/raid1/www/Hosts/bankrupt/TCRLA_Public/200930.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
Wednesday, September 30, 2020, Vol. 21, No. 196
Headlines
A R G E N T I N A
ARGENTINA: Firms Fear 'Virtual Default' as FX Noose Tightened
ARGENTINA: Moody's Alters Outlook on Ca Issuer Rating to Stable
ARGENTINA: To Pay Interest on Par Bonds it Failed to Restructure
BANCO CIUDAD: Fitch Hikes LT IDRs to 'B-', Outlook Stable
BANCO HIPOTECARIO: Fitch Affirms 'C' IDR on Operating Environment
CFG INVESTMENTS: S&P Affirms 'BB' Rating on 2019-1 Class B Notes
PROVINCE LA RIOJA: Fitch Cuts IDRs to RD on Cure Period Expiration
[*] Fitch Reviews 3 Argentine LRGs on Country Ceiling Upgrade
B A H A M A S
BAHAMAS: Concerned About Possibly Appearing on FATF Blacklist
B R A Z I L
BANCO ABC: Fitch Cuts Local Currency IDR to 'BB', Outlook Neg.
BRAZIL: Dry Weather & Fires Threaten 2021 Sugarcane Crop
BRAZIL: Pandemic Impact Reduces Workers' Income by Almost 25%
LOCALIZA RENT-A-CAR: Fitch Affirms BB+ LT IDR, On Watch Positive
ODEBRECHT SA: Case in Mexico Steaming Along 2 Mos. After Start
C H I L E
LATAM AIRLINES: Committee Hires Ferro Castro as Brazilian Counsel
LATAM AIRLINES: Committee Retains Conway as Financial Advisor
C O S T A R I C A
BANCO DE COSTA: Fitch Assigns 'B' LT IDRs, Outlook Negative
BICSA: Fitch Affirms 'BB-' LongTerm IDR, Outlook Negative
M E X I C O
GRUPO POSADAS: Fitch Withdraws 'RD' LT Issuer Default Rating
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Firms Fear 'Virtual Default' as FX Noose Tightened
-------------------------------------------------------------
Global Insolvency reports that Argentine companies are facing an
increasingly difficult task to keep up with payments on dollar
debt, hiking the risk of a wave of corporate defaults after the
country tightened access to foreign currency to stem a sharp
decline in reserves.
The central bank move, which pressured firms to restructure their
debts and tightened individuals' access to greenbacks, jolted local
markets, pummeled bond prices and equities and heightened demand
for black market dollars, according to Global Insolvency.
The measures mean companies with debt payments greater than $1
million per month between mid-October and the end of March next
year can only cover 40% of that in foreign currency, in effect
forcing them to refinance the remainder, the report notes. "The
source of financing is running out. We are talking about companies
whose cash flows are local and cannot acquire foreign currency. It
is crazy," said Mariano Sardáns, director of Argentine asset
manager FDI International, 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.
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: Moody's Alters Outlook on Ca Issuer Rating to Stable
---------------------------------------------------------------
Moody's Investors Service affirmed the Government of Argentina's Ca
foreign-currency and local-currency long-term issuer and senior
unsecured ratings and the (P)Ca senior unsecured ratings for shelf
registrations. The outlook on these ratings has been changed to
stable from negative.
The outlook change to stable from negative reflects a materially
lower risk that future losses will exceed those implicitly
incorporated in Argentina's current Ca rating in the aftermath of
the recent debt restructuring.
The affirmation of the Ca/(P)Ca ratings reflects Moody's view that
elevated credit risks remain present unless the authorities address
the fundamental macroeconomic imbalances that continue to undermine
the sovereign credit profile, raising questions about Argentina's
capacity to meet future debt obligations, which are set to rise
sharply after 2024.
At the same time Argentina's short-term rating was affirmed at Not
Prime (NP). The senior unsecured ratings for government bonds that
were not restructured after the 2001/02 default were affirmed at
Ca.
Argentina's long-term foreign-currency bond ceiling remains
unchanged at Caa3. The foreign-currency deposit ceiling remains
unchanged at Ca. The local-currency country ceilings for bonds and
bank deposits remain unchanged at Caa1. The short-term
foreign-currency bank deposit ceiling and the short-term
foreign-currency bond ceiling remain unchanged at Not Prime (NP).
RATINGS RATIONALE
RATIONALE FOR THE CHANGE IN OUTLOOK TO STABLE FROM NEGATIVE
MATERIALLY LOWER RISK THAT FUTURE LOSSES WILL EXCEED THOSE
INCORPORATED IN CURRENT Ca RATING
On September 4, Argentina finished restructuring $107 billion of
its debt, including $66 billion in foreign-currency debt issued
under foreign legislation and $41 billion in foreign-currency debt
issued under domestic legislation.
The debt restructuring extended upcoming maturities and reduced
interest payments. As a result, Argentina's annual debt service on
the newly restructured debt will remain below $5 billion until
2024, but will spike markedly thereafter.
In Moody's opinion, even though the risk of future debt
restructurings remains high as debt payments are set to rise
materially and Argentina's ability to meet them remains uncertain,
losses coming from any future restructuring will likely remain
within the 35% to 65% range associated with a Ca rating.
RATIONALE FOR THE RATING AFFIRMATION AT Ca
LIMITED CAPACITY TO MEET FUTURE DEBT OBLIGATIONS UNLESS FUNDAMENTAL
MACROECONOMIC INBALANCES ARE CORRECTED
Repayment of restructured debt will require that Argentina tap
international capital markets that remain closed. Moody's expects
Argentina's market access to remain very limited as long as the
government fails to address long-standing macro-economic
imbalances.
Argentina has a long history of credit-negative policymaking and
currently faces a series of macroeconomic imbalances that may
deepen and prolong an already extensive economic crisis.
Macroeconomic challenges include a weak economy on its third year
of recession, persistently high inflation bolstered by central bank
funding of fiscal deficits, and heightened pressures on the
exchange rate and international reserves.
Moody's expects the economy to contract by 12% in 2020 largely due
to coronavirus-related lockdowns. Economic activity will recover in
2021 with GDP growth estimated at 5%, but Moody's expects long-term
trend growth to likely remain below 2% reflecting structural
constraints mostly associated with prospects of low levels of
investment.
Central bank financing of the fiscal deficit, which has led to
increased monetary emission, is generating additional pressures on
the exchange rate and increasing the risk of inflationary outbursts
driven by a devaluation-inflation cycle. Moody's expects fiscal
deficits of close to 9% of GDP this year and 6% in 2021 to be
largely funded by the central bank.
International reserves have been under pressure. At present, the
level of gross reserves stands at over $40 billion, but net liquid
reserves (excluding dollar deposits held at the central bank, gold
and swaps with other central banks) are estimated below $10
billion. Further drops in available reserves could precipitate a
balance-of-payments crisis and force a large devaluation, further
aggravating the economic crisis.
The government aims to negotiate a new agreement with the
International Monetary Fund (IMF) to reprofile $44 billion in debt
payment payments to the IMF. Reaching an agreement with the IMF,
and delivering on the targets, will not be easy as the government
will have to commit to multiyear fiscal consolidation targets and
multiple structural reforms aimed at jumpstarting economic growth.
In addition to policy implementation challenges, the authorities
will also encounter strong social and political opposition that
could further complicate this endeavor.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's view that, given Argentina's
improved post-restructuring debt profile, investor losses under
future debt restructurings would likely remain below 65%, a level
consistent with a Ca rating.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
As a major agricultural exporter, Argentina is moderately exposed
to environmental risks. Agricultural exports, which represent over
50% of the total, are vulnerable to regular climate-related shocks.
In 2018, a major drought was a key factor in that year's economic
crisis, robbing the government of needed foreign-exchange revenue
and contributing to a 2.5% contraction in economic activity.
Social risks also inform Moody's assessment of Argentina's credit
profile. Argentina has a long history of social protests leading to
abrupt policy changes and the current economic crisis could
exacerbate those trends. The economic and employment impact of the
coronavirus crisis, which will be substantial and coming after two
consecutive years of economic recession, will further raise the
risks of social protests and political turmoil. Moody's also
regards the coronavirus outbreak, the consequences of which drive
this rating action, to be a social risk under its ESG framework
given the substantial implications for public health and safety.
In terms of governance, Argentina's weak institutional framework is
underpinned by a history of unpredictable and unsustainable
policymaking. Moody's analysis also incorporates the country's
track record of default and limited success in controlling high
inflation.
GDP per capita (PPP basis, US$): 20,055 (2019 Actual) (also known
as Per Capita Income)
Real GDP growth (% change): -2.1% (2019 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 57.3% (2019 Actual)
Gen. Gov. Financial Balance/GDP: -3.8% (2019 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -0.9% (2019 Actual) (also known as
External Balance)
External debt/GDP: 62.5% (2019 Actual)
Economic resiliency: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On September 24, 2020, a rating committee was called to discuss the
rating of the Argentina, 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 governance and/or management, have not materially changed.
The issuer's fiscal or financial strength, including its debt
profile, has materially increased. The systemic risk in which the
issuer operates has materially decreased. The issuer has become
increasingly susceptible to event risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A positive rating action will require clear evidence of will and
ability on the part of the authorities to set a credible policy
path to fiscal consolidation and to implement policies that lead to
a material and sustained reduction of macroeconomic imbalances.
Argentina's rating would be downgraded if Moody's anticipated
underlying credit conditions could lead to future debt
restructurings in which losses to bondholders could exceed the 65%
mark.
The principal methodology used in these ratings was Sovereign
Ratings Methodology published in November 2019.
ARGENTINA: To Pay Interest on Par Bonds it Failed to Restructure
----------------------------------------------------------------
Jorge Otaola at Reuters report that Argentina will make interest
payment due on dollar and euro-denominated "Par" bonds, the
country's Economy Ministry said in a statement, closing off an
unresolved issue from its recent major debt revamp.
The government had failed to restructure a small number of bonds,
including the Pars, as part of an otherwise successful $65 billion
foreign debt restructuring, which saw 99% of eligible debt
exchanged at the end of last month, according to Reuters.
The government had been considering trying to win over the
remaining 1% of mostly European retail investors, offering them the
same terms as those who had agreed to the initial deal, the report
notes. The new bonds in the exchange had been issued on Sept. 4,
the report relays.
The Economy Ministry said that it had decided that the costs of
making a second offer "were not justified," especially given the
uncertainty of a favorable outcome, the report discloses.
It said payment of the $12 million in interest on the bonds would
avoid the "adverse consequences and uncertainty for Argentina and
the investment community," the report says.
"This decision is an additional step on the agenda to bolster the
Argentine economy and continue on the path of economic-financial
normalization," it said, 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.
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.
BANCO CIUDAD: Fitch Hikes LT IDRs to 'B-', Outlook Stable
---------------------------------------------------------
Fitch Ratings has upgraded Banco de la Ciudad de Buenos Aires
(Banco Ciudad) Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) to 'B-' from 'CCC'. The Rating Outlook is Stable.
The Short-Term IDRs were also upgraded to 'B' from 'C' and the
Viability Rating (VR) was affirmed at 'ccc'. The Support rating was
affirmed at '5'.
Banco Ciudad's IDRs were upgraded following Fitch's recent rating
actions on the bank's parent, the City of Buenos Aires.
KEY RATING DRIVERS
IDRs
Banco Ciudad's IDRs are driven by Fitch's assessment of the
expected institutional support the bank would likely receive from
its parent, City of Buenos Aires (CBA; B-). However, Argentina's
country ceiling represents a constraint on the IDRs of Banco
Ciudad's sole shareholder, CBC. Fitch believes CBA demonstrates
adequate capacity and propensity to provide support to the bank,
should it be needed, driving the upgrade of Banco Ciudad's ratings.
Equalization of the bank's IDRs with those of its parent is
supported by CBA's legal guarantee of the bank's operations
(including deposits, debt securities and wholesale funding), its
full ownership stake, and the bank's integral role in government
operations such as tax collection and payment of city employee
salaries.
Banco Ciudad's financial profile does not have a direct impact on
the IDRs, but is relevant in Fitch's assessment of the parent's
propensity of support as well as for the stand-alone
creditworthiness evaluation as reflected in the bank's VR.
VR
Banco Ciudad's VR of 'ccc' is highly influenced by the operating
environment which has worsened with the impact of the coronavirus
pandemic and negatively affected the bank's asset quality and
profitability metrics in particular. While the ultimate economic
and financial market implications of the pandemic are unclear,
risks to Argentina's operating environment are clearly skewed to
the downside. This underpins the agency's Negative Outlook on the
operating environment and asset quality scores. Market volatility,
low loan growth, rising nonperforming loans, higher credit costs
and rising administrative expenses due to high inflation will weigh
on the bank's financial performance over Fitch's rating horizon.
Higher levels of provisioning reduced the bank's operating profit
to risk weighted assets ratio to 3.0% at June 30, 2020 from 7.4% at
Dec. 31, 2019. However, additional provisions improved the loan
loss allowance to impaired loans ratio to a more comfortable level
of nearly 105%. The bank entered the crisis with a lower risk
appetite and sound risk management. Regulatory forbearance also
contributed to the stabilization of Banco Ciudad's asset quality
ratio relative to YE 2019 at around 4.5% as of the June 30, 2020.
Banco Ciudad's capitalization levels improved during the first half
of the 2020 due to lower growth of risk assets. The bank's Common
Equity Tier 1 capital ratio is well-above the regulatory minimum
having improved to 21.7% from 17.0% at Dec. 31, 2019.
Strong deposit growth during the first half of 2020 contributed to
very comfortable liquidity ratios. At June 30, 2020, the LCR ratio
was 252% and the NSFR ratio was 189%, well above regulatory
minimums. The primary source of funding is the bank's deposit
base.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRS, VR
-- The IDRs and VR would benefit from an upgrade of Argentina's
sovereign rating or the ratings of the bank's parent, the City of
Buenos Aires.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The IDRs and VR of the bank would be pressured by a downgrade
of Argentina's sovereign rating.
-- A deterioration in the local operating environment beyond
current expectations that leads to a significant deterioration in
the bank's financial profile would also be negative for the bank's
VR;
-- Any policy announcements that would be detrimental to the
bank's ability to service their obligations, including a tightening
of capital controls to the extent that they restrict debt payments,
would be negative for the ratings.
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 ratings of Banco de la Ciudad are currently driven (equalized)
to the ratings of parent, City of Buenos Aires. This will be
reflected in the RAC.
ESG CONSIDERATIONS
Banco de la Ciudad de Buenos Aires: Governance Structure: 4
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BANCO HIPOTECARIO: Fitch Affirms 'C' IDR on Operating Environment
-----------------------------------------------------------------
Fitch Ratings has affirmed Banco Hipotecario's Issuer Default
Rating (IDR) at 'CC'.
KEY RATING DRIVERS
The bank's ratings are still highly influenced by the operating
environment, which remains very challenging. Asset quality
continues to be pressured by the steep recession, which has been
exacerbated by a long lockdown due to the coronavirus pandemic.
Similarly, profitability has been pressured by very low loan
growth, rising costs due to continued high inflation, and
increasing credit costs.
The ratings also consider the bank's funding profile and the
recently modified proposed debt exchange, moderate franchise,
adequate capitalization and liquidity, and the deterioration of its
asset quality indicators. Market volatility, low loan growth,
higher credit costs and rising administrative expenses due to high
inflation will continue to weigh on Hipotecario's financial
profile.
Fitch believes that the recently announced exchange offer,
including the latest modification which combines both offers to a
cash up front payment of USD 420 and USD 600 per USD 1,000
principal amount will alleviate near-term refinancing risks and
provide Hipotecario with some leeway to avoid default if
successful. However, despite successfully improving its funding
profile in recent years and its strong liquidity position at
end-June 2020, the bank remains heavily reliant on wholesale
funding, which will continue to be under pressure by Argentinean
issuers' limited market access.
The bank's profitability has been under pressure since reaching its
recent peak in 2018, reflecting the weak operating environment with
low credit growth opportunities. In this scenario, the bank's
revenues depend on its central bank securities holdings and
non-interest revenues. In 2020, with inflation adjusted figures,
the bank reported operating profit /risk weighted assets of 0.78%,
a reduction compared to 1.2% in June 19. Despite the reduced
interest income from loans, the bank managed to protect its
profitability and post a profit through lower provision expenses,
improved margins and reduced personnel and administrative
expenses.
Asset quality metrics continues to be pressured by the challenging
economic scenario, with the bank's NPL ratio reaching 12.3% in
December 2019 driven by the deterioration of some corporate loans,
which affected several banks in the industry and the incorporation
of its former consumer finance subsidiary Tarshop. In June 2020,
this ratio increased slightly to 12.7% due to the reduction in the
credit portfolio. In terms of the consumer portfolio, asset quality
improved, with the NPL ratio declining to 4.4% in June 2020 from
7.7% in December 2019. Commercial loans continued to represent a
major part of the deteriorated portfolio, with the NPL ratio
reaching 29.9% in June 20, from 23.6% in December, mainly due to
the contraction of its commercial portfolio. The bank has increased
its Loan loss coverage to 93.6% of NPLs in June 2020, an
improvement from 60% in December 2019.
The bank's current capitalization levels are commensurate with its
rating level with CET 1 ratio of 16.4% as of June 2020, which is in
line with its peers and well above the minimum capital requirement.
Currently, the bank's strategy places a higher priority on
profitability through improvement of operational efficiency and
maintaining comfortable liquidity position over growth, which Fitch
views as positive for capitalization over the medium term.
SENIOR DEBT
The 'CC'/'RR4' rating on Hipotecario's medium-term notes reflects
that these are senior unsecured obligations ranking pari passu with
other senior unsecured indebtedness, and therefore, aligned with
the bank's Foreign Currency (FC) IDR of 'CC'.
The notes are denominated in USD. Fitch considers the bank's FC IDR
as the appropriate anchor for this issue rating, given the transfer
and convertibility risk associated with settlement in foreign
currency notwithstanding that the issuer will not incur material
currency risk. The notes' Recovery Rating of 'RR4' reflects the
average expected recovery in case of bank liquidation.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating of '5' and the Support Rating Floor of 'NF'
reflect that, although possible, external support for Banco
Hipotecario cannot be relied upon given the sovereign's track
record for providing support.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The IDRs and VR of Banco Hipotecario could benefit from the
success of the debt exchange in relieving liquidity pressures.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An unsuccessful debt exchange, which would result in increased
refinancing risks, would put pressure on the bank's IDRs and VR.
-- Any policy announcements or a deterioration in the local
operating environment that would be detrimental to the bank's
ability to service its obligations, including a tightening of
capital controls to the extent that they restrict debt payments,
would be negative for creditworthiness.
SUPPORT RATING AND SUPPORT RATING FLOOR
Changes in the SRs and SRFs of Banco Hipotecario are unlikely in
the foreseeable future
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
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).
CFG INVESTMENTS: S&P Affirms 'BB' Rating on 2019-1 Class B Notes
----------------------------------------------------------------
S&P Global Ratings affirmed its 'BBB (sf)' rating on class A and
its 'BB (sf)' rating on class B from CFG Investments Ltd.'s series
2019-1, based on the strong levels of over-collateralization and
liquidity reserves. At the same time, S&P removed the ratings from
CreditWatch, where they were placed with negative implications on
March 30, 2020, due to concerns related to the COVID-19 pandemic.
The note issuance is an ABS transaction backed by unsecured
personal loan receivables originated in four different
jurisdictions: Aruba (BBB+/Negative/A-2), Curacao
(BBB/Negative/A-2), Bonaire (not rated), and Panama
(BBB+/Negative/A-2).
CFG has introduced structural changes to the transaction in order
to provide further credit enhancement in the form of additional
collateral. The first change is the incorporation of $10,000,000 of
additional collateral, which was effectuated through a new
over-collateralization test. The second change is a new liquidity
reserve of $2,000,000, which has been incorporated and is funded
from collections. These structural changes allow the transaction to
pass the stress tests associated with its current ratings.
SURVEILLANCE HIGHLIGHTS
-- Per the latest servicer reports as of August 2020, S&P observes
the following: The company is offering credits on a constant basis
for all jurisdictions.
-- The pool composition is in line with transaction documents and
remains consistent with the initial pool composition.
-- S&P observed a decrease of the collections in July and August
due to a decline in payoff and refinancing activity in these
months. Cumulative net losses for the total pool reached 4.00%,
which is in line with its expectations.
-- The reserve account remains fully funded ($2,580,000) and
represents almost twice the interest service and expenses
($1,215,262). During July 2020, a new liquidity reserve of
$2,000,000 was incorporated and is held in the borrower collection
accounts.
-- The transaction presents an overcollateralization level of
$49,930,770. The current overcollateralization level considers
$11,275,542 in cash deposited in the borrower collection accounts.
The total hard credit enhancement (including reserves and cash)
represents 28.40% for class A and 19.10% for class B.
TOTAL POOL INFORMATION(i)
Current pool composition
Jurisdiction ($) (%)
Panama 136,996,937.74 52.56
Aruba 64,317,670.69 24.68
Curacao 54,211,179.97 20.80
Bonaire 5,113,821.63 1.96
Total 260,639,610.02
(i)As of August 2020.
As of July 2020, S&P has recalibrated our scenarios with the
following assumptions:
BASE CASE LOSSES
Jurisdiction Updated base-
case loss (%)
Panama 16.49
Aruba 7.37
Curacao 6.56
Bonaire 100.00
S&P is applying stress factors corresponding to 'BBB' and 'BB'
scenarios.
STRESS FACTORS (x)
Class A Class B
Panama 3.50 2.75
Aruba 4.00 3.35
Curacao 3.75 3.10
LIQUIDITY STRESS
The company implemented a moratorium program for those obligors
affected by the COVID-19 pandemic. The moratorium program is
extended up to six months in Panama and three months in Curacao and
Aruba; and there is no interruption on interest accruing. As of
August 2020, the utilization of the moratorium program was 40.06%
in Panama, and 0.00% in Aruba and Curacao. As a result, S&P applied
a liquidity stress up to 50.00%, based on the peak of adherence
that the Panamanian portfolio reached on April, in a timeframe
defined of six months.
CASH FLOW SUMMARY
Class A Class B
Scenario 'BBB' 'BB'
Weighted avg. stress multiple (x) 3.19 2.57
Available cushion 0.18 0.57
S&P will continue following the evolution of collections and
performance indicators over the next months. S&P said, "We will be
also monitoring the development of sovereign ratings for Aruba,
Curacao, and Panama. It is important to highlight that according to
S&P Global Ratings' view, the currency risk is mitigated at the
current rating levels and up to the sovereign rating of all
jurisdictions. For all the economies where the local currency is
pegged to the U.S. dollar (Aruba, Curacao, and Panama), we will
assume 100% losses under a scenario that goes above the sovereign
rating. The sovereign rating on Curacao currently has a negative
outlook. Therefore, a downgrade would likely have a negative impact
on the ratings assigned to the transactions."
S&P Global Ratings acknowledges a high degree of uncertainty about
the evolution of the coronavirus pandemic. The current consensus
among health experts is that COVID-19 will remain a threat until a
vaccine or effective treatment becomes widely available, which
could be around mid-2021. S&P said, "We are using this assumption
in assessing the economic and credit implications associated with
the pandemic. As the situation evolves, we will update our
assumptions and estimates accordingly."
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety risk.
PROVINCE LA RIOJA: Fitch Cuts IDRs to RD on Cure Period Expiration
------------------------------------------------------------------
Fitch Ratings has downgraded Province of La Rioja's Long-Term
Foreign Currency and Local Currency Issuer Default Ratings (IDR) to
'RD' from 'C'. Fitch has also downgraded the province's 9.75%
senior unsecured notes for USD300 million (due in 2025) to 'D' from
'C'. Additionally, La Rioja's Stand-alone Credit Profile (SCP) is
lowered to 'rd' from 'c'. Fitch has relied on its rating
definitions to position the province's ratings and SCP.
KEY RATING DRIVERS
The downgrade of La Rioja's ratings follows the province's
nonpayment of its semiannual interest payment for USD14.625 million
of its 9.75% senior unsecured notes due in 2025, after the 30-day
cure period expired on Sept. 23, 2020. The province's failure to
cure the missed interest payment before the 30-day grace period
expired is considered an event of default as per the transaction
documents and by Fitch.
On Aug. 24, 2020, the province issued a formal notice stating its
intentions to miss the interest payment and to use its grace period
to initiate a process to restructure its USD bonds as a result of
the negative macroeconomic context heightened by the coronavirus
pandemic, which has negatively impacted its operating balances
results. On Sept. 23, 2020, the limit date of the grace period
expiration, the province issued a formal note stating the
continuation of its restructuring process and its intentions to
continue working on the enhancement of its debt service profile. La
Rioja has a track record of using its grace period and, in the
second instance, it did not fulfill its financial obligations in
time, subsequently falling into a default on its unsecured notes.
The notes were issued for USD200 million in February 2017 and then
reopened in the same year for an additional USD100 million
issuance, forming a single series for USD300 million. The bond is
denominated in U.S. dollars and accrues interest at a fixed rate of
9.75%, payable on a semi-annual basis (Feb. 24 and Aug. 24 of each
year). The bond's maturity date is Feb. 24, 2025, with equal
capital payments in the last four years (on Feb. 24, 2022; Feb. 24,
2023; Feb. 24, 2024; and Feb. 24, 2025). The notes are a senior
unsecured obligation of La Rioja governed by the laws of the state
of New York, and its rating is the same as the province's IDRs. The
proceeds were used for the development of Parque Arauco
S.A.P.E.M.'s clean energy projects and other public works;
therefore, the bonds were issued as Green Energy Bonds.
La Rioja has an Environmental, Social and Governance (ESG)
Relevance Score of '5' for Creditor Rights, revised from '4' due to
the province's deteriorated willingness to service its debt
obligations and the resulting event of default that is driving the
rating action. The breach of a formal agreement assuring the
payment of debt service has negatively impacted creditors' rights.
The province also has an ESG Relevance Score of '4' for Rule of
Law, Institutional and Regulatory Quality and Control of Corruption
considering its weak management performance, with small progress
made by the province in its bond terms and conditions proposal.
This score also factors the province's track record of grace period
usage. Additionally, the sovereign's restructuring process and
final results have an impact on the province's decisions and bond
restructuring process.
DERIVATION SUMMARY
Fitch positions La Rioja's ratings according the agency's rating
definitions.
KEY ASSUMPTIONS
Not applicable.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- La Rioja's IDRs and SCP would be reassessed upon the
completion of a debt restructuring process to reflect its new
credit profile.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- La Rioja is rated 'RD'; therefore, there can be no further
negative rating action on its ratings.
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
La Rioja has an ESG Relevance Score of '5' for Rule of Law,
Institutional and Regulatory Quality and Control of Corruption,
reflecting the negative impact of the weak regulatory framework and
the national policies of the sovereign in relation to the province.
This ESG Relevance Score also factors weak management practices.
The province also has an ESG Relevance Score of '4' for Creditor
Rights due to the province's deteriorated willingness to service
its debt obligations and the resulting event of default that is
driving the rating action. The breach of a formal agreement
assuring payment of debt service has negatively impacted creditors'
rights.
Except for the matters discussed, 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.
[*] Fitch Reviews 3 Argentine LRGs on Country Ceiling Upgrade
-------------------------------------------------------------
Fitch Ratings has reviewed the Issuer Default Ratings of three
Argentine Local and Regional Governments (LRGs) as a result of
Fitch's recent upgrade of Argentina's Country Ceiling to 'B-' from
'CCC'. City of Buenos Aires' (CBA) and Province of Santa Fe's (PSF)
Long-Term Foreign and Local Currency IDRs were upgraded to
'B-'/'Stable' from 'CCC', City of Buenos Aires Short-Term Local and
Foreign Currency IDRs were also upgraded to 'B' from 'C', and
Province of Cordoba's (PC) Long-Term Foreign and Local Currency
IDRs were affirmed at 'CCC'.
City of Buenos Aires' and Province of Santa Fe's IDR upgrade to
'B-', are currently above Argentina's IDR of 'CCC' but at the
country ceiling level of 'B-'. LRG ratings are typically capped by
the sovereign rating, but the rating actions on these two issuers
are according to Fitch's LRG criteria. The criteria states that
when a sovereign is rated below 'B-', an LRG could still be rated
'B-' if it has the capacity to withstand a sovereign default due to
a strong budget, has no need to undertake external refinancing of
debt in the short term, and has sufficient liquidity for it not to
face an imminent default. Fitch's liquidity analysis considers
these two issuers currently meet the criteria's conditions. The
Stand-alone Credit Profiles (SCPs) of CBA and PSF issuers were
lowered but remain above the sovereign IDR. On the other hand,
Province of Cordoba's IDRs were affirmed due to the lowering of its
SCP to 'ccc' from 'b', reflecting the higher refinancing risk of
its USD725 million June 2021 bullet payment and the possibility of
a Distressed Debt Exchange (DDE) in the near term.
KEY RATING DRIVERS
On Sept. 10, 2020, Fitch upgraded Argentina's Long-Term Foreign
Currency and Local Currency IDRs to 'CCC' from 'RD' reflecting the
completion of the sovereign's DDEs on its foreign currency
sovereign debt securities in both local and external markets. The
sovereign's 'CCC' ratings reflect deep liquidity and debt
sustainability challenges that continue to impede improvement in
sovereign repayment capacity, including an economic recession
greatly exacerbated by the coronavirus pandemic, complicated fiscal
consolidation prospects, macroeconomic risks posed by low and
declining international reserves and heavy sovereign reliance on
central bank financing, and lack of concrete plans and foreign
financial support to overcome these challenges. Also, the Country
Ceiling was upgraded to 'B-' from 'CCC'.
City of Buenos Aires: City of Buenos Aires' ratings remains
underpinned by an SCP that is above the sovereign ratings,
reflecting its sufficient liquidity to mitigate refinancing risks
in Fitch's 2020-2022 rating case, as CBA's external debt maturities
are pushed towards 2025 aside from its USD170 million debt capital
maturity that is due on Feb. 19, 2021. Fitch considers that CBA's
current liquidity management would allow the payment to be covered
in 2021.
Recently, through Decree 735/2020 published on Sept. 10, 2020, the
federal government unilaterally modified CBA's percentage share of
federal co-participation transfers to 2.32% from the previous 3.50%
allocated. Since January 2016 CBA's share had been increased to
3.75% from 1.40% to mitigate the transfer of certain police
operating expenses; and the percentage was then reduced to 3.5%
effective January 2018 due to the 2017 Fiscal Pact bilateral
agreement. Fitch estimates that the impact of this measure in CBA's
budgetary performance will reduce the operating balance towards an
average of 10.4% in 2020-2022 from a 19.4% average during
2017-2019. This fiscal adjustment resulted in a 'aa' debt
sustainability score and in a lowered SCP of 'b+' from a previous
'bb-'.
Province of Santa Fe: PSF's ratings consider the entity's adequate
liquidity to navigate the current adverse macroeconomic scenario,
however the lowering of its SCP to 'b-' from 'bb-' considers a
weaker budgetary performance along with a higher refinancing risk
that is reflected in a debt service coverage ratio that in Fitch's
rating case is expected to fall below 1x in 2022 when PSF has a
capital maturity of USD125 million on March 23 on its 7.0% senior
unsecured notes for USD250 million.
Province of Cordoba: Fitch is lowering the SCP of Province of
Cordoba to 'ccc' from 'b' underpinned by tighter financial
conditions that will deteriorate the operating balance and
liquidity metrics towards 2022 in Fitch's rating case and worsened
by a bullet payment of USD725 million in June 2021 and the economic
lockdown from the coronavirus pandemic. Fitch relied on its rating
definitions to position the province's ratings. The 'CCC' rating
indicates a default is a real possibility.
On June 2020, the local congress passed Law 10.697 to
redesign/adjust the maturity profile of its long-term foreign
currency debt. Later, on September 11, the Province announced that
it had issued a Debt Sustainability Analysis (DSA) term sheet
outlining the terms of proposed amendments to its outstanding
international bonds. However, the DSA is not yet a formal consent
solicitation.
PC's Long-Term Foreign- and Local-Currency IDRs (CCC) are being
affirmed. However, the ratings will be downgraded if the Province
of Cordoba enters into a grace period, cure period, or any formal
announcement by the province or their agent of a potential exchange
offer as defined in Fitch's Distressed Debt Exchange (DDE) Rating
Criteria.
The Risk Profile of the three issuers is classified as 'Vulnerable'
reflecting a 'Weaker' evaluation on the six key risk factors
(KRFs), considering the country's structural weaknesses in which
all Argentine LRGs operate. The risk profile evaluation also
captures Argentina's weak fiscal framework for subnationals due to
the complex and imbalanced federal co-participation regime with no
equalization funding mechanisms. Federal transfers origin from a
sovereign counterparty rated at 'CCC' and with negative economic
growth prospects.
DERIVATION SUMMARY
For City of Buenos Aires and Province of Santa Fe, the respective
'b+' and 'b-' SCPs were derived from a 'Vulnerable' Risk Profile
and an 'aa' debt sustainability score, and a comparison with
international peers. For Province of Cordoba Fitch relied on its
rating definitions to obtain a 'ccc' SCP.
KEY ASSUMPTIONS
Fitch's rating case scenario is a "through-the-cycle" scenario,
which incorporates a combination of revenue, cost and financial
risk stresses. It is based on the 2015-2019 figures and 2020-2022
projected ratios. The key assumptions for the scenario include:
-- A real-term decrease in taxes and federal transfers during
2020;
-- Operating expenditure growth above operating revenues for
2020-2022. An annual average for consumer prices of 44.9% for 2020,
44.5% for 2021 and 46.3% for 2022 (in line with Fitch's sovereigns'
forecasts);
-- Cost of debt considers non-cash debt movements due to currency
depreciation with an average exchange rate of ARS74.9 per USD for
2020, 110.3 for 2021 and 155.0 for 2022 (in line with Fitch's
sovereigns' forecasts).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
An upgrade on Argentina's IDRs above 'B-' could positively benefit
CBA's ratings provided that their payback ratio remains below 5x.
PSF's ratings could have a positive impact provided that
refinancing risk decreases. PC's ratings are not foreseen to have a
positive impact at the moment considering the upcoming possible
completion of a DDE in the short term.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A downgrade of Argentina's Country Ceiling would negatively affect
CBA's and PSF's ratings. PC's ratings would be downgraded upon the
formal launch of a DDE process. Any announcement of a possible debt
restructuring or the tightening of FX restrictions that could
hamper their ability to service debt payments due would also have a
negative credit impact.
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
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).
RATING ACTIONS
Buenos Aires, City of
LT IDR; B- Upgrade; previously CCC
ST IDR; B Upgrade; previously C
LC LT IDR; B- Upgrade; previously CCC
LC ST IDR; B Upgrade; previously C
senior unsecured; LT B- Upgrade; previously CCC
Cordoba, Province of
LT IDR; CCC Affirmed; previously CCC
LC LT IDR; CCC Affirmed; previously CCC
Santa Fe, Province of
LT IDR; B- Upgrade; previously CCC
LC LT IDR; B- Upgrade; previously CCC
senior unsecured; LT B- Upgrade; previously CCC
=============
B A H A M A S
=============
BAHAMAS: Concerned About Possibly Appearing on FATF Blacklist
-------------------------------------------------------------
RJR News reports that Bahamas Attorney General Carl Bethel said on
that the country faces the immediate imposition of a potentially
devastating blacklisting by the European Union, effective October
1.
Bethel said the Bahamas will likely remain on the Financial Action
Task Force (FATF) gray list until at least February 2021, according
to RJR News.
He said this pandemic has totally derailed efforts to get off this
blacklist, the report notes.
The Bahamas has been included on the FATF's gray list of countries
with strategic deficiencies since June 2017, the report relays.
As reported in Troubled Company Reporter-Latin America on June 29,
2020, Moody's Investors Service has downgraded the Government of
The Bahamas' long-term issuer and senior unsecured ratings by two
notches to Ba2 from Baa3. Moody's also changed the outlook to
negative. This concludes the review for downgrade that commenced on
April 9, 2020.
===========
B R A Z I L
===========
BANCO ABC: Fitch Cuts Local Currency IDR to 'BB', Outlook Neg.
--------------------------------------------------------------
Fitch Ratings has downgraded Banco ABC Brasil's (ABCBr) Long-Term
Local-Currency Issuer Default Rating (LC IDR) to 'BB' from 'BB+',
and affirmed the Long-Term Foreign-Currency IDR (FC IDR) at 'BB'.
The Rating Outlook on the LC and FC IDR is Negative. The National
Long-Term Rating was affirmed at 'AAA(bra)', while the Outlook on
the National Long-Term rating was revised to Negative from Stable.
KEY RATING DRIVERS
IDRs
ABCBr's IDRs and National Ratings are driven by Fitch's assessment
of the expected institutional support that ABCBr would likely
receive from its parent, Arab Banking Corporation B.S.C. (ABC;
Long-Term IDR BB+/Negative) if needed.
On Sept. 8, 2020, Fitch downgraded parent ABC Long-Term IDR to
'BB+' from 'BBB-'/Outlook Negative. That rating action follows the
downgrade of Bahrain's sovereign rating to 'B+' from 'BB-'.
Prior to the rating action, ABCBr's Long-term LC IDR of 'BB+' was
two notches above Brazil's Long-term LC IDR of 'BB-'/Negative,
while the bank's LT FC IDR was only one notch above the sovereign
due to the constraint of Brazil's Country Ceiling. As Fitch usually
rates ABCBr's IDRs one notch below its parent's IDR, the one notch
downgrade of the parent drove the downgrade of ABCBr's LC IDR even
though the credit metrics of both parent and the subsidiary remain
unchanged. The notching is mainly driven by rating subfactors such
as country risk, relative size, and role in group, which have a
higher influence.
ABCBr's other ratings were also affirmed and the Outlook on the
IDRs was maintained at Negative, in line with that of the bank's
parent and Brazil's sovereign ratings. However, the Rating Outlook
on the National Rating was revised to Negative from Stable as a
further downgrade of the bank's IDR could result in a downgrade of
its National Long-term Rating.
Fitch believes the economic impact of the coronavirus and related
uncertainties could affect the parent's ability and propensity to
support its foreign subsidiaries, which Fitch will continue to
monitor.
The bank's Support Rating of '3' reflects the expected support from
ABC, which is based in Bahrain. Fitch believes the Brazilian
Subsidiary is strategically important for its ultimate parent, ABC
given its core role as a relevant contributor to the parent's
revenues (around 50%), which also underpins the low potential for
disposal. The latter is partially offset by its material size in
respect to the parent, which may limit ABC's ability to provide
support if needed. These factors have a high influence on ABCBr's
support ratings.
ABCBr's financial profile does not have a direct impact its main
ratings but is relevant in Fitch's assessment of the parent's
propensity of support as well as for the stand-alone
creditworthiness evaluation as reflected in the VR, which was
previously affirmed at 'BB-'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade of the bank's ratings:
IDRs AND SR
-- A change in Fitch's assessment of ABC's willingness or ability
(due to the material size of the subsidiary) to support ABCBr;
-- A downgrade of ABC's ratings.
VR
-- A sovereign downgrade or negative rating action as the bank is
closely linked with Brazil's operating environment;
-- A significant deterioration of ABCBr's asset quality that
results in credit costs that severely limit its profitability
(operating profit-to-RWAs ratio consistently below 1.5%) and
ability to grow its capital;
-- A sustained decline in ABCBr's CET I ratio below 11%.
National Ratings
-- Changes in ABCBr's IDRs or in the bank's credit profile
relative to its Brazilian peers could result in a reduction in its
National Ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade of the ratings:
IDR AND SR
-- ABCBr IDRs and SR remain constrained by the sovereign ratings
and country ceiling;
-- An upgrade or positive rating action on the sovereign (not
likely given the current operating environment).
VR
-- ABCBr's VR has limited upside potential, as it is constrained
by the operating environment.
National ratings
-- Given that ABCBr's National Rating of 'AAA(bra)' is currently
at the top of the rating scale, an upgrade of this rating is not
possible.
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
The highest level of ESG credit relevance is a score of '3'. This
means ESG issues are credit-neutral or have only a minimal credit
impact on the entity, either due to their nature or the way in
which they are being managed by the entity.
BRAZIL: Dry Weather & Fires Threaten 2021 Sugarcane Crop
--------------------------------------------------------
Xiu Ying at Rio Times Online reports that the dry climate that has
caused fires on sugarcane plantations in Brazil threatens to reduce
next year.
The crop areas of the states of Sao Paulo, Minas Gerais, Goias, and
Mato Grosso do Sul recorded only between five and 25 percent of
average rainfall in recent months, 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.
BRAZIL: Pandemic Impact Reduces Workers' Income by Almost 25%
-------------------------------------------------------------
Richard Mann at Rio Times Online reports that the impact of the
novel coronavirus on the economy has been felt in the pocket of
Brazilians who have managed to maintain their jobs during the
pandemic.
The drop in income of employed workers was higher for those with
less schooling, according to Pnad/Covid data from the IBGE,
organized by the Idados consultancy, according to Rio Times
Online.
In the first semester of 2020, wages of workers who failed to
complete high school had dropped as much as 25 percent compared to
what they used to earn in the month, the report relays.
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.
LOCALIZA RENT-A-CAR: Fitch Affirms BB+ LT IDR, On Watch Positive
----------------------------------------------------------------
Fitch Ratings has affirmed Localiza Rent a Car S.A.'s Local
Currency (LC) and Foreign Currency (FC) Issuer Default Ratings
(IDRs) at 'BB+' and 'BB', respectively, and the Long-term National
Scale Rating of Localiza and its wholly owned subsidiary Localiza
Fleet S.A. (Localiza Fleet) at 'AAA(bra)'. At the same time, Fitch
has revised to Stable from Negative the Outlook for Localiza's LC
IDR and for Localiza and Localiza Fleet's Long-term National Scale
Rating. The FC IDR remains with a Negative Outlook, limited by
Brazil's country ceiling. The agency has also removed the Outlook
Negative for the Long-term National Scale Rating 'AA+(bra)' of
Companhia de Locacao das Americas - Locamerica and its wholly owned
subsidiary Unidas S.A. (collectively Unidas), placing their ratings
on Watch Positive.
The rating actions follow the announcement of the business
combination of Localiza and Unidas, respectively the largest and
second largest fleet rental and car rental companies in Brazil,
which strengthens the business position of the combined entity and
results on the group with solid capital structure and strong
liquidity position. The ratings also reflect Fitch's perception
that the coronavirus outbreak containment measures, such as social
distancing and mobility restrictions had a lower impact in the auto
rental and fleet rental business than initially anticipated. The
agency currently forecasts slightly worse 2020 industry results
compared with 2019, with better prospects for 2021. Fitch will
equalize the ratings of all companies involved when the deal
closes.
The combined entity will have a better-balanced exposure between
car rental and fleet rental, with an over 67% and 30% market share,
respectively. As a scale-intensive business, there are clear
sizable synergies to capture from different fronts, such as rent a
car and used car network optimization, SG&A and procurement. The
new entity should benefit from vehicle purchase scale, cost of
capital and network coverage, being almost five times bigger than
its closest competitor.
According to the announced terms, the shareholders of Localiza
would hold approximately 77%of the new group, whereas Unidas's
would hold the remainder, approximately 23%. Additionally, Unidas'
shareholders would receive a BRL425 million extraordinary dividend
when the deal closes. In this almost all-stock deal, the new entity
capital structure would not be pressured by debt financing. The
deal is subject to the Brazilian antirust authority's (CADE)
approval, which may take up to the end of 2021. Yet, according to
the terms of the Share Merger Agreement, if any part unilaterally
walks away of the deal, for a reason other than the ones
contemplated in the agreement, it would have to pay a BRL500
million fine in compensation.
KEY RATING DRIVERS
Dominant Industry Player: The combined entity would have a dominant
and prominent business position within the car and fleet rental
industry in Brazil, underpinned by large scale, proven operating
expertise, a national footprint and a strong used car sale
operation. As of June 2020, the new group's fleet of 454,960
vehicles, consisting of 297,068 in rent-a-car (RaC) and 157,892 in
fleet rental (GTF), would secure market shares of approximately 67%
in RaC and 30% in GTF by fleet size. As a result, the new group
would have even stronger bargaining power with automobile
manufacturers than on a stand-alone basis and be able to better
capture economies of scale. At YE 2020 and YE 2021, its own fleet
would be around 445,024 and 465,231 vehicles, respectively.
Solid Capital Structure: The all-share merger would allow the
combined entity to have an adequate capital structure. According to
Fitch's projections, the net debt-to-EBITDA ratio will remain below
3.5x from 2021 on, being 3.3x next year. Fitch expects the new
company to remain committed to a sound financial profile and
liquidity position, both consistent with Localiza's current
ratings.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Agency's Rating Case for
Localiza:
-- Average operating fleet, in 2020 and 2021, of 231,059 and
232,850 for rent a car and 67,583 and 67,263 for fleet management,
respectively;
-- Utilization rate of around 67% and 75% for car rentals in 2020
and 2021, respectively;
-- Total capex of BRL 5.2 billion in 2020 and BRL9.3 billion in
2021;
-- Dividend payout at 25%.
Fitch's Key Assumptions Within the Agency's Rating Case for
Companhia de Locacao das Americas - Locamerica:
-- Average operating fleet, in 2020 and 2021, of 70,468 and
68,021 for rent a car and of 85,444 and 82,651 for fleet
management, respectively;
-- Utilization rate around 70% and 78% for car rentals in 2020
and 2021, respectively;
-- Total capex of BRL 2.8 billion in 2020 and BRL3.9 billion in
2021;
-- Dividend payout at 25%
RATING SENSITIVITIES
Localiza Rent a Car S.A.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- A positive rating action for the Localiza's FC IDR would be
associated to an upgrade on Brazil's sovereign rating;
-- An upgrade on Localiza's LC IDR would depend on the ability to
bring its consolidated leverage ratios to more conservative levels,
with net debt-to-EBITDA moving towards 2.0x on a recurring basis;
-- Upgrade not applicable to the National Scale rating.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Failure to preserve liquidity and inability to access adequate
debt funding;
-- Prolonged decline in demand coupled with company inability to
adjust operation, leading to a higher than expected fall in
operating cash flow;
-- Increase in total leverage to more than 4.5x and in net
leverage to more than 3.5x on a regular basis;
-- A further negative rating action on Brazil's sovereign rating
and country ceiling could result in negative rating action for the
company's FC IDR.
Localiza Fleet S.A.
Due to the existence of a strong parent and subsidiary linkage
between Localiza and Localiza Fleet, changes in Localiza Fleet's
rating and Outlook will follow movements on Localiza's rating and
Outlook
Companhia de Locacao das Americas - Locamerica
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
Fitch expects to resolve the Rating Watch upon completion of the
transaction, which is likely to take place in over six months.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
In case the deal with Localiza is approved, the triggers for a
negative rating action assumes the ones established for Localiza on
a consolidated basis. If the deal does not happen, the triggers for
a negative rating action are:
-- Failure to preserve liquidity and inability to access adequate
debt funding;
-- Prolonged decline in demand coupled with company inability to
adjust operation, leading to a higher than expected fall in
operating cash flow;
-- Increase in net leverage to more than 4.0x on a regular
basis.
Unidas S.A.
Due to the existence of a strong parent and subsidiary linkage
between Locamerica and Unidas, changes in Unidas's rating and
Outlook will follow movements on Locamerica's rating and Outlook.
LIQUIDITY AND DEBT STRUCTURE
Localiza's Robust Liquidity Profile: Localiza's liquidity profile
continues to reflect its high financial flexibility and strong cash
holdings, which were important to navigate the worst months of the
pandemic and to mitigate the expected negative FCFs in the coming
years as growth resumes. Fitch expects the company to remain with a
ratio of cash and equivalents/short-term debt above 2.0x and with a
well-spread debt amortization schedule. Likewise, Localiza's
financial flexibility should remain underpinned by the company's
sizable pool of unencumbered vehicles and its wide access to local
debt markets.
As of June 2020, the company had total debt of BRL10.7 billion,
short-term debt of BRL674 million and cash and cash equivalents of
BRL3.1 billion. As of the same date, fleet market value was
approximately of BRL12.1 billion, which covered total net debt in
1.7x and is in line with historical levels. The value and the
quality of its asset base allow Localiza to monetize it as needed,
further enhancing its financing flexibility. Additionally,
Localiza's business model enables the company to adjust operations
to economic cycles at its discretion, as seen in the past.
Unidas's Solid Liquidity: Fitch projects Unidas will continue to
present a solid liquidity profile, supported by the company
strategy to hold higher cash and equivalents position relative to
its short-term debt, by Unidas's sizable pool of unencumbered
vehicles and good access to capital markets. Unidas kept a solid
liquidity position during the worst periods of the coronavirus
pandemic. The company was able to balance the smaller than expected
decrease in demand with cost cutting measures, asset sales and
access to new funding, which preserved its cash position.
As of June 2020, the company had total debt, according to Fitch
methodology of BRL6.0 billion, short-term debt of BRL1.3 billion
and cash and cash equivalents of BRL1.8 billion. At the same date,
fleet market value was approximately of BRL7.1 billion, which
covered total net debt in 1.7x.
ODEBRECHT SA: Case in Mexico Steaming Along 2 Mos. After Start
--------------------------------------------------------------
Pedro Pablo Cortes at EFE News reports that the initial court
hearing for Emilio Lozoya, the former director of Mexico's oil
company, Petroleos Mexicanos (Pemex) and the first Mexican to be
indicted in the Odebrecht bribery case, marked its two-month point
after going through weeks of silence following an explosive start
laden with leaks and video-scandals.
Given this scenario, experts in fighting corruption told EFE of
their concern that the matter will remain murky despite the
promises of President Andres Manuel Lopez Obrador, who has called
it an emblematic case of the "neoliberal period."
"We're waiting to see if there's the political will to carry this
through, that is, if all this -- as the critics have said -- is
just a media show that is basically for electoral ends," Mara
Gomez, the coordinator of the Mexico Evalua justice program, said,
according to EFE News.
The former Pemex boss from 2012-2016 during the 2012-2018
presidency of Enrique Peña Nieto has shaken the Mexican political
scene with his extradition from Spain on July 17 and the start of
his first court hearing on July 28, the report notes.
Lozoya testified before the national Attorney General's Office
against Pena Nieto and former Finance Secretary Luis Videgaray, the
report relays.
He accused them of "ordering" him to accept $10.5 million from the
Brazilian construction firm Odebrecht for the election campaign and
to bribe lawmakers from the opposition National Action Party (PAN)
to support the energy reform that opened up that sector to private
investment in 2013, the report notes.
But Lozoya also pointed to the 2006-2012 administration of Felipe
Calderon claiming that special privileges were accorded to
petrochemical firm Etileno XXI, which is linked to a Mexican
company that is a partner of Odebrecht, the report discloses.
Thus, the Mexico Evalua expert said she sees here an opportunity to
undertake the first maxi-case, a coordinated effort by police,
prosecutors and judges that will handle it as an organized
structure instead of as individual - and presumably unrelated -
crimes, the report relays.
To accomplish that, she pointed to recent reforms that allow Lozoya
to provide evidence and testimony in exchange for legal, and
presumably physical, protection, the report notes.
"It should all be related, and it's something that remains to be
investigated, with Mexico's endemic violence and the big violations
of human rights, so it's not a case that we should view in an
isolated way. It's a case that is touching on the center of the
political and economic" structure, Gomez said, the report says.
Lopez Obrador also has attracted criticism because he has used his
morning press conferences to air evidence, insult implicated
opposition figures and call on the Attorney General's Office to
release other evidence, according to Eduardo Bohorquez, the
director of Transparencia Mexicana, the report discloses.
"He's politically using the Lozoya case to prepare the ground for
the 2021 election (i.e. the mid-term elections), but that doesn't
mean that he's the authorized spokesman for making the case
transparent, that being (the domain) of the General Transparency
Law and the Attorney General's Office," he added.
Bohorquez acknowledged that it's necessary "to make the entire
process transparent," as the president has called for, but he
demands that it be done with respect for the law and for the
autonomy that the AG's Office must have, the report notes.
He emphasized the examples of Brazil and Peru, where court hearings
in the Odebrecht case were open to the public, something that is
not happening in Mexico, the report relays.
"It's so important that the case proceed in an open manner because
we don't need interpreters. (Mexican) society is a mature society
that must form its own opinion starting with what it sees and going
according to the judicial process," he added.
In his press conferences, the president initially had displayed
images of alleged former Pemex officials who delivered money to
former PAN collaborators in Congress, something that was halted
after a video of Lopez Obrador's brother became public in which he
is receiving campaign "contributions," the report says.
This "dirty case" would complicate rendering judgment on Lozoya,
warned Luis Angel Martinez, an anticorruption expert with Ethos:
Public Policy Laboratory, the report discloses.
"If Lozoya doesn't like the sentence it's almost a fact that he's
going to be shielded because the whole case had an initial lack of
due process when the complaint was leaked and videos came out where
he was allegedly involved," Martinez added.
The Ethos expert said that Mexico finds itself facing the
possibility of losing "another opportunity" to resolve a key case
involving corruption among the top staff of the Peña Nieto
government, the report relays.
About Odebrecht SA
Odebrecht S.A. -- http://www.odebrecht.com/-- is a Brazilian
conglomerate consisting of diversified businesses in the fields of
engineering, construction, chemicals and petrochemicals. Odebrecht
S.A. is a holding company for Construtora Norberto Odebrecht S.A.,
the biggest engineering and contracting company in Latin America,
and Braskem S.A., the largest petrochemicals producer in Latin
America and one of Brazil's five largest private-sector
manufacturing companies. Odebrecht controls Braskem, which by
revenue is the fourth largest petrochemical company in the
Americas.
On June 17, 2019, Odebrecht filed for bankruptcy protection, aiming
to restructure BRL51 billion (US$13 billion) of debt.
The bankruptcy filing comes after years of struggles for Odebrecht,
the biggest of the Brazilian engineering groups caught in a
sweeping political corruption investigation that has rippled across
Latin America, Reuters relayed, as reported by The Troubled Company
Reporter - Latin America.
Odebrecht SA and several of its affiliates filed for Chapter 15
bankruptcy protection (Bankr. S.D.N.Y. Lead Case No. 19-bk-12731)
on Aug. 26, 2019. The cases are assigned to Hon. Stuart M.
Bernstein. Cleary Gottlieb Steen & Hamilton LLP is counsel in the
U.S. cases.
=========
C H I L E
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LATAM AIRLINES: Committee Hires Ferro Castro as Brazilian Counsel
-----------------------------------------------------------------
The Official Committee of Unsecured Creditors of LATAM Airlines
Group S.A., and its debtor-affiliates, seeks authorization from the
U.S. Bankruptcy Court for the Southern District of New York to
retain Ferro Castro Neves Daltro & Gomide Advogados, as Brazilian
counsel to the Committee.
The Committee requires Ferro Castro to:
a. participate in in-person and/or telephonic meetings of the
Committee and subcommittees formed thereby, and otherwise
advise the Committee with respect to its rights, powers and
duties in these Chapter 11 Cases;
b. assist and advise the Committee in its meetings and
negotiations with the Debtors and other parties in interest
regarding Brazilian law issues;
c. assist the Committee in analyzing claims asserted against,
and interests in, the Debtors, and in negotiating with the
holders of such claims and interests and bringing, or
participating in, objections or estimation proceedings with
respect to such claims and interests, if needed;
d. assist the Committee in its analysis of, and negotiations
with the Debtors or any third party related to, financing,
asset disposition transactions, compromises of
controversies, assumption and rejection of executory
contracts and unexpired leases, if related to Brazilian law
issues;
e. respond to inquiries from individual creditors related to
Brazilian law issues;
f. review and analyze complaints, motions, applications,
orders and other pleadings filed with the Court, if related
to Brazilian law aspects;
g. review and analyze third party analyses or reports prepared
in connection with potential claims of the Debtors, advise
the Committee with respect to its positions thereon, and
perform such other diligence and independent analysis as
may be requested by the Committee;
h. assist and advise the Committee with respect to applicable
foreign proceedings, especially if in Brazil, that may
arise in the course of these Chapter 11 Cases; and
i. perform such other legal services as may be necessary or as
may be requested by the Committee.
Ferro Castro will be paid at these hourly rates:
Partners $750 to $1,050
Associates $400 to $650
Staffs $100
Ferro Castro will also be reimbursed for reasonable out-of-pocket
expenses incurred.
Jose Roberto de Castro Neves, partner of Ferro Castro Neves Daltro
& Gomide Advogados, assured the Court that the firm is a
"disinterested person" as the term is defined in Section 101(14) of
the Bankruptcy Code and (a) is not creditors, equity security
holders or insiders of the Debtors; (b) has not been, within two
years before the date of the filing of the Debtors' chapter 11
petition, directors, officers or employees of the Debtors; and (c)
does not have an interest materially adverse to the interest of the
estate or of any class of creditors or equity security holders, by
reason of any direct or indirect relationship to, connection with,
or interest in, the Debtors, or for any other reason.
Ferro Castro can be reached at:
Jose Roberto de Castro Neves
FERRO CASTRO NEVES DALTRO &
GOMIDE ADVOGADOS
Rio Branco Avenue, N. 85, 13th Floor
Rio de Janeiro, RJ, Brazil
Tel: + 55 21 2519-1900
E-mail: jrcastroneves@fcdg.com.br
About LATAM Airlines Group
LATAM Airlines Group S.A. -- http://www.latam.com/-- is a
pan-Latin American airline holding company involved in the
transportation of passengers and cargo and operates as one unified
business enterprise.
LATAM Airlines Group S.A. is the largest passenger airline in South
America. Before the onset of the COVID-19 pandemic, LATAM offered
passenger transport services to 145 different destinations in 26
countries, including domestic flights in Argentina, Brazil, Chile,
Colombia, Ecuador and Peru, and international services within Latin
America as well as to Europe, the United States, the Caribbean,
Oceania, Asia and Africa.
LATAM Airlines Group S.A. and its 28 affiliates sought Chapter 11
protection (Bankr. S.D.N.Y. Lead Case No. 20-11254) on May 25,
2020. Affiliates in Chile, Peru, Colombia, Ecuador and the United
States are part of the Chapter 11 filing.
The Debtors disclosed $21,087,806,000 in total assets and
$17,958,629,000 in total liabilities as of Dec. 31, 2019.
The Hon. James L. Garrity, Jr., is the case judge.
The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as general
bankruptcy counsel; FTI Consulting as restructuring advisor; Togut,
Segal & Segal LLP and Claro & Cia in Chile as special counsel;
PricewaterhouseCoopers Consultores Auditores SpA as
independentauditors; and Larrain Vial Servicios Profesionales
Limitada as Latin America investment banker. Prime Clerk LLC is the
claims agent.
LATAM AIRLINES: Committee Retains Conway as Financial Advisor
-------------------------------------------------------------
The Official Committee of Unsecured Creditors of LATAM Airlines
Group S.A., and its debtor-affiliates, seeks authorization from the
U.S. Bankruptcy Court for the Southern District of New York to
retain Conway MacKenzie, LLC, as financial advisor to the
Committee.
The Committee requires Conway to:
a. assist in the analysis, review and monitoring of the
restructuring process, including, but not limited to an
assessment of potential recoveries for general unsecured
creditors;
b. assist in the review of financial information prepared by
the Debtors, including, but not limited to, cash flow
projections and budgets, business plans, cash receipts and
disbursement analysis, asset and liability analysis,
and the economic analysis of proposed transactions for
which Court approval is sought;
c. assist in the review of the Debtors' proposed debtor in
possession facility ("DIP Facility"), including but not
limited to, evaluating the cash flows generated by business
plan supporting the DIP Facility, certain terms and
corresponding financial impact;
d. assist in the review of the Debtors' prepetition capital
structure, financing agreements, defaults under any
financing agreement and forbearances;
e. assist with the review of the Debtors' analysis of core and
non-core business assets, the potential disposition or
liquidation of the same, and assistance regarding the
review and assessment of any sales process relating
to same;
f. assist with review of any tax issues associated with, but
not limited to, preservation of net operating losses,
refunds due to the Debtors, plans of reorganization, and
asset sales;
g. assist in the review and/or preparation of information and
analysis necessary for the preparation, proposal and
confirmation of a plan and related disclosure statement in
these Cases;
h. attend at meetings and assistance in discussions with the
Debtors, potential investors, banks, other secured lenders,
the Committee and any other official committees organized
in these Cases, the U.S. Trustee, other parties in interest
and professionals hired by the same, as requested;
i. assist in the review of financial related disclosures
required by the Court, including the Schedules of Assets
and Liabilities, the Statement of Financial Affairs and
Monthly Operating Reports;
j. assist with the review of the Debtors' cost/benefit
analysis with respect to the affirmation or rejection of
various executory contracts and leases;
k. assist in the evaluation, analysis and forensic
investigation of avoidance actions, including fraudulent
conveyances and preferential transfers and certain
transactions between the Debtors and affiliated entities;
l. assist in the prosecution of Committee's
responses/objections to the Debtors' motions, including
attendance at depositions and provision of expert
reports/testimony on case issues as required by the
Committee;
m. render such other general business consulting or such other
assistance as the Committee or its counsel may deem
necessary that are consistent with the role of a financial
advisor and not duplicative of services provided by other
professionals in this proceeding; and
n. assist and support in the evaluation of restructuring and
liquidation alternatives.
Conway will be paid at these hourly rates:
Senior Managing Directors $740 to $1,150
Managing Directors $630 to $930
Directors $485 to $660
Senior Associates $375 to $550
Associates $300 to $375
Conway will also be reimbursed for reasonable out-of-pocket
expenses incurred.
Aurelio Garcia-Miro, senior managing director of Conway MacKenzie,
LLC, assured the Court that the firm is a "disinterested person" as
the term is defined in Section 101(14) of the Bankruptcy Code and
(a) is not creditors, equity security holders or insiders of the
Debtors; (b) has not been, within two years before the date of the
filing of the Debtors' chapter 11 petition, directors, officers or
employees of the Debtors; and (c) does not have an interest
materially adverse to the interest of the estate or of any class of
creditors or equity security holders, by reason of any direct or
indirect relationship to, connection with, or interest in, the
Debtors, or for any other reason.
Conway can be reached at:
Aurelio Garcia-Miro
Conway MacKenzie, LLC
461 Fifth Avenue, 12th Floor
New York, NY 10017
Tel: (646) 585-9050
About LATAM Airlines Group S.A.
LATAM Airlines Group S.A. -- http://www.latam.com/-- is a
pan-Latin American airline holding company involved in the
transportation of passengers and cargo and operates as one unified
business enterprise.
LATAM Airlines Group S.A. is the largest passenger airline in South
America. Before the onset of the COVID-19 pandemic, LATAM offered
passenger transport services to 145 different destinations in 26
countries, including domestic flights in Argentina, Brazil, Chile,
Colombia, Ecuador and Peru, and international services within Latin
America as well as to Europe, the United States, the Caribbean,
Oceania, Asia and Africa.
LATAM Airlines Group S.A. and its 28 affiliates sought Chapter 11
protection (Bankr. S.D.N.Y. Lead Case No. 20-11254) on May 25,
2020. Affiliates in Chile, Peru, Colombia, Ecuador and the United
States are part of the Chapter 11 filing.
The Debtors disclosed $21,087,806,000 in total assets and
$17,958,629,000 in total liabilities as of Dec. 31, 2019.
The Hon. James L. Garrity, Jr., is the case judge.
The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as general
bankruptcy counsel; FTI Consulting as restructuring advisor; Togut,
Segal & Segal LLP and Claro & Cia in Chile as special counsel;
PricewaterhouseCoopers Consultores Auditores SpA as
independentauditors; and Larrain Vial Servicios Profesionales
Limitada as Latin America investment banker. Prime Clerk LLC is the
claims agent.
===================
C O S T A R I C A
===================
BANCO DE COSTA: Fitch Assigns 'B' LT IDRs, Outlook Negative
-----------------------------------------------------------
Fitch Ratings has assigned Banco de Costa Rica (BCR) 'B' Foreign
and Local Currency Long-Term Issuer Default Ratings (IDRs) and 'B'
Short-Term Foreign and Local Currency IDRs. The Rating Outlook on
the Long-Term IDRs is Negative.
The Negative Rating Outlook for the IDRs reflects Costa Rica's
sovereign rating outlook.
KEY RATING DRIVERS
IDRs
BCR's IDRs are driven by the support it would receive from its sole
owner, the Republic of Costa Rica (B/Negative). BCR's IDRs are
support driven but also mirror the VR based on intrinsic
performance. The IDRs are aligned with the sovereign and reflect
the explicit guarantee stated in the National Banking System Law.
According to the law, the Costa Rican government is responsible for
all unsubordinated liabilities of the state-owned banks in the
event of the bank's liquidation.
Fitch's assessment of support also considers, with moderate
relevance, the sovereign's financial flexibility to provide support
to the bank, despite BCR's important policy role, which would be
difficult to transfer.
Support Rating (SR) and Support Rating Floor (SRF)
The bank's SR and SRF are driven by its high systemic importance
and the relevant share of gross loans and customer deposits,
ranking second in the Costa Rican banking system. Fitch believes
there is limited probability that the bank would receive sovereign
support if needed, which underpins its SR and SRF. SRF indicates
the minimum level to which the entity's Long-Term IDRs could fall
if Fitch does not change its view on potential sovereign support.
Viability Rating (VR)
The bank's 'b' VR is highly influenced by Costa Rica's economic
challenges and current deteriorated operating environment, and has
impacted the bank's financial performance. Fitch believes BCR's
asset quality and profitability metrics will continue to be
pressured by lower loan growth due to the economic slowdown.
BCR's company profile is sound and has a higher influence on the
its VR, which is characterized by a sound franchise and universal
banking business model. BCR is the 2nd largest bank in the country,
and as of June 2020, has a market share by loans and deposits of
around 20%.
The bank's loan portfolio quality, while still acceptable for the
rating category, is prone to material deterioration after
alleviation measures expire in June 2021. As of June 2020, impaired
loans are 3.33% of gross loans while modified loans, or loans
benefited with alleviation measures, are 23% of gross loans.
Impaired loans are above the industry average and higher than
recent history, while loan loss allowances returned to below 100%
(87.5% as of June 2020).
Earnings and profitability are modest, as the 2016-1H20 average
operating return over risk weighted assets (RWA) is 1.2%, due to
reduced business volumes, a pressured net interest margin,
below-than-peers operational efficiency and growing loan impairment
charges. Fitch believes profitability will likely deteriorate once
alleviation measures end, due to expected increases in impairment
charges.
The bank's equity is sufficient to the current rating level with a
Fitch Core Capital (FCC) ratio of 13.7%, which provides a
satisfactory loan-loss absorption capacity. However, Fitch believes
there is a downside risk for capital metrics under the current
crisis if the bank's overall performance is hampered materially, as
there is limited ability from the government to make extraordinary
injections.
Funding structure and liquidity ratios are sound and a rating
strength, reflected in loan-to-deposits ratio of 89% and stable
deposits. The entity has a relatively high concentration by
depositor as the top 20 represents 27% of the total deposits as of
June 2020. Also, wholesale funding access remains adequate. Fitch
expects these metrics to remain stable for the remainder of 2020
and amply benefited by the deposit franchise of the bank and the
flight to quality usually observed during crisis.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IDRs, SR and SRF: BCR's ratings are sensitive to changes in Costa
Rica's sovereign ratings. Negative changes in the bank's IDRs, SR
and SRF would mirror any movement in Costa Rica's sovereign
ratings.
VR: The bank's VR is sensitive to negative changes in Costa Rica's
operating environment. Downgrades in BCR's VR could also come from
a material deterioration in the bank's financial and company
profile, namely a loan portfolio deterioration that affects
operating profitability, exhibiting sustained losses and its FCC to
RWA ratio remains consistently below 9%.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRs: The Rating Outlook Negative on the IDRs signifies a limited
upside in the near future, however, BCR's IDRs could be upgraded in
the event of an upgrade of Costa Rica's sovereign rating.
SR and SRF: The SR and SRF are constrained, but could be upgraded
if Costa Rica's sovereign and Country Ceiling ratings are upgraded,
as this would reflect a reduction in the potential constraints on
the bank's capacity to receive extraordinary support.
VR: The upside potential for the VR is limited by the stressed
operating environment as a result of the impact of the sanitary
crisis. An improvement of the operating environment that improves
the bank's financial metrics could lead to an upgrade of its VR.
The sovereign rating acts as a cap to BCR's VR.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Fitch calculated the consolidated operation's RWAs and related
metrics by using BCR's individual risk weighted assets and those of
its main subsidiary Banco Internacional de Costa Rica (BICSA).
Also, total capital ratio for the consolidated operation was
calculated using the capital base of the bank and each of its
regulated and non-regulated subsidiaries. All input for these
calculations were taken from the consolidated financial statements
of both BCR and BICSA.
- Pre-paid expenses and other deferred assets were reclassified
as intangible and deducted from Fitch Core Capital.
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
BCR's IDRs are driven by the support it would receive from its sole
owner, the Republic of Costa Rica (B/Negative). The IDRs are
aligned with the sovereign and reflect the explicit guarantee
stated in the National Banking System Law. According to the law,
the Costa Rican government is responsible for all unsubordinated
liabilities of the state-owned banks in the event of the banks'
liquidation.
ESG Considerations
BCR has ESG Relevance Scores of '4' for Governance Structure Issue
driven by its state ownership that could potentially influence the
business model and financial performance of the bank due to the
government's plans and incentives over the time.
Except for the matters discussed, 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).'
BICSA: Fitch Affirms 'BB-' LongTerm IDR, Outlook Negative
---------------------------------------------------------
Fitch Ratings has affirmed Banco Internacional de Costa Rica's
(BICSA) Long-Term Issuer Default Rating (IDR) of 'BB-' and
Viability Rating (VR) of 'bb-', as well as its long-term national
scale rating of 'A-(pan)'. In addition, Fitch has removed the
ratings from Rating Watch Negative (RWN). The Rating Outlook is
Negative. The bank's Short-Term IDR and National Scale Short-Term
ratings are also affirmed.
The RWN resolution, in affirming BICSA's ratings, reflects Fitch's
view that the immediate risks of a downgrade from the economic
fallout of the coronavirus pandemic have diminished. The RWN
removal reflects Fitch's beliefs that negative effects on asset
quality will be lower than initially expected due to
lower-than-peers adherence to deferral programs (22% as of June
2020, compared with 40% of the banking system). It also reflects
the fact that Fitch does not foresee immediate liquidity impacts,
since the expectations of contraction or limitation of wholesale
funding did not materialize.
The Negative Rating Outlook reflects its view that BICSA's ratings
remain tilted to the downside over the medium term due to the
adverse operating environment - mainly within Costa Rica and
Panama, which have the largest proportion of asset exposure and
continue to exert increased risks to the bank's financial
performance and prospects. This is signified in the negative trend
on both asset quality and operating profitability.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT IN PANAMA
BICSA's IDRs and national ratings are driven by its VR. BICSA's VR
reflects, with high importance, Fitch's blended operating
environment assessment, which considers over 20 countries. However,
the operating environments of Costa Rica and Panama have the most
influence, since nearly 60% of the bank's earning assets are
located in these countries. BICSA's blended operating environment
remains unchanged at 'bb-' with a negative trend.
The bank's company profile also has a high influence on the
ratings. BICSA' geographic diversification is wider than that of
its similarly rated peers, and the bank has a strong focus on trade
finance with a stable base of regional clients. However, due to the
pandemic, it has shifted its focus to less sensitive economic
sectors while reducing its new business volume on other sectors,
such as construction and finance and insurance.
BICSA's asset quality metrics remain in line with its current VR,
reflecting its corporate focus. As of 1H20, the bank's impaired
loans to gross loans increased to 2.3% from the previous 1.6% as of
YE19, but this is still considered a reasonable level. However,
Fitch believes the proportion of "modified" loans, at 22% of total
gross loans, could derive in materially higher impaired loans in
2021 once the deferral programs end.
BICSA's profitability is low due to reduced business volume that
has affected overall income, less operational efficiency and
increased loan impairment charges. Fitch expects BICSA's operating
profitability to remain under pressure for the remainder of the
year. While the magnitude of the impact is still uncertain,
earnings will likely deteriorate once payment deferrals end in
2021. As of 1H20, the bank's operating profit to risk-weighted
assets (RWA) ratio was 0.45%, compared to 0.7% in 2019, and lower
than those of other corporate-oriented peers, most with stronger
corporate franchises and complementary lines of business.
BICSA's funding structure has remained stable, resulting from an
ample base of wholesale funders (45% of total funding) with
increased contingency funds in case of need, and is complemented by
customer deposits (46% of total funding) and local debt issuances.
Deposits are mainly term deposits with a high concentration by
depositor (top 20 around 40%). The bank has 51% of total wholesale
funds available, an improvement from the 24% of the previous fiscal
period, reflecting the bank's strategy to preserve liquidity over
loan growth. The loans to deposit metric remain high at 202%, while
the liquidity profile has remained stable in the current operating
environment. The bank's liquidity ratios remain well above the
regulatory minimum.
BICSA's capitalization, measured by its common equity Tier 1 (CET1)
ratio, is adequate and commensurate with its VR. As of June 2020,
BICSA's CET1 was 13%, above the 12.1% registered in 2019,
benefitting from loan contraction (-10% with respect to YE19) that
offset lower profitability. The bank's full retention policy also
supports its capital position, which remains in line with that of
most of its peers.
Fitch believes the Costa Rican government's recent announcement of
an initial proposal of a sale of state-owned assets, including
BICSA, does not have an immediate impact on BICSA's ratings. The
transaction would be contingent on its formalization and approval,
a process that could take significant time. However, once the sale
is approved and legally feasible and the process is formally
started, or Fitch believes there is a significant probability or
certainty that the sale will take place, BICSA's ratings would
likely be placed on Rating Watch, as the agency will evaluate the
possible effects on business prospects and its franchise and
funding profile, among others.
SUPPORT RATING
BICSA's Support Rating reflects Fitch's opinion of the entity's
shareholders, BCR and BNCR, and their ability and propensity to
support BICSA should the need arise. The Support Rating of '4'
reflects a limited probability of support from the shareholders
given their capacity, as demonstrated by their IDRs.
The agency's support assessment places high importance on the
support track record and the implication of subsidiary default.
Fitch also recognizes BICSA's role in its parent companies'
strategies plus the heightened potential for disposal.
Fitch believes BICSA's sale process will effectively start once the
regulatory and approval process has increased the probability of
the sale to occur. At that point, the agency will evaluate the
impact of the transaction on the support its shareholders could
provide. Likewise, Fitch would place the bank's SR on Rating
Watch.
NATIONAL SENIOR DEBT RATINGS IN EL SALVADOR
The national rating of BICSA's senior unsecured debt issuances in
El Salvador, rated 'AAA(slv)', reflects the relative strength of
the Panamanian bank compared to other issuers in El Salvador.
BICSA's IDR is three notches above El Salvador's 'B-' sovereign
rating.
RATING SENSITIVITIES
IDRs, VR AND NATIONAL RATINGS
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A further downgrade or material deterioration of the main
operating environments where BICSA holds its major exposures,
namely in Costa Rica and Panama.
-- A deterioration of the bank's financial profile reflected in a
material and sustained increase of its impaired loans, and a
further reduction of its operating return of RWAs that reduces its
CET1 ratio below 12%.
-- A change in Fitch's perception regarding the sale prospects
becoming effective in the short term or within a reasonable
timeframe. Fitch would then revise the expected effects on the
bank's credit profile and likely place the ratings on Rating
Watch.
-- A downgrade of BICSA's VR could likely affect its IDRs and
national ratings as well, but the resulting levels of these ratings
would be determined by the implicit floor derived from its
shareholders' IDRs, as the ratings could return to being driven by
parent support.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An improvement in the bank's operating environments,
particularly in Panama and Costa Rica, could lead to a rating
upgrade over the medium term.
-- The ratings could be affirmed and the Rating Outlook revised
to Stable if the bank's profitability and asset quality ratios
return to their pre-pandemic levels on a consistent basis.
SUPPORT RATING
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The Support Rating is sensitive to negative changes in BCR's
and BNCR's capacity or propensity to provide timely support to the
bank.
-- A change in Fitch's perception regarding the increased
probability of the sale becoming a reality within a reasonable
timeframe would mark a revision of the bank's support rating and
lead to its placement on Rating Watch.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Although not expected within the foreseeable future, the
Support Rating is sensitive to significant positive changes in
BCR's and BNCR's capacity or propensity to provide timely support
to the bank.
DEBT RATINGS IN PANAMA
Although the bank's debt does not have an explicit Rating Outlook,
the global debt ratings would mirror any potential movements on
their respective IDRs. The senior unsecured debt ratings would
continue to be aligned with the bank's IDR.
NATIONAL SENIOR DEBT RATINGS IN EL SALVADOR
The national ratings could be downgraded in response to a material
reduction in BICSA's IDR.
SUMMARY OF FINANCIAL ADJUSTMENTS
Pre-paid expenses and other deferred assets were reclassified as
intangible and deducted from Fitch Core Capital.
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
BICSA has an ESG relevance score of '4' for Government Structure as
it is owned by Costa Rica's state-owned banks. This could
potentially influence the bank's business model and/or board
independence and effectiveness.
Except for the matters discussed, the highest level of
environmental, social and governance (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, due to either their
nature or the way in which they are being managed by the entity.
===========
M E X I C O
===========
GRUPO POSADAS: Fitch Withdraws 'RD' LT Issuer Default Rating
------------------------------------------------------------
Fitch Ratings has affirmed Grupo Posadas, S.A.B. de C.V.'s
Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs)
at 'RD'. In addition, Fitch has affirmed the company's senior notes
due in 2022 at 'C'/'RR4'. Simultaneously, Fitch has withdrawn all
ratings. Fitch has withdrawn Grupo Posadas' ratings for commercial
reasons.
The ratings are withdrawn with the following reason: for commercial
purposes.
KEY RATING DRIVERS
Tight Liquidity Headroom: Fitch estimates that the effect on the
company's operations from closed hotels during April, May and the
first half of June resulted in a monthly cash burn of around MXN90
million-MXN100 million. Posadas' liquidity position is subsequently
compromised given the estimated monthly cash burn.
Business and Financial Strategy: The company announced that it has
hired advisors to evaluate strategic options, which Fitch believes
could include a debt restructuring process in the midterm in order
to achieve a sustainable capital structure.
RATING SENSITIVITIES
Rating sensitivities are no longer relevant given the rating
withdrawals.
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity: Cash and equivalents as of June 2020 were MXN924.4
million (or approximately USD40.3 million).
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch adjusts for operating lease treatment under IFRS 16. Also,
income from the sale of assets is included in revenues on Posadas'
financial statements; Fitch takes these nonrecurring items out of
operating profits.
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
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).
*********
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
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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2020. All rights reserved. ISSN 1529-2746.
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