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/raid1/www/Hosts/bankrupt/TCRLA_Public/190802.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Friday, August 2, 2019, Vol. 20, No. 154 Headlines B R A Z I L GENERAL SHOPPING: Moody's Downgrades CFR to Caa3, Outlook Stable GENERAL SHOPPING: Moody's Downgrades Sr. Unsec. Rating to Caa3 LOCALIZA RENT: Fitch Affirms 'BB' LT FC IDR, Outlook Stable PETROLEO BRASILEIRO : Sells 35% of Station Chain for US$2.5BB SAMARCO MINERACAO: To Reclaim License With Help From Adviser D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Medina Appoints New Economy Minister DOMINICAN REPUBLIC: To Grow 5.5% Says ECLAC Growth Forecast E L S A L V A D O R EL SALVADOR: Moody's Rates $1,097MM Global Bond 'B3' M E X I C O ORCHIDS PAPER: Committee Hires Dean Machinery as Appraisers P U E R T O R I C O ADVENTURE FITNESS: Taps Luis D. Flores Gonzalez as Counsel PUERTO RICO: Set For Political Clash Over Next Governor V E N E Z U E L A VENEZUELA: Talks To Resume This Week - - - - - =========== B R A Z I L =========== GENERAL SHOPPING: Moody's Downgrades CFR to Caa3, Outlook Stable ---------------------------------------------------------------- Moody's America Latina downgraded General Shopping e Outlets do Brasil S.A.'s global scale, foreign currency corporate family rating to Caa3 from Caa2 (national scale, local currency corporate family rating to Caa3.br from Caa2.br). The outlook was changed to stable from rating under review. The following ratings was downgraded: Issuer: General Shopping e Outlets do Brasil S.A. Global scale, foreign currency corporate family rating, downgraded to Caa3 (national scale, local currency corporate family to Caa3.br) Outlook Actions: Issuer: General Shopping e Outlets do Brasil S.A. Outlook, changed to stable from rating under review RATINGS RATIONALE The downgrade reflects General Shopping's ("GSB") primary challenges of a significantly reduced portfolio and an already highly levered capital structure, exacerbated by negative cash flows and tight financial flexibility. In the second quarter of 2019, the company completed its latest restructuring with the transfer of its direct and indirect equity interests in 11 out 15 shopping malls to an affiliated, publicly-listed real estate investment fund as well as distributed approximately R$ 830 million of unrealized reserve profits. The distribution was in the form of approximately R$ 207 million in cash and the remaining R$ 623 million mostly in the form of equity shares in the FII. Excluding the recently announced greenfield development project for delivery in 2020, GSB's portfolio's footprint, in terms of gross leasable area (GLA), will decrease to approximately 62,500 square meters (sqm) of total GLA, of which approximately 49,000 sqm will be owned GLA, on a pro forma basis in the second half of 2019. Subsequent to the transfer of assets to the FII in April 2019, the company acquired a 38.7% stake in Parque Shopping Barueri for R$ 125 million in July 2019. Originally developed in 2014 and managed by General Shopping, the 37,420 sqm shopping mall is located in Barueri, a municipality of the Metropolitan Region of Sao Paulo. The downgrade also considers the further weakening of the company's Funds from Operations (FFO) generation to negative R$ 30 million to R$ 40 million that is projected for 2019 and 2020. To meet its debt service payments on its 10% coupon, US dollar-denominated $164 million and other financial and development commitments, the company will rely heavily on its total cash on hand of approximately R$ 640 million, as of March 31, 2019, with an estimated annual cash burn of over R$ 100 million for 2019 and 2020. Positively, GSB's near-term debt maturities of approximately R$ 134 million for the remainder of 2019 and 2020 are re-financeable, allowing the company to conserve cash and potentially generate interest expenses savings due to current low interest rates in Brazil. However, Moody's does not anticipate that the company will address the accruing deferred interest payments on its 12%, US$150 million, subordinated perpetual notes, and will continue to defer interest payments in the foreseeable future. Additionally, General Shopping's heavily levered capital structure remains constrained by its US dollar debt exposure, mostly comprising unsecured senior and subordinated perpetual notes. Following the transfer of assets and only R$ 300 million of debt to the FII, on a pro forma basis, the company's total debt to gross assets, with a 50% equity treatment for the subordinated perpetual notes, and net debt to EBITDA (Moody's adjusted) will rise to over 70% and 11.0x for 2019-20, respectively, from 45% and 5.6x at the end of the first quarter of 2019. The company's financial flexibility is further tightened by its small unencumbered asset base. Moreover, the fixed charge coverage ratio, which has been consistently less the 1.0x, will decline to approximately 0.6x for 2019-2010 from 0.9x, as of the first quarter of 2019. While General Shopping's capital structure remains untenable in the long-term, the stable outlook considers the company's ample cash position to meet its near-term obligations over the next 18-24 months as well as the prevailing tail winds from Brazil's economic recovery that should help boost the operating performance of the owned malls and the overall shopping mall sector. Upward rating movement is unlikely in the near term and would require General Shopping to improve its capital structure and portfolio size, such that the following criteria are met on a recurring basis: 1) an increase in size and a return to positive earnings growth; 2) total debt plus preferred stock decreasing below 50% of gross assets (excluding the effects of foreign exchange fluctuations); and 3) net debt to EBITDA below 7.0x. Additionally, a substantial reduction of the accruing balance of deferred interest on the subordinated perpetual bonds support upward ratings momentum. The ratings could suffer additional downward pressure if the company were to miss a debt service payment on its senior perpetual bond or any further debt restructuring that would entail significant losses to bondholders. Headquartered in Sao Paulo, Brazil, General Shopping e Outlets do Brasil S.A. [BM&F Bovespa: GSHP3] is an owner, manager and developer of shopping centers and outlet centers in Brazil. As of March 31, 2019, the total portfolio comprised of 15 properties, encompassing approximately 293,000 sqm of GLA, of which the company's owned share was approximately 64%. Predominantly concentrated in the state of Sao Paulo, the portfolio focuses on serving the Class B and C consumers. The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. GENERAL SHOPPING: Moody's Downgrades Sr. Unsec. Rating to Caa3 -------------------------------------------------------------- Moody's Investors Service downgraded the senior unsecured rating of General Shopping Finance Limited to Caa3 from Caa2. In the same rating action, the subordinated debt rating of General Shopping Investments Limited was confirmed at Ca. The rating outlook is changed to stable from rating under review. The following rating was downgraded: Issuer: General Shopping Finance Limited Backed Senior Unsecured Rating, downgraded to Caa3 from Caa2 Outlook changed to stable from rating under review. The following rating was confirmed: Issuer: General Shopping Investments Limited Backed Subordinated debt rating, confirmed at Ca Outlook changed to stable from rating under review. RATINGS RATIONALE The downgrade and the confirmation reflects General Shopping's ("GSB") primary challenges of a significantly reduced portfolio and an already highly levered capital structure, exacerbated by negative cash flows and tight financial flexibility. In the second quarter of 2019, the company completed its latest restructuring with the transfer of its direct and indirect equity interests in 11 out 15 shopping malls to an affiliated, publicly-listed real estate investment fund as well as distributed approximately R$830 million of unrealized reserve profits. The distribution was in the form of approximately R$207 million in cash and the remaining R$623 million mostly in the form of equity shares in the FII. Excluding the recently announced greenfield development project for delivery in 2020, GSB's portfolio's footprint, in terms of gross leasable area, will decrease to approximately 62,500 square meters of total GLA, of which approximately 49,000 sqm will be owned GLA, on a pro forma basis in the second half of 2019. Subsequent to the transfer of assets to the FII in April 2019, the company acquired a 38.7% stake in Parque Shopping Barueri for R$125 million in July 2019. Originally developed in 2014 and managed by General Shopping, the 37,420 sqm shopping mall is located in Barueri, a municipality of the Metropolitan Region of Sao Paulo. The downgrade also considers the further weakening of the company's Funds from Operations (FFO) generation to negative R$30 million to R$40 million that is projected for 2019 and 2020. To meet its debt service payments on its 10% coupon, US dollar-denominated $164 million and other financial and development commitments, the company will rely heavily on its total cash on hand of approximately R$640 million, as of March 31, 2019, with an estimated annual cash burn of over R$100 million for 2019 and 2020. Positively, GSB's near-term debt maturities of approximately R$134 million for the remainder of 2019 and 2020 are re-financeable, allowing the company to conserve cash and potentially generate interest expenses savings due to current low interest rates in Brazil. However, Moody's does not anticipate that the company will address the accruing deferred interest payments on its 12%, US$150 million, subordinated perpetual notes, and will continue to defer interest payments in the foreseeable future. Additionally, General Shopping's heavily levered capital structure remains constrained by its US dollar debt exposure, mostly comprising unsecured senior and subordinated perpetual notes. Following the transfer of assets and only R$300 million of debt to the FII, on a pro forma basis, the company's total debt to gross assets, with a 50% equity treatment for the subordinated perpetual notes, and net debt to EBITDA (Moody's adjusted) will rise to over 70% and 11.0x for 2019-20, respectively, from 45% and 5.6x at the end of the first quarter of 2019. The company's financial flexibility is further tightened by its small unencumbered asset base. Moreover, the fixed charge coverage ratio, which has been consistently less the 1.0x, will decline to approximately 0.6x for 2019-2010 from 0.9x, as of the first quarter of 2019. While General Shopping's capital structure remains untenable in the long-term, the stable outlook considers the company's ample cash position to meet its near-term obligations over the next 18-24 months as well as the prevailing tail winds from Brazil's economic recovery that should help boost the operating performance of the owned malls and the overall shopping mall sector. Upward rating movement is unlikely in the near term and would require General Shopping to improve its capital structure and portfolio size, such that the following criteria are met on a recurring basis: 1) an increase in size and a return to positive earnings growth; 2) total debt plus preferred stock decreasing below 50% of gross assets (excluding the effects of foreign exchange fluctuations); and 3) net debt to EBITDA below 7.0x. Additionally, a substantial reduction of the accruing balance of deferred interest on the subordinated perpetual bonds support upward ratings momentum. The ratings could suffer additional downward pressure if the company were to miss a debt service payment on its senior perpetual bond or any further debt restructuring that would entail significant losses to bondholders. Headquartered in Sao Paulo, Brazil, General Shopping e Outlets do Brasil S.A. [BM&F Bovespa: GSHP3] is an owner, manager and developer of shopping centers and outlet centers in Brazil. As of March 31, 2019, the total portfolio comprised of 15 properties, encompassing approximately 293,000 sqm of GLA, of which the company's owned share was approximately 64%. Predominantly concentrated in the state of Sao Paulo, the portfolio focuses on serving the Class B and C consumers. The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. LOCALIZA RENT: Fitch Affirms 'BB' LT FC IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed Localiza Rent a Car S.A.'s Long-term Foreign Currency Issuer Default Rating at 'BB' and its Long-term Local Currency IDR at 'BBB-'. Fitch has also affirmed the National Scale ratings for Localiza and its wholly-owned subsidiary Localiza Fleet S.A. at 'AAA(bra)'. The Rating Outlook is Stable. Fitch rates Localiza and Localiza Fleet on a consolidated basis. The ratings continue to reflect the group's prominent business position within the competitive car and fleet rental industry in Brazil, with strong operational efficiency. Its large size results in strong bargaining power with automobile manufacturers, enabling Localiza to better capture economies of scale. The company is almost two times bigger than its closest competitors. On the other hand, Localiza's market-share oriented strategy has supported aggressive growth, producing recurring negative FCF generation, funded primarily through debt. The car and fleet rental industry is exposed to the economic cycle, particularly to unemployment, credit availability and interest rate levels. Localiza's financial profile recently improved due to a BRL1.8 billion follow-on and continues to reflect a robust financial flexibility and a capital structure that (for a capital intensive industry) is consistent with the current IDRs. A sizable pool of unencumbered vehicles bolsters its access to funding during selective debt markets, being a key factor in the ratings. Additionally, Localiza's business model continues to allow the company to adjust operations to economic cycles at its discretion as it has done in the past, enhancing its financial flexibility. Localiza has the lowest financing cost among its competitors and wide access to local capital markets. The Stable Outlook reflects Fitch's expectation that Localiza will remain committed to a sound credit profile. According to the agency's projections, adjusted net debt/ EBITDAR will remain around or below 3.0x in the long term. For 2019, Fitch forecasts net revenues of BRL10.5 billion, EBITDAR of BRL2.3 billion, capex of BRL8.8 billion, negative FCF of BRL2.2 billion and adjusted net debt/ EBITDAR of 3.0x. KEY RATING DRIVERS Robust Competitive Position: Localiza has a leading and prominent business position within the car and fleet rental industry in Brazil, underpinned by large scale, proven operating expertise, a national footprint and a strong used car sale operation. As of March 2019, Localiza's fleet of 231,571 vehicles, consisting of 176,670 in rent-a-car (RaC) and 54,901 in fleet management (GTF), secured market shares of approximately 49% in RaC (market leader) and 13% in GTF (second) by fleet size. As a result, the company has strong bargaining power with automobile manufacturers and is able to better capture economies of scale. At year-end 2019 and 2020, Localiza's own fleet should be around 283,041 and 311,382 vehicles, respectively. Solid Operating Performance: Localiza has solid margins and a positive operating track record in both rentals and used car sales, despite its sector of operation being considered of moderate to high risk. Compared with its main peers, Localiza's maintenance costs per operating vehicle, utilization rate, operating fleet (as a percentage of average total fleet) and selling cost per vehicle are consistent and competitive. Fitch forecasts cost levels per vehicle to be slightly better than historical levels. Additionally, the RaC utilization rate should be 75% in 2019 and 76% in 2020 compared to 75% in 2018, while fleet utilization rate should be stable at 95%. Likewise, RaC operating fleet should reach 84% of average total fleet for the same period. Additionally, solid operating performance during the past years helped to mitigate margin pressure due to tariff decline. Negative FCF: For 2019, Fitch forecasts funds from operations (FFO) of BRL724 million (net of maintenance capex to keep the size of the fleet stable and used car sales proceeds), working capital needs around BRL433 million and growth capex of BRL2.3 billion, leading to negative FCF of BRL2.2 billion, which compares negatively with 2018's negative FCF of BRL1.3 billion. Fitch expects negative FCF for 2019, 2020 and 2021, as a result of strong growth. As economies of scale kick in and IT expenses reduce, margins should improve slightly, reaching 39% in 2019 and 40% in 2020 for RaC and 64% for GTF for the same period (not adjusted by IFRS16). Positive used car sales performance should remain, although margins tend to be affected by expected lower sales price for used cars. Follow-on Improved Capital Structure: The recent BRL1.8 billion capital increase improved the company's capital structure and should allow it to growth up to 20% a year until 2021 without pressuring its leverage. Localiza's market-share oriented strategy, to enhance and consolidate its business position, has pressured the company's leverage levels in the last two years. According to the Fitch's projections, adjusted net debt/ EBITDAR will remain around or below 3.0x in the long term, which compares favorably with 3.4x in 2017 and 3.5x in 2018. Fitch expects Localiza to remain committed to a sound financial profile. Capital Intensive Industry: The capital-intensive nature of the rental industry, which demands sizable and regular investments to grow and renew the fleet, pressures the financial profile of the companies in the sector. Therefore, lower funding costs and strong access to credit markets are key competitive advantages. Localiza's strategy to operate with a modern fleet allows it to postpone fleet renewal, if needed, while its strong sales channel helps it to maximize sales prices. As a result, the proceeds from car sales have largely funded fleet renewal, due to the significant discounts for new vehicles obtained from auto manufacturers. Main risks for this industry are escalation of competition, constrained credit markets, rising interest rates and severe reduction of economic activity mainly affecting employment levels, disposable income, business and leisure traveling and corporate confidence. DERIVATION SUMMARY Localiza's ratings reflect its robust performance and leadership position in the Brazilian fleet and car rental industry. The company has 231 thousands vehicles, being almost two times bigger than its closest domestic peers, such as Companhia de Locacao das Americas (National Scale Rating AA(bra)/Outlook Positive) with 141 thousands cars and Movida Participacoes S.A (National Scale Rating AA-(bra)/Outlook Stable) with 95 thousands vehicles. As a result, it has stronger negotiating power with automobile manufacturers and is better able to capture economies of scale. JSL S.A. (FC and LC IDRs BB/Outlook Negative), a leading logistic player in Brazil, has a similar market leadership position but worse margins and weaker profitability. Additionally, Localiza's competitiveness is strengthened by its financial profile, which is underpinned by an adequate capital structure (net adjusted debt/EBITDA at 2.4x as of March 2019) and good financial flexibility due to the value and the quality of its fleet, robust cash holdings (cash and cash equivalents/short-term debt at 4.8x as of March 2019) and a well spread debt amortization schedule. Localiza has the lowest financing cost among its peers and wide access to local capital markets. Compared to Localiza, JSL has higher leverage (net adjusted debt/EBITDA at 4.7x as of March 2019) and weaker financial flexibility (cash and cash equivalents/short-term debt at 2.1x as of March 2019), on a consolidated basis. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer -- Average operating fleet growth, in 2019 and 2020, of 28% and 16% for rent a car and of 23% and 13% for fleet management, respectively; -- Utilization rate around 75% and 76% for car rentals in 2019 and 2020, respectively; -- Average ticket for car rentals stable in 2019 and increasing 0.5% in 2020; -- Average ticket for fleet management declining 1% in 2019 and stable in 2020; -- Total capex of BRL 8.8 billion in 2019 and BRL9.3 billion in 2020; -- Dividend payout of 27%. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action Positive rating actions for the FC IDR are limited by Brazil's country ceiling of 'BB'. The inherit risk of the Brazilian fleet and car rental industry and the current strong growth strategy of Localiza limit the upward rating potential of the company's 'BBB-' LC IDR. Developments That May, Individually or Collectively, Lead to Negative Rating Action -- Deterioration on the company's strong liquidity position; -- Aggressive price competition leading to long periods of declining margins; -- Increase in total adjusted debt/EBITDAR to more than 4.5x and in net adjusted debt/EBITDAR to more than 3.5x on sustained basis; -- A further negative rating action on Brazil's sovereign ratings and country ceiling could result in negative rating action for the company's FC IDR. LIQUIDITY Robust Liquidity Profile: Localiza's liquidity profile continues to reflect its high financial flexibility and strong cash holdings, which are important to mitigate the expected high negative FCF in the coming years (negative BRL2.2 billion in 2019). Fitch expects the company to remain with a ratio of cash and equivalents/short-term debt above 2.0x and with a well-spread debt amortization schedule. Likewise, Localiza's financial flexibility should remain underpinned by the company's sizable pool of unencumbered vehicles and its wide access to local debt markets. As of March 2019, the company had total adjusted debt of BRL8.4 billion, including BRL770 million of rental obligations based on Fitch's methodology, short-term debt of BRL825 million and cash and cash equivalents of BRL4 billion, strengthened by the BRL1.8 billion capital increase. At the same date, fleet market value was approximately of BRL9.5 billion, which covered total adjusted net debt in 2.1x and is in line with historical levels. The value and the quality of its asset base allow Localiza to monetize it as needed, further enhancing its financing flexibility. Additionally, Localiza's business model enables the company to adjust operations to economic cycles at its discretion, as seen in the past. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Localiza Rent a Car S.A.: -- Long-term, FC IDR at 'BB'; Outlook Stable; -- Long-term, LC IDR at 'BBB-'; Outlook Stable; -- Long-term National Scale Rating at 'AAA(bra)'; Outlook Stable; -- 11th, 12th and 13th senior unsecured debenture issuances at 'AAA(bra)'. Localiza Fleet S.A: -- Long-term National Scale Rating at 'AAA(bra)'; Outlook Stable; -- 5th senior unsecured debenture issuances at 'AAA(bra)'. PETROLEO BRASILEIRO : Sells 35% of Station Chain for US$2.5BB ------------------------------------------------------------- Rio Times reports that Petroleo Brasileiro S.A. has sold on July 24th, 35 percent of Brazil's biggest service station chain, BR Distribuidora, for US$2.5 billion (BRL9.6 billion), to 160 investors from different countries, such as the United Kingdom, Canada, and the United States. The Rio-based oil giant still holds 37 percent of the share capital of BR Distribuidora, which is now becoming a privately owned company, according to Rio Times. The banks involved in the operation are Merril Lynch, Citi, Credit Suisse, JP Morgan, Santander, Itau, and XP, the report relays. The privatization of BR Distribuidora will provide billions of cash to Petrobras and is likely to double its share liquidity, the report notes. It is the biggest stock offering since April 2015 and the largest deal in the new administration's effort to sell state-owned enterprises via capital markets, the report adds. As reported in the Troubled Company Reporter-Latin America on Feb. 25, 2019, S&P Global Ratings raised the stand-alone credit profile (SACP) on Petrobras to 'bb' from 'bb-'. S&P also affirmed its global scale ratings on the company at 'BB-'. SAMARCO MINERACAO: To Reclaim License With Help From Adviser ------------------------------------------------------------ Pablo Rosendo Gonzalez at Bloomberg News reports that Samarco Mineracao SA, the Brazilian mining venture that hasn't operated since a deadly dam collapse in 2015, is close to regaining a license to restart production and move closer to paying back $3.5 billion in defaulted debt. The license will most likely be granted within the second half of this year, the Minas Gerais state environmental agency press department said in an email, according to Bloomberg News. Negotiations with creditors will resume in October following the license renewal, according to a person with direct knowledge of the plans, Bloomberg relates. The venture, jointly owned by Vale SA and BHP Group Ltd., has already reached an agreement with the regulator and could get formal permission to operate as soon as mid-September, said people familiar with the regulatory situation, who asked not to be named because talks between the company and the government are private, Bloomberg News says. "There might be some optimism that Samarco can get theirs later this year to restart in 2020," said Roger Horn, a senior emerging-markets strategist at SMBC Nikko Securities America in New York, Bloomberg News relates. "The bigger issue is how quickly they can ramp up" to start servicing their debt, he added. Greenpeace Adviser Samarco has been advised by Lina Pimentel, a former Greenpeace lawyer and now environmental legal specialist at law firm Mattos Filho, Bloomberg News relates. Pimentel, who also served as chief of the environmental agency in the state of Sao Paulo, started working with Samarco right after the 2015 accident in Mariana, Minas Gerais, which killed 19 people. She was key to helping the company get an initial license in December, Bloomberg News discloses. But the efforts became delayed in January when Vale suffered an even worse disaster at one of its mines in Brumadinho, also in the Minas Gerais state. The Brumadinho dam burst killed 248 people with another 40 missing and presumed dead, prompting the state to pass new regulations to avoid future accidents, Bloomberg News recalls. "We decided to keep the bond after meeting with her in April," said Ian McCall, who oversees $190 million in emerging-market assets at First Geneva Capital Partners, referring to Samarco's $2.2 billion in defaulted bonds maturing between 2022 and 2024, Bloomberg News says. "It was quite a pleasant surprise to meet her, understand her background and the job she has been doing for years," he added. Bloomberg News relates that as part of the regulatory negotiations, the miner is revising its business plan to move 80% of its production to dry processing. The new plan will be put up for shareholder approval in August, while the regulatory go-ahead may come before the Mining Expo, the largest in Latin America, that will take place in Sept. 9-12 in Belo Horizonte, Minas Gerais's capital, one of the people said, Bloomberg News adds. As reported in the Troubled Company Reporter-Latin America on May 27, 2019, Pablo Rosendo Gonzalez at Bloomberg News reports that Samarco Mineracao SA, the Brazilian mining venture that hasn't operated since a deadly dam collapse in 2015, is postponing restructuring talks for $3.8 billion of debt until at least November, according to three people with knowledge of the plan. Creditors of the company's $2.2 billion in defaulted bonds and $1.6 billion in loans and other obligations are agreeing to the delay given the uncertainty around liabilities and fines the company may be subject to, said the people, who asked not to be named as talks are private, according to Bloomberg News. The venture, jointly owned by Vale SA and BHP Group Ltd, won't have a clear idea on those figures until the end of October, two of the people said, Bloomberg News noted. The situation remains fluid and talks could resume earlier if circumstances change, Bloomberg News relayed. The company's bonds due in 2022 and 2023 fell on the news. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Medina Appoints New Economy Minister -------------------------------------------------------- Dominican Today reports that President Danilo Medina swore in Juan Ariel Jimenez Nunez as the new Economy, Planning and Development Minister. Jimenez Nunez was appointed by executive order 264-19, which also terminates Isidoro Santana, according to Dominican Today. The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. The Troubled Company Reporter-Latin America reported on April 4, 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for Dominican Republic stands at BB- with stable outlook (2015). Moody's credit rating for Dominican Republic was last set at Ba3 with stable outlook (2017). Fitch's credit rating for Dominican Republic was last reported at BB- with stable outlook (2016). DOMINICAN REPUBLIC: To Grow 5.5% Says ECLAC Growth Forecast ----------------------------------------------------------- Dominican Today reports that the Economic Commission for Latin America and the Caribbean (ECLAC) rolled back its growth forecast for the region to 0.5% this year, due to a complex international scenario and internal factors of the countries. ECLAC said, by country, Dominica will lead the region's growth with 9.9%, followed by Antigua & Barbuda (5.9%) and the Dominican Republic 5.5%, Dominican Today adds. In its "Economic Survey of Latin America and the Caribbean 2019", presented in Santiago de Chile, ECLAC attributes the regional slowdown to "a synchronized weakening of the global economy, which has implied an unfavorable international scenario for the region," according to Dominican Today. The ECLAC, in a preliminary simulation, calculated that the trade war between China and the United States has already had an impact in the region, due to the reduction that has meant for trade, of -6% in the first quarter of 2019, the report notes. Internally, the agency blamed the forecast of 0.5% "to the little dynamism exhibited by investment, exports and a fall in public spending and private consumption," the report relays. "The region faces an external context with greater uncertainties and growing complexities: less dynamism of global economic activity and global trade; greater volatility and financial fragility; questions of the multilateral system and an increase in geopolitical tensions," said ECLAC executive secretary Alicia Barcena during the presentation of the report, Dominican Today relays. "We have 5 years of economic slowdown, this is a matter of great concern," she added. Latin America "needs to shore up its revenues. One way to achieve a more stable and balanced fiscal account is to be able to contain tax evasion and illicit financial flows because that means a large loss of income," Dominican Today notes. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. The Troubled Company Reporter-Latin America reported on April 4, 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for Dominican Republic stands at BB- with stable outlook (2015). Moody's credit rating for Dominican Republic was last set at Ba3 with stable outlook (2017). Fitch's credit rating for Dominican Republic was last reported at BB- with stable outlook (2016). ===================== E L S A L V A D O R ===================== EL SALVADOR: Moody's Rates $1,097MM Global Bond 'B3' ----------------------------------------------------- Moody's Investors Service assigned a rating of B3 to the global bond for $1,097 million issued by the Government of El Salvador, due January 20, 2050. RATINGS RATIONALE The B3 rating assigned to the bond is at the same level as the long-term foreign-currency issuer rating of the Government of El Salvador, for which the outlook is stable. El Salvador's B3 rating incorporates the country's low (+) economic strength, which takes into account El Salvador's relatively weak growth levels over the past decade, averaging just 2% from 2009 to 2018, with a slight acceleration to around 2.4% since 2015. It also reflects the country's relatively small economy ($26 billion in 2018) and high dependence on the US for its exports and remittances. Low growth is partly attributable to El Salvador's historically low rates of investment and low productivity. Gross fixed investment averaged 16% of GDP in the 2010-18 period, compared with the B median of 23%. Despite low growth dynamics, GDP per capita is in line with that of similarly rated peers ($8,041 vs. the B median of $8,467 PPP in 2018). El Salvador's credit profile is exposed to climate change risks because of its small size, relatively low income level and the important role agriculture plays in the economy. These features, in addition to the prevalence of climate-related events — on average two per year over the past decade — can affect growth volatility and agricultural output, hurting economic strength and exports, as identified in its report on environmental risks and their impact on sovereigns. Moody's assesses El Salvador's institutional strength as "Low," one notch below the indicative "Low (+)" suggested by the quantitative metrics used in its scorecard, as inflation metrics overstate the level of policy credibility and effectiveness in the context of the country's dollarized economy. Notably, El Salvador's indicators fare better than the median of its B-rated peers in all governance indicators except for Rule of Law. Since Moody's does not consider inflation dynamics a reliable proxy, Moody's incorporates weak fiscal outcomes, as well as the constraints on the policy process imposed by political polarization, which, although improving, remains a hindrance to the predictability of the policymaking process. Moody's considers El Salvador's fiscal strength "Low (+)." Its assessment reflects relatively high government debt ratios, a rising interest burden and persistent fiscal deficits. Fiscal deficits are driven by rigid government expenditures that were weighed toward pension outlays, subsidies and public salaries. Persistent deficits and low economic growth contributed to a continued rise in debt to 70% of GDP in 2018, above the B-rated median of 58%. At the same time, the affordability of government debt has decreased, as heightened liquidity risk in 2016-17 contributed to a rise in interest risk premia and to an interest burden of 15.2% of revenue in 2018, up from 12.8% in 2010. Although Moody's expects the government to continue to run small primary surpluses, Moody's estimates that fiscal deficits will hover around 3.0% of GDP in 2019-20 as growing interest payments on pension debt outweigh some of the fiscal savings provided by the country's recent pension reform. El Salvador's susceptibility to event risk is "High (-)," driven by the subfactor score for domestic political risk. The passage of pension reform in September 2017 and of government budgets for 2018 and 2019 indicates a lower likelihood that political impasse will again prevent legislative agreements to access long-term financing, as was the case for most of 2016-17. However, political risk will remain elevated until a track record of improved political relations among key stakeholders and legislative agreements is further solidified. Particularly important is evidence of a working relationship between the incoming administration and the Legislative Assembly, in which the new president will have a small representation. Moody's assesses government liquidity risk as "Moderate (-)," in line with its indicative score, to reflect the diminished liquidity risk following political agreements in the Legislative Assembly. Short-term debt, Letras del Tesoros Publico (LETES), has remained stable at around $800 million and even though the government has not secured funding to retire the LETES, it has not increased the amount either. Moody's views banking sector risk as "Low," below the indicative "Low (+)," given the significant amount of foreign ownership (90% of total assets). This, combined with the system's moderate size (70% of GDP) and primarily deposit-based funding model, reduces the risk of liabilities crystallizing on the sovereign's balance sheet in the event of a crisis. Moody's sets external vulnerability at "Low (+)," above the indicative "Low," to account for its expectation of larger external imbalances as current account deficits widen. Current account deficits have been trending down since 2013, but reversed sharply last year as rising energy prices increased the country's oil imports and strong growth in remittances fueled consumer goods imports. Although FDI inflows improved in 2017-18, averaging 3.4% of GDP, FDI flows over the last year have average just half that amount, leading El Salvador to rely on external debt to cover its current account deficit. Moody's estimates external debt at 64% of GDP in 2018, above the B median of 51%. This credit rating and any associated review or outlook has been assigned on an anticipated/subsequent basis. This credit rating and any associated review or outlook has been assigned on an anticipated/subsequent basis. The principal methodology used in this rating was Sovereign Bond Ratings published in November 2018. =========== M E X I C O =========== ORCHIDS PAPER: Committee Hires Dean Machinery as Appraisers ----------------------------------------------------------- The Official Committee of Unsecured Creditors of Orchids Paper Company, and its debtor-affiliates seeks authorization from the U.S. Bankruptcy Court for the District of Delaware to retain Dean Machinery International Inc. as equipment and machinery appraisers to the Committee, effective as of July 17, 2019. The Committee requires Dean to: a. inspect and appraise the equipment and machinery owned by Debtor Orchids Lessor SC, LLC, located in Barnwell, South Carolina; b. testify at deposition and/or in court as to the appraisal; and c. provide such other services requested by the Committee. Dean's fee for preparing the appraisal report is $4,000, plus reimbursement of expenses including travel expenses billed at actual cost. Dean's fee for testifying is $1,200 per day, plus reimbursement of travel expenses billed at actual cost. Walter Dean, President of Dean Machinery International, Inc., attests that Dean is a "disinterested person" as that term is defined in Sec. 101(14) of the Bankruptcy Code. The firm can be reached at: Walter Dean Dean Machinery International Inc. 6855 Shiloh Rd E Alpharetta, GA 30005 Phone: +1 678-947-8550 About Orchids Paper Company Headquartered in Pryor, Oklahoma, Orchids Paper Products Company -- http://www.orchidspaper.com/-- is a national supplier of consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to serve the value through ultra-premium quality market segments from its operations in northeast Oklahoma, Barnwell, South Carolina and Mexicali, Mexico. The Company provides these products primarily to retail chains throughout the United States. As of Feb. 28, 2019, the Debtors posted total assets $322,061,000 and total debt of $260,864,000. Orchids Paper Products Company and two of its subsidiaries filed for bankruptcy protection (Bankr. D.Del., Lead Case No. 19-10729) on April 1, 2019. The petitions were signed by Richard S. Infantino, interim chief strategy officer. Hon. Mary F. Walrath oversees the cases. The Debtors tapped Polsinelli PC as counsel; Deloitte Transactions And Business Analytics LLP as chief strategy officer; Houlihan Lokey Capital, Inc., as investment banker; and Prime Clerk LLC as claims and notice agent. Andrew Vara, acting U.S. trustee for Region 3, on April 15 appointed five creditors to serve on the official committee of unsecured creditors in the Chapter 11 cases of Orchids Paper Products Company and its affiliates. The Committee retained Lowenstein Sandler LLP, as counsel; and CKR Law LLP as its Delaware counsel. ===================== P U E R T O R I C O ===================== ADVENTURE FITNESS: Taps Luis D. Flores Gonzalez as Counsel ---------------------------------------------------------- Adventure Fitness Club, Inc., seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to hire the Law Offices of Luis D. Flores Gonzalez as its legal counsel. The firm will provide services in connection with the Debtor's Chapter 11 case, which include the preparation of payment plan and the examination of claims. The firm's hourly rates are: Luis Gonzalez, Esq. $200 Legal Assistants $60 Paraprofessionals $40 Gonzalez does not have any connection with the Debtor, creditors or any other "party in interest," according to court filings. The firm can be reached through: Luis D. Flores Gonzalez, Esq. Law Offices of Luis D. Flores Gonzalez 80 Calle Georgetti ste 202 San Juan, PR 00925-3624 Phone: 787-758-3606 Email: ldfglaw@coqui.net ldfglaw@yahoo.com About Adventure Fitness Club Adventure Fitness Club, Inc., sought protection under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 19-03651) on June 26, 2019. At the time of the filing, the Debtor estimated assets of less than $50,000 and liabilities of less than $500,000. PUERTO RICO: Set For Political Clash Over Next Governor ------------------------------------------------------- Luis Valentin Ortiz and Camilo Cohecha at Reuters report that Puerto Rico's political crisis risked deepening as lawmakers and street protesters opposed the Washington corporate lawyer tapped to replace disgraced Governor Ricardo Rossello. A day before Rossello was set to resign over offensive chat messages that sparked mass protests, some members of his party vowed to reject his chosen successor, Pedro Pierluisi, largely over conflict of interest concerns, according to Reuters. Hundreds of thousands of Puerto Ricans took to the streets to demand Rossello quit after the leaked messages unleashed rage over suspected administration corruption, slow recovery from 2017's deadly hurricanes and the U.S. territory's bankruptcy, the report relays. The report notes that Rossello called a special session of Puerto Rico's legislature for lawmakers to vote on Pierluisi as secretary of state, and therefore next in line to succeed him. Members of Rossello's New Progressive Party (PNP) said Pierluisi's role as a lawyer for law firm O'Neill & Borges advising the federally created financial oversight board directing Puerto Rico's bankruptcy disqualified him for the job, the report relays. Street protesters accused Pierluisi of serving the interests of Puerto Rico's political elite, not the people's, in helping establish the widely-disliked board when serving as the island's delegate to the U.S. Congress, then representing it as a lawyer, the report discloses. Pierluisi released a statement saying he had "listened to the people's messages, their demonstrations," and he would "only answer to the people," the report relays. The report notes that the speaker of Puerto Rico's House of Representatives, Carlos Mendez said he favored Senate President Thomas Rivera Schatz, also of the PNP, as secretary of state over Pierluisi, citing the lawyer's role at O'Neill & Borges. Mendez suggested Pierluisi did not have the votes in the lower house to be confirmed, the report notes. But in a sign of divisions, several PNP legislators including Yashira Lebron and Luis Perez Ortiz told newspaper El Nuevo Dia they backed Pierluisi, the report discloses. And Ramon Luis Rivera, PNP mayor of Puerto Rico's second-largest city Bayamon, threw his weight behind the 60-year-old former attorney general, the report relays. "It's time to put Puerto Rico FIRST and end the uncertainty we're engulfed in," Rivera tweeted. "Let's give the governor's nominee, Pedro Pierluisi, a chance," the report relays. The island's legislature will convene to consider the nomination, with Pierluisi needing a majority of votes to be confirmed, teh report adds. About Puerto Rico Puerto Rico is a self-governing commonwealth in association with the United States that's facing a massive bond debt of $70 billion, a 68% debt-to-GDP ratio and negative economic growth in nine of the last 10 years. The Commonwealth of Puerto Rico has sought bankruptcy protection, aiming to restructure its massive $74 billion debt-load and $49 billion in pension obligations. The debt restructuring petition was filed by Puerto Rico's financial oversight board in U.S. District Court in Puerto Rico (Case No. 17-01578) on May 3, 2017, and was made under Title III of 2016's U.S. Congressional rescue law known as the Puerto Rico Oversight, Management, and Economic Stability Act ('PROMESA'). The Financial Oversight and Management Board later commenced Title III cases for the Puerto Rico Sales Tax Financing Corporation (COFINA) on May 5, 2017, and the Employees Retirement System (ERS) and the Puerto Rico Highways and Transportation Authority (HTA) on May 21, 2017. On July 2, 2017, a Title III case was commenced for the Puerto Rico Electric Power Authority ("PREPA"). U.S. Chief Justice John Roberts has appointed U.S. District Judge Laura Taylor Swain to oversee the Title III cases. The Honorable Judith Dein, a United States Magistrate Judge for the District of Massachusetts, has been designated to preside over matters that may be referred to her by Judge Swain, including discovery disputes, and management of other pretrial proceedings. Joint administration of the Title III cases, under Lead Case No. 17-3283, was granted on June 29, 2017. The Oversight Board has hired as advisors, Proskauer Rose LLP and O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic consultant, Citigroup Global Markets, as municipal investment banker, and Ernst & Young, as financial advisor. Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M. Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at O'Neill & Borges are on-board as attorneys. McKinsey & Co. is the Board's strategic consultant, Ernst & Young is the Board's financial advisor, and Citigroup Global Markets Inc. is the Board's municipal investment banker. Prime Clerk LLC is the claims and noticing agent. Prime Clerk maintains a case web site at https://cases.primeclerk.com/puertorico Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA, and PREPA. O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), the agency responsible for negotiations with bondholders. The Oversight Board named Professor Nancy B. Rapoport as fee examiner and to chair a committee to review professionals' fees. Bondholders' Attorneys Kramer Levin Naftalis & Frankel LLP and Toro, Colon, Mullet, Rivera & Sifre, P.S.C. and serve as counsel to the Mutual Fund Group, comprised of mutual funds managed by Oppenheimer Funds, Inc., and the First Puerto Rico Family of Funds, which collectively hold over $4.4 billion of GO Bonds, COFINA Bonds, and other bonds issued by Puerto Rico and other instrumentalities. White & Case LLP and Lopez Sanchez & Pirillo LLC represent the UBS Family of Funds and the Puerto Rico Family of Funds, which hold $613.3 million in COFINA bonds. Paul, Weiss, Rifkind, Wharton & Garrison LLP, Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, and Jimenez, Graffam & Lausell are co-counsel to the ad hoc group of General Obligation Bondholders, comprised of Aurelius Capital Management, LP, Autonomy Capital (Jersey) LP, FCO Advisors LP, and Monarch Alternative Capital LP. Quinn Emanuel Urquhart & Sullivan, LLP and Reichard & Escalera are co-counsel to the ad hoc coalition of holders of senior bonds issued by COFINA, comprised of at least 30 institutional holders, including Canyon Capital Advisors LLC and Varde Investment Partners, L.P. Correa Acevedo & Abesada Law Offices, P.S.C., is counsel to Canyon Capital Advisors, LLC, River Canyon Fund Management, LLC, Davidson Kempner Capital Management LP, OZ Management, LP, and OZ Management II LP (the QTCB Noteholder Group). Committees The U.S. Trustee formed an official committee of retirees and an official committee of unsecured creditors of the Commonwealth. The Retiree Committee tapped Jenner & Block LLP and Bennazar, Garcia & Milian, C.S.P., as its attorneys. The Creditors Committee tapped Paul Hastings LLP and O'Neill & Gilmore LLC as counsel. ================= V E N E Z U E L A ================= VENEZUELA: Talks To Resume This Week ------------------------------------ Aljazeera News reports that a diplomat who represents Venezuela's opposition leader in Washington, DC, said talks on ending the political impasse in the South American country will resume again this week. Carlos Vecchio, who represents opposition leader Juan Guaido, did not give a day or location for the talks with representatives of embattled President Nicolas Maduro, according to Aljazeera News. Speaking at the National Press Club, Mr. Vecchio said he is hopeful that talks will resolve the crisis by year's end, the report relays. He also said Maduro [is] an "an obstacle for peace" and said he must leave office, the report notes. The two sides held Noway-mediated talks for several days earlier this month in Barbados, the report discloses. Guaido contends Maduro's re-election last year was invalid and wants early presidential elections, the report notes. In January, the opposition leader, invoked the constitution to declare himself interim president -- a move Maduro rejected, the report relays. Maduro accuses the opposition of stirring up violence, and with the backing of the United States attempting a coup, the report notes. Russia to Skip International Talks on Venezuela Separately, Russia's Foreign Ministry said Moscow will not be participating in international talks on the political crisis in Venezuela due to be held in Peru next month, the report notes. It said it declined the invitation as one was not extended to representatives of the government of Maduro, among other concerns, the report says. Peru invited China, Russia, Cuba, the US and dozens of other countries earlier this month to discuss the situation in Venezuela in Lima on August 6, the report notes. China, Russia and Cuba support Maduro, while the US and more than 50 other western countries have recognized Guaido as Venezuela's legitimate leader, the report discloses. Three million have left the country since early 2016, fleeing hyperinflation, unemployment and food and medicine shortages, the report relays. A quarter of Venezuela's 30 million people are in need of humanitarian aid, according to the United Nations, the report adds. About Venezuela Venezuela, officially the Bolivarian Republic of Venezuela, is a country on the northern coast of South America, consisting of a continental landmass and a large number of small islands and islets in the Caribbean sea. The capital is the city of Caracas. Hugo Chavez was president to Venezuela from 1999 to 2013. The Chavez presidency was plagued with challenges, which included a 2002 coup d'etat, a 2002 national strike and a 2004 recall referendum. Nicolas Maduro was elected president in 2013 after the death of Chavez. Maduro won a second term at the May 2018 Venezuela elections, but this result has been challenged by countries including Argentina, Chile, Colombia, Brazil, Canada, Germany, France and the United States who deemed it fraudulent and moved to recognize Juan Guaido as president. The presidencies of Chavez and Maduro have challenged Venezuela with a socioeconomic and political crisis. It is marked by hyperinflation, climbing hunger, poverty, disease, crime and death rates, social unrest, corruption and emigration from the country. Standard and Poor's long- and short-term foreign currency sovereign credit ratings for Venezuela stands at 'SD/D' (November 2017). S&P's local currency sovereign credit ratings on the other hand are 'CCC-/C'. The May 2018 outlook on the long-term local currency sovereign credit rating is negative, reflecting S&P's view that the sovereign could miss a payment on its outstanding local currency debt obligations or advance a distressed debt exchange operation, equivalent to default. Moody's credit rating (long term foreign and domestic issuer ratings) for Venezuela was last set at C with stable outlook (March 2018). Fitch's long term issuer default rating for Venezuela was last set at RD (2017) and country ceiling was CC. Fitch, on June 27, 2019, affirmed then withdrew the ratings due to the imposition of U.S. sanctions on Venezuela. ********* 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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