/raid1/www/Hosts/bankrupt/TCRLA_Public/200102.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, January 2, 2020, Vol. 21, No. 2
Headlines
A R G E N T I N A
ARGENTINA: DBRS Downgrades FC Issuer Ratings to SD
ARGENTINA: S&P Ups FC Sovereign Credit Rating to CC, Outlook Neg
ARGENTINA: Seeks to Bolster Finances Ahead of Debt Talks
CUOTAS CENCOSUD IX: Moody's Withdraws B2(sf) Rating on Class A Debt
B R A Z I L
REDE D'OR: Fitch Affirms 'BB' LT FC IDR, Outlook Stable
M E X I C O
G.D.S. EXPRESS: Case Summary & 20 Largest Unsecured Creditors
MEXICO: Bank Chief Adopts Cautious Tone Despite Low Inflation
P U E R T O R I C O
ADVENTURE FITNESS: Unsecureds to Have 5% Recovery Over 5 Years
CUSTOMED INC: Court Approves Extension to Plan & Disclosure Filing
EL PATIO BBQ: Plan Outline Conditionally OK'd, Jan. 8 Hearing Set
J & C CORP: Hearing on Plan & Disclosures on Jan. 8
- - - - -
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A R G E N T I N A
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ARGENTINA: DBRS Downgrades FC Issuer Ratings to SD
--------------------------------------------------
DBRS, Inc. (DBRS Morningstar) downgraded the Republic of
Argentina's Long-Term and Short-Term Foreign Currency – Issuer
Ratings to Selective Default (SD), from CC and R-5, respectively.
The Long-Term Local-Currency – Issuer Rating remains at CC, and
the Short-Term Local-Currency – Issuer Rating remains at R-5. The
trend on the Local Currency – Issuer Ratings is Stable. This
concludes the Under Review with Negative Implications for all
ratings.
KEY RATING CONSIDERATIONS
The Government of Argentina announced on December 20 the
postponement of payments on 182-day Letes, dollar-denominated
short-term debt issued under local law. In addition, Argentina is
seeking to defer interest payments on its long-term foreign
currency (and foreign law) bonds. The lower house approved an
emergency bill on Friday that grants the administration authority
to renegotiate debt terms. Argentina was able to issue the
equivalent of US$315 million in local currency debt in local
markets on Friday, providing some space for the government to roll
over some of its short-term local currency obligations. However,
distortionary taxes and restrictions on foreign currency purchases
will limit the availability in the local currency funding,
particularly if real interest rates move into negative territory as
the government seeks to support economic activity. Utility price
freezes and other price controls should reduce inflation in the
short run, but will do little to strengthen monetary policy
credibility. Meanwhile, increased domestic subsidies and
disincentives for investment are likely to pose challenges to
fiscal and growth dynamics over the medium-term.
The August 30 reprofiling of Argentina's short-term debt
obligations was designed to extend Argentina's repayment
obligations by only six months, leaving decisions regarding
macroeconomic policy and debt restructuring to the next government.
The Fernandez administration took office on December 10 and has
moved quickly to obtain broad authority to reprofile the rest of
Argentina's foreign debts. As a result, the Selective Default is
likely to remain in place for some time. It will likely take
several months for Argentina to attract sufficient participation a
debt exchange, particularly if private creditors are inclined to
wait until Argentina has clarified its macroeconomic policy
framework and its plans with regard to its outstanding IMF
obligations.
RATING DRIVERS
The foreign currency issuer ratings are likely to remain at SD
until the government concludes the rescheduling of its foreign
currency debts. If the government is unable to roll over maturing
local currency debt, the local currency ratings could also be
downgraded to SD. Once the restructuring process has concluded, the
ratings are likely to be upgraded, depending on the resulting debt
profile, the government's ability to maintain a primary fiscal
surplus, and overall progress in curbing inflation, restoring
confidence in the peso, and stabilizing the economy.
Notes: All figures are in USD unless otherwise noted. Public
finance statistics reported on a general government basis unless
specified.
ARGENTINA: S&P Ups FC Sovereign Credit Rating to CC, Outlook Neg
----------------------------------------------------------------
On Dec. 30, 2019, S&P Global Ratings raised its foreign currency
sovereign credit ratings on Argentina to 'CC/C' from 'SD/D'. The
outlook on the long-term sovereign credit ratings is negative. S&P
had lowered the ratings to 'SD' (selective default) on Dec. 20
following the unilateral extension of U.S. dollar-denominated
short-term paper (Letes) held by private-sector market participants
on Dec. 19, 2019; its criteria do not distinguish between short- or
long-term ratings when there is a default. S&P also took the
following rating actions:
-- S&P affirmed its local currency sovereign credit ratings of
'CC/C',
-- S&P affirmed its long-term issue ratings of 'CC';
-- S&P affirmed its transfer and convertibility assessment on
Argentina at 'B-'; and
-- S&P raised its national scale rating on Argentina to 'raCC'
from 'SD'.
Outlook
S&P said, "The negative outlook reflects the prominent downside
risks to timely and full payment of debt per our criteria over the
coming months amid stressed economic and financial market dynamics.
The sovereign's access to liquidity is likely to remain limited as
the Fernandez Administration outlines its economic policies while
engaging in dialogue with bondholders, bankers, and the
International Monetary Fund.
"We could lower the ratings to 'SD' over the coming months once the
government finalizes terms with bondholders for a potential debt
restructuring, which we expect is likely to be characterized as a
distressed exchange based on our methodology. The most likely
scenario is an extension of maturities, which will not be
compensated by the issuer, or a reduction in the face value of
principal. Additionally, we could lower the ratings should economic
and financial stresses further threaten timely debt service or the
sovereign misses a debt payment.
"We could raise the ratings following implementation of a debt
restructuring and as policy signals and execution start to
successfully turn around or stabilize private-sector confidence,
market turbulence subsides, and the government regains access to
market financing."
Rationale
Amid ongoing economic and financial distress, and as the new
administration of President Fernandez formulates and outlines its
economic strategy, the government unilaterally extended the
maturity of short-term dollar-denominated paper on Dec. 19. Under
S&P's distressed exchange criteria, and in particular for entities
rated in the 'CCC' category, the extension of the maturities of the
short-term debt with no compensation constituted a default. Since
the new terms became effective immediately, the default on these
short-term instruments has effectively been cured. Hence, S&P is
raising the ratings because the government conducted two auctions
of peso-denominated debt on Dec. 20 and Dec. 26 for AR$18.846
billion and paid the Bopomo (a locally issued peso-denominated
bond: Bono a Tasa de Politica Monetaria) due Dec. 23 for AR$24.3
billion. The government continues to work on an overall debt
management strategy, though it has not yet announced a plan for an
immediate restructuring.
S&P said, "Both the 'CC' ratings and negative outlook incorporate
that we view debt repayment as highly vulnerable. The new
administration is expected to advance with a restructuring plan in
the coming months, the terms of which are unknown, affecting its
long-term debt with the private sector. The next debt restructuring
would be in line with our 'CCC' rating criteria and distressed
exchange criteria; it could entail an extension of maturities,
which will not be compensated by the issuer, or a reduction in the
face value of debt. Alternatively, there are risks associated with
failure to advance with a timely debt renegotiation, raising the
possibility of missing principal or interest payments.
"We affirmed our transfer and convertibility assessment at 'B-'.
The transfer and convertibility assessment remains higher than the
sovereign rating because the government continues to signal its
intention that tightened capital controls will not apply to
principal and interest payments for nonsovereign entities. Despite
a recent tightening of foreign-exchange controls, and the existence
of multiple exchange rates, the government has stated that it wants
to conserve dollars for debt service rather than for other
purposes, such as outbound tourism. High-profile companies have
signaled that they have not suffered restrictions on access to U.S.
dollars for debt service. However, we may lower our transfer and
convertibility assessment if, in our view, capital controls are
likely to become more severe with a potential negative impact on
nonsovereign debt service abilities.
"Our credit ratings on Argentina reflect its highly unfavorable
debt dynamics, a volatile exchange rate (which has sharply
depreciated recently), high inflation, and a deep economic
recession. They also reflect the deterioration of its financial
environment and the absence of investor confidence, as shown by the
challenges of the Treasury in rolling over debt with the private
sector. These factors have limited the sovereign's capacity to pay,
leading to a second maturity extension of short-term debt on Dec.
19, less than four months after the prior administration
re-profiled short-term debt on Aug. 29, 2019."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Upgraded; Outlook Action
To From
Argentina
Sovereign Credit Rating
Foreign Currency CC/Negative/C SD/--/D
Argentina National Scale raCC/Negative/-- SD/--/--
Ratings Affirmed
Argentina
Sovereign Credit Rating
Local Currency CC/Negative/C
Transfer & Convertibility Assessment B-
Argentina
Senior Unsecured CC
ARGENTINA: Seeks to Bolster Finances Ahead of Debt Talks
--------------------------------------------------------
The Latin American Herald reports that the economic emergency law
just approved in Argentina is aimed at improving the public
finances of Latin America's third-largest economy, a key piece in
the negotiations that the government wants to start with the
holders of its sovereign debt.
The law, which took effect on Dec. 23, includes a wide range of
measures that the administration of new President Alberto Fernandez
promised would get the economy, which has been in recession since
April 2018, back on track, according to The Latin American Herald.
The legislation aims to bolster Argentina's public finances, but
without putting additional pressure on a society with a poverty
rate of around 40 percent, the report notes.
The focus, therefore, is on increasing incomes and helping those
affected by the recession, the report relays.
The emergency economic law, according to estimates by private
consulting firm Elypsis, could lead to savings amounting to around
1 percent to 1.9 percent of the gross domestic product (GDP), the
report notes.
The report says that Elypsis said the law "seeks to shift more
spending toward the sectors worst hit by the crisis without causing
deterioration of the primary account, key to debt negotiations."
Argentina, which wants to start negotiations on extending the
repayment schedule for its debt with private creditors and the
International Monetary Fund (IMF), must improve its fiscal position
ahead of any talks, Elypsis said, the report notes.
Creditors will want to see a plan that guarantees that the South
American country will honor its financial obligations on a
"consistent" basis, the consulting firm said, the report relays.
The law allows the new Fernandez administration to impose a variety
of taxes, including levies on exports, as well as creating other
taxes, such as the 30 percent levy on purchases of foreign currency
and on foreign travel, the report discloses.
Under the legislation, the administration also has the power to
suspend the tax cuts approved in 2017, the report says.
"The first measures from the new administration point, especially,
toward increasing tax collection," Marcelo Capello, chief economist
at the Institute for Research on the Situation in Argentina and
Latin America (IERAL) of the Fundacion Mediterranea, said, the
report relays.
Capello said his estimates showed that the changes in tax policy
would have a positive impact on gross tax collections equivalent to
1.6 percent of GDP, the report notes.
In addition to increasing tax revenues, the law gives the
administration six months to adjust pension payments based on new
standards to be set by the government, the report relays.
If the changes to the pension system allow the government to spend
0.30 percent of GDP less on social security programs, compared to
this year, then IERAL projections show that the public sector will
go from posting a primary deficit of 0.70 percent of GDP in 2019 to
having a surplus of 0.70 percent in 2020, the report notes.
While some members of the new administration favor higher public
spending, Capello said Economy Minister Martin Guzman would argue
for a cut in social security spending or at least keeping it at the
same level as in 2019, the report says.
The report discloses that this approach would allow Guzman to have
"room to negotiate with a better chance (of success) with the IMF
and private bondholders," Capello said.
The possibility of better budget figures in Argentina has already
had a positive impact on the financial markets, with both the bond
and equity markets rebounding strongly in recent trading sessions,
the report notes.
Economist Gustavo Ber, for his part, said "investors are
enthusiastic about the positive effects that the fiscal package
would have on the debt renegotiation," the report relays.
After the turmoil in the financial markets in the past few months
in Argentina, investors appear to be getting in a better mood, the
report notes.
The new administration has indicated that it wants to avoid a
moratorium on debt payments in the expectation of "friendly"
negotiations with creditors, aiming going forward for a situation
in which even if a surplus is not achieved, the country will have a
"zero deficit" to help reach a deal on Argentina’s obligations,
the report adds.
About Argentina
Argentina is a country located mostly in the southern half of
South America. It's capital is Buenos Aires. Alberto Angel
Fernandez is the President-elect of Argentina after winning the
October 2019 general election. He succeeded Mauricio Macri in the
position.
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.
Back in July 2014, Argentina defaulted on some of its debt, after
expiration of a 30-day grace period on a US$539 million interest
payment. The country hasn't been able to access international
credit markets since its US$95 billion default 13 years ago. On
March 30, 2016, Argentina's Congress passed a bill that will allow
the government to repay holders of debt that the South
American country defaulted on in 2001, including a group of
litigating hedge funds that won judgments in a New York court.
The bill passed by a vote of 54-16
CUOTAS CENCOSUD IX: Moody's Withdraws B2(sf) Rating on Class A Debt
-------------------------------------------------------------------
Moody's Latin America Agente de Calificacion de Riesgo withdraws
ratings of Fideicomiso Financiero Cuotas Cencosud Serie IX because
the obligations are not outstanding.
The following ratings were withdrawn for the "Fideicomiso
Financiero Cuotas Cencosud Serie IX" deal:
- Class A Floating Rate Debt Securities (VDFA): B2 (sf) / Aa3.ar
(sf)
- Class B Floating Rate Debt Securities (VDFB): Caa3 (sf) /
Caa1.ar (sf)
- Class C Floating Rate Debt Securities (VDFC): Ca (sf) / Ca.ar
(sf)
- Certificates (CP): C (sf) / C.ar (sf)
RATINGS RATIONALE
Moody's has decided to withdraw the ratings because the obligations
are not outstanding.
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B R A Z I L
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REDE D'OR: Fitch Affirms 'BB' LT FC IDR, Outlook Stable
-------------------------------------------------------
Fitch Ratings affirmed Rede D'Or Sao Luiz S.A.'s Long-Term Foreign
Currency Issuer Default Rating at 'BB', Long-Term Local Currency
IDR at 'BBB-', and National Scale long-term rating at 'AAA(bra)'.
The ratings were also affirmed for Rede D'Or Finance S.a.r.l's
unsecured bonds at 'BB' and Rede D'Or's local market debentures
issuance at 'AAA(bra)'. The Rating Outlook is Stable.
Rede D'Or's ratings reflect the company's solid competitive
position in the fragmented hospital industry in Brazil, strong
brand, prominent business scale, adequate capital structure and
defensive nature of its business, as its operating performance has
proven resilient to the economic downturn. The increasing imbalance
between the available supply of hospitals and the demand for these
services in Brazil is a positive consideration, as is the profile
of Rede D'Or's customers and its ability to pass along rising costs
to its counterparties. The company's strong business scale and
bargaining power are also key credit strengths.
The more recent market consolidation and demand for inorganic
growth from well-capitalized players in Brazil's private hospital
industry should be an item to watch and could be a concern over the
rating horizon. The way Rede D'Or manages its growth while
remaining committed to a conservative capital structure is a key
rating factor. Fitch expects the company to continue to manage its
strong business growth (organic and inorganic) and dividends
distributions in a manner that will lead to improvement in leverage
metrics during 2020-2021.
Fitch views Rede D'Or's current net leverage ratios as high for the
rating category, reflecting the company's aggressive growth
strategy. Fitch's base case scenario forecasts adjusted net
leverage/EBITDAR ratios of around 2.9x-3.2x and average annual
acquisitions of BRL1.5 billion during 2019-2021. Consistent
deviations from these metrics would lead to a negative rating
action. Fitch considers that the company has financial flexibility
to reduce its growth path or even to receive financial support from
shareholders in case is necessary to bolster its capital structure.
Rede D'Or is expected to maintain a robust liquidity position as
part of its proactive liability management strategy to mitigate
refinancing risks.
The company's 'BB' FC IDR is capped by Brazil's Country Ceiling
(BB), as the company's operations are in Brazil and it does not
have assets or material cash held abroad to help mitigate transfer
and convertibility risk.
KEY RATING DRIVERS
Leading Business Position: Rede D'Or is the largest private
hospital network in Brazil's fragmented and underdeveloped hospital
industry. As of Sept. 30 2019, the company owned 45 hospitals (6.8
thousand operating beds) and has one administered hospital. Rede
D'Or is in processing of acquiring other three hospitals (0.6
thousand operating beds), still pending regulatory approvals. The
company has solid business positions and large scale operations in
its key markets of Rio de Janeiro, Sao Paulo, Brasilia, Pernambuco,
Bahia, Maranhao, and Sergipe. Business scale is a key issue in this
industry and Rede D'Or's scale supports its ratings, as it allows
for lower fixed-costs and provides significant bargaining power
with counterparties and the medical community. This scale, in
addition to the company's strong brand, acts as a strong barrier to
entry over the medium term.
New Industry Dynamics: The recent consolidation movement and the
increasing level of vertical integration among players in the
hospital and clinical diagnosis industry in Brazil could be a
concern in the medium to long term. A prominent business scale,
strong brand and medical recognition are essential competitive
advantages that in somehow helps to mitigate the increasing
pressure from healthcare plan providers in terms of contracts
pricing. Fitch believes that Rede D'OR is well positioned to face a
potential change in industry dynamics, but it could bring more
volatility to its operating margins or cash flow over the medium to
long term.
Strong Growth Strategy: Rede D'Or is expected to continue to pursue
both organic and inorganic growth, with a target of over nine
thousand operating beds by 2023. Fitch's base case considers that
this target will be achieved by 2022, backed by the company's
ongoing acquisition strategy. Fitch expects this to be financed
with a mix of internal cash flow generation and new debt. The
company has an aggressive track record of acquisitions. From 2010
to September 2019, Rede D'Or acquired 28 hospitals, adding 4.2
thousand operating beds. Rede D'Or also seeks to diversify its
service portfolio by expanding its ambulatory, oncology, and
advisor/consultor activities and by re-entering the diagnostics
market segment, increasing the diversification of its product
portfolio. Since 2015, Rede D'Or's total adjusted debt has grown by
BRL10 billion to BRL15.4 as of September 2019, which has supported
a growth of BRL5.6 billion in capex, BRL2.8 billion in acquisitions
and BRL2.4 billion of dividends.
Solid Profitability: Rede D'Or has been efficient in increasing
profitability through economies of scale and in achieving synergies
from its acquisitions. The company has a track record of solid
turnaround on acquired assets. Rede D'Or's net revenue grew 98%
between 2015 and LTM Sept. 30, 2019, achieving BRL12.8 billion of
revenues, while operating beds expanded by 55% to 6,800. During
this period, the company's occupancy rate ranged from 78% to 80%,
finishing at 78% in third-quarter 2019, while its EBITDAR margin
contracted slightly to 26.5% from 27.4% as its new greenfields
projects carry some negative margins. In the next three years,
Fitch forecasts EBITDAR margins in the 27%-29% range.
Positive FCF Generation by 2020: Rede D'Or's challenge remains to
increase its FCF generation, which compares poorly with other
investment-grade peers. Rede D'Or's operating cash flow generation
remains pressured by high working capital requirements, which is a
business characteristic. FCF generation has been historically
negative, averaging negative BRL483 million between 2015 and 2016,
and reaching record levels of negative BRL1.2 billion in 2017 and
BRL1.9 billion in 2018. For 2019, Fitch expects FCF to remain
negative at 416 million. The improvements mostly reflect lower
dividends distribution in the period (BRL36 million). For 2020, FCF
should turn positive at around BRL240 million, benefited by
increasing operating cash flow generation, lower expansion capex
and no dividends distribution, as per Fitch's forecasts. Fitch
estimates expansion capex of BRL1.5 billion and BRL1.6 billion in
acquisition for 2019, and for 2020 Fitch forecasts around BRL1.4
billion and BRL1.5 billion, respectively. Those amounts compare
with BRL608 million and BRL1.1 billion, respectively, for the
2015-2018 period.
Deleveraging Expected: Fitch projects Rede D'Or net adjusted
leverage, on a proforma basis considering acquisitions and
non-recurring items to reach 3.2x in 2019 and to decline to 2.9x in
2021. During 2018, the ratio increased to 3.2x from an average of
2.4x in the 2015-2017. Fitch expects the improvement in leverage to
be backed by the combination of ongoing business growth and lower
capex levels from 2020 on, as major brownfields and greenfields
decelerate, in addition to a significant drop in dividends payouts
during 2019. Fitch's forecast considers Rede D'Or has flexibility
to reduce dividends. During 2017 and 2018, this payout ratio was
120% and 133% respectively, and is currently at 3% for 2019.
Legal Contingencies: Rede D'Or is exposed to legal disputes that
are considered possible losses, for which no provisions have been
recorded. The most significant, in the amount of BRL1.2 billion,
refers to allegations by the Brazilian Internal Revenue Service
(IRS) that certain doctors that render services in Rede D'Or's
hospitals through legal entities would be effectively the company's
employees. Major disruptive outcomes from these disputes in terms
of changes in the company's business dynamics could be a concern,
but these are not incorporated into Fitch's base case scenario at
this time.
DERIVATION SUMMARY
Rede D'Or's ratings reflect the low business risk of the private
hospital industry in Brazil, in addition to Rede D'Or's positive
fundamentals, adequate capital structure and strong financial
flexibility. Rede D'Or compares well in terms of business scale and
operating margins with the non-profitable hospital Sociedade
Beneficente Israelita Brasileira - Hospital Albert Einstein
(Einstein; AAA[bra], and Impar Servicos Hospitalares S.A. (Impar;
AAA[bra]), mostly explained by larger business scale and intrinsic
business characteristics. In terms of capital structure, Einstein
and Impar have much stronger leverage ratios. Einstein's well
distinguished brand and reputation in the industry are also
important competitive advantages, which translate to strong
relationships with payers.
Compared with Diagnostico da America S.A (DASA), (WD - AAA[bra)]),
another important player in the healthcare industry in Brazil, Rede
D'Or has better business risk due to the much lower competitive
pressure Rede D'Or faces. In terms of business scale, they both
have sound bargaining power with the healthcare providers and
insurance companies in Brazil and a strong brand in the industry.
The high relevance of Rede D'Or's business where it operates is a
key competitive advantage when discussing payments and pricing with
counterparties. Rede D'Or faces higher technological risks, but
Fitch considers it to be manageable at this time. Both companies
are showing aggressive growth strategies. From a financial risk
perspective, Rede D'Or shows higher leverage than DASA, considering
pro-forma figures including Impar.
On a global basis, the dynamics of the hospital industry and the
regulatory model in Brazil are not appropriately comparable with
other countries, as they are quite different. On a financial basis,
Rede D'or's operating margins look quite sound compared with other
rated hospitals within Fitch's global universe, and in terms of
leverage is considered moderate.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
- Revenue growth to average 18% up to 2021 reflecting ongoing
acquisitions and greenfield/brownfields projects;
- BRL3.0 billion in acquisitions up to 2021;
- EBITDA margins of around 26.5%-27.5%;
- High working capital needs, pressuring cash flow from
operations during 2020 and 2021;
- Capex of BRL1.8 billion in 2019 and an average of BRL1.2
billion annually by 2021.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
Positive rating action for the FC IDR is limited by Brazil's
country ceiling of 'BB'. Rede D'Or's ongoing aggressive growth
strategy, through both organic and M&A movements, pressuring its
FCF, and, mostly, its lack of geographic diversification, which
leads to large exposure to the local economy in Brazil, limits the
upward rating potential of the 'BBB-' LC IDR.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
-- A change in management's strategy with regard to its
conservative capital structure could also lead to a downgrade, as
could a deterioration in the company's reputation and market
position;
-- EBITDAR margins declining to below 25%;
-- Net adjusted leverage consistently above 3.0x;
-- Deterioration of sound liquidity position leading to
refinancing risk exposure;
-- Major legal contingencies issues that represent a disruption
in the company's operations or a significant impact to its credit
profile.
In case of the FC IDR and unsecured notes, both 'BB', a downgrade
would be triggered by a change in the Country Ceiling of Brazil.
LIQUIDITY AND DEBT STRUCTURE
Rede D'Or has a track record of keeping strong cash balances, with
an average coverage of cash to short-term debt of 3.5x during the
last five years, and a cash to short-term debt of 4.7x as of Sept.
30, 2019. The company's financial flexibility is solid and it has
shown good access to the local credit market and during its early
2019 debut in the cross border bond market.
As of Sept. 30, 2019, the company had BRL15.4 billion of debt, of
which BRL754 million is due in the short term. Rede D'Or's cash on
hand (BRL3.5 billion) is sufficient to support debt amortization up
to mid-2023. Fitch expects that Rede D'Or will remain disciplined
with its liquidity position and will maintain its proactive
approach in liability management to avoid exposure to refinancing
risks. As of Sept. 30, 2019, around 22% of Rede D'Or debt
(excluding rental obligations) are linked to the U.S. dollar,
including USD500 senior unsecured notes due 2028. The company
operates hedging instruments to moderate currency mismatch risks,
since its revenues are nearly 100% originated in Brazil. Rede D'Or
does not have committed stand-by facilities.
SUMMARY OF FINANCIAL ADJUSTMENTS
Summary of Financial Statement Adjustments -
-- Total debt includes net derivatives and obligations with
acquisitions;
-- EBITDA includes adjustments related to gain/losses on asset
sale.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or to the way in which they are being
managed by the entity.
Rede D'Or has an ESG score of 4 for Labor Relations & Practices due
to labor judicial litigations. Rede D'Or has an ESG score of 4 for
Financial Transparency since quality of public financial disclosure
is low.
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M E X I C O
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G.D.S. EXPRESS: Case Summary & 20 Largest Unsecured Creditors
-------------------------------------------------------------
Lead Debtor: G.D.S. Express, Inc.
1270 Hilbish Avenue
Akron, OH 44312
Business Description: GDS Express -- http://www.gdsexpress.com--
is a family-owned trucking company that
provides services in 48 states, with general
freight and garment-on-hangers service in
both the U.S. and Mexico. GDS Express
operates with 75 owner operators and 60
company trucks. Headquartered in Akron,
Ohio, GDS Express was founded in 1990 by
Jack Delaney, a former Roadway Express
executive.
Noble's Inc. dba Nobles Towing --
http://www.noblestowing.com-- is a family
owned and operated towing company founded in
1956. In addition to towing disabled cars
and trucks, the Company offers a number of
other services including the moving of
construction materials and equipment, tree
and bush removal, trailer moving, commercial
and police towing, and parking enforcement.
Craig Stacy owns 100% of the companies.
Chapter 11 Petition Date: December 27, 2019
Court: United States Bankruptcy Court
Northern District of Ohio
Nine affiliates that concurrently filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code:
Debtor Case No.
------ --------
G.D.S. Express, Inc. (Lead Case) 19-53034
GDS Express Group, Inc. 19-53035
1270 Hilbish Ave
Akron, OH 44312
Business Transporation Services, Inc. 19-53036
1270 Hilbish Avenue
Akron, OH 44312
Noble's, Inc. 19-53037
3030 E. 55th Street
Cleveland, OH 44127
Nuway Logistics Group, LLC 19-53038
4321 State Route 7
New Waterford, OH 44445
Wills Trucking Co. 19-53040
4321 State Route 7
New Waterford, OH 44445
Better Management Corporation of Ohio, Inc. 19-53041
4321 State Route 7
New Waterford, OH 44445
Container Management Services, LLC 19-53042
1270 Hilbish Avenue
Akron, OH 44312
G&M Towing & Recovery, LLC 19-17803
3030 E. 55th Street
Cleveland, OH 44127
Judge: Hon. Alan M. Koschik (19-53034)
Debtors' Counsel: Marc B. Merklin, Esq.
BROUSE MCDOWELL, LPA
388 S. Main Street, Suite 500
Akron, OH 44341
Tel: 330-535-5711
E-mail: mmerklin@brouse.com
G.D.S. Express'
Estimated Assets: $0 to $50,000
G.D.S. Express'
Estimated Liabilities: $1 million to $10 million
GDS Express Group's
Estimated Assets: $0 to $50,000
GDS Express Group's
Estimated Liabilities: $0 to $50,000
Business Transporation's
Estimated Assets: $0 to $50,000
Business Transporation's
Estimated Liabilities: $1 million to $10 million
Noble's, Inc.'s
Estimated Assets: $0 to $50,000
Noble's, Inc.'s
Estimated Liabilities: $50,000 to $100,000
Nuway Logistics'
Estimated Assets: $0 to $50,000
Nuway Logistics'
Estimated Liabilities: $1 million to $10 million
Wills Trucking's
Estimated Assets: $0 to $50,000
Wills Trucking's
Estimated Liabilities: $1 million to $10 million
Better Management's
Estimated Assets: $0 to $50,000
Better Management's
Estimated Liabilities: $1 million to $10 million
Container Management's
Estimated Assets: $0 to $50,000
Container Management's
Estimated Liabilities: $0 to $50,000
G&M Towing's
Estimated Assets: $0 to $50,000
G&M Towing's
Estimated Liabilities: $50,000 to $100,000
The petitions were signed by Craig Stacy, president/manager.
A copy of G.D.S. Express' petition containing, among other items,
a
list of the Debtor's 20 largest unsecured creditors is available
from PacerMonitor for free at:
https://is.gd/Rzdogu
GDS Express Group stated it has no unsecured creditors. A copy of
the Debtor's petition is available from PacerMonitor for free at:
https://is.gd/PMq2tx
Business Transporation lists John P. Delaney as its sole unsecured
creditor holding a claim of $2.31 million. A copy of the petition
is available from PacerMonitor for free at:
https://is.gd/JoNiKE
A copy of Noble's, Inc.'s petition containing, among other items,
a
list of the Debtor's two unsecured creditors is available from
PacerMonitor for free at:
https://is.gd/yyJMUc
A copy of Nuway Logistics's petition containing, among other
items,
a list of the Debtor's seven unsecured creditors, is available
from
PacerMonitor for free at:
https://is.gd/MijQyh
A copy of Wills Trucking's petition containing, among other items,
a list of the Debtor's 12 unsecured creditors, is available from
PacerMonitor for free at:
https://is.gd/mqWYq3
A copy of Better Management's petition containing, among other
items, a list of the Debtor's 20 largest unsecured creditors, is
available from PacerMonitor for free at:
https://is.gd/PtfKtc
Container Management stated it has no unsecured creditors. A copy
of the petition is available from PacerMonitor for free at:
https://is.gd/EHFF5Q
A copy of G&M Towing's petition containing, among other items, a
list of the Debtor's 19 unsecured creditors, is available from
PacerMonitor for free at:
https://is.gd/7RQG0k
MEXICO: Bank Chief Adopts Cautious Tone Despite Low Inflation
-------------------------------------------------------------
Juan Montes at The Wall Street Journal reports that Bank of Mexico
Governor Alejandro Diaz de Leon is in wait-and-see mode on further
interest-rate cuts, even though inflation is below the central
bank's 3% target and an agreement on a new trade deal with the U.S.
and Canada has removed a cloud of uncertainty.
Making good on his reputation of being a cautious policy maker, Mr.
Diaz de Leon said the central bank isn't committed to moving the
overnight interest rate in any direction after four consecutive
rate cuts, according to The Wall Street Journal. While consumer
price inflation is clearly trending lower, he said there are still
risks on the horizon that call for caution, the report notes.
"However much one can clearly see a move in a certain direction
today, there are elements that could advise against that action
when the time comes to take a decision," he said in an interview
with The Wall Street Journal. The bank’s next scheduled
interest-rate decision is in February, the report relays.
The central bank cut the overnight interest rate by a quarter
percentage point to 7.25%, its lowest level in two years, the
report notes. The move narrowed the spread between Mexican and
U.S. rates to 550 basis points, since the Federal Reserve left
rates unchanged at its meeting earlier this month, the report
says.
With the economy expected to see zero growth this year, inflation
under control, and the peso at its strongest level since July, most
economists expect the Bank of Mexico to keep lowering rates at a
moderate pace in coming months, the report discloses.
Mr. Diaz de Leon, a soft-spoken Yale-educated official who took
over the helm of the bank in 2017, said the central bank will take
decisions "that best balance" all the risks ahead, the report
relays.
He said inflation risks next year include the 20% increase in
Mexico's minimum wage that is expected to have a moderate impact on
prices, and the always volatile energy and agricultural prices, the
report notes. On the other hand, progress toward ratification of
the U.S.-Mexico-Canada Agreement on trade, and easing trade
tensions between the U.S. and China, favor stability in local
assets, he added, the report relays.
The central bank is also wary of a possible credit downgrade of
state-owned Petroleos Mexicanos, the world's most heavily indebted
oil firm, the report relays. Mr. Diaz de Leon said the
administration of President Andres Manuel Lopez Obrador, who took
office a year ago, should strengthen the credit profile of Pemex to
remove a risk to the country’s ability to borrow, the report
sats.
"There have been some doubts, and it's important to tackle this
issue," he said, the report notes.
Fitch Ratings downgraded Pemex's bonds to speculative status in
June, while Moody's Investors Service has the company at its lowest
investment grade with a negative outlook, the report discloses.
Pemex has slightly reduced its debt this year.
Mr. Diaz de Leon said the Mexican peso, one of the most-traded
emerging market currencies, has fared better than most of its
regional peers, as Mexico hasn't been exposed to the social unrest
that has gripped Chile, Bolivia and others in recent months, the
report relays. "The peso has had a less volatile performance," Mr.
Diaz de Leon said.
He said the central bank has a "very constructive relationship"
with Mr. Lopez Obrador, an economic nationalist who sees himself as
an outsider fighting a corrupt political and economic
establishment, the report notes.
The Mexican leader has repeatedly said he respects central bank
autonomy, although unlike his predecessors, he has sporadically
criticized the central bank, the report discloses.
In August, Mr. Lopez Obrador said the central bank "talks more than
it should" and was seeking to interfere in the government’s
handling of the economy after the bank recommended prudent fiscal
management, the report relays. More recently, he said the central
bank and other autonomous agencies "participated openly or covertly
in favor of the regime," a reference to previous governments he
sees as corrupt, the report notes.
"Different institutions can have different opinions," Mr. Diaz de
Leon said, the report notes. "But the autonomy has worked well for
the country, not just for the central bank, because having low and
stable inflation has been very important for the economy," he
said.
Mr. Lopez Obrador has named two of the central bank’s five board
members--one an independent economist and the other a leftist
academic who was part of his campaign team, the report relays. He
will name a third member next year, and a new Bank of Mexico
governor in 2021, the report adds.
Some are concerned Mr. Lopez Obrador may not nominate Mr. Diaz de
Leon for a second term, the report relates. But a high-level
official at the finance ministry said that he has done a good job
tackling inflation and that, at present, the main scenario is that
Mr. Diaz de Leon, who held senior economic posts under previous
governments, will be kept in his post to send a message of
certainty to investors, the report notes.
Mr. Diaz de Leon declined to comment on whether he will seek a
second term. "I’m focused on my job. I cannot get distracted," he
said, the report adds.
=====================
P U E R T O R I C O
=====================
ADVENTURE FITNESS: Unsecureds to Have 5% Recovery Over 5 Years
--------------------------------------------------------------
Adventure Fitness Club, Inc. filed with the U.S. Bankruptcy Court
for the District of Puerto Rico a Disclosure Statement describing
its Plan of Reorganization.
The Plan divides creditors into five classes - Class 1
Administrative Expenses, Class 2 General Secured Claims, Class 3
Unsecured Priority Claims, Class 4 General Unsecured Claims, and
Class 5 Equity Interest Holders.
Class 4 are unsecured claims whose claims to the extent that such
claims are approved and allowed by the Court or deemed allowed
under the provisions of the Bankruptcy Code. Each member of this
class will receive a distribution equal to 5% of its allowed claim
pursuant to the terms and conditions of the plan, that is during
the five years following the effective date.
Class 5 Equity interest holders are parties who hold an ownership
interest in the Debtor. In a corporation, entities holding
preferred or common stock are equity interest holders. The
shareholders will not receive any dividend under the Plan on
account of his equity security.
The Debtor's estate, consisting of personal properties, a checking
account, office equipment, and inventory, and, being able to
continue operations and generating income, will allow for the
payment of the secured and priority creditors allowed, with a
dividend available to unsecured creditors.
The Plan shall be funded by the following means:
* Cash on hand at the effective date.
* Increase in new participants contracts.
* Future income from savings on the reduction of operational
expenses maintaining and increasing the services and activities
to present and future clients will be used also for the payment
plan.
A full-text copy of the Disclosure Statement is available at
https://tinyurl.com/sjxpb3x from PacerMonitor.com at no charge.
About Adventure Fitness Club
Adventure Fitness Club, Inc., sought protection under Chapter 11 of
the Bankruptcy Code (Bankr. D.P.R. Case No. 19-03651) on June 26,
2019. At the time of the filing, the Debtor estimated assets of
less than $50,000 and liabilities of less than $500,000. Luis D.
Flores Gonzalez, Esq. of the Luis D Flores Gonzalez Law Office
represent the Debtor.
CUSTOMED INC: Court Approves Extension to Plan & Disclosure Filing
------------------------------------------------------------------
Judge Enrique S. Lamoutte of the U.S. Bankruptcy Court for the
District of Puerto Rico has granted the motion filed by Debtor
Customed Inc. requesting extension of time (14 days after the Court
issues a final resolution in Adversary Proceeding No.
19−00448−ESL) to file the amended disclosure statement and plan
of reorganization.
About Puerto Rico Hospital Supply
Puerto Rico Hospital Supply, Inc., distributes medical supplies in
Puerto Rico. Customed Inc., founded in 1991, manufactures surgical
appliances and supplies.
Puerto Rico Hospital Supply, Inc. and Customed, Inc., filed
voluntary Chapter 11 petitions (Bankr. D.P.R. Case Nos. 19-01022
and 19-01023) on Feb. 26, 2019. The petitions were signed by Felix
B. Santos, president. The cases are assigned to Judge Enrique S.
Lamoutte Inclan.
At the time of the filing, Puerto Rico Hospital estimated $50
million to $100 million in assets and $10 million to $100 million
in liabilities while Customed, Inc. estimated $10 million to $50
million in both assets and liabilities. Alexis Fuentes Hernandez,
Esq., at Fuentes Law Offices, represents the Debtors.
EL PATIO BBQ: Plan Outline Conditionally OK'd, Jan. 8 Hearing Set
-----------------------------------------------------------------
Judge Mildred Caban Flores of the U.S. Bankruptcy Court for the
District of Puerto Rico conditionally approved the Amended
Disclosure Statement proposed by El Patio BBQ & Grill Inc.
The Court will convene a hearing on January 8, 2020, at 9:00 a.m.
to consider the final approval of the Amended Disclosure Statement
and the confirmation of the Amended Plan.
Any objection to the final approval of the Amended Disclosure
Statement and/or the confirmation of the Amended Plan shall be
filed on/or before fourteen (14) days prior to the date of the
hearing on confirmation of the Plan.
Acceptances or rejections of the Amended Plan may be filed in
writing by the holders of all claims on/or before fourteen (14)
days prior to the date of the hearing on confirmation of the
Amended Plan.
A full-text copy of the Order is available at
https://tinyurl.com/rd7nazk from PacerMonitor.com at no charge.
About El Patio BBQ & Grill Inc
Based in Vega Baja, P.R., El Patio BBQ & Grill Inc. sought
protection for relief under Chapter 11 of the Bankruptcy Code
(Bankr. D.P.R. Case No. 19-03639) on June 26, 2019, listing under
$1 million in both assets and liabilities. Jaime Rodriguez Perez,
Esq., at Hatillo Law Office, represents the Debtor as counsel.
J & C CORP: Hearing on Plan & Disclosures on Jan. 8
---------------------------------------------------
Judge Mildred Caban Flores has ordered that the Disclosure
Statement in support of J & C Corporation Inc.'s Chapter 11 Plan is
conditionally approved.
A hearing to consider final approval of the Disclosure Statement
and the confirmation of the Plan and of such objections as may be
made to either will be held on Jan. 8, 2020, at 9:00 a.m., at the
U.S. Bankruptcy Court, Jose V. Toledo U.S. Post Office and
Courthouse Building, 300 Recinto Sur Street, Courtroom 3, Third
Floor, San Juan, Puerto Rico.
Acceptances or rejections of the Plan may be filed in writing by
the holders of all claims on/or before 14 days prior to the date of
the hearing on confirmation of the Plan.
Any objection to the final approval of the Disclosure Statement
and/or the confirmation of the Plan shall be filed on/or before 14
days prior to the date of the hearing on confirmation of the Plan.
About J & C Corporation
J & C Corporation Inc. sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D.P.R. Case No. 19-04176) on July 24,
2019.
At the time of the filing, the Debtor had estimated assets of
between $500,001 and $1 million and liabilities of between $100,001
and $500,000. The case is assigned to Judge Mildred Caban Flores.
The Debtor tapped Modesto Bigas Mendez, Esq., as its legal counsel.
*********
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
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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
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