OREANDA-NEWS. The appointment of a new legal representative as a function of today's announced management changes could help Petroleo Brasileiro S.A. (Petrobras) clear hurdles on the road to reporting financials, according to Fitch Ratings. The management change holds the potential to move forward the process of restoring credibility to the company's accounting practices.

The appointment of individual(s) without prior ties to the company and the Brazilian government -- and far removed from the scandal -- could facilitate the issuance of unqualified financial statements. One impediment has been the need for Petrobras' auditor to regain confidence in existing management and its internal controls.

On Wednesday, Petrobras CEO Maria das Gracas Foster and five of the oil company's executive directors resigned. Petrobras said in a statement that its board of directors will elect new executive board members at a meeting scheduled for Friday, Feb. 6.

Petrobras' ability to estimate and record an adjustment to its fixed assets and certify audited statements in a timely manner has been hampered by the scope of the corruption and the size of the potential impairment, which management indicated could be as high as BRL61 billion. A delay in reporting year-end audited financial statements past the 120-day requirement per Petrobras' covenants could open the door for its creditors to accelerate debt payments. The lack of clarity prolongs the uncertainty surrounding the company's ability to make the necessary adjustments to comply with the aforementioned covenant.

That said, we believe finding a willing and qualified candidate to sign off on Petrobras' financials will be challenging as the pool of potential applicants is relatively small. The source of candidates would likely need to be external, without prior links to the company, but would need to be willing to take potential legal risks absent legal indemnification. Finding a replacement who is not politically linked could also prove difficult, given the government's control of the company and its track record of interference in recent years.

On Tuesday, Fitch Ratings downgraded Petrobras' foreign and local currency issuer default ratings (IDRs) and outstanding debt ratings to 'BBB-' from 'BBB'. Concurrently, Fitch placed all of Petrobras' international and national scale ratings on Rating Watch Negative. These rating actions affected approximately USD50 billion of issued debt, including debt issued by PIFCO and PGF, which Petrobras unconditionally and irrevocably guarantees.

We believe there continues to be heightened risk surrounding Petrobras' ratings as its debt could be accelerated if it is not able provide year-end audited financial statements within 120 days of the period's end, plus a 60-day grace period. Without audited financials, the company lacks access to debt capital markets. The decision to delay the recording of an impairment highlights the difficulties of estimating the magnitude of the corruption overpayments and fair value of fixed assets.

For more information, please see our special report titled, "What Investors Want to Know: Petrobras; Scandal Could Affect Credit Quality," which is available on our website www.fitchratings.com