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/raid1/www/Hosts/bankrupt/TCRLA_Public/210430.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Friday, April 30, 2021, Vol. 22, No. 81 Headlines B R A Z I L BRAZIL: IDB OKs $1BB Loan to Support Digital Transformation Agenda EMBRAER SA: Egan-Jones Keeps B Senior Unsecured Ratings C O L O M B I A BANCO GNB: Fitch Assigns Final BB- Rating to USD T2 Notes D O M I N I C A N R E P U B L I C AES ANDRES: S&P Rates New Sr. Unsecured Bonds 'BB-', Outlook Neg. E L S A L V A D O R EL SALVADOR: Fitch Affirms 'B-' ForeignCurrency IDR, Outlook Neg. M E X I C O MEXICO: Gov't. Controls Over Fuel Market to Tighten NEMAK SAB: Moody's Affirms Ba1 CFR, Alters Outlook to Stable P U E R T O R I C O DESTILERIA NACIONAL: Court Won't Review PPP Ruling SEARS HOLDING: Tells Court It's $81M Short for Admin Claims V E N E Z U E L A VENEZUELA: Agricultural Sector Hit Hard by Diesel Shortages - - - - - =========== B R A Z I L =========== BRAZIL: IDB OKs $1BB Loan to Support Digital Transformation Agenda ------------------------------------------------------------------ The Inter-American Development Bank (IDB) has approved a credit line of up to $1 billion to help Brazil push forward its digital transformation agenda through more and better connectivity, the adoption of new technologies by the private sector, digital talent building, and the modernization and improvement of public services. The financing is part of a conditional credit line for investment projects (CCLIP) that will be made available through three different resource allocation channels: federal government agencies, subnational governments (state and municipal), and national or regional development banks. This mechanism will provide the country with a strategic financing instrument to foster integration and alignment with digital transformation public policies in four areas under the Brazil Plus Digital program: Digital Infrastructure, whose goal is to improve both the coverage scope and quality of broadband services by way of digital infrastructure that will contribute to Brazil's social and productive development. In addition, this strategic objective will support the construction of datacenters and improve international connectivity, turning Brazil into an inclusive regional digital hub. Digital Economy, whose goal will be to encourage development, financing, and adoption of digital technologies both by the production sector and the population at large, as well as the promotion of regulatory testbeds and sandboxes, open initiative, public purchase of innovative solutions, collaboration among the private sector, governments and academia, and digital extension programs and new business models for small and midsized enterprises. Digital Government for the design and implementation of strategies for public institutions' debureaucratization and enhanced services in order to contribute to increased public satisfaction, efficiency, effectiveness, and transparency in public management and a more competitive economy. Enabling factors that can contribute to the development of the human talent necessary to drive the digital transformation, digital literacy for the public in order to promote the use of digital tools and socioeconomic inclusion, development of comprehensive digital transformation strategies, and enhancement of the regulatory framework in crosscutting areas such as cybersecurity. Ceara will be the first state to benefit from the CCLIP, with a $28 million loan under the Digital Government agenda aimed at implementing the digitalization of the Judiciary Branch of government, increasing its efficiency and user satisfaction. This program will help improve service delivery productivity and management effectiveness of the State of Ceara Court of Justice (TJCE, after its Portuguese initials). The main beneficiaries of the State of Ceara program will be citizens and businesses using TJCE's services, estimated at 2.5 million people, who will receive faster, more efficient services at lower costs. In addition, TJCE's nearly 3,800 employees will also benefit from the program's digital skills training. The IDB loans associated with the credit line are for a 25-year term, with a 5.5-year grace period and an interest rate based on LIBOR. The State of Ceara will provide an additional $7 million in local counterpart funding. EMBRAER SA: Egan-Jones Keeps B Senior Unsecured Ratings ------------------------------------------------------- Egan-Jones Ratings Company, on April 7, 2021, maintained its 'B' foreign currency and local currency senior unsecured ratings on debt issued by Embraer SA. EJR also maintained its 'B' rating on commercial paper issued by the Company. Headquartered in Sao Jose dos Campos, State of Sao Paulo, Brazil, Embraer SA manufactures and markets commercial, corporate, and defense aircraft. =============== C O L O M B I A =============== BANCO GNB: Fitch Assigns Final BB- Rating to USD T2 Notes --------------------------------------------------------- Fitch Ratings has assigned a 'BB-' final rating to Banco GNB Sudameris S.A.'s (GNB) U.S. dollar-denominated Tier 2 subordinated notes. The final rating follows a review of the final terms and conditions confirming to information already received when Fitch assigned the expected rating on April 12, 2021. The subordinated notes due 2031, for a final amount of USD400,000,000 will carry an initial rate of 7.50% per annum, until but excluding April 16, 2026, (the reset date), and during the period from, and including, the reset date to, but excluding, the date of maturity or earlier redemption date of the notes, the notes will bear interest on their principal amount at a rate per year that will be equal to the sum of (i) the Treasury Rate (as defined in Description of the Notes) on the reset date and (ii) 666 basis points. Interest on the notes will be payable semi-annually in arrears on April 16 and October 16 of each year, commencing on Oct. 16, 2021. The notes will mature on April 16, 2031. KEY RATING DRIVERS GNB's new issuance final rating is two notches below GNB's 'bb+' Viability Rating (VR), and reflects their subordinated status and 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 in right of payment in full of all senior liabilities, pari passu with all other present or future Tier 2 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 than may qualify at Tier 1 capital according to local banking regulation. 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. 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 adequacy ratios in accordance with regulatory requirements. At December 2020, GNB's CET1 ratio was 8.3%, which compares favorably with the minimum regulatory requirements (4.5%). Colombia stated 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. =================================== D O M I N I C A N R E P U B L I C =================================== AES ANDRES: S&P Rates New Sr. Unsecured Bonds 'BB-', Outlook Neg. ----------------------------------------------------------------- On April 26, 2021, S&P Global Ratings assigned its 'BB-' rating to Dominican Republic-based power generation company AES Andres B.V.'s (AES Andres) proposed bond issuance. At the same time, S&P affirmed its 'BB-' issuer credit rating (ICR) on AES Andres. The negative outlook reflects a potential downgrade of the sovereign in the next 12-18 months because S&P's ratings on the Dominican Republic limit those on AES Andres, given its exposure to sovereign risk and the dependence of the electricity sector on government subsidies. AES Andres and DPP will both guarantee the proposed senior unsecured notes, so the issue-level rating reflects the combined operations and credit strength of these entities. S&P said, "In our view, these entities have the same management, integrated business activities, and aligned operational and financial strategies. Therefore, we base our ratings and credit metrics on a consolidated basis on their holding company, AES Hispanola Holdings II B.V. (AES Hispanola or the company; not rated)." The issuance won't materially increase the company's debt maturity profile because the proceeds from the notes will be mainly destined for early redemption of the outstanding 2026 $270 million co-issuance of AES Andres and DPP. In addition, S&P expects the proposed $300 million 10-year notes to have an interest rate below the 7.95% coupon of the existing notes, lowering the cost of the company's debt. Although the AES Andres plant's steam turbine was under repair between March and October 2020, the negative financial impact was almost fully recovered by its insurance claims, including costs associated with electricity purchases at spot market prices to honor its power purchase agreements (PPAs). The company's 2020 EBITDA fell 13% from 2019 levels, although debt to EBIDTA was below 3.0x. S&P's consider this a one-time event, and expect the company's EBITDA to recover to $270 million-$290 million in 2021 and 2022, resulting in a debt-to-EBITDA ratio between 2.2x and 2.5x in the same years. In 2020, despite the COVID-19 pandemic and considering the sector's reliance on government subsidies to compensate for electricity losses and low tariffs, the company didn't suffer extraordinary delays in collection of receivables from distribution companies or from the Corporacion Dominicana de Empresas Eléctricas Estatales (CDEEE)--combined outstanding receivables for AES Andres and DPP were close to two months. This was a result of the country's reduced dependency on liquid fuels, which reduced major volatility in spot prices linked to these fuels, and the full start-up of the Punta Catalina 750 megawatt (MW) thermo-coal plant in 2020. This plant accounts for 30% of the country's capacity, further reducing its dependency on liquid fuels. Historically, Dominican Republic utilities have faced high delinquency rates, with frequent delays in collecting bills from end-consumers, as well as significant electricity losses. The pass-through of these delays to generators, such as AES Andres and DPP, have been compensated since 2015 by the government through a specific securitization program. At the same time, volatility in spot prices still pressures receivables and working capital needs, given the delay in collections. In addition, despite the negative economic impact from the COVID-19 pandemic, electricity demand grew 1.5% in the Dominican Republic in 2020. ===================== E L S A L V A D O R ===================== EL SALVADOR: Fitch Affirms 'B-' ForeignCurrency IDR, Outlook Neg. ----------------------------------------------------------------- Fitch Ratings has affirmed El Salvador's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B-' with a Negative Outlook. KEY RATING DRIVERS The Negative Outlook reflects deterioration in debt sustainability metrics as a result of the deep 2020 contraction associated with the COVID19 pandemic, large fiscal deficits in 2020-21 as well as financing constraints stemming from increased reliance on short-term debt, limited scope for additional local market financing and vulnerability to deterioration in external market financing conditions. However, multilateral funding and potential IMF resources will ease borrowing constraints this year. El Salvador posted a 2020 fiscal deficit of 10.1% of GDP; the government's pandemic response was large at USD1.4 billion (6% of GDP) including cash transfers and increased health related expenditures, while revenues fell just 6% in absolute terms but actually increased in terms of GDP given the economic contraction. Fitch expects the deficit will narrow to 7.5% of GDP in 2021, due to a cyclical rise in revenues and lower pandemic related spending. The deficit is expected to fall to 4.9% of GDP in 2022. The government has outlined fiscal adjustment measures of 4% of GDP over a three-year horizon through reductions in spending (2% of GDP) and increases in revenues, partly in new taxes and partly through improvements in tax administration (2% of GDP) as part of a possible IMF agreement. However, there are significant implementation risks surrounding fiscal consolidation measures. The government increased reliance on domestic short-term borrowing to meet its large financing needs in 2020, doubling the use from end-2019 to close to USD2 billion. Fitch estimates total financing needs of USD2.4 billion (9.2% of GDP) in 2021, including the central government deficit and USD543 million in debt amortizations (excluding short-term debt as well as arrears). The government intends to rely mostly on multilateral financing this year, including loans that were approved but not disbursed in 2020. Talks are ongoing with the IMF around a three-year program; if approved this would unlock new sources of financing in the near term. Financing options in the local market are limited given that the government is near the legal USD1.5 billion ceiling in short-term Letes and issued almost USD645 million in one-year Cetes in the local market, especially given the expected fall in domestic liquidity and credit deterioration. Even under a favorable fiscal reform and growth scenario, Fitch expects debt/GDP would take time to stabilize and will remain high. Fitch forecasts debt-to-GDP to rise to 91.8% this year, up from nearly 89.2% in 2020 and 70% in 2019. Nearly 20% of GDP in total debt is pension related Certificados de Inversion Previsionales (CIPs), which were restructured in 2017 to extend maturities and lower interest rates. Fitch expects a solid economic rebound of 5.5% with normalization of economic activity in 2021, aided by a strong rebound in remittances (+20%) and exports (+10%), after a contraction of 7.9% in 2020 due to strict lockdowns to fight the coronavirus pandemic as well as fall in exports. There are downside risks to the recovery, however, from the risk of a second wave of coronavirus and concomitant lockdowns and social distancing measures. Another downside risk comes from higher oil prices, given El Salvador's import dependence. Medium-term potential economic growth is likely to return to historical levels of around 2.5%. However, improvements in security and government efforts to improve the business climate and infrastructure could aid in increasing potential growth. Official dollarization and the downturn in oil prices has kept inflation low over the last five years, averaging just 0.5%, and turning slightly negative in 2020. Fitch expects a modest rebound to 1% in 2021 as economy recovers strongly and average oil prices rise. President Bukele's popularity remains high and helped garner votes for candidates of his new political party, Nuevas Ideas. In February 2021, legislative elections, the party and its allies gained over two thirds of the seats in congress. This is an important threshold as some key legislation and appointments need a qualified majority to be approved. The election was also a turning point as it will help end legislative gridlock. It has also signalled the demise of the political dominance of the FMLN and ARENA in place since the end of the Civil War in 1989. Key legislative items will focus on possible measures required in any possible IMF agreement, financing, and supplemental budget for infrastructure. Pension reform will also be debated although it is unclear if there is political appetite for parametric changes to shore up the system. External pressures mainly stem from the capital and financial account as Fitch estimates the current account will remain near balance at -0.1% of GDP in 2021 from a 0.5% surplus in 2020. Fitch projects only a modest rise in imports due to the economic rebound and high growth in remittances. Net external debt rose to nearly 75% of current account receipts in 2020 from 52% in 2019. El Salvador's ratings are supported by higher human development and governance indicators compared to peers and history of relative macroeconomic and financial stability anchored by official dollarization while high government debt, recent history of default on domestic debt issued to pension funds, and low growth potential constrain its ratings. ESG - Governance: El Salvador has an ESG Relevance Score (RS) of '5' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch's proprietary Sovereign Rating Model. El Salvador has a medium WBGI percentile ranking of 40.4%, reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A sharp increase in financing constraints; for example, due to the inability to acquire adequate financing from multilaterals or other sources of funding. -- Deterioration in the outlook for fiscal consolidation or growth prospects that negatively impact debt sustainability. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A sustained easing of financing constraints. -- A post-coronavirus fiscal adjustment consistent with improvement in public debt sustainability. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns El Salvador a score equivalent to a rating of 'B-' on the Long-Term Foreign Currency (LT FC) IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within Fitch's criteria that are not fully quantifiable and/or not fully reflected in the SRM. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure 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 three 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. KEY ASSUMPTIONS Fitch expects U.S. growth and employment to track its March 2021 Global Economic Outlook (GEO). ESG CONSIDERATIONS El Salvador has an ESG Relevance Score of '5' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. El Salvador has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. El Salvador has an ESG Relevance Score of '4' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. El Salvador has an ESG Relevance Score of '4' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for El Salvador, as for all sovereigns. Except for the matters discussed, the highest level of ESG credit relevance, if present, is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. =========== M E X I C O =========== MEXICO: Gov't. Controls Over Fuel Market to Tighten --------------------------------------------------- Michael O'Boyle and Amy Stillman at Bloomberg News report that Mexico's bill to increase government controls over the fuel market won final congressional approval in the latest blow to the country's historic opening up of the energy industry. With 65 lawmakers in favor, 47 opposed, and 6 abstaining, the senate passed the proposal from President Andres Manuel Lopez Obrador to expand control over gasoline and diesel distribution, imports and marketing, according to Bloomberg News. It also allows the government to suspend permits from fuel-market operators based on national or energy security reasons, and it lets state-owned oil company Petroleos Mexicanos take over their facilities, Bloomberg News notes. The bill was approved in general terms before it passed the article-by-article discussion by a similar margin, Bloomberg News relays. It will go now to Lopez Obrador, known as AMLO, to be signed into law, Bloomberg News notes. The lower house had cleared the legislation. Since reaching power in late 2018, Lopez Obrador has fought against 2013-2014 energy reforms that ended almost eight decades of state monopoly and lured investments from Royal Dutch Shell Plc, Chevron Corp. and a number of other companies, Bloomberg News notes. The changes in fuel market rules are the latest move by the nationalist president to roll back those reforms, and restore Pemex and power utility Comision Federal de Electricidad to their former glory, Bloomberg News relays. It has been a long-sought goal by Lopez Obrador, who cut his political teeth as an activist for indigenous rights in the oil state of Tabasco, where he was born, Bloomberg News relays. He has never hid his admiration for Lazaro Cardenas, the president that nationalized Mexico's oil industry in 1938, and has repeatedly attacked foreign companies operating in the country, saying they didn't deliver on their promises to boost crude production, Bloomberg News notes. The lower house passed another bill that removes an article from the nation's oil law compelling regulator CRE to issue so-called asymmetric regulations to privilege private companies in sales of fuels from Pemex refineries, Bloomberg News relays. The proposal is now heading to the senate. Duncan Wood, vice president of strategy at the Washington-based Wilson Center, said that the law is in clear violation of both the Mexican constitution and the USMCA trade deal, Bloomberg News notes. "This is an expected next step in AMLOs plan to centralize control of the energy sector and close down opportunities for private investors," Wood said in an interview, Bloomberg News notes. The Mexican peso maintained its daily decline after the bill was passed and remained almost unchanged against the dollar later, while the 10-year bond rate mostly maintained its advance to trade around 6.76%, Bloomberg News discloses. Costly Support During the debate, opposition lawmakers warned the bill could drive foreign investors out of Mexico, Bloomberg News notes. But Ricardo Monreal, the head of Lopez Obrador's party in the senate, said the bill was needed to fight illegal fuel trafficking and corruption that previous administrations had fostered, Bloomberg News discloses. "We have truth," the senator said, ruling out that the legislation will hurt private companies or violate the USMCA, Bloomberg News says. Mexico's costly support of loss-making state firms drains public resources for essential spending, while private sector underinvestment threatens to slow the country's growth, the U.S. Treasury Department said in its semiannual report to Congress, Bloomberg News relays. The fuel-market legislation is expected to be held up in courts, like a similar bill to prioritize CFE in the power market that was passed last month, Bloomberg News relays. Mexico's antitrust regulator said it filed a constitutional challenge before the country's supreme court over the law, arguing that parts of it violate constitutional protections for competitive electricity markets by privileging the state-run power utility, Bloomberg News notes. Onexpo, the national fuel retailers' association, said in a statement that fuel permit holders are studying legal options to defend their interests, Bloomberg News relates. Once a monopoly, Pemex's share of the gasoline and diesel market has fallen since the reform of the sector, but private players have less than a 30% market share, Bloomberg News discloses. Pemex expects its gasoline sales won't fully recover to pre-pandemic levels this year as lockdown measures hurt demand and competitors win market share, Bloomberg News relays. The company is also struggling with long-term oil production declines and the highest debt level of any major oil producer, Bloomberg News adds. NEMAK SAB: Moody's Affirms Ba1 CFR, Alters Outlook to Stable ------------------------------------------------------------ Moody's Investors Service changed Nemak, S.A.B. de C.V.'s outlook to stable from negative. At the same time, Moody's affirmed Nemak's Ba1 senior unsecured and corporate family ratings. RATINGS RATIONALE The change in Nemak's outlook to stable from negative reflects the strong recovery from the impact of the Covid-19 outbreak and Moody's expectation that the company's operation and credit metrics will remain solid over the next 12-18 months. The Ba1 ratings reflect the company's sales concentration with 52% of its volumes being sold in North America, and its product focus into three main segments with the same demand drivers. On the other hand, the ratings continue to reflect Nemak's leading position in the aluminum engine blocks and cylinder head markets, as well as its growing structural and electric vehicle component business. The ratings also consider the company's status as the sole supplier for about 90% of its volumes, its strong technology and innovation capabilities, and the solid relationship with many of the major global automakers. Nemak's operations are closely linked to the performance of the automotive industry in North America and Europe, where about 88% of its revenues are derived. Moody's has a stable outlook for the global automotive manufacturing industry. Moody's expects global light vehicle sales will continue to recover in 2021. The recovery in the auto sector will, however, be uneven and faces short term headwinds like a shortage of semiconductors, which might diminish global light vehicle production by around 2% this year hurting automakers around the world. Nonetheless, Moody's forecasts light vehicle sales in the US to increase by 5.4% in 2021 and 4.9% in 2022. Similarly, Moody's expects Western European auto unit sales to grow by 11.2% in 2021 and 10.5% in 2022. Nemak's sales volumes have recovered in the 2H20 and 1Q21 resulting in a 14.6% y-o-y revenue growth in the 1Q21. Similarly, profitability measured by EBITDA/Equivalent unit raised to $15.8 in the 1Q21; up from $13.5 in the 1Q20. Moody's estimates Nemak's adjusted EBITDA margin will reach around 14.0%-15.0% in 2021-22 supported by higher revenues and a leaner cost structure. The company has done efforts to reduce its operating costs in face of the coronavirus outbreak in 2020 which will continue to benefit its profitability going forward. Nemak's credit metrics will improve as well over 2021-22 supported by better operating environment and economic recovery. Moody's estimates that Nemak will reduce its adjusted debt/EBITDA below 3.0x by the end of 2021 from higher EBITDA generation and debt reduction; down from 3.5x over the twelve months ended March 31, 2021. Higher EBITDA in 2022 will help Nemak's adj. debt/EBITDA to further improve towards 2.5x by year end 2022. Similarly, Moody's expects interest coverage will improve with adj. EBITDA/Interest expense over 5x in 2021 and over 8.5x in 2022; up from an expected 5x in 2020. Nemak has adequate liquidity. The company reported cash on hand of $275 million as of March 31, 2021 that can cover 1.9x its short-term debt and CMLTD of $149 million as of the same date. In addition, the company has committed credit facilities totaling $412 million, which are fully available. Furthermore, Nemak's advised credit facilities add $423 million (74% available) to its secondary sources of liquidity. Nemak has a comfortable long-term debt maturity profile with no major amortizations until 2024-25 when its Dollar- and Euro-denominated bonds are due. Nemak will resume its capex program in 2021 and invest on average $390 million per year in 2021-23, primarily to increase installed capacity in electric vehicles and structural components. As a result, Moody's estimates Nemak will post negative free cash flow in 2021-23 despite lower dividend payout over the forecasted period. The stable outlook reflects Moody's expectations that Nemak's credit metrics and profitability will improve over the next 12-18 months. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings could be upgraded if the company is able to grow its topline while maintaining strong credit metrics, with Moody's-adjusted gross debt/EBITDA below 2.5x and Moody's-adjusted EBITA/interest expense above 4.0x. To be considered for an upgrade, the company would also need to improve its profitability, maintain robust liquidity and cash generation that translates into a meaningful positive free cash flow. The ratings could be downgraded if the company's credit metrics deteriorate over the next 18 months, or in case there is a greater-than expected decline in automobile sales that hurts Nemak's operations or liquidity. Failure to de-lever the company, with adjusted gross debt/EBITDA declining toward 3.0x, or a deterioration in liquidity could lead to a downgrade. The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020. Nemak, S.A.B. de C.V. produces aluminum cylinder heads, engine blocks, transmission components, and structural and electric vehicle components for light vehicles manufactured by more than 50 customers worldwide, with 64% of its sales volumes coming from Ford Motor Company (Ba2 stable), Volkswagen Aktiengesellschaft (A3 stable), General Motors Company (Baa3 stable) and Fiat Chrysler Automobiles N.V. -- now part of Stellantis N.V. (Baa3 stable). Nemak's products are sold mainly in North America and Europe, which account for 88% of its consolidated revenue. Nemak reported revenue of $3.4 billion over the twelve months ended March 31, 2021. ===================== P U E R T O R I C O ===================== DESTILERIA NACIONAL: Court Won't Review PPP Ruling -------------------------------------------------- Judge Enrique S. Lamoutte of the United States Bankruptcy Court for the District of Puerto Rico denied the request of Destileria Nacional, Inc., for reconsideration of a prior ruling with respect to loans under the Paycheck Protection Program. The Court previously granted the motion filed by Banco Popular de Puerto Rico requesting that $88,500 disbursed to the Debtor be allowed as an administrative expense priority claim. The Debtor contends that the Court's February 5 decision takes inconsistent and incorrect positions as to the Small Business Administration's interim rules regulating the approval of PPP loans. On February 19, Destileria Nacional filed a motion for reconsideration, alleging that the Court's legal conclusion and ratio decidendi on the Debtor's eligibility for the PPP Funds is unclear particularly with respect to the applicability of the relevant interim rules of the SBA. This clarification is of the utmost importance in view that it triggers the applicability of certain key issues of law that were not discussed in the Court's Opinion. BPPR filed an opposition to the motion for reconsideration, stating that the Debtor is rehashing arguments that the Court already considered and simply did not agree with and should be summarily discarded for purposes of Fed. R. Bank. Pr. 9023. BPPR also states the Debtor conveniently ignores that courts have already concluded that bankruptcy debtors are not eligible to be approved a PPP Loan. To receive forgiveness of a PPP loan, the borrower must submit an application for forgiveness to the lender servicing the PPP loan along with certain certifications regarding how PPP funds were spent. In effect, the Debtor is seeking review, not just of the Opinion, but of all the cases that defeat its flawed reasoning. In its decision, the Court said it "adopts and follows the reasoning by U.S. Bankruptcy Judge Michael A. Fagone in In re Penobscot Valley Hospital, 2020 WL 3032939 (Bankr. Me. June 3, 2020), holding that a PPP Loan under the CARES Act is a loan and not a grant and that the bankruptcy exclusion for providing PPP loans does not violate the anti-discrimination provisions of section 525 of the Bankruptcy Code." Judge Fagone also held that "[t]he PPP is not a grant that is similar to a license, permit, charter, or franchise. The PPP is not a permission granted by the government to allow persons to engage in economic activity; it is a government-guaranteed program of credit extension on generous terms with forgiveness features intended to aid small businesses and incentivize them to retain employees during an unprecedented economic downturn." The United States Trustee has decided not to take a position as to the Debtor's Motion for Reconsideration. The Motion for Reconsideration does not directly challenge any of the arguments made by the U.S. Trustee in her Reply to the Debtor's Memorandum of Law in Response to U.S. Trustee's Position on Paycheck Protection Program. There, the U.S. Trustee argued that: (1) the PPP Loan Documents and the SBA would require that the PPP Loan be granted an administrative expense status if it is not forgiven; (2) the Debtor failed to establish that the PPP Loan should be considered a grant for all purposes, including Sec. 364(b); and (3) obtaining a PPP Loan is not an activity within the "ordinary course of business," as required for Sec. 364(a) to apply. In seeking reconsideration, the Debtor's arguments center around whether the SBA's Fourth Interim Rule should be granted retroactive effect, and whether the statement of exclusion in Form 2483 had any binding effect." According to BPPR, "as an important conclusion in the Opinion, the Court overruled the Debtor's argument that the PPP Loan was a grant, ruling that: (i) "since the court has concluded that PPP loans are, as the name indicates, a loan, an application under section 364 is required, irrespective of eligibility issues"; (ii) that, "prior-court authorization to obtain post-petition credit under Sec. 364(b) is required if the transaction is not 'in the ordinary course of business'" and; (iii) that an "application for a PPP Loan to provide emergency assistance and health care response for persons affected by the 2020 coronavirus pandemic is clearly not in the ordinary course of business". During the Hearing, the Debtor admitted the PPP Funds were used for the payment of employee salaries and utilities as an actual and necessary expense to preserve the state and meet the criteria in 11 U.S.C. Judge Lamoutte ruled that there are no manifest errors of law or fact in the previous Opinion and Order. The Court declined to revisit the very same arguments that the Debtor has raised in in its pleadings, legal memoranda, and argumentation. A full-text copy of the Court's Opinion and Order dated April 12, 2021, is available at https://bit.ly/3xlYpt5 from Leagle.com. About Destileria Nacional Destileria Nacional, Inc., a beer manufacturer headquartered in Guaynabo, P.R., sought protection under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 20-01247) on March 6, 2020. At the time of filing, the Debtor estimated between $100,001 and $500,000 in assets and between $500,001 and $1 million in liabilities. Judge Enrique S. Lamoutte Inclan oversees the case. Then Debtor hired Isabel Fullana-Fraticelli & Asoc. PSC as its legal counsel. SEARS HOLDING: Tells Court It's $81M Short for Admin Claims ----------------------------------------------------------- Law360 reports that Sears Holding Co. on Tuesday, April 27, 2021, told a New York bankruptcy judge that it believes it is still running just under $81 million short of covering the expected administrative claims in its Chapter 11 case and will need litigation recoveries from its ex-CEO to close the gap. At a virtual status conference counsel for Sears told U. S. Bankruptcy Judge Robert Drain that while 2 1/2 years into its bankruptcy the company has narrowed the gap with successful clawback actions and the settlement and denial of claims, the end of its Chapter 11 case remains contingent on success in litigation. Sears declared bankruptcy in October 2020. About Sears Holdings Corp. Sears Holdings Corporation (OTCMKTS: SHLDQ) -- http://www.searsholdings.com/-- began as a mail ordering catalog company in 1887 and became the world's largest retailer in the 1960s. At its peak, Sears was present in almost every big mall across the U.S., and sold everything from toys and auto parts to mail-order homes. Sears claims to be a market leader in the appliance, tool, lawn and garden, fitness equipment, and automotive repair and maintenance retail sectors. Sears and Kmart merged to form Sears Holdings in 2005 when they had 3,500 US stores between them. Kmart emerged in 2005 from its own bankruptcy. Unable to keep up with online stores and other brick-and-mortar retailers, a long series of store closings has left it with 687 retail stores in 49 states, Guam, Puerto Rico, and the U.S. Virgin Islands as of mid-October 2018. At that time, the Company employed 68,000 individuals, of whom 32,000 were full-time employees. As of Aug. 4, 2018, Sears Holdings had $6.93 billion in total assets, $11.33 billion in total liabilities and a total deficit of $4.40 billion. Unable to cover a $134 million debt payment due Oct. 15, 2018, Sears Holdings Corporation and 49 subsidiaries sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 18-23538) on Oct. 15, 2018. The Hon. Robert D. Drain is the case judge. The Debtors tapped Weil, Gotshal & Manges LLP as legal counsel; M-III Partners as restructuring advisor; Lazard Freres & Co. LLC as investment banker; DLA Piper LLP as real estate advisor; and Prime Clerk as claims and noticing agent. The U.S. Trustee for Region 2 appointed nine creditors, including the Pension Benefit Guaranty Corp., and landlord Simon Property Group, L.P., to serve on the official committee of unsecured creditors. The committee tapped Akin Gump Strauss Hauer & Feld LLP as legal counsel; FTI Consulting as financial advisor; and Houlihan Lokey Capital, Inc. as investment banker. The U.S. Trustee for Region 2 on July 9, 2019, appointed five retirees to serve on the committee representing retirees with life insurance benefits in the Chapter 11 cases. * * * In February 2019, Bankruptcy Judge Robert Drain authorized Sears Holdings approval to sell the business to majority shareholder and CEO Eddie Lampert for approximately $5.2 billion. Lampert's ESL Investments, Inc., won an auction to acquire substantially all of Sears' assets, including the "Go Forward Stores" on a going-concern basis. The proposal would allow 425 stores to remain open and provide ongoing employment to 45,000 employees. ================= V E N E Z U E L A ================= VENEZUELA: Agricultural Sector Hit Hard by Diesel Shortages ----------------------------------------------------------- The Latin American Herald reports that it is no secret that diesel shortages in Venezuela have been a major issue for the local industry as a whole for at least the last three months since the lack of supply of this essential fuel is causing terrible losses and jeopardizing the entire production of food and other goods. Even though Nicolas Maduro, the country's leftist incumbent, proposed a plan to put an end to the shortages particularly harming the agricultural sector in as little as 60 days, producers still can't see the light at the end of the tunnel as they were never contacted by his administration to solve the problem, according to the Latin American Herald. Aquiles Hopkin, head of Venezuela's Agricultural Producers Associations Confederation, said that the sector has reported losses of up to 20,000 tons of food due to the diesel shortages affecting their food distribution processes, the report notes. Hopkin was specific about the losses with 20,000 metric tons of rice, 400,000 metric tons of sugar cane, and 30% of bean crops, the report relates. Hopkin warned that Venezuela's most productive cycle of crops begins in about 15 days with the rain season, and made it clear that if producers don't get the fuel by then, sowing is out of the question, the report notes. "There is a risk of collapse in 17 states in detriment of farmers, stockbreeders, the industry as a whole, the craft industry that processes food, all the linked processes, and all economic agents from the rural sector," he added. For his part, Luigi Pisella, head of Venezuela's largest industry association Conindustria, said in a press conference with representatives of the agricultural and commercial sector that diesel shortages in the country's manufacturing sector have implied a big investment in the transport of raw materials as the industry keeps struggling below 20% of its capacity, the report notes. Pisella underscored that about 65% of the industry is generating its own electricity due to the constant power failures affecting the country, a reason for which the fuel shortages are causing severe operational delays, the report relays. "This is causing an increase in the prices of products that, for now, are not reaching consumers; we the industrialists are taking all the losses," Pisella pointed out. 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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