Moody's may downgrade Canal

Moody's Investors Service said it placed under review for downgrade the Baa1 long-term issuer rating and the senior unsecured rating of Canal de Isabel II, SA.

The downgrade review was driven by the increased uncertainty of the impact of the ongoing legal proceedings in the Colombian Courts against the Canal group, Moody's explained.

In addition to the potential expropriation of Canal's main Latin-American subsidiary, Triple A de Barranquilla, there may be other liabilities as judicial or administrative investigations or proceedings progress, the agency said.

Material credit negative impacts could include monetary fines and potentially an event of default of Canal's €500 million senior unsecured bond that would allow bondholders to accelerate repayment following the conclusion of the expropriation process of Triple A, Moody's said.

The direct financial impact for Canal is a loss of the stream of cash flows that it normally receives from Triple A due to the legal proceedings, the agency said, although the impact is modest.

The legal proceedings also highlight the negative impact of having defective control mechanisms and weak governance in the company's Latin-American operations during the past few years, Moody's said.

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