New York, August 28, 2014 -- Moody's Investors Service (Moody's) has assigned a Ba1 corporate family rating to Oi SA based on the company's reduced financial flexibility and weak credit metrics, which Moody's believes will result in a weakening of Oi's competitive position. Oi has articulated plans to reduce capital spending and may not fully participate in the upcoming 4G spectrum auction in Brazil. In addition, Oi could face operational, competitive or financial challenges related to the quickly evolving competitive environment, which includes an opportunity for consolidation through M&A. Moody's believes that Oi's base business in Brazil faces margin pressure from an unfavorable product mix shift to pay TV and broadband and the price pressure inherent in its value segment target market. In Portugal, Moody's expects continued revenue weakness and margin pressure due to competition and the same unfavorable product mix shift. Oi has detailed operational plans to offset this margin pressure through expense savings initiatives, which Moody's estimates will result in a modest improvement in credit metrics. However, Moody's estimates that leverage will remain above 4.5x (Moody's adjusted) and the company will continue to consume cash until at least 2016.

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