/raid1/www/Hosts/bankrupt/TCRLA_Public/180611.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
Monday, June 11, 2018, Vol. 19, No. 114
Headlines
A N G U I L L A
ANGUILLA: To Get US$5.6MM Loan From CDB to Meet Debt Obligations
A R G E N T I N A
ARGENTINA: Set to Get a $50 Billion IMF Bailout
SALTA PROVINCE: Fitch Affirms 'B' IDR & Sr. Sec. Notes Rating
YPF SA: Fitch Affirms 'B' IDR & 'B/RR4' Sr. Unsec. Bonds Rating
B A H A M A S
BAHAMAS: To Pay Massive Increase in Value Added Tax
B A R B A D O S
BARBADOS: S&P Cuts FC Sovereign Issuer Credit Ratings to SD
B R A Z I L
BRAZIL: Raises $830 Million in Auction of Pre-Salt Oil Blocks
ELETROPAULO METROPOLITANA: Moody's Ups Corp. Family Rating to Ba2
TUPY SA: Fitch Affirms 'BB' Issuer Default Ratings
G U A T E M A L A
GUATEMALA: Death Toll From Fuego Volcano Rises to 109
M E X I C O
GRUPO POSADAS: Fitch Affirms 'B' LT Issuer Default Ratings
SAGICOR FINANCIAL: S&P Puts 'BB-' ICRs on Watch Negative
P U E R T O R I C O
MMM HOLDINGS: Moody's Withdraws B3 CFR, Outlook Positive
X X X X X X X X X
* BOND PRICING: For the Week From June 4 to June 8, 2018
- - - - -
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A N G U I L L A
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ANGUILLA: To Get US$5.6MM Loan From CDB to Meet Debt Obligations
----------------------------------------------------------------
Caribbean360.com reports that the Board of Directors of the
Caribbean Development Bank (CDB) has approved a US$5.6 million
loan to assist the Government of Anguilla in meeting its fiscal
obligations after the destruction caused by Hurricane Irma in
2017.
The funds will allow the Government to focus on its recovery
priorities, without having to divert resources to meet financing
needs, according to Caribbean360.com.
"Hurricane Irma resulted in a major economic setback for the
island of Anguilla. The Government is now facing a financing gap,
having had to meet increased spending needs, while at the same
time facing a loss of revenue from a missed tourism season. This
loan will provide a needed liquidity buffer for post-Irma
rehabilitation during 2018, allowing focus to be placed on the
critical social and economic needs of the country," said Dr.
Justin Ram, Director of Economics at CDB, the report notes.
The loan is repayable over a period of 13 years, inclusive of a
grace period of three years, the report relays. Hurricane Irma
caused approximately US$507 million in damage on Anguilla,
including too much of the island's physical infrastructure, air
and sea ports, the report says. In addition, the tourism
industry-the main driver of growth in the country-suffered
significant losses, the report notes. These factors are expected
to have a major negative impact on Anguilla's revenues during
2018, the report relays.
Irma's impact further deepened socioeconomic challenges in
Anguilla as the Government worked toward recovery from a near
decade-long fallout of the financial crisis, which threatened the
island's economic security due to contractions in the two main
economic sectors-tourism and financial services, the report
discloses.
In December 2017, CDB approved a loan of US$5 million to assist in
the restoration of electricity on Anguilla, and in the immediate
aftermath of Hurricane Irma, the Bank provided an Emergency Relief
Grant of US$200,000 to the Government, the report says.
Since 2000, CDB has provided US$4.3 million in support for three
disaster management projects in Anguilla, the report adds.
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A R G E N T I N A
=================
ARGENTINA: Set to Get a $50 Billion IMF Bailout
-----------------------------------------------
Gina Heeb at Business Insider US reports that Argentina looks
poised to get the biggest International Monetary Fund bailout in
history.
The IMF reached a staff-level agreement to offer Argentina, which
requested aid last month when its currency hit an all-time low, a
$50 billion loan as part of a three-year standby program. The
credit line seeks to rein in soaring twin deficits in the country
and prop up the Argentine peso, according to Business Insider US.
"I am pleased that we can contribute to this effort by providing
our financial support, which will bolster market confidence,
allowing the authorities time to address a range of long-standing
vulnerabilities," IMF Managing Director Christine Lagarde said in
a statement obtained by the news agency.
Investors have been pulling cash out of the country, and the
Argentine peso has fallen more than 36% versus the US dollar this
year, even amid aggressive contractionary policies, the report
notes. The Central Bank of Argentina raised rates three times
last month to 40%, the report relays. Meanwhile, the government
recently disclosed hefty spending cuts and increases in utility
prices, the report says.
As part of the deal, the Argentine government is asked to ramp up
those spending cuts and end central-bank financing of the federal
deficit, the report relays. Most notably absent from IMF
stipulations is a fixed exchange rate, which many economists see
as playing a central role in worsening the country's last crisis,
the report notes.
"This measure will ultimately lessen the government financing
needs, put public debt on a downward trajectory, and as President
Macri has stated, relieve a burden from Argentina's back," Mr.
Lagarde said, the report notes.
Gavin Serkin of Exotix Capital said the IMF deal will be received
positively by markets, the report says. But he's remaining
cautious on how quickly its structural effects could take effect
ahead of elections in the country, which take place in October
2019, the report relays.
"The agreement shows there is lot of international support to make
Macri's Argentina work, and it should ease financing and political
concerns this year," the report quoted Mr. Serkin as saying. "But
delivering the fiscal adjustment and lower inflation next year, an
election year, could still prove challenging," he added.
Capital Economics analyst Edward Glossop is skeptical for
different reasons, the report notes. Mr. Glossop wrote in a note
to clients last month that a "full-blown" bailout could push the
economy into a deeper downturn through government stipulations,
including accelerated budget cuts.
"The IMF does to some degree take these factors into account, but
in general, it tends to favor a quick and front-loaded
adjustment," he told Business Insider.
Argentina has had a complicated relationship with the IMF, which
has been blamed for worsening the country's economic crisis in
2001, mostly through eliminating a floating exchange rate, the
report says. After President Macri announced negotiations with
the IMF last month, nationwide protests broke out, the report
notes.
The deal still needs to be approved by the IMF's Executive Board,
which is expected to happen later this month, the report adds.
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings, on June 4, 2018, affirmed its 'B+' long-term
sovereign credit ratings on the Republic of Argentina. The outlook
on the long-term ratings remains stable.
On May 8, 2018, Fitch Ratings affirmed Argentina's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'B' and revised
the Outlook to Stable from Positive.
On December 4, 2017, Moody's Investors Service upgraded the
Government of Argentina's local and foreign currency issuer and
senior unsecured ratings to B2 from B3. The senior unsecured
shelves were upgraded to (P)B2 from (P)B3. The outlook on the
ratings is stable. At the same time, Argentina's short-term
rating was affirmed at Not Prime (NP). The senior unsecured
ratings for unrestructured debt were affirmed at Ca and the
unrestructured senior unsecured shelf affirmed at (P)Ca.
Moody's said the key drivers of the upgrade of the rating to B2
are: (1) a record of macro-economic reforms that are beginning to
address long existing distortions in Argentina's economy; and (2)
the likelihood that reforms will continue and in turn sustain
the recent return to positive economic growth.
The stable outlook on Argentina's B2 ratings balances Argentina's
credit strengths of its large, diverse economy and moderate income
levels against the credit challenges posed by still high fiscal
deficits and a reliance on external financing, which increases its
vulnerability to external event risk, said Moody's.
On Nov. 10, 2017, Fitch Ratings revised Argentina's Outlook to
Positive from Stable and has affirmed its Long Term Foreign-
Currency Issuer Default Rating (IDR) at 'B'.
On Oct. 30, 2017, S&P Global Ratings raised its long-term
sovereign credit ratings on the Republic of Argentina to 'B+' from
'B'. The outlook on the long-term ratings is stable. S&P also
affirmed its short-term sovereign credit ratings on Argentina at
'B'. At the same time, S&P raised its national scale ratings to
'raAA' from 'raA+'. In addition, S&P raised its transfer and
convertibility assessment to 'BB-' from 'B+', in line with its
assessment of sustained local access to foreign exchange.
As previously reported by the TCR-LA, Argentina defaulted on some
of its debt late July 30, 2014, after expiration of a 30-day grace
period on a US$539 million interest payment. Earlier that day,
talks with a court-appointed mediator ended without resolving a
standoff between the country and a group of hedge funds seeking
full payment on bonds that the country had defaulted on in 2001.
A U.S. judge had ruled that the interest payment couldn't be made
unless the hedge funds led by Elliott Management Corp., got the
US$1.5 billion they claimed. The country hasn't been able to
access international credit markets since its US$95 billion
default 13 years ago. On March 30, 2016, Argentina's Congress
passed a bill that will allow the government to repay holders of
debt that the South American country defaulted on in 2001,
including a group of litigating hedge funds that won judgments
in a New York court. The bill passed by a vote of 54-16.
SALTA PROVINCE: Fitch Affirms 'B' IDR & Sr. Sec. Notes Rating
-------------------------------------------------------------
Fitch Ratings has affirmed the Province of Salta's Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B'
with a Stable Rating Outlook. Fitch has also affirmed both the 'B'
long-term ratings on Salta's 9.5% senior secured notes for USD185
million due March 16, 2022 and 9.125% senior unsecured notes for
USD350 million due July 7, 2024.
KEY RATING DRIVERS
Salta's ratings and their Stable Outlook are underpinned by the
entity's low debt levels and recently improved fiscal policies.
However, the main weaknesses considered are the province's
vulnerable fiscal performance and tight liquidity, which are
expected to improve during 2018;and the weak local economy, given
the national inflationary and volatile macroeconomic context with
high infrastructure needs.
Institutional Framework: Weak, Stable
Fitch considers Argentina's institutional framework to be weak,
given the country's structural weaknesses, including its complex
and imbalanced fiscal regime with no equalization funding. With
recent reforms and agreements, several important tax and federal
revenue distribution changes are underway. Fitch will monitor the
implementation of these measures and their impact on the
province's public finances, expecting that agreements will track
fiscal improvements.
Economy: Weak, Stable
Fitch evaluates Argentine subnational economies as weak, due to
the country's macroeconomic context of high inflation and currency
depreciation. Salta's economy is concentrated in the tertiary
sector, with an important weight from social services and the
public sector of around 23% of local GDP; the primary sector is
also important and includes hydrocarbon extraction.
In 2017, hydrocarbon royalties only represented 2.5% of operating
revenues and these have recently increased mainly due to currency
depreciation, better national sector policies, and higher global
hydrocarbon prices. Salta has a low GDP per capita and a higher
than average percentage of population with unsatisfied basic
needs: 23.7% versus the national average of 12.5%. This translates
into structurally high infrastructure needs.
Management and Administration: Neutral, Stable
Fitch evaluates Salta's management as neutral. In previous years,
Salta's policies had focussed on countercyclical capex projects to
fuel local economic growth. During 2015-2017, the province
executed around ARS12.5 billion in capex works. Then, at year-end
2017 and during 2018, Salta enacted several fiscal convergence
policies aiming toward revenue collection and expenditure
controls. The entity also adhered to the 2017 Fiscal Consensus
between the nation and provinces, which should additionally
underpin targeted fiscal improvements throughout 2018.
Fiscal Performance: Weak, Stable
During 2016 and according to preliminary 2017 figures, Province of
Salta registered a downturn in its operating margins due to
inflationary pressures on wages and expenses also due to increased
capex projects. During January-April 2018, the sanction and
implementation of new fiscal policies resulted in a positive trend
for the entity's operating margins, which improved to 11% from
0.5% in April 2017. Although Fitch expects Salta's margins to
improve in the short term and to recover to a positive approximate
5% of operating revenues; Fitch considers that compared to
international peers, Salta has a vulnerable budgetary performance
in relation to its high infrastructure and expenditure needs.
Debt, Liabilities & Liquidity: Weak, Stable
This attribute is evaluated as weak, due to Salta's tight
liquidity resulting from its weak operating margins. Also,
although leverage is low, debt carries unhedged currency exposure
and refinancing risk.
During 2017, liquidity tightened due to a concentration of debt
maturities and the negative operating margins of 2016 and 2017.
Net cash deposits decreased to ARS286 million. In April 2018,
better policies have already improved Salta's cash position to
ARS2.6 billion. Also, the entity has been drawing ahead federal
co-participation funds intra monthly, these funds are payed and
cancelled each month. Aside from budgetary savings, another
liquidity tool for 2018 includes an authorized ARS2.389 billion of
short-term treasury bills, which have not been issued given that
local interest rates recently increased up to 40%. If treasury
bills are not issued, refinancing pressures would decrease for
2018, but would remain toward the medium term given market
volatility and uncertainty.
Regarding public debt, according to year-end 2017 preliminary
information, total debt was ARS16.357 billion, equivalent to a low
level of 40% of current revenues. During 2017, debt increased
mainly due to higher debt agreements with the nation, an issuance
in the local market, and currency depreciation. Issued debt
represents around 53% of the entity's debt and is composed by two
external market bonds and a local market issuance. Regarding
foreign currency (FC) exposure, around 61.2% of debt is in FC, and
this is partially mitigated by the entity's revenues linked to the
USD from hydrocarbon royalties.
For 2018, authorized debt amounts to ARS3.13 billion. Fitch
expects that debt will remain low and estimated at around
approximately 44% of 2018 budgeted revenues or less, considering
potential debt compensation because of the 2017 Fiscal Consensus
agreements. Debt agreements with the nation will continue to be a
financing source in 2018, as the province does not plan to issue
debt on capital markets given current high interest rates and
currency depreciation.
Regarding contingent liabilities, it is important to note that
Salta is among the provinces that transferred its pension funding
to the national government; therefore, the province is not
responsible for funding deficit shortfalls. And regarding public
companies, to date, Fitch does not foresee any topics contingent
to Salta's finances.
RATING SENSITIVITIES
Salta's ratings could be negatively affected if the entity is not
able to consolidate its operating margins in the coming years and
if refinancing risks rises. On the other hand, ratings could be
positively affected if Salta has a more stable and positively
sustained budgetary performance provided that Argentina's
sovereign rating increased.
YPF SA: Fitch Affirms 'B' IDR & 'B/RR4' Sr. Unsec. Bonds Rating
---------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign and Local
Currency Issuer Default Ratings (IDRs) of YPF S.A. (YPF) at 'B'.
The Rating Outlook is Stable. Additionally, Fitch has affirmed the
company's long-term international senior unsecured bonds at
'B'/'RR4'.
YPF's ratings are capped by Argentina's sovereign rating (B/
Outlook Stable) due to the government's strong ownership and
potential control, and the company's strategic importance to the
country. YPF's dominant market share in the supply of liquids
fuels in Argentina coupled with its large hydrocarbon production
footprint in the country exposes the company to government
intervention through pricing policies and investment strategies.
Argentina exerts strong control of YPF's through its 51% economic
interest in the company. Furthermore, Fitch believes Argentina
would have strong incentives to support the company under a
distress situation as a result of the strong socio-political and
financial implications of a default.
Although a bespoke recovery analysis yields a higher than average
recovery given a default, YPF's recovery ratings are capped at an
average recovery of 'RR4' in line with Fitch's "Country-Specific
Treatment of Recovery Ratings."
KEY RATING DRIVERS
Links to Sovereign: YPF's ratings reflect the close linkage with
the Republic of Argentina resulting from the company's ownership
structure as well as recent government interventions. The Republic
of Argentina controls the company through its 51% participation
and the company's strategy and business decisions can be at times
governed by the Republic. The Argentine government has a history
of significant interference in the oil and gas sector. Via Decree
No. 1277, the government set regulations related to investment
levels in the oil and gas sector and domestic price reference
points. In recent years, government regulations have maintained
domestic crude oil prices for all market participants at different
levels from world prices.
Strong Financial Profile: YPF maintains a strong financial
profile, which Fitch believes is in line with a 'BB' rating on a
standalone credit profile (SCP). YPF has relatively solid credit
protection metrics, characterized by moderate leverage and a
manageable debt amortization schedule. The company reported
approximately USD4.05 billion of adjusted EBITDA and USD10.1
billion of debt as of December 2017. This translates into a Fitch
calculated financial leverage ratio of approximately 2.5x in
dollar terms. The company reported high leverage when measured by
total proven reserves (1P) to total debt, of approximately USD10.9
of debt per barrel. Fitch expects the company's net leverage
ratios to range from the 2.2x to 2.5x level going forward, a
leverage level considered supportive of its SCP. During recent
years, the company's leverage has been moderately increasing,
mostly as a result of increases in debt to fund the company's
ramped up capital expenditure program.
Low Hydrocarbon Reserve Life: The ratings consider the company's
relatively weak operating metrics characterized by low reserve
life and flat production levels. Fitch believes the company's low
reserve life could create significant operational challenges in
the medium- to long-term, and gives the company limited
flexibility to reduce capex investments in order to increase
upstream reserves/production. The company's ability to develop
mature fields and non-conventional resources will be key on the
success of its long-term investment plan to maintain reserves and
increase production. As of year-end 2017, YPF reported a reserve
life of approximately 4.6 years and proved reserves (1P) of 929
million barrels of oil equivalent (mmboe), down from 1,113 mmboe
in 2016. YPF's production averaged 555,000 boe per day (boe/d) in
2017, composed of approximately 52% crude oil and natural gas
liquids (NGL); the balance was natural gas (NG). Although YPF's
capex levels resulted in a reserve replacement ratio (IRR) above
100% during 2015 and 2016, the company's reserve replacement ratio
went down to 9% in 2017.
Strong Business Position: YPF benefits from a strong business
position supported by its vertically integrated operations and
dominant market presence in the Argentine hydrocarbons' market. In
the downstream segment, YPF enjoys a 55% market share of domestic
gasoline and 57% diesel sales. As expected, the company's
production remained stable in 2017 with average daily production
for YPF's upstream segment of 555,000 boe/d, which is only a
marginal decline of 3.9% from 2016 production levels of 577,400
boe/d. During 2017, the company's average lifting cost increased
to USD12.8 per barrel from USD12.0 per barrel observed in 2016 due
to Argentine Peso depreciation.
Marginally Negative FCF Expected: Fitch expects YPF to continue
reporting marginally negative FCF over the rating horizon as
planned capex could exceed cash flow from operations (FFO). This
results from Fitch's assumptions that the company will not be able
to pass-through its domestic liquid fuel prices the full impact of
the recent sharp peso depreciation and that it will execute its
announced capex plan of approximately USD4 billion to USD4.5
billion per year. During 2017, the company reduced its capex
investments as a result of lower prices and lower cash flow
generation, which resulted in a decrease in reserves and 1P
reserve life.
DERIVATION SUMMARY
The company's ratings are constrained by the credit quality of the
Republic of Argentina given the government's ownership of the
company through its 51%. YPF's 'B' ratings are linked to the
sovereign rating of Argentina, which has long-term LC and FC IDRs
of 'B' with a Stable Outlook.
YPF's linkage to the sovereign is similar in nature to its
national oil companies (NOCs) peers, namely PEMEX (BBB+/Stable),
Petrobras (BB-/Stable) and Ecopetrol (BBB/Stable). It also
compares with Enap (A/Stable), Petroperu (BBB+/Stable) and PDVSA
(RD). These companies all have strong linkage to their respective
sovereigns given their strategic importance to each country and
the potentially significant negative social and financial
implication a default could have at a national level.
Fitch views YPF's standalone credit profile (SCP) as commensurate
with a 'BB' rating, which is one notch above Petrobras' SCP of
'BB-' and four notches above Pemex's SCP of 'B-', primarily due to
the more conservative capital structure. YPF's SCP is supported by
its leading position in the Argentine energy market, high
production level and vertically integrated business model with
moderate leverage. The company's SCP is two notches lower than
that of Ecopetrol of 'BBB-' as a result of YPF's weak operating
metrics, primarily its very low reserve life of approximately 4.6
years.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
Production remains flat during the rating period;
YPF will be able to increase domestic prices in pesos somewhat but
not enough to fully reflect the impact from the recent peso
depreciation and international hydrocarbon price increase;
Fitch's WTI oil price assumptions of USD58/bbl for 2018 and
USD55/bbl thereafter; YPF's realization prices are 10% below these
assumptions in the short term due to the recent peso depreciation;
Average peso depreciation of 10% per year, in line with Fitch
sovereign expectation;
Natural gas prices increasing to the USD4.5- USD5.0/MMcf level
over the next five years;
Capex average USD4.2 billion per year during 2018 - 2021.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
Although not expected in the short-term, a positive rating action
could occur as the result of an upgrade of the sovereign rating.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
YPF's ratings could be negatively affected by a combination of the
following: a downgrade of the Republic of Argentina's ratings; a
significant deterioration of credit metrics; and/or the adoption
of adverse public policies that can affect the company's business
performance in any of its business segments.
LIQUIDITY
The company's liquidity position is considered adequate to cover
its short-term debt. The company has successfully accessed the
local and international markets, and given that the company is
controlled by the Argentine government, Fitch does not anticipate
any difficulties for the company to tap the local or international
debt markets in order to refinance short-term debt. YPF's cash and
cash equivalents totaled ARS 41.67 billion as of Dec. 31, 2017,
which compares to debt maturities of ARS 39.34 billion due in
2018. The company's liquidity position is further strengthened by
USD630 million in government bonds (BONAR 2020 and other bonds)
related to the 2015 Plan Gas receivables.
FULL LIST OF RATING ACTIONS
Fitch has affirmed YPF's ratings as follows:
Long-Term Foreign Currency IDR at 'B'; Outlook Stable;
Long-Term Local Currency IDR at 'B'; Outlook Stable;
Sr. Unsecured Notes at 'B'/'RR4'
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B A H A M A S
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BAHAMAS: To Pay Massive Increase in Value Added Tax
---------------------------------------------------
Caribbean360.com reports that from the beginning of next month,
Bahamians will be paying significantly more in Value Added Tax
(VAT). It will increase from 7.5 per cent to 12 per cent.
The increase comes three and a half years after VAT was
introduced, according to Caribbean360.com.
Minister of Finance Peter Turnquest explained that the measure,
projected to bring in another US$1.1 billion in revenue in the
next fiscal year, is aimed at trying to close the fiscal gap and
avoid a crisis, the report notes.
"Our government fully appreciates the sacrifice that the
substantial increases in the VAT rate and other taxes will
represent for our citizens," he said in making the announcement in
the House of Assembly, the report relays.
"But, as I have repeatedly said on record, this government was
elected to do what is right for the welfare of the country and not
to do what is politically expedient or politically popular . . . .
We could have kicked the can down the road and borrowed some more,
delaying the inevitable day of reckoning. By playing this game we
would have only made a bad situation worse," Mr. Turnquest said,
the report relays.
The report notes that Mr. Turnquest also announced VAT-free
breadbasket items.
"Effective August 1, we are eliminating VAT on all breadbasket
items, with the exception of sugar, as sugar will -- for health
reasons -- be removed from the list of breadbasket items," he
said, the report relays.
"These items include butter, cooking oil, mayonnaise, grits,
cheese, corned beef, evaporated milk, margarine, rice, flour,
tomato paste, baby cereal, soups, broths, powdered detergents and
mustard, among other things," he added, the report discloses.
But Mr. Turnquest has indicated that the government "remains open
to all viable" alternatives to a 12 per cent VAT, the report adds.
===============
B A R B A D O S
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BARBADOS: S&P Cuts FC Sovereign Issuer Credit Ratings to SD
-----------------------------------------------------------
On June 6, 2018, S&P Global Ratings lowered its foreign currency
sovereign issuer credit ratings on Barbados to 'SD/SD' from
'CCC+/C'. S&P said, "At the same time, we lowered our long-term
foreign currency issue rating on the 6.625% notes due 2035 to 'D'
from 'CCC+'. We also lowered our other long-term foreign currency
issue ratings to 'CC' from 'CCC+' and placed them on CreditWatch
with negative implications. In addition, we lowered our long-term
local currency sovereign issuer credit and issue ratings to 'CC'
from 'CCC' and placed them on CreditWatch with negative
implications, and we affirmed our short-term local currency rating
at 'C'. Finally, we lowered our transfer and convertibility
assessment to 'CC' from 'CCC+'."
CREDITWATCH
S&P said, "Our CreditWatch negative reflects our opinion that
there is a greater than one-in-two chance that Barbados could
default again on its local and foreign currency debt within the
next three months. We could lower the local currency sovereign
issuer credit rating to 'SD' if Barbados fails to make debt
service payments on its local currency debt or executes an
exchange with bondholders.
"Upon completion of any bond restructuring, we will assign new
foreign and local currency sovereign issuer credit and issue
ratings that reflect Barbados' post-exchange creditworthiness.
RATIONALE
S&P's ratings on Barbados reflect its selective default on its
external debt obligations and its views that a default on its
local currency debt obligations is a virtual certainty.
On June 1, 2018, Barbados' newly elected Prime Minister, Mia
Mottley of the Barbados Labor Party (BLP), announced that the
government would immediately suspend payments on its debt owed to
external commercial creditors. The prime minister also stated that
the government would strive to meet its interest payment
obligations on its domestic debt but would ask domestic creditors
to roll over principal maturities until the government reached a
restructuring agreement with its domestic creditors. The
government will also negotiate with external creditors to
restructure its external debt. The government's announcement comes
one week after the BLP won an absolute majority in the country's
general election.
S&P said, "Following the missed interest payment on the
government's 6.625% notes due 2035 on June 5, 2018, we do not
expect the government to subsequently make this payment in light
of its announcement. Per our ratings definitions, an obligation
rated 'D' is in default or in breach of an imputed promise, while
an issuer rated 'SD' is in default on one or more of its financial
obligations.
"At the same time, although the government intends to meet its
interest payment obligations on its domestic debt, we would likely
treat its request to roll over principal on this debt as a default
given the nature of the request amid stressed financing conditions
and limited options for bondholders. The government's next
significant domestic bond maturity is its Barbados dollar (BB$)
100 million 4.375% Treasury notes due on June 30, 2018.
Prior to this development, Barbados' history of wider fiscal
deficits and low growth since the global financial crisis has
resulted in a significant increase in the government's debt
burden. Net general government debt reached nearly 95% of GDP in
2017, one of the highest debt levels among Latin American and
Caribbean sovereigns. The government has not issued in the global
capital markets since 2013. Limited appetite for government paper
in the local market in recent years led to reliance on financing
from public-sector entities, including the central bank.
Amid high current account deficits and limited external inflows,
external liquidity has been weakening. Reserves reportedly reached
US$220 million as of May 31, 2018. The decline in international
reserves has increased the vulnerability of Barbados' currency peg
and increases the risk of a balance-of-payments crisis. As a
result, the new government has also announced its intention to
seek balance-of-payments support from the International Monetary
Fund (IMF), which is scheduled to visit the country this week. IMF
financial support should strengthen the country's external
position. Barbados' usable reserves have been negative since 2013,
and the position continues to deteriorate, in part because of the
central bank's historical deficit financing, which has expanded
the monetary base in the past. S&P subtracts the monetary base
from international reserves because reserve coverage of the
monetary base is critical to maintaining confidence in the
exchange-rate regime.
S&P expects the new government to significantly modify existing
fiscal targets as a part of its new macroeconomic framework. As a
part of this framework, which we expect to be discussed with the
IMF, the government has stated its intention to present a balanced
budget by next year. However, the details of this plan and how it
will incorporate election promises--including the elimination of
the National Social Responsibility Levy, the resolution of the
country's sewage crisis, an increase in pensions, delivery of free
university education, and improved transportation and trash
collection -- remain to be formulated.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable. At the onset of the committee, the chair
confirmed that the information provided to the Rating Committee by
the primary analyst had been distributed in a timely manner and
was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision.
The views and the decision of the rating committee are summarized
in the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
RATINGS LIST
Downgraded
To From
Barbados
Sovereign Credit Rating
Foreign Currency SD/SD CCC+/Neg/C
Transfer & Convertibility Assessment CC CCC+
Senior Unsecured
6.625% notes due 2035 D CCC+
Barbados
Senior Unsecured
Local Currency CC/Watch Neg CCC
Senior Unsecured
Foreign Currency CC/Watch Neg CCC+
Downgraded; CreditWatch Action; Ratings Affirmed
To From
Barbados
Sovereign Credit Rating
Local Currency CC/Watch Neg/C CCC/Neg/C
===========
B R A Z I L
===========
BRAZIL: Raises $830 Million in Auction of Pre-Salt Oil Blocks
-------------------------------------------------------------
EFE News reports that Brazil raised BRL3.15 billion (around US$830
million) in fixed signing bonuses in its fourth auction of oil
blocks in a deepwater region of the Atlantic Ocean known as the
pre-salt.
The winner of the largest and most coveted block -- known as
Uirapuru -- was a consortium made up of Brazilian state oil
company Petrobras (30 percent stake), Irving, Texas-based
supermajor Exxon Mobil (28 percent), Norway's Statoil (28 percent)
and Portugal's Petrogal (14 percent), according to EFE News.
It won the block after offering the government a record 75.48
percent share of so-called profit oil, more than three times the
minimum required by the National Petroleum Agency (ANP, Brazil's
oil regulator), the report relays.
The report notes that the two other consortiums also were awarded
licenses for blocks in the pre-salt region, so-named because its
massive reserves are located under water, rocks and a layer of
salt at depths thousands of meters below the surface of the
Atlantic.
One of them is made up of Royal Dutch Shell (40 percent), San
Ramon, California-based Chevron (30 percent) and Petrobras (30
percent), while the other is led by Petrobras (45 percent) and
also includes BP Energy (30 percent) and Statoil (25 percent), the
report relays.
Although Petrobras initially only was part of that latter
consortium, it exercised its right under pre-salt regulations to
be an operating partner in the other two consortiums with at least
a 30 percent stake, the report discloses.
The ANP received offers that were well above what had been
expected for the three most coveted blocks in the auction, the
report says. The auction of a fourth smaller block, Itaimbezinho,
did not attract any bidders and was declared void, the report
notes.
The bid round was among the most successful in recent years,
according to ANP director Decio Oddone, the report discloses.
He said that in addition to the proceeds from the fixed signing
bonuses, the auction also would guarantee some BRL40 billion (some
US$10.5 billion) in income for the state over the 30-year lifespan
of the contracts in the form of profit-sharing arrangements and
taxes and royalties, the report relays.
The consortium led by Shell and Chevron that won the right to
develop a pre-salt block known as Tres Marias offered the
government 49.95 percent of the profit oil, more than five times
the minimum required, the report notes.
The third block that attracted interest, Dois Irmaos, was awarded
to the Petrobras-BP-Statoil consortium, which offered the
government a 16.43 percent share of the profit oil, the minimum
proportion required, the report relays.
"It was a very successful auction because it attracted the
attention of the world largest oil companies, which made offers
that were higher than what we were expecting; it showed how
competitive the pre-salt is," the report quoted Mr. Oddone as
saying.
He said that all told the Brazilian government would have a nearly
90 percent share of liquid revenues from the development of
Uirapuru, adding that such a high level was "not even seen in the
Middle East," the report notes.
The four blocks on offer contain roughly 5 billion barrels of oil
and natural gas, the report relays.
Prior to this latest auction Brazil had only awarded licenses to
develop six blocks in the pre-salt region, which contains tens of
billions of barrels of hydrocarbon reserves, the report adds.
As reported in the Troubled Company Reporter-Latin America in
February 2018, Fitch Ratings downgraded Brazil's Long-Term
Foreign Currency Issuer Default Rating (IDR) to 'BB-' from 'BB'
and revised the Rating Outlook to Stable from Negative.
ELETROPAULO METROPOLITANA: Moody's Ups Corp. Family Rating to Ba2
-----------------------------------------------------------------
Moody's America Latina upgraded Eletropaulo Metropolitana de
Eletricidade de Sao Paulo S.A. Corporate Family Ratings (CFR) and
senior unsecured ratings to Ba2/Aa3.br from Ba3/A3.br,
respectively in the global scale and Brazil's national scale. The
outlook is stable.
The upgrade reflects primarily Moody's expectation of improved
performance that will further support the company's already
adequate credit metrics in terms of liquidity and leverage. This
rating action also considers the March settlement that the company
reached with Centrais Eletricas Brasileiras SA -- Eletrobras (Ba3
stable) on their long-standing judicial dispute. As part of that
agreement, the company will pay Eletrobras BRL 1.5 billion over a
period of about four years. Finally, the rating action notes the
control acquisition of Eletropaulo by Enel Americas S.A. (Enel
Americas, Baa3 negative) through the purchase of a 73.38% stake in
the company that will bring a capital injection from Enel Americas
of BRL 1.5 billion further strengthening the capital structure of
the company.
RATINGS RATIONALE
The ratings are supported by Eletropaulo's relatively stable cash
flows from the long-term electricity distribution concession in
Brazil's wealthiest metropolitan area which drives the strong
credit metrics for the rating category. Eletropaulo's sound access
to the local banking and capital markets which Moody's expects
will continue in the projected period combined with generally
supportive regulatory environment further support the ratings.
On the other hand, the ratings still consider that Eletropaulo is
a purely domestic operation that has clear linkages with Brazil's
credit fundamentals as captured in the credit quality of the
sovereign due to its regional customer and financing base. The
relative high capital investment plan to support capital
investments to upgrade the network and prevent losses before the
next tariff review cycle in 2019 also constrain the ratings as
well as the potential higher dividend payout practice going
forward.
The stable outlook reflects Moody's expectation that Eletropaulo
will have relatively stable cash flows in the projected period and
maintain adequate liquidity and credit metrics for the rating
category. In addition, the overall supportive regulatory framework
and the stable outlook for Brazil are also incorporated in the
company's outlook given the domestic nature of its operations and,
consequently, its links to the local economic/regulatory
environment, and ultimate credit quality.
What Could Change the Rating - Up /Down
Given the stable outlook, an upgrade is unlikely in the short
term. An upgrade of Brazil's sovereign bond rating could trigger
upward pressure on the company's ratings given the intrinsic
linkages of Eletropaulo and the Brazilian sovereign. In addition,
Moody's understanding of a timely and adequate support from Enel
Americas as the controlling shareholder could cause upward
pressure on Eletropaulo's standalone credit profile, which is
currently constrained by the sovereign credit quality.
On the other hand, deterioration in the sovereign's credit quality
could exert downward pressure on Eletropaulo ratings. The ratings
could also be downgraded if there is a significant and sustained
deterioration in the company's credit metrics and liquidity.
Quantitatively, the ratings or outlook would come under downward
pressure if the interest coverage remains below 1.8x, and the CFO
pre-WC-to-Debt falls below 5% for an extended period. Moody's
perception of deteriorated stability and transparency of the
regulatory regime would also add pressure to the ratings as well
if volumes stay consistently below Moody's forecast.
Eletropaulo operates the concession of the regulated electricity
distribution in 24 municipalities in the Sao Paulo metropolitan
area, including the city of Sao Paulo, with an estimated 11%
market share in Brazil serving 7.2 million clients in 2017. The
Company has a 30-year concession contract that was granted by
Aneel, the Brazilian electricity sector regulator ("Regulator") in
1998.
As of March 30, 2018, 74% of Eletropaulo's electricity was sold to
the regulated market, mainly residential (50%) and commercial
(33%) consumers, while the remaining 26% was distributed to the
freemarket. In the LTM 032018 ended in March 2018, the company
posted net sales (excluding construction revenues) of BRL 12.5
billion and EBITDA of BRL 1.7 billion, as per Moody's standard
adjustments. Also, interest coverage was 3.3x, and the CFO pre-WC-
to-Debt 16% in the period.
Following the acquisition, the Enel Group will become the largest
electricity distribution company in Brazil, serving 17.1 million
customers. Headquartered in Santiago, Enel Americas became the
successor company of Enersis S.A. after the separation of the
group's Chilean and non-Chilean electricity generation,
distribution and transmission assets. Enel Americas holds interest
stakes in several regulated utilities and power generation
companies operating in Colombia, Peru, Brazil and Argentina. ENEL
S.p.A (Baa2 stable) holds a 51.8% interest stake in Enel Americas.
The principal methodology used in these ratings was Regulated
Electric and Gas Utilities published in June 2017.
TUPY SA: Fitch Affirms 'BB' Issuer Default Ratings
--------------------------------------------------
Fitch Ratings has affirmed Tupy S.A.'s Foreign and Local Currency
Long-Term Issuer Default Ratings (IDRs) at 'BB' and Long-Term
National Scale Rating at 'AA(bra)'. Fitch has also affirmed Tupy
Overseas S.A.'s USD350 million senior unsecured notes due 2024 and
guaranteed by Tupy at 'BB'. The Rating Outlook for the corporate
ratings is Stable.
The affirmation reflects Tupy's leading position in the
manufacturing of high value-added engine blocks and cylinder heads
globally, its adequate operating margins and Fitch's expectation
that EBITDA margins should improve during 2018 due to stronger
demand for its products, more efficient cost structure and
Brazilian real depreciation. High variable costs and efficient
cost management have provided the company with an important
operating flexibility to rapid adjust production to demand
fluctuations of the automotive sector, allowing it to maintain
resilient operating margins through cycles.
Fitch expects Tupy's cash flow generation to improve during 2018
and 2019 after adverse market conditions for the domestic industry
during 2015 to 2017. Tupy's disciplined cost rationalization
strategy during 2017, increasing demand level from off road U.S.
vehicles and the expected gradual rebound in the automotive
industry in Brazil should continue to support its operating cash
flow in the medium term. The ratings also incorporate Tupy's
conservative capital structure, comfortable liquidity profile and
extended debt amortization profile, and expected positive free
cash from (FCF) from 2018 on. Proposals from the U.S.
administration to change imported taxes of Mexican products (Tupy
has two plants in the country) are unlikely to impair Tupy's
operations as there are no substitutes for its products in the
U.S.
Tupy's ratings are somewhat constrained by its relatively small
scale and moderate geographic diversification when compared to
other global auto-part companies and by the high cyclicality and
competitive environment of the automotive industry. The ratings
also reflect customer concentration, a challenging Brazilian
economy and uncertainty whether the domestic auto sector's
recovery is sustainable.
KEY RATING DRIVERS
Strong Business Profile: Tupy mitigates the above average risk
associated with the auto-parts industry through its leading
position as a manufacturer of high value-added engine blocks and
cylinder heads globally. The company's increasing global presence
(83% of sales derive from the external market) and its
longstanding relationship with original equipment manufacturers
(OEM) with sale in approximately 40 countries reinforce its credit
profile. The auto-parts and automotive industries are cyclical and
volatile, so this diversification is a key rating factor.
Tupy's components have a wide application in the industry, ranging
from light vehicles, trucks, buses, agricultural and construction
machineries to hydraulics for industrial and engineering
applications. Since OEMs predominantly have only one supplier of
engine blocks and cylinder heads, the switching cost is high.
Conservative Capital Structure: Fitch expects Tupy to maintain a
conservative capital structure with net leverage below 2.0x over
the next three years. As of the latest 12 months (LTM) ended March
31, 2018, the company reported net leverage of 1.7x, in line with
the average from 2014 to 2017. During the first quarter 2018, Tupy
amortized BRL323 million in debt, mostly local short-term debt
with higher funding costs, reducing total leverage to 2.7x from
3.7x in 2017. Most of Tupy's BRL1.3 billion debt in March 2018 was
composed of the 2024 bond (USD350 million or about 90% of total
debt).
Expected Positive FCF: Fitch forecasts Tupy generating EBITDA of
BRL644 million in 2018 and BRL656 million in 2019, and positive
FCF of BRL104 million and BRL231 million, respectively, due to
increasing demand for its products in the U.S., and a more
efficient cost structure. As of the LTM ended March 31, 2018, Tupy
reported EBITDA of BRL475 million and cash flow from operations
(CFFO) of BRL288 million, which was not enough to cover capex of
BRL129 million and dividends of BRL206 million, resulting in a
negative FCF of BRL47 million. For 2018, Fitch forecasts a CFFO of
BRL425 million that will cover a capex of BRL159 million and
dividends of BRL163 million.
Potential Threats from Aluminum: Fitch believes Tupy will continue
to experience competition from aluminum products in the small
engine market. The agency estimates Tupy will lose 2%-3% of
revenues over the next four to five years and that 4%-5% of its
current revenues is somehow threatened by aluminum. On the other
hand, its cast iron and compact graphite iron (CGI) parts will
continue to have a lead in the light commercial vehicles and
larger trucks that represented 79% of revenues in 2017. Aluminum
is lighter but less resistant than iron. On top of the material,
there is also room to evolve on the geometry of the engine blocks
with thinner walls. Fitch believes the two metals will co-exist
for a long period of time and that changes favoring one or the
other in the small engine segment will be gradual given the long-
term contracts.
Low Scale in a Cyclical Business: Tupy's scale is relatively low,
and the company has moderate geographic diversification when
compared with other global auto parts companies. The company's
business is concentrated in the highly cyclical and competitive
auto industry. Concerns about the adverse economic environment in
Brazil are partially offset by the more favorable economic
conditions in Mexico, where Tupy has two plants, and by exports
that represented 83% of the sales in 2017. Also factored into the
ratings is the company's high customer concentration, with the
five main clients representing 64% of net revenues in 2017.
DERIVATION SUMMARY
Most of the auto parts companies covered by Fitch are positioned
in the 'BB' rating category, constrained by the intrinsic
volatility of the sector, capital and labor intensity
characteristics, and natural client concentration. Metalsa, S.A.
de C.V. (BBB-/Stable) and GKN Holdings PLC (BBB- /Rating Watch
Negative) are rated investment grade due to their conservative
capital structure, larger scale, and wider geographical
diversification. A large presence in the aftermarket, which is
countercyclical, is also credit positive for these companies.
Tupy's (BB/Stable) low leverage and strong liquidity compares well
with its peers. However, the 'BB' rating incorporates its small
scale and weaker geographical diversification within the sector,
as well as its high exposure to the automakers. Nemak, S.A.B. de
C.V. (BB+/Positive) is larger and more diversified than Tupy and
counts on a strong parent. Tupy's credit profile is, however,
stronger than those of Tenneco Inc. (BB-/Stable), Meritor, Inc.
(BB-/Stable), and American Axle & Manufacturing Holdings, Inc.
(BB-/Stable), which operate with a more leveraged capital
structure.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
Revenues growing at a 6.2% three-year CAGR. In Brazil, Fitch
expects a 3.2% CAGR over the next three years, aided by better
volumes and price increases. Abroad, average growth is expected
to be 6.8% on better volumes, stronger FX rates as of 2018, and
increase in machining parts in Mexico;
Cost of raw material, mainly scrap, in USD per ton in line with
2017. Average wages, energy, G&A, and other operating results
growing in line with inflation (IPCA);
EBITDA margins are expected to average 15.4% from 2018 until
2020;
Capex at 3.8% and 3.7% of net revenues in 2018 and 2019,
respectively;
Dividends in line with company's guidance for 2018 and a payout
rate of 40% of net profits as of 2019.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
An upgrade is unlikely in the short to medium term. However, an
expansion of Tupy's geographic footprint while improving FCF
materially and net leverage below 1.0x combined maintenance of
robust liquidity could trigger a positive rating action.
In line with Fitch's 'Rating Non-Financial Corporates Above the
Country Ceiling Rating Criteria', Tupy's ratings are not
constrained by Brazil's 'BB' Country Ceiling, given the company's
operating cash flow generation from its assets abroad in Mexico.
Tupy's country ceiling rating is the same as the Mexican
sovereign's.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
Severe decline in the American auto production that leads to
reduced demand for Tupy's products;
Net leverage increases above 2.0x for a prolonged period;
FCF turning negative, eroding the company's liquidity;
Drastic changes in the U.S. tax regime for Mexican exports that
affects Tupy's production on those plants;
Although not in Fitch's base case, relevant acquisitions,
financed with debt, could also lead to a negative rating action.
LIQUIDITY
Strong Liquidity: Fitch expects Tupy to maintain strong liquidity
profile in the next three years as part of its conservative
financial policy. In March 2018, company's cash position of BRL495
million covered 3.8x the short-term debt of BRL131 million. Short-
term debt is mostly related to trade finance, funding company
exports that are backed by receivables. Tupy substantially has an
extended debt amortization schedule and current cash position is
enough to cover total debt maturities until 2023. The company has
higher debt maturities of its USD350 million senior notes only in
2024.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Tupy S.A.
Long-Term Foreign Currency IDR at 'BB';
Long-Term Local Currency IDR at 'BB';
Long-term National Scale Rating at 'AA(bra)'.
Tupy Overseas S.A.
USD350 million senior notes, guaranteed by Tupy, due in 2024, at
'BB'.
The Outlook for the corporate ratings is Stable.
=================
G U A T E M A L A
=================
GUATEMALA: Death Toll From Fuego Volcano Rises to 109
-----------------------------------------------------
EFE News reports that the death toll from the eruption of the
Fuego volcano in Guatemala on Jun. 3 has risen to 109 after
another 10 bodies were found, the National Institute of Forensic
Sciences (INACIF) reported.
The INACIF said in a statement that seven of the bodies found were
transferred to the morgue of Hunahpu village, in the south of
Escuintla Department, and the three others to the central morgue
in the capital, according to EFE News.
A source from INACIF told EFE that these 10 bodies were registered
in the morgues between 4.01pm local time (22.01 GMT) on June 6 and
6.00pm local time (24.00 GMT) on June 7.
The report notes that spokesperson of the Coordinating Agency for
Disaster Reduction, David De Leon, disclosed the temporary
suspension of the rescue operation due to bad weather conditions.
The INACIF explained that two more casualties were identified,
whose names were added to the 28 identified already, the report
says.
In addition, he noted that until June 7, 100 people have given
blood samples for genetic analysis in the hope to identify their
relatives, while 225 people have come to ask about the search for
their missing relatives or friends, the report relays.
The strong eruption of the volcano and the constant volcanic
activity has affected some 1.7 million people, 12,407 were
evacuated, 7,393 transferred to hospitals, 4,137 are living in
shelters, 197 are reported missing and 58 were injured, according
to data from the relief agencies, the report adds.
===========
M E X I C O
===========
GRUPO POSADAS: Fitch Affirms 'B' LT Issuer Default Ratings
----------------------------------------------------------
Fitch Ratings has affirmed Grupo Posadas, S.A.B. de C.V.'s
(Posadas) ratings as follows:
Local Currency and Foreign Currency Long-Term Issuer Default
Ratings (IDRs) at 'B';
National Scale long-term rating at 'BB+(mex)';
USD400 million senior notes due 2022 at 'B'/'RR4'.
Posadas' ratings are supported by the company's business position
as a leading hotel chain in Mexico, solid brand equity, good
operating performance and broad brand portfolio. The use of
multiple hotel formats allows the company to target both domestic
and international, business and tourist travelers from different
income levels, diversifying its revenue base. Consistent product
offering and presence in all major urban and costal locations in
Mexico have resulted in occupancy levels above the industry
average. Conversely, Fitch incorporates into Posadas' ratings the
company's high leverage levels, limited FCF generation and the
industry's high correlation to economic cycles, which negatively
affect operating trends in downturns and increases volatility of
operating results.
The 'RR4' Recovery Rating assigned to the senior notes issuances
indicate average recovery prospects given default. 'RR4' rated
securities have characteristics consistent with historically
recovering 31%-50% of current principal and related interest.
KEY RATING DRIVERS
Leverage Remains High: An increase in rent expense contributed to
a rise in Fitch's adjusted debt calculation and resulted in higher
leverage ratios. The sale-and-lease of assets in the last 12
months (LTMs) increased Posadas' annual rent expense. Fitch
estimates that off-balance sheet debt for 2018 will be MX5,325
million, up from the MXN2,856 million calculated for 2017. Fitch
does expects on-balance sheet debt to remain stable, and the
strengthening of leverage ratios could come from additional EBITDA
generated by existing and new operations added to the hotel
portfolio. Adjusted debt/EBITDAR is expected to remain close to
5.5x in the mid-term, with an improvement towards 4.5x as new
hotel units contribute to EBITDA generation.
Negative Estimated FCF: Fitch estimates that cash outflows related
to last year's tax settlement and Capex linked to the portfolio's
growth pipeline will result in negative FCF prior to asset sales
for the following years. In 2017, the company resolved all audits,
fiscal credits and observations related to the fiscal years 2007
to 2013 in a conclusive manner. Posadas agreed to pay a total
MXN2,463 million in seven annual installments from 2017 to 2023.
Management has stated that payments will be covered by operating
cash flows and should not affect projects and investment forecasts
in the following years.
Fitch expects capex levels to reach up to MXN2 billion in 2018 and
then gradually decrease to around MXN750 million for the next few
years. Capex is mainly related to the remodeling of current hotel
rooms, as well as a project with two hotels in the Mayan Riviera,
a Live Aqua Residence Club in San Miguel de Allende and the
remodelling project of the existing hotel in Corredor Reforma,
Mexico City which final decision is still under review. These
investments are expected to be funded with cash on hand from the
recent monetization of assets and internally generated cash flows.
Fitch's rating case projections do not include the issuance of
additional debt.
FX Exposure: Posadas has a natural hedge to exchange rate risk in
servicing its debt, with its U.S. dollar denominated revenues used
to cover USD31.5 million of interest expense annually. Around 27%
of the company's revenues are denominated in USD, since their
hotels in coastal destinations and some urban locations receive
rates in this currency. The remaining revenues are not directly
denominated in USD, but increases in hotel daily rates tend to
follow movements in the USD/MXN exchange rate. In addition, the
company's strategy is to maintain U.S. Dollar denominated cash
balances. As of March 31, 2018 the company's USD cash balance was
USD102 million and 97% of its debt balance was denominated in USD.
Solid Business Position: Posadas' ratings are supported by the
company's business position in Mexico, solid brand name and
multiple hotel formats. The company's diversified revenues are
generated from owned and leased properties, managed hotels and
vacation club membership sales and annual fees. The ratings
incorporate the industry's high correlation to economic cycles,
which negatively affect operating trends in downturns and
increases volatility of operating results. The use of multiple
hotel formats allows the company to target domestic and
international business travelers of different income levels, in
addition to tourists, thus diversifying its revenue base.
Geographic diversification is limited as Posadas' operations are
primarily located in Mexico.
Strong Operating Indicators: Consistent product offering and
quality brand image have resulted in occupancy levels that are
above the industry average in Mexico. Occupancy has been
relatively stable for the past years at around 65%, above the 2017
and 2016 year-end country averages of 61.0% and 60.3%,
respectively, according to the Secretaria de Turismo's data.
Posadas' occupancy rates in urban destinations for 2017 were
around 67%, well above the country average of 56.1%. The company's
diverse brand portfolio allows it to offer luxury, upscale,
midscale, extended-stay and economy rooms nationwide. The change
in sales mix towards upscale hotels, in addition to robust market
demand and the strengthening of the U.S.-dollar-denominated rates,
has contributed to increases in Average Daily Rents (ADRs).
DERIVATION SUMMARY
Posadas is the largest hotel operator in Mexico, with 165 hotels,
resorts and vacation properties in its portfolio and around 26,032
rooms. The company's hotels are located in a mix of urban and
costal destinations serving both leisure and business travelers,
with approximately 83% of rooms located in urban destinations and
17% in costal destinations. The issuer operates under multiple
formats: owned, leased and managed hotels. Fitch estimates the
total hotels in the portfolio will grow to around 226 by year end
2021. Less than 2% of these hotels will be incorporated as wholly
owned properties. Fitch believes Posadas' strategy will continue
to be focused on managed hotels as opposed to owned hotels, which
will allow the company to maintain capex levels low as growth
could be funded by third parties. Fitch estimates that cash flows
generated by operations and cash on hand will be enough to cover
maintenance capex and annual tax settlement payments.
Posadas is well positioned in the domestic market in Mexico, which
remains highly pulverized; its size and geographic diversification
are smaller than global hotel operators such as NH Hotel Group
S.A. (B+/Positive) with a portfolio made up of 380 hotels and
58,926 rooms in 31 countries in Europe and America. NH Hotel
Group, like Posadas, has both urban and costal destinations. The
companies' operating metrics are in line with industry players;
Posadas' occupancy rate for 2017 was 65%, slightly below the 70%
reported by NH Hotel Group. NH Hotel Group's ADRs of a little over
USD110 per night are higher than Posadas as its portfolio is
mainly made up of upscale hotels. Posadas, with a portfolio geared
towards customers of different income levels, has average rates of
around USD70 per night.
These company's business models differ, since Posadas has migrated
to an asset-light structure where strategic hotels are owned and
growth is coming mostly from managed hotels, while NH remains a
more asset-heavy hotel group; managed properties now make up
around 23% of the portfolio. Fitch estimates that Posadas' capital
investments and tax settlement payments could result in negative
FCF for the following four years while NH capex levels would allow
it to maintain neutral FCF generation. Adjusted leverage ratios
for both companies are similar but Fitch estimates that NH could
reach adjusted leverage ratios below 5.0x in the short term while
Posadas is estimated to reach those levels until 2021.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for Posadas
include:
- Future growth focuses on managed properties;
- Sales for the vacation club segment increase from the addition
of a new property;
- Broadly stable KPI's in the short to medium term;
- EBITDA Margins see a slight decrease reflecting the sale and
lease of assets;
- Capital expenditures reflect expected growth pipeline and
recurring maintenance Capex;
- Tax settlement payment outflows from 2018-2023.
- The company does not issue additional debt; gross adjusted
leverage between 5.0x and 5.5x and strengthening towards 4.5x
in the mid-term.
The recovery analysis assumes that Grupo Posadas would be
considered a going-concern in bankruptcy and that the company
would be reorganized rather than liquidated. Fitch has assumed a
10% administrative claim. The going-concern EBITDA estimate
reflects Fitch's view of a sustainable, post-reorganization EBITDA
level upon which Fitch bases the valuation of the company.
The post-reorganization EBITDA assumption is MXN739.2 million,
which represents close to 50% of discount estimated EBITDA
generation for 2018, reflecting a distressed level of revenue
generation across business lines. An EV multiple of 5.0x was used
to calculate a post-reorganization valuation based on the industry
multiple, which was adjusted for the country risk premium.
Fitch calculates the recovery prospects for the senior secured
notes in the 31% to 50% range based on a waterfall approach. This
level of recovery results in the company's senior secured notes
being rated the same as its IDR of
'B-'/'RR4'.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
Stable to higher EBITDA and FCF generation, with a strengthening
in the margins.
Consolidating gains in operating indicators.
A proven track record of stronger and stable credit metrics, such
as total adjusted debt/EBITDAR consistently below 4.5x.
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
Weakening operating trends or decreases in RevPAR that could lead
to lower EBITDA and cash flow levels.
Contingent issues that hinder the issuer's ability to generate
cash flow.
Cash outflows or incremental debt that result in a combination of
total adjusted debt/EBITDAR and net adjusted debt/EBITDAR
consistently higher than 5.5x and 4.5x, respectively.
LIQUIDITY
Adequate Liquidity: Cash balances as of first quarter 2018 were
strengthened by the sale of the Hotel Fiesta Americana Condesa
Cancun. Fitch does not expect short-term liquidity issues as
Posadas' senior notes do not mature until 2022. Cash balances as
of March 31, 2018 were MXN3,751 million, which include a U.S.
dollar position of around USD102 million. As of March 31, 2018,
the company has available supply chain facility for up to MXN285
million, which provide additional support to liquidity.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Grupo Posadas, S.A.B. de C.V.
- Foreign Currency Long-Term IDR at 'B'; Outlook Stable;
- Local Currency Long-Term IDR at 'B'; Outlook Stable;
- National Scale Long-Term Rating at 'BB+(mex); Outlook Stable;
- USD400 million senior notes due 2022 at 'B'/'RR4'.
SAGICOR FINANCIAL: S&P Puts 'BB-' ICRs on Watch Negative
--------------------------------------------------------
S&P Global Ratings placed on CreditWatch negative its 'BB-' issuer
credit ratings on Sagicor Financial Corporation (SFCL), on its
financing vehicle Sagicor Finance (2015) Limited (SF15), and its
'BB-' issue-level rating on SF15's $320 million seven-year senior
unsecured notes due 2022.
Barbados' government recently suspended payments on its external
debt and announced it would strive to meet its interest payment
obligations on its domestic debt. The government will likely enter
into negotiations with domestic and foreign investors to roll over
its principal maturities and restructure its defaulted bonds.
Consequently, on June 6, 2018, S&P lowered its long-term foreign
currency rating on Barbados to 'SD' from 'CCC+' and its long-term
local currency rating to 'CC' from 'CCC', and placed the latter on
CreditWatch negative.
S&P said, "Although we don't expect a significant impact on the
Sagicor group's capitalization, the default's implications could
hurt its adequate capital score as per our risk-based capital
model. The group's exposure to Barbados government bonds is less
than 5% of its investment portfolio, but we need additional
information to determine the magnitude of the impact, if any, on
the group's ability to absorb losses. We will incorporate the
macroeconomic effects from Barbados' default and potential
implications from any debt-restructuring package into our view of
the group's prospective capital adequacy."
======================
P U E R T O R I C O
======================
MMM HOLDINGS: Moody's Withdraws B3 CFR, Outlook Positive
--------------------------------------------------------
Moody's Investors Service has withdrawn the B3 corporate family
rating of Puerto Rico-based MMM Holdings, LLC, and the Ba3
insurance financial strength rating of its US-based subsidiary,
MMM Healthcare LLC. Both ratings carried positive outlooks at the
time of withdrawal.
RATINGS RATIONALE
Moody's has decided to withdraw the ratings for its own business
reasons.
The following ratings have been withdrawn:
MMM Holdings, LLC -- corporate family rating at B3, outlook at
positive;
MMM Healthcare, LLC -- insurance financial strength rating at
Ba3, outlook at positive.
=================
X X X X X X X X X
=================
* BOND PRICING: For the Week From June 4 to June 8, 2018
--------------------------------------------------------
Issuer Name Cpn Price Maturity Country Curr
----------- --- ----- -------- ------- ---
BA-CA Finance Cayman Lt 0.518 62.07 KY EUR
AES Tiete Energia SA 6.7842 1.109 4/15/2024 BR BRL
Argentina Bogar Bonds 2 39.36 2/4/2018 AR ARS
Automotores Gildemeister 8.25 73.25 5/24/2021 CL USD
Automotores Gildemeister 6.75 67 1/15/2023 CL USD
Automotores Gildemeister 8.25 73.25 5/24/2021 CL USD
Automotores Gildemeister 6.75 65.5 1/15/2023 CL USD
CA La Electricidad 8.5 63.664 4/10/2018 VE USD
Caixa Geral De Depositos 1.439 63.167 KY EUR
Caixa Geral De Depositos 1.469 KY EUR
CSN Islands XII Corp 7 68 BR USD
CSN Islands XII Corp 7 66.266 BR USD
Decimo Primer Fideicomiso 6 53.225 10/25/2041 PA USD
Decimo Primer 4.54 43.127 10/25/2041 PA USD
Dolomite Capital 13.217 73.108 12/20/2019 CN ZAR
Enel Americas SA 5.75 56.172 6/15/2022 CL CLP
Gol Linhas Aereas SA 10.75 35.861 2/12/2023 BR USD
Gol Linhas Aereas SA 10.75 35.601 2/12/2023 BR USD
Inversora Electrica 6.5 67.625 9/26/2017 AR USD
Inversora Electrica 6.5 67.625 9/26/2017 AR USD
MIE Holdings Corp 7.5 64.78 4/25/2019 HK USD
MIE Holdings Corp 7.5 64.982 4/25/2019 HK USD
NB Finance Ltd 3.88 61.816 2/7/2035 KY EUR
Noble Holding 7.7 74.433 4/1/2025 KY USD
Noble Holding 5.25 56.279 3/15/2042 KY USD
Noble Holding 8.7 71.881 4/1/2045 KY USD
Noble Holding 6.2 60.129 8/1/2040 KY USD
Noble Holding 6.05 58.38 3/1/2041 KY USD
Odebrecht Finance Ltd 7.5 42.5 KY USD
Odebrecht Finance Ltd 5.125 56.938 6/26/2022 KY USD
Odebrecht Finance Ltd 7 68.053 4/21/2020 KY USD
Odebrecht Finance Ltd 7.125 41.366 6/26/2042 KY USD
Odebrecht Finance Ltd 4.375 40.002 4/25/2025 KY USD
Odebrecht Finance Ltd 5.25 39.211 6/27/2029 KY USD
Odebrecht Finance Ltd 6 44.75 4/5/2023 KY USD
Odebrecht Finance Ltd 5.25 39.018 6/27/2029 KY USD
Odebrecht Finance Ltd 7.5 42.95 KY USD
Odebrecht Finance Ltd 4.375 40.363 4/25/2025 KY USD
Odebrecht Finance Ltd 7.125 41.635 6/26/2042 KY USD
Odebrecht Finance Ltd 6 52.625 4/5/2023 KY USD
Odebrecht Finance Ltd 5.125 55.873 6/26/2022 KY USD
Odebrecht Finance Ltd 7 67.368 4/21/2020 KY USD
Petroleos de Venezuela 8.5 74.5 10/27/2020 VE USD
Petroleos de Venezuela 6 30.458 5/16/2024 VE USD
Petroleos de Venezuela 6 30.517 11/15/2026 VE USD
Petroleos de Venezuela 9.75 35.677 5/17/2035 VE USD
Petroleos de Venezuela 9 39.279 11/17/2021 VE USD
Petroleos de Venezuela 5.375 30.267 4/12/2027 VE USD
Petroleos de Venezuela 8.5 72.5 10/27/2020 VE USD
Petroleos de Venezuela 12.75 45.278 2/17/2022 VE USD
Petroleos de Venezuela 6 30.367 5/16/2024 VE USD
Petroleos de Venezuela 6 30.387 11/15/2026 VE USD
Petroleos de Venezuela 9 39.316 11/17/2021 VE USD
Petroleos de Venezuela 9.75 35.893 5/17/2035 VE USD
Petroleos de Venezuela 6 28.346 10/28/2022 VE USD
Petroleos de Venezuela 5.5 30.123 4/12/2037 VE USD
Petroleos de Venezuela 12.75 45.23 2/17/2022 VE USD
Polarcus Ltd 5.6 75 3/30/2022 AE USD
Provincia del Chubut 4 10/21/2019 AR USD
Siem Offshore Inc 4.04527 69.5 10/30/2020 NO NOK
Siem Offshore 3.75176 65.75 12/28/2021 NO NOK
STB Finance 2.05771 56.243 KY JPY
Sylph Ltd 2.367 64.438 9/25/2036 KY USD
US Capital 1.63611 54.774 12/1/2039 KY USD
US Capital 1.63611 54.774 12/1/2039 KY USD
USJ Acucar 9.875 67 11/9/2019 BR USD
USJ Acucar 9.875 67 11/9/2019 BR USD
Venezuela 13.625 68.25 8/15/2018 VE USD
Venezuela 7.75 44.065 10/13/2019 VE USD
Venezuela 11.95 40.785 8/5/2031 VE USD
Venezuela 12.75 45.19 8/23/2022 VE USD
Venezuela 9.25 39.645 9/15/2027 VE USD
Venezuela 11.75 40.005 10/21/2026 VE USD
Venezuela 9 36.285 5/7/2023 VE USD
Venezuela 9.375 37.69 1/13/2034 VE USD
Venezuela 13.625 72.25 8/15/2018 VE USD
Venezuela 7 34.23 3/31/2038 VE USD
Venezuela 7 59.19 12/1/2018 VE USD
***********
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
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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
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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
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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, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2018. All rights reserved. ISSN 1529-2746.
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