/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/200526.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Tuesday, May 26, 2020, Vol. 21, No. 105 Headlines A R G E N T I N A ARGENTINA: Extends Lockdown Amid Easing Restrictions Controversy B R A Z I L BANCO INDUSTRIAL: Moody's Cuts BRL100MM Unsec. Bank Notes to Ba3 BANCO INDUSTRIAL: Moody's Cuts Local Curr. Deposit Ratings to Ba3 BRAZIL: Will Invest in Airlines Needing Bailout, Minister Says ODEBRECHT SA: Creditors of Ethanol Unit Approve Restructuring Plan C A Y M A N I S L A N D S AIR 2 US: Fitch Affirms & Withdraws BB- Rating on Series B Notes C H I L E LATAM AIRLINES: Fitch Cuts LongTerm IDR to CC, Off Watch Negative LATAM AIRLINES: S&P Lowers ICR to 'CCC-' on Missed Interest Payment D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Bars, Discos & Theaters Still on Hold DOMINICAN REPUBLIC: Commerce Reopens After 2-Mo. Hiatus DOMINICAN REPUBLIC: Export Free Zones Concerned of Losing Markets E L S A L V A D O R GRUPO UNICOMER: S&P Puts 'BB-' ICR in CreditWatch Negative J A M A I C A NORTHERN CARIBBEAN UNIVERSITY: 10% Salary Cut for Employees [*] JAMAICA: UK Contributes US$3.8MM to Caribbean's COVID-19 Fight T R I N I D A D A N D T O B A G O TRINIDAD AND TOBAGO: Moody's Alters Outlook on Ba1 Rating to Neg. - - - - - ================= A R G E N T I N A ================= ARGENTINA: Extends Lockdown Amid Easing Restrictions Controversy ---------------------------------------------------------------- EFE News reports that Argentina began a new phase in its battle against the coronavirus, extending until May 10 the nationwide quarantine amid controversy over the refusal of Buenos Aires and other large parts of the country to allow one-hour recreational walks outdoors which the national government had announced would be permitted during this new period. The preventive and obligatory social isolation that has prevailed in Argentina since March 20 to limit the spread of the coronavirus has already been extended three times, and in this third phase, people will be allowed -- albeit under certain specific conditions -- to resume some of their "normal" activities based on where they live, according to EFE News. That is, people living in some places with lower populations and where there are few or no virus cases, or where the pandemic is "under control," will be able to do things that others elsewhere may not yet consider, 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. =========== B R A Z I L =========== BANCO INDUSTRIAL: Moody's Cuts BRL100MM Unsec. Bank Notes to Ba3 ---------------------------------------------------------------- Moody's America Latina Ltda. has downgraded to Ba3, from Ba2, Banco Industrial do Brasil S.A.'s long-term local currency senior unsecured debt rating on the BRL100 million banknotes (letras financeiras). The national scale senior unsecured debt rating was also downgraded to A2.br, from Aa3.br. The rating action follows the downgrade of BIB's assessments and ratings by Moody's Investors Service, which serve as anchor to the debt ratings. The following ratings were downgraded: - Local currency senior unsecured debt rating to Ba3, from Ba2; stable outlook - Brazilian long-term national scale senior unsecured debt rating to A2.br, from Aa3.br RATINGS RATIONALE The downgrade of BIB's debt ratings derives from the downgrade of its baseline credit assessment to ba3, from ba2, and incorporates the bank's weakening asset quality following rapid growth of its loan book beyond its traditional working capital lending expertise, and the consequent accumulation of refinanced loans, which weight on BIB's profitability and liquidity. Compared to its peer group, the bank's problem loan worsened to 1.8% in 2019, from 0.8% in 2018, and the level of loan loss reserves to problem loans fell to a level below 100%. The rating actions also incorporate the expectation of further negative pressure on the bank's asset quality given deteriorating operating conditions caused by the effect of the coronavirus pandemic in the economy. In the meantime, lower business volumes combined with higher credit and funding costs will weight on BIB's profitability. BIB's ratings are also constrained by reliance on wholesale, confidence-sensitive funding, particularly sourced from large institutional investors, which could expose the bank's funding to volatility. Recent support measures by the authorities aimed at ensuring enough funding and liquidity to the banking system have introduced funding alternatives to banks, including BIB, but may further increase the bank's reliance on market funds. At the same time, Moody's acknowledges that the bank's capitalization ratio, measured by Moody's as adjusted tangible common equity relative to risk weighted assets (TCE/RWA) at 15% remains adequate to provide additional protection against potential loan losses and lower results. Its rating action reflects the potential deterioration in BIB's credit quality and profitability in the context of uncertain credit conditions, including the breadth and severity of the coronavirus pandemic, which limit the prospects for positive developments. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward pressure on the ratings could come from strengthening asset risk and profitability metrics. There could be negative pressure on BIB's ratings, stemming from asset-quality deterioration and lower profitability as a result of higher provisions and an increase in funding costs. A consistent decline in profitability could hurt the bank's capacity to replenish capital through earnings, which could be negative in the long run. METHODOLOGY USED The principal methodology used in these ratings was Banks Methodology published in November 2019. BIB is headquartered in Sao Paulo, Brazil, with assets of BRL 3.5 Billion and shareholders' equity of BRL 540 million as of December 31, 2019. BANCO INDUSTRIAL: Moody's Cuts Local Curr. Deposit Ratings to Ba3 ----------------------------------------------------------------- Moody's Investors Service has downgraded Banco Industrial do Brasil S.A.'s ratings, including the long-term local currency deposit ratings to Ba3, from Ba2, the long-term national scale deposit rating to A2.br from Aa3.br, as well as the long-term counterparty risk ratings to Ba2, from Ba1, in local and foreign currencies. Moody's also downgraded BIB's assessments, including the baseline credit assessment to ba3, from ba2, and long-term counterparty risk assessments to Ba2(cr), from Ba1(cr). The downgrade of BIB's ratings and assessments reflects Moody's view that the Brazilian economy will contract in 2020 as a result of the coronavirus outbreak, which will likely have a direct negative impact on BIB's and other Brazilian banks' asset quality and profitability. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The following ratings and assessments were downgraded: - Long-term global local currency deposit rating to Ba3, from Ba2; stable outlook - Long-term global local currency counterparty risk rating to Ba2, from Ba1 - Long-term global foreign currency counterparty risk rating to Ba2, from Ba1 - Long-term Brazilian national scale deposit rating to A2.br, from Aa3.br - Long-term Brazilian national scale counterparty risk rating to Aa2.br, from Aaa.br - Long-term counterparty risk assessment to Ba2(cr), from Ba1(cr) - Baseline credit assessment to ba3, from ba2 - Adjusted baseline credit assessment to ba3, from ba2 The following ratings and assessments were affirmed: - Short-term global local currency deposit rating of Not Prime - Long-term global foreign currency deposit rating of Ba3, stable outlook - Short-term global foreign currency deposit rating of Not Prime - Short-term global local currency counterparty risk rating of Not Prime - Short-term global foreign currency counterparty risk rating of Not Prime - Short-term counterparty risk assessment of Not Prime(cr) - Short-term Brazilian national scale deposit rating of BR-1 - Short-term Brazilian national scale counterparty risk rating of BR-1 - Outlook, Remains Stable RATINGS RATIONALE The downgrade of BIB's ratings and assessments reflects the bank's weakening asset quality following the rapid growth of its loan book beyond its traditional working capital lending expertise, and the consequent accumulation of renegotiated loans, which also weigh on BIB's profitability and liquidity. BIB's above-peers' capitalization and its adequate profitability support the bank's resilience against unexpected losses and are relative strengths compared to other rating factors. BIB's loan portfolio increased a cumulative 29% over the past two years ending 2019, a level that was more than double the system's 12% growth in the period. Rapid loan growth could mask weakness in underwriting and results in a large portion of the loan portfolio being unseasoned. This loan growth has occurred at a time when the market, and particularly lending to small and medium size companies, has become more competitive. As a result, the bank's nonperforming loan ratio rose to 1.8% of total loans in 2019, from 0.8% in 2018, reflecting the seasoning of new loans and some punctual and large problem exposures. Moody's notes that although BIB's NPL ratio has been historically below the system's average and aligned to other periods, the recent increase in the share of renegotiated loans combined with loan loss provisions below 100%, even according to local rules, and higher loan concentration amongst larger companies, as suggested by growing credit exposure to its largest borrowers relative to tangible common equity, expose its asset quality to volatility. Moody's anticipates BIB's asset quality metrics to weaken because of the deteriorating economic activity and employment due the coronavirus pandemic outbreak, notwithstanding the authorities' supportive policy measures. The severity of the crisis will depend on the level of disruption caused by sustained pullback in local consumption and extended closure of business that hurt companies' financials, causing layoffs and weighting on market sentiment, and which is still uncertain at this point. This challenging economic environment is creating strains for mid-sized banks, including BIB, which are more vulnerable to downturns given their less diversified loan book, revenue stream and funding sources. Lower business volumes combined with higher credit and funding costs will weight on BIB's profitability. BIB's ratings have been further constrained by its reliance on confidence-sensitive market funding and modest level of liquid assets. About 50% of the bank's domestic funds are sourced from institutional investors, including asset management firms, and financial institutions, resulting in a highly concentrated and expensive funding profile, and which is exposed to shifts in market dynamics, particularly under the current unfavorable market conditions. The bank has trying to increase granularity of such deposits by accessing long-term retail deposits through digital platforms, although they are still incipient. Moody's notes, however, that BIB is in the position to benefit from temporary support measures introduced by the authorities to address banks' funding and liquidity needs, including the issuance of guaranteed deposits and guaranteed notes. Under such conditions, Moody's expects BIB dependence on market funds to increase in the short term. At the same time, Moody's acknowledges that the bank's capital base, measured as Moody's tangible common equity relative to risk weighted assets at 15% remains adequate to provide additional protection against loan losses. Albeit lower than the 16% level reported in 2018, Moody's expects that a slowdown in loan origination over the next months and temporary regulatory measures, including the capping of dividends to a maximum statutory 25% and lowering of capital conservation buffer requirements, will preserve the bank's capital in the face of coronavirus outbreak' effects on asset quality and profitability. Profitability, measured as net income to tangible assets, was 1.8% in December 2019, above the 1.56% average for the period 2014-18. BIB's bottom-line results increased 22% to BRL61 million from a year prior, reflecting higher income from loans and lower funding costs. As a result, the bank's net interest margin peaked at 6.2% in December 2019, from the 5.5% average reported for the past five years, already reflecting its strategy of expanding loans into higher yields operations. BIB's good results, however, were also supported by non-recurrent events including a one-off reversal of contingencies and one- off- deferred asset gains derived from the increase in social contribution taxes, which offset the effect of high provisions for credit losses in the period. To the extent new lending activity remains limited and credit costs high, further pressures on profitability will materialize. Its rating action reflects the potential deterioration in BIB's credit quality and profitability in the context of uncertain credit conditions, including the breadth and severity of the coronavirus pandemic, which limit the prospects for positive developments. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward pressures on BIB's ratings could result from improved asset risk and profitability metrics, which would support high capitalization. There could be negative pressure on BIB's ratings, stemming from material asset-quality deterioration and lower profitability as a result of higher provisions and an increase in funding costs. A consistent decline in profitability could hurt the bank's ability to replenish capital through earnings, which could be negative in the long run. METHODOLOGY USED The principal methodology used in these ratings was Banks Methodology published in November 2019. BIB is headquartered in Sao Paulo, Brazil, with assets of BRL 3.5 Billion and shareholders' equity of BRL 540 million as of December 31, 2019. BRAZIL: Will Invest in Airlines Needing Bailout, Minister Says -------------------------------------------------------------- Rio Times Online reports that Economy Minister Paulo Guedes expects the Brazilian government to become a shareholder of airlines due to the crisis caused by the coronavirus. In his opinion, this will be the consequence of the public rescue model to be provided to the sector, the report relays. Behind the scenes, the government is preparing a consortium of banks to be formed by the BNDES (National Development Bank) and private institutions that would provide credit to companies with instruments convertible into shares, the report notes. "It's public money. Let's get some money in there, let's buy a piece of the company. And up ahead, when the company has recovered, we will find that we have made money to safeguard the airlines", he said in a meeting with entrepreneurs, the report adds. As reported in the Troubled Company Reporter-Latin America on May 8, 2020, Fitch Ratings has affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating at 'BB-' and has revised the Rating Outlook to Negative. The Outlook revision to Negative reflects the deterioration of Brazil's economic and fiscal outlook, and downside risks to both given renewed political uncertainty, including tensions between the executive and congress, and uncertainty over the duration and intensity of the coronavirus pandemic. On April 10, 2020, the TCR-LA reported that S&P Global Ratings revised on April 6, 2020, its outlook on its long-term ratings on Brazil to stable from positive. At the same time, S&P affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings. S&P also affirmed its 'brAAA' national scale rating and its transfer and convertibility assessment of 'BB+'. The outlook on the national scale rating remains stable. ODEBRECHT SA: Creditors of Ethanol Unit Approve Restructuring Plan ------------------------------------------------------------------ Tatiana Bautzer and Nayara Figueiredo at Reuters report that creditors of Odebrecht's ethanol unit Atvos have approved a restructuring plan, the Brazilian firm said. Under the plan, Atvos expects to reduce its net debt to three times its earnings before interest, tax, depreciation and amortization, a gauge of operational profit known as EBITDA, from the current six times, as it will transfer 46% of its debt to a new vehicle, according to Reuters. It will start paying small suppliers in 90 days, the report notes. Remaining creditors will start receiving partial payments in 2022, the report relays. Atvos offered its financial creditors bonds with rights to access the company's dividends and also with shares and fixed assets as collateral, the report discloses. Rates of approval went from 77% to 100%, depending on creditor class, the report relays. Brazil's largest banks -- development bank BNDES, state-controlled Banco do Brasil SA, Itau Unibanco Holding SA and Banco Bradesco SA -- approved the plan, the report relays. Financial creditors will be able to convert between 46% and 61% of their credit in bonds, the company added, the report notes. The plan also considers attracting new investors, the report says. Atvos filed for bankruptcy protection a year ago with nearly BRL12 billion (US$2.11 billion) in debt after Odebrecht was ensnared in one of Latin America's largest corruption scandals, the report adds. About Odebrecht S.A. Odebrecht S.A. -- www.odebrecht.com -- is a Brazilian conglomerate consisting of diversified businesses in the fields of engineering, construction, chemicals and petrochemicals. Odebrecht S.A. is a holding company for Construtora Norberto Odebrecht S.A., the biggest engineering and contracting company in Latin America, and Braskem S.A., the largest petrochemicals producer in Latin America and one of Brazil's five largest private-sector manufacturing companies. Odebrecht controls Braskem, which by revenue is the fourth largest petrochemical company in the Americas. On June 17, 2019, Odebrecht filed for bankruptcy protection, aiming to restructure BRL51 billion (US$13 billion) of debt. The bankruptcy filing comes after years of struggles for Odebrecht, the biggest of the Brazilian engineering groups caught in a sweeping political corruption investigation that has rippled across Latin America, Reuters relayed, as reported by The Troubled Company Reporter - Latin America. On August 28, 2019, the Troubled Company Reporter - Latin America, citing The Wall Street Journal, reported that Odebrecht and its affiliates filed for chapter 15 bankruptcy, seeking U.S. recognition of the largest-ever bankruptcy in Latin America. Odebrecht SA and several of its affiliates has filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York on Aug. 26. The case is assigned to Hon. Stuart M. Bernstein. =========================== C A Y M A N I S L A N D S =========================== AIR 2 US: Fitch Affirms & Withdraws BB- Rating on Series B Notes ---------------------------------------------------------------- Fitch has affirmed the ratings on the series B enhanced equipment notes issued by Air 2 US at 'BB-'. The recovery rating has been revised to RR4 from RR5, and the ratings have been withdrawn. The rating withdrawal reflects the de minimis amount of debt outstanding under the series B notes and expectation that they will be fully repaid upon the next payment date. Air 2 US is a special purpose Cayman Islands company created to issue enhanced equipment notes. The proceeds from the notes were used to purchase permitted investments and to enter into a risk transfer agreement. The transaction is structured as a lease payment securitization backed by payments from United Airlines for 22 Airbus A320's. The deal initially included payments from American Airlines for 19 leased A300s; however, American's obligations only ran through October 2011. United's lease payments were restructured when they filed for bankruptcy in 2002, creating a continuing deficiency on each payment date. As such, the class C and class D notes (not rated by Fitch) are subject to on-going payment deficiencies. The shortfall is funded by allocating a portion of a pool of permitted investments to the lessor on each payment date. The class A and B notes continue to receive timely payments. The ratings were withdrawn because they were no longer considered relevant to the agency's coverage. KEY RATING DRIVERS Fitch rates this transaction using its Non-Financial Corporates Notching and Recovery Ratings Criteria. The class A certificates were paid in full in October 2019, and as such recovery prospects for the class B notes has improved. The class B certificates are expected to be repaid in 2020. United's 'BB-/Negative' rating reflects Fitch's view that United is unlikely to enter a period of distress or to miss lease payments prior to the note's maturity date. The aircraft underlying this transaction are not highly desirable. The collateral aircraft consist of Airbus A320-200s that were delivered in the mid-1990s and are now over 20 years old. While newer build A320s would be considered tier 1 aircraft, older production A320's, such as those in this pool, are classified as tier 3 due to the lower demand for these less fuel-efficient vintages. DERIVATION SUMMARY Air 2 US is a unique transaction and is not directly comparable to EETC ratings or other aircraft backed debt. The class B notes are rated in line with United's unsecured notes reflecting the limited desirability of the underlying collateral. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Air 2 US include: -- Fitch's primary assumption is that United will not come under pressure or otherwise fail to pay on the underlying leases through the maturity of the notes. RATING SENSITIVITIES N/A - ratings are withdrawn 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 The class B notes do not include a liquidity facility. 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 Air 2 US ratings are linked to United Airlines. ========= C H I L E ========= LATAM AIRLINES: Fitch Cuts LongTerm IDR to CC, Off Watch Negative ----------------------------------------------------------------- Fitch Ratings has downgraded LATAM Airlines Group S.A.'s Long-Term Foreign Currency Issuer Default Rating to 'CC' from 'B-', and unsecured notes to 'C'/'RR5' from 'B-'/'RR4'. LATAM's National scale Long-term Rating was downgraded to 'CC(cl)' from 'BB(cl)', and its issuance was downgraded to 'C(cl)' from 'BB(cl)'. The National Equity Rating has been affirmed at 'Segunda Clase Nivel 5 (cl)'. The Rating Watch Negative has been removed. Fitch's rating actions follow LATAM's confirmation that it did not make interest or principal payments of all the three tranches on a debt obligation related to an EETC transaction (not rated) on May 15, 2020. The company has entered into a 15-day grace period, which if uncured, would trigger an event of default. It is unclear if LATAM intends to cure this missed payment or has begun the process of entering a larger debt restructuring, as the presence of cross default clauses in other financial obligations would allow those creditors to declare default and begin enforcing remedies. The revision of the recovery rating of the bonds to 'RR5' from 'RR4', and the downgrades of the bonds are due to revision of the multiple used by Fitch in its going concern analysis to reflect the weakness of the airline industry. LATAM continues seek different avenues to preserve cash amid this quite turbulent period for the airline industry, which leaves creditors in a more vulnerable position. LATAM's current financial flexibility to raise new credit lines is quite limited, given market conditions. Financial support from the Brazilian government would only provide limited relief, as any funding would have to be used to support operations in the Brazilian market. LATAM held cash of USD1.5 billion as of Dec. 31, 2019, compared with short-term debt of USD1.8 billion and total debt of USD10.4 billion. During 2020, the company drew down a USD600 million senior secured revolving credit facility that was collateralized by a combination of aircraft, spare engines and spare parts. Per Fitch's criteria and estimates, readily available cash at the end of April was USD1.4 billion. KEY RATING DRIVERS Coronavirus Assumptions: LATAM has responded to the challenging environment by reducing capacity by 95% during April and May. The recovery of capacity utilization levels remains uncertain, as the virus spreads and more restrictive measures are imposed that stifle demand. Fitch's main coronavirus scenario envisions a more than a 55% drop in RPKs for 2020, when compared to 2019, and around a 22% drop for 2021 (versus 2019), with pressured yields trends across the different markets. Since mid-March, LATAM has announced lease payment deferrals, renegotiations with suppliers and significant reduction in personnel expenses. Large Exposure to International Market: Around 51% of LATAM 2019's revenues were originated from long haul international routes. The recovery of this market remains highly uncertain, as certain countries or regions are expected to continue to restrict travel in the face of continued outbreaks. LATAM has a strong business position in the region as the leader or secondary leader position in most markets/countries. During 2019, excluding the international routes, LATAM's revenues were distributed within Brazilian domestic market (30%) and Spanish-speaking countries' domestic markets (19%). High Uncertainties on Cash Flow Burn: During 2Q20, Fitch estimates cash flow burn to be around USD600 million. The timing and intensity of the cash flow burn moving towards the 3Q20 is Fitch's main concern, as financial flexibility is limited in terms of the issuer's ability to access new credit lines. Per Fitch's criteria and estimates, readily available cash as of April 30, 2020, was around USD1.4 billion for LATAM. Limited Government Support: Fitch believes it is unlikely that LATAM will receive financial assistance from the Chilean government. In contrast, the Brazilian government has made a public announcement of financial support through its development bank, BNDES. Negotiations and final terms are still on the way; the expectation is that there will be a credit line of around BRL2 billion (USD340 million-USD400 million) given to each of the three largest airlines operating in the domestic market in Brazil. It is expected that if LATAM receives support the funding can only be used for its Brazilian operations, which while positive, provides the company with only modest relief, as the majority of its debt agreements are at the holding company in Chile. DERIVATION SUMMARY LATAM's 'CC' ratings reflect that default is probable. The company's financial flexibility has diminished since the coronavirus crisis started and its liquidity position continues to deteriorate. The company's rating is currently rated below Azul S.A. and Gol Linhas Aereas Inteligentes S.A., both rated at 'B-', which are also facing cash flow pressures. LATAM is rated lower than global players Delta Air Lines (BB+/Negative), United Continental Holdings, Inc. (BB-/Negative), and American Airlines Group, Inc. (B/Negative). These issuers started the crisis with stronger liquidity positions and have more financial flexibility. KEY ASSUMPTIONS Key Assumptions in Fitch's rating case include a steep drop in demand through 2020, with full recovery only occurring by 2022. During 2020 Fitch's base case includes revenues down roughly 90% through the second quarter of the year, down as much as 70% in the third quarter, and down 40% in the fourth quarter for domestic focused carriers and closer to 50% for carriers with more international exposure. Fitch incorporates the company's efforts to reduce variable costs, including salary and wages, marketing expenses, services operations as well as capex reduction and deferral of aircraft deliveries as already announced. Fitch's recovery analysis assumes that LATAM would be reorganized as a going concern in bankruptcy rather than being liquidated. Fitch has assumed a 10% administrative claim. Fitch's going concern GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which Fitch bases the enterprise valuation. Fitch's GC EBITDA is marginally above 2020 forecast levels, incorporating current pandemic crisis, but still below 2021. An enterprise value EV multiple of 5.0x EBITDA is applied to the GC EBITDA to calculate a post-reorganization enterprise value. Historical bankruptcy case study exit multiples for peer companies ranged from 3.1x to 6.8x. Fitch applies a waterfall analysis to the post-default enterprise value based on the relative claims of the debt in the capital structure. The agency's debt waterfall assumptions take into account the company's total debt at Dec. 31, 2019. These assumptions result in a recovery rate for the unsecured bonds within the 'RR5' range. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Improved financial flexibility with sustained access to credit lines and/or government support in form of cash inflows outside Brazil. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Formal announcement of debt restructuring process. 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 LATAM held cash of USD1.5 billion as of Dec. 31, 2019, compared with short-term debt of USD1.9 billion and total debt of USD10.4 billion. Of this short-term debt, USD1.5 billion related to financial debt and USD0.4 billion related to leasing obligations. Around 49% of LATAM was secured; 29% unsecured debt and 30% related to leasing obligations. LATAM had in place a senior secured revolving credit facility (RCF) of USD600 million, which had a combination of aircraft, spare engines and spare parts as collateral. Considering the current scenario of tight liquidity, and seeking to boost its cash position LATAM fully withdrew this RCF. Per Fitch's criteria and estimates, LATAM's readily available cash as of April 30, 2020, was around USD1.4 billion. 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 The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). LATAM Airlines Group S.A. - LT IDR CC; Downgrade - Natl LT CC(cl); Downgrade - Nat Equity Rating Segunda Clase(cl); Affirmed - Senior unsecured; Natl LT C(cl); Downgrade LATAM Finance Limited - Senior unsecured; LT C; Downgrade LATAM AIRLINES: S&P Lowers ICR to 'CCC-' on Missed Interest Payment ------------------------------------------------------------------- Chile-based Latam Airlines confirmed it had missed interest and principal payments on its 2015-1 enhanced equipment trust certificates (EETC) due May 15, but the related lease payments that service the certificates are still under a 15-day grace period. S&P Global Ratings believes the likelihood of distressed debt restructuring or bankruptcy filing soon is rising. Accordingly, on May 22, 2020, S&P lowered its issuer credit rating on the company to 'CCC-' from 'CCC+' and senior unsecured issue-level ratings to 'CC' from 'CCC'. At the same time, S&P lowered its ratings on EETC class A certificates to 'B-', class B certificates to 'CCC', and class C certificates to 'CCC-'. S&P's keeping all the ratings on CreditWatch with negative implications, which reflects the heightened risk of distressed debt restructuring or bankruptcy filing. Concerns over debt restructuring or bankruptcy filing are rising. S&P believes the company's missed interest and principal payments indicate a liquidity distress. The leases that provide cash flows for the EETCs are still under a 15-day grace period, and for class A and B certificates liquidity facilities provided by Natixis, New York Branch (A+/Negative/A-1) should cover the missed interest payment and, if necessary, for the following six payments. However, we believe the missed payment indicates Latam is protecting its cash balances and probably working on a debt restructuring strategy. Credit quality of Latam's EETC-1 has weakened sharply. S&P said, "We believe that the missed payments on this credit facility indicate that Latam's willingness to keep the aircraft and continue repaying the certificates in a restructuring or reorganization scenario has diminished considerably. For this reason, we have lowered our affirmation credit enhancement on the Class A certificate to 0 from one notch. Additionally, amid the severe industry crisis, aircraft values have suffered, resulting in a deterioration of the loan-to-values (LTVs) among all three classes, reducing collateral rating enhancement. As a result, we have lowered our collateral credit on class A certificates to three notches from four and on class B to one from two. However, we note that aircraft that collateralize the EETCs are modern, widely-used models (A321-200, A350-900, and 787-9), value of which won't be as pressured as those of older or less popular types of aircraft." Ratings on Class A and B EETCs remain higher than the issuer credit rating on Latam because a default on the certificates occurs only if: -- The airline enters bankruptcy; -- Latam either liquidates or reorganizes, but won't pay the secured aircraft debt or leases that collateralize the rated certificates; and -- Proceeds from repossession and sale of aircraft collateral are insufficient to repay the certificates' principal and interest. The chance of these three events happening in succession is almost always less than that of the airline's bankruptcy filing. Holders of EETCs, particularly the senior class, can also be repaid if the airline agrees on a restructuring plan with them that lowers payments but still pays enough to cover the senior class of EETCs. The rating on the class C is at the same level as the issuer credit rating, because these certificates don't have a liquidity facility and if the airline enters bankruptcy, S&P doesn't believe it would cure the missed payment within the grace period. Environmental, social, and governance (ESG) factors relevant to the rating action: -- Health and safety =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Bars, Discos & Theaters Still on Hold --------------------------------------------------------- Dominican Today reports that the Dominican Republic Presidency said the entertainment venues and other agglomeration activities will be closed, at least until August 24. They include discos, cinemas, bars, among others, according to the report. The High Level Commission reiterated that the dates of each phase will be subject to the behavior of the pandemic and that it will only advance from one phase to the other after being sure, through due epidemiological surveillance, that the health situation allows it, the report notes. "That is, in the event of a spike in infections, the dates of each stage could vary. Access to beaches, swimming pools and all kinds of public spas is also still prohibited, without a specific date for reopening," the Presidency said in a statement obtained by the news agency. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. The Troubled Company Reporter-Latin America reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for the Dominican Republic stands at BB- with negative outlook (April 2020). Moody's credit rating for the Dominican Republic was last set at Ba3 with stable outlook (July 2017). Fitch's credit rating for the Dominican Republic was last reported at BB- with negative outlook (May 8, 2020). DOMINICAN REPUBLIC: Commerce Reopens After 2-Mo. Hiatus ------------------------------------------------------- Dominican Today reports that on the first day of the country's reopened economic activities, after its closure due to the pandemic, businesses began to operate under strict distancing protocols. In the major auto parts stores on busy avenues, the number of customers looking for spares and mechanics was low, according to Dominican Today. Variety stores, florists, hardware stores and makeshift car washes are some of the businesses that are operating on the first day of the economic revival in the country, the report relays. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. The Troubled Company Reporter-Latin America reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for the Dominican Republic stands at BB- with negative outlook (April 2020). Moody's credit rating for the Dominican Republic was last set at Ba3 with stable outlook (July 2017). Fitch's credit rating for the Dominican Republic was last reported at BB- with negative outlook (May 8, 2020). DOMINICAN REPUBLIC: Export Free Zones Concerned of Losing Markets ----------------------------------------------------------------- Dominican Today reports that National Export Free Zones Council (CNZFE) director Luisa Fernandez expressed her concern over the possibility of losing international markets due to the world crisis caused by the coronavirus. However, the official said that there are new market opportunities in South America, where medical devices for the protection of COVID-19 are not produced, according to Dominican Today. Fernandez said that in the country, there are 20 companies that were engaged in the manufacture of swimsuits, t-shirts, shoes and other products, and now they manufacture masks, protective uniforms, surgical sheets, covers for hospital mattresses and other devices, the report notes. "The capacity of the industrial sector to reinvent itself is impressive," the report adds. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. The Troubled Company Reporter-Latin America reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for the Dominican Republic stands at BB- with negative outlook (April 2020). Moody's credit rating for the Dominican Republic was last set at Ba3 with stable outlook (July 2017). Fitch's credit rating for the Dominican Republic was last reported at BB- with negative outlook (May 8, 2020). ===================== E L S A L V A D O R ===================== GRUPO UNICOMER: S&P Puts 'BB-' ICR in CreditWatch Negative ---------------------------------------------------------- S&P Global Ratings placed its 'BB-' issuer and issue-level ratings on El Salvador-based retailer Grupo Unicomer Corp. on CreditWatch with negative implications. The CreditWatch listing reflects a potential downgrade of Unicomer in the next few months if the company's liquidity position deteriorates in its retail or consumer finance operations, in addition to potential breaches of covenants in the near term. This could occur if its operating and financial performance worsen beyond our current expectations. S&P's revised forecast assumes double-digit decreases in Unicomer's revenues and EBITDA for the fiscal year ending March 2021, as lockdowns disrupt most of its operations. Even though the company benefits from a relatively diverse footprint, operating in 27 countries, most of the countries have enforced similar lockdown measures in order to contain the pandemic, the most relevant exception being Costa Rica, where Unicomer generates about 20% of its income. S&P said, "Despite extraordinary measures taken by the company aiming to significantly reduce operating expenditures, we expect that reduced sales and fixed costs will undermine its EBITDA, causing net leverage metrics to rise, even though debt levels aren't significantly increasing. For the last twelve months ended December 2019, our adjusted net debt to EBITDA for the company's retail division was 1.5x--we now expect this ratio could increase to near 3.0x in the next 12 months. To mitigate cash pressures, the company will defer capital expenditures (capex) and dividend payments until cash flow normalizes. In the past month, Unicomer reached different agreements with its creditors to defer and/or capitalize debt service payments due in the next three to six months, mostly related to amortizing bank loans. We view these agreements as opportunistic, rather than distressed, because the company's cash reserves are significantly larger than the debt service and we would not have predicted a conventional default absent these agreements." In S&P's view, if the ramifications of the pandemic and the recession prevail in the longer term, a permanent loss of some discretionary income and rise of unemployment are possible in countries relevant to Unicomer's business. This could increase delinquency rates and worsen the company's yield on its portfolio, while tighter underwriting to control the quality of the portfolio would also restrain cash flow generation. Unicomer's consumer finance (or captive finance) operations have been an important driver of its business growth in the past few years, supporting its retail sales. The captive finance division's access to funding will be important to address potential liquidity needs in the adverse market and economic conditions, because Unicomer is subject to different maintenance covenants that could be breached in the near term. Environmental, social and governance (ESG) factors for this credit rating outlook change: -- Health and safety. ============= J A M A I C A ============= NORTHERN CARIBBEAN UNIVERSITY: 10% Salary Cut for Employees ----------------------------------------------------------- RJR News reports that Northern Caribbean University has disclosed a 10 per cent salary cut for all its employees effective June 1, in response to reduced revenue inflows caused by the COVID-19 pandemic. The university said there may be further salary reduction if its financial position does not improve to meet future payments, according to RJR News. Employees were informed of the salary cut, the report notes. Other cost containment measures include, temporary suspension of specified allowances and layoff of workers on short-term contracts and workers who cannot be redeployed by the university at this time, the report adds. [*] JAMAICA: UK Contributes US$3.8MM to Caribbean's COVID-19 Fight ------------------------------------------------------------------ Jamaica is among eight Caribbean countries which will benefit from a US$3.8 million contribution from the British Government to contain the spread of the coronavirus disease and mitigate its impact. The other countries are Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Saint Lucia, and Saint Vincent and the Grenadines. The contribution will come through the Pan American Health Organisation (PAHO). As reported in the Troubled Company Reporter-Latin America, S&P Global Ratings revised on April 16, 2020 its outlook on Jamaica to negative from stable. At the same time, S&P Global Ratings affirmed its 'B+' long-term foreign and local currency sovereign credit ratings, its 'B' short-term foreign and local currency sovereign credit ratings on the country, and its 'BB-' transfer and convertibility assessment. On April 17, 2020, the TCR-LA reported that Fitch Ratings has revised Jamaica's Outlook to Stable from Positive. The Long-Term Foreign-Currency Issuer Default Rating is affirmed at B+. The Outlook change reflects the shock to Jamaica from the coronavirus pandemic, which is expected to lead to a sharp contraction in its main sources of foreign currency revenues: tourism, remittances and alumina exports. ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD AND TOBAGO: Moody's Alters Outlook on Ba1 Rating to Neg. ----------------------------------------------------------------- Moody's Investors Service has changed the outlook on the Government of Trinidad and Tobago's ratings to negative from stable. At the same time, the government's long-term issuer and senior unsecured debt ratings have been affirmed at Ba1. The negative outlook reflects increased downside risks to Trinidad and Tobago's economic and fiscal strength stemming from medium-term challenges that have now been exacerbated by the severe shock to global oil and gas demand and prices, triggered by the coronavirus pandemic. The negative outlook is also informed by uncertainty regarding the degree to which the government will be able to offset revenue losses over time and sustain robust economic growth and budgetary outcomes conducive to a stabilization or gradual reduction in its debt burden. In Moody's view, fiscal and debt dynamics are highly sensitive to a recovery in the energy sector and risks to government debt ratios remaining at higher levels have materially risen. Trinidad and Tobago's government's balance sheet has weakened since the previous oil price shock in 2015, notwithstanding recent fiscal consolidation efforts, leaving the sovereign's credit profile exposed to a further prolonged period of depressed oil and gas prices or lower investment in the energy sector than what the authorities currently expect. In addition, despite renewed efforts, limited prospects for economic diversification and institutional constraints will continue to limit the shock absorption capacity of the economy. The affirmation of Trinidad and Tobago's Ba1 rating recognizes that the sovereign maintains sizable fiscal buffers, which underpins the government's fiscal strength, low government liquidity risks and limited external vulnerabilities. The rapid and widening spread of the coronavirus pandemic, which has led to a sharp deterioration in the global economic outlook and, relatedly, to a large fall in the price of oil, has created an unprecedented shock to a wide range of regions and markets. Moody's regards the coronavirus outbreak as a social risk under its ESG framework. Trinidad and Tobago's long-term foreign-currency bond ceiling remains unchanged at Baa3. The foreign-currency bank deposit ceiling remains at Ba2, while the local-currency bond and bank deposit ceilings remain at Baa2. The short-term foreign-currency bond and bank deposit ceilings remain unchanged at P-3 and Not Prime (NP), respectively. RATINGS RATIONALE RISKS OF LASTING NEGATIVE IMPACT ON ECONOMIC STRENGTH FOLLOWING THE CORONAVIRUS SHOCK The deep global economic recession that Moody's expects in 2020 triggered by the pandemic will reduce prices and demand for oil and gas products, and while the rating agency expects a recovery in 2021, risks are tilted to the downside. A period of prolonged lower prices and depressed demand would have a lasting impact on Trinidad and Tobago's medium-term economic growth given the relevance of energy sector dynamics on GDP growth. Oil and gas products account for about 26% of GDP and 80% of exports. Importantly, without a strong recovery in energy production levels in the country relative to 2019-20 it would be difficult for Trinidad and Tobago to post positive real GDP growth - real GDP has contracted every year since 2016 and is expected to do so again in 2020. If prices were to remain depressed in the coming years or if the private companies that dominate the energy sector in Trinidad and Tobago were to decide against ramping up investment, the continuation of consecutive years of economic stagnation or contractions could follow. While the government of Trinidad and Tobago has lowered its forecasts for oil and gas prices in 2020 through 2022, the authorities still expect high investment levels in the energy sector and project a very strong production rebound in 2021 and 2022. As Moody's baseline scenario assumes weaker gains in oil and gas production levels in the coming years, lower growth in the energy sector, coupled with a sharp decline in the non-energy sector derived from "shelter-in place" policies to contain the spread of the coronavirus, will lead real GDP to contract by 4.3% in 2020 followed by a moderate recovery of 3% growth in 2021. Despite renewed efforts, limited prospects for economic diversification and institutional constraints will continue to limit the economy's shock absorption capacity and the country's growth potential. The business environment remains challenging, which raises the cost of doing business and impedes investment activity. Other factors, such as skills mismatches in the labor force, pose challenges to the development of a more robust non-energy sector of the economy. Government bureaucracy also weigh on the investment climate. RISKS TO DEBT STABILIZING GIVEN THE SENSITIVITY OF FISCAL AND DEBT METRICS TO A RECOVERY IN THE ENERGY SECTOR Moody's expects the sharp GDP economic contraction in 2020 to significantly reduce government revenue this year. This, in addition to a modest increase in government spending relative to 2019 to address health risks and mitigate the negative economic impact of the pandemic, will lead to a rise in the fiscal deficit to around 10% of GDP this year. Looking beyond the shocks of 2020, Moody's believes there is relevant risk in the ability of the government to sufficiently curb expenditures and materially improve debt dynamics in the medium term, even more so if government revenue does not recover as much as the authorities expect. While the rating agency expects the fiscal stimulus measures implemented to address the pandemic to be scaled back in 2021, and assumes a recovery in energy prices and production to increase government revenue next year, Moody's believes that fiscal consolidation efforts on the expenditure side could prove insufficient to place the debt trend on a sounder footing. Measures that could also help arrest the debt trend, such as phasing out a significant part of transfers to state-owned enterprises, are politically sensitive and therefore challenging to implement since the government plays an important role in maintaining employment levels and domestic demand through its spending on social programs and transfers to public-sector enterprises. That said, after the 2015 oil price shock, the government did cut spending on goods and services and capital expenditures, and reduced subsidies and transfers to SOEs, including the closure of a loss-making refinery. While the fiscal consolidation implemented in 2016-17 was larger and more effective than what Moody's had initially anticipated, demonstrating institutional capacity to do so, it still accounted for only around half of the lost government revenue, and the policy response came in mid-2016 and 2017, after the impact of the oil price shock in government revenue was evident. Moreover, downside scenarios highlight how sensitive GDP growth and debt dynamics are to drops in energy prices and to oil and gas production assumptions, underscoring the impact a prolonged period of lower oil prices or depressed demand would have in Trinidad and Tobago's credit profile. Under Moody's baseline scenario, debt will increase to 78% of GDP in 2021 from 64% in 2019. In a scenario where gas prices remain low, or in which private investment in new wells is not being carried out, debt could increase to a range of 81%-84% of GDP by 2021. RATIONALE FOR THE AFFIRMATION OF THE Ba1 RATINGS Moody's decision to affirm Trinidad and Tobago's Ba1 rating recognizes that the sovereign maintains sizable fiscal buffers, which underpins the government's fiscal strength, low government liquidity risks and limited external vulnerabilities. The assets at the Heritage and Stabilization Fund provide a sizable fiscal buffer, supporting its assessment of fiscal strength. The rules that allow withdrawing from the fund are strict and the government has tapped it only three times. As of April 30, 2020, the stock of assets in the fund amounted to $6.19 billion (or 26% of its estimate for 2019 GDP). These assets are liquid and invested in international equities and fixed income assets. The authorities secured legislative authorization to withdraw up to $1.5 billion (6% of its estimate for 2019 GDP) from the HSF to cover part of this year's fiscal deficit. That said, the authorities do not expect to withdraw the entirety of the approved amount this fiscal year. Moody's believes the authorities may be eligible to withdraw an additional amount, under the rules of the HSF, in the next fiscal year. As a result, the rating agency expects the HSF to decline to 20% of GDP by the end of 2021 from the current 26% of GDP. Trinidad and Tobago also have low government liquidity risks due to ample access to a relatively deep domestic financial market. In the past, the government has comfortably met most of its financing needs from domestic funding sources, which have covered on average around 80% of its total needs. Given the significant increase in gross financing needs for 2020, which the authorities estimate at around 15% of GDP, the government plans to complement domestic market issuances with multilateral financing and withdrawals from the heritage stabilization funds, as well as tap international markets to refinance a maturing global bond. In terms of external vulnerabilities, pressures are contained by a positive international investment position, recurring current account surpluses (although Moody's expects a deficit this year), and a low level of external debt payments relative to international reserves. A large stock of international reserves provides a significant financial buffer and contains external pressures associated with imbalances in the foreign exchange market. That said, foreign exchange shortages and a consistent balance-of-payments deficit have contributed to a decline in international reserves to less than $7 billion in December 2019, from a peak of around $12 billion in December 2014. Foreign exchange shortages continue to affect businesses, particularly small and medium-sized businesses, manufacturers and retailers, weighing on growth prospects in the non-energy sector. Despite recurring current account surpluses, financial outflows and significant net errors and omissions have resulted in a balance of payments deficit over the past 5 years. ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS Environmental risks are derived from carbon transition. Under a scenario of a gradual slowdown and eventually fall in hydrocarbon demand, Trinidad and Tobago's credit profile would face downward pressure, albeit over the longer term. Given the country's small size and location in the Caribbean basin, Trinidad and Tobago is also exposed to regular hurricanes. However, the country lies on the south of the Hurricane belt, and as such is not as exposed as other Caribbean sovereigns. Social risks carry limited weight in Moody's credit assessment of Trinidad and Tobago. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The outbreak will test the country's welfare infrastructure, but Moody's does not expect social risks to materially impact the credit profile. Although the population is markedly divided by ethnic lines, any potential tensions are channeled institutionally, with political parties prizing social stability. Governance issues are a key limitation to Trinidad and Tobago's credit profile, as reflected in Moody's institutions and governance strength assessment. Despite meaningful efforts in recent months to improve data reporting, significant data limitations and institutional constraints limit the government's capacity to execute fiscal policy, weakening the sovereign's credit profile. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Given the negative outlook, a rating upgrade is unlikely at this time. An improvement in government debt ratios and debt affordability, particularly if supported by an increase in non-energy revenue or improved tax collection rather than asset sales or fiscal buffer drawdowns, would stabilize the outlook and, if sustained, result in an upgrade. Material progress in institutional and economic reforms that increase competitiveness and the economy's shock absorption capacity would also likely result in a higher rating. Poor prospects for the oil and gas industry, affecting economic growth and straining government finances beyond what is captured in Moody's current baseline, would add negative pressure to the rating. The rating would be downgraded if government debt ratios were to continue their upward trend beyond this year, due to the absence of healthier growth prospects and revenue-enhancing or fiscal adjustment measures aimed at stabilizing the debt ratios over time. The need for mounting government support for state-owned enterprises, resulting in an increase in government debt, would weaken the government's balance sheet and likely result in a downgrade. A weakening of the balance-of-payments position would increase external vulnerability risks over time and could also lead to a downgrade. GDP per capita (PPP basis, US$): 32,284 (2018 Actual) (also known as Per Capita Income) Real GDP growth (% change): -0.2% (2018 Actual) (also known as GDP Growth) Inflation Rate (CPI, % change Dec/Dec): 1% (2018 Actual) Gen. Gov. Financial Balance/GDP: -3.6% (2018 Actual) (also known as Fiscal Balance) Current Account Balance/GDP: 5.8% (2018 Actual) (also known as External Balance) External debt/GDP: 46.8% (2018 Actual) Economic resiliency: ba3 Default history: No default events (on bonds or loans) have been recorded since 1983. On May 19, 2020, a rating committee was called to discuss the rating of the Government of Trinidad and Tobago. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have materially decreased. The issuer's fiscal or financial strength, including its debt profile, has materially decreased. Other views raised included: The issuer's institutions and governance strength, have not materially changed. The issuer's susceptibility to event risks has not materially changed. The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019. The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2020. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *