S&P: Espirito Santo developing

Standard & Poor's said it placed its B+ foreign- and local-currency ratings assigned to Espírito Santo Centrais Elétricas SA on CreditWatch with developing implications in its global scale. The B+ rating on the $431 million senior notes program was also placed on CreditWatch with developing implications.

The CreditWatch placement follows the announcement by EDP Brasil of a significant ownership restructuring of its assets in Brazil, having potential effects on Escelsa's balance sheet and cash generation. It also addresses Escelsa's lower-than-expected consolidated results in fiscal year-end 2003 and the expectations that the company's financial profile will remain aggressive, in the absence of a positive ownership restructuring outcome.

Escelsa has just announced an ownership restructuring that aims at lining up all investments of Portugal-based Eletricidade de Portugal (EDP) Group in Brazil, under the direct control of its holding company EDP Brasil. As a result, Escelsa's investment in its subsidiary Empresa Energética de Mato Grosso do Sul SA (Enersul) is planned to be transferred to EDP Brasil.

S&P expects that the financial compensation for the divestment on Enersul will result in a reduction in Escelsa's financial leverage, most likely through the transfer or settlement of the $431 million senior notes program, as these notes were the financial vehicle to acquire Enersul in 1997. S&P said it believes that the ownership restructuring might strengthen Escelsa's credit profile, although not necessarily implying a rating improvement.

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