/raid1/www/Hosts/bankrupt/TCRLA_Public/210212.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, February 12, 2021, Vol. 22, No. 26
Headlines
A R G E N T I N A
PETROQUIMICA COMODORO: S&P Upgrades ICR to 'CCC+' on Debt Exchange
B E R M U D A
SEADRILL LTD: Non-Debtor SNFL Reaches Forbearance Agreement
SEADRILL LTD: Returns to Chapter 11 Bankruptcy
B R A Z I L
ALUPAR INVESTIMENTO: Fitch Affirms 'BB/BBB-' IDRs, Outlook Negative
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: US Dollar Drops 40 Points
E C U A D O R
ECUADOR: Bonds Tumble Amid Election Activities
E L S A L V A D O R
BANCO DE DESARROLLO: Moody's Confirms B3 Issuer Rating
G U A T E M A L A
BANCO INDUSTRIAL: Fitch Assigns Final B Rating on USD300MM Notes
J A M A I C A
JAMAICA: BOJ Records January Decline in Net International Reserves
P A N A M A
LA HIPOTECARIA FOURTEENTH: Fitch Affirms B Rating on Class C Debt
P U E R T O R I C O
DESTILERIA NACIONAL: Creditor Miramar Opposes Debtor's Disclosures
PUERTO RICO: Board Reaches Plan Deal With GO & PBA Bondholders
SPANISH BROADCASTING: Moody's Assigns B3 CFR, Rates New Notes B3
- - - - -
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A R G E N T I N A
=================
PETROQUIMICA COMODORO: S&P Upgrades ICR to 'CCC+' on Debt Exchange
------------------------------------------------------------------
S&P Global Ratings raised its issuer credit rating on
Argentina-based energy company, Petroquimica Comodoro Rivadavia
S.A. (PCR) to 'CCC+' from 'CCC-' and removed the ratings from
CreditWatch with negative implications.
On Jan. 22, 2021, PCR completed the exchange offer of Class II for
Class D notes. On Jan. 29, 2021, the company payed down 100% of the
Class II notes and issued Class D notes for $30 million maturing in
2023, which included new funds of $11 million. Also in January, PCR
took out a committed credit facility for $17 million from Banco
Itau maturing in 2023 and a loan for $60 million from Banco
Galicia, Banco Santander, and ICBC, maturing in three years
(duration 2.5 years). These actions strengthened PCR's capital
structure by extending its debt maturity profile, and consequently,
reducing liquidity pressures.
PCR's business should generate reasonable profits in the next two
years. With higher crude oil prices than in 2020, the company's oil
and gas unit should generate about $65 million in EBITDA in 2021.
The company's wind farm segment should generate about $70 million
in EBITDA this year. Finally, the cement division should generate
$10 million - $15 million in EBITDA. On a consolidated basis, S&P
expects $150 million - $160 million in annual EBITDA for 2021 and
2022.
PCR still faces debt maturities for $113 million in 2021, out of
which $49 million corresponds to a dollar-linked local bond
maturing in December. PCR's ability to repay the local bond in
December depends on its ability to continue refinancing other
short-term debt and to generate free cash flows amid the volatile
scenario in the Argentine economy. Also, the company continues to
rely on covenant waivers from its creditors to avoid debt payment
acceleration on certain bank loans totaling $109 million. PCR
amended its covenant package in 2020, raising the net debt to
EBITDA requirement from 2.0x to 2.5x. Given that S&P believes the
company could breach the 2.0x threshold in 2021, it expects PCR to
renegotiate its financial covenants package.
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B E R M U D A
=============
SEADRILL LTD: Non-Debtor SNFL Reaches Forbearance Agreement
-----------------------------------------------------------
Seadrill Limited (OSE:SDRL, OTCQX:SDRLF) announced Feb. 11, 2021,
that Seadrill New Finance Limited, a subsidiary of the Company
incorporated in Bermuda in 2018 and issuer of the 12.0% senior
secured notes due 2025 (the "Notes"), has entered into a
forbearance agreement with certain holders of the Notes.
Pursuant to the forbearance agreement, the consenting creditors
have agreed not to exercise any enforcement rights with respect to
the Issuer and any subsidiary of the Issuer which is an obligor
under the Notes to, or otherwise take actions in respect of,
certain events of default that may arise under the Notes as a
result of, amongst other things, the Issuer not making the
semi-annual 4% cash interest payment due to the senior secured
noteholders on January 15, 2021 in respect of their Notes and the
filing of Chapter 11 cases in the Southern District of Texas by the
Company and certain of its consolidated subsidiaries (excluding the
Issuer and its consolidated subsidiaries), until and including the
earlier of February 24, 2021 and any termination of the forbearance
agreement.
The purpose of the forbearance agreement is to allow the Company,
the Issuer and its stakeholders (including the forbearing holders)
time to seek to agree the terms of a restructuring of the Notes in
parallel with the commencement by the Company and certain of its
consolidated subsidiaries of their Chapter 11 cases. Such a
restructuring may involve the use of a court-supervised process.
About Seadrill Ltd.
Seadrill Limited (OSE:SDRL, OTCQX:SDRLF) --
http://www.seapdrill.com/-- is a deepwater drilling contractor
providing drilling services to the oil and gas industry. As of
March 31, 2018, it had a fleet of over 35 offshore drilling units
that include 12 semi-submersible rigs, 7 drillships, and 16 jack-up
rigs.
On Sept. 12, 2017, Seadrill Limited sought Chapter 11 protection
after reaching terms of a reorganization plan that would
restructure $8 billion of funded debt. It emerged from bankruptcy
in July 2018.
Demand for exploration and drilling has fallen further during the
COVID-19 pandemic as oil firms seek to preserve cash, idling more
rigs and leading to additional overcapacity among companies serving
the industry.
In June 2020, Seadrill wrote down the value of its rigs by $1.2
billion and said it planned to scrap 10 rigs. Seadrill said it is
in talks with lenders on a restructuring of its $5.7 billion bank
debt.
Seadrill Partners LLC, a limited liability company formed by
deep-water drilling contractor Seadrill Ltd. to own, operate and
acquire offshore drilling rigs, along with its affiliates, sought
Chapter 11 protection (Bankr. S.D. Tex. Lead Case No. 20-35740) on
Dec. 1, 2020, after its parent company swept one of its bank
accounts to pay disputed management fees. Mohsin Y. Meghji,
authorized signatory, signed the petitions.
On Feb. 7, 2021, Seadrill GCC Operations Ltd., Asia Offshore
Drilling Limited, Asia Offshore Rig 1 Limited, Asia Offshore Rig 2
Limited, and Asia Offshore Rig 3 Limited sought Chapter 11
protection. Seadrill GCC estimated $100 million to $500 million in
assets and liabilities as of the bankruptcy filing.
Additionally, on February 10, 2021, Seadrill Limited and 114
affiliated debtors each filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code with the Court.
The lead case is In re Seadrill Limited (Bankr. S.D. Tex. Case No.
21-30427).
Seadrill Limited disclosed $7.291 billion in assets against $7.193
billion in liabilities as of the bankruptcy filing.
In the new Chapter 11 cases, Kirkland & Ellis LLP is counsel for
the Debtors. The law firm of Jackson Walker L.L.P. is
co-bankruptcy counsel. The law firm of Slaughter and May, the law
firm of Conyers Dill & Pearman Limited, and the law firm of
Advokatfirmaet Thommessen AS, each serves as co-corporate counsel.
HoulihanLokey, Inc., is the financial advisor. Alvarez & Marsal
North America, LLC, is the restructuring advisor. Prime Clerk LLC
is the claims agent.
SEADRILL LTD: Returns to Chapter 11 Bankruptcy
----------------------------------------------
The Board of Seadrill Limited (OSE: SDRL, OTCQX:SDRLF) on Feb. 10,
2021 announced that Chapter 11 cases have been filed in the
Southern District of Texas in respect of Seadrill and its
consolidated subsidiaries (the "Seadrill Group"):
* Seadrill GCC Operations Ltd, Asia Offshore Limited, Asia
Offshore Rig 1 Limited, Asia Offshore Rig 2 Limited and Asia
Offshore Rig 3 Limited filed Chapter 11 cases on Feb. 7,
2021; and
* Seadrill Limited and 114 affiliated debtors commenced
Chapter 11 cases on Feb. 10, 2021.
The Chapter 11 filings do not include Seadrill New Finance Limited
and its subsidiaries; Seabras Servicos de Petroleo SA, Seadrill JU
Newco Bermuda Limited, Seadrill Member LLC, Seadrill Mobile Units
UK Limited, Seadrill Partners LLC Holdco Limited, Seadrill Seabras
SP UK Limited, Seadrill Seabras UK Limited, Seadrill Seadragon UK
Limited, Seadrill SeaMex 2 de Mexico S de RL de CV, Seadrill SeaMex
SC Holdco Limited, Seadrill SKR Holdco Limited, Sevan Drilling Rig
VI AS, and Sevan Drilling Rig VI Pte Ltd.
As part of the Chapter 11 cases, Seadrill filed "first day" motions
that, when granted, will enable day-to-day operations of the
Seadrill Group to continue as usual. Specifically, Seadrill has
requested the authority to pay key trade creditors and employee
wages and benefits without change or interruption and expects it
will pay all suppliers and vendors in full under normal terms for
goods and services provided during the Chapter 11 cases. At the
point of filing, Seadrill has approximately $650 million in cash
and does not require debtor-in-possession financing.
The Chapter 11 cases are opened to facilitate a balance sheet
restructuring which will enable Seadrill to continue to operate its
modern fleet of drilling units. It is expected that this will lead
to significant equitization of debt, which is likely to result in
minimal or no recovery for current shareholders. As a consequence
of the Chapter 11 cases, Seadrill will submit an application to the
Bermuda Supreme Court for the appointment of Joint Provisional
Liquidators under Bermuda law to oversee the Chapter 11 cases in
conjunction with the Board of Directors of the Company.
Commenting, Stuart Jackson, CEO of Seadrill, said:
"This announcement marks the start of the court supervised process
that will create a company that is financially sustainable for the
long term. We are working closely with our stakeholders to ensure
we achieve an outcome that gives us the flexibility to weather the
low points in our industry cycles, whilst positioning us well for
market recovery.
I would like to thank all our stakeholders for their continued
support as we move through this legal process, in particular, our
customers, vendors and employees, all of whom demonstrate continued
support of our safe and efficient operational delivery."
This press release is not intended to be, and should not in any way
be construed as, a solicitation of votes of stakeholders regarding
the Chapter 11 proceedings.
The Company has engaged Kirkland & Ellis LLP as legal counsel,
Houlihan Lokey, Inc. as financial advisor, and Alvarez & Marsal as
restructuring advisor. Slaughter and May has been engaged as
corporate counsel. Advokatfirmaet Thommessen AS is serving as
Norwegian counsel. Conyers Dill & Pearman is serving as Bermuda
counsel.
Further information about the Chapter 11 filing will be available
at www.seadrill.com/restructuring.
Road to Bankruptcy
Grant Creed, the CRO, explained in a court filing that Seadrill's
prior chapter 11 process was, by nearly all measures, a successful
one. Through the process, Seadrill deleveraged its balance sheet
by billions of dollars, extended the maturity of its remaining
indebtedness, and positioned the Company to take advantage of an
improving oil and gas market. That chapter 11 plan received
support from 97% of Seadrill's secured creditors and a majority of
bondholders, and the restructured balance sheet was attractive
enough to garner a new money investment of $1 billion.
Despite the de-leveraging and improved debt terms, the oil and gas
market remained in a sustained downturn after Seadrill emerged in
summer 2018, even before the further damage caused by the dual
demand and supply shock of the COVID-19 pandemic and the OPEC --
Russia oil price war -- these external forces combined to prevent
Seadrill from reaping the benefits of the prior restructuring. As
a result, Seadrill has been engaged in active negotiations with
creditors across its capital structure for the better part of the
last year, including with a coordinating committee of various
lenders under the Company's 12 secured credit facilities (each, a
"Secured Credit Facility," and collectively, the "Secured Credit
Facilities," and lenders thereunder, the "SCF Lenders," and such
committee, the "CoCom"), an ad hoc group of SCF Lenders (the "Ad
Hoc Group"), and an ad hoc group of holders of 12.00% senior
secured notes due 2025(the "NSN Group," and together with the CoCom
and the Ad Hoc Group, the" Secured Lenders"). As of the Petition
Date, the Ad Hoc Group holds a significant portion of the debt
under three of the 12 Secured Credit Facilities, the CoCom holds a
significant portion of the debt under six of the 12 Secured Credit
Facilities, and other par lenders hold a significant portion of the
debt under the remaining three Secured Credit Facilities.
Despite Seadrill's prepetition efforts to build consensus for a
restructuring transaction, as of Feb. 10, the parties have not
agreed on the terms of a comprehensive, consensual restructuring in
large part because of the different debt holdings of the CoCom and
the Ad Hoc Group and the disparate views those groups hold about
the proper approach to this restructuring. Most of Seadrill's
secured debt lays in 12 distinct silos, each with its own
individual rigs as collateral (and an interest in certain common
collateral made up primarily of cash). The CoCom and the Ad Hoc
Group control different silos and, given the respective holdings,
even if Seadrill reached a comprehensive deal with one of the CoCom
or the Ad Hoc Group, neither group of creditors has sufficient
holdings to deliver the consent of each of the 12 silos.
This inherent conflict between the CoCom and the Ad Hoc Group led
directly to the timing of Seadrill's filing. Over the past several
weeks, Seadrill was nearing an agreement with the CoCom on the
terms of a proposed restructuring. But the Ad Hoc Group opposed
the plan and refused to provide a forbearance for the facilities it
controlled, including the AOD Facility. Moreover, SCF Lenders
under the AOD Facility (the "AOD Lenders") had exercised
enforcement remedies by blocking certain accounts in November 2020
and then sweeping cash of $97.2 million in December 2020 to repay a
corresponding amount of the $210 million debt then outstanding
under the AOD Facility. Thus, despite Seadrill's continuous
efforts, the Company was left in a default without a forbearance on
certain facilities, and faced the threat of further enforcement by
the Ad Hoc Group. To avoid such enforcement and the accompanying
destruction of value, the Debtors have filed chapter11 petitions to
obtain the benefit of the automatic stay while they continue to
operate their business and negotiate with their various
stakeholders in an effort to maximize the value of the estates.
$6.1 Billion of Funded Debt
As of the Petition Date, the Debtors were liable for approximately
$6.1 billion in aggregate funded debt obligations, comprised of
$5.6 billion of aggregate obligations outstanding under the Secured
Credit Facilities; and $536 million of aggregate obligations under
the NSNs issued by NSNCo. Seadrill Limited is a guarantor under
each of the 12 Secured Credit Facilities and the NSNs. In
addition, as of the Petition Date, the Debtors have approximately
$1.1 billion in aggregate remaining lease obligations outstanding
under the Ship Finance Charters.
($ in millions) Principal
Outstanding
-----------
Secured Credit Facilities
$400 million facility due 2022$ $135
$300 million facility due 2024 144
$1.35 billion facility due 2024 945
$950 million facility due 2024 566
$450 million facility due 2024 103
$440 million facility due 2023 64
$2 billion facility due 2023 897
$360 million facility due 2023 115
$1.75 billion facility due 2024 875
$450 million facility due 2022 265
$1.5 billion facility due 2024 1,125
$1.45 billion facility due 2023 322
-------
Total Secured Credit Facilities $5,556
12.00% Senior Secured Notes due 2025 536
-------
Total Funded Debt Obligation $6,092
Lease Obligations Under Ship Finance Charters 1,146
-------
Total Obligations Outstanding $7,238
About Seadrill Ltd.
Seadrill Limited (OSE:SDRL, OTCQX:SDRLF) --
http://www.seapdrill.com/-- is a deepwater drilling contractor
providing drilling services to the oil and gas industry. As of
March 31, 2018, it had a fleet of over 35 offshore drilling units
that include 12 semi-submersible rigs, 7 drillships, and 16 jack-up
rigs.
On Sept. 12, 2017, Seadrill Limited sought Chapter 11 protection
after reaching terms of a reorganization plan that would
restructure $8 billion of funded debt. It emerged from bankruptcy
in July 2018.
Demand for exploration and drilling has fallen further during the
COVID-19 pandemic as oil firms seek to preserve cash, idling more
rigs and leading to additional overcapacity among companies serving
the industry.
In June 2020, Seadrill wrote down the value of its rigs by $1.2
billion and said it planned to scrap 10 rigs. Seadrill said it is
in talks with lenders on a restructuring of its $5.7 billion bank
debt.
Seadrill Partners LLC, a limited liability company formed by
deep-water drilling contractor Seadrill Ltd. to own, operate and
acquire offshore drilling rigs, along with its affiliates, sought
Chapter 11 protection (Bankr. S.D. Tex. Lead Case No. 20-35740) on
Dec. 1, 2020, after its parent company swept one of its bank
accounts to pay disputed management fees. Mohsin Y. Meghji,
authorized signatory, signed the petitions.
On Feb. 7, 2021, Seadrill GCC Operations Ltd., Asia Offshore
Drilling Limited, Asia Offshore Rig 1 Limited, Asia Offshore Rig 2
Limited, and Asia Offshore Rig 3 Limited sought Chapter 11
protection. Seadrill GCC estimated $100 million to $500 million in
assets and liabilities as of the bankruptcy filing.
Additionally, on February 10, 2021, Seadrill Limited and 114
affiliated debtors each filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code with the Court.
The lead case is In re Seadrill Limited (Bankr. S.D. Tex. Case No.
21-30427).
Seadrill Limited disclosed $7.291 billion in assets against $7.193
billion in liabilities as of the bankruptcy filing.
In the new Chapter 11 cases, Kirkland & Ellis LLP is counsel for
the Debtors. The law firm of Jackson Walker L.L.P. is
co-bankruptcy counsel. The law firm of Slaughter and May, the law
firm of Conyers Dill & Pearman Limited, and the law firm of
Advokatfirmaet Thommessen AS, each serves as co-corporate counsel.
HoulihanLokey, Inc., is the financial advisor. Alvarez & Marsal
North America, LLC, is the restructuring advisor. Prime Clerk LLC
is the claims agent.
===========
B R A Z I L
===========
ALUPAR INVESTIMENTO: Fitch Affirms 'BB/BBB-' IDRs, Outlook Negative
-------------------------------------------------------------------
Fitch Ratings has affirmed Alupar Investimento S.A.'s (Alupar)
Foreign Currency (FC) and Local Currency (LC) Issuer Default
Ratings (IDRs) at 'BB' and 'BBB-', respectively. Fitch has also
affirmed the Long-Term National Scale Rating at 'AAA(bra)' for
Alupar and its senior unsecured debenture issuances. The Rating
Outlook for the IDRs is Negative, while the Rating Outlook for the
National Scale Rating is Stable.
Alupar's ratings reflect its low business risk associated with the
combination of its operations in the electric energy transmission
and generation segments, as well as a positive asset base
diversification, which dilutes operational risks. The transmission
segment is characterized by high EBITDA margins and great
predictability of operating cash generation. On the generation
segment, Fitch expects the company to present robust performance
and positively manage its exposure to the current hydrological
risk.
The rating action also considers the reduction of the group's
construction and financing risks in the development of its new
transmission lines as the projects obtained most of the pending
environment licensees and credit lines during 2019 and 2020, with
start of operation of three projects in 2020. Based on the delivery
of the projects and the associated revenue and cash generation,
Alupar should return its credit metrics to levels consistent with
the current IDRs. Fitch forecasts consolidated adjusted net
leverage of 4.0x in 2021 and below 3.5x from 2022 on, after the
expected peak at 4.7x in 2020 due to capex concentration.
The holding company Alupar also presents robust credit metrics and
is in a position to appropriately meet its debt service obligations
and forecast equity contributions to projects under development
through current cash position, expected dividends to be received
and proved financial flexibility. The new investments will offset
the drop in revenues and operating cash generation from some older
transmission line concessions that will occur in the coming years.
Alupar's FC IDR is constrained by Brazil's country ceiling of 'BB',
as the company generates the large majority of its revenues in
local currency (BRL), with no relevant cash and committed credit
facilities abroad. Fitch also considers the three-notch difference
between the company's LC IDR and the sovereign rating as
appropriate due to the regulated nature of the power sector. As a
result, the Negative Outlook for the FC and LC IDRs follows the
same Outlook of Brazil's 'BB-' sovereign rating.
The Stable Outlook on the National Scale Rating is based on Fitch's
view that the company will be able to strengthen its already
diversified asset base while preserving a robust financial profile,
compatible with companies in the industry in the same rating level.
Fitch believes Alupar's robust cash position and high financial
flexibility will support the group to manage the expected negative
FCF, associated with the relevant investment cycle in the period
2020-2021.
KEY RATING DRIVERS
Low Business Risk: Alupar's ratings incorporate the group's low
business risk associated with the combination of its activities in
the transmission and generation of electricity. In transmission,
concessions are based on long-term contracts and revenue is
generated through the availability of its 24 operating assets,
without demand risk and annually adjusted for inflation. The group
also has adequate customer diversification and receivables
structure that includes guarantees. Fitch considers positive the
fact that this segment will continue to be the main business of the
company. Fitch sees energy transmission as the lowest risk in the
electric energy sector and it concentrates 65% Alupar's ongoing
investments from 2021 to 2023.
In the generation segment, long-term contracts for the sale of a
large part of the assured energy of the assets and the partial
protection for hydrological risk also create an expectation of
strong operational cash generation. According to Fitch's
projections, the relevance of this segment in the group's EBITDA,
estimated at 25% for 2021, will reduce after the conclusion of
transmission lines under construction, mainly from 2022 on. Alupar
is a medium player in this segment in Brazil with installed
capacity of 527 MW in operational phase and 306 MW under
construction.
Strong Financial Profile: Fitch believes that consolidated
financial metrics will be gradually consistent with the current
IDRs if no new project is added. Considering the current portfolio
of projects under development, Fitch estimates a return to the
historical conservative credit ratios after punctual increase in
the group's net leverage during the elevated investment cycle in
2019 and 2020 - with the associate increase in operating cash
generation mainly from 2021 on. In the LTM ended on Sept. 30, 2020,
the adjusted net debt-to-EBITDA ratio was 4.8x, according to
Fitch's criteria, and should gradually decrease to 4.0x in 2021 and
3.3x in 2022, after the peak of 4.7x in 2020.
Manageable Negative FCF: On a consolidated basis, Fitch expects
Alupar to present negative FCF of BRL2.1 billion in 2020 and BRL234
million in 2021, pressured by disbursements of the investment
program of approximately BRL3.0 billion in the period and by the
dividend distribution corresponding to 50% of net income. Fitch
estimates consolidated dividend distribution of BRL360 million in
2021 after BRL682 million in 2020. Considering the conclusion of
the projects under construction mainly in 2021, the group's annual
cash flow from operations (CFFO) is expected to increase to BRL945
million in 2021 from BRL750 million in 2020. Alupar should boost
its net revenues to BRL2.5 billion, EBITDA to BRL2.0 billion and
CFFO to BRL1.2 billion in 2022, which will strengthen the FCF to
around BRL315 million.
Positive Asset Recomposition: Fitch believes Alupar will be able to
compensate expected revenue and EBITDA reductions coming from part
of its current portfolio through its new projects. Concessions for
transmission assets granted prior to 2006 include a 50%-PAR
reduction once the concession completes 15 years of operation.
Considering the company's proportional consolidated PAR of BRL652
million from operational assets in the LTM ended in Sept. 30, 2020,
BRL123 million is exposed to 50%-PAR reduction, with expected
gradual revenue decline of BRL62 million until 2023 corresponds to
9% of total. On the other hand, the seven projects under
development at the same date should add BRL575 million to group's
revenue until 2023. Out of this, two projects with PAR of BRL197
million started its operation in October 2020, and other BRL84
million is expected to start in February 2021.
Reduced Construction Risk: Alupar made relevant progress in
mitigating the risks associated with the development of its
transmission projects during 2019 and 2020. Out of the nine new
projects in the current investment cycle, five of them started its
operations, being three in 2020 and two in 2019. The company
already concluded 85% of the total investments in these nine
projects, and the remaining BRL712 million will occur in 2021.
Licensing is pending in only one project, located in Colombia, and
is scheduled for the first half of 2021. Except for the project in
Colombia, Alupar has already contracted BRL4.0 billion financing
structure for the other eight special purpose entities (SPEs). This
allows the completion of the projects before the contractual
deadlines.
DERIVATION SUMMARY
Alupar's financial profile is stronger than Latin American peers
Interconexion Electrica S.A. E.S.P. (ISA; LC and FC IDRs
BBB+/Negative) and Transelec S.A. (Transelec; LC and FC IDRs
BBB/Stable), and Consorcio Transmantaro S.A. (CTM; LC and FC IDRs
BBB/Stable). All of them have low business risk profiles,
predictable revenues and robust cash flow generation, which is a
characteristic of power transmission companies operating in a
regulated industry. The main differentiation in the IDRs of Alupar
and those companies is the country where they generate their main
revenues and the location of assets. While its peers are located in
investment-grade countries, Alupar's ratings are negatively
affected by Brazil's country ceiling of 'BB'. In the case of
Transmissora Alianca de Energia Eletrica S.A.'s (Taesa; FC IDR
BB/Stable), also located in Brazil, the company has a diversified
portfolio of transmission companies and a robust financial profile,
with some expected increase in leverage metrics due to
investments.
KEY ASSUMPTIONS
The main assumptions of Fitch's base scenario for the issuer
include:
-- RAPs adjusted annually by inflation, with a 50% reduction for
transmission assets whose concession agreement contemplates
this movement after the 15th year of operation;
-- Generation scaling factor of 0.81 from 2021 to 2023;
-- Operating expenses adjusted by inflation;
-- Distribution of dividends equivalent to 50% of net income;
-- Total investments of BRL4.0 billion during 2020-2023 period
and absence of acquisitions and/or new investments out of the
current portfolio.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Rating Outlook could stabilize as result of a revision to
Brazil's Sovereign ratings to Stable from Negative.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Deterioration in Alupar's consolidated financial profile, with
net leverage above 3.5x on a sustainable basis;
-- Funds from operations (FFO) adjusted net leverage above 4.0x
on a sustainable basis;
-- Total debt/dividends received over 3.0x and net debt/dividends
received over 2.0x at the holding level;
-- Investments in projects with risks significantly higher than
existing ones and weak financial structures;
-- A more challenging environment in Brazil's power sector;
-- Negative rating actions on Brazil's sovereign rating may also
pressure Alupar's IDRs.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity Profile: Fitch believes that Alupar group will
continue to benefit from a high liquidity position and broad access
to the banking and capital markets, in order to adequately finance
the expected negative FCF in 2021. On a consolidated basis, the
group's cash position of BRL2.4 billion at the end of September
2020, covered its short-term debt of BRL902 million by 2.6x. Fitch
also expects that the operating cash generation of new transmission
lines will be adequate to service their debt. On Sept. 30, 2020,
total consolidated adjusted debt of BRL8.9 billion mainly consisted
of debentures issuances (BRL6.4 billion, or 71%) and Banco Nacional
de Desenvolvimento Economico e Social (BNDES; BRL974 million, or
11% of the total).
The agency expects the holding company to use its significant cash
reserves to supply the needs of its projects, maintaining a debt
maturity schedule compatible with its cash flow expectations. As of
Sept. 30, 2020, its cash position of BRL850 million (36% of the
consolidated amount) was slightly higher than the total debt of
BRL822 million. The dividends inflow is its main source of funds,
with BRL523 million received in the LTM ended on Sept. 30, 2020. In
the same period, the total debt-to-received dividends ratio was
1.6x. Alupar should be able to maintain the net debt-to-received
dividends ratio below 1.5x during the investment cycle until 2022.
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: US Dollar Drops 40 Points
---------------------------------------------
Dominican Today reports that after the dollar reached its highest
price of last year on August 10, when it was sold at RD$58.49 per
US$1, its rate in the Dominican spot market has stabilized and was
down 40 points.
The US currency was offered at RD$58.09 per dollar, according to
the official rate of the Central Bank, a fall that accelerated
during the last month of 2021, according to Dominican Today. From
January 8 to the same day in February, the sale of the currency
fell 32 points, the report notes.
Two factors likely influence the dollar's decline: the increase in
the Central Bank's international reserves and the fall in imports,
which is taking pressure off the exchange market, according to the
economist and professor Antonio Ciriaco, the report relays.
Ciriaco said the increase in remittances into the country, which
last year totaled US$8.2 billion, could also be influencing the
drop in the exchange rate, 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.
Fitch Ratings on Jan. 18, assigned a 'BB-' rating to Dominican
Republic's USD1.5 billion 5.3% notes due Jan. 21, 2041.
Concurrently, the Dominican Republic reopened its 2030 4.5% notes
for an additional USD1.0 billion, which Fitch rates 'BB-', raising
the total outstanding amount of the 2030 notes to USD2.0 billion.
Standard & Poor's, on December 4, 2020, affirmed its 'BB-'
long-term foreign and local currency sovereign credit ratings on
the Dominican Republic. The outlook remains negative. S&P also
affirmed its 'B' short-term sovereign credit ratings. The negative
outlook reflects S&P's view that it could lower the ratings on the
Dominican Republic over the next six to 18 months, given the severe
impact of the COVID-19 pandemic on the sovereign's already
vulnerable fiscal and external profiles, as well as the potential
for a weaker-than-expected economic recovery.
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).
=============
E C U A D O R
=============
ECUADOR: Bonds Tumble Amid Election Activities
----------------------------------------------
Sydney Maki and Stephan Kueffner at Bloomberg News report that
Ecuador bonds fell for a second day as presidential election
threatened to throw the Latin American nation back into economic
turmoil.
With less than 1% of votes left to count, Ecuador is heading for an
April runoff between leftist Andres Arauz, with almost a third of
the vote, and the indigenous party's Yaku Perez, with 20.10%,
according to Bloomberg News. To investors' surprise, market
friendly Guillermo Lasso is third with 19.49%, according to the
National Electoral Council's latest count, the report notes.
"An Arauz-Perez runoff represents the worst-case scenario for
investors as Perez is more radical than Arauz on many economic
policy issues," Eurasia analysts Risa Grais-Targow and Laura Duarte
wrote in a note, the report discloses. "He has been highly
critical of the IMF program and refused to meet with fund staff,
and expressed a desire to audit and restructure external debt," the
report relays.
The nation's dollar-denominated bonds due in 2040 slipped another 2
cents to 43.7 cents on the dollar, putting the notes on course for
their lowest since the serial defaulter restructured $17.4 billion
in debt last year, the report discloses.
The average extra yield money managers demand to hold the nations
sovereign debt over U.S. Treasuries has widened by 60 basis points
to 1,251 basis points, according to JPMorgan Chase & Co indexes,
the report adds.
Mounting Risks
Investors are weighing the risk to last year's debt exchange and a
deal inked with the International Monetary Fund, the report relays.
Both Arauz and Perez have criticized the tax increases and
spending cuts required by the lender as part of its $6.5 billion
loan package, the report discloses. Perez also promised to seek
talks to ease the nation's debt payments if he wins the election,
while both he and Arauz rejected a government bill to strengthen
central bank autonomy, the report relays.
"The policy risks seem challenging under either a Perez or an Arauz
administration with ideological and populist constraints that may
compromise IMF relations and aggravate budgetary stress," said
Siobhan Morden, head of Latin America fixed income strategy at
Amherst Pierpont Securities, the report relays.
And to add to the mix, Lasso has refused to concede, saying that
there are thousands of votes to review, the report notes.
With close to 10% of local vote tallies showing inconsistencies,
Lasso may yet win second place, said political scientist Maria Jose
Calderon, who was the secretary of a voting precinct in Quito, the
report says.
Authorities have until Feb. 17 to review the ballots, after which
the candidates have a legal window to challenge the results, the
report notes.
"Though the final outcome is still unclear, what is quite clear is
that Ecuador has delivered a vote against the establishment," said
Eileen Gavin, principal Latin America analyst at risk analysis firm
Verisk Maplecroft, the report relays. "The vote was also against
'establishment' economic policy, and IMF tutelage," the report
adds.
About Ecuador
The sovereign state of Ecuador is a middle-income representative
democratic republic and a developing country that is highly
dependent on commodities, namely petroleum and agricultural
products. Standard & Poor's credit rating for Ecuador stands at B-
with stable outlook (September 2020). Moody's credit rating for
Ecuador was last set at Caa3 with negative outlook (April 2020).
Fitch's credit rating for Ecuador was last reported at B- with
stable outlook (September 2020), from 'RD'.
=====================
E L S A L V A D O R
=====================
BANCO DE DESARROLLO: Moody's Confirms B3 Issuer Rating
------------------------------------------------------
Moody's Investors Service has confirmed all long-term ratings and
assessments of Banco de Desarrollo de la Republica de El Salvador
(Bandesal) and Banco Agricola, S.A. (Agricola), including
Bandesal's B3 issuer rating and b3 baseline credit assessment, and
Agricola's B1 deposit rating, b3 BCA and b1 adjusted BCA. At the
same time, Moody's affirmed both banks' Not Prime short term
ratings. The outlook on the banks' ratings was changed to negative.
The rating actions follow the announcement by Moody's Investors
Service, published on February 5, 2021, that it had confirmed the
Government of El Salvador's bond rating at B3, and placed the
outlook on negative, concluding the review for downgrade initiated
on November 16, 2020.
The rating actions conclude Moody's review of Bandesal's and
Agricola's ratings that began on November 18, 2020, after the
announced review of El Salvador's government rating.
RATINGS RATIONALE
In confirming the ratings of Bandesal and Agricola, Moody's noted
that both banks have domestic only franchises and their financial
profiles are highly correlated to the creditworthiness of El
Salvador, through potential weakness in the macroeconomic and
financial conditions, as well as the banking system's direct
exposure to government risk, in the form of holdings of government
bonds. Rising uncertainties about El Salvador's government
finances, which is the basis for the negative outlook on its
ratings, challenges these banks' asset risk, profitability and
funding perspectives.
Bandesal's ratings capture the bank's relatively good asset
quality, which benefits from its preferred creditor status in El
Salvador. Asset quality metrics remain sound amid the economic
implications of the pandemic, but government-mandated loan
restructurings to provide relief to borrowers clouds the view on
underlying credit quality. However, the bank holds adequate
provisions for potential credit losses, at 3.4% of gross loans as
of September 2020. Partially mitigating the negative pressure from
the sovereign, the bank does not hold El Salvador's sovereign debt
-neither it provides direct financing to the government- in
accordance with the Salvadoran Development Bank Law. Bandesal's
profitability has historically been low as a result of its
development bank role and its focus on low-yielding lending to
other financial institutions. Despite its dependence on relatively
concentrated sources of funding, costs conditions have slightly
improved in the first nine months of 2020 as the bank mostly relies
on less expensive multilateral financial institutions. Bandesal's
capitalization remains strong, supported by low dividend payments
to the government.
Agricola's ratings incorporate its strong profitability that
benefits from ample net interest margins derived from a broad and
inexpensive deposit base. Stable asset quality in 2020 however,
will likely deteriorate in the coming quarters as loan deferrals
end, but prudential provisions against credit losses, representing
2.6x NPLs as of September 2020, will help mitigate rising risks.
Agricola's capitalization remained adequate with a tangible common
equity to tangible assets ratio of 13.2% as of September 2020.
Moderate loan growth has supported Agricola's capital, despite
dividend payouts that have been close to 100% of its net income.
Bandesal's B3 long-term issuer rating is currently placed at the
level of the sovereign while Banco Agricola's B1 deposit rating is
placed two notches above the country ceiling to incorporate Moody's
assessment of a high probability of affiliate support from
Bancolombia, S.A. (deposits Baa2 negative, BCA ba1). Agricola is
one of Bancolombia's most important subsidiaries in Central
America.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely for Bandesal and Banco Agricola at this time
because the ratings are currently on negative outlook. However, the
outlook could be changed to stable following a stabilization of the
Government of El Salvador's sovereign ratings outlook, provided
that operating conditions for the banks stabilized and their
financial profiles remain sound.
Conversely, downward pressure on the banks' ratings would arise
following a downgrade of the sovereign rating, that could reflect
into potential pressures on banks' operating environment in light
of the high interlinkages between banks' creditworthiness and that
of the government.
ISSUERS AND RATINGS AFFECTED
Issuer: Banco de Desarrollo de la República de El Salvador
Confirmations
Baseline credit assessment and adjusted baseline credit
assessment, at b3
Long-term foreign currency issuer rating, at B3, outlook changed
to negative from ratings under review
Long-term foreign currency counterparty risk rating, at B2
Long-term counterparty risk assessment, at B2(cr)
Affirmations:
Short-term foreign currency counterparty risk rating at Not Prime
Short-term counterparty risk assessment at Not Prime(cr)
Outlook action:
Outlook changed To negative from rating under review
Issuer: Banco Agricola, S.A.
Confirmations
Baseline credit assessment, at b3
Adjusted baseline credit assessment, at b1
Long-term foreign currency deposit rating, at B1, outlook changed
to negative from ratings under review
Long-term foreign currency counterparty risk rating, at B1
Long-term counterparty risk assessment, at B1(cr)
Affirmations:
Short-term foreign currency deposit rating at Not Prime
Short-term foreign currency counterparty risk rating at Not Prime
Short-term counterparty risk assessment at Not Prime(cr)
Outlook action:
Outlook changed to negative from rating under review
METHODOLOGIES
The principal methodology used in these ratings was Banks
Methodology published in November 2019.
=================
G U A T E M A L A
=================
BANCO INDUSTRIAL: Fitch Assigns Final B Rating on USD300MM Notes
----------------------------------------------------------------
Fitch Ratings has assigned Banco Industrial, S.A.'s (Industrial)
subordinated notes a final rating of 'B'. The notes are for USD300
million due 2031 but may be redeemed in whole or in part at the
option of the issuer on the fifth anniversary of the issuance. The
4.875% subordinated fixed-to-fixed rate notes have semi-annually
interest payments.
The final rating follows a review of the final terms and conditions
conforming to information received and is in line with the expected
rating that Fitch assigned to the proposed subordinated notes on
Jan. 20, 2021.
KEY RATING DRIVERS
The notes are rated two notches below Industrial's Viability Rating
(VR) of 'bb-', reflecting the expected high loss severity and the
subordinated status of the notes, as they will rank, in the event
of bankruptcy or liquidation of the issuer: junior in right of
payment to all of the bank's existing and future senior
indebtedness, including liabilities preferred under mandatory
provisions of Guatemalan banking law, senior to Industrial's
existing and future junior obligations, as capital stock, or any
other instrument which is expressly subordinated to the notes, and
pari passu to the bank's existing and future subordinated debt. No
notching for nonperformance is applied, because there is no coupon
flexibility and no write-off trigger. As a result, Fitch believes
the incremental nonperformance risk is not material from a rating
perspective.
Industrial expects these notes to qualify as T2 regulatory capital.
The proceeds of this issuance will be used to refinance
approximately USD225 million of existing debt and for general
corporate purposes.
Industrial's ratings are driven by its intrinsic profile, as
reflected by its VR, which is highly influenced by the challenging
operating environment in Guatemala. The coronavirus pandemic has
resulted in lower economic dynamism in the country. Fitch believes
the bank's performance and prospects could be affected by the
operating environment given Industrial's large size and exposure to
most economic sectors. Fitch considers capitalization also as a
higher influence factor for ratings due to the loss absorption
capacity, either through capital or loan loss reserves, of the
entity could be stressed by the prolonged crisis now that relief
measures finalized.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- The rating of the subordinated notes would be downgraded if
Industrial's VR is downgraded.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The rating of the subordinated notes would be upgraded if
Industrial's VR is upgraded.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Banco Industrial: Prepaid expenses and other deferred assets were
reclassified as intangible assets and deducted from total equity
since Fitch considers these to have low capacity to absorb losses.
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.
=============
J A M A I C A
=============
JAMAICA: BOJ Records January Decline in Net International Reserves
------------------------------------------------------------------
RJR News reports that Jamaica's Net International Reserves (NIR)
declined in January.
According to the Bank of Jamaica (BOJ), at the end of the month the
NIR was US$147.9 million lower at US$2.9 billion, the report
discloses.
The reserves were valued at 36 months of goods and services imports
compared to nearly 39 weeks in December, according to RJR News.
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). Fitch's credit rating for Jamaica
was last reported at B+ with stable outlook (April 2020). Moody's
credit rating for Jamaica was last set at B2 with stable outlook
(December 2019).
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.
===========
P A N A M A
===========
LA HIPOTECARIA FOURTEENTH: Fitch Affirms B Rating on Class C Debt
-----------------------------------------------------------------
Fitch Ratings has downgraded the following to 'A-' from 'A':
-- La Hipotecaria Eight Mortgage Backed Notes Trust Series A
Notes;
-- La Hipotecaria Tenth Mortgage-Backed Notes Trust Series A and
IO Notes;
-- La Hipotecaria Panamanian Mortgage Trust 2007-1 Certificate's
Unenhanced Long-Term Rating (ULT);
-- La Hipotecaria Panamanian Mortgage Trust 2010-1 Certificate's
ULT.
Fitch has downgraded the following to 'BBB-' from 'BBB':
-- La Hipotecaria Twelfth Mortgage-Backed Trust Series A Notes;
-- La Hipotecaria Fourteenth Mortgage-Backed Notes Trust Series A
Notes;
-- La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2
Certificates; and
-- La Hipotecaria Mortgage Trust 2019-2's Certificates.
The Rating Outlook remains Negative for all the above issues.
The above rating actions follow the downgrade of Panama's Long-Term
Foreign Currency Issuer Default Rating (IDR) to 'BBB-' from 'BBB'
and Country Ceiling to 'A-' from 'A' on Feb. 3, 2021.
Fitch has affirmed the following at 'AAAsf':
-- La Hipotecaria Panamanian Mortgage Trust 2010-1;
-- La Hipotecaria Panamanian Mortgage Trust 2014-1 A-1
The Rating Outlook remains Negative for the above issues.
The Negative Outlook of the above certificates reflects the credit
quality of the U.S. International Development Finance Corporation
(DFC) as guarantee provider given its direct linkage to the U.S.
Sovereign Rating (AAA/F1+/Negative).
In addition, Fitch affirmed La Hipotecaria Fourteenth
Mortgage-Backed Notes Trust Series B and C notes.
DEBT RATING PRIOR
---- ------ -----
La Hipotecaria Trust 2019-2
Series 2019-2 Certificates LT BBB-sf Downgrade BBBsf
La Hipotecaria Tenth Mortgage Trust Series A Notes
Interest Only LT A-sf Downgrade Asf
Series A LT A-sf Downgrade Asf
La Hipotecaria Eight Mortgage Backed Notes Trust 2007-1
Series A LT A-sf Downgrade Asf
La Hipotecaria Panamanian Mortgage Trust 2010-1
2010-1 Certificates LT AAAsf Affirmed AAAsf
2010-1 Certificates ULT A-sf Downgrade Asf
La Hipotecaria Fourteenth Mortgage-Backed Notes Trust
A LT BBB-sf Downgrade BBBsf
B LT B+sf Affirmed B+sf
C LT Bsf Affirmed Bsf
La Hipotecaria Panamanian Mortgage Trust 2007-1 2007-1
2007-1 Certificates 50346AAA3 LT A-sf Downgrade Asf
2007-1 Certificates 50346AAA3 ULT A-sf Downgrade Asf
La Hipotecaria Panamanian Mortgage Trust 2014-1
Class A-1 50346EAA5 LT AAAsf Affirmed AAAsf
Class A-2 50346EAB3 LT BBB-sf Downgrade BBBsf
La Hipotecaria Twelfth Mortgage-Backed Notes Trust
Series A PAL3006961A4 LT BBB-sf Downgrade BBBsf
KEY RATING DRIVERS
Coronavirus-Related Economic Shock: Fitch has made assumptions
about the spread of the coronavirus and the economic effects of the
related containment measures in order to review the rated
transactions.
As a base-case (most likely) scenario, Fitch assumed a severe
global recession during 2021 driven by sharp economic contractions
in major economies with a rapid spike in unemployment, followed by
a recovery that begins at the end of the year as the health crisis
subsides. As a downside (sensitivity) scenario in the Rating
Sensitivities section below, Fitch takes into consideration a more
severe and prolonged period of stress with recovery to pre-crisis
GDP levels delayed until around the middle of the decade.
Rated Notes Remain Resilient: The measures put in place to limit
the spread of the virus are affecting Panama's economy, with many
businesses temporarily shut down with little or no income. Fitch
expects these measures to affect the performance of mortgages.
However, Fitch does not expect a rating impact on any of the rated
notes, given that the contractual overcollateralization (OC) for
all of the rated notes provides sufficient protection at their
current rating levels.
Country of Assets Determine Maximum Achievable Ratings: Fitch
downgraded Panama's IDRs to 'BBB-' from 'BBB' and maintained the
Negative Outlook on Feb. 3, 2021. Fitch downgraded Panama's Country
Ceiling to 'A-' from 'A'. The ratings related to the series A notes
under La Hipotecaria Twelfth Mortgage-Backed Notes Trust and La
Hipotecaria Fourteenth Mortgage-Backed Notes Trust programs are
constrained by Panama's Sovereign Rating due to the portfolio's
exposure to the sovereign.
In the case of La Hipotecaria Twelfth Mortgage-Backed Notes Trust,
about a third of the residential mortgages are granted to public
sector employees and about two-thirds have preferential interest
rates, while for La Hipotecaria Fourteenth Mortgage-Backed Notes
Trust, about a third of the residential mortgages are granted to
public sector employees. The ratings could potentially be upgraded
to the Country Ceiling (CC) if there are continuous increases in
credit enhancement.
In the case of the La Hipotecaria Tenth Mortgage-Backed Notes Trust
and La Hipotecaria Eight Mortgage Backed Notes Trust programs,
while the series A notes, including the interest only note, issued
have sufficient credit enhancement to be rated above the Country's
IDR, the transfer and convertibility (T&C) risk is not mitigated,
so the ratings remain constrained by the Country Ceiling and are
ultimately linked to the ratings of Panama.
Frequency of Foreclosure Assumptions Affected by the Coronavirus
La Hipotecaria Eight Mortgage Backed Notes Trust: To gauge the
effects of the pandemic Fitch reviewed its Foreclosure Frequency
(FF) parameter. Under Fitch's updated assumptions in an 'Asf'
scenario, the A note would need to support a weighted average
foreclosure frequency (WAFF) of 33.7% and a weighted average
recovery rate (WARR) of 97.1%.
These assumptions consider the main characteristics of the assets,
where OLTV is 92.7%, the seasoning average 177 months and remaining
term 178 months, WA current loan-to-value is 57.9% and the majority
of borrowers (52.6%) pay through payroll deduction mechanism.
La Hipotecaria Tenth Mortgage-Backed Notes Trust: In order to gauge
the effects of the pandemic Fitch reviewed its FF parameters. Under
Fitch's updated assumptions in an 'Asf' scenario, the A and
interest only notes need to be able to support a WAFF of 32.1% and
a WARR of 88.2%.
These assumptions consider the main characteristics of the assets,
where OLTV is 94.0%, the seasoning average 153 months and remaining
term 204 months, WA current loan-to-value is 62.3%, and the
majority of borrowers (56.1%) pay through payroll deduction
mechanism.
La Hipotecaria Twelfth Mortgage-Backed Notes Trust: In order to
gauge the effects of the pandemic Fitch reviewed its FF parameters.
Under Fitch's updated assumptions in a 'BBBsf' scenario, the A note
needs to be able to support a WAFF of 17.9% and a WARR of 87.7%.
These assumptions consider the main characteristics of the assets,
where OLTV is 91.2%, seasoning average 114 months and remaining
term 244 months, WA current loan-to-value is 67.0% and the majority
of borrowers (64.9%) pay through payroll deduction mechanism.
La Hipotecaria Fourteenth Mortgage-Backed Notes Trust: In order to
gauge the effects of the pandemic Fitch reviewed its FF parameters.
Under Fitch's updated assumptions in a 'BBBsf' scenario, the A note
needs to be able to support a WAFF of 14.9% and a WARR of 81.5%,
while the B and C notes need to be able to support a WAFF of 6.1%
and 4.4% and a WARR of 89.6% and 90.7% for the 'B+sf' and 'Bsf'
scenarios, respectively.
These assumptions consider the main characteristics of the assets,
where the OLTV is 83.4%, the seasoning average is 101 months and
remaining term 242 months, WA current loan-to-value is 68.1% and
the majority of borrowers (72.5%) pay through payroll deduction
mechanism.
Transaction Performance Supports Assigned Ratings
La Hipotecaria Eight Mortgage Backed Notes Trust: Credit
enhancement has increased during the last year due to the
sequential nature of the structure. As of Aug. 31, 2020, credit
enhancement has increased to approximately 54.9% up from 50.1%
observed during the same month of last year.
Credit enhancement continues to build due to the sequential nature
of the transaction structure. A few factors including stability in
the excess spread good asset performance, and servicer advances
made by Banco La Hipotecaria (BLH) on the amounts due from debtors
on payment holidays has also helped to improve this metric.
The transaction also benefits from a reserve account of 1% of the
outstanding balance of the series A notes, which is sufficient to
cover almost three months of senior expenses and interest payment
on series A.
La Hipotecaria Tenth Mortgage-Backed Notes Trust: Credit
enhancement has increased during the last year due to the
sequential nature of the structure. As of Aug. 31, 2020, credit
enhancement has increased to 46.6% up from 40.6% observed during
the same month of last year. A few factors including stability in
the excess spread good asset performance, and servicer advances
made by BLH on the amounts due from debtors on payment holidays has
also helped to improve this metric.
The transaction also benefits from a reserve account of 1% of the
outstanding balance of the series A notes, which is sufficient to
cover approximately three months of senior expenses and interest
payment on series A.
La Hipotecaria Twelfth Mortgage-Backed Notes Trust: Credit
enhancement has increased during the last year due to the
sequential nature of the structure. As of Aug. 31, 2020, credit
enhancement has increased to 18.6% up from 16.2% observed during
the same month of last year. Credit enhancement continues to
increase as expected considering the frequency of the fiscal credit
payments. Fitch expects the credit enhancement level will continue
to increase as fiscal credits are received and applied to the
outstanding principal balance. Credit enhancement levels also
benefit from servicer advances made by BLH on the amounts due from
debtors on payment holidays.
The transaction also benefits from a reserve account of 1% of the
outstanding balance of the series A notes, which is sufficient to
cover almost three months of senior expenses and interest payment
on the series A.
La Hipotecaria Fourteenth Mortgage-Backed Notes Trust: Credit
enhancement has increased during the last year due to the
sequential nature of the structure. As of Aug. 31, 2020, credit
enhancement for the series A notes has increased to 9.4% up from 8%
at closing in February of 2019. The series B notes have increased
to 2.6% up from 2.0% and the series C notes has increased to 0.4%
up from 0.0%. Fitch expects the CE to continue to increase as per
the sequential nature of the structure.
The transaction benefits from a reserve account of three-month
interest for the series A notes, which is sufficient to cover
almost three months of senior expenses and interest payments on the
series A.
Mitigating Operational Risk: Pursuant to the servicer agreement,
Grupo ASSA, S.A. (BBB-/Negative) the primary servicer, has hired
Banco La Hipotecaria, S.A. (the sub-servicer) to be the servicers
for the mortgages. Fitch has reviewed BLH's systems and procedures
and is satisfied with its servicing capabilities.
Banco General S.A. (BBB+/Negative) has been designated as back-up
servicer in order to mitigate the exposure to operational risk, and
will replace the defaulting servicer within five days of a servicer
disruption event
Credit Quality of the DFC and Underlying Notes Support Ratings
La Hipotecaria Panamanian Mortgage Trust 2007-1 Certificates: The
rating assigned to the 2007-1 certificates relies on the timely
payment of interest and ultimate payment of principal on the series
A notes of La Hipotecaria Eight Mortgage-Backed Notes Trust.
La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2 Certificates:
The rating assigned to the 2014-1 A-2 certificates relies on the
timely payment of interest and ultimate payment of principal on the
series A notes of La Hipotecaria's Twelfth Mortgage-Backed Notes
Trust.
La Hipotecaria Trust 2019-2 Certificates: The 2019-2 certificates
rely on the timely payment of interest and ultimate payment of
principal on the Series A Notes of La Hipotecaria's Fourteenth
Mortgage-Backed Notes Trust.
Guarantor Credit Quality Supports Ratings: The ratings assigned to
the La Hipotecaria Panamanian Mortgage Trust 2010-1 and La
Hipotecaria Panamanian Mortgage Trust 2014-1 A-1 certificates are
commensurate with the credit quality of the guarantee provider. The
credit quality of DFC is directly linked to the U.S. Sovereign
Rating, as guarantees issued by, and obligations of, DFC are backed
by the full faith and credit of the U.S. government, pursuant to
the Foreign Assistance Act of 1969.
The ULT rating assigned to the 2010-1 certificates is commensurate
with the credit quality of the series A notes of La Hipotecaria's
Tenth Mortgage-Backed Notes Trust.
Reliance on DFC Guaranty: Fitch assumes the payment on the La
Hipotecaria Panamanian Mortgage Trust 2010-1 and La Hipotecaria
Panamanian Mortgage Trust 2014-1 A-1 certificates will rely on the
DFC guaranty. Through this guaranty, DFC will unconditionally and
irrevocably guarantee the receipt of proceeds from the underlying
notes in an amount sufficient to cover timely scheduled monthly
interest amounts and the ultimate principal amount on the
certificates.
Ample Liquidity in Place: The La Hipotecaria Panamanian Mortgage
Trust 2010-1 and La Hipotecaria Panamanian Mortgage Trust 2014-1
A-1 certificates benefit from liquidity, in the form of a five-day
buffer between payment dates on the underlying notes and payment
dates on the certificates. The certificates benefit from liquidity
in the form of an interest reserve account or a letter of credit at
the underlying note level. Fitch considers this as sufficient to
keep debt service current on the guaranteed certificates until
funds under a claim of DFC are received.
RATING SENSITIVITIES
Coronavirus Downside Scenario Sensitivity
Fitch has added a coronavirus downside sensitivity analysis that
explores how a more prolonged, draconian set of stresses could
evolve. A re-emergence of infections in the major economies
prolongs the confidence shock, preventing a recovery in financial
markets and provoking a longer-lasting, negative wealth shock that
depresses consumer demand and sparks expectations for a widespread,
multi-year deflationary spiral. Fitch increased the WAFF by 15% and
decreased the WARR by 15%. Fitch did not observe a negative
migration on ratings assigned to the different series of notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The ratings of the La Hipotecaria Eight Mortgage Backed Notes
Trust 2007-1 Series A Notes, La Hipotecaria Tenth Mortgage
Backed Notes Trust Series A Notes & IO Notes, La Hipotecaria
Twelfth Mortgage-Backed Notes Trust Series A Notes and La
Hipotecaria Fourteenth Mortgage-Backed Notes Trust Series A
Notes are sensitive to changes in the credit quality of
Panama. An upgrade of Panama's ratings and/or it's Country
Ceiling, could lead to an upgrade on the notes.
-- DFC Guaranteed: In the case of La Hipotecaria Panamanian
Mortgage Trust 2010-1 and La Hipotecaria Panamanian Mortgage
Trust 2014-1 - A-1 Tranche the Rating Outlook could be revised
to Stable if the U.S. Sovereign Rating Outlook is revised to
Stable from Negative.
-- The ULT rating of the La Hipotecaria Panamanian Mortgage Trust
2010-1 is sensitive to changes in the credit quality of La
Hipotecaria Tenth Mortgage-Backed Notes Trust series A notes,
hence, a positive rating action of the series A notes would
trigger a positive rating action of the ULT on the notes in
the same proportion.
-- The La Hipotecaria Panamanian Mortgage Trust 2007-1
certificates' ratings are sensitive to changes in the credit
quality of the La Hipotecaria Eight Mortgage Backed Notes
Trust 2007-1 series A notes. If La Hipotecaria Eight Mortgage
Backed Notes Trust series A notes are upgraded, that could
lead to an upgrade of the certificates.
-- The La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2
certificates' ratings are sensitive to changes in the credit
quality of the La Hipotecaria Twelfth Mortgage-Backed Notes
Trust series A notes. If La Hipotecaria Twelfth Mortgage
Backed Notes Trust Series A Notes are upgraded, that could
lead to an upgrade of the certificates.
-- The Hipotecaria Mortgage Trust 2019-2 certificates' ratings
are sensitive to changes in the credit quality of the La
Hipotecaria Fourteenth Mortgage-Backed Notes Trust series A
notes. If La Hipotecaria Fourteenth Mortgage-Backed Notes
Trust series A notes are upgraded, that could lead to an
upgrade on the certificates.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The ratings of the La Hipotecaria Eight Mortgage Backed Notes
Trust 2007-1 Series A Notes, La Hipotecaria Tenth Mortgage
Trust Series A Notes & IO Notes, La Hipotecaria Twelfth
Mortgage-Backed Notes Trust Series A Notes and La Hipotecaria
Fourteenth Mortgage-Backed Notes Trust Series A Notes are
sensitive to changes in the credit quality of Panama. A
downgrade of Panama's ratings and/or its Country Ceiling,
could lead to a downgrade on the notes. Severe increases in
foreclosure frequency as well as reductions in recovery rates
could lead to a downgrade of the notes.
-- In the case of La Hipotecaria Panamanian Mortgage Trust 2010-1
and La Hipotecaria Panamanian Mortgage Trust 2014-1 - A-1
Tranche the Rating Outlook could be downgraded in the case of
a downgrade on the U.S. Sovereign Rating.
-- The ULT rating of the La Hipotecaria Panamanian Mortgage Trust
2010-1 is sensitive to changes in the credit quality of the
series A notes, hence, a negative rating action of the series
A notes would trigger a negative rating action of the ULT on
the notes in the same proportion.
-- The La Hipotecaria Panamanian Mortgage Trust 2007-1
certificates' ratings are sensitive to changes in the credit
quality of the La Hipotecaria Eight Mortgage Backed Notes
Trust 2007-1 series A notes. If La Hipotecaria Eight Mortgage
Backed Notes Trust series A notes are downgraded, that could
lead to a downgrade of the certificates.
-- The La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2
certificates' ratings are sensitive to changes in the credit
quality of the La Hipotecaria Twelfth Mortgage-Backed Notes
Trust series A notes. If La Hipotecaria Twelfth Mortgage
Backed Notes Trust series A notes are downgraded, that could
lead to a downgrade of the certificates.
-- The Hipotecaria Mortgage Trust 2019-2 certificates' ratings
are sensitive to changes in the credit quality of the La
Hipotecaria Fourteenth Mortgage-Backed Notes Trust series A
notes. If La Hipotecaria Fourteenth Mortgage-Backed Notes
Trust series A notes are downgraded, that could lead to a
downgrade on the certificates.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
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.
DATA ADEQUACY
Historical vintage data on La Hipotecaria's mortgage portfolio are
publicly available on its website. Also available is detailed
information on recovery levels and delinquency migration/transition
matrices. The historical data on La Hipotecaria's portfolio are
prepared by Asset Technologies, LLC.
Fitch was provided with information on a loan-by-loan basis. The
data delivered were of good quality. Fitch conducted a review of a
small targeted sample of La Hipotecaria's origination files and
found the information contained in the reviewed files to be
adequately consistent with the originator's policies and practices
and the other information provided to the agency about the asset
portfolio.
The data used in the development of the ratings were reviewed by
Fitch and are considered sufficient for the review of the ratings.
ESG CONSIDERATIONS
La Hipotecaria Eight Mortgage Backed Notes Trust 2007-1 has a Human
Rights, Community Relations, Access & Affordability Relevance Score
(RS) of '4' for its Exposure to Accessibility to Affordable
Housing, which in combination with other factors, impacts the
rating.
La Hipotecaria Fourteenth Mortgage-Backed Notes Trust has a Human
Rights, Community Relations, Access & Affordability RS of '4' for
its Exposure to Accessibility to Affordable Housing, which in
combination with other factors, impacts the rating.
La Hipotecaria Tenth Mortgage-Backed Notes Trust Series A Notes has
a Human Rights, Community Relations, Access & Affordability RS of
'4' for its Exposure to Accessibility to Affordable Housing, which
in combination with other factors, impacts the rating.
La Hipotecaria Twelfth Mortgage-Backed Notes Trust has a Human
Rights, Community Relations, Access & Affordability RS of '4' for
its Exposure to Accessibility to Affordable Housing, which in
combination with other factors, impacts the rating.
Unless otherwise disclosed in this section, the highest level of
Environmental, Social and Corporate Governance (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.
=====================
P U E R T O R I C O
=====================
DESTILERIA NACIONAL: Creditor Miramar Opposes Debtor's Disclosures
------------------------------------------------------------------
Miramar Brewing LLC, unsecured creditor and party-in-interest,
objects to the final approval of the Disclosure Statement with
respect to the Plan of Reorganization submitted by debtor
Destileria Nacional Inc.
On Dec. 31, 2020, Miramar filed its Disclosure Statement and
Chapter 11 Plan for the Debtor.
On Jan. 13, 2021, the Debtor filed its Plan of Reorganization and
its Disclosure Statement.
"The Debtor DS is vague and ambiguous, imprecise and confusing.
Further, the Debtor DS is devoid of any specific information that
may be considered adequate for a creditor to make an informed
judgment about the Debtor Plan," Miramar asserts.
Miramar Brewing objects to the Debtor's Disclosure Statement and
asserts that:
* The Disclosure Statement makes reference to a table of
estimated percentage recovery for each Class under the Debtor Plan,
but the Disclosure Statement does not contain such table. Also, the
Disclosure Statement makes reference to an estimate of recoveries,
however, no such estimates can be found in the Disclosure
Statement.
* The Debtor makes reference to a Business Plan that does not
set forth any specific plan, other than that the Plan will be
funded from the income generated from the business operation, as
well as funding from external sources such as equity holders or
party in interest.
* The Debtor operates at premises leased from the Puerto Rico
Industrial Development Company, which lessor is owed $84,292.89 for
prepetition rent. In the Disclosure Statement, the debtor does not
set forth the cure amount to be paid to PRIDCO, nor the manner of
payment.
* The Liquidation Analysis is outdated. The Debtor DS
incorporates the Liquidation Analysis prepared by CPA Luis R.
Carrasquillo Ruiz & Co., P.S.C., which was prepared at the request
of Miramar in support of the Miramar DS. However, as included in
Miramar's First Amended DS and Plan Supplement, the Liquidation
Analysis has been amended and updated in consideration of
amendments to proofs of claim by Hacienda and CRIM, but the Debtor
has not revised its Debtor DS.
* The alleged projections of sales and expenses included as
Exhibit III to the Debtor DS have no data in support thereof. The
Debtor DS does not contain a summary of the monthly operating
reports, or any other relevant financial information, nor does it
set forth any assumptions in respect of the alleged projections.
A full-text copy of Miramar's objection dated Feb. 2, 2021, is
available at https://bit.ly/3a19kik from PacerMonitor.com at no
charge.
Attorneys for Miramar Brewing:
FERNANDEZ CUYAR ROVIRA & PLA, LLC
P.O. Box 9023905
San Juan, Puerto Rico 00902-3905
Telephone: (787) 977-3772
Facsimile: (787) 977-3773
About Destileria Nacional
Destileria Nacional, Inc., a beer manufacturer headquartered in
Guaynabo, P.R., sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D.P.R. Case No. 20-01247) on March 6,
2020.
At the time of the filing, the Debtor had estimated assets of
between $100,001 and $500,000 and liabilities of between $500,001
and $1 million. Judge Enrique S. Lamoutte Inclan oversees the
case. The Debtor hired Isabel Fullana-Fraticelli & Asoc. PSC as
its legal counsel.
PUERTO RICO: Board Reaches Plan Deal With GO & PBA Bondholders
--------------------------------------------------------------
The Financial Oversight and Management Board for Puerto Rico on
Feb. 10, 2021 announced that it reached an agreement in principle
with several creditor groups to lower Puerto Rico's debt to
sustainable levels after a successful mediation process.
"Puerto Rico needs to put the debt restructuring behind it as soon
as reasonably possible with an agreement that will be sustainable
for Puerto Rico," said the Oversight Board's Chairman David Skeel.
"What we achieved at this point is a realistic proposal that will
open a path to recovery from bankruptcy, and we informed the U.S.
District Court for the District of Puerto Rico of our agreement."
"It is our goal to file a consensual plan of adjustment for the
Commonwealth of Puerto Rico that includes as many creditors as
possible," Mr. Skeel said.
The Oversight Board asked the court to extend the deadline until an
amended plan of adjustment must be filed from February 10, 2021 to
March 8, 2021. "With the support of the court-appointed mediation
team, we requested that the court grant more time to continue the
mediation process, set down the agreed terms in a plan support
agreement, and extend support for the agreement across a broad
spectrum of creditor groups for a fair and affordable plan of
adjustment that will enable Puerto Rico's economy to grow and the
people of Puerto Rico to prosper," said the Oversight Board's
Executive Director, Natalie Jaresko.
The Oversight Board reached the agreement with creditors holding
about $7 billion of general obligation and Public Building
Authority (PBA) bonds. The Oversight Board will make the terms of
the agreement available in short order to allow other parties to
join.
This agreement in principle builds on the Plan Support Agreements
already reached with the Retiree Committee and certain unions.
The Oversight Board continues its efforts to reach a consensual
plan of adjustment with as many parties as possible, including the
Creditors' Committee, unions, Employee Retirement System (ERS)
bondholders, and bond insurers.
In February 2020, the Oversight Board had filed a plan of
adjustment to restructure approximately $35 billion of debt and
other claims against the Commonwealth of Puerto Rico, PBA, and ERS.
In response to the COVID-19, the Oversight Board asked the court to
put that plan on hold to assess the long-term effect of the
pandemic on Puerto Rico. The Oversight Board and creditors resumed
their mediation last summer.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and to chair a committee to review professionals' fees.
SPANISH BROADCASTING: Moody's Assigns B3 CFR, Rates New Notes B3
----------------------------------------------------------------
Moody's Investors Service assigned Spanish Broadcasting System,
Inc. a B3 Corporate Family Rating, B3-PD Probability of Default
Rating, and a B3 rating to the proposed $310 million senior secured
notes due 2026. The outlook is stable.
Net proceeds from the transaction and a portion of cash on the
balance sheet will be used to repay $250 million of existing
outstanding debt and make up to a $68 million cash payment as part
of an agreement to extinguish outstanding preferred equity. Spanish
Broadcasting will also issue shares of its Class A Common Stock to
preferred shareholders as part of the agreement. The transaction
extends Spanish Broadcasting's debt maturity, reduces legal and
advisory fees, and resolves the event of default under the prior
debt indenture and preferred equity agreement, as well as related
litigation. As a result, Spanish Broadcasting will be able to focus
on operating the business and recovering from the decline in radio
advertising revenue due to the impact of the pandemic.
The notes and the note guarantees will be secured on a
first-priority basis by a security interest in certain existing and
future tangible and intangible assets, except for excluded assets.
Spanish Broadcasting's subsidiaries based in Puerto Rico will be
non-guarantor subsidiaries and accounted for approximately 15% of
revenue during the LTM ending Q3 2020.
Assignments:
Issuer: Spanish Broadcasting System, Inc.
Senior Secured Regular Bond/Debenture, Assigned B3 (LGD4)
Corporate Family Rating, Assigned B3
Probability of Default Rating, Assigned B3-PD
Outlook Actions:
Issuer: Spanish Broadcasting System, Inc.
Outlook, Changed To Stable From Rating Withdrawn
RATINGS RATIONALE
Spanish Broadcasting's B3 CFR reflects high pro forma leverage
(7.8x as of Q3 2020 excluding Moody's standard lease adjustments)
as well as Moody's expectation that leverage will increase further
in the near term due to the impact of the coronavirus outbreak, but
will begin to improve as the economy recovers from the pandemic.
The radio industry is also being negatively affected by the shift
of advertising dollars to digital mobile and social media as well
as heightened competition for listeners from a number of digital
music providers. Secular pressures and the cyclical nature of radio
advertising demand have the potential to exert substantial pressure
on EBITDA performance in the radio segment over time. Spanish
Broadcasting is also small in size with revenue of $128 million LTM
as of Q3 2020 and radio operations are located in six markets with
concentrated exposure to New York, Los Angeles, Miami, and Puerto
Rico.
Notwithstanding Spanish Broadcastings small size, the company has
developed strong market positions with leading stations in most of
the markets that it operates with good EBITDA margins
historically.
Demographic trends are projected to support audience and
advertising demand due to the strong growth of the Hispanic
population in the US. Moody's also expects Spanish Broadcasting
will continue to seek cost savings in the near term to help offset
a portion of the impact from the economic disruption caused by the
pandemic. Spanish Broadcasting is projected to benefit from growth
in its relatively small TV business with increased carriage
agreements, the AIRE radio network, and digital interactive
services including the LaMusica radio app and streaming site.
Moody's expects the live events business will continue to be
disrupted by the pandemic in the near term, but will contribute to
growth after the impact of the pandemic abates.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to
disrupt economies and credit markets across sectors and regions.
Moody's analysis has considered the effect on the performance of
advertising revenue from the current weak US economic activity and
a gradual recovery for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the degree
of uncertainty around our forecasts is unusually high. Moody's
regards the coronavirus outbreak as a social risk under our ESG
framework, given the substantial implications for public health and
safety.
A governance consideration that Moody's considers in Spanish
Broadcasting's credit profile is its high leverage level, but the
company is expected to pursue a more moderate financial strategy
going forward. Chairman of the Board of Directors, Chief Executive
Officer and President, Raul Alarcon currently owns a 43% economic
interest and 85% voting interest in the company, and will remain a
controlling shareholder post the transaction. Spanish Broadcasting
was previously a publicly listed company but deregistered the
company's common stock in July 2020.
Moody's expects Spanish Broadcasting will maintain an adequate
liquidity position, supported by an undrawn $15 million revolving
credit facility (not rated by Moody's). There is approximately $14
million of pro forma cash on the balance sheet as of Q3 2020 and
Moody's expects a relatively modest amount of available cash at
closing. Free cash flow (FCF) was slightly negative (-$1.9 million
YTD as of Q3 2020) and benefited from a $6.5 million Paycheck
Protection Program (PPP) loan in April 2020 which is expected to be
forgiven pending approval from the Small Business Administration.
Moody's expects FCF will turn modestly positive in 2021 and benefit
from a recovery in radio advertising revenue as well as from lower
legal and advisory fees. Capex is expected to be less than $5
million a year and cash taxes are projected to be in the high
single digits going forward as the company will have limited
availability to offset future cash taxes with NOLs. Spanish
Broadcasting's secured note will not be subject to a financial
maintenance covenant. The new revolver is expected to be subject to
a maximum net leverage and minimum fixed charge coverage ratio when
availability on the revolver is less than $7.5 million.
The stable outlook reflects Moody's view that Spanish Broadcasting
will continue to experience declines in revenues and EBITDA through
Q1 2021 due to the impact of the coronavirus outbreak on the
economy and radio advertising revenue, but improve on a year over
year (yoy) basis beginning in Q2 2021 as trough quarters from 2020
begin to roll off. The radio industry is expected to start to
recover in 2021 and Spanish Broadcasting is projected to benefit
from its Spanish language format but the company will see reduced
high margin political revenue during a non-election year. Spanish
Broadcasting will also face higher expenses in 2021 compared to
last year as the benefits of the expected PPP loan forgiveness on
EBITDA roll off, but Moody's projects leverage will decline to the
low 7x range by the end of 2021 and to the low 6x range by the end
of 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be downgraded if leverage is projected to be
sustained above 7x for an extended period. Continuing negative free
cash flow generation or a weakened liquidity position would also
result in a downgrade.
An upgrade is not expected in the near term due to the impact of
the coronavirus and high projected leverage levels. However,
ratings could be upgraded if Spanish Broadcasting's leverage
decreased well below 5.5x, with positive organic revenue growth and
stable EBITDA margins. A free cash flow to debt ratio above 5% and
maintenance of a strong liquidity position would also be required.
Spanish Broadcasting System, Inc. owns and operates 17 radio
stations in addition to TV operations, the AIRE radio network,
digital interactive services, and live events focused on Spanish
language content. The company's station portfolio is located in 6
markets, with major contributions to revenue from New York, Los
Angeles, Miami, and Puerto Rico. Chairman of the Board of
Directors, Chief Executive Officer and President, Raúl
Alarcón
has voting control of the company via a dual-class share
structure.
Spanish Broadcasting generated approximately $128 million as of LTM
Q3 2020.
The principal methodology used in these ratings was Media Industry
published in June 2017.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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