’s largest engineering and construction company, and accused his family-run conglomerate of spearheading a $2.1 billion bribery scheme at state-run oil firm Petrobras .

Reporting by Walter Brandimarte; Editing by Diane Craft

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