March 6, 2014 / 2:11 PM / 4 years ago

RPT-Fitch Expects to Rate Sul America S.A.'s Second Debenture Issuance 'AA(bra)'

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March 6 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings expects to assign a ‘AA(bra)’ Long-term National Rating to Sul America S.A.’s (SASA) issuance of simple, unsecured and non-convertible debentures.


The expected rating of the second debenture issuance is one notch below the Long-term National Rating of SASA and equivalent to the existing rating of the first debenture issuance. As per Fitch’s rating criteria, the one notch difference reflects the typical notching in a ‘moderate’ regulatory environment where the baseline recovery is ‘below average’. The final rating is contingent upon the receipt of final documents conforming to the information already received.

The second debenture issue will be up to BRL750 million with a minimum amount of BRL500 million and ‘hot issue’ and ‘green shoe’ of up to 35% of the total amount of the issuance. There will be up to three tranches. The expiry of the first two tranches will be five years and that of the third tranche will be eight years. Interest payments will be annual. The amortization of the principal of the first two tranches will be from the third year onward, while that of the third tranche will start in the sixth year. The interest rates will be determined at the time of the issuance and will correspond to a percentage of the interbank deposit rate (DI) (first two tranches) and a percentage added to the internal rate of return on treasury notes (NTN-B) expiring in 2020 (third tranche). Consequently, SASA’s financial performance will be more susceptible to changes in interest rates.

The first tranche will be offered for exchange to the holders of the first debenture issuance. The proceeds will be used for 1) prolonging the maturity profile of debt; 2) finance working capital to support growth; 3) supporting liquidity levels and allowing cushion for potential investments for expansion of operations and consolidation of the company’s position; and 4) general corporate purposes.

At September 2013, SASA’s financial debt-to-equity and interest coverage (operating income-to-interest on debt) ratios were comfortable at 14.6% and an estimated 8.3 times, respectively. The extent of the change in these ratios will depend on the final amount of the issue, but Fitch expects them to remain adequate for the ratings. However, in case the final issue amount reaches the highest level possible, SASA’s leverage ratios could deviate from the median guidelines for the rating category.

SASA’s ratings reflect its strong franchise led by a significant presence in the health and auto segments, its consistent and adequate operating performance throughout economic cycles, good liquidity, adequate capitalization and solid and continuously evolving risk management practices.

Fitch currently rates SASA as follows:

--Foreign and Local Currency Long-term Issuer Default Ratings (IDRs) ‘BBB-', Outlook Stable;

--Foreign and Local Currency Short-Term IDRs ‘F3’;

--National Long-term Rating ‘AA+(bra)'; Outlook Stable;

--National Short-Term Rating ‘F1+(bra)';

--National Long-term Rating of BRL500 million debentures due February 2017 ‘AA(bra)'.


Positive Rating Action: Diversification of the premium base, a sustained decline in the operating ratio to below 85%, and a decline in the net earned premiums/equity ratio to below 250%, could lead to an upgrade of the ratings of SASA and its debts issues.

Negative Rating Action: A sustained and material deterioration in profitability, characterized by an ROA below 0.5%; the deterioration of the liabilities/equity ratio to above 4.0x; a fall in the operating income/interest expense ratio to below 2.0x; or a significant reduction in the holding’s liquidity, could negatively affect the ratings of SASA and its debts issues.

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