S&P lowers two Brazil companies

Standard & Poor’s said it took rating actions on entities linked to three Brazilian state governments.

The agency said it lowered the national scale ratings on Companhia Estadual de Aguas e Esgotos (Cedae) to brA from brA+ and Companhia Pernambucana de Saneamento (Compesa) to brA+ from brAA-.

S&P said it placed the BBB- foreign-currency and brAAA national scale ratings on Companhia Energetica de Sao Paulo (CESP) on CreditWatch negative.

The downgrade of Cedae reflects the downgrade of the Rio de Janeiro state on the global scale and a belief of high likelihood of timely and sufficient state support in case of financial distress, the agency said.

The downgrade of Compesa reflects a view of a lesser ability of its controlling shareholder, the state of Pernambuco, to provide timely support if necessary, which mirrors the weaker macroeconomic conditions of the sovereign, S&P said.

Even though the agency said it generally doesn’t rate a government-related entity above its government, S&P said it placed the ratings on CESP on CreditWatch negative to reassess the impact of the Sao Paulo state’s potential intervention in a downside case scenario and to test the company’s resiliency to a potential sovereign distress. The agency added there’s at least a 50% chance for a downgrade on this company.

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