Standard & Poor's downgrades Petrobras after Brazil sovereign cut

The Brazil's state-run Petrobras oil company headquarters is pictured in Rio de Janeiro, Brazil, January 28, 2016. REUTERS/Sergio Moraes

RIO DE JANEIRO (Reuters) - Brazil’s state-run oil company Petroleo Brasileiro SA or Petrobras said on Thursday that Standard & Poor’s downgraded its foreign currency bond rating to “B+” from “BB” after the ratings agency cut Brazil’s sovereign rating on Wednesday.

Normally such downgrades are automatic. When a sovereign rating rises or falls, corporate ratings in the country usually rise or fall to a similar extent.

Petrobras, though, has often been an exception. Until a corruption scandal and oil price drop undermined its finances in 2014 and 2015, Petrobras often had a rating higher than the Brazilian government.

S&P defines a “B”-class rating, for which the new Petrobras “B+” rating is a part, as an indication that the company’s debts “are more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation.”

S&P adds that “adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.”

On Wednesday S&P downgraded Brazil to BB from BB+. The debt of both Petrobras and Brazil is considered speculative or “junk” meaning that many investment funds are barred from owning their obligations because of a high risk of default.

Reporting by Jeb Blount; Editing by Chizu Nomiyama