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Petrobras - Fitch's Brazil Downgrade Claims Its First Victim

Last week, Fitch downgraded Brazil's sovereign debt to "BBB-", one notch above junk status.

Shortly thereafter, Petrobras cancelled a $790 million bond offering due to "adverse conditions".

If local bond markets are closed to the company, it may be unable to reduce the mismatch between its $90B debt and real-based cash flows.

If its dollar-debt continues to appreciate in local currency terms, Petrobras could crumble. Avoid PBR.

Last week, Fitch downgraded Brazil's sovereign debt to "BBB-", one level above junk status. Fitch cited Brazil's 2015E deficit of 9% of GDP, 2015E GDP contraction of 3% and political gridlock as catalysts for the downgrade. The downgrade may have claimed its first victim after Petrobras (NYSE:PBR) canceled its $790 million bond offering due to adverse conditions in the Brazilian capital markets:

In the latest sign of how sentiment for scandal-plagued and debt-ridden company has soured since the summer, Petrobras said on Thursday it was canceling plans to sell R$3bn in real-denominated debt. In a statement, Petrobras said it was suspending the offer as a result of "adverse conditions in the Brazilian capital markets."

Petrobras had been shopping the debt offering for...


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