/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/210414.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Wednesday, April 14, 2021, Vol. 22, No. 69 Headlines A R G E N T I N A ARGENTINA: INDEC Figures Encouraging for Gov't., Not for People B R A Z I L BANCO PAN: S&P Puts B+/B Ratings on Watch Pos. on BTG Pactual Deal C O L O M B I A BANCO DAVIVIENDA: Fitch Rates Upcoming USD AT1 Notes 'B+(EXP)' BANCO GNB: Fitch Gives Upcoming USD Tier2 Notes BB-(EXP) LT Rating C O S T A R I C A INVESTMENT ENERGY: Fitch Raises LT IDRs to 'BB-', Outlook Stable D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Deputies Extend State of Emergency [*] DOMINICAN REPUBLIC: Signs Pact to Expand Agro Products Export E L S A L V A D O R AES EL SALVADOR: Fitch Alters Outlook on 'B-' IDRs to Stable J A M A I C A TRANSJAMAICAN HIGHWAY: Losses Revised to US$1.8 Million P E R U PERU: To Promote Investment in Electric Mobility w/ $20MM IDB Loan P U E R T O R I C O ORGANIC POWER: Seeks to Hire Fuentes Law Offices as Legal Counsel V E N E Z U E L A CITGO PETROLEUM: Fitch Alters Outlook on 'B' LT IDR to Stable - - - - - ================= A R G E N T I N A ================= ARGENTINA: INDEC Figures Encouraging for Gov't., Not for People --------------------------------------------------------------- mercopress.com reports that while inflation grows rampant and people lose some or all of their income in the middle of the coronavirus restrictions, Argentina's National Institute of Statistics and Census (INDEC) released a new economic report which showed positive figures. Productive Deelopment Minister Matias Kulfas said on Twitter that "the first industrial data for March are encouraging", after knowing the indicators of construction activity and industrial production in February, which showed a year-on-year improvement of 22.7% and 1.6%, respectively, according to mercopress.com. "The first industrial data for March are encouraging; of course the comparison against 2020 is now going to be very high because we already compared against pandemic months; even so, comparing against 2019 the data is positive," said Kulfas, the report relays. "The industry had a summer manufacturing above pre-pandemic levels; however, the data for February was somewhat worse than that of January (with a drop of 1.6% month-on-month); that data was foreseeable and we had already been pointing it out; no it is a brake on the recovery, but the plant stops for vacations this year occurred more in February than in January, unlike 2020 . . .," the minister added, the report discloses. Year-on-year, industrial activity rose 1.6% in February and construction 22.7%, the report relates. February's was the fourth straight rise for construction after 26 months of decline, the report discloses. The level of industrial activity registered an increase of 1.6% year-on-year in February, while construction rose 22.7% in the same period, the report relays. It was also the third consecutive mark above 20% year-on-year for construction, while the Manufacturing Industrial Production Index recorded its fourth consecutive increase, the report notes. Beyond the improvement registered in the year-on-year comparison, the Indec report revealed that the level of industrial activity in February was 1.6% lower than that of last January, the report discloses. In the case of construction, the month-on-month comparison reflected a 3.9% reduction compared to the first month of 2021, the report notes. Thus, the first two months of the year showed a rise of 2.9% for the manufacturing sector and 23% for construction, the report says. In the manufacturing sector, eight of the 16 surveyed items grew year-on-year. The improvements registered in the categories Other equipment, apparatus and instruments stood out, with an increase of 18.5% year-on-year; followed by Basic metal industries (16.4%); Machinery and Equipment (15.4%), and Non-metallic Minerals (14.4%), the report relays. But output dropped for transport equipment (23.2% - all values expressed year-on-year), oil refining (10.4%); clothing, (6.7%); motor vehicles (6.4%) and Chemicals (3.6%), the report notes. Regarding the results of the Synthetic Indicator of Construction Activity (ISAC), Indec said 30.8% of companies engaged in private activity and 40.8% of those engaged in public works envisioned improvements for the March-May quarter, the report relates. In February, shipments of 11 of the 13 supplies surveyed grew in interannual terms. Asphalt shipments (67.1%), ceramic sanitary ware (60.1%) and round iron and steel for construction (56.4%) topped the list, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. It's capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Standard & Poor's credit rating for Argentina stands at CCC+ with stable outlook, which was a rating upgrade issued on Sept. 8, 2020. Moody's credit rating for Argentina was last set at Ca on Sept. 28, 2020. Fitch's credit rating for Argentina was last reported on Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS' credit rating for Argentina is CCC, given on Sept. 11, 2020. As reported by The Troubled Company Reporter - Latin American, DBRS noted that the recent upgrade in Argentina's ratings (September 2020) follows the closing of two debt restructuring agreements between the Argentine government and private creditors. The first restructuring involved $65 billion in foreign-law bonds. The deal achieved the requisite participation necessary to trigger the collective action clauses and finalize the restructuring on 99% on the aggregate principal outstanding of eligible bonds. DBRS added that the debt restructurings conclude a prolonged default and provide the government with substantial principal and interest payment relief over the next four years. DBRS further relayed that Argentina is also seeking a new agreement with the International Monetary Fund (IMF) to replace the canceled 2018 Stand-by Agreement. Formal negotiations on the new financing began in November 2020. Obligations to the IMF amount to $44 billion, with major repayments coming due in 2022 and 2023. =========== B R A Z I L =========== BANCO PAN: S&P Puts B+/B Ratings on Watch Pos. on BTG Pactual Deal ------------------------------------------------------------------ S&P Global Ratings placed its 'B+/B' global scale and 'brAA' national scale ratings on Banco Pan on CreditWatch with positive implications. At the same time, S&P affirmed its 'brA-1+' short-term national scale rating. S&P's action follows the announcement that Banco BTG Pactual S.A. (BB-/Stable/B) agreed to buy all of Caixa Economica Federal's (Caixa; BB-/Stable/B) stake in Banco Pan for R$3.7 billion, corresponding to R$11.42 per share. BTG Pactual is already Banco Pan's controlling shareholder and is acquiring Caixa's 49.2% voting stake, equivalent to 26.8% of Banco Pan's capital. With the transaction, Caixa will conclude the process of divesting its stake in Banco Pan, while BTG Pactual, which has participated in its co-control for over a decade, will consolidate its control of Banco Pan with 71.7% of the shares. The closing of the transaction is subject to regulatory approvals from authorities, and we expect that after that, Banco Pan will be part of the conglomerate, with its capitalization viewed on a consolidated basis for regulatory purposes. S&P also considers that it would benefit from extraordinary support of the parent, if needed, under any foreseeable circumstances. Banco Pan is an important portion of BTG's move toward digital retail banking. It also complements the parent's portfolio of financial services and products, which now in addition to wholesale and investment banking also offers financing and digital banking for the lower-income retail segment. =============== C O L O M B I A =============== BANCO DAVIVIENDA: Fitch Rates Upcoming USD AT1 Notes 'B+(EXP)' -------------------------------------------------------------- Fitch Ratings has assigned Banco Davivienda S.A.'s (Davivienda) upcoming issue of US dollar-denominated perpetual Additional Tier 1 (AT1) notes an expected long-term rating of 'B+(EXP)'. The amount of the U.S. dollar-denominated notes is yet to be determined. The final rating is contingent upon receipt of final documents conforming to information already received. Proceeds will be used for general purposes and will count as Additional Tier 1 capital ratios at the bank per local regulation. The notes are perpetual, with semi-annually interest payments and can be redeemed at the option of the issuer no earlier than five years or 10 years, depending on the final structure, subject to prior approval of the Colombian Superintendence of Finance (SFC), if the bank maintains its capital adequacy ratios in accordance with regulatory requirements. The notes will be junior in right of payment with respect to Davivienda's depositors, all senior external liabilities of the bank, Tier 2 Capital subordinated debt instruments and other instruments issued and guaranteed by the bank designated as ranking senior to the notes. The notes rank senior to Davivienda's Common Equity Tier 1 Capital and rank pari passu among themselves and any other unsecured and Additional Tier 1 Capital subordinated indebtedness KEY RATING DRIVERS The notes will be rated four notches below Davivienda's 'bbb-' Viability Rating (VR), with two notches for loss severity and two notches for incremental non-performance risk. According to Fitch's criteria, this is the minimum downward notching for deeply subordinated notes with fully discretionary coupon cancellation issued by banks with a VR anchor of 'bbb-'. The notching reflects the notes' higher loss severity in light of their deep subordination, and additional non-performance risk relative to the VR, given the high write-down trigger of CET1 at 5.125% and full discretion to cancel coupons. Coupon payments may be cancelled at the bank's discretion and full or partial write-down in case either individual or consolidated CET1 capital ratio is below 5.125% or if SFC determines the outstanding principal, accrued and unpaid interest, and any other amounts due on the notes will be permanently reduced, pro rata with reductions on other Additional Tier 1 Capital subordinated by an amount needed to restore the individual or the consolidated CET 1 to 6%. Additionally, the interest payments under the notes will be automatically cancelled (in whole or in part) if the bank does not have sufficient distributable items or if the bank fail to preserve the required combined capital buffer (capital conservation and systemic buffers) according the Decree 2555 and the four-year schedule to adopt Basel III requirements starting on January 2021. As of December 2020, CET1 was 8.26% comparing favorably with the minimum requirements (4.5%). Basel III adoption started in January 2021 has already increased calculated CET1 by around 300 bps, while the AT1 new issuance would increase the regulatory capital ratio considering CET1 plus AT1 by other 200 bps depending on the final amount issued. Despite operating environment challenges that have reduced the bank's already low profitability of the bank and that are expected to continue to weigh on asset quality, Fitch does not anticipate significant pressures for the new capital requirements during the Basel III implementation period under a scenario of conservative risk management and gradual business growth. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- The rating of the AT1 notes is sensitive to movements in the bank's VR in any direction, and the baseline scenario is that the notching will likely remain -4 relative to the bank's VR. However, the notching could potentially be widened to some extent as per Fitch's criteria under certain circumstances, if there is a change in Fitch's view on the non-performance risk of these instruments on a going concern basis, which is not the baseline scenario. Factor that could, individually or collectively, lead to negative rating action/downgrade: -- The rating of the AT1 notes is sensitive to movements in the bank's VR in any direction, and the baseline scenario is that the notching will likely remain -4 relative to the bank's VR. However, the notching could potentially be widened to some extent as per Fitch's criteria under certain circumstances, if there is a change in Fitch's view on the non-performance risk of these instruments on a going concern basis, which is not the baseline scenario. 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. 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. BANCO GNB: Fitch Gives Upcoming USD Tier2 Notes BB-(EXP) LT Rating ------------------------------------------------------------------ Fitch Ratings has assigned Banco GNB Sudameris S.A.'s (GNB) upcoming issue of U.S. dollar-denominated Tier 2 notes an expected long-term rating of 'BB-(EXP)'. The amount and tenor of the notes have not yet been determined. The final rating is contingent upon the receipt of final documents conforming to information already received. The proceeds from the issue will be used to purchase outstanding 2022 notes issued by GNB and for general purposes. The notes are expected to count as Tier 2 capital at the bank as per local regulation. Interest will be paid semi-annually. The notes may be redeemed at the option of the issuer subject to prior approval of the Colombian Superintendence of Finance, if the bank maintains its capital ratios in accordance with regulatory requirements. KEY RATING DRIVERS The upcoming issuance is expected to be rated two notches below GNB's Viability Rating (VR) of 'bb+', to reflect their subordinated status and the expected high loss severity. The rating on the notes does not incorporate incremental non-performance risk, given the relatively low write-off trigger (Regulatory common equity Tier 1 (CET1) ratio at or below 4.5%), which, in Fitch's view, would only be effective at the point of non-viability, and also considering the fact that coupons are not deferrable or cancellable before the principal write-off trigger is activated. If GNB's CET1 ratio falls below 4.5%, the outstanding principal amount of these notes may be permanently reduced to the extent required to restore the bank's capital ratio to 6%. This full write-down feature of the notes heavily influences the two-notch reduction for loss severity applied. The securities will rank junior to all senior unsecured creditors, pari passu with all other present or future Tier II capital subordinated indebtedness (other than subordinated indebtedness designated as junior to the notes), and senior to the bank's capital stock, including any other instrument that may qualify at Tier I capital according to local banking regulation. At December 2020, GNB's CET1 ratio was 8.3%, which compares favorably with the minimum regulatory requirements (4.5%). Colombia started to adopt Basel III standards in January 2021 and this has increased GNB's CET1. However, Fitch does not expect the Basel III standards to put significant pressure on the bank, despite the challenges in the operating environment that have squeezed profitability, as long as risk management remains conservative and business growth is gradual. RATING SENSITIVITIES Factor that could, individually or collectively, lead to negative rating action/downgrade: -- As the expected subordinated debt rating is two notches below GNB's VR anchor, the expected rating is sensitive to a downgrade in the VR. The rating is also sensitive to a wider notching from the VR if there is a change in Fitch's view on the non-performance risk of these instruments on a going concern basis, which is not the baseline scenario. Factor that could, individually or collectively, lead to positive rating action/upgrade: -- As the expected subordinated debt rating is two notches below GNB's VR anchor, the expected rating is sensitive to an upgrade in the VR. ESG CONSIDERATIONS GNB has an ESG Relevance Score of '4' for Governance Structure due to key person risk, which has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. 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. =================== C O S T A R I C A =================== INVESTMENT ENERGY: Fitch Raises LT IDRs to 'BB-', Outlook Stable ---------------------------------------------------------------- Fitch Ratings has upgraded Investment Energy Resources Limited's (IERL) Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDRs) to 'BB-' from 'B'. The Rating Outlook is Stable. Fitch has also assigned a 'BB-' rating to IERL's proposed issuance of up to USD700 million of senior secured green bonds with intermediate maturity (7-10 years). Net debt proceeds will be used to finance or refinance, in whole or in part, new or existing eligible green generation plants. The upgrade primarily reflects the strengthening of IERL's business risk profile as a result of the incorporation of 317MW of hydroelectricity generation assets in Guatemala (BB-/Stable), which materially improves the company's portfolio diversification and scale of operations. IERL will issue a total of approximately USD1 billion in debt, including up to USD700million bullet bond with intermediate maturity (7-10 years) and an approximately USD300 million amortizing senior secured facility. The proceeds will refinance the outstanding debt of IERL's operating companies. KEY RATING DRIVERS Improved Portfolio Diversification: IERL increased is diversication and lower its business risk after CMI Energia (Corporacion Multi Inversiones' energy business unit) transferred to IERL its hydroelectric plants Renace (301MW) and Santa Teresa (16MW), both located in Guatemala, and a 50% stake in the solar farm Bosforo (100MW), a JV with AES in El Salvador. The company's total generation portfolio increased to 813MW (2019: 394MW), including the acquisition of the solar farm Mata de Palma (53MW) in the Dominican Republic (BB-/Negative) on December 2020. The incorporation of hydro adds potential stability to cash flows, as the availability of wind and hydro resources in Central America follow seasonal patterns, where wind generation is highest during the dry season and production at the hydro plants is highest during the rainy season. Expected operating cash flows from Guatemala provide an improvement to the company's overall business risk profile, strengthening IERL's operating environment. The applicable Country Ceiling (CC) for the company is determined by Guatemala at 'BB', as IERL's EBITDA from this country will be enough to cover hard currency (HC) interest expense through the rating cycle. Debt Refinancing Simplify Structure: IERL plans to issue up to USD700 million senior secured green bond with intermediate maturity (7-10 years) and an approximately USD300 million amortizing senior secured facility with a seven-year tenure, to refinance the outstanding debt of IERL's operating companies. Following the transaction, intercompany loans (ICLs) or equity injections, will be made to each operating company to pay its respective debt. The bonds and the senior secured facility will be secured by pledges of 80% of IERL's common equity interests in Renace, S.A., and all of the equity interests in the remaining operating companies designated as Guarantors except for WCG Energy (Mata de Palma), in which case the bonds and the senior secured facility will be not be secured by its common equity interests. These transactions will allow the company to extend its debt amortization schedule while optimizing its cost of funding and reserve requirements. As of YE 2020, gross leverage, measured by total debt/EBITDA, was 6.2x (2019 restated: 6.3x). Fitch expects IERL's leverage to be close to 5.0x by end of 2021 and to deleverage towards 4.5x in 2024. The deleveraging trajectory is supported by the loan's programmed amortization schedule of about USD30 million per year, and by average annual EBITDA of approximately USD196 million between 2022 and 2024. Additionally, average FFO interest coverage may reach 3.0x between 2022 and 2024. High Off-Taker Risk: IERL's ratings reflect the company's high off-takers risk, where 46% of its revenues come from off-takers with a weighted average credit quality in line with a 'B+' rating. As of Dec. 31, 2020, 33% of consolidated revenues originated from contracts signed with distribution companies in Guatemala; 24% from Empresa Nacional de Energia Electrica (ENEE; not rated) in Honduras, 18% from Instituto Costarricense de Electricidad (ICE; B/Negative) in Costa Rica (B/Negative); 6% from contracts signed with distribution companies in Nicaragua (B-/Negative) and in the Dominican Republic (BB-/Negative). As a contingent measure, IERL has the Multilateral Investment Guarantee Agency's insurance which offers political risk insurance and enhancement guarantees on its generation assets in Honduras and Nicaragua. Predictable Cash Flows: IERL has a strong business profile supported by long-term U.S. dollar-denominated contracts, and a modest cost structure that underpins the company's profitability. As of year-end 2020, the company's generation capacity was 87% contracted under power purchase agreements (PPAs) with a weighted average remaining life of approximately 14 years. Off-taker for the take-or-pay contracts are obligated to purchase 100% of generation. Despite a 5.6% decline in revenues in 2020, IERL's EBITDA was approximately USD175 million compared with USD171 million the prior-year period, primarily due to a reduction of close to 38% in repair and maintenance costs. Fitch's base case reflects that energy production will be close to 2.9GWh in 2021, assuming a blend of P50 and P90 scenarios for the solar and wind projects, and capacity factors that reflect historical average hydrology conditions in the case of Renace and Santa Teresa. Revenues under these assumptions may amount to USD312 million while EBITDA may reach approximately USD191 million in 2021. Positive FCF Expectations: IERL will likely report positive FCF in the medium term as no major expansionary capex is expected, given that all of the development and construction of utility scale renewable energy projects by CMI Energia will be done outside of IERL. This, even when assuming annual dividend distributions ranging between USD70 million and USD115 million per year between 2022 and 2024. The rating case for IERL considers modest capex investments through the cycle, averaging USD5 million in the next four years. Strong Shareholder Group: IERL benefits from the strength of Corporacion Multi Inversiones (CMI) group of companies. CMI is a family-owned multinational conglomerate and one of the largest in Central America, with operations in 14 countries including the Caribbean and the U.S. Its operations span agribusiness, restaurants (including the global chain Pollo Campero), real estate, electricity generation and finance. CMI has shown commitment to developing its energy business unit and has made significant investments in this industry, while providing back-office support and access to credit to CMI Energia. DERIVATION SUMMARY IERL's 'BB-' reflects the company's diversified and complementary asset portfolio supported by exceptionally long-term U.S. dollar-denominated contracts, which mitigates its exposure to weak off-takers in challenging operating environments. Compared to AES Panama Generation Holdings, S.R.L. (AESPGH) (BBB-/Stable), IERL has a lower scale of operations but a better geographic diversification, which AESPGH compensates with a better off-taker risk profile, and both companies have similar leverage expectations. Compared to Orazul Energy Peru S.A. (BB/Rating Watch Positive), IERL has higher expected leverage and a weaker operating environment; compared to Nautilus Inkia Holdings LLC (BB/Negative), IERL shows similar leverage levels but modest capex investments and a more flexible shareholder strategy, a combination that should derive in positive FCF through the cycle. KEY ASSUMPTIONS -- USD955 million of new debt, including one bond and a liquidity facility, is issued to refinance all outstanding debt at the operating companies. The new bond is assumed to carry an interest rate of approximately 6.5%. The loan has amortizations between 2021 and 2027 with a balloon repayment in 2028. The bond has a single balloon payment at maturity; -- Combination of P50 and P90 operating scenarios for wind and solar generation, depending on historical performance; -- Capacity factors that reflect historical average hydrology conditions in the case of Renace and Santa Teresa; -- 87% contracted generation through the cycle; -- Average monomic price of USD110/MWh; -- Four-year average maintenance capex at USD5 million; -- Positive FCF generation through the rating cycle. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A material improvement in the company's operating environment; -- Sustained gross leverage below 4.0x through the rating cycle. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A material deterioration in the company's operating environment and/or applicable CC; -- Significant lag in collections that undermine the company's liquidity position; -- Sustained disruptions in generation capacity due to either technical or climatological issues. 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: IERL's modest cost structure and minimal investment requirements consistently generated strong cash flow, in addition to an expected improvement in the debt amortization schedule as per the planned issuance. As of Dec. 31, 2020, Fitch-defined readily available cash and cash equivalents totalled USD60.5 million plus undrawn committed credit lines of USD21.4 million, and short-term debt was USD120.2 million. Additionally, the company had USD129.3 million on its debt reserve accounts. Fitch forecasts IERL's FCF to be positive through the rating cycle, while assuming annual dividend distributions ranging between USD70 million and USD115 million per year between 2022 and 2024. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Deputies Extend State of Emergency ------------------------------------------------------ Dominican Today reports that in a work session marked by a dispute between the Chamber of Deputies and legislator Pedro Botello, president, the legislative body approved the extension for 45 more days of the state of emergency. Although before the beginning of the session, some deputies commented on the possibility that this new request would not be approved, a moment later, the spokesman of the Dominican Liberation Party (PLD), Gustavo Sanchez, said that for "coherence," his party would support a new state of emergency, according to Dominican Today. Tempers were high during the entire session. As soon as the meeting began, Deputy Pedro Botello requested to modify the plan to introduce the bill, which seeks to release 30 percent of the pension funds to the worker, the report relates. This request, although accepted by the President of the Chamber of Deputies, Alfredo Pacheco, generated discomfort in him, which lasted throughout the session, the report discloses. The report notes that Pacheco's attitude changed. He began to make ironic and indirect comments after Botello insisted on knowing in the session the legislative initiative that seeks to give the workers a percentage of their pension funds to face the effects produced by the Covid-19 pandemic, the report relays. Tensions "I requested to you, under the understanding that you were reasonably going to give that understanding to the coordinating committee, but I submit it. I remind you that to modify the plan, you need two-thirds to be approved. We are going to submit to vote the request of Representative Botello, who undoubtedly wants to expose his colleagues to difficult situations, but let's go upstairs," was Pacheco's initial comment that later triggered a confrontation between the two where both deputies hurled insults and even threats at each other, the report relays. Precisely in the middle of this chaos of offenses, threats of fights, and legislators trying to calm their two colleagues, Pacheco submitted the vote to approve the request for the new state of emergency. Simultaneously, the discussion with Botello continued and was approved almost without those present paying attention, the report discloses. Despite the approval, a moment before, the PLD spokesman, Gustavo Sanchez, who had affirmed that the purple party supported the request for a new state of emergency for 45 days, questioned the request and said he did not understand the reason why the Dominican government wanted to maintain the state of emergency, the report notes. Since March last year, the state of emergency has been accompanied by a curfew. 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). [*] DOMINICAN REPUBLIC: Signs Pact to Expand Agro Products Export ----------------------------------------------------------------- Dominican Today reports that the Ministry of Agriculture, Dominican Agricultural Supply Markets (Mercadom), the Dominican Postal Institute (Inposdom), ProDominicana and the Santo Domingo Cyber Park signed an agreement to launch a technological platform that will contribute to expand the exportable supply of agro products produced in the country. The inter-institutional alliance was initialed by the chief of staff; Fredy Fernandez, representing the Minister of Agriculture, Limber Cruz; Socrates Diaz, administrator of Mercadom; the technical deputy director of Inposdom, Fernando Arturo Ramirez; representing the executive director of ProDominicana, Biviana Riveiro, the legal consultant, Arnaldo Randelli; and Katherine Martinez, representing the President of the Cybernetic Park, Eddy Martinez, according to Dominican Today. The head of the cabinet of Agro stressed that with the creation of the technological platform, all the authorities involved in this project will also be trained to have a record of producers and exporter, the report notes. "At the same time food products can be supplied with them and with other industrialists in the country," the report relays. 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 L S A L V A D O R ===================== AES EL SALVADOR: Fitch Alters Outlook on 'B-' IDRs to Stable ------------------------------------------------------------ Fitch Ratings has affirmed AES El Salvador Trust II's (AESL) Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B-' and AESL's senior unsecured notes due 2023 at 'B-'/'RR4'. The Rating Outlooks on the Foreign- and Local-Currency IDRs were revised to Stable from Negative. The Stable Outlook reflects the increased stability of subsidy payments from the Salvadoran government over the past few years, as well as the firm's decreasing reliance on subsidies for cash flow generation. A government relief program for electricity end users announced in 2020 during the pandemic, temporarily pressured the company's liquidity. However, the impact was minor, and the company reports that collections have normalized as of early 2021. The relief program allowed end users consuming 250KWh per month or less to delay electricity payments during March, April and May 2020. In 2020, AESL received about USD50 million in subsidy payments from the government, equivalent to approximately 53% of the year's estimated EBITDA of USD94.8 million. That dependence on sovereign transfers exposes the company to risks from El Salvador's creditworthiness and payment ability. KEY RATING DRIVERS Exposure to Government Subsidies: Fitch estimates that subsidies from the Salvadoran government will account for roughly half of AESL's EBITDA going forward, underscoring the importance of government transfers to the company's cash flow. Over the past several years, however, AESL's dependence on subsidies has fallen, as the government has pared back such support measures. As of August 2018, the government subsidizes USD5 per month for users consuming a monthly average of up to 105KWh over a six-month period, which the company believes equates to roughly USD50 million annually. Leverage to Moderate Over Time: AESL will have ample leverage headroom going forward, as the pandemic eases and economic activity in El Salvador rebounds. AESL's total debt with equity credit/EBITDA is estimated at 3.8x for 2021, falling to 3.5x in 2022 and 2023, even as the next tariff review going into effect in 2023 is expected to moderately impact revenues. Political Uncertainty Lingers Surrounding Subsidies: President Nayib Bukele's government has suggested that subsidies will be up for review, although no details of a proposed change to the current system have been forthcoming. Given their size relative to AESL's EBITDA, continued timely subsidy payments are important for the company's liquidity and working capital, and that electricity subsidies could be targeted in the future, should the government's finances become strained. Strong Market Position: While the company's distribution service territories are non-exclusive, the risk of new competition is low, given that significant economies of scale make it inefficient for more than one distribution company to operate in any particular geographic area. AESL's four companies combine to serve almost 1.5 million clients, or nearly 80% of the market, and provided over 70% of energy distributed in 2020, up from 60% in 2014. AESL's customer base has consistently grown at an average rate of around 2% per year in recent years. Due to AESL's extensive asset base, territory and number of clients, Fitch considers the company's market position strong. Rising Losses and Reduction Efforts: Energy losses have exhibited a slightly upward trend over the past several years, largely driven by non-technical losses, as the country continues to grapple with high crime and instability. Total losses in 2020 were 10.96%, up from 10.89% the year prior. Fitch estimates that under 2% of total energy costs are losses absorbed by AESL, and that a 1% change in losses equates to about a USD5.5 million change in energy margin, depending on prevailing energy prices. The rating case assumes losses will fall to 10.35% by 2023, due to AESL's investment in new technology and community outreach efforts. Low Business Risk Profile: As an electricity distribution company, AESL is allowed to pass on to end users, or the government in the form of subsidies, the full cost of energy purchased, thereby limiting its commodity price exposure. The company's gross margin is determined by the regulator every five years and adjusts year to year, depending on factors such as growth in user base and consumption, as well as local inflation. The current tariff period lasts until the end of 2022. While its concession is non-exclusive, the capital-intensive nature of its business is inherently monopolistic and limits competition. These factors add to AESL's cash flow stability and low business risk. DERIVATION SUMMARY AESL benefits from EBITDA margins in line with its regional peers Energuate Trust (BB-/Stable) and Elektra Noreste S.A. (BBB/Stable), as well as comparatively better rates of technical and non-technical losses. AESL also presents strong financial metrics relative to its rating category, with gross leverage of 3.4x at YE 2019 and interest coverage of 3.8x. Comparatively, Elektra reported leverage of 3.1x and coverage of 6.2x, while Energuate reported 3.5x leverage and 4.5x coverage for the same period. AESL's rating is principally constrained by its exposure to the Salvadoran government (B-/Negative) in the form of subsidy receipts. Historically, the company has faced cash flow volatility stemming from delayed government payments. In 2017, this dynamic reached critical levels following the government's restricted default on local pension obligations, with AESL accumulating more than 10 months of arrears in subsidies. Budgetary amendments have subsequently improved the government's payment schedule on these obligations, and AESL says the government has not failed to make a payment on time since 2017. Nonetheless, the country's weak operating environment and AESL's direct exposure to government cash flows will continue to limit its rating to the sovereign. KEY ASSUMPTIONS -- Revenue trajectory will fall 2% in 2023 following the implementation of a new tariff agreement; -- Customer growth will continue at the rate of GDP growth; -- Energy losses will fall by approximately 0.5 percentage points by 2023; -- WTI and natural gas prices to follow Fitch price deck. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Sustainable independence from government funding; -- Positive sovereign rating action. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Increased credit risk associated with the government that could affect its ability to pay energy subsidies; -- Further political or regulatory intervention that negatively affects the company's financial performance; -- Sustained total debt to EBITDA of 5.5x or above. 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 Collections Normalize With Economic Reopening: As of Sept. 30, 2020, AESL held approximately USD37.9 million in cash and close to USD28 million available on its lines of credit, with no significant debt payments due until the maturity of the company's USD310 million bond in 2023. The company faced some cash pressures last year due to a government relief program that allowed customers to defer electricity payments from March until May 2020. However, following the government's decision to reopen most of the economy last June, collections have largely normalized, with AESL projecting most deferred payments will be paid off in this year's first quarter. Meanwhile, the company says the government continued to make timely subsidy payments throughout the pandemic. 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 ============= TRANSJAMAICAN HIGHWAY: Losses Revised to US$1.8 Million ------------------------------------------------------- RJR News reports that TransJamaican Highway's losses for 2020 have been adjusted downwards in its audited financial statements which were published March 29. Losses were revised to US$1.8 million, according to RJR News. It was previously reported at US$2.6 million. TransJamaican Highway made an US$8.3 million profit in the previous year, the report discloses. Revenue from toll rates in 2020 declined from US$53.2 million to US$45.3 million, the report relays. The highway operator was affected by COVID-19 restrictions which had a ripple effect on traffic, the report adds. As reported in the Troubled Company Reporter-Latin America reported on February 3, 2021, Fitch Ratings affirmed the 'BB-' rating of TransJamaican Highway Limited's (TJH) senior secured notes. The Rating Outlook is Stable. S&P Global Ratings revised the outlook on Transjamaican Highway to negative from stable, and affirmed its 'B+' notes rating last June 11, 2020. ======= P E R U ======= PERU: To Promote Investment in Electric Mobility w/ $20MM IDB Loan ------------------------------------------------------------------- Peru will encourage private sector investments in sustainable electric transport solutions with help from a $20 million loan approved by the Inter-American Development Bank (IDB). The program will contribute to reduce fossil fuel consumption and greenhouse gases emissions through the promotion of low-carbon transportation solutions. To this end, it will offer concessional resources from the Clean Technology Fund (CTF) as well as IDB's own resources to provide long-term financing for the purchase of electric vehicles. The operation also includes a gender inclusion focus aimed at promoting the participation of women entrepreneurs in the public transportation vehicles and charge infrastructure sectors. The program will provide long-term credit through individual sub-loans to finance electric vehicle projects that will result in the migration to EV technology. These credits will be delivered through the Corporación Financiera de Desarrollo (COFIDE, the Financial Corporation for Development), which is the national development bank that aims to promote productive activities in Peru. The resources will be delivered to final beneficiaries through accredited financial institutions. Financing will be made available to eligible projects, and may or may not include investments other than the vehicle itself, such as charging infrastructure. Potential borrowers shall not only prove their investments are financially sustainable, but they must be technically, institutionally, environmentally and legally viable as well, as per IDB standard practice and operational policies. The program seeks to replace internal combustion engine vehicles with electric vehicles, particularly in the public transportation sector (mainly buses, taxis, and three-wheeled moto-taxis). It will also cover battery charging stations, preferably renewable-energy powered ones, and provide holistic support, addressing supply and demand of clean electricity in the domestic market. Electric vehicles have emerged as a technology with potential to contribute to decarbonizing and lowering pollution in the transport sector, as well as increasing energy efficiency and thus productivity. The main benefit of EVs –compared to internal combustion engine vehicles– is that they are more energy efficient and do not directly generate greenhouse gas emissions from the burning of fossil fuels, effectively contributing to meet Peru's Nationally Determined Contributions (NDCs). In addition, these vehicles do not produce polluting gases that affect people's health. The IDB loan consists of a $10.5 million tranche from the Bank's ordinary capital for a 20.5-year term, with a 6.5-year period of grace and interest rate based on LIBOR. The $9.5 million tranche from the Clean Technology Fund will have a 20-year term and a 10.5-year grace period. ===================== P U E R T O R I C O ===================== ORGANIC POWER: Seeks to Hire Fuentes Law Offices as Legal Counsel ----------------------------------------------------------------- Organic Power, LLC seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to employ Fuentes Law Offices, LLC to handle its Chapter 11 case. Fuentes Law Offices will be paid at the rate of $250 per hour and a retainer of 20,000. The firm will also be reimbursed for out-of-pocket expenses incurred. Alexis Fuentes-Hernandez, Esq., a partner at Fuentes Law Offices, disclosed in a court filing that the firm is a "disinterested person" as the term is defined in Section 101(14) of the Bankruptcy Code. The firm can be reached at: Alexis Fuentes-Hernandez, Esq. Fuentes Law Offices, LLC P.O. Box 9022726 San Juan, PR 00902-2726 Tel: (787) 722-5215 Email: alex@fuentes-law.com About Organic Power Organic Power offers food processing companies, restaurants, pharmaceuticals and retail outlets an alternative to landfill disposal -- a low cost and environmentally friendly recycling option. Visit https://prrenewables.com Organic Power sought protection under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 21-00834) on March 17, 2021. Miguel E. Perez, president, signed the petition. In its petition, the Debtor disclosed assets of between $10 million and $50 million and liabilities of the same range. Judge Edward A. Godoy oversees the case. Godreau & Gonzalez Law is the Debtor's legal counsel. ================= V E N E Z U E L A ================= CITGO PETROLEUM: Fitch Alters Outlook on 'B' LT IDR to Stable ------------------------------------------------------------- Fitch Ratings affirmed the Long-Term Issuer Default Rating (IDR) of CITGO Petroleum (Opco) at 'B' and CITGO Holding (Holdco) at 'CCC+', Opco's senior secured term loans, notes, and industrial revenue bonds at 'BB'/'RR1', and Holdco's senior secured term loans and bonds at 'B+'/'RR1'. Fitch withdrew the ratings on Opco's $650 million July 2021 term loan, which was repaid earlier. The Rating Outlook was revised to Stable from Negative. The Outlook revision reflects CITGO's improved liquidity and maturity wall along with signs that the pandemic recovery will continue to accelerate. CITGO's ratings are supported by the quality of its refining assets, modest capex requirements, improved liquidity, favorable impact of recent refinancing activity, and a recovering macroeconomic environment for refiners. Rating concerns include operational risks from U.S. sanctions; heightened contagion effects associated with CITGO's ownership by PDVSA; and potential structural changes to working from home and business travel trends that could impact long-term transport demand. The Ratings for Opco's $650 million July 2021 term loan was withdrawn as it was repaid earlier. KEY RATING DRIVERS Improved Liquidity: In 4Q20, Opco's liquidity increased to $1.264 billion from $971 million, largely due to its reinstated $250 million A/R Securitization facility. Cash also rose to $1,014 million, helped by reduced inventory levels needed in a lower demand environment. An additional $550 million in cash tax refunds from the CARES Act is anticipated around 2Q21. Fitch believes CITGO has adequate liquidity to get through a prolonged downturn in 2021. Recovery Gains Steam: Fitch expects the downstream recovery will strengthen in 2H21 driven by increased U.S. vaccination rates, the passage of a $1.9 trillion U.S. stimulus package, and the release of pent-up leisure and holiday travel demand. Core refined product demand continues to recover, with both gasoline and distillate having made up most of the declines seen since the pandemic lows. Crack spreads are showing strength heading into the driving season, and TSA checkpoint numbers for travellers have also trended higher. Other factors could slow the return to complete pre-pandemic demand levels, including a lagging vaccine rollout in Europe, weakness in international travel, and potential changes to working from home and business travel trends. Pandemic Hits Credit Metrics: Pandemic conditions and hurricane-related downtime at its largest refinery, Lake Charles, resulted in record low 2020 results. As calculated by Fitch, Opco's EBITDA declined to -$587 million, versus positive $1.05 billion the year prior. CITGO saw extensive planned maintenance, with Lake Charles incurring an additional six weeks of downtime due to hurricane activity. As a higher complexity refiner, CITGO has also been unfavorably impacted by tighter light-heavy crude differentials, driven by OPEC curtailments, and increased competition from Asian refiners for heavy sour barrels in the gulf. Change of Control Risks: The financial weakness of CITGO's indirect parent PDVSA, which is owned by the government of Venezuela, means there are multiple paths that could trigger change of control clauses and a forced refinancing in CITGO's debt. These include creditor lawsuits against PDVSA and affiliates seeking to obtain judgements for litigation/arbitration awards in U.S. courts, actions by PDVSA's secured exchange note holders to collect on pledge of 50.1% of CITGO Holding's capital stock; and any future actions by OFAC to allow such a share sale to proceed. CITGO's notes contain a two-part test (less than majority ownership by PDVSA and a failure by rating agencies to affirm ratings within 90 days). Fitch also believes its credit profile would likely improve under different ownership. These factors should limit bondholder incentives to tender if change of control was triggered. Nonetheless, this risk remains a key overhang on the credit. All of CITGO's drawn debt contains this double trigger. Access to Capital: The legacy effects of PDVSA ownership, including change of control risks, as well as the impact of various Office of Foreign Assets Control (OFAC) sanctions on entities doing business with Venezuela, are also an overhang for the company in terms of capital market access. In 2019, CITGO had to replace revolver liquidity with a drawn term loan, given bank concerns about OFAC sanctions against Venezuelan entities. Fitch believes CITGO has access to a capital pool that is narrow but deep. Covenant Waiver: At the end of 2020, Opco received a waiver to increase its net debt-to-capitalization ratio from 60% to 70%, effective until Q1 of 2022. The waiver creates additional headroom if the downturn is prolonged. The company didn't apply for a waiver for covenants governing distributions to CITGO Holdco (positive dividend basket, maximum net debt to cap of 55% and minimum $500 million in liquidity pro forma post distribution). Holdco has enough liquidity to service its debt without additional dividends from Opco until at least July 2022, but this could become an issue thereafter if market conditions are weak. The dividend basket at the end of Q420 was -$81 million, and CITGO would need to earn its way back to positive basket before re-starting distributions. Parent-Subsidiary Linkage: Fitch rates the IDR of Holdco two notches below that of its stronger subsidiary, Opco. The notching stems from the significant legal and structural separations between the two, primarily the strong covenant protections for Opco's debt, which limits the ability of the direct parent to dilute its credit quality. Key covenants include limitations on guarantees to affiliates, restrictions on dividends, asset sales and restrictions on the incurrence of additional indebtedness. Opco does not guarantee Holdco debt and a Holdco default does not cross default Opco. Holdco: The ratings for Holdco reflect its structural subordination to Opco and its reliance on Opco to provide dividends to cover its significant debt service requirements. Dividends from Opco provide the majority of debt service capacity at Holdco and are driven by refining economics and the restricted payments basket. Holdco's pledged security includes approximately $40 million-$50 million in run-rate EBITDA from midstream assets available for interest payments. These logistics assets are pledged as collateral under the Holdco debt package. DERIVATION SUMMARY At 769,000 bpd day of crude refining capacity, CITGO is smaller than peer refiners such as Marathon Petroleum Corporation (BBB/Negative) at 2.9 million bpd, Valero Energy Corporation (BBB/Negative) at 2.6 million bpd, and PBF Holding (B+/Negative) at 1.04 million bpd. However, it is larger than HollyFrontier Corporation (BBB-/Negative) at 405,000 bpd and CVR Refining (BB-/Negative) at 206,500 bpd. CITGO lacks the earnings diversification from ancillary businesses seen at a number of peers in areas such as logistics master limited partnerships, chemicals, renewables or retail. However, CITGO's core refining asset profile is strong and relatively flexible, given the high complexity of its refineries, which allows it to process a large amount of discounted heavy and light shale crudes. Crude differentials have been compressed in the pandemic-led downturn, particularly light-heavy spreads, which have been a key support for CITGO. Legacy PDVSA ownership and related capital markets access issues remain a key overhang on the issuer despite its relatively good asset profile. KEY ASSUMPTIONS -- West Texas Intermediate (WTI) oil prices of $55/bbl in 2021, and $50/bbl thereafter; -- Refinery throughput recovers from a pandemic low of 638,000 bpd in 2020 to 684,000 bpd in 2021, 736,000 bpd in 2022 and 780,000 bpd in 2023; -- Cash operating expenses/bbl decline from $6.24/bbl in 2020 to $5.40/bbl in 2021, $5.18/bbl in 2022, and $5.13/bbl in 2023 in line with rising throughput volumes; -- CARES cash tax refund of received in 2021, improving liquidity; -- Capex of $280 million in 2021 stepped up across the forecast as conditions normalize and flexibility to make moderate strategic investments increases; -- Company resumes dividends up to Holdco beginning in 2022. KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that CITGO Corporation would be reorganized as a going-concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. Going-Concern (GC) Approach The GC EBITDA estimate of $975 million reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which Fitch bases the enterprise valuation (EV). This value is moderately lower than the previous GC estimate and reflects the industry's move from current trough conditions to low midcycle conditions, with somewhat narrower crude spreads assumed due to structural changes in the market. An EV multiple of 5.0x was applied to the GC EBITDA to calculate a post-reorganization EV of $4.875 billion. This is below the median 5.7x exit multiple for energy in Fitch's Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies - August 2020), but above the multiple for the only refining-related bankruptcy contained in that study, Philadelphia Energy Solutions. It is also higher than the multiple used for HY refining peer PBF Holdings (3.75x), given PBF's weaker asset profile, as evidenced by its need to idle portions of its East Coast refining system during the pandemic. Liquidation Approach The liquidation estimate reflects Fitch's view of the value of balance sheet assets that can be realized in sale or liquidation processes conducted during a bankruptcy or insolvency proceeding and distributed to creditors. For liquidation value, Fitch used an 80% advance rate for the company's inventories since crude and refined products are standardized and easily re-sellable in a liquid market to peer refiners, traders or wholesalers. Fitch also assigned relatively light discounts to CITGO's net PP&E, based on historical refining transactions. In conjunction with A/R, these items summed to a total liquidation value of $3.85 billion. The maximum of these two approaches was the going concern approach of $4.875 billion. A standard waterfall approach was then applied. Subtracting 10% for administrative claims resulted in an adjusted EV of $4.39 billion, which resulted in a three-notch recovery (RR1) for all of CITGO Petroleum's secured instruments (including the new notes), which are pari passu. A residual value of approximately $1.43 billion remained after this exercise. This was applied in a second waterfall at CITGO Holdco, whose debt is subordinated to that of Opco. The $1.43 billion was added to approximately $360 million in going concern value associated with the Midstream assets ($45 million in assumed run-rate midstream using an 8x multiple), as well as $196 million in restricted cash, most of which was escrowed in a debt service reserve account for the benefit of secured Holdco debt. This resulted in total initial value at Holdco of approximately $1.99 billion. No administrative claims were deducted in the second waterfall. Holdco secured debt also recovered at the 'RR1' level. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: CITGO Petroleum: -- Improved market access; -- Reduced overhang associated with legacy PDVSA ownership issues; -- Mid-cycle debt/EBITDA below 3.0x -- Mid-cycle FFO leverage below approximately 4.0x. CITGO Holding: -- Improved market access; -- Reduced overhang associated with legacy PDVSA ownership issues; -- Alleviation of restrictions on R/P basket or otherwise increased ability to make dividends to Holdco; Factors that could, individually or collectively, lead to negative rating action/downgrade: CITGO Petroleum: -- Deterioration in liquidity/market access; -- Mid-cycle debt/EBITDA above 4.0x -- Mid-cycle FFO leverage above approximately 5.5x; -- Weakening or elimination of key covenant protections in the CITGO senior secured debt documents. CITGO Holding: -- Deterioration in market access -- Sustained inability of Holdco to receive dividends due to R/P basket restrictions; -- Weakening or elimination of key covenant protections in CITGO Holding senior secured debt documents. 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 Liquidity Improving: At YE 2020, Opco's liquidity increased to $1.264 billion vs. $971 million at Q3. The largest source of the increase was the company's newly reinstated $250 million A/R Securitization facility (undrawn at Q4), however cash also rose modestly to $1,014 million, helped by improved working capital. The majority of OpCo's cash is from proceeds of a $1.2 billion term loan, which was issued in 2019 as replacement liquidity for a terminated senior secured revolver. Opco's liquidity is set to further improve around Q2, as the company is expected to receive an additional $550 million in tax refunds on a consolidated basis from the CARES Act. Holdco Liquidity Adequate: Liquidity at the Holdco level was also adequate, and included cash available to Holdco of $118 million, as well as approximately $200 million in restricted cash mostly associated with the debt service reserve account to meet Holdco debt payments, and FCF from midstream assets dedicated to Holdco. While Opco is unable to distribute money to Holdco until it earns its way back from losses in its dividend basket (-$81 million as of YE 2020), the company estimates it has adequate liquidity to service Holdco debt until July 2022. ********* 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 2021. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *