CESP-Companhia Energetica de Sao Paulo

The stable outlook on CESP reflects that on the sovereign, given our view that the ratings on it are limited to our ratings on Brazil. This is because of the company's sensitivity to the domestic economy and because all its assets and counterparties are located in the country. Therefore, the 'bbb-' stand-alone credit profile (SACP), three notches above the issuer credit rating, provides a downward protection. Given that we cap the ratings on CESP at the sovereign level, if we were to downgrade Brazil in the next 12 months, we could take a similar rating action on the company. We don't envision a scenario in the near term that could lead us to revise downward the SACP. However, we could

...Limited impact from COVID-19. We don't expect the sharply lower demand for energy caused by COVID-19 to have a significant impact on CESP-Companhia Energetica de Sao Paulo's (CESP's) operations, given that it sells energy through long-tenor, take-or-pay contracts with solid counterparties in the regulated and free markets. CESP sells around 70% of its energy output in the free market, contracts for which usually contain flexibility clauses, so that the contracted energy consumed can be adjusted 5%. However, in our view, CESP has sufficient financial flexibility to face the higher counterparty risk. In the first half of the year, net revenue increased around 30% due the seasonality of the energy sold, and the startup of trading operations at CESP Trading Company. Also, liquidity is sounds, especially after the company issued in August its 10-year R$1.5 billion 12th debentures issuance, with principal amortization between 2028 and 2030. CESP used proceeds to partly amortize its 11th R$1.8...

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