S&P: LIGHT LC Outlook to Stable; Ratings Affirmed.

Business Editors

NEW YORK--(BUSINESS WIRE)--Standard & Poor's

Jan. 9, 2002-- Standard & Poor's today changed its local currency outlook on LIGHT-Servicos de Eletricidade S.A.'s to stable from negative.

The local currency rating is affirmed at double-'B'. The foreign currency rating and outlook are affirmed at double-'B'-minus/negative.

This action reflects the support of Electricite de France (EdF; double-'A'-plus/Negative/'A-1'-plus), which is likely to convert its US$550 million intercompany loan into equity once a pending share exchange with The AES Corp. (double-'B'/stable) is consummated. Another positive outcome of the share exchange is that about US$500 million of debt residing at AES Elpa (formerly LIGHTGas) will become an obligation of the AES family. As a result, LIGHT's financial profile is expected to improve significantly.

LIGHT's ratings reflect the challenges of operating in Brazil under an evolving regulatory framework and volatile macroeconomic environment. LIGHT is the electric distribution company serving the city of Rio de Janeiro. LIGHT is still struggling to offset the negative effect of the real's continuing devaluation against the dollar, which began in January 1999. Despite cost-cutting efforts and improvement on certain operating parameters, LIGHT's progress on reducing electricity energy losses has been disappointing. Offsetting these weaknesses are a stable customer base with a large residential component, a monopoly franchise to distribute electricity, and support of EdF, which is expected to increase its ownership in LIGHT to 88% via a share swap with AES Corp. As a result of this restructuring, LIGHT will also relinquish its ownership stake in distributor Eletropaulo Metropolitana Eletricidade de Sao Paulo S.A. Furthermore, Edf is expected to take over the ownership position in, and arrange the financing of, generation projects that LIGHT has initiated. The expectation is that LIGHT will enter into purchased power agreements with these plants.

Standard & Poor's considers regulatory risk in Brazil to be high, despite some positive developments. The government has negotiated a settlement with distributors, whereby distributors will recover the bulk of revenues lost due to energy rationing, imposed in June 2001, due to Brazil's energy crisis; LIGHT's kilowatt-hour sales declined by 25% in the third quarter of 2001 compared to the same period in 2000. Annual tariff reviews have been in accordance with concession contract guidelines; LIGHT received a 20.6% increase in November 2001. However, annual rate increases have not ensured full recovery of noncontrollable costs, such as large power purchases from Itaipu, which is linked to the dollar. A recently created task force has proposed an indexing mechanism to remedy this problem. And finally, concerns about the tariff revision in 2003 have been somewhat eased by the recent tariff revision of Espirto Santo Centrais Eletricas (Escelsa), which set a positive precedent in the revaluation of rate base.

OUTLOOK: STABLE

LIGHT's financial profile has deteriorated steadily since 1999. Funds from operations (FFO) interest coverage and cash flow to debt are expected to only approximate 1.5 times (x) and 5% for 2001, respectively. The retirement of third-party debt and conversion of the EdF loan to equity should restore ratios to levels commensurate with ratings. FFO interest coverage and FFO to debt should rebound to about 4x and 35%, respectively, during the next few years.

Copyright 2002, Standard & Poor's Ratings Services