S&P reiterated its BBB- rating on Petrobras on Monday but revised its outlook to "negative" from "stable" due to the problems the company will face in funding plans to increase its production.
S&P also said Petrobras would be a junk-rated company, which means it would be below investment grade, without sovereign support. The firm further lowered the so-called "stand-alone credit profile" into junk rating territory to B+ from BB.
Petrobras' ongoing corruption scandal also played into S&P's decision.
"The ongoing corruption investigations not only squeezed financing of Petrobras' investment plan, but also weakened its main contractors' creditworthiness and slowed the construction of the oil rigs to ramp-up production," the firm said in a statement.
Insight from TheStreet's Research Team
Tim Melvin commented on Petrobras in a recent post on RealMoney.com. Here is what Melvin had to say about the stock:
Before moving away from the Bain & Co. private equity report I want to share a few more investable observations I came away with after reading it this past weekend. Each year I have read the report I find it incredibly useful as a guide to opportunities in certain sectors and regions of the world, and this year is no different.
This year's report highlights Brazil and some of the opportunities that may be available in that troubled nation. I have held some Brazilian stocks for a couple of years now and it has been a bumpy, unpleasant journey so far. Over my holding period, we have gone from "this looks like maximum pessimism" to "maybe they will vote her out and jumpstart things" to "you have got to be kidding me." We have seen widespread corruption involving Petrobras, continued weakness in the economy and, just this weekend, protestors taking to the streets to demand the impeachment of the president the country just reelected. Brazil is a mess and it's not getting better anytime soon.
Want more information like this from Tim Melvin BEFORE your stock moves? Learn more about RealMoney.com now.
TheStreet Ratings team rates PETROLEO BRASILEIRO SA- PETR as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate PETROLEO BRASILEIRO SA- PETR (PBR.A) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and poor profit margins."
You can view the full analysis from the report here: PBR.A Ratings Report