/raid1/www/Hosts/bankrupt/TCRLA_Public/201123.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
Monday, November 23, 2020, Vol. 21, No. 234
Headlines
B R A Z I L
ADECOAGRO SA: S&P Alters Outlook to Stable, Affirms 'BB' ICR
BRAZIL: Fitch Affirms BB- LT IDR, Outlook Negative
BRAZIL: Rio de Janeiro Lost Close to 30,000 Jobs in 2020
JALLES MACHADO: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
C H I L E
WOM SA: Fitch Affirms BB- LT IDRs, Outlook Stable
C O L O M B I A
COLOMBIA: San Andres Island Takes stock after Hurricane Iota
CONCESION RUTA: Fitch Affirms BB+ Rating on Sec. Notes, Outlook Neg
C O S T A R I C A
BAC SAN JOSE 2020-1: Fitch Expects to Rate $150MM Notes BB+(EXP)
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Gov't. to Lend RD$1BB to Coffee Producers
DOMINICAN REPUBLIC: Sowing of Some Crops Decreased More Than 50%
J A M A I C A
JAMAICA: Shows Moderated Growth in Loans & Advances for July-Sept
M E X I C O
CONSUBANCO SA: Fitch Puts BB- LT IDRs on Rating Watch Negative
CREDITO REAL: Fitch Affirms BB+ LT IDR, Outlook Negative
X X X X X X X X
CARIBBEAN: Economies Urged to Invest in Infrastructure
[*] BOND PRICING: For the Week Nov. 16 to Nov. 20, 2020
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B R A Z I L
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ADECOAGRO SA: S&P Alters Outlook to Stable, Affirms 'BB' ICR
------------------------------------------------------------
On Nov. 19, 2020, S&P Global Ratings revised the outlook on
Adecoagro S.A. to stable from negative and affirmed its 'BB' global
scale issuer and issue-level credit ratings on the company.
The stable outlook reflects S&P's expectation of resilient credit
metrics and the maintenance of an adequate liquidity cushion in the
next 12 months despite the impact of COVID-19.
Ethanol prices and volumes have significantly recovered as of third
quarter of this year. After a sharp price drop of about 30% in
April 2020 compared to same period in 2019, current ethanol prices
are already higher than last year by about 10%. In addition, sugar
prices of $13 cents per pound coupled with the depreciated
Brazilian real pushed prices in reais about 30% higher for this
harvest compared to 2019.
Adecoagro has shifted its mix to optimize sugar output, which
should reach 48% by the end of harvest versus 15% in the previous
year. Despite the improvement, EBITDA generation in the sugar and
ethanol (S&E) business will be slightly weaker than the previous
harvest, but compensated by the stronger performance of the farming
and land transformation business in Argentina, thanks to higher
grain and rice prices, and the ramp-up of its dairy business. These
factors will allow Adecoagro to keep debt to EBITDA at 2.0x-2.5x in
2020 and close to 2.0x in 2021, and keep free operating cash flow
(FOCF) positive and over $15 million for the year
S&P said, "On top of the stronger cash flow we expect, the recent
long-term loan contracted with IFC for $100 million will allow
Adecoagro to sustain a fairly comfortable liquidity cushion in the
next 12 months, even considering the full capital expenditures
(capex) program. Most relevant bullet debt maturities will occur in
2025, with the amortization of CRAs in 2025 and 2026, and the $500
million senior unsecured notes in 2027.
"Therefore, we think the risks of credit metrics worsening and
liquidity pressure have eased, which underpins the stable
outlook."
Although they've lessened, the risks of a second wave of the
pandemic hurting ethanol demand and prices in Brazil cannot be
ruled out. On top of that, potentially drier weather conditions
could hamper agricultural yields in Brazil and Argentina in 2021.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety and consumer related factors.
BRAZIL: Fitch Affirms BB- LT IDR, Outlook Negative
--------------------------------------------------
Fitch Ratings has affirmed Brazil's Long-Term Foreign Currency
Issuer Default Rating (IDR) at 'BB-' with a Negative Outlook.
KEY RATING DRIVERS
Brazil's ratings are supported by its large and diverse economy,
high per capita income relative to peers and capacity to absorb
external shocks underpinned by its flexible exchange rate, moderate
external imbalances, robust international reserves and deep
domestic government debt market. This is counterbalanced by
Brazil's high and rising government indebtedness, a rigid fiscal
structure, weak economic growth potential and a difficult political
landscape that hampers timely progress on fiscal and economic
reforms.
The Negative Outlook reflects the severe deterioration in Brazil's
fiscal deficit and public debt burden during 2020 and persisting
uncertainty regarding fiscal consolidation prospects, including the
sustainability of the 2016 spending cap (the main fiscal policy
anchor) given continued spending pressures. Moreover, rising
near-term domestic debt maturities amid a heavy public debt burden
make Brazil vulnerable to shocks, including shifts in domestic
investor confidence and financing conditions. While the economic
team is committed to returning to its reform agenda in 2021, the
political environment remains fluid, reducing the visibility and
predictability of the process. Fitch expects the economy to recover
from 2021; however, uncertainty around political and policy
developments, combined with a resurgence in global coronavirus
infections, continue to cloud the outlook.
Brazil's fiscal position has deteriorated sharply in 2020. Fitch
forecasts the general government deficit will rise to 16.7% of GDP
(more than double the current BB median of 7.8% of GDP) from around
6.0% in 2019. The economic recession and postponement of
concessions have adversely impacted revenues but the bulk of the
deterioration has come from a sizeable fiscal response to the
pandemic, namely the coronavirus voucher (a transfer to vulnerable
population) expected to cost around 4.5% of GDP alone. Fitch
forecasts the general government deficit to decline to around 7% of
GDP in 2021 as the 2020 support measures are withdrawn, and the
economy recovers. Fitch assumes that expenditures will be
controlled by the adherence to the spending cap. However,
uncertainty around the economic (and tax revenue) recovery pose
risks to the 2021 deficit projections as the government is not
obliged to implement offsetting measures should revenues
disappoint.
Nevertheless, there is considerable uncertainty around the ability
of the government to meet the spending cap. In 2021, the government
plans to fully phase out emergency fiscal measures contained in a
separate "war budget"; however, continued uncertainty around the
evolution of the pandemic and spending pressures could make this
challenging, as highlighted by the recent discussions around
introducing a new social transfer (Renda Cidada). The room to cut
discretionary spending has narrowed substantially in recent years
and it remains to be seen if the government will be able to
accommodate new social transfers by cutting mandatory spending
elsewhere. In Fitch's view, flexibilization of the spending cap to
accommodate new spending initiatives could undermine the fiscal
anchor and damage market confidence.
Fitch projects that Brazil's general government debt burden will
increase to nearly 95% of GDP in 2020 (significantly higher than
the current BB median of 59.9% of GDP) from 75.8% of GDP in 2019
and rise more gradually thereafter on the back of economic recovery
and fiscal consolidation. While one-off factors such as prepayments
of Treasury loans by BNDES (a development bank) and/or progress on
concessions/privatizations could temporarily improve this debt
trajectory, a permanent stabilization would require a faster
reduction in the primary deficit. The current low interest
environment underpins debt affordability but is not a panacea for
the underlying fiscal fragilities.
Brazil's deep domestic capital markets underpin financing
flexibility. Nevertheless, the Brazilian Treasury has borrowed at
shorter maturities to fund its ballooning financing needs this year
in light of the steep domestic yield curve, thereby increasing
rollover risks. Fitch estimates that domestic debt service will
amount to over BRL1.1 trillion in 2021 (around 15% of projected
2021 GDP), with a big hump during the first four months of the
year, highlighting growing vulnerability to market confidence
shocks. Increased policy uncertainties could further deteriorate
financing conditions. However, the Treasury's proactive liability
management as well its cash buffers (recently boosted by the BRL325
billion transfer from the central bank profits) provide some
short-term flexibility.
Brazil's political environment remains fluid with periodic tensions
between the executive and congress, which reduce visibility of the
post-pandemic reform prospects. The recent municipal elections also
stalled congressional discussions on reforms. The Bolsonaro
administration has been courting the support of centrist parties in
the fragmented congress, but the ability of such an alliance to
pass deep economic reforms remains uncertain. While Brazil has an
ambitious set of reforms in the pipeline, the lack of a clear
political articulation about their sequencing and prioritization as
well as vested interests may hamper their progress in 2021.
The administration has submitted several reform bills (including
constitutional amendments) in congress to improve the outlook for
public finances and buttress investor confidence, but the scope and
timing of final passage of these initiatives remains uncertain. A
constitutional amendment that would allow invocation of a 'fiscal
emergency' to facilitate spending cuts could enhance government
budgetary flexibility and the sustainability of the 'spending cap'.
In addition, the government has recently submitted a public sector
reform to contain payroll cost and improve efficiencies over the
medium term. The administration also submitted a tax reform in July
with the objective of simplifying the highly complex and burdensome
system. The Senate recently approved the bill to grant formal
autonomy to the central bank, which still needs Lower House
approval.
Fitch forecasts the Brazilian economy to contract by 5.0% in 2020
(compared to its last estimate of -5.8% in the September Global
Economic Outlook) before expanding by 3.2% in 2022. While the
pandemic has hit domestic demand, Brazil's substantial policy
support (fiscal, monetary) is mitigating the impact from this
shock. The coronavirus voucher has provided an important support to
households in 2020. The unemployment rate has continued to rise
during 2020, although the jump has been contained by the
implementation of job protection programs and a dip in the labor
participation rate.
In 2021, Brazil's economy is expected to benefit from a global
economic recovery, higher growth in China (its main trading
partner) and a competitive exchange rate. However, several downside
risks could dampen the recovery, including the 'fiscal cliff' from
phase-out of emergency support measures in 2021 and the persistence
of high unemployment rate. A resurgence of the coronavirus,
tightening of social distancing measures and/or policy manoeuvres
that undermine market confidence in the future fiscal trajectory
are additional downside risks.
IPCA inflation reached close to the 4.0% target in October,
increasing to 3.92% from a nadir of 1.9% in May on higher food and
energy prices. Producer prices have risen faster reflecting
pressure from higher energy prices and pass-through from a weaker
exchange rate. The sizeable economic contraction and the negative
output gap are reining in demand-led inflationary pressures.
Inflation expectations remain well-anchored for 2020-2022. The
central bank has cut its policy rate by 250 bps during 2020 to a
historically low level of 2%. In Fitch's view, the sustainability
of the low interest environment depends crucially on the fiscal
policy stance and continuation of the economic agenda.
Brazil's external accounts have been adjusting in the face of the
economic recession and a more competitive BRL. Fitch forecasts the
current account deficit to fall to 0.4% of GDP in 2020 from 2.8% in
2019 and increase slightly to 1.0% in 2021. Despite the adjustment
in external accounts, the BRL has weakened significantly in 2020
and has remained volatile, driven by reduced domestic interest
rates, political and fiscal/reform risks and external
uncertainties. The central bank has intervened in the spot (sold
USD24.2 billion YTD) and derivatives markets to reduce volatility
and provide hedging to the private sector but international
reserves at over USD350 billion (about 16 months of projected
current external payments) remain robust to navigate future shocks.
The outstanding FX swaps have increased to around USD57 billion
from about USD35 billion at the end of 2019.
The banking system's adequate capitalization, coupled with the
proactive liquidity management by the central bank, is facilitating
its capacity to cope with the pressures arising from the current
crisis. Consequently, credit growth has remained resilient.
ESG - Governance: Brazil has an ESG Relevance Score (RS) of 5 for
both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption, as
is the case for all sovereigns. These scores reflect the high
weight that the World Bank Governance Indicators (WBGI) have in its
proprietary Sovereign Rating Model. Brazil has a medium WBGI
percentile ranking of 44%, reflecting a recent track record of
peaceful political transitions even amid heightened political
uncertainty, a moderate level of rights for participation in the
political process, moderate institutional capacity, established
rule of law and a high level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Fiscal: A material weakening of the fiscal framework and/or
failure to consolidate fiscal accounts that threatens medium term
public debt sustainability;
-- Fiscal: A severe deterioration in the sovereign's domestic
and/or external market borrowing conditions; for example, due to
economic policy mismanagement and/or a political shock;
-- External: Sharp erosion of international reserve buffer and
the broader external balance sheet.
Factors that could, individually or collectively, lead to positive
rating action/upgrade are:
-- Fiscal: Increased confidence in the fiscal consolidation path
that improves prospects for government debt stabilization and
eventual debt reduction, for example through fiscal consolidation,
higher growth and progress on reforms;
-- Macro: An improvement in the growth outlook without increasing
macroeconomic imbalances.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Brazil a score equivalent to a
rating of 'BBB-' on the Long-Term Foreign Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final LT FC IDR by applying its QO, relative to
rated peers, as follows:
-- Macro: -1 notch, to reflect weak growth prospects and
potential, largely held back by a low investment rate and
structural impediments such as a difficult business environment,
which make it more challenging to consolidate the public finances
and address social pressures.
-- Public Finances: -1 notch, to reflect Brazil's general
government burden is approaching very high levels. The SRM is
estimated on the basis of a linear approach to government debt/GDP
and does not fully capture the risk at high debt levels. Fiscal
flexibility is hampered by the highly rigid spending profile and a
heavy tax burden that makes adjustment to economic shocks
difficult.
-- Structural Features: -1 notch, to reflect Brazil's fragmented
congress, periodic frictions between the executive and legislative
branches and corruption-related issues that have hampered timely
progress on reforms to improve the medium-term trajectory of public
finances. In addition, high income inequality adds to social
pressures.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
KEY ASSUMPTIONS
Fitch assumes that the global economy evolves in line with its most
recent update of the Global Economic Outlook published on Nov. 6,
2020.
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
Brazil has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators have the highest
weight in Fitch's SRM and a highly fragmented congress has made
timely passage of corrective policy adjustments difficult; this is
highly relevant to the rating and a key driver with a high weight.
Brazil has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and the corruption related issues exposed in recent years have
severely hit political dynamics and economic activity; this is
highly relevant to the rating and a key rating driver with a high
weight.
Brazil has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms as strong social stability and voice and
accountability are reflected in the World Bank Governance
Indicators that have the highest weight in the SRM. They are
relevant to the rating and a rating driver.
Brazil has an ESG Relevance Score of '4' for Creditor Rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for the Brazil, as for all sovereigns.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of 3. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or to the way in which they are being
managed by the entity.
BRAZIL: Rio de Janeiro Lost Close to 30,000 Jobs in 2020
--------------------------------------------------------
Xiu Ying at Rio Times Online reports that data released by the Rio
de Janeiro Bar and Restaurant Union (SINDRIO), show that the state
of Rio has now lost 29,269 jobs between March and September this
year.
Rio de Janeiro is among the most impacted states by the crisis
triggered by the Covid-19 pandemic, second only to Sao Paulo, in
terms of number of lost jobs, 84,972, according to Rio Times
Online.
The economic activity most affected by the pandemic on the formal
labor market in Rio de Janeiro is still bars and restaurants, the
report notes.
However, considering all economic sectors, both the state and the
capital of Rio de Janeiro showed a positive balance in formal
hiring, as observed in August, 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.
JALLES MACHADO: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
---------------------------------------------------------------
On Nov. 19, 2020, S&P Global Ratings revised the outlook on
Brazilian sugarcane processor Jalles Machado S.A. (Jalles) to
stable from negative, and affirmed the 'BB-' global scale and
'brAA+' national scale issuer credit ratings.
The stable outlook reflects that S&P expect Jalles to keep adjusted
debt to EBITDA below 2.0x and comfortable liquidity, even amid
volatile commodity prices and ethanol demand.
Past years' investments and adequate climate conditions sustained
by adequate irrigation capacity should allow Jalles to crush about
5.3 million tons of cane in the current harvest season--its maximum
capacity--which S&P expects it will maintain in the next few years.
This dilutes fixed costs and enhances profitability, even assuming
slightly lower average ethanol prices (about 5%) for the season
compared with fiscal year 2020.
In the current fiscal year, Jalles has been able to maximize sugar
output, reaching almost 50%/50% production mix between sugar and
ethanol from over 60% ethanol in fiscal 2020, mitigating the impact
of lower ethanol prices. It also benefits from product
diversification into organic sugar, anhydrous ethanol, and
sanitizers. S&P expects Jalles to continue operating at full
capacity and keep capex close to maintenance levels, resulting in
higher FOCF generation exceeding R$150 million per year that it
will mainly use to reduce debt.
Since the beginning of the pandemic, the company has been able to
raise cash through capital markets and bilateral debt, including
the recent loan from IFC for $27.5 million (or about R$150
million). This provides a cushion for market downturns, especially
given the current volatility in ethanol prices.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety and consumer related factors.
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C H I L E
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WOM SA: Fitch Affirms BB- LT IDRs, Outlook Stable
-------------------------------------------------
Fitch Ratings has affirmed WOM S.A.'s (WOM) Long-Term (LT) Foreign
Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDR)
at 'BB-'. In addition, Fitch has affirmed Kenbourne Invest S.A.'s
2024 USD unsecured notes at 'BB-'. The notes are fully guaranteed
by WOM S.A. The Rating Outlook on WOM's ratings is Stable.
Fitch has also affirmed and withdrawn WOM Mobile S.A.'s LT FC and
LC IDRs at 'BB-'/Stable, and WOM S.A.'s term loan and revolving
credit facility at 'BB-'.
The Stable Outlook reflects Fitch's expectation that WOM's cash
flow from operations should continue to grow in the near term,
which should enable the company to delever following the 2019
dividend recapitalization. The ratings continue to be constrained
by the company's relatively small scale and lack of
diversification. WOM's competitive position has improved
dramatically since Novator purchased and rebranded Nextel Chile
SA's assets in 2015, with its mobile market share improving from 2%
to 22%.
WOM Mobile's, and WOM's term loans and revolver ratings were
withdrawn due to commercial reasons.
KEY RATING DRIVERS
Further Growth, Deleveraging Expected: Fitch expects WOM to grow
revenues from CLP526 billion to around CLP650 billion over the
rating horizon, as the company sustains subscriber share growth,
albeit at a less rapid pace. Combined with moderate EBITDA margin
expansion due to improving handset margins, and other operating
costs benefitting from economies of scale, Fitch forecasts EBITDA
growing from CLP116 billion (19% of revenues) to CLP150 billion-160
billion (25%). Improvement in operating cash flow should contribute
to the company's net debt / EBITDA ratio declining to around 3.5x
over the rating horizon.
Increasing Cash Flows: Fitch forecasts operating cash flows to grow
with EBITDA, as interest payments are relatively stable and the
company's tax loss carry-forwards will minimize taxes. Fitch
expects that the company will participate in upcoming spectrum
auctions, and that the company will receive significant government
subsidies for its fiber optic build out. Before government
subsidies, Fitch expects CFO-capex to improve gradually over the
rating horizon, approaching neutral pre-dividend FCF. Fitch does
not anticipate that WOM will upstream significantly cash to its
parent in the near term; longer term, Fitch expects the company to
distribute excess cash to shareholders.
Improved Market Share, Small Scale: Since WOM launched in mid-2015,
the company scaled rapidly, achieving approximately 6.7 million
customers, almost half of which are post-paid. The company took
market share from larger incumbents through its disruptive
marketing campaign and attractive pricing. Fitch expects the
company's longer-term market share to grow more modestly in the
medium term to approximately 25% from 21%. The ratings are tempered
by the company's relatively small scale as the third largest mobile
operator in Chile by subscribers and revenues. Compared to each of
its major domestic competitors, as well as 'BB-' regional peers,
WOM lacks service diversification.
Management Track Record: WOM has a credible deleveraging
trajectory, backed by its strong growth, and experienced management
team and shareholder. Novator has experience running
telecommunications ventures in both developed and developing
markets, and executed its growth strategy while demonstrating a
path to profitability. Fitch views sister company P4 Sp. Zo.o
(Play), originally rated ''B+' in 2014, as illustrative. Play
achieved rapid growth as the fourth player in the Polish market,
before achieving market leadership, while successfully
deleveraging.
Competitive Telecom Market: The Chilean telecom market remains very
competitive, as incumbent operators had to cut prices and improve
service to defend market share, pressuring margins and cash flows.
Fitch expects industry-wide mobile ARPUs to remain pressured,
although WOM's value proposition and lower blended ARPUs should
mitigate these concerns to a degree. The market is relatively
mature, although the ongoing migration from prepaid to post-paid,
and the attendant growth in data consumption, present
opportunities.
Operating Environment: Fitch does not expect the constitutional
referendum or the impact from the coronavirus lockdowns to
materially affect telecom operators in the long term. The 2019
protests focused on industries where prices for basic service are
regulated by the government, such as transport and utilities. The
increase in telecom competition, particularly since WOM's entry,
led to broad reductions in price and improvements in service for
consumers. Fitch forecasts resilient telecom spending relative to
cyclical variations in Chile's economy, as data consumption grows.
DERIVATION SUMMARY
WOM's ratings reflect the company's short but impressive track
record in Chile, as well as Fitch's expectation that the company
will deleverage moderately, in line with sister company P4 Sp.
Zo.o. Compared with Chilean rival Telefonica Moviles Chile S.A.,
WOM has much higher leverage, as well as less scale and service
diversification. Compared to mobile leader Entel, WOM is expected
to carry higher net leverage over the medium as a result of the
dividend recapitalization. Like WOM, ENTEL entered a new market,
causing subscriber attrition and price competition, although WOM
was quicker to generate positive EBITDA and deleverage
organically.
Chilean fixed line provider VTR Finance NV (VTR, BB-/Stable) is
similar to WOM in scale, although VTR has a stronger market
position in the more stable fixed-line segment. Both companies are
owned by experienced international operators that are expected to
maintain moderately high amounts of leverage and upstream excess
cash over the long-term. Fitch expects lower leverage at WOM than
VTR. VTR is ultimately constrained by the financial policies of
Liberty Latin America Limited (LLA, NR).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
-- Revenues of CLP560 billion-CLP570 billion in 2020, growing to
CLP630 billion-CLP640 billion by 2023;
-- Flat service ARPUs due to postpaid migration and elevated
competition in Chile;
-- Postpaid users growing from ~47% of subscribers to 54%;
-- EBITDA margins growing from ~20% to 24%-25% as the company
benefits from increased scale;
-- Capex of 11%-13% of revenues in 2020, rising up to around
22%-25% in 2021 due to fiber optic project (total government
subsidies of CLP52.5 billion paid in installments), falling to
14%-15% of revenues longer term.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Deleveraging toward 3.0x Net Debt / EBITDA on a sustained
basis, with consistent growth in EBITDA and pre-dividend free cash
flow supported by improved competitive position and scale.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Substantial deterioration in ARPUs and/or stagnation in
competitive position, resulting in Net Debt/EBITDA sustained above
4.0x.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: WOM has adequate liquidity, aided by its
improving operating cash flow and a committed revolving credit
facility. As of June 30th, 2020, the company had CLP89 billion in
cash and equivalents, mostly in USD, against CLP23 billion in
short-term debt (including accrued interest, ex-derivatives). In
February 2020, the company re-opened its 2024 bond for an
additional USD60 million. In May, the company tapped its revolving
credit facility for CLP20 billion
SUMMARY OF FINANCIAL ADJUSTMENTS
Standard Lease Adjustments
Adjusted EBITDA for non-routine items
Reclassified items on cash flow statement related to exchange rate
fluctuations
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.
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C O L O M B I A
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COLOMBIA: San Andres Island Takes stock after Hurricane Iota
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Klarem Valoyes Gutierrez at EFE News reports that four days after
Hurricane Iota slammed this Colombian island off the coast of
Nicaragua with winds in excess of 258km/h (160mph), an uncertain
recovery was under way.
Many residents of San Andres were jolted awake by the first
Category 5 storm in history to strike Colombian soil, according to
EFE News.
People living in low-income neighborhoods on the island's eastern
shore saw their roofs torn off by the winds and their homes flooded
by the storm surge, the report notes.
"By the time we noticed, our house was full of saltwater. The sea
rose around 6 meters (20ft) here. We ran to reach the clothes so
they wouldn't get wet, but it was very late. The wind and the
force of the sea was very strong," Daridel Polo Robles tells EFE
News.
The concrete slabs of homes were swept away, along with a stretch
of the coastal road, while all that remains of the leafy trees that
separate Daridel's place from the beach are bare, twisted branches
and uprooted trunks, the report notes.
San Andres, a popular tourist destination, fared better in the
storm than the other two major islands in Colombia's Caribbean
archipelago, where hardly any structures survived Iota, the report
discloses.
Dozens of people from continental Colombia are arriving daily at
Gustavo Rojas Pinilla International Airport in San Andres in search
of news about loved ones in Providencia and Santa Catalina, which
have been incommunicado, the report discloses.
Daridel says he never before experienced anything like Iota in his
56 years on San Andres.
Wrapping up a visit to the archipelago, Colombian President Ivan
Duque said that while some areas in San Andres suffered heavy
damage, the island's tourism infrastructure remained largely
intact, the report relates.
"The hotel and tourist services, commercial transportation to San
Andres, are active and must remain active, obviously with rigorous
monitoring," he added.
CONCESION RUTA: Fitch Affirms BB+ Rating on Sec. Notes, Outlook Neg
-------------------------------------------------------------------
Fitch Ratings has affirmed the 'BB+' and 'AA(col)' ratings of the
UVR-denominated senior secured notes of P.A. Concesion Ruta al Mar
(Ruta al Mar) for up to COP522,000 million due in 2044. The Rating
Outlook remains Negative.
The Negative Outlook continues to reflect concerns with respect to
the pace and shape of traffic recovery. Also, the delay in the
project's full completion of approximately two years versus the
original schedule has increased the project's exposure to volume
risk. Construction delays have continued during 2020 and a steeper
than originally expected ramp-up period is still necessary to
maintain Ruta al Mar's credit quality. Fitch has revised its
assumptions for traffic to consider a five-year ramp-up period
during 2022-2026.
RATING RATIONALE
The rating reflects the project's acceptable mitigation of
completion and ramp-up risks, the latter related to the expected
increase in long distance and commercial traffic. It also reflects
a satisfactory rate-setting mechanism that allows for toll rates to
be adjusted annually by inflation rate. Debt structure is adequate
despite some back-loading and a bullet-payment structure for one of
the senior tranches. Fitch also views positively the presence of
prepayment mechanisms in scenarios of traffic underperformance or
outperformance, according to certain thresholds.
Financial metrics are below the threshold for the 'BB+' rating
according to the applicable criteria but supported by their growing
flexibility. Fitch's Rating Case shows a minimum loan life coverage
ratio (LLCR) at 1.1x (2022), while minimum and average debt service
coverage ratios (DSCRs) are 0.3x and 1.7x, respectively.
Nevertheless, the financial model provided to Fitch does not
properly reflect the most recent extensions to construction
schedules and the partial reception of revenues of some of the
road's functional units (UF), which would change the amount of debt
draws to finance construction. If the latter is considered and
according to Fitch's rough estimations, minimum DSCR could go up to
around 0.8x in 2027 while average DSCRs in 2021-2022 would increase
to 1.7x, significantly reducing liquidity concerns in the short
term.
The outbreak of coronavirus and related government containment
measures worldwide create an uncertain global environment for the
transportation sector. While related issuer performance data
through most recently available data may not have indicated
impairment, material changes in revenue and cost profile are
occurring across the transportation sector and will continue to
evolve as economic activity and government restrictions respond to
the ongoing situation. Fitch's ratings are forward-looking in
nature, and Fitch will monitor developments in the sector as a
result of the virus outbreak as it relates to severity and duration
and incorporate revised base and rating case qualitative and
quantitative inputs based on expectations for future performance
and assessment of key risks.
KEY RATING DRIVERS
Completion Risk Reasonably Mitigated - Completion Risk: Midrange
Construction works are being performed by Construcciones El Condor
('A-[col]'/Negative) under a fixed-price date-certain engineering,
procurement and construction (EPC) contract. The works comprise the
construction of short road stretches and minor bridges, and the
improvement of existing roads. Fitch views the complexity of the
construction works as low and without a critical path. According to
the independent engineer, the EPC contractor has the experience and
the ability to successfully develop the project. The budget is
adequate and includes contingency levels that are in the middle
range compared with similar projects. The sizes of the performance
bond and the retention provision of 15.8% and 5.0% of the EPC
contract price, respectively, are sufficient to cover cost overruns
should the EPC contractor need to be replaced.
Ramp-Up Risk Present - Revenue Risk (Volume): Midrange
Currently, the road is non-continuous and crosses several small
cities with 65% of its traffic composed of light vehicles. It is
mainly used for short- and medium-distance trips. Upon completion,
the traffic consultant, Steer Davies Gleave (SDG), expects long
distance trips to increase substantially and a surge in heavy
vehicle traffic. The project is expected to become the preferred
option versus the two existent competing roads because of the time
and cost savings.
Toll Tariffs Adjusted by Inflation - Revenue Risk (Price):
Midrange
Tariffs are adjusted by inflation on an annual basis according to
the concession agreement. Toll rates are moderate, and differential
tariffs are being applied by the government to specific vehicle
categories on some of the toll stations.
Moderately Developed Plan - Infrastructure Development and Renewal:
Midrange
The project depends on a moderately developed capital and
maintenance plan funded from project cash flows only. The plan is
to be implemented by the EPC contractor in the construction phase
and by the concessionaire in the O&M phase. The independent
engineer believes the concessionaire has the experience and the
ability to successfully operate the project. The O&M plan,
organizational structure and budget are reasonable and in line with
similar projects in Colombia. The structure includes a dynamic
six-month, forward-looking O&M reserve equal to the O&M costs
projected to be incurred during the next six months and a dynamic
major maintenance reserve account equivalent to the maximum
six-month major maintenance payment amount scheduled for the next
60 months.
Adequate Debt Structure - Debt Structure: Midrange
All debt is senior pari passu and is denominated either in UVR or
COP; all of the tranches are fully amortizing but one, which has a
bullet payment structure. Interest payments for all tranches are
indexed to inflation. The custom amortization profile is
back-loaded with over 50% of repayments for all tranches
concentrated on the last four years of their respective debt
tenors. Structural features include a six-month principal and
interest prefunded debt service reserve account, a lock-up test for
dividends distribution, and mechanisms that are triggered in
scenarios in which traffic performance is either significantly
higher or lower than expected.
Financial Profile
The main metric to be considered is LLCR due to the bullet-payment
debt structure of one of the senior tranches, which represents
about 30% of the debt; this is also supported by the potentially
abnormal retentions of liquidity due to an Outperformance Cash Trap
Mechanism and a conservative distribution test of 1.45x.
Fitch's rating case minimum LLCR is 1.1x in 2022, which is below
the threshold for the 'BB+' rating according to the applicable
criteria. This metrics assumes a five-year ramp-up period starting
in 2022 when the majority of the toll tranches have been delivered
and the road will begin its operation & maintenance phase.
PEER GROUP
Ruta al Mar is comparable with Red de Carreteras de Occidente (RCO;
BBB/Negative) in Mexico. Although both projects have a similar mix
of light and heavy vehicle traffic, RCO is as a road network with
long track record and more diversified traffic, so deemed to have
lower volume risk. Both projects share price, infrastructure
development and renewal and debt risk midrange assessments. The
absence of completion risk coupled and a stronger coverage metric
(average debt service coverage ratio at 1.5x) support RCO's higher
rating.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Outlook could return to Stable if Ruta al Mar shows a traffic
recovery above 2019 traffic levels in the following year,
construction works are completed at schedule, or an
earlier-than-expected ramp-up period.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Traffic reduction in 2020 greater than 20% along with a slower
and extended recovery in the following years;
-- Significant deterioration on available liquidity levels to
face operating and financial obligations;
-- Unexpected completion difficulties leading to delays and cost
overruns beyond those already contemplated in Fitch's scenarios.
CREDIT UPDATE
As of July 2020, the project construction was behind schedule by
29.1%, with a progress of 62.4% versus a planned progress of 91.4%.
The Independent Engineer (IE) highlights that these values do not
include the works covered by recently granted liability exculpatory
events (LEE), the modifications to the construction schedule as per
addendum 14 to the concession, and potential extensions related to
the pandemic. Considering the already formalized and approved time
extensions, construction progress would be 62.4% versus a planned
progress of 78.7%, representing an overall delay of 16.3%.
The concessionaire halted all construction activities between March
25 and April 26, 2020 due to the coronavirus-related measures taken
by the Colombian government, but works fully restarted on June 1,
2020. An extension of 98 days to the construction schedule was
approved in October 2020 by the grantor (Agencia Nacional de
Infraestructura, ANI) to compensate the concessionaire for the
effects of the pandemic in the construction progress.
UF 2 shows a construction delay of 47.4% due to difficulties in
Rights of Way (RoW) availability that affected around 50% of this
UF. According to the concessionaire, the construction delays
affecting the remaining 50% occurred followed ANI's requirement to
halt all availability process until approval was granted in
connection to addendum 15 to the concession. The concessionaire
expects to receive a Partial Certificate of Completion in February
2021, with a construction progress estimated above 40%.
In June 2019, Certificates of Partial Completion for UFs 3.1, 3.2,
3.3 and 3.4 were signed, while UF 3.5 shows a construction delay of
9.0%. The concessionaire is on track to finish works in November
2020 but a Certificate of Completion will most likely be received
in February 2021. The concessionaire requested an amendment to
modify the long-stop date for this UF to Feb. 28, 2021 in terms of
the financing documents.
Regarding UF 6.1 and 6.2, construction is behind of schedule by
26.6% and 47.5%, respectively. The IE opines that current delays
are mainly related to the impact of the coronavirus outbreak and
lockdown in Colombia, and also due to pending property management
in UF 6.2. With the 98-day extension, the concessionaire could
recover delays and works could be timely finished. For UF 6.3, the
concessionaire has not started construction works due to a dispute
regarding the location of the Caimanera toll station. The
concessionaire expects to receive a Certificate of Partial
Completion in February 2021, with a construction progress estimated
above 90%.
As for UF7, UF 7.1 has not begun construction due to issues related
with environmental permits but LEEs have been granted to complete
the outstanding works for an indefinite period. For UF 7.2 and
sector of Tolu Bypass of UF 7.3 the concessionaire has reported
delays related with the environmental authority's decision to
expand the license area of influence. The rest of UF 7.3 appears on
track to be delivered in November 2020.
In May 2020, the concessionaire requested LEEs for UF6.3, 7.2 and
7.3, which have not been approved. The IE determined that unless
schedule relief is granted, it could affect the compliance with the
completion deadlines for such UFs.
UF8.1 shows a delay of 32.9% as progress was affected by the
coronavirus outbreak and the involvement of deeper improvement
activities. The IE opines that works may be finished within the
timeframe with the 98-day extension by ANI. UF8.2 and UF8.3 also
show delays of 14.6% and 27.7%, respectively, and the
concessionaire did not comply with the deadline in July 2020.
Nevertheless, the IE considered that the addendum 6 to the
concession a maximum construction period by January 2021 and, with
the extension, the concessionaire appears to be on track to finish
all construction works by that date.
In 2019, traffic growth was 10.2%, mainly benefited from the
partial completion of UF3 and the reallocation of the El Purgatorio
toll booth in April, which allowed to capture vehicles that were
avoiding the payment of tolls. Also, the San Carlos toll booth
opened in February 2019, and experienced a short ramp-up during the
year.
As of October 2020, traffic decreased 18.9%, which was slightly
below Fitch's projection of an average decline of -22%. The decline
was the result of the travel restrictions imposed by the Government
of Colombia with the intention to contain the coronavirus pandemic.
A mandatory quarantine was imposed since March 24, 2020 and lifted
on Sept. 1, which included the restriction of circulation of people
and vehicles along Colombia, except for certain essential
activities.
In addition, from March 26 to May 31, 2020, the Colombian
government prevented the concessionaire from collecting tolls
rates. The concessionaire is currently negotiating with ANI a
compensation for lost revenues for the vehicles that did not pay
tolls in the aforementioned period, and also, for the lower
traffics from March to August, when the mandatory quarantine
prevailed. Based on concessionaire's estimations, compensations
could reach approximately COP41.7 billion. Nevertheless, a final
agreement has not been reached yet.
Operational, maintenance and administrative expenditures (opex) in
2019 and as of August 2020 were in line with Fitch's projections.
Opex reached COP36.1 billion in 2019, while Fitch expected COP36.6
billion. As of August 2020, opex was COP28.7 billion versus COP27.9
billion expected under Fitch's rating case.
FINANCIAL ANALYSIS
Fitch Cases
Fitch's rating case assumes a recovery in 2021 at 95% of 2019
traffic. The agency also assumed a five-year ramp-up period in
2022-2026 with a traffic compounded annual growth rate of 7.5%,
period in which the majority of the toll tranches will be delivered
and the road will begin its O&M phase.
Fitch also adjusted its projections for construction delays
reflecting the most recent expectations for each UF. Toll rates are
assumed to increase by inflation, which was projected at 3.2% in
2020 and 3.0% afterward. O&M and major maintenance expenses were
increased by inflation plus 7.5% for every year from the
concessionaire's budget, while the performance ratio was assumed at
98.5%. Under this scenario, minimum LLCR is 1.1x, while minimum and
average DSCR are 0.3x and 1.7x, respectively.
SECURITY
The notes are secured on a pari passu basis with all the other
secured obligations. The collateral constitutes substantially all
of the assets of the issuer, including certain reserve accounts,
pledges of rights and stock, shareholder equity contributions,
including stand-by letters of credit or other acceptable support
instruments securing the equity contributions, assignments of
revenues, the concession trust (other than certain sub-accounts of
the concession trust, which are only for the benefit of ANI) and
the transaction trust.
Asset Description
Ruta al Mar is a public-private partnership (PPP) concession based
on a private initiative. The main purpose of the project is to
develop a primary route with high performance specifications to
ensure the Antioquia-Bolivar connection, and link the center and
south of the country with the northern coast. The project consists
of the construction, improvement and operation of a 491km long toll
road located in Antioquia, Cordoba, Sucre and Bolivar, in
Colombia.
The concession has a term of 34 years, with a maximum extension of
six years and nine months more depending on reaching the net
present values of the revenues established in the concession
agreement. The road is currently in the construction phase, and
construction work is expected to be completed in 2021, with 25-30
years of O&M to follow.
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.
===================
C O S T A R I C A
===================
BAC SAN JOSE 2020-1: Fitch Expects to Rate $150MM Notes BB+(EXP)
----------------------------------------------------------------
Fitch Ratings expects to rate the BAC San Jose DPR Funding Ltd's
issuance of $150 million of series 2020-1 notes 'BB+(EXP)', while
affirming the existing series 2014-2 notes at 'BB+'. The Rating
Outlook is Stable. Fitch's ratings address the timely payment of
interest and principal on a quarterly basis.
RATING ACTIONS
BAC San Jose DPR Funding Ltd
2014-2 (144A) 05633WAB9; LT BB+ Affirmed; previously at BB+
2014-2 (Reg S) USG0701RAB18; LT BB+ Affirmed; previously at BB+
2014-2 05633WAD5; LT BB+ Affirmed; previously at BB+
2020-1; LT BB+(EXP) Expected Rating; previously at
TRANSACTION SUMMARY
The proposed transaction will be backed by existing and future USD
diversified payment rights (DPRs) originated by Banco BAC San Jose,
S.A. (BAC SJ), which is part of the BAC/Credomatic group. The
majority of DPRs are processed by designated depository banks
(DDBs) that have signed Acknowledgement Agreements (AAs)
irrevocably obligating them to make payments to an account
controlled by the transaction trustee. This transaction represents
the third issuance out of the program, which was established in
2014.
KEY RATING DRIVERS
Future Flow Rating Driven by Originator's Credit Quality: On July
31, 2020, Fitch affirmed BAC SJ's Long-Term LC IDR at 'BB-' with a
Negative Outlook. The LC IDR is consistent with the maximum uplift
of two notches above the sovereign rating allowed by Fitch's
criteria. Fitch also affirmed BAC SJ's Viability Rating (VR) at
'b', which remains at the same level of the sovereign rating,
reflecting the high influence of the worsening operating
environment on the financial sector and the credit profile of the
bank.
Strong Going Concern Assessment (GCA) Score Supports Notching
Differential: Fitch uses a GCA score to gauge the likelihood that
the originator of a future flow transaction will stay in operation
through the transaction's life. Fitch assigns a GCA score of 'GC2'
to BAC SJ, based on the bank's strategic important to its parent,
as well as its position as the third largest bank in Costa Rica and
the largest private bank in the country with assets that
represented close to 14% of the system as of March 2020. The score
allows for a maximum of four notches above the originator's LC
IDR.
Several Factors Limit Notching Differential: The 'GC2' score allows
for a maximum rating uplift of four notches from the originator's
IDR pursuant to Fitch's future flow methodology. However, the
uplift is tempered to two to three notches as the originating bank
is one category from investment grade and further tempered to two
notches, in this instance, as BAC SJ's IDR is support-driven. The
bank's VR is 'b'
Moderate Future Flow Debt Relative to Balance Sheet: Fitch
estimates future flow debt will represent 3.2% of BAC SJ's total
funding and 30.3% of non-deposit funding when considering the
proposed $150 million DPR transaction and outstanding balance on
the Series 2014-2 notes using financials as of June 2020. Fitch
considers these ratios small enough to allow the future flow
ratings the maximum uplift.
Coronavirus Impact and Containment Measures Pressure DPR
Transaction Flows: BAC SJ processed approximately $3.71 billion in
DPR flows during the nine months ending September 2020, which
reflects an approximate decrease of 5% when compared with the same
period in 2019. Global events such as the sharp economic
contraction caused by the coronavirus pandemic and different
containment measures have reduced transaction cash flows, which can
add pressure to the assigned ratings. Therefore, the potential
volatility of the DPR flows also limits the notching differential
of the transaction.
Coverage Levels Commensurate with Assigned Rating: Global events
including the coronavirus crisis have negatively impacted DPR
flows. Although this has translated into a decrease in flows during
the first nine months of 2020, when compared to the same period in
2019, transaction cash flows have remained sufficient to support
max quarterly coverage levels over 100x. When considering cash
flows between September 2015 and September 2020 against the
proposed issuance amount of $150 million plus the remaining $40
million outstanding on the Series 2014-2 notes, the projected
quarterly debt service coverage ratio (DSCR) is 106.9x. Moreover,
the transaction can withstand a drop in flows of approximately
99.1% and still cover the maximum quarterly principal and interest
payment. Nevertheless, Fitch will continually monitor the
performance of the flows, as potential pressures could negatively
impact the assigned ratings.
Structure Reduces Sovereign/Diversion Risks: The structure
mitigates certain sovereign risks by keeping cash flows offshore
until scheduled debt service is paid to investors, allowing the
transactions to be rated above Costa Rica's country ceiling. Fitch
believes diversion risk is partially mitigated by the
Acknowledgement Agreements (AAs) executed by the four designated
depository banks (DDBs) processing the vast majority of DPR flows.
The Key Rating Drivers listed in the applicable sector criteria,
but not mentioned, are not material to this rating action.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch does not anticipate developments having a high likelihood of
triggering an upgrade. However, the main constraint to the program
rating is the originator's rating and bank's operating environment.
If upgraded, Fitch will consider whether the same uplift could be
maintained or if it should be further tempered in accordance with
criteria.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transaction ratings are sensitive to changes in the credit
quality of the originating bank. A deterioration of the credit
quality of the sovereign and/or originating bank by more than one
notch is likely to pose a constraint to the rating of the
transaction from its current level.
The transaction ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score.
Additionally, the transaction rating is sensitive to the
performance of the securitized business line. The quarterly DSCRs
are expected to be more than sufficient to cover debt service
obligations and should therefore be able to withstand a significant
decline in cash flows in the absence of other issues. However,
significant further declines in flows could lead to a negative
rating action. Any changes in these variables will be analyzed in a
rating committee to assess the possible impact on the transaction
ratings.
No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The future flow ratings are driven by the credit risk of Banco BAC
San Jose, S.A. as measured by its Long-Term Local Currency IDR.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The future flow ratings are driven by the credit risk of Banco BAC
San Jose, S.A. as measured by its Long-Term Local Currency IDR.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool was not
prepared for this transaction. Offering Documents for this market
sector typically do not include RW&Es that are available to
investors and that relate to the asset pool underlying the trust.
Therefore, Fitch credit reports for this market sector will not
typically include descriptions of RW&Es.
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: Gov't. to Lend RD$1BB to Coffee Producers
-------------------------------------------------------------
Dominican Today reports that Dominican Republic President Luis
Abinader announced that the government would lend one billion
pesos, at a zero rate, to coffee producers to improve the fields
and reduce poverty in the country.
Abinader offered the information, at the head of the act of
beginning this year's coffee harvest, held at the facilities of the
Reproduction Center of New Coffee Varieties of Industrias Banilejas
in Rancho Arriba, San Jose de Ocoa province, according to Dominican
Today.
The president showed the interest of his administration in
contributing to the recovery of coffee production in the country
for all national producers' good, the report notes.
He raised the need for a public-private alliance to overcome the
evils that affect coffee production and overcome the poverty that
affects most of the inhabitants residing in the towns of the
southern region visited, the report discloses.
He said that even though he is not a specialist, he knows
economics, so he acknowledged that support is needed in favor of
coffee producers at the time of announcing that the government will
give that support, the report relays.
The president received from the president of Industrias Banilejas
(Induban), Manuel Pozo Perello, a donation of two tons of seeds and
100,000 sprouted coffee plants to support the National Plan for the
Recovery of Coffee Production, the report notes.
During the discussion, the governor received the plan to recover
the coffee sector and the safe harvest manual that Induban
developed and that grain producers apply to avoid workers'
contagion due to the Covid-19 pandemic, the report discloses.
Manuel Pozo Perello received the president, executive president of
Industrias Banilejas (Induban), who congratulated him for the work
he is doing at the head of the State, the report relays.
Government participation in the activity was represented by the
Minister of Agriculture, Limber Cruz; Defense, Lieutenant General
Carlos Luciano Diaz Morfa; the administrator of Banco Agrícola,
Fernando Duran; the Executive Director of the Dominican Coffee
Institute (INDOCAFE), Leonidas Batista Díaz, the governor of the
province, Oliva Castillo and the mayor of Rancho Arriba, Alcedo de
los Santos, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis
Rodolfo Abinader Corona is the current president of the nation.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's credit rating for Dominican Republic stands at
BB- with negative outlook (April 2020). Moody's credit rating for
Dominican Republic was last set at Ba3 with stable outlook (July
2017). Fitch's credit rating for Dominican Republic was last
reported at BB- with negative outlook (May 8, 2020).
DOMINICAN REPUBLIC: Sowing of Some Crops Decreased More Than 50%
----------------------------------------------------------------
Dominican Today reports that the area planted with most
agricultural items has been significantly reduced in the Dominican
Republic in 2020 compared to 2019. This represents a threat to the
food security of the Dominican population, according to Dominican
Today.
The products that register the most significant reduction are
coconut, garlic, sorghum, and white beans, whose sowing in the
January-September period of this year fell more than 40%, according
to data from the Ministry of Agriculture contained in an analysis
prepared by the Fuerza del Pueblo (FP) party published this month,
the report notes.
In coconut, the area sown decreased 58.19%; that of garlic 52.47%;
that of sorghum 51.21% and that of white beans 40.43%, the report
relays.
Grapefruit sowing was also reduced (36.90%); red beans (19.61%) and
black (18.54%); guava (16.56); mango (15.40%), the report says.
The area is sown with molondrón, papaya, cauliflower, aubergine,
onion, melon, and sapote, which also decreased by over 10%, the
report discloses.
The planting of yams, bananas, potatoes, squash, carrots,
pineapple, cabbage, corn, lettuce, salad tomatoes, sweet orange,
cucumber, and other items also decreased, although to a lesser
extent, the report says. The smallest reductions were registered
in rice, avocado, and beet, the report notes.
The Threat to Food Security
It is against this background that in its study entitled "Policy
actions and measures to guarantee food security in the context of
the COVID-19 pandemic in the Dominican Republic," the FP states
that as a result of the pandemic, the country's food security
presents various threats, the report notes.
The analysis establishes that although at the beginning of the
pandemic, the decrease in demand for food, due to the fall in
tourism and the loss of purchasing power, caused a reduction in
prices because an excess supply was generated, the report relays.
As a result, the prolongation of this situation has caused a
significant disincentive for the agricultural producer, the report
adds.
Nowadays, one observes with concern the fact that in most of
the agricultural food items a reduction in planting has been
experienced,from which a reduction in national production is
already being verified that could continue in the coming months,"
says the analysis, the report notes.
Imports
Added to this is the growth in dependence on imports, which between
January and September remained stable and even in some cases
increased exaggeratedly, according to the study, the report notes.
Such is the case of milk and dairy products, poultry eggs, natural
honey, edible products of animal origin, whose imports increased
16.4%; animal or vegetable fats and oils; products of its
unfolding; processed food fats (22.7%) and food vegetables, plants,
roots and tubers (103.1%), details the analysis, the report
relays.
"In addition to the above, food imports could be affected
in the short and medium-term by an eventual shortage of foreign
exchange to finance their acquisition . . . .adds the study.
It also indicates that an eventual shortage of foreign exchange can
lead to the devaluation of the Dominican peso and a subsequent
inflationary process that can negatively impact the price of food
and further reduce the population's purchasing power, the report
discloses.
Added to all this is that the untimely dismantling of aid programs
implemented by the government can lead to a drastic reduction in
monetary income, loss of purchasing power, and social unrest, the
report relays.
Recommendations
To face the situation and guarantee food availability, the analysis
contains a series of recommendations, among which are the creation
of a Special Fund for the Agricultural Sector to implement various
actions in favor of agriculture, the report relays.
To ensure access to food, he suggests, among other measures, to
keep the aid programs "Stay at Home," "Pa'Ti," and "FASE" in
operation while the adverse effects of the pandemic last, the
report discloses.
It also recommends ordering the National Council for Food and
Nutrition Sovereignty and Security (CONASSAN) to prepare and
immediately implement a "Food Contingency Plan" to face the risks
that threaten the nation's food security during the period of
health emergency due to COVID-19, among others, 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).
=============
J A M A I C A
=============
JAMAICA: Shows Moderated Growth in Loans & Advances for July-Sept
-----------------------------------------------------------------
RJR News reports that the Bank of Jamaica has reported that growth
in private sector loans and advances moderated during the July to
September quarter relative to the previous three months.
Loans and advances by deposit-taking institutions expanded by 12.2
per cent at September, according to RJR News.
This was below the growth of 13.3 per cent as at June.
The Central Bank says the growth was underpinned by expansions in
loans and advances of 15.7 per cent and 9.6 per cent to the
productive sector and individuals, respectively, the report notes.
Growth in loans to the productive sector was mainly linked to
tourism, the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea. Jamaica
is an upper-middle income country with an economy heavily dependent
on tourism. Other major sectors of the Jamaican economy include
agriculture, mining, manufacturing, petroleum refining, financial
and insurance services.
Standard & Poor's credit rating for Jamaica stands at B+ with
negative outlook (April 2020). Moody's credit rating for Jamaica
was last set at B2 with stable outlook (December 2019). Fitch's
credit rating for Jamaica was last reported at B+ with stable
outlook (April 2020).
As reported in the Troubled Company Reporter-Latin America, Fitch's
revision of Jamaica's outlook in April 2020 to Stable from Positive
reflects the shock to Jamaica from the coronavirus pandemic, which
is expected to lead to a sharp contraction in its main sources of
foreign currency revenues: tourism, remittances and alumina
exports.
===========
M E X I C O
===========
CONSUBANCO SA: Fitch Puts BB- LT IDRs on Rating Watch Negative
--------------------------------------------------------------
Fitch Ratings has placed Consubanco, S.A., Institucion de Banca
Multiple (Consubanco)'s Long-Term Foreign and Local Currency Issuer
Default Ratings (IDRs) of 'BB-' and Short-Term Foreign and Local
Currency Ratings of 'B' on Rating Watch Negative. The national
ratings, viability rating and the senior unsecured notes are also
placed on Rating Watch Negative. Fitch also affirm the Support
Rating and Support Rating Floor at "5" and "NF", respectively.
The Rating Watch Negative in Consubanco's ratings reflects Fitch's
opinion of its higher risk appetite towards inorganic growth under
a challenging operating environment. Consubanco recently purchased
a portion of Banco Ahorro Famsa S.A. Institucion de Banca
Multiple's (BAF) payroll loan portfolio and expressed interest for
additional inorganic growth. Consubanco enters into this inorganic
growth process with good levels of liquidity and capitalization,
and BAF's portfolio is commensurate with Consubanco's business
model. However, Fitch also considers uncertainty about the final
effect the transaction will have on the bank's credit profile as
the transaction is subject to regulatory approvals. Fitch also
incorporates the execution risks generally linked to a portfolio
acquisitions or consolidation process in the context of the current
economic crisis.
Fitch expects to resolve the Rating Watch once the agency has
greater clarity on the final details of the transaction and if
there is a change on the agency's assessment of Consubanco's risk
appetite, as well as on the impact that acquisitions could have in
its business and financial profile.
KEY RATING DRIVERS
IDRS, Viability Rating (VR) AND NATIONAL RATINGS
Consubanco's IDRs and National Ratings are driven by its intrinsic
creditworthiness, as reflected in its 'bb-' VR. Consubanco's VR is
highly influenced by its company profile, which is characterized by
a well-positioned and growing franchise among payroll sector,
although small within the Mexican financial system and with a
concentrated and specialized business model. Fitch also considers
the bank's higher risk appetite for inorganic growth, reflected in
a recent portfolio acquisition and future acquisition plans. The
ratings are also significantly influenced by its funding and
liquidity profile, which is characterized by a highly
market-reliant funding structure with less diversification. The
ratings also factor in the bank's good capitalization, as well as
the recent pressures on its profitability and asset quality
metrics.
In November 2020, Consubanco announced the purchase of part of
BAF's payroll portfolio for a price of MXN867.3 million less the
collection received from June 30 to the date of the purchase. This
portfolio is made up of MXN707 million of outstanding loans and
MXN47.1 of impairment loans (NPL ratio: 6.3%, greater than that
registered by Consubanco in the past years). The purchase is still
in the authorization process by the Comision Federal de Competencia
Economica (COFECE) and the Instituto Mexicano del Seguro Social
(IMSS). This purchase is part of an inorganic growth strategy of
the entity to increase its market share in its target market of
payroll loans. Fitch believes that the entity's higher risk
appetite for inorganic growth compares above than some sector
peers, and this accelerated growth could increase risks for the
bank's performance amid of the adverse operating environment.
The bank's funding structure is less diversified than its peers,
given it maintains its concentration in wholesale funding, mainly
represented by debt in the local market, which is more sensitive to
investor appetite and sentiment. As of September 2020, deposits
represented 34.6% of total funding and the loan to deposit ratio
stood at 274.8%. Consubanco has continued reinforce its liquidity
risk management and has a weighted average maturity (WAM) of 36
months in its credit portfolio and the WAM of its funding stood at
34 months; however, as of 3Q20 there is less availability of
funding lines compared to the previous year. At the same date, the
Liquidity Cover Ratio (LCR) stood at 1,270%. Fitch expects this
ratio to decrease given that the expected inorganic growth will be
paid with cash and equivalents. The funding and liquidity analysis
also incorporate the approach of the non-bank criteria given the
funding structure of the entity that is adequate in comparison with
rated non-bank financial institutions since around 77% of its
funding sources are unsecured but with less diversification. The
agency considers funding and liquidity to remain the bank's main
challenge in terms of achieving a more diversified and less
market-reliant funding structure.
Consubanco's asset quality metrics deteriorated compared to
previous year. Although the bank's NPL ratio have been improving in
recent years, supported by its strategy to focus on federal
entities whose payroll disbursements are made by the federal
government; as of September 2020, the bank's NPL ratio, which
include accounts receivable from employees more than 90 days past
due, stood at 6.4%, higher than the previous year (2019: 4.6%),
given a higher consumer impairment loans and its first commercial
impairment loan. Considering the adjusted NPL ratio, which include
accounts receivable from employees more than 90 days past due,
charge-offs and foreclosed assets, the ratio stood at 12.2% (2019:
9%). Given its retail nature, individual borrower concentrations
are not relevant. However, concentration by government dependency
is high, the bank's top 20 employer represented 1.9x common equity
Tier 1 (CET1), as of 3Q20, although they are mainly federal
government entities. Fitch believes that Consubanco's asset quality
could face some pressures in the short- and medium-term, given the
expected growth in the context of the adverse economic
environment.
As of September 2020, operating profits to RWAs metric stood at
3.1% versus an average of 3.7% during 2017-2019, mainly affected by
higher loan impairment charges, and also by lower interest income,
given a slowdown in sales in 1H20, as a result from the closure of
agreements and the economic slowdown of the coronavirus crisis.
Although the bank compensated part of this decrease with
efficiencies and a lower cost of funding, Fitch believes
Consubanco's profitability could present an additional
deterioration given the increasing credit costs, uncertainty in the
reopening of some agreements and the challenging operating
environment.
Consubanco's capitalization metrics are good and are mainly
supported by recurrent income generation. As of September 2020, its
CET1 Capital-to-risk-weighted assets (RWA) ratio was 20%, similar
than previous years (2017-2019: 19.6%). The bank maintains reserves
coverage above 100% which supports its loan loss absorption
capacity, although with high concentrations by sector and on its
main employer agreement. In Fitch's opinion, capitalization metrics
could be pressured in the near future by the dividend distribution
plan and also expected accelerated portfolio growth; although
Fitch's expects that Consubanco will maintain its capitalization
metrics at appropriate levels according its ratings. Asset quality
pressures, higher than expected RWAs or higher than expected
capital outflows could also impact this factor.
The ratings also reflect the company's well-articulated strategic
objectives that have recently changed toward a more active
inorganic growth. Also, Fitch considers the recent observation
regarding related parties limits made by the banking regulator
regarding a specific number of receivables that could be considered
related parties and have not been registered as such, that although
it is still under review, could have a negative impact on the
bank's overall credit profile.
Due to the bank's business model concentration on payroll deducted
loans, it is exposed to operational, political and event risk. The
willingness and ability of public sector entities to fully disburse
retained collections usually impact asset quality and liquidity,
but Fitch believes Consubanco has partially mitigated this risk
given that above 80% of its loan portfolio corresponds to federal
entities, which tend to be operationally efficient and exhibit
virtually null delays in transferring payments. Fitch assessment of
Consubanco's risk appetite incorporates risk related to the recent
suspensions of some agreements with public sector entities.
SENIOR DEBT
Local senior unsecured issuances are at the same level as the
national long-term rating of Consubanco, as the likelihood of
default of the notes is the same as the one of the banks.
SUPPORT RATING AND SUPPORT RATING FLOOR
Consubanco's SR and SRF of '5' and 'NF', respectively, are driven
by its low systemic importance; as of September 2020, its deposits
were around 0.1% of the Mexican banking system. They also reflect
Fitch's opinion that government support to the bank, although
possible, cannot be relied upon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
Fitch could exercise the Negative Rating Watch and downgrade the
ratings if there is a change in Fitch's assessment of the risk
appetite factor derived from relevant current or expected inorganic
or organic growth, if not accompanied by robust risk controls that
contain incremental execution risks. An increase in liquidity
risks, due to a significant deterioration of assets, low balance
liquidity or less access total funding that is susceptible to
market or depositors would also put pressure on the ratings.
Consubanco's ratings also could be downgrade if the growth expected
results in additional pressures on the bank's financial profile.
Specifically, due to higher than expected deterioration of
delinquency ratios or if its CET1 ratio falls below 14% in a
sustained manner. An increased political or business risks could
also be negative for ratings.
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
Rating upside potential is unlikely in the near term.
Fitch could resolve the Rating Watch and Consubanco's ratings could
be affirmed if the growth effects do not result in a change in the
agency's assessment of the bank's risk appetite factor or if the
effects on its growth strategy do not result in a change in its
asset quality, profitability, leverage and liquidity that currently
commensurate with its ratings, all the above within a deteriorating
operating environment.
The ratings could be upgraded over the medium term if the bank is
able to maintain its improvements in funding and liquidity
management. A more diversified funding base, strengthening
franchise, profitability and capitalization could also be credit
positive over the time.
Local senior debt ratings of Consubanco would mirror any changes in
the bank's National scale ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
Given the bank's limited systemic importance and the almost
incipient penetration of deposits, Fitch believes that the SR and
SRF are unlikely to change in the foreseeable future.
SUMMARY OF FINANCIAL ADJUSTMENTS
Account Receivables from employers are reclassified as loans, with
those overdue by more 90 days classified as impaired. Loan loss
reserves are increased by the amount of reserves related to these
account receivables. Capitalized fee expenses and other deferred
assets were reclassified as intangibles and deducted from total
equity due to its lower loss absorption capacity.
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
Consubanco, S.A., Institucion de Banca Multiple: Management and
Strategy: 4, Governance Structure: 4
Consubanco has ESG Relevance Score of 4 for Management and Strategy
driven by its high-risk appetite, due to the recent change towards
inorganic growth that could be driven by opportunistic decisions.
Also, Consubanco has ESG Relevance Score of 4 for Governance
Structure given the recent observation regarding related parties
limits made by the banking regulator regarding a specific amount of
receivables that could be considered related parties, and have not
been registered as such, which could have a negative impact on the
credit profile, and are relevant to the ratings in conjunction with
other facts.
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.
CREDITO REAL: Fitch Affirms BB+ LT IDR, Outlook Negative
--------------------------------------------------------
Fitch Ratings has affirmed Credito Real, S.A.B. de C.V., SOFOM,
E.N.R.'s (Credito Real) Long-Term Foreign and Local Currency Issuer
Default ratings (IDRs) at 'BB+' and Short-Term Foreign and Local
Currency IDRs at 'B'. The Rating Outlook on the long-term rating is
Negative. Credito Real's global senior unsecured debt and perpetual
bonds ratings were also affirmed at 'BB+' and 'BB-', respectively.
Fitch has also affirmed Credito Real's Long- and Short-Term
National Scale ratings at 'A+(mex)'/'F1(mex)'. The Rating Outlook
on the long-term rating is Stable.
KEY RATING DRIVERS
The Negative Outlook reflects Fitch's expectation that Credito
Real's asset quality and profitability could weaken as a result of
operating environment deterioration. Credito Real's business model
has proved relatively resilient through the cycle, with a
concentration (55.9% of total loans) of payroll loans to unionized
state and federal public-sector employees, a segment particularly
less sensitive to unemployment. However, the segment is somewhat
sensitive to the partial lockdowns that have partially limited
originations through the crisis. Credito Real is also exposed to
non-payroll segments such as SMEs and operations in Central
America, which are more sensitive to the effects of the coronavirus
crisis and the economic slowdown. Credito Real's earnings metrics
could continue to be pressured by loan loss provision increases or
lower interest margins, which could in turn result in higher
leverage. In Fitch's view, additional pressures on Credito Real's
leverage could come from debt increments to face liquidity risks.
The Stable Outlook on the national ratings reflects Fitch's view
that these risks are already reflected by the national-scale
ratings in relation to the local peers.
Credito Real's ratings consider, with high importance, Fitch's
assessment of the operating environment of 'bb+' with a negative
trend. The operating environment assessment considers a blended
approach and incorporates the company's material exposures in
Central America and the U.S., as well as the predominant operations
in Mexico, with 80% of its gross loan portfolio, as of September
2020.
The company's ratings also consider, with high importance, Credito
Real's solid company profile compared to other non-bank financial
institutions (NBFIs), as reflected by its leadership position and
ample expertise in its core business of payroll deductible loans in
Mexico. Fitch believes this segment is relatively less risky given
the payroll-deductible mechanism and traditional stability of
government employment. However, origination has been reduced by the
partial lockdowns and reduced mobility of individuals. A more
diversified than peers business model is also incorporated in the
company's profile assessment. In addition, the ratings reflect
Credito Real's long track record of above peers' asset quality;
recurring, although recently reduced, earnings generation, and
reasonable leverage levels. Increased refinancing and liquidity
risk due to the company's wholesale funding profile, have also been
factored into the ratings.
Ratings are constrained by the company's high-risk appetite as a
niche business that targets higher risk segments, presence in
lower-rated countries in Central America, and rapid and inorganic
growth strategies. During 2020, Credito Real increased equity
participation in CREAL Arrendamiento, which gave it control of the
leasing company and enlarged its exposure to the SME segments. The
company also started a partnership with Grupo Famsa in which the
latter acts as another distributor of its payroll business while
Credito Real finances the group's durable goods loans. The
operational, political, and reputational risks related to its
payroll business also limit its ratings. Fitch's assessment of
Credito Real's risk appetite assessment incorporates risk related
to the recent suspensions of some agreements with public sector
entities.
Credito Real has shown that it could contain asset quality
deterioration well compared to peers, benefited by its
concentration in the payroll segment, which has been relatively
stable through the cycles. However, like most NBFIs, the company's
asset quality has also benefited from relief programs, which have
delayed the effects of the crisis. As of September 2020, NPLs
increased to 2.3% of gross loans, up from the 2016-2019 average of
the 1.8%. This ratio includes leasing contracts with payments
overdue by more than 90 days. In turn, the adjusted impaired loan
ratio for charge-offs was 4.5% as of 3Q20. As of September 2020,
the company had 6.3% of its portfolio in relief programs; most
granted to SMEs, which is the sector most affected by the pandemic.
Fitch expects Credito Real's asset quality to remain pressured and
to increase once relief programs expire, given its exposure to
vulnerable segments and the challenging economic conditions.
In Fitch's view, the company's solid franchise in its core business
has contributed recurring core earnings; however, the negative
profitability trend continued. As of September 2020, pretax income
to average assets, adjusted by perpetual bonds interest payments
under Fitch's criteria, was 1.2%, well below the four-year average
of 5.6%. Despite lower funding costs and high loan growth—mainly
in lower-yielding loans such as SMEs—Credito Real's earning
pressure is driven by an increase in provisions for credit losses
and lower interest margin across the company's different segments
affected by the crisis. As of the same date, interest income plus
leases income to average earning assets ratio decreased sharply to
19.1% contrasting with the 2016-2019 average of 27.9%. Fitch
expects Credito Real's profitability to remain pressured.
Fitch believes that Credito Real's leverage position provides
adequate loss absorption capacity for its business model under the
current tougher economic environment. The company's leverage
metrics compare favorable against its closest competitors, and is
still commensurate with its rating. As of September 2020, the
tangible leverage ratio (considering 50% of hybrid instruments as
equity) increased to 5.1x from its four-year average of 4.0x
(2016-2019). The company's choice to hold dividend payments could
somewhat alleviate further pressures on its capital position due to
modest profitability.
Credito Real's wholesale funding is more flexible in terms of
unsecured sources than other NBFIs Fitch rates. As of September
2020, its unsecured debt-to-total debt ratio was 77.6% (including
the 50% of the hybrids considered as debt by Fitch). During 2020,
the company has actively renewed or increased credit lines to face
liquidity and refinancing risk, which has increased due to the
worsened operating environment. Fitch considers further liquidity
pressures would cease once loan collection is fully normalized. As
of September 2020, Credito Real's debt maturities over the next 12
months add up to MXN12,510.4 million (most of them correspond to
revolving credit lines) and its liquid assets (cash and
investments) and available credit lines represented about 35.9% of
these maturities.
SENIOR DEBT
The senior global debt rating is at the same level as Credito
Real's 'BB+' rating, as the likelihood of a default of the notes is
the same as for the company.
HYBRID SECURITIES
Credito Real's hybrids securities are rated two notches below its
Long-Term IDR. The two-notch differential represents incremental
risk relative to the entity's IDRs, reflecting the increased loss
severity due to its deep subordination and heightened risk of
non-performance relative to existing senior obligations.
Based on Fitch analysis, the hybrid qualifies for 50% equity as it
meets Fitch's criteria with regard to the ability to defer coupon
payments, the existence of a coupon step-up of 500 basis points
(bps) in the event of a change of control and its perpetual nature.
The terms of the issuance incorporate a feature that according to
Fitch's criteria may be considered an effective maturity date 15
years after the first call date, due to the existence of a
cumulative step-up greater that 100 bps. This could lead Fitch to
stop assigning equity credit five years prior to such effective
maturity date.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Credito Real's ratings could result from a
material deterioration on asset quality and profitability that
pressures its total debt-to-tangible equity ratio consistently
above 5.5x.
-- A substantial deterioration of its funding and liquidity
profile could also trigger a downgrade.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Negative Outlook could be revised to Stable if Fitch
believes the impact of the pandemic on the company's credit profile
is less than expected with a relatively quick recovery. The Outlook
revision also depends on the company's ability to reverse
deteriorations in profitability and rebuild metrics similar to
those observed before the pandemic while leverage ratios are
sustained at levels commensurate to its current rating.
-- The current Negative Outlook makes an upgrade highly unlikely
in the near term.
-- Over the medium term, the ratings could be upgraded by the
confluence of an improvement of the operating environment and the
financial profile of Credito Real, specifically, its profitability
and tangible leverage, while preserving strong company profile.
SENIOR DEBT and HYBRID SECURITIES
Although the company's debt ratings do not have an explicit Rating
Outlook, it would mirror any potential movements on Credito Real's
IDRs. The senior unsecured debt ratings would continue to be
aligned with the company's IDRs, while the hybrid securities two
notches below.
SUMMARY OF FINANCIAL ADJUSTMENTS
Pre-paid expenses and other deferred assets were reclassified as
other intangibles and deducted from capital. Results from
investments in associates were reclassified as operating income.
Income from leasing and factoring operations were reclassified as
interest income. Its operational lease portfolio and factoring
operations were included in gross loans, with the portion of
delinquent leases classified as impaired loans. The coupons of the
perpetual notes were reclassified as interests.
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
Credito Real has an ESG Relevance Score of '4' for Customer Welfare
- Fair Messaging, Privacy & Data Security due to its exposure to
reputational and operational risks as its main business targets
government employees and dependencies at relatively high rates,
which has a negative impact on the credit profile and is relevant
to the rating in conjunction with other factors.
Credito Real has an ESG Relevance Score of '4' for Exposure to
Social Impacts due to its exposure to a shift in social or consumer
preferences or to government regulation of its lending offer, this
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.
===============
X X X X X X X X
===============
CARIBBEAN: Economies Urged to Invest in Infrastructure
------------------------------------------------------
In the face of rising COVID-19 cases, Caribbean economies will need
more aggressive fiscal actions to protect their productive assets
and invest in ways that ensure more sustainable growth in the
future, according to a new report by the Inter-American Development
Bank.
While fiscal space is a constraint, as a nascent economic recovery
emerges additional resources should be channeled to
high-productivity infrastructure products to further stimulate
growth, the study notes.
The report -- "A Pandemic Surge and Evolving Policy Responses " --
is part of the Quarterly Bulletin Series put together by the
economics team of the Caribbean Department of the IDB. It includes
detailed analysis for Guyana, Jamaica, Barbados, The Bahamas,
Suriname and Trinidad and Tobago. It comes at a time when COVID-19
cases are rising worldwide and in most Caribbean countries,
negatively impacting the tourism industry just as it enters its
peak season.
"First and foremost, countries need to stop the coronavirus from
spreading," said David Rosenblatt, regional country economist for
the Caribbean at the IDB, noting that the number of virus cases was
rising everywhere with the exception of Barbados. "Countries will
need to use sophisticated tools that look at closure or reopening
of their economies with decisions based on susceptible, infected
and recovered models, both at source and destination countries."
Looking ahead, Caribbean economies face a challenging peak tourist
season with double digit contractions, plus commodity shocks on
non-tourist economies of Trinidad and Tobago and Guyana, though
Suriname and Guyana will see a boost from high prices for gold.
Early tourism booking data suggest sharp declines for Jamaica, The
Bahamas and Barbados.
Governments have drawn on existing programs to ramp up social
assistance as well as created new instruments to address the
crisis.
"A well-designed public investment program can help stimulate a
lasting economic recovery, and several governments are already
considering the options," said Henry Mooney, the Research Economics
Advisor for the Caribbean department. "Fiscal space will remain an
important constraint, but as a nascent economic recovery emerges,
additional resources could be channeled to productivity-boosting
infrastructure projects to further stimulate near term growth, and
long-term development."
Better roads or airports facilitate the transport of goods and
services to market. Improved water and power infrastructure enable
industries to operate at lower costs and improves an economy's
productive capacity.
Over time this drives higher levels of private investment, incomes,
and consumption. Importantly, both economic theory and empirical
evidence suggest that countries with relatively less public
capital, or where the stock of capital is in need of improvement,
stand to benefit most, according to the report.
[*] BOND PRICING: For the Week Nov. 16 to Nov. 20, 2020
-------------------------------------------------------
Issuer Name Cpn Price Maturity Country Curr
----------- --- ----- -------- ------- ---
Argentine Republic Gov 6.9 75.2 1/11/2048 AR USD
Argentina Bonar Bonds 5.8 75.2 4/18/2025 AR USD
Argentine Republic Gov 4.3 70.0 12/31/2033 AR JPY
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Cia Latinoamericana de 9.5 74.3 7/20/2023 AR USD
Polarcus Ltd 5.6 71.8 7/1/2022 AE USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
City of Cordoba Argent 7.9 73.1 9/29/2024 AR USD
Provincia del Chaco Ar 9.4 74.8 8/18/2024 AR USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Noble Holding Internat 6.2 62.2 8/1/2040 KY USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
KrisEnergy Ltd 4.0 40.4 6/9/2022 SG SGD
Corp Universidad de Co 5.9 64.2 11/10/2021 CL CLP
Argentine Republic Gov 0.5 27.6 12/31/2038 AR JPY
Sylph Ltd 2.4 65.1 9/25/2036 KY USD
Noble Holding Internat 5.3 60.5 3/15/2042 KY USD
AES Tiete Energia SA 6.8 1.2 4/15/2024 BR BRL
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
SACI Falabella 2.3 50.6 7/15/2020 CL CLP
Odebrecht Finance Ltd 7.0 16.5 4/21/2020 KY USD
MIE Holdings Corp 7.5 56.2 4/25/2019 HK USD
Enel Americas SA 5.8 32.7 6/15/2022 CL CLP
Empresa Provincial de 12.5 0.0 1/29/2020 AR USD
Odebrecht Finance Ltd 7.0 17.0 4/21/2020 KY USD
USJ Acucar e Alcool SA 9.9 74.0 11/9/2019 BR USD
China Huiyuan Juice Gr 6.5 46.6 8/16/2020 CN USD
Empresa Electrica de l 2.5 63.8 5/15/2021 CL CLP
Sociedad Austral de El 3.0 17.0 9/20/2019 CL CLP
Argentine Republic Gov 7.1 75.7 6/28/2117 AR USD
Plaza SA 3.5 38.3 8/15/2020 CL CLP
Embotelladora Andina S 3.5 37.9 8/16/2020 CL CLP
USJ Acucar e Alcool SA 9.9 74.0 11/9/2019 BR USD
Banco Security SA 3.0 27.4 6/1/2021 CL CLP
Provincia de Buenos Ai 7.9 75.3 6/15/2027 AR USD
Provincia de Rio Negro 7.8 70.4 12/7/2025 AR USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Embotelladora Andina S 3.5 37.9 8/16/2020 CL CLP
Banco Security SA 3.0 5.6 7/1/2019 CL CLP
MIE Holdings Corp 7.5 56.2 4/25/2019 HK USD
Fospar S/A 6.5 1.2 5/15/2026 BR BRL
China Huiyuan Juice Gr 6.5 46.6 8/16/2020 CN USD
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
MIE Holdings Corp 7.5 56.4 4/25/2019 HK USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
Banco Macro SA 17.5 65.2 5/8/2022 AR ARS
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
MIE Holdings Corp 7.5 56.2 4/25/2019 HK USD
mpresa de Transporte 4.3 30.9 7/15/2020 CL CLP
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Cia Latinoamericana de 9.5 73.9 7/20/2023 AR USD
Automotores Gildemeist 8.3 54.2 5/24/2021 CL USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Odebrecht Finance Ltd 7.0 16.5 4/21/2020 KY USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
Automotores Gildemeist 8.3 54.2 5/24/2021 CL USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Cia Energetica de Pern 6.2 1.1 1/15/2022 BR BRL
Yida China Holdings Lt 7.0 74.3 4/19/2020 CN USD
Noble Holding Internat 6.1 62.0 3/1/2041 KY USD
USJ Acucar e Alcool SA 9.9 74.0 11/9/2019 BR USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
Provincia del Chubut A 4.5 2208 3/30/2021 AR USD
Avadel Finance Cayman 4.5 55.0 2/1/2023 US USD
Argentina Bonar Bonds 7.6 74.4 4/18/2037 AR USD
Banco Macro SA 17.5 65.2 5/8/2022 AR ARS
Provincia de Cordoba 7.1 72.7 8/1/2027 AR USD
Argentine Republic Gov 6.3 74.1 11/9/2047 AR EUR
Provincia del Chaco Ar 4.0 0.0 12/4/2026 AR USD
Provincia de Cordoba 7.1 74.7 8/1/2027 AR USD
Metrogas SA/Chile 6.0 41.6 8/1/2024 CL CLP
Esval SA 3.5 49.9 2/15/2026 CL CLP
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
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
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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.
.
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