/raid1/www/Hosts/bankrupt/TCRLA_Public/200903.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Thursday, September 3, 2020, Vol. 21, No. 177
Headlines
A R G E N T I N A
ARGENTINA: Central Bank Optimistic Over Post-Bond Swap Future
ARGENTINA: Creditors Decide on $65 Billion Debt Deal
B A R B A D O S
BARBADOS: Passes IMF Targets Under Extended Fund Facility
B R A Z I L
BRAZIL: Posts BRL87.8BB Deficit in July, Worst Ever for the Month
GOL LINHAS: Delta May Have to Repay $300MM on Behalf of Airline
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Financial Intermediaries can Access US$1BB
E C U A D O R
ECUADOR: S&P Raises SCRs to 'B-/B' on Completed Debt Exchange
J A M A I C A
JAMAICA: Jan. to May Imports 29.4% Below Similar Period Last Year
P U E R T O R I C O
FIRSTBANK PUERTO RICO: Moody's Ups Deposit Rating to Ba2
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Alcohol Beverage Industry Feel Covid Pinch
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A R G E N T I N A
=================
ARGENTINA: Central Bank Optimistic Over Post-Bond Swap Future
-------------------------------------------------------------
Buenos Aires Times reports that Argentina Central Bank Governor
Miguel Angel Pesce said that the closure of the debt swap would
relieve pressures on exchange markets and improve economic
expectations.
"We believe that we will gain calm with the bond swap and that the
productive sector will have better access to exchange markets to
satisfy its needs," affirmed Pesce in a communique, according to
Buenos Aires Times.
"We are convinced that closing the swap in coming days will be a
positive signal for the market and will reduce the [exchange rate]
gap, he affirmed, the report discloses.
Aug. 25 was the deadline for adhering to the offer agreed with
creditors to swap the bonds issued under foreign jurisdiction for
debt to the tune of US$66.137 billion.
"We're hoping for an improvement in expectations. If that happens,
there would be no motive to establish new restrictions" in exchange
markets, said Pesce, the report relays.
In Argentina, monthly foreign exchange purchases have been limited
to US$200 as imposed by the Mauricio Macri administration
(2015-2019) to staunch the flight of hard currency, the report
relates.
Pesce specified that Argentina's reserves are "above US$43
billion."
"We can administer the exchange market with that level of reserves.
We've done so successfully until now and we'll be able to do so in
future," he assured.
In the last week, the Central Bank stiffened its controls governing
dollar purchases to prevent manoeuvres to dodge the monthly cap,
disqualifying over 4,000 savers who acquired dollars and passed
them onto other accounts without being able to justify the
operation, the report discloses.
About Argentina
Argentina is a country located mostly in the southern half of
South America. It's capital is Buenos Aires. Alberto Angel
Fernandez is the current president of Argentina after winning the
October 2019 general election. He succeeded Mauricio Macri in the
position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal
year 2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
As reported by the Troubled Company Reporter - Latin America on
April 14, 2020, Fitch Ratings upgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating to 'CC' from 'RD' and
Short-Term Foreign Currency IDR to 'C' from 'RD'.
The TCR-LA reported on April 13, 2020, that S&P Global Ratings
also lowered its long- and short-term foreign currency sovereign
credit ratings on Argentina to 'SD/SD' from 'CCC-/C'. S&P also
affirmed the local currency sovereign credit ratings at 'SD/SD'.
There is no outlook on 'SD' ratings.
On April 9, the TCR-LA reported that Moody's Investors Service
downgraded the Government of Argentina's foreign-currency and
local-currency long-term issuer and senior unsecured ratings to Ca
from Caa2.
ARGENTINA: Creditors Decide on $65 Billion Debt Deal
----------------------------------------------------
Cassandra Garrison at Reuters reports that Argentina's day of
reckoning has arrived.
After four months of tense debt talks, multiple pushed deadlines
and amendments since an initial low-ball offer in April,
bondholders will decide whether to accept the country's $65 billion
restructuring proposal, according to Reuters.
The main three creditor committees holding a large chunk of the
bonds backed a deal earlier this month, bolstering confidence that
the government will get the required level of support to allow a
full deal to go ahead without holdouts, the report notes.
A deal is key to pulling Argentina out of default and reviving the
country already in its third straight year of recession as Economy
Minister Martin Guzman turns his attention to the next step:
renegotiating a failed $57 billion deal with the International
Monetary Fund, the report relays.
"After circling around each other for the better part of 2020, we
have finally reached 'D-Day',' said Patrick Esteruelas, head of
research for Emso Asset Management in New York, the report notes.
He added it was "highly unlikely' that legal thresholds on the
bonds needed for a deal would not be reached. Collective action
clauses mean the government needs holders of between 66.67%-85% of
eligible bonds depending on the bond series, the report relates.
A person with direct knowledge of the negotiations told Reuters
that already the "participation is very good", though the final
result would only be known, the report discloses.
The new bonds are scheduled to be issued on Sept. 4 if a deal is
struck.
Argentina's government made a breakthrough with its main creditor
groups--the Ad Hoc Group, Argentina Creditor Committee and the
Exchange Bondholder Group--on Aug. 4, when all three agreed to
support an amended offer, the report relays.
The bonds include so-called "Exchange' bonds, involved in a
previous restructuring, and which have tougher legal clauses. The
other "Macri' bonds were issued during the previous administration
of conservative President Mauricio Macri, the report notes.
Argentina needs support from holders of 85% of the Exchange bonds,
and between 66.67%-75% on the Macri bonds, though individual bond
series can have lower levels of support, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of
South America. It's capital is Buenos Aires. Alberto Angel
Fernandez is the current president of Argentina after winning the
October 2019 general election. He succeeded Mauricio Macri in the
position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal
year 2019 according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
As reported by the Troubled Company Reporter - Latin America on
April 14, 2020, Fitch Ratings upgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating to 'CC' from 'RD' and
Short-Term Foreign Currency IDR to 'C' from 'RD'.
The TCR-LA reported on April 13, 2020, that S&P Global Ratings
also lowered its long- and short-term foreign currency sovereign
credit ratings on Argentina to 'SD/SD' from 'CCC-/C'. S&P also
affirmed the local currency sovereign credit ratings at 'SD/SD'.
There is no outlook on 'SD' ratings.
On April 9, the TCR-LA reported that Moody's Investors Service
downgraded the Government of Argentina's foreign-currency and
local-currency long-term issuer and senior unsecured ratings to Ca
from Caa2
===============
B A R B A D O S
===============
BARBADOS: Passes IMF Targets Under Extended Fund Facility
---------------------------------------------------------
RJR News reports that the International Monetary Fund (IMF) says
Barbados had passed all the indicative targets under the Extended
Fund Facility (EFF) to date and that good progress also continues
to be made towards implementing structural reform under the
facility.
Bert van Selm, who lead an IMF delegation that conducted a staff
visit via videoconferencing, says Barbados' international reserves,
which reached a low of US$220 million at the end-May 2018, are now
in excess of US$1 billion, according to RJR News.
The IMF says the COVID-19 pandemic has had a major impact on the
country's economy, with a double-digit decline in economic activity
projected for 2020, the report notes.
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings revised on April 16, 2020 its outlook on Jamaica to
negative from stable. At the same time, S&P affirmed its 'B+'
long-term foreign and local currency sovereign credit ratings, its
'B' short-term foreign and local currency sovereign credit ratings
on the country, and its 'BB-' transfer and convertibility
assessment.
The TCR-LA also reported that Fitch Ratings, in April 2020, revised
Jamaica's Outlook to Stable from Positive. The Long-Term
Foreign-Currency Issuer Default Rating is affirmed at B+. The
Outlook change reflects the shock to Jamaica from the coronavirus
pandemic, which is expected to lead to a sharp contraction in its
main sources of foreign currency revenues: tourism, remittances and
alumina exports.
===========
B R A Z I L
===========
BRAZIL: Posts BRL87.8BB Deficit in July, Worst Ever for the Month
-----------------------------------------------------------------
Richard Mann at Rio Times Online reports that Brazil Central
government accounts posted a primary deficit of BRL87.835 billion
(US$17.567 billion) in July, the worst performance for the month
since official records began in 1997.
The result includes the National Treasury, Social Security, and
Central Bank accounts, according to Rio Times Online. In July
2019, the result was negative at BRL5.934 billion, the report
relays.
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
As reported in the Troubled Company Reporter-Latin America on May
8, 2020, Fitch Ratings affirmed Brazil's Long-Term Foreign Currency
Issuer Default Rating at 'BB-' and has revised the Rating Outlook
to Negative. The Outlook revision to Negative reflects the
deterioration of Brazil's economic and fiscal outlook, and downside
risks to both given renewed political uncertainty, including
tensions between the executive and congress, and uncertainty over
the duration and intensity of the coronavirus pandemic.
On April 10, 2020, the TCR-LA reported that S&P Global Ratings
revised on April 6, 2020, its outlook on its long-term ratings on
Brazil to stable from positive. At the same time, S&P affirmed its
'BB-/B' long- and short-term foreign and local currency sovereign
credit ratings. S&P also affirmed its 'brAAA' national scale rating
and its transfer and convertibility assessment of 'BB+'. The
outlook on the national scale rating remains stable.
GOL LINHAS: Delta May Have to Repay $300MM on Behalf of Airline
---------------------------------------------------------------
Marcelo Rochabrun at Reuters reports that Delta Air Lines is facing
a fresh Latin American headache as a deadline nears for former
Brazilian partner Gol Linhas Aereas Inteligentes (GOLL4.SA) to
repay a $300 million loan that the U.S. carrier guaranteed.
If Gol fails to repay--which ratings agencies say is looking more
likely--Delta would have to honor the debt on Gol's behalf,
honoring the five-year-old agreement, according to Reuters. But
just like Gol, the Atlanta-based carrier, which said in July it was
burning $27 million a day here has little cash to spare due to the
coronavirus pandemic, the report relates.
Gol's struggles are just the latest challenge for Delta, whose
investments in Latin America, once seen as a growth area, have
faltered due to COVID-19.
Delta's 49% stake in Aeromexico and 20% stake in LATAM Airlines
Group are at risk of dilution or being wiped out as both airlines
undergo bankruptcy restructurings, the report notes.
For Gol, Brazil's largest carrier, the due date of the Delta-backed
private loan comes amid a severe cash crunch. The loan was extended
by unidentified private investors, the report discloses.
"Gol is facing constant cash burn without refinancing
possibilities," said Amalia Bulacios, who covers Gol for S&P Global
Ratings, which rates its debt as CCC-, at risk of default.
Before repaying the loan, Gol could have just 1.6 billion reais
($285.19 million) left in cash, Reuters calculated. The
calculation is based on Gol's cash and cash equivalents, as well as
its liquid investments, as of June 30, minus its expected cash burn
of 3 million reais a day, the report relays.
"We are three business days away from the deadline and the company
has been very silent; it's not even clear if there is a negotiation
under way," she added, notes the report.
Gol and Delta declined to confirm if any negotiations were
occurring, the report notes. A source familiar with the matter
said negotiations were indeed taking place, the report discloses.
The situation echoes that of Colombia's Avianca Holdings in May,
when it filed for bankruptcy because of a debt repayment deadline.
Analysts, however, said Gol's restructuring needs are much simpler
than Avianca's and could potentially happen out of court, the
report relays.
Raising cash at the 11th hour, however, appears unlikely, the
report relates.
While Brazil's government has offered Gol 2 billion reais ($356.49
million) in loans, two sources said it would not release the money
unless Gol manages to postpone its debt deadline. Brazil wants the
funds to be used on the airline's operations, not to repay
creditors.
Meanwhile, Gol executives acknowledged last month that the airline
has little prospect of raising fresh capital, the report
discloses.
"There's a certain aversion to Brazil, a certain aversion to
airlines, and then we're kind of in the cross-set of that bucket,"
Gol's CFO Richard Lark said during the company's earnings call.
"It's not really there, the private market," he added, notes
Reuters.
Debt Underplayed
Gol's debt troubles show how quickly the coronavirus upended the
balance sheets of airlines around the world, the report notes.
For years, Gol underplayed the significance of the $300 million
loan, the report discloses. Executives said not only that they
would repay it in full but that they would do so ahead of schedule,
the report relays.
As late as Feb. 25, even as the pandemic raged in Asia and Europe,
a Gol presentation said the airline had "no relevant maturities in
next five years," the report relates.
Now, Gol's future hangs in the balance because of the once
apparently insignificant loan coming due, the report says.
Delta, which has long expanded worldwide by buying into other
carriers, in 2015 injected $56 million of equity into Gol and
guaranteed the $300 million loan. At the time, Gol executives said
they could not have raised the debt without Delta's backing, the
report relays.
Delta sold its stake in Gol in 2019 to buy its stake in Gol rival
LATAM Airlines but maintained the loan guarantee, the report
notes.
If Gol fails to make the payment and Delta is forced to step in,
Delta will have the option of seizing the Brazilian airline's stake
in its publicly traded loyalty program, Smiles Fidelidade, which
secured the loan, the report says.
But Gol's stake in Smiles is only worth 954 million reais ($170.04
million), the report notes. And the loyalty program has little
strategic value given that Delta ditched Gol for LATAM Airlines,
the report discloses.
"If Delta does that, it will strangle Gol's cash position, put
Gol's survival at risk and become a shareholder of Smiles, a
company that itself needs Gol to be successful," said Ricardo
Fenelon, a former head of Brazil's aviation regulator ANAC, the
report relays. "It doesn't make much sense."
About GOL Linhas
GOL Linhas Aereas Inteligentes S.A also known as VRG Linhas Aereas
S/A) is a Brazilian low-cost airline based in Rio de Janeiro,
Brazil.
* * *
As reported in the Troubled Company Reporter-Latin America on
July 28, 2020, S&P Global Ratings lowered its issuer credit and
issue-level ratings on Brazil-based airline, Gol Linhas Aereas
Inteligentes S.A. (Gol) to 'CCC+' from 'B-'. At the same time S&P
lowered national scale rating to 'brBB' from 'brBBB-'.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Financial Intermediaries can Access US$1BB
--------------------------------------------------------------
Dominican Today reports that the Dominican Central Bank said
financial intermediation entities will be able to access the Quick
Liquidity Facility, authorized by the Monetary Board, for up to
RD$60 billion (US$1.03 billion) for up to 3 years and a fixed
interest rate of 3.0%, to channel financing to the productive
sectors and households.
These conditions, a press release indicates, will operate under two
modalities:
New loans: will be financing that may be granted by financial
intermediation entities as fresh resources for companies' working
capital, development of new productive activities, as well as to
boost consumption and private investment, the report notes relays.
For new loans, financial intermediation entities may obtain
liquidity in the Central Bank for the total amount (100%) of each
financing to be granted, 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).
=============
E C U A D O R
=============
ECUADOR: S&P Raises SCRs to 'B-/B' on Completed Debt Exchange
-------------------------------------------------------------
On Sept. 1, 2020, S&P Global Ratings raised its foreign and local
currency sovereign credit ratings on Ecuador to 'B-/B' from 'SD/SD'
(selective default). The outlook on the long-term ratings is
stable.
S&P said, "We also assigned a 'B-' rating to the US$16.5 billion of
new debt issued by the government in three bonds, due 2030, 2035,
and 2040, and to a past due interest (PDI) security. At the same
time, we raised the rating on Ecuador's social bond to 'B-' from
'CCC-'."
Finally, S&P revised its transfer and convertibility assessment to
'B-' from 'CCC-'.
Outlook
The stable outlook balances the risks stemming from an uncertain
presidential election outcome in 2021, still-large fiscal
imbalances, high external debt, and limited growth prospects, with
a much improved debt amortization profile resulting from the recent
exchange and funding from official lenders.
S&P said, "While the completion of the debt restructuring provides
significant short-term cash flow relief, financing needs remain
high, and we assume that Ecuador will maintain official creditor
support by pursuing needed reforms on the fiscal and economic
fronts. In that sense, it is our base case that the new IMF
27-month agreement should support broad policy continuity beyond
the change in administration scheduled for July 2021. The stable
outlook also reflects our expectation that the banking sector will
maintain adequate liquidity throughout the electoral period."
Downside scenario
S&P could lower the ratings over the next 12 months if policy
reversals occur that reduce willingness to serve commercial debt,
elevate fiscal and external imbalances beyond its expectations, or
hamper access to official lending. With an expected change of
administration after the February 2021 election, any disruption in
the constructive engagement with the IMF could weaken Ecuador's
creditworthiness, while high and persistent fiscal imbalances
financed by costly short-term debt could turn debt dynamics
unsustainable, despite recent debt relief.
Upside scenario
S&P could raise the ratings over the next 24 months if there is a
track record of consistent policies that leads to a
faster-than-expected reduction of Ecuador's financing needs and a
stabilization of its fiscal and external debt dynamics.
Rationale
The rating action follows the completion of Ecuador's distressed
debt exchange on Aug. 31. Participation in the exchange was high,
above 95%, sufficient to trigger the collective action clauses
provided in the old bond indentures to avoid future holdout
litigation. As a result, Ecuador has restructured about $17.4
billion of foreign public debt, with an 8.3% reduction in
principal, extension of maturities, and a reduction of interest
payments. The deal reduces Ecuador's gross financing needs by $1.4
billion this year and by $6.6 billion in 2021-2023. Complementing
the restructuring is a revised 27-month IMF agreement under the
Extended Fund Facility (EFF) of US$6.5 billion.
The upgrade to 'B-' reflects Ecuador's more manageable debt service
as well as S&P's expectation of broad policy continuity in the
government's implementation of reforms that support fiscal,
financial, and economic stability. Over the last three years, the
economic team has been committed to reducing the large fiscal
imbalances, despite the economic and political challenges. The
political dynamics are open and very fluid ahead of the 2021
presidential elections, but the debt relief and revised IMF program
and financing provide important fiscal space.
The 'B-' rating indicates our expectation that the next
administration will capitalize on this space and advance polices
that support continuity on the broad policy agenda. S&P said, "We
consider that the reduction in debt service payments in the next
four years reduces the incentive for the upcoming administration to
miss any payments or to undertake another distressed debt exchange.
At the same time, we think that the large fiscal adjustment could
come after the first year of the next administration, providing
time to engage in a constructive relationship with official
creditors and potentially adjust policies."
That said, policy execution will remain difficult and room to
maneuver limited given the complex macroeconomic conditions. The
COVID-19 pandemic and the oil price shock have severely hit
Ecuador's already weak economy, which is set to contract around 10%
this year and to recover marginally in 2021. S&P expects the fiscal
deficit to reach 8% of GDP, while net general government debt will
rise to 58% of GDP. While very high financing needs appear to be
mostly covered for 2020, those for 2021 could be more challenging
and depend on improved fiscal outturn amid some economic recovery.
Continued fiscal adjustment by the Ecuadorian authorities would be
key to contain the financing gap amid heightened social tension.
Institutional and economic profile: Fluid politics ahead of the
2021 elections and an economy under significant pressure
-- Electoral dynamics and policy prospects remain fluid ahead of
the February 2021 election.
-- Continued implementation of structural reforms will remain
tough given a track record of social tensions and a polarized
political backdrop.
-- The Ecuadorian economy has been severely hit by the COVID-19
pandemic and lower global oil prices.
The combined shocks from COVID-19 and the plunge in global oil
prices earlier this year exacerbated the negative dynamics of the
Ecuadorian economy, characterized by years of sluggish
growth--below that of peers with a similar level of economic
development--amid limited fiscal and monetary flexibility, low oil
prices, and weak government effectiveness. S&P said, "We expect
growth to be severely hurt this year, with GDP set to decline by
10% and GDP per capita to fall to $5,500 from $6,200 in 2019. We
then expect GDP to grow by a still-lackluster 3% in 2021 and to
average 2% growth in 2021-2023. Sustained long-term growth would
require deep structural reforms to reduce fiscal and external
vulnerabilities and improve investors' confidence."
The pandemic and deteriorated socioeconomic conditions have fueled
social discontent and further reduced the popularity of the current
administration. The political scenario is fragmented ahead of the
general elections scheduled for February 2021, which makes policy
responses difficult to predict.
President Lenín Moreno's ruling party, Alianza País, lacks a
majority in a fragmented National Assembly and has faced setbacks
when advancing on its fiscal and economic agenda. Nonetheless, the
administration has been committed to the correction of economic
imbalances, while cooperating with the private sector and
multilateral creditors, as well as taking steps to improve
transparency and accountability by presenting more comprehensive
government debt statistics. That said, Ecuador's institutional
settings have remained weak because of concerns over the
sustainability of public finances--Ecuador has a poor track record
of meeting its obligations--and uncertain checks and balances
between institutions.
In March 2019, Ecuador initiated a three-year EFF program with the
IMF, for a total of US$4.2 billion, aimed at supporting its debt
dynamics and balance of payments. While it has made some progress
on fiscal targets, the program was suspended in May 2020 amid the
spread of COVID-19 and IMF reviews that concluded that large
statistical issues existed when the program was designed. The new
Organic Code of Planning and Public Finance should help improve
data provision.
Meanwhile, authorities and the IMF announced on Aug. 28 a new
staff-level agreement, which is subject to approval by the IMF's
board (likely in September), for a total of US$6.5 billion.
Reaching a staff-level agreement was part of the terms agreed with
investors to finalize the commercial debt restructuring and provide
funding for 2020 financing needs. S&P expects the program will help
shore up Ecuador's foreign exchange reserves and anchor policy
reforms.
The new program extends to 2022, providing a broad framework (and
financing) for a continuation of corrective policies, through the
elections. Nonetheless, because some of the more meaningful reforms
that the program required will likely be taken by the next
administration, the success of the program will largely depend on
the next administration's alignment with the current agenda.
The elections are still in preliminary stages. Around 18 parties
have registered candidates, and the election is likely to be
decided in a runoff. Governability will likely be very challenging
amid a fragmented congress. Political forces with the highest
chances to make it to the runoff vary from CREO (center-right, lead
by Guillermo Lasso) to left-leaning UNES (with former president
Correa as the vice presidential candidate) and Pachakutik
(indigenous movement lead by Yaku Perez). CREO has supported the
current administration's agenda, which indicates that a victory
could mean continuity in current policies, as well as support from
official lenders. Thus far, UNES and Pachakutik candidates have
been critical of austerity measures. This raises uncertainty about
their policy strategy should they assume office--but limited
financing options and engagement with the IMF could affect their
policies.
Flexibility and performance profile: The debt restructuring reduces
short-term financing risks, although the debt stock remains high
and fiscal challenges persist
-- The blow to the economy implies a setback to recent fiscal
consolidation. S&P expects the general government deficit to widen
to 8% of GDP in 2020 and net general government debt to rise to 58%
of GDP.
-- Financing needs will be mostly covered by external official
lending, keeping pressure on Ecuador's external profile despite a
reduction in short-term financing needs associated with debt
relief.
-- S&P assumes Ecuador will remain committed to dollarization.
Following a gradual reduction of the general government deficit in
2018-2019--to 3% of GDP from 5% in 2017--we project the combination
of negative shocks will push the general government deficit over 8%
of GDP in 2020, from 3.1% in 2019. The widening deficit reflects
both revenue shortfalls and rising spending pressures. Around 30%
of general government revenue comes from the hydrocarbon sector and
has taken a hit from lower global prices. Expected oil-revenue
losses are estimated around $3.5 billion in 2020. At the same time,
extraordinary health and social spending to combat the pandemic is
expected to represent around 2% of GDP.
S&P expects Ecuador's fiscal accounts to gradually improve as the
negative effects of the pandemic dissipate and the economy slowly
recovers. S&P's base case points to a correction of 2% of GDP in
2021 considering a recovery in revenues, a reduction in
COVID-19-related expenses, a further cut in capital expenditures,
and a lower interest burden following the debt exchange. General
government interest payments will remain around 7% of general
government revenues in 2020-2021, down from 9% in 2019. Thereafter,
the implementation of structural reforms, such as a broad tax
reform, could support further fiscal correction, though these could
be delayed after the new government takes office. Moreover, limited
financing options available to the government constrain its ability
to run higher deficits.
Financing needs this year are mostly covered by official financing,
including new IMF disbursements, support from other multilateral
institutions, and new financing from Chinese development banks, as
well as domestic debt rollovers. Net general government debt is
expected to rise to 58% of GDP in 2020, from 47% in 2019.
S&P said, "We include in our debt calculation the sovereign debt
held by IESS (the Ecuadorian Social Security Institute) and the
central bank because it represents a material amount of Ecuador's
domestic debt and reflects the lack of market buyers of domestic
debt. We also include in our general government calculations the
estimated outstanding amount of CETES (Treasury certificates),
which in some government data are "other liabilities."
Private-sector domestic financing sources historically have been
limited given the local banking sector's low appetite for
purchasing sovereign debt and the lack of development of local
markets. However, technical assistance from the U.S. Treasury aims
to deepen local capital market development and enhance government
debt management.
Given that external lending will mostly cover financing needs, S&P
expects Ecuador's external profile to deteriorate. Narrow net
external debt is expected to rise to 166% of current account
receipts (CARs), from 132% in 2019, amid a lower CAR base as well.
Nonetheless, Ecuador's debt deal has reduced gross external
financing needs, which are projected to fall to 131% of CARs and
usable reserves in 2020 from 140% in 2019.
S&P said, "We expect that Ecuador will continue to use the U.S.
dollar as its currency, as it has helped to anchor inflation and
stabilize the financial system. We believe that Ecuador will remain
committed to this arrangement despite the economic costs of an
inflexible monetary regime." The revised IMF program aims to
strengthen the dollarization regime.
The financial system has shown stability amid the economic
downturn, according to reported indicators of solvency, liquidity,
asset quality, and profitability. Deposits in the system have
increased over the past few months to above pre-pandemic levels
(around 42% of GDP).
Ecuador makes use of capital controls. The government is aiming to
gradually reduce the capital outflow tax, currently set at 5%,
subject to economic performance.
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
Upgraded
To From
Ecuador
Sovereign Credit Rating B-/Stable/B SD/--/SD
Transfer & Convertibility Assessment B- CCC-
Senior Unsecured B- CCC-
New Rating
Ecuador
Senior Unsecured B-
Not Rated Action
To From
Ecuador
Senior Unsecured NR D
=============
J A M A I C A
=============
JAMAICA: Jan. to May Imports 29.4% Below Similar Period Last Year
-----------------------------------------------------------------
RJR News reports that Jamaica's imports for January to May this
year were 29.4 per cent below the amount which was spent for the
similar period last year.
This is according to the International Merchandise Trade Bulletin
released by the Statistical Institute of Jamaica, according to RJR
News.
Revenue from exports was 31.7 per cent lower than in 2019, the
report notes.
Expenditure on imports from the United States totalled US$738.3
million, while earnings from exports to the US amounted to US$246.7
million, a decline of 10.8 per cent, the report relays.
As reported in the Troubled Company Reporter-Latin America, S&P
Global Ratings revised on April 16, 2020 its outlook on Jamaica to
negative from stable. At the same time, S&P affirmed its 'B+'
long-term foreign and local currency sovereign credit ratings, its
'B' short-term foreign and local currency sovereign credit ratings
on the country, and its 'BB-' transfer and convertibility
assessment.
The TCR-LA also reported that Fitch Ratings, in April 2020, revised
Jamaica's Outlook to Stable from Positive. The Long-Term
Foreign-Currency Issuer Default Rating is affirmed at B+. The
Outlook change reflects the shock to Jamaica from the coronavirus
pandemic, which is expected to lead to a sharp contraction in its
main sources of foreign currency revenues: tourism, remittances and
alumina exports.
=====================
P U E R T O R I C O
=====================
FIRSTBANK PUERTO RICO: Moody's Ups Deposit Rating to Ba2
--------------------------------------------------------
Moody's Investors Service upgraded the ratings and assessments of
FirstBank Puerto Rico (FirstBank) following the close of the
acquisition of Banco Santander Puerto Rico (BSPR). FirstBank's
long-term deposit rating was upgraded to Ba2 from Ba3, its
long-term issuer rating was upgraded to B2 from B3 and the
long-term Counterparty Risk Rating was upgraded to B1 from B2,
following the upgrade of the standalone Baseline Credit Assessment
(BCA) to b1 from b2. The short-term bank deposit rating was
affirmed at Not Prime (NP). Today's rating action concludes the
review for upgrade announced on October 23, 2019, which was
prompted by FirstBank's announcement of the BSPR's acquisition for
$1.1 billion, which was funded in cash. Moody's has also
simultaneously withdrawn all ratings and assessments of BSPR since
that entity no longer exists.
List of affected ratings:
Upgrades:
Issuer: FirstBank Puerto Rico
Adjusted Baseline Credit Assessment, upgraded to b1 from b2
Baseline Credit Assessment, upgraded to b1 from b2
Counterparty Risk Assessment, upgraded to Ba3(cr) from B1(cr)
LT Counterparty Risk Rating (Foreign Currency), upgraded to B1 from
B2
LT Counterparty Risk Rating (Local Currency), upgraded to B1 from
B2
LT Issuer Rating, upgraded to B2 from B3, outlook changed to Stable
from Rating Under Review
LT Bank Deposits (Local Currency), upgraded to Ba2 from Ba3,
outlook changed to Stable from Rating Under Review
Affirmations:
Issuer: FirstBank Puerto Rico
ST Counterparty Risk Assessment, affirmed at NP (cr)
ST Counterparty Risk Rating (Foreign Currency), affirmed at NP
ST Counterparty Risk Rating (Local Currency), affirmed at NP
ST Bank Deposits (Local Currency), affirmed at NP
Outlook Actions:
Issuer: FirstBank Puerto Rico
Outlook, changed to Stable from Rating Under Review
RATINGS RATIONALE
The upgrade of FirstBank's BCA and long-term ratings reflects
Moody's view that the acquisition of BSPR's operations
incrementally improves the diversification of FirstBank's
retail-focused loan portfolio, as BSPR's loan book had a
comparatively higher proportion of commercial real estate loans.
Moody's has assessed that the combined FirstBank-BSPR loan
portfolio is of higher quality than both banks' existing loan
portfolios pre-acquisition because FirstBank has not assumed any of
BSPR's non-performing assets at the time of closing. Moody's also
expects that FirstBank's capital will remain strong after the close
of acquisition, notwithstanding the all cash purchase. FirstBank
has estimated its closing pro-forma common equity tier 1 (CET1) to
risk-weighted assets ratio to be 16.13%, down from 21.5% at June
30, 2020. Moody's tangible common equity to risk-weighted assets
ratio for FirstBank was 21.27% at June 30, 2020 and while Moody's
expects this ratio to decline by a similar amount, it will still
remain well above the US mainland regional bank average. This
capitalization level provides a significant cushion to buffer
unexpected credit losses resulting from the potential broadening
and lengthening of the coronavirus pandemic outbreak.
FirstBank has made strong efforts to reduce its reliance on
brokered deposits by capturing a larger proportion of more stable
core deposits in recent years. As of June 30, 2020, brokered
deposits stood at 3% of total deposits compared to 35% in 2012 and
60% in 2009. The acquisition of BSPR will further reduce the bank's
reliance on brokered deposits and other confidence-sensitive market
funds. While the current low interest rate environment coupled with
the economic impact of the coronavirus pandemic has pressured
profitability, reducing net interest margin (NIM) to 4.22% for the
second quarter of 2020 compared to 4.9% for the same period the
previous year, NIM (and pre-provision income) remains high compared
to higher rated regional banks on the US mainland.
Moody's believes that the acquisition carries some integration and
execution risks, which will not fully recede until BSPR's
conversion to the FirstBank brand and systems is complete,
including a full integration of staff, platforms and corporate
cultures, a process likely to continue well into 2021.
The stable outlook is driven by Moody's view that the banks' credit
fundamentals will remain broadly unchanged over the next 12 to 18
months despite the uncertain operating environment resulting from
the potential broadening and lengthening of the coronavirus
pandemic. The outlook also incorporates Moody's view that the
operating conditions for banks in Puerto Rico have improved since
Hurricane Maria in 2017, reflecting better near-term economic
prospects for the island, despite the uncertainties in the
implementation of structural economic reforms and measures to
balance the Commonwealth's fiscal position.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FirstBank's b1 BCA could be upgraded if Moody's were to assess a
sustainable improvement in the bank's asset quality profile without
deterioration in the bank's capital, funding and/or liquidity
profile. The BCA could also be upgraded if Moody's were to assess a
sustainable improvement in Puerto Rico's bank operating
environment, which would lead to a reduction in problem loan
levels, sustained improvement in profitability, capitalization
and/or liquidity. A higher BCA would likely lead to a ratings
upgrade.
FirstBank's BCA could be downgraded if Moody's were to assess a
stark deterioration in bank operating conditions in Puerto Rico,
beyond its current expectations. Additionally, the BCA could be
downgraded if Moody's believes the risk appetite of FirstBank has
increased, for example because of above-peer average loan growth, a
notable increase in lending concentrations, or heightened execution
risks from unexpected integration challenges. Lower capitalization
could also lead to a downgrade in the BCA. A lower BCA would likely
lead to a rating downgrade for FirstBank.
The principal methodology used in these ratings was Banks
Methodology published in November 2019.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Alcohol Beverage Industry Feel Covid Pinch
-------------------------------------------------------------
Trinidad Express reports that distributors and manufactures of
alcoholic beverages experienced a 30 per cent decline in revenue as
a result of the lockdown of bars and restaurants earlier this year.
So said chairman of the Trinidad and Tobago Beverage and Alcohol
Alliance (TTBAA) Dr Patrick Antoine.
Antoine said when bars and restaurants were reopened in June, their
levels were going back to pre Covid-19 levels, which was about 80
per cent, but now with the implementation of the grab-and-go policy
the percentage is likely to drop once again, according to Trinidad
Express.
"Carib Brewery experienced a 10 per cent decline, while Angostura
saw a jump in sales as a result of the shift in consumption.
Brydens, who are the distributors for Smirnoff Vodka, Johnny Walker
and Baileys said the consumption patterns are down by 30 per cent,
but they have seen a slight increase in the demand of wines," said
Antoine, the report notes.
The TTBAA is a non-profit association of beverage alcohol
producers, distributors and marketers whose core objective is to
promote the responsible distribution, sale and consumption of
alcoholic beverages.
It also represents the suppliers of alcoholic products in Trinidad
and Tobago, including the largest brewery, distillery and
distribution houses in the country, the report discloses.
In an interview with Express Business, Antoine made the point that
the entire beverage industry was not immune to the harsh economic
impact of the Covid-19 pandemic, as all aspects of the
industry-from production to consumption-were impacted, the report
relays.
Antoine said the past several months have been trying for the
alcoholic beverage sector and bars but that moving forward into the
new normal, innovative ways must be rolled out in order for most
players in the industry to survive the pandemic, the report
relates.
Antoine said while the TTBAA and the Barkeepers and Operators
Association were saying that the industry would not have been able
to survive another lockdown, the restricting of in-house drinking
is not being frowned upon as life and health comes first, the
report discloses. Alarmed by the spike in the number of Covid-19
cases in the last month, Prime Minister Keith Rowley announced
earlier this month that bars and restaurants would be restricted to
selling alcohol on a grab-and-go basis, the report relays. That
measure was introduced on August 15.
Antoine noted, that the industry was expecting a full lockdown,
following what took place for three months earlier this year, so
they were grateful for the partial lockdown, the report relates.
"Bars must ensure that the rules are always adhered to so that it
would not change into a full lockdown once again. Everyone has to
be responsible, at a time where the number of Covid cases is rising
daily," he added, the report notes.
When the rise in cases began, Health Ministry officials said bars
were contributing to the increase in cases as the guidelines were
being breached, the report says.
Antoine said the TTBAA was given a chance to collaborate with the
Ministry of Health in putting the guidelines in place for the bars
and alcohol distributors to follow and businesses were stringent in
following the guidelines, notes the report.
"What TTBAA believes should have been mandated by authorities was
for all 5,000 bars to participate in a training exercise which they
embarked upon free of charge. In that way, staff would be more
equipped in understanding and dealing with the pandemic.
"When the training was first introduced, not many establishments
signed up and what we noticed is that the bars who did the training
were compliant with all the Covid guidelines as opposed to the ones
who do did not engage in the sessions," he added, the report
relays.
The TTBAA chairman said while they do not represent bars directly
they collaborate with the Bar Owners and Operators Association to
ensure the right protocols are being adhered to, as the TTBAA
represents the big distributors of beverages and alcohol products
in T&T, such as Angostura, Carib Brewery, Brydens, Massy Stores and
AMCO, the report discloses.
Antoine outlined that the Alliance had stated last month that it
would withhold sales of alcohol stocks to bars that were not
complying with the regulations. However, he said some bars were
threatening legal action so the TTBAA withdrew its position, but
told the bars that it was important for them to follow the Covid
protocols, the report relays.
He said the bar industry employs 75,000 people and with the
grab-and-go policy which is now in effect, establishments need to
become creative and innovative to survive this crisis, the report
relates.
He noted that 45 bars have closed their doors permanently, as they
were not able to withstand the economic pressures of the pandemic
and 30 bars that are currently closed have no intentions of
reopening, the report discloses.
The permanent closure of 45 bars means that less than 1 per cent of
the 5,000 bars in the country have closed down as a direct result
of the Covid-19 pandemic, the report notes.
Antoine called for the wearing of masks to be made law as some
citizens are not abiding by the call to wear it in public at all
times, the report discloses.
"The more we keep disregarding these simple guidelines the worst it
will be on our economy as it cannot keep opening and shutting it
down, as it would take years for the country to regain its economic
strength," he added, notes the report.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
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