/raid1/www/Hosts/bankrupt/TCRLA_Public/200529.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
Friday, May 29, 2020, Vol. 21, No. 108
Headlines
B O L I V I A
BANCO DE CREDITO: Fitch Affirms LT IDRs at B+, Outlook Negative
BANCO FASSIL: Fitch Affirms LT IDRs at 'B', Outlook Negative
B R A Z I L
COMGAS: Fitch Affirms BB LongTerm IDR, Outlook Negative
PETROBRAS GLOBAL: Moody's Rates New Global Notes 'Ba2'
PETROBRAS GLOBAL: S&P Rates New Sr. Unsecured Notes 'BB-'
PETROLEO BRASILEIRO: Fitch Rates New Senior Unsecured Debt 'BB-'
USJ-ACUCAR E ALCOOL: Fitch Affirms 'RD' LongTerm IDRs
C H I L E
LATAM AIRLINES: Case Summary & 40 Largest Unsecured Creditors
LATAM AIRLINES: S&P Lowers ICR to 'D' on Chapter 11 Filing
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Hotels Reopen Mid June
J A M A I C A
JAMAICA: To Get US$520 Million Approved by IMF Executive Board
PALACE AMUSEMENT: Records $49MM Loss in Q1 Amid Pandemic
T R I N I D A D A N D T O B A G O
TOBAGO HOUSE: Moody's Alters Outlook on Ba1 Issuer Rating to Neg.
V E N E Z U E L A
VENEZUELA: Country's Debt Attracts Crypto Currency Hedge Funds
X X X X X X X X
LATAM: Cafes Anxiously Wait to Reopen After Historic Closures
LATAM: IDB and Esri Offer Solutions to Combat COVID-19
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B O L I V I A
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BANCO DE CREDITO: Fitch Affirms LT IDRs at B+, Outlook Negative
---------------------------------------------------------------
Fitch Ratings has affirmed Banco de Credito de Bolivia S.A.'s
Long-Term Issuer Default Ratings and Viability Rating at 'B+' and
'b', respectively. The Rating Outlook remains Negative.
The Outlook remains negative aligned with that of the sovereign but
also due to the increased downside risks from the economic
implications of the coronavirus pandemic. Fitch believes the weaker
economic conditions reflected in the expected contraction of the
economy by at least 3.3% in 2020, will likely result in asset
quality deterioration and will weigh on profitability.
KEY RATING DRIVERS
IDRs and Support Rating
BCP Bolivia's IDRs reflect the support it would receive from its
parent, Credicorp Ltd., if required. Fitch believes there is a high
degree of integration between BCP Bolivia and its parent.
Nevertheless, the IDRs are constrained by Bolivia's Country Ceiling
of 'B+', which, according to Fitch's criteria, captures transfer
and convertibility risks. BCP Bolivia's support rating of '4'
reflects a limited probability of support due to uncertainties
about Credicorp's ability or propensity to provide support.
VR
BCP Bolivia's VR is highly influenced by the challenging and
deteriorated operating environment within a highly regulated and
interventionist framework, and company profile as the bank's solid
franchise benefits from belonging to the Credicorp group. The VR
also considers as a high importance factor the pressured
profitability which will likely deteriorate in the near term. The
bank's sound asset quality and modest capital metrics will be
tested under the current crisis.
As of March 2020, BCP Bolivia was the fifth largest bank in its
market as measured by total assets, with a market share of 9.7%.
The entity is 100% owned by Credicorp Ltd., the largest financial
group in Peru. BCP Bolivia benefits significantly from the best
practices of its shareholder, as well as from its reputation,
synergies, technological developments and strategies. Historically
the bank's branch expansion in the country has not been aggressive,
as its strategy has focused on a higher market presence with ATMs
and bank agents.
Given the loan quotas set by the regulator, BCP Bolivia's loan
portfolio expanded quickly between 2015 and 2018. As compulsory
loans tend to be of a lower quality, the bank's impaired loan ratio
deteriorated until 2018. In 2019, given the deaccelerating tendency
of loans growth, BCP Bolivia's past-due loan ratio modestly
improved to 1.76% at YE19 from 1.9% at YE18. However, impaired
loans ratio deteriorated to 1.87% at March 2020, driven by the
effects of political uncertainty and coronavirus expansion. Fitch
believes a prolonged period of weak operating conditions due to the
coronavirus crisis and political uncertainty will deteriorate asset
quality.
BCP Bolivia's profitability and net interest margin is limited by
the highly regulated operating environment. At YE19, operating
profit-to-risk-weighted assets modestly improved to 1.9%, driven by
reductions on securities impairment charges and lower operational
expenses, aligned with the bank's strategy of reducing costs.
However, at 1Q20, this metric was pressured by a low dynamic of
operating income and an increase in securities impairment charges,
due to higher provisions for investment losses (Bolivian sovereign
bonds). BCP Bolivia expects to reverse these provisions at the end
of May of 2020, however Fitch believes reversal of provisions will
be offset by expected pressures from lower business volumes,
increasing credit costs and reduced fee income due to lower
transactions driven by the pandemic. Fitch believes the bank enters
the crisis with little room for profitability deterioration.
BCP Bolivia's capitalization deteriorated in 2019 but is still
commensurate with its rating category. The bank's Fitch Core
Capital (FCC)-to-RWA ratio declined to 9.64% at March 2020 from
13.5% in 2014, as a consequence of an increase in RWA due to rapid
loan growth in recent year that has outpaced capital generation.
Fitch expects the bank's FCC ratio to stabilize around 10% as
credit growth decelerates over its forecast horizon. Additionally,
Fitch believes that current metrics and loss absorption capacity
will be tested under a less benign operating environment.
Although Fitch recognizes that funding concentration is a systemic
issue, in the agency's view, the bank's high funding concentration
is one of its main weaknesses. BCP Bolivia's two largest
institutional clients represented approximately 40% of total
deposits at end-March 2020 (25 largest represent 59%). This risk is
partially offset by the bank's solid liquidity, as illustrated by
the maintenance of its Liquidity Coverage Ratio and Net Stable
Funding Ratio in excess of 100%. The bank's loans to deposit ratio
of 97.20% was in line with its rating category. As a result of the
coronavirus crisis, liquidity risks may arise from reduced cash
flows, as well as longer-term effects on the asset quality and
recognition of losses remain a risk for banks.
RATING SENSITIVITIES
IDRs and VR
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A rating upgrade on the IDRs and VR is unlikely in the near
future given the sovereign's current rating and unstable operating
environment;
-- Over the medium term, ratings could be upgraded by the
confluence of improvements in the operating environment and the
financial profile of the bank;
-- BCP Bolivia's IDRs are sensitive to a change in Bolivia's
sovereign and country ceiling ratings. Positive rating actions on
the bank's IDRs would mirror those of the sovereign as BCP
Bolivia's IDRs are constrained by the country ceiling. The bank's
IDRs are also sensitive to a change in Fitch views about the
parent's willingness to support the bank.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- BCP Bolivia's VR could be downgraded if there is a sustained
deterioration of the bank's operating performance to negative or
near-to-zero results as well as additional pressures on FCC ratio
to below 7%.
-- BCP Bolivia's IDRs are sensitive to a change in Bolivia's
sovereign and country ceiling ratings. Negative rating actions on
the bank's IDRs would mirror those of the sovereign as BCP
Bolivia's IDRs are constrained by the country ceiling. The bank's
IDRs are also sensitive to a change in Fitch views about the
parent's willingness to support the bank.
SUPPORT RATING
BCP Bolivia's support rating is constrained and an upgrade is not
likely as the sovereign currently has a Negative Outlook. Should
Bolivia's sovereign rating be downgraded, the support rating will
also be downgraded.
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
Intangible asset calculation was revised to factor in some accounts
by Bolivian GAAP that were classified under other assets and other
accounts receivable. The bank cannot rely on these assets in case
of a liquidation process to pay for financial obligations.
Therefore, prepaid and deferred expenses were classified as
intangibles and deducted from Fitch Core Capital calculation.
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
Banco de Credito de Bolivia' ratings are support driven form
Credicorp Limited (Rated by Fitch at BBB+ RON)
ESG CONSIDERATIONS
Banco de Credito de Bolivia S.A.: Governance Structure: 4
BCP Bolivia have an ESG Relevance Score of 4 for Governance
Structure due to their exposure to high government intervention
reflected in the mandatory allocation of more than half their loan
portfolio on specific sectors, which has a negative impact on the
credit profile of the banks and is relevant to the ratings in
conjunction with other factors.
Banco de Credito de Bolivia S.A.
- LT IDR B+; Affirmed
- ST IDR B; Affirmed
- LC LT IDR B+; Affirmed
- LC ST IDR B; Affirmed
- Viability b; Affirmed
- Support 4; Affirmed
BANCO FASSIL: Fitch Affirms LT IDRs at 'B', Outlook Negative
------------------------------------------------------------
Fitch Ratings has affirmed Banco Fassil S.A.'s Long-Term Issuer
Default Ratings and Viability Rating at 'B' and 'b', respectively.
The Rating Outlook is Negative.
The Outlook remains Negative aligned with that of the sovereign but
also due to the increased downside risks from the economic
implications of the coronavirus pandemic. Fitch believes the weaker
economic conditions reflected in the expected contraction of the
economy by at least 3.3% in 2020, and the entity exposure to
vulnerable segments under social distancing measures, such as the
microfinance and SMEs sectors, will likely result in asset quality
deterioration and will weigh on profitability.
KEY RATING DRIVERS
IDRS AND VR
Fassil's VR or standalone creditworthiness drives its IDRs. The
bank's VR is highly influenced by the challenging and deteriorated
operating environment within a highly regulated and interventionist
framework, its company profile and weak profitability. VR is
moderately influenced by sound asset quality, tight capitalization
and adequate funding profile.
Fassil's company profile reflects the bank's growth strategy, which
is oriented toward maintaining its position as the sixth largest
bank in the system by assets and loans. It also reflects the bank
business model which includes a relevant proportion of microloans
(27%) and and SME lending (19%). The bank has maintained its high
growth appetite over the past few years amid a heavily regulated
and competitive financial sector. Nevertheless, ambitious credit
growth objective will be uncertain and challenging due to the
expected economic recession and the reduced demand for credit amid
the coronavirus crisis.
The bank's operating profitability/average total assets improved to
a low 0.76% at 1Q20 (YE19: 0.16%), below the Bolivian banking
system average (1.22%) and international peers. High yields on the
bank's microfinance loan portfolio are offset by significant
funding and operating costs. Fitch believes the bank enters the
crisis with very low room for profitability deterioration as that
some profitability pressures could arise from lower business
volumes, increasing credit costs and reduced fee income due to
lower transactions amid the pandemic.
Fitch views Fassil as having relatively better asset quality than
its peers. The 90-day PDL ratio remained low at 0.55% at 1Q20
(YE19:0.4%), driven by conservative underwriting standards as
evidenced by low restructuring, high proportion of secured lending,
high loan allowances and low charge-offs. Even though Fassil's
asset quality has been fairly resilient over the economic cycles,
Fitch will monitor whether a prolonged period of weak operating
conditions due to the coronavirus crisis could result in some
deterioration in the loans portfolio.
Fassil' capitalization is tight, mainly due to low profitability
and sustained assets growth. The Fitch Core Capital ratio of 7.6 %
at YE19 is weaker than the Bolivian banking system average of 10.7%
at the same date. However, loss absorption capacity benefits from a
sound loan loss reserve in excess of 100% of PDLs that represent an
additional cushion against unexpected losses. As capitalization is
one of the weakest links of Fassil's financial profile, Fitch
believes that current metrics and loss absorption capacity will be
tested under a less benign operating environment.
Fassil's liquidity position is commensurate with its rating
category although funding concentration is high. The bank's loan to
deposit ratio deteriorated to 99.7% at YE19 from 97% at YE18.
Moreover, funding is highly concentrated in term deposits from
institutional clients, as the top 20 depositors represented a high
70% of total deposits at YE19. Liquidity risks from reduced cash
flows due to deferment payment measures for loans facing
difficulties amid the pandemic are present for Fassil.
SUPPORT RATING
SR of '5' and SRF of 'NF' reflect that sovereign support cannot be
relied upon as Fassil is not considered a systemically important
bank.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IDRs AND VR
-- Negative rating actions would follow from a downgrade in the
sovereign's rating;
-- Fassil's ratings could be downgraded if there is a sustained
deterioration of the bank's operating performance to negative or
near-to-zero results as well as additional pressures on FCC ratio
to below 7%;
-- The ratings could also be pressured by a material
deterioration of bank's financial profile due to the disruption to
economic activity for the coronavirus pandemic.
SUPPORT RATING
-- There is no room for downgrade in the SR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRs AND VR
-- A rating upgrade on the IDRs and VR is unlikely in the near
future, as reflected by the Negative Outlook;
-- The Rating Outlooks on Fassil's IDRs could be revised to
Stable from Negative if the Sovereign Rating Outlook is revised to
Stable or if the bank sustains a financial profile consistent with
its current ratings despite deterioration in the operating
environment.
SUPPORT RATING
-- The Bolivian government's propensity or ability to provide
timely support to Fassil is not likely to change given the
sovereign's low speculative-grade IDR. As such, the Support Rating
and Support Rating Floor have no upgrade potential.
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
Intangible asset calculation was revised to factor in some accounts
by Bolivian GAAP that were classified under other assets and other
accounts receivable. In the event of liquidation, the bank cannot
rely on these assets to meet its financial obligations. As a
consequence, prepaid and deferred expenses were classified as
intangibles and deduced from the FCC.
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
Banco Fassil SA: Governance Structure: 4
Banco Fassil has an ESG Relevance Score of 4 for Governance
Structure due to its exposure to high government intervention
reflected in the mandatory allocation of more than half its loan
portfolio on specific sectors, which has a negative impact on the
credit profile and is relevant to the ratings in conjunction with
other factors.
Banco Fassil SA
- LT IDR B; Affirmed
- ST IDR B; Affirmed
- LC LT IDR B; Affirmed
- LC ST IDR B; Affirmed
- Viability b; Affirmed
- Support 5; Affirmed
- Support Floor NF; Affirmed
===========
B R A Z I L
===========
COMGAS: Fitch Affirms BB LongTerm IDR, Outlook Negative
-------------------------------------------------------
Fitch Ratings has affirmed Companhia de Gas de Sao Paulo - COMGAS's
Long-Term Foreign Currency Issuer Default Rating at 'BB', Local
Currency IDR at 'BBB-' and National Long-Term Rating at 'AAA(bra)'.
The Outlook is Negative for the IDRs and Stable for the National
Scale Rating.
The rating action reflects Fitch's expectation that COMGAS will
sustain its credit profile despite the indirect negative impact of
the coronavirus on its operations. Fitch estimates a reduction in
total volume billed of 13% during 2020, driven by lower volume on
industrial and commercial clients. The estimated moderate higher
volume for residential customers with a higher average tariff
should partially alleviate the impact on expected lower EBTIDA
generation during the period. Fitch estimates no cash burn from
operations during 2020. The company's sound financial structure and
liquidity profile provide enough buffer to support the expected
challenging operating scenario. Fitch assumed gradual recovery of
gas volume billed from 2021 onward.
COMGAS's ratings are sustained by the solid fundamentals of its
natural gas distribution business and historically robust financial
profile with reduced leverage, strong liquidity profile and
significant cash flow from operations. COMGAS's business profile
benefits from its operations in the state of Sao Paulo, the most
economically significant state in Brazil, and from the company's
long-term concession agreement, which includes clauses with
nonmanageable cost pass-through that protect its cash flow
generation.
The company has favorable growth prospects in the medium and long
term given the expectation of gas-distribution network and customer
base expansions that presents low penetration. Fitch believes gas
should continue to be competitive compared with alternatives, which
benefits billed volume increases. Fitch assumes the company will be
able to continually recontract its gas supply needs before existing
agreements expire, with potential contractual changes not
materially affecting COMGAS's cash flow generation. Fitch
incorporates no major changes in the company's credit profile due
to regulatory issues. COMGAS's ratings consider the company's
ownership by the Cosan group, whose main shareholder is Cosan S.A.
(BB/Negative). However, the group's access to COMGAS's cash is
mainly limited to dividend distributions, given its concessionaire
status.
COMGAS's FC IDR is capped by the Brazilian country ceiling of 'BB',
and Fitch considers a three-notch difference between the company's
LC IDR and the sovereign IDR (BB-/Negative) as appropriate for a
regulated sector. The Negative Outlook for the IDRs is aligned with
the Outlook of the sovereign rating. The Stable Outlook for the
National Scale rating reflects Fitch's expectations that the
natural gas distribution industry will preserve strong fundamentals
and that COMGAS will sustain robust credit metrics, with net
adjusted leverage below 2.5x over the next three years.
KEY RATING DRIVERS
Volume Billed Decrease: Fitch estimates COMGAS industrial clients
will register a 14% volume reduction in 2020 compared with 2019,
which should drive the 13% reduction in total volume billed for the
year, considering the industrial segment accounts for 80% of the
company's total volume. Fitch assumed lower volume billed to the
commercial and vehicles segments of 25% and 28%, respectively,
during 2020. An estimated increase of 6% on volume billed to
residential customers with a higher average tariff should partially
mitigate the negative impact on COMGAS's EBITDA generation in 2020
from the expected reduction in the volume of operations. The base
case scenario considers some recovery in the following years, with
a 3% increase in 2021.
Cash Generation Remains Sound: Fitch estimates COMGAS will sustain
strong normalized EBITDA in the next three years, despite a
decrease to BRL1.9 billion in 2020 and BRL2.0 billion in 2021.
EBITDA results are based on an expectation for adequate tariff
increases, maintenance of operating and cost efficiencies, and
expansion of its client base. Normalized EBITDA is adjusted for
higher or lower nonmanageable costs than those in the tariff. Under
the concession agreement, these differences are incorporated into
the next tariff-adjustment process. According to IFRS, the
company's EBITDA was BRL2.5 billion in 2019 per Fitch's
methodology, benefited by BRL295 million of current account balance
inflow.
FCF Pressured: Fitch estimates strong dividend distribution and
increased capex during 2020-2022 will make COMGAS's FCF negative,
at approximately BRL551 million per year on average in the same
period, and BRL762 million in 2020. Fitch expects manageable
working capital pressure, deriving from an expected increase of
delinquency during 2020. The base case scenario assumes annual
average dividend payments of BRL955 million and investments of
BRL950 million. The expectation of robust CFFO generation at BRL1.2
billion-BRL1.5 billion annually during this period should mitigate
FCF pressure.
Low Leverage Remains: Fitch expects COMGAS's net leverage to remain
low and consistent with the LC IDR, despite lower EBITDA, higher
capex and strong dividend distributions. According to Fitch's base
case scenario, net debt/EBITDA will not exceed 2.5x, and will be
2.3x in 2020. COMGAS's average total debt/EBITDA and net
debt/EBITDA during 2017-2019 were 2.3x and 1.2x, respectively,
according to Fitch's methodology.
Low to Moderate Business Risk: COMGAS is Brazil's largest natural
gas distribution company in terms of volume billed and is subject
to natural gas consumption volatility within the industrial
segment, its most relevant. This segment's performance is highly
linked with GDP and results in moderate cash flow variation.
COMGAS's competitive, manageable cost structure and continued
efforts to expand its residential and commercial client base, with
higher profitability, nevertheless mitigate the effect of
industrial segment volatility.
Manageable Supply Risk: Fitch assumes no gas supply disruptions for
COMGAS in the coming years, despite the supply contract with
Petroleo Brasileiro S.A. (Petrobras) maturing in 2021. Positively,
COMGAS has the option to renew its supply agreement until 2027 at
its discretion, which mitigates medium-term supply risks.
Single-supplier concentration risk remains, which is a common
industry characteristic in Brazil. The purchase of natural gas,
which is the company's main cost, is considered nonmanageable and
is passed through to tariffs based on contract clauses. Gas demand
is influenced by GDP and price competitiveness. However, switching
costs in some industrial segments represent a barrier to
alternative sources of energy.
DERIVATION SUMMARY
COMGAS's credit profile compares favorably with Companhia de
Saneamento Basico do Estado de Sao Paulo (Sabesp, BB/Negative), a
water/wastewater utility company that also operates in the state of
Sao Paulo, as Sabesp has significant unhedged FX debt exposure,
political risk and a higher level of CFFO committed to capex.
However, both companies present sound capital structures and sound
liquidity profiles. In the case of Transmissora Alianca de Energia
Eletrica S.A. (Taesa, BB/Negative), a Brazilian power transmission
company, COMGAS's lower leverage is counterbalanced by Taesa's
lower regulatory and business risks, given no volumetric exposure
leading to more predictable CFFO. Promigas S.A. E.S.P.
(BBB-/Stable) has a strong business position in Colombia and
predictable cash flow generation, but its gross leverage of around
4.0x-4.5x is higher than COMGAS's at around 2.0x-2.5x. However,
Promigas' business profile benefits from diversification within
natural gas transportation and distribution, compared with COMGAS,
which only distributes gas and can face demand volatility.
Promigas' IDR also incorporates its operation in a country with a
better operating environment than COMGAS's.
KEY ASSUMPTIONS
-- Total volume billed decreases (excluding the thermo power
generation segment) by 13% in 2020, with an annual average increase
of 3% thereafter, in line with Fitch's GDP estimation;
-- Dividend payout ratio of 100% of distributable net profit;
-- Annual average capex of BRL950 million in 2020‒2022;
-- Annual contribution margin increase in line with Fitch's
inflation estimates and adjusted by an efficiency factor of 0.52%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating actions are unlikely. A revision of the
Negative Outlook to Stable could occur if the same occurs with the
sovereign rating.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Expectation of a sustainable increase in net leverage (net
debt/EBITDA) to above 3.0x;
-- Fitch's perception of regulatory and/or gas supply risk
deterioration;
-- Sharp decrease in volume billed beyond Fitch's expectations;
-- Deterioration of the company's liquidity profile;
-- A downgrade of the sovereign rating would trigger a downgrade
for the FC and LC IDRs.
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
Robust Liquidity Position: COMGAS's credit profile benefits from
robust liquidity and a manageable debt maturity schedule. Fitch
estimates the company to have a comfortable cash position of BRL3.0
million-BRL3.5 billion in mid-May, which includes BRL1.5 billion of
debt issuance during April and BRL560 million of Banco Nacional de
Desenvolvimento Economico e Social reimbursement of realized capex.
The company's short-term debt was BRL781 million by end 2019, with
around BRL600 million to be amortized between May 2020 and December
2020. Fitch expects the company to disburse an additional BRL400
million with BNDES in 2H20 to partially support its capex during
the following quarters. COMGAS's financial flexibility benefits
from a proven track record in accessing local debt and capital
markets, with a suitable cost of funding during the last five
years, which mitigates the expected negative FCF in coming years.
SUMMARY OF FINANCIAL ADJUSTMENTS
-- Construction revenues are excluded from net revenues.
-- Debt adjusted with hedging derivatives.
-- BRL802 million excluded from 2018 EBITDA related to
nonrecurrent indemnities and tax recovery.
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).
PETROBRAS GLOBAL: Moody's Rates New Global Notes 'Ba2'
------------------------------------------------------
Moody's Investors Service assigned a Ba2 rating to Petrobras Global
Finance B.V.'s proposed new global notes, which will be
unconditionally guaranteed by Petroleo Brasileiro S.A. - PETROBRAS
(Petrobras, Ba2 stable). The Ba2 rating on the proposed notes is
based on the rating of Petrobras. The proposed notes are senior
unsecured and pari passu with Petrobras Global Finance B.V.'s and
Petrobras' other senior foreign currency debt. The outlook on the
rating is stable.
RATINGS RATIONALE
Petrobras' Ba2 ratings and ba2 Baseline Credit Assessment, a
measure of the company's standalone credit risk without government
support considerations, are supported by Petrobras' dominance in
the Brazilian oil industry and its importance to the country's
economy; its sizeable oil and gas reserves, equivalent to over 11
years of life; the diligent effort to improve its credit metrics,
which were strengthened in the last five years, and its adequate
liquidity position, which Moody's expect to continue so in the
foreseeable future. The ratings and BCA are also supported by the
company's renowned high technological offshore expertise and
potential for continued growth in production over the long-term.
However, Petrobras' ratings are constrained by still high debt and
financial expenses levels vis-a-vis cash generation; business plan
execution risk; and potential government interference contrary to
the business and financial interest of the company.
Petrobras' Ba2 ratings also consider Moody's joint-default analysis
for the company as a government-related issuer; Petrobras' ratings
reflect the assumption for moderate support and dependence from the
Government of Brazil (Ba2 stable) based on the government's weak
fiscal accounts but limited dependence on foreign currency funding,
the high level of diversification of the Brazilian economy, and the
country's limited reliance on local production of fuel. Petrobras'
corporate governance has improved since the beginning of the Lava
Jato investigations in early 2014; the company has secured its best
new corporate practices with some new managing rules, standards and
procedures in its bylaws, most recently updated in April 2019.
Petrobras' liquidity position is good. Moody's expects that the
company's cash generation in the next two years will be more than
enough to cover mandatory cash obligations plus annual capital
expenditures of about $8.5 billion, as per Moody's estimates,
allowing it to reduce debt further, even without asset sales.
The stable outlook on Petrobras' ratings incorporates its view that
the company's credit profile will continue to gradually improve in
the foreseeable future.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Petrobras' Ba2 rating would require further
improvement in its overall credit metrics; continued financial
discipline; evidence of lower exposure to adverse government
influence; and a stable energy regulatory environment in the
country. In addition, an upgrade of Petrobras' ratings would
consider Moody's ratings on the government of Brazil.
Negative actions on Petrobras' rating could result from a
deterioration in operating performance or external factors that
increase liquidity risk or debt leverage permanently. Downgrades
could also be prompted if negative developments from the
litigations against Petrobras appear to have the potential of
significantly affecting the company's liquidity or financial
profile or if the rating on the government of Brazil is
downgraded.
The methodologies used in these ratings were Integrated Oil and Gas
Methodology published in September 2019.
Petrobras is an integrated energy company, with total assets of
$187 billion as of March 31, 2020. The company dominates Brazil's
oil and natural gas production, as well as downstream refining and
marketing. Petrobras also holds a significant stake in
petrochemicals and a position in sugar-based ethanol production and
distribution. The Brazilian government directly and indirectly owns
about 36.75% of Petrobras' outstanding capital stock and 50.5% of
its voting shares.
PETROBRAS GLOBAL: S&P Rates New Sr. Unsecured Notes 'BB-'
---------------------------------------------------------
S&P Global Ratings assigned its 'BB-' issue-level rating on
Petrobras Global Finance B.V.'s (PGF's) proposed senior unsecured
notes. PGF is a wholly-owned finance subsidiary of Brazilian oil
and gas company, Petroleo Brasileiro S.A. - Petrobras (Petrobras;
BB-/Stable/--). Petrobras will unconditionally and irrevocably
guarantee the notes.
S&P said, "We understand that Petrobras will use the new notes to
reinforce its cash position, in line with management's recent
actions to preserve liquidity amid the challenging industry
conditions. We expect Petrobras to post debt to EBITDA of about
6.0x in 2020 because of a significant drop in demand for oil and
gas due to mobility restrictions and very low oil prices. Still,
considering our assumption of demand recovery and Brent oil prices
of $50 per barrel in 2021, Petrobras' leverage could decrease to
4.0x.
"We rate PGF's senior unsecured debt at the same level as our
issuer credit rating on Petrobras, based on the guarantee of this
debt and because the latter has limited secured debt collateralized
by real assets. Even if the senior unsecured debt ranked behind the
subsidiaries' debt in the capital structure, we believe the risk of
subordination is mitigated by a priority debt ratio that's far less
than 50% and the significant earnings generated at the parent
level."
Ratings List
New Rating
Petrobras Global Finance B.V.
Senior Unsecured BB-
PETROLEO BRASILEIRO: Fitch Rates New Senior Unsecured Debt 'BB-'
----------------------------------------------------------------
Fitch Ratings has assigned a long-term rating of 'BB-' to Petroleo
Brasileiro S.A.'s proposed senior unsecured debt issuance. The
notes will be issued by Petrobras Global Finance B.V. and will be
unconditionally and irrevocably guaranteed by Petrobras. The
company expects to use the proceeds for general corporate purposes.
Fitch currently rates Petrobras' foreign and local currency
long-term Issuer Default Ratings 'BB-', with a Negative Rating
Outlook.
Petrobras' ratings are capped by Brazil's sovereign ratings
(BB-/Stable) due to the government's strong ownership and potential
control and the company's strategic importance to the country.
Petrobras' dominant market share in the supply of liquid fuels in
Brazil, coupled with its large hydrocarbon production footprint in
the country, exposes the company to government intervention through
pricing policies and investment strategies. Petrobras' ratings
reflect the very strong support incentives Brazil has toward the
company as a result of its strategic importance to the country.
Fitch considers the linkage between Petrobras and the government to
be strong as a result of the Brazilian government's majority
ownership and control of the company, as well as the evidence of a
strong support track record.
The Negative Outlook for Petrobras's foreign and local currency
long-term IDRs reflects the Negative Outlook for Brazil's sovereign
rating.
KEY RATING DRIVERS
Capped by the Sovereign: Petrobras' ratings are equalized to those
of Brazil's sovereign as a result of the control the government may
have over the company's strategies and investments in the future.
Petrobras' ratings continue to be capped by those of the sovereign
despite the company's material improvements in its capital
structure and effort to isolate itself from government
intervention. By law, the federal government must hold at least a
majority of Petrobras' voting stock and currently owns 50.5% of
Petrobras' voting rights, directly and indirectly, and has a 36.75%
overall economic stake.
Improving SCP: Petrobras' SCP of 'bbb' reflects the company's
continued improvements in its capital structure and Fitch's
expectation that the company will maintain or further improve it
going forward. During 2019, Petrobras used the proceeds from
internal cash flow generation and asset sales to significantly
lower its financial debt (excluding leases) by approximately USD21
billion, or 25%, compared with YE 2018. Fitch expects Petrobras'
leverage, as measured by net financial debt to EBITDA, to surpass
5.0x in 2020 as a result of depressed oil prices before recovering
to approximately 2.5x over the next two to three years. As of YE
2019, Petrobras' net leverage decreased to approximately 2.0x from
its peak of more than 5.0x at Dec. 31, 2015.
Strong Cash Flow Generation: As international oil prices recover;
Fitch expects Petrobras to start reporting again marginally
positive FCF while investing enough to replenish reserves. Fitch
expects Petrobras to report negative FCF in 2020 of more than
USD7.0 bn as cash flow from operations decrease to approximately
one-third of that reported in 2019. The base case scenario for
Petrobras considers annual average EBITDA and FFO recovering to
approximately USD25 billion and USD17 billion, respectively, over
the rating horizon.
During 2019, the company reported an EBITDA (adjusted for leases)
of USD28.3 billion, up from an average of approximately USD26
billion over the previous three years, while total financial debt
decreased by more than USD60 billion to USD63 billion as of
December 2019 from USD126 billion as of YE15. Petrobras reported
positive Fitch-defined FCF of USD5 billion during 2019 (including
transfer of rights acquisition and settlement), while maintaining
investments in its upstream business at a level Fitch considers
sufficient to replenish reserves.
Supportive Government: Petrobras' credit quality has materially
benefited from the Brazilian government's indirect support during
times of distress. The government has provided liquidity through
government-controlled financial institutions, changed regulations
that negatively affected Petrobras' cash flow in the past and at
times allowed the company to implement beneficial pricing policies.
The government also allowed the company to significantly reduce
dividends and curb downstream investments, which, together with
asset sales, led Petrobras to strengthen its capital structure and
improve its SCP.
Potential Political Interference: The potential return of stronger
political meddling into Petrobras' strategy, noticeably through
manipulation of domestic gasoline and diesel pricing mechanisms,
would negatively affect the company's cash flow generation and
stand-alone credit profile. This is particularly relevant during
times of Brazilian real depreciation against the dollar, which
would increase domestic gasoline and diesel prices and heighten
interference risk. In 2018, the Brazilian government established
provisional measures to fix and subsidize diesel prices to ease
mounting social pressure over volatility in fuel prices. This
marginally increased the company's cash flow generation exposure to
receipt of government subsidies while the program was in place
until year-end. These policies were not implemented in 2019.
Marginal Production Growth: Fitch's rating case assumes Petrobras'
gross production will increase to approximately 3.3 million barrels
of oil equivalent a day (boe/d) in the next three to five years
from 2.9 million boe/d reported in first-quarter 2020 (1Q20).
During 2019, the company reported annual average production of
approximately 2.8 million boe/d and proved reserves of 9.6 billion
boe give the company a reserve life of approximately 10 years.
Production growth is expected to remain driven by the company's
development of its pre-salt assets and planned capex for the next
five years of USD75.7 billion. Pre-salt represented approximately
59% of Petrobras' oil production during 2019 and is expected to be
the primary driver for the company's production growth going
forward. Petrobras' marginal production increase of 5.4% between
2018 and 2019 was primarily driven by a 28.5% increase in pre-salt
formation, mitigated by shallow water decline due to asset sales
and natural production depletion in other areas.
DERIVATION SUMMARY
Petrobras' linkage to the sovereign is similar in nature to its
peers, namely Petroleos Mexicanos (PEMEX; BB-/Stable), Ecopetrol
S.A. (BBB-/Negative) and YPF (CCC). It also compares with Empresa
Nacional del Peru (ENAP; A/Negative) and Petroleos del Peru -
Petroperu (BBB+/Stable). All have strong linkages to their
respective sovereigns, given their strategic importance and the
potentially significant negative social-political and financial
implication a default by any of these entities could have for their
countries.
On a stand-alone basis, Petrobras' credit profile is commensurate
with a 'bbb' rating, which is materially higher than PEMEX's 'ccc-'
stand-alone credit profile, as a result of Petrobras' positive
deleverage trajectory versus PEMEX's increasing leverage
trajectory. Furthermore, Petrobras has and is expected to continue
to report positive FCF and production growth, which Fitch expects
to reach approximately 3.3 million boe/d in the next three to five
years. In contrast, PEMEX's production has declined in recent
years, reporting a decline of 7% between 2018 and 2019. These
production trajectories further support the notching differential
between the two companies' stand-alone credit profiles. Petrobras'
stand-alone credit profile is in line with that of Ecopetrol at
'bbb' given both companies' strong credit metrics and deleveraging
trajectories.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer:
-- Gross production to increase to approximately 3.3 million
boe/d over the next four years.
-- Eight production units come on line during the next four
years.
-- Brent Crude Price of USD35/bbl in 2020 and USD45/bbl in 2021,
trending to USD55/bbl in the long term.
-- Average FX rate trends toward BRL4.9/USD.
-- Dividends payout ratio of 25%.
-- Proceeds from future asset sales are not incorporated on
Fitch's rating case.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action:
-- A positive rating action on Brazil could lead to a positive
rating action on Petrobras.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action:
-- A negative rating action on Petrobras could result from a
downgrade of the sovereign and/or the perception of a lower linkage
between Petrobras and the government coupled with a material
deterioration of Petrobras' SCP.
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
Strong Financial Flexibility: Petrobras' liquidity is robust and
provides an added comfort in an environment of strengthening credit
metrics, supported by approximately USD16 billion of cash and
marketable securities as of March. 31, 2020, compared with current
financial debt maturities of approximately USD6 billion. The
majority of Petrobras' available liquidity is composed of readily
available liquidity held abroad.
Petrobras demonstrates a solid ability to access the debt capital
markets to refinance debt. During 2019, estimated long-term debt
proceeds amounted to roughly USD7.5 billion, which the company used
to amortize debt. Petrobras' financial debt decreased by an
estimated USD21 billion over the same time. At the same date, the
average maturity of outstanding financial debt was approximately
10.8 years and 15% of the company's debt was in Brazilian reals.
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.
Petrobras has an ESG Relevance Score of 4 for human rights and
community relations as well as access and affordability (SCR) due
to social pressures potential impact on pricing policy in the
future.
The company's score for Governance Structure (GGV) is 4 resulting
from its nature as a majority government owned entity and the
inherent governance risk that arise with a dominant state
shareholder.
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
Petrobras and Eletrobras are directly linked to the sovereign
rating.
USJ-ACUCAR E ALCOOL: Fitch Affirms 'RD' LongTerm IDRs
-----------------------------------------------------
Fitch Ratings has affirmed U.S.J. - Acucar e Alcool S.A.'s ratings,
including its Long-Term Foreign and Local Currency Issuer Default
Ratings at 'RD', and the National Scale Rating at 'RD(bra)'. Fitch
has also affirmed at 'C' the senior unsecured notes due 2019 (in
the amount of USD9.3 million) and 2021 (in the amount of USD4.1
million) and revised the Recovery Ratings to 'RR6' from 'RR4'. At
the same time, Fitch has downgraded to 'C'/'RR4' from 'CC'/'RR4'
the rating on the senior secured notes due 2023, in the amount of
USD290 million.
KEY RATING DRIVERS
The senior secured notes due 2023 downgrade to 'C'/'RR4' from
'CC'/'RR4' follows the missed payment by USJ, on May 9, 2020, of
the coupon of the related note, estimated by Fitch at USD9.2
million. While the company entered a 30-day cure period for the
coupon payment, it has also used the option to defer an amount of
USD6 million under the same coupon and pay accrued interest at
maturity in 2023.
The affirmation of USJ's ratings reflects the defaults of principal
and coupon of the 2019 senior unsecured notes and coupon of the
2021 unsecured notes and 2023 secured notes. The 2021 notes have
been revised to unsecured from secured. USJ still has a
persistently weak liquidity position and high refinancing risk,
with increased concentration of short-term debt and the company's
inability to generate positive FCF. The recent devaluation of
Brazilian real has put additional pressure on the USJ's ability to
honor its U.S. dollar-denominated debt, which accounts for 90% of
total debt.
The absence of any material asset sales has made USJ highly
dependent on the availability of short-term credit lines, and Fitch
believes the company will continue to face very limited financial
flexibility for its debt obligations during 2020. As of Sept. 30,
2019, USJ's cash position of BRL35 million compared unfavorably
with its short-term debt of BRL276 million. From May to December
2020, the company has coupon and principal payments of
approximately USD24 million under the 2021 and 2023 bonds and
USD9.3 million defaulted on the 2019 notes. For 2021, the company
has coupon and principal payments of USD80 million under the 2021
and 2023 bonds. There are cross-default clauses between the bonds
and the bank lines, estimated at BRL250 million as of March 31,
2020, but in Fitch's opinion, repayment of bank loans will not be
accelerated.
USJ's credit profile is pressured by its operations in a very
volatile sugar and ethanol sector, with above-average industry
risks. Cash flow performance is poor with cash flow from operations
of BRL74 million and negative FCF of BRL88 million in the LTM to
September 2019. USJ also presents high leverage, with net
debt/EBITDA expected to reach 7.6 times in FY20, comparing
unfavorably with 5.9x in the LTM to September 2019.
In May 2019, USJ concluded the debt exchange offer of its
outstanding 9.875% senior unsecured notes due 2019 and 9.875%/12%
senior secured PIK toggle notes due 2021 for 8.5%/9.875% senior
secured PIK notes due 2023. All the notes combined received 95.15%
acceptance; the 2019 notes 69.95%, with an outstanding amount of
USD29 million at the time of acceptance; and the 2021 notes 98.4%,
with an outstanding amount of USD248 million at the time the
transaction was concluded. Acceptance exceeded the minimum of 60%
and 90% on the 2019 and 2021 notes, respectively. No haircut was
involved. In November 2019, USJ missed payment of the coupon and
principal of its senior unsecured notes due 2019 and 2021.
USJ has an ESG Relevance Score of '4' for GGV - Governance
Structure, as the company has key person risk and limited board
independence through family ownership. USJ also has an ESG
Relevance Score of '4' for GST - Group Structure due significant
raw material dependence on related party, like land lease expenses
to related parties and shareholders. Both factors above have a
negative impact on the credit profile, and are relevant to the
rating in conjunction with other factors.
DERIVATION SUMMARY
USJ's 'RD' rating reflects the missed coupon and principal payments
in 2019 and 2020.
USJ has much less liquidity and a weaker capital structure than
Jalles Machado S.A (Jalles; A+[bra]/Stable) and Usina Santo Angelo
S.A. (USA; A-[bra]/Stable) whose cash-to-short-term debt coverage
stands at above 1.0x and adjusted net leverage is below 2.0x. USJ's
ratings also compare unfavorably with those of Biosev S.A
(B/Negative), despite Biosev's escalating refinancing needs
expected for 2021 and 2022. With U.S. dollar-denominated debt
accounting for over 90% of its total debt and focus on the domestic
market, USJ is also more exposed to foreign exchange risks than
other peers rated by Fitch.
USJ has a weaker business profile than Jalles, as the latter has
higher product-mix flexibility, above-average agricultural yields
and a greater presence of high value-added products in the mix,
whereas USJ's focus on sugar is an advantage in times of depressed
ethanol prices. USJ also lacks the scale and presence of a large
shareholder like Biosev, and the high yields and low-cost structure
of USA.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer
- Crushed volumes of 3.6 million tons from the financial year
ended March 2020 onwards;
- International sugar prices are forecast to average USD11c/pound
in FY21, including polarization premium for Brazilian sugar, and
increase gradually to USD12c/pound by FY23. In FY20, they averaged
USD13.27c/pound;
- Ethanol prices have been forecast to vary in tandem with a
combination of oil prices and the FX rate. Brent crude prices have
been forecast to go up to USD37/bbl in FY21 and USD47/bbl in FY22,
whereas the Brazilian FX rate has been assumed to average
BRL4.9/USD and BRL4.6/USD, respectively;
- Costs (harvesting and industrial) to increase in line with
expected inflation rate;
- Investments of BRL150 million a year up to FY23;
- No dividends from SJC, the JV with Cargill;
KEY RECOVERY RATING ASSUMPTIONS
-- The recovery analysis assumes that USJ would be liquidated in
bankruptcy;
-- A 10% administrative claim.
Liquidation Approach:
-- The liquidation estimate reflects Fitch's view of the value of
land properties and other assets that can be realized in a
reorganization and distributed to creditors;
-- The 80% advance rate for its land and sugar cane plantations
is typical for the sector and reflects the good location of such
assets near urban areas;
-- The 20% advance rate for fixed assets like machinery,
equipment and the mill itself reflect the low liquidity of such
assets;
-- Inventories have been discounted at 20% to reflect the
above-average liquidation prospects of S&E assets;
-- The 50% stake in SJC at book value included in the
calculations;
-- The waterfall results in a 94% recovery corresponding to 'RR1'
for the secured notes and no recovery corresponding to 'RR6' for
the unsecured notes. The former has been limited to 'RR4' given the
soft cap on Brazilian issuers.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Amortisation of the principal and coupon of the 2019 notes and
coupon of the 2021 and 2023 notes.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- USJ's IDRs and National Scale ratings will be downgraded to
'D' and 'D(bra)', respectively, if the company formally files for
bankruptcy protection.
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
Poor Liquidity: Fitch expects USJ to continue to face escalating
refinancing risks, with a weak cash position to meet its short-term
debt maturities. In Fitch's opinion, in the absence of any material
asset sales, the company will continue to present an unfunded
capital structure and face very limited financial flexibility to
meet its debt obligations. As of Sept. 30, 2019, USJ reported a
cash position of only BRL35 million and short-term bank debt of
BRL276 million. In this period, total debt of BRL1.5 billion was
composed of bonds (75%) and bank lines (25%). The 2023 bond is
secured by a comprehensive collateral package that includes
fiduciary lien on the mill and pledge of sugar cane stocks. Around
90% of total debt outstanding as of Sept. 30, 2019 was U.S.
dollar-denominated and there are no hedging instruments in place.
SUMMARY OF FINANCIAL ADJUSTMENTS
-- Net derivative balances added to USJ's adjusted debt figures;
-- EBITDA figures are adjusted for non-recurring expenses and
commodity hedge gains/losses.
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
USJ has an ESG Relevance Score of '4' for GGV - Governance
Structure, as the company has key person risk and limited board
independence through family ownership. USJ also has an ESG
Relevance Score of '4' for GST - Group Structure due significant
raw material dependence on related party, like land lease expenses
to related parties and shareholders. Both factors above have a
negative impact on the credit profile, and are relevant to the
rating 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, either
due to their nature or the way in which they are being managed by
the entity.
U.S.J. - Acucar e Alcool S.A.
- LT IDR RD; Affirmed
- LC LT IDR RD; Affirmed
- Natl LT RD(bra); Affirmed
- Senior unsecured; LT C; Affirmed
- Senior secured; LT C; Downgrade
- Senior secured; LT C; Affirmed
=========
C H I L E
=========
LATAM AIRLINES: Case Summary & 40 Largest Unsecured Creditors
-------------------------------------------------------------
Lead Debtor: LATAM Airlines Group S.A.
Estado 10
Piso 11
Santiago, Republic of Chile
Business Description: LATAM Airlines Group S.A. --
www.latam.com -- is a pan-Latin American
airline holding company involved in the
transportation of passengers and cargo
and operates as one unified business
enterprise. Before the onset of the
COVID-19 pandemic, LATAM offered
passenger transport services to 145
different destinations in twenty-six
countries, including domestic flights in
Argentina, Brazil, Chile, Colombia,
Ecuador and Peru, and international
services within Latin America as well as
to Europe, the United States, the
Caribbean, Oceania, Asia, and Africa.
Chapter 11 Petition Date: May 25, 2020
Court: United States Bankruptcy Court
Southern District of New York
Twenty-nine affiliates that concurrently filed voluntary petitions
for relief under Chapter 11 of the Bankruptcy Code:
Debtor Case No.
------ --------
LATAM Airlines Group S.A. (Lead) 20-11254
Lan Cargo S.A. 20-11259
Transporte Aereo S.A. 20-11255
Inversiones Lan S.A. 20-11261
Technical Training LATAM S.A 20-11262
LATAM Travel Chile II S.A. 20-11263
Lan Pax Group S.A. 20-11264
Fast Air Almacenes de Carga S.A. 20-11265
Linea Aerea Carguera de Colombia SA 20-11260
Aerovias de Integracion Regional S.A. (Aires S.A.) 20-11256
LATAM Finance LTD 20-11266
LATAM Airlines Ecuador S.A. 20-11257
Professional Airline Cargo Services, LLC 20-11268
Cargo Handling Airport Services, LLC 20-11269
Maintenance Service Experts, LLC 20-11270
Lan Cargo Repair Station LLC 20-11271
Prime Airport Services Inc. 20-11272
Professional Airline Maintenance Services, LLC 20-11273
Connecta Corporation 20-11274
Peuco Finance Ltd. 20-11267
Latam Airlines Peru S.A. 20-11258
Inversiones Aereas S.A. 20-11275
Holdco Colombia II SpA 20-11276
Holdco Colombia I SpA 20-11277
Holdco Ecuador S.A. 20-11278
Lan Cargo Inversiones S.A. 20-11279
Lan Cargo Overseas Ltd 20-11280
Mas Investment Ltd. 20-11281
Professional Airline Services Inc. 20-11282
Judge: Hon. James L. Garrity, Jr.
Debtors'
General
Bankruptcy
Counsel: Richard J. Cooper, Esq.
Lisa M. Schweitzer, Esq.
Luke A. Barefoot, Esq.
Thomas S. Kessler, Esq.
CLEARY GOTTLIEB STEEN & HAMILTON LLP
One Liberty Plaza
New York, New York 10006
Tel: (212) 225-2000
Fax: (212) 225-3999
Email: rcooper@cgsh.com
lschweitzer@cgsh.com
lbarefoot@cgsh.com
tkessler@cgsh.com
Debtors'
Local
Counsel: CLARO & CIA IN CHILE
Debtors'
Restructuring
Advisor: Rachel Chesley
FTI CONSULTING
Wall Street Plaza
88 Pine Street, 32nd Floor
New York, NY 10005
Tel: 212.850.5600
Fax: 212.850.5790
Email: rachel.chesley@fticonsulting.com
Debtors'
Financial
Advisor: PJT PARTNERS INC.
Debtors'
Conflicts
Counsel: TOGUT, SEGAL & SEGAL LLP
Debtors'
Claims &
Noticing
Agent: PRIME CLERK LLC
https://cases.primeclerk.com/LATAM
Total Assets as of December 31, 2019: $21,087,806,000
Total Debts as of December 31, 2019: $17,958,629,000
The petitions were signed by Ramiro Alfonsin Balza, chief financial
officer.
A copy of LATAM Airlines Group's petition is available for free at
PacerMonitor.com at:
https://is.gd/EoTzX1
List of Debtors' 40 Largest Unsecured Creditors:
Entity Nature of Claim Claim Amount
------ --------------- ------------
1. LATAM 2026 Notes Unsecured Notes $800,000,000
240 Greenwich Street 7E
New York, NY 10286
Bank of New York Mellon, as Trustee
Peter Lopez
Tel: + 1 212 815 8273
Email: peter.lopez@bnymellon.com
2. LATAM 2024 Notes Unsecured Notes $700,000,000
240 Greenwich Street, 7E
New York, NY 10286
Bank of New York Mellon, as Trustee
Peter Lopez
Tel: + 1 212 815 8273
Email: peter.lopez@bnymellon.com
3. Banco Santander Chile Frequent $549,000,000
Bandera N 140 Flier Miles
Santiago, Metropolitana
Chile
Maria Soledad Schuster
Tel: 56 (2) 2648 3669 Anexo 83669
Email: mariasoledad.schuster@santander.cl
4. Local Bonds, Series E Unsecured Notes $179,030,673
Avenida Libertador Bernardo
O'Higgins 1111
Santiago, Metropolitana
Chile
Banco del Estado de Chile, as Trustee
Francesca Gardella
Tel: (562) 2970 6210
Email: fgarde@bancoestado.cl
5. Banco de Credito del Peru Frequent $167,000,000
Calle Centenario 156 Flier Miles
Lima, Lima
Peru
Gianfranco Piero Ferrari de las Casas, CEO
Tel: 51.1.313.2000
Fax: 51.1.313.2121
Email: consultationsbcp@bcp.com.pe;
reclamamos@bcp.com.pe
6. Banco Santander Madrid Unsecured Debt $139,500,000
Av. de Cantabria s/n
28660 Boadilla del Monte
Madrid, Madrid
Spain
Luis Casero Ynfiesta
Tel: +34 91 289 72 47
Email: luis.casero@gruposantander.com
7. Local Bonds, Series A Unsecured Notes $89,515,336
Avenida Libertador Bernardo
O'Higgins 1111
Santiago, Metropolitana
Chile
Banco del Estado de Chile, as Trustee
Francesca Gardella
Tel: (562) 2970 6210
Email: fgarde@bancoestado.cl
8. Local Bonds, Series B Unsecured Notes $89,515,336
Avenida Libertador Bernardo
O'Higgins 1111
Santiago, Metropolitana
Chile
Banco del Estado de Chile, as Trustee
Francesca Gardella
Tel: (562) 2970 6210
Email: fgarde@bancoestado.cl
9. Scotiabank Chile Unsecured Debt $74,000,000
Casa Matriz Av Costanera
Sur 2710 Torre A
Santiago
Chile
Federico Alonso
Tel: 416-866-6161
Email: Federico.Alonso@scotiabank.cl
10. Local Bonds, Series C Unsecured Notes $66,241,349
Avenida Libertador Bernardo
O'Higgins 1111
Santiago, Metropolitana
Chile
Banco del Estado de Chile, as Trustee
Francesca Gardella
Tel: (562) 2970 6210
Email: fgarde@bancoestado.cl
11. Local Bonds, Series D Unsecured Notes $66,241,349
Avenida Libertador Bernardo
O'Higgins 1111
Santiago, Metropolitana
Chile
Banco del Estado de Chile, as Trustee
Francesca Gardella
Tel: (562) 2970 6210
Email: fgarde@bancoestado.cl
12. Banco BTG Pactual Chile, Unsecured Debt $59,438,183
as Agent
Avenida Costanera Sur 2730, 19th floor
Santiago, Metropolitana
Chile
Rodrigo Oyarzo
Tel: +56 22 587 5027
Email: Rodrigo.Oyarzo@btgpactual.com
13. American Express Travel Unsecured Debt $52,511,111
Related Services Company, Inc.
200 Vesey Street
New York, NY 10285
Liliana Gutierrez
Tel: +56 2 2783 8733
Email: liliana.w.gutierrez@aexp.com
14. Banco del Estado de Chile Unsecured Debt $40,000,000
Avenida Libertador Bernardo
O'Higgins 1111
Santiago, Metropolitana
Chile
Francesca Gardella
Tel: 56979695018
Email: fgarde@bancoestado.cl
15. BP p.l.c (Air BP) Trade Debt $38,940,366
501 Westlake Park Boulevard
Houston, TX 77079
Unted States
John Platt, CEO
Tel: 971 5 04536032
Fax: 971 4 3318628
Email: airbpoutofhours@bp.com
16. World Fuel Services Trade Debt $30,030,023
9800 NW 41 Street, Suite 400
Miami, FL 33178
Richard Hoppe
Tel: 1-305-799-3532
Email: RHoppe@wfscorp.com
17. Itau CorpBanca Unsecured Debt $29,857,588
Avenida Presidente Riesco 5537
16th Floor
Santiago, Metropolitana
Chile
Carlos Irarrazaval
Tel: 56961699692
Email: Carlos.Irarrazaval@itau.cl
18. Direccion General de Trade Debt $17,063,704
Aeronautica Civil
AV. Miguel Claro 1314
Providencia
Chile
Victor Villalobos Collao
Tel: 2-4392000
Email: victor.villalobos@dgac.gob.cl
19. Aerospace Turbine Trade Debt $16,632,517
Services & Solutions
Adjacent Abu Dhabi Intl
Airport Turbine Services
Building
Gate Number 3
Abu Dhabi
United Arab Emirates
Mansoor Janahi
Tel: +971 (2) 5057887
Email: MJanahi@tssaero.ae
20. OneWorld Trade Debt $14,753,378
2 Park Avenue
Suite 1100
New York, NY 10016
Rob Gurney, CEO
Tel: 604-713-2660
Email: rob.gurney@oneworld.com
21. The Boeing Company Trade Debt $16,167,786
100 N Riverside Drive
Chicago, IL 60606
Gayle K. Wilson
Tel: 206-6629829
Email: gayle.k.wilson@boeing.com;
jessica.l.waddell@boeing.com
22. Etihad Airways Engineering Trade Debt $14,425,131
SN New Airport Road
P. O. Box 35566
Khalifa City A
Abu Dhabi
United Arab Emirates
Frederic Dupont
Tel: 971 56 685 0160
Email: FDUPONT@etihad.ae
23. Gate Gourmet US, Inc Trade Debt $13,975,615
1880 Campus Commons Drive
Suite 200
Reston, VA 20191
Rodrigo Decerega
Tel: 1 (786) 2572043
Email: rdecerega@gategroup.com
24. Regional One INC, Dash 24 LLC; Contingent $12,440,000
Case: 2013-20319 CA 01 Litigation
Lavalle, Brown & Ronan PA
750 South Dixey Highway
Boca Raton, FL 33432
Kenneth Ronan
Tel: 561-395-0000
Email: kronan@lavallebrown.com
25. HSBC Bank Chile Unsecured Debt $12,000,000
Av. Isidora Goyenechea 2800
Floor 23
Santiago, Metropolitana
Chile
Alexandre Falcao
Tel: 212-525-4449
Email: alexandre.p.falcao@us.hsbc.com
26. Sistemas Globales Trade Debt $11,906,629
Chile-Asesorias Limitada
Av.Apoquindo Oficina 5 3600
Las Condes
Chile
Natalia Croce
Tel: 2-24468423
Email: natalia.croce@globant.com;
Billing@globant.com
27. Repsol S.A. Trade Debt $11,135,377
2455 Technology Forest Blvd
The Woodlands, TX 77381
Josu Jon Imaz San Miguel, CEO
Tel: 832-442-1000
Email: infous@repsol.com;
ralvarezp.ir@repsol.com
28. Talma Servicios Trade Debt $11,071,121
Aeroportuarios S.A.
Av. Elmer Faucett 2879
Piso 4
Lima Cargo City, Callao 7031
Peru
Entrevista a Arturo Cassinelli, CEO
Tel: 51 1 513 8900 Anexo 41123 /
41148 / 41140
Email: anabel.ruiz@talma.com.pe;
deisy.villar@talma.com.pe;
elizabeth.pizarro@talma.com.pe;
graciela.guillen@talma.com.pe;
patricia.aranguren@talma.com.pe;
rudi.landauro@talma.com.pe
29. General Directorate for Contingent $9,217,000
Competition of the Litigation
European Commission
Place Madou
Madouplein 1
Brussels, Saint-Josse-ten-Noode 1210
Belgium
Mr Olivier Guersent, Director General
Tel: +32-229-65414
Email: Olivier.Guersent@ec.europa.eu
30. CFM International, Inc. Trade Debt $7,458,917
One Neumann Way
Cincinnati, OH 45215
Gael Meheust, CEO
Tel: 513-552-3272
Email: aviation.fleetsupport@ge.com
31. AerCap Trade Debt $7,430,428
65 St. Stephen's Green
AerCap House
Dublin D02 YX20
Ireland
Phil Scruggs (CCO)
Tel: 353-1-819-2010
Email: akelly@aercap.com;
pscruggs@aercap.com
32. Petroleo Brasileiro S.A Trade Debt $7,226,085
200 Westlake Park Boulevard
Suite 1000
Houston, TX 77079
Rodrigo Motta Guimares
Tel: 5521996474208
Email: rodrigo@br-petrobras.com.br
33. Avolon Trade Debt $6,483,212
640 5th Ave
19th Floor
New York, NY 10019
John Higgins (CCO)
Tel: 646-609-8970
Email: jhiggins@avolon.aero;
fcampos@avolon.aero
34. BBAM Aircraft Trade Debt $6,329,142
Leasing & Management
50 California Street
14th Floor
San Francisco, CA 94111
Daniel Silberman
Tel: 415-267-1600
Fax: 415-618-3337
Email: daniel.silberman@bbam.com
35. Petroleos del Peru S.A. Trade Debt $5,499,404
Av.Paseo De La Republica 3361 Sn I
Lima, Peru
Alonzo Rivera
Tel: 996720438
Email: arivera@petroperu.com.pe.
36. Collins Aerospace Trade Debt $5,341,080
2730 W Tyvola Road
4 Coliseum Center
Charlotte, NC 28217
Stephen Ribaudo
Tel: 1 860 503 9729
Email: stephen.ribaudo@collins.com
37. Everis Chile SA Trade Debt $4,815,827
Libertador B Ohiggins 1449. 1449
Santiago, Chile
Juan Pablo Buiatti
Tel: 2-4215300
Email: juan.pablo.buiatti.dal.pietro@everis.com;
chile.finances@everis.com
38. CAE, Inc. Trade Debt $4,672,327
Emirates Aviation College Bldg
Dubai
United Arab Emirates
Michel Azar-Hmouda
Tel: 1 972 456-8070
Email: michel.azarhmouda@cae.com
39. Organizacion Terpel S.A. Trade Debt $4,653,261
Av Eldorado, 99.
Bogota, Colombia
Liliana Tovar Silva
Tel: 315-355-4671
Email: ltovar@terpel.com
40. Empresa Argentina de Trade Debt $4,215,496
Navegacion Aerea
Rivadavia 578
3nd Piso
Buenos Aires, AAQ C-100 2
Argentina
Aerea Cristian Arnau
Email: carnau@eana.com.ar
LATAM AIRLINES: S&P Lowers ICR to 'D' on Chapter 11 Filing
----------------------------------------------------------
S&P Global Ratings, on May 27, 2020, lowered its issuer credit
rating on Chile-based Latam Airlines Group S.A. (Latam) to 'D' from
'CCC-' and its issue-level ratings on the airline's unsecured debt
to 'D' from 'CC'. At the same time, S&P lowered its ratings on
Latam's EETC class C certificate to 'D' from 'CCC-' and kept its
ratings on its EETC class A and B certificates on CreditWatch with
negative implications.
On May 26, 2020, Latam and some of its subsidiaries and affiliates
voluntarily filed for bankruptcy under Chapter 11 in New York in
order to resize its business and balance sheet to achieve long-term
sustainability in the post- COVID-19 era. At this point the
bankruptcy filing includes Latam's operations in Chile, Peru,
Ecuador, Colombia, and the U.S., but excludes those in Brazil,
Paraguay, and Argentina. The company aims to restructure its debt
and lease liabilities by entering into a restructuring support
agreement with most of its creditors to withstand the effects of
the current industry downturn. For instance, the group is only
operating 5% of its capacity now and targets to reach only about
18% of its capacity by July. S&P said, "We believe the company will
probably be flying only 50% to 60% of its current capacity towards
the end of the year. For full details on our base case, please
refer to "Latam Airlines Downgraded To 'CCC+' On Tight Liquidity
And Unsustainable Capital Structure, Still On Watch Negative,"
published on May 15, 2020. We understand that operations and debt
obligations under the jurisdictions that didn't enter the
bankruptcy process will remain as is."
Together with the filing, the company announced that it had already
secured financial support from its shareholders: the Cueto and
Amaro Families, together with Qatar Airways have committed up to
$900 million in debtor-in-possession (DIP) financing. The group is
open to bring in additional stakeholders and creditors into the
DIP. If Latam is able to secure this financing, considering the
$1.3 billion in cash it held as of the filing date, it could place
itself in a comfortable liquidity position to face the
restructuring process.
The company has included the rejection of its aircraft under the
EETC financing in its First Day Motions. For this reason, S&P
strongly believes the company will not pay the missed coupon and
principal payment due May 15 before the grace period ends on May
30. Consequently, S&P believes that holders of the Class C
certificates will not receive timely payment because this class is
not backed by a liquidity facility.
S&P said, "On the other hand, we expect holders of class A and B
certificates to receive timely coupon payments from the liquidity
facility from Natixis Branch NY, while, if the rejection proposed
on First Day Motions is accepted, creditors work on the aircraft
repossession. However, if the motion to reject the aircraft is
accepted, we could further lower the ratings on these certificates
if we see risks to timely repossession or if collateral assessment
weakens further."
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: Hotels Reopen Mid June
------------------------------------------
Dominican Today reports that the reopening of hotels, beaches and
restaurants in the Dominican Republic is scheduled for the third
phase of the "de-escalation" set for June 17, Public Health
minister Rafael Sanchez Cardenas said.
"I think they are in the third phase, the period for the opening of
hotels, which even allows the opening of the beaches," he said,
according to Dominican Today.
The Dominican Government said the third phase would be starting mid
June, when the tourism, gastronomic and social sectors could resume
their activities, the report notes.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's credit rating for 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).
=============
J A M A I C A
=============
JAMAICA: To Get US$520 Million Approved by IMF Executive Board
--------------------------------------------------------------
RJR News reports that International Monetary Fund's (IMF) Mission
Chief for Jamaica, Dr. Manuela Goretti, said Jamaica should receive
the US$520 million that has been approved by the Fund's Executive
Board.
The money is being disbursed under the IMF's Rapid Financing
Instrument, according to RJR News.
Minister of Finance, Dr. Nigel Clarke, wrote to the IMF on April
15, requesting access to the facility as part of measures to
cushion Jamaica from the economic fallout of the COVID-19 pandemic,
the report notes.
Jamaica is among 60 countries whose Rapid Financing Instrument has
been approve, the report relays.
In the meantime, the IMF Mission Chief says the Jamaican economy is
projected to contract by 5.3 per cent during the current fiscal
year. She says there should be gradual recovery over the next two
years, the report relates.
However, Dr. Goretti cautioned that the outlook remains subject to
an unusually high degree of uncertainty, the report adds.
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.
PALACE AMUSEMENT: Records $49MM Loss in Q1 Amid Pandemic
--------------------------------------------------------
RJR News reports that Palace Amusement, Jamaica's leading cinema
operator, suffered a near $50 million loss for the January to March
quarter.
It recorded a $49.2 million net loss, compared to a $43.7 million
profit during the same period last year, according to RJR News.
During the three months, Palace Amusement earned $229 million in
revenue, compared to $254.5 million in 2019, the report notes.
The company has not shown movies since Covid 19 restrictions were
imposed in March, the report adds.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TOBAGO HOUSE: Moody's Alters Outlook on Ba1 Issuer Rating to Neg.
-----------------------------------------------------------------
Moody's Investors Service affirmed Tobago House of Assembly's
baseline credit assessment of ba3 and issuer rating of Ba1 (Global
Scale, Local Currency) and changed the outlook to negative from
stable.
Its action follows Moody's May 22, 2020 rating action in which the
agency affirmed Trinidad and Tobago's government bond rating at Ba1
and changed the outlook to negative from stable.
RATINGS RATIONALE
The ba3 BCA and Ba1 rating affirmations with negative outlook
reflect the strong linkages between Tobago House of Assembly (THA)
and Trinidad and Tobago. Roughly 99% of THA's revenues come from
the central government, which prevents THA from avoiding the same
revenue pressures as felt by the sovereign. Trinidad and Tobago's
rating action incorporates increased downside risks to its 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. As such,
a deterioration of Trinidad and Tobago's economy and revenues will
continue to have a direct impact on THA's budget.
Although THA relies on the central government for almost all of its
revenue, it has considerable flexibility over its expenditures
which has allowed THA to maintain roughly balanced consolidated
cash financing results. While Moody's expects a deterioration in
THA's gross operating balance in 2020 and 2021, as a result of
lower revenue growth given the expected economic contraction and
expenditure increases to mitigate the impact of the contingency
related to the coronavirus pandemic, THA does continue to hold
strong levels of cash reserves. Moody's further notes that the
assigned rating is also supported by a strong level of oversight by
Trinidad and Tobago.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
In light of the negative outlook and the sovereign rating ceiling,
a rating upgrade is unlikely in the near future. However, a return
to a stable outlook could result from the stabilization of Trinidad
& Tobago Government's rating.
Moody's would consider downgrading THA's rating if (1) it loses
fiscal discipline, registering higher-than-expected cash financing
deficits, which lead to negative liquidity levels; or (2) there is
a sharp and sustained increase in its debt. A downgrade of Trinidad
& Tobago's rating would also trigger a downgrade of THA's rating.
The principal methodology used in these ratings was Regional and
Local Governments published in January 2018.
=================
V E N E Z U E L A
=================
VENEZUELA: Country's Debt Attracts Crypto Currency Hedge Funds
--------------------------------------------------------------
Ben Bartenstein and Nishant Kumar at Bloomberg News report that
Venezuela's bond market has been rocked over the past few years by
defaults, sanctions and a collapse in crude oil prices. Yet the
disastrous cocktail is attracting hedge funds including London's
Altana Wealth Ltd. that say the situation can't get any worse,
according to Bloomberg News.
Altana is pitching the South American nation's government notes,
which can be bought at pennies on the dollar, as the "trade of the
new decade," according to two letters to investors seen by
Bloomberg.
Bloomberg News relays that in one of the letters, founder Lee
Robinson said he plans to launch a Cayman Islands-based portfolio
next month to capitalize on Venezuelan bond prices that he says
could eventually multiply tenfold. He compared the risk-reward to
returns delivered during the dot-com craze of the 1990s, shorting
sub-prime mortgages before the collapse of that market in 2008 and
riding the cryptocurrency rally in recent years, Bloomberg News
discloses.
"At these levels, the downside is low and the upside is the best
we've ever seen for a sovereign debt restructuring," Robinson and
his colleague Steffen Kastner wrote in one of the letters,
Bloomberg News says.
A spokesman at Altana declined to comment.
Some Investors Are Bullish on Venezuela Bonds
After Years of Losses
Robinson, who previously worked for hedge fund billionaire Paul
Tudor Jones, has a track record with opportunistic wagers,
Bloomberg News discloses. In 2014, he started a digital currency
fund, which rode a rally in Bitcoin to four-digit returns,
Bloomberg News says.
Altana manages about $300 million across a number of funds
including currency and distressed debt money pools, Bloomberg News
relays.
Only a small pool of investors have both the patience and the legal
ability to make the trade, Bloomberg News notes. Sanctions imposed
by the Trump administration last year prevent U.S. funds from
buying Venezuelan debt, Bloomberg News discloses. That means firms
from Europe to Latin America and the Middle East are the primary
buyers, oftentimes through vehicles domiciled in the Cayman Islands
for tax purposes, Bloomberg News notes.
Hedge Funds Buy Up Venezuela's Sanctioned Debt
After Record Drop
The nation's dollar bonds due in 2027 fetch 6.25 cents, while
state-run Petroleos de Venezuela's notes due in 2020 trade at 11.64
cents, Bloomberg News notes. Those prices can't drop much lower,
Bloomberg News relays. The risk for investors is how long they'll
wait for a restructuring as the country careens toward its eighth
straight year in recession and grapples with hyperinflation,
sanctions and declining crude exports, Bloomberg News notes.
Venezuela's situation is complicated further by its political
crisis, Bloomberg News says. Nicolas Maduro's regime has access to
most accounts in Caracas, yet U.S. courts recognize opposition
leader Juan Guaido as the head of state, Bloomberg News discloses.
In one of its letters, Robinson's fund said it hired legal advisers
to file claims in court to protect against statute of limitations,
Bloomberg News relays. The firm's thinking is that U.S.
restrictions on the bonds, which drove last year's steep decline,
will eventually be lifted and the recovery value on the debt in a
restructuring far exceeds market prices, according to the letters,
Bloomberg News notes.
'Five-Year Investment'
Altana isn't alone in taking a closer look at Venezuela's bonds,
Bloomberg News notes.
Francisco Ghersi and Carmelo Haddad, who oversee Knossos Asset
Management, made a name for themselves with their big bets on the
nation's debt, Bloomberg News relays. But after the government
defaulted in late 2017, the Caracas natives diverted their
attention to other high-yield Latin American notes from Argentina
to Ecuador, Bloomberg News notes.
Now, they're looking to buy a mix of Venezuelan bonds and stocks.
Their thinking is that one day -- be that months or years away -- a
market-friendly leader will return to power in Caracas, Bloomberg
News discloses.
"It's a five-year investment," Ghersi said, Bloomberg News notes.
"It's a bet that in the long run something will happen and the
prices are good enough to put some money to work," he added.
Venezuela
Venezuela, officially the Bolivarian Republic of Venezuela, is a
country on the northern coast of South America, consisting of a
continental landmass and a large number of small islands and islets
in the Caribbean sea. The capital is the city of Caracas.
Hugo Chavez was president to Venezuela from 1999 to 2013. The
Chavez presidency was plagued with challenges, which included a
2002 coup d'etat, a 2002 national strike and a 2004 recall
referendum. Nicolas Maduro was elected president in 2013 after
the
death of Chavez. Maduro won a second term at the May 2018
Venezuela elections, but this result has been challenged by
countries including Argentina, Chile, Colombia, Brazil, Canada,
Germany, France and the United States who deemed it fraudulent and
moved to recognize Juan Guaido as president.
The presidencies of Chavez and Maduro have challenged Venezuela
with a socioeconomic and political crisis. It is marked by
hyperinflation, climbing hunger, poverty, disease, crime and death
rates, social unrest, corruption and emigration from the country.
S&P Global Ratings, in May 2019, removed its long- and short-term
local currency sovereign credit ratings on Venezuela from
CreditWatch with negative implications and affirmed them at
'CCC-/C'. The outlook on the long-term local currency rating is
negative. At the same time, S&P affirmed its 'SD/D' long- and
short-term foreign currency sovereign credit ratings on Venezuela.
Moody's credit rating (long term foreign and domestic issuer
ratings) for Venezuela was last set at C with stable outlook in
March 2018. Meanwhile, Fitch's long term issuer default rating for
Venezuela was last in 2017 at RD and country ceiling was CC. Fitch,
on June 27, 2019, affirmed then withdrew the ratings due to the
imposition of U.S. sanctions on Venezuela.
===============
X X X X X X X X
===============
LATAM: Cafes Anxiously Wait to Reopen After Historic Closures
-------------------------------------------------------------
La Prensa Latina reports that Cafe Tortoni has survived various
crises during its 150-year history.
It remained open despite a yellow fever epidemic in the Argentine
capital that claimed the lives of thousands of people in 1871,
violent disturbances outside the establishment during the severe
2001 financial crisis and the heavy hand of multiple dictatorships,
according to La Prensa Latina.
Only Covid-19 has managed to impose silence on the establishment,
as has also been the case at other iconic, decades-old bars and
cafes throughout Latin America, the report notes.
Inaugurated in 1858, Cafe Tortoni's clientele has included
acclaimed authors such as Jorge Luis Borges, Alfonsina Storni and
Federico Garcia Lorca, as well as painter Benito Quinquela Martin
and tango icon Carlos Gardel, the report relays.
Maximiliano Zecca, one of its current waiters, now wonders if the
spirits of any of those artists might be watching over the place
during the months-long coronavirus crisis, the report discloses.
Just 42 years younger than the republic itself, Cafe Tortoni has
been a witness to key moments in Argentina's history, the report
relates.
"People died here on the corner," Zecca said of the tensest days of
the 2001 crisis, when Cafe Tortoni had to close shop briefly due to
clashes between demonstrators and police on Avenida de Mayo, the
report notes. Numerous customers and employees remained inside the
establishment while the violence was raging, but the cafe opened as
usual the following day, the report relates.
"Let's hope it lasts another 162 years. That's why we're all
standing tall in this situation; El Tortoni is pure history," said
the waiter, who is already preparing the main hall for its
long-awaited reopening, although its former 300-person capacity
will have to be reduced to just 70, with the tables separated by a
distance of two meters (6.5 feet), the report notes.
Like Cafe Tortoni in Buenos Aires, Cafe Lamas in Rio de Janeiro,
Cafe Brasilero in Montevideo, El Floridita in Havana, Salon Malaga
in Medellin and Cafe La Habana in Mexico have been temporarily
shuttered along with thousands of other non-essential businesses
worldwide during the pandemic, the report discloses.
Prior to the coronavirus-triggered lockdowns, Cafe Lamas had only
closed its doors on two other occasions: during the 1904 Vaccine
Revolt and after the August 1954 suicide of President Getulio
Vargas, who had been one of that establishment's most loyal
clients, the report says.
It stayed open throughout the 1918 Spanish flu pandemic, the
1964-1985 military dictatorship, the hyperinflation of the early
1990s and the deep economic recession of 2015 and 2016, the report
recalls.
Always a sober and discreet cafe, Cafe Lamas began operating on
April 4, 1874, in the Largo do Machado square at the border of the
Flamengo and Larangeiras neighborhoods on Rio's south side, the
report notes.
A popular gathering place for the Brazilian jet set, it has always
been closely linked with the world of politics, the report says.
Some of its customers have been presidents-Eurico Gaspar Dutra,
Juscelino Kubitschek de Oliveira and Itamar Franco. But Vargas, who
governed from 1930 to 1945 and again from 1951 to 1954, was the
most famous of them all, the report notes.
"Lamas was located in Largo do Machado and the (presidential)
palace was located 500 meters from there, and Getulio . . . . would
stop over for a while at Lamas to have tea at around 4 or 5 in the
afternoon," said Milton Brito, a member of that cafe for more than
three decades, recalling the era when Rio was still the nation's
capital, the report discloses.
Brito said he can't say for sure what political strategies were
devised at Lamas' tables but that political parties and even
prominent soccer teams were founded under its roof, the report
relays.
Referring to the coronavirus crisis, Brito said it hit the cafe
like a "bucket of cold water" and that although people's lives are
paramount and the situation is complicated he believes "we have to
move forward," the report notes.
Unlike other iconic establishments facing the specter of a
permanent shutdown, El Floridita, Havana's most emblematic bar,
appears to be in a uniquely privileged position since it is
government-run and is seen by the Communist Party authorities as a
key tourist destination and an important source of hard currency,
the report says.
The former hangout of late American writer Ernest Hemingway during
his time in Cuba, El Floridita every year welcomes more than
250,000 customers, some of whom have included world-famous figures
such as former US President Barack Obama, late film stars Gary
Cooper and Marlene Dietrich and professional baseball and soccer
players, the report adds.
LATAM: IDB and Esri Offer Solutions to Combat COVID-19
------------------------------------------------------
The Inter-American Development Bank (IDB) has joined forces with
Esri , the global leader in location intelligence, to provide free
access to geospatial technology in response to the COVID-19
emergency in Latin America and the Caribbean (LAC). Governments in
the region will be able to use a custom COVID-19 solution to track
critical equipment and assets availability, manage supply chains,
and maintain business continuity.
Leveraging Esri's Disaster Response Program , and based on the
specific needs of IDB member countries, this collaboration provides
access to technology resources that can enhance the region's
response to the immediate public health emergency posed by
COVID-19. Concretely, governments in the region will be able to
leverage Esri's analytical models and implement dashboards and
control centers to monitor the spread of the virus and identify
where intervention is needed.
"With ESRI, we have developed a collaborative relationship focused
on working with IDB clients to solve complex problems and combat
COVID-19 in Latin America and the Caribbean," said Nuria Simo, the
IDB's Chief Information Officer and General Manager of Department
of Information Technology. "We believe ESRI's leadership in
disaster response programs, technical knowledge and assistance in
the use of geographic information systems, usage of georeferenced
data, and access to analytical tools can greatly benefit the region
in its fight against the virus, while helping us meet other
important needs in the countries we serve."
"We are very proud to assist IDB in providing support to Latin
America and the Caribbean," said Jack Dangermond, Esri founder and
president. "The ability to understand emergency management capacity
is crucial to handling a crisis like this, and it is our mission to
offer enhanced technological capabilities that empower governments
around the globe to respond faster, and with the best data
resources at their disposal."
In addition to supporting the public health response, the
partnership will also support the three other priority areas
identified by the IDB as it works to address COVID-19 in LAC,
including the creation of safety nets for vulnerable populations,
economic productivity and employment, and the development of fiscal
policies to relieve economic impacts.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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