/raid1/www/Hosts/bankrupt/TCRLA_Public/200924.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 24, 2020, Vol. 21, No. 192
Headlines
A R G E N T I N A
ARGENTINA: Negotiations With IMF to be Tested
ARGENTINA: New Bonds Plunge Deep Into Distressed Territory
[*] S&P Takes Actions on Argentine Companies on New Bank Regulation
B O L I V I A
BOLIVIA: Moody's Lowers Issuer Ratings to B2, Outlook Stable
B R A Z I L
BRAZIL: Flight of Foreign Investors Pressures Debt
MARFRIG GLOBAL: Fitch Hikes LT Issuer Default Ratings to 'BB'
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Gets Tougher on Tax Havens
DOMINICAN REPUBLIC: Resolution Looks to Reactivate Tourism
J A M A I C A
JAMAICA DIVERSIFIED: Fitch to Rate Series 2020-1 Notes 'BB(EXP)'
JAMAICA MERCHANT: Fitch Affirms BB+ Rating on Series 2015-1 Notes
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Negotiations With IMF to be Tested
---------------------------------------------
Rodrigo Campos, Eliana Raszewski, Hugh Bronstein at Reuters report
that Argentina's honeymoon with the International Monetary Fund is
about to be tested as it looks to update a $57 billion agreement
struck two years ago that failed to prevent a slide into recession
and the country's ninth sovereign default.
The IMF, often the target of angry protests in the streets of
Buenos Aires, has looked to soften its tone with Argentina as the
center-left Peronist government has restructured over $100 billion
with private creditors this year, according to Reuters.
Now it is IMF money on the table. Argentina is looking to defer
some $45 billion in payments over the next few years, as it heads
for a 12% economic contraction in 2020 and battles a currency
crisis with recently updated capital controls, which speak to an
unwillingness to address fiscal and monetary imbalances, the report
notes.
"It will be much harder with the IMF. They will want to make sure
they will be prioritized and not defaulted upon," said Damien
Buchet, an emerging markets fund manager at Finisterre Capital, the
report relays.
"The IMF will want much more serious guarantees in terms of debt
sustainability and repayment ability than bondholders," she added.
Argentine officials say they only want to refinance the $45 billion
already received under the 2018 program, the report recalls. But
Economy Minister Martin Guzman has said he wants to avoid
repayments to the IMF through 2024 - a tough demand, the report
notes.
"The IMF mistakenly supported Argentina in its acrimonious
negotiations with investors to close a deal without a coherent
economic plan," said Ted Pincus, managing director at Mangart
Capital Advisors, the report relates.
"The new FX measures Argentina introduced will make an agreement
more difficult and Argentina's attitude towards investors has come
back to bite it," he added.
With the country in the grips of the coronavirus pandemic,
austerity could pose a big threat to center-left President Alberto
Fernandez ahead of mid-term elections next year, as poverty rises
and small firms go under, the report notes.
The IMF is still seen by many as having triggered the country's
last major crisis in 2001-02, when a default and currency
devaluation pushed millions of Argentines into poverty, the report
discloses.
"I don't think (Argentina) can afford to be seen as taking orders
from the IMF," said Eric Baurmeister, senior portfolio manager and
head of Morgan Stanley Investment Management's Emerging Markets
Debt team, the report relays.
"What happens behind closed doors may be a different story."
10th Default?
Julie Kozack, deputy director of the IMF's Western Hemisphere
department, said the fund initially was looking to work out
Argentina's priorities and the government's "plans to strengthen
macroeconomic stability, kick-start growth and job creation, and
reduce poverty and unemployment," the report relays.
She did not elaborate, but many feel Argentina's economy will be
harder to turn around than hoped for, with foreign reserves
dwindling and capital controls to stem the decline hurting
business, the report discloses.
"The IMF will probably insist on labor and pension legislation,"
said Claudio Loser, a former IMF director for the Western
Hemisphere, adding that he expects both sides to arrive with
different opinions, the report relays.
"The government is going to say that it cannot do more; the Fund
will say we have to understand that Argentina is in a horrible
crisis due to the combination of COVID and the debt problem. Then,
that (Argentina) will have to put things in order so as not to have
problems again in two years," Loser added.
The government's 2021 budget bill, presented to Congress in the
third week of September, included ambitious forecasts for 5.5%
growth next year and a primary fiscal deficit of 4.5% of GDP, which
will be financed in part with transfers from the central bank, the
report notes.
"Fernandez has to a strike a difficult balance between a tough
stance in negotiations to please his voters and convincing the IMF
his administration can go far enough with reforms," said Fabiana
Fedeli, head of emerging markets at Robeco, the report relays.
"Unfortunately, we have not yet seen any signs that Argentina is
willing and able to take the difficult steps that are needed to
support macroeconomic stability. Unless lasting reforms are
undertaken, a 10th default is possible," the report discloses.
Political Capital
Fernandez, voted in with an anti-austerity mandate late last year,
has gained some political capital sealing restructuring deals with
Wall Street, and bringing the IMF more on-side, the report notes.
Back in February, the IMF's director Kristalina Georgieva and
Guzman sat smilingly side-by-side as Pope Francis, himself an
Argentine, spoke at a Vatican conference, the report relays.
The fund has all but agreed to a $6.5 billion exceptional access
program with Ecuador, much more generous and with less conditions
than expected, which some say could bode well for Argentina, the
report notes.
More importantly, perhaps, the IMF could use a positive deal after
criticism over the size and speed of the 2018 program and past
practices in Argentina, including from Fernandez who blames the
previous administration for leaving the country saddled with debt,
the report says.
"It is not the same IMF as in 2001. Much has been learned since.
Now it is more flexible regarding some heterodox policies," said
Gabriel Zelpo, director of Buenos Aires-based financial consultancy
Seido, the report discloses. "But it is still the IMF."
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.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8, 2020.
Fitch's credit rating for Argentina was last reported at CCC with
n/a outlook, a rating upgrade from CC on Sept. 11, 2020. DBRS'
credit rating for Argentina is CCC with n/a outlook, a rating
upgrade on Sept. 11, 2020. Moody's credit rating for Argentina was
last set at Ca, a rating downgrade from Caa2 on April 4, 2020, with
a negative outlook.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
ARGENTINA: New Bonds Plunge Deep Into Distressed Territory
----------------------------------------------------------
Scott Squires at Bloomberg News reports that Argentina's new dollar
bonds have plunged back into distressed territory just two weeks
after the nation restructured almost $65 billion in debt.
The securities fell for the fourth consecutive day on Sept. 22 to
an average 39 cents on the dollar, according to Bloomberg News.
The $16.1 billion in bonds maturing 2030 tumbled 3.1 cents to 40.3
cents, the lowest since they began trading on Sept. 8 at about 50
cents, Bloomberg News says.
Bloomberg News relays that the bonds have a spread of around 1,300
basis points over U.S. Treasuries, well above the 1,000 points many
investors consider to be the threshold for debt to be classified as
distressed.
The bonds performance underscores the dire economic situation
facing Argentina, which is in a deep recession and recently
tightened currency controls to preserve its waning international
reserves, Bloomberg News notes. Credit Suisse estimates the
country's net reserves at around $6 billion dollars, equivalent to
less than two months of imports, Bloomberg News discloses.
"Argentina's structural problem is a genuine lack of dollars," said
Joaquin Bagues, head strategist at Portfolio Personal Inversiones
in Buenos Aires, Bloomberg News relays. "The recent central bank
regulations are an attempt to solve that problem, but in reality,
the regulations only serve to deepen it," he added.
The measures announced by central bank chief Miguel Pesce include
new taxes on purchases of greenbacks and a demand that companies
with more than $1 million in monthly debt payments through March
find a way to push back those obligations, causing corporate bonds
to tumble, Bloomberg News relays.
Argentina's sovereign notes are underperforming regional peers like
Ecuador, which also exchanged its overseas bonds for new debt
recently, Bloomberg News notes. The spread to U.S. Treasuries on
Argentina's bonds is about 300 basis points wider than Ecuador's,
according to JP Morgan's EMBIG index, Bloomberg News discloses.
Argentina's Merval stock index also fell as much as 3.5% on Sept.
22, while the blue-chip swap rate, a parallel exchange rate derived
from the sales of stocks and bonds locally and abroad, fell to a
record 135.9 pesos per dollar, Bloomberg News 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.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8, 2020.
Fitch's credit rating for Argentina was last reported at CCC with
n/a outlook, a rating upgrade from CC on Sept. 11, 2020. DBRS'
credit rating for Argentina is CCC with n/a outlook, a rating
upgrade on Sept. 11, 2020. Moody's credit rating for Argentina was
last set at Ca, a rating downgrade from Caa2 on April 4, 2020, with
a negative outlook.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
[*] S&P Takes Actions on Argentine Companies on New Bank Regulation
-------------------------------------------------------------------
S&P Global Ratings, on Sept. 18, 2020, took several rating actions
on several Argentine corporate and infrastructure companies
following the central bank's new regulations.
On Sept. 15, 2020, Argentina's central bank tightened regulations
on accessing foreign exchange (FX) to protect the country's
international reserves. For corporate entities with monthly
principal payments of more than $1 million in the next six months,
the new restrictions appear to limit access to FX at the official
rate to 40% of this principal coming due. The balance is to be
refinanced in some other manner—either a restructuring or using
funds held abroad. Besides aiming to contain overall pressure on FX
rates and international reserves, the government appears to want to
prioritize access to FX for smaller firms and provide impetus to
firms to restructure their foreign currency debts. Depending on
final terms and conditions of those restructurings, S&P will likely
consider many of those as equivalent to defaults.
S&P said, "We're lowering or affirming the ratings on a group of
Argentine entities with foreign debts coming due before March 31,
2021, to or at 'CCC-' and placing them on CreditWatch with negative
implications, because chances to repay debts in the original terms
are very low. We will resolve the CreditWatch listings on these
entities once we have more clarity on their refinancing plans and
performances, and the sovereign's overall economic conditions."
-- AES Argentina Generacion S.A
-- IRSA Inversiones y Representaciones S.A.
-- IRSA Propiedades Comerciales S.A.
-- Petroquimica Comodoro Rivadavia S.A.
-- YPF S.A.
-- YPF Energia Electrica S.A.
S&P said, "We're also lowering our ratings on Empresa Distribuidora
Y Comercializadora Norte S.A. to 'CCC-' from 'CCC' and maintaining
the negative outlook because we view its ability to cover its
operating and capital expenditures in the next six months as
increasingly challenging, because that would depend on reducing its
mandatory payments to the electricity market administrator,
CAMMESA.
"In addition, we're lowering the ratings on Compania General de
Combustibles S.A. (CGC) to 'CCC' with a negative outlook because it
also has foreign-currency debts coming due within the next 12
months, but maturities are beyond March 31, 2021. In our opinion,
the likelihood that CGC engages in restructurings is fairly high as
well, but its obligations aren't as immediate as those of the group
above.
"We're affirming the ratings on CLISA-Compania Latinoamericana de
Infraestructura & Servicios S.A. at 'CCC' with a negative outlook,
reflecting these companies' high debt burdens and eroding capital
structureamid very weak business conditions, although this
company's near-term obligations are denominated in Argentine
pesos.
"We're placing our 'CCC+' ratings on CreditWatch negative on
Compania de Transporte de Energia Electrica en Alta Tension
TRANSENER S.A., Telecom Argentina S.A., and Aeropuertos Argentina
2000 S.A. (AA2000). The first two entities have foreign currency
debts maturing after March 31, 2021, and could eventually get
approval from the central bank to repay them under the original
terms. AA2000's short-term obligations are denominated in foreign
currency as well, but we understand they're to be paid mostly
domestically. We will resolve CreditWatch placements in the
following weeks once we have more clarity of the implementation of
the new foreign exchange rules.
"Finally, we're affirming our 'CCC+' ratings on Transportadora de
Gas del Sur S.A. (TGS), CAPEX S.A., and Pampa Energia S.A.. At the
same time, we're revising our outlooks on these three entities to
negative from stable, because although they're not presumably
impacted by the new regulations, they're exposed to currency
fluctuations and we believe business conditions could erode further
in the next 12 months."
Ratings List
To From
Aeropuertos Argentina 2000
Issuer Credit Rating CCC+/Watch Neg/-- CCC+/Negative/--
Senior Unsecured CCC+/Watch Neg/-- CCC+
AES Argentina Generacion S.A
Issuer Credit Rating CCC-/Watch Neg/-- CCC+/Stable/--
Senior Unsecured CCC-/Watch Neg/-- CCC+
CLISA
Issuer Credit Rating CCC/Negative/-- CCC/Negative/--
Senior Unsecured CCC CCC
Senior secured CCC- CCC-
Compania General de Combustible
Issuer Credit Rating CCC/Negative/-- CCC+/Stable/--
Senior Unsecured CCC CCC+
Compania de Transporte de Energia Electrica en Alta Tension
Transener S.A.'s (Transener's)
Issuer Credit Rating CCC+/Watch Neg/-- CCC+/Negative/--
Senior Unsecured CCC+/Watch Neg/-- CCC+
CAPEX S.A.
Issuer Credit Rating CCC+/Negative/-- CCC+/Stable/--
Senior Unsecured CCC+ CCC+
Empresa Distribuidora Y Comercializadora Norte S.A.
Issuer Credit Rating CCC-/Negative/-- CCC/Negative
Senior Unsecured CCC- CCC
IRSA Inversiones y Representaciones S.A.
Issuer Credit Rating CCC-/Watch Neg/-- CCC-/Negative/--
Senior Unsecured CCC-/Watch Neg/-- CCC-
IRSA Propiedades Comerciales S.A
Issuer Credit Rating CCC-/Watch Neg/-- CCC/Negative/--
Senior Unsecured CCC-/Watch Neg/-- CCC
Pampa Energia S.A.
Issuer Credit Rating CCC+/Negative/-- CCC+/Stable/--
Senior Unsecured CCC+ CCC+
Petroquimica Comodoro Rivadavia
Issuer Credit Rating CCC-/Watch Neg/-- CCC+/Stable/--
Telecom Argentina S.A.
Issuer Credit Rating CCC+/Watch Neg/-- CCC+/Stable/--
Senior Unsecured CCC+/Watch Neg/-- CCC+
Transportadora de Gas del Sur S.A. (TGS)
Issuer Credit Rating CCC+/Negative/-- CCC+/Stable/--
Senior Unsecured CCC+ CCC+
YPF S.A.
Issuer Credit Rating CCC-/Watch Neg/-- CCC+/Stable/--
Senior Unsecured CCC-/Watch Neg/-- CCC+
YPF Energia Electrica S.A.
Issuer Credit Rating CCC-/Watch Neg/-- CCC+/Stable/--
Senior Unsecured CCC-/Watch Neg/-- CCC+
=============
B O L I V I A
=============
BOLIVIA: Moody's Lowers Issuer Ratings to B2, Outlook Stable
------------------------------------------------------------
Moody's Investors Service downgraded the Government of Bolivia's
local and foreign-currency issuer and senior unsecured debt ratings
to B2 from B1 and changed the outlook to stable from negative.
The decision to downgrade Bolivia's ratings reflects: (1) the
material erosion of fiscal and foreign exchange reserve buffers;
and (2) medium-term prospects for reduced economic growth, lower
government revenue generation and weaker foreign exchange earnings
in a context of relatively weak hydrocarbon sector demand and
persistent policy uncertainty.
The stable outlook reflects that, at the B2 rating level, risks to
Bolivia's credit profile are balanced. Although the government that
will come into office after the October 18, presidential election
will face material challenges in implementing fiscal policy
adjustments and structural reforms, Bolivia's favorable debt
structure and high debt affordability will help mitigate credit
risks and support its sovereign credit profile.
Concurrently, Moody's lowered Bolivia's long-term foreign-currency
(FC) bond ceiling to B1 from Ba3, its long-term FC deposit ceiling
to B3 from B2, and its local currency bond and deposit ceilings to
Ba3 from Ba2. The short-term foreign-currency bond ceiling and the
short-term foreign-currency bank deposit ceiling remain unchanged
at Not Prime (NP).
RATINGS RATIONALE
RATIONALE FOR THE RATING DOWNGRADE TO B2
EROSION OF FISCAL AND FOREIGN EXCHANGE RESERVE BUFFERS
Bolivia's fiscal and foreign exchange reserve buffers have
historically supported the country's credit profile. However, these
buffers have significantly diminished resulting in a material
erosion of Bolivia's credit strengths.
The government's fiscal savings buffer declined to around 10% of
GDP in 2019 from 27% of GDP in 2013. During this same period,
nonfinancial public sector (NFPS) debt increased to 57.5% of GDP
from 38%.
Moody's expects the coronavirus pandemic and relatively weak
hydrocarbon sector revenues to drive the fiscal deficit and NFPS
debt to 13.5% of GDP and 72% of GDP, respectively, in 2020. In line
with the anticipated deterioration in the fiscal accounts, fiscal
savings buffers will decline as well, further diminishing a key
supporting factor of Bolivia's credit profile.
Higher imports for large energy infrastructure investment projects
coupled with lower global energy prices have led to sustained
current account deficits and a material decline in Bolivia's
foreign exchange reserves. The outlook for exports is unfavorable
given prospects of lower global energy prices and decreased demand
from Brazil (Ba2 stable) and Argentina (Ca NEG), Bolivia's main
export destinations. Moody's expects a current account deficit of
around 3% of GDP in 2020, driven by the tapering off of capital
imports for the government's investment program.
Foreign exchange reserves have fallen steadily, reaching $3.6
billion as of July 2020 (9% of GDP), down from a high of $13.2
billion (40% of GDP) in 2014. Although reserves still provide
around 5.5 months of import coverage, the ratio has declined and
pressure on the country's fixed exchange-rate regime could rise if
reserve levels continue to fall. Bolivia's reserve coverage of
short-term external debt obligations remains above the B-rated peer
median, which reflects in good part the concessional nature of the
government's external debt, but Moody's expects reserve coverage
will decline to about 70% by 2022 from around 40% in 2020.
PROSPECTS OF STRUCTURALLY LOWER ECONOMIC GROWTH IN THE CONTEXT OF
PERSISTENT POLICY UNCERTAINTY
After nearly 15 years of strong government-led investment, the
Bolivian economy has entered a challenging period of moderating
growth, which will weigh on future government revenues and foreign
exchange earnings. Real GDP growth averaged 4.6% between 2010-19
and Moody's expects annual growth will be in the 2.5%-3.5% range
after the pandemic, driven by lower government investment levels,
general weaknesses in the hydrocarbon sector and persistent
political uncertainty. These conditions existed before the pandemic
but have been exacerbated by the shock.
The coronavirus will negatively impact an already-slowing economy
leading to the country's first recession since the 1980s -- Moody's
estimates GDP will contract by 6.5% this year. Moody's expects
growth to recover to about 3.5% in 2021 and to remain at a lower
reference level over the medium term.
Domestic political developments following the October 2019
presidential election and the subsequent resignation of President
Evo Morales have led to heightened political risk and policy
uncertainty. A minority political opposition has stepped in to lead
an interim government until a new official presidential election is
held. However, the election has been delayed two times as a result
of the pandemic and domestic political infighting, prolonging
Bolivia's policy uncertainty and highlighting its relatively weak
institutional and governance framework.
Given Bolivia's week institutional and governance framework, a
highly polarized society, and fragile social fabric, Moody's
expects a prolonged period of political instability and policy
uncertainty, even after the upcoming October election is held. A
contentious political environment will likely complicate the
government's ability to effectively implement policies that can
durably reduce fiscal and external imbalances, foster higher
sustainable growth and, overall, strengthen Bolivia's credit
profile.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook balances the significant policy challenges that
the new government will face against Bolivia's credit strengths,
including a diminished, but still higher-than-peers, fiscal savings
buffer, a favorable debt structure and access to multilateral
concessional financing.
High development spending needs in the context of limited
government fiscal resources and materially weaker hydrocarbon
sector earnings will constrain the government's fiscal flexibility.
Moody's believes the next government will be challenged to
implement structural reforms and fiscal consolidation measures that
can materially strengthen medium-term economic growth prospects,
reduce fiscal and external imbalances and prevent further
deterioration in the country's fiscal and foreign exchange reserve
buffers.
Bolivia's limited use of market-based financing and heavy reliance
on multilateral lending helps to mitigate risks embedded in the
sovereign credit profile. Around two-thirds of the government's
debt is owed to multilateral creditors on favorable terms with
long-term maturities, features that significantly reduce rollover
risk. Bolivia has three global bonds outstanding that account for
18% of the government's total external debt. As a result of
Bolivia's heavy reliance on multilateral creditors, its cost of
funding is very low with interest payments representing only 2.3%
of general government revenue over the past five years, compared
with 7.8% for the B-rated median. Moody's expects government debt
to remain highly affordable over the next few years with new
borrowings coming mostly from multilateral development banks on
concessional terms.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are material to Bolivia's rating.
Increased deforestation and large forest fires in the Bolivian
Amazon rainforest have contributed to rising climate change and
environmental risks. Natural resources development also poses
environmental risks.
Social considerations are also material to Bolivia's credit
profile, driven by a historically high incidence of poverty and
inequality. Sustained high growth rates and government spending on
social welfare have helped to reduce poverty and improve incomes.
For instance, the share of the population living in extreme poverty
declined to 15% in 2018 from 38% in 2006, and the Gini coefficient
of inequality fell from about 0.60 in 2000 to around 0.47 in 2018.
Meanwhile, GDP per capita has more than tripled from around $1,000
in 2005 to around $3,600 in 2019 ($8,100 in purchasing power
parity, PPP, terms). Nonetheless, overall poverty remains high,
with a general poverty rate of around 38% of the population in
2018, and incomes remain low on a global basis, indicating
households' more limited capacity to absorb income shocks
Governance poses further material risks for Bolivia. This
consideration is reflected in Moody's assessment of institutions
and governance strength, which reflects relatively weak
institutional arrangements and a high incidence of corruption and
weak rule of law, balanced by somewhat stronger economic and
monetary policy effectiveness.
GDP per capita (PPP basis, US$): 8,172 (2019 Actual) (also known as
Per Capita Income)
Real GDP growth (% change): 2.2% (2019 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.5% (2019 Actual)
Gen. Gov. Financial Balance/GDP: -6.9% (2019 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -3.3% (2019 Actual) (also known as
External Balance)
External debt/GDP: 34.5% (2019 Estimate)
Economic resiliency: ba2
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On September 17, 2020, a rating committee was called to discuss the
rating of Bolivia, Government of. The main points raised during the
discussion were: The issuer's economic fundamentals, including its
economic strength, have not materially changed. The issuer's
institutional strength/framework, have not materially changed. The
issuer's fiscal or financial strength, including its debt profile,
has materially changed. The issuer's susceptibility to event risks
has materially increased.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's would upgrade Bolivia's rating if the government were to
implement policy adjustments that materially reduce fiscal and
external imbalances and help foster a sustainable increase in
fiscal and foreign exchange reserve buffers from current levels.
Structural reforms that lead to prospects of higher sustained
economic growth, including diversification away from Bolivia's high
reliance on the hydrocarbon sector, would provide additional
support to the country's credit profile.
Moody's would downgrade Bolivia's rating if fiscal and current
account deficits continue to widen and government policies prove
ineffective in preventing further erosion of fiscal and foreign
exchange reserve buffers. Intensification of political risks and
policy uncertainty, beyond Moody's current assessment of these
risks, would exert additional negative pressures on the rating.
The principal methodology used in these ratings was Sovereign
Ratings Methodology published in November 2019.
===========
B R A Z I L
===========
BRAZIL: Flight of Foreign Investors Pressures Debt
--------------------------------------------------
Richard Mann at Rio Times Online reports that since 2015, the
foreign share of public debt securities in Brazil dropped from 20.8
to 9 percent. The shift was intensified by Covid-19 and creates
greater challenges for the Treasury, as this investor typically
seeks longer-term securities.
The Covid-19 pandemic further reduced the share of foreigners in
financing Brazil's public debt, thereby spurring a trend that had
already been occurring since Brazil lost the "seal of good payer"
in 2015, according to Rio Times Online.
About Brazil
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.
Standard & Poor's credit rating for Brazil stands at BB- with
stable outlook (April 2020). Moody's credit rating for Brazil was
last set at Ba2 with stable outlook (April 2018). Fitch's credit
rating for Brazil was last reported at BB- with negative outlook
(May 2020). DBRS's credit rating for Brazil is BB (low) with stable
outlook (March 2018).
As reported in the Troubled Company Reporter-Latin America, Fitch
Ratings' outlook revision in May 2020 for Brazil 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.
MARFRIG GLOBAL: Fitch Hikes LT Issuer Default Ratings to 'BB'
-------------------------------------------------------------
Fitch Ratings has upgraded Marfrig Global Foods S.A.'s Long-Term
Foreign and Local Currency Issuer Default Ratings to 'BB' from
'BB-', and MARB BondCo PLC and NBM US Holdings, Inc.'s senior
unsecured notes to 'BB' from 'BB-'. In addition, Fitch has upgraded
Marfrig's National Scale rating to 'AA+ (bra)' from 'AA-(bra)'.
The upgrades reflect Marfrig's improved business and financial
profile over the past few years. The company's 81.7% stake in
National Beef has lowered its exposure to Brazil and has
diversified its exposure to two cattle cycles and has improved its
access to more markets. Strong industry conditions in 2020 have
resulted in extraordinarily strong cash flow in the U.S., which has
further enhanced the company's liquidity and capital structure. The
Rating Outlook is Stable.
KEY RATING DRIVERS
Robust Business Position: Marfrig's ratings incorporate the
company's size and geographic diversification in the volatile
protein commodity industry. The company is a pure beef player with
a processing capacity of 29,100 head/day. Marfrig increased its
participation in National Beef to 81.7% from 51% in 2019, which is
a positive from a credit perspective due to lower cash leakage.
National Beef is the fourth-largest beef processor in the United
States with approximately 14% of the beef processing capacity in
the U.S. (13,100 head/day). In South America, Marfrig is one of the
region's leading beef producers, with a primary processing capacity
of more than 17,100 heads of cattle per day and an annual
production capacity of 77,000 tons of beef patties.
Strong Capital Structure: Fitch expects Marfrig's adjusted Net
debt/EBITDA ratio to be 2.2x and gross leverage to be about 3.5x in
2020. Fitch projects that Marfrig's EBITDA will grow to BRL8.5
billion in 2020 from BRL4.9 billion in 2019 and that it will
generate about BRL2.2 billion of FCF (including dividends paid to
minority shareholders in National Beef). The company is benefiting
from strong trends in the industry due to high availability of
cattle in the U.S. during a period of industry production
constraints. Strong export markets followed by rising protein
prices globally as a result of the African Swine Flu, which has
decimated China's pork industry and increased demand for protein
from that market, has all bolstered the company's performance. The
weakening of the Real against US dollar also improved the
competitiveness of Marfrig's exports from South America.
Geographical Diversification: Marfrig's exposure to the volatile
beef segment of the protein sector is partially mitigated by its
geographic diversification into the two largest beef producing
markets. Fitch estimated that National Beef represented about 86%
of the group EBITDA, and the remaining 14% was represented by South
America (mostly in Brazil) as of 2Q20. Sales from National Beef are
primarily made in the U.S., which reduces the company's exposure to
risks related to trade tariffs, quotas and bans. Exports
represented 68% of South American revenues, of which 65% came from
shipments to China and Hong Kong in 2Q20. The company has thirteen
accredited plants for exporting to China. Marfrig's geographic
diversification also helps to decrease risks related to disease,
cattle cycles and currency fluctuation. This geographical
diversification enables the groups to mitigate cattle cycles,
sanitary and environmental risks.
Favorable Beef Demand: Marfrig's competitive advantages stem from
its large scale of operations, access to exports markets from
Brazil and the U.S., and long-term relationships with farmers,
customers and distributors. Global beef fundamentals are expected
to remain positive in the next couple of years for South American
and U.S. producers due to increased demand and good cattle
availability. U.S. beef production is forecast to be flat in 2020,
according to the USDA. In exports, South America is poised to
remain a top supplier to Asia as pork production will be hindered
by disease issues.
DERIVATION SUMMARY
Marfrig's ratings reflect its solid business profile and geographic
diversification as a pure play in the beef industry with a large
presence in South America (notably Brazil) and in the U.S. with
National Beef. Marfrig is well positioned to compete in the global
protein industry due to its size and geographic diversification.
The business compares favourably regarding size with its regional
peer Minerva S.A. (BB-/Stable), which is mainly a beef processor in
South America. JBS S.A. (BB+/Stable) and Tyson Foods (BBB/Negative)
enjoy a higher level of scale of operations, stronger FCF, and
higher product and geographical diversification than Marfrig.
KEY ASSUMPTIONS
-- Sales are driven by better prices and strong exports markets
and well as lower Real against the U.S. dollar;
-- Adjusted EBITDA of about BRL8.3bn in 2020;
-- Net leverage of bout below 2.2x as of YE 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Sustainable and positive FCF;
-- Substantial decrease in gross and net leverage to below 3.5x
and 2.5x, respectively, on a sustained basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Negative FCF on a sustained basis;
-- Gross leverage above 4.5x and net leverage above 3.5x on a
sustainable basis.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As of June 30, 2020, Marfrig had BRL8.2 billion
of cash and cash equivalents compared with BRL4.6 billion of
short-term debt. The short-term debt is mainly related to trade
finance lines.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Marfrig Global Foods S.A.: Governance Structure: 4
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity(ies),
either due to their nature or the way in which they are being
managed by the entity(ies).
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Gets Tougher on Tax Havens
----------------------------------------------
Dominican Today reports that the Internal Taxes Directorate (DGII)
presented the draft of the norm to revaluate assets, which will
allow those who avail themselves of it, to declare or revalue their
assets and rights and regularize their tax status for outstanding
debts.
The document establishes the operational criteria so that the
owners of real estate in the Dominican Republic or abroad,
furniture (furniture, vehicles, machinery and equipment), aircraft,
yachts and the like, cash, inventories and shares and titles
securities, can be regularized or revalued, according to Dominican
Today.
However, those who try to make transparent the money they have
deposited in banks in Panama, Bahamas, Barbados or other nations
classified as high-risk or non-cooperating countries, as well as
the goods from illicit activities, will not be able to benefit from
the regulation, the report notes.
The text establishes that applications that try to legalize the
possession of currency deposited in foreign financial entities and
securities registered or guarded in jurisdictions of countries
identified by the Financial Action Task Force (FATF) as high risk
or non-cooperators, also called tax havens will be declared
inadmissible, 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. Luis
Rodolfo Abinader Corona is the current president of the nation.
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).
DOMINICAN REPUBLIC: Resolution Looks to Reactivate Tourism
----------------------------------------------------------
Dominican Today reports that the Dominican Republic's Ministry of
Labor issued a resolution to facilitate the reactivation of tourism
in the country, a sector that has been devastated by the pandemic.
Resolution number 18-2020 establishes the mechanisms that would
help safeguard jobs in the country's tourism sector, according to
Dominican Today.
Through the resolution, employers and workers in the country's
tourism sector are urged to reach agreements to make working hours
more flexible and that guarantee the continuity of the operation of
companies in the tourism sector, the report notes.
"It also seeks guarantees employment, always respecting the rights
of workers with respect to the minimum wage and work hours allowed
by Law 16-92, of the Labor Code," the report relays.
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. Luis
Rodolfo Abinader Corona is the current president of the nation.
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).
=============
J A M A I C A
=============
JAMAICA DIVERSIFIED: Fitch to Rate Series 2020-1 Notes 'BB(EXP)'
----------------------------------------------------------------
Fitch Ratings expects to rate the Jamaica Diversified Payment
Rights Company's issuance of $175 million of series 2020-1 notes
'BB (EXP)'. The Rating Outlook is Stable. Fitch's rating addresses
the timely payment of P&I on a quarterly basis in accordance with
the transaction documents.
RATING ACTIONS
Jamaica Diversified Payment Rights Company (DPR) (NCB)
Series 2020-1; LT BB(EXP); Expected Rating
TRANSACTION SUMMARY
The proposed transaction will be backed by existing and future USD
diversified payment rights (DPRs) originated by National Commercial
Bank Jamaica Limited (NCBJ). The majority of DPRs are processed by
designated depository banks (DDBs) that have signed Acknowledgement
Agreements (AAs), irrevocably obligating them to make payments to
an account controlled by the transaction trustee. Transaction
proceeds will be used to repay the outstanding balance of the
2013-1 notes issued from the same program and general corporate
purposes. This transaction represents the third issuance out of the
program, which was established in 2006.
KEY RATING DRIVERS
Originator's Credit Quality: The rating of this future flow
transaction is tied to the credit quality of the originator, NCBJ.
On April 15, 2020, Fitch affirmed NCBJ's Long-Term Issuer Default
Rating (IDR) at 'B+' and revised the Rating Outlook to Negative
from Positive following the revision of Jamaica's Rating Outlook to
Stable from Positive on April 10, 2020. The Jamaican operating
environment remains the principal constraint on NCBJ's ratings.
The Outlook of NCBJ's IDRs reflects the downside risk to NCBJ's
credit profile resulting from the economic implications of the
coronavirus pandemic.
Going Concern Assessment (GCA): Fitch uses a GCA score to gauge the
likelihood that the originator of a future flow transaction will
stay in operation through the transaction's life. NCBJ's GCA score
of 'GC1' reflects the bank's position as Jamaica's largest bank and
a systemically top-tier bank with around 36% of system assets and
31% of total deposits as of March 2020.
Notching Uplift from IDR: The 'GC1' score allows for a maximum
rating uplift of six notches from the bank's IDR pursuant to
Fitch's future flow methodology. However, the agency limits the
rating uplift for the future flow series due to factors mentioned
below including Fitch reserving the maximum uplift for originators
rated at the lower end of the rating scale.
Moderate Future Flow Debt Size: Fitch estimates NCBJ's future flow
debt will represent 8.9% of the bank's total funding and 20.3% of
non-deposit funding when considering the proposed $175 million DPR
transaction and outstanding MV program balances using March 2020
financials. Although Fitch considers these ratios small enough to
allow the future flow ratings the maximum uplift at the aggregate
outstanding balance, Fitch considers the future flow programs will
continue to remain the main source of long-term funding for NCBJ,
limiting the notes' rating uplift.
Coronavirus Impact and Containment Measures Pressure DPR
Transaction Flows: NCBJ processed approximately $1.64 billion in
DPR flows during the seven months ending July 2020, which reflects
an approximate decrease of 16% when compared to the same period in
2019. Global events such as the sharp economic contraction caused
by the coronavirus pandemic and different containment measures have
reduced transaction cash flows, which can add pressure to the
assigned ratings. Additionally, the DPR program involves top
beneficiaries that are NCBJ affiliates as well as entities with
high domestically originated, government-related and/or capital
flows (which Fitch sees as more volatile than export-related
payments and remittances). Therefore, the potential volatility of
the DPR flows also limits the notching differential of the
transaction.
DPR Line's Coverage Levels Commensurate with Assigned Rating:
Global events including the coronavirus crisis have negatively
impacted DPR flows. Although this has translated into a decrease in
flows during the first seven months of 2020, when compared to the
same period in 2019, transaction cash flows have remained
sufficient to support max quarterly coverage levels over 90x. When
considering cash flows between July 2015 and July 2020 and assuming
an issuance amount of $175 million, the projected quarterly debt
service coverage ratio (DSCR) is 93.3x. Moreover, the transaction
can withstand a drop in flows of approximately 98.9% and still
cover the maximum quarterly P&I payment. Nevertheless, Fitch will
continually monitor the performance of the flows, as potential
pressures could negatively impact the assigned ratings.
Potential Redirection/Diversion Risk: The structure mitigates
certain sovereign risks by collecting cash flows offshore until
collection of periodic debt service amount. Fitch believes
diversion risk is partially mitigated by the Acknowledgement
Agreements (AAs) executed by the designated depository banks
(DDBs).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
Fitch does not anticipate developments with a high likelihood of
triggering an upgrade. However, the main constraint to the program
rating is the originator's rating and NCBJ's operating environment.
If upgraded, Fitch will consider whether the same uplift could be
maintained or if it should be further tempered in accordance with
criteria.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
The transaction ratings are sensitive to changes in the credit
quality of NCBJ. A deterioration of the credit quality of the
sovereign and/or NCBJ by multiple notches is likely to pose a
constraint to the rating of the outstanding series of notes for
both programs from their current level.
The transaction ratings are sensitive to the performance of the
securitized business line. The expected quarterly DSCR for the DPR
program is 93.3x and should be able to withstand a decline in cash
flows. Nevertheless, a significant decline in DPR flows could lead
to a negative rating action.
The transaction's ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score,
and changes in the sovereign environment and/or ratings assigned to
the Jamaican sovereign. Changes in Fitch's view of the bank's GCA
score can lead to a change in the transaction's rating. Any changes
in these variables will be analyzed in a rating committee to assess
the possible impact on the transaction ratings.
No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
JAMAICA MERCHANT: Fitch Affirms BB+ Rating on Series 2015-1 Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed the issue-specific ratings assigned to
all outstanding series of notes issued by Jamaica Merchant Voucher
Receivables Limited and Jamaica Diversified Payment Rights
Company.
The revision of the Rating Outlook on the rating of the notes
issued by Jamaica Merchant Voucher Receivables Limited to Stable
from Negative reflects that, although transaction flows remain
pressured when compared to flows observed before the start of the
coronavirus pandemic in the region, cash flows have continued to
recover month over month, increasing by 76.3% in August 2020 when
compared to April 2020 volume. Although the risk of a second wave
of coronavirus infections remains and could potentially affect the
recovery of cash flows to levels observed before March 2020, Fitch
does not anticipate cash flows will decrease to levels lower than
those observed during April 2020.
The revision of the Rating Outlook on the rating of the notes
issued by Jamaica Diversified Payment Rights Company to Stable from
Negative reflects the program's continued strong performance
throughout the coronavirus-related health crisis. Additionally,
this review follows the announcement of a new issuance for $175
million out of the diversified payment rights (DPR) Program.
RATING ACTIONS
Jamaica Merchant Voucher Receivables Limited
Series 2015-1 470170AB7; LT BB+ Affirmed; previously at BB+
Series 2016-1 470170AD3; LT BB+ Affirmed; previously at BB+
Jamaica Diversified Payment Rights Company (DPR) (NCB)
Series 2013-1 G5005FAC7; LTBB Affirmed; previously at BB
TRANSACTION SUMMARY
Jamaica Merchant Voucher Receivables Limited (JMVR) is backed by
future flows due from Visa International Service Association (Visa)
and MasterCard International Incorporated (MasterCard) related to
international merchant vouchers (MV) acquired by National
Commercial Bank Jamaica Ltd. (NCBJ) in Jamaica.
Jamaica Diversified Payment Rights Co. (JDPR) is backed by existing
and future U.S. dollar-denominated diversified payment rights
(DPRs) originated by NCBJ. DPRs are defined as electronic or other
messages used by financial institutions to instruct NCBJ to make
payment to a beneficiary. The majority of DPRs are processed by
designated depository banks (DDBs) that have executed agreements
obligating them to send payments to accounts controlled by the
transaction trustee.
KEY RATING DRIVERS
Originator's Credit Quality: The rating of this future flow
transaction is tied to the credit quality of the originator, NCBJ.
On April 15, 2020, Fitch affirmed NCBJ's Long-Term Issuer Default
Rating (IDR) at 'B+' and revised the Rating Outlook to Negative
from Positive following the revision of Jamaica's Rating Outlook to
Stable from Positive on April 10, 2020. The Jamaican operating
environment remains the principal constraint on NCBJ's ratings.
The Outlook of NCBJ's IDRs reflects the downside risk to NCBJ's
credit profile resulting from the economic implications of the
coronavirus pandemic.
Going Concern Assessment (GCA): Fitch uses a GCA score to gauge the
likelihood that the originator of a future flow transaction will
stay in operation through the transaction's life. NCBJ's GCA score
of 'GC1' reflects the bank's position as Jamaica's largest bank and
a systemically top-tier bank, with around 36% of system assets and
31% of total deposits as of March 2020.
Notching Uplift from IDR: The 'GC1' score allows for a maximum
rating uplift of six notches from the bank's IDR pursuant to
Fitch's future flow methodology. However, the agency limits the
rating uplift for the future flow series due to the factors
mentioned below, including Fitch reserving the maximum uplift for
originators rated at the lower end of the rating scale.
Moderate Future Flow Debt Size: NCBJ's total outstanding future
flow debt (FF) represented around 6% of the bank's total funding
and 14.2% of non-deposit funding considering outstanding
consolidated program balances as of March 2020 and consolidated
financials as of March 2020. Although Fitch considers these ratios
small enough to allow the future flow ratings, the maximum uplift
at the aggregate outstanding balance, Fitch considers that the
future flow programs will continue to remain the main source of
long-term funding for NCBJ, limiting the rating uplift on the
notes.
MV Program Coronavirus Impact and Containment Measures Pressure
Transaction Flows: While flows benefit from NCBJ's market-leading
and dominant credit card franchise and diversification from the two
top credit card brands, transaction flows have been affected by
global travel bans and quarantine orders enacted due to the
coronavirus pandemic. Cash flows in April 2020 decreased by as much
as approximately 54% when compared with those in March 2020 but
have since slowly recovered month over month, increasing by 76.3%
in August 2020 from April 2020 volume. The increase in cash flows
is primarily driven by the phased reopening of Jamaica's borders to
international travelers. Quarterly collections as of the end of
June were sufficient to support a maximum quarterly debt service
coverage ratio (DSCR) of 3.47x for the last reporting period
(April-June 2020). Nevertheless, Fitch will continue to monitor the
performance of the flows, as potential pressures could negatively
impact the assigned ratings.
MV Program Coverage Levels Remain Commensurate with Assigned
Rating: Global events, including the coronavirus crisis, have
negatively impacted international merchant voucher flows. Although
significant decreases in transaction flows have been observed since
March 2020, coverage levels have remained sufficient to cover
quarterly debt service payments in April and July 2020 and have
remained commensurate with the rating on the outstanding notes.
When considering rolling quarterly flows over the last five years
(since 3Q15), Fitch expects quarterly DSCRs to be approximately
6.5x - the maximum debt service for the life of the program.
DPR Line's Coronavirus Impact and Containment Measures Pressure
Transaction Flows: NCBJ processed approximately $1.64 billion in
DPR flows during the seven months ended July 2020, which reflects
an approximate decrease of 16% when compared to the same period in
2019. Global events such as the sharp economic contraction caused
by the coronavirus pandemic and different containment measures have
reduced transaction cash flows, which can add pressure to the
assigned ratings. Additionally, the DPR program involves top
beneficiaries that are NCBJ affiliates, as well as entities with
high domestically originated, government-related and capital flows
(which Fitch sees as more volatile than export-related payments and
remittances). Therefore, the potential volatility of the DPR flows
also limits the notching differential of the transaction.
DPR Line's Coverage Levels Commensurate with Assigned Rating:
Global events including the coronavirus crisis have negatively
impacted DPR flows. Although this has translated into a decrease in
flows during the first seven months of 2020, when compared to the
same period in 2019, transaction cash flows have remained
sufficient to support quarterly levels above 70x. When considering
cash flows between June 2016 and May 2020 (which considers
quarterly flows through Designated Depository Banks (DDBs)
[excluding 65% of flows from certain entities]), the projected
quarterly DSCR is 59.9x, and the transaction can withstand a drop
in flows of approximately 98.6% and still cover a maximum quarterly
principal and interest payment. Fitch will continually monitor the
performance of the flows, as potential pressures could negatively
impact the assigned ratings.
Potential Redirection/Diversion Risk: The structure mitigates
certain sovereign risks by collecting cash flows offshore until the
collection of periodic debt service amounts. Fitch believes
diversion risk is partially mitigated by the consent and agreements
or acknowledgments signed by Visa and Mastercard (in the case of
JMVR) or DDBs (in the case of JDPR).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch does not anticipate developments with a high likelihood of
triggering an upgrade. However, the main constraint to the program
rating is the originator's rating and, to a lesser extent, NCBJ's
operating environment. If upgraded, Fitch will consider whether the
same uplift could be maintained or if it should be further tempered
in accordance with criteria.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transaction ratings are sensitive to changes in the credit
quality of NCBJ. A deterioration of the credit quality of the
sovereign and/or NCBJ by one notch could pose a constraint to the
rating of the outstanding series of notes for both programs from
their current levels.
The transaction ratings are sensitive to the performance of the
securitized business lines. The expected quarterly DSCR is
approximately 6.5x for the merchant voucher program and should be
able to withstand a decline in cash flows. Additionally, Fitch's
base case for the DPR program is 59.9x and should be able to
withstand a decline in cash flows. Nevertheless, a significant
decline in DPR flows could lead to a negative rating action.
The transaction's ratings are sensitive to the ability of the
credit card acquiring and DPR business line to continue operating,
as reflected by the GCA score, and changes in the sovereign
environment and ratings assigned to the Jamaican sovereign. Changes
in Fitch's view of the bank's GCA score can lead to a change in the
transaction's rating. Additionally, the MV program could also be
sensitive to significant changes in the credit quality of Visa or
Mastercard to a lesser extent.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to or reviewed by Fitch
in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The future flow ratings are driven by the credit risk of National
Commercial Bank of Jamaica Limited as measured by its Long-Term
Local Currency IDR.
ESG CONSIDERATIONS
The highest level of environmental, social and governance (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, due to either their nature or the way in which they are
being managed by the entity.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
* * * End of Transmission * * *