Fitch downgrades Sao Paulo

Fitch Ratings said it downgraded the Brazilian state of Sao Paulo's national long-term rating to AA(bra) from AA+(bra) with a stable outlook as a result of ratings recalibration following successive downgrades of the sovereign over the last six months.

Fitch also said it affirmed the long-term issuer default rating at BB.

The outlook remains negative.

The outlook reflects the negative outlook assigned to Brazil, the agency said.

Sao Paulo's ratings reflect the company’s strong economy, which is about one-third of the Brazilian GDP, Fitch said.

The ratings are based on an adequate fiscal performance when compared to peers in the same rating category with a better fiscal autonomy in relation to Brazilian states, the agency said.

The ratings also are supported by the fact that Sao Paulo's most important creditor is the federal government, Fitch said.

But the prolonged economic recession has translated into a poor performance in tax collections, especially for Sao Paulo, whose economy is more influenced by the industrial sector, the agency said.

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