Holders of export-backed notes issued by Companhia Vale do Rio Doce aren't likely to be pleased with the courtship between the giant Brazilian iron ore producer and Canada's Inco Limited. CVRD has made a roughly $17.6 billion bid for Inco, prompting rating agencies Moody's Investors Service and Standard & Poor's to revaluate the strength of the structured paper issued in 2000 and 2003. Moody's placed its Baa1' rating on the notes on downgrade review. S&P, meanwhile, placed its BBB+' rating on future flow transactions on creditwatch developing.

Prior to the move, the S&P rating had been on positive watch following an upgrade in Brazil. "The rating is based more on the company's performance risk assessment, its ability and willingness to continue to originate the securitized asset," said Gabriel Wieder, an associate of emerging market structured finance at S&P. The ratings actions overtly affect two deals issued in 2000: a $25 million bond due 2007 and a $150 million deal maturing 2010. S&P said that its action also applied to underlying ratings of a $125 million 2007 and $250 million 2013, wrapped by MBIA. While not explicit, the same is likely to hold true for Moody's.

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