/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/190214.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 Thursday, February 14, 2019, Vol. 20, No. 33 Headlines B A R B A D O S BARBADOS: Makes Progress in Implementing Economic Reform Program B R A Z I L AGUAS DE ITAPEMA: Moody's Assigns Ba3 GS CFR, Outlook Stable RIO DE JANEIRO: Fitch Withdraws BB- LT IDR for Commercial Reasons C H I L E LATAM AIRLINES: Fitch Assigns B+ Rating to USD600MM Unsec. Notes LATAM AIRLINES: Posts Preliminary Monthly Statistics for January E C U A D O R ECUADOR: In Talks With IMF Over Policies to Strengthen Economy P E R U FENIX POWER: Fitch Lowers LT IDR to BB, Puts on Rating Watch Neg. P U E R T O R I C O CHARLOTTE RUSSE: Feb. 13 Meeting Set to Form Creditors' Panel PUERTO RICO: Dismissal of Bondholders' Stipulation Claim Upheld STONEMOR PARTNERS: Moody's Lowers CFR to Caa2, Outlook Negative V E N E Z U E L A VENEZUELA: China Hedges Bets with Country's Opposition VENEZUELA: Guaido Says Aid to Enter Country Starting Feb. 23 - - - - - =============== B A R B A D O S =============== BARBADOS: Makes Progress in Implementing Economic Reform Program ---------------------------------------------------------------- At the request of the Government of Barbados, an International Monetary Fund (IMF) team led by Bert van Selm visited Bridgetown from February 5-8, to discuss implementation of Barbados' Economic Recovery and Transformation (BERT) plan, supported by the IMF under the Extended Fund Facility (EFF). A concluding meeting was held with Prime Minister Mottley in Washington D.C on February 11, 2019. To summarize the mission's findings, Mr. van Selm made the following statement: "Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform program. "All indicative targets for end-December under the EFF have been met. The program target for Net International Reserves was met by a wide margin, as was the target for the Central Bank of Barbados' Net Domestic Assets (NDA). The target for the primary surplus for end-December 2018 was also met by a wide margin. "Good progress has been made in implementing end-December 2018 structural benchmarks under the EFF. Two key pieces of legislation, the Public Financial Management Act and the Town and Country Planning Act, were adopted in early 2019. "Preparation of the budget for FY2019/20 targeting a primary surplus of 6 percent of GDP is well underway. Full year effects of reforms set in motion during the current (2018/19) fiscal year, including the introduction of several new taxes and ongoing streamlining of public sector work force at state-owned enterprises, should help achieve this target. A detailed assessment of the budget will be made when it is finalized. "Progress being made by the authorities in furthering good-faith discussions with external creditors is welcome. Continuing open dialogue and sharing of information will remain important in concluding an orderly debt restructuring process. "The team is looking forward to return to Barbados in May to conduct the discussions for the first review under the EFF and would like to thank the authorities and the technical team for their openness and candid discussions." As reported in the Troubled Company Reporter-Latin America on Nov. 22, 2018, S&P Global Ratings raised its long- and short- term local currency sovereign credit ratings on Barbados to 'B-/B' from 'SD/SD' (selective default). At the same time, S&P Global Ratings assigned its 'B-' issue-level rating to Barbados' long- term debt issued in its debt exchange. S&P Global Ratings also affirmed its 'SD/SD' long- and short-term foreign currency credit ratings on the country, and its 'D' (default) ratings on Barbados' foreign-currency issues. Finally, S&P Global Ratings raised its transfer and convertibility assessment on the country to 'B-' from 'CC'. =========== B R A Z I L =========== AGUAS DE ITAPEMA: Moody's Assigns Ba3 GS CFR, Outlook Stable ------------------------------------------------------------ Moody's America Latina has assigned first-time corporate family ratings (CFRs) of Ba3 in global scale and A2.br in the national scale to Companhia Aguas de Itapema (Aguas de Itapema). The outlook is stable. At the same time, Moody's assigned Ba2 global scale and Aa3.br national scale ratings to Aguas de Itapema's second issuance of senior secured debentures in the amount of BRL100 million due 2027. The proceeds of the issuance will be used to redeem approximately BRL25 million of existing debt that was used to fund the company's expansion plan, with the remain amounts to support the capital expenditure program. The ratings assigned to the proposed debentures are based on preliminary documentation. Moody's does not anticipate changes in the main conditions that the debentures will carry. Should issuance conditions and/or final documentation deviate from the original ones submitted and reviewed by the rating agency, Moody's will assess the impact that these differences may have on the ratings and act accordingly. Assignments: Issuer: Companhia Aguas de Itapema - Corporate Family Rating, Assigned Ba3/A2.br - Gtd. Senior Secured Regular Bond/Debenture, Assigned Ba2/Aa3.br Outlook Actions: Issuer: Companhia Aguas de Itapema - Outlook, Assigned Stable RATINGS RATIONALE The Ba3/A2.br CFR reflects the company's low leverage in the context of its predictable operating profile as an operator of a regulated concession for water and sewage treatment for the city of Itapema, in Santa Catarina. Leverage, as measure by FFO/Net Debt is expected to improve substantially from 17% as of year-end 2019 to +40% as of 2022 given the short maturity profile of its fully amortizing debts. The credit view also incorporates its lower size and scale relative to peers in the regulated water utility sector, the seasonality inherent to the local economy given the importance of tourism in the summertime, and the exposure to political and social interference due to a recent change in regulator and pending tariff adjustment discussions. The rating further considers its relative position to larger and more diversified peers within Brazil in the sector as well as its position relative to the sovereign rating of Brazil (Ba2 stable). The concession has a demonstrated historical track record of consistent revenue growth and adequate operations. The revenue profile is seasonal, reflective of the economic characteristic of the city as a summer season destination. Operating revenues and EBITDA have grown at a compound average growth rate of 15% and 16% since 2014, respectively, due to a combination of consistent growth in the number of new connections, continued expansion of sewage treatment coverage, and tariff adjustments. Absent a negative outcome on pending tariff discussions with its regulator, Moody's expects revenues will continue to grow at rates above 10% and 8.5% over the next five and ten years, respectively, in light of continued economic growth in the city, capital investments that aim to increase sewage treatment coverage from the current level of 65% to +90% by debenture maturity in 2027, and tariff adjustments that follow inflation. The concession is granted by the city of Itapema, but is subject to the regulatory purview of the Regulatory Agency for Public Services of the State of Santa Catarina (ARESC). Regulatory oversight was transferred to ARESC from the Intermunicipal Sanitation Regulatory Agency (ARIS) in January 2017, following social pressure due to increased tariffs. At the request of the municipality, which attempted to freeze water tariffs through executive decree in 2017 only to be turned down in court, ARESC is reviewing the terms of the concession amendment signed in 2015. Moody's views the recent change in regulator and the ongoing tariff discussions as credit negative. Furthermore, the single-concession nature of the issuer, which provides for a single regulatory agency, is also a credit weakness relative to larger more diversified peers holding several concessions. The projected capital investments of BRL72 million scheduled to be completed in 2019 are equivalent to 40% of the existing asset base, which implies considerable growth. Nonetheless, the low complexity of the works, mostly composed of the expansion of the sewage network, including the sewage treatment station, replacement of hydrometers, and other works that support its water distribution network mitigate the risks of delays or cost overruns. The proposed debentures, which will represent close to 80% of total debt, are fully amortizing, with debt service coverage ratios (DSCRs) expected to average 1.70x in the Moody's case. Leverage metrics are strong relative to private peers operating regulated water and sewage concessions, and the amortizing debt will allow for a strong pace of deleveraging. Interest coverage ratios are expected to increase from 2.9x in 2019 to above 4.0x as of 2022, while FFO to Net Debt is expected to increase from 17% in 2019 to above 40% in 2022. Structural enhancements include the inability to distribute dividends above the legal minimum level of 25% of net income if DSCRs are below 1.70x and to obtain additional debt in amounts above BRL1.0 million without creditor approval. The Ba2/Aa3.br senior secured ratings recognize the protections embedded in the debentures indenture, including the security in the form of any and all credit rights related to the concession, the waterfall and cash collection mechanism that prioritize debenture payments relative to other debt through irrevocable collection bank notices. It further recognizes the relative size of the debentures in contrast to the overall adjusted debt, of approximately 80%. The stable outlook reflects the expectation that the ongoing tariff discussions will not have a negative impact to the company, and that revenues and cash flow will continue to grow in line with the capital expenditure program, supporting the company's principal and interest payments and a fast pace of deleveraging. WHAT COULD CHANGE THE RATING UP/DOWN Positive ratings pressure can arise should the pending tariff discussions with the regulator be favorable to the company, decreasing exposure to political or regulatory risks. The ratings can be upgraded should operating and financial performance lead to an expectation of DSCRs above 1.70x. The ratings can be downgraded should the results of the pending tariff discussions with the regulator be negative and lead to an expectation of DSCRs below 1.50x. The principal methodology used in these ratings was Regulated Water Utilities published in June 2018. Companhia Aguas de Itapema is responsible for the expansion, operation, and maintenance of the water and sewage services of the city of Itapema, under a concession agreement originally signed in 2004. The original concession agreement would expire in 2029, but the contract was amended in 2015, in order to accommodate the city's sanitation plan, extending the concession until 2044, in light of investments required. Itapema is home to a fixed population of approximately 60,000 people, but the water and sewage infrastructure is designed to serve a peak population of almost 5x to 8x the fixed population during the summertime. In the last twelve months ended September 2018, Aguas de Itapema generated operating net revenues of BRL47 million and EBITDA of BRL28.2 million, after the application of Moody's standard adjustments for non-financial corporations. The company is 100% owned by midsized infrastructure holding group CONASA Infraestrutura S.A. RIO DE JANEIRO: Fitch Withdraws BB- LT IDR for Commercial Reasons ----------------------------------------------------------------- Fitch Ratings has withdrawn the City of Rio de Janeiro's ratings as follows: -- Long-Term Foreign Currency IDR 'BB-'; -- Short-Term Foreign Currency IDR 'B'; -- Long-Term Local Currency IDR 'BB-'; -- Short-Term Local Currency IDR 'B'; -- Long-Term National rating 'AA(bra)'; -- Short-Term National rating 'F1+(bra)'. KEY RATING DRIVERS Fitch has chosen to withdraw the ratings of City of Rio de Janeiro for commercial reasons. RATING SENSITIVITIES Rating sensitivities do not apply as the ratings have been withdrawn. ========= C H I L E ========= LATAM AIRLINES: Fitch Assigns B+ Rating to USD600MM Unsec. Notes ---------------------------------------------------------------- Fitch Ratings has assigned a final rating of 'B+'/'RR4' to LATAM Airlines Group S.A.'s USD600 million unsecured notes issued through its fully owned subsidiary LATAM Finance Limited. The assignment of the final ratings follows the receipt of documents confirming the information already received. The final ratings are the same as the expected rating assigned to the senior unsecured notes on Jan. 28, 2019. The notes will be fully guaranteed by LATAM. Proceeds from the issuance are expected to be used for general corporate purposes. Fitch currently rates LATAM's Long-Term Issuer Default Rating 'B+' with a Positive Outlook. LATAM's ratings are supported by its diversified business model, important regional market position and adequate liquidity, which are tempered by its still high gross adjusted leverage and operational volatility related to some of its key markets. The ratings also consider the vulnerability of the company's cash flow generation to fuel price variations and the inherent risks of the airline industry, as well as the carrier's capacity to maintain operational margins based on its leadership position in the markets where it operates. The Positive Outlook is supported by Fitch's expectations that the improvement in the company's credit metrics may occur during 2019, leading adjusted gross leverage to move around 4.5x and liquidity, measured as cash and unused committed credit lines/latest 12 months revenues ratio, remaining around 20%. KEY RATING DRIVERS Market Position and Diversification: Fitch views LATAM's strong business position as sustainable in the medium term, based on its diversification within Latin America and in the international routes between Latin America and either North America, Europe, Oceania or Africa. The ratings incorporate the company's No. 2 market share in Brazil's domestic market and its position as the leader among Brazilian companies in international markets, as well as the volatility in operating results associated with these markets through the economic cycle. The company maintains a good business diversification with international passengers, domestic Brazil, domestic Spanish-speaking countries (SSC) and cargo divisions representing 46%, 22%, 16% and 12%, respectively; of the company's total revenue as of LTM Sept. 30, 2018. Mid-Single-Digit Traffic Growth: Fitch expects the company's consolidated boarded passengers to increase by 5% during 2019, an improvement over the 2.5% during 2018. This incorporates the expectation that traffic trends for the International segment will continue performing well, a recovery for the traffic levels in the SSC segment, and continued improvement in traffic levels for the Brazilian segment. The company's consolidated passenger yields remained stable during the nine months period ended in 2018, Fitch does not expect a significant expansion on that for 2019 (0%-2%). Changes in rational capacity management by the key players could pressure passenger yields and, consequently, operating margins. The successful implementation of the joint venture agreements with American Airlines Group and IAG's British Airways and Iberia (members of the Oneworld Alliance), should also benefit profitability in the medium term. Better Industry Scenario: The relatively improved fuel and FX outlook are expected to drive some profit margin recovery since third-quarter 2018. The expectation of Brazil's better macroeconomic environment in 2019, notwithstanding any reverse due to political turbulence, should benefit traffic levels resulting in a stable cost structure for the company's Brazilian operations. Fitch forecasts Brazil's GDP growth to be 2.2% in 2019, and this represents an important expansion compared with the average of 1.2% during 2017-2018 and negative 0.3% during 2012-2016. This expectation should lead an improvement over the company's operational margins, moving around 7.5%, up from 6.6% in the LTM period ended in Sept. 30 218 and from 6% during 2016 and 7% in 2017, respectively. Challenge to Deleverage: LATAM still has the challenge to improve its credit metrics and reduce gross leverage to around 4.5x. The improvement trend observed during 2015-2017 period was impacted by the high fuel and FX volatility during 2018. The company's gross adjusted leverage, measured as total adjusted debt/EBITDAR, was 5.2x at LTM Sept. 30, 2018, stable from 2017 level, yet better than the average of 6.3x in 2015-2016. The company's total adjusted debt was USD11.4 billion at LTM Sept. 30, 2018. This debt includes USD7.6 billion of on-balance-sheet debt and USD3.8 billion of off-balance-sheet obligations related to operating leases with combined rental payments of approximately USD541 million in the LTM Sept. 30, 2018. Neutral to Positive FCF: Managing growth capex in the next two years will be key to allow a more robust FCF generation and deleveraging trends. Fitch expects LATAM's FCF margin to be neutral to positive during 2018-2020, driven by revenue growth, continued EBIT margin improvement and targeted capex levels. LATAM reported FCF of USD126 million during the LTM period ended on Sept. 30 2018, this considers USD968 million in cash flow from operations (after net cash interest paid), USD760 million in total capex, and paid dividends around USD82 million. Strong Credit Linkage: LATAM maintains indirectly all of the economic rights and 49% of the voting rights in TAM. The ratings of LATAM and TAM also incorporate the strong credit linkage between the entities, with significant legal, operational and strategic ties. In addition, the financing of the combined fleet plan capex is implemented through LATAM, with the new aircraft being subleased to TAM. Furthermore, the view of strong legal ties between LATAM and TAM is supported by cross-default clauses incorporated in LATAM's USD500 million unsecured notes due in 2020 and LATAM Finance Limited's USD700 million unsecured notes due in 2024. DERIVATION SUMMARY LATAM's 'B+' rating is one notch higher than the ratings of the other two main regional players in Latin America Avianca Holdings S.A. (B/Stable) and GOL Linhas Aereas Inteligentes S.A. (B/Stable). LATAM is well positioned in the 'B' rating category relative to its regional peers given its diversified business model, significant regional market position and adequate liquidity. These positive factors are tempered by the company's still-high gross adjusted leverage and operational volatility related to some key markets. LATAM is rated lower than global players Delta Air Lines (BBB-/Stable), United Continental Holdings, Inc. (BB/Stable), and American Airlines Group, Inc. (BB-/Stable), primarily due to the company's higher financial leverage and weaker profitability. Liquidity continues to be a credit positive, as LATAM has consistently maintained a stronger liquidity position, measured as cash plus committed credit lines over LTM revenues, compared with regional peers. KEY ASSUMPTIONS Fitch's Key Assumptions within Its Rating Case for the Issuer: -- Consolidated RPK of 5%; -- Low single-digit yield growth and load factor in the 81%-83% range; -- EBIT margin of 7%-8% in 2019; -- 2018-2019 neutral to positive FCF generation; -- Liquidity, measured as readily available cash plus unused committed credit facilities over LTM net revenue, of 20% in 2018-2019; KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that LATAM would be considered a going concern in bankruptcy and that the company would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim. Going-Concern Approach: Fitch assumes a going concern enterprise value of USD7.6 billion based on post-default EBITDA of approximately USD1.37 billion (a 20% discount from the company's 2017 EBITDA level of USD1.7 billion) and a multiple of 5.5x. After deducting 10% for administrative claims, the remaining $6.8 billion of enterprise value leads to full recovery for LATAM's secured debt and approximately 40% to 45% recovery for the unsecured debt, which reflects average recovery prospects consistent with the 'RR4' level. RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action -- Liquidity, measured as cash/LTM revenue, consistently above 15%; -- Gross adjusted leverage approximately 4.5x on a consistent basis; -- Neutral to positive FCF generation; -- Coverage ratio, measured as total EBITDAR/(net interest expense plus rents),consistently above 2.5x; EBIT margin moving to 8%. Developments that May, Individually or Collectively, Lead to Negative Rating Action -- Sustained negative FCF; -- Liquidity, measured as cash/LTM revenue, consistently below 10%; -- Gross adjusted leverage consistently above 5.5x; -- EBIT margin consistently below 6.5%; -- Coverage ratio, measured as total EBITDAR/(interest expense plus rents), consistently below 2.3x. LIQUIDITY Adequate Liquidity: Fitch views the company's liquidity position as adequate for the rating category. LATAM held cash of USD1.2 billion as of Sept. 30, 2018, compared with short-term debt of USD1.5 billion. LATAM has in place a senior secured revolving credit facility (RCF) of USD600 million. The RCF is collateralized by a combination of aircraft, spare engines and spare parts. Including the RCF, the company's level of liquidity, measured as total cash and marketable securities plus unused committed credit lines over LTM revenue, was 17.4% as of Sept. 30, 2018. The company's upcoming debt maturities are viewed as high relative to its expected FCF generation, but mitigated by solid cash balance and revolving credit facility. LATAM faces debt amortizations of USD0.9 billion and USD1.5 billion during 2019 and 2020, respectively, which will be primarily addressed through a combination of FCF generation and refinancing. FULL LIST OF RATING ACTIONS Fitch has assigned the following ratings: LATAM Finance Limited -- Senior unsecured notes up to USD600 million, 'B+'/'RR4'. Fitch currently rates LATAM as follows: LATAM Airlines Group S.A -- Long-Term Foreign Currency IDR 'B+'; -- National Equity Rating 'Primera Clase Nivel 3 (cl)'; -- USD500 million senior unsecured note due 2020 'B+'/'RR4'. LATAM Finance Limited Limited --USD700 million senior unsecured note due 2024 'B+'/'RR4'. TAM S.A. -- Long-Term Foreign Currency IDR 'B+'; -- Long-Term Local currency IDR 'B+'; - TAM Linhas Aereas S.A.: Long-Term Foreign Currency IDR 'B+'; Long-Term Local currency IDR 'B+'; The Rating Outlook is Positive. LATAM AIRLINES: Posts Preliminary Monthly Statistics for January ---------------------------------------------------------------- LATAM Airlines Group S.A. and its subsidiaries reported its preliminary monthly traffic statistics for January 2019 compared to January 2019. System passenger traffic increased by 5.1%, while capacity rose 6.1%. As a result, the Company's load factor for the month fell 0.8 percentage points to 85.5%. International passenger traffic accounted for approximately 57% of the month's total passenger traffic. ============= E C U A D O R ============= ECUADOR: In Talks With IMF Over Policies to Strengthen Economy -------------------------------------------------------------- Gerry Rice, the International Monetary Fund's chief spokesperson, made the following statement on Ecuador: "The IMF together with other partner multilateral financial institutions have been engaged in a close dialogue with the Ecuadorian authorities over policies to strengthen Ecuador's economy for the benefit of all Ecuadorians. "As part of this partnership, the Ecuadorian authorities and the IMF have agreed to deepen this dialogue with the goal of working toward a possible IMF-supported financial arrangement. This potential IMF supported arrangement would aim to protect the poor and most vulnerable, boost competitiveness and job creation, improve transparency and strengthen the fight against corruption as well as fortify the institutional foundations for dollarization. "In this context, an IMF team is currently in Quito to continue this dialogue and identify how the IMF can best support the government's home-grown policy plan." ======= P E R U ======= FENIX POWER: Fitch Lowers LT IDR to BB, Puts on Rating Watch Neg. ----------------------------------------------------------------- Fitch Ratings has downgraded Fenix Power Peru S.A.'s Long-Term Issuer Default Rating (IDR) to 'BB' from 'BBB-' and has placed the ratings on Negative Watch. This rating action affects Fenix's USD340 million senior unsecured notes due 2027. Fenix's ratings downgrade reflects Fitch views that the strength of the parent-subsidiary linkage has deteriorated and the company's standalone credit profile has weaken to a 'B' level rating from the previously assessed 'BB'. The perception of weaker shareholder support is demonstrated by cash outflows to shareholders, which indicates a less conservative business strategy at a time when Fenix's credit metrics are under pressure. The Rating Watch Negative indicates that in the absence of additional shareholder support, Fenix's ratings could be downgraded further to a level closer to its standalone credit profile. Fitch will monitor the materialization of additional financial support measures. Fenix's standalone credit profile has deteriorated due to generation overcapacity in Peru, which has led to depressed spot prices and shrinking load factor, exposing the company to higher than expected electricity sales to the spot market. As a result, the company's leverage metrics and coverage ratios have materially worsened. Fenix's capital structure is aligned with a 'B' rating and its 'BB'/Watch Negative ratings reflect the expectation that support from its parent, Colbun S.A. will be forthcoming. KEY RATING DRIVERS Weaker than Expected Shareholder Support: Fenix's ratings are three notches below those of its controlling shareholder. Fitch views that the strength of the parent-subsidiary linkage has worsened as demonstrated by higher than anticipated cash outflows during 2018, indicating a less conservative business strategy at a time when Fenix's credit metrics are substantially weaker than anticipated. The three notch uplift from Fenix's stand-alone credit profile is a result of the cross default clause on Colbun's notes and Fitch's expectations that additional material funding will be provided to avoid a financial distress situation. During 2018, Fenix represented only 5.2% of Colbun's EBITDA. Fenix's shareholders are Colbun (51%), Abu Dhabi Investment Authority (Abu Dhabi, 36%) and SIGMA Asset Management (13%). The majority of the decisions by the board of directors require approval of the members appointed by Colbun (four members) and Abu Dhabi (two members). Deteriorating Cash Flow Generation: Fitch does not expect cash flow generation to improve in the short term after the company's cash flow missed expectations for two consecutive years. Absent material demand growth from regulated customers and/or higher spot prices, Fenix cash flow generation will continue under pressure as the company redirects generation to the spot market, which trades at significantly lower prices. Fitch expects EBITDA to range between USD37 million and USD45 million during the next few years with potential material upside if spot prices materially increase above current levels. Oversupply and Decreasing Regulated Demand: Fenix's cash flow generation has been under pressured as a result of anemic regulated demand growth, low spot prices and inflexible cost structure. In 2018, Fenix reported an adjusted EBITDA of around USD35.7 million compared with USD61.7 million and USD42.6 million in 2016 and 2017, respectively. Over the last several years, investment in new installed capacity in Peru has created energy oversupply, which, combined with over 50% of generation from hydro sources and low fuel cost, has kept spot prices low. Weak Capital Structure: Fenix's weaker cash flow generation will significantly delay its deleveraging trajectory and pressure coverage ratios. When initially assigned, Fenix's ratings reflected a leverage ratio as measured by total debt-to-EBITDA of 5.0x by the end of 2018. The company reported leverage of 9.8x in 2018 and is expected to reach 5.0x levels only after two to three more years, as the notes amortize. Fitch expects Fenix's parents to support the company financially until the current electricity market conditions in Peru improve to a level that allows the company to comfortably meet debt service. Absent parent support, Fenix's current credit quality is in line with a 'B' credit rating. Adequate Contractual Position: Although Fenix's has an adequate contractual position under long- and short-term Power Purchase Agreements (PPAs) with a remaining average life of five years, anaemic load factor from regulated customers has increased its exposure to the spot market. During 2018, Fenix sold 74% of its generation under PPAs, down from 80% in 2016, as contracts with distribution companies are indexed to their load factor, which has been under pressured. Prolonged depressed market conditions in Peru's electricity market could difficult the company's ability to renew its contracts at expiration. Inflexible Cost Structure: Fenix's long-term operational contracts pressure profitability during market downturns. The company has a high level of contractual agreements for natural gas supply, transportation and distribution with the Camisea gas field consortium, Transportadora de Gas del Peru, S.A. (TGP; BBB+/Stable) and Gas Natural de Lima y Callao S.A. (Calidda; BBB/Stable), respectively. These agreements are based on a 90% take-or-pay structure with Camisea and a 100% take-or-pay structure with TGP and Calidda, which reduces operational flexibility. During 2018, fixed costs from these contracts were around $23.1/MWh compares with $22.3/MWh in 2017, while the average spot price sales was $6.7/MWh and $9.11/MWh respectively, pressuring EBITDA margins to 18% from 28% in 2016. DERIVATION SUMMARY Fenix's business profile compares poorly with other GenCos in Peru namely Kallpa Generacion S.A. (BBB-/Stable), Orazul Energy Egenor S. en C. por A (BB/Stable) and Nautilus Inkia Holdings LLC (BB/Negative Outlook). As a generator with a high proportion of take-or-pay costs, Fenix's short- term leverage at 8.0x-10.0x is more in line with a 'B' risk profile. The three-notch uplift considers the support of Colbun S.A., represented by cross default clauses and expectations that additional financial support will be provided enough to cover debt service should the company navigate under more stressed scenarios. Fenix's rating is equal to Inkia and Orazul. Inkia's credit profile is a result of its geographical diversification, overall size and leverage towards 4.5x within the rating horizon. Orazul benefits from its asset mix of both thermal and hydroelectric generation, and medium-term leverage above 5.0x on Fitch's forecast. Fenix's stand-alone credit profile is more aligned with a 'B' rating, reflecting volume and price exposure combined with leverage of 9.8x, which is offset by Colbun support. Fenix is rated two notches below Kallpa. Kallpa benefits from stronger capital structure, asset diversification, stronger contractual structure and leading market position (nearly three times the installed capacity of its Fitch-rated Peruvian peers) and leverage towards 3.5x within the rating horizon. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer -- Henry hub prices at USD3/mcf going forward; -- Demand growth in line with Peru GDP growth published by Fitch; -- Heat Rate at 6.75BTU/kWh; -- Average annual capex of USD21 million during 2019-2022; -- Average electrical spot price USD9/MW hour in 2019 increasing to USD18/MWh in 2022; -- No dividend payments during the next four years. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action -- Improved long-term contracted position with strong off-takers and increased remaining life of contracts; -- Future DSCR comfortably above 1.5x; -- Sustainable total debt to EBITDA below 5.0x in the medium term; -- Additional financial support from shareholders. Developments That May, Individually or Collectively, Lead to Negative Rating Action -- Deteriorated commercial policy resulting in an imbalanced long-term contracted position; -- Inability to re-contract a significant portion of expiring contracts; -- Failure to deleverage towards a total debt/EBITDA below 8.0x in the short term; -- Debt service falling below 1.2x; -- Using the committed credit or letter of credits line to cover unsecured notes debt service; -- Failure to provide additional financial support from shareholders; -- Downgrade of Colbun's ratings. LIQUIDITY Deteriorating Liquidity: Fenix has reported weaker than expected liquidity position as a result of shallower cash flow generation. Fitch estimates that cash on hand will be sufficient to cover approximately one year of debt service. Liquidity is further buoyed by uncommitted credit lines of approximately USD62 million with local banks and an undrawn committed credit line of USD20 million as of Sept. 30, 2018. The 10-year term notes due in 2027 started a step-up amortization of principal in September 2018, after a one-year grace period. As of December 2018, total financial debt amounted to USD350 million. Proceeds from debt issuance were used to refinance existing debt, significantly improving liquidity. Short-term debt is mainly composed of yearly amortizations of capital leases related to a transmission line construction project with Consorcio Transmantaro S.A. (CTM, BBB-/Stable). FULL LIST OF RATING ACTIONS Fitch has downgraded and placed the following ratings on Rating Watch Negative: Fenix Power Peru S.A. -- Long-Term Foreign Currency IDR to 'BB' from 'BBB-'; -- Long-Term Local Currency IDR to 'BB' from 'BBB-'; -- Senior unsecured notes to 'BB' from 'BBB-'. ===================== P U E R T O R I C O ===================== CHARLOTTE RUSSE: Feb. 13 Meeting Set to Form Creditors' Panel ------------------------------------------------------------- Andy Vara, acting United States Trustee for Region 3, will hold an organizational meeting on Feb. 13, 2019, at 10:00 a.m. in the bankruptcy case of Charlotte Russe Holding Inc. The meeting will be held at: The Doubletree Hotel 700 King Street Wilmington, DE 19801 The sole purpose of the meeting will be to form a committee or committees of unsecured creditors in the Debtors' case. The organizational meeting is not the meeting of creditors pursuant to Section 341 of the Bankruptcy Code. A representative of the Debtor, however, may attend the Organizational Meeting, and provide background information regarding the bankruptcy cases. To increase participation in the Chapter 11 proceeding, Section 1102 of the Bankruptcy Code requires that the United States Trustee appoint a committee of unsecured creditors as soon as practicable. The Committee ordinarily consists of the persons, willing to serve, that hold the seven largest unsecured claims against the debtor of the kinds represented on the committee. Section 1103 of the Bankruptcy Code provides that the Committee may consult with the debtor, investigate the debtor and its business operations and participate in the formulation of a plan of reorganization. The Committee may also perform other services as are in the interests of the unsecured creditors whom it represents. About Charlotte Russe Holding Inc. Charlotte Russe Holding, Inc. is a specialty fashion retailer of young women's apparel and accessories comprised of seven entities. The company and its affiliates are headquartered in San Diego, California and have one distribution center located in Ontario, California. In addition, the companies lease office space in Los Angeles, California and San Francisco, California, where they primarily conduct merchandising, marketing, e-commerce and technology functions. The companies sell their merchandise to customers in the contiguous 48 states, Hawaii, and Puerto Rico through their online store and 512 Charlotte Russe brick-and-mortar stores located in various regional malls, outlet centers, and lifestyle centers. The bulk of the companies' apparel and accessory products are sold under the Charlotte Russe brand with ancillary brands for denim and perfume (Refuge), young women's plus-size apparel (Charlotte Russe Plus), and cosmetics (Charlotte by Charlotte Russe). Charlotte Russe Holding and its affiliates sought protection under Chapter 11 of the Bankruptcy Code (Bankr. D. Del. Case Nos. 19-10210 to 19-10216) on Feb. 3, 2019. At the time of the filing, Charlotte Russe Holding had estimated assets of $100 million to $500 million and liabilities of $100 million to $500 million. The cases are assigned to Judge Laurie Selber Silverstein. The Debtors tapped Bayard, P.A. and Cooley LLP as their bankruptcy counsel; Guggenheim Securities, LLC as their investment banker; A&G Realty Partners, LLC as lease disposition consultant and business broker; Gordon Brothers Retail Partners LLC, Hilco Merchant Resources LLC and Malfitano Advisors, LLC as liquidation consultant; and Donlin, Recano & Company, Inc. as claims and noticing agent. PUERTO RICO: Dismissal of Bondholders' Stipulation Claim Upheld --------------------------------------------------------------- The U.S. Court of Appeals for the First Circuit addresses the appeals involving bonds issued in 2008 by the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, which were bought by bondholders (the "Bondholders"), the appellants here. The bond documentation offered as security certain property belonging or owed to the System, as defined in a "Pension Funding Bond Resolution." The Bondholders claim that they have a perfected security interest in that property under Puerto Rico's version of the Uniform Commercial Code (UCC). Upon review of the case, the First Circuit affirms the district court's holding that the 2008 Financing Statements did not perfect the Bondholders' security interest in the "Pledged Property." The Court also determines that the Bondholders met the requirements for perfection beginning on Dec. 17, 2015, and so reverses the district court. Puerto Rico Oversight, Management, and Economic Stability Act's (PROMESA) incorporation of the Bankruptcy code does not allow for the avoidance of perfected liens, and so we vacate the district court's holding that the Bondholders' security interest can be avoided under PROMESA. Concerning the district court's dismissal of the Bondholders' second and third counterclaims with prejudice, the Court vacates and remands to the district court for further consideration in light of this opinion. The Court affirms the district court's dismissal of the Bondholders' claim regarding the January 2017 Stipulation. Through the Financial Oversight and Management Board for Puerto Rico, the System filed suit in the district court on July 21, 2017, seeking declaratory judgments on several issues related to the validity, breadth, and perfection of the Bondholders' asserted security interest, and regarding the System's compliance with a stipulation between the parties (the "January 2017 Stipulation"). The Bondholders brought nine counterclaims concerning their asserted security interest as well as an alleged violation of the January 2017 Stipulation. After both sides moved for summary judgment, the district court ruled in favor of the System, finding that the Bondholders' interest was not perfected and so could be avoided under 48 U.S.C. section 2161(a), that there had been no violation of the January 2017 Stipulation, and that two of the Bondholders' counterclaims should be dismissed with prejudice. The First Circuit agrees with the district court on the particular facts here that the UCC financing statements filed in 2008 did not perfect the Bondholders' security interest, as they lacked a sufficient description of collateral. But the Court finds that the financing statement amendments filed in 2015 and 2016 satisfied the filing requirements for perfection when read in conjunction with the 2008 Financing Statements. The Court reverses the district court's determination on the satisfaction of filing requirements for perfection by amendment, and hold that the Bondholders satisfied the filing requirements for perfection as of Dec. 17, 2015. Because the Bondholders' security interest was perfected, this interest cannot be avoided under the PROMESA's incorporation of parts of the Bankruptcy Code, including 11 U.S.C. section 544(a), and so the Court does not reach the issue of whether PROMESA and other relevant Commonwealth law would allow for the retroactive avoidance of unperfected liens. Accordingly, the Court vacates the district court's holding on avoidance of the Bondholders' security interest. The Court vacates the dismissal of two of the Bondholders' counterclaims and remand to the district court for further proceedings in light of this opinion. Finally, the Court affirms the dismissal of the Bondholders' claim regarding the January 2017 Stipulation. The Joint Stipulation shows that the parties agreed that the scope of the adversary proceedings at the district court would include "ERS's rights with respect to employer contributions received during the month of May 2017," and beyond some other stipulated claims and counterclaims, "no other claims may be made by either side." So only the contributions during the month of May 2017 are properly at issue here. But as the district court correctly noted, the Bondholders conceded in their Answer and Counterclaims below that "ERS was obligated to place Employers' Contributions into the Segregated Account only for the duration of the [PROMESA] Section 405 Stay," and the Section 405 stay expired as of May 1, 2017. The Bondholders have not explained how their argument concerning the alleged violation of the January 2017 Stipulation survives these admissions, taking into account the stipulated scope of the adversary proceedings. The district court correctly dismissed the Bondholders' claim regarding an alleged violation of the January 2017 Stipulation. A copy of the First Circuit's Jan. 31, 2019 Decision is available at: http://bankrupt.com/misc/prb-17-03566-357.pdf STONEMOR PARTNERS: Moody's Lowers CFR to Caa2, Outlook Negative --------------------------------------------------------------- Moody's Investors Service downgraded StoneMor Partners L.P.'s Corporate Family rating to Caa2 from Caa1 and Probability of Default rating to Caa3-PD from Caa1-PD. Moody's affirmed the senior unsecured rating at Caa2 and Speculative Grade Liquidity rating at SGL-4. The ratings outlook remains negative. StoneMor announced it had agreed to an amendment and waiver of its unrated senior secured credit facility that, among other things, revises the maturity date to May 2020, provides for a $35 million Tranche B Facility from affiliates of investment management firm Axar Capital Management LP, increases pricing, revises financial covenants, requires the company to engage advisors to seek a refinancing of the facility and waives existing covenant defaults. Approximately $15 million of new Tranche B Facility loans will be drawn at closing of the amendment. RATINGS RATIONALE "While the announced amendment provides much-needed liquidity, the increase in debt from the Tranche B Facility, shortened maturity profile and creditor-friendly terms of the revised credit agreement make a default more likely unless StoneMor can complete a refinancing of the senior unsecured notes before 2021, leading to the downgrade of the CFR to Caa2," said Edmond DeForest, Moody's Senior Credit Officer. DeForest continued: "The company's disappointing operating performance and weak credit metrics could make a refinancing difficult to achieve. However, StoneMor's assets and an over $900 million backlog of pre-need cemetery and funeral sales lead Moody's to anticipate a higher than average overall recovery at default, driving the affirmation of the senior secured note rating at Caa2." The Caa2 CFR reflects Moody's concern that if pre-need cemetery selling and liquidity pressures do not abate while the senior secured credit facility is being refinanced, a distressed exchange or other default event could become more likely. StoneMor's financial reporting remains delayed, leading to reduced visibility and further challenging the company's ability to refinance. Moody's expects financial leverage as measured by debt to Accrual EBITDA (pro forma for acquisitions, reflecting Moody's standard adjustments and adding deferred revenues less deferred expenses) will remain over 10 times, interest coverage will stay below 1.0 time and free cash flow will be negative in 2019. The downgrade of the PDR by two notches to Caa3-PD from Caa1-PD is driven by Moody's anticipation of a distressed exchange or other default event if the senior unsecured notes cannot be refinanced in advance of the 2021 maturity. The Caa2 rating on the senior unsecured note reflects the Caa3-PD PDR and an LGD assessment of LGD3, reflecting its junior position in Moody's priority of claims at default relative to the $192 million senior secured credit facility (as amended). Moody's anticipates StoneMor's net asset value could lead to a higher than average recovery for unsecured claims at default, driving the Caa2 rating, which is one notch higher than the modeled outcome. The SGL-4 Speculative Grade Liquidity rating reflects a weak liquidity profile. Moody's expects negative $5 million to negative $10 million of free cash flow (cash burn) in 2019. There is expected to be $20 million of availability under the Tranche B Facility after the initial $15 million is drawn. The senior secured credit facility (as amended) includes certain financial covenants with which StoneMor may not comply if financial performance continues to decline. The minimum Consolidated EBITDA test (as defined) requires minimum quarter EBITDA in each quarter of fiscal 2019 and the first quarter of fiscal 2020. The negative ratings outlook reflects Moody's concerns that poor operating results or tight liquidity could make a distressed exchange or other default event more likely in the near term. Given the negative ratings outlook, an upgrade in the near term is unlikely. Over the longer term, the ratings could be upgraded if Moody's anticipates pre-need cemetery bookings growth, lower financial leverage and positive free cash flow. The ratings could be downgraded if a distressed exchange or other default event becomes more likely or if the value of StoneMor's assets and preneed cemetery sales backlog decline such that Moody's anticipates an average of low overall recovery at default for the senior unsecured notes. Issuer: StoneMor Partners L.P. Downgrades: Corporate Family Rating, Downgraded to Caa2 from Caa1 Probability of Default Rating, Downgraded to Caa3-PD from Caa1-PD Affirmations: Senior Unsecured Global Bonds, Affirmed Caa2 (LGD5 to LGD3) Speculative Grade Liquidity Rating, Affirmed SGL-4 Outlook: Outlook, Remains Negative The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. StoneMor, based in Trevose, PA, is a provider of funeral and cemetery products and services in the United States. As of December 31, 2018, StoneMor operated 316 cemeteries and 93 funeral homes in the US and Puerto Rico. The company owns 286 of these cemeteries and operates the remaining 31 under long-term management agreements with non-profit cemetery corporations that own the cemeteries. StoneMor is organized as a master limited partnership (MLP) and is treated as a partnership for U.S. federal income taxes. StoneMor and its operating subsidiary, StoneMor Operating LLC, pay no federal taxes at the entity level and are not subject to a material amount of entity-level taxation by individual states. StoneMor expects to convert from an MLP to a C Corporation during 2019. American Infrastructure MLP Funds, a private investment firm, controls StoneMor through its ownership of StoneMor's general partner and owns 7% of StoneMor's outstanding limited partnership interests. Axar owns approximately 22% of the outstanding limited partnership interests. Moody's expects StoneMor will book GAAP revenues of over $300 million in 2019. ================= V E N E Z U E L A ================= VENEZUELA: China Hedges Bets with Country's Opposition ------------------------------------------------------ EFE News, citing Dow Jones Newswires, reports that China has been holding talks with Venezuela's political opposition to safeguard its investments in the troubled Latin American nation, hedging its bets as pressure builds on Nicolas Maduro, the embattled leader for whom Beijing has been a vital ally. The report, citing people familiar with the talks, notes that Chinese diplomats, worried over the future of its oil projects in Venezuela and nearly $20 billion that Caracas owes Beijing, have held debt negotiations in Washington in recent weeks with representatives of Juan Guaido, the opposition leader heading the United States-backed efforts to oust Maduro. As reported in the Troubled Company Reporter-Latin America, S&P Global Ratings in May 2018 removed its long- and short-term local currency sovereign credit ratings on Venezuela from CreditWatch with negative implications and affirmed them at 'CCC-/C'. The outlook on the long-term local currency rating is negative. At the same time, S&P affirmed its 'SD/D' long- and short-term foreign currency sovereign credit ratings on Venezuela. S&P's transfer and convertibility assessment remains at 'CC'. VENEZUELA: Guaido Says Aid to Enter Country Starting Feb. 23 ------------------------------------------------------------ EFE News reports that National Assembly speaker Juan Guaido, who proclaimed himself Venezuela's interim president on Jan. 23, disclosed that the humanitarian aid being stockpiled abroad will start entering the country on Feb. 23. "We're announcing that Feb. 23 will be the day for the entry of the humanitarian aid, and so from today we will work with all sectors, transportation workers, nurses" who must introduce and distribute the aid, said Guaido at the close of a rally in Caracas, according to EFE News. As reported in the Troubled Company Reporter-Latin America, S&P Global Ratings in May 2018 removed its long- and short-term local currency sovereign credit ratings on Venezuela from CreditWatch with negative implications and affirmed them at 'CCC-/C'. The outlook on the long-term local currency rating is negative. At the same time, S&P affirmed its 'SD/D' long- and short-term foreign currency sovereign credit ratings on Venezuela. S&P's transfer and convertibility assessment remains at 'CC'. ********* 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 2019. 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. 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