Moody's affirms Brasil Telecom

Moody's Investors Service said it affirmed Brasil Telecom SA's senior unsecured rating at Baa3 on the global scale and at Aa1.br on the Brazilian national scale and its $200 million 9.375% structured notes due 2014 at Baa3 following the acquisition by Telemar Norte Leste SA of the shares of Invitel SA, the ultimate holding company that holds a controlling interest in Brasil Telecom.

The outlook is stable.

Moody's regards the acquisition as a credit positive in terms of scale, geographic coverage, potential synergies and implicit financial support but said the ratings of Brasil Telecom largely reflect its own standalone risk profile given the separate legal operations of the two companies, the uncertainty as to how the company will be managed under Telemar and the lack of formal support mechanism.

Brasil Telecom's Baa3 rating is supported by its leading market position in high-margin wireline telecommunications in its concession area and growing data and mobile operations backed by successful product innovation, the agency said.

Its heavy reliance on the mature fixed telephony business for its revenues and cash generation constrains the rating, Moody's said.

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