/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/201014.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, October 14, 2020, Vol. 21, No. 206 Headlines B R A Z I L GOL LINHAS: Fitch Upgrades LT IDRs to CCC+, Outlook Stable D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Abinader Announces 'No New Taxes' DOMINICAN REPUBLIC: Big Business Praises Leader's Call for Talks M E X I C O BANCO INVEX: Fitch Assigns 'BB+' LT IDR, Outlook Stable NUEVA ELEKTRA: Fitch Assigns 'BB+' LT IDR, Outlook Negative T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: Contractors Still Owed Hundreds of Millions V E N E Z U E L A PDVSA: Boosts Crude Blending, Upgrading as Exports Tick Up X X X X X X X X [*] Bankruptcies Dropped 31.1% in Puerto Rico in September - - - - - =========== B R A Z I L =========== GOL LINHAS: Fitch Upgrades LT IDRs to CCC+, Outlook Stable ---------------------------------------------------------- Fitch Ratings has upgraded GOL Linhas Aereas Inteligentes S.A.'s (GOL) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'CCC+' from 'CCC-' and upgraded its Long-Term National Scale rating to 'B-(bra) from 'CCC(bra)'. The Outlook on the National Long-Term Rating is Stable. Fitch has also upgraded GOL Finance's unsecured bonds to 'CCC+/RR4' from 'CCC-'/'RR4'. The upgrades reflect the reduction in GOL's short-term refinancing risk following the payment of its USD300 million Term Loan B that was guaranteed by Delta Air Lines ('BB+/RON), and refinancing of local debentures and working capital credit lines. The new ratings incorporate an expectation of access to new financing from various sources, as well as decreased pressure on the company's cash flow due to the completion of relief measures with lessors. Cash flow should also benefit from better industry dynamics in the Brazilian domestic market, the backbone of GOL's operations, and the ongoing cost reductions initiatives. The high level of uncertainty regarding the pace of the pandemic in Brazil, future travel restrictions and timing/rollout of potential vaccines and treatments remain key risks. GOL's ability to access new credit lines in the next two or three quarters is crucial to the ratings to support healthy liquidity levels and fund the potential rebound of operations. In a scenario of limited access to credit lines, Fitch would expect GOL to preserve liquidity as seen in others cases within the region and in the global airline industry. KEY RATING DRIVERS Coronavirus Assumptions: Fitch's current base case for the Brazilian domestic market assumes a recovery that will only reach 2019 levels of traffic by 2022. Its base case scenario envisions a 55% drop in revenue passenger kilometers (RPKs) during 2020 from 2019 levels and that 2021 RPKs will remain 20% below 2019. FX weakness and lower yields are expected to be partially offset by several cost reduction initiatives in the short term. Industry dynamics are expected to change, with leisure passengers representing a higher proportion of the mix, which should limit a more substantial recovery in yields. Since April, when GOL's RPK drop 93%, domestic traffic demand has been recovering. GOL's preliminary RPK figures showed a decline of 54% during September versus the previous year. Fitch expects GOL's RPKs to decline 50%-52% in 2020 and 15%-17% in 2021. Renegotiations Limit Cash Flow Burn: Fitch estimates negative FCF of around BRL100 million for 2020. For 2021, with the rebound of operations, lack of non-recurring cash flow benefits, and capex of around BRL1 billion, FCF should be around negative BRL1.5 billion. In terms of adjusted EBITDA, Fitch estimates around BRL1.9 billion for 2020 and around BRL3.3 billion for 2021. GOL's ability to quickly adjust its fleet capacity to match demand, renegotiate its leasing terms, obtain a cash settlement from Boeing, and reduce costs has been crucial to limiting cash outflow. Fitch estimates leasing renegotiations will bring around BRL700-800 million of cash flow relief during 2020, while GOL's settlement with Boeing was around BRL447 million. Completion of Refinancing Plan: GOL was able to refinance its major short-term financial obligations, including leasing, banking debt and local debentures and to complete the payment of its Term Loan B (USD300 million), with support from third-party credit lines. GOL's short-term maturities totaled BRL6.1 billion as of June 30, 2020 and its pro forma readily available cash was BRL1.5 billion, per Fitch's criteria. Considering pro-forma figures, after the refinancing, Fitch considers GOL's debt amortization profile to be more manageable; major short-term maturities relate to aircraft financing and finimp transactions that are expected to be rollover on an ongoing basis. Solid Market Position: GOL has a leading business position in the Brazilian airline domestic market, which is viewed as sustainable over the medium term, with a market share of around 38% as measured by RPK in 2019. As this is the company's key market, GOL's operating results are highly correlated to the Brazilian economy. Due to this limited geographic diversification, the company's FX exposure is high. GOL generates approximately 85% of its revenues in Brazilian reals, while around 60% of its total costs and 94% of its total debt are denominated in U.S. dollars. DERIVATION SUMMARY GOL's ratings reflect Fitch's concerns on the sustainability of its credit profile in a scenario of high uncertainties of air passenger demand. The company's large exposure to domestic market in Brazil is currently positive and should benefit its performance as local traffic is expected to recovery much faster than international operations. GOL's quick ability to adjust its fleet capacity to current demand levels has been a key competitive advantage and should benefit profitability levels in the medium term compared to peers. Overall, GOL has a weaker position relative to global peers given its limited geographic diversification and relatively high leverage; nonetheless, its important regional market position in the Brazilian market, high operating margins and a track record of strong liquidity ratios have been key rating drivers. These positive factors are tempered by the company's ongoing business growth and operational volatility related to its key market, Brazil. FX risk exposure is viewed as a negative credit factor for GOL considering its limited geographic diversification. However, the company has implemented a currency hedge position that partially limits its exposure to currency fluctuation. KEY ASSUMPTIONS Key assumptions in Fitch's rating case include a steep drop in demand through 2020, with full recovery only occurring by 2022. During 2020, Fitch's base case includes a decrease in RPK by 52% and around 17% for 2021, with a full rebound to 2019 levels only occurring by 20222. -- Load factors around 79%-80% during 2020 and 2021. -- Capex of BRL725 million in 2020 and BRL1 billion for 2021. -- Access to new credit lines during the next two-three quarters KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that GOL would be considered a going concern in bankruptcy and that the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim. Going-Concern Approach: GOL's going concern EBITDA is based on an average of 2014-2018 EBITDA that reflects a scenario of intense volatility in the airline industry in Latin America and Brazil, plus a discount of 20%. The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level, upon which Fitch's bases the valuation of the company. The EV/EBITDA multiple applied is 5x, reflecting GOL's strong market position in the Brazil. Fitch applies a waterfall analysis to the post-default enterprise value (EV) based on the relative claims of debt in the capital structure. The agency's debt waterfall assumption takes into account the company's total debt at June 30, 2020. These assumptions result in a recovery rate for the unsecured bonds within the 'RR4' range, which, per Fitch's criteria, leads to equalization of the rating to the IDR. RATING SENSITIVITIES Developments that may, individually or collectively, lead to positive rating action/upgrade: -- Better than estimated perspectives for domestic traffic recovery in Brazil. -- Continuous ability to access credit lines, seeking to maintain healthy liquidity position and manageable refinancing risks. Developments that may, individually or collectively, lead to negative rating action/downgrade: -- Deterioration in GOL's liquidity profile or difficulties to raise new money in the new two-to-three quarters. LIQUIDITY AND DEBT STRUCTURE The challenges due to the pandemic will require GOL to fund its medium-term negative FCF generation with new debt. GOL's ability to access credit/debt market during the next quarters will be key to avoiding a rating downgrade. GOL held pro forma readily available cash of BRL1.5 billion as of June 30, 2020, per Fitch's criteria. This includes BRL1.2 billion of advance sale transaction with Smiles completed early in July 2020. GOL's short-term debt was BRL6.1 billion, including the BRL2.2 billion of leasing obligations. The company had BRL8.1 billion of leasing obligations, BRL1.7 billion of Term Loan B, BRL6.4 billion in cross-border senior notes, BRL2.4 billion of banking loans and BRL582 million in local debentures as of the same period. GOL does not have a committed standby credit facility. 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 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. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Abinader Announces 'No New Taxes' ----------------------------------------------------- Dominican Today reports that Dominican Republic President Luis Abinader announced that he will send an addendum to Congress to eliminate all taxes included in the 2021 State Budget bill that he submitted. "Dominican people, this means that for the year 2021 we will not have new taxes," said the president when addressing the Dominican people, according to Dominican Today. He said the government's decision "tries not to sacrifice the population." He said that's why they have been making a profound effort to reduce expenses, reviewing item by item," the report notes. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. The Troubled Company Reporter-Latin America reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for Dominican Republic stands at BB- with negative outlook (April 2020). Moody's credit rating for Dominican Republic was last set at Ba3 with stable outlook (July 2017). Fitch's credit rating for Dominican Republic was last reported at BB- with negative outlook (May 8, 2020). DOMINICAN REPUBLIC: Big Business Praises Leader's Call for Talks ---------------------------------------------------------------- Dominican Today reports that the National Business Council (Conep) praised as positive President Luis Abinader's call to initiate a dialogue within the Economic and Social Council (CES), and that the different sectors of society can agree on positions on strategic issues on the national agenda. They recalled that the process around the Electricity Pact achieved important levels of consensus and that its signature would only lack in the short term, to start to discuss the Fiscal Pact, according to Dominican Today. Conep President, Pedro Brache, recognized the complex global scenario caused by the pandemic, and its health, economic and social impact on the Dominican Republic, the report notes. "Faced with this situation, we agree with President Abinader on how difficult it is to prepare the General State Budget for 2021, the report adds. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. The Troubled Company Reporter-Latin America reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Standard & Poor's credit rating for Dominican Republic stands at BB- with negative outlook (April 2020). Moody's credit rating for Dominican Republic was last set at Ba3 with stable outlook (July 2017). Fitch's credit rating for Dominican Republic was last reported at BB- with negative outlook (May 8, 2020). =========== M E X I C O =========== BANCO INVEX: Fitch Assigns 'BB+' LT IDR, Outlook Stable ------------------------------------------------------- Fitch Ratings has assigned Banco Invex, S.A. Fideicomiso F/2157 (Fibra MTY) Foreign Currency and Local Currency Long-Term Issuer Default Ratings of 'BB+'. The Rating Outlook is Stable. Fitch also assigned a Long-Term rating of 'BB+' to Fibra MTY's proposed USD100 million senior unsecured Certificados Bursatiles Fiduciarios (CBFs) issuance FMTY 20D due 2027. Fitch also affirmed Fibra MTY's National Scale Rating at 'AA(mex)' with a Stable Rating Outlook and the National Scale rating assigned to the proposed issuance at 'AA(mex)'. Fibra MTY's ratings are based on the company's good asset quality, its property portfolio diversification in the office, industrial and, to a lesser extent, commercial segments. The ratings also reflect a strong financial profile characterized by high EBITDA margins, expected medium-term net leverage ratios (measured as net debt to EBITDA, excluding the effect of IFRS 16) of 4.5x and adequate liquidity. The ratings are limited by a certain degree of revenue concentration by property, tenant, and region; factors that mitigate this risk include the good tenant quality and corporate guarantees that back lease contracts. The ratings are also supported by Fibra MTY's geographic footprint with properties in regions with higher economic growth rates than the national average. Fibra MTY's growth strategy is aimed at segments and regions with favorable prospects on profitability, which will allow for the dilution of concentrations in the medium to long term. The proposed CBF issuance corresponds to an instrument issued in the local bond market denominated in U.S. dollars. The proceeds obtained from this issuance will be used for refinancing existing debt and other general corporate purposes. KEY RATING DRIVERS Good Portfolio Quality: Fibra MTY's rent price per square meter (sq m) compares favorably with average local market prices. Its tenant base comprises mainly institutional companies and long-term lease contracts are the result of the fibra's good asset quality. The company owned and operated 58 properties, equivalent to 708,500sq m of gross leasable area (GLA) as of June 2020, an increase compared with the 22 properties and 220,300sq m at YE 2015. Fibra MTY's property portfolio is made up of 18 office properties, 34 industrial properties and six commercial properties. The portfolio is in nine different states within Mexico. Low Rental Income Risk: High asset quality, good property location and long-term relationships with tenants allow Fibra MTY to maintain high occupancy rates. The total portfolio occupancy rate in terms of GLA was 96.4% as of June 30, 2020. Fitch considers that Fibra MTY's lease contracts, with an average remaining life of five years, provide predictability on the company's future revenue. Fibra MTY had a laddered lease expiration schedule with 17.8% of lease contracts expiring within one year, 12.6% in two years, 8.5% in three years, 5.8% in four years and 55.3% thereafter as of June 30, 2020. Fitch expects total occupancy to be around 95%. The contract retention rate was 82.3% at the end of June 2020. Concentration of Rental Income: In Fitch's opinion, Fibra MTY presents concentration by property, tenant, and region. Fibra MTY had 115 tenants at the end of June 2020, several of which occupied more than one property in its portfolio. The top 10 tenants during LTM June 2020 generated approximately 51.1% of rental income, which is considered a high concentration. The most relevant tenant, Industrias Acros Whirlpool S.A. de C.V., accounted for approximately 20.4% of rental income, while none of the other tenants accounted for more than 4.4% of rental income. In terms of the fair value of the investment portfolio, the top 10 properties as of June 2020 concentrated 44% of the portfolio's value and contributed 44% of net operating income (NOI). These values improved in recent years with the incorporation of new properties to the portfolio. The company also has geographic concentration. During LTM June 2020, 62.9% of revenues were generated in the state of Nuevo Leon. Fitch's analysis considers the historical growth in GDP for the states where Fibra MTY has presence relative to the national average growth in GDP. Fitch estimates the geographic concentration will decrease as the company executes its growth plan in the next 12-24 months. The plan is focused on states with growth prospects in the manufacturing sector in both the North and Bajio regions in central Mexico. Fitch considers the fact that Fibra MTY maintains a diversified portfolio of tenants by industry as positive. The contribution from consumer durable goods, capital goods and the automotive sector accounted for 55.2% of revenues as of June 30, 2020. Coronavirus Impact Manageable: Fibra MTY's management conducted a risk assessment exercise. The company implemented measures from March to June 2020 to deal with the challenges presented by the coronavirus pandemic. These measures included the suspension of acquisitions, the creation of an account receivables reserve and tenant rent support. Tenant support measures included agreements to apply tenants' rent deposits toward rent payment -- with the tenants' commitment to replenish these deposits in the following 12-24 months -- and deferrals in rent payments, which will be recovered during 2021. Fitch will continue to monitor Fibra MTY's revenue and portfolio performance. In its base case projections, the agency considers lower occupancy rates for the office segment and longer vacancy periods once a contract expires and a new contract is formalized. The results of this analysis indicate Fibra MTY's profitability and its main credit metrics will remain in adequate ranges. Positive Momentum in Profitability: Fibra MTY's incorporation of new properties to its initial portfolio has been efficient. The growth of its portfolio, coupled with a fixed-cost structure, allowed the company to strengthen EBITDA margins. Management and advisory activities for Fibra MTY are carried out internally, which allow it to maintain a mainly fixed-cost structure, and generate efficiencies and economies of scale. Its EBITDA margin before IFRS 16 for LTM June 2020 was 82.7% according to reported numbers and Fitch's calculations, which compares favorably with the 72.4% margin registered at the end of 2015. Fitch anticipates the EBITDA margin will remain around 81.5% in the following years. Adequate Leverage: Fitch expects Fibra MTY's leverage to be 4.5x in the medium term while it executes its growth strategy. The base case projections consider the deployment of resources obtained from the December 2019 equity follow-on and the cash flows generated by current and new properties. The ratings consider a growth strategy financed with a combination of debt and equity that allows the company to maintain a loan-to-value metric (LTV, net debt/investment properties) equal to or below 35%. Fibra MTY's total debt balance as of June 2020 was MXN5,870 million (USD255 million), fully denominated in U.S. dollars. The company has a natural hedge from exchange rate volatility because contracts denominated in this currency represent around 74% of its revenues. Fitch considers in the ratings the proposed CBF issuance and the prepayment of the outstanding syndicated loan of USD92 million. After refinancing, the average debt maturity on a pro forma basis would increase from 3.5 years to 5.1 years. Prepayment of the syndicated loan would increase the percentage of unencumbered assets to approximately 37.9% by the end of 2020. The unencumbered asset pool could provide additional financial flexibility to the company in an environment of low economic activity and limited access to different sources of funding. DERIVATION SUMMARY Fibra MTY's good asset quality and successful integration of past acquisitions to its portfolio allowed it to achieve a solid operating performance throughout the years and reduce to some extent its rental income risk. However, the scale of its portfolio and its low tenant and property granularity limit the ratings due to a higher concentration of income by property and tenants, and lower geographic diversification. Fibra MTY's real estate portfolio is integrated by 58 properties as of June 2020, equivalent to 708,500sq m of GLA. During LTM June 2020, the office segment accounted for 52.5% of revenues, industrial 44.9% and commercial 2.6%. During the same period, CIBANCO, S.A. Institucion de Banca Multiple, F/00939 (Fibra Terrafina, BBB-/Stable) had 289 properties and an approximate GLA of 3.9 million sq m, focused entirely on the industrial segment. The latter's larger scale reduces property and tenant concentration, and allows for greater geographic diversification. Terrafina's client portfolio consists of 307 tenants, the top 10 of which represented around 18.9% of revenues. None of the other tenants accounted for more than 3.7% of rental income. Fitch believes Terrafina's focus in the industrial segment provides greater predictability of cash flows and stability in occupancy rates as lease term contracts tend to be longer. Fitch views the industrial real estate segment as better positioned to have a faster recovery process during the reopening of the economy. Furthermore, the industrial segment's business fundamentals remain robust over the medium term due to the country's economic competitive advantages, which include its strategic location and lower labor costs relative to other manufacturing hubs. Fibra MTY's weaker business profile relative to its regional real estate peers in the low range of the 'BBB' rating category is partially mitigated by a strong financial profile. Fibra MTY's EBITDA margin is higher than Fideicomiso Fibra Uno's (BBB/Negative), due in part to its fixed costs and scalable internal management structure. Fitch expects Fibra Uno's profitability to be around 74%. Fitch views Fibra MTY's financial structure as credit positive and believes it is well positioned relative to its peers. Fitch expects Fibra MTY's net leverage to be 4.5x in the medium term, while Fitch's expects Corporacion Inmobiliaria Vesta, S.A.B. de C.V.'s (Vesta, BBB-/Stable) net leverage to be around 5.4x and Terrafina's at 5.5x. However, in Fitch's opinion, Vesta's stronger business profile and greater financial flexibility measured in terms of a higher ratio of unencumbered assets to unsecured debt and a lower FX exposure mitigates its higher leverage ratios. With respect to Fibra MTY's National Scale rating peers, its portfolio is comparable in terms of scale to that of Fideicomiso Irrevocable Numero F00854 (Fibra Shop, AA-[mex]/Negative), which manages 18 properties equivalent to 620,900sq m of GLA and Banamex Fibra Danhos, Fideicomiso 17416-3 (Fibra Danhos, AAA[mex]/Stable), which operates 14 properties and 891,700sq m of GLA. Fibra Shop's and Danhos' portfolios exhibit higher levels of income concentration by property as they have a lower number of properties than Fibra MTY. Fibra Shop focuses on the commercial segment, while Danhos is diversified in commercial, office and lodging segment. Fibra MTY's industrial portfolio allows greater cash flow predictability. Fibra MTY's EBITDA margin is higher than Fibra Shop and Danhos, in part due to its slim cost structure. Fitch expects Danhos' and Fibra Shop's profitability margins to be 64% and 72%, respectively, in the medium term. In Fitch's view, the latter's scale and property-development component affect its profitability. Fitch's expects Fibra Shop's net leverage will be around 5.5x during 2021 and 2022, and Danhos' expected gross leverage (total debt to EBITDA) to be below 2.0x in the medium and long term. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: -- Rent prices per sq m increase in line with inflation; -- Portfolio occupancy rates continue at around 95%; -- EBITDA margin strengthens to around 81.5%; -- Acquisitions financed with a mix of debt and equity; -- Issuance of CBF for USD100 million and prepayment of the USD91.8 million syndicated loan; -- Net leverage between 4.0x and 5.0x; -- LTV tends to be below 35%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Successful execution of the acquisition plan during the rating horizon, increasing the scale of the portfolio and reducing the concentration of income and NOI per tenant and property; -- EBITDA margin consistently higher than 80%; -- Maintaining a net leverage metric below 4.0x on a sustained basis, throughout investment periods; -- Significant reduction in the proportion of encumbered assets. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Increase in the concentration of income per tenant and/or property; -- Deterioration in profitability that results in an EBITDA margin below 70% on a sustained basis; -- Increase of net leverage in ranges above 5.0x on a sustained basis, as a result of a deterioration in profitability and/or acquisitions financed mainly with debt; -- Dividend payments consistently higher than 100% of FFO, resulting in a weaker capital structure; -- Weakening liquidity profile; -- Operating EBITDA coverage to interest paid of 2.5x or less; -- Ratio of unencumbered assets to unsecured debt equal to or less than 2.0x. LIQUIDITY AND DEBT STRUCTURE Ample Liquidity: Fibra MTY's sources of liquidity include part of the proceeds obtained from the December 2019 equity follow-on. Cash and equivalents amounted to MXN3,512 million as of June 2020. Fitch incorporates in its projections the deployment of these resources in acquisitions during the next few years. The forecast cash balance is around MXN400 million. Fibra MTY's liquidity is supported by the availability of committed credit lines of up to MXN1,700 million. Fibra MTY's actual debt is secured by properties. With the proposed CBF issuance, Fitch expects around 35% of value of its portfolio will be unsecured. Considering the above and the reported value of investment properties as of June 2020, Fitch estimates the coverage of unencumbered assets to unsecured debt would be 3.7x. 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 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. NUEVA ELEKTRA: Fitch Assigns 'BB+' LT IDR, Outlook Negative ----------------------------------------------------------- Fitch Ratings has assigned first-time Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDRs) of 'BB+' to Nueva Elektra del Milenio, S.A. de C.V. (NEM). The Rating Outlook is Negative. NEM's ratings are equalized to those of its parent company Grupo Elektra S.A.B. de C.V. (Grupo Elektra, BB+/Negative) and viewed on a consolidated basis. This reflects Fitch's view of a strong linkage (legal, operational and strategic) between NEM and Grupo Elektra due to the importance of NEM for its parent. NEM operates one of the two main businesses of the group and is the subsidiary that operates the Mexican retail business and is the parent company of the retail businesses in Latin America for Grupo Elektra. Fitch also views NEM's operations as integral to Grupo Elektra's core business, and some of its cash flows are used to pay Grupo Elektra's debt. While most of Elektra's debt, excluding the bank, is allocated at the holding company, the ratings incorporate that allocation of debt may be more balanced between the holding company and NEM in future. Grupo Elektra's ratings reflect its long-term retail trajectory, market position as one of Mexico's main consumer retail chains, operational and financial linkage with Banco Azteca S.A. (BAZ; A+(mex)/Negative) and sizable liquidity position and financial flexibility. The ratings also consider Fitch's view of the company's related parties' aggressive treatment toward different stakeholders, which weakens governance. Grupo Elektra's Negative Outlook reflects the impact of the coronavirus pandemic and related disruptions on the non-food retail sector and the expected downturn in discretionary spending that could extend into 2021. Fitch estimates Grupo Elektra's consolidated gross adjusted leverage to increase close to 4.0x by YE 2020 from 2.5x in 2019, mainly as a result of lower revenues in the retail business and lower profitability margins driven by higher non-performing loans (NPLs) from the financial business. Consolidated adjusted leverage is expected to recover to levels below 2.5x during 2022, assuming a gradual and sustained revenue and profitability recovery. A more prolonged or severe downturn could lead to negative rating actions. KEY RATING DRIVERS Challenging Retail Environment: Non-food retail sales have been negatively affected in most countries where Grupo Elektra operates as the coronavirus outbreak included temporary closures of non-essential stores. However, most Grupo Elektra's stores in Mexico did not stopped operations as all of them contain BAZ branches within the stores and financial services are considered essential activities. Fitch believes traffic to Grupo Elektra's stores will continue to be negatively affected by the pandemic while containment measures by local authorities last. Fitch also believes social distancing measures will affect consumer behavior even after the restrictions are lifted, which together with the expected pressure on consumers' household incomes may weaken consumer demand on discretionary items and impact the recovery speed of non-food retailers' revenues during second-half 2020. Expected Weakened Leverage: Fitch's primary focus on Grupo Elektra's credit metrics considers only the retail business, excluding financial businesses. Following this approach, Grupo Elektra's retail-only gross adjusted debt/EBITDAR was 3.7x in December 2019, an increase from previous years due to the company's higher sales in low-profitable categories as well as intense competition. Fitch estimates Grupo Elektra's retail-only gross adjusted debt/EBITDAR to go up to around 4.9x by YE 2020 based on lower revenues and higher debt levels. In addition, Fitch estimates Grupo Elektra's retail-only adjusted leverage ratios will recover to levels below 3.5x in 2022 as long as the company manages to recover revenues and profitability presented in the past. Using the captive finance adjustment, as per Fitch's criteria, consolidated gross adjusted debt/EBITDAR was 2.5x as of Dec. 31, 2019. Fitch expects this ratio to increase close to 4.0x by YE 2020 due to lower revenues and lower profitability margins driven mainly by BAZ's higher NPLs provisions. This adjusted leverage ratio is expected to recover and trend to below 2.5x by 2022. Where financial services (FS) activities are consolidated by a rated entity, Fitch criteria assumes a capital structure for FS operations, which is strong enough to indicate that FS activities are unlikely to be a cash drain on retail operations over the rating horizon. Then the FS entity's debt proxy, or its actual debt (if lower), can be deconsolidated and the remainder debt used for credit metric calculations. Strong Market Position: Grupo Elektra's market position is supported by the diversification of its operations and linkage with BAZ, a Mexican bank with the most granularity in the country. Grupo Elektra has a 70-year track record in the commercialization of consumer durable goods, with operations in five Latin American countries including Mexico. The company also has a presence in the U.S. through its subsidiary Purpose Financial Inc. (formerly Advance America), a payday lending and other short-term financial services provider. Grupo Elektra's omnichannel strategy includes not only retail but also a financial business component. Since 2016 the company has invested in servers and IT platforms to help support innovations that will allow it to stay updated with consumer trends. Elektra generates about 80% of the group's consolidated revenues in Mexico, including retail and financial businesses. However, Fitch believes operations in other countries across Latin America and the U.S. somewhat mitigate revenue concentration. BAZ Complements Elektra's Business Model: The linkage between Grupo Elektra's retail and financial divisions is strong as both depend on one another to complete service offerings to customers. The retail division complements its product sales by offering BAZ credit services, while BAZ maintains a strong base of customers derived from Elektra and Salinas y Rocha's shoppers. Notwithstanding the above, according to Fitch's Parent and Subsidiary Rating Linkage criteria, legal ties between Elektra and BAZ are weak due to the absence of guarantees and cross default clauses between them. Fitch's approach for Grupo Elektra's ratings incorporates future capital injections BAZ might require from Grupo Elektra. Current assumptions consider no additional capital injections in the medium term other than the one recently executed. BAZ's National Long-Term Rating of 'A+(mex)' with a Negative Outlook reflects Fitch's expectations that the bank's operations will be negatively affected given its business model focused on low-income individuals, which Fitch considers to be more sensitive to economic cycles. Fitch expects BAZ's profitability to be impacted due to deterioration in asset quality and the extraordinary impairment provision related to an important client that went into bankruptcy. BAZ has a robust position in its main market, consumer loans to the medium-low income segment of the population. Its ratings also include the bank's solid funding structure through an ample, stable and diversified base of customer deposits, its sound liquidity position and capacity to adjust to adverse operating environments. Continued Positive FCF: Grupo Elektra's consolidated FCF has remained neutral to positive over the last seven years, despite increasing capex and economic cycles. In 2019, the company's FCF was MXN26.1 billion, and Fitch expects it to continue to be positive in 2020 and beyond. Fitch estimates Grupo Elektra's capex for 2020 to be lower compared with the two previous years given the current operating environment in Mexico. Capex will be mainly focused on store remodeling and IT developments for the retail and banking operations to support its commercial strategy. Currency Exposure Partially Mitigated: While debt is mainly composed of local currency issuances, some of Grupo Elektra's inventory is exposed to currency variations as a portion of it is linked to the U.S. dollar. This could potentially pressure profit margins for some products if this effect is not reflected in price increases, which might in turn affect sales volumes if the effect is passed through prices. However, this exposure is partially mitigated by Purpose Financial's cash flows and money transfer fees collected in U.S. dollars by Grupo Elektra. Grupo Elektra has partially covered its U.S. dollar cash flow exposure for 2020 by entering in forward contracts. DERIVATION SUMMARY NEM's ratings are supported by the credit profile of Grupo Elektra, which is well positioned as one of the most important stores focused on the mid to low economic segment of the population in Mexico and some countries in Latin America. Grupo Elektra's scale is larger than Grupo Unicomer (BB-/Stable) and Grupo Famsa (D) and holds one of the largest credit portfolios held by a retailer in the region. The company is less geographically diversified than Grupo Unicomer; however, Mexico and the U.S. are the countries that generate the most cash and have lower country risk than most of Unicomer's countries of operations. Grupo Elektra's financial profile is strong when compared to peers. The company has a solid financial profile compared to other retailers and sound financial flexibility due to its high levels of cash and marketable securities. Grupo Elektra's profitability for its retail business is above the average of Fitch's rated retailers globally, and its operating margins and liquidity are higher than those of Grupo Unicomer and Grupo Famsa. KEY ASSUMPTIONS Fitch's key assumptions within its updated rating case for Grupo Elektra include: -- Fitch base case projections for 2020 considers a decline in retail revenues for a three-month period and then a gradual recovery by year end; -- Consolidated revenues grow 6% annually for 2021-2023. -- Annual growth of 4.0% in banking deposits; -- The consolidated gross credit portfolio declines in 2020 and then grows at 4% per year on average during 2021-2023; -- NPL provisions of MXN12 billion for 2020 and thereafter average of MXN9.2 billion per year; -- Capex of MXN8.4 billion annually, on average; -- Dividend payments growing at 5% per year; -- The company refinances its debt maturities and raises additional debt for MXN2.5 billion during 2020. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: NEM's Negative Outlook could be revised to Stable if Grupo Elektra's Negative Outlook is revised to Stable. Grupo Elektra's ratings could be revised to Stable from a combination of one or more of the following: if Elektra's financial performance is better than Fitch's expectations, the adjusted leverage for the retail business results close to or below 3.7x in 2021 and/or the consolidated adjusted leverage is at or below 2.7x in 2021. Factors that could, individually or collectively, lead to negative rating action/downgrade: NEM's ratings would be pressured by negative rating actions on Grupo Elektra. Grupo Elektra' ratings could face pressure from a combination of one or more of the following: sustained adjusted debt/EBITDAR for the retail division above 3.7x, sustained adjusted net debt/EBITDAR for the retail division above 2.7x (including readily available cash equivalents, as per Fitch's calculations), sustained consolidated adjusted debt/EBITDAR (as per Fitch's criteria) above 2.7x, sustained deterioration in BAZ's creditworthiness, or a deterioration in governance perception. LIQUIDITY AND DEBT STRUCTURE Sound Liquidity for Grupo Elektra: As of June 30, 2020, cash for the retail division was MXN6.1 billion and short-term debt was MXN11.2 billion. Short-term debt is mainly composed of local issuances maturities for a total of MXN9.8 billion, which are going to be refinanced. In addition, the retail division presented MXN14.6 billion of marketable financial instruments portfolio as of June 30, 2020. Fitch considers the cash and marketable securities at the retail business as readily available cash as there are no constrains in its disposition. On March 2020, Grupo Elektra's retail division injected MXN7.2 billion of cash to BAZ due to a capital requirement from the bank. SUMMARY OF FINANCIAL ADJUSTMENTS Financial statements were adjusted to revert the effect of IFRS 16. ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: Contractors Still Owed Hundreds of Millions -------------------------------------------------------------- Asha Javeed at Trinidad Express reports that HDC chairman Noel Garcia has confirmed that the Housing Development Corporation (HDC) in Trinidad and Tobago still owes contractors $588 million for outstanding work prior to 2015. Of that sum, only $7 million is owed to small contractors, Garcia said, according to the report. Garcia told the Sunday Express the HDC hopes to pay off the small contractors by February 2021, from a fund it set up specially to meet arrears to them. Garcia said the remaining sum is owed to bigger contractors and the HDC will honor its legal commitments to its contractors and service providers, the report notes. In July 2019, the HDC had quantified the debt owed to contractors at $698,516,843 after making 271 payments to contractors for the sum of $139,853,660 in June 2019, the report relays. Garcia explained that before the onset of the Covid-19 pandemic in March, the HDC had projected it would sell houses valued at $1.2 billion this year, the report says. However, the State housing company has only managed to sell $300 million in houses so far in 2020, the report notes. "The problem is that HDC has $3.4 billion worth of homes that need to be sold," he added. Further, the HDC's ability to earn revenue in 2020 was stymied by the moratorium on mortgages, which was one of the measures instituted by the Government to manage the fallout of the pandemic on the country's most vulnerable people, the report discloses. For now, the company is focused on converting and preparing its existing house stock, with many in various stages of completion, the report relates. Conversely, Garcia observed that the other State company he chairs, the Urban Development Company of Trinidad and Tobago (Udecott) owes "nobody" except for variations and funds in contention, the report notes. According to the Central Bank's July 2020 Economic Bulletin, the construction sector slowed in the first quarter of 2020, bought on by the Covid-19 pandemic, the report says. "The construction sector slowed, based on evidence of a drop in local sales of cement, as work on several public infrastructural projects including the Curepe Interchange, the Valsayn Pedestrian Walkover and Bridge B1/4 at Mamoral Road, neared completion," it said, the report notes. In its bid to reset the economy, the Government's policy for the construction sector is to get smaller companies working again, the report relays. In presenting the 2021 budget, Finance Minister Colm Imbert said 20 per cent of all State housing construction projects would be reserved for small and medium-sized contractors, the report relates. "Over the next two years, we will incentivise the construction sector through a number of fiscal incentives, including tax relief, which will be granted for approved development projects, such as approved housing and commercial and industrial building development, along similar lines to the fiscal incentives already available under the law for approved tourism and hotel projects," he said, the report notes. Timely Payments Contractor Emile Elias said the State needs to ensure timely payments for work, the report says. Elias acknowledged that construction can stimulate the economy by creating employment but that governments "have no intention of paying for work done," the report relays. Elias said legitimate invoices should be met with timely payments. Elias had represented the Joint Consultative Council for the construction industry (JCC) on a committee appointed by Prime Minister Dr Keith Rowley to tabulate the outstanding debt to the construction industry in 2018, the report notes. Then Rowley, in an address to the JCC had noted that there were outstanding payments to contractors, the report discloses. "This Government acknowledges that significant monies are owed to contractors and payments are continuously being made on these accounts, albeit late, sometimes, even as new work is awarded to some of the same contractors thereby incurring additional debt. "In 2015/ 2016, at the height of the Government revenue collapse, $589.9m was paid to contractors for outstanding amounts owed to them at the Ministry of Works alone. Other payments were also made elsewhere. The point I am making is that it is a continuous process of payments and awards and the Government undertakes to pay as much as we can without stopping the development programmes, which in themselves continue to provide ongoing opportunities for service providers, even as they are owed money," Rowley added. Rowley had said the Government was committed to paying contractors who have legitimate claims, the report notes. Elias, at the time, said that while some outstanding claims submitted to the Government amounted to about $676 million, that figure will probably be revised downward to about $500 million compared to the sum of $4 billion which was floated at the time, the report relays. "The total figure that we received from members of the JCC who wish to participate in this process was appropriately $676 million. This is now subject to some refinements. I am expecting the figure to be between some $400-$500 million. This is only to emphasise; these sums are owed to the members of the JCC who want to participate in this process and that the JCC is engineering this reconciliation. We hope that within the very short while the fully reconciled figures would be agreed and the process of payment would begin," Elias added. He explained that those figures were sent to the various permanent secretaries in 2019 and they were all certified claims, the report relays. "The amounts are all overdue. The State has the habit of paying late or not at all. These State agencies are not honouring their own contracts," he added. Elias said the onus is on the Minister of Finance, when the consent is given for certain projects, to release money to pay the contractors in a timely fashion, the report notes. He said even at the Education Facilities Company Limited (EFCL) there remained certified claims to be repaid, the report says. Contractors, at that time, said Elias, who agreed to have their claims reviewed by the Committee, had all agreed to accept bonds as payments from the Government, the report discloses. Budget 2021 In fiscal 2017 and 2018, the Trinidad and Tobago Government attempted to encourage public private partnerships (PPPs) by offering a 50 per cent tax relief to investors willing to contribute capital for public infrastructure etc and a $100,000 premium to be paid to contractors who successfully constructed and sold HDC units to applicants, the report notes. Those incentives did not attract mass investment. In the 2019 budget, Imbert indicated that 437 homes were constructed through PPPs and soon, the Government would issue a $1 billion housing bond to finance the construction of thousands of units, the report relates. Imbert had said the housing bond initiative (which will offer financing support for the development, construction, and sale of houses) was a tremendous game changer for the construction sector and home-ownership in T&T, the report says. The housing bonds, he had said, can be used as part payment for State housing constructed by the HDC and it would have provided the HDC with critical and urgent cash, the report relates. The housing bond did not materialise. But in the 2021 budget presentation, Imbert said the Ministry of Finance would facilitate a Government-guaranteed loan facility of $1 billion for the HDC in 2021, to finance HDC's construction of houses for low and middle-income families. The Minister of Finance added that after HDC receives the $1 billion, the Government expects it "to accelerate the finalisation of mortgages for already completed houses, to assist in financing new construction," the report adds. ================= V E N E Z U E L A ================= PDVSA: Boosts Crude Blending, Upgrading as Exports Tick Up ---------------------------------------------------------- Venezuela's state-run Petroleos de Venezuela [PDVSA.UL] has boosted crude blending and upgrading to their highest levels in six months, according to company documents seen by Reuters, as exports rise despite strict U.S. sanctions. Luc Cohen at Reuters reports that the upgraders are crucial to converting extra-heavy oil from eastern Venezuela's Orinoco belt - the OPEC nation's largest-producing region - into exportable crude grades. But they have operated only intermittently in recent months due to a plunge in exports and technical issues linked to lack of maintenance. The Petropiar upgrader - part of a joint venture with Chevron Corp CVX.N - produced 115,000 barrels of Hamaca crude and the Sinovensa blending facility, operated along with China National Petroleum Corp [CNPET.UL], produced 158,000 barrels of Merey crude, a PDVSA document showed, the report relates. That was the highest joint level since March, as an increase in September's exports to the highest level in five months allowed PDVSA to drain inventories, which had risen to near-capacity levels as U.S. sanctions spooked potential buyers, the report notes. The facilities have also been plagued by operational issues, the report discloses. On Sept. 30, the Petropiar upgrader stopped working two days after restarting due to an electrical outage prompted by a transformer explosion, the document showed. It has now operated continuously since Oct. 3, the report says. The remaining three upgraders have been offline for well over a year. Petropiar had briefly switched to blending mode to produce the nation's flagship export grade, Merey, the report relates. PDVSA did not respond to a request for comment. It is not clear how long PDVSA will able to maintain current levels of exports and upgrader operations, the report discloses. Washington - which is seeking to oust Venezuelan President Nicolas Maduro - gave PDVSA's customers deadlines of between October and November to schedule their last cargoes under the few remaining exemptions to its sanctions on the company, the report adds. About PDVSA Founded in 1976, Petroleos de Venezuela, S.A. (PDVSA) is the Venezuelan state-owned oil and natural gas company, which engages in exploration, production, refining and exporting oil as well as exploration and production of natural gas. It employs around 70,000 people and reported $48 billion in revenues in 2016. In May 2019, Moody's Investors Service withdrew all the ratings of Petroleos de Venezuela, S.A. including the senior unsecured and senior secured ratings due to insufficient information. At the time of withdrawal, the ratings were C and the outlook was stable. Citgo Petroleum Corporation (CITGO) is Venezuela's main foreign asset. CITGO is majority-owned by PDVSA. CITGO is a United States-based refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. However, CITGO formally cut ties with PDVSA at about February 2019 after U.S. sanctions were imposed on PDVSA. The sanctions are designed to curb oil revenues to the administration of President Nicolas Maduro and support for the Juan Guaido-headed party. =============== X X X X X X X X =============== [*] Bankruptcies Dropped 31.1% in Puerto Rico in September ---------------------------------------------------------- Michelle Kantrow-Vazquez of News Is My Business reports that a total of 443 petitions were filed at the U.S. Bankruptcy Court in Puerto Rico during the month of September 2020, representing a 31.1% drop from the same month in 2019, according to a report released by research firm Boleto de Puerto Rico. In September 2019, the court received 629 bankruptcy cases, according to the report. From January to September 2020, a total of 3,923 cases were filed, which also represents a 31.1% drop from the same period in 2019, when 5,690 bankruptcy petitions were submitted for consideration. Data compiled by BoletOn de Puerto Rico shows that the majority of the cases filed from January to September were submitted under the Chapter 13 category, which gives individuals the chance to reorganize their finances. A total of 2,149 petitions were filed under this category, representing 37.8% fewer cases than the 3,457 cases on record for the same period in 2019. Coming in second were 1,747 Chapter 7 cases seeking total liquidation submitted during the nine-month period. That total represents a 19.1% year-over-year drop when compared to the 2,160 cases filed during the same period, Boleton de Puerto Rico confirmed. "Chapter 7 in the bankruptcy code allows individuals, corporations, or self-owned businesses to settle their debts. Simply put, it means total bankruptcy," Boleton de Puerto Rico explained. "The bankruptcy court designates a trustee who is responsible for liquidating the assets so that the debtor obtains a debt discharge," the firm said, adding that it reports percentage data comparing the total bankruptcies filed against Chapters 7 filings in response to concerns from its own clients. There were 25 Chapter 11 filings on record through September from businesses that are seeking to reorganize their finances through this type of protection. The figure is 60.3% lower than the 63 petitions on record for the same nine-month period in 2019. Meanwhile, two farming operations filed for Chapter 12 protection - a category that is reserved exclusively for troubled agriculture businesses - during the January-September period. Finally, BoletOn de Puerto Rico also revealed a weekly breakdown of the filings, starting on Mar. 16, when Gov. Wanda VARzquez declared a quarantine to prevent the spread of the COVID-19 virus. The report shows that the majority of the petitions were filed from April 13 to May 31. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2020. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *