/raid1/www/Hosts/bankrupt/TCRLA_Public/210506.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, May 6, 2021, Vol. 22, No. 85
Headlines
A R G E N T I N A
ARGENTINA: Economy Buckles After Leader Puts Politics First
B E R M U D A
SAGICOR FINANCIAL: Fitch Puts BB-(EXP) Rating to New Sr. Unsec Debt
SAGICOR FINANCIAL: S&P Rates New Senior Unsecured Notes 'BB+'
VALARIS LTD: Moody's Assigns B3 CFR Following Bankruptcy Exit
B R A Z I L
BNDES: Suspends Loan Collection Actions MSMEs
GOL LINHAS: $200M Secured Notes Add-on No Impact on Moody's B3 CFR
GOL LINHAS: Ordered to Pay Passengers for Flight Delay
RIO OIL: S&P Affirms 'BB-' Ratings on 3 Fixed-Rate Note Series
C H I L E
ENJOY SA: S&P Assigns 'CCC+' LT ICR Following Debt Exchange
LATAM AIRLINES 2015-1: S&P Cuts Class A Certs Rating to 'CCC-'(sf)
C U B A
CUBA: In Tough Battle to Recover Key Sugar Industry
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Gov't. Bans Livestock From Highlands
M E X I C O
CONSUBANCO SA: Fitch Affirms 'BB-' LT IDR, Outlook Stable
FIDEICOMISO IRREVOCABLE: S&P Cuts A-2 Notes Rating to 'BB+ (sf)'
T R I N I D A D A N D T O B A G O
CARIBBEAN AIRLINES: Region Opens to Tourism; Employees Get Training
- - - - -
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A R G E N T I N A
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ARGENTINA: Economy Buckles After Leader Puts Politics First
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Jorgelina Do Rosario and Patrick Gillespie at Bloomberg News report
that in late March, Argentine President Alberto Fernandez sent his
guy to Washington to smooth things over. With negotiations
stalled, Economy Minister Martin Guzman had meetings with U.S.
officials and the International Monetary Fund over its $45 billion
loan, according to Bloomberg News.
Back home, Fernandez's populist vice president took to the
microphone to make one thing clear.
"We can't pay because we don't have the money," said Cristina
Fernandez de Kirchner, who held the nation's top job from 2007 to
2015. The IMF's terms are "unacceptable," Bloomberg News notes.
It was a telling moment. When Fernandez, 62, took office in the
final days of 2019, he presented himself as pragmatic. True, he'd
briefly been Kirchner's chief of staff within the Peronist left but
he accepted a role for capitalism and wouldn't allow Kirchner and
her loyalists to set the agenda, Bloomberg News discloses.
Few would argue that he has succeeded.
In recent days, Kirchner further asserted her influence by stopping
the removal of an ally, a deputy energy minister in charge of key
electricity prices, Bloomberg News says.
"It's evident that the president is backing the core Kirchner wing
of his coalition," says Jimena Blanco, director of Latin America
research at consulting firm Verisk Maplecroft in Buenos Aires,
Bloomberg News relays. "That's going to create more tension and
uncertainty."
Indeed, six months before midterm elections, pragmatism is a
distant memory, Bloomberg News notes. A strategy that puts
political decisions above everything has squashed any plan to boost
exports, lower inflation and kick-start growth. Exacerbated by the
pandemic and too few vaccines, a rudderless economy is having its
revenge, Bloomberg News relays.
Social unrest, closed schools, packed hospitals, cabinet disputes
and a deteriorating business climate loom. Nearly 70% of ICU beds
are occupied, Bloomberg News notes. About 42% of Argentines live
in poverty, up from 26% in 2017, Bloomberg News relays.
Economic plight is so common, it's playground talk. Kids in Buenos
Aires know the dollar exchange rate, the level of inflation and
what a sovereign default means, notes the report.
That's because Argentina has defaulted nine times and mostly been
run by those hostile to the Washington consensus, Bloomberg News
relays. That changed briefly in 2015 when Mauricio Macri won. He
tried to open the economy but recession unraveled his presidency,
bringing back the populists, Bloomberg News notes. People expected
Fernandez to strike a happy medium. They don't anymore.
It's been illegal for companies to fire workers for over a year.
Businesses face price freezes. Savers can only exchange pesos for
$200 a month, Bloomberg News relays. If Argentines use their
credit card abroad, they pay a 30% "solidarity tax." The rich are
fighting against a new levy on wealth. Inflation will reach 50%
again this year, while consumer confidence is tanking, Bloomberg
News notes.
Pandemic fatigue and finite resources are aggravating poor internal
coordination, relates Bloomberg News.
To be sure, Fernandez inherited Herculean challenges. In 2018,
Macri agreed to an IMF deal with unrealistic assumptions and failed
to stabilize the economy, Bloomberg News discloses. He also passed
on high inflation, as Kirchner had done to him, Bloomberg News
relays.
Fernandez, who spent years lambasting Kirchner's leadership and
then set aside their differences, won the presidency having never
run for governor, mayor or congress, recounts the report.
An official close to him says he hopes to get wages to beat
inflation but concedes that some of his policies, such as price
controls, aren't ideal, Bloomberg News notes.
Juntos por el Cambio is his biggest opponent in the vote, which
chooses half the seats in the lower house and a third in the
senate, Bloomberg News relays. Buenos Aires Mayor Horacio
Rodriguez Larreta, the top opposition leader, pushed to reopen
schools and saw his popularity soar, Bloomberg News notes.
Bloomberg News discloses that Fernandez suffered a heavy political
defeat when the Supreme Court ruled that the country's capital has
the autonomy to decide whether its schools can hold in-person
classes, rejecting a previous government order that classes be held
virtually to contain a second wave of the pandemic.
The president lambasted the top court's ruling, saying he will
continue focusing on protecting the population's health, Bloomberg
News relays. "They can issue the rulings they want, we will do what
we have to do," he said at an event.
Fernandez may still benefit from surging commodity prices and some
stimulus at the IMF. But after restructuring $65 billion with
private creditors last year, IMF talks have bogged down and no plan
has emerged, notes Bloomberg News.
As a vaccine scandal over shots for VIPs erupted, Fernandez's
approval dropped to 36.7% by late April from a peak of 57% almost a
year ago, according to Buenos Aires-based pollster Management &
Fit, Bloomberg News notes.
Much of the drop is over the economy. Argentines just endured a
three-year recession, where the peso lost 80% of its value and
people pulled half of their dollar deposits, leading to capital
controls, Bloomberg News says.
Always Losing
President Fernandez aims for real wage growth before the mid-term
elections but inflation keeps eroding paychecks in Argentina,
Bloomberg News relays.
The economy contracted in February, and a low-quality recovery
seems underway: Argentina gained 1.3 million informal jobs in the
second half of last year but shed 189,000 formal jobs, Bloomberg
News notes.
Companies, especially multinationals, are increasingly at odds with
the government as it talks about another basket of 100 essential
goods that would have prices frozen for half the year, according to
people with direct knowledge, Bloomberg News discloses.
"Uncertainty turns into distress, distress into frustration, and
frustration into little desire to invest," says Alejandro Diaz, CEO
of AmCham Argentina, the lobby for U.S. companies in the country.
When companies' costs rise more than double the price of their
products, "the temporary policy becomes structural," Bloomberg News
relays.
Amid the new Covid wave, Argentina has debt payments coming due
with limited foreign reserves. It owes $2.4 billion to the group
of rich countries known as the Paris Club, due this month. By
September, it needs to start repaying the IMF, Bloomberg News
notes.
No IMF deal gets a green light without U.S. support. For now,
Argentina caught a break from Joe Biden's administration. A U.S.
effort to boost the IMF's reserves, known as SDRs, may offer
breathing room -- some extra cash in its stake at the IMF that it
could use to cover two principal payments later this year,
Bloomberg News relays.
"The IMF deal may not only narrow differences between the
opposition and ruling party, but also the differences within the
coalition itself," says Emmanuel Alvarez Agis, a former economy
vice minister under Kirchner, Bloomberg News notes. "Investors see
that Argentina took out an IMF debt that isn't compatible with the
size of the economy. The issue is, how do you get out of this
problem?"
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8,
2020.
Moody's credit rating for Argentina was last set at Ca on Sept. 28,
2020. Fitch's credit rating for Argentina was last reported on
Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS'
credit rating for Argentina is CCC, given on Sept. 11, 2020.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Formal negotiations on the new financing
began in November 2020. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
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B E R M U D A
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SAGICOR FINANCIAL: Fitch Puts BB-(EXP) Rating to New Sr. Unsec Debt
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Fitch Ratings has assigned a 'BB-(EXP)' rating to the new senior
unsecured debt issued by Sagicor Financial Company Limited (SFCL).
At the same time, Fitch affirmed SFCL's existing Long-Term Issuer
Default Rating (IDR) at 'BB' and existing senior debt ratings
issued by Sagicor Finance (2015) Limited at 'BB-'. The Rating
Outlook is Stable.
KEY RATING DRIVERS
The ratings assigned to the new senior unsecured notes reflect
standard notching based on Fitch's rating criteria and are
equivalent to SFCL's existing senior unsecured notes. The senior
unsecured notes are rated one notch below SFCL's IDR of 'BB'.
Proceeds from the issuance of the new notes are expected to be used
to retire the existing senior debt and general corporate purposes.
SFCL's ratings reflect the company's improving business profile,
strong capitalization and track record of consistent earnings. The
ratings also consider the operating and economic environments of
two of its main insurance subsidiaries in Jamaica and Barbados,
both of which have below-investment grade sovereign ratings. SFCL
has very high capital exposure and concentrations in
below-investment-grade sovereign debt, which are primarily used to
meet local regulatory requirements and match local liabilities.
SFCL is a Bermuda-based financial holding company and leading
provider of insurance products and financial services in the
Caribbean. It also provides insurance products in the U.S. as well
as banking and investment management services in Jamaica. Primary
insurance subsidiaries and the corresponding regions for SFCL
include Sagicor Group Jamaica Ltd. (Jamaica and Cayman Islands),
Sagicor Life Inc. (Barbados and Trinidad and Tobago), and Sagicor
Life USA (U.S.). Aside from these main subsidiaries and regions,
the company also has insurance operations in many of the Eastern
and Dutch Caribbean islands and select Latin American countries.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- No material deterioration in economic and operating
environments and sovereigns of Jamaica, Trinidad, and Barbados
resulting from the coronavirus;
-- Deployment of capital proceeds from the AQY transaction to
grow operations in investment grade jurisdictions;
-- Decline in financial leverage ratio below 25% (adjusted to
exclude non-controlling interests from capital).
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Significant deterioration in the economic and operating
environments and sovereigns of Jamaica, Trinidad, and Barbados
which would lead to a material decline in operating
performance and/or credit profile of SFCL's investment
portfolio;
-- Deterioration in key financial metrics, including consolidated
MCCSR falling below 180% and financial leverage exceeding 50%
and ROE below 5% on a sustained basis.
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.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
SAGICOR FINANCIAL: S&P Rates New Senior Unsecured Notes 'BB+'
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S&P Global Ratings assigned its 'BB+' issue-level rating to Sagicor
Financial Co. Ltd.'s (SFC; BB+/Stable/--) proposed up to $400
million senior unsecured notes with a tenor of up to seven years.
The insurance group will mainly use the proceeds to pay down
Sagicor Finance (2015) Ltd.'s (SF15; BB+/Stable/--) $320 million
seven-year senior unsecured notes due 2022, with the remainder for
general corporate purposes. S&P expects Sagicor to continue
deploying capital to finance growth opportunities in the next few
years, mostly in the U.S. S&P believes the insurance group's
financial leverage will remain stable at about 25% after SF15 pays
down its outstanding $320 million notes.
The rating on the proposed $400 million senior unsecured notes is
the same as that on the issuing entity, SFC, because of the notes'
seniority. S&P rates SFC two notches below our group credit profile
(GCP; 'bbb') on the Sagicor group because of the holding company's
structural subordination to the policyholder obligations of the
group's operating companies. SFC is the ultimate parent at the top
of the Sagicor group's structure.
The GCP on Sagicor group reflects its solid brand recognition in
the Caribbean, as well as its sound business and geographic
diversification. Moreover, S&P believes the group's focus on
efficient growth and conservative underwriting policies will
continue supporting stable earnings, with a return on equity (ROE)
above 8% in the next few years once the effects of the pandemic
have dissipated. The GCP also captures our Insurance Industry
Country Risk Assessment (IICRA), which assesses the economic,
regulatory, and operating conditions for the industries and
countries where the group bases its insurance operations. S&P
expects Sagicor to maintain premiums in the U.S. representing about
40% of total premiums in the next two years, which, combined with
relatively stable share of business in Jamaica and Barbados,
preserves S&P's overall country and industry weightings per its
IICRA assessment.
S&P said, "Our assessment of Sagicor's creditworthiness also
incorporates its strong capitalization under our risk-based capital
model, good investment and insurance portfolio diversification, and
ability to manage debt. We expect sound and increasing earnings,
along with stable debt, to continue improving our financial
leverage ratio to about 25% and fixed-charge coverage to about 8x
in the next few years. Our assessment also reflects the group's
record of active capital deployment in new businesses, including
recent rapid growth in the U.S. and external acquisitions of
insurance assets in Jamaica and Trinidad and Tobago, which could
pressure the strong capitalization level beyond our current
expectations. Our ratings also incorporate our expectations of
continued high liquidity and satisfactory corporate governance
standards."
VALARIS LTD: Moody's Assigns B3 CFR Following Bankruptcy Exit
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Moody's Investors Service assigned new ratings to Valaris Limited,
including a B3 Corporate Family Rating, a B3-PD Probability of
Default Rating and a B3 rating on the company's $550 million senior
secured notes due 2028. Moody's also assigned a SGL-2 Speculative
Grade Liquidity rating, reflecting good liquidity. The rating
outlook is stable. These ratings were assigned following Valaris
Limited's emergence from bankruptcy on April 30, 2021.
"Valaris will benefit from significantly reduced debt and interest
cost after eliminating $7.1 billion of debt through the Chapter-11
bankruptcy process," said Sajjad Alam, Moody's Senior Analyst.
"While we expect offshore drilling demand to remain relatively weak
through 2022, Valaris has a large cash balance and improved cost
structure that will provide support as the company moves towards
breakeven free cash flow over time."
Assignments:
Issuer: Valaris Limited
Probability of Default Rating, Assigned B3-PD
Speculative Grade Liquidity Rating, Assigned SGL-2
Corporate Family Rating, Assigned B3
Senior Secured Notes, Assigned B3 (LGD3)
Outlook Actions:
Issuer: Valaris Limited
Outlook, Assigned Stable
RATINGS RATIONALE
Valaris' B3 CFR reflects Moody's expectation that the company will
generate weak earnings, produce negative free cash flow, and face
high re-contracting risk through 2022. Despite significant debt
reduction through bankruptcy, the company will still have to manage
high financial leverage relative to cash flow through 2022 given
its limited EBITDA generation prospects in a challenging and
oversupplied offshore drilling market. A protracted recovery in
floater markets coupled with significant maintenance costs
associated with idle rigs will steadily consume Valaris' cash
balance even with a low level of capital spending. However, Valaris
has a sizable cash balance at emergence, which will help fund its
operations through 2022.
Valaris' primary credit supports include its large and high-quality
rig fleet; excellent diversification across geography, rig types,
and customers; modest contracted backlog, which stood at $1.2
billion as of April 30, 2021; and its strong contractual
relationship with Saudi Aramco (A1, negative), the world's largest
oil producer and employer of jackup rigs. While offshore rig
contracting activity remains subdued, Valaris has been able to win
a high percentage of contracts that were awarded during 2019-2020
by leveraging its modern rigs, excellent operating track record and
prior commercial relationships with most of the largest E&Ps,
integrated oil companies and national oil companies.
Valaris' newly issued $550 million senior secured notes are rated
B3, the same as the CFR given its dominance in the capital
structure. Moody's views the B3 rating to be more appropriate than
the higher rating indicated by Moody's Loss Given Default for
Speculative-Grade Companies methodology, because of the uncertainty
regarding rig valuations in this oversupplied market and the
absence of junior debt in the capital structure that could
potentially absorb losses in the event of a default. The new senior
secured notes have no financial covenants and have a PIK interest
feature that affords Valaris the ability to pay interest either in
cash, in additional notes (pay-in-kind), or utilize a combination
of both.
Moody's views Valaris' liquidity as good, reflected by its SGL-2
rating. Valaris emerged from bankruptcy with $615 million in
available cash (plus $40 million is restricted cash), and the
company should be able to amply cover any funding deficiency with
its cash balance through 2022. While Valaris still has $337 million
in remaining payments for two newbuild drillships, the company has
the option to cancel delivery without any penalty. The notes
indenture provides $275 million of incremental pari passu senior
secured debt capacity, which could help raise additional liquidity,
if needed. Valaris does not have a revolving credit facility.
The stable outlook reflects Valaris' significant cash cushion and
Moody's expectation of narrowing negative free cash flow.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if Valaris can generate free cash
flow, reduce leverage (debt/EBITDA) below 5x, and increase fleet
utilization and revenue backlog in an improving offshore drilling
industry environment. The ratings could be downgraded if the
company generates larger than expected negative free cash flow, is
unable to sustain interest coverage above 1x, or suffers a sharp
decline in cash balance leading to weak liquidity.
Valaris Limited, based in Bermuda, is one of the world's largest
providers of offshore contract drilling services to the oil and gas
industry.
The principal methodology used in these ratings was Global Oilfield
Services Industry Rating Methodology published in May 2017.
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B R A Z I L
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BNDES: Suspends Loan Collection Actions MSMEs
---------------------------------------------
Rio Times Online reports that Brazil's National Bank for Economic
and Social Development (BNDES) on April 29 announced a temporary
suspension of loan collection actions.
The focus this time will be on micro and small enterprises from
diverse economic sectors that have taken out loans through
accredited financial institutions, according to Rio Times Online.
The respite in payments will span up to 6 months, while extending
the overall financing term by up to 18 months is also a
possibility, which was not provided for in last year's suspension
offered, the report notes.
BNDES estimates that over 100,000 companies may have their payment
obligations suspended, the report relays.
About BNDES
As reported in the Troubled Company Reporter-Latin America on
February 18, 2021, Moody's Investors Service said its Ba2 deposit
rating on Banco Nacional de Desenvolvimento Economico e Social
(BNDES) derives from its ba2 baseline credit assessment (BCA). The
rating incorporates Moody's assessment of very high probability of
support from the government of Brazil (Ba2), its sole shareholder.
However, the bank's rating does not benefit from support uplift
because its ba2 BCA is positioned at the same level as Brazil's
sovereign rating.
Fitch Ratings' Long-term issuer default rating for BNDES was last
set at BB- on April 17, 2018. S&P Global Ratings' long-term global
scale ratings for BNDES was last reported on March 15, 2018, at
BB-.
GOL LINHAS: $200M Secured Notes Add-on No Impact on Moody's B3 CFR
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Moody's Investors Service comments that Gol Linhas Aereas
Inteligentes S.A.'s B3 corporate family rating, the B2 rating of
the senior secured notes issued by Gol Finance (LuxCo), the Caa1
rating of the senior unsecured notes issued by Gol Finance and Gol
Equity Finance and stable outlook remain unchanged following the
company's announcement that it plans to issue an $200 million
add-on to its senior secured notes due 2026. This transaction will
be an add-on to the original $200 million notes issued in December
2020 by Gol Finance and unconditionally guaranteed by Gol and Gol
Linhas Aereas S.A.
The senior secured notes are rated B2, one notch above Gol's CFR,
primarily reflecting the current pool of collateral appraised at
around $1.2 billion that comprises a first priority security
interest in Gol's intellectual property including patents,
trademarks, brand names, trade dress, know how, copyrights'
secrets, domain names, and social media accounts. The collateral
package also includes Gol's aircraft spare parts located in Brazil,
including rotable, repairable and expendable parts. Moody's
understands that the notes rank at least on a pari passu basis with
Gol's other secured indebtedness that pro-forma for the add-on will
account for around 60% of the company's indebtedness.
Pro forma to the add-on, Gol's secured notes program will have a
loan-to-value (LTV) ratio of around 34% and collateral coverage of
around 3.0x, still within the established limits of maximum LTV of
65% and minimum coverage of 1.5x. The program includes other
eligible collateral that can be added to the existing security
package if needed, such as spare engines, flight simulators, first
or second lien on incremental aircraft purchases, non-credit card
backed receivables and a first lien on Smiles Fidelidade S.A.
(Smiles)'s revenues, intellectual property and brand.
The notes proceeds will bolster the company's liquidity, extend its
debt maturity profile through the repayment of upcoming debt
maturities, and help financing its working capital and fleet
requirements to support the expected growth in demand in the second
half of 2021. The transaction will also release collaterals that
the company can use for future funding needs. Gol's total debt can
increase depending on the proposed add-on size, but liquidity -
which is a more important rating driver in the current environment
- will improve. On April 28, Gol also announced an equity increase
of up to BRL512 million (about $100 million) which will help to
ease liquidity risk further.
The second wave of COVID-19 infections hit Brazil's airline
industry hard in February, March and April 2021, but visibility
into a recovery in the domestic market is clearer than a few months
ago. Gol's passenger revenue fell sequentially since January 2021,
returning to only 35% of 2019's level in April and reverting the
recovery trajectory seen through December 2020, when passenger
revenue peaked at 68% of 2019's level. The resurgence of COVID-19
cases in Brazil also strained Gol's forward bookings, reducing the
amount of receivables in the company's balance sheet.
Gol was burning about BRL22 million in cash per day at the
beginning of the pandemic, but several measures that increased the
proportion of variable costs such as grounding of aircrafts and
renegotiation of payment with lessors and employees helped to ease
the strain. Cash burn declined sequentially to about BRL3 million
per day, and when Brazil's passenger demand started to pick up more
quickly in the fourth quarter of 2020, Gol started to generate
about BRL3 million in cash per day. The sharp reduction in demand
in the first months of 2021 led to a cash burn of BRL2-3 million
per day in January and February, but Gol was able to reach
break-even cash generation in March after additional adjustments to
the number of flights it offered.
Gol's cash balance bottomed since the beginning of the pandemic at
BRL940 million at the end of March 2021, and on-balance sheet
receivables fell to BRL542 million from BRL740 million at the end
of 2020. The proposed add-on and equity injection will help to
restore the company's cash position and reduce liquidity risks
during the next few months until the roll-out of vaccination in
Brazil speeds-up, and passenger revenue and forward bookings
gradually increase. Moody's expects that pro forma to the proposed
issuance, equity injection and to other immediate cash needs such
as the purchase of Smiles' minority interest, Gol's total available
liquidity will return to 2020's levels of about BRL2-2.5 billion,
and that the company will continue to have access to the capital
markets to bridge liquidity gaps.
On March 24, Gol and Smiles' shareholders approved a corporate
reorganization that will result in the merger of both companies'
shares. After the merger, Gol will hold 100% of Smiles' shares, up
from the current 52.6%. Gol will pay an implicit price of BRL22.97
per each share of Smiles, but the purchase will include both cash
payment as well as share swaps. The total liquidity call for this
transaction can range from BRL301 million up to BRL1.1 billion,
depending on the proportion of share and cash ratio Smiles'
minority shareholders choose, which could strain Gol's liquidity.
The proposed add-on and equity increase will help mitigate
potential liquidity risks coming from this transaction, but Moody's
caution that Gol's ability to direct proceeds to debt payment and
working capital needs will only become clearer when the merger
closes.
Although the incorporation of Smiles will initially reduce Gol's
cash position, it will also bring greater financial flexibility to
Gol and give the company unrestricted access to Smiles' cash and
cash flows. At the end of March 2021, Smiles had about BRL651
million in cash and generated BRL600-700 million in normalized
annual cash flow from operations (excluding advanced tickets
purchase from Gol). Gol will also collect significant revenue and
taxes synergies after the incorporation and will release about $400
million in encumbered assets. The assets relate both to Smiles'
intellectual property as well as to the shares that were provided
as collateral to the Delta loan that will be fully repaid after the
proposed issuance. Gol also intends to reduce its short-term local
debt exposure with Brazilian banks that includes the BRL586 million
outstanding debentures due 2022 with proceeds from the add-on,
which will free-up receivables or other guarantees that are
currently being provided as collateral.
Gol's B3 CFR is primarily constrained by the uncertainties ahead of
the airline industry as a result of the coronavirus pandemic that
could lead to slower economic recovery or another round of
restrictions for travel and tourism reducing the speed of the
rebound in the industry. Despite the recovery observed in the
Brazilian market during the second half of 2020, Moody's still see
signs of resistance in the capital markets when offering new
funding to the airlines that is translated in structures with
stronger collateral packages and higher interest. The ability to
raise liquidity and control cash burn will still be a key aspect in
Gol's ratings assessment.
Gol's B3 rating reflects the company's strong operating performance
during 2020 versus Moody's expectation at the beginning of the
coronavirus outbreak. The B3 rating also reflects a lower risk of
default in the short term, especially after the repayment of the
term loan guaranteed by Delta and the successful refinancing of
other debt instruments such as working capital facilities and local
market debentures that resulted in a more comfortable debt
amortization profile. Gol's ability to reduce costs through
agreements reached with employees and lessors that resulted in
lower than anticipated cash burn is also reflected in the B3
rating.
The stable outlook reflects Moody's expectations that Gol will
experience a strong recovery in demand going forward while keeping
its conservativeness observed so far during the pandemic towards
liquidity, costs and capacity management.
The ratings could be upgraded if risks and uncertainties are
reduced significantly, and passenger demand begins a sustainable
recovery towards pre-coronavirus levels. An upgrade would also
require Gol to maintain an adequate liquidity profile, with cash
consistently above 20% of revenues, and an improvement in key
metrics, with Moody's-adjusted debt / EBITDA declining to below
6.0x and interest coverage (measured by (funds from operations +
interest) / interest) sustainably above 3.0x.
Gol's ratings could be downgraded if the pace of recovery of
passenger demand is slower than Moody's expects or if liquidity
concerns increase, translating into an increased expectation of a
default in the company's financial obligations. A downgrade could
also occur if the company is unable to strengthen credit metrics
through the recovery phase.
Founded in 2000 and based in Sao Paulo, Brazil, Gol is the largest
low-cost carrier in Latin America, offering over 750 daily
passenger flights to connect Brazil's major cities and various
destinations in South America, North America and the Caribbean,
along with cargo and charter flight services. After the conclusion
of the incorporation, Gol will own 100% of Smiles, a loyalty
program company with more than 18.5 million participants that
allows members to accumulate miles and redeem tickets in more than
900 destinations around the world and offer non-ticket reward
products and services. In the twelve months ended March 2021, Gol
reported consolidated net revenues of BRL4.8 billion.
GOL LINHAS: Ordered to Pay Passengers for Flight Delay
------------------------------------------------------
Rio Times Online reports that the Court of Goias sentenced Gol
Airlines to pay compensation to 2 passengers for unjustified delay,
amounting to R$8000 (US$1,500) each. They were returning from Porto
Seguro (BA) to Goiania (GO), but only reached their destination
almost 2 days after the scheduled date.
According to the decision, passengers would travel from Porto
Seguro to Goiania, but had their flight diverted to Brasilia. They
proved spending.
Judge Laura Ribeiro de Oliveira, assistant in the 2nd Special Civil
Court of Aparecida de Goiania, in the metropolitan region, issued
the ruling, according to Rio Times Online.
As reported in the Troubled Company Reporter-Latin America on Dec.
29, 2020, Moody's Investors Service upgraded Gol Linhas Aereas
Inteligentes S.A's corporate family rating to B3 from Caa1. At the
same time, Moody's upgraded to Caa1 from Caa2 Gol Finance's
perpetual notes guaranteed by Gol and Gol Linhas Aereas S.A. and
the $350 million senior exchangeable notes due 2024 issued by Gol
Equity Finance and guaranteed by Gol and Gol Linhas Aereas S.A. The
outlook was changed to stable from negative.
RIO OIL: S&P Affirms 'BB-' Ratings on 3 Fixed-Rate Note Series
--------------------------------------------------------------
S&P Global Ratings affirmed its 'BB-' ratings on Rio Oil Finance
Trust's fixed-rate notes series 2014-1, 2014-3, and 2018-1.
The note issuances are backed by all current and future royalty and
special participation payments from offshore oil and natural gas
production in the Rio de Janeiro State (RJS) in Brazil. The
transaction's sponsor is Rioprevidencia, a social security fund for
RJS state employees that has been allocated present and future RJS
royalty rights, after mandatory deductions.
The ratings on the notes primarily reflect our corporate
performance assessment of Petroleo Brasileiro S.A. (Petrobras), the
strength of the transaction's cash flow through a debt service
coverage ratio (DSCR) analysis in base-case and stressed-case
scenarios, and a sovereign interference risk assessment that could
result in a rating cap on Petrobras.
S&P said, "We view Petrobras as the substantial majority originator
and obligor of the royalties supporting the transaction, as it
currently accounts for over 90% of the collected royalties and
special participation amounts. Our corporate performance
assessment, based on our current 'BB-' issuer credit rating (ICR)
and satisfactory business risk profile assessment for Petrobras,
supports a higher maximum potential rating on the transaction. We
also consider the likelihood that, given the strength of Petrobras'
offshore drilling operations, the company would continue to operate
even under a hypothetical stressed scenario of insolvency.
"We updated our cash flow analysis to incorporate Petrobras' most
recent oil and gas production forecast and the revised prices for
Brent oil and Henry Hub natural gas, as well as the current
outstanding balances on all series issued under Rio Oil Finance
Trust, royalties allocated per field, and Brent discounts." Under
the base case of S&P's cash flow analysis, it also includes the
following assumptions:
-- Average Brent oil price of $60 per barrel (bbl) for the
remainder of 2021, $60/bbl in 2021, and $55/bbl starting in 2023
and throughout the life of the transaction;
-- Average exchange rate close to R$5.4 per $1 in 2021, R$5.45 per
$1 in 2022, and R$5.5 from 2023 on;
-- Currency depreciation of 14.5% to each payment period to
reflect the 50-day lag before assets are converted back to U.S.
dollars; and
-- A 10% haircut on oil production in all projected years compared
with Petrobras' current production forecast.
S&P said, "In our base-case scenario, the transaction would
maintain a minimum quarterly DSCR of about 2.14x and minimum
annualized DSCR of 2.18x. Our DSCR calculations are somewhat
conservative as they fully apply royalties and special
participation allocations established under law 12.734, which is
currently under discussion at the Superior Tribunal Federal, with
no set date for voting.
"For the stressed cash flow scenario, we applied an additional 10%
haircut on production levels as well as a 15%-20% haircut on annual
oil and gas prices. This results in an overall decline of 35% to
the available revenue stream derived in our base-case scenario. The
35% haircut reflects the expected level of decline in cash
generation associated with a hypothetical default scenario of
Petrobras. As a result of such assumptions, we reach a minimum DSCR
level of 1.39x in the stressed-case scenario, without reliance on
reserve accounts.
"The combination of the corporate performance assessment and the
stressed cash flow analysis support a maximum potential rating on
the notes that is up to two notches above the ICR on Petrobras.
However, our view of risks associated with sovereign interference
leads us to view the credit quality of Petrobras as a cap to the
ratings on the transaction at the 'BB-' level. As a
government-related entity, the ICR on Petrobras already captures
certain risks associated with federal government influences, such
as its domestic pricing strategy. We also consider in our sovereign
interference assessment that under a stressed scenario, changes to
laws and regulations governing the distribution of oil and gas
royalties and special participations are likely, especially as
those resources are crucial for the fiscal balance of certain
states and municipalities."
Counterparty Risk
The rating on the transaction is also capped at the 'BB-' rating
level as a result of its exposure to the Brazilian sovereign as a
paying agent, and to financial institutions that provide bank
account services and repurchase agreements, to which transaction
documents establish the minimum eligible ratings at 'BB-'.
Sensitivity Analysis
S&P said, "Factors that could lead us to revise our ratings on the
transaction include changes to our foreign currency rating on
Brazil or Petrobras, and persistently lower global oil and gas
prices than our base-case assumptions. Given Rio Oil Finance
Trust's exposure to payments from the National Treasury and the
likelihood that Brazil will provide government support to
Petrobras, any changes to the rating on the sovereign may also
affect the ratings on the transaction. Similarly, a downgraded
rating on Petrobras could affect the ratings on the transaction.
Further, persistently low oil and gas prices (i.e., below $30 for
several quarters) could also have a negative impact on the ratings,
although our base-case and stress-case cash flow analyses already
incorporate conservative pricing assumptions."
Ratings Affirmed
Rio Oil Finance Trust
Series 2014-1: 'BB-' (sf)
Series 2014-3: 'BB-' (sf)
Series 2018-1: 'BB-' (sf)
=========
C H I L E
=========
ENJOY SA: S&P Assigns 'CCC+' LT ICR Following Debt Exchange
-----------------------------------------------------------
On May 3, 2021, S&P Global Ratings assigned a 'CCC+' long-term
issuer credit rating on Chilean casino operator Enjoy S.A. and
'CCC+' issue-level rating to its senior secured bonds.
On April 30, 2021, Chilean casino operator Enjoy completed the
exchanges on all of its domestic unsecured debt.
Enjoy announced that it completed all pending exchanges on its
domestic unsecured debt, which was part of its judicial
reorganization agreement. On Sept. 30, 2020, Enjoy had already
exchanged its international senior secured bonds due 2022 for $210
million for new bonds due 2027. This exchange improved
significantly the company's liquidity position, given the absence
of significant debt maturities until 2027, improved capital
structure--although we expect leverage to remain very high for the
next two to three years--and sharply lower interest expenses in the
next few years.
-- Conversion of 80% of domestic unsecured debt into convertible
bonds with characteristics that S&P believes will incentivize rapid
conversion into equity;
-- Extension of secured debt maturity, pushing amortization of
senior secured international notes to 2027 from 2022;
-- Raising new funding for Chilean peso (CLP) 50 billion to ensure
sufficient liquidity for ramping up operations and investments in
2021. This new financing has also been prepaid with convertible
bonds, which S&P expects to be converted into equity in full by
2022; and
-- Lower interest expenses for the next few years because of
interest rate reductions and debt conversion, reducing sharply cash
interest in 2021 because of payment-in-kind considerations in most
of the debts.
S&P said, "Due to a harsher impact from COVID-19 than we previously
assumed, we estimate the company will report EBITDA and funds from
operations (FFO) losses in 2021, along with higher cash burn.
Additionally, we believe there is still significant uncertainty
over the gaming and hotels industry's recovery pace while
governments continue imposing restrictions to contain COVID-19and
even once disruptions cease."
Currently, all of the company's casinos and hotels are closed and
amid rising COVID-19 cases. Enjoy has faced constant operating
shutdowns since early 2021 in Chile and Punta del Este (Uruguay).
In S&P's view, Uruguay's border closure during the summer months
will undermine Enjoy's results in Punta del Este in 2021, because
during this period, the company posts the strongest performance
thanks to the arrival of Brazilian and Argentinean tourists. The
company's casino and hotel in Uruguay have maintained very limited
operations throughout the first months of the year, while these
operations generated about 30% of Enjoy's EBITDA prior to the
pandemic.
Similarly, some regions and cities in Chile returned to stricter
lockdowns in January, which forced Enjoy to close several of its
casinos. Although the municipalities gradually lifted restrictions
in February, many casinos reopened, and the gaming regulator
approved protocols that relaxed operating restrictions, all casinos
remain closed in Chile since mid-March.
Given Enjoy's CLP68 billion in cash as of Dec. 31, 2020, our EBITDA
forecast for 2021, minor financial amortizations and cash interests
for the year, and the lower capital expenditure (capex) needs as
the start-up of renewed municipal licenses has been extended, S&P
estimates that the company has enough cash to fund its operations
through 2021. Additionally, Enjoy raised CLP28.4 billion in
Preferential Option Period of Convertible Bonds Series Q, R, and T,
and of the Stock Subscription Option (Warrant).
S&P said, "In our view, Enjoy could only have a marginal need of
intra-year working capital lines, while the need for additional
liquidity could only come in 2022. However, depending on the length
of restrictions and casino closures, and the uncertainty over the
economic and industry recovery, the outcomes may vary widely for
Enjoy's revenue, EBITDA, and liquidity in the next few quarters.
The company's revenue and EBITDA declines could also be steeper
than our base-case assumptions and the company might need to raise
additional liquidity before year-end. The scenario for 2022 looks
more complicated from a liquidity standpoint, because despite our
assumptions of sound operating recovery, Enjoy would need to raise
additional liquidity. While we believe the company's access to
markets and financial institutions is constrained, Enjoy has some
other ways to raise additional liquidity (asset sales, further
stock subscription options--stock warrants). However, we believe
the likelihood any of these would be completed in 2021 as low."
LATAM AIRLINES 2015-1: S&P Cuts Class A Certs Rating to 'CCC-'(sf)
------------------------------------------------------------------
S&P Global Ratings lowered the ratings on Latam Airlines Group
S.A.'s EETC-2015 1 Class A certificates to 'CCC-'(sf) from
'CCC'(sf) and on Class B certificates to 'CC'(sf) from 'CCC-'(sf).
Subsequently, S&P withdrew the ratings.
Following the aircraft rejection and agreement with trustee on
their repossession in mid-2020, ratings on the certificates are
based exclusively on collateral values and availability of the
liquidity facility, which still should cover the next three
interest payments (until Nov. 15, 2021).
On March 15, 2021, the majority of Class A certificate holders,
acting as the directing certificate holder mandated the trustee to
auction the EETC aircraft. The downgrade follows the confirmation
after bid deadline that the only qualified bid was the one from the
Stalking Horse Bidder, which is the directing certificate holder.
S&P said, "We believe the bidding price could be considerably below
current aircraft market values (30%-35% lower) and below
outstanding debt ($646 million in Class A and $102 million in Class
B). The downgrade of class A certificates to 'CCC-'(sf) reflects
that we believe the proceeds left from the aircraft sale, after
repayment of the liquidity facility and other expenses, won't be
enough to fully cover Class A certificates' outstanding debt. The
downgrade of Class B certificates to 'CC'(sf) reflects our
expectation of a total loss on the junior class. Certificate
holders could recover part of the deficiencies as unsecured claims
under Latam's bankruptcy process, but our EETC ratings don't
incorporate such a scenario."
S&P subsequently withdrew the ratings on both classes after the
collateral has been sold.
=======
C U B A
=======
CUBA: In Tough Battle to Recover Key Sugar Industry
---------------------------------------------------
EFE News reports that the former leader in the world sugar market,
Cuba is far from recovering the huge production volumes of former
years in an industry considered to be the country's economic engine
but which has not managed to take off again since it collapsed
during the 1990s.
Of the 156 sugar plants operating before 1959, just 56 remain and
only 38 of them are processing the 2020-2021 harvest, notes the
report. And the 5.6 million tons of sugar collected during the year
in which the Cuban Revolution triumphed, or the 7-8 million tons
during the industry's best years between 1970 and 1989, have
plunged to only a little over a million tons projected for the
current harvest.
The iconic Cuban sugar industry has been affected over the last six
decades by the US financial and trade embargo - losing some $125
billion, according to Havana's estimates - and the resulting
impossibility of accessing the US market, recounts the report. Add
to that the prevailing technological obsolescence, the lack of
fertilizers and fuel, the scanty available financing and other
factors, all of which are putting the brakes on development of a
sector that's strategic because of the foreign currency it brings
in from exports of sugar, alcohol (particularly rum), energy
(ethanol) and other derivatives.
And all this is compounded by the frequent paralysis of operations
at the plants and the low quality of the raw material, EFE News
relates.
To export sugar, and to import ingredients or spare parts, Cuba
must somehow get around the embargo, the first vice president of
the state-run Azcuba group, Jose Carlos Santos, told EFE. Add to
that, the impact of hurricanes such as Irma, which cut short the
slight growth the sector had experienced in 2011, after suffering
the worst harvest in 105 years the year before: barely one million
tons. That 2017 hurricane wiped out more than 430,000 hectares
(over a million acres) of sugar cane and wrecked the roofs and
buildings of about 20 factories.
As a result, Cuba has produced only 700,000 tons of sugar per year
since 2017, Santos told reporters, notes EFE.
According to the report, the target of 1.2 million tons will not be
achieved during the current processing phase that began last
December and was supposed to conclude in late April but will be
extended as long as the May rains don't bring the work to a halt,
the director said.
Sugar used to provide 80 percent of the island's export earnings
during the 1950s, the principal market being the US, for which a
preferential quota was always set aside, the report recounts.
In 2002, Fidel Castro announced a restructuring of the sugar
industry by closing 70 percent of the plants, reducing production
capacity to just half of what it was and shifting 60 percent of the
sugar cropland to other production.
After world prices rose again in 2006, however, Cuban authorities
adopted the strategy of trying to produce more sugar, noting that
the sugar industry is the backbone of the island's economy, adds
the report.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Gov't. Bans Livestock From Highlands
--------------------------------------------------------
Dominican Today reports that the Environment Ministry and Plan
Sierra started a pilot program via resolution 04-2021 that prevents
livestock in the mountains harmful for the production of water.
Minister Orlando Jorge met with the livestock associations within
Plan Sierra to explain the need to eliminate livestock practices in
high altitudes to avoid negative effects on water, soil, forests
and biodiversity resources, according to Dominican Today.
"We need to raise awareness today of the importance of preserving
the water resource and in that sense, at Environment we are taking
a transcendental step. We have not remained passive and that step
has been to regulate a reality that hits us daily and it is the
presence of cattle in the heights of the mountains," the report
notes.
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).
===========
M E X I C O
===========
CONSUBANCO SA: Fitch Affirms 'BB-' LT IDR, Outlook Stable
---------------------------------------------------------
Fitch Ratings has removed Consubanco, S.A., Institucion de Banca
Multiple's (Consubanco) ratings from Rating Watch Negative (RWN)
and affirmed its Long- and Short-Term Foreign and Local Currency
Issuer Default Ratings (IDRs) at 'BB-' and 'B', respectively. Fitch
has also removed from RWN and affirmed Consubanco's National Scale
Ratings. The Rating Outlook on the Long-Term Ratings is Stable.
Removal of the RWN reflects Fitch's reduced concerns about
Consubanco's execution risks and change in risk appetite. Fitch
considers Consubanco has effective merging and managing its two
recent portfolio acquisitions amid a challenging operating
environment. Fitch believes those are commensurate with the bank's
business model and existing risk appetite without having a negative
impact on its financial profile.
The Stable Outlook reflects that payroll lending's asset quality
has been relatively more resilient to increasing unemployment.
Although there could be some profitability pressures given the
in-person based origination and still reduced mobility, Fitch
believes current Consubanco's ratings, which are lower than its
peers, already incorporate this risk.
KEY RATING DRIVERS
IDRS, VR, NATIONAL RATINGS
Consubanco's IDRs and National Ratings are driven by its intrinsic
creditworthiness, as reflected in its 'bb-' VR. The bank's VR is
highly influenced by its company profile as a franchise, albeit
small, well-positioned in the Mexican payroll sector serving public
employees and with a concentrated business model. The bank's less
diversified funding and liquidity profiles, which are highly
dependent on wholesale sources, also have highly influence its VR.
The ratings incorporate the bank's risk appetite focus on federal
entities, its good capitalization metrics and pressured asset
quality and profitability in a challenging operating environment.
In 2020 and 2021 Consubanco made two loan portfolio purchases that
were oriented to payroll loans of federal entities. First Banco
Ahorro Famsa S.A. Institucion de Banca Multiple's (BAF), which
later sold half of it and at March 2021 only around MXN340 million
of this portfolio were on Consubanco's balance; and Fisofo S.A. de
C.V., SOFOM, E.N.R.'s (Fisofo) acquisition, which occurred in March
2021. Those acquisitions resulted in an increase in the bank's
portfolio (1Q21: 21.1% versus 3Q20) and were part of Consubanco's
inorganic growth strategy. Fitch views the acquisitions as aligned
with the bank's risk appetite, and they did not modify the risk
appetite assessment.
Consubanco's funding profile is less diversified than some peers
and relies on funding, which is more sensitive to the investor
appetite, as unsecured debt issuances (2020: 42.2% total funding).
Fitch considers this type of funding could be subject to further
stress given some recent reputational events in the Mexican payroll
lending segment specializing in public sector employees. At 2020,
the bank's loan to deposit ratio was 302.9%, higher than its
closest peers. Although the bank's liquid assets decreased after
the two acquisitions, the bank still maintains adequate liquidity
levels, and at March 2021 the LCR ratio was 360%. Considering the
non-bank financial institutions (NBFI) criteria, the unsecured
funding to total funding ratio of 77% compares adequately with
rated NBFIs.
In 2020 Consubanco's asset quality continued to moderately
deteriorate, given an increase in consumer impairment loans by a
state dependency and its first commercial impairment loan. The
bank's nonperforming loans ratio (NPL), which include accounts
receivable from employers more than 90 days past due, was 6.8%,
higher than previous periods (2017-2019: 5.7%). Although Consubanco
may continue to face pressure from the state dependency mentioned,
the concentration in this portfolio is low (1Q21: 2% of total
loans). If a resolution is not achieved, Fitch expects moderate
impacts on the actual levels of the NPL.
The bank's operating profit to RWAs ratio was 1.8% at YE20
(2017-2019: 3.7%). Recent pressures were driven by an increase in
provisions for credit losses, by loans deterioration and BAF's
portfolio acquisition, and to a lesser extent, losses from
derivatives and lower interest margin due to lower interest rates
and lower business volumes. Fitch believes pressure could continue
given uncertainty about the reopening of some agreements, but the
acquisition of Fisofo's sales force and agreements could partially
mitigate pressure on the interest margin.
As of December 2020, Consubanco showed a decrease in the CET1 to
RWAs ratio, which was 16.9% (2019: 21.5%) and reflects a dividend
payment in 4Q20 of MXN400 million and the increase in RWAs for the
BAF's portfolio acquisition. However, this metric continues at good
levels and is supported by income generation, and compares
favorably with some of the medium-size banks rated by the agency.
Fitch expects that Consubanco will maintain its capitalization
metrics at appropriate levels for its ratings.
Due to the bank's business model concentration on payroll deducted
loans, it is exposed to operational, political and event risk. The
willingness and ability of public sector entities to fully disburse
retained collections usually impact asset quality and liquidity.
Fitch believes Consubanco has partially mitigated this risk, given
that above 80% of its loan portfolio corresponds to federal
entities, which tend to be operationally efficient and exhibit
virtually null delays in transferring payments. Fitch's assessment
of Consubanco's risk appetite incorporates the recent suspension of
some agreements with public sector entities.
SENIOR DEBT
Local senior unsecured issuances are at the same level as
Consubanco's national long-term rating as the likelihood of default
for the notes is the same as the bank's.
SUPPORT RATING AND SUPPORT RATING FLOOR
Consubanco's SR and SRF of '5' and 'NF', respectively, are driven
by its low systemic importance; as of December 2020, its deposits
were around 0.1% of the Mexican banking system. They also reflect
Fitch's opinion that government support to the bank, although
possible, cannot be relied upon.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade is possible if the bank is able to maintain its
improvements in funding and liquidity management. Continued
diversifying its funding base, with a greater relative
contribution of retail deposits and/or credit facilities will
be positive for the ratings. Further material strengthening of
its franchise, profitability and capitalization could also be
credit positive over time.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The bank's ratings could be downgraded upon an increase in its
liquidity risks, a low balance liquidity or less access total
funding that is susceptible to market sentiment or of
depositors, would also put pressure on the ratings.
-- The ratings could also be downgraded if there are additional
pressures on the bank's financial profile. Specifically, due
to a significant deterioration of delinquency ratios, if its
CET1 ratio falls below 14% in a sustained manner, or if
operating profit to RWAs is consistently below 1%. An
increased political or business risks could also be negative
for ratings.
SENIOR DEBT
Local senior debt ratings of Consubanco would mirror any changes in
the bank's National scale ratings.
SUPPORT RATING AND SUPPORT RATING FLOOR
Given the bank's limited systemic importance and the almost
incipient penetration of deposits, Fitch believes that the SR and
SRF are unlikely to change in the foreseeable future.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch has reclassified Account Receivables from employers as loans,
with those overdue by more 90 days classified as impaired. Loan
loss reserves are increased by the amount of reserves related to
these account receivables. Capitalized fee expenses and other
deferred assets were reclassified as intangibles and deducted from
total equity due to its lower loss absorption capacity.
ESG CONSIDERATIONS
Fitch has revised Consubanco's ESG Relevance Score for Management
and Strategy to '3' from '4' due to the recent inorganic growth was
commensurate with Consubanco's business model and aligned with the
bank's existing underwriting standards and risk appetite, given its
focus on federal entities, so Fitch does not expect this could have
a negative impact on the credit profile in the short term.
Consubanco has an ESG Relevance Score of '4' for Governance
Structure due to the observation occurred in 2020 regarding related
parties' limits made by the banking regulator about some
receivables that could be considered related parties, and have not
been registered as such. However, recently the bank took actions to
reduce the related parties and mitigate the risk of another excess
of regulatory limits. Fitch will continue to monitor this factor,
which has a negative impact on the credit profile and is relevant
to the ratings in conjunction with other factors.
Fitch has revised Consubanco's ESG Relevance Score for Customer
Welfare Welfare - Fair Messaging, Privacy & Data Security to '4'
from '3' due to its exposure to reputational and operational risks
as its main business targets are government employees and
dependencies through credits with relatively high rates, which has
a negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors.
Fitch has revised Consubanco's ESG Relevance Score for Exposure to
Social Impacts to '4' from '2' due to its exposure to a shift in
social or consumer preferences or to government regulation of its
lending offer, this has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
FIDEICOMISO IRREVOCABLE: S&P Cuts A-2 Notes Rating to 'BB+ (sf)'
----------------------------------------------------------------
S&P Global Ratings lowered its long-term global and national scale
ratings on Fideicomiso Irrevocable y Traslativo de Dominio Numero
2400's CMBS notes due 2034. The notes are backed by a first-lien
perfected security interest in a portfolio of nine properties
developed by Grupo GICSA S.A.B. de C.V. (GICSA;
B+/Negative/mxBBB-/Negative) and managed by its subsidiary,
Desarrolladora 2054 S.A.P.I. de C.V. (Desarrolladora 2054; not
rated), which are located in Mexico and have a combined gross
leasable area of retail, office, and mixed-use space. At the same
time, S&P removed the ratings from CreditWatch with negative
implications, where it had placed them on Feb. 23, 2021.
S&P said, "The downgrade reflects our view of an increased risk on
the securitized portfolio as a result of the current macroeconomic
environment in the country combined with uncertain business
conditions. In our view, this justifies an increase in our vacancy
rate assumptions, as well as in our capitalization rate estimates,
affecting our long-term valuation for the properties and the
transaction's loan-to value (LTV) metrics, which are no longer
sufficient to support their previous rating levels.
"We raised our vacancy assumption to 13.70% from 13.20%, mainly
reflecting the observed vacancy rates in the market, as well as our
view that evolving market dynamics, such as work-from-home
arrangements, combined with the current macroeconomic environment
could lead to lower occupancy rates. In addition, we applied a
1.25% vacancy loss in order to reflect the fact that some rents
could be lost in the future. Our analysis also considered an
increase in our operating expenses assumption, which we estimate
could be 9.00% higher than those we estimated initially. According
to the rent-roll provided by the company, as of March 2021, the
collateral properties were 88.80% occupied.
"We also increased our capitalization rate assumption in 25 basis
points for all properties to reflect our view of potential cash
flow volatility due to declining and weaking trends in the retail
and office sectors combined with the overall perceived increase in
the market risk premium for these property types amid uncertain
business conditions.
"Among the factors supporting our increased capitalization rates
for the retail properties, we identified the relatively high
exposure to businesses related to entertainment, increased
uncertainty in some of the tenants, and potential contract
renegotiations that might generate cash flow volatility. As for the
office properties, we believe that work-from-home arrangements and
corporations' cost-cutting strategies could lead to reduced
demand.
"We have revised our portfolio net cash flow (NCF) estimate to
MXN1.27 billion from MXN1.34 billion. Our property-level analysis
considered the historical performance information for the
properties. Using our updated assumptions, we arrived at our
expected-case value on the whole portfolio of MXN13.77 billion. In
addition, we received an updated properties appraisal, which
included a drop in the portfolio value of approximately 4.00%
compared to the previous appraisal, and a capitalization rate that
was on average 50 basis points higher than the previous.
"Our updated valuation resulted into an S&P Global Ratings' LTV
ratio (after considering foreign exchange risk stresses) of 68.30%
for classes A-1 USD and A-1 MXN and of 71.80% for class A-2 MXN.
These updated LTV ratios are no longer consistent with the previous
rating levels.
"The rating actions also reflect our view that there's been no
changes to the transaction's the legal, counterparty, and payment
structure, and cash flow mechanics risks. As for operational risk,
Desarrolladora 2054 is the only performance key transaction party.
In our view, further weakening of its parent's creditworthiness
(which was downgraded to 'B+ (sf)' earlier this year) may
negatively impact the manager's capacity to service the
properties.
"We will continue to monitor the performance of the securitized
properties, as well as that of the transaction manager. The ratings
may be negatively affected if vacancy rates increase beyond our
expectations. In addition, a decline in NCF could pressure the
transaction's LTV ratios and might negatively affect the ratings.
We may also lower the ratings upon new upward adjustments in our
capitalization rate assumptions."
S&P Global Ratings believes there remains high, albeit moderating,
uncertainty about the evolution of the coronavirus pandemic and its
economic effects. Vaccine production is ramping up and rollouts are
gathering pace around the world. Widespread immunization, which
will help pave the way for a return to more normal levels of social
and economic activity, looks to be achievable by most developed
economies by the end of the third quarter. However, some emerging
markets may only be able to achieve widespread immunization by
year-end or later. S&P said, "We use these assumptions about
vaccine timing in assessing the economic and credit implications
associated with the pandemic. As the situation evolves, we will
update our assumptions and estimates accordingly."
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety.
Ratings Lowered And Removed From CreditWatch Negative
Fideicomiso Irrevocable y Traslativo de Dominio Numero 2400
Class Senior A-1 MXN: to 'BBB- (sf)' from 'BBB (sf)'/Watch Neg
Class Senior A-1 MXN: to 'mxAA+(sf)' from 'mxAAA (sf)'/Watch Neg
Class Senior A-1 USD: to 'BBB- (sf)' from 'BBB (sf)'/Watch Neg
Class Senior A-1 USD: to 'mxAA+(sf)' from 'mxAAA (sf)'/Watch Neg
Class Senior A-2 MXN: to 'BB+ (sf)' from 'BBB- (sf)'/Watch Neg
Class Senior A-2 MXN: to 'mxAA-(sf)' from 'mxAA (sf)'/Watch Neg
MXN-- Mexican pesos.
USD--U.S. dollars.
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T R I N I D A D A N D T O B A G O
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CARIBBEAN AIRLINES: Region Opens to Tourism; Employees Get Training
-------------------------------------------------------------------
Trinidad Express reports that Caribbean Airlines Limited is
collaborating with Caribbean Public Health Agency, through its
Regional Traveller Health Programme (THP) to promote healthy, safer
tourism as the region opens to tourism during the Covid-19
pandemic.
On April 20-21, a total of 179 CAL employees underwent CARPHA's
Covid-19 Essential Health Guidelines Training for Airlines,
according to Trinidad Express.
The airline said these staff members included flight attendants,
customer experience officers, crew control officers and others, the
report notes. All participants received certificates of
participation.
The training is the first step in CAL acquiring the Caribbean
Travellers Health Assurance Stamp for Healthier Safer Tourism (HST)
award, the report relays.
The HST Stamp is a measurable and verifiable recognition award for
tourism entities that are implementing CARPHA's recommended
proactive Covid-19 health monitoring and safety measures, the
report discloses.
The award is recognised by the region's premier tourism agencies
(CTO and CHTA) and internationally in November 2020 by the World
Travel Tourism Council (WTCC), the report notes. It provides
travellers with the added assurance of a healthier safer option
when choosing a tourism product in the Caribbean, the report
relays.
It noted the Covid-19 training that Caribbean Airlines employees
received was specifically designed by CARPHA for the airline
industry, the report adds.
Caribbean Airlines is the first airline in the Caribbean region to
receive this training and to enroll and initiate the process for
the HST award, the report discloses.
The airline's head of corporate communications, Dionne Ligoure,
said: "From the onset of the pandemic, Caribbean Airlines rolled
out programs to educate and secure the health and safety of our
employees and customers, including the ability for customers to
access Covid-19 test via our website and adding a tool that
provides up-to-date info on entry requirements to all of our
destinations. Collaborating with CARPHA on this important
initiative is another example of our commitment. The HST Award will
be a further demonstration of Caribbean Airlines putting safety
first," the report relays.
CARPHA's director of Surveillance, Disease Prevention and Control
Division, Dr Lisa Indar, said, "We are delighted to be engaging
with Caribbean Airlines. As the Caribbean's main airline with the
largest network, Caribbean Airlines is ensuring that they are
protecting travellers every step of the way from check-in to
disembarkment, playing a critical role in fighting Covid-19 and
reinstating safe travel to the Caribbean," the report discloses.
In the upcoming months, CARPHA and CAL also propose to collaborate
on various advocacy activities to promote Healthier Safer Tourism
and the HST Stamp, the report adds.
About Caribbean Airlines
Caribbean Airlines Limited - http://www.caribbean-airlines.com/-
provides passenger airline services in the Caribbean, South
America, and North America. The company also offers freighter
services for perishables, fish and seafood, live animals, human
remains, and dangerous goods. In addition, it operates a duty free
store in Trinidad. Caribbean Airlines Limited was founded in 2006
and is based in Piarco, Trinidad and Tobago.
Caribbean Airlines is among many airlines whose business has been
greatly affected in 2020 by the slowdown of international travel
caused by the COVID-19 pandemic. The government of Trinidad &
Tobago guaranteed a US$65 million loan for the airline, and that
funding has helped with the airlines' cash flow shortfall since May
2020. In September 2020, the airline related it will be taking
cost-cutting measures to help keep it afloat. The measures, which
was to affect some 1,700 employees, included salary deductions,
no-pay leaves and lay-offs.
*********
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
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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2021. All rights reserved. ISSN 1529-2746.
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