/raid1/www/Hosts/bankrupt/TCRLA_Public/200703.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, July 3, 2020, Vol. 21, No. 133
Headlines
A R G E N T I N A
ARGENTINA: Bondholder Alliance May Splinter Over Debt Deal
ARGENTINA: Extended Quarantine Challenges Opposition's Coalition
C O S T A R I C A
COSTA RICA: IDB Approves US$250MM Loan for Covid-19 Sanitary Crisis
J A M A I C A
DIGICEL GROUP: Fitch Corrects June 25 Ratings Release
M E X I C O
GRUPO AEROMEXICO: Files for U.S. Bankruptcy
GRUPO AEROMEXICO: S&P Lowers ICR to 'D' on Chapter 11 Filing
GRUPO POSADAS: S&P Lowers ICR to 'D' on Missed Interest Payment
MEXICO: President Optimistic on Pandemic, Economic Recovery
U R U G U A Y
ARCOS DORADOS: Moody's Confirms Ba2 CFR, Outlook Negative
V E N E Z U E L A
PETROLEOS DE VENEZUELA: Tightens Grip on Gas Station Operators
- - - - -
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A R G E N T I N A
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ARGENTINA: Bondholder Alliance May Splinter Over Debt Deal
----------------------------------------------------------
Marc Jones at Reuters reports that one of the main bondholder
alliances in Argentina's $65 billion debt talks is at risk of
splintering after at least three of its members signaled they could
break ranks and accept a lower value deal than the group has
proposed, three bondholders said.
The bondholders, who requested anonymity, told Reuters the
Argentina Creditor Committee (ACC) -- one of three main creditor
groups -- has been jolted by U.S. funds Gramercy, Fintech and
Oaktree signalling they were willing to pursue their own deals,
according to Reuters.
The ACC has proposed a deal where bondholders would effectively
receive 55-56 cents for their securities, but the indications that
the trio and perhaps one or two others may be prepared to accept a
lower offer, has caused a rift, the report notes.
"It is possible," one of bondholders familiar with the discussions
said of the potential fracturing of the group. "These committees
are fluid and firms come and go," the report relays.
Gramercy, Fintech and Oaktree, which had joined forces with ACC
earlier this year, either did not immediately respond to requests
for comment or were unreachable for comment on whether they have
had separate contacts with Buenos Aires.
The ACC will need to hammer out the issue over the coming days,
which come at a crucial stage in talks with the Argentine
government, the report notes.
Negotiations have been extended a number of times in an effort to
reach a deal, though the other two main creditor groups, the "Ad
Hoc" and "Exchange" groups, complained of a lack "meaningful
engagement" from the government since mid-June, the report notes.
Those two groups, which have also forged an alliance, could
potentially draw in ACC members if it did end up splintering,
though some funds may also simply go their own way, the report
discloses.
"There's a split in our committee with the majority not in favour
of this backchannel deal supported by funds that have hardly any
bonds," a second bondholder said of the ACC friction, the report
says.
The report relays that a third bondholder added: "Could Gramercy
and Fintech go their own way? Certainly, but hopefully we can still
find a unified ACC approach."
The first two bondholders were also critical of proposed tweaks to
the government's deal that they see as an attempt to strong arm
investors to sign up -- rewarding those who do to the detriment of
those who do not, the report notes.
Between $10-$15 million a day of interest has been building up on
Argentina's defaulted bonds in recent weeks, while other
limited-time-only sweeteners have also been dangled, they said, the
report notes.
"It sets a bad precedent for other restructurings," the second
bondholder said. "They are trying to use these (proposals) in a
coercive manner," the report discloses.
The first bondholder also voiced frustration that the Argentine
government had not been keener to bridge the relatively small gap
in the offers, the report says.
"The frustration is that Argentina knows the contours of the deal
that would get broad acceptance," he said, the report notes. "But
they are spending valuable time and resources in trying to extract
every last tidbit of value out of creditors," 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.
ARGENTINA: Extended Quarantine Challenges Opposition's Coalition
----------------------------------------------------------------
Brendan O'Boyle at Americas Quarterly reports that for months now,
Argentina's most powerful opposition politician, Buenos Aires Mayor
Horacio Rodriguez Larreta, has worked hand-in-hand with President
Alberto Fernandez to confront the coronavirus crisis.
Their collaboration has been all the more notable for its contrast
to past antagonism between the country's last Peronist president,
Cristina Fernandez de Kirchner, and former Buenos Aires mayor and
later president himself, Mauricio Macri, according to Americas
Quarterly.
But with cases rising and new data suggesting a grim economic
outlook, the question of how closely to work with the government is
revealing divisions within Argentina's otherwise unified
opposition, the report notes. With its full effects slowly coming
into focus, the coronavirus pandemic could well shape a burgeoning
power struggle following Macri's failed re-election bid last year,
the report relays.
The report says that Mr. Larreta, who joined Fernandez on June 26
to announce a stricter quarantine for the populous Buenos Aires
metropolitan area, is "today the opposition leader with the most
momentum," said Mariel Fornoni, a political analyst and director of
the pollster Management and Fit. After winning his second term
last year, Larreta has continued what many see as a moderate
governing style that stresses effective management over political
confrontation, the report discloses.
"Despite heading what is arguably the most staunchly anti-Peronist
stronghold in Argentina, Larreta has moved closer to Fernandez
since his re-election," journalist Ignacio Portes wrote in The
Essential, noting that president and mayor share a "personality
prone to negotiation and a need to work together to avoid a public
health crisis," the report relays.
At around 1,300, Argentina's death toll from the virus is far below
that of some of its South American neighbors, the report notes.
But a spike in cases in Buenos Aires and the surrounding province
led Larreta, Fernandez and the provincial governor (and Fernandez
ally) Axel Kicillof to reverse plans to ease the region's lockdown,
the report discloses. Instead, new restrictions will limit
circulation in the capital and 35 neighboring municipalities until
July 17, the report says.
The image of the three leaders announcing the new quarantine
together suggests Larreta's aversion to partisanship in the middle
of a crisis, the report notes. But high-profile figures within his
coalition of opposition parties, Together for Change, have
nonetheless pressured Larreta to distance himself from the
government and speed up the reopening of the economy, the report
says. These include Alfredo Cornejo, the head of the opposition
Radical Civic Union party and former governor of Mendoza who, like
Larreta, is seen as a likely contender for president in 2023, the
report relates.
"Larreta is under heavy pressure by the government," Cornejo told
Canal 9. "That's why he needs to be more courageous and less afraid
. . . . Anyone who voices an opinion against (the government's)
strategy, is seen as being in favor of more deaths," the report
notes.
Likewise, a statement from the Civic Coalition, an opposition party
founded by the influential politician Elisa Carrio, warned against
the city of Buenos Aires "attaching its exit strategy to the
inefficiency that we all see in the execution of public health and
security policies by Axel Kiciloff," the report discloses.
The economic concern is understandable. Argentina's economy
contracted 26.4% in April compared to the same month last year -
its worst performance since the government's statistics agency
started publishing monthly data in 1993, the report notes.
"I think Larreta is making a bet that his policy regarding the
quarantine will pay off and the economy will recover," said Nicolas
Saldias, a senior researcher for the Wilson Center's Argentina
Project. "If it doesn't pay off, the opposition within the
opposition - the more hardline, anti-Peronist part of the party -
will say, 'you sold out the economy to the Peronists. You destroyed
the middle class."
One of the most prominent of these "hardliners" is Patricia
Bullrich, the president of Macri's Republican Proposal party and
his former security minister. She has criticized the government's
coronavirus approach repeatedly, saying the quarantine was
"postponing the problem," the report says. A further deterioration
in Argentina's health and economic situation could be fertile
ground for Bullrich, who is close to Macri.
"As the economic crisis deepens, and if they seem to have no plan
to lift restrictions in Buenos Aires, that could provide some
breathing room to the hardliners in the opposition," said Bruno
Binetti, a fellow at the Inter-American Dialogue, the report
notes.
But Larreta is not the only opposition figure resisting outright
confrontation with the government over pandemic policies. Others
include Maria Eugenia Vidal, a charismatic ally of Larreta who lost
her re-election bid as Buenos Aires provincial governor last year
but remains relatively popular, the report relays.
Though midterm elections are more than a year away, the choice of
collaboration or confrontation with the government over pandemic
policy could play a role in determining which opposition figures
are able to connect with voters in 2021, the report discloses.
"Some 40% of the population voted for Together for Change in last
year's election," Fornoni told AQ. "They now find themselves a
little bit orphaned in the sense that they aren't sure who is
representing them."
Indeed, uncertainty over Macri's role has left open some questions
about leadership within the opposition, the report relates. His
better-than-expected performance in October's election suggested to
many that the former president could still be the one to guide the
opposition forward, the report notes. But until participating in a
handful of high-profile meetings in recent weeks, he'd been largely
absent from politics this year, the report discloses.
"If you look at how Macri is being referred to, it's as an
ex-president, not as an opposition leader," Fornoni said. "He
hasn't expressed what he wants to be, where he wants to be. So that
makes it pretty complicated for the opposition," the report
relays.
Meanwhile, allegations by Fernandez's government that Macri's
government spied on more than 400 people have also hurt the former
president's already weak public image, the report notes. But
Argentina does have a track record of ex-presidents returning to
politics and earning legal protection that comes with election to
high office. Former President Carlos Menem, now a senator, and
Fernandez de Kirchner, now vice president, are two examples, the
report discloses.
Regardless of what Macri decides to do, Fornoni points to the
complete unpredictability of the last year of Argentine politics,
which turned upside down with the surprise candidacy of Alberto
Fernandez, the report says.
"This is a country where anything can happen," the report adds.
About Argentina
Argentina is a country located mostly in the southern half of
South America. It's capital is Buenos Aires. Alberto Angel
Fernandez is the current president of Argentina after winning the
October 2019 general election. He succeeded Mauricio Macri in the
position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal
year 2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
As reported by the Troubled Company Reporter - Latin America on
April 14, 2020, Fitch Ratings upgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating to 'CC' from 'RD' and
Short-Term Foreign Currency IDR to 'C' from 'RD'.
The TCR-LA reported on April 13, 2020, that S&P Global Ratings
also lowered its long- and short-term foreign currency sovereign
credit ratings on Argentina to 'SD/SD' from 'CCC-/C'. S&P also
affirmed the local currency sovereign credit ratings at 'SD/SD'.
There is no outlook on 'SD' ratings.
On April 9, the TCR-LA reported that Moody's Investors Service
downgraded the Government of Argentina's foreign-currency and
local-currency long-term issuer and senior unsecured ratings to Ca
from Caa2.
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C O S T A R I C A
===================
COSTA RICA: IDB Approves US$250MM Loan for Covid-19 Sanitary Crisis
-------------------------------------------------------------------
Costa Rica will receive a $250 million loan from the Inter-American
Development Bank (IDB) to finance its efforts to contain the
COVID-19 sanitary crisis and mitigate its impacts on the economy.
The budget-support, fast disbursement loan is in line with a rapid
financial assistance (RFI) arrangement approved in April by the
International Monetary Fund to help tackle the COVID-19 emergency
and its effects on the country's economy.
The funds will help the government to continue implementing a
countercyclical fiscal policy during the crisis and preserve Costa
Rica's macroeconomic stability, thus contributing to alleviate the
pandemic's impact on business and vulnerable households. The
program will also support government's efforts to reduce fiscal
deficit and ensure public-debt sustainability; promote economic
recovery; safeguard the stability of the financial system and the
balance of payments; and help promote competitiveness and improve
the business environment.
The IDB loan, which will be disbursed in a single tranche, has a
seven-year amortization period, a three-year grace period and an
interest rate based on LIBOR.
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings, on June 9, 2020, lowered its long-term foreign and
local currency sovereign credit ratings on Costa Rica to 'B' from
'B+'. The outlook on the long-term ratings is negative. At the same
time, S&P affirmed its 'B' short-term sovereign cdi ratings.
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J A M A I C A
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DIGICEL GROUP: Fitch Corrects June 25 Ratings Release
-----------------------------------------------------
Fitch Ratings replaced a ratings release on Digicel Group published
on June 25, 2020 to correct the name of the obligor for the bonds.
The amended ratings release is as follows:
Fitch Ratings has revised and assigned new ratings to the entire
Digicel corporate family following the conclusion of the group's
distressed debt exchange. Specifically, Fitch has assigned a new
Long-Term Foreign Currency Issuer Default Rating to Digicel Group
0.5 Limited (DGL0.5) of 'CCC', downgraded Digicel Limited to 'RD'
from 'C' and simultaneously upgraded to 'CCC' from 'RD', and
affirmed Digicel International Finance Limited at 'CCC+'.
Fitch has downgraded the LT FC IDRs of Digicel Group Limited
(DGL3), Digicel Group Two Limited (DGL2), and Digicel Group One
Limited (DGL1) to 'D' and withdrawn the ratings, from 'C', 'RD',
and 'RD', respectively. Fitch is simultaneously withdrawing its
ratings on those entities' unsecured instruments, including the
non-tendered notes from the two debt exchanges. Fitch expects these
entities to remain dormant and hold the potential to be liquidated
in the future.
For Digicel Limited, an 'RD' will be recorded to denote the
completion of the company's DDE and the new rating will then apply.
The other entities involved in the DDE were previously at 'RD',
following the expiration of their interest grace periods.
The ratings for the surviving entities in the corporate structure
reflect the improvements Digicel's financial structure and
flexibility following the reorganization and restructuring. The
consolidated credit profile is consistent with a 'CCC' category
issuer, as leverage ratios remain high and economic conditions in
the company's main operating environments remain quite challenged.
The company's debt restructuring provides the company additional
time to turn around operating performance and for economic
performance in its markets to stabilize or improve. Over the last
several years, the company's revenues have been under pressure
primarily due to currency devaluation in its markets, and declining
mobile voice revenues have outweighed gains elsewhere. The
company's business profile is relatively strong; however, the
group's willingness to execute multiple debt restructurings in a
short time frame will weigh on the company's ratings.
KEY RATING DRIVERS
Financial Flexibility Increases: The restructuring extends
Digicel's amortization profile and reduces annual interest expense.
Digicel does not face a significant amortization until the DL2023
notes, which bondholders did not tender, mature in March 2023. The
company has limited ability to raise additional debt; therefore,
the PIK interest is essential as the company tries to stabilize
operating performance in the near term. Fitch had previously
forecasted revenues to stabilize in FY2021, but is now expecting a
5%-8% drop as the impact of the coronavirus lockdowns hits
Digicel's markets. Refinancing risk for the DL 2023 notes is
expected to remain elevated over the foreseeable future, absent
revenue stabilization within the next 2 years.
Financial Structure Improves: Digicel's debt restructuring cut
gross debt by approximately $1.5 billion dollars, from $7.0 billion
to $5.4 billion. As a result, Fitch-adjusted Total Debt / EBITDA
should decline from 7.5x to 5.9x on a pro forma basis. Fitch does
not expect Digicel to deleverage significantly, as adjusted EBITDA
generation remains pressured in the company's markets, due to
currency depreciation and the secular decline in voice revenues.
Fitch forecasts that consolidated leverage will stabilize around
6.1x-6.3x, as PIK interest accrues amid operational cash flow
stagnation.
ESG - Aggressive Corporate Governance: Digicel's decision to
restructure debt for the second time in as many years remains a
constraint on the ratings. The group has a concentrated ownership
and control structure along with a complex group structure that
weakens both Digicel's corporate governance and the group's
consolidated credit profile. While the group's financial reporting
is appropriate and consistent with peers, management's financial
strategy of carrying high leverage and a history of high
shareholder distributions further weigh on the company's overall
corporate governance assessment. The shareholder made a small
equity contribution of $50m as part of this DDE.
Distressed Debt Exchange: Digicel's debt restructuring counts as a
DDE, as the exchange offers (principal reductions, extension of
maturity, indenture amendments, etc.) constituted a material
reduction in terms and the exchange was necessary to avoid a
default. Per Fitch's criteria, following the completion of a DDE,
an issuer's IDR will be lowered to 'RD' before being re-rated. DGL1
and DGL2 were already at RD due to the expiration of interest grace
periods, and the ratings are being lowered to 'D'. DGL3 is also
being lowered to 'D'. DL will be lowered to 'RD' to record the
completion of the DDE and re-rated 'CCC'.
Weak Cash Flow Expected: Local currency revenues have shown signs
of growth; however, the decline in mobile voice combined with
currency depreciation in the company's markets have outweighed
underlying gains in other segments. The majority of Digicel's
mobile customers are pre-paid consumers, who are generally more
price sensitive. Tourism, which Fitch expects to be depressed in
2020, also accounts for a significant proportion of the economic
activity in Digicel's markets. The company is diversifying into
higher growth B2B solutions and home entertainment (B2C broadband
and TV); however, these segments account for only 20% of revenues.
Group Structure Drives Ratings: Following the reorganization,
DGL0.5 will be the parent in the corporate structure. Fitch expects
leverage of approximately 6.1x-6.3x, 5.4x-5.6x, and 4.1x-4.3x at
DGL0.5, DL, and DIFL (excluding the DL guarantee), respectively.
The company has twice restructured debt above the DIFL level,
supporting a higher rating for DIFL, despite the likelihood that
this is the only level at which the company can issue debt.
Fitch forecasts recovery rates commensurate with 'RR1' for DIFL
instruments, including the secured notes, the newly assigned
unsecured notes, and the newly assigned junior subordinated notes;
however, Digicel's debt instruments are capped at 'RR4', resulting
in ratings equal to the IDR. Fitch also forecasts recovery rates
commensurate with 'RR5' for the DL unsecured instruments, resulting
in downward notching from the IDR to 'CCC-'. The newly assigned
DGL0.5 secured notes benefit from the residual value of the Pacific
operations, resulting in an 'RR4' and an equalization with the IDR
at 'CCC'. The newly assigned unsecured and convertible DGL0.5 notes
do not have material recovery prospects and have been notched down
to 'CC'. Fitch's Country-Specific Treatment of Recovery Ratings
Criteria constrains the upward notching of instruments, based on
concerns about the rule of law, insolvency regimes and creditor
protections in a given jurisdiction.
Weak Parent, Weak Linkages: Fitch has de-emphasized the importance
of strength of the linkages within the group, in light of Digicel's
legal maneuvering, aggressive corporate governance, and the
uncertainties surrounding cross-border insolvency in the countries
of operation. While strong operational ties bind the group, the
debt restructuring has caused Fitch to de-emphasize their
importance relative to the lack of legal guarantees between DIFL
and the ultimate parent company. Particularly given the company's
willingness to restructure debt at multiple levels, Fitch discounts
the guarantee of the DL debt by DIFL.
Strong Business Profile: Digicel's geographic diversification and
competitive position share are strong for the rating category. The
company is active in 31 markets across the Caribbean and Pacific;
with leading mobile shares in most. Many of these are duopolies,
and Fitch does not believe the risk of a new entrant is high, due
to the small size of each market. The group's $2.3 billion in
capital expenditures since FY2015 should ensure network
competitiveness. Under these circumstances, Fitch expects the
company's competitive position to remain stable over the medium
term.
DERIVATION SUMMARY
Digicel Group Limited's solid business profile, with leading mobile
market shares in its well-diversified operational geographies
supported by network competitiveness, is stronger than Oi S.A.'s
(CCC+), which has also restructured its debt in the last two years.
Like Oi, Digicel has very limited financial flexibility and a weak
financial structure, despite the recent debt restructurings.
Digicel's financial profile is materially weaker than its regional
diversified telecom peers in the speculative-grade rating
categories, including Millicom International Cellular S.A.
(BB+/Stable), and Cable & Wireless Communications Limited
(BB-/Stable). Digicel's business profile is relatively less
diversified on a service basis, given its reliance on mobile and
position in generally poorer countries with significant exchange
rate volatility.
Parent/subsidiary linkages are weak; therefore, the weaker parent
has been notched down from the consolidated credit profile. The
aggressive corporate governance that has resulted in two debt
restructurings in the last two years is a negative for the
company.
Under its "Country-Specific Treatment of Recovery Ratings
Criteria", Fitch caps Digicel's debt instruments at 'RR4';
therefore, the instruments' ratings are capped at the issuers'
IDRs.
KEY ASSUMPTIONS
Revenue declines of 6%-8% in 2020, followed by revenue growth of
1%-2%.
EBITDA margins of ~40%, below recent margins in the 41%-42% range.
Working capital deterioration in FY2021, as customers lengthen
payment cycle.
Average capex of $300 million-$325 million or ~15% of revenues.
Company elects to utilize PIK interest on those instruments.
No dividend payments to controlling shareholders.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action is unlikely in the near term, absent
significant asset sales and/or additional equity.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Deterioration of operating performance in key markets, such
that leverage continues to increases towards 7.0x once again.
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
Restructuring Improves Liquidity: The restructuring improves
Digicel's financial flexibility and liquidity position. Fitch
expects the company to save $100 million-$125 million of cash
interest expense per year, from a pre-restructuring amount of
around $450 million-$500 million per year. By pushing back the
maturity dates, the restructuring also affords Digicel additional
time to turn around its operating performance. Fitch does not
expect organic deleveraging, as cash flow will be constrained by
tough operating conditions in the company's markets, currency
devaluation, and capex requirements of around $300 million.
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
Digicel Group Limited: Group Structure: 5, Governance Structure: 5,
Exposure to Environmental Impacts: 4, Financial Transparency: 4
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.
Digicel Group Two Limited
- LT IDR WD; Withdrawn
- LT IDR D; Downgrade
- Senior unsecured; LT C; Affirmed
- Senior unsecured; LT WD; Withdrawn
Digicel International Finance Limited (DIFL)
- LT IDR CCC+; Affirmed
- Senior secured; LT CCC+; Affirmed
- Junior subordinated; LT CCC+; New Rating
- Senior unsecured; LT CCC+; New Rating
Digicel Group Limited
- LT IDR WD; Withdrawn
- LT IDR D; Downgrade
- Senior unsecured; LT C; Affirmed
- Subordinated; LT C; Affirmed
- Subordinated; LT WD; Withdrawn
- Senior unsecured; LT WD; Withdrawn
Digicel Group One Limited
- LT IDR WD; Withdrawn
- LT IDR D; Downgrade
- Senior unsecured; LT WD; Withdrawn
- Senior unsecured; LT C; Affirmed
Digicel Group 0.5 Limited
- LT IDR CCC; New Rating
- Senior unsecured; LT CC; New Rating
- Subordinated; LT CC; New Rating
Digicel Limited
- LT IDR CCC; Upgrade
- LT IDR RD; Downgrade
- Senior unsecured; LT CCC-; Upgrade
===========
M E X I C O
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GRUPO AEROMEXICO: Files for U.S. Bankruptcy
-------------------------------------------
CNN News reports that Aeromexico is filing for bankruptcy
protection in the United States, making it the latest carrier to
succumb to the pressures of the coronavirus pandemic.
Mexico's flagship airline disclosed that it had applied to start
restructuring under Chapter 11, which will allow it to continue
flying, according to CNN News.
"Our industry faces unprecedented challenges due to significant
declines in demand for air transportation," Chief Executive Officer
Andres Conesa said in a statement obtained by news agency. "We
are committed to taking the necessary measures so that we can
operate effectively in this new landscape and be well prepared for
a successful future when the Covid-19 pandemic is behind us," the
report relays.
Like many airlines, Aeromexico has been forced to limit its
operations as demand for air travel has dried up. Over the last few
months, the airline has grounded part of its fleet, and it
announced in March that it would start operating "cargo-only
flights for the first time," the report notes.
The company is the latest Latin American carrier to file for
Chapter 11 in the United States, the report relays. In May,
Chile's LATAM and Colombia's Avianca (AVH) also started bankruptcy
proceedings, citing the loss of business from the pandemic, the
report notes.
Aeromexico intends to use the process "to strengthen our financial
position, obtain new financing and increase our liquidity," Mr.
Conesa said, the report notes.
Day-to-day operations will continue as the company begins a
financial overhaul. Passengers should still be able to fly using
their existing tickets, and employees will continue to get paid as
usual, according to management, the report discloses.
The company is also hinting at a gradual recovery. As air travel
begins to rebound in some countries, Aeromexico will "expand flight
service" imminently, with plans to double its domestic flights and
quadruple international capacity in July compared to levels from
last month, it said, the report says.
But the airline still faces a tough road ahead. The International
Air Transport Authority has estimated that it could take more than
three years for international travel to return to pre-crisis
levels, the report discloses.
The carrier now needs to "create a sustainable platform to succeed
in an uncertain global economy," Mr. Conesa added.
Headquartered in Mexico City, Mexico, Grupo Aeromexico SAB de CV
operates as an airline. As reported in the Troubled Company
Reporter-Latin America, Egan-Jones Ratings Company, on June 12,
2020, downgraded the foreign currency senior unsecured rating on
debt issued by Grupo Aeromexico SAB de CV to B- from BB-. EJR also
downgraded the rating on FC commercial paper issued by the Company
to C from A3.
GRUPO AEROMEXICO: S&P Lowers ICR to 'D' on Chapter 11 Filing
------------------------------------------------------------
S&P Global Ratings lowered its issuer credit and issue-level
ratings on Grupo Aeromexico, S.A.B. de C.V. to 'D' from 'B-' a day
after Aeromexico and certain of its subsidiaries and affiliates
have filed for bankruptcy under Chapter 11 in New York. They did
so in order to address the restructuring of Aeromexico's capital
structure and resize its business model to adapt to post-COVID-19
growth prospects. 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
current economic downturn. At this point, Aeromexico will continue
to operate in the ordinary course of business and in accordance
with existing permits and concessions throughout this process. S&P
believes the company will probably be flying only at 50% of its
capacity towards the end of the year. Therefore, the company will
continue seeking extraordinary sources of liquidity, which together
with its current available cash, will support the business during
reorganization proceedings.
S&P also revised its recovery rating on Aerovias de Mexico, S.A. de
C.V.'s $400 million senior unsecured notes due 2025 to '6' from
'4', indicating its expectation of a negligible recovery (0%-10%)
for lenders in the event of a default.
GRUPO POSADAS: S&P Lowers ICR to 'D' on Missed Interest Payment
---------------------------------------------------------------
S&P Global Ratings lowered its long-term global scale issuer credit
and issue-level ratings to 'D' from 'CC' and removed them from
CreditWatch listing, on Mexico-based lodging company Grupo Posadas
S.A.B. de C.V and its senior unsecured notes due June 2022.
Posadas didn't fulfill its interest payment of about $15.5 million
due June 30, 2020, on its notes and announced it won't do it within
the 30-day grace period stated in the notes' indenture. The 'D'
issuer credit rating reflects our view that Posadas will fail to
pay substantially all of its debt obligations -given that the
senior notes represent more than 98% of total debt- as they come
due, until it reorganizes its operating strategy and restructures
its capital structure.
The company's decision not to pay follows a prioritization of
liquidity towards its operations while dealing with the coronavirus
pandemic, which we consider as a transformational event for the
lodging sector globally. Moreover, Posadas announced it has hired
legal and financial advisors to review its operating and financial
strategy, and to evaluate alternatives for its capital structure in
the near term, along with bondholders and other stakeholders.
S&P will reassess our ratings on Posadas once the company
restructure its notes and depending on the available information.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety.
MEXICO: President Optimistic on Pandemic, Economic Recovery
-----------------------------------------------------------
EFE News reports that Mexico is ready to move past the coronavirus
crisis and get its economy growing again, President Andres Manuel
Lopez Obrador said on June 29 in his regular morning press
conference.
"We're ready to move on from the pandemic and we need to reactivate
the economy, get past the economic recession, the drop that the
coronavirus produced in the world economy," the head of state said,
according to EFE News.
=============
U R U G U A Y
=============
ARCOS DORADOS: Moody's Confirms Ba2 CFR, Outlook Negative
---------------------------------------------------------
Moody's Investors Service confirmed the Ba2 Corporate Family Rating
and senior unsecured ratings of Arcos Dorados Holdings Inc. The
outlook is negative. This concludes the review initiated on April
1, 2020.
The confirmation of Arcos Dorados Ba2 ratings reflect primarily the
company's ability to continue with its operations despite the
material disruptions caused by restaurants closures or limited
operations across Latin America as the coronavirus outbreak spread
out through the region. Arcos Dorados has implemented immediate
measures to preserve cash and reduce outflows to the minimum
necessary to maintain operations and relied on short-term debt for
immediate liquidity needs. The negative outlook reflects its
expectation that credit metrics will remain strained in 2020, as
the business disruption with weak recovery prospects has severely
impacted Arcos Dorados' cash generation, leverage and liquidity
profile.
Rating actions:
Issuer: Arcos Dorados Holdings Inc.
Corporate Family Rating: confirmed at Ba2
$348 million outstanding Senior Unsecured Notes due 2023:
confirmed at Ba2
$265 million Senior Unsecured Notes due 2027: confirmed at Ba2
Outlook actions:
Issuer: Arcos Dorados Holdings Inc.
Outlook changed to negative from rating under review
RATINGS RATIONALE
Arcos Dorados credit profile continues to reflect the company's
solid market position in Latin America as McDonald's Corporation's
(McDonald's, Baa1 stable) master franchisee, and its size and scale
as the largest independent McDonald's franchisee worldwide by sales
and number of restaurants (2,298 at the end of 1Q20). About 47% of
Arcos Dorados' restaurants are freestanding, and offer a
combination of take-out, drive-thru or delivery services, which are
now in higher demand in many markets in Latin America that are
affected by the coronavirus quarantine.
Arcos Dorados' currency exposure and the concentration of its cash
flow in a limited number of markets with a high dependency on the
Brazilian and Argentine markets continue to constrain the ratings.
Another constraint is Arcos Dorados' large capital spending
requirements under its Master Franchise Agreement with McDonald's;
however, Moody's understands that McDonald's has some flexibility
under this requirement. Accordingly, Arcos Dorados has, in
agreement with McDonald's, withdrawn the 2020-2022 capital spending
plan announced in March 2020.
The company has implemented a number of measures to preserve
liquidity, including reduction in the menu offering and in payroll
costs, as well as adjustments in lease agreements to variable
regimes based on sales. At the same time, McDonald's has deferred
Arcos Dorados' royalty payments on March-June 2020 sales until
2021, while trimming its advertising and promotion spending
requirements for 2020. Besides, the Management Board members have
voluntarily deferred 50% of their base salaries. The deferral,
which may become a permanent reduction, is for the period from
April 1, 2020 to June 30, 2020, subject to extension. Additionally,
all country-level Managing Directors and Corporate Directors have
deferred 25% of their base salaries for the same period and under
the same conditions.
Arcos Dorados' liquidity continues to be supported by its cash
balance, at $142 million at the end of 1Q20, and about $15 million
available under its $50 million committed credit facilities.
However, short-term debt increased to $147 million at the end of
the first quarter of 2020, up from $26 million at the end of 2019,
which has increased the company's refinancing risk and weakened its
liquidity profile. In addition, financial debt is represented by
the 2023 ($348 million) and 2027 ($265 million) bonds. Moody's
expects Arcos Dorados to be able to roll-over its short-term debt
during 2H20 and extend maturities as operations gradually return
and cash flow generation increases.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if there is a wider deterioration
in cash flows driven by a prolonged period of limited operations
and restaurant closures, further straining the company's liquidity
position, and if there are clear expectations that the company will
not be able to maintain financial metrics compatible with a Ba2
rating following the coronavirus outbreak. In case of a severe
deterioration in liquidity and operations as a consequence of a
potential resumption of lockdowns or isolation measures in the
region, the ratings could be downgraded by multiple notches.
Specifically, ratings could be downgraded if Moody's-adjusted
debt/EBITDA is expected to remain above 4.5x or RCF/debt below 15%
on a sustained basis after restaurants resume normal operations. In
addition, a downgrade of Brazil's sovereign rating (Government of
Brazil, Ba2 stable) could strain Arcos Dorados' ratings.
An upgrade is unlikely in the medium term. A change in outlook to
stable could be considered if there is a significant improvement in
the company's liquidity profile, with a reduction in short-term
debt, and a substantial improvement in operating performance,
including sustained recovery in traffic and average check in real
terms in Arcos Dorados' main markets, which would allow Arcos
Dorados to improve its EBITDA generation. Longer term, an upgrade
could be considered in case Arcos Dorados is able to show a
resilient performance regardless of the underlying macroeconomic
environment and consumption patterns in key markets, in particular
in Brazil. Quantitatively, an upgrade also requires Arcos Dorados
to sustain lease-adjusted debt to EBITDA below 3.5x and adjusted
RCF to debt above 20% on a sustainable basis. Given Arcos Dorados'
strong dependence on the Brazilian market, an upward rating
movement would also be subject to its relative position to Brazil's
sovereign ratings.
Headquartered in Buenos Aires, Argentina, Arcos Dorados Holdings
Inc. is the leading quick-service restaurant operator in Latin
America and the Caribbean. It is also McDonald's largest
independent franchisee globally in terms of systemwide sales and
restaurant count. The company has the exclusive rights to own,
operate and grant franchises of McDonald's restaurants in 20 Latin
American and Caribbean countries. In the twelve months ended March
2020, Arcos Dorados generated $2.8 billion in net revenues.
The principal methodology used in these ratings was Restaurant
Industry published in January 2018.
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V E N E Z U E L A
=================
PETROLEOS DE VENEZUELA: Tightens Grip on Gas Station Operators
--------------------------------------------------------------
Arab News reports that Venezuelan state oil firm Petroleos de
Venezuela, S.A. (PDVSA) has sent a notification telling independent
gas station operators it can revoke their licenses "at any time,"
only weeks after it cut generous fuel subsidies and as widespread
shortages take hold.
PDVSA has a monopoly over the wholesale fuel distribution market
and owns almost all of the country's 1,200 service stations,
although most are operated by private companies through commercial
licenses, according to Arab News.
Many are suffering the effects of years of price freezes that
prevented fuel sales income from keeping up with the costs of
maintaining their stations, the report note.
The industry had hoped the subsidy reforms and resulting price
rises could revive their businesses, but the removal of licenses
could allow the state to take the benefit of higher pump prices,
the report says.
The notification document says PDVSA "will be able to rescind the
contract unilaterally and at any time." A person familiar with the
process, who asked not to be named, said so far 12 gas stations in
Caracas had received the notification, the report notes.
The shift is a new sign of the desperation of President Nicolas
Maduro's government for hard currency as the COVID-19 pandemic and
U.S. sanctions have reduced Venezuela's capacity to earn export
revenue from oil shipments, the report adds.
About PDVSA
Founded in 1976, Petroleos de Venezuela, S.A. (PDVSA) is the
Venezuelan state-owned oil and natural gas company, which engages
in exploration, production, refining and exporting oil as well as
exploration and production of natural gas. It employs around
70,000 people and reported $48 billion in revenues in 2016.
As reported in Troubled Company Reporter-Latin America on June 3,
2019, Moody's Investors Service withdrew all the ratings of
Petroleos de Venezuela, S.A. including the senior unsecured and
senior secured ratings due to insufficient information. At the
time of withdrawal, the ratings were C and the outlook was stable.
Citgo Petroleum Corporation (CITGO) is Venezuela's main foreign
asset. CITGO is majority-owned by PDVSA. CITGO is a United
States-based refiner, transporter and marketer of transportation
fuels, lubricants, petrochemicals and other industrial products.
However, CITGO formally cut ties with PDVSA at about February 2019
after U.S. sanctions were imposed on PDVSA. The sanctions are
designed to curb oil revenues to the administration of President
Nicolas Maduro and support for the Juan Guaido-headed party.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
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