/raid1/www/Hosts/bankrupt/TCRLA_Public/200429.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, April 29, 2020, Vol. 21, No. 86
Headlines
A R G E N T I N A
ARGENTINA: Argentines Flock to Black-Market Dollars as Woes Mount
ARGENTINA: Digs in for Debt Talks as it Skips Payment
ARGENTINA: To Announce Debt Restructuring Soon
C A Y M A N I S L A N D S
IBC CAPITAL: Bank Debt Trades at 21% Discount
C O L O M B I A
COLOMBIA: Insolvency Proceedings Could Double Due to Coronavirus
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Think Tank Predicts Loss of 600K Jobs in 2020
M E X I C O
FIDEICOMISO IRREVOCABLE: Fitch Cuts Sr. Sec. A-2 Debt to BB+sf/RWN
[*] Fitch Takes Action on 13 Mexican Banks Due to Pandemic
[*] Fitch Takes Action on 7 Mexican NBFIs Due to Pandemic
P U E R T O R I C O
CAPARRA HILLS: Fitch Affirms B+ Issuer Default Rating
INTERNATIONAL FOOD: Taps Schoeman Updike as Litigation Counsel
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Pharmacies Complain About 'Patchy' Supplies
U R U G U A Y
SANCOR SEGUROS: Fitch Affirms IFS Rating at B+, Outlook Stable
X X X X X X X X
LATAM: ECLAC Warns of Worst Ever Economic Contraction For Region
- - - - -
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A R G E N T I N A
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ARGENTINA: Argentines Flock to Black-Market Dollars as Woes Mount
-----------------------------------------------------------------
Ignacio Olivera Doll at Bloomberg News reports that Argentines are
flocking to buy black-market dollars as real interest rates sink
below zero and fears mount of yet another chaotic sovereign debt
default.
The peso weakened to a record 118 pesos per dollar in informal
exchange houses known as "caves" April 24, up from 107 the previous
day, according to people with direct knowledge of the matter,
Bloomberg News notes. That's even higher than the blue-chip swap
rate, another parallel rate derived from buying securities locally
and selling them abroad, Bloomberg News relates.
Argentines are pulling their peso deposits as the central bank
lowers rates in an attempt to revive lending to companies hit by
the coronavirus lockdown and recession, Bloomberg News discloses.
The bank has set time deposit rates at 26.6% amid 48% annual
inflation, Bloomberg News notes. Moreover, price-growth could
accelerate further amid concern the authorities will print money to
finance social spending, Bloomberg News says.
"It's the perfect storm," said Federico Furiase, director at Eco Go
consulting firm. "There's the combination of the expectation of a
strong monetary issuance from the central bank, the drop in
interest rates in pesos and noise surrounding the debt talks," he
added.
Bleeding
Savers are closing their time deposits from Argentine banks,
Bloomberg News notes.
Citizens are wary of the talks to restructure more than $65 billion
in overseas sovereign bonds after investors rebuffed Argentina's
proposal and Economy Minister Martin Guzman said the government
wouldn't improve the offer, 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.
ARGENTINA: Digs in for Debt Talks as it Skips Payment
-----------------------------------------------------
Benedict Mander at The Financial Times reports that Argentina
failed to make a $503 million payment due on April 22, setting the
clock running on what is expected to be a ninth sovereign default.
The decision came one day after economy minister Martin Guzman said
that Buenos Aires "will not be able to make [any] debt payments in
the coming days", according to The Financial Times. By failing to
pay, the government marked the beginning of a 30-day grace period
during which Argentina must pay up to avoid defaulting on $65
billion of foreign debt owned by private creditors, the report
notes.
The government made an offer to suspend all debt obligations for
three years and impose a "haircut" of 62 per cent on interest
payments worth almost $38 billion. The proposal also included a 5.4
per cent reduction in the face value of the debt, which is
equivalent to about $3.6 billion, the report notes.
Three major creditor groups disclosed that they would reject the
proposal. Negotiations are set to run for another couple of weeks,
the report relays.
"They are pushing for Argentina to offer more, but we can't, it is
not sustainable . . . now is time for the creditors to
decide," said Mr. Guzman in an interview. He added that Argentina
was already in a state of "virtual default," the report relays.
The largest creditor group -- which includes BlackRock, Fidelity,
Ashmore, T Rowe Price and Wellington Management -- says it
collectively holds more than 25 per cent of Argentina's bonds
issued since 2016 and more than 15 per cent of the country's
exchange bonds, which were issued during the last restructuring
following a major default in 2001, the report notes.
A second group, representing holders of the country's previously
restructured bonds issued in 2005 and 2010, says it collectively
holds more than 16 per cent of the outstanding exchange bonds, the
report says.
One international bondholder argued that it was "a certainty" that
the deal would be blocked, given that the government needs to
obtain the approval of 66-75 per cent of creditors, depending on
the bond. But if just one bond series were to reject the offer,
that could trigger a general default. "I have no doubt that this
deal will not see the light of day," said the creditor, the report
notes.
The three groups have said they stand ready to engage with the
government and acknowledge that compromises need to be made on both
sides, the report discloses. However, according to a person
familiar with the situation, marginal changes to the existing
proposal are unlikely to win the backing of bondholders, the report
says.
Under the terms put forward by the government, holders of bonds
issued since 2016 face an average recovery value of 32 cents on the
dollar, according to analysts, with the exchange bonds slightly
higher at 35 cents on the dollar, the report relays.
The exchange bond set to mature in 2033 now trades at 37 cents on
the dollar, while a bond maturing in 2021 trades at 31 cents on the
dollar, the report notes.
"The government is missing that this is a shared effort," said a
person close to the negotiations. The person added that the
government has not yet engaged substantively with bondholders about
the terms of the restructuring -- nor has it made any meaningful
adjustments to its economic policies to help ensure the debt burden
does not become even more unsustainable, the report notes.
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.
ARGENTINA: To Announce Debt Restructuring Soon
----------------------------------------------
Latin France reports that Argentina could disclose an offer to
restructure $83 billion in foreign-currency bonds soon as it tries
to avoid default, despite shutting down the economy to contain the
spread of the coronavirus.
"We will make the offer in the next few days," President Alberto
Fernandez said in an interview on the local television channel Net
TV, according to Latin France.
The Fernandez administration had wanted to restructure its
international bonds by March 31, but the spread of the coronavirus
delayed negotiations as authorities shifted their focus to dealing
with a worsening health crisis, the report relates. The virus has
gone from one confirmed case at the start of March to more than
2,200 cases and 97 deaths, according to data compiled by the Johns
Hopkins Coronavirus Resource Center, the report relates.
Despite the setbacks, the president said that talks with
bondholders "are going well" and added that he hopes to sign a deal
that will be "something that we can fulfill as a government and as
a country," the report notes.
The government has not provided specifics on what the offer could
entail, but Economy Minister Martin Guzman has said it will seek a
grace period of interest payments along with longer maturities,
lower coupons and a possible haircut, the report notes. The
International Monetary Fund (IMF), Argentina's largest creditor
with $44 million loan, has come out in support of such an offer,
calling on the private bondholders to make a "meaningful
contribution" so that Argentina can pull out if its financial
crisis, the report says.
"I don't want to commit to signing something that we cannot
fulfill," Fernandez said in the televised interview. "We are going
to make an offer that can be sustained over time, an offer that we
know we will be able to fulfill, taking into account the situation
in which Argentina will be after the coronavirus," the report
relates.
The government shut down the economy on March 20 to slow the spread
of COVID-19, the report discloses. It has since extended the
lockdown until April 26, bringing most activities to a halt and
ordering people to stay home except to buy essentials like food,
the report says.
When asked if the impact of the lockdown could mean that
bondholders will be asked to take greater reductions, Fernandez
said, "Yes, we could say that," but he went on to say that it could
mean longer maturities as well, the report relays.
The economy, already in its third year of recession, is expected to
shrink 5.2% this year, according to projections from the World Bank
published, the report relates. Most economists had expected a drop
of 1% before the coronavirus outbreak, the report notes.
While the foreign-currency bonds will be restructured, Fernandez
said the government will not renegotiate its peso-denominatred
notes in the local market, the report notes. "We are going to
comply with the debt in pesos because it is with people who put
their trust in the Argentine currency," he said, the report notes.
The big question, however, is whether the holders of the
foreign-currency bonds will accept the offer, the report relays.
Goldman Sachs said "the odds of a friendly resolution to
Argentina's debt situation have diminished considerably" because of
the coronavirus crisis, the report notes. In a note to clients,
economists at the US investment bank warned that dealing with the
outbreak will not only slow the economy, but also put a large
burden on Argentina's fiscal accounts, which will reduce "the
present discounted value of the expected fiscal cash flows backing
any restructuring proposal," the report says.
What is more, some investors "may be reluctant to accept
significant losses (especially reductions in the face value of
principal and coupons) without a commensurate 'fiscal sacrifice' by
the government," Goldman Sachs said, the report notes.
It added that the global reach of the COVID-19 crisis means that
bondholders are facing many challenges for their "focus and
interest" that is "creating further headwinds to a smooth and
expeditious negotiation process," 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 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.
===========================
C A Y M A N I S L A N D S
===========================
IBC CAPITAL: Bank Debt Trades at 21% Discount
---------------------------------------------
Participations in a syndicated loan under which IBC Capital Ltd is
a borrower were trading in the secondary market around 79
cents-on-the-dollar during the week ended Fri., April 24, 2020,
according to Bloomberg's Evaluated Pricing service data.
The USD155 million term loan is scheduled to mature on September 9,
2024. As of April 24, 2020, the full amount has been drawn and is
outstanding.
The Company's country of domicile is the Cayman Islands.
===============
C O L O M B I A
===============
COLOMBIA: Insolvency Proceedings Could Double Due to Coronavirus
----------------------------------------------------------------
Nelson Bocanegra at Reuters reports that the number of companies
filing for protection under Colombia's insolvency law could nearly
double in the coming months because of fall-out from its
coronavirus lockdown, the head of the country's companies regulator
said.
The Superintendency of Companies has modified insolvency rules,
which allow debtors to renegotiate their obligations with creditors
so they can continue operating and avoid bankruptcy, according to
Reuters.
The regulator has reduced negotiating time between companies and
their lenders by 85%, will facilitate the sale of assets to pay
debts, give tax breaks and suspend some regulations, all in a bid
to improve firms' cash flow and avoid mass job losses,
superintendency head Juan Pablo Lievano said, the report notes.
"This is a symbiosis, a substantial and indivisible union where in
order to keep employment we need to keep the companies," Lievano
told Reuters in a phone interview over the weekend.
President Ivan Duque has declared a state of emergency in the
Andean country and earmarked billions of dollars in aid and credit
guarantees for businesses and welfare programs, the report relays.
A nearly five-week nationwide quarantine was set to end April 27,
the report notes.
Business leaders say the funding is not arriving quickly enough and
that they are worried about being able to pay salaries and keep
people employed as sales have collapsed, the report says.
The regulator had some 2,700 bankruptcy proceedings in process last
year, Lievano said, involving approximate total assets of $12.3
billion and nearly 121,000 employees, the report discloses.
If Colombia's economy contracts 1.9% this year because of COVID-19,
the figure could nearly double, with a 2,676 additional companies
at risk of insolvency, he said, the report notes.
"It's a rough patch, where we have to sound things out, fix the
lack of cash flow and income for the next two or three months and
the slow recovery to normal levels of income," Lievano said, the
report relays. "This has a cost for each company and for the
entire economy," he added.
"We anticipate a significant increase in reorganization requests
because of the economic crisis derived from coronavirus," he said.
The rule changes will be applicable to companies that are currently
in insolvency processes, Lievano said, the report notes.
Government measures are meant to keep companies functioning,
Lievano said, and are enough to ease the crisis, the report
discloses.
"This isn't an earthquake, buildings haven't fallen down, factories
are not destroyed, it's just simply that we can't go out to work.
The assets are there," he said. "This is a bad joke, no one
expected it," he added.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Think Tank Predicts Loss of 600K Jobs in 2020
-----------------------------------------------------------------
Dominican Today reports that the Regional Center for Sustainable
Economic Strategies (Crees) projects severe unemployment in the
country, from 400,000 to 600,000 jobs in 2020, as the economic
effects of the COVID-19 are much stronger than predicted by
multilateral organizations.
Crees executive vice president, Ernesto Selman, indicated that
unemployment will jump to around 20% this year, a situation that
will especially affect the restaurant, bar and hotel sectors, as
well as construction and free zones, among others, according to
Dominican Today.
As to the Dominican GDP, Selman estimates it will contract in 2020
around -10% to -12%, a much more pessimistic scenario than that
indicated by ECLAC and the World Bank, which project a flat growth,
or even that of the International Monetary Fund, which calculates
an economic decline of -1% in the country, the report notes.
"International organizations have been irresponsible in their
projections of the Dominican Republic. They are assuming that
tourism will drop only -30% and that will not be the case," he
said, 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.
On April 16, 2020, S&P Global Ratings revised its outlook on the
long-term ratings on the Dominican Republic to negative from
stable. At the same time, S&P affirmed its 'BB-/B' long- and
short-term foreign and local currency sovereign credit ratings.
The transfer and convertibility (T&C) assessment is unchanged at
'BB+'.
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).
===========
M E X I C O
===========
FIDEICOMISO IRREVOCABLE: Fitch Cuts Sr. Sec. A-2 Debt to BB+sf/RWN
------------------------------------------------------------------
Fitch Ratings has downgraded and placed on Rating Watch Negative
the ratings assigned on an international scale to the series of
notes issued by Banco Actinver, S.A., Institucion de Banca
Multiple, and Grupo Financiero Actinver, acting as trustee under
the Fideicomiso Irrevocable y Traslativo de Dominio Numero 2400, as
follows:
-- Senior Secured A-1 USD for USD100 MM downgraded to 'BBB-sf'
from 'BBBsf', RWN
-- Senior Secured A-1 MXN for MXN7,200 MM (MXN 9,050MM including
the escrow account) downgraded to 'BBB-sf' from 'BBBsf'; RWN
-- Senior Secured A-2 MXN for MXN600 MM (MXN 1,000MM including
the escrow account) downgraded to 'BB+sf' from 'BBB-sf'; RWN
The rating actions reflect the downgrade of Mexico's Local Currency
Issuer Default Rating to 'BBB-' from 'BBB', as well as additional
pressures from the coronavirus outbreak and consequences that may
arise from as a result from government containment measures and the
economic aftermath.
CMBS GICSA
-- Class A-1 MXN XS2094574584; LT BBB-sf; Downgrade
-- Class A-1 USD 89835RAA2; LT BBB-sf; Downgrade
-- Class A-2 MXN XS2094576282; LT BB+sf; Downgrades
TRANSACTION SUMMARY
The transaction consists on single-borrower multi-property real
estate securitization through a Mexican irrevocable trust composed
of nine high-quality and premium retail, mixed-use and office
space. Fitch considers the portfolio to be geographically
distributed with a diversified tenant base. Lease contracts in
office spaces are mainly U.S.-dollar denominated, in line with
Mexico City's Type A office market, while those in regional malls
are denominated in MXN. Fitch's ratings reflect timely payment of
interest on a monthly basis and ultimate principal payment at legal
final maturity date.
Rated notes consist of the Senior Secured A-1 notes with two
tranches (one in USD and the other in MXN) and the principal
subordinated Senior Secured A-2 notes in MXN. An amount equal to
MXN2,250 million is also funded by an interim loan to the Issuing
Trust 2400 into an escrow account, which will be repaid through the
issuance of additional notes if certain conditions related to
income generating capacity are met.
KEY RATING DRIVERS
Mexico's Sovereign Rating Downgrade Modifies LTV and DSCR
Attachment Points
To achieve a rating above Mexico's LC IDR, Fitch expects SF notes
to be sufficiently strong for the securitized assets to withstand
stresses commensurate with rating categories above Mexico's LC IDR.
Existing Fitch's average DSCRs and initial LTV levels defined for
this transaction are not sufficient to withstand the stresses and,
therefore, cannot be rated above the sovereign.
Additionally, all properties are located in Mexico and given the
high exposure to the retail sector, cash flow generation capacity
ultimately relies on Mexican consumers' disposable income,
confidence and preferences. However, regional diversification and
both tenant and property quality are key characteristics considered
in the rating analysis, as office space has proven to be more
resilient to domestic economic conditions.
Exposure to Coronavirus Disrupting Retail Component
Fitch views the short-term impacts of the global coronavirus
outbreak on the retail component of the securitized properties to
be severe but initially mitigated by liquidity reserves intended to
cover 3 months of coupon payments. The latter is a key variable and
will be actively monitored during the following months together
with the speed of recovery. The agency expects sponsors will take a
proactive approach and work out solutions with tenants on a
case-by-case basis with a focus on maintaining occupancy rates and
cash flow with minor interruptions. Office property cash flow is
expected to be more resilient due to high-quality tenants with long
occupancy track records in well located properties.
Updated Cash Flow Baseline Scenario; Severe but Plausible
Fitch's Net Cash Flow (Fitch NCF) of MXN1,422 million, estimated at
closing, considered leases in place with an initial economic
occupancy rate of 87%. This level is below comparable properties
(~95%) as it accounts for in-ramp-up properties with a shorter
operational history. The agency maintains its view on the
sustainability of those cash flow assumptions in the mid- to long
term, as well as an eventual increase as the portfolio stabilizes.
However, short- to mid-term stresses resulting from the economic
environment following the coronavirus are expected to impact
property cash flows.
The agency derived a new baseline scenario to account for the
temporary impact from the coronavirus. Fitch NCF is adjusted to
reflect a 12% increase in vacancy in retail properties and 5% in
office buildings, resulting in an overall occupancy rate of 77%. In
addition, estimated variable rent is assumed to decrease by 50%.
Fitch expects cash flows to gradually recover within the next 18-24
months. Also, rent adjustments due to inflation and updated rent
prices lists are assumed to be 0%, 50% and 100% of the
corresponding currency's target inflation of the Mexican and the
U.S. central banks for the next 12 months, 24 months, and
thereafter, respectively. Incremental rent revenue resulting from
USD-denominated leases will also be reflected in revenues.
Portfolio Quality and Diversification Drives Fitch's Cap Rates
Fitch still considers the securitized properties to be of high
quality, with multiple sources of income and located in dominant or
relevant domestic real estate markets. The portfolio consists of
stabilized properties (about 40% of the portfolio measured by fixed
rents as of February 2020) and an in-ramp-up retail component
focused on entertainment (60% of fixed rents). Office buildings
have proven stable USD cash flow generating capacity together with
high occupancy rates and consistent renovation ratios. Fitch
maintains the long-term cap rate of 9.9% to estimate property value
(Fitch property value).
Structural Features to Decrease Short-Term Risks
Fitch believes the transaction benefits from different structural
elements that protect bond holders in case of performance
deterioration, including cash sweep mechanisms after year 10 and
property disposition events linked to the targeted maturity date at
year 13. Additionally, reserve accounts and priority of payments
foster an adequate cash management and partially mitigate payment
interruption risk. Senior A-1 tranches also benefit from principal
subordination of the A-2 tranche. Office space is naturally hedging
the A-1 USD tranche as rents are USD denominated.
Also, the notes incorporate structural features that control the
release of cash deposited in the escrow account. These thresholds
provide a normalized NOI calculation (UWNOI) with haircuts
depending on (i) property stabilization, (ii) free rent (grace
periods), (iii) related-party revenue, (iv) long-term occupancy,
and (v) the exclusion of non-recurrent revenue, among others (see
Sensitivities section). Fitch will monitor the evolution of UWNOI
together with use of reserves as the transaction gets closer to the
release date of this escrow account.
Rating Commensurate with Applicable Leverage and Coverage
Attachment Points
Fitch's initial property value estimate reflects the agency's
conservative view on occupancy rates and a long-term cap rate
assumption. Transaction leverage considering net debt (total debt
minus cash in escrow) would result in a long-term LTV of 64% and
67% for A-1 tranche and the A-2 tranche, respectively. These are
expected remain stable if release conditions are met and Fitch
perceives cash flow is sustainable. In case the escrow account is
amortized, LTVs would decrease only if this is accompanied by an
increase in cash flow linked to property stabilization and/or asset
performance (see Sensitivities section). Should the transaction
dispose of the properties, Fitch estimates the impact on property
value would be close to 7%, all else equal; this amount is below
the market value decline the transaction can withstand.
Updated average DSCRs would be 1.32x for the A-1 tranche and 1.23x
for the A-2 tranche (from 1.35x and 1.33x, respectively), as a
result from short- to mid-term impacts on cash flow. Fitch
considered lower DSCR and higher LTV attachment points when
assigning the ratings to account for multiple sources of income,
geographic and tenancy diversity and property quality.
Experienced Servicer with Back-Up and Master Servicer Oversight
Mitigate Operational Risk
The originator and primary servicer is an experienced entity in the
Mexican real estate market. It has more than 30 years of operating
history and continues being highly concentrated in developing and
managing retail and office properties with proven origination and
servicing practices. However, the transaction controls for manager
substitution through diverse covenants, if required. Fitch
considers the latter scenario unlikely in the short term.
Nonetheless, a back-up servicer with wide expertise is in place, as
well as a master servicer with oversight responsibilities.
Collections are expected to be directly received in the SPV bank
accounts.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Fitch considers rating increases have limited potential in the
foreseeable future. However, cash flow recovery to higher levels
than initially anticipated in both retail and office buildings may
point toward higher property quality and diversification. As a
result, a below-range cap rate may be considered, leading to a
decrease in leverage that may provide upgrade potential to both
notes in the long term.
-- If thresholds required to release additional resources from
the escrow account are not met due to the temporary impact from
coronavirus and the cash is used to repay the provisional loan,
this could lead to a decrease in LTVs once property stabilization
occurs and/or if asset performance is above Fitch's estimates that
may provide upgrade potential to both notes in the long term.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A consistent use of interest reserves that is accompanied with
increased stresses on collections that affect the transactions
ability to replenish reserves may trigger a multi-notch downgrade
in the rating.
-- An increase in tenant delinquency that increases pressure on
transaction debt service coverage.
-- Government actions forcing closure of the properties that
result in tenants to trying to invoke the provision of force
majeure in their leases to temporary suspend payments a downgrade
may occur or even request the termination of the leasing contract
if such situation persists for more than 2 to 3 months.
-- In the event the transaction reaches the required thresholds
to release the additional resources from the escrow account,
followed by a severe and prolonged economic downturn that further
increases pressure on DSCRs, a downgrade in the A-1 tranche cannot
be ruled out and will ultimately depend on the speed at which the
transaction is able to recover.
-- The agency estimated a downside scenario, with a severe and
prolonged economic downturn, assuming Fitch NCF is adjusted to
reflect an overall occupancy rate of 68% with no variable rent
revenue and a 30-month gradual recovery with limited rent increases
during this period. Average DSCRs in this scenario are 1.27x and
1.18x for A-1 and A-2 notes, respectively.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven 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 seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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).
[*] Fitch Takes Action on 13 Mexican Banks Due to Pandemic
----------------------------------------------------------
Fitch Ratings has conducted a portfolio review of Mexican Banks
with international scale ratings following the downgrade of the
country's sovereign rating to 'BBB-' from 'BBB' and after the
adjustment of Fitch's assessment of the operating environment faced
by Mexican banks to 'bb+' with a negative outlook, from 'bbb'.
While the ultimate economic and financial market implications of
the coronavirus pandemic are unclear, Fitch considers the already
deteriorated and challenging operating environment to be clearly
skewed to the downside, which has driven the agency's adjustment on
the operating environment mid-point score to 'bb+' from 'bbb' with
a negative outlook. Fitch's assessment of the operating environment
has a direct influence on bank ratings, and for many banks this is
a high influence rating factor. Fitch expects deteriorating
operating conditions from the coronavirus to pressure asset quality
and weigh on earnings due to lower loan growth, decreasing interest
rates and higher credit costs over the medium term.
Fitch believes sector-wide deferment payment measures of up to six
months announced by the local regulator to most individual and SMEs
loans facing difficulties as a result of the crisis could relieve
some asset quality and loan loss reserves pressures in the near
term; however, liquidity risks from reduced cash flows, as well as
longer term effects on the asset quality and losses recognition
remain a risk for Mexican banks. Fitch believes relatively limited
fiscal actions from government to prevent SMEs and commercial
borrowers' losses under current stress will likely pose structural
asset quality challenges for banks over the medium term.
KEY RATING DRIVERS
VRs, IDRs and IFS
Foreign-Owned Major Commercial Banks
The first group considers foreign-owned commercial banks whose IDRs
are driven by institutional support at or above the sovereign
level: Banco Nacional de Mexico, S.A. (Citibanamex), Banco
Santander Mexico, S.A. (SAN Mexico), HSBC Mexico, S.A. (HSBC
Mexico) and BBVA Bancomer, S.A. (BBVA Mexico).
Fitch has downgraded the support-driven IDRs of Citibanamex and
HSBC Mexico to 'BBB+' from 'A-' due to the maximum support-driven
uplift of two notches above the sovereign rating as per the
agency's criteria. The Rating Outlook on both entities is Stable
due to the current Stable Outlook of the sovereign rating and the
relativity from their parents' ratings under Fitch's criteria will
be maintained even under moderate negative rating actions on
Citigroup Inc. or HSBC Holding plc's IDR, the latter currently
having a Negative Rating Outlook.
Fitch has downgraded Citibanamex's VR by two notches to 'bbb-' from
'bbb+' as the agency considers that under the already deteriorated
and worsening operating environment the potential of a VR to remain
above the sovereign rating is limited. Also, the bank's standalone
profile is no longer exceptionally strong as it was in previous
years, a condition under Fitch's criteria to remain rated above the
sovereign. The strength of the bank's franchise has been reducing
over the past few years and currently it ranks as the fourth and
second bank of the system in terms of loans and costumer deposits.
Despite the still sound loss absorption capacity provided by its
good capitalization metrics and through hybrids capital securities,
Citibanamex's CET1 ratio point out to a bank rated not higher than
the sovereign level. Citbanamex's profitability metrics continues
to lag to its closest peers despite the recent improvements; while
its funding and liquidity profile remain as credit strength. Fitch
believes Citibanamex's enters the economic downturn from a relative
position of strength; however, if operating environment continues
to deteriorate the bank's financial profile could face pressures
due to its higher exposure than peers to consumer lending (e.g.
credit cards and unsecured personal loans) and its ample margin
sensitivity to the interest rate cycle, given the large
contribution of low-cost core deposits in its funding base.
HSBC Mexico's VR was downgraded to 'bb+' from 'bbb-'. Fitch
believes the bank is entering this period from a position of
relative weakness compared to some of its direct peers due to its
lower profitability ratios and CET1 ratio, as well as due to the
greater risk appetite given its accelerated loan growth over the
past few years. In Fitch's opinion the bank's asset quality and
recently enhanced risk controls will be tested during the current
contingency; nevertheless, the agency does not rule out credit
costs increases that will pressure the bank's capacity to absorb
losses given its relatively lower profitability and capitalization.
The bank's VR continues to incorporate its well positioned
franchise as the fifth largest bank in the country, benefiting from
an ample footprint and business scale, as well as from being a
subsidiary of a global bank with a strong transaction banking
franchise
Fitch has downgraded BBVA Mexico's VR to 'bbb' from 'bbb+', which
continues to be one notch above the sovereign rating, as Fitch
believes the bank continues to have a very strong credit profile
driven by its clear dominant and leading loan and deposit franchise
in Mexico, diversified business model, solid earnings generation
and contained asset quality. Although the agency believes that BBVA
Mexico is in a better position to absorb the financial
deterioration and could benefit from flight to quality strategies
from customers and investors, Fitch believes there is downside risk
of the Mexican operating environment that will limit the bank's
planned strategy and could increase asset quality metrics and pose
challenges to its improved profitability metrics and relatively
weaker capital position. BBVA Mexico's IDRs are now driven by the
potential support of its parent the Spain's Banco Bilbao Vizcaya
Argentaria (BBVA rated A-/Rating Watch Negative [RWN]), given the
higher off approach of the agency's criteria. Although the Mexican
bank plays a core role for its parent company, its material size
limits in Fitch's view the parent's ability to provide support if
needed. Fitch has placed BBVA Mexico's 'BBB+' IDRs on RWN mirroring
the action on its parent ratings due to the increased near-term
risks to its ratings from the economic fallout from the coronavirus
pandemic.
SAN Mexico's IDRs of 'BBB+' were not included in this review as
their Outlook was recently revised to Negative from Stable, driven
by a similar action on its ultimate parent IDRs the Spanish bank
Banco Santander, S.A. due to IDRs are currently driven by parental
support. The bank's AT1 and Tier 2 notes' ratings remain unchanged
and maintain the same relativity to the bank's IDR. Fitch has
downgraded SAN Mexico's VR to 'bbb-' from 'bbb', due to a more
stressed operating environment which is a higher importance factor
for the ratings. Fitch does not rule out the bank's asset quality
and profitability will weaken due to its focus on higher-margin
transactions mainly in the consumer and SMEs lending, which is
particularly sensitive to economic prospects and due to its
exposures in corporate lending whose payment capacity could also
deteriorate in the current crisis. Fitch considers the bank's
improved profitability, resilient asset quality, good funding and
liquidity profile as well as appropriate capital ratios could help
the bank to partially absorb the challenges to come; however, the
impact will depend on the magnitude and length of the crisis.
Local Major Commercial Banks & Affiliates
Fitch has downgraded the ratings and revised the Outlook to
Negative from Stable of two local commercial banks and a financial
group whose international ratings are at the level of the sovereign
rating and driven by their stand-alone credit profiles as reflected
by their VRs. The downgrade on these three entities VRs was to
'bbb-' from 'bbb' and its IDRs to 'BBB-' from 'BBB'. The negative
actions on these three entities reflect these banks' less
diversified business models relative to the largest banks in the
country which increases downside risks for their credit profiles
and prospects under a worsening operating environment, reflecting
the agency's view that the relativities of the VRs/IDRs versus the
sovereign rating should be maintained. This group considers Banco
Mercantil de Norte, S.A. and Grupo Financiero Banorte, S.A.B. de
C.V. (Banorte and GFNorte) as well as Banco Inbursa, S.A.
(BInbursa).
Banorte's and GFNorte's ratings primarily reflect the bank and the
group's risk appetite, which results in higher-than-peers exposure
to government-related businesses. Although Fitch believes the bank
and the group have a good financial profile to face the challenges
of the operating environment, their financial metrics could weaken
relative to previous performance, which is reflected in the rating
downgrade and Negative Outlook. The bank has been resilient over
the past few years to a deteriorating operating environment, with a
growing franchise, high profitability, sound impairment ratios as
well as good funding and liquidity profile; however, if the
operating environment continues to worsen, ratings could face
larger downside potential relative to peers due to its more
concentrated business mix. Relatively pressured levels of CET1
ratios for the bank and tangible capital metrics for the group as
compared to some of its local peers (seven largest Mexican banks)
are also incorporated in the ratings, although some additional loss
absorption capacity is provided through hybrid capital securities.
The rating downgrade and Outlook revision to Negative of BInbursa's
IDRs reflect the bank's high sensitivity to a deteriorated
operating environment given its relatively ample credit
concentrations by borrower and industry, its growing consumer
lending activity and the volatility of net income from its hedging
practices. Fitch considers BInbursa's asset quality could be
pressured in the near term, mainly affected by the expected
impairment of one of its main clients (which represents around 1.3%
and 4.6% of the bank's total loan portfolio and CET1,
respectively). Fitch believes the bank enters the economic downturn
with a good loss absorption capacity due to its ample
capitalization ratios and loan loss allowances; however, overall
performance could weaken if operating conditions continues to
worsen.
The downgrade and Negative Outlook of the IFS rating of Seguros
Inbursa is mirroring the action on Banco Inbursa. Seguros Inbursa's
rating is based on legal explicit support given by its holding
group Grupo Financiero Inbursa (GFInbursa), which is legally
obliged to grant support for its subsidiaries' losses and
obligations. Fitch considers GFInbursa's credit quality as aligned
to that of its main operating subsidiary, Banco Inbursa.
Specialized Commercial Banks
The third group includes six medium sized and specialized banks
whose IDRs are driven by its stand-alone credit profiles as
reflected in their VRs. Negative rating actions on five of these
entities that are detailed below reflect these banks downside risks
to their credit profiles resulting from the economic and financial
market implication of the coronavirus due to their less strong
company profiles characterized by growing but smaller franchises
than leaders in the country and more concentrated business models
with relevant exposures to SMEs or in some cases to consumer
sectors not traditionally served by larger banks. This group
includes Banco Compartamos S.A. (Compartamos), Banca Mifel S.A.
(Mifel), Banco del Bajio S.A. (BanBajio), Banco Ve por Mas S.A. (Ve
por Mas), Banco Monex S.A. (Monex) and Consubanco S.A.
(Consubanco).
Fitch believes downside risks for Compartamos have increased under
current conditions, which are reflected in the one-notch downgrade
of its VR/IDRs and maintained on Rating Outlook Negative. Although
the agency considers that Compartamos has a good financial profile
to face the challenges of the environment, asset quality and
profitability could weaken relative to previous expectations due to
its business model being concentrated in the microfinance segment
and in a segment of the population with low income and
self-employment, which Fitch views as more vulnerable during the
coronavirus crisis, which is triggering lower economic activity.
Fitch has downgraded the IDRs/VR of Mifel by one notch and has
revised the Outlook to Negative from Stable to primarily reflect
the heightened risks of the bank's business model given its
exposure to vulnerable segments of the economy under current
operating conditions such as infrastructure and investment
projects, and commercial mortgages. The bank enter this economic
downturn with a reasonable asset quality and appropriate
capitalization metrics; however if the operating environment
continues to worsen, Mifel's asset quality and profitability could
deteriorate. Fitch believes Mifel's moderate capitalization levels
relative to peers could also tighten as the bank profitability
ratios weaken.
BanBajio's has also been downgraded by one notch and its Rating
Outlook revised to Negative from Stable. This action reflects the
above-average exposure than peers to SMEs and the agribusiness
sectors, which are particularly vulnerable to disruption, although
the ultimate credit risk is partially mitigated by the use of
guarantees from development agencies in many instances. This
above-average exposure is already reflected in the bank's risk
appetite and company profile assessment. BanBajio's financial
profile has been steadily improving over the past three years due
to credit expansion accompanied by controlled asset quality,
low-cost of funding coming from its stable deposit base, and
sustained improvements in operating efficiency. Increasing
profitability has also improved its capitalization. Despite this,
BanBajio's financial profile is stronger as compared with its
direct peers' (other midsize banks) to face the challenging
operating environment, the agency believes that further
deterioration of the operating environment will pressure BanBajio's
financial metrics, mainly asset quality and profitability from
lower expected business volumes and portfolio weakening.
Ve por Mas' IDRs have been downgraded and its Rating Outlook
revised to Negative from Stable to reflect heightened challenges to
its business model highly exposed to SMEs and agribusiness and to
its ability to sustain its profitability metrics which has been
traditionally lower than peers under a more deteriorated operating
environment. The bank focuses on commercial loans, with relevant
exposures to SMEs (18% of total loans), to agribusiness and to
non-bank financial institutions. Fitch considers that Ve por Mas
has a reasonable funding and liquidity profiles that could aid to
release pressures during the current contingency; however, constant
increases in its NPL ratio since 2015 that would likely increase in
2020 could challenge the modest capacity of the bank to absorb
losses given its low profitability and relatively moderate capital
metrics.
Monex's IDRs have been affirmed and the Rating Outlook was revised
to Negative from Stable. The rating affirmation is mainly driven by
the bank's business model focused on FX trading and its lower
exposure to credit risks as compared to other Mexican mid-sized
commercial banks. Fitch believes that the bank's business model can
benefit from the high volatility in the FX market that regularly
increases the operating volumes and profits from FX trading. The
revision of the Outlook to Negative reflects downside risks to the
financial profile, mainly on the asset quality from its commercial
loan portfolio with some sector and borrower concentrations. Fitch
does not rule out increasing credit costs since the bank has
exhibited impaired loans pressures in the past that demonstrate its
less proven underwriting standards, however the magnitude of the
impact of asset quality problems will highly depend on the severity
of the crisis.
Fitch has affirmed Consubanco's ratings with Stable Rating Outlook.
The rating affirmation is driven by the already lower ratings than
peers of the entity and the relatively more resilient business
model to unemployment and business lockdown. The entity focuses in
payroll-deductible loans to public sector employees and retirees
with around 79% of its loan portfolio collected through federal
entities, which tend to exhibit virtually null delays in
transferring payments. Although, Fitch expects there could be some
profitability pressures derived from slower portfolio growth, given
the difficulty of person-to-person origination and the temporary
closure of some government agencies, Fitch believes current low
ratings could reflect such risks.
SUPPORT RATINGS (SRs) and SUPPORT RATING FLOORS (SRFs)
The existing SRs of BBVA Mexico has been affirmed, it would not
change as long as the assessment of the institutional support
factors does not change.
SR of Citibanamex and HSBC Mexico were downgraded to '2' from '1'
due to assessment of institutional support results in a change of
category of the respective IDRs.
SR of Banorte was downgraded to '3' from '2' and SRF was revised to
'BB+' from 'BBB-' due to reduced ability to support from the
sovereign from the recent downgrade and continue to reflect the
bank's systemic importance and its role as the largest domestically
owned bank in Mexico.
SR of BanBajio was downgraded to '4' from '3', while SR of BInbursa
was affirmed at '3' and SRFs were revised to 'B+' and 'BB-',
respectively from 'BB+' due to reduced ability to support from the
sovereign from the recent downgrade and to reflect their respective
systemic importance in the financial system.
Fitch's SRFs indicate a level below which Fitch will not lower the
bank's Long-Term IDRs as long as assessment of the support factors
does not change.
Fitch affirmed GFNorte's, Compartamos, Ve por Mas, Monex, Mifel and
Consubanco SR and SRF at '5' and 'NF', respectively, indicating
that external support, while possible, cannot be relied upon.
DEBT RATINGS
Although they do not have an explicit outlook, the global debt
ratings (senior unsecured, subordinated debt and hybrids) are
mirroring the movements on the respective IDRs. The senior
unsecured debt ratings would continue to be aligned with their
respective banks' IDRs. The subordinated debt and hybrids have been
downgraded to maintain the same relativity with the respective
anchor ratings
Banorte, BInbursa, BBVA Mexico and HSBC Mexico's senior unsecured
issuances are at the same level as their respective Long-Term
Issuer Default Ratings as their likelihood of default is the same
as the one of the issuers.
Banorte Tier 2 subordinated preferred capital notes are rated three
notches (-3) below the bank's VR; one notch for loss severity (-1)
and two notches for non-performance risk (-2). Banorte's global
junior subordinated debt is rated four notches (-4) below the
bank's VR. The ratings are driven by Fitch's approach to factoring
non-performance risk (-2) and degree of subordination (-2).
Mifel's global hybrid subordinated securities are rated two notches
below the applicable anchor rating, Mifel's VR. The securities are
notched down once for non-performance risk. An additional notch
accounts for loss severity.
In the case of BBVA Mexico, hybrid instruments reflect a
three-notch difference from the anchor (i.e. the support-driven FC
IDR) for the Basel III T2 subordinated notes and four-notch
difference for the junior subordinated (legacy T1s) to account for
both loss-severity risk and non-performance risk. Fitch factors in
institutional support for these securities by using the
support-driven IDR as the anchor, but Fitch does not consider that
non-performance risks is mitigated for these notes, given the
significantly high relative weight that such instruments represent
for its ultimate parent company.
RATING SENSITIVITIES
VRs, IDRs and IFS
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Banorte, GFNorte, BInbursa, Seguros Inbursa, BBVA Mexico,
Citibanamex, HSBC Mexico and SAN Mexico
- IDRs for these relatively highly rated banks in the country are
sensitive to a downgrade of Mexico's sovereign rating.
- In Fitch's view, there is a material possibility that the
IDRs/IFS that now have a Negative Rating Outlook would be
downgraded from a continued deterioration of the operating
environment from an extended period of economic disruption as a
result of the Coronavirus that leads to a significant deterioration
of the asset quality and/or profitability, resulting in an erosion
of capital cushions. The same would stand for the VRs of BBVA
Mexico, Citibanamex, SAN Mexico, BInbursa, HSBC Mexico and Banorte
& GFNorte.
- Seguros Inbursa will be downgraded if BInbursa is downgraded.
- In addition, the supported IDRs of Citibanamex, HSBC Mexico,
BBVA Mexico and SAN Mexico could be downgraded by reduced
institutional support ability or propensity from their parents, as
a result of the effects of the coronavirus on its parent companies'
business and financial profiles.
Compartamos, Mifel, BanBajio, Ve por Mas, Monex and Consubanco
- In Fitch's view, there is a material possibility that the IDRs
that now have a Negative Rating Outlook would be downgraded from an
extended period of economic disruption as a result of the
Coronavirus that leads to a significant deterioration in the
operating environment, asset quality and/or profitability,
resulting in an erosion of capital cushions. VRs are currently
driving these entities' IDRs; they do not have outlook but will
move in tandem with IDRs.
- Although, Consubanco has a Stable Rating Outlook its ratings
could be downgraded upon an increase of the downside risks from the
operating environment in case they result in a deterioration of
access to funding or increased liquidity risks, higher than
expected deterioration of the asset quality metrics which could
impact operating profitability or its FCC to RWA to below 11%.
Increased political or business risks could also be negative for
ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Banorte, GFNorte, BInbursa, Seguros Inbursa, BBVA Mexico,
Citibanamex, HSBC Mexico and SAN Mexico
- Negative Rating Outlooks on Banorte, GFNorte, BInbursa could be
revised back to Stable if the impact of the coronavirus shock on
each bank's credit profile is shorter-than-expected and the
recovery relatively fast, which will also depend on the ability of
the banks to confront current challenges and to contain asset
quality and profitability negative effects.
- The ratings currently have a negative outlook, which makes an
upgrade highly unlikely over the near term.
- Over the medium term, these ratings can be upgraded by the
confluence of an improvement of the operating environment and the
financial profile of each of the banks.
- Seguros Inbursa could be upgraded over the medium term if
BInbursa is upgraded.
Compartamos, Mifel, BanBajio, Ve por Mas, Monex and Consubanco
- Negative Rating Outlooks could be revised back to Stable if the
impact of the coronavirus shock on each bank's credit profile is
shorter-than-expected and the recovery relatively fast, which will
also depend on the ability of the banks to confront current
challenges and to contain asset quality and profitability negative
effects.
- Fitch's current negative assessment of the operating
environment makes it unlikely that a rating upgrade could occur for
Consubanco over the near term despite its Stable Outlook. However,
an upgrade is possible over the medium term if the bank is able to
maintain its improvements in funding and liquidity management. A
more diversified funding base, strengthening franchise,
profitability and capitalization could also be credit positive over
the time.
- It is highly unlikely that the ratings which currently have a
Negative Outlook could be upgraded over the near term.
- Over the medium term, these ratings can be upgraded by the
confluence of an improvement of the operating environment and the
financial profile of each of the banks.
SRs and SRFs
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Over the medium or long term, SRs and SRFs can be revised
upward if there are positive changes on Fitch's support factors
assessment or from material gains in terms of systemic importance.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Over the medium or long term, SRs and SRFs can be revised
downward if there are negative changes on Fitch's support factors
assessment or from material reductions in terms of systemic
importance
Debt Ratings
Although they do not have an explicit outlook, the global debt
ratings (senior unsecured, subordinated debt and hybrids) will
mirror the movements on the respective IDRs. The senior unsecured
debt ratings would continue to be aligned with their respective
banks' IDRs. The subordinated debt and hybrids will maintain the
same relativity with the respective anchor ratings.
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.
SUMMARY OF FINANCIAL ADJUSTMENTS
Citibanamex, SAN Mexico, BInbursa and BanBajio
Pre-paid expenses and other deferred assets were re-classified as
intangibles and deducted from Fitch Core Capital due to low loss
absorption capacity under stress. Fitch has made adjustments to the
Risk Weighted Assets following its criteria and the agency
consolidated the bank's RWAs with those of its subsidiaries with
lending operations.
BBVA Mexico, HSBC Mexico, Monex, Mifel, Ve por Mas and Compartamos
Pre-paid expenses and other deferred assets were re-classified as
intangibles and deducted from Fitch Core Capital due to low loss
absorption capacity under stress.
Banorte and GFNorte
Fitch classified pre-paid expenses and other deferred assets as
intangibles and first loss tranches of securitizations as other
assets. All three were then deducted from Fitch's Core Capital to
reflect its low absorption capacity.
Consubanco
Account Receivables from employers are reclassified as loans, with
those overdue by more 90 days classified as impaired. Loan loss
reserves are increased by the amount of reserves related to these
account receivables. Capitalized fee expenses and other deferred
assets are deducted from Fitch Core Capital.
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
On April15, 2020, Fitch Ratings downgraded Mexico's Long-Term
Foreign Currency Issuer Default Rating to 'BBB-' from 'BBB'. The
Rating Outlook is Stable.
ESG CONSIDERATIONS
Banca Mifel, S.A., Institucion de Banca Multiple, Grupo Financiero
Mifel: 4; Governance Structure: 4
Banco Compartamos, S.A., Institucion de Banca Multiple: 4.6;
Exposure to Social Impacts: 4, Human Rights, Community Relations,
Access & Affordability: 4, Management Strategy: 4, Customer Welfare
- Fair Messaging, Privacy & Data Security: 4
Banco Mercantil del Norte, S. A., Institucion de Banca Multiple,
Grupo Financiero Banorte: 4; Management Strategy: 4
Banco Ve por Mas, S.A., Institucion de Banca Multiple, Grupo
Financiero Ve por Mas: 4; Governance Structure: 4
Grupo Financiero Banorte, S.A.B. de C.V.: 4; Management Strategy:
4
Banorte & GFNorte have an ESG Relevance Score of 4 for Management
Strategy as the bank relatively recently made an acquisition that
increased its already high exposure to government and moderately
weakened its risk appetite. Strategy is opportunistic at times,
especially regarding its relationships with public sector entities.
The latter has a negative impact on the credit profile and is
relevant to the ratings in conjunction with other factors.
Compartamos has an ESG Relevance Score of 4 for Human Rights,
Community Relations, Access & Affordability due to the bank's focus
on the supply of services for underbanked and underserved
communities. The bank has also an ESG Relevance Score of 4 for
Customer Welfare - Fair Messaging, Privacy & Data Security due to
the high lending rates offered to unbanked, lower-income segments
of the population, which expose the bank to relatively higher
regulatory, legal and reputational risks. Compartamos has also ESG
Relevance Score of 4 for Exposure to Social Impacts driven by its
focus on microfinance lending and unbanked segments that makes the
bank's profile and performance vulnerable to shifts in social or
consumer preferences, and also to political or social programs. The
bank has also an ESG score of 4 for Management and Strategy because
execution lacked consistency with stated strategic objectives in
the near past. These factors affect the credit profile and are
relevant to the ratings in conjunction with other factors.
Mifel and Ve por Mas have an ESG Relevance Score of 4 for Exposure
to Group Structure due to its exposure to an Ownership
concentration in a single family; this has a negative impact on
each entity credit profile, and is relevant to the ratings in
conjunction with other factors.
Except for the matters discussed, 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).
Banco Monex, S.A., Institucion de Banca Multiple, Monex Grupo
Financiero
- LT IDR BB+; Affirmed
- ST IDR B; Affirmed
- LC LT IDR BB+; Affirmed
- LC ST IDR B; Affirmed
- Viability bb+; Affirmed
- Support 5; Affirmed
- Support Floor NF; Affirmed
Consubanco, S.A., Institucion de Banca Multiple
- LT IDR BB-; Affirmed
- ST IDR B; Affirmed
- LC LT IDR BB-; Affirmed
- LC ST IDR B; Affirmed
- Viability bb-; Affirmed
- Support 5; Affirmed
- Support Floor NF; Affirmed
Banco Nacional de Mexico, S. A.
- LT IDR BBB+; Downgrade
- ST IDR F1; Affirmed
- LC LT IDR BBB+; Downgrade
- LC ST IDR F1; Affirmed
- Viability bbb-; Downgrade
- Support 2; Downgrade
Banco del Bajio, S.A. LT IDR BB+ Downgrade
- ST IDR B; Downgrade
- LC LT IDR BB+; Downgrade
- LC ST IDR B; Downgrade
- Viability bb+; Downgrade
- Support 4; Downgrade
- Support Floor B+; Support Rating Floor Revision
Banco Mercantil del Norte, S. A., Institucion de Banca Multiple,
Grupo Financiero Banorte
- LT IDR BBB-; Downgrade
- ST IDR F3; Affirmed
- LC LT IDR BBB-; Downgrade
- LC ST IDR F3; Affirmed
- Viability bbb-; Downgrade
- Support 3; Downgrade
- Support Floor BB+; Support Rating Floor Revision
- Subordinated; LT BB-; Downgrade
- Junior subordinated; LT B+; Downgrade
- Senior unsecured; LT BBB-; Downgrade
HSBC Mexico, S. A., Institucion de Banca Multiple, Grupo Financiero
HSBC
- LT IDR BBB+; Downgrade
- ST IDR F1; Affirmed
- LC LT IDR BBB+; Downgrade
- LC ST IDR F1; Affirmed
- Viability bb+; Downgrade
- Support 2; Downgrade
- Senior unsecured; LT BBB+; Downgrade
Seguros Inbursa, S.A.,Grupo Financiero Inbursa
- Ins Fin Str BBB-; Downgrade
Banco Ve por Mas, S.A., Institucion de Banca Multiple, Grupo
Financiero Ve por Mas
- LT IDR BB-; Downgrade
- ST IDR B; Affirmed
- LC LT IDR BB-; Downgrade
- LC ST IDR B; Affirmed
- Viability bb-; Downgrade
- Support 5; Affirmed
- Support Floor NF; Affirmed
Banca Mifel, S.A., Institucion de Banca Multiple, Grupo Financiero
Mifel
- LT IDR BB; Downgrade
- ST IDR B; Affirmed
- LC LT IDR BB; Downgrade
- LC ST IDR B; Affirmed
- Viability bb; Downgrade
- Support 5; Affirmed
- Support Floor NF; Affirmed
- Subordinated; LT B+; Downgrade
Banco Inbursa, S.A., Institucion de Banca Multiple, Grupo
Financiero Inbursa
- LT IDR BBB-; Downgrade
- ST IDR F3; Affirmed
- LC LT IDR BBB-; Downgrade
- LC ST IDR F3; Affirmed
- Viability bbb-; Downgrade
- Support 3; Affirmed
- Support Floor BB-; Support Rating Floor Revision
- Senior unsecured; LT BBB-; Downgrade
BBVA Bancomer, S.A., Institucion de Banca Multiple, Grupo
Financiero BBVA Bancomer
- LT IDR BBB+; Rating Watch On
- ST IDR F2; Rating Watch On
- LC LT IDR BBB+; Rating Watch On
- LC ST IDR F2; Rating Watch On
- Viability bbb; Downgrade
- Support 2; Affirmed
- Senior unsecured; LT BBB+; Rating Watch On
- Subordinated; LT BB+; Rating Watch On
- Junior subordinated; LT BB; Rating Watch On
Banco Santander Mexico, S.A., Institucion de Banca Multiple, Grupo
Financiero Santander Mexico
- Viability bbb-; Downgrade
Grupo Financiero Banorte, S.A.B. de C.V.
- LT IDR BBB-; Downgrade
- ST IDR F3; Affirmed
- LC LT IDR BBB-; Downgrade
- LC ST IDR F3; Affirmed
- Viability bbb-; Downgrade
- Support 5; Affirmed
- Support Floor NF; Affirmed
Banco Compartamos, S.A., Institucion de Banca Multiple
- LT IDR BB+; Downgrade
- ST IDR B; Downgrade
- LC LT IDR BB+; Downgrade
- LC ST IDR B; Downgrade
- Viability bb+; Downgrade
- Support 5; Affirmed
- Support Floor NF; Affirmed
[*] Fitch Takes Action on 7 Mexican NBFIs Due to Pandemic
---------------------------------------------------------
Fitch Ratings has taken actions on selected Mexican Non-Bank
Financial Institutions to reflect the downside risks to their
credit profiles resulting from the economic and financial market
implications of the coronavirus pandemic and in some cases to
reflect the recent sovereign downgrade.
This review considers four Mexican Finance and Leasing Companies,
which are major competitors in their respective niche segments and
rated at speculative grade with highly specialized and concentrated
business models. Fitch has affirmed Credito Real S.A.B.'s Long-Term
Issuer Default Ratings, while the Rating Outlook was Revised to
Negative from Stable. Fitch placed the ratings of Financiera
Independencia S.A.B. on Rating Watch Negative, while the RWN was
maintained at Unifin and Mexarrend.
The Negative Outlook at Credito Real considers the downside risks
the entity faces in the medium term. This is in view of the
deterioration of the operating environment, from the more
vulnerable segments affected by the coronavirus crisis. Segments
such as consumer lending and SMEs could weaken financial profiles,
although the magnitude of the economic and financial implications
of the crisis will highly depend on the length of the measures to
control the spread of the virus.
Findep's RWN reflects the increasing-near term risks of its
business model, concentrated mainly on unsecured lending, as Fitch
believes the coronavirus crisis could adversely affect the payment
capacity of its client base. The later could result in significant
pressures on the already high adjusted impairment ratio and,
therefore, pressure profitability. Fitch believes the negative
effects of the economic downturn could be larger and quicker at
this business segment.
Fitch has maintained the RWN at Unifin and Mexarrend as Fitch
believes the negative impact of the pandemic on Mexico's operating
environment increases near-term risks due to still high tangible
leverage metrics for the rating category. The RWN reflects that
ratings could be downgraded if pressures on tangible leverage are
not alleviated. Fitch believes relatively limited fiscal actions
from the government to prevent SMEs borrowers' losses under the
current stress will likely pose structural asset quality challenges
for these entities over the medium term.
The portfolio review also includes the three Mexican Financial
Market Infrastructures that were previously rated one notch above
the Mexican sovereign, a gap that was unlikely to widen, and were
consequently downgraded following the recent similar action on
Mexico's Sovereign Ratings to 'BBB-', Outlook Stable, on Apr. 15,
2020. The latter has driven the downgrade of the IDRs of Bolsa
Mexicana de Valores, Asigna Compensacion y Liquidacion and
Contraparte Central de Valores de Mexico to 'BBB' from 'BBB+'. The
rating Outlook adjustment to Negative on BMV and consequently on
its support-driven subsidiaries mainly reflects increased
operational and counterparty risks under current more volatile
conditions.
KEY RATING DRIVERS
ISSUER DEFAULT RATINGS
Credito Real
Although Credito Real enters this period of economic contraction
with better than peer asset quality for the segment, strong
earnings generation, a good funding profile and flexibility, and
reasonable leverage metrics, Fitch believes asset quality could be
pressured and profitability metrics could decline due to slower
credit growth, higher needs of provisions and lower revenue
generation, which is reflected in the revision of the rating
Outlook to Negative from Stable. Fitch considers Credito Real's
business model has proved to be resilient through the cycle driven
by its concentration (60% of total loans) on payroll (secured)
loans to unionized state and federal public-sector employees,
retirees, and pensioners, a segment particularly less sensitive to
economic and unemployment prospects. However, the entity's abroad
operations (about 19% of the loan portfolio) are also facing
operating environment deterioration (currently, the Sovereign
Ratings of Costa Rica and Panama have Negative Outlooks). The later
coupled with its moderate exposure to the SMEs and auto loans
segment, which could also be adversely affected by the economic
downturn, poses additional pressures on the company's ratings over
the medium term.
Unifin
Unifin's ratings continue to reflect its national leadership in the
independent leasing sector in Mexico with ample expertise on SMEs,
good earnings, controlled asset quality and well-managed liquidity
and funding. However, Fitch believes the current challenging
economic conditions are especially threatening for the SMEs
segment, which is dealing with limited government aid to get
through the crisis. The partial closing or heavily reduced
activities of several business segments to prevent the spread of
the coronavirus, will likely affect their payment capacities and is
expected to impact Unifin's business prospects and financial
performance, posing additional pressures to already tight leverage
and capitalization metrics, which remains as a rating weakness.
Findep
The RWN of Findep reflects increased near-term downside risks from
the worsening economic conditions derived from the unsecured nature
of its business model which, together with its focus on the
low-income segment of the population, triggers a higher risk
appetite and has driven Findep's elevated impairment and charge-off
ratios in the past. Although the company's has been able to improve
its profitability and leverage metrics over the past few years and
its loan portfolio exhibits higher diversification by operating
environment, as it also has operations in the U.S. (26%) and Brazil
(4%); Fitch believes the current economic conditions that are
affecting several regions will likely affect the payment capacity
of Findep's clients therefore pressuring asset quality and
profitability ratios due to higher impairment charges and slower
loan growth. The impact on the financial profile will highly depend
on the severity and length of the crisis.
Mexarrend
Fitch has maintained the RWN on Mexarrend's ratings. Although the
entity's was able to show some improvement on its tangible leverage
levels, measured as debt/tangible equity, from its last review
toward 7.0x as of December 2019, supported on earnings generation,
Fitch was expecting a capital injection to materially enhance this
metric to levels below 7.0x, which has not been completed. The
agency believes there is still a need of capital enhancement since
capitalization and leverage are one of the weaker factors of the
financial profile.
Fitch believes the challenging economic conditions that are
especially threatening for the SMEs segment could affect
Mexarrend's near-term strategy to intrinsically enhance
profitability given the lower expected portfolio growth that will
hinder the company's earnings projections and the higher credit
costs that will likely result from asset quality deterioration, as
the economic slowdown will directly affect the payment capacity of
its clients. Fitch believes that the well-anchored company's
franchise and business model among independent leasing companies as
well as Mexarrend's adequate funding mix with a good portion of
unsecured funding sources and relatively strong liquidity position
from its more recent global debt issuance could partially aid the
entity to confront the challenges from the current crisis.
BMV, Asigna and CCV
After the downgrade, BMV, Asigna and CCV's ratings remain one notch
above the sovereign, an uplift that Fitch is unlikely to widen in
the future. As a result, these companies' IDRs continue to be
sensitive to a sovereign downgrade or to a highly deteriorated
environment. Mexican rated exchanges and clearing houses are
expected to be more resilient to the challenging environment driven
in the case of BMV, by its highly diversified business model, and
in the three cases by their dominant franchises and solid
operational infrastructures.
Asigna and CCV's ratings are support driven and therefore aligned
to those of its ultimate parent, BMV's ratings. Although
operational risks are usually increased under crisis, from
increasing market volatility and rising trading activity, as well
as from augmented downside risks of counterparties; exchanges and
clearing houses' profitability could benefit from increased
volumes. Fitch believes refinancing risks are very low due to their
high cash flow generative business models and their very limited
indebtedness, however Fitch highlights that the lack of contingency
lines is still a rating negative especially under current
conditions. Business continuity plans are currently in place with
most employees working remotely while availability of IT systems
have been sustained with no major system outages, a risk that could
increase under current conditions.
DEBT AND HYBRID RATINGS
The actions on the global debt ratings (senior unsecured and
hybrids) mirror the movements on the respective IDRs of each
company. The senior unsecured debt ratings are aligned with the
respective entities' IDRs, as Fitch believes the likelihood of
default is the same as each company's ratings. Hybrids at Credito
Real and Unifin would maintain the same differentiation with the
respective anchor ratings (two notches below their respective
IDRs).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
Credito Real has an ESG Relevance Score of 4 for Customer Welfare -
Fair Messaging, Privacy & Data Security due to its exposure to
reputational and operational risks as its main business targets
government employees and dependencies at relatively high rates,
which has a negative impact on the credit profile and is relevant
to the rating in conjunction with other factors.
Credito Real has an ESG Relevance Score of 4 for Exposure to Social
Impacts due to its exposure to a shift in social or consumer
preferences or to government regulation of its lending offer, this
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Unifin has ESG Relevance Scores of 4 for both Management Strategy
and Financial Transparency Issues driven by its high risk appetite,
due to ample balance sheet growth and less prudential capital
management, while third-party disclosure has yet to be better
aligned to international best practices, which have a negative
impact on the credit profile, and are relevant to the ratings in
conjunction with other factors.
Findep has an ESG Relevance Score of 4 for Customer Welfare - Fair
Messaging, Privacy & Data Security as its business model has high
lending rates to unbanked, lower-income segments of the population
whom expose Findep to relatively high regulatory, legal and
reputational risks. This has a negative impact on the credit
profile and is relevant to the rating in conjunction with other
factors.
Findep has an ESG Relevance Score of 4 for Exposure to Social
Impacts given that its business model (individual loans to
low-income segments) is exposed to shifts of consumer or social
preferences or to measures that the government could take to
increase financial inclusion. This has a negative impact on the
credit profile and is relevant to the rating in conjunction with
other factors.
Findep has an ESG Relevance Score of 4 for Management Strategy
driven by frequent managerial shifts and a management that needs to
prove the company's adherence to strategic objectives and
execution. This has a negative impact on the credit profile, and is
relevant to the ratings in conjunction with other factors.
Mexarrend has an ESG Relevance Score of 4 for Management Strategy
due to recent changes like a new shareholder structure and the
changed role of the founder acting only as the CEO, and not as the
chairman of the board. However, recent execution risks from
inorganic growth need to be improved. This has an impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
Mexarrend has an ESG Relevance Score of 4 for Governance Structure
due to positive corporate practices that were implemented recently,
but areas for improvement persist and given that it is exposed to
key person risk, which moderately decreased recently. The later has
an impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Mexarrend has an ESG Relevance Score of 4 for Financial
Transparency given that although financial transparency has
improved, this is still recent and further enhancements are still
ongoing due to its non-regulated nature. This has an impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
BMV
BMV has an ESG Relevance Score of 4 for Governance Structure as the
strong and sound governance structure provides a relative
competitive advantage in terms of market reputation and further
reinforces FMI barriers to entry. This has an impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Credito Real
- The most immediate downside rating sensitivity relates to the
economic impact arising from the coronavirus crisis, as this
represents a clear risk to its assessment of asset quality and
earnings.
- A deterioration of leverage metrics to levels above 5.5x.
- A substantial deterioration of its funding mix or liquidity
profile could trigger a downgrade.
Unifin
- The ratings could be downgraded if debt/tangible equity is not
restored through internal capital generation or extraordinary
capital injections to a level that is consistently below or close
to 7.0x. Fitch expects to resolve the Watch with the financial
statements of 3Q20.
- Downside rating sensitivity also relates to the economic impact
arising from the coronavirus crisis, as this represents a clear
risk to its assessment of asset quality and earnings.
- A substantial deterioration of its funding mix or liquidity
profile could trigger a downgrade.
Findep
- The most immediate downside rating sensitivity relates to the
economic impact arising from the coronavirus crisis, as this
represents a clear risk to its assessment of asset quality and
earnings.
- The ratings could be downgraded if debt/tangible equity rises
and remains consistently above 5.5x.
- A significant change to its funding structure or liquidity
management could also lead to a downgrade.
Mexarrend
- The ratings could be downgraded if debt/tangible equity metric
is not restored through internal capital generation or
extraordinary capital injections to above 7x. Fitch expects to
resolve the Watch with financial statements of the 3Q20.
- Downside rating sensitivity also relates to the economic impact
arising from the coronavirus crisis, as this represents a clear
risk to its assessment of asset quality and earnings.
- A substantial deterioration of its funding mix or liquidity
profile could trigger a downgrade.
BMV, Asigna and CCV
- BMV's ratings could be downgraded in the event of further
negative sovereign rating actions, or if there is relaxation in
risk policies that cause prolonged and repetitive system outages
that result in reputational damage.
- A relevant and sustained deterioration of BMV's financial
performance, reflected in adjusted EBITDA margins below 25% or a
gross leverage ratio above 3x, could also put downward pressure on
ratings.
- Asigna and CCV's ratings could be downgraded if in turn BMV's
ratings are downgraded.
- A change in Fitch's view on the core role CCV and Asigna have
for its parent company, could also trigger a downgrade, a scenario
that seems unlikely at present.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Credito Real
- Ratings could be affirmed and the Outlook revised to Stable if
Credito Real sustains a financial profile consistent with its
current ratings despite deterioration in the operating
environment.
- Fitch believes there is limited upside potential for the
ratings under current conditions.
Unifin
- Upside potential is limited in view of the company's aggressive
capital management policies.
- Ratings could be upgraded if the company is able to material
improve its capitalization and leverage metrics to levels
consistently below 5x, while maintaining its sound other financial
fundamentals and a strong competitive position.
- Fitch expects to resolve the Rating Watch with financial
statements of the 3Q20. Unifin's IDRs could be affirmed and removed
from RWN, if the leverage metrics shows a consistent trend to 7x or
lower both with and without mark to market effects; while other
qualitative and quantitative ratings factors are sustained.
- Upside is limited for Unifin's Long-Term IDRs unless Fitch sees
a material strengthening of leverage metrics.
Findep
- The ratings could be upgraded by a significant and sustained
improvement of the company's overall financial profile, especially
profitability and asset quality.
- Fitch believes upside potential for Findep's ratings in the
medium term is limited.
- Fitch expects to resolve the Rating Watch within the next six
months. Findep's IDRs could be affirmed if Findep sustains a
financial profile consistent with its current ratings despite
deterioration in the operating environment.
- Ratings could be affirmed and the Outlook revised to Stable
Mexarrend
- Rating upside potential is limited in the medium term.
- The ratings could be upgraded in the medium term if the company
materially improves its company profile through orderly growth and
business model diversification, together with the greater
flexibility and diversification of its funding mix and improving
asset quality.
- A tangible leverage ratio consistently below 5x and relevantly
improved and stable profitability ratios could also trigger an
upgrade.
- Fitch expects to resolve the Rating Watch upon review of the
financial statements of the 3Q20. Mexarrend's IDRs could be
affirmed if the leverage metrics shows a consistent metric at 7x or
lower, both with and without mark to market effects; while other
qualitative and quantitative ratings factors are sustained.
BMV, Asigna and CCV
- BMV, Asigna and CCV's ratings have limited upside potential in
the near future, as they are already one level above Mexico's
sovereign rating, a gap that Fitch is unlike to widen.
- An upgrade will be driven by an unlikely upgrade on Mexico's
sovereign rating.
- A potential upgrade of CCV and Asigna's ratings would be driven
by an upgrade in BMV's ratings
DEBT AND HYBRID RATINGS
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The ratings of the senior debt notes of Credito Real, Unifin,
Findep and Mexarrend are sensitive to a negative change in the
companies' IDRs.
- Findep and Mexarrend's senior notes could diverge from the IDRs
if asset encumbrance increases to the extent that it relevantly
subordinates senior unsecured bondholders.
- Credito Real and Unifin's hybrid notes ratings are sensitive to
a negative change in the company's IDRs.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade of the ratings of the senior debt notes of Credito
Real, Unifin, Findep and Mexarrend will be driven by a positive
change in the companies' IDRs.
- Credito Real and Unifin's hybrid notes could be upgraded if
their respective IDRs are upgraded.
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.
SUMMARY OF FINANCIAL ADJUSTMENTS
Credito Real
Pre-paid expenses were reclassified as other intangibles and
deducted from Fitch Core Capital. Results from investments in
associates were reclassified as operating income. The extraordinary
gain that resulted from the early amortization of derivatives in
2016 was reclassified as non-recurring. Its legacy operational
lease portfolio was included in gross loans, with the portion of
delinquent leases classified as impaired loans. The coupons of the
perpetual notes were reclassified as interests.
Unifin
Pre-paid expenses were re-classified as intangibles and deducted
from tangible equity due to low loss absorption capacity under
stress.
Financiera Independencia (Findep)
Other assets as pre-paid expenses and other deferred assets Fitch
reclassified as intangibles and deducted from capital due to their
low loss-absorption capacity under stress.
Mexarrend
For comparability and analytical purposes, Fitch reclassified
certain income statement and balance sheet accounts. In particular,
gross operating and finance lease income is composed of interest,
operating lease and equipment financing income net of the cost of
equipment. The revenue related services and supplies are presented
net of cost as "other operating income". Fixed assets under
operating leased contracts were classified as the operating lease
portfolio. Pre-paid expenses and some other assets were
reclassified as intangibles given their low loss absorption
capacity.
CCV: Pre-paid expenses were reclassified as other intangibles and
deducted from Fitch Core Capital.
Asigna: Pre-paid expenses were reclassified as other intangibles
and deducted from Fitch Core Capital.
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
"The Ratings of Asigna and CCV are directly linked to those of
BMV."
ESG CONSIDERATIONS
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).
Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R.
- LT IDR BB; Rating Watch On
- ST IDR B; Affirmed
- LC LT IDR BB; Rating Watch On
- LC ST IDR B; Affirmed
- Natl LT A(mex); Rating Watch On
- Natl ST F1(mex); Rating Watch On
- Senior unsecured; LT BB Rating Watch On
Asigna Compensacion y Liquidacion F30430 FISO Bancomer SA
- LT IDR BBB; Downgrade
- ST IDR F3; Downgrade
- LC LT IDR BBB; Downgrade
- LC ST IDR F3; Downgrade
Credito Real, S.A.B. de C.V., Sociedad Financiera de Objeto
Multiple, Entidad no Regulada
- LT IDR BB+; Affirmed
- ST IDR B; Affirmed
- LC LT IDR BB+; Affirmed
- LC ST IDR B; Affirmed
- Senior unsecured; LT BB+(EXP); Affirmed
- Senior unsecured; LT BB+; Affirmed
- Subordinated; LT BB-; Affirmed
Contraparte Central de Valores de Mexico, S.A. de C.V.
- LT IDR BBB; Downgrade
- ST IDR F3; Downgrade
- LC LT IDR BBB; Downgrade
- LC ST IDR F3; Downgrade
Bolsa Mexicana de Valores, S.A.B. de C.V.
- LT IDR BBB; Downgrade
- ST IDR F3; Downgrade
- LC LT IDR BBB; Downgrade
- LC ST IDR F3; Downgrade
Unifin Financiera, S.A.B. de C.V.
- LT IDR BB; Rating Watch Maintained
- ST IDR B; Affirmed
- LC LT IDR BB; Rating Watch Maintained
- LC ST IDR B; Affirmed
- Natl LT A(mex); Rating Watch Maintained
- Natl ST F1(mex); Rating Watch Maintained
- Senior unsecured; LT BB Rating Watch Maintained
- Subordinated; LT B+; Rating Watch Maintained
Mexarrend S.A.P.I. de C.V.
- LT IDR BB-; Rating Watch Maintained
- ST IDR B; Affirmed
- LC LT IDR BB-; Rating Watch Maintained
- LC ST IDR B; Affirmed
- Natl LT A-(mex); Rating Watch Maintained
- Natl ST F2(mex); Rating Watch Maintained
- Senior unsecured; LT BB- Rating Watch Maintained
- Senior unsecured; Natl LT A-(mex); Rating Watch Maintained
- Senior unsecured; Natl ST F2(mex); Rating Watch Maintained
=====================
P U E R T O R I C O
=====================
CAPARRA HILLS: Fitch Affirms B+ Issuer Default Rating
-----------------------------------------------------
Fitch Ratings has affirmed Caparra Hills, LLC Long-Term Issuer
Default Rating at 'B+' and its senior secured debt at 'BB'/'RR2'.
The Rating Outlook is Stable.
The 'B+' IDR reflects Caparra's limited property diversification,
small size, significant tenant concentration, and contract maturity
risk. Fitch expects net leverage to increase slightly in FY 2020 as
the company could experience some delays in rent collections as
lockdowns in Puerto Rico may impact its tenants' business.
Caparra's notes have been notched up to 'BB' to reflect strong
recovery prospects in the event of a default. The company's
loan-to-value ratio, based on Fitch's estimates, is estimated to be
around 75%. The Stable Outlook reflects Fitch's expectation that
Caparra will be able to renew a significant portion of upcoming
contracts that are due to expire over the next 12 months and keep
vacancy relatively stable levels.
KEY RATING DRIVERS
Delays in Collections Amid Shutdown: Fitch expects minor delays in
rent collection, including parking and common area maintenance, to
impact FY 2020 negatively. Counterparty and collection risk has
increased for Caparra as most tenants' businesses remain closed
since mid-March. Fitch views positively Caparra's concentration of
Class-A tenants, which include large international corporations
such as T-Mobile, 3M, L'Oreal, and Synchrony Financial, among
others. Class-A tenants have relatively lower collection risk than
other tenants. Locations of non-essential businesses in Puerto Rico
are currently shutdown until May 3, 2020.
Leverage to Increase in the Short Term: Fitch expects Caparra's
total net debt/EBITDA and gross debt/EBITDA to be over 7.5x and
8.0x, respectively, by FY 2020 mainly due to delays in rent
collections and a slightly lower EBITDA margin. Leverage is
expected to gradually improve beginning in FY 2021 due to increased
revenues from new tenants, slightly improved EBITDA margins and
lower capex requirements. Caparra had USD50.6 million of total debt
as of Dec. 31, 2019, which was composed entirely of secured bonds
that require approximately USD5.3 million of annual debt service
(interest and principal). Net Leverage was 7.2 as of LTM Dec. 31,
2019 as a result of declining vacancy rates and a full year effect
of various new tenants. Fitch's net leverage calculation excludes
cash held in Caparra's debt service reserve, which holds USD9.5
million and covers roughly 20 months of debt service.
High Tenant Concentration: Fitch expects that current levels of
counterparty concentration will continue to improve as the company
continues to renew or replace key tenants. As of Dec. 30, 2019,
Caparra's total occupancy rate was 86.7%, of which about 54% was
occupied by 10 major tenants (down from a peak of over 60%).
T-Mobile Center, where Caparra offers net rentable space of 207,140
sq ft. and has an occupancy rate of 82%, of which 62% is occupied
by key tenants that lease over 10,000 sq ft. Tenant concentration
has been slowly improving as the company has been replacing GLA
vacated by a few large individual tenants with multiple tenants.
Good Track Record of Renewals: Fitch's base case expects occupancy
to remain stable around 87% over the medium term. Contract maturity
risk is viewed as high, as 24.8% of rents are set to expire within
12 months of Dec. 31, 2019. Mitigating this risk is Caparra's solid
track record of renewals in Puerto Rico's subdued business and
economic environment. Fitch's expects that the company will be able
to renew a significant portion of these upcoming maturities over
the next year, as well as replace any vacated space. T-Mobile
Center's classification as a Class-A building in Puerto Rico,
highlighted by its solid location in Guaynabo, is viewed positive
by prospective tenants.
Secured Bond Enhances Recovery Prospects: The 'BB' rating on the
secured bonds positively incorporates the collateral support
included in the transaction structure. The payments of the bonds
are secured by a first mortgage on the company's real estate
properties and the assignment of leases. The secured bonds are
payable solely from payments made to the Puerto Rico Industrial,
Tourist, Educational, Medical and Environmental Control Facilities
Financing Authority by Caparra. AFICA serves solely as an issuing
conduit for local qualified borrowers for the purpose of issuing
bonds pursuant to a trust agreement between AFICA and the trustee.
The secured bonds are not guaranteed by AFICA, do not constitute a
charge against the general credit of AFICA, and do not constitute
an indebtedness of the Commonwealth of Puerto Rico or any of its
political subdivisions.
Weak Operating Environment: Economic conditions in Puerto Rico
continue to be challenging. Caparra's small size and lack of
geographic diversification makes it highly exposed to Puerto Rico's
struggling economy, which has resulted in high unemployment rates
and an increased migration of people from the island. Despite the
company's relatively stable performance in Puerto Rico, these
factors have the potential to erode appraisal values and negatively
affect lease rates and renewals. Solid property location within the
municipality of Guaynabo partially mitigates this risk.
Recovery Rating Assumptions: Fitch's recovery analysis assumes that
Caparra would be considered a going-concern in bankruptcy and that
the company would be reorganized rather than liquidated. In its
recovery assumptions, Fitch has used a going-concern EBITDA of
USD4.2 million in its analysis and an EV multiple of 10.0x. Fitch
calculates a recovery for the senior secured debt to be in the
71%-90% range based on a waterfall approach. As a result,
Caparra's
senior secured debt rating has been uplifted by two notches to
'BB'/'RR2'.
DERIVATION SUMMARY
Caparra's 'B+' rating reflects its property portfolio, which is in
line with the 'B' rating category due to the limited property
diversification and rental income risk profile. Expected occupancy
of 85% for FY 2020 is in line with the 'B' rating category of 85%
on average for the sector. The company's business is exposed to a
riskier operating environment compared to U.S. peers, as Caparra is
dependent on the fragile economy of Puerto Rico and operates on a
relatively small scale. However, the company has shown resilience
in its performance with consistent EBITDA margins over 60%, which
is in line with 'BB' rated peers.
The company's high single asset concentration and small size is in
line with the 'B' rating category. When comparing property
portfolio and size to a higher rated peer, such as Mack-Cali Realty
Corporation (BB/Negative), Caparra's limited diversification and
small size compares unfavorably. Mack-Cali, which operates on a
slightly larger scale, owns a portfolio primarily consisting of
metro and suburban New Jersey office assets and, to a lesser
extent, multifamily properties. Caparra's consistently positive FCF
over the last few years and adequate liquidity justify its higher
rating compared to General Shopping e Outlets do Brasil S.A.
(CCC-).
Caparra's notes have been notched up to 'BB' to reflect strong
recovery prospects in the event of a default. The company's LTV,
based on the Fitch's estimates, is estimated at around 75%. The LTV
is consistent with peers rated in the 'B' category.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
Include:
-- FY 2020 revenues to decline by a mid-single digit percentage
due to delays in collections;
-- Occupancy to remain stable around 85% over the medium term;
-- Slightly lower EBITDA margin in FY 2020 due to shutdowns;
-- Average FCF of USD1.4 million over the medium term due to
lower capex requirements.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Lower business risks in terms of contract maturity schedule,
concentration risk, while improving cash flow generation, resulting
in lower net leverage of about 6.5x and LTV of 60% could trigger a
positive rating action.
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- A downgrade could be triggered due to a lack of a rapid
improvement of the company's vacancy rates, contract maturity
schedule coupled with declining cash flow generation, measured as
EBITDA, resulting in sustained net leverage above 8.5x.
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
Adequate Liquidity: Caparra's liquidity is supported by its cash
position of USD3.4 million and an unused unsecured line of credit
of USD1 million. The company also maintains a debt service reserve
fund of approximately USD9.5 million, held by the trustee, covering
20 months of debt service (interest and principal). As of Dec 30,
2019, Caparra's short-term debt obligation was USD1.8 million. FCF
as of YE June 2019, was USD1.1 million. FCF is expected to be
stable in FY 2020, backed by lower capex requirements and offset by
delays in rent collections.
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
Caparra Hills scores a 4 on Exposure to Environmental Impacts,
owing to its presence in a hurricane-prone region. Scores of 4
indicate factors that are not key drivers to a rating, but can have
an impact in combination with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
INTERNATIONAL FOOD: Taps Schoeman Updike as Litigation Counsel
--------------------------------------------------------------
International Food Service Purchasing Group, Inc. seeks approval
from the U.S. Bankruptcy Court for the District of Puerto Rico to
employ Patricia O'Prey, Esq., and Schoeman Updike Kaufman & Gerber,
LLP as attorney.
The Debtor hired Patricia O'Prey, Esq., and Schoeman Updike Kaufman
& Gerber, LLP to represent its interest, as well as its chief
executive officer's interest, in these civil proceedings:
-- litigation filed by Flex Funding LLC against the Debtor and
its CEO Charles Maxwell, Flex Funding v. International Food Service
Purchasing Group and Charles A. Maxwell, in the Supreme Court of
the State of New York, Nassau County and
-- a complaint that the Debtor filed against Flex Funding LLC,
Express Funding Service, Kevin Kashmin (aka Kevin Mannheim),
Richard Setti and Does 1 through 100 in the New York Supreme Court,
Kings County.
Patricia O'Prey and the Schoeman firm will provide these services
in connection with the mentioned civil cases:
(a) prepare on behalf of the Debtor and its CEO all necessary
applications, motions, answer to motions and replies; reports, and
other legal documents related to the instant civil proceedings
before the courts of New York State; and
(b) perform all legal services for the Debtor and its CEO,
which may be necessary to the effective prosecution and
administration of these civil proceedings.
The attorneys and professionals designated to represent the Debtor
will be paid at these hourly rates:
Patricia O'Prey, Esq. $600
David Black, Esq. $325
Rachel Kaufman, paralegal $175
Other employees $175-$675
Patricia O'Prey, an attorney at Schoeman Updike Kaufman & Gerber,
LLP, disclosed in court filings that the firm is a "disinterested
person" within the meaning of Section 101(14) of the Bankruptcy
Code.
The firm can be reached through:
Patricia O'Prey, Esq.
David Black, Esq.
Rachel Kaufman, Esq.
SCHOEMAN UPDIKE KAUFMAN & GERBER LLP
551 Fifth Avenue
New York, NY 10176
Telephone: (212) 661-5030
Facsimile: (212) 687-2123
E-mail: poprey@schoeman.com
dblack@schoeman.com
rkaufman@schoeman.com
About International Food Service Purchasing Group
International Food Service Purchasing Group Inc. is a non-profit
organization that provides supply chain analysis and management
services for the restaurant industry.
International Food Service Purchasing Group Inc., based in San
Juan, PR, filed a Chapter 11 petition (Bankr. D.P.R. Case No.
20-01458) on March 20, 2020. In the petition signed by Charles A.
Maxwell, president, the Debtor was estimated to have $1 million to
$10 million in both assets and liabilities. The Debtor tapped
Alexandra Bigas Valedon, Esq., at Modesto Bigas Law Office, as
bankruptcy counsel.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Pharmacies Complain About 'Patchy' Supplies
--------------------------------------------------------------
Kim Boodram at Trinidad Express reports that some small pharmacies
in less commercial areas have complained that suppliers are
favoring large companies in the distribution of goods, including
vitamins and immune boosters, which they view as a "dishonest"
attempt to take advantage of consumers under the current pandemic
conditions.
A number of small and medium drugstores around Trinidad told the
Express, they have struggled to acquire certain goods in the past
fortnight and while they are being told by some distributors that
the products are not available, the items appear to be well-stocked
at large pharmacies in more commercial areas, according to Trinidad
Express.
Most of the drugstores said they were not yet having problems
acquiring medication, including for the Chronic Disease Assistance
Programme (CDAP), although some patients have complained that the
supply has been patchy for the past month, the report notes.
Instead, several of the small and medium-sized pharmacies suggested
that their peers ensure these CDAP goods are not being held back
and later sold to customers, by the pharmacies themselves.
President of the Trinidad and Tobago Pharmacy Board, attorney
Andrew Rahaman, said he was aware of complaints that some
pharmacies were receiving stilted or reduced supplies of certain
goods, particularly with regard to 'pandemic' items such as
vitamins and sanitisers, the report relates.
Rahaman noted that he has in the past called for anti-trust laws to
govern the industry and said: "I have received reports that
pharmacies are not getting quite a few medications from wholesalers
and they are complaining that the bigger stores are well-stocked,"
the report discloses.
Contacted on the issue, Trade Minister Paula Gopee-Scoon said she
was unaware of any such actions or of price-gouging by distributors
and noted that under the current global restrictions, the cost of
transporting goods, including by air, has increased for some, the
report says.
Gopee-Scoon also noted that other countries may be practicing a
degree of "export protectionism" due to uncertainty as to when the
pandemic -- and therefore supplies -- will last, the report notes.
One Central-based pharmacist said since the advent of the
coronavirus, Covid-19, and the subsequent pandemic, supplies of
hygiene products such as alcohol-based wipes and sanitizers
including alcohol and gel-based germ killers, have not been
consistent, the report relates.
When the goods become available, they have been marked up by the
distributors in a way that affects customers, forcing groceries and
pharmacies to also raise prices, the report says.
While the sale of these products has lessened, they are still being
retailed in some places for as much as $40 to $50 per 500
milliliter for alcohol-based sanitizers, the report notes.
Supplies of disposable gloves is also intermittent, one pharmacist
said, the report discloses.
This unreliability has now extended to vitamins, including
geriatric versions and especially Vitamin C, some supplements,
immune boosters such as Emergen-C and Redoxon and allergy
medications, the report relays.
"Unbelievably, it appears there is some deception going on, as some
of us are being told there are no goods, but we are aware that the
goods are there. We are seeing certain pharmacies getting large
amounts of certain items and marking up their prices, while the
smaller pharmacies, especially the ones nearer the rural areas, are
being ignored," the report discloses.
The pharmacist said there was a concern, too, that the goods were
being hoarded to an extent, on the premise that if pandemic
conditions continue or worsen, they would again be in high demand,
the report says.
The pharmacist added that passing on added costs to customers was
"stressful," the report notes. "Understand how smaller pharmacies
have their own culture, we serve a lot of people who are aged or
vulnerable in some way. It is very hard to watch your regular
customers and treat them that way," the report notes.
Further, when some pharmacies are forced to raise the price of a
packet of a particular vitamin product from $5 to $8, as is
happening in some places, some choose not to buy either due to cost
or "principle," the report relates.
Drug stores that were purchasing up to a dozen boxes of these items
wholesale are now being allowed only two to three, the pharmacist
said, the report says.
T&T, like much of the world, saw the frenzied buying up of
sanitisers, gloves and face masks as the coronavirus became a
pandemic, leading to a nationwide lockdown on non-essential
movement that is ongoing, the report adds.
=============
U R U G U A Y
=============
SANCOR SEGUROS: Fitch Affirms IFS Rating at B+, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Sancor Seguros S.A.'s Insurer Financial
Strength at 'B+'. The Rating Outlook is Stable.
The rating action is based on the company's stable business profile
and leverage indicators with positive bottom line income at 2019
YE. The rating is still constrained by the by the high exposure to
sovereign securities.
KEY RATING DRIVERS
The company's rating reflects the moderate business profile based
on its market position between private insurers and its business
risk profile and premium diversification aligned to the industry's.
The Uruguayan insurance industry is highly concentrated in one
state-related company (69% of the GWP), so the operating scale of
the private insurers is limited. As of December 2019, Sancor's NWP
and equity were UYU29.4 and UYU9.1 million, respectively. This
operating scale is considered as less favorable and constrains
Fitch's view about Sancor's business profile.
As of December 2019, Sancor presented a positive bottom line result
due to exceptional income and the elimination of monetary
devaluation adjustments. The company's ROAE of 7.8% compared widely
favorably with previous year-end ROAE of negative 11.0%. In
technical terms, the company remained stable with a slight increase
in the net loss ratio but higher costs' efficiency, maintaining
stable the combined ratio at 110.4% (2018YE: 110.0%). For 2020,
Fitch expects technical and profitability indicators to resemble to
2018's ratios.
Considering the company's premium breakdown with low exposure to
health and life related lines and the fact that the public health
system should cover most of Covid-19 cases, the agency does not
expect a relevant increase in claims. The investment yield
volatility and the slower economy are expected to be partly offset
by lesser claims in vehicle insurance, maintaining Fitch assessment
about Sancor's financial performance and earnings credit factor.
At 2019YE, Sancor's leverage indicators compared slightly favorably
with the ones presented on 2018, driven by an equity annual growth
of 8.2%. Sancor's NWP to equity ratio of 3.2x and its net leverage
of 5.1x, solidly support the current rating. Fitch expects these
indicators to have an upward pressure due to operational growth and
the no consolidation of positive net income, considering the
challenging economic scenario during 2020.
The company's investment portfolio is 88.0% concentrated in
sovereign securities. Fitch rates Uruguay 'BBB-' with a Negative
Outlook. Therefore, a downgrade in the sovereign will push these
investments into the non-investment-grade category, having a great
impact on Sancor's investment and liquidity ratios. Currently,
Sancor's investment and liquidity risk ratios position this credit
factor on the 'BB' category, but a downgrade in the sovereign would
pressure it to the next inferior category. Fitch's impact analysis
of the coronavirus over investments suggests no significant
deteriorations in sovereign securities as they are maintained at
investment grade.
Despite of Sancor having a stable retention structure, the
reinsurance exposure has increased. At 2019YE, the reinsurance
recoverable to capital ratio was 199.7%, compared with 130.1% on
2018YE. The increase is expected to be a one-time shot since it was
due to two high severity claims with reinsurers' participation.
This ratio positions this credit factor as less favorable according
to Fitch's metrics but the agency considers that the high standard
entities behind the reinsurance contracts, reduce the counterparty
risk.
KEY ASSUMPTIONS
-- Decline in key stock market indices by 35% relative to Jan. 1,
2020;
-- Increase in two-year cumulative high yield bond default rate
to 9.6%, applied to current non-investment-grade assets, as well as
12% of 'BBB' assets;
-- A COVID-19 infection rate of 5% and a mortality rate (as a
percent of infected) of 1%.
RATING SENSITIVITIES
The ratings remain sensitive to any material change in Fitch's
Rating Case assumptions with respect the coronavirus pandemic.
Periodic updates to its assumptions are possible given the rapid
pace of changes in government actions in response to the pandemic,
and the pace with which new information is available on the medical
aspects of the outbreak. A discussion of how ratings would be
expected to be impacted under a set of Stress Case assumptions is
included at the end of this section to help frame sensitivities to
a severe downside scenario.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A material adverse change in Fitch's Ratings Assumptions with
respect to the coronavirus impact;
-- Constant negative bottom line income that pressure the
leverage indicators or considerable deteriorations in Fitch's
investment assessment. Additionally, material changes in Fitch's
view about the parent creditworthiness could also lead to a
downgrade.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action is prefaced by Fitch's ability to
reliably forecast the impact of the coronavirus pandemic on the
financial profile of both the Uruguayan insurance industry and the
company;
-- An improved business profile driven by larger operating scale
and higher diversification, along with positive net income that has
a positive effect on equity.
Stress Case Sensitivity Analysis
-- Fitch's Stress Case assumes a 60% stock market decline,
two-year cumulative high yield bond default rate of 22%, high yield
bond spreads widening by 600 basis points and more prolonged
declines in government rates, heightened pressure on capital
markets access, a COVID-19 infection rate of 15% and mortality rate
of 0.75%, an adverse non-life industry-level loss ratio impact of 7
percentage points for coronavirus claims partially offset by a
favorable two points for auto/motor and a one notch lower sovereign
rating;
-- The implied rating impact under the Stress Case would be to
affirm the current rating.
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.
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).
===============
X X X X X X X X
===============
LATAM: ECLAC Warns of Worst Ever Economic Contraction For Region
----------------------------------------------------------------
RJR News reports that a new report by the Economic Commission for
Latin America and the Caribbean (ECLAC) has warned that the
coronavirus pandemic will herald the worst economic contraction in
the history of Latin America and the Caribbean, with a projected
-5.3 per cent drop in activity this year.
The report concluded that a contraction of this magnitude would
mean going back to the Great Depression in 1930, when there was a
-5.0 per cent drop, or the start of World War One in 1914, when
growth plummeted -4.9 per cent, according to RJR News.
The report is ECLAC's second study in tracking the economic and
social effects of the coronavirus crisis in Latin American and
Caribbean countries, the report notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
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USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
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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