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/raid1/www/Hosts/bankrupt/TCRLA_Public/191204.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 Wednesday, December 4, 2019, Vol. 20, No. 242 Headlines B R A Z I L BANCO MERCANTIL: Moody's Ups National Scale Deposit Rating to B3.br JBS SA: BNDES May Sell $1.9 Billion of Shares in January ODEBRECHT SA: Awaits Creditor Approval of Recovery Plan C H I L E CHILE: Government Unveils Stimulus Package as Economy Slumps M E X I C O BLUE STAR: Incurs $1.3MM Net Loss for the Quarter Ended Sept. 30 CORE MOLDING: Needs More Financing to Continue as Going Concern CTI INDUSTRIES: Reports $1.2MM Net Loss for Quarter Ended Sept. 30 - - - - - =========== B R A Z I L =========== BANCO MERCANTIL: Moody's Ups National Scale Deposit Rating to B3.br ------------------------------------------------------------------- Moody's Investors Service upgraded to B3.br, from Caa1.br, the long term national scale deposit rating assigned to Banco Mercantil do Brasil S.A. Moody's also upgraded to B1.br, from B2.br, Mercantil's long-term National Scale Counterparty Risk rating. At the same time, Moody's affirmed Banco Mercantil's long-term local and foreign currency deposits ratings at Caa1, its baseline credit assessment at caa1 and its long-term counterparty risk rating at B3. The outlook was changed to stable, from negative to reflect the bank's better results that have allowed it to improve capital ratios. RATINGS RATIONALE The upgrade of Banco Mercantil's long-term national scale ratings and the change in the outlook to stable, from negative, incorporate the steady improvement in the bank's profitability over the past 12 months driven by lower funding and credit costs, and in capital, following the modestly better earnings, lower dividend payout and less capital consuming assets. The affirmation of Mercantil's global scale ratings reflects Moody's expectation that the bank's financial performance will remain under pressure by persistently weak asset risk, by heightened competition and by a still heavy cost structure that will continue to limit the bank's ability to generate sustainable and recurring results. Banco Mercantil's loan portfolio contracted 12% in 3Q 2019 when compared to one year prior mostly reflecting the runoff of problematic corporate loans, as well as true sales of payroll loans, which Mercantil resumed in mid 2019. At the same time, Mercantil expanded into riskier unsecured consumer lending , and this asset class accounted for more than one fourth of the bank's loan portfolio in 3Q2019. While consumer loans yield high margins, the delinquencies have been high at 9.2%, and above the system's personal lending average nonperforming loan (NPL) ratio of 7.4%, thus, putting further pressure on the bank's weak asset risk. Therefore, the buildup of this riskier portfolio and the continuous contraction of corporate loans have resulted in a 9.4% problem loan ratio in September 2019, about 3 times higher than the banking system's average, and worse than the 8.9% reported one year prior. High asset risk, even if partially offset by adequate loan loss reserves, also stems from the fact that high net charge off ratios, averaging 8.1% of loans from 2014 June 2019, have not been enough to curtail the volume of problem loan volume. Mercantil delivered stronger bottom-line results in 3Q 2019 as evidenced by the ratio of net income to tangible banking assets at 1.1%, up from the 0.5% average reported in the past three years. The reduction in funding costs, aided by the decline in policy rate and a higher-yielding loan mix supported net interest margins, despite the contraction in the loan book. However, Mercantil still reports high and volatile provisions as a percentage of its pre-provision income, at above 60%, while operating costs remain high, with the cost to income ratio at levels of 63%, and above the 50.3% average reported by the Brazil banking system in 3Q2019. The key drivers of Mercantil's improved profitability were therefore the gains on sales of payroll loans in the period. Excluding the gains on credit sales, Mercantil's adjusted net income to tangible banking assets would have declined to less than 1%, a level that is more in line with its historical performance. With credit costs expected to remain high, the sustainability of Mercantil's profitability will depend on further credit sales or continuing cost cutting measures. Moody's upgrade of Mercantil's NSR acknowledges the bank's improved capital position over the past quarters, following the regulatory approval of a BRL 60 million capital injection in mid 2018 and higher earnings generation. Mercantil's capital ratio, measured by Moody's as tangible common equity as a percentage of adjusted risk weighted assets (TCE/RWA) increased to 10.4% in September 2019, from 7.8% in September 2018 and 5.6% in September 2017. Mercantil's stronger capital position also resulted from a reduced loan portfolio as well as lower capital requirements for credit risk as the bank increased the share of consumer loan in its loan mix, which tends to consumes less capital. Banco Mercantil's ratings are also supported by its predominantly deposit based funding structure, which has been stable in recent quarters. While more than one third of the bank's funding is sourced from institutional investors and beneficiaries of Social Security, this is somewhat offset by the bank's historical sizeable holdings of liquid assets, which accounted for 36% of tangible banking assets in September 2019 and has been higher than 25% since 2016. Liquid assets cover more than 100% of the bank's deposits with daily withdrawal clauses. Also, the bank presents a positive tenor gap of 5.9 months in June 2019. Moody's believes Banco Mercantil's exposure to environmental risks is low, consistent with its general assessment for the global banking sector. Banco Mercantil's exposure to social risks is moderate, consistent with Moody's general assessment for the global banking sector. Moody's does not apply any corporate behavior adjustment to the bank, considering recent and improved measures to enhance transparency and to strengthen corporate governance, including a recently renewed management team. Moody's incorporated concerns about risk and corporate governance in its assessment of asset risk and profitability, especially concerning weak credit concession parameters of corporate lending in the past. WHAT COULD CHANGE THE RATING -- DOWN/UP The ratings could be downgraded if Mercantil's earnings decline as a result of its inability to generate sustainable results and of a further deterioration on its already weak asset quality position, which could put downward pressure on capital. The ratings could be upgraded if the bank demonstrates ability to generate consistent and sustainable earnings within the next 12-18 months with controlled credit costs and manageable cost structure under heightened competitive conditions. Upward pressure on the ratings will also derive from declining asset risk and maintenance of adequate capital ratios. METHODOLOGY USED The principal methodology used in these ratings was Banks Methodology published in November 2019. Banco Mercantil is headquartered in Belo Horizonte Brazil, and reported BRL 9.9 billion (USD 2.5billion) in assets and BRL 878 million (USD 220 million) in shareholders' equity as of September 30, 2019. LIST OF AFFECTED RATINGS AND ASSESSMENTS The following ratings of Banco Mercantil do Brasil S.A were upgraded: - Long-term Brazilian national scale counterparty risk rating to B1.br from B2.br - Long-term Brazilian national scale deposit rating to B3.br from Caa1.br, outlook revised to stable from negative The following ratings and assessments of Banco Mercantil do Brasil S.A. were affirmed: - Long-term global local and foreign-currency deposit ratings of Caa1, outlook revised to stable from negative - Short-term global local and foreign-currency deposit ratings of Not Prime - Long-term global local and foreign-currency counterparty risk ratings of B3 - Short-term global local and foreign-currency counterparty risk ratings of Not Prime - Long term foreign-currency senior unsecured medium-term note program of (P)Caa1 - Long-term foreign currency subordinated debt rating of Caa2 - Long-term counterparty risk assessment of B3(cr) - Short-term counterparty risk assessment of Not Prime (cr) - Short-term Brazilian national scale deposit rating of BR-4 - Short-term Brazilian Counterparty Risk Rating of BR-4 - Baseline credit assessment of caa1 - Adjusted baseline credit assessment of caa1 Outlook changed to stable from negative JBS SA: BNDES May Sell $1.9 Billion of Shares in January -------------------------------------------------------- Bloomberg News reports that Brazilian state development bank BNDES will likely sell part of its stake in JBS SA in January, people familiar with the matter said. The January date would give BNDES and banks coordinating the public offering more time to work out red tape, said one of the people, who asked not to be identified because talks are private, Bloomberg relates. While BNDES hadn't committed to a schedule, local media reported the sale could take place this year, Bloomberg says. BNDESPar, the development bank's investment arm, holds a 21.3% interest in JBS, the world's biggest meat supplier, and plans to sell a stake totaling about BRL8 billion ($1.9 billion), Bloomberg discloses. Banco Bradesco BBI, Banco BTG Pactual, Bank of America Corp., Banco Itau BBA and UBS Brasil Corretora have been hired as legal and financial advisers. According to the report, JBS shares have surged 147% this year, fueled by pork-supply disruptions in China that pushed up global protein prices. The gains have lifted the value of BNDES's stake in JBS to BRL16.5 billion from about BRL5 billion a year ago. Still, the prospect of the development bank's offering has tapped the brakes on the rally, with the stock down about 14% from a record high in September, the report relates. Bloomberg says the divestment is part of President Jair Bolsonaro's plan to shrink the size of the state. The development bank, the biggest JBS shareholder after the Batista family, which founded the company, played a crucial role in the meat producer's expansion overseas, adds Bloomberg. As reported in the Troubled Company Reporter-Latin America on Nov. 1, 2019, S&P Global Ratings raised its long-term issuer credit ratings on Brazil-based protein processor JBS S.A. (JBS) and JBS USA Lux S.A. to 'BB' from 'BB-'. ODEBRECHT SA: Awaits Creditor Approval of Recovery Plan ------------------------------------------------------- Cristiane Lucchesi at Bloomberg Law reports that Odebrecht SA and each of its 20 units under bankruptcy protection will need to hold separate creditor meetings to approve a recovery plan, according to a decision from Judge Alexandre Lazzarini in Sao Paulo. While lawyers from Odebrecht are still analyzing the case, their initial conclusion is not to fight Judge Lazzarini's decision as the company doesn't see it as a hurdle for approval of the restructuring plan it is negotiating with creditors, Bloomberg relays, citing a person familiar with the company's thinking. According to Bloomberg, Odebrecht management believes that creditors from most units will vote to consolidate the restructuring into a single, unified plan. About Odebrecht SA Odebrecht S.A. -- www.odebrecht.com -- is a Brazilian conglomerate consisting of diversified businesses in the fields of engineering, construction, chemicals and petrochemicals. Odebrecht S.A. is a holding company for Construtora Norberto Odebrecht S.A., the biggest engineering and contracting company in Latin America, and Braskem S.A., the largest petrochemicals producer in Latin America and one of Brazil's five largest private-sector manufacturing companies. Odebrecht controls Braskem, which by revenue is the fourth largest petrochemical company in the Americas. On June 17, 2019, Odebrecht filed for bankruptcy protection, aiming to restructure BRL51 billion (US$13 billion) of debt. The bankruptcy filing comes after years of struggles for Odebrecht, the biggest of the Brazilian engineering groups caught in a sweeping political corruption investigation that has rippled across Latin America, Reuters relayed, as reported by The Troubled Company Reporter - Latin America. On August 28, 2019, the Troubled Company Reporter - Latin America, citing The Wall Street Journal, reported that Odebrecht and its affiliates filed for chapter 15 bankruptcy, seeking U.S. recognition of the largest-ever bankruptcy in Latin America. Odebrecht SA and several of its affiliates has filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York on Aug. 26. The case is assigned to Hon. Stuart M. Bernstein. ========= C H I L E ========= CHILE: Government Unveils Stimulus Package as Economy Slumps ------------------------------------------------------------ Bloomberg News reports that Chile's government announced a $5.5 billion stimulus package as the economy contracted at the fastest pace since at least 1996 following weeks of riots and protests. Bloomberg relates that the spending program will help create 100,000 jobs next year, Finance Minister Ignacio Briones said at a press conference from the presidential palace late on Dec. 2. President Sebastian Pinera followed up on Dec. 3 with a plan to make a 100,000-peso ($125) one-time payment to 1.3 million families, the report says. "These measures are on the whole transitory and designed to create jobs both directly and indirectly through public investment and support for smaller companies," the report quotes Mr. Briones as saying. According to Bloomberg, the announcement came hours after the central bank reported that the Imacec index, a proxy for gross domestic product, tumbled 5.4% in October from the month before. Violent protests that broke out on Oct. 18 have forced the closure of shops, paralyzed much of the public transport system and led many people to cut short their working hours, the report says. Business confidence has nosedived, while retail sales slumped 12.1% in October from the year earlier, the statistics agency said Dec. 3. What is remarkable is that October's Imacec decline was even bigger than the 4.1% drop in March 2010 that followed an earthquake and tsunami which devastated much of the center-south of the country, Bloomberg states. The quake was the sixth biggest ever recorded in the world, killed more than 500 people and knocked out electricity to 93% of the population. "The collapse of economic activity in the second half of October was in the order of 10%," Sebastian Cerda, head of research at Econsult Capital, told the Pauta Bloomberg radio show. "This is much worse than the collapse after the earthquake." Bloomberg says digging Chile out of this mess won't come cheaply. Government spending will rise 9.8% next year, the biggest increase in a decade, pushing the fiscal deficit to 4.4% of gross domestic product. The fiscal debt won't stabilize until 2024 at about 38% of GDP, Mr. Briones said, Bloomberg relays. "There is a great effort being made, not only by the government, but also by the opposition," the minister told Infinita radio on Dec. 3, Bloomberg relays. "A lot has been done, and that marks a change in direction." The announcement on Nov. 2 came with a quid pro quo, Bloomberg notes. Interior Minister Gonzalo Blumel called on everyone to categorically condemn the recent violence, pledged more police on the streets and backed the security forces despite allegations of human rights violations. The spending package will only work if the violence stops, he said. According to Bloomberg, Chile's central bank has brought forward its next monetary policy decision by two days to Dec. 4 to provide "timely information" about the economy following weeks of unrest. Interest-rate swaps currently show less than 50% chance of another rate cut, after the central bank lowered its key policy rate to 1.75% in prior months, Bloomberg discloses. Despite the human and physical cost of the 2010 earthquake, the economy bounded back in April as the country started to rebuild. That is unlikely to be the case now, Bloomberg says. "The reality is that we are going to have two quarter of consecutive declines," Bloomberg quotes Mr. Cerda as saying. October's month-on-month decline in the Imacec was the biggest since at least 1996, while the year-on-year drop of 3.4% was the largest in a decade, Bloomberg notes. Bloomberg adds that the central bank cited declines in manufacturing as well as a range of services including education, transportation, restaurants and hotels. Excluding mining, economic activity fell 4% in October from a year prior, also the biggest decline on record. =========== M E X I C O =========== BLUE STAR: Incurs $1.3MM Net Loss for the Quarter Ended Sept. 30 ---------------------------------------------------------------- Blue Star Foods Corp. filed its quarterly report on Form 10-Q, disclosing a net loss of $1,288,238 on $5,081,164 of net revenue for the three months ended Sept. 30, 2019, compared to a net income of $346,907 on $6,815,000 of net revenue for the same period in 2018. At Sept. 30, 2019, the Company had total assets of $11,534,643, total liabilities of $13,758,151, and $2,223,508 in total stockholder's deficit. For the nine months ended September 30, 2019, the Company incurred a net loss of $3,480,979, has an accumulated deficit of $7,418,898 and working capital deficit of $2,524,506, with the current liabilities inclusive of $2,910,136 in stockholder loans that are subordinated to the provider of the working capital facility, and $124,244 in the current portion of the lease liability recognition. These circumstances raise substantial doubt as to the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon the Company's ability to increase revenues, execute on its business plan to acquire complimentary companies, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. A copy of the Form 10-Q is available at: https://is.gd/i0jGYR Blue Star Foods Corp. processes, imports, packages, and sells refrigerated seafood products. It offers pasteurized blue and red crab meat, and other seafood products, including crab cake, finfish, and wakami salad under the Blue Star, Oceanica, Pacifika, Crab & Go, and Harbor Banks brands. The company sells its products to food service distributors, wholesalers, retail establishments, and seafood distributors in the United States, Canada, Europe, Mexico, Central America, the Caribbean, the United Arab Emirates, Singapore, and Hong Kong. Blue Star Foods Corp. was founded in 1995 and is headquartered in Miami, Florida. CORE MOLDING: Needs More Financing to Continue as Going Concern --------------------------------------------------------------- Core Molding Technologies, Inc. filed its quarterly report on Form 10-Q, disclosing a net loss of $6,125,000 on $74,655,000 of net sales for the three months ended Sept. 30, 2019, compared to a net loss of $1,802,000 on $64,676,000 of net sales for the same period in 2018. At Sept. 30, 2019, the Company had total assets of $195,038,000, total liabilities of $105,119,000, and $89,919,000 in total stockholders' equity. Core Molding said, "While the Company is working with the existing lenders to enter into a forbearance agreement, it cannot guarantee the parties will be able to reach mutually agreeable terms, or predict if the Lenders will exercise their rights and remedies under the A/R Credit agreement beyond the term of any forbearance agreement. Additionally, since the Company has no firm commitments for additional financing, there can be no assurances that the Company will be able to secure additional financing on terms that are acceptable to the Company, or at all. As there can be no assurance that the Company will be able to successfully implement its refinancing plan, these conditions raise substantial doubt about the Company's ability to continue as a going concern." A copy of the Form 10-Q is available at: https://is.gd/6E6zE1 Core Molding Technologies, Inc., together with its subsidiaries, manufactures sheet molding compound (SMC) and molder of thermoset and thermoplastic products. It specializes in large-format moldings and offers a range of fiberglass processes, including compression molding of SMC, glass mat thermoplastics, bulk molding compounds, and direct long-fiber thermoplastics; and spray-up, hand lay-up, resin transfer molding, structural foam and structural Web injection molding, reaction injection molding, and utilizing dicyclopentadiene technology. The company serves various markets, including medium and heavy-duty trucks, automobiles, marine, construction, and other commercial markets. It sells its products in the United States, Mexico, and Canada. The company was formerly known as Core Materials Corporation and changed its name to Core Molding Technologies, Inc. in August 2002. Core Molding Technologies, Inc. was incorporated in 1996 and is headquartered in Columbus, Ohio. CTI INDUSTRIES: Reports $1.2MM Net Loss for Quarter Ended Sept. 30 ------------------------------------------------------------------ CTI Industries Corporation filed its quarterly report on Form 10-Q, disclosing a net loss of $1,238,924 on $8,537,475 of net sales for the three months ended Sept. 30, 2019, compared to a net loss of $546,225 on $11,525,469 of net sales for the same period in 2018. At Sept. 30, 2019, the Company had total assets of $32,897,091, total liabilities of $30,949,876, and $1,947,215 in total equity. The Company said, "During 2019 we attempted to execute a major capital event with a partner that would infuse money, among other attributes. That effort was unsuccessful as envisioned. We are currently seeking to execute on one or more smaller transactions, as well as pursue other financing options. There is no assurance that any of these efforts will be successful. "In addition, due to financial performance in 2016, 2017 and 2018, including net income/(losses) attributable to the Company of $0.7 million, ($1.6 million), and ($3.6 million), respectively, we believe that substantial doubt about our ability to continue as a going concern exists at September 30, 2019." A copy of the Form 10-Q is available at: https://is.gd/yf2yfy CTI Industries Corporation develops, produces, and distributes consumer and film products for commercial and industrial uses in the United States, the United Kingdom, Europe, and Mexico. The company sells its products directly, as well as through a network of distributors and wholesalers, and independent sales representatives. CTI Industries Corporation was founded in 1975 and is headquartered in Lake Barrington, Illinois. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2019. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *