/raid1/www/Hosts/bankrupt/TCRLA_Public/200910.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 10, 2020, Vol. 21, No. 182
Headlines
A R G E N T I N A
ARGENTINA: Congress Set to Debate Government's 'Wealth Tax' Bill
ARGENTINA: Guzman Says Country Must Work to Cut Bond Yields
BANCO DE GALICIA: S&P Alters Outlook to Stable, Affirms CCC+ ICR
BANCO HIPOTECARIO: Moody's Rates Proposed Sr. Notes '(P)Ca'
COMPANIA GENERAL: Fitch Ups IDR to CCC on Completed Exchange Offer
ENTRE RIOS: S&P Downgrades ICR to 'SD' on Missed Interest Payment
[*] S&P Affirms CCC+ ICR on Nine Argentine Corporations
B E R M U D A
TEEKAY TANKERS: Egan-Jones Upgrades Sr. Unsecured Ratings to BB-
B R A Z I L
BRAZIL: DBRS Confirms BB(low) LongTerm Issuer Ratings, Trend Stable
COMPANHIA DE DESENVOLVIMENTO: Moody's Puts B2 Rating on Review
E L S A L V A D O R
EL SALVADOR: IDB OKs Two Credit Lines Totaling USD$650 Million
M E X I C O
GUADALUPE: Moody's Rates MXN161.3MM Enhanced Loan 'B1'
NEMAK SAB: S&P Affirms BB+ LT Global Scale ICR, Off Watch Negative
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: 48 Bars Close Down Due to Pandemic
U R U G U A Y
URUGUAY: IDB OKs $125MM Loan to Protect Vulnerable Population
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Congress Set to Debate Government's 'Wealth Tax' Bill
----------------------------------------------------------------
Buenos Aires Times reports that congress will open debate on the
government's proposed 'wealth tax', as President Alberto Fernandez
moves to introduce a one-time capital levy on Argentina's
wealthiest citizens.
The ruling coalition hopes the bill, which arrives with the
coronavirus pandemic at its peak in Argentina, will boost
government revenue at a time of economic turmoil. It was sent to
Congress, according to Buenos Aires Times.
The so-called "solidarity tax," first floated in April by Frente de
Todos deputies Maximo Kirchner and Carlos Heller, would apply to
approximately 12,000 Argentines, according to a statement from the
coalition's press office in the lower house Chamber of Deputies the
report notes.
It would start at two percent those who have a declared wealth of
more than 200 million pesos (around US$2.7 million) at the end of
2019, before scaling up to as much as 5.25 percent for
ultra-wealthy citizens holding their fortune in assets outside the
country, according to the Peronist coalition the report relays.
Frente de Todos said the levy would only affect individuals and not
companies, and that the funds brought in would "finance the
recovery of the economy," the report discloses. Officials said 20
percent of the proceeds are earmarked to combat the coronavirus
pandemic while the rest will be reserved for wage assistance,
scholarships and shantytown subsidies, the report says.
"The fundamental idea is to bring balance to a society that became
imbalanced over the last four years" [of the Mauricio Mari
administration]," said Kirchner, the president of the coalition's
caucus in the Chamber of Deputies, the report relays.
"It will be the platform so we can discuss tax reform that
Argentine society clearly needs," added the 42-year-old, the son of
former presidents Néstor Kirchner and Cristina Fernandez de
Kirchner, the report notes.
The Economy Ministry reportedly delayed submission by initially
expressing doubts while business chambers have continually rejected
the idea as "highly negative for investors, the report relates.
Congress ratified Decree 690/2020 from three days previously
freezing mobile television, Internet and cable television charges
for the rest of the year and declaring telecommunications a public
service, the report notes. The government has already frozen
prices on over 2,000 other consumer goods for months, the report
relays.
President Fernandez needs to boost revenue to close a growing
fiscal gap caused by a plunge in tax collection, due to his
government's strict lockdown to tackle the coronavirus pandemic,
the report discloses. Without access to credit, the government has
relied on printing money to finance stimulus measures to fight the
pandemic, which is likely to fuel inflation sharply, the report
relays.
Coalition leaders estimate the bill would rake in 300 billion pesos
in tax revenue that will be repositioned for small and medium-size
businesses, medical equipment needed to attend Covid-19 and public
works in low-income neighbourhoods, the report notes.
The levy is also likely to be part of Argentina's negotiations with
the International Monetary Fund for a new programme that will
replace a failed US$57-billion bailout given to the country in
2018, the report notes.
Argentina has been in recession since 2018 and its economy will
suffer even more this year from the effect of the Covid-19
pandemic, with a contraction of 9.9 percent according to the most
recent IMF forecast, the report notes. Private estimates put the
contraction even higher, the report relays. Poverty is close to 40
percent and unemployment is over 10 percent, the report says.
To mitigate the pandemic's impact on businesses and low-income
citizens, the government launched an ambitious plan of economic aid
and subsidies, the report relays. Argentina's primary fiscal
deficit reached 3.3 percent of GDP in the first half of this year,
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.
ARGENTINA: Guzman Says Country Must Work to Cut Bond Yields
-----------------------------------------------------------
The Buenos Aires Times reports that Argentina must reduce its bond
yields before returning to international capital markets in a
process that will likely take some time, Economy Minister Martín
Guzman said on the day the country concludes a US$65-billion debt
swap.
In the shorter term, it will continue to work with the one percent
of bondholders who did not accept the government's debt
restructuring offer, he added, according to Buenos Aires Times.
"We need to work on consistent macroeconomic management to decrease
the yield to levels that we consider acceptable. And again, that
will take time," Guzman said in an interview with Bloomberg
Television, the report notes. "The government will not need to
access the international market for a while," he added.
Argentina managed to exchange 99 percent of its old bonds for new
ones, clearing the way for the country to emerge from its ninth
default in history, the report notes. The government said earlier
that it would issue a total of US$63.2 billion in new
dollar-denominated bonds as part of the exchange, and 4.18 billion
euros (US$5.01 billion) of debt denominated in the single currency,
he added.
The new dollar bonds are yielding about 11 percent in unofficial,
over-the-counter trading, according to traders, the report
discloses.
Argentina will also continue to work with the retail bondholders in
Europe who hold the one percent of debt that wasn't included in the
agreement, Guzman said during the interview, the report relays.
"The remaining one percent, we will continue working on it, it's
mostly a technical issue," the minister said of the holdouts.
"There were some retail bondholders that were registered in Europe
that did not get chance to vote but we don't see that as a
problem," he added, notes the report.
After the restructuring, Guzman and his economic team must
negotiate a new program with the International Monetary Fund to
replace a failed US$57-billion bailout granted to the country
during a previous government, the report relays. The new IMF plan
will be sent to Congress for approval before the deal is signed,
Guzman said, the report discloses.
All options are on the table for the programs with the Fund,
including two types of aid packages known as a Stand-By Arrangement
and Extended Fund Facility, he said, adding that the new deal will
be different from the previous one because it will be based on
different premises for economic policies, the report says.
The 2018 IMF program "deepened the recession. Now we are moving
forward to a different kind of program," he said, the report
notes.
President Alberto Fernandez is expected to lay out his long-awaited
fiscal, monetary, and foreign exchange policies with the new annual
budget proposal that will be sent to congress by September 15, the
report notes. Argentina is suffering its third straight year of
recession with the economy poised to contract 12.5 percent in 2020,
on pace for the worst one-year decline on record, the report
relays. Unemployment is above 10 percent and inflation hovers over
40 percent, adds the report.
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.
BANCO DE GALICIA: S&P Alters Outlook to Stable, Affirms CCC+ ICR
----------------------------------------------------------------
S&P Global Ratings revised its outlooks on Banco De Galicia Y
Buenos Aires S.A.U. and Banco Patagonia S.A. to stable from
negative. At the same time, S&P affirmed its 'CCC+' long-term
issuer credit ratings on Banco Galicia and its 'CCC+/C' long- and
short-term issuer credit ratings on Banco Patagonia.
The rating actions follow the raising of S&P's foreign and local
currency sovereign credit ratings on Argentina to 'CCC+' from 'SD'
(selective default) after the sovereign's successful restructuring
of foreign currency debt under foreign and local law. In S&P's
view, the restructuring cures the country's foreign currency
defaults, resulting in a significant reduction of coupons and debt
service relief over the coming three years, alongside important
fiscal space. This important step forward provides the opportunity
for the government to articulate a broader plan to tackle various
post-pandemic macroeconomic challenges, negotiate a new program
with the IMF, and work to clear arrears with the Paris Club.
Despite this progress, the country continues to face near-term
challenges stemming from its weak fiscal and external profiles,
monetary inflexibility, and limited financing options given its
small local capital markets. Argentina's debt burden remains high,
notwithstanding various debt restructurings over the past two
decades. All this takes place against the backdrop of a poor track
record of growth--even before the significant hit to the economy
from the COVID-19 pandemic--and persistently high inflation.
Under this scenario, S&P expects financial entities in the country
to continue operating under challenging and volatile conditions,
due to persistent economic imbalances and weak economic
fundamentals, exacerbated by the prolonged lockdown that has led to
a double-digit GDP contraction in 2020, with only a partial
recovery in 2021.
Outlook
The stable outlook on the banks mirrors that on Argentina,
reflecting the balance between risks stemming from remaining
macroeconomic challenges--high inflation, low growth, large
structural fiscal imbalances, high financing needs, and ongoing
pressure in the foreign exchange markets--and a favorable near-term
amortization profile.
Downside scenario
S&P could lower the ratings on Banco Galicia and Banco Patagonia in
the next 12 months if we take a similar action on the sovereign. A
deterioration in the entities' credit fundamentals won't lead to an
automatic downgrade because their stand-alone credit profiles (at
'b+') are higher than the long-term issuer credit rating.
Upside scenario
S&P could raise the ratings on the entities in the next 12 months
if it was to raise the rating on the sovereign because the credit
quality of the latter limits the ratings on the banks.
BANCO HIPOTECARIO: Moody's Rates Proposed Sr. Notes '(P)Ca'
------------------------------------------------------------
Moody's Investors Service assigned a (P)Ca foreign currency senior
unsecured debt rating to Banco Hipotecario S.A.'s (Hipotecario)
Series 4 proposed senior notes issuance of up to $238 million. The
outlook on the rating is negative. The notes will be issued in
exchange of the bank's outstanding Series 29 notes, which mature on
November 30, 2020 and are currently rated Ca by Moody's, with a
negative outlook. The exchange is expected to occur on October 8,
2020.
The offer made by Hipotecario includes a cash payment of 35% of the
outstanding principal at the date of the settlement (15% if
subscribed after the early participation date), while the remaining
principal amount will be exchanged for the new notes. The exchange
will not include principal write-downs and the new notes will bear
the same 9.75% annual interest rate as the previous notes. However,
Moody's views the offer as a distressed exchange that meets Moody's
definition of default because the tenor extension will likely imply
a loss in value for investors in relation to the original promise,
and the exchange would allow the bank to avoid a likely default.
The following rating was assigned to Banco Hipotecario S.A.'s
proposed foreign currency Series 4 senior notes issuance of up to
$238 million:
Long term foreign currency senior unsecured debt rating, (P)Ca
negative outlook.
RATINGS RATIONALE
Hipotecario's (P)Ca debt rating derives from the bank's ca baseline
credit assessment (BCA), which in turn is aligned to the government
bond rating of Argentina (Ca negative). The rating and assessment
reflect the high underlying inter-linkages between the bank's
standalone credit risk profile and that of the Argentinean
sovereign. These linkages are driven by Hipotecario's sizable
exposure to central bank debt and -to a lesser extent- government
debt in the form of holdings of government securities and central
bank notes, and the severe impact of the macroeconomic imbalances
and recent sovereign debt crisis on banks' operating environment.
The continued economic recession, high inflation and rising
unemployment impose rising risks on banks' asset quality and
profitability as companies and households' repayment capacity
weakens.
The bank's foreign currency ratings also reflect potential transfer
and convertibility risks, which could include restrictions on
moving foreign exchange offshore, as well as restrictions on freely
converting local currency to foreign currency in order to pay debt,
or even deposit freezes.
Hipotecario's BCA also reflects the deterioration in the bank's
asset quality in recent years -albeit stabilizing since mid-2019-
and its high reliance on market funds, which are counterbalanced by
adequate capital metrics and sizeable liquidity buffers. The bank's
non-performing loans were a high 12.7% of gross loans as of June
2020, a metric that likely underestimates the underlying quality of
the portfolio due to loan restructurings undertaken in the context
of the coronavirus pandemic to support borrowers in stress.
Despite the bank´s strong liquidity profile, evidenced by liquid
assets representing 54% of tangible banking assets as of June 2020,
Hipotecario's financial flexibility is limited by its reliance on
market funds and the current limited market access for Argentinean
issuers, which is evidenced by the announced debt swap offer. If
successful, the debt swap would significantly reduce Hipotecario's
debt maturities in the short term and provide it with additional
time to rebalance its funding structure in line with the current
more challenging scenario.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An upgrade of Hipotecario's ratings or a stabilization of the
outlook would likely occur if the Argentinean sovereign rating were
upgraded or its outlook stabilized, provided that the bank
successfully restructures its upcoming cross-border debt maturity
and its main credit metrics gradually improve.
A downgrade could be driven by a further downgrade of the sovereign
ratings, by further deterioration in the country's operating
environment, a higher-than-expected deterioration of Hipotecario's
asset quality, which could lead to material decline in
profitability, and capital ratios, or by the bank's inability to
successfully restructure its upcoming debt maturity.
The principal methodology used in this rating was Banks Methodology
published in November 2019.
COMPANIA GENERAL: Fitch Ups IDR to CCC on Completed Exchange Offer
------------------------------------------------------------------
Fitch Ratings has downgraded Compania General de Combustibles'
(CGC) Long-Term Foreign Currency (FC) and Local Currency (LC)
Issuer Default Rating (IDR) to 'RD' from 'C' and downgraded the
senior unsecured note due 2021 to 'RD' from 'C'/'RR4', due to the
conclusion of the Distressed Debt Exchange. Fitch simultaneously
upgraded the LC and FC IDR to 'CCC' from 'RD' and upgraded the
senior unsecured note due 2021 to 'CCC'/'RR4' from 'RD'.
The downgrade and simultaneous upgrade reflect the completion of
the announced exchange for its $300 million 2021 senior unsecured
note. Per Fitch's Distressed Debt Exchange Criteria, the IDR and
security are to be downgraded to 'RD' upon completion and re-rated
thereafter. On Sept. 3, 2020, CGC announced 68.87% of bond holders
accepted the exchange offer reaching a majority for the consent
solicitation, which is above the majority required of 50% plus one
vote. The new notes have a coupon of 9.5% and will amortize
semi-annually in six payments with the first five amortization
payments equaling 13.3% of the original amount between September
2022 and September 2024 and the final payment of 33.5% will mature
in March 2025. The remaining noteholders who did not participate in
the exchange (31.13%) are expected to be repaid at maturity, but
have been stripped of their note's covenants (i.e. restrictive
covenants and certain events of default). CGC announced it will
issue $196 million note to finance the $27 million cash
consideration associated to the exchange, accrued and unpaid
interest.
CGC's 'CCC' LT FC IDR is constrained by Argentina's Country Ceiling
of 'CCC', which limits the foreign currency rating of most
Argentine corporates. Fitch's Country Ceilings are designed to
reflect the risks associated with sovereigns placing restrictions
upon private sector corporates, which may prevent them from
converting local currency to any foreign currency under a stress
scenario and/or may not allow the transfer of foreign currency
abroad to service foreign currency debt obligations. The LT LC IDR
equalized with the Country Ceiling of Argentina reflects CGC's
exposure to the federal government through payments associated to
Res. 46 (Plan Gas), majority of its revenues in Argentina and
overall regulatory risk. The company is a key gas producer in
Argentina, particularly in the Austral region.
The unsecured bond rating at 'CCC' is due to the alignment of the
FC and LC IDR, per Fitch's Country-Specific Treatment of Recovery
Ratings Criteria. The criteria do not allow notching at the
security level when the difference of FC and LC IDRs are within one
notch. Argentina is categorized under Group D, per the same
criteria, and the recovery rating is capped at 'RR4', which implies
a recovery of 31%-50%.
KEY RATING DRIVERS
Exposure to the Government: Fitch believes CGC's cash flows can be
negatively affected by payment delays from the Argentine
government. Fitch estimates that between 15%-20% of CGC's 2020
revenues are associated with Plan Gas subsidies, paid by the
Argentine government (RD), who does not have a strong track record
of paying this subsidy. For example, in January 2019, the Argentine
Secretariat of Energy Government's (SGE) halted Resolucion 46 (Res.
46) for new projects and reinterpreted the volume of production
that would receive the preferential pricing, adversely affecting
some companies. Fitch estimates the reinterpretation of Res. 46
does not affect CGC as the company has maintained its production in
line with what was presented to the government in 2018.
Improved Leverage Profile: Fitch believes CGC leverage profile is
stronger after the completion of the exchange offer. Fitch
estimates 2020 gross leverage, defined as total debt to EBITDA,
will be 3.3x and EBITDA to interest coverage will be 3.5x. Fitch
estimates leverage will drop to below 2.0x by 2022 and EBITDA
coverage will average 5.0x between 2021-2023. CGC has mitigated
refinancing risk with the amortizing bond schedule, lowering the
total amount to be refinance, making the company less dependent on
international bond financing. Total debt to 1P is estimated to be
$7.0boe in 2020 when applying the reported 2019 1P reserves figure
of 63Mmboe.
Capital Controls Weakens Financial Flexibility: CGC has maintained
an adequate liquidity profile. As of 2Q20, CGC reported $113
million of cash on a consolidated basis covering 2.3 years of
interest expense, but Fitch believes the recently announced capital
control measures -- requiring entities with assets abroad to first
use those resources to service international obligations before
turning to Argentina's official currency markets -- poses
significant risks to CGC and corporates in Argentina. These
measures will pressure its strong liquidity, as it will tap into
its international reserves to comply, while simultaneously
accumulating cash in Argentina, which Fitch expects will be more
balanced between Argentine pesos and USD. This will expose CGC to
greater FX risk, as its interest expense and debt are predominately
in USD.
Stable Cash Flow Profile: Fitch expects CGC will have positive FCF
from 2020 through 2023 partially due to the company receiving
preferential pricing for gas under Res. 46 guaranteeing a price
ceiling through 2021. Fitch estimates FFO will average USD130
million from 2020 through 2023, comfortably covering expected
development capex to maintain production levels. Fitch's estimates
do not assume dividend payments to shareholders.
Small Production Profile: CGC's ratings remain constrained in part
due to its small size and the low diversification of its blocks.
Fitch estimates that CGC will average 35,000 boed between 2020 and
2023 with 85% of production in gas. Fitch believes the company can
comfortably maintain this production level and cash flow from
operations will adequately cover capex to maintain production.
Low Hydrocarbon Reserves: Fitch believes CGC's relatively low
reserve life of five years limits its flexibility to reduce capex
investments. As of YE 2019, CGC reported 1P reserves of 63 million
boe, with 85% related to natural gas. The company extended its
concessions in the Santa Cruz I and Santa Cruz II areas to 2027,
which is expected to improve the company's reserve life of 5.0
years to be in-line with the median for Fitch-rated
speculative-grade peers. Fitch estimates that the company will
drill 26 wells by 2021 at an average cost per well of USD4.0
million to replenish reserves, which Fitch estimates is necessary
in order to maintain its current reserve life.
DERIVATION SUMMARY
Compania General de Combustibles S.A. (CGC, CCC) credit profile
compares favorably among other small independent oil and gas
companies in the region. The ratings of GeoPark Limited
(B+/Stable), Gran Tierra Energy International Holdings Ltd. (CCC)
and Frontera Energy (B/Stable) are constrained to the 'B' category,
given the inherent operational risks associated with small scale
and low diversification of their oil and gas production profiles.
CGC's production size compares favorably to other 'B' rated oil and
gas E&P producers, which will constrain its rating to the 'B'
category. These peers include Geopark (B+/Stable), Gran Tierra
Energy (CCC) and Frontera Energy (B/Stable). Over the rated
horizon, Fitch expects that CGC's production will average
34,000boed over the rated horizon, which is line with Gran Tierra
but lower than Geopark at 50,000boed and Frontera at 45,000boed.
Further, CGC's reported 54 million boe of 1P reserves in 2019,
equal to 4.4 years, which is lowest amongst peers. Frontera
reported 115 million boe 1P at the end of 2019, equal to 4.4 years,
but increases to 6.5 years after the revised production to
48.00boed. Geopark's 1P reserve life is highest amongst peers at 10
years, followed by Gran Tierra with a pro forma reserve life of 7.7
years after the company adjusted 2020 production.
CGC has a strong capital structure with a 2020 gross leverage
estimated to be 3.3x in 2020 and be below 2.0x by 2020. CGC's total
debt to 1P is expected to be $7.0boe in 2020. CGC's gross leverage
compares well to peers, but its total debt to 1P is higher than
Geopark and Frontera. Fitch expects Frontera's gross leverage will
be 2.3x in 2020 but average 1.5x over the rated horizon with a
total debt to 1P of nearly $3.00boe in 2020. Geopark's leverage is
expected to increase to 5.3x in 2020 and average 2.5x over the
rated horizon with a total debt to 1P of $4.70 in 2020. Gran
Tierra's leverage is expected to reach 5.7x in 2020 and average
3.5x over the rate horizon and total debt to 1P is highest amongst
peers at $11.51boe in 2020.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Oil and gas production to average 35,000 boe/d over the next
four years;
- Criollo Barrel of $45 barrel (bbl) in place for 2020 and
Fitch's price deck from 2021 through 2023 of $45bbl in 2021, $50bbl
in 2022 and long-term $53bbl;
- 50% of gas production receiving plan gas preferential pricing
of USD7.50 MMBTU in 2018 decreasing by USD0.50 MMBTU each year
until reaching USD6.00 MMBTU in 2021;
- 68% of $300 million note refinanced by exchange, remaining 32%
to be repaid at maturity and new $196million issuance in 2020;
- Capex average of USD100 million between 2020 and 2023;
- 100% Completion of the exchange offer;
- No dividends received over the time horizon;
- Fitch's ARS/UBS annual average and year-end FX estimates
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- CGC's FC IDR is capped by the Country Ceiling of Argentina,
and thus, an upgrade can only occur if there is an upgrade of the
Country Ceiling of Argentina.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The Country Ceiling of Argentina is currently at the lowest
level (CCC) allowed under Fitch's sovereign criteria; therefore, a
downgrade of CGC would be due to Fitch's belief that a default of
some kind appears probable or a default or default-like process has
begun, which will be represented by 'CC' or 'C' rating.
LIQUIDITY AND DEBT STRUCTURE
Improved Liquidity: CGC reported $113 million of cash in 2Q20.
Fitch estimates this will cover 2.3x of annual interest expense.
The company faces $60 million of debt maturities in 2020 followed
by the $190 million in 2021, $93 million associated to portion of
bond that were not exchanged. CGC is planning a $196 million
issuance that will strengthen its liquidity and aid in debt
refinancing
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).
ENTRE RIOS: S&P Downgrades ICR to 'SD' on Missed Interest Payment
-----------------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on the province
of Entre Rios to 'SD' (selective default) from 'CC'. S&P also
lowered the issue-level rating on the province's international bond
due 2025 to 'D' (default) from 'CC'.
Rationale
The downgrade follows the missed interest payment on Entre Rios'
international bond due 2025. The $22 million interest payment was
originally due Aug. 8, and had a 30-day grace period that expired
Sept. 7. Entre Rios is now the fifth Argentine province to enter
selective default this year, following the provinces of Buenos
Aires (May 15), Mendoza (June 19), Rio Negro (July 8), and Salta
(Aug 7).
Economic stress in Argentina has been exacerbated by the COVID-19
pandemic--we expect a 12.5% contraction in real GDP this
year--adding pressure to an already-weakening fiscal stance.
Provincial revenues have decreased 8% (real terms) over the first
seven months of the year.
Entre Rios has implemented a series of measures aimed to curb
spending and contain the revenue erosion amid the crisis. These
include extraordinary increases in taxes such as the rural property
tax and a special tax for local banks, as well as mandatory
contribution to higher income public servants and pensioners. At
the same time, the suspension of salary negotiations with unions
has helped prevent a more significant fiscal slip so far. Entre
Rios posted a deficit after capex of 1.5% of total revenues in the
first seven months of 2020 (compared with 0.2% over the same period
in 2019). Nonetheless, S&P expects expenditure pressures to raise
over the coming months considering Argentina's high inflation.
S&P said, "We expect access to borrowing to remain very limited
after Argentina's recent distressed exchange. Entre Rios' formal
exchange offer has not been presented yet, although we believe the
sovereign's recent completion of debt exchange could lead to
constructive negotiations with the province's bondholders. We
expect Entre Rios offer to 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."
The 2025 bond provides a collective action clause (CAC) threshold
of 75% of bondholders. The likelihood of reaching a CAC will
influence our forward-looking assessment of the province's
creditworthiness, because it would determine contingent liabilities
from possible litigation by holdout creditors.
Outlook
S&P doesn't assign outlooks to 'SD' or 'D' issuer credit ratings
because they express a condition and not a forward-looking opinion
of default probability.
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+' rating of
Argentina constitutes a rating cap for subnational governments in
Argentina.
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
Entre Rios (Province of)
Senior Unsecured D CC
Downgraded; CreditWatch/Outlook Action
To From
Entre Rios (Province of)
Issuer Credit Rating SD/-- CC/Negative/--
[*] S&P Affirms CCC+ ICR on Nine Argentine Corporations
-------------------------------------------------------
S&P Global Ratings affirmed its 'CCC+' foreign currency issuer
credit ratings on the Argentine corporations below and revised
their outlooks to stable from negative:
-- AES Argentina Generacion S.A;
-- CAPEX S.A.;
-- Compania General de Combustibles S.A. (CGC);
-- Telecom Argentina S.A.;
-- Transportadora de Gas del Sur S.A. (TGS);
-- Pampa Energia S.A.;
-- Petroquimica Comodoro Rivadavia S.A. (PCR);
-- YPF Energia Electrica S.A.; and
-- YPF S.A.
S&P said, "We cap our ratings on these entities at Argentina's
transfer & convertibility (T&C) assessment, which remains 'CCC+'.
The T&C assessment reflects our perception of the risk of the
sovereign interfering with the ability of domestic companies to
access, convert, and transfer money abroad, which is essential for
the affected companies to service their financial obligations, many
of which are denominated in foreign currency, particularly
dollars.
"After its recent debt exchange, Argentina's financial stance has
eased, which prompted us to raise our ratings on the sovereign to
'CCC+/Stable/C' from 'SD'. Because the T&C is closely related to
the sovereign's credit stance, the likelihood of us downwardly
revising the T&C assessment has slightly diminished."
The stable outlook on Argentina's 'CCC+' ratings reflects the
challenges facing the Argentine authorities to strengthen weak
fundamentals and imbalances in the economy against the fiscal space
provided by the various debt restructurings. With the complex
restructuring completed, S&P expects the government to pivot to
focus fully on initiatives to bolster growth, lower inflation,
finance a still-high fiscal deficit, and manage exchange-rate
pressures, among various prevailing macroeconomic distortions.
Despite the sovereign upgrade, risks of tighter currency controls
aren't low. In fact, in the recent months Argentina has tightened
capital controls to protect the country's international reserves.
Still, companies are allowed to buy foreign currency to pay foreign
debts and S&P expects that to continue in the near future.
S&P said, "The entities listed above have stand-alone credit
profiles (SACPs) stronger than Argentina's, but we cap the ratings
on them by Argentina's T&C because we continue to believe that none
of them would be able to continue honoring their foreign currency
obligations under potential restrictions on access to foreign
currency and/or restrictions on the ability to transfer money
abroad.
"We could lower our ratings on these entities if business
conditions remain subdued well into 2021, if the exchange rate
depreciates faster than expected, and/or the government restricts
access to foreign currency or to transfer funds abroad. We could
raise the ratings if our perception of the T&C risk diminishes."
Ratings List
Ratings Affirmed; Outlook Action
To From
AES Argentina Generacion S.A
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
Compania General de Combustibles S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
CAPEX S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
Pampa Energia S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
Petroquimica Comodoro Rivadavia S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Telecom Argentina S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
Transportadora de Gas del Sur S.A. (TGS)
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
YPF S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
YPF Energia Electrica S.A.
Issuer Credit Rating CCC+/Stable/-- CCC+/Negative/--
Senior Unsecured CCC+ CCC+
=============
B E R M U D A
=============
TEEKAY TANKERS: Egan-Jones Upgrades Sr. Unsecured Ratings to BB-
----------------------------------------------------------------
Egan-Jones Ratings Company, on September 3, 2020, upgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Teekay Tankers Limited to BB- from B+.
Headquartered in Hamilton, Bermuda, Teekay Tankers Limited provides
oil transportation services through a fleet of mid-size tankers,
including Suezmax and Aframax crude oil tankers and Long Range 2
product tankers.
===========
B R A Z I L
===========
BRAZIL: DBRS Confirms BB(low) LongTerm Issuer Ratings, Trend Stable
-------------------------------------------------------------------
DBRS Inc. confirmed the Federative Republic of Brazil's Long-Term
Foreign and Local-Currency - Issuer Ratings at BB (low). At the
same time, DBRS Morningstar confirmed the Federative Republic of
Brazil's Short-term Foreign and Local-Currency – Issuer Ratings
at R-4. The trend on all ratings is Stable.
KEY RATING CONSIDERATIONS
The Stable trend reflects our view that Brazil's gradually
improving credit fundamentals prior to the outbreak of the
Coronavirus Disease (Covid-19) have been set back by the marked
deterioration in the country's near-term growth outlook and public
finances.
The Covid-19 pandemic has had a severe impact on the Brazilian
economy. In March and April, domestic demand dropped sharply due to
mandated lockdowns and weaker confidence, commodity prices declined
on soft external demand, and financing conditions tightened amid
heightened risk aversion globally. Overall, the economy contracted
abruptly by 6.9% in the first half of 2020 relative to the last six
months of 2019. High-frequency data suggests that a recovery has
begun. The activity started to rebound in May, and domestic equity
and bond prices have partially recouped earlier losses. We expect
growth to pick up in the second half of the year, supported by
highly expansionary fiscal and monetary policies. According to the
August 28th FOCUS survey, GDP is expected to decline by 5.3% in
2020 and then expand by 3.5% in 2021. However, recovery prospects
are highly uncertain and could depend on the evolution of the
virus, which continues to spread at an elevated rate across the
country.
The task of putting Brazil's public finances on a sustainable path
has become more challenging in the aftermath of the outbreak.
Emergency spending to support the economy will contribute to a very
large fiscal deficit in 2020. We expect the government to resume
its deficit-reduction strategy in 2021 as stimulus measures expire.
However, compliance with the constitutionally-mandated spending
cap, which requires tight fiscal control and expenditure reforms,
will be challenging in the wake of a recession and intensifying
public demands for increased social transfers. Even if the
government complies with the spending cap, the pace of
consolidation will likely be slower than we previously assumed and
the public debt-to-GDP ratio will stabilize at a substantially
higher level.
Putting public finances on a sustainable path and lifting the
country's medium-term growth prospects hinge on implementing
structural reforms. Passage of pension reform last fall was a major
legislative achievement. Congress is now turning its attention to
tax reform, with several proposals under discussion.
Notwithstanding this progress, it is not clear whether there are
the political willingness and capacity to push through a broader
reform agenda, including reforms to reduce fiscal rigidity and
bolster public sector efficiency.
Policy actions in the years prior to the outbreak – including the
introduction of a spending cap, improvements in the credibility of
monetary policy, reforms to the credit markets, and passage of the
pension reform – were positive developments and set the stage for
a gradual improvement in Brazil's credit profile, particularly if
the reform momentum could be sustained. However, following the
virus outbreak, we view the upside and downside risks to Brazil's
BB (low) ratings as more broadly balanced. On the one hand, the
recovery could gain momentum once the pandemic passes if confidence
builds on the back of a credible deficit-reduction strategy and an
advancing reform agenda. Under such conditions, the outlook for
debt sustainability could materially improve. On the other hand,
political support for the fiscal adjustment could weaken, thereby
leaving Brazilian public finances in an unsustainable position and
vulnerable to destabilizing shocks.
RATING DRIVERS
The ratings could be upgraded if the government advances a credible
fiscal consolidation plan, thereby fostering lower real interest
rates and improving the outlook for public debt sustainability.
Economic reforms that strengthen the growth outlook would
facilitate this adjustment and be viewed as credit positive.
The ratings could be downgraded if the commitment to fiscal
consolidation weakens or there is a material deviation from the
expected consolidation path. Additional shocks – either domestic
or external – that exacerbate Brazil's growth challenges could
make the necessary fiscal adjustment even more difficult to
achieve.
RATING RATIONALE
Large Fiscal Expansion Is Providing Relief But Consolidation
Post-Virus Is Required To Ensure Sustainability
Emergency fiscal measures to address the public health response and
support the economy have interrupted Brazil's deficit-reduction
strategy. The government estimates that the primary deficit for the
public sector will reach 11.3% of GDP in 2020, up from the original
deficit target of 1.7%. The deterioration is being largely driven
by higher spending, although the cyclical impact on revenues is
also contributing. Support measures are expected to total 7.5% of
GDP, with cash transfers to low-income families comprising the
largest single stimulus item.
While we expect Brazil to resume an expenditure-based consolidation
strategy in 2021, the fiscal outlook has become more challenging.
The emergency expenses incurred in response to the pandemic are
temporary and should run their course this year. This, combined
with a cyclical recovery in the economy, should lead to a large
improvement in the fiscal balance next year. Nevertheless, pursuing
a consolidation strategy guided by the constitutional spending cap
will result in a more gradual adjustment than assumed prior to the
pandemic given the economy's weaker expected growth path. Moreover,
compliance with the spending cap will require reforms, especially
since a high share of spending is mandatory and either earmarked or
indexed. The 2019 pension reform alleviated some pressure on
mandatory expenditure by stabilizing pension outlays as a share of
GDP. In this regard, the reform was a major legislative
accomplishment. However, lowering the spending-to-GDP ratio will
require additional reforms to make the spending profile more
flexible.
The massive primary deficit in 2020 combined with the impact of the
recession will lead to a large increase in public debt. Overall, we
consider the risks to public debt sustainability to be high.
Assuming the emergency fiscal measures expire in 2020 and the
government complies with the spending cap going forward, we
estimate that the primary deficit would shift to a small surplus in
2026. In such a scenario, gross non-financial public sector debt
(based on IMF definition) would jump 18 percentage points in 2020
to 108% of GDP and then increase marginally each year through 2026,
when the debt ratio would peak at 112%. Importantly, this scenario
does not include potential extraordinary receipts, such and BNDES
repayments or privatization proceeds that could limit the increase
in the debt ratio.
Risks to the outlook are two-sided. In a positive scenario
characterized by stronger growth and lower borrowing costs, the
debt ratio would increase to 105% in 2020, stabilize at that level
through 2023, and then gradually decline from 2024 to 2026 as the
fiscal adjustment advances. Alternatively, if spending is not
tightly controlled and the recovery fails to gain momentum, public
debt ratios could remain on an upward trajectory, thereby
jeopardizing the sustainability of public finances and,
potentially, macroeconomic stability.
Brazil's Growth Prospects Are Weak And Progress On the Reform
Agenda Has Been Slow
Prior to the pandemic, the IMF estimated potential growth at just
2.2%. With potential scarring effects from the coronavirus shock,
we view the risks to this assessment as skewed to the downside. The
poor outlook partly reflects a slowdown in the growth of Brazil's
labor force as the population ages. However, interlinking
structural constraints of low investment, high business costs, and
weak competitive forces are also playing a role. Low investment is
especially evident in Brazil's underdeveloped infrastructure. High
tariff barriers, elevated compliance costs, and inward-looking
industrial policy also impedes Brazil from more fully benefiting
from global trade. The country's poor medium-term growth outlook
has led us to make a negative adjustment in the "Economic Structure
and Performance" building block assessment.
Implementation of the government's pro-market reform agenda could
improve growth prospects over the medium term. Reforms include
rationalizing tax policy, overhauling public administration,
lowering the cost of doing business, pursuing privatizations, and
opening the economy to international competition. The agenda has
notional support from Congress and the Bolsonaro administration.
Several important reforms have already been passed, including the
pension reform. However, progress on the broader agenda has been
slow. To some extent, the pandemic has recently overshadowed other
legislative priorities, but implementation also appears to be
encumbered by heightened tensions between the President and
Congress as well as divisions within the Bolsonaro administration
itself. Efforts to advance reforms could also be complicated by the
political calendar; nationwide municipal elections are scheduled
for November 2020 and a new speaker of the lower house will be
elected in February 2021.
Brazil's Credit Strengths: Anchored Inflation Expectations,
Well-Capitalized Banks, And Solid External Accounts
The central bank has aggressively responded to the economic and
financial market shock with highly expansionary monetary policy,
expanded liquidity operations, and credit-enhancing measures. From
February to August, the central bank cut the policy rate by 225
basis points to an all-time low of 2.0%. Monetary policy will
likely remain in highly expansionary territory for an extended
period of time given the large output gap and subdued inflation
dynamics. On an institutional level, the central bank has
reinforced its inflation-targeting credibility with the markets
over the last four years, as reflected in medium-term inflation
expectations anchored around the target. This, combined with the
tapering of directed lending, should strengthen the effectiveness
of monetary policy over time.
While the recession will hit banks' asset quality and
profitability, strong capitalization combined with the central
bank's liquidity operations should help Brazilian banks weather the
Covid-19 shock without any major disruption. Banks are
renegotiating loans for those households and businesses that have
been adversely impacted by the virus but were in good standing
prior to the shock. Depending on the extent of the deterioration in
asset quality, loan restructurings will require higher
provisioning. Banks appear sufficiently capitalized to digest
greater credit losses, particularly the larger banks with
well-diversified loan portfolios. The central bank has also
expanded liquidity facilities to allay potential funding stresses
and lowered capital requirements to support lending to creditworthy
borrowers. Banks' direct exposure to exchange rate risk is minimal,
and secondary effects on asset quality appear contained thus far.
On the external front, heightened global risk aversion following
the Covid-19 outbreak led to a large and abrupt pullback of foreign
capital to emerging markets. Brazil's equity and debt markets
experienced massive outflows in March and April. However, the
country has weathered the shock relatively well so far, due in part
to its flexible exchange rate and sound external position. The
current account deficit is modest and narrowing, an adjustment that
is being facilitated by a weaker exchange rate. Public and private
external debts are also at moderate levels, thereby reducing risks
to balance sheets across the economy stemming from currency
fluctuations. Moreover, sizable reserves (20% of GDP) and a $60
billion dollar swap line with the U.S Federal Reserve provide the
central bank with substantial resources to mitigate the impact of
potential capital flow volatility on the real economy.
ESG CONSIDERATIONS
Resource & Energy Management (E), Human Capital & Human Rights (S),
Bribery, Corruption & Political Risks (G), Institutional Strength,
Governance & Transparency (G), and Peace & Security (G) were among
key drivers behind this rating action. Management of resource and
energy sectors could be a potential vulnerability to the Brazilian
economy, with agriculture and extractive industries accounting for
7-8% of overall activity. Similar to other emerging market
economies and many of its regional peers, per capita GDP is
relatively low, at US$8.8k (US$16.5k on a PPP basis). According to
World Bank Governance Indicators, Brazil ranks in the 41st
percentile for Control of Corruption, the 45th percentile for Rule
of Law, and the 37th percentile for Government Effectiveness.
Brazil also ranks low (32nd percentile) on Political Stability and
the Absence of Violence/Terrorism. These considerations have been
taken into account within the following Building Blocks: Fiscal
Management & Policy Economic Structure & Performance, and Political
Environment.
Notes: All figures are in U.S. dollars unless otherwise noted.
Public finance statistics reported on a general government basis
unless specified. Fiscal balance and gross debt figures are
reported for the non-financial public sector (NFPS) and based on
the IMF definition. NFPS debt includes central, state, and local
governments, and social security funds; it excludes the central
bank, state-owned enterprises, Petrobras, and Electrobras.
COMPANHIA DE DESENVOLVIMENTO: Moody's Puts B2 Rating on Review
---------------------------------------------------------------
Moody's America Latina placed all ratings assigned to Companhia De
Desenvolvimento Habitacional e Urbano do Estado de Sao Paulo (CDHU)
on review with direction uncertain, including the long and
short-term global issuer ratings of B2 and Not Prime, as well as
the long and short term Brazilian national scale issuer ratings of
Ba1.br and BR-4.
The following ratings and assessments of Companhia De
Desenvolvimento Habitacional e Urbano do Estado de Sao Paulo were
placed on review with direction uncertain:
- Long and short-term global local currency issuer rating of B2
and Not Prime
- Long and short term Brazilian national scale issuer rating of
Ba1.br and BR-4
The issuer outlook of Companhia De Desenvolvimento Habitacional e
Urbano do Estado de Sao Paulo is ratings under review.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The rating action reflects the proposed law of the State Government
of Sao Paulo (Ba2, stable) under which it proposes that CDHU as an
institution be extinguished and liquidated with its assets
transferred to other parts of the state`s housing operations. The
law is scheduled to be voted on September 30, 2020. It is possible
that CDHU Is not liquidated or that it could merge with other
entities owned by the State of Sao Paulo, which in turn could lead
to it growing in importance to the state. The uncertainty regarding
the future of CDHU is the key driver behind placing the ratings
under review with direction uncertain.
Historically, CDHU's ratings reflect the strong support it receives
from its owner, the State of Sao Paulo, which drives the company's
very high level of capitalization despite loss-making operations
and helps offset its weak asset quality. Moody's noted that in
accordance with its methodology for rating Government-Related
Issuers (GRIs), the ratings for CDHU are determined by (1) the
company's baseline credit assessment of caa1; and (2) strong
support from its shareholder, the State of Sao Paulo, resulting in
two notches of ratings uplift.
Moody's assessment of support will be reevaluated following the
upcoming vote and the decision of the legislative department of the
state of Sao Paulo on CDHU's future. Moody`s takes into
consideration CDHU´s role as an arm of the government, its mission
to provide subsidized housing to low-income borrowers in the state,
the limited capacity of other government entities to provide
comparable services, and the high level of recurring capital
injections it receives from the state. From 2012 to 2019, the State
of Sao Paulo transferred R$6.0 billion to CDHU. The company has
been entirely reliant on capital injections from its shareholder
that are budgeted annually to sustain its operations. Thanks to
these capital injections, coupled with the organization´s very low
debt levels, tangible common equity equaled a very strong 88% of
tangible managed assets in 2019.
On a standalone basis, CDHU's credit profile reflects very high
delinquency ratios and the recurring net losses it reports due to
the large subsidies it offers its borrowers, both of which are
directly related to its mission. Total past due loans represented
13.6% of CDHU´s loan book as of December 2019 (the company does
not report 90-day past due loans). The company continues to be
structurally loss making once adjusting for one-off provisioning
reversals. In addition to subsidies, losses have been driven by
continued increases in production and commercialization costs, in
expenses related to the organization´s non-lending activities such
as production and commercialization costs of new housing units.
Notwithstanding its high level of capital, CDHU's very low
standalone credit profile also reflects the high level of
uncertainty about the recovery value of its assets--particularly
the mortgage loan book--given its unique role in social housing,
and consequently its expectation that it has limited ability to
securitize these assets to raise additional funds should capital
injections be significantly reduced.
Moody's would likely complete the review following the vote on the
reforms expected at the end of September, 2020. CDHU's ratings
could be upgraded if Moody`s assessment of support provided from
the State of Sao Paulo rises due to a different, more supportive,
legislative outcome. Conversely, CDHU's ratings could be downgraded
if Moody`s assessment of support provided from the State of Sao
Paulo falls due to its legislated liquidation.
Companhia De Desenvolvimento Habitacional e Urbano do Estado de Sao
Paulo is headquartered in Sao Paulo and had total assets of BRL
11.6 billion (US$ 2.2 billion) and equity of BRL 10.3 billion as of
December 31, 2019.
The methodologies used in these ratings were Finance Companies
Methodology published in November 2019.
=====================
E L S A L V A D O R
=====================
EL SALVADOR: IDB OKs Two Credit Lines Totaling USD$650 Million
--------------------------------------------------------------
The Inter-American Development Bank (IDB) announced its approval of
two conditional credit lines for investment projects (CCLIP) in El
Salvador totaling USD$650 million. This support aims on one hand to
improve human capital by boosting the quality and scope of the
country's education system and, on the other, to promote production
and social welfare through access to credit in the business and
housing sectors.
The first individual operations as part of these CCLIPs, for a
total of USD$300 million, are designed to support expansion and
improvement of educational quality, with special emphasis on early
childhood and poor people, sustainability and the economic recovery
of micro-, small-, and medium-size companies (MIPYMEs in Spanish)
hurt by the COVID-19 pandemic, respectively.
Improving the scope and quality of education
Seeking to improve the quality and scope of education in El
Salvador, the IDB approved a CCLIP totaling USD$250 million. Its
main goals include expanding and enhancing the quality of education
in the country, especially in early childhood services; boosting
the availability of education for poor youths, with a focus on
gender; and enhancing the effectiveness of educational management.
In El Salvador, nearly half of all children under the age of seven
live in poverty. In early childhood, kids must develop cognitive,
language, motor and socio-emotional skills that allow them to
start school ready to learn. But gaps have been detected in this
development of these skills in Salvadoran children. A lower level
of learning and skills during childhood is also observed when these
kids reach adolescence. More than half of them do not complete
secondary education, which limits their job prospects.
In order to meet those challenges, the strategy of the operation
will be to improve the scope and quality of the education system
through investments to strengthen teaching models in early
education and flexibile modalities in secondary education; ensure
adequate space for learning in early and nursery education, and
boost the management system so as to follow up on students'
progress and on decision- making. The goal is to increase the
number of children attending early and nursery education, and
increase the proportion of young students in flexibile modalities
that pass the Secondary Education Learning Test.
The initial loan that was approved, for USD$100 million dollars,
has a reimbursement period of 25 years and an interest rate pegged
to the LIBOR.
Support for production and social welfare through access to credit
The goal of the CCLIP that was approved, to the tune of USD$400
million, is to promote productive actitivy and social welfare in El
Salvador through access to credit in the business and housing
sectors.
The first individual operation in this CCLIP, for USD$200 million,
will be executed by the Republic of El Salvador Development Bank
(BANDESAL). The resources of the program will be intermediated by
the first-tier financial institutions with places on the
second-tier lines of BANDESAL. It is aimed at helping more than
8,000 MIPYMEs from all sectors of the economy for recovery in the
post-emergency period COVID-19, through access to productive credit
for working capital and investments in fixed assets.
In response to the challenges of MIPYME financing, the program has
an approach that addresses gender and mitigation and/or adaptation
to climate change, as it calls for granting credit to MIPYMEs run
by women and those with potential for mitigating or adapting to
global warming.
The first loan approved, for USD$200 million, has a reimbursement
period of 25 years and an interest rate pegged to the LIBOR.
The CCLIP that was approved has the Social Fund for Housing (FSV in
Spanish) as the executing agency for future IDB loans supporting
the financing of subsidized housing for vulnerable and low-income
populations. The CCLIP will be overseen by the Secretariat of Trade
and Investment, which is the liaison agency designated by the
government of El Salvador.
===========
M E X I C O
===========
GUADALUPE: Moody's Rates MXN161.3MM Enhanced Loan 'B1'
------------------------------------------------------
Moody's de Mexico assigned B1 (Global Scale, local currency) and
Baa2.mx (Mexico National Scale) ratings to the Municipality of
Guadalupe's MXN 161.3 million enhanced loan from Banobras.
The loan is payable through a trust (F/851-01902, Banregio as
trustee), to which the mnicipality has pledged 35.5% of the flows
and rights of its General Participations Fund. The loan is
denominated in Mexican pesos with a maturity of 6 years and an
interest rate composed of the 28-day Mexican Interbank Interest
Rate (TIIE in Spanish) plus a spread.
RATINGS RATIONALE
The B1/Baa2.mx debt ratings reflect the underlying creditworthiness
of the Municipality of Guadalupe (B2/Ba2.mx negative), as well as
the legal and credit enhancements embedded in the loan. Guadalupe's
issuer ratings and outlook reflect the municipality's recurring
negative gross operating balances and its tight liquidity, as well
as pressures related to challenging economic conditions in 2020 and
2021, which Moody's expects will lead to declines in its own-source
revenue and weak growth in federal transfers. The ratings also
reflect Guadalupe's relatively high but declining debt levels.
The main legal and credit enhancements considered in the loan
rating are:
1. The legal validity of the trust structure, which authorizes the
trust to be used as a mechanism to service the debt.
2. An irrevocable instruction to the State of Zacatecas
(Ba3/Baa1.mx negative) regarding the transfer of 35.5% of the
municipality's participations to the trustee.
3. Modest debt service coverage ratios: under a Moody's base case
scenario estimated cash flows generate 1.4x debt service coverage
at the lowest point during the life of the loan. Under a stress
case scenario, estimated cash flows provide 1.1x debt service
coverage, at the lowest point during the life of the loan.
4. Reserves that represent a minimum of 1.0x debt service coverage
throughout the life of the loan and provide a modest cushion
against payment delays.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the links between the loan and the credit quality of the
obligor, an upgrade of the Municipality of Guadalupe's issuer
ratings, or a material improvement in debt service coverage, would
likely result in an upgrade of the enhanced loan ratings.
Conversely, a downgrade of the Municipality of Guadalupe's issuer
ratings or a fall in debt service coverage materially below its
expectations would likely result in a downgrade of the enhanced
loan ratings.
The methodologies used in these ratings were Enhanced Municipal and
State Loans in Mexico Methodology published in May 2019.
The period of time covered in the financial information used to
determine Municipality of Gudalupe's rating is between January 01,
2015 and December 31, 2019 (source: Municipality of Guadalupe).
NEMAK SAB: S&P Affirms BB+ LT Global Scale ICR, Off Watch Negative
------------------------------------------------------------------
On Sept. 8, 2020, S&P Global Ratings affirmed its long-term global
scale 'BB+' and its national scale 'mxAA-' issuer credit ratings on
Mexico-based auto supplier Nemak, S.A.B. de C.V. S&P also removed
the ratings from CreditWatch with negative implications.
At the same time, S&P affirmed its global scale 'BB+' issue-level
rating on Nemak's senior unsecured notes due 2024 and 2025. The
recovery rating remains '3' (50%).
On Aug. 17, 2020, Nemak's shareholders approved the company's
spin-off from Alfa S.A.B. de C.V. (BBB/Watch Neg/--), which is set
to be completed in the next 60 days. The spin-off is such that
Alfa's shareholders will continue to control a 75.2% stake in
Nemak, but under a new entity, Nemak Holding. S&P doesn't expect
any changes in Nemak's board and management or in its operating
strategy and financial policy.
S&P said, "Our previous credit analysis of Nemak incorporated
negative qualitative factors in the company's credit profile that
prevented the rating from reaching investment grade. Due to the
spin-off, we no longer expect group support for Nemak, which
implies a one-notch downgrade. Therefore, we're removing our
negative qualitative constraints on the rating because we still
believe that Nemak's business and financial risk profiles on a
stand-alone basis remain consistent with the current 'BB+'
rating."
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T R I N I D A D A N D T O B A G O
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TRINIDAD & TOBAGO: 48 Bars Close Down Due to Pandemic
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Trinidad Express reports that forty eight bar and restaurant-type
businesses have been forced to close their doors, due to the
Covid-19 lockdown measures.
This was confirmed by Barkeepers and Operators Association of
Trinidad and Tobago (BOATT) interim president Teron Mohan, who said
the enforced procedures have led to a number of businesses closing
down after the revised lockdown measures were announced following a
rise in virus cases, according to Trinidad Express.
"On Monday, August 17, we were granted a 'grab-and-go' arrangement
as a means to buffer the significant loss of income. However, 50
per cent of bars opted to not even bother to open doors. Those
that tried couldn't sustain the operating costs, no understanding
from landlords for those who are tenants, not affordable to keep
staff employed and the many reasons go on," the report notes.
Mohan said while the 48 bars closing down represents less than one
per cent of the estimated 5,000 bars in Trinidad and Tobago, some
250 employees, including non-nationals, are now on the breadline,
the report relays.
He could not state, however, the number of establishments that
would have closed their doors last year, explaining the association
was only formed this year, the report discloses. He said, though,
48 closures in eight months is high and is due to the pandemic, the
report says.
He noted that, in the past, bars would just resell to another owner
but not close their doors permanently, the report relays.
The interim president lashed out at Health Minister Terrence
Deyalsingh for telling the public that he is awaiting the results
on the "new spike" in cases as a result of the "last lap' from bars
and beaches before the rollback, the report notes.
"It was of no surprise to us that bars faced the chopping block
when this came to light. To present date, bars are facing this
slander but when it was called upon to provide the statistics, none
can be provided, the report discloses.
"We took it upon ourselves to investigate and, in so doing, contact
tracing had only linked three bars. During this period there were
rampant closures of government offices, private firms and schools
in which Covid-19 positive cases were discovered. The statistics
then showed that only one bar was traced . . . and the premises
cleaned and sanitised as per protocol," Mohan added.
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U R U G U A Y
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URUGUAY: IDB OKs $125MM Loan to Protect Vulnerable Population
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The Inter-American Development Bank has approved a $125 million
loan for Uruguay to help ensure minimum living standards for
vulnerable people amid the health crisis triggered by the COVID-19
pandemic. The plan will support basic levels of income and
employment for people affected by the pandemic, both now and in the
post-crisis recovery period.
The project is part of a $1.7 billion package which the IDB has
earmarked for Uruguay to help it deal with the COVID-19 emergency
and its health, social, economic and fiscal consequences.
The program will finance special money transfers to households that
hold the Uruguay Social Card (Tarjeta Uruguay Social in Spanish)
and people that benefit from the Equity Plan Family Allocations
(Asignaciones Familiares-Plan Equidad). As part of this effort, the
plan will also support the creation of a One-Stop Digital Window
designed to improve the efficiency of selecting and recertifying
those who receive such money transfers.
The Uruguay Social Card seeks to guarantee basic access to food and
other essentials for people living in extreme poverty. Equity Plan
Family Allocations provide economic assistance to complement the
income of families that live in precarious conditions and are
raising children. They also seek to keep children in school and
provide incentives to ensure that they get health check-ups.
The plan will also provide for money transfers to people who rely
on the Emergency Food Basket. This a temporary benefit for people
working in the informal economy that do not receive aid from other
programs and are not covered by unemployment insurance, retirement
or other government benefits.
The project will also finance transfers that the unemployment
insurance program makes to formal-economy workers who are
furloughed or see their hours reduced, including those covered by
temporary work flexibility measures adopted as part of Uruguay's
fight against the pandemic.
The beneficiaries of the IDB plan will be more than 225,000
households that benefit from the Uruguay Social Card and Equity
Plan Family Allocations, 280,000 that receive the Emergency Food
Basket and 120,000 workers receiving unemployment insurance, either
because of furlough or workday reduction.
The $125 million IDB loan is over 25 years, with a grace period of
five-and-a-half years and an interest rate pegged to the Libor.
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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
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Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
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