/raid1/www/Hosts/bankrupt/TCRLA_Public/200604.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Thursday, June 4, 2020, Vol. 21, No. 112
Headlines
A R G E N T I N A
ARGENTINA: Bonds Climb as Investors See Headway in New Offer
B R A Z I L
AZUL SA: Moody's Cuts CFR to Caa1, Outlook Negative
BRAZIL: Discloses Responsible Resumption of Activities
GOL LINHAS: Moody's Cuts CFR to Caa1, Outlook Negative
C A Y M A N I S L A N D S
FGL HOLDINGS: Moody's Hikes Issuer Rating to Ba2 on Fidelity Deal
C H I L E
LATAM AIRLINES: Group Hires PJT Partners to Restructure Debt
C O S T A R I C A
COSTA RICA: Moody's Alters Outlook on B2 Issuer Ratings to Negative
M E X I C O
CEMEX SAB: S&P Assigns 'BB' Rating on New Secured Notes Due 2027
ELEMENTIA SAB: Fitch Cuts LT IDR to BB-, Outlook Negative
GRUPO AEROMEXICO: Moody's Cuts CFR to Caa1, Outlook Negative
GRUPO FAMSA: S&P Cuts ICR to CCC- on Missed Payments on $59MM Notes
- - - - -
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A R G E N T I N A
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ARGENTINA: Bonds Climb as Investors See Headway in New Offer
------------------------------------------------------------
Ben Bartenstein, Jorgelina Do Rosario, and Scott Squires at
Bloomberg News report that Argentina's dollar bonds climbed to the
highest in almost three months after the government released a
revised debt restructuring offer in a bid to win creditors'
support.
The country's $1 billion of notes due in July 2028 jumped to 35.9
cents on the dollar, the highest since early March, according to
Bloomberg News. Other Argentine securities rallied as well.
The gains reflect optimism that the government and creditors are
inching closer to a deal on $65 billion of overseas bonds after the
country tumbled into default on May 22, its third this century,
Bloomberg News notes. The government's latest offer proposed a
payment moratorium for just two years, instead of three, among
other changes that could appeal to investors, Bloomberg News
relates.
"This revised offer was definitely better than expected, but it
won't be the clearing offer," said Edwin Gutierrez, the
London-based head of emerging-market sovereign debt at Aberdeen
Asset Management, Bloomberg News notes.
William Snead, an analyst at BBVA SA in New York, said bondholders
will likely look for "further sweeteners" before agreeing to a
final deal, Bloomberg News discloses. Still, he says the better
terms of the new proposal are propping up bond prices, Bloomberg
News says.
President Alberto Fernandez's administration entered a new round of
talks with its largest creditors after missing the final deadline
for $500 million of overdue interest payments, Bloomberg News
notes. The government has extended its deadline for a debt deal
until June 2, giving the two sides several more days to reach an
accord, Bloomberg News says.
"It is unlikely that an agreement will be reached by the soft date
line of June 2, but the door remains open for further
negotiations," Snead said, Bloomberg News notes.
Morgan Stanley expects a deal in the third quarter that would value
the bonds at 45 to 50 cents on the dollar, Bloomberg News relays.
The government's new proposal includes a nominal haircut of 7% to
the principal on global dollar bonds maturing in 2030 and a 5%
reduction for global bonds maturing in 2035 and 2046, Bloomberg
News notes. No principal would be returned to investors until
2025, Bloomberg News discloses. There's no haircut listed for
dollar-denominated exchange notes issued after a previous default,
Bloomberg News relates. The new bonds to come out of the exchange
would have coupons that gradually increase as the maturity date
approaches, Bloomberg News says.
"Short-end bonds benefit from this offer with a lower nominal
haircut," said Ramiro Blazquez, the head of research and strategy
at Banctrust & Co. in Buenos Aires. "This will have a positive
impact on short-end valuations," he added.
Argentina also said it's open to discussing sweeteners, Bloomberg
News relays. An earlier proposal by the a committee of creditors
known as the Exchange Bondholder Group suggested instruments tied
to the nation's gross domestic product, Bloomberg News notes.
The nation's economy is poised for one of its sharpest declines in
living memory in 2020, coming on top of contractions in the past
two years, Bloomberg News says. Inflation hovers near 45%, the
peso has lost more than half its value in just a few years, and
unemployment has worsened since 2018, Bloomberg News notes. The
government has said it needs $40 billion in debt relief to set the
nation back on the path to sustainable growth, Bloomberg News
discloses.
Counteroffer
Two of the nation's largest bondholder groups submitted a joint
proposal that they said would provide the country with front-loaded
cash flow relief in excess of $36 billion over nine years,
Bloomberg News relays. The offer would also reduce coupons by an
average 32%, and extend maturities with no amortization payments
before 2025, Bloomberg News says.
"Our proposal offers the Argentine administration substantial
front-loaded cash flow relief, while providing a foundation for the
future economic development and prosperity of Argentina and its
citizens," the groups said in a joint statement, Bloomberg News
notes.
The Ad Hoc Bondholder Group, represented by White & Case LLP,
features BlackRock Inc., Ashmore Group Plc and Fidelity
Investments, Bloomberg News discloses. The Exchange Bondholder
Group includes Monarch Alternative Capital LP, HBK Capital
Management and VR Capital Group Ltd, Bloomberg News says.
Notably missing from their offer was a third group of investors
called the Argentina Creditor Committee, Bloomberg News relays.
"The group of Ad Hoc creditors moved in the right direction with
respect to its previous offer, but the move was short and
insufficient for the needs of the country," Argentina Economy
Minister Martin Guzman said, Bloomberg News notes. "We hope to
continue working with the creditors that make up this group," he
added.
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.
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B R A Z I L
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AZUL SA: Moody's Cuts CFR to Caa1, Outlook Negative
---------------------------------------------------
Moody's Investors Service has downgraded Azul S.A.'s corporate
family rating to Caa1 from B1. At the same time, Moody's downgraded
the USD400 million senior unsecured notes issued by Azul
Investments LLP and guaranteed by Azul and Azul Linhas Aereas
Brasileiras S.A. to Caa2 from B2. The outlook is negative. This
concludes the review initiated on March 17, 2020.
Downgrades:
Issuer: Azul S.A.
Corporate Family Rating, Downgraded to Caa1 from B1
Issuer: Azul Investments LLP
Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2
from B2
Outlook Actions:
Issuer: Azul S.A.
Outlook, Changed To Negative From Rating Under Review
Issuer: Azul Investments LLP
Outlook, Changed To Negative From Rating Under Review
RATINGS RATIONALE
The downgrade to Caa1 reflects a sharper decline in passenger
traffic than initially anticipated and a slower recovery that will
prevent passenger demand from reaching 2019 levels before 2023. The
International Air Travel Association's latest scenario analysis
forecasts a decline in global passenger numbers of around 24% for
the full year 2020 while 2019 levels will not be exceeded until
2023. Since the outbreak of coronavirus Azul has been experiencing
cash burn, which is resulting in a weakening liquidity profile and
a significantly higher leverage depending on the duration of the
coronavirus outbreak. The rating action concludes the review
initiated on March 17 2020.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The passenger
airline sector has been one of the sectors most significantly
affected by the shock given its exposure to travel restrictions and
sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Azul's credit profile have left it vulnerable to
shifts in market sentiment in these unprecedented operating
conditions and Azul remains vulnerable to the outbreak continuing
to spread. Its action reflects the impact on Azul of the breadth
and severity of the shock, and the broad deterioration in credit
quality it has triggered. Moody's regards the coronavirus outbreak
as a social risk under its ESG framework, given the substantial
implications for public health and safety.
Moody's base case assumptions are that the coronavirus pandemic
will lead to a period of severe cuts in passenger traffic for 2020
with partial or full flight cancellations and aircraft groundings,
with all regions affected globally. The base case assumes a gradual
recovery in passenger volumes starting in the third quarter.
However, there are high risks of more challenging downside
scenarios and the severity and duration of the pandemic and travel
restrictions is uncertain. Moody's analysis assumes a reduction of
around 50 % in Azul's passenger traffic for the full year 2020 and
a 20% reduction for 2021, with volumes recovering to 2019 levels
only by 2023.
Moreover, the economic slowdown in Latin American coupled with
increased risk aversion is driving the sharp devaluation in local
currencies in the region. Accordingly, Azul is particularly exposed
to the depreciation of the Brazilian Real, which accounts for about
80% of the company's revenues. This effect is only partially
mitigated by the important reduction in fuel prices.
Moody's anticipates that the airline industry will require
continued and further support from regulators, national governments
and labor representatives to alleviate pressures on slot
allocations, provide indirect or direct financial support and
manage airlines' cost bases. Although there is nothing concrete
yet, the Brazilian government announced that it is considering
measures to support the airlines operating in Brazil including, but
not limited to long term credit lines and working capital lines to
be provided by state owned banks as well as allowing the companies
to defer tax payments.
LIQUIDITY
Moody's estimates that Azul had around BRL1.3 billion in cash at
the end of April 2020 for a daily cash burn of around BRL4 million.
The company has been taking all necessary measures to reduce cash
burn such as 50% salary reduction expected in 2Q20, while 78% of
the workforce joined an unpaid leave of absence program. The
company has also been able to significantly reduce costs through
the negotiation of favorable payment terms with all suppliers and
lessors. Still the company has substantial amount of lease payments
due in 2020 that could quickly erode its liquidity forcing the
company to search alternative sources of liquidity such as the
BNDES or the financial markets.
The negative outlook reflects the potential for greater than
already anticipated adverse impact from the coronavirus crisis,
which would consume more of the company's liquidity and delay the
pace and scope of the recovery in demand, the retirement of debt,
and the strengthening of credit metrics relative to Moody's current
expectations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings are unlikely to be upgraded in the short term. Positive
rating pressure would not arise until the risk of a default is
reduced significantly because of a large increase in liquidity
while the coronavirus outbreak is brought under control and travel
restrictions are lifted. Positive rating pressure would require
evidence that the company can avoid a default while recovering its
financial metrics and restoring liquidity.
Moody's could further downgrade Azul if:
- wider liquidity concerns increase
- there are increased expectations of a default in the company's
financial obligations and increased expectations of losses to
creditors
- the company executes debt restructuring or filing for
bankruptcy
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Passenger
Airline Industry published in April 2018.
COMPANY PROFILE
Headquartered in Barueri near the City of Sao Paulo, Brazil, Azul
S.A. (Azul) is a Brazilian airline founded by David Neeleman in
2008. The company is the largest airline in Brazil by number of
cities and departures, serving 116 destinations with an operating
fleet of 142 aircraft and operating 916 flights daily. The company
also flies its aircraft to select international destinations,
including Fort Lauderdale, Orlando and Lisbon. Azul is the sole
owner of the loyalty program TudoAzul, a strategic
revenue-generating asset, which had around 12 million members in
the end of 2019. In 2019 Azul generated BRL11.4 billion in net
revenue and carried almost 28 million passengers.
BRAZIL: Discloses Responsible Resumption of Activities
------------------------------------------------------
Maria Angelica Troncoso at EFE News reports that while deaths from
Covid-19 increase exponentially in Brazil and studies indicate that
some 90,000 could die from the disease by August, authorities in
Sao Paulo -- the country's economic engine and epicenter of the
pandemic -- disclosed the "responsible" resumption of various
economic and social activities.
Brazil's richest and most populous region, but also the one hardest
hit by the pandemic, opted to reopen its economy and, starting June
1, to begin relaxing the quarantine, a move that this week was
already started in other regions of the country, although the
infection figures nationwide continue to skyrocket, according to
EFE News.
With some 400,000 confirmed coronavirus cases, and with the country
more than a month-and-a-half from the expected peak of the
infection curve, Brazil is the country with the second largest
number of Covid-19 cases after the United States and the one with
the sixth largest number of deaths, some 25,000, most of them in
Sao Paulo state, the report notes.
In this state, where about 46 million people live -- 22 percent of
Brazil's population -- health authorities have registered more than
86,000 virus cases and about 6,500 deaths.
Despite the alarming figures, the quarantine imposed about two
months ago in Sao Paulo by Gov. Joao Doria never motivated the
majority of the public to remain socially isolated, with a daily
average of only 52 percent of them staying home, the report
relays.
The resumption of economic activities has been under consideration
for some time by Doria due to pressure from businessmen who have
been clamoring to be allowed to reopen their companies, a demand
backed right from the start of the pandemic by President Jair
Bolsonaro, one of the world leaders who has been most skeptical
about the coronavirus, calling it just a "little flu" despite the
high death toll and high infection rate, the report discloses.
Sao Paulo contributes more than a third of the country's GDP and
almost 40 percent of its industrial production, the report relays.
However, a good portion of its industries have had to shut down and
tell their workers to go on vacation amid the pandemic, the report
notes.
Add to that the fact that the region is an important logistical
link in the country's supply chain, since it is there that the port
of Santos is located, Latin America's largest maritime terminal,
the report relates.
Despite the announcement of resuming economic activities, Doria
admitted that the state might have to take "a step backwards" --
and presumably reimpose certain movement restrictions and/or a
lockdown -- if he feels it to be necessary to "protect lives," the
report discloses.
EFE News relates that the "responsible" reopening of the Sao Paulo
economy will be divided into five phases that, according to the
governor, will be implemented in those parts of the state that have
seen a consistent reduction in the number of coronavirus cases and
which have sufficient public and private hospital beds available.
"Those phases will continue with their orientation to science,
medicine and health, and we have technical figures that allow the
gradual resumption" of economic activities, said Doria in
announcing the move at a press conference at which he emphasized
the advances made in the past two months thanks to the quarantine,
the report relays.
According to the state government, the social isolation measures
adopted in Sao Paulo to control the pandemic resulted in saving
more than 60,000 lives, people who ostensibly would have died had
the measures not been taken, the report notes.
The situation, however, worries experts, since studies show that
the infection curve for Covid-19 in Brazil continues to rise
sharply, the report discloses.
"We've seen that we've got a large number of cases, increasing, and
as long as we continue with the growing number of cases, the curve
will be on the rise," pulmonologist Patricia Canto, with the
National School of Public Health of Fiocruz, Latin America's main
health research center, told EFE.
Canto said that the virus is beginning to concentrate in the
interior of the country, in smaller cities that lack sufficient
health infrastructure to attend to serious cases, the report says.
Sao Paulo is not the only part of the country to decide to ease its
quarantine, but as other states have begun to do the same the
results -- so far -- have not been very positive, the report
relates.
The national capital of Brasilia experienced long lines of people
wearing facemasks waiting for the opening of malls after the
shopping centers were given the green light to admit the public,
albeit according to strict safety protocols, 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.
GOL LINHAS: Moody's Cuts CFR to Caa1, Outlook Negative
------------------------------------------------------
Moody's Investors Service downgraded Gol Linhas Aereas Inteligentes
S.A's corporate family rating to Caa1 from B1. Gol Finance's
perpetual notes guaranteed by Gol and Gol Linhas Aereas S.A. and
the $350 million senior exchangeable notes due 2024 issued by Gol
Equity Finance and guaranteed by Gol and Gol Linhas Aereas S.A.
were downgraded to Caa2 from B2. The outlook is negative. This
concludes the review initiated on March 17, 2020.
At the same time, Moody's confirmed the Baa3 the foreign currency
rating assigned to Gol LuxCo S.A.'s term loan guaranteed by Delta
Air Lines, Inc. The outlook is negative. This concludes the review
initiated on March 17, 2020.
Downgrades:
Issuer: Gol Linhas Aereas Inteligentes S.A.
Corporate Family Rating, Downgraded to Caa1 from B1
Issuer: GOL Equity Finance
Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2
from B2
Issuer: Gol Finance
Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2
from B2
Confirmations:
Issuer: Gol LuxCo S.A.
Gtd Senior Unsecured Term Loan, Confirmed at Baa3
Outlook Actions:
Issuer: Gol Linhas Aereas Inteligentes S.A.
Outlook, Changed To Negative From Rating Under Review
Issuer: GOL Equity Finance
Outlook, Changed To Negative From Rating Under Review
Issuer: Gol Finance
Outlook, Changed To Negative From Rating Under Review
Issuer: Gol LuxCo S.A.
Outlook, Changed To Negative From Rating Under Review
RATINGS RATIONALE
The downgrade to Caa1 reflects a sharper decline in passenger
traffic than initially anticipated and a slower recovery that will
prevent passenger demand from reaching 2019 levels before 2023. The
International Air Travel Association's latest scenario analysis
forecasts a decline in global passenger numbers of around 24% for
the full year 2020 while 2019 levels will not be exceeded until
2023. Since the outbreak of coronavirus Gol has been taking all
necessary measures to reduce cash burn, but the steep retraction in
demand and slow recovery will result in a weaker liquidity profile
and higher leverage depending on the duration of the coronavirus
outbreak. The rating action concludes the review initiated on March
17 2020.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The passenger
airline sector has been one of the sectors most significantly
affected by the shock given its exposure to travel restrictions and
sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Gol's credit profile have left it vulnerable to
shifts in market sentiment in these unprecedented operating
conditions and Gol remains vulnerable to the outbreak continuing to
spread. Its action reflects the impact on Gol of the breadth and
severity of the shock, and the deterioration in credit quality it
has triggered. Moody's regards the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety.
Moody's base case assumptions are that the coronavirus pandemic
will lead to a period of severe cuts in passenger traffic for 2020
with partial or full flight cancellations and aircraft groundings,
with all regions affected globally. The base case assumes a gradual
recovery in passenger volumes starting in the third quarter.
However, there are high risks of more challenging downside
scenarios and the severity and duration of the pandemic and travel
restrictions is uncertain. Moody's analysis assumes a reduction of
around 50 % in Gol's passenger traffic for the full year 2020 and a
22% reduction for 2021, with volumes recovering to 2019 levels only
by 2023.
Moreover, the economic slowdown in Latin America coupled with
increased risk aversion is driving the sharp devaluation in local
currencies in the region. Accordingly, Gol is particularly exposed
to the depreciation of the Brazilian Real, which accounts for about
85% of the company's revenues. This effect is only partially
mitigated by the important reduction in fuel prices.
Moody's anticipates that the airline industry will require
continued and further support from regulators, national governments
and labor representatives to alleviate pressures on slot
allocations, provide indirect or direct financial support and
manage airlines' cost bases. Although there is nothing concrete
yet, the Brazilian government announced that it is considering
measures to support the airlines operating in Brazil including, but
not limited to long term credit lines and working capital lines to
be provided by state owned banks as well as allowing the companies
to defer tax payments.
LIQUIDITY
Moody's estimates that Gol had around BRL3.5 billion in cash at the
end of April 2020. The company has been taking all necessary
measures to reduce cash burn such as cuts of around 50% in
salaries, wages and benefits, 60% salary reduction for top
management, and negotiation of part-time hours for crew.
Approximately 38% of the total workforce chose voluntary unpaid
leave. Other expenses such as marketing and advertising, as well as
projects that are not essential for the continuity of operations
were suspended. The company has also been able to significantly
reduce costs through the negotiation of favorable payment terms
with all suppliers and lessors.
GOL has continued to benefit from support of its creditors, over
the last three months the company has executed over BRL1 billion in
debt refinancing, including the extension of local debentures to
2022 and deferral of lease payments for up to six months. Still
there are significant maturities in 2020 such as the term-loan
guaranteed by Delta airlines of around BRL1.5 billion that could
reduce Gol's cash position if repaid in full and on time.
As alternative sources of liquidity the company has around BRL3
billion in financeable deposits and unencumbered assets that could
be used in potential secured financing transactions.
The negative outlook reflects the potential for greater than
already anticipated adverse impact from the coronavirus crisis,
which would consume more of the company's liquidity and delay the
pace and scope of the recovery in demand, the retirement of debt,
and the strengthening of credit metrics relative to Moody's current
expectations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure would not arise until risks and
uncertainties are reduced significantly because of a large increase
in liquidity while the coronavirus outbreak is brought under
control and travel restrictions are lifted. Positive rating
pressure would require evidence that the company is on track to
recover its financial metrics and restore liquidity.
Moody's could further downgrade Gol if:
- wider liquidity concerns increase
- there are increased expectations of a default in the company's
financial obligations and increased expectations of losses to
creditors
- the company executes debt restructuring transactions with
losses to creditors
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Passenger
Airline Industry published in April 2018.
COMPANY PROFILE
Based in Sao Paulo and founded in 2001, Gol is the largest low-cost
carrier in Latin America, offering over 700 daily passenger flights
to connect Brazil's major cities and various destinations in South
America, North America and the Caribbean, along with cargo and
charter flight services. Additionally, Gol has a 53% stake in
Smiles, a loyalty program company with more than 14 million
participants that allows members to accumulate miles and redeem
tickets in more than 900 destinations around the world and offer
non-ticket reward products and services. In the fiscal year ended
December 2019, Gol reported consolidated net revenues of BRL13.9
billion and lease adjusted EBITDA of BRL4.1 billion. Gol LuxCo, Gol
Finance, and Gol Equity Finance are wholly-owned subsidiaries of
Gol.
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C A Y M A N I S L A N D S
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FGL HOLDINGS: Moody's Hikes Issuer Rating to Ba2 on Fidelity Deal
-----------------------------------------------------------------
Moody's Investors Service has upgraded the LT issuer ratings of FGL
Holdings to Ba2 from Ba3 following the closing of the acquisition
by Fidelity National Financial, Inc. (NYSE: FNF; Baa2 senior).
Moody's has upgraded the insurance financial strength ratings of
F&G's insurance subsidiaries to Baa1 from Baa2. In the same action,
Moody's has upgraded the senior debt rating of Fidelity & Guaranty
Life Holdings, Inc. to Baa2 from Ba2 reflecting implicit and
explicit support in the form of a guarantee from its new parent,
FNF. The outlook on FGL Holdings and its subsidiaries is stable.
These rating actions conclude the review for upgrade of FGL
Holdings' entities initiated on February 7, 2020.
RATINGS RATIONALE
According to Moody's, the upgrade of F&G's ratings reflects the
implicit support from the stronger credit profile of the new FNF
parent. FNF provides additional financial flexibility and access to
capital to sustain F&G's growth plans. While F&G's primary
distribution channel is via independent marketing organizations,
the company should be able to further expand its broker/dealer
channel and establish bank distribution relationships with the help
of FNF.
FNF has a strong track record in making and integrating
acquisitions. The combined organization would benefit from more
diversified revenue and earning streams. Moody's expects F&G's
business strategy and risk profile to remain essentially unchanged
with the current management team and other key employees remaining
in place.
In addition to the implicit support from FNF, the Baa1 IFS ratings
of F&G's insurance subsidiaries reflect the company's growing
market position in the fixed indexed annuity space, solid capital
levels and improved investment yield from portfolio repositioning
efforts. Fidelity & Guaranty Life Insurance Company, the primary
insurance operating entity has been able to balance the healthy
growth of its FIA business, while expanding its modest footprint in
the indexed universal life insurance market. These strengths are
offset by the concentration in FIAs, along with hedging challenges
in writing FIAs, which similarly affect other writers of these
products, and the company's relatively small size in a
consolidating industry.
CF Bermuda's Ba1 issuer rating is the standard three notches from
the Baa1 IFS rating of the insurance operating entities. The Ba2
issuer rating of FGL Holdings is one notch lower than the Ba1
issuer rating of CF Bermuda reflecting structural subordination.
The Baa2 backed senior debt rating of FGLH reflects the credit
profile of its operating entities, implicit parental support and
the guarantee provided by FNF.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's said that the following could lead to an upgrade of F&G's
ratings: 1) sustained statutory return on capital exceeding 6%; 2)
more balanced growth in profitably priced new FIA business and life
insurance; and 3) an upgrade of FNF's debt ratings.
Conversely, the following factors could lead to a downgrade of
F&G's ratings: 1) increased investment risk from more aggressive
asset allocations; 2) adjusted financial leverage above 25%; 3)
sustained statutory return on capital less than 6%; 4) significant
use of reinsurance to finance growth; 5) more aggressive capital
actions or the consolidated NAIC RBC ratio (company action level)
declining below 400%; or 6) a downgrade of FNF's debt ratings.
The following ratings have been upgraded:
FGL Holdings – issuer rating to Ba2 from Ba3;
CF Bermuda Holdings Limited – issuer rating to Ba1 from Ba2;
F&G Life Re Ltd – insurance financial strength rating to Baa1
from Baa2;
Fidelity & Guaranty Life Insurance Company – insurance financial
strength rating to Baa1 from Baa2;
Fidelity & Guaranty Life Holdings, Inc. – backed senior unsecured
debt rating to Baa2 from Ba2.
The rating outlooks for the entities are changed to Stable from
Ratings Under Review.
FGL Holdings is an insurance holding company headquartered in the
Cayman Islands. As of March 31, 2020, FGL Holdings reported total
assets of about $35 billion and shareholders' equity of
approximately $0.5 billion.
Moody's insurance financial strength ratings are opinions of the
ability of insurance companies to pay punctually senior
policyholder claims and obligations.
The principal methodology used in this rating was Life Insurers
Methodology published in November 2019.
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C H I L E
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LATAM AIRLINES: Group Hires PJT Partners to Restructure Debt
------------------------------------------------------------
Tatiana Bautzer and Marcelo Rochabrun at Reuters report that
Chile's Latam Airlines Group SA has hired U.S. investment boutique
PJT Partners to explore debt restructuring options that may include
bankruptcy protection filings in three countries, Brazilian
newspaper O Estado de S. Paulo reported late.
According to the paper, which cites sources with knowledge of the
matter, Latam is considering filing for Chapter 11 in the U.S. and
equivalent bankruptcy protection in Chile and Brazil, where are the
company's largest operations, the report notes.
In a statement to Reuters, Latam said it "does not comment on
speculation" and that if it had something to report, it would do
through official channels with regulators, according to Reuter.
PJT Partners did not immediately reply to a request for comment
late on Monday.
LATAM was downgraded by S&P and Fitch after the company confirmed
it did not pay interest and principal on three tranches of 2015 $1
billion enhanced equipment trust certificates (EETC), the report
relays.
Now the company has 15 days to resolve the payment or it can be
declared in default by creditors according to cross default
clauses, Reuter discloses.
In a report, credit research company Lucror Analytics said the
chances for a debt restructuring transaction or bankruptcy
protection filing were rising, the report relays.
Lucror estimates LATAM is burning through around $7 million in cash
daily in the second quarter and had $1.3 billion in cash in April,
the report notes.
Lucror notes, though, that the company may receive support from
Brazilian development bank BNDES, although the credit could take
time to materialize and the loan could only be used to support
LATAM's Brazilian operations, the report says. Financial support
is not expected from Delta Air Lines, which owns 20% of LATAM's
shares, the report discloses.
As reported in the Troubled Company Reporter-Latin America on May
28, 2020, Fitch Ratings has downgraded LATAM Airlines Group S.A.'s
Long-Term Foreign Currency Issuer Default Rating to 'D' from 'CC'
and its National scale Long-term rating to 'D(cl)' from 'CC(cl).
LATAM Finance's unsecured notes were affirmed at 'C' and the
recovery rating for the notes was revised to 'RR6' from 'RR5'.
LATAM's national scale unsecured notes were affirmed at 'C(cl)'.
The National Equity Rating has been affirmed at 'Segunda Clase
Nivel 5 (cl)'.
===================
C O S T A R I C A
===================
COSTA RICA: Moody's Alters Outlook on B2 Issuer Ratings to Negative
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Moody's Investors Service has changed the outlook on the Government
of Costa Rica's ratings to negative from stable. Concurrently,
Moody's has affirmed Costa Rica's B2 long-term issuer and senior
unsecured bond ratings.
The negative outlook reflects Costa Rica's increased funding risks
due to higher borrowing requirements resulting from
pandemic-related economic and fiscal shocks.
The affirmation of Costa Rica's B2 rating takes into account the
sovereign's higher-than-peer's wealth levels and its dynamic
economy. Costa Rica also benefits from comparatively strong
institutional governance indicators.
Costa Rica's foreign currency bond ceiling remains unchanged at
Ba3; the foreign currency deposit ceiling remains unchanged at B3;
and the local currency bond and deposit ceilings remain unchanged
at Ba1. The short-term foreign currency bond ceiling and the
short-term foreign currency deposit ceiling remain unchanged at Not
Prime.
RATINGS RATIONALE
RATIONALE FOR NEGATIVE OUTLOOK
INCREASED FUNDING RISKS RESULTING FROM PANDEMIC-RELATED SHOCKS
The decision to change the outlook to negative reflects the
expected impact on Costa Rica's budget deficits, and the related
increased risk of funding pressures, resulting from the coronavirus
shock. Moody's considers this shock as a social risk under its ESG
framework. The pandemic has led to a sharp recession and higher
fiscal deficits which will require increased borrowing from the
government both this year and next. For 2020 the government will
rely heavily on funding from official sources but next year's
borrowing will require tapping international markets, where spreads
today remain prohibitively high.
Moody's expects the economy will fall 4% in 2020, with most of the
drop in growth felt in the first half of 2020, and that Costa Rica
won't return to positive year-on-year growth until the first
quarter of 2021. Real GDP is expected to recover in 2021, advancing
by about 3%, but will be insufficient to make up for the lost
economic output this year.
The recession, only the third in over half a century, will lead to
higher fiscal deficits due to rising interest costs and pandemic
related-spending. Moody's now expects the 2020 fiscal deficit to
reach 9.7% of GDP and further expects the deficit to fall only
moderately in 2021 to 8.4% of GDP. This will contribute to a rise
in public sector indebtedness that is higher than what was
anticipated when the rating agency lowered the country's sovereign
rating to B2 early this year and add to the medium term challenges
of containing further erosion of the government's balance sheet and
the burden of interest payments on its relatively small revenue
base.
Higher fiscal deficits will push government borrowing requirements
to close to 15% of GDP in both 2020 and 2021, a historically high
number. For 2020 the government plans to rely heavily on
multilateral funding as it expects no access to international
capital markets but 2021 will require a return to international
private funding.
The rating agency estimates this year's funding needs at 14.7% of
GDP, four percentage points of GDP higher than pre-pandemic
forecasts. Multilateral official lending will be a key source of
funding in 2020, representing 36% of all government borrowing
compared to only 13% in 2019. On April 29 the International
Monetary Fund approved $504 million in emergency assistance, adding
to loans from the Inter-American Development Bank and the Central
American Bank for Economic Integration.
Moody's expects 2021 funding needs to remain similar to this year's
level but with a greater reliance on international capital markets.
The government expects to issue about $1.5 billion, or 2.7% of GDP,
in international capital markets next year. Sovereign spreads on
external funding stand at close to 800 bps, compared to pre-crisis
levels of 400-500 bps. If interest rates do not return to prior
lows the government will likely need to increase its domestic
funding to over 10% of GDP, testing the ability of the local
financial system to meet increased government borrowing
requirements and raising the risk of levels of funding stress not
consistent with a B2 rating. In 2018 lack of access to domestic and
international funding led the government to request an emergency
loan from the central bank.
RATIONALE FOR AFFIRMING THE B2 RATING
COMPARATIVELY STRONG ECONOMY AND INSTITUTIONS SUPPORT CURRENT
RATING
Despite the current coronavirus-related recession Costa Rica's
economy is characterized by sustained and stable growth, averaging
3.6% annually from 2010 to 2019. The country's long-term economic
outlook remains strong. Costa Rica has one of the most stable
economies in Latin America and this year's downturn will be only
the third recession in the last 60 years. In that time period Costa
Rica's economy has transitioned from simple agricultural exports,
to tourism, light maquilas, and more recently business outsourcing
and medical technology exports. Costa Rica's GDP per capita at
$18,702 in 2019 is more than double the B-rated median of $7,702
and its $62 billion economy is larger than the $26 billion
B-median.
Costa Rica further benefits from economic and market diversity.
Historically dependent on agriculture, farming is now one of the
smaller sectors in the economy. Over the past decades, the country
has made significant strides in diversifying its productive base by
nurturing high-tech and service-based sectors such as consumer
electronics, finance and tourism. Currently, Costa Rica's largest
sectors are healthcare and education, professional services, which
spans scientific and technology sectors, and manufacturing,
together accounting for about 40% of economic output.
Exports in Costa Rica are generally more diversified than in most
other Latin American countries. Using data from the MIT's
Observatory of Economic Complexity, which looks at the diversity of
products and export markets, Costa Rica ranked 49 out of 125
countries and third overall in Latin America in terms of economic
complexity in 2017, the latest available data.
Costa Rica also compares favorably to other sovereigns in the
region on measures such as government effectiveness, rule of law
and control of corruption. Costa Rica's democracy is the oldest in
the region. These features of the country's institutional makeup
are supportive of the country's credit risk profile because they
speak to institutional continuity and political stability, elements
that tend to be correlated with policy predictability.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental considerations present moderate risks to Costa Rica's
credit profile. Lower crop yields because of climate events can
harm the agricultural export sector. The impact of climate change
has recently been cited by the central bank as potentially having a
material impact on economic growth. These considerations have been
incorporated into its assessment of both economic strength and
susceptibility to event risk.
Social considerations, historically not material to Costa Rica's
credit profile given a long history of stable governments and
democratic institutions, will rise due to the impact of the
coronavirus pandemic. Moody's regards the coronavirus outbreak as a
social risk under its ESG framework, given the substantial
implications for public health and safety. For Costa Rica the
pandemic will lower growth and further deteriorate government
finances, impacting credit metrics and increasing the risk of
social protests. Social risks may also materialize if future fiscal
adjustments were to severely affect popular social programs and
pensions and if that led to widespread protests.
Governance considerations have a moderate to high impact on the
credit profile as the political inability of several
administrations has resulted in a fiscal crisis that will likely
require significant fiscal consolidation and structural reforms.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
Given the negative outlook, a rating upgrade is unlikely. The
outlook could return to stable if the government effectively
implements structural budgetary adjustments that ease funding risks
and reduce fiscal deficits to limit the worsening in government
debt indicators and improve market confidence leading to more
sustainable cost of funding.
WHAT COULD CHANGE THE RATING DOWN
Prospects of continued fiscal deterioration that result in higher
government debt metrics than what Moody's currently projects, as
well as continued market access challenges and higher funding
costs, could lead to a rating downgrade. Evidence of stress in the
banking system, or a significant increase in the level of financial
dollarization could also place downward pressure on the rating.
GDP per capita (PPP basis, US$): 17,566 (2018 Actual) (also known
as Per Capita Income)
Real GDP growth (% change): 2.7% (2018 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 2% (2018 Actual)
Gen. Gov. Financial Balance/GDP: -5.8% (2018 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -3.1% (2018 Actual) (also known as
External Balance)
External debt/GDP: 48% (2018 Actual)
Economic resiliency: ba1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On May 28, 2020, a rating committee was called to discuss the
rating of the Costa Rica, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have decreased. The issuer's
fiscal or financial strength, including its debt profile, has
decreased. The issuer has become increasingly susceptible to event
risks.
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.
===========
M E X I C O
===========
CEMEX SAB: S&P Assigns 'BB' Rating on New Secured Notes Due 2027
----------------------------------------------------------------
S&P Global Ratings assigned its 'BB' issue-level rating and '3'
recovery rating to CEMEX S.A.B. de C.V.'s (global scale: BB/Watch
Neg/--; national scale: mxA/Watch Neg/mxA-1) proposed senior
secured notes due 2027. The recovery rating of '3' indicates that
bondholders can expect a meaningful (50%-70%) recovery in the event
of a payment default. The rating on these notes is on CreditWatch
with negative implications.
S&P expects the company to use the net proceeds for general
corporate purposes, including the repayment of other debt, in
accordance with the 2017 Credit Agreement. The notes will be
secured by a first-priority security interest over all the shares
of Cemex Operaciones Mexico S.A. de C.V., Cemex Innovation Holding
Ltd. (formerly CEMEX TRADEMARKS HOLDING Ltd.), New Sunward Holding
B.V., and CEMEX Espana S.A. (together, the collateral) and all
proceeds of such collateral. CEMEX's main subsidiaries will
unconditionally guarantee the notes under the same terms as all of
the company's other senior capital market debt.
S&P said, "On April 1, 2020, we placed all our ratings on CEMEX on
CreditWatch negative, reflecting unanticipated risks stemming from
weak global economic conditions due to the coronavirus pandemic,
which will significantly disrupt the construction industry and dent
cement demand across the company's key markets.
"While we consider that CEMEX is well equipped to withstand
liquidity pressures and that its extended debt maturity profile
largely mitigates refinancing risks for the next two years, we now
estimate the company's debt-to-EBITDA ratio could exceed 5x by the
end of the year. This would trigger a downgrade if there's no clear
path for deleveraging in 2021.
"We expect to resolve our CreditWatch listing once we have more
clarity on the duration of the COVID-19 pandemic and the magnitude
of its impact on CEMEX's operations, earnings, and financial
position in 2020, as well as the prospects of a recovery in 2021."
ELEMENTIA SAB: Fitch Cuts LT IDR to BB-, Outlook Negative
---------------------------------------------------------
Fitch Ratings has downgraded the Foreign and Local Currency Issuer
Default Ratings of Elementia, S.A.B. de C.V. to 'BB-' from 'BB+'.
Fitch has also removed Elementia's Rating Watch Negative and
assigned a Negative Rating Outlook.
The rating downgrade reflects expectations that the company's
capital structure will weaken beyond existing rating sensitivities
for a sustained period of time, due to expected contractions in
cement demand in Mexico and the U.S. as a result of a downturn in
construction spending due to sharp economic contractions in both
countries.
The rating action also reflects the deterioration of its metals and
buildings systems prior to the coronavirus pandemic. The EBITDA of
these two segments declined to USD34 million in 2019 from USD104
million in 2017. As a result, their EBITDA contribution to
Elementia's consolidated EBITDA has declined from 44% to 22% during
this timeframe. These segments continue to underperform in 2020 and
Fitch does not expect their contribution to Elementia's
consolidated EBITDA to increase materially over the next few
years.
The Negative Outlook on Elementia's Ratings reflects high leverage
and high uncertainty about the degree and timing of the recovery in
its operating results. Fitch's base case projections for Elementia
factor in the successful sale of its Keystone plant. Fitch's rating
case includes expectations that Elementia's net debt / EBITDA will
increase to 5.1x at YE 2020 and trend toward 4.5x by 2022 from 3.7x
in 2019. Without the sale, the company's net leverage would likely
be higher than 6x and a downgrade would be highly probable.
KEY RATING DRIVERS
Difficult Mexican Market: Fitch expects Mexican cement consumption
to drop by low-double-digits in 2020, then recover by
low-single-digits in 2021, following a gradual pickup in
construction activity in June 2020, which is contingent on state
measures. Cement demand declined by 7% in 2019 and by 2% in the
first three months of 2020 after a severe weakening in construction
activity in 2019 was triggered by a drop in business confidence and
paralyzed construction activity in Mexico City due to permitting
delays. Mexico's formal construction activity was also fully
suspended for about eight weeks during April and May 2020 due to
the coronavirus pandemic. Hardware stores remained open, although
unevenly across states.
U.S. Market Increasingly Pressured: Cement demand through April
2020 remained stable, except in the U.S.'s north east, as
construction in most states was deemed essential. However, Fitch
expects the remainder of the year to be more challenging, with the
value of residential construction spending plunging by double
digits on lower new-housing demand and an extension of the backlog
in non-residential construction due to delays and disruption.
Public construction should be unaffected.
Fitch believes the recovery in 2021 will be tempered by a
contraction in commercial construction activity as the backlog
fades, and by a lag effect of a slowdown in residential housing
starts near the end of 2020. Public construction activity could
slow in 2021 due to lower fuel taxes and the stretched budgets of
state and local governments. The volatility of state and federal
spending on highway construction, particularly during periods
without long-term highway bills in place, is also a risk.
Weak Operating Performance: Elementia entered the pandemic crisis
with its EBITDA pressured from weak performance in its Metals and
Building systems segments. The combined EBITDA of both segments
declined to USD34 million in 2019 from USD104 million in 2017.
Increased raw material costs, more competition and lower volumes in
Metals have been factors contributing to the decline. Weakness in
Mexico and in the Andean region and higher raw materials costs have
been challenges faced by its Building Systems. Elementia's
consolidated EBITDA (Excluding IFRS-16) declined to USD145 million
during the last twelve months to March 2020 compared with USD235
million in 2017 and USD207 million in 2018 due to further weakness
in metals and building systems as well as Mexico's cement
operations.
Fitch expects Elementia's cement business, which represents about
80% of consolidated EBITDA to contract due to extremely depressed
residential and industrial and commercial construction as Mexico's
economic activity plummets. Lockdowns in Colombia for 4-5 weeks and
in Peru from mid-march through June will pressure the cash flow
generation in the building systems segment. Operations in Ecuador
and Bolivia have also been shut down. Fitch forecasts Elementia's
consolidated EBITDA at around USD110 million (MXN2.4 billion) and
USD120 million in 2021 compared with USD156 million (MXN3 billion)
in 2019.
High Leverage: Elementia announced that its 55% owned subsidiary,
Giant Cement Holding Inc., reached an agreement to sell its
Pennsylvania assets to Lehigh Hanson, Inc., a subsidiary of
HeidelbergCement, for USD151 million. Giant plans to use the
proceeds from the sale, which may occur prior to the spin-off of
Elementia's metals products and building systems (Elementia
Materials) businesses, to partially reduce its USD305 million
intercompany loan with Elementia, which, in turn, would use this
cash primarily to reduce debt.
Giant's divestment of its Keystone plant in Pennsylvania was
expected to offset pressure in Elementia's capital structure before
the pandemic. However, the current situation will inevitably
complicate deleveraging as its cement business will now face
increasing pressure from low construction activity in Mexico and
the U.S. Fitch projects consolidated net debt/ EBITDA will increase
to approximately 5x in 2020 and to trend to around 4.5x in 2022
from 3.7x in 2019 on a proforma basis to account for the asset
sale.
Broad Product Offering: Elementia's has a diversified revenue base
and product offerings. The cement division (72% of consolidated
EBITDA) should remain the highest margin segment. The metal segment
(9%) sells mainly copper pipes, tubes, fittings, bars, valves and
related products mainly throughout Mexico and to lesser extent the
export market. This segment has been pressured in recent years by
higher raw material costs weak demand and increased competition.
The building systems segment (19%) sells a variety of roofing,
sidings, water-storage tanks and other products throughout the
Americas.
Elementia has an ESG Relevance Score of 4 for Waste and Hazardous
Materials due to a risk of litigation caused by its past use of
chrysotile asbestos for fiber cement production.
DERIVATION SUMMARY
Elementia has broad product offering relative to regional cement
producers such as Grupo Cementos de Chihuahua (BB+/Stable) and U.S.
market leader of fiber-cement siding and backerboard, James Hardie
(BBB-/Negative). However, weaker volumes sold of copper and
building systems products along with higher costs have diminished
its cash flow diversification. Elementia's higher and more volatile
leverage metrics as well as relatively weaker standalone business
profiles in cement or fiber-cement products are also reflected in
the ratings. The Negative Outlook on James Hardie's ratings
reflects the uncertainty the company faces to lower its gross
debt/EBITDA to below 3x by 2022. Elementia's gross leverage ratio
is expected to increase to around 6x in 2020 and 5x on a net basis.
This compares with projected gross leverage of around 4.5x for
James Hardie. Elementia's controlling shareholders own large
Mexican business groups, which Fitch believes increases Elementia's
funding options. Grupo Cementos de Chihuahua, has a stronger cement
business and its credit metrics position it well to capitalize on
potential opportunities.
Elementia's weaker competitive position and geographic
diversification relative to major global peers, notably CEMEX,
S.A.B. de C.V. based on scale and size of cement operations is
offset by Elementia's lower projected leverage relative to CEMEX.
Fitch projects Elementia's consolidated net leverage at around 4.5x
in 2022, which compares against expectations of around 5x for
Cemex.
KEY ASSUMPTIONS
-- Cement volumes decline low double digits in 2020 and recover
in the low-single digits in 2021;
-- Copper prices follow Fitch's price deck of USD5,700/ton in
2020 and USD6,000/ton in 2021;
-- Copper product volumes decline around 15% in 2020 and recover
mid-single digits in 2022;
-- Capex cut 25% in 2020 and remains below 2019 levels in 2021;
-- No dividends paid over the forecast horizon;
-- Mexican peso to U.S. dollar exchange rate remains at around
22.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Expectations of materially stronger cash flow generation in
Metals and Building Systems segments;
-- Expectations of rising cement demand in Mexico and U.S. that
leads to significantly stronger EBITDA expectations;
-- Consolidated net debt to EBITDA below 3.5x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A weakening of operating cash flow and free cash flow
expectations to a degree that net debt/EBITDA is forecast above
4.5x beyond 2022;
-- Expectations of a pronounced deterioration of Mexico's
economic environment that leads to a material contraction in EBITDA
prospects;
-- A weakening of liquidity;
-- A failure to execute the Keystone transaction.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Elementia closed the first quarter of 2020 with
USD58 million of cash, and the sale of Keystone, which is pending
regulatory approval, would bring USD151 million. The company faces
USD49 million of short-term bank debt that it is negotiating to
extend. Fitch expects the company to use asset sales proceeds to
reduce debt and boost liquidity.
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
Elementia has an ESG Relevance Score of 4 for Waste and Hazardous
Materials due to a risk of litigation caused by its past use of
chrysotile asbestos for fiber cement production.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of 3 - ESG issues are
credit neutral or have only a minimal credit impact on the
entity(ies), either due to their nature or the way in which they
are being managed by the entity(ies).
GRUPO AEROMEXICO: Moody's Cuts CFR to Caa1, Outlook Negative
------------------------------------------------------------
Moody's Investors Service has downgraded Grupo Aeromexico S.A.B. de
C.V.'s corporate family rating to Caa1 from B2. Moody's has also
downgraded to Caa2 from B3 the senior unsecured rating on its
global notes due 2025, issued by its fully owned subsidiary
Aerovias de Mexico, S.A. de C.V. Rating outlook is negative.
RATINGS RATIONALE
The downgrade to Caa1 reflects a sharper decline in passenger
traffic than initially anticipated and a slower recovery that will
prevent passenger demand from reaching 2019 levels before 2023. The
International Air Travel Association's latest scenario analysis
forecasts a decline in global passenger demand of around 24% for
the full year 2021 vis-a-vis 2019, while these levels will not be
exceeded until 2023. Since the outbreak of coronavirus Aeromexico
has been experiencing cash burn, that if continued, will result in
a weakening liquidity profile and a significantly higher leverage
depending on the duration of the coronavirus outbreak. The rating
action concludes the review initiated on March 17, 2020.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, and asset price declines are
creating a severe and extensive credit shock across many sectors,
regions and markets. The combined credit effects of these
developments are unprecedented. The passenger airline sector has
been one of the sectors most significantly affected by the shock
given its exposure to travel restrictions and sensitivity to
consumer demand and sentiment. Its action reflects the impact on
Aeromexico of the breadth and severity of the shock, and the broad
deterioration in credit quality it has triggered. Moody's regards
the coronavirus outbreak as a social risk under its ESG framework,
given the substantial implications for public health and safety.
Moody's base case assumptions are that the coronavirus pandemic
will lead to a period of severe cuts in passenger traffic for 2020
with partial or full flight cancellations and aircraft groundings,
with all regions affected globally. The base case assumes a gradual
recovery in passenger volumes starting in the third quarter.
However, there are high risks of more challenging downside
scenarios and the severity and duration of the pandemic and travel
restrictions is uncertain. Specifically, for Aeromexico, Moody's is
assuming a reduction of around 60 % in passenger traffic for the
full year 2020 vis-a-vis 2019 and a 40% reduction for 2021, with
volumes recovering to 2019 levels only by 2023.
Aeromexico's Caa1 rating consider the company's flexible cost
structure that allowed it to reduce cash burn in more than 50%
since the start of the pandemic outbreak, favorably positioning it
against global peers at less than $50 million per month.
Furthermore, Aeromexico has the potential to further reduce cash
burn, as lease contracts mature through 2021. The rating includes
its view that Aeromexico is well positioned to capture longer term
opportunities, considering consolidation in the Mexican market,
relevance of air traffic from the US in Mexico and relationship
with Delta Air Lines, Inc. (Baa3 negative), its major shareholder
through a 49% stake. Conversely, the rating incorporates
Aeromexico's weak liquidity and the expectation that the company
will continue to rely on external sources of liquidity to maintain
operations during the pandemic outbreak and until traffic recovers.
Whereas Moody's expects support from national governments to the
industry worldwide, the Mexican government will not likely provide
bailouts to domestic airlines, further stressing the company's
ability to secure funding.
Aeromexico's liquidity is tight. Considering cash position reported
as of the end of March 31, 2020, cash burn associated with
operations at low capacity and some debt repayments, Moody's
estimates cash as of the end of May 3, 2020 at MXN11.3 billion
($490 million). This compares with maturities of MXN9,444 ($400
million) through March 31, 2021 and some $260 million estimated in
annual lease payments. Nevertheless, only MXN4,038 million through
March 2021 are mandatory payments without flexibility to refinance
or renegotiate. The balance is related to liabilities with
refinance sources already secured, such as the PDP payments to
Boeing amounting some MXN1.8 billion ($80 million). PDPs are the
Pre-delivery payments Aeromexico made to Boeing pursuant to the
purchase agreement of the MAX aircrafts expected to be received by
the end of 2020. PDPs usually account for close to 30% of the final
aircraft price and are funded through short term debt. Once the
company receives the aircraft, it will need to secure long-term
debt to fund the full price, refinancing with those proceeds the
short term related to the PDPs. Aeromexico already has secured a
backstop facility with Boeing to fund the MAXs purchase price and
proceeds can be used as take-out financing for the PDP debt. Also
flexible are the partial amortizations under local notes amounting
MXN1.2 billion ($52 million) that can also be deferred subject to
positive cash generation. Aeromexico's liquidity position will
benefit if it is able to successfully conduct ongoing initiatives
to secure additional $400 million through a sale and leaseback
transaction of owned aircrafts and additional financing from Export
Credit Agencies.
The Caa2 rating for the unsecured notes stands one notch lower than
Aeromexico's Caa1 corporate family rating in order to reflect the
effective subordination of those unsecured creditors to the
company's other existing secured debt. Accordingly, Aeromexico's
consolidated debt is composed mainly of capitalized leases under
IFRS 16 accounting and financing leases, representing about 75% of
its total debt. If successful in securing additional liquidity,
secured debt could increase to close to 80% of total debt further
increasing effective subordination of unsecured obligations.
The negative outlook reflects Moody's view of a more prolonged
recovery to the airline industry and Aeromexico's limited financial
flexibility that can result in debt restructuring.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings are unlikely to be upgraded in the short term. Positive
rating pressure would not arise until the risk of a default is
reduced significantly because of a large increase in liquidity
while the coronavirus outbreak is brought under control and travel
restrictions are lifted. Positive rating pressure would require
evidence that the company can avoid a default while recovering its
financial metrics and restoring liquidity.
Moody's could further downgrade Aeromexico if (i) wider liquidity
concerns increase; (ii) there are increased expectations of a
default in the company's financial obligations and increased
expectations of losses to creditors; or (iii) the company executes
debt restructuring or filing for bankruptcy.
Based in Mexico City, Grupo Aeromexico S.A.B. de C.V. (Aeromexico)
is Mexico's leading airline, with more than 20 million passengers
transported in 2019 and currently serving 87 destinations (43
domestic and 44 international) in Mexico, the United States,
Europe, Central and South America, Asia and Canada. The company
currently has a fleet of 119 aircraft with passengers accounting
more than 90% of revenues and the balance being related with cargo
services. Aeromexico has been a public company since 2011. In 2017,
Delta Air Lines, Inc. (Delta, Baa3, negative) increased its equity
stake in Aeromexico to 49%, enhancing the strategic alliance
between both companies. For the LTM period ended March 31, 2020,
Aeromexico generated revenues of $2.9 billion and EBITDAR of $593
million. Currently public float of the company accounts for 20% of
its equity stake.
The principal methodology used in these ratings was Passenger
Airline Industry published in April 2018.
Downgrades:
Issuer: Grupo Aeromexico S.A.B. de C.V.
Corporate Family Rating, Downgraded to Caa1 from B2
Issuer: Aerovias de Mexico, S.A. de C.V.
Gtd Senior Unsecured Regular Bond/Debenture, Downgraded to Caa2
from B3
Outlook Actions:
Issuer: Grupo Aeromexico S.A.B. de C.V.
Outlook, Changed to Negative from Rating Under Review
Issuer: Aerovias de Mexico, S.A. de C.V.
Outlook, Changed to Negative from Rating Under Review
GRUPO FAMSA: S&P Cuts ICR to CCC- on Missed Payments on $59MM Notes
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S&P Global Ratings, on June 2, 2020, lowered its long-term issuer
credit rating on Mexican retailer Grupo Famsa, S.A.B. de C.V.
(GFamsa) to 'SD' (selective default) from 'CCC-'. At the same time,
S&P affirmed its 'CCC-' issue-level rating on its senior secured
notes due 2024, with a recovery rating of '3', indicating a
meaningful recovery prospect (50%-90%).
The downgrade to 'SD' follows GFamsa's missed interest and
principal payments on its $59.1 million outstanding senior
unsecured notes on June 1, 2020.
The company will pursue a restructuring of its 7.25% senior
unsecured notes through an exchange offer to bondholders. GFamsa
expects to settle the offer in the next few weeks. As part of the
restructuring process, GFamsa is offering new notes to its 7.25%
noteholders, with an extended maturity and greater coupon rates,
among other conditions. Additionally, the company will pay a cash
fee to noteholders that accept the offer by June 23, 2020. In the
event that holders of at least two-thirds in dollar amount, and
more than half in terms of the number of the allowed 2020 notes
claims, vote to accept the offer, the company intends to file a
voluntary reorganization petition to implement the reorganization
plan.
The abovementioned events could trigger a payment acceleration of
the company's other debt obligations under certain specific
conditions. According to the indenture of the 2024 notes, the
default of other debt could accelerate principal and accrued
interest, if requested by holders of at least 25% of the 2024
notes' outstanding amount. Moreover, GFamsa's short-term local
bonds program also contain cross-default provisions.
S&P said, "We affirmed our 'CCC-' issue-level rating on the
company's senior secured notes due 2024, as we expect the company
to meet its semiannual coupon payment on June 15, 2020, for its
9.75% senior secured notes, and other upcoming debt obligations,
including its local short-term debt certificates.
"We will assign a forward-looking issuer credit rating on the
company after it completes its debt restructuring process in the
next weeks."
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