/raid1/www/Hosts/bankrupt/TCRLA_Public/200421.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
Tuesday, April 21, 2020, Vol. 21, No. 80
Headlines
A R G E N T I N A
ARGENTINA: Sets Stage for Restructuring With $50 Billion Filing
B R A Z I L
AGROPECUARIA NOSSA: Moody's Withdraws C CFR on Insufficient Data
CONCESSIONARIA BAHIA: Moody's Withdraws B1 CFR for Business Reason
VALID S.A.: Moody's Places Ba2 CFR on Review for Downgrade
VIA VAREJO: Seeks Rent Holiday to Offset Revenue Slide
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Mulls Reopening of Economic Activities
DOMINICAN REPUBLIC: Ports Keeps Operating to Allow Product Entries
DOMINICAN REPUBLIC: US dollar is at RD$54.00
E L S A L V A D O R
AES EL SALVADOR: Fitch Affirms IDRs at 'B-', Outlook Stable
J A M A I C A
JAMAICA: IDB Projects COVID-19 Will Significantly Impact Economy
JAMAICA: Secures Buyer For Excess Amount of Irish Potatoes
NATIONAL COMMERCIAL: Fitch Affirms B+ LT IDR, Alters Outlook to Neg
P U E R T O R I C O
METRO PUERTO RICO: Seeks to Hire JPC Law as Counsel
PUERTO RICO: Judge Voids Pension Law, Delays Effective Date
S U R I N A M E
SURINAME: Moody's Cuts LT Issuer & Sr. Unsec. Ratings to B3
U R U G U A Y
ARCOS DORADOS: Fitch Cuts LT IDR & Senior Unsec. Rating to BB
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Sets Stage for Restructuring With $50 Billion Filing
---------------------------------------------------------------
Jorgelina Do Rosario and Scott Squires at Bloomberg News report
that Argentina registered to issue more than $50 billion in new
debt as it prepares to make a painful restructuring offer to
holders of its sovereign bonds.
The filing to the U.S. Securities and Exchange Commission gives an
inkling of how much in new securities the country anticipates
issuing in the restructuring, according to Bloomberg News.
President Alberto Fernandez will meet provincial governors at the
presidential residence to discuss details of the debt plan,
according to a person with direct knowledge of the matter,
Bloomberg News notes. Earlier, he told journalists who had asked
for details on the plan that "tomorrow is the day," Bloomberg News
says.
The sum of new securities registered with the SEC could be
increased as talks with creditors go forward, according to Ramiro
Blazquez, head of strategy at Banctrust & Co in Buenos Aires,
Bloomberg News says. The government has said that $68.8 billion in
overseas notes are eligible for restructuring, Bloomberg News
discloses.
"The amount registered under the SEC is not a final number. This
is going to be an initial offer as the negotiation is only
beginning, though I'm sure it will be a pretty bad one," Blazquez
said, Bloomberg News says. "They are probably going to sweeten the
offer throughout the negotiation as I don't see Alberto taking
chances on a default, particularly since economic conditions are
extremely fragile," he added.
Investors are already pricing in a brutal outcome, with most of
Argentina's overseas bonds trading at about 30 cents on the dollar,
Bloomberg News notes. The economy is set to contract for a third
year as the country copes with a currency that's lost almost
two-thirds of its value in the past 24 months and inflation that
exceeded 50% in February, Bloomberg News relates. The challenge
has only grown worse amid the coronavirus pandemic, Bloomberg News
discloses.
The SEC filing cites the pandemic as a possible risk factor that
could affect the securities' value in the future, Bloomberg News
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 current president 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.
As reported by the Troubled Company Reporter - Latin America on
April 14, 2020, Fitch Ratings upgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating to 'CC' from 'RD' and
Short-Term Foreign Currency IDR to 'C' from 'RD'.
The TCR-LA reported on April 13, 2020, that S&P Global Ratings also
lowered its long- and short-term foreign currency sovereign credit
ratings on Argentina to 'SD/SD' from 'CCC-/C'. S&P also affirmed
the local currency sovereign credit ratings at 'SD/SD'. There is no
outlook on 'SD' ratings.
On April 9, the TCR-LA reported that Moody's Investors Service
downgraded the Government of Argentina's foreign-currency and
local-currency long-term issuer and senior unsecured ratings to Ca
from Caa2.
===========
B R A Z I L
===========
AGROPECUARIA NOSSA: Moody's Withdraws C CFR on Insufficient Data
----------------------------------------------------------------
Moody's Investors Service has withdrawn the C corporate family
rating of Agropecuaria Nossa Senhora do Carmo S.A. and the C senior
unsecured notes due 2022 issued by Virgolino de Oliveira Finance
Limited.
Ratings withdrawn:
Issuer: Agropecuaria Nossa Senhora do Carmo S.A.
- Corporate Family Rating, C
Issuer: Virgolino de Oliveira Finance Limited
- Senior Unsecured, C
Outlook Actions:
- Outlook, Changed to Rating Withdrawn from Stable
RATINGS RATIONALE
Moody's has decided to withdraw the ratings because it believes it
has insufficient or otherwise inadequate information to support the
maintenance of the ratings.
Headquartered in Sao Paulo, Brazil, Agropecuaria Nossa Senhora do
Carmo S.A. is a privately-held sugar and ethanol producer,
controlled by the Oliveira family. The company has a sugarcane
crushing capacity of 12.0 million tons per harvest and posted
revenues of BRL 1.0 billion (approximately $320 million converted
by the average exchange rate) for the fiscal year ending in April,
2017.
CONCESSIONARIA BAHIA: Moody's Withdraws B1 CFR for Business Reason
------------------------------------------------------------------
Moody's America Latina Ltda. has withdrawn Concessionaria Bahia
Norte S.A. - CBN's B1/Baa2.br Corporate Family Ratings. Prior to
the withdrawal, the outlook on the rating was stable.
The following ratings were withdrawn:
Issuer: Concessionaria Bahia Norte S.A. - CBN
Issuer Ratings: B1 (Global Scale Rating), Baa2.br (National Scale
Rating)
RATINGS RATIONALE
Moody's has decided to withdraw the ratings for its own business
reasons.
Concessionaria Bahia Norte S.A. - CBN has the concession to operate
the 132.65 km BA-093 toll road system (BA-093), which is located in
the State of Bahia, northeast Brazil through 2040. BA-093 is
comprised of the following roads: BA-093, BA-512, BA-521, BA-524,
BA-526 and BA-535, connecting Salvador (the capital city of the
State of Bahia) and its metropolitan area to the Camacari
Industrial Zone, Aratu Industrial Zone and the Aratu Port. The
concession also includes Via Expressa Contorno de Lauro de Freitas,
which connects the Estrada do Coco (BA-099) and CIA-Aeroporto road
(BA-526). CBN is jointly owned by two shareholders, Investimentos e
Participacoes em Infraestrutura S.A. - INVEPAR and Odebrecht
Rodovias S.A., each holding 50% of CBN's voting shares. In 2019,
CBN reported net operating revenues (net of construction revenues)
of BRL141 million and net loss of BRL5.7 million.
VALID S.A.: Moody's Places Ba2 CFR on Review for Downgrade
----------------------------------------------------------
Moody's America Latina placed the Ba2 global scale and Aa3.br
national scale corporate family ratings of VALID S.A. on review for
downgrade.
The review for downgrade of Valid's ratings reflects the current
uncertainties related to the coronavirus outbreak and its impacts
on the company's operations and liquidity.
Issuer: VALID S.A.
Ratings placed on review for downgrade: Corporate Family Rating
Ba2/Aa3.br
Outlook, Changed to Rating Under Review from Stable
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. More specifically,
Valid's operations will be negatively impacted by the shut-down of
some of its operating sites in the identification division
(issuance of I.D.s and driver's license) in Brazil and in the US.
If prolonged, the shut-downs may hurt Valid's cash generation and
liquidity. As of December 2019, Valid had over BRL500 million in
debt due during 2020 and 2021 and it will see its performance in
2020 additionally affected by weak economic activity. Moody's
regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health and
safety.
The rating review process will focus on: (i) the potential length
and severity of the shut-downs of Valid's operations; (ii)
refinancing activities; and (iii) additional measures to preserve
liquidity and cash collection in case of a continued deterioration
of the operating environment.
Valid's Ba2/Aa3.br ratings reflect the company's diversification
and strong local market position in its operating segments as a
service provider for payments, identification and mobile. Valid is
one of Brazil's leading suppliers of plastic cards for payments,
SIM cards and digital certificates. It is also the fifth-largest
SIM card producer globally. The ratings are also supported by the
company's long-term client relationships with financial
institutions, state governments, and telecommunications companies,
and increased diversification of customers. The growth of
value-added products in Valid's product portfolio over the past few
years, namely data management services, proprietary software and
applications is an additional credit positive. Finally, the ratings
incorporate the company's adequate leverage and stable cash flow
generation.
On the other hand, the ratings are constrained by (i) Valid's small
size in comparison with global business services peers; (ii) the
still challenging operating performance outlook, especially for SIM
cards; (iii) its relative reliance on a small group of large
clients in banking, government and telecom; and (iv) the relatively
low barriers to entry in the plastic and SIM cards sector, although
the ID system sector has high entry barriers. Risks associated with
the development of new technologies that would make Valid's
existing products obsolete and the company's acquisitive growth
strategy are additional constraining factors. Still, Valid has a
proven track record of quickly adapting its product offering to new
technologies and of successfully integrating acquisitions.
The recent disruptions caused by the coronavirus outbreak have led
to the shut-down of operating sites in the identification division
in Brazil and in the US. In 2019, this segment composed 56% of
Valid's EBITDA. At the same time Valid will incur the costs to
maintain an adequate capacity for the resumption of such
operations. Additionally, the economic downturn could force local
governments in Brazil to delay payments, putting further pressure
on Valid's working capital.
In December 2019 Valid's cash position of BRL319 million covered
its short-term debt maturities of BRL253 million by 1.3x. In 2021
the company has another BRL248 million to amortize. Even with
liability management actions to reduce short-term debt, Moody's
believes there will remain considerable amortizations until 2021.
The ratings could be downgraded if the company's operating
performance deteriorates with total adjusted debt to EBITDA above
3.0x and negative free cash flow generation without prospects for
recovery. A deterioration in liquidity, the inability to refinance
its 2021 debt well-ahead of maturity or sizable debt-financed
acquisitions would also affect the rating negatively. Finally,
given the company's increased dependence on Brazil's regional and
local governments to generate cash, a downgrade of Brazil's
sovereign ratings would result in a downgrade of Valid's ratings.
Although unlikely in the short term, the ratings would experience
upward pressure if the company increases its scale and further
diversifies its geographic and client base while maintaining total
adjusted debt to EBITDA below 2.0x (2.9x in 2019), adjusted EBITA
to interest expense above 4.0x (3.4x in 2019) and healthy
liquidity. An upgrade of Brazil's sovereign rating would also be
required for an upgrade of Valid's ratings.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
Headquartered in Rio de Janeiro, Brazil, Valid is a provider of
services, mobile network connectivity, and identification system.
As such, the company is leading supplier of payment cards, SIM
cards and digital certificates in Brazil. The company is the
fifth-largest global producer of SIM cards with a 8.5% market
share, and operations in the Americas, Europe, Africa and Asia.
Valid also provides payment card and ID solutions for financial
institutions and local governments in the US. In 2019, Valid posted
net revenues of BRL2.0 billion ($510 million), with an adjusted
EBITDA margin of 16.1%.
VIA VAREJO: Seeks Rent Holiday to Offset Revenue Slide
------------------------------------------------------
Tatiana Bautzer and Gabriela Mello at Reuters report that Via
Varejo SA is seeking to suspend rent payments for over 1,020 stores
to help offset a 50% revenue drop, two people with knowledge of the
matter said.
One of the people said the company has already reached an agreement
with some landlords and expects to get group agreements with other
retailers that would exempt it from paying rent on its stores
located in malls for as long as they are shut by the coronavirus
lockdowns, according to Reuters.
The first source said the rent holiday request was also made to
billionaire chairman Michael Klein, the largest shareholder in the
business who also owns dozens of stores rented by the company, the
report notes.
Via Varejo would save BRL80 million ($15 million) a month if all
landlords accept the waiver, the second source said, asking for
anonymity to disclose private talks, the report relates.
Although still weak, the company's sales have improved since the
lockdown began as the company took steps to increase online sales,
which according to one of the sources represented about 30% of
total sales at that time, the report relates.
In the second week of the lockdown, the retailer launched software
it was already working on to allow sales personnel to contact
consumers through social media to help them with online orders.
That eased the decline in revenue to 50% from a previous 70%, one
of the sources said, the report says.
Via Varejo declined to comment.
The retailer, which was in the midst of an overhaul of operations
when it and the rest of the sector were sideswiped by the
widespread store closings forced by efforts to combat the novel
coronavirus, is also delaying payments to some contractors, the
report discloses.
The company has deferred payments to indirect suppliers such as
cleaning and security firms, according to a memo from the company
to its suppliers seen by Reuters.
"We are postponing our entire payment schedule by one month, and at
least 75 days after invoice issuance," the company said, saying
payments due between April 3 and 30 will be postponed to May 5. One
of the sources close to the company said Via Varejo decided to
unify three monthly payments dates into a single date, and that
caused the delay, the report says.
Transportation companies are being spared, as they are key to
delivering online sales, a supplier said, the report relates.
Direct suppliers, such as electronics makers, are being paid on
time, but Via Varejo is not increasing its inventory, two people
with knowledge of ongoing talks between the company and
manufacturers told Reuters.
"The orders mix has changed and retailers are now buying lighter
electronics such as vacuum cleaners or air fryers", an industry
source said, citing new consumer demand patterns amid the lockdown,
the report notes.
Via Varejo shares have lost nearly half their value so far this
year, underperforming Brazil's benchmark Bovespa index, which is
down about a third over the same period, the report adds.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Mulls Reopening of Economic Activities
----------------------------------------------------------
Dominican Today reports that Presidency Administrative Minister,
Jose Ramon Peralta, met with leaders of the country's business
sector to discuss the opening of post-coronavirus economic
activities.
"The resilience of the Dominican economy will resist the strong
attacks created by the coronavirus," the Presidency said in a
statement that didn't provide details regarding the resumption of
economic activities, according to Dominican Today.
"The meeting between government authorities and business leaders
responds to the interest of President Danilo Medina in a program of
monetary and fiscal policies to revive economic growth in recent
years," the report notes.
The presidency adds that according to the World Bank, due to its
solid economic foundations, the Dominican Republic will be the only
country in Latin America that will escape the recession caused by
the coronavirus.
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 in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with stable outlook (2015). Moody's credit rating for Dominican
Republic was last set at Ba3 with stable outlook (2017). Fitch's
credit rating for Dominican Republic was last reported at BB- with
stable outlook (2016).
DOMINICAN REPUBLIC: Ports Keeps Operating to Allow Product Entries
------------------------------------------------------------------
Dominican Today reports that Presidency chief of staff, Gustavo
Montalvo, said that the ports have kept operating to allow the
entry of basic necessities for the Dominican population.
In a press conference, Montalvo said the Government has authorized
the Dominican Port Authority to keep the ports open to guarantee
the supply of consumer products, according to Dominican Today.
He said the ports have continued operating with the arrival of
cargo ships with medicines, food and raw materials for agribusiness
and food production, the report notes.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with stable outlook (2015). Moody's credit rating for Dominican
Republic was last set at Ba3 with stable outlook (2017). Fitch's
credit rating for Dominican Republic was last reported at BB- with
stable outlook (2016).
DOMINICAN REPUBLIC: US dollar is at RD$54.00
--------------------------------------------
Dominican Today reports that from March 9 to April 9, the change in
the dollar in the Dominican Republic registered an increase of
RD$0.44 for purchases and RD$0.43 for sales.
When consulting the Central Bank statistics on the average exchange
rates for buying and selling currencies in the Spot Market, as of
April 9, the dollar presented the amount of RD$54.01 for the
purchase and RD$54.08 for the sale, according to Dominican Today.
So far this year, the dollar has had an upward trend in its
exchange rate in relation to the Dominican peso, the report notes.
On January 2, the purchase of this currency was RD$52.90, while the
sale was RD$52.96. From that day to the present, this type of
currency has had an increase of RD$1.11 purchase and RD$1.12, the
report relates.
In January, the average change was RD$53.04 the purchase and
RD$53.10 the sale. In February it was RD$53.29 and RD$53.37,
respectively, while in March it was RD$53.65 and RD$53.73, the
report discloses.
Use of the Dollar
The average Dominican uses the dollar to pay for technological
services such as Netflix, Spotify, Android system applications and
Apple, purchases on the internet, among others, 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 in April 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: Fitch Affirms IDRs at 'B-', Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed AES El Salvador Trust II's Foreign and
Local Currency Issuer Default Ratings at 'B-' and affirmed the
rating AESL's senior unsecured notes due 2023 at 'B-'/'RR4'. All
outlooks are stable. Fitch expects a recently-announced government
relief program for electricity end users to pressure the company's
liquidity over the next two months. The program allows end users to
delay electricity payments for the months of March, April and May
if they consume 250 kWh or less and are affected economically or
financially by the coronavirus. Fitch expects the company to incur
additional debt of USD50 million to cover the delays in payment and
2020 leverage to rise as a result to 3.8x from 3.4x as of 3Q2019.
Fitch believes the company's approximate cash position of USD65
million as of April 15 will be sufficient to fund operations
assuming that the relief program is not extended beyond May and the
company is able to delay some payments to generation companies.
AES El Salvador is a special-purpose vehicle located in Panama that
was created to issue US$310 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
Collection Delays to Pressure Liquidity: Fitch estimates AES El
Salvador's distribution companies' current consolidated cash
position of USD65 million will allow them to operate through July
without additional funding should the delay in end user payments
persist. A recently-announced government relief program allows end
users affected by the coronavirus consuming up to 250 kWh per month
to defer electricity payments from March until May. The company has
tapped USD40 million in credit lines and is in talks with the
government and multilateral organizations regarding additional
subsidies and loans, respectively. The company will be able to pay
its income tax payment due in April in eight monthly instalments
and delay payments to generation companies up to three months.
Fitch assumes the relief program will not extend beyond May.
Leverage to Rise Temporarily: Fitch believes AESL will have ample
leverage headroom in 2020 despite the ongoing crisis. AESL's total
debt to LTM EBITDA was 3.4x as of 3Q19, which Fitch expects rise to
3.8x in 2020 largely due to additional borrowing to cover increased
working capital needs, lowered inflation that decreases its
value-added from distribution and a previously-anticipated drop in
public lighting projects. Fitch expects leverage to fall to 3.3x in
2022 due to a combination of energy loss reduction, user and demand
growth, tariff inflation adjustments and the amortization of debt
incurred in the first half of 2020 as end users repay the company.
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 roughly half of AESL's EBITDA going
forward, underscoring their importance to the company's cash flow.
Despite the current crisis, Fitch understands the government
intends to pay the full monthly subsidy on time.
Political Uncertainty Lingers Surrounding Subsidies: 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.
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 2019 were 10.89%, up
from 10.59% 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.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
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.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
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.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
ESG issues are credit neutral or have only a minimal credit impact
on the entity(ies), either due to their nature or the way in which
they are being managed by the entity(ies).
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J A M A I C A
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JAMAICA: IDB Projects COVID-19 Will Significantly Impact Economy
----------------------------------------------------------------
RJR News reports that the Inter-American Development Bank (IDB) is
projecting that the COVID-19 shock will have significant
implications for Jamaica's economic performance in 2020 and
beyond.
Prior to the crisis, real GDP growth for Financial Year 2020/2021
was projected to be about 1.1%, set against the backdrop of
expected strong domestic conditions and buoyant external demand for
tourism and commodities such as bauxite, according to RJR News.
However, the IDB in its quarterly bulletin, said the nature of the
unfolding COVID-19 crisis is such that it is likely to affect a
number of key sectors of Jamaica's economy, the report notes.
The IDB says given the weight of the tourism sector, simulations
suggest that a prolonged crisis could reduce output relative to
pre-crisis expectations by an appreciable magnitude, the report
relates.
The IDB also said Jamaica's economy is likely to be adversely
affected by shocks to trade and financial flows, as well as the
costs associated with mitigation efforts at home such as forced
closures of businesses, the report relates.
It says revenue implications of shuttered businesses and sectors,
as well as costs associated with mitigation efforts, will also have
adverse implications for budgetary outcomes, forcing the government
to run higher deficits than originally expected, the report adds.
About Jamaica
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings in September 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+'.
RJR News reported in June 2019 that Steven Gooden, Chief Executive
Officer of NCB Capital Markets, warned 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.
JAMAICA: Secures Buyer For Excess Amount of Irish Potatoes
----------------------------------------------------------
RJR News reports that Jamaica has secured a buyer for half of the
excess amount of Irish potato produced by small farmers.
Minister of State in the Ministry of Agriculture, Floyd Green, says
the purchase of 400,000 pounds of Irish potatoes by Clarendon-based
Dencon Foods is significant, as the farmers are unable to sell more
than 800,000 pounds of the produce due to the downturn in hotel
operations caused by the outbreak of the coronavirus, according to
RJR News.
The first segment of the produce was delivered already, notes the
report.
Green said the Government has implemented a strategic program of
supporting farmers to get into mass production of Irish potato as a
means of cutting imports and meeting the local demand, the report
adds.
About Jamaica
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings in September 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+'.
RJR News reported in June 2019 that Steven Gooden, Chief Executive
Officer of NCB Capital Markets, warned 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.
NATIONAL COMMERCIAL: Fitch Affirms B+ LT IDR, Alters Outlook to Neg
-------------------------------------------------------------------
Fitch Ratings has revised National Commercial Bank of Jamaica
Limited's Outlook to Negative from Positive. The Long-Term Foreign
and Local Currency Issuer Default Ratings were affirmed at 'B+'.
The Negative Rating Outlook on NCBJ's IDRs reflects the downside
risk to NCBJ's credit profile resulting from the economic
implications of the coronavirus pandemic. The Outlook Revision is
mainly driven by the adjustment of Fitch's assessment of the
operating environment Outlook to Negative due to the weaker
operating conditions that will likely result in asset quality
deterioration and will weigh on profitability. In Fitch's view,
NCBJ's will face the ongoing crisis with relatively stronger
financial fundamentals compared with regional peers, as its ratios
are well commensurate with the 'B+'. Nevertheless, Fitch also
believes that the expected contraction of the economy by 4% in 2020
will negatively affect the bank's financial performance. The
magnitude and depth of this impact is uncertain and will depend on
the length of the crisis.
Furthermore, Fitch recently revised Jamaica's sovereign Rating
Outlook to Stable from Positive. The Long-Term Foreign-Currency
Issuer Default Rating is affirmed at B+. The Outlook change of the
sovereign rating reflects the shock from the coronavirus pandemic,
which is expected to lead to a sharp contraction in its main
sources of foreign currency revenues: tourism, remittances and
alumina exports. For additional details on Jamaica's Outlook
revision, see 'Fitch Revises Jamaica's Outlook to Stable; Affirms
at B+'.
KEY RATING DRIVERS
IDRS AND VR
NCBJ's IDRs are driven by its Viability Rating or standalone
creditworthiness, which is highly influenced by Jamaica's operating
environment and the bank's company profile. Fitch considers the
bank's intrinsic exposure to the Jamaican economy is high through
its investments in the Bank of Jamaica and Government of Jamaica
debt securities. NCBJ is the largest bank in Jamaica, with a
consolidated market share by assets and loans of 38% and deposits
of 32% at YE 2019. It enjoys leadership in all major sectors
through its diverse corporate and retail banking.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating Floor of 'B+' is equalized with the sovereign
rating, reflecting NCBJ's systemic importance. Despite the
government's record of extraordinary support to the banking system
during prior crises, NCBJ's Support Rating of '4' reflects
uncertainties about the sovereign's capacity to provide future
support in light of its high level of indebtedness.
RATING SENSITIVITIES
IDRs AND VR
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- The Negative Rating Outlook could be revised back to Stable if
the impact of the coronavirus shock is lower-than-expected and the
recovery relatively fast, which will also depend on the ability of
the bank to deal with current challenges.
-- The ratings' Outlook is currently Negative, which makes an
upgrade highly unlike in the near future.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- A downgrade could result from an extended period of economic
disruption as a result of the Coronavirus that leads to a
significant deterioration in the operating environment.
-- Worsening asset quality and/or profitability and an erosion of
capital cushions would also be negative for ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Fitch views the sovereign's propensity to provide timely
support to NCBJ as high due to the bank's systemic importance, but
the SR has limited upside potential due to the weakness of the
government's creditworthiness.
-- Although not likely in the near term SRF could be upgraded if
Jamaica's rating is upgraded.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- SR could be downgraded if the support rating floor is reduced
to b- due to Jamaica's sovereign downgrade.
-- NCBJ's SRF would be negatively affected by a change in
Jamaica's sovereign rating due to its systemic importance.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
NCB Financial Group Limited Ratings are Driven by National
Commercial Bank of Jamaica Limited Ratings.
ESG CONSIDERATIONS
ESG issues are credit neutral or have only a minimal credit impact
on the entity(ies), either due to their nature or the way in which
they are being managed by the entity(ies).
=====================
P U E R T O R I C O
=====================
METRO PUERTO RICO: Seeks to Hire JPC Law as Counsel
---------------------------------------------------
Metro Puerto Rico LLC seeks authority from the United States
Bankruptcy Court for the District of Puerto Rico to hire Jose
Prieto, Esq. and JPC Law Office as its counsel.
Service JPC will render are:
a. advise debtor with respect to its duties, powers and
responsibilities in this case under the laws of the United States
and Puerto Rico in which debtor in possession conducts its
operations.
b. advise debtor in connection with a determination on whether
a reorganization is feasible and if not, helping debtor in the
orderly liquidation of its assets;
c. assist the debtor with respect to negotiations with
creditors for the purpose of achieving a reorganization
or an orderly liquidation;
d. prepare on behalf of debtor the necessary complaints,
answers, orders, reports, memoranda of law and/or
any other legal paper or document required in the above captioned
case;
e. appear before the Bankruptcy Court or any other court in
which debtor asserts a claim, interest or defense
related to this bankruptcy case;
f. perform such other legal services for debtor as may be
required in this proceeding or in connection with the
operation of debtor's business including, but not limited to,
notarial services;
g. employ other professional services, if necessary.
JPC has received a retainer in the amount of $14,500, plus the
additional sum of $1,717 to cover filing fees.
Mr. Prieto will charge $175 per hour plus costs and expenses.
Mr. Prieto assures the court that he does not represent or hold any
interest adverse to the estate of the Debtor.
The firm can be reached through:
Jose M Prieto Carballo, Esq.
JPC LAW OFFICE
P.O. Box 363565
San Juan, P.R. 00936-3565
Tel: (787) 607-2066
(787) 607-2166
Email: jpc@jpclawpr.com
About Metro Puerto Rico LLC
Metro Puerto Rico LLC filed its voluntary petition under Chapter 11
of the Bankruptcy Code (Bankr. D.P.R. Case No. 20-01543) on March
31, 2020. The petition was signed by Felix I. Caraballo, president.
At the time of filing, the Debtor estimated $1 million to $10
million in assets and $500,000 to $1 million in liabilities. Jose
Prieto, Esq. at JPC LAW OFFICE represents the Debtor as counsel.
PUERTO RICO: Judge Voids Pension Law, Delays Effective Date
-----------------------------------------------------------
Karen Pierog at Reuters reports that a U.S. judge ruled that
bankrupt Puerto Rico cannot fund more than $300 million in annual
pension and health costs for its municipalities, but suspended the
effective date of the order for three weeks due to the ongoing
coronavirus health crisis.
Puerto Rico's federally created financial oversight board sued the
U.S. commonwealth's governor and fiscal agency in July, contending
a new law authorizing the funding does not comply with its fiscal
plan and violates the 2016 federal PROMESA Act, which established
the board and a restructuring process for Puerto Rico's $120
billion of debt and pension obligations, according to Reuters.
Judge Laura Taylor Swain, who is hearing Puerto Rico's bankruptcy,
voided Law 29, a measure enacted last May to aid the Caribbean
island's cash-strapped municipalities by eliminating their
obligation to pay for employee health and pension costs, the report
relates.
The order, however, will not take effect until May 6 due to "the
additional challenges facing the parties during the COVID-19 public
health crisis," according to Swain's ruling, the report discloses.
"We are examining the court ruling together with our lawyers in
order to decide on a legal strategy," Puerto Rico's fiscal agency
said in a statement. "In addition, we will resume good faith
negotiations with the oversight board in order to reach an
agreement," the report relates.
It added, "Our goal has always been to find a fair and fiscally
responsible solution that allows municipalities to continue
operating and providing basic services to the people," the report
relates.
The head of Puerto Rico's Federation of Mayors told local newspaper
El Nuevo Dia that with the economy halted by the virus, the
decision was devastating for cities, the report discloses.
The board estimated that Puerto Rico's government would spend about
$311 million in fiscal 2020 and an estimated $1.7 billion over the
next five fiscal years to fund local pensions and healthcare --
costs that the fiscal plan allocates to municipalities, the report
relates.
The ruling comes as restructuring plans for Puerto Rico's core
government debt and for its electric power authority (PREPA) debt
have been put on hold due to the coronavirus, the report notes.
The island has 932 reported cases of the virus, the most of any
U.S. territory, according to the Centers for Disease Control and
Prevention, the report adds.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and to chair a committee to review professionals' fees.
Bondholders' Attorneys
Kramer Levin Naftalis & Frankel LLP and Toro, Colon, Mullet, Rivera
& Sifre, P.S.C. and serve as counsel to the Mutual Fund Group,
comprised of mutual funds managed by Oppenheimer Funds, Inc., and
the First Puerto Rico Family of Funds, which collectively hold over
$4.4 billion of GO Bonds, COFINA Bonds, and other bonds issued by
Puerto Rico and other instrumentalities.
White & Case LLP and Lopez Sanchez & Pirillo LLC represent the UBS
Family of Funds and the Puerto Rico Family of Funds, which hold
$613.3 million in COFINA bonds.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, Robbins, Russell,
Englert, Orseck, Untereiner & Sauber LLP, and Jimenez, Graffam &
Lausell are co-counsel to the ad hoc group of General Obligation
Bondholders, comprised of Aurelius Capital Management, LP, Autonomy
Capital (Jersey) LP, FCO Advisors LP, and Monarch Alternative
Capital LP.
Quinn Emanuel Urquhart & Sullivan, LLP and Reichard & Escalera are
co-counsel to the ad hoc coalition of holders of senior bonds
issued by COFINA, comprised of at least 30 institutional holders,
including Canyon Capital Advisors LLC and Varde Investment
Partners, L.P.
Correa Acevedo & Abesada Law Offices, P.S.C., is counsel to Canyon
Capital Advisors, LLC, River Canyon Fund Management, LLC, Davidson
Kempner Capital Management LP, OZ Management, LP, and OZ Management
II LP (the QTCB Noteholder Group).
Committees
The U.S. Trustee formed an official committee of retirees and an
official committee of unsecured creditors of the Commonwealth. The
Retiree Committee tapped Jenner & Block LLP and Bennazar, Garcia &
Milian, C.S.P., as its attorneys. The Creditors Committee tapped
Paul Hastings LLP and O'Neill & Gilmore LLC as counsel.
===============
S U R I N A M E
===============
SURINAME: Moody's Cuts LT Issuer & Sr. Unsec. Ratings to B3
-----------------------------------------------------------
Moody's Investors Service downgraded the long-term issuer and
senior unsecured ratings of the Government of Suriname to B3 from
B2, and changed the outlook to negative from stable.
The downgrade to B3 reflects the significant deterioration in
fiscal metrics as larger-than-expected fiscal deficits in 2018 and
2019 have led to a sustained rise in government debt to 75% of GDP
at the end of 2019. The downgrade also reflects heightened
liquidity and external risks.
The negative outlook on the B3 rating reflects Moody's view that
risks are skewed to the downside. In the absence of fiscal
consolidation, persistent large fiscal deficits in 2020-21 will
generate potential funding risks. Moody's sees persistent pressures
on the exchange rate, increasing the likelihood that an abrupt
correction could further erode debt metrics and Suriname's overall
credit profile.
Concurrently, Moody's lowered Suriname's long-term foreign-currency
bond and deposit ceilings to B1 from Ba3 and to Caa1 from B3,
respectively. Moody's has lowered the long-term local-currency bond
and deposit ceilings to B1 from Ba2. All short-term
foreign-currency ceilings remain at Not Prime.
RATINGS RATIONALE
RATIONALE FOR THE DOWNGRADE TO B3
SIGNIFICANT DETERIORATION IN FISCAL METRICS HAS UNDERMINED THE
SOVEREIGN CREDIT PROFILE
Suriname's adverse fiscal trends have led to a steady increase in
the government's debt burden, which reached 75% of GDP in 2019 from
43% in 2015. Debt affordability has deteriorated as well with the
ratio of interest-to-government revenue increasing to 15.6% from
7.3% in 2015. Moody's expects Suriname's debt burden to peak at
around 81% of GDP in 2021, higher than previously expected, and to
remain around that level over the next several years with debt
affordability bordering 20% of government revenue in the next two
years.
The economic and financial implications of the coronavirus
pandemic, along with existing institutional weaknesses that limit
policy effectiveness, will limit fiscal consolidation efforts. In
addition, a large share of foreign-currency-denominated government
debt leaves Suriname exposed to exchange rate shocks.
Moody's expects the fiscal deficit to reach 9.2% of GDP in 2020 and
7.8% of GDP in 2021. In addition to increased expenditures related
to the coronavirus pandemic, spending pressures will likely emerge
ahead of the May 25 parliamentary elections, contributing to
elevated expenditures through the first half of 2020. Significant
mining-related (primarily gold and oil) government revenue expose
the fiscal accounts to changes in commodity prices and introduce an
element of volatility that will pose challenges to fiscal
management. Additionally, the government has limited expenditure
flexibility given a relatively high share of spending on wages and
interest payments.
HEIGHTENED LIQUIDITY RISK
Large fiscal deficits combined with limited domestic and external
market funding options have led to increased government liquidity
risk - gross borrowing requirements will be at around 20% of GDP in
2020.
An underdeveloped domestic capital market along with limited access
to external markets restrict the government's future capacity to
access funding. Additionally, the quality of funding -- both
external and domestic -- has deteriorated. Increased reliance on
less concessional forms of external debt and short-term borrowing
from the domestic banking sector have increased rollover risk.
Despite limited access to external markets and an underdeveloped
domestic market, Suriname has been able to tap less conventional
forms of borrowing and financing. The government has demonstrated
an ability to monetize its ownership stakes in various mining
concessions, e.g., the government may sell part of its stake in the
Saramacca gold mining project. Moody's expects this to continue in
2020 contributing to partially ease liquidity pressures.
EROSION OF FOREIGN EXCHANGE BUFFER INCREASES EXTERNAL
VULNERABILITIES
International reserves stood at $565.3 million at the end of
February 2020, down from $647.5 million at the end of 2019.
International reserves increased in 2019, but this was largely the
result of commercial banks placing a portion of their required
foreign exchange reserves at the central bank. If the banks'
reserve requirements are netted out from the calculation of
international reserves, the central bank has only around $100
million available, including $88 million in gold, which represents
royalties paid by the mining sector.
An increase in mining-related imports resulted in a widening
current account deficit to 11% of GDP in 2019 from 3% in 2018. The
current account deficit was financed primarily by portfolio and
other investments. Large net errors and omissions added to the
negative balance of payments position.
A low level of liquid international reserves and a large current
account deficit have placed downward pressure on the exchange rate.
In March 2020, the government passed the Foreign Currency Market
Act, which prohibits cash receipts and payments in foreign currency
for firms and households. Moody's expects pressures on the
Surinamese dollar will persist raising concerns about the
authority's ability to maintain the peg.
RATIONALE FOR THE NEGATIVE OUTLOOK
Credit risks are skewed to the downside. In the absence of fiscal
consolidation efforts that lead to a material reversal of the
deterioration in government accounts, the continued presence of
large fiscal deficits would generate additional near- and
medium-term funding challenges and potential credit risks. Moody's
will assess the extent to which post-election fiscal reforms
contribute to alleviating the government's market funding needs, as
well as the extent to which exchange rate pressure can lead to a
sizeable exchange rate devaluation which would adversely affect the
government's balance sheet and, consequently, the sovereign's
credit profile.
ENVIRONMENTAL SOCIAL AND GOVERNANCE CONSIDERATIONS
Suriname is significantly exposed to environmental risks through
its vulnerability to rising sea levels. The large share of the
population that lives within a few meters of sea level, along with
the large share of economic activity that occurs in these areas,
exposes Suriname to coastal flooding risks.
Social considerations are important for Suriname's credit profile.
Social considerations have also contributed to the slow
implementation of measures to correct large fiscal deficits.
Moody's also considers the coronavirus outbreak as a social risk
under its ESG framework, given the substantial implications for
public health and safety.
Governance considerations are material for Suriname's credit
profile. The quality of policymaking suffers due to a lack of
highly qualified professionals in the public administration. With
the exception of a handful of officials, the staff lacks technical
expertise, which makes even sound policy decisions difficult to
implement. Weaknesses in oversight of government spending,
particularly at lower levels, often results in an accumulation of
government arrears.
GDP per capita (PPP basis, US$): 15,111 (2018 Actual) (also known
as Per Capita Income)
Real GDP growth (% change): 2.6% (2018 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 5.4% (2018 Actual)
Gen. Gov. Financial Balance/GDP: -11.7% (2018 Actual) (also known
as Fiscal Balance)
Current Account Balance/GDP: -3.4% (2018 Actual) (also known as
External Balance)
External debt/GDP: 102.3% (2018 Actual)
Economic resiliency: b3
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On April 9, 2020, a rating committee was called to discuss the
rating of the Suriname, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have materially decreased. The
issuer's institutions and governance strength, have materially
decreased. The issuer's fiscal or financial strength, including its
debt profile, has materially decreased. The issuer has become
increasingly susceptible to event risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's would likely downgrade Suriname's rating if liquidity
pressures intensify, increasing the risk of a missed bond payment.
Additionally, the rating agency would likely lower the rating if it
were to conclude the fiscal policy response after the elections
would not be sufficient to materially ease liquidity pressure or
improve the medium-term fiscal outlook.
Moody's could change the outlook to stable if there were clear
evidence that the government intended to pursue policies that would
ease liquidity pressures and reverse the deterioration in fiscal
metrics.
The principal methodology used in these ratings was Sovereign
Ratings Methodology published in November 2019.
=============
U R U G U A Y
=============
ARCOS DORADOS: Fitch Cuts LT IDR & Senior Unsec. Rating to BB
-------------------------------------------------------------
Fitch Ratings has downgraded Arcos Dorados Holdings Inc.'s
Long-Term Foreign Currency Issuer Default Rating and senior
unsecured notes to 'BB' from 'BB+'. The Rating Outlook has been
revised to Negative from Stable.
KEY RATING DRIVERS
Coronavirus Pandemic: Fitch expects the performance of the company
to be affected by disruption from the coronavirus pandemic due to
the temporary closures of restaurants in several countries.
Currently, Fitch estimates that 38% of the company's restaurants
have been temporarily closed, only drive through service and
delivery are being offered in another 38% of Arcos stores, and
full-service operation (although with restricted hours in some
locations) continues in only 24% of its stores. Fitch's downgrade
incorporates the expectation that restrictions will continue to
affect dine-in services through May 2020, across many regions with
self-imposed and mandated restrictions being gradually relaxed
thereafter. Revenue growth is forecast to decline 20% year-on-year
in 2020, taking into account business disruption and currency
impact, with a gradual recovery in 2021. Fitch anticipates a
recovery of growth in 2021 due to incremental capex and store
openings.
Higher Leverage: Fitch expects net leverage to jump in 2020 to
about 5.0x from 3.6x in 2019 due to the sharp decline in EBITDA and
negative FCF. Fitch's base case scenario incorporates a decline in
capex level to less than USD100 million in 2020 from USD265 million
in 2019. Arcos reported EBITDA of USD292 million and a year-on-year
growth of 13.1% thanks to strong performance in comparable sales as
the company pursued multiple strategic initiatives such as EOTF,
Cooltura de Servicio and the Delivery business, as well as lower
G&A costs. For 2020, Fitch projects that EBITDA will fall to about
USD150 million. This figure could be substantially lower if
lockdown measures extend beyond May and/or if an economic recovery
fails to materialize in the second half of 2020.
Cash Preservation Measures: Arcos indicated it is examining its
cost structure for reductions including operating expenses (food
and paper, rents, royalties, labor), working capital initiatives
and capex. Fitch estimates that FCF should be negative by more than
$60 million in fiscal 2020 as EBITDA declines are only somewhat
mitigated by lower capex and better working capital in the second
half of the year. Fitch expects the company to use internal,
committed and uncommitted bank lines to finance cash burn due to
the capex investment, the payments of the first coupons and working
capital needs, especially in the first half of the year.
Country Ceiling: Arcos Dorados is headquartered in Argentina (CC),
but its cash flow generation is heavily concentrated in Brazil,
which accounted for 47% of revenues and 64% of EBITDA in 2019. The
Long-Term Foreign Currency IDR is not constrained by Brazil's
Country Ceiling, given the company's ability to cover hard currency
debt service with cumulative cash flow from higher-rated countries
such as Chile, Mexico, Colombia, Uruguay, Panama, Puerto Rico,
Ecuador, Costa Rica and the French West Indies and due to offshore
cash.
Solid Business Profile: Arcos Dorados has the exclusive right to
own, operate and grant franchises for McDonald's restaurants in 20
Latin American and Caribbean countries and territories. The company
operates or franchises 2,293 McDonald's restaurants and 258 McCafes
in 20 countries as of YE 2019. Arcos Dorados benefits from the
iconic McDonald's brand but faces various regional economic
challenges. About 69% of these restaurants are operated by Arcos
Dorados, while the remainder are franchised restaurants as of
December 2019.
McDonald's Franchise Strength: The ratings also incorporate the
strength of McDonald's as a franchisor and the longstanding
relationship with Arcos Dorados' owners and management. The master
franchise agreement (MFA) sets strategic, commercial and financial
guidelines for Arcos Dorados' operations, which support the
operating and financial stability of the business and the
underlying value of the McDonald's brand in the region. Fitch
expects McDonald's to continue to be supportive of Arcos Dorados'
operations, as in the past.
DERIVATION SUMMARY
Arcos Dorados' ratings reflect its solid business position as the
sole franchisee of McDonald's restaurants across Latin America.
Arcos Dorados benefits from the iconic McDonald's brand, yet is
confronted by several economic challenges facing the region. Most
of Arcos Dorados' EBITDA is generated in Brazil. The company's
geographical diversification and presence in several countries in
Latin America outside of Brazil and Argentina support the Foreign
Currency IDR.
The business profile is constrained by the company's smaller size
relative to its international peers such as McDonald's, Starbucks
Corporation (BBB+/Negative) and Darden Restaurants, Inc.
(BBB-/Negative). The company also reported lower profitability than
its peers due to its presence in less mature countries. The
company's leverage is in line with the 'BB' rating category.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
-- EBITDA reduced by 50% in 2020 and recovery in 2021;
-- Capex of less than USD100 million in 2020;
-- Lease-adjusted net leverage moving toward 5.0x by 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade: --Fitch could stabilize Arcos' Outlook with
improved confidence in the company's ability to stabilize sales and
EBITDA;
-- Improved FCF and strong liquidity at YE20;
-- The ratings could be positively affected by higher than
expected cash generation from investment-grade countries as well as
an improvement in leverage metrics, such as net lease-adjusted debt
levels below 4.0x on a sustained basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Extended operational weakness due to coronavirus or a broader
economic slowdown resulting in Fitch-adjusted leverage exceeding
4.5x beyond calendar 2021;
-- Weak liquidity position.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity: Fitch views Arcos Dorados' liquidity as
manageable due to its cash position, committed and uncommitted bank
lines. Most of the company's debt consists of two U.S. notes
maturing in 2023 and 2027. The company had USD122 million in cash
and cash equivalents as of Dec. 31, 2019, and USD50 million of
undrawn committed revolving credit facility with Bank of America
and JP Morgan. Most of the company's debt is long term. The company
is exposed to currency exchange with about 50% of debt in U.S.
dollar and 50% in local currency (mainly Brazilian reals) post
currency swaps. Fitch expects the company to use its credit lines
to preserve liquidity and finance any cash burn.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Arcos Dorados has a 4 for Governance due to the key person risk
regarding the main shareholder. The shareholder's strong influence
upon management could result in decisions being made to the
detrimental to the company's creditors.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of 3 - ESG issues are
credit neutral or have only a minimal credit impact on the
entity(ies), either due to their nature or the way in which they
are being managed by the entity(ies).
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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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