/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/140711.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Friday, July 11, 2014, Vol. 15, No. 136 Headlines A R G E N T I N A BANCO DE SERVICIOS: Moody's Rates AR$150MM Expected Issuance Caa1 CONTROL UNION: Moody's Assigns Caa1 Corporate Family Rating B R A Z I L CAIXA ECONOMICA: Moody's Assigns Ba3 (hyp) Rating to Tier 2 Notes CEMIG DISTRIBUICAO: Moody's Lowers Global Issuer Rating to Ba1 C A Y M A N I S L A N D S BOWAY LTD: Creditors' Proofs of Debt Due July 21 CORPORATE WORLD: Creditors' Proofs of Debt Due July 28 DYNAMIC GROWTH: Commences Liquidation Proceedings DYNAMIC GROWTH MASTER: Commences Liquidation Proceedings ERMITAGE GLOBAL: Creditors' Proofs of Debt Due July 31 MSL CHARTER: Creditors' Proofs of Debt Due July 21 OASIS MANAGEMENT: Commences Liquidation Proceedings TRIANGULAR ISM: Commences Liquidation Proceedings TRUESDALE LTD: Creditors' Proofs of Debt Due July 21 WESTPORT GLOBAL: Creditors' Proofs of Debt Due July 23 D O M I N I C A N R E P U B L I C AES DOMINICANA: Fitch Affirms 'B' IDR; Outlook Stable ITABO DOMINICANA: Fitch Affirms 'B' IDR; Outlook Stable G U Y A N A GUYANA: To Get $16MM IDB Loan for Water & Sanitation Services J A M A I C A DIGICEL GROUP: To Postpone Blocking of VoIP in Trinidad & Tobago UC RUSAL: Paulwell Puts Firm on Notice M E X I C O GRUPO FERTINAL: S&P Affirms 'CCC+' CCR; Outlook Negative P U E R T O R I C O PUERTO RICO ELECTRIC: S&P Lowers Rating on Revenue Bonds to 'B-' PUERTO RICO: Fitch Lowers Rating on $13.4BB GO Bonds to 'BB-' S T. L U C I A * ST. LUCIA: PM Agonises Over Ways to Cut Fiscal Deficit T R I N I D A D & T O B A G O CARIBBEAN AIRLINES: Faces TT$100 Million Loss - - - - - ================= A R G E N T I N A ================= BANCO DE SERVICIOS: Moody's Rates AR$150MM Expected Issuance Caa1 ------------------------------------------------------------------ Moody's Latin America Agente de Calificacion de Riesgo assigned a Caa1 global local-currency debt rating to Banco de Servicios y Transacciones S.A. (BST)'s eight expected issuance of Ar$150 million, which will be due in 21 months, under the Ar$ 500 million multicurrency MTN Program. At the same time, Moody's assigned Baa3.ar national scale local currency debt rating to the expected issuance. The outlook for all ratings is stable. The following ratings were assigned to BST's expected issuance: Eight Issuance up to AR$ 150 million expected debt issuance: Caa1 Global Local Currency Debt Rating, with stable outlook Baa3.ar Argentina National Scale Local Currency Debt Rating, with stable outlook Ratings Rationale Moody's explained that the local currency senior unsecured debt rating derives from BST's Caa1 global local currency deposit rating. Moody's also noted that seniority was taken into consideration in the assignment of the debt ratings. BST's caa1 baseline credit assessment reflects the entity's business model, which is highly dependent on the domestic macroeconomic and financial environment, its small franchise, wholesale funding structure and limited profitability. The rating is however supported by the bank's highly granular loan book and adequate asset quality. BST's business is composed of a wholesale operation, including trading activities, investment banking services, corporate finance, and also factoring activities and leasing to small businesses; and the consumer finance operation, through personal loans and credit cards. BST also provides fiduciary services and engages in loan securitization. Banco de Servicios y Transacciones is headquartered in Buenos Aires, with assets of Ar$2,574 million and equity of Ar$ 181 million as of March, 2014. CONTROL UNION: Moody's Assigns Caa1 Corporate Family Rating ----------------------------------------------------------- Moody's Latin America Agente de Calificacion de Riesgo assigned a Caa1 corporate family rating to Control Union Argentina S.A. (CUA) and a Baa2.ar national scale corporate family rating. The outlook for the ratings is stable. Moody's assigned the following ratings to Control Union Argentina S.A.: Corporate Family Rating: Caa1, stable outlook National Scale Corporate Family Rating: Baa2.ar, stable outlook Ratings Rationale In assigning a Caa1 corporate family rating to CUA, Moody's is reflecting the company's leading position as the main warrant and certificate of deposits issuer in the Argentinean market, with a 65% of market share, as well as its regional presence in Uruguay and Paraguay through subsidiaries. CUA's corporate family rating of Caa1 derives from its baseline credit assessment (BCA) of caa1. CUA issues certificates of deposit and commercial and financial warrants, which are supported by the clients' inventory stored in the warehouses. CUA plays an important role in the agribusiness sector given the few financing resources available for production activities, as it allows its customer access to better funding conditions and loans. The rating also consider the company's high operational costs given its business model, and captures the challenging operating environment of Argentina, characterized by economic deceleration, increasing inflation, and growing policy uncertainty, which can affect the entity's business volumes. Nevertheless, in the current deteriorating financial context, CUA benefits from higher demand for warrants on the part of financial institutions to support their loans. CUA's diversification by product and geography underpins its profitability and sets it apart from peers in the local warrant industry. The economies of scale the company has achieved also allow it to perform better surveillance and coverage of non- proprietary warehouses. The rating incorporates the company's moderate earning power generation, largely focused in agribusiness, as well as the volatility of its earnings. Net income of Ar$9.5 million as of YE 2013, was 32% lower than the net income registered the previous year, although pre-provision income to total assets ratio remains relatively stable, in the 30%-32% range. CUA's business model is supported by its 17-year track record in the warrant and quality certificates markets. As of December 2013, it had assets under management of Ar$2.1 billion, and, shareholders' equity of Ar$43.4million. CUA is 50% owned by Control Union World Group, and the remaining stake is in the hands of local shareholders. CUA's ratings also reflect its conservative capitalization wherein shareholders' equity represented 46.8% of total assets as of end December 2013. =========== B R A Z I L =========== CAIXA ECONOMICA: Moody's Assigns Ba3 (hyp) Rating to Tier 2 Notes ----------------------------------------------------------------- Moody's Investors Service (Moody's) has assigned a Ba3 (hyb) rating to the proposed USD-denominated non-viability Tier 2 subordinated notes to be issued by Caixa Economica Federal (Caixa, Baa2 local currency deposit rating; D/ba2 bank financial strength rating; stable outlook). The proposed notes will be due in 2024 with a call option in five years. The outlook on the ratings is stable. The capital securities are Basel III-compliant, and the terms and conditions have been defined with the purpose of considering the instrument as Tier 2 capital . The rating is subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents that Moody's has reviewed. The following rating was assigned to Caixa Economica Federal's non-viability subordinated securities: - Subordinated Foreign Currency Debt Rating: Ba3(hyb), outlook stable Ratings Rationale In line with Moody's "Global Banks" methodology for rating contractual non-viability securities, the rating of these securities is notched from Caixa's adjusted baseline credit assessment (adjusted BCA) of ba2. In the case of Caixa, the bank's adjusted BCA is the same as its BCA because parental and/or cooperative support is not applicable. The securities constitute contingent capital in Caixa's equity structure and are designed to absorb losses at or close to the point of non-viability (PONV). Therefore, we have assumed that Caixa would share potential losses in a non-viability-like event with the hybrid bondholders. The Ba3 (hyb) rating assigned to the proposed contractual non- viability subordinated notes is notched at one level below the adjusted BCA of ba2. This reflects the risk of full or partial write-downs to bondholders in the event that Caixa's common equity Tier 1 ratio falls below 4.5%, or if a decision is made to make a public sector capital injection -- or equivalent support; or if the Central Bank makes a discretionary evaluation, determining that a write-down is necessary. Moody's unsupported ba2 standalone credit assessment for Caixa incorporates the credit risks stemming from rapid loan growth, well above the system's levels, as well as the benefits that the bank's access to core funding provides in support of new business origination. Over the past two quarters, Caixa's loan growth has decelerated to a still-high year-over-year 33.9% in March 2014, down from levels of 43% CAGR over the past five years. At the same time, delinquency ratios have remained relatively stable at 3% of total loans since the end of 2012, which indicates some deterioration in the portfolio, as the bank expanded into new and unseasoned business lines. Caixa's fast growth pace has also led to declining core capital ratios, with tangible common equity measured as a percentage of risk weighted assets reaching 5% in March 2014. Rating Methodology & Last Rating Action The Credit Ratings for Caixa's Tier 2 Subordinated were assigned in line with Moody's existing Credit Rating Methodology entitled "Global Banks", dated May 2013. Moody's noted that on 1 May 2014 it released a request for comment in which the rating agency has requested market feedback on potential changes to its Credit Rating Methodology for non-viability contingent capital securities. If the revised Credit Rating Methodology is implemented as proposed, the Credit Rating for these hybrid instruments may not be affected. Please refer to Moody's Request for Comment, titled "Moody's Proposed Approach for Rating Bank 'High Trigger' Contingent Capital Securities and Revisions to Framework for Rating Non-viability Contingent Capital Securities: A Proposed Update to Moody's Global Banks Rating Methodology," for further details regarding implications of the proposed Credit Rating Methodology changes on Moody's Credit Ratings. The principal methodology used in this rating was Global Banks published in May 2013. The last rating action on Caixa Economica Federal occurred on 3 October 2013, when Moody's changed the outlook on its ratings to stable from positive as a result of the change in the sovereign ratings' outlook. Caixa Economica Federal is headquartered in Brasilia, Brazil, and reported total assets of BRL910.1 billion (USD403.3 billion) and equity of BRL34.7 billion (USD 5.4 billion) as of March 31 2014. CEMIG DISTRIBUICAO: Moody's Lowers Global Issuer Rating to Ba1 -------------------------------------------------------------- Moody's America Latina took the following rating actions related to Companhia Energetica de Minas Gerais (CEMIG, the Holding Company), CEMIG Distribuicao (CEMIG-D), and CEMIG Geracao e Transmissao (CEMIG-GT): (i) CEMIG (Holding Company): issuer ratings confirmed at Ba1 (global scale) and Aa2.br (national scale), with stable outlook. (ii) CEMIG-D: issuer ratings downgraded to Ba1 from Baa3 (global scale), and to Aa2.br from Aa1.br (national scale), with negative outlook. Senior unsecured ratings confirmed at Baa3 (global scale) and Aa1.br (national scale). (iii) CEMIG-GT: issuer ratings confirmed at Baa3 (global scale) and Aa1.br (national scale), with stable outlook. Senior unsecured ratings confirmed at Baa3 (global scale) and Aa1.br (national scale), with stable outlook. This concludes the review for possible downgrade that commenced on February 3rd. Ratings Rationale The downgrade of CEMIG-D's issuer ratings to Ba1/Aa2.br with negative outlook reflects primarily the deterioration of the credit metrics of the Company, on a stand-alone basis, as a result of the negative impact of the Third Periodic Tariff Review, which took effect in April 2013, and the lower than expected tariff adjustment that took place in April 2014. Moody's also foresee that CEMIG-D, similarly to other distribution companies in Brazil, may continue to face liquidity pressure in 2014 (and possibly beyond) due to the higher costs related to the purchase of thermal power electricity as a result of persistently tighter electricity supply conditions due to drought conditions, and the potential time lag of the relief that is expected to be provided by the Federal Government. The confirmation of CEMIG-D's Baa3 and Aa1.br senior unsecured ratings and stable outlook (including the ratings of CEMIG-D's BRL2 billion senior unsecured debentures issued in January 2013) reflect the underlying guaranty of the parent Holding Company and Moody's opinion about CEMIG's Baa3 rating on a consolidated basis, which Moody's expect will continue in the foreseeable future. The confirmation of CEMIG-GT's Baa3 and Aa1.br issuer and senior unsecured ratings (including the ratings of CEMIG-GT's BRL1.35 billion senior unsecured debentures issued in January 2012 as well as the BRL1.10 billion senior unsecured debentures issued in January 2010, which are both guaranteed by the Holding Company) reflects Moody's opinion about CEMIG's strategy to offset the potential significant negative impact from the loss of generation capacity (equivalent to 1,819 MW average energy) as a result of Provisional Measure #579 (pending court decisions), the return to the Federal Government of 18 generation concessions (equivalent to 642 MW average energy) by 2017 as well as the significant reduction of operating revenues (BRL336 million per year) and EBITDA since CEMIG accepted the accelerated renewal of its transmission concessions. CEMIG's strategy aims at contracting electricity to meet power purchase commitments with consumers in the free market (ACL) to replace the potential loss of 2,461 MW average energy by 2017, thus ensuring a steadier and more predictable stream of operating cash flows. The confirmation of CEMIG's Ba1/Aa2.br ratings with stable outlook results from the structural subordination of the holding company relative to its operating subsidiaries but still affirms Moody's opinion about CEMIG's Baa3 rating on a standalone consolidated basis and the high level of continued support from the State of Minas Gerais (Baa3/stable) according to Moody's methodology for government related issuers. Moody's ratings also take into account a relatively more conservative dividend distribution policy during the next few years due to the negative impacts of the Third Tariff Review, lower transmission revenues and lower level of generation assets as well as sound corporate governance. In 2013, CEMIG's electricity distribution business accounted for about 35% (including Light's participation) of the group's consolidated EBITDA, whereas generation accounted for 58%. According to CEMIG, its business portfolio aims at having the generation business correspond to 40% of the group's consolidated EBITDA, transmission 20% , and, distribution, in conjunction with other businesses, 40%. On the other hand, CEMIG plans to increase its activities in the natural gas distribution business through GASMIG, a subsidiary jointly controlled with Gaspetro. According to Moody's standard adjustments, from the last twelve months ended on December 31, 2011 (FY2011) to the last twelve months ended on March 31, 2014 (LTM 03/31/2014), CEMIG-D's Cash Flow from Operations pre-Working Capital (CFO pre-W/C) has fallen nearly 40%, from BRL1,486.6 million to BRL908.6 million, while indebtedness relative to EBITDA (Debt/EBITDA) has steadily deteriorated from 2.8 times to 6.1 times. During this period: (i) (CFO pre-W/C)-to-Debt has decreased to 12.2% from 28.2%; (ii) (CFO pre-W/C minus Dividends-to-Debt) ratio fell to 10.3% from 20.9%; and (iii) (CFO pre-WC + Interest)/Interest (or CFO pre-WC Interest Coverage) declined to 3.2x from 5.0x. During the same period, according to Moody's standard adjustments, CEMIG-GT's: (i) CFO pre-W/C increased to BRL 3,022.9 million from BRL1,909.2 million, a 58% increase; (ii) CFO pre-W/C minus Dividends-to-Debt ratio increased to 52.5% from 7.0%; (iii) CFO pre-WC Interest Coverage increased to 9.3x from 3.4x; (iv) CFO pre-WC-to-Debt increased to 61.3% from 21.1%; and (v) Debt/EBITDA decreased to 1.2 times from 2.9 times. For the 3-year period ended on December 31, 2013, according to Moody's standard adjustments, some of CEMIG's CFO metrics on a consolidated basis, deteriorated primarily due to the performance of CEMIG-D as well as less conservative dividend distributions over the period, so that: (i) CFO pre-W/C decreased to BRL 3.7 billion from BRL 4.87 billion; (ii) CFO pre-W/C minus Dividends- to-Debt ratio fell to 7.2% from 15.2%; (iii) CFO pre-W/C Interest Coverage increased to 5.4x from 4.4x; and (iv) CFO pre-W/C-to-Debt increased slightly to 29.2% from 26.1%. As per Moody's standard adjustments, in the LTM ended on 12/31/2013, CEMIG had consolidated net operating revenues of BRL 13,743 million (excluding construction revenues), EBITDA of BRL 5,228 million, an increase of 6.5% and 31.7%, respectively, when compared with the LTM ended on 12/31/2012. In accordance with Moody's methodology for government related issuers, or GRIs, the implied Baa3 consolidated rating of CEMIG reflects the combination of the following inputs: - Baseline Credit Assessment (BCA) of 10 (mapping to a baa3) - High Level of Dependence (70%) - Strong Level of Support (51%-70%) - The Baa3 rating of the State of Minas Gerais which has a stable outlook. CEMIG is a GRI as defined in Moody's rating methodology "Government-Related Issuers: Methodology Update", published in July 2010. Moody's methodology for GRIs is to systematically incorporate into the rating both the stand-alone credit risk profile or Baseline Credit Assessment (BCA) of the company as well as an assessment of the likelihood that its government owner would provide extraordinary support to the company's obligations. The BCA of a GRI is expressed on a 1-21 scale or as a range within the 1-21 scale, according to the issuer's preference, where one represents the equivalent risk of an Aaa, two a Aa1, three a Aa2 and so forth. CEMIG is an integrated power utility group, with equity stakes in more than 200 companies, operating in the electricity generation, transmission and distribution sectors. CEMIG is publicly traded on the local (BM&FBOVESPA), New York (NYSE) and Madrid (LATIBEX) stock exchanges. The government of the State of Minas Gerais holds 50.96% of CEMIG's voting capital and 22% of its total capital. CEMIG is currently the largest integrated electricity utility in Brazil. CEMIG-D is one of the largest distribution companies in Brazil, with a total concession area of 567 thousand square kilometers (Km2), serving 774 cities, and 7.8 million consumers. Presently, CEMIG-D accounts for 50% of CEMIG's consolidated net sales, 18% of consolidated EBITDA, and 29% of consolidated indebtedness. CEMIG-D is CEMIG's second largest company in terms of EBITDA, following CEMIG-GT, which accounts for approximately 52% of CEMIG's consolidated EBITDA. CEMIG is currently one of the largest Brazilian electricity generation groups, with total installed capacity of 7,142 MW. CEMIG controls CEMIG-D and CEMIG-GT owning 100% of their voting capital. ========================== C A Y M A N I S L A N D S ========================== BOWAY LTD: Creditors' Proofs of Debt Due July 21 ------------------------------------------------ The creditors of Boway Ltd are required to file their proofs of debt by July 21, 2014, to be included in the company's dividend distribution. The company commenced wind-up proceedings on June 9, 2014. The company's liquidator is: Ogier c/o Justin Savage Telephone: (345) 815 1816 Facsimile: (345) 949-9877 89 Nexus Way, Camana Bay Grand Cayman KY1-9007 Cayman Islands CORPORATE WORLD: Creditors' Proofs of Debt Due July 28 ------------------------------------------------------ The creditors of Corporate World Opportunities Limited are required to file their proofs of debt by July 28, 2014, to be included in the company's dividend distribution. The company commenced liquidation proceedings on June 5, 2014. The company's liquidator is: K.D. Blake c/o James Macfee Century Yard, Cricket Square Elgin Avenue, Grand Cayman P.O. Box 493 Grand Cayman KY1-1106 Cayman Islands Telephone: +1 (345) 914-4465/ +1 (345) 949-4800 Facsimile: +1 (345) 949-7164 DYNAMIC GROWTH: Commences Liquidation Proceedings ------------------------------------------------- On June 19, 2014, the sole shareholder of Dynamic Growth Opportunities Offshore, Ltd resolved to voluntarily liquidate the company's business. Creditors are required to file their proofs of debt to be included in the company's dividend distribution. The company's liquidator is: 1832 Asset Management L.P Simon Mielniczuk 1832 Asset Management L.P 40 King Street West, 52nd Floor Toronto, Ontario, M5H 1H1 Canada Telephone: +1 (416) 365 5142 DYNAMIC GROWTH MASTER: Commences Liquidation Proceedings -------------------------------------------------------- On June 19, 2014, the sole shareholder of Dynamic Growth Opportunities Master, Ltd. resolved to voluntarily liquidate the company's business. Creditors are required to file their proofs of debt to be included in the company's dividend distribution. The company's liquidator is: 1832 Asset Management L.P Simon Mielniczuk 1832 Asset Management L.P 40 King Street West, 52nd Floor Toronto, Ontario, M5H 1H1 Canada Telephone: +1 (416) 365 5142 ERMITAGE GLOBAL: Creditors' Proofs of Debt Due July 31 ------------------------------------------------------ The creditors of Ermitage Global Multi-Strategy Fund are required to file their proofs of debt by July 31, 2014, to be included in the company's dividend distribution. The company commenced liquidation proceedings on June 9, 2014. The company's liquidator is: K.D. Blake c/o Jason Robinson P.O. Box 493 Grand Cayman KY1-1106 Cayman Islands Telephone: +1 (345) 815-2600 / +1 (345) 949-4800 Facsimile: +1 (345) 949-7164 MSL CHARTER: Creditors' Proofs of Debt Due July 21 -------------------------------------------------- The creditors of MSL Charter Corp. are required to file their proofs of debt by July 21, 2014, to be included in the company's dividend distribution. The company commenced wind-up proceedings on June 18, 2014. The company's liquidator is: Jeffrey Soffer 19950 West Country Club Drive, Tenth Floor Aventura, FL 33180, USA Telephone: +1 (305) 937 6262 Facsimile: +1 (305) 682 4109 OASIS MANAGEMENT: Commences Liquidation Proceedings --------------------------------------------------- On June 19, 2014, the shareholders of Oasis Management Holdings II Ltd. resolved to voluntarily liquidate the company's business. Creditors are required to file their proofs of debt to be included in the company's dividend distribution. The company's liquidator is: Phillip Meyer c/o Oasis Management (Hong Kong) LLC Suite 2136, The Center 99 Queen's Road Central Hong Kong TRIANGULAR ISM: Commences Liquidation Proceedings ------------------------------------------------- On June 19, 2014, the sole shareholder of Triangular ISM Fund Ltd resolved to voluntarily liquidate the company's business. Creditors are required to file their proofs of debt to be included in the company's dividend distribution. The company's liquidator is: Alun Davies Walkers 190 Elgin Avenuem George Town Grand Cayman KY1-9001 Cayman Islands Telephone: (345) 914 6365 TRUESDALE LTD: Creditors' Proofs of Debt Due July 21 ---------------------------------------------------- The creditors of Truesdale Ltd. are required to file their proofs of debt by July 21, 2014, to be included in the company's dividend distribution. The company commenced wind-up proceedings on June 9, 2014. The company's liquidator is: Ogier c/o Justin Savage Telephone: (345) 815 1816 Facsimile: (345) 949-9877 89 Nexus Way, Camana Bay Grand Cayman KY1-9007 Cayman Islands WESTPORT GLOBAL: Creditors' Proofs of Debt Due July 23 ------------------------------------------------------ The creditors of Westport Global Capital Ltd are required to file their proofs of debt by July 23, 2014, to be included in the company's dividend distribution. The company commenced wind-up proceedings on April 3, 2014. The company's liquidator is: Ogier c/o Anna Cummings Telephone: 815 1858 Facsimile: 949-9877 89 Nexus Way, Camana Bay Grand Cayman KY1-9007 Cayman Islands =================================== D O M I N I C A N R E P U B L I C =================================== AES DOMINICANA: Fitch Affirms 'B' IDR; Outlook Stable ----------------------------------------------------- Fitch Ratings has affirmed AES Andres Dominicana SPV's (AES Dominicana) Foreign Currency Issuer Default Rating (IDR) at 'B' with a Stable Outlook. Concurrently, Fitch has upgraded AES Andres national long-term rating to 'A(dom)' from 'A-(dom)'; Stable Outlook. KEY RATING DRIVERS AES Dominicana's ratings reflect the Dominican Republic's (DR) electricity sector's high dependency on transfers from the central government to service its financial obligations, a condition that links the credit quality of the distribution companies (EDEs) and generation companies to that of the sovereign. Low collections from end-users, high electricity losses and subsidies have undermined distribution companies' cash generation capacity, exacerbating generation companies' dependence on public funds to cover the gap produced by insufficient payments received from distribution companies. AES Dominicana's ratings also consider its solid asset portfolio, strong balance sheet, and well- structured purchase power agreements (PPAs). The upgrade of AES Andres national long-term rating also reflects its improving revenue diversification given its growing sales of natural gas to non-related parties and the fact that the company owns and operate the only LNG import facility in the country. Sector's Dependence on Government Transfers High energy distribution losses (above 30% in last five years), low level of collections and important subsidies for end users have created a strong dependence on government transfers. This dependence has been exacerbated by country's exposure to fluctuations in fossil-fuel prices and energy demand growth (4.8% CAGR in 2009 - 2013). The regular delays in government transfers pressure working capital needs of generators and add volatility to their cash flows. This situation increases the risk of the sector, especially at a time of rising fiscal vulnerabilities affecting the Central Government's finances. High-Quality Asset Base AES Dominicana's ratings reflect its high-quality generation assets, which consist of Andres and Dominican Power Partners DPP with an aggregate installed generating capacity of 555 MW. Andres is the company's newest and most efficient power plant, and ranks among the lowest-cost electricity generators in the country. Andres' combined-cycle plant burns natural gas and is expected to be fully dispatched as a base-load unit as long as the liquefied natural gas (LNG) price is not more than 15% higher than the price of imported fuel oil No. 6. By 2017, the aggregate capacity of AES Dominicana will increase in approximately 100 MW as result of the development of a combined cycle facility in DPP's power plant. The construction of this project would start in third quarter of 2014. Strong Credit Metrics The company presents strong credit metrics for the rating category. At March 2014, total debt to EBITDA was 0.7x, while net total debt to EBITDA was 0.0x. AES Dominicana plans to reduce DPP capital to approximately USD 89 million during 2014. Fitch believes this transaction will not materially affect the combined financial profile. In 2013, EBITDA increased to USD 220 million from USD 182 million and the EBITDA margin to 35.5% from 33.9%. This improvement was driven mainly by higher sales of electricity in the spot market and higher sales of natural gas. Cash Flow Volatility Persists The deficit of the sector and delays in government transfers continue to pressure the company's cash flow. For the LTM March 2014, AES Dominicana generated USD157 million of cash flow from operations (CFFO), above the USD45 million posted in FY2012. This increase was mainly explained by lower inventories, increased payables, higher income and lower income taxes paid. Days of sales (DOS) outstanding totalled 107 days for Andres and 93 for DPP at March 2014 (125 and 122 at December 2013). Fitch does not expect significant reductions in the collection period in the short to medium term given the deficit of the sector. Debt Structure Adds Flexibility The company's debt structure with a single maturity in 2020 provides ample financial flexibility and eliminates liquidity risk. As of March 31, 2014, AES Dominicana had cash and marketable security holdings of USD178 million. RATING SENSITIVITIES A positive rating action could follow if the DR's sovereign ratings are upgraded or if the electricity sector achieves financial sustainability through proper policy implementation. A further increase of sales of natural gas outside the electricity sector may also impact positively the ratings. A negative rating action would follow if the DR's sovereign ratings are downgraded, if further deterioration of the sector's key performance indicators reinforces the dependence on government transfers or if the company's operational and financial performance deteriorates to the point of increasing the ratio of Debt-to-EBITDA to 5x for a sustained amount of time. Fitch has affirmed the following: AES Andres Dominicana -- Long-Term FC IDR at 'B'; Outlook Stable; -- Senior Unsecured notes rating at 'B/RR4'. Fitch has upgraded the following: AES Andres B.V. -- Long-Term National rating to 'A(dom)' from 'A-(dom)'; Outlook Stable. ITABO DOMINICANA: Fitch Affirms 'B' IDR; Outlook Stable ------------------------------------------------------- Fitch Ratings has affirmed ITABO Dominicana SPV's (ITABO) foreign currency and local currency Issuer Default Ratings (IDRs) at 'B'. The Rating Outlook is Stable KEY RATING DRIVERS ITABO's ratings reflect the electricity sector's high dependency on transfers from the central government to service its financial obligations, a condition that links the credit quality of the distribution companies (EDEs) and generation companies to that of the sovereign. Low collections from end-users as well as high electricity losses and subsidies have undermined distribution companies' cash generation capacity, exacerbating generation companies' dependence on public funds to cover the gap produced by insufficient payments received from distribution companies. ITABO's ratings also consider its low-cost generation portfolio, strong balance sheet and well-structured purchased power agreements (PPAs), which contribute to strong cash flow generation and bolster liquidity. Sector's Dependence on Government Transfers High energy distribution losses (above 30% in the last five years), low level of collections and important subsidies for end users have created a strong dependence on government transfers. This dependence has been exacerbated by country's exposure to fluctuations in fossil-fuel prices and robust energy demand growth (4.8% CAGR in 2009-2013). The regular delays in government transfers pressure working capital needs of generators and add volatility to their cash flows. This situation increases the sector's risk, especially at a time of rising fiscal vulnerabilities affecting the Central Government's finances. Low-Cost Asset Portfolio ITABO's ratings incorporate its strong competitive position as one of the lowest cost thermoelectric generators in the country, ensuring the company's consistent dispatch of its generation units. The company operates two low-cost coal-fired thermal generating units and a third peaking plant that runs on Fuel Oil #2 (San Lorenzo) and sells electricity to three distribution companies in the country through long-term U.S. dollar- denominated PPAs. The company expects to remain as a base load generator even after a 700 MW coal generation project, sponsored by the government, begins operations by 2017. Fitch expects the impairment of the San Lorenzo plant, which occurred in 2013, will not materially affect the company's cash-generation capacity. Adequate Credit Metrics The company presents strong credit metrics for the rating category. Leverage, measured as total debt to EBITDA, fell to 1.8x at March 2014 from 2.4x at Dec. 2012. In the same period, EBITDA increased to USD63.7 million from USD 54.1 million, while the EBITDA margin fell to 28.6% from 22.5%. This improvement was driven mainly by lower prices of coal and lower purchases of energy in the spot market (as a result of increased generation resulting from fewer plant stoppages). Net results for 2013 were affected by a reversion of interest expenses of USD10.4 million and an asset impairment of USD 16.2 million (San Lorenzo unit). CFFO improvement For the LTM ended in March 2013, ITABO generated USD60.2 million of cash flow from operations (CFFO), above the USD33 million posted in FY2012. This improvement derived from the increased EBITDA and the sale of long-term receivables owed by DisCos for USD21.1 million. However, like other generators in the country, the company struggles to collect receivables from distribution companies. At the end of first-quarter 2014, days of sale (DOS) stood at 91 days (vs. 143 in December 2013). Fitch expects the continuation of arrears accumulation to add further volatility to ITABO's cash flow generation in the future. Debt Structure Adds Flexibility The company's debt structure is quite manageable with a six-year average life which properly contributes to the reduction of liquidity risk. As of March 31, 2014, ITABO's cash and marketable security holdings stood at USD88 million, providing ample liquidity cushion to meet operational and financial needs. RATING SENSITIVITIES A positive rating action could follow if the Dominican Republic's sovereign ratings are upgraded or if the sector achieves financial sustainability through proper policy implementation. A negative rating action would follow if the Dominican Republic's sovereign ratings are downgraded, if further deterioration of the sector's key performance indicators reinforces the dependence on government transfers, or if the company's operational and financial performance deteriorates to the point of increasing the ratio of debt to EBITDA to 5x in a sustained fashion. Fitch has affirmed the following ratings: -- ITABO Dominicana SPV's foreign currency IDR at 'B', Stable Outlook; -- Empresa Generadora de Electricidad Itabo, S.A.'s foreign currency and local currency IDRs at 'B', Stable Outlook; -- ITABO Dominicana SPV's outstanding notes due in 2020 at 'B/RR4'. =========== G U Y A N A =========== GUYANA: To Get $16MM IDB Loan for Water & Sanitation Services ------------------------------------------------------------- Guyana will strengthen and improve access to drinking water and sanitation services with a US$16,838,250 loan approved by the Inter-American Development Bank (IDB). The program will also receive support from the Caribbean Investment Fund of the European Union totaling US$14,838,250. The initiative is known as the Program to Improve Water and Sanitation Infrastructure and Supply. It calls for infrastructure projects to build, upgrade and expand water treatment plants and enhance access to adequate sanitation through measures to strengthen the supplier Guyana Water Incorporated (GWI), the design and implementation of a program to monitor non-registered water and a public awareness campaign on the use of water and proper hygiene practices. Despite progress over the past decade in access to safe sources of water and sanitation, water and sewage services in Georgetown and other coastal areas still face constant institutional, financial and operational challenges. For instance, the quality of water supply services is hindered by a deterioration in water distribution networks, with 50 percent to 70 percent of water used going unaccounted for at the national level (and more than 70 percent in Georgetown). Furthermore, the current sewage system covers just 48,000 people living in Georgetown - about 6.5% of the national population. The rest of the population seeks individual solutions, but in some cases, these arrangements are not adequate. The program is expected to increase the percentage of households with 24-hour access to water and water pressure that is in line with national standards, reduce the percentage of water that goes unaccounted for and raise the number of homes with improved access to drinking water and proper sanitation arrangements. The IDB loan is for 30 years and comes from its Ordinary Capital and Fund for Special Operations. It has a grace period of five years and a fixed interest rate (and a rate of 0.25 percent rate in the case for the funds of the Fund for Special Operations). ============= J A M A I C A ============= DIGICEL GROUP: To Postpone Blocking of VoIP in Trinidad & Tobago ---------------------------------------------------------------- RJR News reports that the Telecommunications Authority of Trinidad and Tobago has asked Digicel to hold off on blocking certain third-party Voice over Internet Protocol (VoIP) applications, as it has done in Jamaica, while an investigation is done. A report in the Trinidad Express newspaper said Digicel Group has acceded to the request, effective Tuesday, July 8, according to RJR News. Digicel reportedly said it welcomed the TATT investigation, the report relates. The telecommunications company has already blocked its customers in Jamaica and Haiti from accessing the free call applications. They include Viber, Tango and Nimbuzz, the report notes. Selby Wilson, Chairman of the TATT, described the block as a retrograde step, the report notes. About Digicel Group Headquartered in Jamaica, Digicel Group Limited provides mobile telecommunications services in the Caribbean and the Central American markets. The company's services include rollover minutes, GPRS data services, prepaid roaming, SMS to e-mail, and multimedia messaging, as well as broadband. * * * As reported in the Troubled Company Reporter-Latin America on May 27, 2014, Fitch Ratings has affirmed the ratings of Digicel Group Limited (DGL) and its subsidiaries Digicel Limited (DL) and Digicel International Finance Limited (DIFL), collectively referred as 'Digicel' as: DGL --Long-term Issuer Default Rating (IDR) at 'B' with a Stable Outlook; --USD 2 billion 8.25% senior subordinated notes due 2020 at 'B- /RR5'; --USD 1 billion 7.125% senior unsecured notes due 2022 at 'B- /RR5'. DL --Long-term IDR at 'B' with a Stable Outlook; --USD 800 million 8.25% senior notes due 2017 at 'B/RR4'; --USD 250 million 7% senior notes due 2020 at 'B/RR4'; --USD 1.3 billion 6% senior notes due 2021 at 'B/RR4'. DIFL --Long-term IDR at 'B' with a Stable Outlook; --Senior secured credit facility at 'B+/RR3'. UC RUSAL: Paulwell Puts Firm on Notice -------------------------------------- RJR News reports that Jamaica Mining Minister Phillip Paulwell has said that the Jamaican Government is taking steps to ensure that UC Rusal, the Russian aluminum company, does not continue to "hold Jamaica at ransom" over the reopening of the Kirkvine and Alpart alumina refineries. Mr. Paulwell told the Jamaican House of Representatives that, with new developments in the global bauxite sector, Jamaica needs to make decisions in its best interest to get the plants up and running again, according to RJR News. Accordingly, Mr. Paulwell said that the government had placed UC Rusal on notice, by letter dated July 1, "that it is my intention to revoke the special mining leases, in respect of the Alpart and Kirkvine refineries, in the event that bona fide mining operations do not commence within six months," the report notes. The two plants have been closed since 2009. UC Rusal controls 65 per cent of Jamaica's alumina production capacity and operates three of the island's four alumina refineries. * * * As reported in the Troubled Company Reporter-Latin America on March 31, 2014, RJR News said that UC Rusal reported a massive increase in net losses in the year to December 31. This was due mainly to a large impairment cost and one-off restructuring charges combined with lower production and a fall in aluminum prices, according to RJR News. The report noted that the company reported a net loss of US$3.2 billion. It suffered a US$528 million loss in 2012. =========== M E X I C O =========== GRUPO FERTINAL: S&P Affirms 'CCC+' CCR; Outlook Negative -------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'CCC+' global scale corporate credit rating on Grupo Fertinal S.A. de C.V. (Fertinal). The outlook remains negative. The rating on Fertinal is based on S&P's expectation that the company's financial performance would improve modestly from very weak levels as a result of expected favorable DAP and MAP prices, which are the main drivers for the company. "As a result of more favorable prices, the company's EBITDA was about $5 million during the first quarter of 2014, compared with a loss of about $400,000 during the same period a year-earlier," said Standard & Poor's credit analyst Fabiola Ortiz. S&P expects that the company will improve its EBITDA generation as a result of expected recovery of DAP and MAP prices during the second half of the year. Moreover, during last quarter of 2014, the company will substitute the use of fuel oil for natural gas in its operating process, which could lead to a further reduction in its operating costs. ===================== P U E R T O R I C O ===================== PUERTO RICO ELECTRIC: S&P Lowers Rating on Revenue Bonds to 'B-' ---------------------------------------------------------------- Standard & Poor's Ratings Services has lowered its rating on Puerto Rico Electric Power Authority's (PREPA) power revenue bonds four notches to 'B-' from 'BB'. The rating remains on CreditWatch with negative implications, where S&P originally placed it June 18, 2014. "The downgrade reflects our view of PREPA's inability to successfully negotiate renewal of a liquidity facility it used to purchase oil," said Standard & Poor's credit analyst Judith Waite. S&P believes this increases the risk that the authority will attempt to restructure long-term debt, as a law passed in June allows. The negotiating deadline for the revolving credit that matured in January has been extended to July 31. If the facility is not renewed, PREPA will have to repay the $146 million outstanding. If a second revolving credit facility, which matures Aug. 14, 2014, is similarly not renewed, the authority will have to repay the $525 million outstanding. Normally, it repays the lines with revenue associated with fuel costs recovered from customers. Because PREPA does not have surplus liquidity to repay the amounts, the utility might consider using an option under the new law, which "allows public corporations, among other things, to adjust their debts in the interest of all creditors affected thereby; provides procedures for the orderly enforcement and, if necessary, the restructuring of debt in a manner consistent with the Commonwealth Constitution and the U.S. Constitution; and maximizes returns to all stakeholders by providing them going concern value based on each obligor's capacity to pay." PREPA has $8.6 billion of power revenue bonds outstanding. A pledge of the electric system's net revenues secures the bonds. S&P lowered the rating and placed it on CreditWatch negative in response to PREPA's representation that the Government Development Bank would not provide interim liquidity if the authority does not renew its two liquidity facilities. S&P lowered the rating again when the legislation passed. The CreditWatch placement is pending the outcome of PREPA's negotiations with the banks. S&P expects to resolve the CreditWatch within the next three months. PUERTO RICO: Fitch Lowers Rating on $13.4BB GO Bonds to 'BB-' ------------------------------------------------------------- Fitch Ratings has downgraded the ratings of various Commonwealth of Puerto Rico bonds as follows: -- $13.4 billion Commonwealth of Puerto Rico GO bonds to 'BB-' from 'BB'; -- $6.7 billion Puerto Rico Sales Tax Financing Corporation (COFINA) senior lien sales tax revenue bonds to 'BB-' from 'AA-'; -- $8.5 billion COFINA first subordinate lien sales tax revenue bonds to 'BB-' from 'A+'; -- $2.9 billion Employees Retirement System of the Commonwealth of Puerto Rico (ERS) pension funding bonds to 'BB-' from 'BB'; -- $3.4 billion Puerto Rico Aqueduct and Sewer Authority (PRASA) revenue bonds, series A, B, 2012A and 2012B (senior lien) to 'B+' from 'BB+'; -- $658 million PRASA Commonwealth guaranty revenue bonds to 'BB-' from 'BB'; -- $1.4 billion Puerto Rico Public Building Authority government facilities revenue bonds guaranteed by the Commonwealth to 'BB-' from 'BB'. The 'B+' rating on PRASA's senior lien revenue bonds is on Negative Watch in light of near-term liquidity requirements dependent on third-party extension of credit or market access. All other ratings carry a Negative Rating Outlook. The Rating Outlook indicates the direction a rating is likely to move over a one to two-year period. A Rating Watch indicates that there is a heightened probability of a rating change and the likely direction of such change. The rating actions follow passage of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, which establishes a restructuring regime for public corporations that may become insolvent. The Act contemplates two procedures for addressing debt obligations. While they are intended to restore solvency over the long-term, both procedures entail debt restructuring that would trigger suspension of debt payments and preclude the timely payment of principal and interest during the pendency of the proceedings. Fitch downgraded the rating on $8.7 billion of Puerto Rico Electric Power Authority (PREPA) power revenue bonds to 'CC' on June 26 based on the agency's belief that a debt restructuring or default by the Authority is probable in light of the Act, and given the near-term liquidity demands brought on by maturing bank lines of credit and the required repayment of outstanding loans due in July and August 2014. Fitch does not rate any other Commonwealth appropriation- or special tax-secured debt. SECURITY COMMONWEALTH GO & GUARANTEED: GO bonds are secured by the good faith, credit and taxing power of the Commonwealth of Puerto Rico. Strong legal provisions for GO debt include a constitutional first claim on Commonwealth revenues, including transportation-related and rum excise tax revenues that are dedicated to specific authorities and other bonds. Bonds of the Puerto Rico Public Building Authority and PRASA that are guaranteed by the Commonwealth are backed by the Commonwealth's commitment to draw from any funds available in the treasury. The good faith and credit of the Commonwealth is pledged to any such deficiency payments, resulting in a rating that is the same as the Commonwealth's GO bonds. COFINA: COFINA bonds have a security interest in and are payable from the Commonwealth's sales and use tax. COFINA is an independent governmental instrumentality of the Commonwealth and affiliate of the Government Development Bank for Puerto Rico (GDB) established by specific legislation. PRASA: PRASA bonds are secured by a gross lien of all authority revenues related to PRASA's combined water and sewer system, as defined in the amended master agreement of trust (MAT), senior to all other debt or expenses of PRASA. Under the provisions of the restructuring act, the gross lien will not be enforceable and is converted effectively to a net lien similar to that under Chapter 9 of the Federal Bankruptcy Code that applies to special revenue bonds. EMPLOYEES RETIREMENT SYSTEM: The ERS bonds are a limited, non- recourse obligation of the pension system, payable from and secured by a pledge of statutorily required employer contributions to the system. KEY RATING DRIVERS COMMONWEALTH GO & GUARANTEED: The Commonwealth has repeatedly demonstrated its focus on bolstering the fundamentals of its general credit, including through continued progress in closing the general fund budget deficit and limiting exposure to public corporation shortfalls. However, the one-notch rating downgrade reflects marginal deterioration in credit fundamentals despite these efforts, with continued economic weakness, revenue underperformance, and challenges to fiscal stabilization efforts, including reform of the teachers' pension system. Although passage of the Public Corporation Debt Enforcement and Recovery Act does not have a direct negative effect on the GO credit, Fitch will closely monitor how passage of the Act affects future market access and commitment to bondholders. Fitch continues to believe that the ultimate success of efforts to put the Commonwealth's finances on a sustainable path will be driven by the performance of the economy. Maintenance of the Negative Outlook reflects both the continued weakness of economic performance and the significant implementation risks to achieving budget balance. COFINA: Fitch is lowering its rating on the COFINA bonds to the level of the Commonwealth's general credit. Pursuant to Fitch criteria, the amount of credit given to a special tax security is tempered by the risk that the state, faced with extreme financial stress, could exercise its sovereign powers to the detriment of bondholders. Although COFINA bonds are specifically excluded in the Public Corporation Debt Enforcement and Recovery Act, the passage of the Act has substantially increased Fitch's assessment of the risk that the Commonwealth may take steps to the detriment of COFINA bondholders if the Commonwealth considered that a fiscal emergency and its need to provide essential services required legislative action limiting revenues available to COFINA. Such an action would clearly be subject to challenge by bondholders on grounds of unconstitutional impairment of contract similar to the action currently being pursued by bondholders challenging the Act. While bondholders could ultimately prevail on such claims, a default in payment would precede any such outcome. Fitch's ratings reflect the probability of default and do not consider the possible ultimate recovery on a successful impairments claim. As such, in Fitch's opinion, following the change in law a rating distinction between the GO and COFINA credits is no longer warranted. Fitch does not place COFINA debt below the Commonwealth's GO as the agency believes that if circumstances warranted a shift in COFINA revenues to fund the general government, the GO bonds would be equally likely to default. Similarly, there is no longer a rating distinction between the senior and subordinate COFINA liens, as the legal security of each would warrant a higher rating in the absence of Commonwealth risk factors. PRASA: The downgrade to 'B+' from 'BB+' reflects the downgrade of the Commonwealth's GO rating as well as the implementation of the Act and resulting weakened legal protections of public corporation bondholders (including PRASA bondholders). Further, the downgrade on PRASA's rating reflects the central government's ability to directly or indirectly exert influence that could have adverse implications to PRASA's operations, pointing to a rating that Fitch currently believes can be no higher than that of the Commonwealth GO. Fitch notes that a one-notch distinction below the Commonwealth GO as well as Negative Watch is warranted despite PRASA's currently sound operating position, due to the market challenges PRASA may face over the coming months as it seeks to refinance certain bank lines of credit (LOC) and procure funds for its largely regulatory-driven capital improvement program (CIP). EMPLOYEES RETIREMENT SYSTEM: The ERS bonds continue to be rated on par with the Commonwealth's GO rating, reflecting the strong legal obligation for employers to make contributions to the system, the long history of timely payment of pension contributions to the system, satisfactory coverage of debt service requirements by pledged revenues, and the general credit quality of the Commonwealth of Puerto Rico, the largest contributor. Puerto Rico Supreme Court decisions provide protection against the Commonwealth legislature lowering the statutory contribution rate, and required employer contributions to the system have increased in recent years. Given that GO bondholders have a claim on Commonwealth revenues senior to contributions due to the pension systems, the rating on the ERS bonds can be no higher than the Commonwealth GO rating. Like COFINA, the ERS was specifically excluded in the Debt Enforcement and Recovery Act. RATING SENSITIVITIES COMMONWEALTH GO & GUARANTEED: Maintenance of the current rating will require stabilization in economic performance and emergence from the long recessionary period. In addition, failure to show continued progress toward structural balance would pressure the rating. Finally, consistent external market access, including for intra-year general fund cashflow borrowing, is important to the stability of the rating. COFINA: Going forward, the rating on the COFINA bonds will be sensitive to changes in the Commonwealth's GO rating, to which it is now linked. The rating continues to be sensitive to the performance of the pledged sales tax, although for the foreseeable future the GO rating is expected to be the limiting factor. PRASA: Difficulty or perceived inability to refinance PRASA's outstanding bank LOCs and access funds for its CIP in the coming months would put negative pressure on PRASA's rating. Also, the rating on PRASA's revenue bonds likely will be influenced by movement of the Commonwealth GO rating for the foreseeable future. Finally, deterioration in financial results that threaten PRASA's ability to achieve at least break-even results would likely result in downward pressure on the rating. EMPLOYEES RETIREMENT SYSTEM: The rating on the ERS bonds is sensitive to changes in the Commonwealth's GO rating, to which it is linked due to the dominant Commonwealth role in making the employer contributions that secure the bonds. The rating is also sensitive to the maintenance of adequate debt service coverage from such contributions. CREDIT PROFILE COMMONWEALTH GO & GUARANTEED The 'BB-' rating on Puerto Rico's GO and GO-guaranteed debt reflects demonstrated weakness in the Puerto Rican economy, very high liabilities including outstanding debt and unfunded pensions, still challenged financial operations, and limited financial flexibility. The Commonwealth's economy has been in recession since 2006. Although some recent information suggests nascent stabilization, albeit at weak levels, results are mixed. Nonfarm employment has been essentially flat in 2014 after declines in 2013. The unemployment rate of 13.8% for May 2014 compares favorably to a peak of 16.9% in May 2010, but incorporates continued drops in the labor force that have once again accelerated year-over-year in recent months. The rate of decline in GDB's monthly economic activity index has slowed notably this year; however, monthly year-over-year declines persist (down 1.1% in May). Fitch sees the economy as a primary driver of future rating direction for the GO credit. Following a long history of large budget deficits and a reliance on borrowing to fund operations, the general fund gap has been reduced considerably. Most recently, the enacted fiscal 2015 budget reportedly continues strong efforts to bring general fund spending in line with revenues. Fitch believes achieving and maintaining balance will remain challenging, but the commitment of management to this goal appears strong. On the downside, the Commonwealth has had to grapple with significant underperformance in corporate tax revenues in fiscal 2014. The Commonwealth's above-average reliance on corporate taxes remains a concern, given the potential volatility and concentration inherent in these revenue streams, and management is reportedly considering a substantial revision to the revenue system. Puerto Rico's bonded debt levels and unfunded pension liabilities are very high relative to U.S. states, with a large amount of outstanding debt issued for deficit financing purposes. Pension funding will remain exceptionally low even with the significant pension reform effort undertaken by the current administration, and the April 2014 Puerto Rico Supreme Court decision finding recent reforms of the teachers' retirement system unconstitutional presented the administration with yet another challenge. The Commonwealth has stated in the past that without reform the teachers retirement system would confront an annual cash flow deficit beginning in fiscal 2020. Puerto Rico's capital markets access deteriorated steeply in 2013 and the Commonwealth has become increasingly reliant on markets other than traditional municipal investors for external financing. The successful sale of $3.5 billion in GO bonds in March 2014 provided some critical breathing room, but needs remain, including for general fund cashflow borrowing. Reliable external market access is important to long-term stability, and how passage of the Act affects market access will be a significant rating factor for Fitch. COFINA Bonds issued by COFINA are secured by the Commonwealth's island- wide sales and use tax, which became effective on Nov. 15, 2006. The tax was instituted as part of Puerto Rico's 2006 tax and fiscal reform, with COFINA created to refinance appropriation debt of the Commonwealth and thereby free up general fund resources. The Commonwealth expanded leveraging of the revenue stream in 2009 as part of a fiscal and economic package designed to stimulate Puerto Rico's economy and address recurring budget deficits. Annual debt service coverage by pledged revenues is considerable; based on fiscal 2013 revenues, debt service for the year was covered 5.2x for the senior lien and 1.9x for the first subordinate lien. However, the final maturity of the bonds is very long and the program's rising debt service profile requires some growth in revenues to achieve coverage of later maturities, particularly for the first subordinate lien bonds. Fiscal 2013 revenues would be sufficient to fund debt service without growth through 2056 (senior lien) and 2030 (first subordinate lien). These figures do not include the additional 0.5% recently added to the pledged sales tax to boost coverage or the above-trend growth in fiscal 2014 due to base expansion. Sales tax collections have proven resilient, increasing since the lowest point in the recession even as the economy has remained weak. Collections fell in only one year during the recession, by 4.5% in fiscal 2009. Total sales tax revenue is up 6.5% year- over-year through May 2014. This is below original expectations for the year, reflecting underperformance of the sales tax changes included in the budget to increase revenues, but still solid growth given continued economic sluggishness. Strong legal opinions that have been provided with COFINA offerings state that neither the Commonwealth general fund nor Commonwealth GO bondholders have a claim on pledged sales tax revenues until COFINA debt service is fully funded each year. Strong non-impairment language provides some additional assurances to bondholders. Nevertheless, as noted above, in light of the Commonwealth's willingness to change law to the detriment of bondholders with passage of the Public Corporation Debt Enforcement and Recovery Act, Fitch no longer believes that the structure provides sufficient confidence in superior prospects for full and timely payment to warrant a rating above the Commonwealth's GO rating. PRASA PRASA faces potential near-term challenges to takeout expiring LOC from Puerto Rican banks and raise significant funds for annual capital expenditures in light of market concerns relating to the Act and PREPA's deteriorating credit . PRASA currently has drawn $200 million on its bank LOCs and is expected to make draws up to the maximum $350 million prior to expiration of the LOCs in March 2015. The LOCs are solely for interim capital financing and PRASA expects to seek capital market access prior to expiration of the LOCs to fix out the LOCs with long-term debt. Simultaneously, PRASA also hopes to raise sufficient monies to fund its remaining fiscal 2015 - 2016 capital needs and possibly fiscal 2017 capital demands as well. Effecting the long-term takeout of the LOCs and generating capital funding resources for some period of time will be critical to removal of the Negative Watch. PRASA currently is operationally sound after relying on the commonwealth and GDB to address shortfalls in cash flows for the last several years. PRASA's turnaround was the result of an average 67% rate hike enacted for fiscal 2014. For unaudited fiscal 2014, PRASA generated $1.05 billion in revenues (1% under budget) while spending $691 million towards operations (1% under budget) and incurring debt service costs $28 million under budget. Based on these results and excluding the $86 million in expected rate stabilization fund (RSF) transfers, total debt service coverage (DSC) for the year on a net revenue basis was 1.31x compared to a budgeted 1.19x; if expected RSF transfers are deducted from revenues available for debt service then total DSC was 1.0x for the year. PRASA has updated its projections through fiscal 2018 and these continue to point to self-sufficient operations, generally favorable operating performance and no additional rate hikes. PRASA's assumptions currently appear reasonable but operating results could be negatively influenced from changes in PRASA's operating environment. For forecasting purposes, PRASA has assumed that the current preferential electricity rate remains in place but that a planned reduction in the rate in fiscal 2017 does not occur. Based on this change in assumption alone, PRASA plans to divert all surplus revenues for fiscals 2014 - 2015 to its RSF and use these funds to offset the higher than expected energy costs beginning in fiscal 2017 in order to maintain 1.0x DSC and forestall additional rate hikes. In PRASA's prior forecast a portion of surplus revenues were to be utilized for pay-go capital purposes, so this change will result in higher borrowing levels than previously anticipated, albeit only modestly. If PREPA rescinds the preferential rates altogether, the forecast could come under further pressure. Officials have indicated that PRASA would pass- through such costs immediately, but this would place added pressure on PRASA's already burdened rate base. PRASA's projections prudently do not include $37 million in expenditure cuts mandated by Law 66, which should add some cushion to financial results in the coming years. PRASA has included the corresponding reduced revenues from the commonwealth related to the law's requirement that PRASA provide fiscal emergency contributions to the commonwealth by not charging for services. Fitch notes that even with the expenditure reduction offset, the commonwealth's actions to unilaterally demand assistance from PRASA exposes PRASA to future potential fiscal and operational challenges and limits PRASA's credit fundamentals from previous expectations. EMPLOYEES RETIREMENT SYSTEM The ERS pension funding bonds are payable from and secured by a pledge of statutorily required employer contributions to the system. Employer contributions are made by the Commonwealth, associated public corporations, and municipalities. There are 215 contributing employers to the system, but the central government represents about half of total contributions to the system and there are strong interrelationships between other contributors and the central government. No retirement system assets or Commonwealth backstop is available to the bonds and bondholders have no claim on employee contributions. There is a strong legal obligation for employers to make contributions to the retirement system , a long history of timely payment, and legal protections against the legislature making changes to the system that would reduce the system's funded status. Although subject to appropriation, the contributions are appropriated annually along with appropriations for employee compensation and have a legal payment priority after only public debt. Contributions are made along with payroll as part of an employer's payroll cycle (15 days or monthly), with about 50% of total contributions made through the Commonwealth's Department of Treasury payroll system. The obligation to pay is a percentage of payroll calculation rather than a fixed dollar amount and, as such, revenues are driven by trends in payroll and the required contribution rate. Required employer contributions to the system have increased in recent years, and the Commonwealth is implementing contribution rate increases to address funding deficiencies in the system. By the end of the 10-year ramp-up period, pension contributions will have increased from 9.275% of covered payroll, the statutorily required employer contribution rate in place from 1990 to 2011, to 20.525%, all of which is pledged to bondholders. The debt structure is somewhat weak with a very long final maturity (50 years) and rising debt service profile. However, pledged revenues provide satisfactory annual coverage of debt service requirements and the required contribution increases will support coverage going forward. In fiscal 2013, the statutory employer contribution of $425 million provided 2.5x coverage of annual debt service and 0.99x coverage of MADS ($429 million in FY 2028). The rating on the ERS bonds is the same as that assigned to the Commonwealth's GO bonds, as the Commonwealth is the largest employer contributor and contributions have a strong legal priority. However, given that GO bondholders have a claim on Commonwealth revenues senior to contributions due to the pension systems, the rating on the ERS bonds can be no higher than the Commonwealth GO rating. =============== S T. L U C I A =============== * ST. LUCIA: PM Agonises Over Ways to Cut Fiscal Deficit -------------------------------------------------------- Caribbean360.com reports that St. Lucia government said it is important to reach a consensus with the public sector unions on ways of dealing with the current EC$76 million (One EC Dollar = US$0.37 cents) fiscal deficit. Prime Minister Dr. Kenny Anthony said an agreement will be the best signal that can be sent to the financial markets, according to Caribbean360.com. The report notes that Dr. Anthony, who is also Finance Minister, had proposed a five per cent cut in the salaries of public servants as a way of helping to deal with the crisis, but this has been rejected by the unions. Just recently he wrote to the unions expressing the government's willingness to activate a government negotiating team (GNT), but said he is still awaiting a response, the report relates. "There are times I really wish I can explain to the people how difficult and how hard it is for me ideologically and otherwise," the report quoted Dr. Anthony as saying. "I go to bed sometimes and remember that I was a former president of the St Lucia Teachers Union (SLTU) and fought for increased wages for teachers in my time, and here I am at the crossroads dealing with a very difficult situation." However, Dr. Anthony noted that in all major decisions, politicians have to make a judgment as to whether what they are doing is the right thing, the report relates. "I have agonized over it and I know in my heart it's the right thing," the Prime Minister said, the report notes. Dr. Anthony, the report discloses, observed that he may go down in the history of the SLTU as the leader who may have betrayed the leadership of the union that he once led, nevertheless he said it was a price he was willing to pay for his country. At the same time, Dr. Anthony said there is value in reaching a consensus, the report relays. "There is benefit to be gained if we can agree to move forward," Dr. Anthony said, but added that while he is seeking to persuade the unions to make sacrifices, if the effort fails he will have to exercise "the burden of leadership" that was entrusted to him, the report relays. Meanwhile, the report notes, the Trade Union Federation (TUF) is preparing to break its silence on the ongoing impasse. A union spokesman confirmed that the TUF, which does not include the powerful Civil Service Association (CSA), plan to hand government a list of its own proposals, the report says. This would represent a response to a letter from Dr. Anthony in which he listed two agenda items he wants the discussions to be centered on, salaries and conditions of work and expenditure reduction and wage adjustment, the report notes. However, the report relays, the unions remain displeased with Dr. Anthony's insistence that the latter be separate items on the agenda, claiming that the discussion on salaries would involve wage adjustments hence the separation of the two is unnecessary. All public sector unions have already rejected government's five per cent wage cut and a three-year wage freeze, which government said would help raise EC$18 million, the report adds. ================================ T R I N I D A D & T O B A G O ================================ CARIBBEAN AIRLINES: Faces TT$100 Million Loss --------------------------------------------- Trinidad and Tobago Newsday reports that Caribbean Airlines Limited is facing another loss. However, Finance Minister Larry Howai is hopeful the loss could be narrowed down to less than TT$100 million, according to Trinidad and Tobago Newsday. Mr. Howai noted the new chief executive officer, Canadian Michael DiLollo, has shown competence in his role and there was also new management in place, the report relates. Minister Howai also noted there was new management coming as well, the report notes. "So my next move would be to try and strengthen the board some more and hopefully we could make a full turnaround in due course," the report quoted Mr. Howai as saying. Mr. Howai noted the airline industry is not the easiest and many airlines have gone bankrupt at some point, the report adds. Caribbean Airlines Limited -- http://www.caribbean-airlines.com/ -- provides passenger airline services in the Caribbean, South America, and North America. The company also offers freighter services for perishables, fish and seafood, live animals, human remains, and dangerous goods. In addition, it operates a duty free store in Trinidad. Caribbean Airlines Limited was founded in 2006 and is based in Piarco, Trinidad and Tobago. As reported in the Troubled Company Reporter-Latin America on May 20, 2013, Caribbean360.com said Trinidad and Tobago Finance Minister Larry Howai said Caribbean Airlines Limited recorded losses estimated at US$70 million in 2012. In 2011, CAL had recorded losses of US43.7 million. *********** Monday's edition of the TCR-LA delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR-LA editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR-LA constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR-LA editor holds some position in the issuers' public debt and equity securities about which we report. Tuesday's edition of the TCR-LA features a list of companies with insolvent balance sheets obtained by our editors based on the latest balance sheets publicly available a day prior to publication. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. Submissions about insolvency-related conferences are encouraged. Send announcements to conferences@bankrupt.com *********** S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Valerie U. Pascual, Julie Anne L. Toledo, and Peter A. Chapman, Editors. Copyright 2014. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000 or Nina Novak at 202-241-8200. * * * End of Transmission * * *