Standard & Poor?s, one of the major credit rating agencies, has downgraded RBS Participações S.A. from B+ to B- and changed the media group?s credit outlook to negative. S&P announced the move Wednesday, July 30, and said it has also downgraded to B- 125 million US Dollars in medium-term debt issued by RBS. This debt matures in 2007. S&P placed RBS on its Credit Watch list on June 11.
Weak prospects for the advertising market in Brazil and uncertainty relating to RBS?s own growth have created problems for the group and hindered an improvement in cashflow, S&P said.
The rating agency doesn?t expect RBS to obtain sufficient free cashflow (after interest expense) to reduce the stock of debt. It will therefore have to rely on asset disposals and outside funding, S&P said, ?as well as being severely exposed to the volatility of the Brazilian economy and the availability of credit?.
On the upside, according to S&P, are RBS?s leadership of its market in the South of Brazil and the fact that it?s an affiliate of the Globo television network. Shareholder support is another mitigating factor without which the rating would be even lower, S&P said.
RBS group debt totaled 178m USD at the end of 2002, according to S&P, and cash from operations was negative in the year because of currency depreciation. Lack of credit forced RBS to use reserves for debt repayment and to avoid expensive loans. Cash in hand amounted to 32m USD in December 2002, down from 61m USD a year earlier and 138m USD at the end of 2000.
S&P said the new rating takes account of the possibility that the shareholders will inject up to 20m USD in new capital and the expectation that the group will end this year with 25m USD in cash, enough to cover its financial obligations in 2004 (29m USD).