/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/201113.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 Friday, November 13, 2020, Vol. 21, No. 228 Headlines B R A Z I L BRAZIL: Mayor to Sell Revenue From Royalties & Special Holdings CIELO SA: Fitch Affirms 'BB' IDRs, Outlook Negative TGBR INCORPORADORA: Fitch Withdraws B Issuer Default Rating D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Exports to Haiti Drop 14.8% in Jan. to Sept. M E X I C O CHIHUAHUA STATE: Moody's Lowers Global Issuer Rating to B1 DEUTSCHE BANK MEXICO: Moody's Affirms Ba1 Deposit Ratings P E R U AUNA SAA: Fitch Assigns 'BB-' LongTerm Foreign Currency IDR P U E R T O R I C O CRED INC: Case Summary & 30 Largest Unsecured Creditors FARMACIA NUEVA: Seeks to Hire Gonzalez Cordero as Counsel - - - - - =========== B R A Z I L =========== BRAZIL: Mayor to Sell Revenue From Royalties & Special Holdings --------------------------------------------------------------- Dorah Feliciano at Rio Time Online reports that in his last year in office, Rio's Mayor Marcelo Crivella authorized the opening of a bid for the municipal government to sell rights to future rights to oil royalties and special holdings to which the municipality has direct access. The order from the Treasury Secretary Rosemary de Azevedo Carvalho was published on Aug. 18 in the Municipal Gazette, according to Rio Time Online. The Mayor's decision may have an impact on the accounts of the next city administration, the report relays. City councilors have already filed a petition with the city's Audit Court in an attempt to prevent the bid proceeding, the report adds. 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. CIELO SA: Fitch Affirms 'BB' IDRs, Outlook Negative --------------------------------------------------- Fitch Ratings has affirmed Cielo S.A.'s Foreign and Local Currency Issuer Default Ratings at 'BB', with a Negative Outlook, and its Long-Term National Scale Rating at 'AAA(bra)', with a Stable Outlook. At the same time, Fitch has affirmed the senior unsecured notes for Cielo's wholly owned subsidiary, Cielo USA Inc., at 'BB'. Cielo's ratings reflect its leading position in the Brazilian merchant acquiring and payment processing industry, with a broad network of affiliated merchants and market penetration. The company's competitive advantage relies in part on the relationship with and distribution network of two important banks in the Brazilian banking system, Banco do Brasil S.A. (Foreign and Local Currency IDRs 'BB-', Outlook Negative, Long-Term National Scale Rating 'AA(bra)', Outlook Stable) and Banco Bradesco S.A. (Foreign and Local Currency IDRs 'BB', Outlook Negative, Long-Term National Scale Rating 'AAA(bra)', Outlook Stable). This gives it access to a broad customer base to acquire merchant accounts. Cielo's commitment to maintain a strong liquidity position, coupled with conservative credit metrics and strong financial flexibility, underpinned by a sizable pool of accounts receivables and strong access to funding, remain as key factors for the ratings. The ratings incorporate the expectation that Cielo's market share will continue to decline, given the company's strategy to recover profitability. In Fitch's opinion, the entry barriers in the payments industry have decreased, which could further increase the strong competition and pressure profitability. Cielo has the important challenge of adapting its strategy to the technological and structural changes in the sector, reducing reliance on the traditional acquirer model, increasing its penetration among smaller clients and improving business diversification. The analysis continues to incorporate the low counterparty risks associated with the Brazilian banking system, as more than 95% of the volume of transactions is concentrated in banks rated 'BB-' and above or that are partially guaranteed by Visa and Mastercard. Cielo has virtually no direct credit exposure to cardholders, as the card-issuing bank guarantees cardholders' payments, while the company's exposure to merchants is limited. The Negative Outlook for the LC and FC IDRs reflects the Negative Outlook of Bradesco's and Banco do Brasil's IDRs, as well as the other Brazilian leading banks' IDRs, like Itau (Foreign and Local Currency IDRs 'BB', Outlook Negative, Long-Term National Scale Rating 'AAA(bra)', Outlook Stable) and Caixa (Foreign and Local Currency IDRs 'BB-', Outlook Negative, Long-Term National Scale Rating 'AA(bra)', Outlook Stable). KEY RATING DRIVERS Challenges from Increased Competition: The market dynamics for the Brazilian payment industry will continue to change quickly and Fitch expects competition to remain strong in the near term. The sector should continue to evolve rapidly, with technological innovations and new payment options, structurally changing the traditional business model. The pure acquiring model should remain on a declining trajectory and Cielo has the important challenge of quickly adapting its business model to this environment and improving diversification in other products like financial solutions and software services. Cielo is the largest Brazilian merchant acquirer, with an estimated market share of 38% as of June 2020, based on a proxy with the five largest Brazilian acquirers. The company lost approximately 13 p.p. of market share since 2017, when about half of Brazil's total processed volume (TPV) was processed through Cielo, and Fitch expects it to continue to fall gradually in the medium term. More capitalized market participants contributed to a more aggressive growth strategy, significantly pressuring operating margins. Despite the significantly increased competition in recent years, pressuring the market share of the top players, the industry remains highly concentrated. The two largest participants still account for approximately 67% of the market. Financial Volumes to Decline: Fitch anticipates a decrease in Cielo's credit and debit transactions in 2020 and 2021, despite the expected growth of the sector in Brazil. This reduction is due to Cielo's revised strategy that prioritizes profitability, with increasing penetration among smaller clients, the tough competitive environment and the expected negative impact of PIX (a digital payment platform) on the volume of debit transactions. Fitch projects Cielo's TPV will decrease by 8% in 2020, affected by the disruptions related to the coronavirus pandemic. For 2021, Fitch's base case projections incorporate TPV decreasing 16%, as debit transactions will be pressured by PIX and the volume of credit transactions will decrease due to Cielo's revised strategy. Cielo processed BRL453 billion in credit and debit transactions in the first nine months of 2020, down 8% compared with 9M19. Fitch expects low single-digit growth in TPV for the Brazilian market in 2020 despite the reduction of transactions during the second quarter due to the coronavirus pandemic. The negative effect of the pandemic was concentrated in 2Q20, followed by gradual improvement in volumes, as social distancing measures eased, consumer spending and confidence began to recover and e-commerce penetration increased. For 2021 and on, Fitch expects the market to return to 10%-15% annual growth, supported by the low penetration of credit and debit cards in the country. Fitch projects Brazil's GDP to decline 5.8% in 2020 and grow 3.2% in 2021. Cash Flow Generation to Decline: Increased competition in the payments industry in Brazil and more aggressive pricing have resulted in a contraction in Cielo's cash flow generation since 2018. Fitch projects Cielo's adjusted EBITDA to decrease to BRL2.3 billion in 2020, followed by a gradual recovery to BRL2.7 billion in 2021. These figures negatively compare with adjusted EBITDA, including financial income derived from the acquisition of receivables from merchants, of BRL4.2 billion in 2019 and BRL6.2 billion in 2018, according to Fitch's calculations. The reduction in the net interchange fee, in revenues from point of sale (POS) equipment rental and in the financial income from the acquisition of receivables, combined with lower growth of the volume of transactions, pressured EBITDA generation. Cielo's capacity to gradually recover EBITDA will depend on its ability to successfully increase the volume of smaller clients in its TPV mix, the penetration of the acquisition of receivables over total credit volume, a recovery in Cateno's profitability and an increase in product diversification. Fitch expects Cielo to generate strong FCF of BRL5.6 billion in 2020, due to the positive impact of working capital, assisted by the company's conservative decision to reduce the acquisition of receivables during the coronavirus pandemic to improve liquidity. For 2021 and 2022, Fitch projects moderately negative FCF, as Cielo resumes the acquisition of receivables activity. Base case projections incorporate annual investments between BRL600 million and BRL650 million, and dividends of 30% of net income. Low Risk of Credit Loss: Cielo has virtually no direct credit exposure to cardholders, as the card-issuing bank guarantees cardholders' payments, while the company's exposure to merchants is limited. The company is, however, partially exposed to card-issuing bank defaults on a payment settlement for Visa and MasterCard transactions. The risk associated with Visa and MasterCard transactions is mitigated because more than 95% of the volume of transactions is concentrated in banks rated 'BB-' and above. For some non-investment-grade banks, Cielo's risk management policy requires the card-issuing bank to pledge collateral. Strong Capital Structure: Fitch projects net adjusted leverage, measured by the net debt to adjusted EBITDA ratio, including financial income derived from the acquisition of receivables from merchants, of close to 2.5x in 2020 and gradually reducing in subsequent years. As of Sept. 30, 2020, Cielo had BRL12.2 billion of total debt, including BRL3.0 billion of FIDC (Receivables Investment Funds), and net adjusted leverage was 2.3x, higher than the average of 1.4x from 2015 to 2019. DERIVATION SUMMARY Cielo is the leading company in Brazil's merchant acquiring and payment processing industry with an estimated market share of 38%. The second-largest is Redecard (not rated; controlled by Itau Unibanco S.A.) with 29% market share and the third-largest is GetNet (not rated; controlled by Banco Santander Brasil S.A.) with 15%. Compared with small players, such as Stone (not rated) and PagSeguro (not rated), the three leaders have some competitive advantages due to their controlling shareholders' structure, as the affiliation with these leading banks gives them access to a broad customer base to acquire merchant accounts. As is characteristic of the industry in Brazil, Cielo has no direct credit exposure to cardholders, as the card-issuing bank guarantees cardholders' payments. Cielo's ratings incorporate the counterparty risks associated with the Brazilian banking system. Cielo is also well positioned in terms of R&D in technology, reducing the risk of obsolete systems, while small companies have higher technology risk. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer -- Volume of credit and debit transactions to decrease by 8% in 2020 and 16% in 2021; -- Volume of credit and debit transactions of Cateno to decrease by 6% in 2020 and increase by 5% in 2021; -- Annual investments between BRL600 million and BRL650 million; -- Dividends of 30% of net income in 2020 and 2021. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Ratings upgrade unlikely. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- An increase in the volume of credit and debit transactions with banks rated 'BB-' and below without collateral being pledged by the card-issuing bank or not guaranteed by MasterCard; -- Weakening credit profile of the main banks that operate with Cielo; -- A significant loss due to fraud and charge-backs; -- Tougher competition leading to a significant loss of market share and profitability; -- Significant changes in regulatory risk; -- A negative rating action on Brazil's sovereign ratings that leads to negative rating actions on Banco do Brasil, Bradesco, Caixa and Itau could result in negative rating action for Cielo. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: Cielo has strong liquidity and financial flexibility. As of Sept. 30, 2020, Cielo had cash and marketable securities of BRL6.2 billion and BRL3.1 billion of debt maturing up to the end of 2021, of which BRL3 billion consisted of FIDC. At the same date, the company had BRL5.7 billion of debt maturing in 2022 and BRL3.4 billion in 2023. Cielo has good financial flexibility to address upcoming maturities and strong access to the bank and capital markets. About 92% of total cash is invested in Brazil and 8% abroad. As of Sept. 30, 2020, Cielo had BRL12.2 billion of total debt, of which about 23% was denominated in foreign currency. Total debt was composed of private and public debentures (51%), FIDC (25%), bonds (23%), and others (1%). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch includes financial income from the acquisition of receivables from merchants in EBITDA. 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. TGBR INCORPORADORA: Fitch Withdraws B Issuer Default Rating ----------------------------------------------------------- Fitch Ratings has downgraded TGBR Incorporadora S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings to 'B' from 'B+', and its Long-Term National Scale Rating to 'BBB-(bra)', from 'A-(bra)'. The Rating Outlook is Stable. Simultaneously, Fitch has withdrawn the ratings. Fitch has withdrawn the ratings for commercial reasons. Accordingly, Fitch will no longer provide ratings (or analytical coverage) for TGBR. KEY RATING DRIVERS The downgrade follows the announcement of a corporate reorganization, which resulted in the spin-off of TGBR's core assets to a recently created sister company. In Fitch's opinion, the corporate reorganization materially weakens TGBR's stand-alone credit profile, as it significantly weakens its cash flow and profitability, which resulted in the rating downgrade. Recently, TGBR (formerly named Tegra Incorporadora S.A.) formalized the transfer of assets related to homebuilding projects in the states of Sao Paulo and Rio de Janeiro, and in the land plot segment, to an entity with the same shareholder structure as TGBR's structure. All of TGBR's construction sites migrated to the sister company, and new project launches will be focused on it. TGBR will retain concluded projects with low margins and heavy contingencies, concentrated in the Midwest region, and also commercial properties. Although there are no debt maturities until 2022, the transaction weakens TGBR's creditors' positions, as it materially reduces cash flow generation capacity. On a pro forma basis that considers the spin-off, TGBR had a net debt of BRL347 million and BRL307 million in receivables and inventory, not including the commercial properties, as of June 30, 2020, and a limited annual rent flow from commercial properties. Fitch understands that TGBR will struggle to monetize these assets, as receivables present high past-due installments and a great part of inventory is linked to lawsuits. At the same date, the company had more than BRL1 billion in contingent liabilities, classified as probable, possible or remote. Fitch believes TGBR's operating margins and cash flow should continue in negative territory in the upcoming years, even more pressured by low-margin projects, high contingent expenses and costs of maintenance of concluded inventory. Fitch continued to incorporate in the analysis its 'Parent and Subsidiary Rating Linkage' criteria, as there were no changes in TGBR's shareholder structure. The company is ultimately controlled by Brookfield Asset Management Inc. (BAM; A-/Stable), which has provided strong and consistent financial support to TGBR. The parent injected about BRL5.9 billion in TGBR since 2014, which was fundamental to finance the subsidiary's high working capital needs and reduce refinance risk. Fitch understands that the linkages between BAM and TGBR are moderate. Despite the strong financial support, legal ties are limited, as there are no guarantees nor cross-default clauses between the entities, and also due to TGBR's small scale of operations in relation to BAM's results. Fitch rates TGBR with a bottom-up approach from its stand-alone credit profile, which would be 'CCC' without the evidences of support and integration with the parent. The financial support provided by BAM is strong and recurrent, which supports the rare circumstance in which TGBR is rated three notches above its stand-alone rating. The Stable Outlook at the time of the withdrawal reflects Fitch's expectation that the integration between TGBR and BAM will be maintained. Fitch also expects that BAM will continue to provide financial support to TGBR if necessary. RATING SENSITIVITIES Rating Sensitivities do not apply as the ratings have been withdrawn. LIQUIDITY AND DEBT STRUCTURE TGBR's liquidity strongly relies on financial support from BAM and Fitch expects that BAM will continue to provide financial support to TGBR, if necessary. In 2019, TGBR received BRL370 million of new intercompany loans from BAM, and BRL180 million of capital increase during 1Q20. During 2019 and 2020, BAM capitalized all outstanding amount of parent loans of more than BRL4 billion. On a pro forma basis considering the spin-off, TGBR's cash and marketable securities were BRL121 million, as of June 30, 2020, and total debt was BRL468 million, comprised by debentures, with maturities from 2022 to 2024. ESG CONSIDERATIONS TGBR has an ESG Relevance Score of 4 for GEX - Operational Execution due to below-average execution of strategy that has contributed in the past to a high level of sales cancellations, project delays and excess costs, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. 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: Exports to Haiti Drop 14.8% in Jan. to Sept. ---------------------------------------------------------------- Dominican Today reports that in the last five years, trade between the Dominican Republic and Haiti reached US$4.5 billion, but so far this year until September, exports have dropped 14.8% compared to the first nine months of 2019. Of the trade with Haiti in the last five years, 96.6% were exports and 3.4% imports, according to Dominican Today. Haiti is the second market for local exports, based mostly on intermediate goods and finished products, among them cotton fabrics, T-shirts and cotton jersey shirts, flour of wheat, cement and rebar, the report relays. Statistics from ProDominicana (Export and Investment Center) show that in the five years, the average trade has been above US$800 million, 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 =========== CHIHUAHUA STATE: Moody's Lowers Global Issuer Rating to B1 ---------------------------------------------------------- Moody's de Mexico S.A. de C.V. downgraded the issuer ratings for the State of Chihuahua to B1/Baa2.mx (Global Scale, local currency/Mexico National Scale) from Ba3/A3.mx, downgraded its baseline credit assessment (BCA) to b1 from ba3, and changed the outlook to stable from negative. At the same time, Moody's also downgraded the debt ratings to Baa3/Aa3.mx from Baa2/Aa2.mx of the following five enhanced loans of the State of Chihuahua, which include Partial Guarantees (GPOs): - MXN1,900 million from Banco Santander, (original face value) with a maturity of 20 years and a pledge of 3.19% of the state's General Fund of Participaciones revenues. - MXN1,750 million from Banco Santander, (original face value) with a maturity of 20 years and a pledge of 2.94% of the state's General Fund of Participaciones revenues. - MXN1,350 million from Banco Santander, (original face value) with a maturity of 20 years and a pledge of 2.27% of the state's General Fund of Participaciones revenues. - MXN3,000 million from Banco BBVA, (original face value) with a maturity of 20 years and a pledge of 5.04% of the state's General Fund of Participaciones revenues. - MXN1,852 million from Banco BBVA, (original face value) with a maturity of 20 years and a pledge of 3.1% of the state's General Fund of Participaciones revenues. Moody's also downgraded the debt ratings to Ba1/A1.mx from Baa3/Aa3.mx of the following eleven enhanced loans of the State of Chihuahua: - MXN5,000 million from Banobras, (original face value) with a maturity of 20 years and a pledge of 8.39% of the state's General Fund of Participaciones revenues. - MXN5,000 million from Banobras, (original face value) with a maturity of 20 years and a pledge of 8.39% of the state's General Fund of Participaciones revenues. - MXN4,416 million from Banobras, (original face value) with a maturity of 20 years and a pledge of 7.41% of the state's General Fund of Participaciones revenues. - MXN1,185 million from Banco Multiva, (original face value) with a maturity of 20 years and a pledge of 2.9% of the state's General Fund of Participaciones revenues. - MXN500 million from Banco HSBC, (original face value) with a maturity of 20 years and a pledge of 0.84% of the state's General Fund of Participaciones revenues. - MXN1.5 billion from Banco del Bajio, (original face value) with a maturity of 20 years and a pledge of 2.53% of the state's General Fund of Participaciones revenues. - MXN3,397 million from Banorte, (original face value) with a maturity of 20 years and a pledge of 5.71% of the state's General Fund of Participaciones revenues. - MXN500 million from Banco del Bajio, (original face value) with a maturity of 20 years and a pledge of 0.72% of the state's General Fund of Participaciones revenues. - MXN250 million from Banco del Bajio, (original face value) with a maturity of 20 years and a pledge of 0.36% of the state's General Fund of Participaciones revenues. - MXN1 billion from BBVA, (original face value) with a maturity of 20 years and a pledge of 1.68% of the state's General Fund of Participaciones revenues. - MXN830 million from BBVA, (original face value) with a maturity of 20 years and a pledge of 1.39% of the state's General Fund of Participaciones revenues. All sixteen of the aforementioned enhanced loans are payable through master trust number F/851-01869, with Banco Regional S.A. as trustee, to which the state has pledged the flows and rights of a portion of its General Fund of Participaciones revenues. RATINGS RATIONALE RATIONALE FOR THE ISSUER RATINGS The downgrade of the BCA and issuer ratings primarily reflects its expectation that Chihuahua will post financial deficits that will lead to higher debt levels and will keep the state's already weak liquidity position under pressure while also facing short-term debt maturities. Moody's expects that Chihuahua will register cash financing deficits during 2020 as a result of extraordinary expenditures related to the coronavirus pandemic and a lower total revenue growth. Additionally, Chihuahua will face negative pressure through 2021 as it faces declining federal transfers stemming from the economic recession caused by the pandemic. Moreover, the state is planning to continue developing infrastructure in order to boost economic recovery. As a result, Moody's estimates Chihuahua to register deficits of 5.5% and 3.9% in 2020 and 2021, respectively. While the state could partially fund the deficits through debt acquisition, Moody's expects liquidity will also be impacted. The state's ratio of cash/current liabilities was 0.26x in December 2019, leaving Chihuahua with a limited capacity to absorb unexpected shocks, and leading to a continued use of short-term loans to bridge liquidity needs. Short-term debt averaged 9% of direct debt between 2015-2019, and this dependence on short-term debt will become an additional source of pressure in 2021 given that Mexican law requires states and municipalities to liquidate all short-term loans three months before the end of an administration (Chihuahua will need to pay off short-term loans in June ahead of a September change in administration). The state has already identified a plan in order to liquidate its short-term debt during 2021. However, the state also plans to take on additional short-term financing before the end of the year to meet year-end expenses. Given its relatively low cash balances, Moody's considers it likely the state will allow other current liabilities (suppliers) to grow in 2021 in order to pay down its short-term financing further deteriorating liquidity. Moody's estimates that cash will cover 0.2x and 0.15x current liabilities at the end of 2020 and 2021. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that even as the state will continue to face financial pressure through 2021, key credit metrics including debt levels and liquidity are not expected to decline materially beyond Moody's forecasts. In addition, looking beyond the current downturn, Moody's expects the strength of Chihuahua's state economy will support an eventual recovery in revenue that will support an eventual stabilization of credit metrics. RATINGS RATIONALE FOR THE ENHANCED LOAN RATINGS The ratings downgrade of the sixteen enhanced loans reflects the downgrade of Chihuahua's issuer ratings. Per Moody's methodology on rating enhanced loans, the loan ratings are directly linked to the credit quality of the issuer, which ensures that underlying contract enforcement risks, economic risks and credit culture risks (for which the issuer rating acts as a proxy) are embedded in the enhanced loans ratings. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS If the state achieves balanced operating and cash financing results, resulting in sustained improvements in its liquidity position, a decline in its dependence on short-term loans and a stabilization of its overall debt metrics, this could put positive pressure on its ratings. Conversely, if operating and cash financing deficits exceed projections, resulting in a larger than expected drop in already tight liquidity, this would put negative pressure on the ratings. Given the links between the loans and the credit quality of the issuer, an upgrade of Chihuahua's issuer rating would likely result in an upgrade of the enhanced loan ratings. Conversely, a downgrade of the state's issuer rating, or a material decline in debt service coverage to levels below its expectations, could exert downward pressure on the ratings of the loans. The methodologies used in these ratings were Enhanced Municipal and State Loans in Mexico Methodology published in May 2019. DEUTSCHE BANK MEXICO: Moody's Affirms Ba1 Deposit Ratings --------------------------------------------------------- Moody's de Mexico affirmed the Ba1/Not Prime long- and short-term local and foreign currency deposit ratings of Deutsche Bank Mexico, S.A. and the Ba1/Not Prime long- and short -term issuer ratings of Deutsche Securities Mexico, S.A. de C.V. (Deutsche Securities Mexico), following the affirmation of its ba2 Baseline Credit Assessment (BCA). The outlook on the ratings was changed to stable from negative, in line with the change in outlook to stable, from negative, on Deutsche Bank A.G.'s ratings (DB, A3/A3 stable; ba1), which is the Mexican subsidiaries' parent company. The following ratings and assessments were affirmed: Deutsche Bank Mexico, S.A. (600069090): Baseline credit assessment of ba2 Adjusted baseline credit assessment of ba1 Long-term global local currency deposit rating of Ba1, outlook changed to Stable from Negative Long-term global foreign currency deposit rating of Ba1 outlook changed to Stable from Negative Long-term Mexican National Scale deposit rating of A1.mx Short-term Mexican National Scale deposit rating of MX-1 Long- and short-term Counterparty Risk Assessments of Baa3(cr) and Prime-3(cr) Short-term global local currency deposit rating of Not Prime Short-term global foreign currency deposit rating of Not Prime Deutsche Securities Mexico, S.A. de C.V. (821503957): Long-term global local currency issuer rating of Ba1 Long-term Mexican National Scale issuer rating of A1.mx Short-term Mexican National Scale issuer rating of MX-1 Short-term global local currency issuer rating of Not Prime Outlook action Deutsche Bank Mexico, S.A. (600069090): The outlook changed to stable from negative Deutsche Securities Mexico, S.A. de C.V. (821503957): The outlook changed to stable from negative RATINGS RATIONALE Moody's affirmation of the ratings of Deutsche Bank Mexico and Deutsche Securities Mexico incorporates the evaluation that the Mexican subsidiaries will maintain their financial strength while the entities continue to wind down activities, following the announcement that Deutsche Bank Mexico has agreed to sell its trustee division to CIBanco, S.A. Institucion de Banca Multiple (CI Banco). The ratings reflect the limited risks arising from the Mexican subsidiaries' highly liquid balance sheets and ample capitalization ratio, with assets primarily invested in Mexican government securities and funded mostly with the entities' own capital. The Mexican subsidiaries will continue to operate until Deutsche Bank Mexico completes the transfer of its remaining trustee division to other financial institutions, and the shareholders of the subsidiaries agrees on its liquidation and dissolution. The deposit and issuer ratings benefit from affiliate support, as indicated by one notch of uplift from its BCA, which reflects Moody's assessment of a high likelihood of parental support from DB. Moody's expects that DB would provide the necessary financial support to its Mexican subsidiaries because the reputational cost for DB's global business of allowing these entities to fail would likely outweigh the costs of bailing them out. At the same time, the Mexican subsidiaries' stable outlook are now in line with that of its parent. Finally, as a highly integrated and harmonized entity, Deutsche Securities Mexico's ratings are in line with those of Deutsche Bank Mexico. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The stable outlook on the ratings reflects Moody's expectation that the Mexican subsidiaries' operations will maintain their financial standing as the liquidation process is underway. Positive rating action on DB's baseline credit assessment (BCA) could add positive pressure to the subsidiaries' deposit ratings. Conversely, Deutsche Bank Mexico's BCA could be downgraded if the bank's capital declines significantly. The subsidiaries' supported ratings could also be downgraded if the ratings of the parent, currently on stable outlook, were to be downgraded. The long-term Mexican National Scale ratings of A1.mx indicate issuers or issues with above-average creditworthiness relative to other domestic issuers. The short- term Mexican National Scale ratings of issuers rated MX-1 indicate the strongest ability to repay short-term senior unsecured debt obligations relative to other domestic issuers. The principal methodology used in rating Deutsche Bank Mexico S.A. was Banks Methodology published in November 2019. The principal methodology used in rating Deutsche Securities Mexico S.A. de C.V. was Securities Industry Market Makers Methodology published in November 2019. The period of time covered in the financial information used to determine Deutsche Bank Mexico, S.A.'s rating is between January 1, 2017 and September 30, 2020. The period of time covered in the financial information used to determine Deutsche Securities Mexico, S.A. de C.V.'s rating is between January 1, 2017 and September 30, 2020. ======= P E R U ======= AUNA SAA: Fitch Assigns 'BB-' LongTerm Foreign Currency IDR ----------------------------------------------------------- Fitch Ratings has assigned the following ratings to Auna S.A.A.'s (Auna): -- Long-Term Foreign Currency Issuer Default Rating (IDR) 'BB-'; -- Long-Term Local Currency IDR 'BB-'; -- Proposed unsecured senior notes 'BB-'. The Rating Outlook is Stable. Auna's ratings factor in the company's leading market position, integrated business model, adequate liquidity, and strong brand equity of Oncosalud. The stability of the company's cash flow from its insurance business is an additional positive consideration, as are the favorable fundamentals for growth in the Peruvian and Colombian healthcare industries. Auna's ratings are constrained by the company's rapid growth, short track record of operating in Colombia, and moderate leverage. The Stable Outlook factors in an expectation that the company's leverage will decline in the near future through an increase in operating cash flow. KEY RATING DRIVERS Solid Business Position: Auna operates through three business segments: (1) Oncosalud Peru, (2) Healthcare Services in Peru, which consists of its Auna Peru network, and (3) Healthcare Services in Colombia, which consists of its Auna Colombia network. These segments represent approximately 40%, 32% and 28%, respectively, of the company's consolidated revenues. In Peru, Auna has a solid business position as one of the largest and most recognized players in the healthcare industry due to its highly regarded oncology services. The company entered Colombia in 2018 through its acquisition of Grupo Las Americas. This market is expected to provide Auna with significant inorganic growth opportunities. Strong Growth Prospects: Both the Peruvian and Colombian healthcare markets are characterized as underpenetrated with room for growth. Auna owns and operates a total of nine hospitals and 10 clinics (848 beds) in these markets and treated 450,000 patients in 2019. The company is able to offer all levels of care through its integrated clinics and hospitals. Oncosalud Brand: Oncosalud is considered the leading brand in Peru. It has a market share of approximately 30% in terms of private insurance plan members in Peru with 888,708 members as of June 30, 2020. This market position makes Oncosalud the largest single private healthcare plan in the country. Auna has achieved integration in its Peruvian oncology platform through its ownership and management of hospitals and clinics in all of the major cities in the country. Manageable Impact from Pandemic: The coronavirus pandemic crisis negatively impacted Auna's operations during the first half of 2020, as some insurance plans were canceled and elective procedures postponed. Auna's revenues remained relatively flat during the LTM ended June 30, 2020 at around S/. 1.4 billion (USD395 mm) while its margins declined to 12% from 14% in FY2019. The company's operational performance has recovered during 3Q'20. Fitch's base case forecasts Auna to end 2020 with an EBITDA of S/. 183 million and an EBITDA margin of 13.4%, respectively. Acquisition Driven Growth: Since 2011 Auna has been growing organically and inorganically and developing a network of hospitals and clinics located in all of the major cities in Peru. Key cities in Peru that have been targeted include Chiclayo, Piura, Trujillo, Lima, Callao and Arequipa. In 2018, the company expanded into Colombia through the acquisition of Grupo Las Americas, one of Colombia's leading healthcare providers. Additionally, in September 2020, the company acquired Clinica Portoazul S.A., a private hospital located in Barranquilla. Negative Free Cash Flow: Fitch's ratings incorporate an expectation that the company will generate cash flow from operations (CFFO) of S/. 60 million in 2020, S/.135 million in 2021 and S/. 175 million in 2022. Free cash flow is projected to be negative during these three years due to Auna's aggressive investment plan that will total more than S/.700 million. Approximately 70% of expansion capex should be allocated to Peru Healthcare, while 25% will be directed to Colombia Healthcare. A substantial portion of the investment plan could be delayed if operating cash flows are impacted by Covid during 2021. As a result of the execution of its investment plan Fitch expects the company to increase its EBITDA level from S/.193 million in 2019 to more than S/. 300 million in 2022. Adequate Liquidity: The ratings factor in a successful debt issuance of USD300 million by Auna, which will result in the company facing no material debt maturities in the upcoming years. Fitch's ratings build in an expectation that Auna will maintain a stable debt structure with unsecured debt representing 100% of total debt after the bond issuance. Auna has adequate interest coverage, with a 2Q20 ratio of 4.3x and a 2020FY forecasted ratio of 2.6x. Cash and cash equivalents were S/.75 million in 2Q20 and are expected to be S/.254 million in 2020F. The company has strong relationships with both local and international banks and has USD96 million of uncommitted credit lines with USD29 million being undrawn as of June 30, 2020. Expected Deleverage: Fitch projects Auna's net adjusted leverage, on a proforma basis considering the completion of the debt issuance, to reach 4.8x in 2020F, and to decline to 3.5x in 2022F. During 2019, the ratio had decreased to 3.3x from an average of 4.3x in 2017-2018. The increase in the company's financial leverage during 2020 and part of 2021 is driven by the impact of the pandemic in its operations, acquisitions executed during 2H2020, and high levels of investments in its operations during this period. The company's expected deleverage toward 2021-2022 will reflect recovery in current operations as well as increased cash flow generation as a result of recent acquisition and investments. FX Exposure Manageable: Fitch views the company's FX exposure as moderate as a result of its financial policy to fully hedge any USD debt, both principal and interest payments. Fitch estimates almost 100% of Auna's proforma debt will be USD denominated, while the company's cash flow generation is primarily in local currencies, with approximately 72% and 28% of Auna's total revenues being in Peruvian Soles and Colombian pesos, respectively. The ratings incorporate the expectation Auna will maintain an FX hedge position covering 100% of coupons and principal of its proposed USD 300 million bond issuance. DERIVATION SUMMARY Auna's ratings reflect the company's strong market position as one of Peru's largest and well-known, reputable healthcare providers and its growing presence in Colombia, in addition to the company's adequate capital structure and financial flexibility positioning. Auna's strong brand, reputation in the industry, and significant R&D platform are among multiple competitive advantages translating into strong relationships with payers and bargaining ability with third parties. Auna is viewed as weaker when compared with regional peers in terms of business scale and size of coverage. Rede D'Or Sao Luiz S.A. (BB/Negative) and Diagnosticos Da America S.A. - DASA (DASA; AAA(bra)), comparably to Auna, both have strong relationships with payers, as well as providers and insurance companies, in Brazil due to the two companies' positive brands and reputations. In terms of capital structure, Auna has projected higher leverage than both, as DASA and Rede D'Or with the three companies reporting net leverage of 4.8x, 3.0x, and 4.1x respectively projected for YE2020. The leverage of Rede D'Or is expected to decline to around 2.5x following an equity issuance. Although Auna has comparable business risk with many players in the healthcare industry, the company benefits from the growing Peruvian and Colombian operating markets with predominantly middle-class demographics. KEY ASSUMPTIONS -- Net adjusted leverage consistently in the 3.5x - 4.5x range from 2021; -- Interest coverage (measured as EBITDA/Net interest paid ratio) consistently above 2.5x; -- Well-spread debt maturity schedule; -- Negative free cash flow generation during 2020-2022. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Net adjusted leverage (Net Debt/EBITDA) consistently below 3.5x -- Interest coverage - measured as EBITDA/Net interest paid ratio - consistently above 4.5x -- Well-spread debt maturity schedule, with limited recurring short-term debt -- Expanded network resulting in improved scale and geographic diversification Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Net adjusted leverage consistently above 4.5x from 2021; -- Major legal contingencies issues that represent a disruption in the company's operations or a significant impact to its credit profile. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: The ratings factor in the company successfully completing the proposed debt issuance, which will result in no material debt maturities in the upcoming years. Fitch also estimates that Auna will maintain a stable debt structure with unsecured debt representing 100% of total debt after the bond issuance. Auna has adequate interest coverage, with a 2Q20 ratio of 4.3x and a 2020F forecast ratio of 2.6x. Cash and cash equivalents were PEN75 million in 2Q20 and are expected to be PEN254 million in 2020F. The company has strong relationships with both local and international banks, including USD29 million of currently undrawn credit lines, USD96 million in approved, as of June 30, 2020. 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). ===================== P U E R T O R I C O ===================== CRED INC: Case Summary & 30 Largest Unsecured Creditors ------------------------------------------------------- Lead Debtor: Cred Inc. 3 East Third Avenue Suite 200 San Mateo, California 94401 Business Description: Cred -- https://mycred.io -- is a global financial services platform serving customers in over 100 countries. Cred is a licensed lender and allows some borrowers to earn a yield on cryptocurrency pledged as collateral. Chapter 11 Petition Date: November 7, 2020 Court: United States Bankruptcy Court District of Delaware Five affiliates that concurrently filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code: Debtor Case No. ------ -------- Cred Inc. (Lead Debtor) 20-12836 Cred (US) LLC 20-12837 Cred Capital, Inc. 20-12838 Cred Merchant Solutions LLC 20-12839 Cred (Puerto Rico) LLC 20-12840 Debtors' Attorneys: James T. Grogan, Esq. Mack Wilson, Esq. PAUL HASTINGS LLP 600 Travis Street, Fifty-Eighth Floor Houston, Texas 77002 Tel: (713) 860-7300 Fax: (713) 353-3100 Email: jamesgrogan@paulhastings.com mackwilson@paulhastings.com - and - G. Alexander Bongartz, Esq. Derek Cash, Esq. PAUL HASTINGS LLP 200 Park Avenue New York, New York 10166 Tel: (212) 318-6000 Fax: (212) 319-4090 Email: alexbongartz@paulhastings.com derekcash@paulhastings.com Debtors' Local Counsel: Scott D. Cousins, Esq. COUSINS LAW LLC Brandywine Plaza West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 Tel: (302) 824-7081 Fax: (302) 295-0331 Email: scott.cousins@cousins-law.com Debtors' Financial Advisor: MACCO RESTRUCTURING GROUP, LLC Debtors' Notice & Claims Agent and Administrative Advisor: DONLIN, RECANO & COMPANY, INC. https://www.donlinrecano.com/Clients/cred/Dockets Estimated Assets: $50 million to $100 million Estimated Liabilities: $100 million to $500 million The petitions were signed by Daniel Schatt, chief executive officer. A copy of Cred Inc.'s petition is available for free at PacerMonitor.com at: https://www.pacermonitor.com/view/CRLA7YY/Cred_Inc__debke-20-12836__0001.0.pdf?mcid=tGE4TAMA Consolidated List of Debtors' 30 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ 1. Name and Address on File Customer Claim $14,065,941 ContactInformation On File 2. Name and Address on File Customer Claim $13,525,842 Contact Information On File 3. Name and Address on File Customer Claim $4,942,850 Contact Information On File 4. Name and Address on File Customer Claim $3,829,221 Contact Information On File 5. Name and Address on File Customer Claim $2,618,880 Contact Information On File 6. Name and Address on File Customer Claim $2,549,184 Contact Information On File 7. Name and Address on File Customer Claim $2,169,064 Contact Information On File 8. Name and Address on File Customer Claim $1,997,998 Contact Information On File 9. Name and Address on File Customer Claim $1,956,794 Contact Information On File 10. Name and Address on File Customer Claim $1,815,887 Contact Information On File 11. Name and Address on File Customer Claim $1,500,000 Contact Information On File 12. DCP Capital Convertible $1,500,000 Kingston Chambers Noteholder PO Box 173 Road Town Tortola VG 1110 British Virgin Islands Kevin Hu Email: kevin@dcp.capital 13. Name and Address on File Customer Claim $1,373,647 Contact Information On File 14. Name and Address on File Customer Claim $1,369,562 Contact Information On File 15. Name and Address on File Customer Claim $1,269,743 Contact Information On File 16. Name and Address on File Customer Claim $1,186,566 Contact Information On File 17. Name and Address on File Customer Claim $1,172,797 Contact Information On File 18. Name and Address on File Customer Claim $1,093,526 Contact Information On File 19. Name and Address on File Customer Claim $1,088,416 Contact Information On File 20. JST Capital Trade Payable $983,462 350 Springfield Ave Suite 200 Summit NJ 07901 Scott Freeman Email: sfreeman@jstcap.com 21. Name and Address on File Customer Claim $866,297 Contact Information On File 22. Name and Address on File Customer Claim $857,200 Contact Information On File 23. Name and Address on File Customer Claim $740,553 Contact Information On File 24. Name and Address on File Customer Claim $660,589 Contact Information On File 25. Name and Address on File Customer Claim $623,954 Contact Information On File 26. Name and Address on File Customer Claim $623,258 Contact Information On File 27. Name and Address on File Customer Claim $586,400 Contact Information On File 28. Uphold, Inc. Trade Payable $518,635 900 Larkspur Landing Cir Suite 209 Larkspur CA 94939 JP Thieriot Email: jp.thieriot@uphold.com 29. Name and Address on File Customer Claim $443,080 Contact Information On File 30. Name and Address on File Customer Claim $432,000 Contact Information On File FARMACIA NUEVA: Seeks to Hire Gonzalez Cordero as Counsel --------------------------------------------------------- Farmacia Nueva Borinquen, Inc. seeks approval from the US Bankruptcy Court for the District of Puerto Rico to hire Nilda Gonzalez Cordero, Esq. as its counsel. Farmacia Nueva requires Gonzalez Cordero to: a. advise the Debtor with respect to its duties, powers and responsibilities in this case under the laws of the U.S. and Puerto Rico in which it conducts its operations, do business or is involved in litigation; b. advise the Debtor in connection with a determination whether a reorganization is feasible and, if not, helping Debtor in the orderly liquidation of its assets; c. assist the Debtor with respect to negotiations with creditors for the purpose of arranging the orderly liquidation of assets and propose a viable plan of reorganization; d. prepare, on behalf of the Debtor, the necessary complaints, answers, orders, reports, memoranda of law and any other legal papers or documents; e. appear before the bankruptcy court, or any court in which the Debtor assert a claim, interest or defense directly or indirectly related to this bankruptcy case; f. perform such other legal services for the Debtor as may be required in these proceedings or in connection with the operation and involvement with the Debtors' business, including but not limited to notarial services; and g. employ other professional services, if necessary. Gonzalez Cordero will be paid at these hourly rates: Attorneys $200 Paralegals $75 Gonzalez Cordero will be paid a retainer in the amount of $7,000. Gonzalez Cordero will also be reimbursed for reasonable out-of-pocket expenses incurred. Nilda M. Gonzalez Cordero, partner of Gonzalez Cordero Law Offices, assured the Court that the firm is a "disinterested person" as the term is defined in Section 101(14) of the Bankruptcy Code and does not represent any interest adverse to the Debtor and its estates. Gonzalez Cordero can be reached at: Nilda M. Gonzalez Cordero, Esq. GONZALEZ CORDERO LAW OFFICES P.O. Box 3389 Guaynabo, PR 00970 Tel: (787)721-3437 E-mail: ngonzalezc@ngclawpr.com About Farmacia Nueva Borinquen, Inc. Farmacia Nueva Borinquen, Inc. sought protection for relif under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 20-03715) on Sept. 21, 2020, listing under $1 million in both assets and liabilities. Nilda Gonzalez Cordero, Esq. represents the Debtor as counsel. ********* 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. 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