Research Update: Brazilian Power Generator CESP 'BB' Rating Placed On CreditWatch Negative On Parent's Acquisition Of AES Brasil S.A.

Given Auren Energia S.A.'s May 15 announcement that it had signed an agreement to acquire AES Brasil Energia S.A. and other Brazilian entities indirectly controlled by The AES Corp., we expect Auren's credit metrics to deteriorate--although to an uncertain extent currently--due to the equity payment and R$9 billion in AES Brasil's net debt that the company will incorporate. Although the acquisition won't impact CESP-Companhia Energetica de Sao Paulo (CESP) directly, we will continue assessing it as a core subsidiary of Auren, as pro forma the acquisition, CESP will continue generating at least 20% of the group's cash flow, and because Auren manages its subsidiaries in an integrated manner. In this sense, the rating on CESP would move in tandem with

...- Given Auren Energia S.A.'s May 15 announcement that it had signed an agreement to acquire AES Brasil Energia S.A. and other Brazilian entities indirectly controlled by The AES Corp., we expect Auren's credit metrics to deteriorate--although to an uncertain extent currently--due to the equity payment and R$9 billion in AES Brasil's net debt that the company will incorporate. - Although the acquisition won't impact CESP-Companhia Energetica de Sao Paulo (CESP) directly, we will continue assessing it as a core subsidiary of Auren, as pro forma the acquisition, CESP will continue generating at least 20% of the group's cash flow, and because Auren manages its subsidiaries in an integrated manner. In this sense, the rating on CESP would move in tandem with Auren's creditworthiness. - On May 21, 2024, S&P Global Ratings placed its '##' global scale and 'brAAA' national scale ratings on CESP on CreditWatch with negative implications. - The CreditWatch negative listing reflects the potential downgrade...

Research Update