/raid1/www/Hosts/bankrupt/TCRLA_Public/191031.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, October 31, 2019, Vol. 20, No. 218
Headlines
A R G E N T I N A
ARGENTINA: Appears to Elect Left-Leaning President
ARGENTINA: Central Bank Tightens Currency Controls
STONEWAY CAPITAL: Fitch Puts CCC on $665MM Sec. Notes on Watch Neg.
B R A Z I L
BR MALLS: Fitch Affirms BB LongTerm IDRs, Outlook Stable
BRAZIL: Federal Public Debt Closes September at R$4.156 Trillion
LINHA AMERALA: Moody's Reviews B1 Sec. Debt Rating for Downgrade
OI SA: Telefonica Brasil and TIM to Consider Acquisition of Assets
PRUMO PARTICIPACOES: Fitch Rates $350MM Sec. Notes 'BB'
C H I L E
SOCIEDAD DE INVERSIONES: S&P Withdraws 'B-' Issuer Credit Rating
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: 1Q Slowdown Strips US$112.3M in Revenues
E L S A L V A D O R
AES EL SALVADOR II: Fitch Affirms B- LT IDRs, Outlook Stable
J A M A I C A
JAMAICA: Makes Progress in Securing Integrity of Public Boards
M E X I C O
GRUPO FAMSA: Fitch Lowers LT Issuer Default Ratings to C
GRUPO IDESA: Fitch Lowers LT Issuer Default Ratings to CCC-
JAVER SAB: Moody's Affirms B1 Sr. Unsec. Rating, Outlook Stable
P U E R T O R I C O
AMADO AMADO: Court Confirms Chapter 11 Plan
NEW ENERGY: Seeks to Hire Cardona Jimenez as Counsel
X X X X X X X X
LATAM: Economic Growth in the Caribbean Slowing Down, Says IMF
- - - - -
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A R G E N T I N A
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ARGENTINA: Appears to Elect Left-Leaning President
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The Associated Press reports that Argentina's Peronists celebrated
their return to power after incumbent President Mauricio Macri
conceded defeat in a dramatic election that likely swung the
country back to the center-left, saw the return of a divisive
former president and threatened to rattle financial markets.
AP relays that as investors nervously eyed the market opening,
thousands of jubilant supporters of Alberto Fernandez and his vice
presidential running mate, ex-president Cristina Fernandez, waved
sky-blue and white Argentine flags and chanted "We're coming back!
We're coming back!"
Authorities said Alberto Fernandez had 48.1% of the votes compared
to 40.4% for Macri, with almost 97% percent of the votes counted.
He needed 45% support, or 40% support with a 10 percentage point
lead, over the nearest rival to avoid a runoff vote on Nov. 24. No
official winner has yet been declared, the report relays.
The election was dominated by concerns over the country's economic
woes and rising poverty, with voters rejecting austerity measures
that Macri insisted were needed to revive the struggling economy,
the report says.
"The only thing that concerns us is that Argentines stop suffering
once and for all," Alberto Fernandez told the crowd, the report
notes.
The 60-year-old lawyer said he would need the support of Macri's
administration to reconstruct what he called the inherited "ashes"
of Argentina, the report discloses.
"We're back and we're going to be better!" he said.
Argentina's inflation rate is one of the highest in the world,
nearly one third of Argentines are poor and its currency has
plunged under Macri, who came into power in 2015 with promises to
boost South America's second-largest economy and one of the world's
top grains suppliers, AP relays.
When Macri did surprisingly poorly in August party primaries, which
are seen as a barometer of candidate popularity, stocks plunged and
the peso depreciated on the possibility of a return to the
interventionist economic policies of Cristina Fernandez, who
governed from 2007 to 2015, the report notes.
Observers fear the same could happen.
Argentina's Central bank said that it would sharply limit the
amount of dollars that people can buy amid growing worries of a
rapid loss of foreign exchange following Macri's apparent loss, the
report relays. The bank said dollar purchases will be restricted
to $200 a month by bank account and $100 cash until December. The
previous amount allowed was $10,000 a month, the report notes.
"The last two years have been brutal in Argentina," said Benjamin
Gedan, an Argentina expert at the Woodrow Wilson International
Center for Scholars. "Voters have suffered a painful recession,
unimaginably high inflation and a debt crisis. No incumbent could
survive in these conditions," AP relays.
Gedan said Fernandez is "an untested leader," whose proposed
solutions to Argentina's daunting challenges remain a mystery and
who inherits a ruinous economy and unfavorable international
conditions, AP notes.
The result would also mark a dramatic return to high office for
Cristina Fernandez, who opponents say might be the real power
behind Alberto Fernandez's throne, AP cites. The running mates,
who are not related, dismiss those concerns, the report discloses.
Alberto Fernandez served as chief of staff from 2003 to 2007 for
Kirchner. He remained in the position during part of Cristina
Fernandez's term as president but left after a conflict with
farmers in 2008, AP recounts. Macri's camp tried but failed to
force a runoff by portraying her as a puppet master waiting in the
wings, the report notes.
Prior to the election, many Argentines had taken to the streets to
protest the loss of purchasing power under high consumer prices and
frustrated with cuts in subsidies that have led to rises in
utilities and transportation costs, the report notes.
Macri retained wide support among the key farming sector in one of
the world's top suppliers of grains. But overall frustration over
the economy eroded the popularity of the pro-business former mayor
of Buenos Aires and ex-president of the popular Boca Juniors soccer
club, AP reports.
AP says Argentina faces tough challenges ahead: Its commodities
exports -- the backbone of its economy -- are vulnerable to a tough
global outlook. It has huge foreign debt, the report notes. The
World Bank forecasts that Argentina's economy will shrink 3.1% this
year, the report adds. More than a third of the country is poor
and unemployment is at 10.6%, the report cites.
On the election trail, Fernandez criticized Macri's decision to
seek a record $56 billion bailout from the International Monetary
Fund, a deeply unpopular institution in Argentina that is blamed
for creating the conditions that led to the country's worst
economic meltdown in 2001, the report recounts.
On the campaign trail, Macri pleaded for more time to reverse
fortunes and reminded voters of the corruption cases facing
Cristina Fernandez, who has denied any wrongdoing, the report
relays.
Argentines also chose 130 lower house seats and 24 senators in
Congress, as well as regional mayors, governors for three provinces
and the head of government for the Argentine capital, AP states.
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Mauricio Macri is the
incumbent president of Argentina.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and -- in the recent decades --increasing poverty.
Standard & Poor's foreign and local currency sovereign credit
ratings for Argentina stands at CCC- with negative outlook. S&P
said, "The negative outlook reflects the prominent downside risks
to payment of debt on time and in full per our criteria over the
coming months amid very complex political, economic, and financial
market dynamics." Moody's credit rating for Argentina was last set
at Caa2 from B2 with under review outlook. Fitch's credit rating
for Argentina was last reported at CC with n/a outlook. DBRS's
credit rating for Argentina is CC with under review outlook. S&P,
Moody's and DBRS ratings were issued on Aug. 30, 2019; Fitch rating
on Sept. 3, 2019.
ARGENTINA: Central Bank Tightens Currency Controls
--------------------------------------------------
Buenos Aires Times reports that the Argentina's Central Bank has
tightened limits on the amount of dollars savers can purchase after
Alberto Fernandez's victory in the presidential election, limiting
purchases to US$200 a month via bank account and US$100 in cash.
Fernandez swept to victory in the first round of the presidential
vote election with 48 percent of the vote, above the 45-point
threshold needed to win outright, according to Buenos Aires Times.
Quickly afterwards, the monetary institution said it would allow
Argentines to buy just US$200 per month, compared with the
US$10,000 per month set on September 1, according to a statement
from the Central Bank, the report notes.
The report relays that the move looks to preserve international
reserves during the political transition which will culminate in
the handover on December 10 but risks causing the black market
exchange rate to skyrocket. Argentines rushed to buy dollars and
withdraw deposits ahead of the vote on concern that more controls
were coming amid an economic crisis, the report says.
Given the current degree of uncertainty, the Board of Directors of
BCRA [Central Bank of the Republic of Argentina] decided to take a
series of measures that seek to preserve the reserves of the
Central Bank, the report discloses. The measures announced are
temporary, until December 2019," read the statement obtained by the
news agency.
"A new limit of US$200 per month is established for the purchase of
dollars for individuals with a bank account and US $100 for the
amount of dollars that can be purchased in cash," continued the
release, adding "these limits are not cumulative," the report
relays.
Officials said Central bank chief Guido Sandleris would give a
press conference to address the new rule, the report notes.
Immediately after the Central Bank's statement, many economists on
Twitter predicted that the "blue" or unofficial exchange rate for
the dollar would soar, the report says.
"200 greens [greenbacks, as in US dollars] a month. The blue is
going to explode," wrote economist Mariano Kestelboim, the report
notes.
Mauricio Macri's government initially imposed foreign-exchange
currency controls on Argentine exporters and citizens on September
1, in the wake of the August 11 PASO primaries, in which Fernandez
easily defeated the president, the report says.
Exporters were ordered to seek permission from the Central Bank of
Argentina before purchasing foreign currency and precious metals,
in a bid to halt the flight of dollars out of the country, while
individuals were restricted too, with a limit on US$10,000 a month
in purchases, the report notes.
The Central Bank has lost almost US$23 billion in reserves to now
stand at US$43.5 billion, the report relays.
The Central Bank had ruled out rumors it would declare a bank
holiday, the report notes. Officials at the monetary institution
did, however, hold a meeting once the election's results were known
to discuss their steps in response, the report discloses. The
tightening of currency controls is the outcome of that meeting, the
report says.
Argentina's bonds are trading in deep distressed territory, about
40 cents on the dollar, and the government has said it wants to
extend maturities both with private creditors and the International
Monetary Fund, the report notes.
That chore will likely fall to the incoming government though
Fernandez has yet to lay out an economic plan or name his cabinet,
the report relates.
Unconfirmed rumors circulated that economist Guillermo Nielsen is
favoured by Fernandez to head the Central Bank, the report relays.
The Frente de Todos leader has already said Sandleris will not stay
in the post, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Mauricio Macri is the
incumbent president of Argentina.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and -- in the recent decades --increasing poverty.
Standard & Poor's foreign and local currency sovereign credit
ratings for Argentina stands at CCC- with negative outlook. S&P
said, "The negative outlook reflects the prominent downside risks
to payment of debt on time and in full per our criteria over the
coming months amid very complex political, economic, and financial
market dynamics." Moody's credit rating for Argentina was last set
at Caa2 from B2 with under review outlook. Fitch's credit rating
for Argentina was last reported at CC with n/a outlook. DBRS's
credit rating for Argentina is CC with under review outlook. S&P,
Moody's and DBRS ratings were issued on Aug. 30, 2019; Fitch rating
on Sept. 3, 2019.
STONEWAY CAPITAL: Fitch Puts CCC on $665MM Sec. Notes on Watch Neg.
-------------------------------------------------------------------
Fitch Ratings placed the 'CCC' rating of Stoneway Capital
Corporation's $665 million senior secured notes on Rating Watch
Negative.
RATING RATIONALE
The rating action follows the notifications issued by the Bank of
New York Mellon (BNY Mellon) as Trustee of the Notes on the
disputes between the Issuer and Siemens and its affiliates on
payments under the Engineering, procurement and construction (EPC)
agreements. These disputes could lead to cost overruns of the
project, and affect project's current liquidity, depending on the
final amount to be settled (if any) that could surpass current
funded contingencies. In addition, it could affect project's
ability to reach commercial operations date (COD) in the San Pedro
expansion from simple-cycle to combined cycle, whose COD is
expected to happen in November 2019.
The Watch will be resolved when Stoneway and Siemens are in
agreement regarding EPC payments, and Stoneway is able to provide
evidences of available liquidity to perform the pending payments.
The rating reflects Stoneway's operational stage, the power
purchase agreements (PPAs) with sole off-taker CAMMESA, moderate
operating risks established through fixed-priced operation and
maintenance (O&M), and overhaul costs with an experienced
counterparty.
The project benefits from an adequate debt structure, with fixed
interest rate, adequate covenants and a six month debt service
reserve account, which will be funded after project total
completion. The debt service coverage ratio (DSCR) profile of 1.27x
at Fitch's Rating Case -- which now considers a lower dispatch
scenario until 2021-- is consistent with a higher rating category.
Nonetheless, the rating is ultimately capped by Fitch's view on the
credit quality of the revenue stream derived through payments by
CAMMESA as sole off-taker and Argentina's 'CCC' country ceiling.
KEY RATING DRIVERS
Low Complexity of Works; Fixed Price, Date Certain EPC Agreement
[Completion Risk: Midrange]:
All the original four plants (686.5 MW) are fully operational, and
COD was reached with an average of 144 days of delay for each
plant, due to different reasons, such as permits and licensing
delays. Penalty delays as per the PPAs may be applicable, and could
be partially mitigated by the liquidated damages (LDs) embedded in
the Engineering, procurement and construction (EPC) agreements with
Siemens and its affiliates. The combined cycle expansion on San
Pedro plant is being done with the same framework from the original
projects, through a full EPC turnkey-lump sum contract with a
strong-counterparty (Siemens) and other contractors on a joint and
several basis.
Experienced Operator and Defined Overhaul Costs [Operations Risk:
Midrange]:
All four plants benefit from O&M agreements and Long-Term Services
Agreements (LTSA) with Siemens S.A's subsidiaries for the entire
tenor of the debt. Plants benefit from a defined overhaul routine
with fixed prices for up to 60,000 hours (Las Palmas/San Pedro
plants) and 75,000 hours (Lujan/Matheu plants). Considering a
higher dispatch scenario, an additional overhaul stress for the Las
Palmas and San Pedro plants was included for up to 80,000 hours.
Weaknesses of contract structure are the exposure to foreign
exchange (FX) risk, as a major part of the O&M fixed fee is
denominated in Argentine pesos (ARS), and LTSA for Las Palmas/San
Pedro plants are defined in Swedish kronas (SEK).
Supply Risk Embedded in the Offtake Agreement [Supply Risk:
Stronger]:
Both oil and gas are fully supplied by CAMMESA, the project's sole
off-taker. As per the PPA, in case of any supply failure, the
project is not obligated to dispatch and still receives its fixed
capacity payment. This represents a stronger attribute that
isolated the fuel supply risk to the project.
Weak Counterparty with Robust Fixed Capacity Payments [Revenue
Risk: Weaker]:
The project's sole off-taker is CAMMESA, the wholesale power market
administrator in Argentina. CAMMESA is considered a counterparty of
weak financial profile and is dependent on sovereign subsidies to
honor commitments. Historically, CAMMESA has presented some delays
on payments, which could affect the project's liquidity. Most of
the project's revenues will come from fixed capacity payments that
cover fixed costs and debt service. The project also benefits from
a one year tail on the original PPAs and a six year tail on the
additional one.
Adequate Debt Structure with Overhaul Provisions [Debt Structure:
Stronger]:
The fixed-rate debt is fully amortizing and senior, and benefits
from a six month DSRA - that will be funded with cash generation
after project total completion - and a 1.50x DSCR distribution test
for the period between the original project completion date and
completion of the additional project. DSCR distribution tests will
return to 1.40x after the completion date of the additional
project. Debt structure includes an O&M Reserve Account, which
accumulates overhaul provisions whenever the project is dispatched
and will be used to make scheduled major maintenance payments.
Additional debt can only be issued with a rating confirmation after
giving pro forma effect to such new debt.
Financial Profile:
Fitch's revised scenarios consider a lower dispatch scenario of 20%
for the simple cycle plants and a 30% for the combined cycle
facility up to 2021. Rating case minimum and average DSCRs of 1.23x
(in 2026) and 1.27x (2020- 2026 period) remain strong for the
rating category, according to applicable criteria. The project
still present strong metrics in case of 0% dispatch (1.17x
average), and also still considering the maximum applicable penalty
from original plants COD delay, which would drive DSCR below 1.10x
in the next years, without considering Siemens liquidated damages
(LDs).
PEER GROUP
Stoneway presents metrics consistent with 'BB' and 'BB-' projects,
such as Plains End Financing, LLC (senior secured bonds rated
BB/Positive, the average senior DSCR of 1.34x). However, despite
stronger metrics, its rating is capped by the credit quality of
CAMMESA as sole-offtaker as well as Argentina's 'CCC' country
ceiling rating.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action:
-- An improvement in the credit quality of CAMMESA as sole
off-taker to the revenue stream;
-- If Stoneway and Siemens are in agreement regarding EPC
payments, and Stoneway is able to provide evidences of available
liquidity to perform the pending payments
Developments That May, Individually or Collectively, Lead to
Negative Rating Action:
-- Deterioration in the credit quality of CAMMESA as sole
off-taker to the revenue stream;
-- Delay on the COD of the expansion of San Pedro plant that
could trigger a PPA cancelation;
-- Delays from CAMMESA on the PPA payments leading to a
deterioration of the project's liquidity;
-- If agreed amounts of EPC payments surpasses current funded
contingencies.
-- If Stoneway and Siemens do not reach an agreement regarding
EPC payments;
TRANSACTION SUMMARY
Stoneway is a private company originally constituted with the
purpose of constructing, owning, and operating four simple-cycle
power-generating plants with a total installed capacity of 686.5
MW, through two indirect subsidiaries, Araucaria Energy S.A. and
SPI Energy S.A. .
Stoneway installed capacity is being expanded by 120 MW through the
expansion of San Pedro plant into a combined-cycle power generation
project. After works completion, expected by 2019, Stoneway
installed capacity will reach 806.5 MW.
CREDIT UPDATE
After COD of all four original plants in 2018, the project has been
dispatched at lower levels than expected by Fitch, and also lower
than the 2018 average of 30%. From January to August 2019, the
project has been dispatched on an average of 16%.
From January to June 2019, Stoneway generated USD76.6 million in
revenues and USD65.1 million in EBITDA, below Fitch's scenarios of
USD97.22 million and USD76.6 million respectively, given the lower
dispatch.
Despite the delay on COD of the plants, no penalty was charged by
CAMMESA so far. Fitch cases do not incorporate any penalties to be
applied; in any case, Stoneway still benefits from $66 million in
LDs from Siemens, which would mitigate the penalties payments.
FINANCIAL ANALYSIS
Fitch's base case incorporates COD of Jan. 1, 2020 for the
combined-cycle and a 30% dispatch scenario for the simple-cycle
plants and a 40% dispatch scenario for the combined-cycle plant up
to 2021, and a 70% dispatch scenario for all plants from 2022
onwards. O&M and LTSA costs were considered as per the signed
agreements. An excess fuel consumption penalty in excess of the PPA
heat rate of 2.5% and an unscheduled maintenance downtime penalty
of 5% due to unavailability were considered. A 5% stress was also
applied over administrative and insurance costs. Fitch's base case
scenario resulted in average and minimum DSCRs of 1.30x (2020-2026
period) and 1.25x (in 2021), respectively.
Fitch's rating case also incorporates COD of Jan. 1, 2020 for the
combined-cycle, and a 20% dispatch scenario for the simple-cycle
plants and a 30% dispatch scenario for the combined-cycle plant up
to 2021, and a 60% dispatch scenario for all plants from 2022
onwards. O&M and LTSA costs considered a 5.0% stress from the
signed agreements, according to Thermal Criteria guidance for
projects where the Operational Risk KRF is considered as
'Midrange'. Overhaul routines denominated in SEK were stressed 10%.
An excess fuel consumption penalty in excess of the PPA heat rate
of 5% and an unscheduled maintenance downtime penalty of 7.5% due
to unavailability were considered. A 10% stress was also applied
over administrative and insurance costs. Fitch's rating case
scenario resulted in average and minimum DSCRs of 1.27x (2020-2026
period) and 1.23x (in 2021), respectively.
SECURITY
The notes were issued at a 10% fixed rate and fully amortizing with
a final maturity in 2027. The notes are senior secured obligations
by a first-priority lien on substantially all the assets of the
issuer and the guarantors of the notes, the issuer and sponsor's
subsidiaries participating in the project.
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B R A Z I L
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BR MALLS: Fitch Affirms BB LongTerm IDRs, Outlook Stable
--------------------------------------------------------
Fitch Ratings affirmed BR Malls Participacoes S.A.'s Long-Term
Foreign Currency Issuer Default Rating at 'BB' and its LT Local
Currency IDR at 'BBB-'. Fitch has also affirmed BR Malls' National
LT rating and local debentures' ratings at 'AAA(bra)'. BR Malls' LT
FC IDR is constrained at 'BB'/Stable Outlook by Brazil's Country
Ceiling of 'BB', which incorporates the transfer and convertibility
risk. The Rating Outlook for the ratings is Stable.
BR Malls' ratings are supported by its business position, which has
withstood a deep economic recession in Brazil. The rating
affirmation reflects BR Malls' strong capital structure coupled
with the maintenance of solid liquidity and robust levels of
high-quality unencumbered assets. Fitch believes BR Malls is
committed to maintaining conservative leverage ratios, evidenced by
the company's proactive measures to reduce indebtedness, eliminate
FX risk, reduce the average cost of funding, and focus on organic
growth and efficiencies.
The Stable Outlook reflects Fitch's expectation that the company
will maintain a solid capital structure - reflected in its net
leverage ratio, measured by net debt to adjusted EBITDA, remaining
in the 3.0x to 3.5x range during 2019-2021.
KEY RATING DRIVERS
Largest Mall Operator in Brazil: BR Malls has a strong business
position considering the company's scale and strong asset quality,
which Fitch views as difficult to replicate. The company is the
largest Brazilian shopping center operator, holding an interest in
39 malls with a total GLA of 1.5 million square meters (m2), and
owning a GLA of 943,000 m2 as of June 30, 2019. BR Malls has
operations in all five regions of Brazil, and its top-15 malls
represent approximately 75% of its total NOI. The company's
relatively high degree of property concentration is similar to most
of the top local and regional players. BR Malls' asset
concentration risk is mitigated by its proven capacity to maintain
stable results, even throughout different phases of the economic
cycle.
Operational Metrics Improving, High Occupancy: BR Malls' key
operational metrics have been benefitting in recent quarters from
the recovering business environment and a better tenant mix. The
company's same sales stores (SSS) and same store rent (SSR)
increased by 4.6% and 9.9% during the second quarter of 2019 (2Q19)
YoY. The company's sales per m2 and rent per m2 increased by 5.3%
and 4.7%, respectively, during 2Q19 YoY. As of June 30, 2019, BR
Malls' portfolio was approximately 96.3% occupied. BR Malls'
weighted average remaining lease term is approximately four years
as of June 30, 2019, with approximately 19.9%, 13.5% and 15.3% of
the company's annualized base rent expiring during 2019, 2020 and
2021, respectively. Fitch views the company's lease expiration
schedule as in line with standards observed in the Brazilian
market.
Business Strategy and Recent Assets Sale Incorporated: The
company's business strategy is oriented to concentrate on dominant
assets and has revolved around divesting non-core assets and
investing in tier 1 and 2 assets. In 3Q19, the company announced
and executed the sale of full stakes in seven malls for a total
amount of BRL696.4 million paid in cash. The transaction proceeds
were distributed to shareholders during 3Q19. Since 2015, the
company has divested 24 non-core assets, including the recent
transaction. BR Malls maintains 32 malls in its property portfolio
as of Aug. 31, 2019.
This transaction (sale of full stakes in seven malls) resulted in a
reduction of 121,245 m2 of BR Malls' total owned GLA , representing
a 12.8% decline in its total owned GLA as of June 30, 2019. The
assets sold generated an annual NOI of BRL64.4 million; this
represented approximately 5.7% of BR Malls' annual NOI as of June
30, 2019. The assets sale also improved key metrics in BR Malls'
portfolio, such as occupancy (%) and net late payments (%) from
96.4% and 2.1% as of Dec. 31, 2018, to 97.1% and 1.9%,
respectively, on a pro forma basis.
Low Financial Leverage: Improvements in the business environment
and tenant mix have resulted in an increase of BR Malls' EBITDA
margins, reaching levels of 67.1%, 72.6% and 74.1% during 2017,
2018 and the first half of 2019, respectively. Fitch expects the
company's average annual EBITDA to be around BRL900 million during
2019-2021, with a stable EBITDA margin at around 75%. The company's
total debt, as of June 30, 2019, was BRL3.4 billion, which includes
liabilities payable for shopping mall acquisitions. The company's
net financial leverage, measured as total net debt to EBITDA, was
2.7x for the period LTM June 2019. Fitch expects BR Malls to manage
its net leverage ratio in the 3.0x to 3.5x range during 2019-2021.
Business Fundamentals Remain Solid: Fitch views business
fundamentals as solid for BR Malls and top players in the Brazilian
shopping mall industry, as most of the Fitch-analysed operators in
the segment have been able to maintain adequate credit quality
throughout the negative business environment of recent years. In
addition to good location, scale and extensive know-how in the
business, these companies enjoy predictable revenue streams mainly
derived from fixed and variable revenues from medium-term lease
agreements signed with diversified tenant bases, as well as
revenues from parking lots and service renderings. In addition,
they have low cost structures, as tenants are responsible for the
majority of maintenance costs.
DERIVATION SUMMARY
BR Malls' ratings reflect its solid business position as the
largest mall operator in Brazil, low financial leverage, no FX risk
exposure and adequate liquidity coupled with high financial
flexibility resulting from its important unencumbered assets base.
The ratings also reflect the company's position as an experienced
shopping mall operator with adequate portfolio granularity, limited
tenant concentration, consistent occupancy levels above 95%, lease
duration between four to six years and an adequate source of
capital - with the scale necessary to be a meaningful issuer in the
debt and equity capital markets, which are attributes comparable to
other rated Latin American entities.
The company's 'BBB-' LC IDR and 'AAA(bra)' National ratings also
factor in the company's credit profile, which is considered
well-positioned relative to local, regional and global peers for
each major comparative. BR Malls' Long-Term IDR is constrained at
'BB'/Stable Outlook' by Brazil's 'BB' Country Ceiling, which
incorporates the T&C risk associated with BR Malls' operations, as
the company's Brazilian operations are essential and the company
does not have substantial assets or cash held abroad to help
mitigate T&C risk. Absent this rating constraint, BR Malls'
Long-Term IDR could be rated above its current level.
BR Malls' 'AAA(bra)' National LT rating is equivalent to its
national peers Multiplan Empreendimentos Imobiliarios S.A.
(Multiplan; AAA[bra]/Stable), Iguatemi Shopping Center S.A.
(Iguatemi; AAA[bra]/Stable), and Aliansce Sonae Shopping Centers
S.A. (Aliansce Sonae; AAA[bra]/Stable). These four companies have
conservative capital structures and high financial flexibility -
evidenced by low net financial leverage (net debt/EBITDA below
3.5x), adequate liquidity, low loan-to-value (LTV) ratios, high
levels of unencumbered assets and strong interest coverage ratios.
BR Malls' credit metrics compare well with its main regional peers
in the real estate sector. In terms of profitability, BR Malls'
expected EBITDA margin of around 75% during 2019-2021, is viewed as
adequate when compared with main players in Latin America, such as
Fideicomiso Fibra Uno (BBB/Stable) and InRetail Real Estate
(BB+/Stable) with expected EBITDA Margins of 75% and 89%,
respectively, during the same period. BR Malls' leverage metric,
measured as net debt/EBITDA, is expected to remain in the 3.0x to
3.5x range during 2019-2021, which is viewed as solid when compared
to regional peers. Fibra Uno and InRetail Real Estate are expected
to maintain net leverage metrics of 5.5x and 5.2x, respectively,
during the same period.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
- Occupancy levels around 95% during 2019-2021;
- EBITDA margin around 75% during 2019-2021;
- Net leverage ratio, measured as net debt to adjusted EBITDA
below 3.5x during 2019-2021;
- Net Interest coverage ratio, measured as adjusted EBITDA to net
cash interest paid, consistently around 3.0x;
- Total unencumbered assets to unsecured debt ratio consistently
above 3.0x.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
-- BR Malls' LT IDR could be positively affected by a positive
rating action on the sovereign rating of Brazil and/or an upgrade
of its Country Ceiling.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
-- BR Malls' LT IDR could be negatively affected by a negative
rating action on the sovereign rating of Brazil and/or a downgrade
of Brazil's Country Ceiling.
-- BR Malls' LC IDR would be negatively affected by a negative
rating action on its LT IDR. Fitch expects to maintain a difference
of no more than two notches between BR Malls' LT and LC IDRs.
-- Fitch would also consider a negative rating action on BR
Malls' ratings if the company's financial profile deteriorates due
to some combination of the following: aggressive capex, adverse
macroeconomic trends leading to weaker credit metrics, significant
dividend distributions, and higher vacancy rates or deteriorating
lease conditions.
-- The following factors may also have a negative impact on BR
Malls' LC IDR and National Scale ratings:
-- Net leverage consistently above 3.5x;
-- Deterioration of the conditions of lease contracts, occupancy
rates and delinquency negatively affecting credit indicators;
-- Interest coverage index, measured by EBITDA/interest paid,
consistently trending to levels below 2.5x;
-- Substantially less financial flexibility due to the reduction
of unencumbered assets levels.
LIQUIDITY
Solid Liquidity, High Levels of Unencumbered Assets: Fitch views
the company as having adequate liquidity and healthy financial
flexibility. This view is supported by BR Malls' cash position,
manageable debt payment maturity schedule during 2019-2021,
adequate interest coverage ratio levels and a significant
unencumbered asset base. The company's readily available cash and
short-term debt were BRL942 million and BRL327 million,
respectively, as of June 30, 2019. Fitch expects BR Malls' net
interest coverage to remain healthy at around 3.3x during
2019-2021.
The value of the company's total assets is estimated at BRL16.7
billion -- with unencumbered and encumbered assets representing 32%
and 68%, respectively -- resulting in a low net loan-to-value ratio
of 15% as of June 30, 2019. The company maintains an important
unencumbered asset base with an estimated market value of BRL5.3
billion (USD1.2 billion), representing 5.3x and 81.9x its levels of
unsecured debt and unsecured net debt, respectively, as of June 30,
2019. BR Malls eliminated its FX risk exposure when it paid-off its
USD-denominated perpetual bonds during 2017.
ESG CONSIDERATION
Unless otherwise disclosed in this section, the highest level of
Environmental, Social and Governance (ESG) credit relevance is a
score of 3 -ESG issues are credit neutral or have only a minimal
credit impact on the entity, either due to their nature or the way
in which they are being managed by the entity.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
BR Malls Participacoes S.A.'s (BR Malls)
-- Long-Term Foreign Currency Issuer Default Rating (IDR) at
'BB';
-- Long-Term Local Currency IDR at 'BBB-';
-- National Long-Term Rating at 'AAA(bra)';
-- National Long-Term Senior Unsecured Debt Rating at
'AAA(bra)'.
The Rating Outlook is Stable.
BRAZIL: Federal Public Debt Closes September at R$4.156 Trillion
----------------------------------------------------------------
Richard Mann at Rio Times Online reports that the Federal Public
Debt (DPF), one of the solvency indicators of the Brazilian
economy, closed September at R$4.156 trillion (US$1.039 trillion).
The figure is two percent higher than in August (R$4.074
trillion).
Last month, the Domestic Public Securities Debt, that in
circulation in the domestic market, climbed 2.04 percent, from
R$3.913 trillion to R$ 3.993 trillion, according to Rio Times
Online.
About Brazil
The Federal Republic of Brazil is the largest country in Latin
America. Sao Paulo is the most populated city and Brasilia is the
capital. The federation is composed of the union of 26 states,
the Federal District and more than 5,000 municipalities. Its
government is headed by President Jair Bolsonaro. Among other
things, Brazil's government is led by corruption allegations.
Brazil has an advanced emerging economy. Amid growth in recent
decades, the country entered an ongoing recession in 2014 amid a
political corruption scandal and nationwide protests.
Standard & Poor's credit rating for Brazil stands at BB- with
stable outlook (January 2018). Moody's credit rating for Brazil
was last set at Ba2 with stable outlook (April 2018). Fitch's
credit rating for Brazil was last reported at BB- with stable
outlook (February 2018). DBRS's credit rating for Brazil is BB
(low) with stable outlook (March 2018).
LINHA AMERALA: Moody's Reviews B1 Sec. Debt Rating for Downgrade
----------------------------------------------------------------
Moody's America Latina Ltda. placed under review for downgrade the
B1 global scale rating and the Baa1.br national scale rating
assigned to Linha Amarela S.A.'s senior secured debentures due in
May 2027. At the same time, Moody's placed under review for
downgrade the B3/Ba3.br Corporate Family Ratings assigned to
Concessao Metroviaria do Rio de Janeiro S/A.
The rating action on Linha Amarela was prompted by the recent
actions taken by the government of the Municipality of Rio de
Janeiro (Ba3 stable) to disrupt the normal operation of Linha
Amarela as it seeks to terminate the existing toll road concession.
The rating action on MetroRio reflects its intrinsic credit
linkages and cross default provisions with Linha Amarela's
outstanding debt.
Ratings placed under review:
Issuer: Linha Amarela S.A.
Senior Secured Regular Bond/Debenture: B1/Baa1.br
Outlook, changed to rating under review from stable
Issuer: Concessao Metroviaria do Rio de Janeiro S/A
Corporate Family Rating: B3/Ba3.br
Outlook, changed to rating under review from stable
RATING RATIONALE
The municipal government of the City of Rio the Janeiro decided to
terminate Linha Amarela's toll road concession agreement on October
25th and, on October 27th, took action to remove or destroy the
toll plazas and equipment.
The decision of the municipality is based on a review that
questions the 9th amendment of Linha Amarela's concession contract
signed in 2005. The municipal government claims that the concession
should have expired in 2015, as per the economic equilibrium that
established a fixed internal rate of return of 16.24% per year.
They claim that there is a BRL1.65 billion economic imbalance in
favor of the city as justification to its decision to terminate the
contract. Before this incident, the municipality had already
initiated an administrative proceeding to review the 11th contract
amendment that caused a series of interventions and disputes with
the concessionaire earlier this year.
Throughout the disputes with municipality, Linha Amarela has been
able to suspend or revert in court the adverse actions on the
concession. On October 28, the company obtained a preliminary
injunction reinstating the concession agreement and its right to
collect tolls. However, Linha Amarela will need to replace the
damaged infrastructure and equipment before resuming normal
operations, which the company estimates will take up some days to
be completed. In the absence of revenues from toll collections, the
company has a cash availability of approximately BRL40 million,
which covers less than three months of debt service and operating
and maintenance costs.
Per the last court ruling, the municipality is currently liable to
pay a daily amount of R$100,000 until the company resumes normal
operations. In addition, the municipality is exposed to a fee of
20% of the claimed amount if it disregards the preliminary
injunction to allow the normal operation of the concession.
However, Moody's still considers the risk of further intervention
is high and leaves the company greatly exposed to a material
deterioration of its financial metrics and its ability to continue
servicing its obligations on time. A continuing dispute with the
concession authority will continue to affect Linha Amarela's
liquidity, with potential contagious risk to the overall credit
profile of its parent company INVEPAR, as well as and its sister
company MetroRio due to existing cross default provisions within
its debt arrangements.
WHAT COULD CHANGE THE RATING UP/DOWN
The review process will focus on Linha Amarela's ability to quickly
reinstate normal tolling operations and mitigate financial losses
in order to maintain its strong credit metrics and adequate
liquidity profile to support its debt service. In addition, the
review will follow the evolution of the ongoing dispute with the
concession authority and the possibility that Linha Amarela loses
its concession. Failure to demonstrate a swift reestablishment of
normal operations or any adverse judicial resolution will most
likely result in a multi-notch downgrade of Linha Amarela and
MetroRio. Moody's will conclude this review in November.
Linha Amarela S.A. (Linha Amarela) has the concession to operate
the toll road services of a 17.4 km urban route in the City of Rio
de Janeiro, Brazil. The concession was granted by the Municipality
of Rio de Janeiro (Ba3, stable) in 1994, and toll road operation
started in 1998, for a 25-year period. On May 14, 2010, LAMSA
signed an amendment to its concession contract, whereby the
Municipality of Rio de Janeiro (the Granting Authority) granted a
15-year extension of the Concession, until December 2037. In the
last twelve months ended June 30, 2019, Linha Amarela reported net
revenues (excluding construction revenues) of BRL275 million and
net profit of BRL109 million.
Concessao Metroviaria do Rio de Janeiro S/A (MetroRio) is an urban
railway passenger transportation company, which has the concession
rights to operate Lines 1 and 2 of the subway system in the City of
Rio de Janeiro comprising an extension of 42 km and 36 stations.
The concession rights granted by the State Government of Rio de
Janeiro in 1998 and regulated by AGETRANSP are valid for a 40-year
period through January 2038. Since September 2016, MetroRio also
operates and maintain Rio de Janeiro's subway system's Line 4,
which added 12.7 kilometers and 5 stations to its operations. In
the last twelve months ended June 30, 2019, MetroRio reported net
revenues (excluding construction revenues) of BRL766 million and
net loss of BRL22 million.
MetroRio and Linha Amarela are wholly owned by Investimentos e
Participacoes em Infraestrutura S.A. - INVEPAR (INVEPAR, unrated),
a holding company controlled by three of the largest Brazilian
pension funds (PREVI, FUNCEF and PETROS).
The principal methodology used in rating Linha Amarela S.A. was
Privately Managed Toll Roads published in October 2017.The
principal methodology used in rating Concessao Metroviaria do Rio
de Janeiro S/A was Global Passenger Railway Companies published in
June 2017.
OI SA: Telefonica Brasil and TIM to Consider Acquisition of Assets
------------------------------------------------------------------
Gabriela Mello at Reuters reports that Brazilian carriers
Telefonica Brasil and TIM Participacoes will consider acquiring
assets from struggling rival Oi SA if they are put up for sale,
executives from both companies said.
In September, Reuters reported that Oi was in talks with the local
subsidiaries of Spain's Telefonica SA and Telecom Italia SpA to
sell assets and avoid insolvency, according to Reuters.
"As the CEO of a publicly traded carrier, I have the duty to check
whether or not it creates value to my shareholders once frequencies
or backhauls (infrastructure networks) are made available," TIM's
Chief Executive Pietro Labriola told reporters on the sidelines of
Futurecom, a major telecoms event in Sao Paulo, the report notes.
Meanwhile, Telefonica Brasil Chief Executive Officer Christian
Gebara said the company would consider acquiring Oi's mobile
operation for its frequencies, the report relays.
"This decision would depend on which frequencies will be auctioned
for 5G and which mobile assets would be put up for sale . . . We
analyze the whole picture," Gebara said, the report notes.
TIM is currently Brazil's third-largest wireless carrier, and
buying Oi's mobile operation would allow it to gain vital market
share and expand its coverage to challenge market leader Telefonica
Brasil, the report relays.
Reuters notes that TIM shares have risen less than 1% so far this
year, underperforming Telefonica Brasil, which has climbed more
than 22% in the same period, the report discloses.
Besides the two companies, Mexico's America Movil (AMXL.MX),
through its local unit Claro, is also open to discussing a deal
with Oi, Reuters has reported.
Oi's Chief Operating Officer Rodrigo Abreu has said the carrier
would consider selling its mobile operation if it gets attractive
offers, the report notes.
5G In Brazil
Both Gebara and Labriola emphasized it was too early to speculate
on the rules for Brazil's 5G spectrum auction, as the local
regulator, Anatel, is still conducting tests on interference with
other services, the report discloses.
A 5G bidding round is now expected to take place in the second half
of next year, the report relates.
"It is problematic if it happens tomorrow with rules that do not
benefit the industry or the country . . . I would be happier if it
happens later but with the right rules that guarantee our
investment's return," Labriola said, the report relays.
Besides the approval of a new regulatory framework bill for
telecommunications approved by the Congress weeks ago, Gebara hopes
for additional structural changes to guarantee the success of 5G
deployment in Brazil, the report notes.
"The formula of the past will not be enough," he said, saying there
was a need for a tax reform and other measures to make the
"technological leap" to 5G, the report adds.
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings, on Sept. 12, 2019, affirmed its global scale 'B'
issuer credit and issue-level ratings on Oi S.A. and revised the
outlook to negative from stable. At the same time, S&P lowered its
national scale rating to 'brA-' from 'brA' and assigned a negative
outlook.
PRUMO PARTICIPACOES: Fitch Rates $350MM Sec. Notes 'BB'
-------------------------------------------------------
Fitch Ratings assigned a 'BB' rating to the fixed-rate USD350
million senior secured notes issued by Prumo Participacoes e
Investimentos S.A. The Rating Outlook is Stable.
Final pricing for the notes was a coupon of 7.5%, 35 bps below
Fitch's expected cases. Slight changes in the legal amortization
schedule decreased the balloon payment at maturity to USD 180.6
million from USD 191.2 million. In Fitch's Rating Case, Minimum
PLCR improved to 1.3x, while peak leverage, in 2020, marginally
increased to 8.3x, in line with the assigned rating.
RATING RATIONALE
The rating reflects Prumopar's stable cash flow, derived from
distributions from Ferroport Logistica Comercial Exportadora S.A..
Ferroport benefits from a long term take-or-pay agreement with a
creditworthy counterparty and is a strategic asset for Anglo
American plc as the sole export terminal for the iron ore produced
by its Brazilian subsidiary's mines in Minas Gerais state. Revenues
as well as the debt service are linked to U.S. dollars, while
operational expenses are linked to Brazilian Reais, exposing the
transaction to BRL appreciation.
The notes have fixed rate and include a balloon payment for up to
51.6% of total debt at maturity in 2031. Refinancing risk is
partially mitigated by cash sweep provisions, that reduce the
balloon payment to 20.8% of total debt (USD 72.8 million), and an
eight years ToP tail in Fitch's Rating Case. The transaction has a
minimum Project Life Coverage Ratio (PLCR) of 1.3x. Peak leverage,
measured by Net Debt over Cash Flow Available for Debt Service
(CFADS), is 8.3x in 2020. Credit metrics are somewhat strong for
the assigned rating level, according to Fitch's applicable
criteria. The rating is constrained, however, by Brazil's country
ceiling, Ferroport's short track record of operations without
disruption, and by a residual exposure to foreign exchange risk.
KEY RATING DRIVERS
Dedicated Terminal [Revenue Risk: Volume - Midrange]:
Ferroport has been operational since 2014 and benefits from a
long-term ToP agreement with Anglo American Minerio de Ferro Brasil
S.A. (AAMFB), subsidiary of Anglo American plc (BBB/Stable). It is
a small port of call, built to suit Anglo's Minas-Rio iron-ore
project and handles a specialized type of cargo, with its inbound
market access highly dependent on the slurry pipeline from the mine
into the port.
Long Term Take-or-Pay Agreement [Revenue Risk: Price - Stronger]:
The ToP agreement sets forth annual tariffs readjustments that
follow two-thirds of U.S. inflation, measured by Producer Price
Index (PPI) for Industrial Commodities, and it has been readjusted
in a timely manner since the port began operations. Fitch's cases
do not include interruptions similar to the suspention of payments
under the ToP agreement that ocurred in 2018 concurrent with leaks
in the slurry pipeline and which are currently in arbitration
process. The revenues and debt are U.S. dollar-denominated, but
operational costs and expenses are denominated in BRL, exposing the
transaction to real appreciation scenarios when margin EBITDA is
reduced due to higher USD equivalent operational costs and
expenses. The transaction is able to withstand a 21.5% BRL
appreciation shift in the entire USD/BRL curve, calculated using
Fitch's base case assumptions, before defaulting on its debt
obligations on 2024. Ferroport is also entitled to collect fees,
modest in Fitch's Rating Case, based on the number of vessels
berthing, oil transshipment volume and berthing time.
Adequate Infrastructure [Infrastructure Development & Renewal -
Midrange]:
Ferroport's facilities are new and key equipment is expected to
have long useful lifes. No replacement requirements are foreseen
throughout the life of the transaction. Planned investments
comprise predominantly channel dredging, increase of stacking
capacity and maintenance works to preserve operational efficiency
and environmental compliance. The ToP establishes the potential for
expansion, and Ferroport has the option to agree to expand; if it
does, the contract establishes an additional tariff for this
incremental volume, calculated in order to assure an Internal Rate
of Return (IRR) of 15%. Otherwise, AAMFB has the option to make
required the capex itself. However, as per transaction documents,
capex in excess of USD 20 million requires bondholders' approval.
Refinance Risk Partially Mitigated by Cash Sweep [Debt Structure -
Midrange]:
Rated debt is senior at Prumopar's level, but structurally
subordinated to Ferroport. Cash flows to service debt will come
from the payment of intercompany loans and dividend distributions.
Ferroport does not hold financial debt; its capex was funded
through intercompany loans from Prumopar and Anglo American.
Additional indebtedness is limited to USD 50 million, according to
Ferroport's Shareholders Agreement (SHA), which also requires the
distribution of all cash available at Ferroport. The rating
considers that the clause of the SHA which may result in the
suspension of Prumopar's voting rights at Ferroport in the case of
bankruptcy of any member of Prumopar's shareholder group is not
enforceable under Brazilian law, assuring Prumopar's voting power
against new indebtedness at the operational company, as per
transaction's documents. This view is supported by a legal opinion
on the subject requested by Fitch.
The debt has a fixed interest rate and its legal amortization
comprises a balloon payment of up to 51.6% (USD 180.6 million) in
2031. The debt structure also contemplates a target amortization
schedule, set to allow for the debt to be fully amortized in 12
years, under the Issuer's case, through a cash sweep mechanism. In
Fitch's Rating Case, the balloon payment is for 20.8% (USD 72.8
million) of the initial debt quantum. The debt structure also
counts with a six-month offshore DSRA and strong lock up provisions
that require, among others, compliance with target debt balance
coupled with a fulfilment of additional DSRA of up to 8.5% of
outstanding debt balance in order for Prumopar to be allowed to
distribute dividends.
Financial Profile:
Under Fitch's Base and Rating cases, a balloon payment is due in
2031, indicating a Loan Life Coverage Ratio (LLCR) below 1.0x.
Refinancing risk is mitigated by a PLCR, which takes into account
the cash flows available for debt service until the end of ToP
agreement, of 2.0x in 2031 in Fitch's Rating Case. Prumopar's Net
Debt to CFADS decreases from its peak of 8.3x in 2021 to 1.6x in
2031, under Fitch's Rating Case, a comfortable level in light of
the eigh-year ToP tail. Credit metrics are somewhat strong for the
assigned rating, which is constrained by Brazil's country ceiling,
the history of some operational disruptions and a residual exposure
to foreign exchange risk.
PEER GROUP
Prumopar's closest peer is Adani Abbot Point Terminal Pty Ltd's
(AAPT) (senior secured notes; BBB-/Stable). Both are single-purpose
mineral export terminals, comprise medium- to long-term ToP
contracts and present refinance risk. While AAPT's leverage is
higher than Prumopar's, with a peak of 10.0x, it has a stronger
PLCR of 1.6x and is able to fully pass-through the fixed and
variable operating expenses to the user contracts. In addition,
AAPT is not constrained by the factors affecting Prumopar, as
mentioned in the financial profile.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action:
-- Achievement of the target amortization schedule in a sustained
basis;
-- Favorable track record of operations without disruption;
-- Arbitration decision favorable to Prumopar;
-- A Positive Rating Action on Brazil's Sovereign Rating.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action:
-- Outstanding debt balance of USD 321 million or higher by
December 2021.
-- Offtaker's failure in getting the operational license of
Minas-Rio mines;
-- Operational disruption negatively impacting the cash flows;
-- A Negative Rating Action on Brazil's Sovereign Rating.
TRANSACTION SUMMARY
Prumopar issued a fixed-rate USD350 million senior secured notes
with final maturity in 2031 and a fixed interest rate of 7.5%, paid
semi-annually. The principal amortization schedule is customized,
with a legal amortization of 48.4% of principal until 2031 and a
balloon payment of 51.6% of principal amount (USD 180.6 million) at
maturity.
The proceeds of the debt will be used to repay the existing bridge
loan issued in October 8th, 2019 (outstanding amount of USD270
million plus accrued interest, issued in a capital market format),
to pay for the transaction costs and to make distributions to
Prumopar's sponsor, Prumo Logistica S.A.
FINANCIAL ANALYSIS
The main assumptions of Fitch's Base Case include:
-- Brazilian Inflation: 3.6% in 2019, 3.9% in 2020, 3.8% in 2021
and 3.5% from 2022 onwards;
-- US PPI: 2.2% in 2019, 2.3% in 2020, 2.5% in 2021 and 2.0% from
2022 onwards;
-- Foreign Exchange Rate (BLR/USD): 4.0 in 2019 and 2020, 3.9 in
2021 and 1.5% yearly depreciation from 2022 onwards;
-- Volume: minimum guarantee throughput of 26.6 million tons per
year;
-- Tariffs: adjusted according ToP agreement (67% of US PPI);
-- Operational and Capital expenses: 5% higher than sponsor's
case;
-- Transshipment volume: 40 services in 2019 and 25 thereafter.
Additionally, all services were considered to come from Suezmax
vessels, which provide lower revenues than VLCCs because of lower
volume capacity in each vessel;
-- Post Balloon interest rate (after 2031): 11.5%.
The same assumptions were used in the rating scenario, with the
exception of:
-- Foreign Exchange Rate (BLR/USD): 4.0 in 2019 and 2020, 3.9 in
2021 and 0.75% yearly depreciation from 2022 onwards;
-- Operational and Capital expenses: 10% higher than sponsor's
case;
-- Transshipment volume: 30 services in 2019 and 13 thereafter.
Additionally, all services were considered to come from Suezmax
vessels, which provide lower revenues than VLCCs because of lower
volume capacity in each vessel.
In Fitch's Base Case, minimum PLCR is 1.4x, considering the ToP
tenor. Maximum leverage (net debt/CFADS) is 8.0x in 2020,
deleveraging to 0.6x in 2031. In Fitch's Rating Case, minimum PLCR
is 1.3x, also considering the ToP tenor. Maximum leverage (net
debt/CFADS) is 8.3x in 2020, deleveraging to 1.6x in 2031.
Asset Description
Prumopar is a wholly-owned subsidiary of Prumo Logistica S.A. that
holds a 50% share of Ferroport, a joint venture between Prumopar
and Anglo American Investimentos Minerio de Ferro Ltda., subsidiary
of Anglo American plc. Ferroport is the exclusive export terminal
for iron ore produced by Anglo's Minas-Rio project located in Minas
Gerais.
Ferroport is the owner of an area of 300 hectares in the Acu Port,
where iron ore is processed, handled and stored. The facilities
include an offshore structure comprising an access bridge, access
canal, breakwater and two berths for iron ore loading. Ferroport
benefits from a 25-year ToP with AAMFB, until 2039, for 26.6
million wet metric tons per year.
Ferroport was also responsible for the construction of the T1 port
terminal and signed a Port Access Agreement with AAMFB and Acu
Petroleo S.A. (owner of the oil transshipment terminal in the T1 of
Acu Port), also valid until 2039, which establishes that Ferroport
is responsible for the maintenance of T1 offshore infrastructure,
including the dredging of access channel and breakwater, and will
charge port fees based on the number of vessels berthing, oil
transshipment volume and berthing time.
Ferroport is the last line in the logistics chain and an integral
part of Anglo's Minas-Rio iron-ore project, which comprises 5.3
billion tons of mineral resources. The Minas-Rio project is located
in the States of Minas Gerais and Rio de Janeiro. It is 100% owned
by Anglo American plc, and it is composed of integrated systems of
open pit mines, a beneficiation plant, a 529 km slurry pipeline and
lastly, Ferroport.
=========
C H I L E
=========
SOCIEDAD DE INVERSIONES: S&P Withdraws 'B-' Issuer Credit Rating
----------------------------------------------------------------
S&P Global Ratings withdrew its 'B-' issuer credit and issue-level
ratings on Sociedad de Inversiones Pampa Calichera at its request.
The issuer requested the withdrawal because all of its debt is now
privately placed, following the October 2019 refinancing, which
allowed the company to complete an early redemption of its 2022
senior secured bond on October 23rd. The rating outlook was stable
the time of the withdrawal.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: 1Q Slowdown Strips US$112.3M in Revenues
------------------------------------------------------------
Dominican Today reports that the economic slowdown in the Dominican
Republic in the first quarter spurred a drop in tax collections of
RD$5.9 billion (US$112.3 million) in relation to Government
projection, which combined with higher total spending made it
difficult to exert stricter control of the fiscal deficit.
Budget Directorate figures from the 2020 Budget bill show that
revenue in the first half of the period reached 97.6% of the
target, of RD$341.9 billion and only reached RD$333.8 billion,
according to Dominican Today.
As to total expenses, there was an absolute increase of RD$43.2
billion, or 13.9%, the report notes.
"Although the fiscal deficit remained at RD$20.6 billion, the net
financing obtained by the Government, which is the mathematical
ratio of income received from financing less payments for
amortization and other financial applications, soared to RD$102.1
billion, an amount that represented 2.4% of nominal GDP," El Caribe
reports, the report relays.
"The deficit that would be financed with indebtedness was projected
at RD$75.5 billion," the report adds.
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
=====================
AES EL SALVADOR II: Fitch Affirms B- LT IDRs, Outlook Stable
------------------------------------------------------------
Fitch Ratings affirmed AES El Salvador Trust II's Long-Term Foreign
and Local Currency Issuer Default Ratings at 'B-' and AESL's senior
unsecured notes due 2023 at 'B-'/'RR4'. The Rating Outlook is
Stable.
AES El Salvador is a special-purpose vehicle (SPV) located in
Panama that was created to issue USD310 million of notes on behalf
of AES El Salvador Group. AES El Salvador's ratings are based on
the combined credit strength of the operating companies that
guarantee its debt and reflect the group's strong market position,
low business risk profile, and its predictable cash flow generation
from users. The ratings also reflect the exposure to regulatory
risk and to sovereign risk through subsidies. A significant portion
of AES El Salvador's cash flow generation comes from government
subsidies, which exposes the company to El Salvador's
creditworthiness and payment ability.
KEY RATING DRIVERS
Exposure to Government Subsidies: Due to a reduction in subsidies
in 2017 to USD3 and USD4 per month for users consuming up to 60 KWh
and 99 KWh, respectively, AESL's total subsidies fell to USD36.1
million from USD69.6 million in 2016. In August 2018, a new scheme
was adopted allowing USD5 per month for users consuming an average
of up to 105 KWh over a six-month period, which the company
believes equates to roughly USD50 million annually. Fitch estimates
subsidies will account for more than half of AESL's EBITDA going
forward, underscoring their importance to the company's cash flow.
The government is currently making subsidy payments to AESL within
30 days of invoice.
Political Uncertainty Lingers: The economic minister of
newly-elected president, Nayib Bukele, recently stated that gas and
electricity subsidies would be reviewed to determine those who
"most need them", hinting at changes in eligibility rules. For the
time being, the government's 2020 budget includes the expected
USD64 million for electricity subsidies, while the gas subsidy was
cut from USD74.5 million to USD65.5 million. Given their size
relative to AESL's EBITDA, Fitch believes continued timely subsidy
payments to be important for the company's liquidity and working
capital and that the electricity subsidies could be targeted in the
future should the government's finances become strained.
Strong Market Position: While the company's distribution service
territories are non-exclusive, Fitch believes the risk of new
competition is low given that distribution companies possess
significant economies of scale that make it inefficient for more
than one company to operate in any particular geographic area.
AESL's four companies combine to serve 1.4 million clients, or
nearly 80% of the market, and provided approximately 70% of energy
distributed in 2018, up from 60% in 2014. The company's network
includes 36,172 km of cables, 99 substations and 55,901
transformers. Due to its extensive asset base, territory and number
of clients, Fitch considers the company's market position strong.
Solid Financial Structure: AESL's total debt to EBITDA was 3.8x in
2018, providing ample headroom within the company's rating
category. Fitch expects leverage to remain relatively flat over the
next two years as the company's solar panel contracting and public
lighting areas normalize following large projects in 2019. Fitch
expects leverage to fall to 3.5x in 2022 due to a combination of
energy loss reduction, user and demand growth, tariff inflation
adjustments and the gradual amortization of smaller loans. AESL's
operating cash flow is strong, while FCF is limited by ongoing
capex needs of USD35 million-USD40 million per year and its
practice of paying all of the prior year's net income in
dividends.
Rising Losses and Reduction Efforts: Energy losses have exhibited a
slightly upward trend over the past several years, largely driven
by non-technical losses as the country continues to grapple with
high crime and instability. Total losses in 2018 were 10.58%, up
from 10.29% the year prior. Fitch estimates that nearly 3% of total
energy costs are losses absorbed by AESL and that a 1% change in
losses equates to about a USD5.5 million change in energy margin,
depending on prevailing energy prices. Fitch's base case assumes a
0.5% loss reduction over the medium term due to the company's
investment in anti-theft lines, telemeters, smart meters and
efforts to raise community awareness.
Low Business Risk Profile: As an electricity distribution company,
AESL is allowed to pass on to end users, or the government in the
form of subsidies, the full unmanageable cost of energy purchased,
thereby limiting its commodity price exposure. The company's gross
margin is determined by the regulator every five years and adjusts
year-to-year depending on factors such as growth in user base and
consumption as well as local inflation. The current tariff period
lasts until the end of 2022. While its concession is non-exclusive,
the capital intensive nature of its business is inherently
monopolistic and limits competition. Fitch believes these factors
add to AESL's cash flow stability and low business risk.
DERIVATION SUMMARY
AES SLV benefits from EBITDA margins in line with its regional
peers Energuate Trust (BB/Negative), Eletropaulo Metropolitana
Electricidade de Sao Paolo S.A. (BB+/Stable), and Elektra Noreste
S.A. (BBB/Stable), as well comparatively better rates of technical
and non-technical losses. AES SLV also presents strong financial
metrics relative to its rating category with gross leverage of 3.8x
at YE 2018 and interest coverage of 3.0x. By comparison, Elektra
reported leverage of 3.9x and coverage of 3.6x, while Energuate
reported 4.1x leverage and 3.2x coverage for the same period.
AES SLV's rating is principally constrained by its exposure to the
Salvadoran government (B-/Stable) in the form of subsidy receipts.
Following significant delays in subsidy payments in 2017, budgetary
reforms have improved the timeliness of receipts to approximately
30 days. However, recent political statements by the new government
have once again cast doubt upon the reliability and amount of
future subsidy payments.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
-- Demand growth at 2%, in line with GDP;
-- User base and fixed costs to grow in line with historical
rates;
-- Three-month lag in energy cost recovery;
-- A majority of short-term debt is rolled over;
-- 5% security contribution tax is renewed after 2020;
-- Energy loss reduction of 0.5% over medium term due to loss
mitigation investments;
-- The subsidy program continues in its current form and the
government makes payments in a timely manner.
Key Recovery Rating Assumptions:
-- Recovery analysis assumes AESL would be a going concern in
bankruptcy. Fitch assumed a 10% administrative claim.
Going Concern Approach:
-- The going concern estimate assumes a -30% EBITDA going during
bankruptcy and an enterprise value multiple of 6.0x;
-- The waterfall results in a 100% recovery corresponding to an
'RR1' for the senior unsecured notes of USD310 million. The RR is
limited, however, to 'RR4' due to the soft cap for El Salvador.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
AES El Salvador's ratings could be positively affected by clear
signals of sustainable independence from the government funding,
indications of reliable government receipts through the medium
term, or further positive sovereign rating actions.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
AES El Salvador's ratings could be negatively affected by any
combination of the following factors: material adverse changes to
the government subsidy program; shortages of electricity supply
resulting in lower consumption and lower cash flow generation;
further political or regulatory intervention that negatively
affects the company's financial performance, increased credit risk
associate with the government that could affect its ability to pay
energy subsidies or sustained total debt to EBITDA of 5.5x or
above.
LIQUIDITY
Adequate Liquidity: AES El Salvador's liquidity is supported by
cash and equivalents of USD35 million and LTM cash flow from
operations of USD57 million as of 2Q19. The only major financial
debt of the company is the USD310 million unsecured bond, which
matures in 2023. This favorable debt maturity profile provides the
company with a critical degree of financial flexibility during
operationally challenging periods. The company's FCF and cash
balance are affected by ongoing capex needs of USD35 million to
USD40 million per year as well as its practice of paying the prior
year's net income out in dividends to shareholders. AESL has
untapped credit lines of USD26.7 million.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
AES El Salvador Trust II
-- Long-Term Foreign Currency Issuer Default Rating (IDR) at
'B-'; Outlook Stable;
-- Long-Term Local Currency IDR at 'B-'; Outlook Stable;
-- Senior unsecured debt rating at 'B-'/'RR4'.
=============
J A M A I C A
=============
JAMAICA: Makes Progress in Securing Integrity of Public Boards
--------------------------------------------------------------
RJR News reports that Minister of Finance and Public Service Dr.
Nigel Clarke has said the government of Jamaica is closer to
securing the integrity of public boards.
The composition of some boards was called into question following
reports of corruption and nepotism at state run entities, according
to RJR News.
Dr. Clarke said the amendment to the regulations that will improve
public body governance in Jamaica will be tabled by the end of
November this year, the report notes.
With the change in legislation will come measures, he said, "to
ensure that the boards of public bodies have a staggering component
to ensure that the board is not purely overturned on the change of
administration; that a minimum of a third of administration are
carried over to the next," the report relays.
Public board directors will also have to undergo increased scrutiny
where their professional qualifications are concerned, the report
discloses.
Jamaica has approximately 190 public bodies, the report adds.
As reported in the Troubled Company Reporter-Latin America on Oct.
1, 2019, S&P Global Ratings, on Sept. 27, 2019, raised its
long-term foreign and local currency sovereign credit ratings on
Jamaica to 'B+' from 'B'. The outlook is stable. At the same time,
S&P Global Ratings affirmed its 'B' short-term foreign and local
currency sovereign credit ratings on the country. S&P Global
Ratings also raised its transfer and convertibility assessment to
'BB-' from 'B+'.
On June 27, 2019, RJR News said that Steven Gooden, Chief Executive
Officer of NCB Capital Markets, is warning that the increasing
liquidity in the Jamaican economy might result in heightened risk
to the financial market if left unchecked. This, he said, is
against the background of the local administration seeking to
reduce the debt to GDP to 60% by the end of the 2025/26 fiscal
year, which will see Government repaying more than J$600 billion
which will get back into the system, according to RJR News.
===========
M E X I C O
===========
GRUPO FAMSA: Fitch Lowers LT Issuer Default Ratings to C
--------------------------------------------------------
Fitch Ratings downgraded Grupo Famsa, S.A.B. de C.V.'s Long-Term
and Local and Foreign Currency Issuer Default Ratings to 'C' from
'B-'.
The downgrades follow Famsa's announcement of the launching of a
tender offer to exchange its unsecured notes due in 2020 for
secured notes due in 2024, which Fitch considers to be a distressed
debt exchange as per its DDE criteria. In Fitch's opinion, the
offering imposes to bondholders of existing notes, a material
reduction in terms of the existing 2020 notes, as the exchange will
eliminate restrictive covenants and certain events of default
included in the 2020 senior notes indenture for the bonds that are
not tendered. The offering also proposes an extension of the notes'
maturity date by five years, which Fitch sees as necessary to avoid
a traditional payment default.
If the proposed tender offer is completed, the IDR will be
downgraded to Restricted Default (RD). Subsequently, Fitch will
re-rate Famsa's IDRs and raise them to a rating consistent with the
company's post-exchange capital structure and risk profile, which
would be likely in a low speculative rating range.
KEY RATING DRIVERS
Exchange Offer Qualifies as DDE: The exchange offer, if agreed,
will constitute a DDE under Fitch's criteria, as existing
bondholders face a material reduction in terms and conditions if
they do not tender and the transaction is being undertaken to
prevent a possible future default on the 2020 notes. Fitch believes
alternative options to be limited. Fitch recognizes the positive
impact that the proposed exchange would have on Famsa's liquidity
and debt service capacity, given the proposed extended maturity
date.
According to Fitch's DDE criteria, exchanges that are conducted to
avoid insolvency or a traditional payment default and that imply a
material reduction in terms are considered DDE. According to the
criteria, a material reduction in terms includes an extension of
maturity date and exchange offers that are accepted if the
tendering bondholder also consents to indenture amendments that
materially impair the position of holders that do not tender.
The existing USD140 million of 7.25% notes due 2020 will be
exchanged for 9.75% notes due 2024 secured by Famsa Inc. ordinary
shares. The exchange offer is subject to 80% participation in terms
of the aggregate outstanding principal amount. Fitch will reassess
Famsa's IDR after completion of the exchange offer.
Challenged Environment: Famsa has been pursuing a number of
initiatives to improve its financial profile. However, the
increasingly challenged competitive environment along with a still
weak portfolio quality, have hindered these initiatives to take off
and significantly improve consolidated liquidity, profitability and
therefore reduce leverage, as originally expected. Management's
exchange proposal reflects the company's willingness to restructure
its financial debt.
DERIVATION SUMMARY
Famsa is one of the main retailers in Mexico, offering durable
goods and consumer services primarily to the middle and
lower-middle segments of the Mexican population. Connected with the
retail operations, Famsa also offers financial services to the
customers who opt to purchase its products on credit, many of whom
do not typically have access to other forms of financing. However,
the company's high leverage recurring negative FCF and tight
financial flexibility had place Famsa's rating in the 'B-'
category, before the announced exchange.
Famsa is less geographically diversified than Grupo Elektra S.A.B.
de C.V. (BB+/Stable) and Grupo Unicomer Company Limited
(BB-/Stable), but it is well positioned in its influence area of
northern Mexico. The company also has smaller scale in number of
stores than Grupo Elektra and Grupo Unicomer, with 401 stores
compared to more than 1,000.
From a financial risk profile view, the company has similar
adjusted leverage than J.C. Penney (JCP, CCC+) and Rite Aid
(B/Negative) with ratios above the 6.0x (calculated pre-IFRS 16).
The three companies present neutral to negative FCF, but JCP and
Rite Aid have stronger liquidity position than Famsa's. On the
other hand, Famsa operates in Mexico and the prospects for the
Mexican retail industry are stronger than in the U.S.
Compared with Latin American peers, the company maintains a weaker
financial position than Elektra and Unicomer. Famsa's operating
margins are lower than Unicomer's, while Elektra has the best
operating margins of the three companies.
KEY ASSUMPTIONS
The proposed tender offer for its unsecured notes is completed as
expected.
RATING SENSITIVITIES
The completion of the proposed exchange offer will lead to a
downgrade of the Long-term IDRs to 'RD'. The IDR would be
subsequently upgraded to a rating level reflecting the post-DDE
credit profile.
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity: As of Sept. 30, 2019, Famsa had MXN2.0 billion of
cash and marketable securities (mostly at BAF). This compares with
MXN4.9 billion of short-term debt, mainly composed by the large
debt maturity of USD140 million (approximately MXN2.8 billion) due
in May 2020.
SUMMARY OF FINANCIAL ADJUSTMENTS
Gains on fixed asset sales and non-recurring income were deducted
from the operating income. Financial Statements were adjusted to
revert IFRS 16 effect.
GRUPO IDESA: Fitch Lowers LT Issuer Default Ratings to CCC-
-----------------------------------------------------------
Fitch Ratings downgraded the Long-Term Local and Foreign Currency
Issuer Default Ratings of Grupo IDESA, S.A. de C.V. to 'CCC-' from
'CCC'. In addition, the senior unsecured notes were downgraded to
'CCC-'/'RR4' from 'CCC'/'RR4'.
The downgrade reflects Grupo IDESA's increasing refinancing risk as
it approaches large debt maturities during 2020 due to its
unsustainable capital structure and reliance on asset sales, equity
injections and dividends distributions from its JVs to meet its
upcoming debt service. Fitch forecasts IDESA's net leverage to be
around 16x in 2019 and to move to below 10x by 2021, as dividends
from Braskem-IDESA increase.
Grupo IDESA is under discussion with creditors to refinance its
debt by the end of the first quarter of 2020. Braskem-IDESA,
IDESA's largest JV investment, is attempting to refinance a portion
of its project finance, which if successful, would likely lead to
improved dividend flow to IDESA, which in turn, would enhance its
financial flexibility. Braskem-IDESA is also seeking to increase
its imports of ethane from the U.S. over the next year, which would
increase the capacity utilization and its operating cash flow
generation. The scenario of tight polyethylene (PE) spreads until
mid-2021, should limit Braskem- IDESA's dividends distributions or
payments of shareholder loans despite higher output.
KEY RATING DRIVERS
High Refinancing Risks: IDESA faces debt maturities of
approximately USD522 million by 2020. As of June 30 2019, cash on
hand was USD25 million, while short-term debt totalled USD222
million. Credit lines with Inbursa, which has a 24% equity stake in
the company, account for USD130 million of the latter figure. IDESA
is working on a potential sale-lease back transaction, seeking to
support liquidity and short-term needs. Idesa recently obtained a
new subordinated loan of USD33.5 million due 2021 with Inbursa for
the expansion of its maritime terminal.
High Leverage: As of the LTM ended June 30, 2019, IDESA's Operating
EBITDA was USD32 million, resulting in a net leverage ratio of
15.9x, an increase from 12x in 2018. Leverage increased due to
lower petrochemical volumes and prices and no cash inflow from
Braskem-IDESA in 2019; it had received around USD7.5 million in
2018. Fitch's forecast suggests net leverage will remain elevated
in 2019 at around 16x. For 2020, net leverage should decline to
around 10x due to USD10 million of cash inflow from Braskem-IDESA
and the expansion of the logistic business (maritime terminal).
Joint Venture Investments: IDESA contributed USD513 million to the
Braskem-IDESA joint venture; most of IDESA's current debt was used
to support its 25% stake in this venture. IDESA's 25% stake
represents USD123 million of the total EBITDA generated by the JV
of USD490 million as of the LTM to June 30, 2019. This facility is
capable of producing 1.0 million tons of polyethylene per year.
IDESA's other equity investments include CyPlus-IDESA, a 50/50 JV
with Advent International, which owns a sodium-cyanide production
facility. This plant's capacity is 40,000 mt, and distributed about
USD1 million in dividends to IDESA during the first six months of
2018.
High Reliance on Commodity Chemicals: IDESA generated 46% of its
EBITDA from the distribution of solvents and chemicals within
Mexico and 45% from chemicals manufacturing, with most of the
remainder from chemical storage and handling services during 2018.
The company has limited pricing power with its suppliers and
customers, as the company's main product prices are based on
international reference prices and are somewhat correlated to the
price of oil.
DERIVATION SUMMARY
IDESA's business scale and vertical integration are limited, and
its product portfolio is more dependent on feedstock and product
price dynamics. This limited pricing power creates higher
volatility for cash flows when compared to peers such as Cydsa,
S.A.B. de C.V. (BB+/Stable) or Unigel Participacoes S.A
(B+/Stable). IDESA's scale and cost position mostly as a converter
or distributor is consistent with those of companies in the low
'BB' to 'B' rating categories. Weak product spreads and lack of
feedstock, combined with high debt used to fund investments, have
significantly pressured IDESA's financial profile and increased its
reliance on expected cash flows from Braskem-IDESA, and in
continued growth in chemical distribution activities. IDESA's
leverage and refinancing risks are high and consistent with that of
a 'CCC' rating category.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
-- Revenue, measured in U.S. dollars, to decline to around USD500
million in 2019 and limited growth in 2020 with the expansion of
the logistic segment;
-- Adjusted EBITDA of around USD32 million in 2019 and 2019 to
USD47 million in 2020;
-- No Cash flows received from Braskem-IDESA in 2019 around USD10
million in 2020;
-- Capex to average around USD25 million in 2019 and 2020, mostly
reflecting the expansion of the maritime terminal;
-- No dividends distributions.
Recovery Ratings Assumptions
The recovery analysis assumes a hybrid going concern approach for
IDESA at a 4.5x of estimated post restructuring EBITDA of USD24
million and a value of IDESA's 25% stake in Braskem-IDESA,
resulting from the USD513 million replacement value of IDESA's
equity at a 50% advance rate. Fitch has assumed a 10%
administrative claim.
Fitch applies a waterfall analysis to the post-default enterprise
value based on the relative claims of the debt in the capital
structure. The agency's debt waterfall assumptions take into
account the company's total debt at June 30, 2019. These
assumptions result in a recovery rate for the unsecured bonds
within the 'RR4' range.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
-- Refinancing of long-term debt at IDESA;
-- Capital infusions or material asset sales that improve IDESA's
liquidity profile and capital structure;
-- Constant annual dividend flow at least of USD25 million from
Braskem-IDESA.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
-- Inability to proceed with a debt refinancing in the next 6
months;
-- Perception of risks on meeting interest payments.
LIQUIDITY AND DEBT STRUCTURE
Limited Liquidity: IDESA has USD522 million of debt coming due
before the end of 2020. This figure compares with cash of USD25
million and a neutral cash flow from operations (CFFO). IDESA's
funds from operations (FFO) was neutral as of the LTM ended June
30, 2019 compared with USD10 million during 2018. Working capital
inflows have resulted in CFFO of USD14 million and a FCF of USD1
million during the LTM ended June 30, 2019. IDESA funded negative
FCF during the last 12 months mostly through cash and debt. The
company's cash to short-term debt was 0.7x as of second-quarter
2019. Short-term debt consisted of USD222 million, which relates to
the Inbursa credit lines (USD130 million) and others revolving
credit facilities and interests.
IDESA's debt consisted of USD300 million of notes due December of
2020 and USD130 million due June 2020 from an Inbursa line of
credit and bank debt. Inbursa's line accrues interest which Fitch
estimates will be around USD50 million at maturity.
JAVER SAB: Moody's Affirms B1 Sr. Unsec. Rating, Outlook Stable
---------------------------------------------------------------
Moody's Investors Service changed Servicios Corporativos Javer,
S.A.B. de CV's outlook to stable from positive. At the same time,
Moody's affirmed the B1 senior unsecured rating on Javer's 2021
notes. The action was prompted by its view that a weaker than
anticipated operating environment will prevent Javer from
de-levering through mid-2020.
Outlook Actions:
Issuer: Servicios Corporativos Javer, S.A.B. de CV
Outlook, Changed To Stable From Positive
Affirmations:
Issuer: Servicios Corporativos Javer, S.A.B. de CV
Senior Unsecured Rating, Affirmed B1
RATINGS RATIONALE
"The change in outlook was triggered by our view that more
challenging conditions in the Mexican housing sector and overall
economy will prevent Javer from de-levering as fast as Moody's was
originally anticipating," says Sandra Beltran, a lead analyst at
Moody's.
"In our view, Javer's measures to improve its capital structure and
adequate liquidity will continue to support its ability to navigate
through challenging economic conditions, but credit metrics will
remain commensurate within the B1 rating for longer," added
Beltran.
In September 2018, Moody's had changed Javer's outlook to positive
from stable reflecting its expectation that de-leveraging would
continue through mid-2020 as a consequence of a strong operating
performance and lower working capital needs. Since then, Mexican
economic growth has deteriorated. A lack of policy coherence is
undermining economic sentiment and investor confidence, holding
back Mexico's economic prospects through 2020. Residential
construction, that remained resilient in recent years has recently
deteriorated, affected by the cancellation of the housing
subsidies' program and delays in construction permits. Amid this
environment, Javer has reported weaker than anticipated
performance. In the nine months ended in September 2019, units sold
declined 21.6% year-over-year and revenues fell 14.9%. Since Javer
has been shifting its product offering towards higher priced units,
it was able to maintain its margins. For the first nine months of
2019, Javer even reported improved gross margin of 27.2% from 25.8%
the prior year. Nevertheless, cash generation will remain below
expectations. The company recently downsized its 2019 EBITDA growth
guidance to 0% - 2% from 2.5% - 5%.
Offsetting the risk of further deterioration is Javer's adequate
liquidity, which in it sview is key for Javer to navigate through
tougher market conditions. As of September 2019, cash in hand was
MXN515 million, well above the MXN127 million in short term debt.
Although land purchase needs will continue to be high, there is
some flexibility in working capital considering recent inventory
build-up. In the fourth quarter, Javer expects the openings of six
new developments. Moreover, Javer recently signed a new credit and
guaranty agreement. The proceeds will be used to redeem the 2021
senior notes outstanding. The new debt will be 87% denominated in
MXN pesos, virtually eliminating foreign currency risk and reducing
refinancing risk as it will amortize in partial installments
through 2025.
Javer's B1 senior unsecured rating continues to reflect its leading
presence in relevant markets such as the states of Nuevo Leon and
Jalisco, which include Mexico's second and third-largest
metropolitan areas. The rating also considers its ability to modify
its product mix amid changing operating conditions.
The stable outlook reflects its view that Javer's credit profile
will remain resilient amid more challenging operating conditions
due to its strong market position and flexible product portfolio.
As current projects ramp up, cash generation should strengthen
allowing Javer to resume debt reduction in late 2020 . The stable
outlook also considers its expectation that liquidity will remain
adequate with internal and external resources being enough to cover
cash needs and timely address debt maturities.
Javer's rating could be downgraded if credit metrics weaken beyond
current levels because of unanticipated challenges in reaching
sales targets or because of missteps in land acquisition strategy.
A drop in profitability because of a deterioration in the company's
product mix, coupled with cost pressures, could also result in a
rating downgrade. Quantitatively, if gross margin declines below
20% and Debt/capitalization remains above 55%, without prospects to
de-lever, the B1 rating could come under pressure. Any sign of
liquidity deterioration could also trigger a negative rating
action.
Conversely, ratings could be upgraded if Javer is able to maintain
the current profitability levels, while reducing leverage below 45%
of debt/total capitalization (from 48% as of September 2019). A
positive rating action would also require liquidity to remain
strong.
Headquartered in the city of Monterrey, Mexico, Servicios
Corporativos Javer, S.A.B. de CV is one of the country's largest
house developers, specializing in the construction of low- and
middle-income housing. The company operates in the states of Nuevo
Leon, Aguascalientes, Tamaulipas, Jalisco, Queretaro, Quintana Roo,
the state of Mexico and Mexico City. Javer is the largest supplier
of Mexican Workers' Housing Fund (Infonavit) homes in the country
and in the states of Nuevo Leon, Aguascalientes, Jalisco and Estado
de Mexico. For the 12 months ended September 30, 2019, Javer
reported revenue of around MXN7,383 million and a gross margin of
27.1%.
The principal methodology used in these ratings was Homebuilding
And Property Development Industry published in January 2018.
=====================
P U E R T O R I C O
=====================
AMADO AMADO: Court Confirms Chapter 11 Plan
-------------------------------------------
Judge Mildred Caban Flores of the U.S. Bankruptcy Court for the
District of Puerto Rico convened a hearing on Oct. 9, 2019 for the
Amended Chapter 11 Plan of Debtors Amado Amado Salon & Body Corp.
and Amado Salon de Belleza Inc. dated May 29, 2019.
According to the case docket, there were no objections to the
confirmation of the plan. In light of Debtor's representation in
open court and based on the proffers made in the 1129 Statement,
the Amended Plan dated 5/29/2019 is CONFIRMED, Judge Flores ruled.
As reported in the TCR, Amado Amado Salon & Body Corp. and Amado
Salon de Belleza Inc. filed an amended Chapter 11 Plan and
Disclosure Statement. General Unsecured Creditors owed $1,078.788
will receive from Consolidated Debtor a non-negotiable, interest
bearing at 3.25% annually, promissory note dated as of the
Effective Date. Creditors in this class shall receive total
repayment of 5% of their claimed or listed debt which equals
$53,939.40 to be paid pro rata to all allowed claimants under this
class. Unsecured Creditors will receive 10 semiannual payments in
the amount of $5,891.11 to be distributed pro rata among them, for
the term of 10 semiannual periods beginning Sept. 1, 2019.
A full-text copy of the Amended Disclosure Statement dated May 29,
2019, is available at https://tinyurl.com/y54urdce from
PacerMonitor.com at no charge.
About Amado Amado Salon & Body Corp.
Amado Amado Salon & Body Corp. and Amado Salon De Belleza, Inc.
are
privately-held companies in San Juan, Puerto Rico, engaged in the
beauty salon business. The Debtors first filed for Chapter 11
bankruptcy protection (Bankr. D.P.R. Case Nos. 14-10459 and
14-10460) on Dec. 23, 2014.
The Debtors sought protection under Chapter 11 of the Bankruptcy
Code (Bankr. D.P.R. Lead Case No. 18-01144) on March 5, 2018. In
the petitions signed by Amado Navarro Elizalde, president, Amado
Amado Salon was estimated to have assets and liabilities of $1
million to $10 million; and Amado Salon De Belleza was estimated to
have assets and liabilities of less than $1 million. Judge Mildred
Caban Flores oversees the cases. Attorney for the Consolidated
Debtors is Gloria M. Justiniano Irizarry, Esq., in Mayaguez, Puerto
Rico.
NEW ENERGY: Seeks to Hire Cardona Jimenez as Counsel
----------------------------------------------------
New Energy Consultants & Contractors LLC seeks authority from the
United States Bankruptcy Court for the District of Puerto Rico (Old
San Juan) to employ Cardona Jimenez Law Offices, P.S.C., as
counsel.
New Energy requires Cardona Jimenez to:
a. examine members and officers of the Debtor and other
parties in interest as to the acts, conduct, and
property of the Debtor;
b. prepare the Disclosure Statement, Plan of Reorganization,
records and reports as required by the Bankruptcy Code
and the Federal Rules of the Bankruptcy Procedure;
c. prepare applications and proposed orders to be submitted
to the Court;
d. identify and prosecute of claims and causes of action
assertible by the debtor-in-possession on behalf of
the estate;
e. examine proof of claims files and to be files in the
case and the possible objections to certain of such
claims;
f. advise the debtor-in-possession and prepare documents
in connection with the ongoing operation of debtor's
business;
g. advise the debtor-in-possession and prepare documents
in connection with the liquidation of the assets of
the estate, if needed, including analysis and
collection of outstanding receivables; and
h. assist and advise the debtor-in-possession in the
discharge of any and all the duties imposed by the
application disposable of the Bankruptcy Code and the
Federal Rules of Bankruptcy Procedure.
Jose F. Cardona Jimenez, Esq. disclosed that the firm does not hold
any interest adverse to the Debtor's bankruptcy estate, and is a
"disinterested person" as defined in Sec. 101(14).
The firm can be reached at:
Jose F. Cardona Jimenez, Esq.
PO Box 9023593
San Juan, PR 00902
Tel: 787 724-1303
Fax: 787-724-1369
E-mail: jf@cardonalaw.com
About New Energy Consultants
New Energy Consultants & Contractors LLC is a Puerto Rican company
with a mission to serve residential and commercial renewable energy
markets.
New Energy Consultants & Contractors LLC filed a Chapter 11
petition (Bankr. D.P.R. Case No. 19-05891) on October 10, 2019. In
the petition signed by Yolanda Gonzalez Gomez, chief financial
officer & chief restructuring officer, the Debtor estimated $50,000
in assets and $10 million to $50 million in liabilities.
The case is assigned to Judge Enrique S. Lamoutte Inclan.
Jose F. Cardona Jimenez, Esq. at CARDONA JIMENEZ LAW OFFICES, PSC,
represents the Debtor as counsel.
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LATAM: Economic Growth in the Caribbean Slowing Down, Says IMF
--------------------------------------------------------------
RJR News reports that the International Monetary Fund (IMF) has
said growth in the Caribbean and Latin America is slowing down and
that the region is expected to record a 0.2 per cent growth this
year.
The Washington-based financial institution said the low growth
comes amid continued trade tensions, lower global growth, subdued
commodity prices, and in some large regional economies, high policy
uncertainty, according to RJR News.
In its latest Regional Economic Outlook for the Western Hemisphere,
the IMF said the region will need to rely on domestic drivers of
growth, like consumption and investment to boost economic recovery
and create more jobs, the report notes.
In reviewing the economic performances of the Caribbean countries,
the IMF noted that Guyana is projected to record economic growth of
4.4 per cent this year, up from 4.1 per cent last year, while
Suriname will record marginal growth of 2.2 per cent, up from two
per cent in 2018, the report adds.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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Copyright 2019. All rights reserved. ISSN 1529-2746.
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* * * End of Transmission * * *