/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/210415.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 Thursday, April 15, 2021, Vol. 22, No. 70 Headlines A R G E N T I N A MSU ENERGY: Moody's Gives Caa3 CFR, Ups $600M Notes Rating to Caa3 STONEWAY CAPITAL: Clearly Gottlieb Represents Noteholder Group B R A Z I L GERADORA EOLICA: Moody's Puts Ba2 Rating on Review for Downgrade ITAUSA SA: Moody's Rates BRL1.3MM Sr. Unsec. Debentures 'Ba3' RUMO SA: Moody's Assigns Ba2 CFR on Improved Credit Metrics C O L O M B I A BANCO DAVIVIENDA: Moody's Rates Additional Tier 1 Notes 'B1(hyb)' BANCO GNB: Moody's Gives B2(hyb) Rating to New Subordinated Debt C O S T A R I C A INVESTMENT ENERGY: S&P Assigns Prelim 'BB-' Issuer Credit Rating D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Losing Agro Soil at "Worrisome" Pace DOMINICAN REPUBLIC: World Bank & IMF Forecast 5.5% Growth in 2021 G U A T E M A L A INVESTMENT ENERGY: Moody's Assigns First-time Ba3 CFR J A M A I C A [*] JAMAICA: Resumption of Cruise Tourism Expected in August P E R U COMPANIA DE MINAS: Fitch Lowers LT IDRs to 'BB', Outlook Stable V E N E Z U E L A VENEZUELA: Records Lowest 'Unsustainable' Inflation Since 2017 - - - - - ================= A R G E N T I N A ================= MSU ENERGY: Moody's Gives Caa3 CFR, Ups $600M Notes Rating to Caa3 ------------------------------------------------------------------ Moody's Investors Service has upgraded MSU Energy S.A.'s $600 million senior secured notes rating to Caa3 from Ca. At the same time Moody's has assigned MSU a Caa3 corporate family rating. The outlook for the ratings is stable. RATINGS RATIONALE The rating upgrade takes into consideration the company's finalization of its expansion plan through the conversion of its three open cycle plants to combined cycle and therefore the materialization of its full cash generation capacity. Cash from operations as Moody's adjusted for the full year 2021 and going forward will increase to approximately $120/$130 million (from $13 million -as adjusted- in 2020) and will remain stable going forward given the fixed capacity payments that MSU receives under its power purchase agreements (PPAs). The completion of the investment plan coupled with the increased cash generation will allow the company to start deleveraging steadily. Moody's anticipates the debt to Ebitda ratio to approach 3.5 times by year-end 2023, down from 6 times in 2020, which is in line with other rated peers in the unregulated power sector in Argentina. The upgrade also considers that MSU has a manageable debt maturity profile with only $25 million debt maturities due in 2021; $100 million per year in 2022 and 2023 and a final payment of $25 million under its 2024 notes. Yet, the company faces a significant refinancing risk for its $600 million notes due 2025. Nevertheless, the long tenure of MSU's PPAs comprising an average life of 9.8 years provides for long term cash flows for debt repayment. The rating continues to be constrained by the exposure of the company to Cammesa, the agency controlled by the Argentina government (Government of Argentina, Ca, Stable) that manages the wholesale electricity market and the sole off-taker under MSU's PPAs. Exposure to Cammesa, entails several downside risks, including delays under its contractual payment obligations and the potential risk of unilateral change to the contracts, given the recent history of government intervention in the electricity market. MSU's contractual revenues are dollar-denominated providing a natural hedge to its dollar denominated debt; however, Cammesa payments are made in pesos at the official exchange rate, which exposes bondholders to convertibility risk. Rating Outlook The stable outlook reflects Moody's expectation that MSU will continue producing stable cash flows derived from its capacity based PPAs that will be mainly used to pay down debt. The stable outlook assumes leverage will hover around 3.5 times by year end 2023. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Given the current constraining factors and the exposure to Cammesa, an upgrade of MSU's ratings will require and upgrade of the sovereign. The ratings could come under negative pressure if the company fails to execute on the expected deleveraging either because it enters additional debt or because contractual revenues or operating costs are not materialized as expected. Quantitively, Moody's views that the ratio of CFO/Debt remaining below 15% or the ratio of debt to EBITDA stays higher than 4.5 times in 2022 and beyond could prompt a rating downgrade. Profile Headquartered in Buenos Aires, MSU Energy S.A. is an Argentine independent power producer that owns 3 thermal generation power plants, totaling 750 MW of installed capacity. The company started operations in 2018 and in November 2020 completed the conversion of its plants to combined cycle, that can run either with natural gas or fuel oil. MSU Energy is a privately held company whose main shareholders are members of the Uribelarrea family. The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. STONEWAY CAPITAL: Clearly Gottlieb Represents Noteholder Group -------------------------------------------------------------- Pursuant to Rule 2019 of the Federal Rules of Bankruptcy Procedure, the law firm of Cleary Gottlieb Steen & Hamilton LLP submitted a verified statement to disclose that it is representing the Ad Hoc Steering Committee in the Chapter 11 cases of Stoneway Capital Ltd., et al. The Ad Hoc Steering Committee holds claims against Stoneway as issuer; its subsidiaries Stoneway Energy International LP, Stoneway Energy LP, Araucaria Power Generation S.A., Araucaria Energy S.A., SPI Energy S.A., and Araucaria Generation S.A. as guarantors; and Stoneway Power Generation Inc. and Stoneway Group LP as pledgors in connection with the Senior Secured Notes issued under that certain Indenture, dated as of February 15, 2017; as amended and restated by that Amended and Restated Indenture, dated as of November 9, 2017; as supplemented by that First Supplemental Indenture, dated as of November 15, 2017; and as supplemented by that Second Supplemental Indenture, dated as of June 29, 2018, by and among the Debtors and UMB Bank, N.A., a national banking association organized and existing under the laws of the United States of America, as successor to The Bank of New York Mellon, as indenture trustee. The members of the Ad Hoc Steering Committee are as follows: BlackRock Advisors, LLC; Carmignac Gestion S.A.; DoubleLine Capital LP; FIL Investments International; and GML Capital LLP. The Ad Hoc Steering Committee holds a majority of the Senior Secured Notes. As of April 8, 2021, members of the Ad Hoc Steering Committee and their disclosable economic interests are: Senior Secured Notes -------------------- BlackRock Advisors, LLC $95,408,284.50 c/o BlackRock Advisors, LLC 55 East 52nd St. New York, NY 10055 Carmignac Gestion S.A. $33,153,570.77 24 Place Vendame 75001 Paris, France DoubleLine Capital LP $60,352,481.45 c/o DoubleLine Capital LP 333 South Grand Avenue, 18th Floor Los Angeles, CA 90071 FIL Investments International $89,864,534.94 c/o Investment Legal FIL Investments International 4 Cannon Street London EC4M 5AB England GML Capital LLP $67,277,740.00 c/o GML Capital LLP The Met Building 22 Percy Street London W1T 2BU United Kingdom Counsel to the Ad Hoc Steering Committee can be reached at: Richard J. Cooper, Esq. Luke A. Barefoot, Esq. Kristin Corbett, Esq. CLEARY GOTTLIEB STEEN & HAMILTON LLP One Liberty Plaza New York, NY 10006 Telephone: (212) 225-2000 Facsimile: (212) 225-3999 E-mail: RCooper@cgsh.com LBarefoot@cgsh.com KCorbett@cgsh.com A copy of the Rule 2019 filing is available at https://bit.ly/3uNvb4w at no extra charge. About Stoneway Capital Stoneway Capital Corporation is a limited corporation incorporated in New Brunswick, Canada, formed for the purpose of owning and operating, through its Argentine subsidiaries, power generation projects that will provide electricity to the wholesale electricity markets in Argentina. The Argentine subsidiaries operate four power-generating plants in Argentina that provide electricity to the wholesale electricity market in Argentina. Stoneway is 100% owned by GRM Energy Investment Limited. On Oct. 8, 2020, the Company commenced proceedings under the Canada Business Corporations Act (the "CBCA"). The Debtors were well on the way toward closing the consensual restructuring when on Dec. 4, 2020, the Argentine Supreme Court issued a decision in an ongoing noise discharge dispute involving one of the Generation Facilities located in Pilar, Argentina. The Argentine Supreme Court Decision created significant uncertainty as it overturned a decision of the federal appeals court in San Martin, Buenos Aires. As a result of the looming expiration of the informal standstill arrangement, the Debtors have commenced chapter 11 cases in the U.S. in order to put the automatic stay in place, maintain the status quo pending resolution of the various issues in Argentina, and ensure that neither the Indenture Trustee nor the Argentine Trustee takes any action that could be detrimental or value destructive to the Company. Stoneway Capital Ltd. and five related entities, including Stoneway Capital Corp., sought Chapter 11 bankruptcy protection (Bankr. S.D.N.Y. Case No. 21-10646) on April 7, 2021. Stoneway estimated liabilities of $1 billion to $10 billion and assets of $500 million to $1 billion. Shearman & Sterling LLP is the Debtors' counsel. Prime Clerk LLC is the claims agent. =========== B R A Z I L =========== GERADORA EOLICA: Moody's Puts Ba2 Rating on Review for Downgrade ---------------------------------------------------------------- Moody's America Latina Ltda. has placed under review for downgrade the Ba2/Aa3.br ratings assigned to Geradora Eolica Bons Ventos da Serra 2 S.A.'s ("BVS 2", the "project" or the "issuer") BRL56.5 million senior secured debentures due in 2033. The outlook was changed to ratings under review from stable. RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The rating action reflects the project's lower than anticipated power generation performance since its inception, but particularly in 2020, with energy volumes produced in this year representing 90.7% of its contractual obligations, down from the 98.2% achieved in 2019 and also below the 93.7% achieved during the project ramp-up phase in 2018. The commitments for energy delivery under the power purchase agreements (PPAs) represent 96.4% of the aggregate physical guarantee energy of the five wind farms. Based on wind studies carried out by third parties (Camargo Schubert and Inegi), the volumes sold stand 6.5% below the expected generation in ten-year P90 scenario and 1.9% below the one-year P90 scenario. The continued power generation underperformance might hurt the project's average Moody's DSCR in the long term and pressure cash flow generation in 2022, when the quadrennial adjustment is expected to be settled. Moody's updated projections indicate now that the average DSCR from 2021 through 2030 might decrease to 1.19x from 1.34x as anticipated when the rating was first assigned. With minimum DSCR in 2022, close to 1.0x. The issuer's outstanding unrestricted cash of BRL35 million as of December 2019, if not used to cover other needs, mitigates the cash generation pressure in 2022. In addition to a worse-than-expected performance, Moody's consider that the decrease of certain financial completion thresholds -- such as the change in the minimum 12-month generation volume to 309 GWh (equivalent to the contractual commitment of the PPAs) from 321 GWh (equivalent to the physical guarantee) -- to add risks related to release of guarantees before Moody's initial expectation. Adding more uncertainty to the project's future cash needs is a contingent liability of BRL42 million, reported as of December 2019 and equivalent to 0.8x 2019 net revenues or 16% of debt, which is related to an arbitration dispute with the project's turbines supplier and O&M operator, WEG Equipamentos Eletricos S.A.. The provisioned amount refers to the amount disputed between the two parties. An adverse outcome on this dispute could create additional negative cash flow pressures to the project, which are not currently fully reflected in Moody's base case scenario. The review process will focus on the project's ability to present improved operating performance compared to what has been seen since 2018. Given the change in some financial completion thresholds, the review process will also consider the project's ability to maintain its guarantees in place, in line with Moody's initial expectations, and in particular considering the cash flow pressures with the settlement of the quadrennial balances or judicial disputes through 2022. The Ba2/Aa3.br ratings continue to reflect BVS 2's long term project's revenue profile, composed of 20-year power purchase agreements (PPAs) set at fixed prices that are adjusted annually by inflation, which are at approximately BRL173/MWh in current prices. The project's PPAs were signed in New Energy Auctions (LEN), which benefit from a quadrennial revenue settlement mechanism to address the intermittent nature of the wind resource that allows one specific year of generation deficit to be compensated by another year's generation surplus within a four-year period prior to revenue deductions. The ratings also factor in a diversified off-taker base that comprises 35 operating utilities in Brazil belonging to fifteen different economic groups. In Moody's view, the average off-takers credit quality is commensurate to Ba2. The ratings could be stabilized when Moody's have more visibility of improved power generation performance and resolution of the issuer's dispute with its mains supplier and O&M operator, with average Moody's DSCR consistently above 1.3x. The ratings could be further downgraded if performance continues to deteriorate compared to Moody's expectations or Moody's DSCR metrics remain consistently below 1.2x. A deterioration in the off-takers base credit quality could increase negative rating pressure, as well as Moody's perception of a decline in the level of consistency and predictability of the Brazilian business environment for the electricity sector. The release of guarantees before Moody's initial expectation could also result in a multi-notch downgrade. The issuer BVS 2 is an operating holding company that owns five wind farms forming the BVS 2 complex, composed of: Bons Ventos Cacimbas 2 (23.1MW), Bons Ventos Cacimbas 3 (14.7MW), Bons Ventos Cacimbas 4 (10.5MW), Bons Ventos Cacimbas 5 (21.0MW) and Bons Ventos Cacimbas 7 (16.8MW), with a total installed capacity of 86.1MW and assured energy of 36.6MW average. Located in the municipalities of Ubajara and Ibiapina, in the northeast of the state of Ceara, the project has 41 generator turbines of 2.1 MW (Model WEG AGW110) each with 120 meters in concrete towers and has been 100% operational since July 2018. The project is sponsored by Servtec Investimentos e Participacoes Ltda. (50%, unrated) and Nexus Investimentos, Participacoes e Locacoes Ltda (50%, unrated), which invested approximately BRL285 million for development. The principal methodology used in these ratings was Power Generation Projects Methodology published in July 2020. ITAUSA SA: Moody's Rates BRL1.3MM Sr. Unsec. Debentures 'Ba3' ------------------------------------------------------------- Moody's America Latina Ltda. has assigned a Ba3 global local currency debt rating and a A1.br Brazilian national scale rating to Itausa S.A.'s (Itausa) issuance of BRL1,300 million senior unsecured debentures with final maturity on December 15, 2030. The Ba3 rating has a stable outlook. The net proceeds of the debentures have been used to acquire a 48.5% minority stake at Copagaz Distribuidora de Gas S.A. (Copagaz), one of the largest local natural gas distribution utilities in Brazil, for BRL1,232 million. Itausa, Copagaz and Nacional Gas Butano Distribudora Ltda (Nacional Gas) formed the acquiring group that purchased all shares of Liquigss Distribuidora S.A. (Liquigas) from Petroleo Brasileiro S.A. (Petrobras). The acquisition of Liquigas totaled BRL4 billion paid to Petrobras. Assignment: Issuer: Itausa S.A. Global local currency senior unsecured debt rating, assigned Ba3; stable outlook Brazilian national scale local currency senior unsecured debt rating, assigned A1.br RATINGS RATIONALE Itausa's Ba3 local currency issuer rating and A1.br national scale issuer rating reflect the strength of the earnings recurrence from its main investment, Itau Unibanco Holding S.A. (IUH), Brazil's largest private bank by asset size. Because Itausa is an investment holding company, its results are basically derived from its share of income, determined based on the results of its subsidiaries (mainly IUH) and revenues from investments in financial assets. Itausa's Ba3 rating incorporates one notch of structural subordination off the Ba2 rating assigned to Itau Unibanco S.A. (IU). The holding company holds, directly and indirectly, 37.4% of IUH's total shares, which represented 89% of the holding company's investment portfolio in December 2020. While Itausa also has investments in the consumer goods and infrastructure companies, its investment at IUH has historically represented most of its income. In 2020, the firm reported recurring income that was 26.1% lower than the same period in 2019 reflecting the negative effect of the coronavirus outbreak particularly in business volumes and companies' sales, as well as the low interest rates on investments. In 2020, IUH accounted for 93% of Itausa's recurring share of income. The new investment in Liquigas does not change materially the composition of the company's investment portfolio and earnings flow. However, dividends over 2020 paid by its investees reduced, reflecting, particularly, a lower payout from Itau Unibanco Holding S.A., compared to the record dividends received in 2019. As of December 2020, 95% of Itausa's unconsolidated total assets comprised of investments in subsidiaries, including financial assets related to its participation at Nova Transportadora do Sudeste S.A. - NTS. An additional 1.7% accounted for cash and cash equivalent in the amount of BRL1.1 billion. The holding's liabilities comprise only BRL2.5 billion in debt obligations with maturities starting 2022, 2023, 2024, 2028, 2029 and 2030. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The Ba3 debt rating is notched off IU's adjusted BCA of ba2. As such, this rating will move in tandem with IU's adjusted BCA, which does not incorporate any affiliate support. At this juncture, upward pressure on the ratings is unlikely because the bank's anchor ratings and assessments for the instrument rating, is currently at the same level as the Government of Brazil's Ba2 sovereign rating, which carries a stable outlook. Conversely, the rating assigned to Itausa's notes would face downward pressure if Brazil's sovereign rating is downgraded or if IU's asset quality, capital and profitability weaken materially. METHODOLOGY USED The principal methodology used in these ratings was Banks Methodology published in March 2021. Itausa S.A. is headquartered in Sao Paulo, Brazil. The holding company had total assets of BRL63.0 billion investments in subsidiaries, associates and joint ventures of BRL58.3 billion, and equity of BRL57.3 billion and cash of BRL1.1 billion as of December 31, 2020. RUMO SA: Moody's Assigns Ba2 CFR on Improved Credit Metrics ----------------------------------------------------------- Moody's Investors Service has assigned a Ba2 corporate family rating to Rumo S.A. The rating outlook is stable. Ratings assigned: Rumo S.A. Corporate Family Rating: Ba2 The outlook for the rating is stable. RATINGS RATIONALE Rumo's Ba2 corporate family rating reflects its relevant market position as the largest independent rail operator in Brazil, with operations in the South and Southeastern regions, an area that is responsible for 80% of Brazil's GDP and approximately 80% of the country's grain exports that lacks the appropriate railroad transportation capacity. The company's strong growth prospects after the renewal of the Paulista network concession and the winning of the Central network sub concession combined with its track record of successful capex execution and capital allocation also support the rating. The rating also incorporates the consistent improvement in the company's credit metrics as a consequence of investments to enhance transport capacity and efficiency, and its adequate liquidity. Even though adjusted gross leverage will remain high at around 4.0x-5.0x in the next few years, Moody's recognizes Rumo's recent efforts to reduce reported leverage, lower its debt cost, extend debt tenor and diversify its funding structure to mitigate leverage and liquidity risks during periods of hefty investments. The rating also considers the company's solid shareholder structure, corporate governance and stronger management team coming from Cosan S.A. (Ba2 stable) after the merger between Rumo and ALL in 2015. The track record of shareholder support, access to capital markets and BNDES funding are additional credit positives that mitigates risks associated with the company's prospects of negative free cash flow. Rumo's Ba2 rating is constrained by its large exposure to agricultural commodities and high customer concentration on large global trading companies, although the existence of take-or-pay contracts partially mitigates these risks. Rumo also lacks geographical diversification in a highly regulated business, with all its concessions exposed to Brazil's regulatory framework, including concession and environmental regulation. Finally, execution risks on the company's large capex program related to existing and new concessions remain an important credit consideration. Still, the current management has proved to be successful in its capital allocation during the last five years. Rumo's gross leverage peaked at 6.9x (Moody's adjusted) at the end of 2020 and will remain within the 4.0-5.0x range for the next few years. The high leverage is a result of additional debt raised during 2020 to fund both long term projects and short term liquidity during the pandemic, Moody's adjustments of concession obligations to debt, foreign exchange impact on debt, and weaker EBITDA in 2020, which Moody's expects to recover from 2021 onwards. In July 2019, Rumo won the sub concession of the Norte-Sul railway (Central network) and in May 2020, the company announced the early renewal of Malha Paulista. Both concessions increased the company's total adjusted debt. Moody's does adjust concession obligations to debt, but those new concessions will also increase Rumo's transportation volume by more than 50% over the next 5 years. With the objective of deleveraging, Rumo raised BRL6.4 billion from a follow-on equity offer in August 2020 and used the proceeds to pay down BRL5.1 billion in concession obligations. In March 2021, Rumo also used cash to call the totality of its $750 million notes due 2024. Pro forma to the call, adjusted leverage immediately declined to 5.7x. Assuming a normalized EBITDA generation in 2021, Rumo's adjusted leverage will decline further to around 4.5-5x at the end of the year. More importantly, adjusted gross leverage excluding the concession adjustments, will remain at around 3.5x and has been stable since 2017. Reported net leverage (used for covenant measure) will remain around 2.0x even during the peak of Rumo's investment cycle in 2021. With the new concession agreements signed in 2019-20, Rumo expects to double its transportation capacity until 2030, and to support this aggressive growth plan, total capex will amount to around BRL16.5 - 18.5 billion from 2021 through 2025, of which about BRL3.6 billion (midpoint of Rumo's guidance) will be spent in 2021. Investments in the coming years will be materially higher than the annual average of roughly BRL2 billion spent from 2017 to 2019, but will increase the company's EBITDA to about BRL7.0 - 8.0 billion per year by 2025 when the Central network will be fully operational and the peak of the investment cycle concluded. LIQUIDITY At the end of December 2020, Rumo reported BRL9.2 billion in cash and equivalents, already including proceeds from the BRL6.4 billion equity follow-on and the BRL5.1 billion concession fees payment. As a result, Rumo's cash position was sufficient to cover short term debt by 4.2 times and all debt maturities through 2024. Pro forma for the 2024 notes call, Rumo's cash position declined to BRL6.1 billion, but is still sufficient to cover short term debt by 2.8 times and debt maturities through 2024. The stable outlook reflects Moody's expectations that Rumo will successfully execute its capex program in the next 12-18 months, while continuing to benefit from a significant global demand for agricultural products, maintaining financial discipline and adequate liquidity. The outlook also considers that Rumo's credit metrics will improve in the coming years as a result of further enhancements in capacity and efficiency. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING The rating could be upgraded if Rumo is able to maintain high operating margins while improving cash generation and reducing leverage. Quantitatively, an upgrade could be considered if Funds From Operations (FFO) to adjusted debt improves to more than 16.5% (6.2% in 2020) and leverage as measured by Moody's adjusted debt to EBITDA remains below 4.0x (6.9x in 2020) on a sustainable basis. Rumo's rating could be downgraded if Moody's adjusted leverage is sustained above 4.5x after the conclusion of its investment cycle or if adjusted interest coverage ratio is maintained persistently below 1.0x (1.0x in 2020). The rating could also be downgraded if there is a material deterioration in the company's liquidity position due to heavy capex plans, unfavorable rulings regarding judicial disputes or changes in the regulatory framework that negatively affects Rumo's business profile such as a concession revoke without adequate compensation. The principal methodology used in this rating was Surface Transportation and Logistics published in May 2019. Rumo is the largest independent rail-based logistics operator in Latin America. After winning a new 30-year subconcession of the Norte-Sul railway (Central network) on July 2019, Rumo's rail operations comprise five long-term rail concessions, totaling approximately 13,470 kilometers of rail tracks, about 1,200 locomotives and over 33,000 railcars, through which the company transports agricultural commodities and industrial products. Additionally, Rumo develops the intermodal logistic of containers and related storage services through Brado Logistica. In 2020, Rumo reported net revenues of BRL7 billion ($1.36 billion) and adjusted EBITDA of BRL3.7 billion. =============== C O L O M B I A =============== BANCO DAVIVIENDA: Moody's Rates Additional Tier 1 Notes 'B1(hyb)' ----------------------------------------------------------------- Moody's Investors Service has assigned a B1(hyb) rating to the proposed USD-denominated additional tier 1 subordinated notes to be issued by Banco Davivienda S.A. The notes will have an optional redemption on the first call date in the fifth year or tenth year, depending on the final structure, or on any Interest Payment Date thereafter, subject to the approval of the Colombian Superintendence of Finance (SFC). In addition, the terms and conditions to the notes have been defined with the purpose of qualifying the instrument as Additional Tier 1 capital pursuant to Colombian regulations. The rating is subject to receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents that Moody's has reviewed. Assignment: Issuer: Banco Davivienda S.A. Foreign Currency Subordinated Debt Rating, assigned B1(hyb) RATINGS RATIONALE The B1(hyb) rating is positioned three notches below the ba1 adjusted baseline credit assessment (adjusted BCA) of Davivienda, in line with Moody's standard notching guidance for contractual non-viability perpetual maturity securities. The rating reflects the risk of a full or partial write-down of the then outstanding principal of the Notes on a permanent basis, pro rata with reductions in the outstanding principal, accrued and unpaid interest and any other amounts due in the event that (1) the bank's regulatory capital adequacy ratio, equivalent to the Common Equity Tier 1 capital ratio (CET1) falls below 5.125%, which Moody's considers to be below the point of non-viability, on either an individual (i.e. treating the bank's Central American subsidiaries as investments) or fully consolidated basis; or (2) the SFC determines that the CET1 ratio needs to be restored to 6.0%. 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 minimum 6%. The notes will be (i) subordinated in rights of payment to all Davivienda's existing and future senior to Tier 1 liabilities, (ii) junior to all other present or future Tier 2 subordinated indebtedness, (iii) rank pari passu and without preference among all other existing and future Additional Tier 1 liabilities and (iv) senior to Common Equity Tier 1 Capital. Moody's assesses the probability that Davivienda will receive support from the Colombian government (Baa2 negative) in a stress situation as high given the bank's large market share of domestic deposits. However, this support only applies to the bank's deposit and senior debt ratings. Moody's does not expect that additional Tier I securities - which are designed to absorb losses - will benefit from government support. Davivienda's ba1 baseline credit assessment (BCA) reflects the bank's good access to core deposits and a long track record of steady liquidity. Conversely, Davivienda's ratings are challenged by problem loan ratios that increased to 5.0% of gross loans in December 2020, from 3.7% one year prior, a level that is modestly below that of domestic peers. The bank's asset quality metrics could deteriorate further if borrowers are unable to repay the deferred loans from programs extended up to June 2021 in Colombia and in Central America. The extension of such programs will likely delay credit losses, but the bank has already built significant prudential loan loss reserves against potential losses. These represented 6.0% of its total gross loans in 2020, and could therefore, help mitigate future credit costs. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Davivenda's ratings could be downgraded if asset risk and profitability deteriorate and/or the bank is unable to sustain capitalization at current levels. However, the ratings would not be affected by a downgrade of the Government of Colombia's sovereign bond rating of Baa2, which has a negative outlook. Davivienda's ratings could be upgraded if the bank's asset quality improves, along with sustainable earnings generation that would boost its current capitalization levels even as loan growth begins to accelerate. PRINCIPAL METHODOLOGY The principal methodology used in this rating is Banks Methodology published in March 2021. BANCO GNB: Moody's Gives B2(hyb) Rating to New Subordinated Debt ---------------------------------------------------------------- Moody's Investors Service has assigned a B2(hyb) long-term foreign currency subordinated debt rating to the proposed notes to be issued by Banco GNB Sudameris S.A. The notes will be unsecured subordinated obligations and will rank junior to all GNB's existing and future senior obligations and will rank senior only to GNB's capital stock. The capital securities are Basel III-compliant, and their terms and conditions have been defined so as to qualify the notes for treatment as Tier 2 capital pursuant to Colombian regulation. Assignments: Issuer: Banco GNB Sudameris S.A. Subordinate Regular Bond/Debenture, Assigned B2(hyb) RATINGS RATIONALE The B2(hyb) rating assigned to the proposed Tier 2 subordinated notes is positioned two notches below the ba3 adjusted baseline credit assessment (adjusted BCA), in line with Moody's standard notching guidance for contractual nonviability subordinated debt with a full or partial principal write-down triggered at or close to the point of nonviability. The rating reflects the risk of a full or partial write-down of principal in the event that the bank's regulatory Basic Solvency ratio (equivalent to the CET1 ratio) falls below 4.5% (which Moody's considers to be below the point of non-viability) on either an individual (i.e. treating the bank's South American subsidiaries as investments) or fully consolidated basis; or the Colombian regulators determine that the Basic Solvency ratio needs to be restored to 6.0%. The notes will only be written down in an amount sufficient to restore the Basic Solvency ratio to 6.0% under either circumstance. The notes will rank (i) junior to all present and future senior indebtedness of the issuer, (ii) junior to all other present or future "preferred" subordinated indebtedness, (iii) pari passu with all other present or future unsecured Tier II subordinated indebtedness and (iv) senior to securities junior to the notes as well as to all classes of capital stock of the issuers. The net proceeds from the offering will be to purchase any and all of the outstanding 2022 Notes issued by GNB, upon the terms and conditions of the Tender Offer; and for general corporate purposes. GNB's ba3 baseline credit assessment (BCA) reflects the bank's sizeable exposure to low-risk secured payroll loans and the good performance of its commercial loan portfolio, ensuring moderate non-performing loan ratio. At the same time, low capitalization levels and the bank´s predominant reliance on wholesale funding continues to challenge the bank's financial profile. In addition, low interest rates and the likelihood of additional provisioning expenses will challenge the bank's profitability levels and reducing its internal capital generation capacity. GNB's asset quality metrics may weaken after government relief measures expires and borrowers' capacity to pay deferred loans declines, particularly in the segments of retail and small and medium-sized enterprise (SME), which comprise almost half of the bank's loan book. The negative outlook on GNB' ratings reflects downward pressures on its BCA derived from the bank's augmented exposure to weaker operating conditions in Paraguay. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING While an upgrade of GNB Sudameris' ratings is unlikely given the negative outlook on its ratings, the outlook could be stabilized if the bank manages to maintain asset quality and earnings and improve its capitalization levels. Conversely, GNB Sudameris' ratings could be downgraded if asset risk and profitability deteriorate materially and the capitalization ratio declines from current levels. However, the ratings would not be affected by a downgrade of the Government of Colombia's sovereign bond rating of Baa2. PRINCIPAL METHODOLOGY The principal methodology used in this rating was Banks Methodology published in March 2021. =================== C O S T A R I C A =================== INVESTMENT ENERGY: S&P Assigns Prelim 'BB-' Issuer Credit Rating ---------------------------------------------------------------- S&P Global Ratings assigned its preliminary 'BB-' long-term issuer credit rating on Investment Energy Resources Limited (IERL). The outlook is stable. At the same time, S&P assigned its preliminary 'BB-' issue-level rating on IERL's proposed senior unsecured notes of up to $700 million with intermediate maturity. The subsidiaries--Renace, S.A., Energia Eolica de Honduras, S.A., Soluciones Energeticas Renovables, S.A. de C.V., Sistemas Fotovoltaicos de Honduras, S.A., Alisios Holdings, S.A., Costa Rica Energy Holding, S.A., Vientos del Volcan, S.A., Inversiones Eolicas Campos Azules, S.A., Inversiones Eolicas Guanacaste, S.A., Inversiones Eolicas de Orosí Dos, S.A., Eolo de Nicaragua, S.A. and WCG Energy, Ltd.--will unconditionally and irrevocably guarantee notes and the term loan. S&P said, "Our preliminary 'BB-' issuer credit rating on IERL is based on our view of its relatively strong and stable cash flows coming from long-term dollar-denominated PPAs, which compensate for the company's small scale and exposure to high country risk in Central America." These factors--combined with lower maintenance capex, manageable debt servicing needs, and discretionary dividends--should allow the company to maintain somewhat aggressive credit metrics. The rating also incorporates the expectation that additional financial and operating flexibility will come from successful placement of the company's proposed up to $700 million senior unsecured notes with intermediate maturity, and securing the seven-year $300 million amortizing term loan that will rank pari pasu to the notes. IERL plans to transfer the proceeds to its operating subsidiaries to repay in advance existing project finance debt. The proposed issuance will have an unconditional and irrevocable upstream guarantee from IERL's main operating subsidiaries, which overcomes structural subordination. S&P said, "The final rating will depend on the success of the proposed notes offering, including our receipt and satisfactory review of all final transaction documentation. Accordingly, the preliminary rating shouldn't be construed as evidence of the final rating. If the notes are not placed within the next 90 days, or if conditions are significantly different from the assumptions we considered, we may withdraw or revise our rating. Factors that could influence a revision include the utilization of notes' proceeds, maturity, size, financial and other covenants, security, and ranking." =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Losing Agro Soil at "Worrisome" Pace -------------------------------------------------------- Dominican Today reports that the Dominican Republic is losing agro soils at a "very worrisome" rate, which ends up affecting its competitiveness, productivity and makes it more dependent on imports to supply the internal food demand. The warning is from Territorial Planning and Regional Development official Domingo Matias, who affirmed that the loss of spaces for farm production also generates a migratory flow from rural areas to urban centers, according to Dominican Today. "If there is no agricultural land, which is the basis of development at the rural level, then people end up uprooted to urban land. That must stop in the Dominican Republic," Matias said, the report relays. The Statutory Law on Territorial Ordering, Land Use and Human Settlement, which has been languishing in Congress for more than eight years, would put an end to the problem, limiting constructions by establishing limits and classifying soils, 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). DOMINICAN REPUBLIC: World Bank & IMF Forecast 5.5% Growth in 2021 ----------------------------------------------------------------- Dominican Today reports the Central Bank predicted with recent information from the International Monetary Fund (IMF) and the World Bank a growth of 5.5% for the Dominican Republic for 2021. These projections, according to the Central Bank, are consistent with the forecasting models of this financial institution and with what was previously disclosed by risk rating agencies, such as Moody's, and international banks, such as Bank of America, which have projected expansions greater than 6.0% for this year, according to Dominican Today. 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). ================= G U A T E M A L A ================= INVESTMENT ENERGY: Moody's Assigns First-time Ba3 CFR ----------------------------------------------------- Moody's Investors Service assigned a Ba3 rating to Investment Energy Resources Limited (IERL)'s ("IERL" or "Issuer") proposed up to $700 million Reg S/144 A Senior Secured Notes due 2031. At the same time, Moody's assigned a Corporate Family Rating of Ba3 to IERL. This is the first time Moody's assign ratings to IERL. The outlook on the rating is stable. The Notes will be jointly and severally guaranteed on an unsubordinated basis by certain IERL's subsidiaries ("Guarantors") and be secured on a first-priority basis by most of the Common Stock of the Guarantors ("Collateral"). The Notes will also rank pari passu with a $300 million amortizing bank facility. Assignments: Issuer: Investment Energy Resources Limited (IERL) Senior Secured Regular Bond/Debenture, Assigned Ba3 Corporate Family Rating:, Assigned Ba3 Outlook Actions: Issuer: Investment Energy Resources Limited (IERL) Outlook, Assigned Stable The ratings assigned to the proposed debentures are based on preliminary documentation. Moody's does not anticipate changes in the main conditions that the debentures will carry. Should issuance conditions and/or final documentation deviate from the original ones submitted and reviewed by the rating agency, Moody's will assess the impact that these differences may have on the ratings and act accordingly. RATINGS RATIONALE The Ba3 rating assigned to IERL proposed Notes is supported by the diverse portfolio of renewable assets that have demonstrated adequate operational performance in recent years. IERL and its subsidiaries control a total of 763 MW of installed capacity through five hydro plants, eight wind plants and four solar plants. These assets are located in Guatemala (Government of Guatemala, Ba1 negative), Honduras (Government of Honduras, B1 stable), Costa Rica (Government of Costa Rica, B2 negative), Nicaragua (Government of Nicaragua, B3 stable) and the Dominican Republic (Government of Dominican Republic, Ba3 stable). In addition, IERL owns 50% of the equity in a joint venture with The AES Corporation ("Bosforo"), which owns several solar plants for a total of 100 MW of installed capacity in El Salvador (Government of El Salvador, B3 negative). IERL also owns two commercialization and trading subsidiaries in Guatemala and El Salvador, Ion Energy S.A. ("Ion Energy") and Eon Energy, S.A. de C.V. ("Eon Energy"), respectively, that focus primarily on selling excess energy and capacity supply not linked to a PPA. The assets are fully contracted under long-term, fixed-price USD dollar denominated power purchase agreements (PPAs), with the exception of the hydro assets in Guatemala. On a consolidated basis, more than 90% of the total installed capacity is fully contracted with an average remaining life of more than 13 years, exceeding the term of the Notes. Nevertheless, the non-amortizing profile of the Notes introduces refinancing risk. The assets are geographically diversified, with no one market accounting for more than 30% of EBITDA (as of 2020). Furthermore, the rating considers IERL's very modest capital expenditures projected through the life of the Notes, a credit positive. While the long-term contracts provide the benefit of cash flow visibility, the rating is constrained by the credit quality of the PPA off-takers. Approximately 70% of PPA contracted EBITDA (as of 2020) is derived from contracts with either B-rated off takers or unrated off-takers that operate in countries in the B-rating range. IERL's most important off-takers include: Energuate Trust (Ba2 stable), EEGSA (unrated), a subsidiary of Empresas Publicas de Medellin E.S.P. (Baa3 negative) in Guatemala (Government of Guatemala, Ba1 negative); Empresa Nacional de Energia Electrica ("ENEE" unrated) under a PPA that benefits from the guarantee of the Government of Honduras (B1 stable); and the government-owned Instituto Costarricense de Electricidad (ICE) (B1 negative) in Costa Rica (Government of Costa Rica, B2 negative). Together, the PPA contracts in Guatemala, Honduras and Costa Rica contribute with approximately 80% of total EBITDA. In Moody's Base Case, which considers a P90 generation scenario, key financial metrics reflect a relatively high leverage as measured by an average ratio of Cash interest coverage (CFO + interest / interest) and CFO / Debt of 3.0x and 12.0% respectively, over the first three full years of the life of the transaction (2022-2024), which are well positioned to a Ba3 rating. Nevertheless, these metrics are counterbalanced by a weak RCF (Funds from Operations -- Dividends) / Debt ratio that averages 2.5% (2022-2024) reflecting potential large cash distributions to the shareholders through equity redemptions. Moody's recognizes that the Notes contain restrictive limitations on additional indebtedness and dividend distributions that would prevent the company to increase its leverage. Limitations on additional indebtedness require a leverage ratio of debt to EBITDA of 5.25x until the first anniversary of the transaction. The ratio decreases gradually on a yearly basis until reaching 4.5x after the 5th anniversary. In addition, indebtedness is restricted to a Debt Service Coverage Ratio of 1.35x. The Notes also set out limitations on asset sales and corporate activity to restrict unrelated business activity and on the amount of assets that can be acquired. Moody's assessment also considers IERL's available facilities for approximately $50 million which provides some liquidity for unforeseen cost overruns or asset underperformance. ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS In Moody's view, environmental risks are not material to IERL's credit profile. While the unregulated utilities and unregulated power is among three sectors (besides coal mining and coal terminals) in Moody's environmental heat map that have "immediate, elevated risk" from climate change considerations, IERL is considered to have low carbon transition risk since it only owns renewable generation assts. Social risks are not material to IERL credit profile. IERL has low social risk and Moody's are unaware of any concern regarding unions, or communities. Moody's view IERL's corporate governance as a moderate risk. According to the management's projections, IERL plans to make dividend distribution based on minimum target cash balances. These risks are partially mitigated by the covenants embedded in the transaction that limit dividend distributions. The stable outlook reflects Moody's view that IERL will maintain stable and visible cash flows that support projected financial metrics. Specifically, Moody's expect that CFO Pre-W/C /debt and the interest coverage ratios will average around 12% and 3.0x, respectively and on a projected basis. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade IERL's ratings if the company reduces its debt balances or increases its cash flow generation such that it records CFO pre W/C /debt ratio at or above 17%, RCF/debt ratios at or above 8% and Cash interest coverage ratios at or above 3.0x. Importantly, an upgrade would require Moody's assessment of a stronger credit-profile of IERL's off-takers. Moody's could downgrade IERL's ratings if the company records CFO pre W/C /debt ratio below 11%, RCF/debt below 2.5% or the interest coverage ratio remains below 2.5x on a sustained basis. Moody's assessment of a weaker credit-profile of IERL's off-takers could also trigger a rating downgrade. The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. ============= J A M A I C A ============= [*] JAMAICA: Resumption of Cruise Tourism Expected in August ------------------------------------------------------------ Jamaica Observer reports that as the local economy continues to recover from the fallout caused by the novel coronavirus pandemic, the tourism sector, which is one of the most severely affected, is now finalising plans to homeport a cruise vessel from the Norwegian Cruise Line company ahead of the resumption of cruise activities slated to commence in August. Minister of Tourism Edmund Bartlett, who made the announcement, said that the venture will see the resumption of cruise tourism on the island, following a halt of the industry since the outbreak of the pandemic last year, according to Jamaica Observer. "We look forward to welcoming them back to our shores, and I am confident that this important partnership will aid in our effort to rebuild our tourism sector and boost our economy overall," Bartlett said, the report notes. "While we know there are some concerns about the safety of the cruise industry at this time, we want to assure the public that the cruise lines are adhering to strict COVID-19 safety protocols. We have also been working tirelessly to develop the necessary policy and strategic frameworks, which will ensure that this will be a safe, seamless and secure experience, which will be mutually beneficial," he added, notes the report. While the arrival of air passenger arrivals, which the Planning Institute of Jamaica (PIOJ) in its last economic performance bulletin said had contracted by close to 82 per cent in January, managed to carry on operations, though limited since the pandemic, cruise tourism was significantly affected by COVID-19 as the disease forced border closures in major tourism destinations across the globe and caused global cruise companies to pull their vessels from these ports, the report relates. Up to January of this year, the PIOJ reported zero cruise passenger arrivals which contributed to an over 11 per cent contraction of the services sector, of which tourism is a part. During the period total visitor expenditure also fell by almost 62 per cent to US$355.4 million, the report discloses. The Ministry of Tourism said that the Norwegian Joy cruise vessel will be used to transport passengers embarking from Jamaica with itineraries including seven-day packages and sailing out of Montego Bay on August 7, the report relays. With this announcement, Jamaica now joins a number of other Caribbean destinations that will be homeports for leading cruise lines including The Bahamas and St Maarten which have also secured bookings with the Celebrity and Crystal cruise brands, the report notes. Industry experts believe that the commencement of these activities marks the beginning of a broader resumption for the cruise industry as other major cruise lines were also expecting to start operations outside the US, the report relates. They further said that as the the country continues to await guidance from the Centers for Disease Control and Prevention (CDC) for US-based cruises, they are also expecting cruises from these destinations to resume shortly as more states begin to relax their COVID-19-related restrictions, the report says. 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. As reported in the Troubled Company Reporter-Latin America on March 23, 2021, Fitch Ratings affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+', with a stable outlook. Standard & Poor's credit rating for Jamaica stands at B+ with negative outlook (April 2020). Moody's credit rating for Jamaica was last set at B2 with stable outlook (December 2019). According to Fitch, Jamaica 'B+' rating is supported by World Bank Governance Indicators that are substantially stronger than the 'B' and 'BB' medians, a favorable business climate according to the World Bank Doing Business Survey, moderate inflation and moderate commodity dependence. These strengths are balanced by vulnerability to external shocks, a high public debt level and a debt composition that makes the sovereign vulnerable to exchange rate fluctuations. The Stable Outlook is supported by Fitch's expectation that the public debt level will return to a firm downward path post-pandemic, which is underpinned by political consensus to maintain a high primary surplus, the resilience of external finances, and stronger economic policy institutions. ======= P E R U ======= COMPANIA DE MINAS: Fitch Lowers LT IDRs to 'BB', Outlook Stable --------------------------------------------------------------- Fitch Ratings has downgraded its Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDRs) on Compania de Minas Buenaventura S.A.A. (Buenaventura) to 'BB' from 'BB+'. The Rating Outlook is Stable. The downgrade reflects the impact of a USD600 million tax liability that was recently assessed to the company by Peruvian tax authorities. Buenaventura reached an agreement for a 14% down payment against this obligation and 66 monthly instalments starting in July 2021 for the balance. Buenaventura plans to fund this obligation through a combination of asset sales, the issuance of treasury shares and/or a bond issuance. The Stable Rating Outlook reflects the expectation that Buenaventura's continuous improvement programs and greenfield projects will help to tackle declining volumes, rising costs and short mine lives. The Stable Outlook also reflects an expectation that the company will be able to fund this obligation primarily through the sale of assets that don't represent a material amount of its operating cash flow. KEY RATING DRIVERS Large Tax Liability: Buenaventura's tax liability of PEN2.1 billion (approximately USD600 million, approximately 4.0x its EBITDA or approximately 1.0x total debt) stems from the nonrecognition of 2008-2009 tax deductions from physical deliveries and contractual payments, as well as a tax loss that was offset in 2009 and 2010, plus fines and interest. Buenaventura is pursuing legal options to eliminate or reduce this liability. The timing and success of Buenaventura's appeal remains uncertain, and success has not been factored into these rating actions. Its joint venture (JV) Cerro Verde's similar dispute has reached the International Centre for Settlement of Investment Disputes (ICSID). Despite pursuing legal options, Buenaventura reached an agreement to pay 14% of the obligation and the balance during the next six years through monthly payments. Net Debt to Climb: This tax liability exerts a degree of pressure on Buenaventura's conservative debt policy that has been supportive of its ratings. After the sale of assets and treasury shares, leverage is expected to increase by USD400 million to USD500 million. Fitch has built into its expectation that the company will pay around USD400 million to USD500 million of this obligation through some measure like asset sales or the issuance of treasury shares. Net debt is projected expected to increase by more than USD200 million, however, as the company is expected to fund part of the deficit with debt and will begin to increase its capex and exploration efforts. Negative Free Cash Flow: Buenaventura's EBITDA adjusted by dividends received from affiliates and paid to minorities in partially owned consolidated mines is expected to increase to USD180 million in 2021, from USD146 million in 2020, and then grow to more than USD200 million in 2022. FCF will be negative, however, as exploration expenditures should return to around USD60 million per year, while capex should grow to be around USD100 million in 2021, USD150 million in 2022 and USD200 million in 2023. The bulk of these expenses are related to the USD400 million, San Gabriel greenfield project. Fitch projects net debt to EBITDA ratios of about 3.0x in 2021 and 2022. This compares with a pre-pandemic, net leverage ratio of 2.1x in 2019. Operating Challenges Remain: Buenaventura's gold and silver output decreased in 2020 due to ageing mines, as well as production stoppages related to the coronavirus pandemic, which resulted in the closing of the company's mines for more than two months. Gold production fell by 30% to almost 135,000 oz, while silver production fell by 42% to 11.9 million oz. Several project developments are helping new management to focus on volume growth. The start of the Yumpaq silver project in Uchucchacua, the transition of El Brocal into a copper mine by 2025 and improvement in Tambomayo will be keys to a recovery in volumes. Elevated Costs: Cost pressures will likely remain. The attributable all-in sustaining cost (AISC) of Buenaventura's mines reached USD1,559/oz at YE20, from USD1,314/oz yoy, with most of its largest operations located in the third cost quartile of the industry. Despite trimming costs, exploration in operating areas and sales, general and administrative (SG&A) expenses, the lower volumes -exacerbated by the Covid-19 crisis- kept pressure on these cost metrics. The adjusted EBITDA margin is expected to remain at 21% in 2021, similar to that of 2020, and remain around 23% in the near future while stronger production consolidates. Short Mine Life: Buenaventura's average mine life for its individual operations is low when compared with Fitch's Mining Navigator rating factors and is considered a constraint to the rating. The company's low amount of reserves and resources reported for its mines (approximately four years in its most important gold and silver mines, save for Uchucchacua) is partially mitigated by the significant amount of hectares and mining concessions it owns, coupled with its proven ability to replenish its reserves for over 60 years. An ability to prove out more reserves and resources to at least 10 years would be viewed favorably. Diversified Operations: Further factored into Buenaventura's 'BB' rating is the company's portfolio of operations in both base and precious metals, coupled with its minority interest in several quality mines. Buenaventura operates five fully owned mining operations and has controlling interests in two other mining companies that it also operates, El Brocal and La Zanja. It also has three associated mining operations that are not consolidated, Yanacocha (43.65%), Cerro Verde (19.58%) and Tantahuatay (40.10%). In 2020, Yanacocha produced 340,000 oz of gold (negative 36% yoy), while Cerro Verde produced 372,000 tonnes of copper (negative 18% yoy). DERIVATION SUMMARY Buenaventura's 'BB' rating reflects its position as one of Peru's largest publicly traded precious and base metals miners, with a diversified portfolio of operations across a country of vast mineral resources and favorable mining regulations despite recent social opposition to large scale greenfield projects such as Southern Copper Corporation's (BBB+/Stable) Tia Maria copper project. Buenaventura's ratings are underpinned by its diversified production of base and precious metals, similar to Volcan Compania Minera S.A.A. (BB/Positive), and it is more diversified than its peer, Minsur S.A. (BBB-/Negative). Buenaventura's single-country exposure compares to that of higher rated Industrias Penoles (BBB/Stable) in Mexico, as well as lower cost producer and higher reserve base miner PJSC Polyus (BB/Positive) in Russia. Buenaventura's scale of operations from its direct mines is small compared with larger gold miners such as Agnico Eagle Mines (BBB/Stable), Kinross Gold Corporation (BBB-/Positive), Yamana Gold Corporation (BBB-/Stable), PJSC Polyus or Penoles and slightly lower (in direct EBITDA and gold output) than lower rated Eldorado Gold (B/Stable). The company is less dependent upon precious metals than Agnico, Kinross, Polyus, Yamana or Eldorado. Similar to leading silver producer Penoles or Chinese miner Zijin Mining Group (BB+/Stable), Buenaventura has base metals diversification, which mitigates its exposure to precious metals pricing volatility. Buenaventura generated 53% of its revenue in 2020 from precious metals, 43% from base metals and 4% from other sources such as energy or manganese sulphate. Buenaventura exhibits a very low mine life across its portfolio of mines, which is considered a constraint on its 'BB' rating. Lower proven and probable ore reserves are common to underground mines in Peru, as it is typically economically inefficient to prove reserves for longer periods due to the high cost involved. Penoles, Yamana, Kinross and AngloGold Ashanti (BBB-/Stable) are also underground miners that have reserve levels of around 10 years. This is mitigated by Buenaventura's 19.58% stake in copper miner Cerro Verde, a JV with Freeport McMoRan (BB+/Stable), which has over 30 years in reserves, and by Buenaventura's history of replacing reserves. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- Gold prices of USD1,600/oz in 2021, USD1,400/oz in 2022 and USD1,200/oz in 2023. -- Silver prices of USD20/oz in 2021, USD17.5/oz in 2022 and USD15/oz in 2023. -- Zinc prices of USD2,500/metric tonnes (MT) in 2021, USD2,200/MT in 2022 and USD2,100/MT in 2023. -- Lead prices of USD2,100/MT in 2021 and thereafter. -- Copper prices of USD7,200/MT in 2021 and USD6,700/MT thereafter. -- A 14% rise in gold production and a 50% increase in silver production during 2021. -- A 1% drop in gold production and a 40% increase in silver production during 2022. -- Capex reaches USD100 million in 2021, USD150 million in 2022 and USD200 million in 2023. -- No dividends paid in 2021, followed by dividends of USD20 million in both 2022 and 2023. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A positive resolution of the tax dispute, obtaining reparations. -- Sustained net debt/EBITDA levels of less than 2.0x could lead to a positive rating action. -- Increased output from mines. -- An increase in the mine lives of the company's key operations to more than 10 years. -- A decrease in the AISC of the company's gold mines to the high end of the second quartile of the cost curve. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Sustained net debt/EBITDA levels of more than 3.0x, with an unwillingness or inability to deleverage. -- An inability to replenish reserves and resources leading to a significantly lower mine life at key operations. -- Continued elevated AISC. -- Consistently negative FCF, driving down the company's comfortable liquidity position. -- An adverse change in the overall framework toward mining projects in Peru, particularly if taxes and royalties turn punitive. 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 Pressured liquidity: Buenaventura ended 2020 with USD235 million in cash and marketable securities versus USD597 million of total debt, of which USD176 million falls due during the next year. This includes USD113 million related to Huanza hydro power plant that the company expects to refinance. The short-term debt consists primarily of USD50 million for working capital. The tax dispute involving a USD600 million off-balance sheet liability entails high interest payments that are likely to prompt the company to sell assets and treasury shares and increase leverage to face these payments and finance future growth. Fitch expects that net leverage will increase by USD200 million. ================= V E N E Z U E L A ================= VENEZUELA: Records Lowest 'Unsustainable' Inflation Since 2017 -------------------------------------------------------------- The Latin American Herald reports that after registering inflation rates as high as 50% during the first two months of the year, Venezuela slowed down in March and recorded the lowest -- yet unsustainable -- monthly increase since it entered hyperinflation back in 2017 with 9.1%, according to a report by the Legislature's Venezuelan Finance Observatory (OVF for its acronym in Spanish). This 42 percentage-point drop from February is owed to a moderate increase in monetary liquidity (18%) and the foreign exchange rates (6%) from both the central bank and black market, according to The Latin American Herald. The OVF report showed that prices of goods and services increased an average of 155.3% during the first quarter of 2021, while year-on-year inflation (March 2020-March 2021) was 3,867%, the report notes. "We have registered the lowest inflation rate since we started doing this kind of measurement almost four years ago. This marks the first time we register a single-digit increase in a month," Alfonso Marquina, an opposition lawmaker and member of the OVF, said in a press conference. However, Marquina warned that hyperinflation is "quite likely to speed up again in April" with a rate close to 50%, the report discloses. The sector out of 13 measured by the OVF that registered the highest increase was healthcare with a variation of 36.3% triggered by a spike in COVID-19 cases across the country and the collapse of the healthcare system, the report relays. On the other hand, the basic food basket for a five-person household reached an all-time high in March of $289.92, slightly above $7 from February when a family required some $282.61 to hardly meet their most essential food needs, the report notes. The International Monetary Fund (IMF) forecasts have shown that Venezuela will close 2021 with an inflation rate of 5,500%, the highest in the world, the report says. The outlook for other countries in the Latin American region includes Uruguay (7.5%), Bolivia (6.2%), Brazil (4.5%), Paraguay (3.2%), Chile (3%), Colombia (2.5%), Ecuador (2.1%), and Peru (2%), the report adds. Venezuela Venezuela, officially the Bolivarian Republic of Venezuela, is a country on the northern coast of South America, consisting of a continental landmass and a large number of small islands and islets in the Caribbean sea. The capital is the city of Caracas. Hugo Chavez was president to Venezuela from 1999 to 2013. The Chavez presidency was plagued with challenges, which included a 2002 coup d'etat, a 2002 national strike and a 2004 recall referendum. Nicolas Maduro was elected president in 2013 after the death of Chavez. Maduro won a second term at the May 2018 Venezuela elections, but this result has been challenged by countries including Argentina, Chile, Colombia, Brazil, Canada, Germany, France and the United States who deemed it fraudulent and moved to recognize Juan Guaido as president. The presidencies of Chavez and Maduro have challenged Venezuela with a socioeconomic and political crisis. It is marked by hyperinflation, climbing hunger, poverty, disease, crime and death rates, social unrest, corruption and emigration from the country. S&P Global Ratings, in May 2019, removed its long- and short-term local currency sovereign credit ratings on Venezuela from CreditWatch with negative implications and affirmed them at 'CCC-/C'. The outlook on the long-term local currency rating is negative. At the same time, S&P affirmed its 'SD/D' long- and short-term foreign currency sovereign credit ratings on Venezuela. Moody's credit rating (long term foreign and domestic issuer ratings) for Venezuela was last set at C with stable outlook in March 2018. Meanwhile, Fitch's long term issuer default rating for Venezuela was last in 2017 at RD and country ceiling was CC. Fitch, on June 27, 2019, affirmed then withdrew the ratings due to the imposition of U.S. sanctions on Venezuela. ********* 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. 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