/raid1/www/Hosts/bankrupt/TCRLA_Public/200831.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
Monday, August 31, 2020, Vol. 21, No. 174
Headlines
A R G E N T I N A
ARGENTINA: Requests for New IMF Program After Failed $57BB Deal
BUENOS AIRES: Fitch Affirms CCC LT Issuer Default Rating
CORDOBA MUNICIPALITY: Fitch Cuts LT Issuer Default Rating to CC
LA RIOJA PROVINCE: S&P Downgrades ICR to CC on Debt Restructuring
LA RIOJA: Fitch Downgrades LT Issuer Default Ratings to C
TELECOM ARGENTINA: Fitch Puts B+ LT IDR on Rating Watch Neg.
B R A Z I L
PETROLEO BRASILEIRO: Egan-Jones Lowers Sr. Unsecured Ratings to B-
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Beer Sales Decreases 41.9% between March-June
P A R A G U A Y
SACYR RUTA 2019-1: Fitch Affirms BB+ Rating on $457.6MM Sec. Notes
P U E R T O R I C O
COCO BEACH GOLF: TDF Entitled to Payment of Administrative Costs
LA MERCED: Bankruptcy Court Won't Halt Sale Amid Appeal
X X X X X X X X
LATAM: Battle-Scarred Creditors Call for Reforms From Default Duo
[*] BOND PRICING: For the Week Aug. 24 to Aug. 28, 2020
- - - - -
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A R G E N T I N A
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ARGENTINA: Requests for New IMF Program After Failed $57BB Deal
---------------------------------------------------------------
Patrick Gillespie and Jorgelina Do Rosario at Bloomberg News report
that Argentina's government formally requested negotiations to
begin with the International Monetary Fund on a new program to
replace a record $57 billion agreement from 2018 which failed to
lift its crisis-prone economy.
Officials called for the beginning of consultations ahead of a
program that will address $44 billion in payments owed to the
multilateral lender as part of its previous arrangement that was
never fully disbursed, according to a letter sent to IMF Managing
Director Kristalina Georgieva and posted on Twitter, according to
Bloomberg News. The government praised the IMF for a "constructive
relationship" so far and said it wants the new program to avoid the
pitfalls of the past one, Bloomberg News relates.
Bloomberg News says that the negotiations will mark another chapter
in a difficult relationship. The new agreement will be the
country's 22nd with the IMF, and has often marked the prelude to
deeper economic crisis, Bloomberg News notes. The Fund is
historically villainized in Argentina and the most recent deal only
fueled the fire, Bloomberg News discloses.
"It is essential that an accurate assessment of Argentina's
challenges be made, and we look forward to exchanging views with
your staff on these issues," according to the letter, signed by
Economy Minister Martin Guzman and Central Bank Chief Miguel Pesce,
Bloomberg News relates.
The move also comes as Argentina nears the final stage on a $65
billion debt restructuring with private bondholders after more than
six months of negotiations, Bloomberg News notes. Creditors have
until August 28 to accept an offer valued at an average 55 cents on
the dollar, Bloomberg News relates. That deal paves the way for
the government to kick off talks with the IMF, Bloomberg News
notes.
"This is a welcome step in the right direction, but it's only the
beginning of a negotiation that could prove to be challenging and
long to finalize," said Pilar Tavella, economist for Argentina at
Barclays Plc, Bloomberg News notes. "The government will seek to
limit conditions on economic policy in the midst of this year's
deep recession," he added.
The government aims to reach an agreement before April, so that it
has enough time to renegotiate a $2 billion payment owed to the
Paris Club that cannot be addressed without an existing IMF plan,
Bloomberg News reported earlier this month.
In a statement, Georgieva acknowledged that the IMF had received
the government request and said she spoke to Fernandez about "the
need to reinvigorate the economy" among other topics, Bloomberg
News relays.
"We look forward to deepening our dialogue on how we can best
support the government's efforts to manage the impact of the
pandemic, jumpstart growth and job creation, and reduce poverty and
unemployment," while stabilizing the economy, she added.
Economic Plan
Argentina's upcoming IMF talks will likely require that President
Alberto Fernandez outline an economic plan explicitly, Bloomberg
News notes. The economy is under pressure amid 43% annual
inflation, the third straight year of recession and double-digit
unemployment, Bloomberg News discloses. With no access to credit,
the government has printed money during the pandemic to finance
stimulus measures, raising concerns that inflation will heat up
again, says.
A key topic of the IMF's discussions on Argentina wills likely
center around currency and capital controls implemented by previous
administration and maintained by Fernandez, Bloomberg News says.
Argentines can only exchange pesos for $200 Bloomberg News a month
and must pay a 30% tax on that and any other foreign currency
purchases, Bloomberg News notes. The unofficial exchange rate, now
at 137 pesos per dollar, far exceeds the spot rate of 74 per
dollar, Bloomberg News discloses.
The government's fiscal plans will also be part of the discussion,
Bloomberg News relates. The fiscal deficit totaled more than $3.4
billion in every month in the second quarter, up from just $62
million in January, Bloomberg News notes. The Fernandez
administration campaigned against austerity measures and faces
mid-term elections next year, Bloomberg News discloses.
"We are determined to restart the process of pursuing a consistent
fiscal path once the effects of the pandemic disappear, by reducing
the primary fiscal deficit in a way that is both compatible with
public debt sustainability and economic recovery," the policy
makers wrote in the letter, which added the government would be
transparent with negotiators, Bloomberg News notes.
Heavy History
Facing a peso rout in 2018, Mauricio Macri's pro-market government
received a record bailout from the IMF, Bloomberg News relays. As
part of the $57 billion loan--of which $44 billion was
disbursed--the government cut public spending. Disbursements
scheduled for late 2019 were canceled amid political and economic
uncertainty, Bloomberg News notes.
The three-year deal, known as a stand-by agreement, concentrated
capital payments between 2021 and 2023, Bloomberg News notes. The
new program will seek to address the upcoming payments, according
to the letter, Bloomberg News relates. Defaulting on payments is
not allowed under IMF guidelines, Bloomberg News discloses.
Beyond the latest program, the IMF's history in Argentina is deeply
complicated. In 2001, the Fund decided not to continue disbursing
money to Argentina, and soon after the government defaulted on $95
billion in debt. And in 2013, the IMF sanctioned the government
under Cristina Fernandez de Kirchner's government for publishing
inaccurate economic data. Fernandez de Kirchner, now vice
president, floated the idea of not paying the IMF earlier this
year.
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.
BUENOS AIRES: Fitch Affirms CCC LT Issuer Default Rating
--------------------------------------------------------
Fitch Ratings has affirmed the City of Buenos Aires (CBA) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'CCC'
and Short-Term Foreign and Local Currency IDRs at 'C'. Fitch
affirmed at 'CCC' the city's euro medium-term note program (EMTN)
for up to USD2.29 billion, Series 11 8.950% senior unsecured notes
for USD500 million due Feb. 19, 2021, and Series 12 7.50% senior
unsecured notes for USD890 million due June 1, 2027. Fitch also
affirmed CBA's stand-alone credit profile (SCP) at 'bb-'. The
ratings are capped by the sovereign 'CCC' Country Ceiling.
CBA's rating affirmations are underpinned by its 'aaa' debt
sustainability score, reflecting sufficient liquidity to mitigate
refinancing risks under the current 2020 vulnerable macro-economic
scenario, as CBA's external debt maturities are pushed towards 2025
and its Feb. 19, 2021 debt capital maturity is covered by its
current liquidity provisions.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
CBA's Vulnerable Risk Profile reflects a 'Weaker' evaluation on the
six key risk factors (KRFs), considering the country's structural
weaknesses in which all argentine local and regional governments
(LRGs) operate.
Revenue Robustness: 'Weaker'
The 'Weak' revenue robustness assessment considers the country's
complex and imbalanced fiscal framework for LRGs with no
equalization funding. Weak and volatile national economic
performance is also factored into Fitch's revenue robustness KRF
assessment. In 2018 national GDP dropped 2.5% in real terms, a
further 2.2% in 2019, and is expected to drop more than 11% during
2020.
CBA has high tax autonomy and a lower reliance on federal transfers
from the co-participation tax-sharing regime, with automatic
transfers from the co-participation scheme representing 23.2% of
total revenues at YE-2019. CBA's January through June 2020 federal
co-participation revenue grew 24.7% in nominal terms and dropped
12.6% in real terms relative to the same 2019 period, considering
the structurally high inflation level. Such federal transfers come
from a 'RD' sovereign counterparty with negative economic growth
prospects currently under economic recession. The nation's future
economic prospects will remain uncertain until its debt distress
situation resolves, and therefore predictability of transfers is
also clouded, especially the retaking of additional fiscal
consolidation agreements or new fiscal reform initiatives.
Revenue Adjustability: 'Weaker'
For Argentine LRGs, Fitch considers that local revenue
adjustability is low, and challenged by the country's large and
distortive tax burden. The volatile, weak and negative
macroeconomic environment also limits LRGs' ability to increase tax
rates and expand tax bases to boost their local operating revenues.
Structurally high inflation also constantly erodes real-term
revenue growth and affects affordability.
CBA is Argentina's federal capital and the country's most important
social and economic center. The city represents approximately 20.6%
of the country's GDP, and the surrounding province generates an
additional 31.7% of the national GDP. Both entities together
represent more than half the country's economic activity. CBA's
economic importance translates into a high level of fiscal
autonomy; the city has a tax revenue/total revenue ratio of 65% of
total local revenues amounting 70.3% of total revenues in YE2019.
During January through June 2020 local taxes grew a nominal 36.1%
with a real-term drop of -4.7%. CBA's high level of local revenues
and local economic strengths will track a lower than average
operating balance impact during 2020 relative to other argentine
peers.
Expenditure Sustainability: 'Weaker'
Argentine LRGs have high expenditure responsibilities, including
healthcare, education, water, transportation and other services.
The country's fiscal regime is structurally imbalanced regarding
revenue-expenditure decentralization, and during 2020, spending
decentralization could continue to rise in the current context of
sovereign debt distress, transferring more expenditure
responsibilities and fiscal pressure to subnational governments,
coupled with higher expenditure pressures in healthcare due to the
coronavirus pandemic. During 2020 argentine LRGs are facing
important real term revenue drops and in consequence operating
expenditure (opex) will grow at a higher rate than operating
revenues, therefore operating balances will decrease across the
portfolio.
In the case of CBA during 2019 the operating balance decreased to
19.3% from 22.4% in YE2018 due to the negative macroeconomic
context. As of march 2020 operating margins had decreased 3.2%
relative to 2019, however June 2020 data shows a lower impact where
the operating balance stands at 23.3% versus 24.1% of operating
revenues relative to June of 2019. The city confirmed that to date
local revenues show an improved dynamism relative to earlier months
of 2020, showing recovery signs. Fitch's rating case estimates an
operating balance of around 14.2% for YE2020.
Another weakness is Argentina's structurally high inflation that
pressures expenditures. The lagged effect that inflation tends to
have on expenditures because of real-term wage recomposition
expectations compounds the weakness of expenditure predictability,
or sustainability in Fitch criteria terminology. Currency
depreciation also negatively affects some expenditure costs.
Expenditure Adjustability: 'Weaker'
For argentine subnationals, infrastructure needs and expenditure
responsibilities are deemed as high, with leeway or flexibility to
cut expenses viewed as low. National capital expenditure (capex) is
low and insufficient translating capex burdens to LRGs.
For CBA Capex/ total expenditure averaged 18.2% during 2015-2019
and is covered mostly by the city's own revenues, also reflected in
capital balance gaps before net financing that are ultimately
matched by the city's adequate liquidity and financing access.
Regarding operating expenditure according to YE 2019 data, CBA's
share of opex/ total expenditure was of around 73%, with staff
expenses representing a rigid 42% of total expenses, the ratio has
remained controlled and averaged 45.4% during 2015-2019, however it
is deemed high relative to international peers.
Liabilities and Liquidity Robustness: 'Weaker'
Unhedged foreign currency debt exposure is an important structural
weakness considered in this KRF assessment. This KRF assessment is
also currently heightened by a distressed 'RD' rated sovereign that
is in the process of restructuring its debt, thus curtailing
external market access to LRGs. The KRF assessment also considers
the structurally underdeveloped local financial market, and weak
national framework for debt and liquidity management
CBA's debt is mostly composed by issuances in the external and
local market, and multilateral loans. At YE 2019, direct debt
totaled ARS173.0428 billion, with an increase of around 64.6%
relative to 2018 due to currency depreciation and also local market
bond issuances and retaps. CBA has long-term debt management
strategies, including switching foreign currency debt to local
currency debt given its above average local market access. The
city's % of unhedged foreign currency debt decreased from 95% in
2014 to 88.3% in 2015 and towards 66% in year-end 2019.
Buenos Aires has been active in the local market during 2020, as of
June 2020 data the city successfully issued ARS21.5 billion in
local currency debt, including a local market bond for suppliers
and the retap of Class No20 local bond for ARS9.4 billion during
January 2020. During August 2020 the city also retapped the Class
No22 issuance for an additional ARS11.4 billion. The city has also
been active in engaging in loans with multilaterals, acquiring an
additional ARS5.3 billion as of June 2020, but this debt carries
very long maturity tenures and does not represent a capital
amortization pressure for the city.
To date Buenos Aires current liquidity and USD provisions are
sufficient to cover its Feb. 19, 2021 capital maturity on its
Series 11 8.950% senior unsecured notes for up to USD500 million,
which have an outstanding balance of USD170 million and mature on
that date. After this external debt capital payment, the city faces
no other significant USD capital maturities until June 1, 2025.
Liabilities and Liquidity Flexibility: 'Weaker'
For liquidity, Argentine LRGs rely mainly on their own unrestricted
cash. This KRF assessment considers that in Fitch's view, the
Argentine national framework in place regarding liquidity support
and funding available to subnationals is 'Weaker', as there are no
formal emergency liquidity support mechanisms established. The
current context of national capital controls is another weakness
captured in the liquidity flexibility assessment, as the imposition
of exchange regulations could ultimately affect LRGs' ability to
fulfill their financial obligations amid sovereign debt distress.
Regarding CBA's liquidity, at YE 2019 unrestricted cash totaled
ARS13.4 billion and at June 2020 around ARS20 billion. To date, the
city has lowered its outstanding amount of short-term treasury
bills from ARS17.4 billion to ARS10 billion, and the total
authorized for 2020 is up to ARS24 billion. It is worth noting that
the city has a provision for around USD225 million that more than
covers its upcoming external debt capital maturities in 2021. After
2021, CBA's FX access needs would be alleviated until around 2025.
Payables remain under control with and equivalent of around 11.7%
of operating revenues in June 2020, in YE2019 the metric was of
around 12.5% of operating revenues. CBA's liquidity coverage ratio
averaged an adequate 1.5x during 2015-2019 and is expected to
remain around 1.4x for 2020, mainly unchanged.
Debt sustainability: 'aaa' category
CBA's 'aaa' debt sustainability score considers a 'aaa' primary
payback ratio of 2.9x for 2020 under Fitch's rating case. The
assessment also considers the 'aaa' fiscal debt burden of 41.3% and
an actual debt service coverage ratio (ADSCR) of 1.2x which is
aligned with the city's 2015-2019 average of 1.3x.
DERIVATION SUMMARY
CBA's 'bb-' SCP is derived from a 'Vulnerable' risk profile and a
'aaa' debt sustainability score. No other factors affect the
ratings, and the city's IDRs are capped by the 'CCC' country
ceiling.
KEY ASSUMPTIONS
Fitch's rating case scenario is a "through-the-cycle" scenario,
which incorporates a combination of revenue, cost and financial
risk stresses. It is based on the 2015-2019 figures and 2020
projected ratios. The key assumptions for Fitch's rating case
scenario include:
-- 38.5% yoy increase in operating revenue, including a real-term
decrease in taxes and federal transfers;
-- 47.2% yoy increase in operating expenditure;
-- Net capital balance of around minus ARS46.9 billion in 2020;
-- Cost of debt considers non-cash debt movements due to currency
depreciation with an exchange rate of ARS88.2 per USD.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade: An upgrade on the Country Ceiling
would positively affect CBA's ratings provided that the payback
remains below 5x, in Fitch's rating case.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade: A downgrade of Argentina's
Country Ceiling would negatively affect CBA's ratings. The SCP
would be lowered to the 'b' category if CBA's operating balance
deteriorates triggering an actual debt service coverage ratio below
1.0x in Fitch's rating case and if the payback ratio increases
above 5x.
ESG CONSIDERATIONS:
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
CORDOBA MUNICIPALITY: Fitch Cuts LT Issuer Default Rating to CC
---------------------------------------------------------------
Fitch Ratings has downgraded the Municipality of Cordoba's
Long-Term (LT) Foreign- (FC) and Local-Currency (LC) Issuer Default
Ratings (IDRs) to 'CC' from 'CCC'. The LT-LC and LT-FC IDRs of
Argentina are 'RD'. Fitch also downgraded to 'CC' from 'CCC' the
rating of the Municipality's 7.875% senior unsecured notes for
USD150.0 million due 2024. The bond is rated at the same level of
the city's IDRs. Cordoba's Stand-Alone Credit Profile (SCP) has
also been lowered to 'cc' from 'ccc'. Fitch has relied on its
rating definitions to position the municipality's ratings and SCP.
The downgrade is underpinned by a deteriorated operating balance in
tandem with a weakening liquidity that are expected to maintain the
actual debt service coverage ratio (ADSCR) below 1.0x at the end of
2020, under Fitch's rating case. The 'CC' rating level indicates a
default of some kind appears probable whereas a CCC rating
indicates a default is a real possibility. Tight financial
conditions and lessen liquidity driven by a growing expenditure
amid an economic lockdown due to the coronavirus, best suit with
Fitch's 'CC' rating definition.
The ratings reflect Municipality of Cordoba's SCP of 'cc' resulting
from a combination of 'Vulnerable' risk profile and a 'bb' debt
sustainability assessment. The positioning of the SCP captures a
very stressful macroeconomic environment that weights on the
primary and secondary debt sustainability metrics toward the end of
2020.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
Municipality of Cordoba's 'Vulnerable' risk profile reflects
Fitch's 'Weaker' assessment on all the LRG's six key risk factors
in a combination with a RD on Argentina sovereign rating. Argentine
LRGs operate in a context of a weak institutional revenue framework
and sustainability, high expenditure structures, and tight
liquidity and FX debt risks; further worsened by macroeconomic
recession, high inflation, sharp currency depreciation and market
uncertainty.
Revenue Robustness: 'Weaker'
The 'Weaker' assessment of Municipality of Cordoba's revenue
robustness reflects the evolving nature of the national fiscal
framework, its modest dependence on a weak sovereign counterparty
for a portion of its total revenue (five-year average 34.7%) and
uncertain revenue growth prospects amid a macroeconomic environment
depicted by high inflation, negative gdp growth, and lingering
economic scenario due to the coronavirus. Its wealth metrics are
moderately above the national average, which materially lags behind
international peers.
The city has strong local revenue collection; hence its operating
revenue is mostly made up of taxes (2019: 60.5%, provisional
figures), the growth prospects of which are constraint by a weak
economic environment, high inflation, and disruptions caused by the
coronavirus pandemic. Federal non-earmarked transfers
(coparticipaciones) have grown in nominal terms but declined in
real terms due to high inflation, but still account for a share of
32.7% of operating revenue.
This revenue structure highlights a reasonable fiscal autonomy and
a modest reliance on coparticipaciones. These transfers are sourced
from the federal government, which, in Fitch's view, will be
largely impacted by the coronavirus lockdown, impairing revenue
sustainability. As of July 2020, coparticipaciones to Municipality
of Cordoba are decreasing at 16.2% in real terms year on year.
Revenue Adjustability: 'Weaker'
Municipality of Cordoba's ability to generate additional revenue in
response to possible economic downturns is limited in the current
economic environment. The city has formal tax-setting authority
over several local taxes and fees that accounted for about 64.5% of
total revenue in 2019. Its affordability to raise revenue is
constrained by the moderate income of residents by international
standards and social-political sensitivity to tax increases.
Fitch considers that local revenue adjustability is low and is
challenged by the country's large and distortive tax burden. The
negative macroeconomic environment also limits the municipality
ability to increase tax rates and expand tax bases to boost their
local operating revenues. Structurally high inflation also
constantly erodes real-term revenue growth and affects
affordability; in this regard, Fitch believes that tax revenues are
expected to grow slower than inflation.
Expenditure Sustainability: 'Weaker'
The city's expenditure framework is unbalanced, leading to Fitch's
'Weaker' assessment of its sustainability. Spending during the last
five years has been influenced by high inflation and reallocation
of spending responsibilities. Currently, Municipality of Cordoba is
largely responsible for education, healthcare and other services
that are counter-cyclical in nature. The country's fiscal regime is
structurally imbalanced regarding revenue-expenditure
decentralization. In Fitch's view, spending decentralization could
continue to rise in the current context of sovereign debt distress,
adding more expenditure and fiscal pressure to subnational
governments.
The city's prudence fiscal policies and expenditure controls are
hindered by Argentina's structurally high inflation that pressures
expenditures. The lagged effect that inflation tends to have on
outlays because of real-term wage recomposition expectations
compounds the weakness of expenditure predictability, or
sustainability in Fitch criteria terminology. Currency depreciation
further negatively affects costs, such as capex projects.
Expenditure Adjustability: 'Weaker'
Fitch views leeway or flexibility to cut expenses for Municipality
of Cordoba as weak relative to international peers, considering
only an average of around 9.3% of total expenditures corresponded
to capex from 2015-2019, increasing toward 13.1% at year-end of
2019.
Compared with international peers, Municipality of Cordoba has a
high share of operating expenditure to total expenditure, at around
83.3% during 2019 (provisional figures). Staff expenses represented
62.6% of operating expenses, deemed high relative to international
peers, and triggered by a high inflation environment.
Liabilities and Liquidity Robustness: 'Weaker'
On the prudential regulation front, national rules on debt and
liquidity management have a weaker track record of enforcement
compared with regional peers, such as Brazil, Colombia or Mexico.
Compliance with the Federal Fiscal Responsibility Law that limits
debt service to less than 15% of net current revenues carries no
stringent consequences if breached, and adherence to the law is
optional. Also, limited local capital markets led LRGs to issue
debt in foreign currency, causing this structural reliance on
external markets for financing, because local currency options
generally carry higher financial costs and shorter terms due to the
high-inflation environment.
Direct debt increased by about 51.5% in 2019 because of currency
depreciation, totaling around ARS9.7 billion. In the current
environment of high inflation and currency depreciation, an
important rating risk is that approximately 85.7% of Municipality
of Cordoba's direct debt is denominated in foreign currency, mainly
in U.S. dollars. On a positive note, all of this FC debt has fix
interest rate. Nonetheless, the city faces debt-capital payments
starting in September 2022 for an estimated ARS8.2 billion. There
were no external issuances from LRGs in 2019 due to market
volatility and vulnerability. Foreign currency debt was used to
finance capex outlays and refinance debt.
Since the external market shutdown in 2018, Municipality of Cordoba
has faced scarcer financing sources to cover fiscal imbalances and
debt services, in an environment of structurally weak liquidity and
sovereign distresses. Capital market discipline is hindered by a
protracted macroeconomic downturn (recession, high inflation and
sharp currency depreciation in the past decade), and currently
heightened by a distressed 'RD' rated sovereign that is in the
process of restructuring its debt, thus curtailing external market
access to the city.
Amid sharp currency depreciation (50% in 2018 and 37% in 2019
versus the U.S. dollar) debt and liquidity management becomes
challenging. Municipality of Cordoba's debt metrics have
deteriorated in 2019 (provisional figures) with respect to 2018.
Its net adjusted debt represented a 9.0x of its operating balance
in 2019 (2018: 2.4x). Fitch believes that deteriorating operating
balances have hampered debt service coverage ratios, for instance,
actual debt service coverage ratio ended below 1.0x at year-end
2019; and is forecasted to remain at that level for 2020. The city
remains current in their debt obligations as has been the case to
date despite the sovereign default.
The process of sovereign debt renegotiation is also influencing
subnational-level debt policy decisions; as such, Municipality of
Cordoba is in the process of restructuring its 7.875% senior
unsecured notes for USD150.0 million. Santander Bank is assisting
the city in this procedure. As such, Sovereign market access will
ultimately determine subnational access. Fitch will closely monitor
this process as to assess any potential credit event that could
trigger an exchange offer as defined in Fitch's Distressed Debt
Exchange Rating Criteria.
Liabilities and Liquidity Flexibility: 'Weaker'
Fitch perceives the Argentine national framework in place regarding
liquidity support and funding available to subnationals as
'Weaker', as there are no formal emergency liquidity support
mechanisms established or bail-out mechanisms. The national
government can support Municipality of Cordoba in the form of a
friendly creditor, such as the availability of some programs and
loans from federal trust funds. However, the current macroeconomic
environment constrains the predictability, size and timing of this
support. The Argentine government's 'RD' ratings also drive the
assessment of such support to 'Weaker', considering counterparty
risk.
The current context of national capital controls is an additional
weakness captured in the liquidity flexibility assessment, as the
imposition of exchange regulations could affect LRGs' ability to
fulfil their financial obligations amid sovereign debt distress.
At the end of 2019, Fitch estimates Municipality of Cordoba's
liquidity metrics have weakened to 1.1% of total revenue
(provisional figures). The economic lockdown triggered by
coronavirus have hindered operating balance, increasing payables,
and deteriorating the Municipality's liquidity metrics. As such,
the City has been tapping the LC capital market issuing short term
debt on a regular basis. On April 17, 2020, the entity issued an
ARS2.0 billion, three-year bond to cover its payables.
Debt sustainability: 'bb' category
Fitch classifies Municipality of Cordoba as a type B LRG, as it
covers debt service from cash flow on an annual basis.
In line with its LRG criteria, for an entity with base case
financial profile indicating an SCP of 'b' or below, the base case
analysis alone may be sufficient to evaluate the risk of default
and transition for the debt. Therefore, in the case of Municipality
of Cordoba, Fitch's base case is the rating case which already
incorporates a very stressful scenario. Considering the current
adverse economic scenario, sovereign debt distress situation, and
economic and fiscal uncertainty, Fitch is only projecting a rating
case for year-end 2020. Debt sustainability metrics are analyzed to
evaluate Municipality of Cordoba's specific debt repayment capacity
and liquidity position.
It is worth mentioning, that in circumstances other than those
previously referred to, Fitch's rating case will incorporate a
negative shock from the coronavirus pandemic to the city's economy
and fiscal accounts for the next five years.
Therefore, under Fitch's rating case the debt payback ratio (net
adjusted debt-to-operating balance) -- the primary metric of debt
sustainability for type B LRGs -- will fall between 13x and 18x
toward the end of 2020, which corresponds to 'bbb' assessment. The
actual debt service coverage ratio (operating balance-to-debt
service, ADSCR) will weaken at below 1.0x in its rating case, which
leads to a final 'bb' debt sustainability. A deteriorated operating
balance underpins debt sustainability score.
The Municipality of Cordoba is the capital of the Province of
Cordoba and is the second most populated city in Argentina after
the City of Buenos Aires. Cordoba is one of the most important
social, educational and economic centers in Argentina. The
municipality's population was 1.3 million, or 3.31% of the nation
and 40.18% of the province. Cordoba has a diverse economy
encompassing automobile manufacturing, a strong construction sector
and an IT cluster with more than 130 companies. Cordoba contributed
more than 40% of regional GDP in 2015.
The main economic activities encompass manufacturing at 18.0% of
GDP; real estate and other entrepreneurial activities at 19.0% of
GDP; wholesale and retail commerce at 13.6% of GDP; transportation,
warehousing and communications at 10.9% of GDP; financial services
at 13.3% of GDP; and other activities at 25.2%. Since the territory
of the municipality is mostly urban, the agricultural sector has
little effect on the local economy, accounting for only 0.2% of
total GDP.
DERIVATION SUMMARY
Municipality of Cordoba's 'cc' SCP reflects a combination of a
'Vulnerable' risk profile and an 'bb' debt sustainability
assessment. However, due to the currently low sovereign rating
levels, Fitch positions the ratings according to Fitch's rating
definitions to scale to 'C' from 'CCC' ratings. Fitch has relied on
its rating definitions to position the city's ratings and SCP. The
positioning of the SCP also factors in national and international
peer comparison. No other factors affect the rating.
KEY ASSUMPTIONS
Quantitative Assumptions -- Issuer-Specific
In line with its LRG criteria, for an entity with base case
financial profile indicating an SCP of 'b' or below, the base case
analysis alone may be sufficient to evaluate the risk of default
and transition for the debt. Therefore, in the case of Municipality
of Cordoba, Fitch's base case is the rating case which already
incorporates a very stressful scenario. It is based on 2015-2018,
2019 provisional figures, and on updated figures as of
first-quarter 2020 and July 2020 for transfers.
The key assumptions for the scenario include:
-- 50.8% yoy increase in operating revenue, including a real term
decrease in taxes and federal transfers in 2020;
-- 53.2% yoy increase in operating expenditure;
-- Net capital balance of around minus ARS3.6 billion in 2020;
-- Cost of debt considers non-cash debt movements due to currency
depreciation, assuming an exchange rate of 88.2 for 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- ADSCR improving to above 1.0x on a sustained basis due to
higher revenues fueled by better economic prospects along with a
containment in the expenditure front. Municipality of Cordoba
ratings are constrained by the Sovereign Country Ceiling.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- If the Municipality of Cordoba enters into a grace period, cure
period, or any formal announcement by the city or their agent of a
potential exchange offer that is assessed under Fitch's 'Distressed
Debt Exchange Rating Criteria'.
SUMMARY OF FINANCIAL ADJUSTMENTS
No material adjustments were made to figures reported by the
municipality.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
LA RIOJA PROVINCE: S&P Downgrades ICR to CC on Debt Restructuring
-----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit and
issue-level ratings on the province of La Rioja to 'CC' from
'CCC-'. The outlook is negative.
Outlook
The negative outlook reflects S&P's view that a default on the
province's foreign currency debt is virtually inevitable. This
stems from the severe financial and economic conditions La Rioja is
facing, along with its public intention to restructure its
international bond due 2025.
Downside scenario
S&P said, "We would lower the ratings on La Rioja to selective
default (SD) if it fails to make interest payment before the end of
the grace period or upon completion of the announced debt
restructuring, which we would most likely consider as distressed.
Even though no formal details of the exchange proposal have been
disclosed, in our opinion, it could include substantial changes to
the original terms and conditions--as was the case for the
sovereign and other Argentine provinces--including extension of
maturities and reductions of interest rates, among other
features."
Upside scenario
S&P will raise its ratings on the province following the completion
of the debt restructuring and upon issuance of the new bonds.
Post-restructuring ratings tend to be in the 'CCC' or low 'B'
categories, reflecting the resulting debt structure, and the
forward looking issuer's capacity and willingness to service that
debt, which among other factors includes macroeconomic prospects
and potential access to markets. However, the 'CCC+' transfer and
convertibility assessment of Argentina constitutes a rating cap for
Argentine provinces.
Rationale
S&P's 'CC' ratings on La Rioja reflect its view of a virtual
certainty of default, either in the form of failure to make a debt
service payment within the grace period or completing a distressed
debt exchange in the next few months.
The COVID-19 pandemic has exacerbated economic stress in Argentina,
adding pressure to the province's finances, which were already
suffering from two consecutive years of recession. The province's
fiscal results remained balanced as of June 2020 thanks to a
combination of extraordinary transfers from the national government
(including delayed 2019 funds) and restraints on spending due to
the suspension of public servants' salary increases. However, S&P
expects this relatevely fiscal strenght to be transitory, and its
base case assumes an average deficit after capex of 4.4% of total
revenues by the end 2020 and in 2021. The positive impact of the
exceptional transfers will fade in the coming months, while
pressure to increase public-sector salaries will likely resume
towards the end of the year as real wages decrease given
Argentina's high inflation.
Moreover, the province is facing significant delays in operating
the wind energy plant at full capacity, for which it used the
proceeds of its international bond to construct. While the plant is
operating partially, revenue from it is dramatically lower than the
province's initial expectations. La Rioja revised its estimates,
which indicates that even by reaching full capacity, the plant's
expected cash flow won't be sufficient to service the current terms
and conditions of the international bond as originally expected.
As a result, on Aug. 24, 2020, the province entered a 30-day grace
period on an interest payment of $14.7 million for its 2025
international bond. The province announce that it intends to use
this period to restructure the terms and conditions of the bond.
While the debt amount seems to be unsustainable and the possibility
of a default is a virtual certainty, S&P believes the province
still has liquidity sources to meet the interest payment. In S&P's
opinion, doing so would depend on the province's negotiation
strategy.
The bond indenture provides a collective action clause (CAC)
threshold of 75% of the bondholders. The likelihood of reaching a
CAC will influence the forward-looking assessment of the province's
creditworthiness, because it would determine future contingent
liability from possible litigation by holdout creditors.
La Rioja's intention to restructure the debt follows Argentina's
announcement of an agreement in priciple with its own bondhonders,
and the ongoing negotiations of other provinces, such as those of
Buenos Aires, Mendoza, Rio Negro, Salta (all rated 'SD') and Entre
Rios (CC/Negative/--).
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Downgraded
To From
La Rioja (Province of)
Issuer Credit Rating CC/Negative/-- CCC-/Negative/--
Senior Unsecured CC CCC-
LA RIOJA: Fitch Downgrades LT Issuer Default Ratings to C
---------------------------------------------------------
Fitch Ratings has downgraded Province of La Rioja's Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) to 'C'
from 'CC'. Fitch has also downgraded the province's 9.75% senior
unsecured notes for USD300 million due in 2025 to 'C' from 'CC'.
The bonds are rated at the same level as the province's IDRs. Fitch
has also lowered La Rioja's Standalone Credit Profile (SCP) to 'c'
from 'cc'. Fitch relied on its rating definitions to position the
province's ratings and SCP.
The downgrade of La Rioja's ratings follows the province's
non-payment of its 9.75% senior unsecured notes due 2025,
specifically a semi-annual interest payment due Aug. 24, 2020 of
USD14.625 million. A formal notice was issued on the same date by
the province, stating its intentions to miss the interest payment
and initiate a process to restructure its debt as a result of the
negative macroeconomic context heightened by the coronavirus
pandemic. This would be the second time the province makes use of
the grace period stipulated in the bonds indenture, demonstrating
its low willingness to pay. Fitch expects payment default on
upcoming bond payments could be imminent should an agreement with
bondholders not be reached in the coming weeks.
The notes were issued for USD200 million in February 2017 and then
reopened in the same year for an additional USD100 million
issuance, forming a single series for USD300 million. The bond is
denominated in U.S. dollars and accrues a fixed interest rate of
9.75% payable on a semi-annual basis (Feb. 24 and Aug. 24 of each
year). The bond's maturity date is on Feb. 24, 2025 with equal
capital payments in the last four years (on Feb. 24, 2022, on Feb.
24, 2023, on Feb. 24, 2024 and on Feb. 24, 2025). The notes are a
senior unsecured obligation of La Rioja governed by the laws of the
state of New York, and its rating is the same as the province's
IDRs. The proceeds were used for the development of Parque Arauco
S.A.P.E.M.'s clean energy projects and other public works.
Fitch also reviewed the province's key risk factors and debt
sustainability fundamentals, and the rating action considers La
Rioja's insufficient liquidity to cover 2020 debt service. The
latter is best suited with Fitch's 'C' rating definition.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
La Rioja's Vulnerable Risk Profile reflects a 'Weaker' evaluation
on the six key risk factors, considering the country's structural
weaknesses in which argentine LRGs operate. These include the
vulnerable macroeconomic context, the ongoing sovereign debt
restructuring process and the province's recent near default
event.
Revenue Robustness: 'Weaker'
Similar to Argentine peers, La Rioja's revenue structure has higher
reliance on federal transfers from the federal co-participation
tax-sharing regime, with current transfers representing around
84.5% of its total revenues being automatic transfers from the
co-participation scheme, according to year-end preliminary figures.
The 'Weak' assessment considers the complex and imbalanced fiscal
framework and that these federal transfers come from a 'RD'
sovereign counterparty with negative economic growth prospects
currently under economic recession. In 2018, national GDP dropped
2.5% in real terms, a further 2.2% in 2019, and is expected to drop
more than 11% during 2020. Weak and volatile national economic
performance is also factored into Fitch's revenue robustness Key
Risk Factors (KRF) assessment.
Co-participation transfers are a very important determinant of
subnational fiscal performance, as of YE2019, La Rioja received
transfers of national origin that represented 62.8% of consolidated
provincial operating revenues. For 2020, co-participation transfers
show an accumulated 14.6% inter-annual real term drop from January
to June relative to the same period of 2019. At the time there is
uncertainty of the nation's future economic prospects until its
debt distress situation resolves, and therefore predictability of
transfers is also clouded, especially the re-taking of additional
fiscal consolidation agreements or new fiscal reform initiatives.
Revenue Adjustability: 'Weaker'
Fitch considers that local revenue adjustability is low and is
challenged by the country's large and distortive tax burden. The
volatile, weak and negative macroeconomic environment also limits
LRGs' ability to increase tax rates and expand tax bases to boost
their local operating revenues. Structurally high inflation also
constantly erodes real-term revenue growth and affects
affordability.
Provincial jurisdictions have legal autonomy to set tax rates on
local revenues that mainly consist on turnover taxes (Ingresos
Brutos) and stamps. For La Rioja, local taxes represented around
8.3% of total revenues at YE2019, reflecting low fiscal autonomy
and an important reliance on federal automatic transfers from the
co-participation regime. The affordability of additional taxation
for Argentine LRGs is also perceived as low due to the legal pledge
in place from jurisdictions' adherence since the 2017 fiscal pact
between the nation and provinces, requiring a gradual harmonization
to lower maximum tax rates on turnover tax rates to partially
relieve the country's high tax burden. Amendments to the pact have
been made due to macroeconomic vulnerabilities in an attempt to
alleviate provincial finances. However, local revenues are still
being affected in real terms due to the negative macroeconomic
environment and structurally high inflation.
Expenditure Sustainability: 'Weaker'
Argentine Provinces have high expenditure responsibilities,
including healthcare, education, water, transportation and other
services. The country's fiscal regime is structurally imbalanced
regarding revenue-expenditure decentralization, and during 2020,
spending decentralization could continue to rise in the current
context of sovereign debt distress, transferring more expenditure
responsibilities and fiscal pressure to subnational governments,
coupled with higher expenditure pressures in healthcare derived
from the coronavirus pandemic. During 2020 argentine LRGs are
facing important real term revenue drops and in consequence
operating expenditure (opex) will grow at a higher rate than
operating revenues, therefore operating balances will decrease
across the portfolio.
La Rioja presents low operating balances of 3.3% on average during
2017-2019, considering its long-term debt financial obligations and
capital requirements. As of June 2020, the province presented an
operating balance with a real growth of 4.4% when compared with the
same of period of 2019. It registered important increases in
revenue from the nation that were pending from previous years,
supporting the trend in operating expenditure and emphasizing the
high dependence on transfers. The province expects a negative
scenario considering the ongoing economic pressures heightened by
the coronavirus pandemic, resulting in the initiation of debt
restructuring processes to face debt service obligations. For 2020,
Fitch estimates a -5.6% operating balance reflected in the
province's current refinancing risk levels.
Another weakness considered is Argentina's structurally high
inflation pressures expenditures. The lagged effect that inflation
tends to have on expenditures because of real-term wage
recomposition expectations compounds the weakness of expenditure
predictability, or sustainability in Fitch criteria terminology.
Currency depreciation also negatively affects expenditure costs,
such as capex projects.
Expenditure Adjustability: 'Weaker'
According to YE2019 preliminary data, La Rioja's share of operating
expenditure/total expenditure was of around 87.5%, with staff
expenses representing a rigid 49.9% of total expenses. La Rioja's
leeway or flexibility to cut expenses is viewed as weak relative to
international peers, considering that only a low average 12.4% of
the province's total expenditure corresponds to capex. Similar to
other Argentine peers, La Rioja has very high infrastructure needs;
therefore, increasing capex does not translate into economic growth
due to the important infrastructure lag, which also reflects that
there is not much flexibility to adjust capex.
Liabilities and Liquidity Robustness: 'Weaker'
La Rioja's long-term debt represents 54.7% of its operating revenue
and is mainly composed of external market liabilities (81%, as of
June 2020). In the first half of 2020, long-term debt totaled ARS26
billion, with an increase of around 53% relative to the same period
of 2018 due to currency depreciation. Debt sustainability metrics
are assessed at very weak levels, the increased burden of debt
service payments follows the sharp peso depreciations of 50% in
2018 and 37% in 2019 versus the U.S. dollar. Amid sharp currency
depreciation, debt and liquidity management becomes challenging.
Unhedged foreign currency debt exposure is an important structural
weakness considered in this KRF assessment, as is capital market
discipline that is currently heightened by a distressed 'RD' rated
sovereign that is in the process of restructuring its debt, thus
curtailing external market access to LRGs. La Rioja's capital
maturities are pushed toward 2022-2025 when the senior unsecured
bond begins its capital balloon payments. The Province is currently
working towards debt and liquidity management, as reflected in its
recent announcement of an intended debt negotiation.
Liabilities and Liquidity Flexibility: 'Weaker'
For liquidity, Argentine Provinces rely mainly on their own
unrestricted cash. Fitch views the national framework in place
regarding liquidity support and funding available to subnationals
as weak, as there are no emergency-support liquidity mechanisms and
considering that sovereign's external market access affects the
entity's refinancing capacity. At YE2019 according to preliminary
data La Rioja's unrestricted cash totaled ARS2.4 billion with a
2.5x liquidity coverage ratio; however, for 2020, Fitch estimates
it will reach 0.25x, reflecting a high risk of liquidity being
insufficient to cover 2020 debt service payments. As of June, La
Rioja holds ARS3.8 billion in cash and USD19 million for specific
purposes.
Debt sustainability: 'b' category
Due to the projected negative operating balance for 2020, La
Rioja's primary metric of payback (net adjusted debt/operating
balance) is expected to be above 25 years, resulting in a 'b' debt
sustainability score and its secondary metric of actual debt
service coverage ratio (ADSCR) is expected below 1x for 2020, also
a 'b' level. The weak debt metrics resulted in a 'b' debt
sustainability score.
La Rioja is located in the northeast region of Argentina and has a
GDP of around USD2 billion, or less than 1% of national GDP. Due to
its relatively small size, public sector employees represent almost
one third of the local economy, higher than the national average of
13% as per most recent figures (2017), providing some labor
stability. La Rioja has a relatively lower unemployment rate of
2.7%, compared with 31 urban agglomerates rate of 10.4%, as of
March 2020, according to the National Institute of Statistics and
Census. The population is growing in line with the national
average.
DERIVATION SUMMARY
La Rioja has a Vulnerable Risk Profile and a 'b' debt
sustainability score. However, due to the currently low sovereign
rating levels Fitch positions the ratings according to its rating
definitions to scale from 'CCC' to 'C' ratings.
KEY ASSUMPTIONS
Fitch's rating case scenario is a "through-the-cycle" scenario,
which incorporates a combination of revenue, cost and financial
risk stresses. It is based on the 2015-2019 figures and 2020
projected ratios.
The key assumptions for Fitch's rating case scenario include:
-- 27.6% yoy increase in operating revenue, including a real term
decrease in taxes and federal transfers in 2020;
-- 37% yoy increase in operating expenditure;
-- Net capital balance of around minus ARS0.9 billion in 2020;
-- Cost of debt considers non-cash debt movements due to currency
depreciation with an exchange rate of ARS88.2 per U.S. dollar.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Curing of the missed interest payment coupled with an
improvement in its liquidity and debt sustainability metrics under
its rating case scenario;
- La Rioja's ratings are constrained by Argentina's Country
Ceiling.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The missed interest payment within the grace period;
- A formal debt exchange proposal involving a material reduction
in terms and taken to avoid a traditional payment default could
negatively affect La Rioja's ratings.
ESG CONSIDERATIONS
Province of La Rioja has an ESG relevance score of 4 for Rule of
Law, Institutional & Regulatory Quality, Control of Corruption as
it presents weak management practices and regulations toward its
financial obligations.
Province of La Rioja has an ESG score of 4 for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver. La Rioja used its grace period for the second
consecutive time with a persistent low willingness to pay.
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,
either due to their nature or the way in which they are being
managed by the entity.
TELECOM ARGENTINA: Fitch Puts B+ LT IDR on Rating Watch Neg.
------------------------------------------------------------
Fitch Ratings has placed Telecom Argentina's 'B+' Long Term (LT)
Local Currency (LC) Issuer Default Rating (IDR) on Rating Watch
Negative (RWN) and affirmed the U.S. dollar notes (including the
2021, 2025, and 2026 unsecured notes) at 'B-'/'RR2', and the LT
Foreign Currency (FC) IDR, which remains constrained by the Country
Ceiling of Argentina, at 'CCC'. Fitch has placed the LC IDR on RWN
due to measures taken by the Argentine government to suspend price
increases for the telecom industry and to give the regulator
greater autonomy in setting tariffs.
Fitch expects the measures to pressure EBITDA margins; however, the
company has some flexibility to reduce capex and opex and maintain
neutral to positive FCF generation. The measures should not impair
the ability of the company to service its local currency debt.
If the government increases its interference in the sector in a way
that would cause Telecom Argentina's FCF to turn negative, or
impair its ability to obtain local currency financing, a downgrade
of the LC IDR would likely occur. Per Fitch's criteria, a downgrade
of the LC IDR to 'B' or 'B-' would, in turn, result in the lowering
of the company's bond ratings to 'CCC+' from 'B-'.
Increasing government interference in the private sector and
unorthodox economic policies are expected to continue as the
government seeks to restructure its debt with external creditors in
the midst of a sharp economic downturn. As a result, the Rating
Watch Negative may not be resolved during the next six months.
KEY RATING DRIVERS
Government Interference into Telecom Sector: On August 21, 2020,
President Fernandez announced that telecommunications were an
essential service and prices would be frozen through YE. On August
22, the decree became effective through an emergency decree
(DNU690/2020). The decree provides the telecom regulatory agency,
Ente Nacional de Comunicaciones (ENACOM) the ability to set prices.
Previously, on July 8, Fitch indicated that further government
intervention and/or inability to pass through inflation would be a
negative for the company's ratings.
Strong Financial Profile for Rating Level: Telecom Argentina had
previously been able to pass along the effects of peso devaluation
and hyperinflation to consumers through flexible tariffs that were
reset multiple times per year. This enabled the company to maintain
relatively conservative Net Debt/EBITDA metrics in line with
diversified investment grade peers throughout the region. Fitch
expects that the company's net leverage will increase from below
2.0x to around 3.0x, which is still strong for a 'B' category
rating. Deterioration in organic cash flow generation will likely
be offset to a degree by capex cuts; however, declining investment
could impede service quality. The company dealt with its major
near-term risk by refinancing its 2021 bonds in July 2020.
Country Ceiling Limits FC Ratings: Telecom Argentina's FC IDR is
constrained by the 'CCC' Country Ceiling of the Republic of
Argentina. While the sovereign defaulted on its debts in early
2020, Fitch's Country Ceiling criteria do not allow for a Country
Ceiling below 'CCC'. Fitch believes that the company's default
would most likely be driven by transfer and convertibility
restrictions, rather than by operational deterioration. In this
case, Fitch's criteria allow for Recovery Ratings to be notched
above the country's soft cap of 'RR4'. Due to the relative strength
of Telecom Argentina's underlying credit profile, Fitch has notched
the U.S. dollar notes above the FC IDR.
Strong Operator, Weak Operating Environment: Telecom Argentina is
the leading convergent player in Argentina, with strong competitive
positions in both fixed and mobile services, following the merger
with Cablevision S.A. in 2018. The company's product offerings and
brand recognition support its robust cash flow. Despite the
macroeconomic turmoil in Argentina beginning in mid-2018, the
company has consistently been able to access international debt
markets on an unsecured basis.
DERIVATION SUMMARY
The company's business and financial profile are in line, or
superior to, diversified investment grade operators including
Telefonica Moviles Chile S.A. (BBB+/Stable), Telefonica del Peru
S.A.A. (BBB/Negative), and Colombia Telecomunicaciones
(BBB-/Stable). Telecom Argentina has either a more conservative
capital structure, or a stronger market position, or both.
Similarly, compared to regional peer UNE EPM Telecomunicaciones
(BBB/Negative), Telecom Argentina has comparable or higher market
shares in mobile and fixed, along with similar profitability and
lower leverage.
Ultimately, both the FC and LC IDR will continue to be driven by
the difficulties of the Argentine operating environment text.
For Telecom Argentina S.A.: Unless otherwise disclosed in this
section, the highest level of ESG credit relevance is a score of 3
- ESG issues are credit neutral or have only a minimal credit
impact on the entity, either due to their nature or the way in
which they are being managed by the entity.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Agency's Rating Case for the
Issuer
-- Company is unable to pass through inflation for remainder of
2020, with more flexibility in 2021;
-- Fitch-adjusted EBITDA margins of 25%, capex around 15% of
revenues;
-- Company continues rolling over bank and international agency
debt;
-- Net debt/EBITDA increasing from 1.7x in 2019 to around 3.0x.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
An upgrade is not expected in the near term. The RWN may be removed
and the LC IDR stabilized if price freezes does not extend into
2021, or if ENACOM's tariff settings enable the company to generate
sufficient operating cash flow to cover investments
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
The FC IDR remains bound by the country ceiling of Argentina. The
LC IDR may be downgraded if price interventions dampen operating
cash flow generation to the point where it is insufficient to cover
investments.
LIQUIDITY AND DEBT STRUCTURE
As of June 30, Telecom Argentina held ARS49.2 billion (USD687
million) of cash and equivalents against short-term debt of ARS79.0
billion (USD1.1 billion). In July 2020, the company exchanged 78%
of its USD465 million notes due June 2021 for a combination of cash
and 2025 notes.
SUMMARY OF FINANCIAL ADJUSTMENTS
Operating lease adjustments made consistent with Fitch criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
===========
B R A Z I L
===========
PETROLEO BRASILEIRO: Egan-Jones Lowers Sr. Unsecured Ratings to B-
------------------------------------------------------------------
Egan-Jones Ratings Company, on August 18, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Petroleo Brasileiro S.A. to B- from B.
Petroleo Brasileiro S.A. — Petrobras, more commonly known as
simply Petrobras, is a state-owned Brazilian multinational
corporation in the petroleum industry headquartered in Rio de
Janeiro, Brazil.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Beer Sales Decreases 41.9% between March-June
-----------------------------------------------------------------
Dominican Today reports that the new coronavirus pandemic, which
causes Covid-19, has put pressure on some of the traditionally more
robust sectors, even at levels that could hardly have been
anticipated, in the opinion of economist Henri Hebrard.
According to the researcher, one of the sectors most severely hit
by the country's health and economic crisis is that of beers, which
has seen its sales plummet by 41.9% accumulated in March to June
compared to the same period of 2019, the report notes. The peak
fall of 73% registered in April, according to data from the General
Directorate of Internal Taxes (DGII), according to Dominican
Today.
However, for Hebrard, this decline in the beer sector, in
particular, lead to more concern about the characteristics of this
industry, which has a robust, productive chain by involving, in
addition to the use of labor, the hiring of suppliers and services
such as printing, fuel consumption, investment in advertising and
other areas, the report relates.
"These commercial relationships have an impact on the economy, and
very important," Hebrard said, according to a statement obtained
news agency.
Increase
Instead, the economist said that distilled products such as rum and
whiskey, instead of losing ground, have increased their sales by
8.4%, the report relates.
As a direct consequence, the expert points out that the market
share (market share) of alcoholic beverages has rebuilt, leaving
beers with a share of only 51%, the lowest in recent history, the
report notes. In comparison, rum and whiskey have increased to 35%
and 10%, respectively, the report discloses.
Hebrard specified that this phenomenon is not unique to the
Dominican Republic, since multinationals such as Heineken, Coors,
and ABInbev also exhibit red numbers, the report relays.
"We can see that internationally the scene is repeated since large
beer industry giants such as Heineken have reported a decline in
the order of 75.8% in financial results and a cumulative drop of
11.5% in their beer sales during the semester of January to June of
2020. Molson Coors also announced that its income from net sales
decreased by 15.1%," said the economist and communicator, the
report says.
In the case of AB InBev, the largest beer group globally, in April,
its sales were 32.4% lower than the same period in the previous
2019 and 21.4% lower in the following month of May compared to what
was achieved in 2019. The recovery in July was only 0.7%, the
report notes.
Impact
The expert pointed out that one of the direct consequences of this
sector's losses is a drop in tax collections, the report discloses.
Between January and June of this 2020, the DGII has stopped
receiving some RD$2,133.6 million in selective tax on beer
consumption compared to 2019, a fall of 26.2% according to data
from the tax collector, the report notes.
He indicated that although the consumption of other alcoholic
products such as rum and whiskey has improved their sales, the
increase in collections resulting from the sales of these drinks
does not compensate for the losses of the treasury due to the fall
in beer, the report discloses.
As for beer, the economist sees its outlook and recovery still
uncertain for this year and predicts that the industry's situation
will persist during the remainder of 2020, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with negative outlook (April 2020). Moody's credit rating for
Dominican Republic was last set at Ba3 with stable outlook (July
2017). Fitch's credit rating for Dominican Republic was last
reported at BB- with negative outlook (May 8, 2020).
===============
P A R A G U A Y
===============
SACYR RUTA 2019-1: Fitch Affirms BB+ Rating on $457.6MM Sec. Notes
------------------------------------------------------------------
Fitch Ratings has affirmed the 'BB+sf' rating to the USD457.6
million series 2019-1 senior secured notes issued by Rutas 2 and 7
Finance Limited (the issuer), an SPV incorporated in the Cayman
Islands. The Rating Outlook is Stable.
RATING ACTIONS
Sacyr Ruta Del Este Rutas 2y7
Series 2019-1 78319MAA1; LT BB+sf Affirmed; previously BB+sf
TRANSACTION SUMMARY
The notes will be fully backed by PDI Trust Securities. PDIs are
deferred investment recognition payment rights vested upon
completion of construction milestones (tramos) of Rutas 2 and 7
projects from the Republic of Paraguay (RoP). PDIs are public debt
of the sovereign and their budgeting process follows the same
procedure as a sovereign bond's debt service. Upon a commitment
termination event (CTE) or works reduction, investors will receive
the initial issue price plus a protection return rate to compensate
for the amount of time the portion being prepaid has been
outstanding.
Fitch's ratings address the likelihood of timely payment of
interest and principal on the notes.
KEY RATING DRIVERS
Rating Linked to Sovereign's Long-Term (LT) Foreig Currency (FC)
Issuer Default Rating (IDR): Through its analysis, Fitch has
determined that the primary risk contributor for the transaction is
the Republic of Paraguay (RoP); therefore, the rating of the
transaction is linked to Paraguay's LT FC IDR, 'BB+'/Outlook
Stable. The rating reflects Fitch's view of the credit quality of
deferred investment payment obligations (PDIs), permitted
investments during the availability period, and the Inter-American
Development Bank (IDB) (AAA/Stable) and IDB Invest (AAA/Stable) as
LOC providers to cover advances made to the concessionaire during
the availability period.
Reliance on the Government Payment Obligation: After the
availability period, Fitch assumes that payment on the notes will
rely on the RoP's unconditional and irrevocable payment obligation
regarding vested PDIs. Under Paraguayan law 1535, PDIs are
considered external public debt of the RoP denominated in USD.
Additionally, pursuant to the PPP Trust Agreement, PDI payment
right holders will have direct recourse against Paraguay for
failure to make any payment as and when due.
Credit Quality of Permitted Investment: Note's proceeds are held by
the issuer in the initial notes general account and are being used
during the availability period to grant advances to the
concessionaire and purchase PDI trust securities. During the
availability period, these funds may be invested in securities
denominated as permitted investments which are linked to the RoP
credit quality. Given the magnitude of this exposure, the credit
quality of the notes during the availability period is capped at
the lower of the rating of Paraguay or the credit risk of these
securities.
IDB and IDB Invest Backing Purchase Price Advances: The
concessionaire will be able to make PDI purchase price advances
from proceeds of the notes held in escrow under certain conditions.
The amount of the IDB LCs will always be equal to the total amount
of PDI purchase price advances made to the concessionaire during
the availability period, which will decrease as PDIs are generated
and PDI trust securities purchased. According with Fitch's
criteria, the IDB and IDB Invest do not pose additional risk to a
'BB+' risk presenting entity.
No Exposure to Construction / Performance Risk: PDIs are
Paraguayan-law governed, freely transferable payment rights. Once
issued, they are not related to the PPP Contract and therefore do
not depend on the status of the construction or operation of the
project, thus eliminating construction and operating risk. Vested
PDIs survive the termination or nullity of the PPP Contract for any
reason.
Construction Progress in 2020: Coronavirus has had a moderate
impact in infrastructure construction in Paraguay due to the
country's low number of cases. Public works constructions were
never suspended by the government, allowing the concessionaire of
the project to continue making progress. As of June 30, 2020, the
overall progress of the project was 1% ahead expected construction
schedule and 2.5% ahead for specific project tranches (tramos) that
are expected to generate PDIs to be sold to the issuer.
Minimized Negative Carry Exposure: Prior to the purchase of 100% of
the PDI trust securities, transaction expenses will be higher than
the income generated by the PDI payments. The negative carry was
properly mitigated by the upfront funding of a trust account used
to cover expenses.
Early Redemption Protections: Upon a CTE or works reduction, the
noteholders will be repaid at the purchase price of the notes plus
a redemption premium with the remaining amounts not invested to
purchase PDI trust securities, LCs provided by the IDB and the IDB
Invest, and a protection amount provided by the protection
provider. The size of the protection amount will be equal to the
maximum remaining negative carry net of the amounts anticipated to
be available to the issuer from the proceeds of investments and
available cash.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- The ratings on the transactions are linked to the LT FC IDR of
Paraguay; hence, a downgrade of Paraguay's FC IDR would trigger a
downgrade of the rated notes in the same proportion;
-- Any change in Fitch's view regarding the strength of the
sovereign obligation regarding PDI payments may have a downward
effect on the rating assigned to this transaction.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- The ratings on the transactions are linked to the LT FC IDR of
Paraguay; hence, an upgrade of Paraguay's FC IDR would trigger an
upgrade of the rated notes in the same proportion.
=====================
P U E R T O R I C O
=====================
COCO BEACH GOLF: TDF Entitled to Payment of Administrative Costs
----------------------------------------------------------------
Bankruptcy Judge Enrique S. Lamoutte denies the request of Banco
Popular De Puerto Rico--in its capacity as trustee of the "Puerto
Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority ("AFICA") Tourism Revenue
Refunding Bonds, 2011 Series A (Trump International Golf Club
Puerto Rico Project)" issued pursuant to the Trust Agreement dated
March 30, 2011, between BPPR, as Trustee, and AFICA--asking the
Court to reconsider and vacate the order entered on March 27, 2020,
directing the Clerk of Court to disburse funds consigned by Debtor
Coco Beach Golf & Country Club pursuant to the terms of a confirmed
Chapter 11 plan to the Puerto Rico Tourism Development Fund.
BPPR's motion is premised on three grounds:
1. TDF has a contingent and unliquidated pre-petition claim
which arose from a contract preceding bankruptcy and, thus, is
ineligible for an administrative expense claim;
2. TDF's direct payment to a third-party provided no tangible
benefit to the bankruptcy estate, especially when the confirmed
plan provides for the liquidation of all the estate's assets --
thus, any remaining unpaid claims will be discharged without
recourse against the debtor; and
3. TDF failed to establish a valid claim for administrative
expenses.
BPPR alleges that Fed. R. Civ. 59(e) applies as the motion was
filed within 14 days based on the General Order 20-03 issued by the
court extending the applicable statute of limitations and that the
March 27, 2020 order is a manifest error of law.
TDF in its opposition recounts the travel of the contested matter
and alleges that BPPR may not under Rule 59(e), made applicable to
bankruptcy under Fed. R. Bankr. P. 9023, introduce new evidence or
arguments that could or should have been presented prior to
judgment -- that is, questioning TDF's right to payment as BPPR had
only questioned the amounts requested. TDF further argues that it
is entitled to the payment of administrative expenses for
post-petition advances or disbursements made on behalf of the
Debtor for the benefit of the estate. "Therefore, the Court
correctly concluded that the Disbursement made by TDF during the
course of the bankruptcy proceedings has administrative expense
priority and should be paid with the funds consigned with the Clerk
of the Court," TDF said.
After considering the motions before the court regarding whether to
reconsider the March 27, 2020 order adjudicating that the funds
consigned with the Clerk of Court be disbursed to the TDF and the
facts before the court at the time the order was entered, the court
declines to reconsider the legal conclusion in the order subject of
the current matter. Judge Lamoutte says the arguments before the
court should have been presented before the matter was submitted
after the parties failed to reach an agreement. The uncontested
facts and allegations moved the court to enter the March 27, 2020
order.
The issue of which secured creditor, TDF or BPPR, had a priority
over the funds based on their respective ranking was not presented
to the court. The funds to be distributed were to class one
creditors, that is secured creditors, and TDF had first priority.
But both parties moved the court on the same day, July 14, 2020,
for payment of administrative expenses. The court notes that who
gets paid and in what amount does not affect the terms of the
confirmed plan.
Although the funds disbursed to the debtor post-petition by TDF are
based on a prepetition security agreement, the same were for the
benefit of the estate, which allowed time for the sale of the
Debtor's main asset and ultimately, the confirmation of the
Debtor's chapter 11 plan. These events were not in controversy. The
real property sold for $2,200,000 was encumbered in an amount
exceeding $23,000,000 and the funds were to be distributed in
accordance with the terms of the confirmed chapter 11 liquidation
plan. The funds consigned with the Clerk of Court would be
disbursed to class 1 creditors, that is, TDF and/or BPPR, depending
on the agreement of the two or upon a court order. No other
creditor was affected. The parties failed to reach an agreement.
The court agrees with TDF that "TDF's disbursement post-petition
allowed the instant proceeding to exist as a Chapter 11. Conversion
to Chapter 7 would have been detrimental to creditors, resulting in
unavoidable delays and higher administrative expenses. The
disbursement made by TDF thus provided actual benefit to the
estate." In addition, the court also agrees with TDF that Rule
59(e) may not be used to present new arguments.
The bankruptcy case is in re: COCO BEACH GOLF & COUNTRY CLUB, SE,
CHAPTER 11, Debtor, Case No. 15-05312 (ESL) (Bankr. D.P.R.).
A copy of the Court's Opinion dated July 24, 2020 is available at
https://bit.ly/31qCSQX from Leagle.com.
About Coco Beach Golf
Coco Beach Golf & Country Club, S.E., is the owner of a first
Class golf and country club in Rio Grande, Puerto Rico, currently
operating under the name of Trump International Golf Club Puerto
Rico. Completed in 2005, Trump International Golf Club has two
18-hole golf courses and country club facilities on a parcel land
with a total surface area of 2,501,944.021 square meters,
equivalent to 636.5629 "cuerdas".
The Company sought Chapter 11 protection (Bankr. D.P.R. Case No.
15-05312) in Old San Juan, Puerto Rico, on July 13, 2015, and
immediately filed a motion seeking to sell most of the assets for
$2.04 million in cash to OHorizons Global, LLC, subject to higher
and better offers.
The Debtor tapped Charles A. Cuprill-Hernandez as bankruptcy
counsel but the attorney resigned on Oct. 22, 2015.
The Debtor later hired Wigberto Lugo Mender and the firm of Lugo
Mender Group LLC., who will serve as attorneys
The Debtor in August 2015 won approval to hire Certified Public
Accountant (CPA) Luis R. Carrasquillo & CO. PSC, as financial
consultant. CPA Carrasquillo resigned from his appointment.
LA MERCED: Bankruptcy Court Won't Halt Sale Amid Appeal
-------------------------------------------------------
Bankruptcy Judge Enrique S. Lamoutte denied Debtor La Merced
Limited Partnership SE's motion for stay pending appeal.
The Debtor and OSP Consortium LLC came before the court on Oct. 8,
2019, for a hearing to consider the motion to dismiss filed by OSP,
the Debtor's opposition and urgent motion for the use of cash
collateral. The parties informed the court that they had reached an
agreement in principle. As a result of the proffer, the court
granted the parties 14 days to file the agreement in writing and if
no agreement was reached, the pending contested matters would be
heard on Feb. 10, 2020. The stipulation was filed on Nov. 8, 2019
and approved on Nov. 14, 2019.
On Dec. 12, 2019, the court approved the Debtor's disclosure
statement and scheduled a hearing on confirmation for March 10,
2020. On March 9, 2020, the Debtor moved the court to continue the
confirmation hearing. The Debtor pointed out that the present
conditions in Puerto Rico had prevented it from finalizing the
financing necessary to fund the plan. On the same date, the court
granted the request and rescheduled the confirmation hearing for
July 14, 2020.
On March 9, 2020, OSP filed a motion to compel the sale of
property. On the same date, the court granted the motion finding
that that the factual allegations were not in controversy and that
the court by continuing the confirmation hearing had not set aside
the stipulation between the parties. On May 22, OSP filed a motion
for entry of an order to sell the property. On June 23, the court
granted OSP's request.
On July 3, 2020, the Debtor filed a notice of appeal of the court's
orders denying its opposition to OSP's motion requesting sale and
the order granting OSP's request approving the sale.
On July 14, 2010, the court ordered the parties to brief whether
the appealed orders were interlocutory or final. The main basis for
the court's concern is that although the court authorized the sale
of the property pursuant to the terms of the stipulation, the
approval of the sale had been scheduled for July 14, 2020.
Judge Lamoutte notes that a motion for stay pending appeal is an
extraordinary remedy and requires a substantial showing on the part
of the movant. In the First Circuit, in a motion for a stay pending
appeal, the movant bears the burden of demonstrating: (i) a
likelihood of success on the merits; (2) the potential for
irreparable harm in the absence of a stay; (3) whether issuing a
stay will burden the opposing party less than denying a stay will
burden the movant; and (4) the effect, if any, on the public
interest. It is well-settled law that a court should only grant a
stay of the order subject to appeal if all elements are present.
Failure to satisfy all four prongs dooms the motion.
The first factor the court must consider in a motion for stay
pending appeal is whether the movant has a likelihood of success on
the merits of the appeal. To satisfy this requirement, the movant
must show, "more than mere possibility" of success -- rather, they
must establish a 'strong likelihood' that they will ultimately
prevail."
The Debtor argues that it has a strong likelihood to succeed on the
merits based on the applicability of the rebus sic stantibus
doctrine to the particular facts of this case prompted by the
unpredictable circumstances caused by the tremors in January 2020
and Covid-19 pandemic since March 2020. OSP opposes the request
alleging that the Debtor's request for stay pending appeal only
restates and rehashes its previous arguments, which the Court
already considered and denied. Thus, the motion for stay pending
appeal does not make a substantial showing of a likely success on
the merits.
According to Judge Lamoutte, the sequence of events shows that on
March 9, 2020, OSP filed a motion to compel the sale of property
based on the stipulation filed between the Debtor and OSP. The
court granted the same as the facts underlying the motion to compel
sale were uncontested and the stipulation between the parties
provided for the sale upon the default on the payment. On May 22,
2020, OSP again moved the court for the entry of an order for the
sale of the property. The Debtor opposed the request invoking
equity principles and the rebus sic stantibus doctrine. OSP filed
a
response detailing the reasons why the rebus sic stantibus doctrine
did not apply to the facts of this case. The court adopted the
analysis and rationale of OSP's motion in response and entered two
orders, the first one on June 16, 2020 denying the response by the
Debtor to OSP's request for sale for the reasons stated by OSP's
response, and the second on June 23, 2020 granting the request for
sale made by OSP on May 22, 2020. The June 23, 2020 order approves
the procedures for the sale of the real property, provides for the
bidding proceedings and auction, and scheduled for July 14, 2020
the approval of the sale. The Debtor filed a notice of appeal of
these two orders on July 3, 2020.
The court declines to revisit the issue of the applicability of the
rebus sic stantibus doctrine to the facts of this case. The
applicability of the rebus sic stantibus doctrine has been
considered and the court found the same inapplicable due to the
rationale in OSP's response. Therefore, the court finds that the
Debtor has failed to meet the burden of likelihood to succeed on
the merits base on the same legal basis previously rejected by the
court.
The court, after considering the motions filed by the Debtor and
OSP, notes that the appealed orders are interlocutory as the sale
had not been approved as of the date that the appeals were filed.
The court further notes that an order approving the report of sale
is being entered on even date by granting OSP's "Motion in
Compliance With Order."
A copy of the Court's Opinion and Order dated July 24, 2020 is
available at https://bit.ly/3ftEM8s from Leagle.com.
About La Merced LP
La Merced Limited Partnership, S.E., is a single asset real
estate, as defined in 11 U.S.C. Section 101(51B)). Based in San
Juan, Puerto Rico, La Merced LP filed a voluntary petition under
Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 18-06858)
on Nov. 27, 2018. In the petition signed by Luz Celenia
Castellano, administrator, the Debtor disclosed $6,088,228 in
liabilities. Judge Enrique S. Lamoutte Inclan is the case judge.
Nelson Robles Diaz Law Offices, PSC, led by founding partner Nelson
Robles Diaz, is the Debtor's counsel.
===============
X X X X X X X X
===============
LATAM: Battle-Scarred Creditors Call for Reforms From Default Duo
-----------------------------------------------------------------
Tom Arnold and Rodrigo Campos at Reuters report that as serial
defaulters Argentina and Ecuador near the finishing line on their
latest sovereign debt overhauls, foreign creditors are nervy about
investing again without macroeconomic reforms and International
Monetary Fund support.
On the surface, the prospects for both countries look brighter,
according to Reuters. Absent complicated negotiations with the IMF,
a clean slate post-debt restructuring will allow them to focus on
reviving their COVID-19-ravaged economies with much less concern
about looming foreign debts to repay, the report notes.
But both governments will be painfully aware they need to woo back
investor support to ensure their path to recovery--not an easy
challenge given their tarnished track-records that combine for
about 20 defaults, the report relays.
Argentina's government hopes to wrap up its latest $65 billion debt
restructuring by end-August, the report notes. Ecuador, having
gained support for its plan relatively quickly, is also finalizing
its $17.4 billion foreign debt revamp, the report says.
"In of itself, these deals are a positive first step but there is a
lot more work to be done to firm up the outlook for investment,"
said Graham Stock, an emerging markets strategist at BlueBay Asset
Management, and a creditor to both countries, the report discloses.
"There's plenty of goodwill (from creditors) but there's a question
of (government) actions rather than just good intentions."
Most immediately focus will turn to engagement with the IMF.
Ecuador's deal was predicated on a fresh agreement with the IMF,
giving many investors faith in the commitment of President Lenin
Moreno's administration to revamp the stalled $4.2 billion IMF
lending program, the report adds.
Argentina’s talks may be trickier, notes Reuters. Economy
Minister Martin Guzman has warned of "tough" negotiations that may
not lead to a deal on a new program until early 2021.
"It’s going to be a very difficult discussion," the report quotes
Mauro Roca, emerging markets sovereign research managing director
at TCW, as saying. "The IMF will ask for some policy conditionality
and Argentina at this point doesn’t seem willing to accept
important changes in the direction of policy. That would be seen as
interventionist, so that discussion is going to be difficult and
it’s going to take a while."
According to the report, Ecuador's sovereign bonds have generally
outperformed Argentina's since May, which analysts said partly
reflected Quito’s friendlier talks with creditors.
POLITICAL WILL
Reuter relates that hopes of generating economic revival while
ensuring debt sustainability--expected to stabilise at about 100%
of GDP in Argentina’s case--hinges on politics.
"It’s going to depend on the macroeconomic conditions and the
policy regime, particularly the direction of economic policy,"
TCW’s Roca said, Reuters reports. "If those policies are not
considered to be sustainable nobody would put money to work,
particularly in FDI or something that requires looking down the
road."
The report says that a "glass half-full" scenario could see
Argentina at the start of a virtuous circle, propelled by the
"right policy mix" initiated by a Alberto Fernandez administration
that had more political capital than his predecessor Mauricio Macri
could have dreamed of, said Patrick Esteruelas, head of research at
EMSO Asset Management.
"The problem is that glass half full is full of holes," he said,
according to Reuters. "The historical fiscal multiplier in
Argentina is very low which means any debt service relief does not
translate into real activity gains. You need to see wholesale
changes to a medium-term economic program that I don’t think this
government, despite its political capital, is willing to endorse."
Goldman Sachs said it was skeptical about prospects for
comprehensive tax reform, the report relays.
In Ecuador’s case, says Reuters, investors are wary after
unsuccessful attempts last year by Moreno to push through tax and
monetary reforms intended to cut a burdensome fiscal deficit with
elections coming up in 2021.
"With elections round the corner, and with the COVID-19 impact, the
space and willingness to undertake difficult measures could be
lower," the report quoted Raza Agha, head of emerging markets
credit strategy at Legal & General Investment Management, saying.
Currency woes raise another red flag as locals have piled savings
into the U.S. dollar in recent years, Reuters continues.
Argentina could see more foreign exchange controls amid still
latent dollar demand, said Siobhan Morden, head of Latin America
fixed income strategy at Amherst Pierpont Securities, notes the
report.
Lack of domestic confidence in Argentina's peso was a "massive
problem" that needed fixing before investment would flow properly,
said Carl Ross of GMO, Reuter relays.
The currencies of both nations were overvalued, the Institute of
International Finance (IIF) said this month, and real depreciation
was needed to prevent unsustainable current account deficits.
It might be hard for Argentina to correct overvaluation unless the
government allowed it to float more freely, the IIF said, Reuters
notes.
"Ecuador faces the tallest challenge, as dollarization makes
relative price adjustments unavoidable," it added, the report says.
[*] BOND PRICING: For the Week Aug. 24 to Aug. 28, 2020
-------------------------------------------------------
Issuer Name Cpn Price Maturity Country Curr
----------- --- ----- -------- ------- ---
Plaza SA 3.5 38.3 8/15/2020 CL CLP
Banco Security SA 3.0 5.6 7/1/2019 CL CLP
Yida China Holdings Lt 7.0 74.3 4/19/2020 CN USD
Noble Holding Internat 6.1 62.0 3/1/2041 KY USD
Odebrecht Finance Ltd 7.0 16.5 4/21/2020 KY USD
Noble Holding Internat 6.2 62.2 8/1/2040 KY USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
Banco Macro SA 17.5 65.2 5/8/2022 AR ARS
Provincia de Cordoba 7.1 72.7 8/1/2027 AR USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
Empresa Provincial de 12.5 0.0 1/29/2020 AR USD
Odebrecht Finance Ltd 7.0 17.0 4/21/2020 KY USD
SACI Falabella 2.3 50.6 7/15/2020 CL CLP
Empresa de Transporte 4.3 30.9 7/15/2020 CL CLP
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Argentine Republic Gov 6.3 74.1 11/9/2047 AR EUR
Provincia del Chaco Ar 4.0 0.0 12/4/2026 AR USD
Argentina Bonar Bonds 5.8 75.2 4/18/2025 AR USD
Argentine Republic Gov 4.3 70.0 12/31/2033 AR JPY
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Cia Latinoamericana de 9.5 74.3 7/20/2023 AR USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Cia Energetica de Pern 6.2 1.1 1/15/2022 BR BRL
Banco Macro SA 17.5 65.2 5/8/2022 AR ARS
MIE Holdings Corp 7.5 56.2 4/25/2019 HK USD
Enel Americas SA 5.8 32.7 6/15/2022 CL CLP
Cia Latinoamericana de 9.5 73.9 7/20/2023 AR USD
Automotores Gildemeist 8.3 54.2 5/24/2021 CL USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Odebrecht Finance Ltd 7.0 16.5 4/21/2020 KY USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
Automotores Gildemeist 8.3 54.2 5/24/2021 CL USD
Corp Universidad de Co 5.9 64.2 11/10/2021 CL CLP
City of Cordoba Argent 7.9 73.1 9/29/2024 AR USD
Argentine Republic Gov 6.9 75.2 1/11/2048 AR USD
Polarcus Ltd 5.6 71.8 7/1/2022 AE USD
MIE Holdings Corp 7.5 56.4 4/25/2019 HK USD
Sylph Ltd 2.4 65.1 9/25/2036 KY USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
Embotelladora Andina S 3.5 37.9 8/16/2020 CL CLP
USJ Acucar e Alcool SA 9.9 74.0 11/9/2019 BR USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Banco Security SA 3.0 27.4 6/1/2021 CL CLP
Provincia de Buenos Ai 7.9 75.3 6/15/2027 AR USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
MIE Holdings Corp 7.5 56.2 4/25/2019 HK USD
China Huiyuan Juice Gr 6.5 46.6 8/16/2020 CN USD
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
Provincia de Rio Negro 7.8 70.4 12/7/2025 AR USD
KrisEnergy Ltd 4.0 40.4 6/9/2022 SG SGD
Noble Holding Internat 5.3 60.5 3/15/2042 KY USD
AES Tiete Energia SA 6.8 1.2 4/15/2024 BR BRL
Embotelladora Andina S 3.5 37.9 8/16/2020 CL CLP
USJ Acucar e Alcool SA 9.9 74.0 11/9/2019 BR USD
Argentine Republic Gov 0.5 27.6 12/31/2038 AR JPY
USJ Acucar e Alcool SA 9.9 74.0 11/9/2019 BR USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
Provincia del Chubut A 4.5 2208 3/30/2021 AR USD
Avadel Finance Cayman 4.5 55.0 2/1/2023 US USD
Argentina Bonar Bonds 7.6 74.4 4/18/2037 AR USD
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Fospar S/A 6.5 1.2 5/15/2026 BR BRL
Empresa Electrica de l 2.5 63.8 5/15/2021 CL CLP
Sociedad Austral de El 3.0 17.0 9/20/2019 CL CLP
Provincia del Chaco Ar 9.4 74.8 8/18/2024 AR USD
Argentine Republic Gov 7.1 75.7 6/28/2117 AR USD
Provincia de Cordoba 7.1 74.7 8/1/2027 AR USD
Metrogas SA/Chile 6.0 41.6 8/1/2024 CL CLP
Esval SA 3.5 49.9 2/15/2026 CL CLP
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
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Information contained herein is obtained from sources believed to
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The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
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