/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/210531.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 Monday, May 31, 2021, Vol. 22, No. 102 Headlines B R A Z I L BANCO SAFRA: Moody's Affirms 'Ba2' Deposit Ratings, Outlook Stable BRAZIL: Agreements with Asia Could Threaten Jobs BRAZIL: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Negative BRAZIL: Incentives Should Sustain Economic Recovery, CB Says LOCALIZA RENT: Moody's Puts Ba2 Rating Under Review for Upgrade USJ-ACUCAR E ALCOOL: Fitch Affirms 'RD' LongTerm IDRs D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Salami & Other Sausages Prices Will Rise 12% M E X I C O CEMEX SAB: Fitch Affirms 'BB-' LT IDRs & Alters Outlook to Stable ELEMENTIA SAB: Fitch Affirms 'BB-' IDRs & Alters Outlook to Stable GRUPO KUO: S&P Alters Outlook to Stable & Affirms 'BB-' ICR P U E R T O R I C O GUI-MER-FE: Case Summary & 2 Unsecured Creditors T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: 54% Decline in Oil And Gas Revenue, TTEITI Says X X X X X X X X [*] BOND PRICING: For the Week May 24 to May 28, 2021 - - - - - =========== B R A Z I L =========== BANCO SAFRA: Moody's Affirms 'Ba2' Deposit Ratings, Outlook Stable ------------------------------------------------------------------ Moody's Investors Service has affirmed all ratings and assessments assigned to Banco Safra S.A. (Safra), including the bank's long and short-term global scale local and foreign currency bank deposit ratings of Ba2 and Not Prime, respectively. The rating agency also affirmed Safra's (P)Ba2 foreign currency senior unsecured MTN rating as well as its counterparty risk ratings, for local and foreign currency, of Ba1, and the Aa1.br and BR-1 long and short-term Brazilian national scale bank deposit ratings. Safra's baseline credit assessment (BCA) of ba2 and the counterparty risk assessments of Ba1(cr) and Not Prime(cr), for long and short-term, were also affirmed. The rating outlook remains stable. The following ratings and assessments assigned to Banco Safra S.A. were affirmed: Baseline credit assessment of ba2 Adjusted baseline credit assessment of ba2 Long-term global scale local currency bank deposit rating of Ba2, outlook stable Short-term global scale local currency bank deposit rating of Not Prime Long-term Brazilian national scale bank deposit rating at Aa1.br Short-term Brazilian national scale bank deposit rating at BR-1 Long-term global scale foreign currency bank deposit rating of Ba2, outlook stable Short-term global scale foreign currency bank deposit rating of Not Prime Long-term counterparty risk assessment of Ba1(cr) Short-term counterparty risk assessment of Not Prime(cr) Long-term Brazilian national scale counterparty risk rating at Aaa.br Short-term Brazilian national scale counterparty risk rating at BR-1 Long-term global scale local and foreign currency counterparty risk ratings of Ba1 Short-term global scale local and foreign currency counterparty risk ratings of Not Prime Long-term global scale foreign currency senior unsecured MTN rating of (P)Ba2 Short-term global scale foreign currency senior unsecured MTN rating of (P)Not Prime Outlook: stable The following ratings and assessments assigned to Banco Safra S.A. (Cayman Branch) were affirmed: Long-term counterparty risk assessment of Ba1(cr) Short-term counterparty risk assessment of Not Prime(cr) Long-term global scale local and foreign currency counterparty risk ratings of Ba1 Short-term global scale local and foreign currency counterparty risk ratings of Not Prime Long-term global scale foreign currency senior unsecured MTN rating of (P)Ba2 Long-term global scale foreign currency senior unsecured debt rating of Ba2, stable outlook Outlook: stable RATINGS RATIONALE The affirmation of Safra's ba2 BCA reflects the bank's ability to maintain a sound solvency profile on the back of its stable business performance amid a challenging operating environment in 2020. The bank's earnings benefit from a diversified and well-established commercial banking franchise , with focus on corporate banking and collateralized lending to smaller companies and individuals. Solid relationships with customers and disciplined risk guidelines have historically contributed to strong recurring earnings generation, low cost of risk and superior asset quality compared to similarly rated banks in Brazil. The bank maintained a low delinquency level compared to domestic peers, with a 90-day non-performing loan (NPL) ratio of 1% as of March 2021, covered by high loan loss reserves equivalent to three times NPLs, as calculated by Moody's. However, Moody's expect asset risks to rise in the coming quarters as Safra continues to expand into retail lending, primarily providing short-term loans to small businesses, a complementary business to its card acquiring platform Safrapay, which will increase earnings diversification and loan granularity overtime. In March 2021, this new collateralized portfolio accounted for less than 7% of the bank's loan book, while its traditional portfolio consisted of of loans to large corporates ( 58.7% of total loans), medium size companies (11.8%) and individuals (22.6%). Banco Safra conservatively manages its liquidity, maintaining high cash balances that accounted for 57.1% of total deposits as of March 2021. The bank's large share of institutional funding is mitigated by long-standing customer relationships which have historically held up well through economic cycles. In March 2021, customer deposits increased 58.1% year-over year, indicating a strong and loyal customer base of corporates and qualified individual investors. In March 2021, Safra's capitalization remained modest at 6.3% measured by tangible common equity to adjusted risk weighted assets. While this ratio is comparable to that of many of Safra's Brazilian peers, historically, the bank's business strategy has been supported by frequent dividend reinvestment and conservative distribution policy, which helps to mitigate the lower capital metrics compared to both regional and global standards. On a regulatory basis, however, Safra reported an adequate core capital ratio at 9.4%, above the regulatory minimum requirement of 6.75% for 2021. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Safra's ba2 BCA and Ba2 deposit rating have limited upward pressure at this moment because they are already at the same level of Brazil's Ba2 government bond rating. However, the bank's BCA could be lowered and its deposit ratings downgraded if Safra's asset quality deteriorates substantially as it increases its presence in riskier credit platforms to enhance business diversification, resulting in negative effects to profitability and capitalization via credit losses. Negative rating pressure would also arise if the outlook on Brazil's sovereign bond rating changes to negative, from stable. RATING METHOLDOGY The principal methodology used in these ratings was Banks Methodology published in March 2021. BRAZIL: Agreements with Asia Could Threaten Jobs ------------------------------------------------ Rio Times Online reports that trade agreements with South Korea, Indonesia and Vietnam may increase Brazil's trade deficit with these countries by US$12.8 billion per year, according to a statement issued by the National Confederation of Industry (CNI). According to the industry association, these agreements may lead to a drop in employment and production in up to 21 industry sectors, namely electronic products, electrical equipment, machinery and equipment, vehicles and auto parts, textiles, clothing and leather products, the report notes. The position is in line with the complaint voiced earlier by the executive-president of the Brazilian Electrical and Electronics Industry, according to Rio Times Online. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Jair Bolsonaro is the current president, having been sworn in on Jan. 1, 2019. Standard & Poor's credit rating for Brazil stands at BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and short-term foreign and local currency sovereign credit ratings for Brazil were affirmed in December 2020. Fitch Ratings' credit rating for Brazil stands at 'BB-' with a negative outlook (November 2020). Moody's credit rating for Brazil was last set at Ba2 with stable outlook (April 2018). DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). BRAZIL: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Negative ----------------------------------------------------------- Fitch Ratings has affirmed Brazil's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-' with a Negative Outlook. KEY RATING DRIVERS Brazil's ratings are supported by its large and diverse economy, high per capita income relative to peers and capacity to absorb external shocks underpinned by its flexible exchange rate, moderate external imbalances, robust international reserves and deep domestic government debt market. This is counterbalanced by Brazil's high financing needs and government indebtedness, a rigid fiscal structure, weak economic growth potential and a difficult political landscape that hampers timely progress on fiscal and economic reforms. The Negative Outlook reflects risks to fiscal consolidation and economic recovery needed for medium-term public debt stabilization following the sharp deterioration in Brazil's fiscal accounts and public debt burden in 2020, particularly in light of the uncertain evolution of the pandemic, the vaccination process, and economic fallout. Public spending pressures persist and additional fiscal support to address the fallout from the pandemic cannot be ruled out. Continuing fiscal fragilities as well as shortened debt maturities make Brazil vulnerable to shocks. Fitch forecasts GDP growth to reach 3.3% in 2021, after contracting by 4.1% in 2020 (BB median: -4.4%), before slowing to 2.5% in 2022. A strong statistical carryover as well as external factors including higher commodity prices and the rebound in global (and China) growth support growth in 2021. Tightening macroeconomic policies and uncertainties related to next year's election race could weigh on investment and growth in 2022. Downside risks stem from the uncertain evolution of the pandemic and potential delays in the vaccination process. Delays in vaccine supply from abroad and inputs for domestic vaccine production could postpone the authorities' timeline of vaccinating the vulnerable population by the end of 2Q21 and a substantial portion of the entire population by yearend. Any loss of confidence in the trajectory of public finances could also undermine the recovery. Inflationary pressures have increased significantly, with IPCA inflation surging to 6.8% in April from a nadir of 1.9% in May 2020. Higher commodity and food prices, and a weak (albeit recently appreciating) BRL have put pressure on prices. Inflation is expected to exceed the target of 3.75% in 2021. After cutting the Selic interest to a historically low of 2% in 2020, the central bank has reversed course by hiking rates by 150 bps (with more in the pipeline) since March 2021 to fight price pressures and to prevent a deterioration of inflation expectations. Fiscal challenges persist with the general government (GG) deficit reaching around 14% of GDP in 2020 compared with 7.2% for the 'BB' median. Fitch forecasts the GG deficit to remain relatively large at 7.4% of GDP in 2021 (BB median: -5.2%). The reduction in the deficit will be underpinned by the recovery in revenues as well as partial withdrawal of the 2020 fiscal support. The possibility of further extension of pandemic-related spending represents a downside risk to Fitch's fiscal projections for 2021. Sharper-than-expected increases in the sovereign's borrowing costs could also weigh on consolidation prospects. The recent Supreme Court ruling on the exclusion of ICMS taxes from the calculation of the PIS/COFINS tax base that is levied by the federal government would further weigh on Brazil's public finances over the medium term. While Fitch expects the government to comply with the spending cap this year, Fitch highlights that over BRL100 billion (over 1% of GDP) of COVID-19-related temporary spending will remain outside the cap. Even with the exclusion of such spending, the government will face challenges to comply with the cap. As part of the agreement on the 2021 budget, the government cut discretionary spending to extremely low levels to make room for some congressional spending amendments, which will severely constrain flexibility during budget execution. Pressure to create new social programs for coming years persists and potential addition of such spending commitments without offsetting measures could increase budgetary rigidities. Brazil's general government debt burden reached 88.8% of GDP in 2020, which was significantly higher than the current 'BB' median of 59.3%. However, the decline in the central government interest-to-GDP ratio to 3.6% of GDP in 2020 from 4.2% in 2019, has supported affordability. Despite the large fiscal deficit in 2021, Fitch forecasts the debt/GDP ratio to dip slightly to 86.8% due to temporary factors such as the significant prepayment by the BNDES development bank of its loans from the Treasury for BRL100 billion (1.2% of projected GDP) and high nominal GDP growth. Debt is expected to climb modestly thereafter. A slower economic recovery and fiscal adjustment as well as higher sovereign borrowing costs are the main downside risks. Brazil's large funding needs and shortened debt maturities make it vulnerable to shocks. Debt maturities amount to BRL1.35 trillion (around 17% of GDP) in 2021. But a diverse domestic institutional investor base and its domestic bias mitigates rollover risks. Moreover, the Treasury's liquidity buffer reached BRL1.1 trillion (around 14% of forecast 2021 GDP) in March, which gives it flexibility to remain out of the domestic markets for several months. However, a de-anchoring of fiscal expectations might worsen domestic borrowing conditions. Brazil's government has resumed its economic reform agenda in 2021. It secured the approval of the central bank autonomy law and laws to upgrade the regulatory frameworks for the sanitation and gas sectors. Congress also passed a 'fiscal emergency' constitutional amendment that would give the government the power to invoke certain spending adjustments should federal government's mandatory spending exceed 95% of the total primary spending, although this threshold is unlikely to be reached in the coming years. The Lower House has recently approved the legislation to privatize Eletrobras, paving the way for the bill to be discussed in the Senate. A tax reform to simplify the complex system and a public sector reform to contain payroll costs over the medium term and improve public sector efficiency have been submitted to congress. However, it is unclear how much reform progress is possible given vested lobbies, fluidity of the congressional dynamics, and uncertainty around the pandemic. The window of opportunity to pass reforms could close by early 2022 as the focus shifts towards next year's presidential and congressional elections. Brazil's current account deficit (CAD) shrank to less than 2% of GDP in 2020 from 3.5% in 2019 and despite its fall, FDI continued to fully finance the CAD. Fitch expects the CAD to shrink further in 2021 due to a surge in the trade surplus, underpinned by higher exports that will benefit from higher global (and China) growth and commodity prices. Brazil's international reserves remain strong at around USD350 billion despite FX spot sales in 2020-2021. The banking system's adequate capitalization, modest non-performing loans ratio and continued credit growth highlight its resilience to the economic fallout from the pandemic. ESG - Governance: Brazil 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. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch's proprietary Sovereign Rating Model. Brazil has a medium WBGI percentile ranking of 44%, reflecting a recent track record of peaceful political transitions even amid heightened political uncertainty, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a high level of corruption. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Public Finances: A material weakening of the fiscal framework and/or failure to consolidate fiscal accounts that threatens medium term public debt sustainability; -- Public finances: A severe deterioration in the sovereign's domestic and/or external market borrowing conditions; for example due to economic policy mismanagement and/or a political shock; -- External Finances: Sharp erosion of international reserve buffer and the broader external balance sheet. Factors that could, individually or collectively, lead to positive rating action/upgrade are: -- Public Finances: Increased confidence in the fiscal consolidation path that supports broad stabilization of the government debt over the medium term; -- Macro: Sustained economic recovery without increasing macroeconomic imbalances; for example due to improved vaccination that helps reduce risks from the pandemic. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Brazil a score equivalent to a rating of 'BBB-' on the Long-Term Foreign Currency (LT FC) IDR scale. {Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows: -- Macro: -1 notch, to reflect weak growth prospects and potential, largely held back by a low investment rate and structural impediments such as a difficult business environment, which make it more challenging to consolidate the public finances and address social pressures. -- Public Finances: -1 notch, to reflect Brazil's general government burden is approaching very high levels. The SRM is estimated on the basis of a linear approach to government debt/GDP and does not fully capture the risk at high debt levels. Fiscal flexibility is hampered by the highly rigid spending profile and a heavy tax burden that makes adjustment to economic shocks difficult. -- Structural Features: -1 notch, to reflect Brazil's fragmented congress, periodic frictions between the executive and legislative branches and corruption-related issues that have reduced visibility and hampered timely progress on reforms to improve the medium-term trajectory of public finances. In addition, high income inequality adds to social pressures. 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 assumes that the global economy evolves in line with its most recent update of the Global Economic Outlook published on March 17, 2021. ESG CONSIDERATIONS Brazil 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 a highly fragmented congress has made timely passage of corrective policy adjustments difficult; this is highly relevant to the rating and a key driver with a high weight. Brazil 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 the corruption related issues exposed in recent years have severely hit political dynamics and economic activity; this is highly relevant to the rating and a key rating driver with a high weight. Brazil 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 are relevant to the rating and a rating driver. Brazil 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 the Brazil, as for all sovereigns. Except for the matters discussed above, 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. BRAZIL: Incentives Should Sustain Economic Recovery, CB Says ------------------------------------------------------------ The Rio Times reports that Brazil's Central Bank (BC) said that in the short term, a range of incentives "should sustain the recovery" of economic activity "at national level." The statement was made in the first quarter Regional Bulletin, released on May 27, 2021, according to the Rio Times. Monetary stimulus, the return of government measures, and the reduction of pandemic impacts are among these incentives, according to The Rio Times. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Jair Bolsonaro is the current president, having been sworn in on Jan. 1, 2019. Standard & Poor's credit rating for Brazil stands at BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and short-term foreign and local currency sovereign credit ratings for Brazil were affirmed in December 2020. Fitch Ratings' credit rating for Brazil stands at 'BB-' with a negative outlook (November 2020). Moody's credit rating for Brazil was last set at Ba2 with stable outlook (April 2018). DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). LOCALIZA RENT: Moody's Puts Ba2 Rating Under Review for Upgrade --------------------------------------------------------------- Moody's Investors Service confirmed Localiza Rent a Car S.A.'s Ba2 global scale rating with a stable outlook and will subsequently place the rating on review for upgrade. The rating actions reflect the transition of Localiza's rating to Moody's Investors Service and subsequent withdrawal of the rating by Moody's America Latina. The review process was triggered by the approval on November 12, 2020 by Localiza and Unidas S.A.'s shareholders to combine both companies' operations through a share swap that will result in the incorporation of Unidas by Localiza. The share swap ratio will be of 0.446824 of Localiza's share for each 1 share of Unidas. The transaction still pends approval from Brazil's antitrust authority, Conselho Administrativo de Defesa Economica (CADE). Rating confirmed and placed on review for upgrade: Issuer: Localiza Rent a Car S.A. Corporate Family Rating, confirmed at Ba2 and subsequently Placed on Review for Upgrade Outlook Actions: Outlook, Changed To Stable and subsequently to Rating Under Review RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Moody's review will focus on Localiza's resulting business and financial profile at the closing of the transaction, including: (i) the resulting leverage and capital structure of the combined entity; (ii) the potential restrictions imposed by CADE and its impact on the company's scale, competitive position and synergy potential in the Brazilian market; (iii) Brazil's economic trajectory and the operating environment for rent-a-car and fleet management companies when the merger is concluded; and (iv) the company's liquidity profile, financial policies and growth strategy during the execution of the integration of the businesses. The rating could be upgraded if Localiza's resulting business profile proves to be sustainably stronger after the merger, with higher profitability levels derived from synergies, such that Localiza's credit metrics improve and adjusted gross leverage moderates to around 4x. The maintenance of a strong liquidity profile, including a significant amount of unencumbered assets that provide a liquidity backdoor in stress scenarios, and of a conservative financial management after the business combination would also be required for an upgrade. Finally, evidences of a dominant market position and of significant financial flexibility that provides Localiza some insulation from Brazil's economic environment and local debt market would also be required for the company to be rated above Brazil's sovereign rating. The rating could be confirmed if there are no material changes to the company's current credit metrics or competitive position after the merger, such that the potential for synergies or of a strengthened business and financial profiles coming from the transaction abate. A continued debt-funded growth strategy without the corresponding EBITDA benefit, or a deterioration in current market conditions that overshadow the benefits of the merger could also result in a confirmation of the rating. Given the current review, a downgrade of Localiza's rating is unlikely. However, downward pressure on the rating or outlook could emerge if Localiza's liquidity deteriorates because of weakness in operations and inability to sell used cars, or if its car rental utilization rate decline to below 60% for an extended period of time. A sustained deterioration in credit metrics, measured by gross debt/EBITDA above 4.5x and EBITDA interest coverage falling below 3.0x without prospects of improvement could also lead to a downgrade. A downgrade of Brazil's sovereign rating could also result in a downgrade of Localiza's rating. The principal methodology used in this rating was Equipment and Transportation Rental Industry published in April 2017. Founded in 1973 and headquartered in Belo Horizonte, Minas Gerais, Brazil, Localiza operates car rental and fleet rental businesses and has a used car sale business to deploy and renew its fleet in Brazil. The company also franchises rental car operations in Brazil and in four countries in South America. As of March 2021, the company had a total fleet of 274,413 company-owned cars and 14,780 cars at franchisees in Brazil and four other countries. The company is the market leader in Brazil in terms of car rental, with the largest number of car rental locations and presence in all main Brazilian airports. In the 12 months ended March 2021, the company reported net revenue of BRL10.3 billion ($1.9 billion) and net income of BRL1.3 billion. Unidas is the second largest rent-a-car and the largest fleet management company in Brazil, with a total fleet of 164 thousand cars at the end of March 2021. The company reported BRL6.1 billion in revenues and a 25% reported EBITDA margin in the twelve months ended March 2021. USJ-ACUCAR E ALCOOL: Fitch Affirms 'RD' LongTerm IDRs ----------------------------------------------------- Fitch Ratings has affirmed U.S.J. - Acucar e Alcool S.A.'s (USJ) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'RD' (Restricted Default) and its National Scale Rating at 'RD(bra)'. Fitch has also affirmed at 'C'/'RR6' USJ's senior unsecured notes due 2019 (USD8.7 million) and 2021 (USD3.9 million). Fitch has affirmed at 'C'/'RR4' USJ's senior secured notes due 2023 (USD272 million). KEY RATING DRIVERS The affirmation of USJ's ratings reflects the defaults of principal and coupon of the 2019 and 2021 senior unsecured notes and 2023 secured notes. USJ has USD8.7 million outstanding of the senior unsecured notes due 2019, USD3.9 million of the senior unsecured notes due 2021, and USD301 million of the senior secured notes due 2023. Fitch will re-rate USJ's corporate and bond issuances ratings once debt restructuring is concluded. DERIVATION SUMMARY USJ's 'RD' rating reflects the missed coupon and principal payments of its senior notes due 2019, 2021 and 2023. USJ has much weaker liquidity and capital structure than Jalles Machado S.A (Jalles; A+[bra]/Positive) whose cash-to-short-term debt coverage and net leverage are at comfortable levels following the IPO concluded in February 2021. USJ's ratings also compare unfavorably with those of Biosev S.A (B/RWP), as Biosev's potential acquisition by Raizen (BBB/RWN) will result in the likely upgrade of its ratings under Fitch's Parent Subsidiary Linkage Criteria due to strong strategic and operational links between the two companies. USJ has a weaker business profile than Jalles, as the latter has higher product-mix flexibility, above-average agricultural yields and a greater presence of high value-added products in the mix, whereas USJ's focus on sugar is an advantage in times of high prices for the sweetener. KEY ASSUMPTIONS -- Crushed volumes of 3.3 million tons in the 2020/2021 season and 3.0 million tons in 2021/2022; -- Fitch forecasts international sugar prices to average USD15.5c/pound in 2021, not including polarization premium for Brazilian sugar, and fall to USD14c/pound in 2022; -- Fitch forecasts ethanol prices to vary in tandem with a combination of oil prices and the FX rate. The Agency forecasts brent crude prices to average USD 58/bbl in 2021, from USD43/barrel in 2020, whereas the Brazilian FX rate has been assumed to average BRL5.3/USD. -- Costs (harvesting and industrial) to increase in line with the expected inflation rate; -- Investments of BRL170 million in fiscal 2021 and BRL150 million in fiscal 2022; -- No dividends from SJC, the JV with Cargill, and no major liquidity event. KEY RECOVERY RATING ASSUMPTIONS -- The recovery analysis assumes that USJ would be liquidated in bankruptcy; -- A 10% administrative claim. Liquidation Approach: -- The liquidation estimate reflects Fitch's view of the value of land properties and other assets that can be realized in a reorganization and distributed to creditors; -- The 80% advance rate for its land and sugar cane plantations is typical for the sector and reflects the good location of such assets near urban areas; -- The 20% advance rate for fixed assets like machinery, equipment and the mill itself reflect the low liquidity of such assets; -- Inventories have been discounted at 20% to reflect the above average liquidation prospects of S&E assets; -- The 50% stake in SJC at book value is included in the calculations; -- The above assumptions result in a recovery rate for the secured notes within the 'RR2' range and 'RR6' for the unsecured notes. The former has been limited to 'RR4' given the soft cap on Brazilian issuers. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Amortization of the principal and coupon of the 2019, 2021 and 2023 notes. Factor that could, individually or collectively, lead to negative rating action/downgrade: -- USJ's IDRs and National Scale ratings will be downgraded to 'D' and 'D(bra)', respectively, if the company formally files for bankruptcy protection. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Poor Liquidity: USJ is expected to continue to face escalating refinancing risks, with a weak cash position to meet its short-term debt maturities. Absence of any material asset sales, the company will continue to present an unfunded capital structure and face very limited financial flexibility to meet its debt obligations. The steep BRL depreciation in 2020 has heightened USJ's refinancing risks, as the bonds represented over 93% of its total debt of BRL1.9 billion on March 31 2020. As of March 31 2020, USJ reported cash position of BRL45 million and short-term debt of BRL478 million, of which BRL335 million relating to bonds, with a cash to short-term coverage ratio of less than 0.1x. In this period, total debt was mostly composed of the bonds with over 90% of total amount. The 2023 bond is secured by a comprehensive collateral package that includes fiduciary lien on the mill and pledge of sugar cane stocks. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch excludes proceeds from asset sales from EBITDA. ESG CONSIDERATIONS U.S.J. - Acucar e Alcool S.A. has an ESG Relevance Score of '4' for Management Strategy as the asset divestiture strategy has not advanced since last review making USJ's debt increase fast as the BRL depreciated, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. U.S.J. - Acucar e Alcool S.A. has an ESG Relevance Score of '4' for Group Structure due to significant raw material dependence on related party, like land lease expenses to related parties, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. U.S.J. - Acucar e Alcool S.A. has an ESG Relevance Score of '4' for Governance Structure due to key person risk and limited board independence, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. U.S.J. - Acucar e Alcool S.A. has an ESG Relevance Score of '4' for Financial Transparency due to the poor quality and timing of financial disclosure including the absence of updated financial reports and analysis of business segments, 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. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Salami & Other Sausages Prices Will Rise 12% ---------------------------------------------------------------- Dominican Today reports that the Association of Stuffers of Cibao (Asoemci) reported that as of June 1, the prices of all its products would increase by at least 12% due to the increase in the cost of raw materials. "Our sector has been affected by increases in the prices of our raw materials involved in the production processes of our companies, so we are being forced to take measures in our sales prices," reads a statement released on Twitter, according to Dominican Today. Alejandro Lopez, president of the entity, told Listin Diario that they had been forced to increase prices due to the shortage of meat in the United States, so they have had to resort to Brazil, paying a 25% tariff, the report notes. "Meat has gone up around 30%. If you bring chicken from Brazil you have to pay a 25% tariff, from the United States you do not pay but there is a massive shortage," he said in a telephone call, the report relays. Lopez assured that if prices are not increased, "the (meat) industry will go bankrupt" and pointed to the Covid-19 pandemic as one of the primary triggers of the crisis in the sector, the report relays. The association president emphasized that, he communicated to the President of the Republic, Luis Abinader, so that he "gives them support," the report discloses. He also stressed that, a commission of the organization will hold a meeting with the Minister of Agriculture, Limber Cruz, to express the problems that surround them, the report relays. Increase in Raw Material Lopez indicated that casings, starches, garlic powder, and pepper had increased approximately 13%, the report discloses. Concerning meats, he pointed out that the price of pigs on the farm has risen from RD$95 to RD$126 per kilo, while chickens are at RD$28 to RD$40, the report says. According to the Morning Consult survey conducted this month by Bloomberg, one in three U.S. adults is spending more on groceries than they were at the beginning of 2021. Among the products showing hikes are red meat, up 65%; chicken, up 59%; and fish, up 49%, the report relates. The study points out that food inflation has increased in recent months due to the increase in the cost of basic food basket products, the demand for meat, the increase in the price of transportation, and the "challenges" in securing labor, the report discloses. Mitigation According to a press document, the Vice Minister of Domestic Trade Ramon (Monchy) Perez Fermin, highlighted in a radio interview on Rumba 98.5 FM radio station that the Government has taken measures to try to ensure that the increases of raw materials in the international markets impact the population as little as possible, the report relays. "During the search process, tending to mitigate the mentioned increases, the Minister of Industry and Commerce, Victor -Ito- Bisono, managed, together with the flour sector and the bakers, to postpone the increase in the price of the economic bread, commonly called, RD$5 bread, the report notes. According to the official, through the popular markets and Inespre, the primary food basket products are placed at competitive prices. Apart from some undesirable prices in the country, "the authorities make great efforts to control and reduce these increases," the report adds. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. The Troubled Company Reporter-Latin America reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Fitch Ratings on Jan. 18, 2021, 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 =========== CEMEX SAB: Fitch Affirms 'BB-' LT IDRs & Alters Outlook to Stable ----------------------------------------------------------------- Fitch Ratings has affirmed CEMEX, S.A.B. de C.V.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-'. In addition, Fitch has upgraded the company's National Scale Long-Term Rating to 'A (mex)' from 'A-(mex)', and affirmed the company's National Scale Short-Term rating at 'F1(mex)'. The Rating Outlook of the long-term ratings has been revised to Stable from Negative. The revision of the Outlook to Stable and the upgrade of the national scale rating reflects the stronger than expected operating cash flow generation during 2020-2021, primarily due to increasing home improvement spending and residential construction, notably in Mexico and the U.S. The company is expected to further deleverage through improving EBITDA in most markets, as well as the sale of approximately USD600 million in carbon credits and other initiatives. The combination of these factors would likely allow the company to reach positive rating triggers, which could result in an upgrade over the next 12 months. KEY RATING DRIVERS Dislocated Mexican Market: Cement consumption in Mexico was weak entering the coronavirus pandemic, declining 7% in 2019, after a severe weakening in construction activity, which was triggered by a drop in business confidence and permitting delays. Home improvement boosted demand shortly after the beginning of the pandemic as consumers remodeled their homes, offsetting weakness in formal construction. The current run rate implies a 5% increase in demand in 2021. However, as homes get upgraded consumers will likely shift focus to other spending, making a rise in investment and business confidence necessary to sustain higher levels of demand. U.S. Market Growing Modestly: Long-term demand drivers remain favorable, supported by strong residential demand.. Housing starts will increase slightly this year, with single-family housing starts growing mid-single digits. While cement demand in the U.S. should face modest pressure in 2021 due to the steep contraction in commercial and industrial construction starts during 2020 and in 1Q21, recovering economic growth should support increasing investment toward 2023. Highway and street spending is forecast to grow modestly. EBITDA Should Strengthen: CEMEX's cash flow was weak prior to the pandemic, with EBITDA declining to USD2.0 billion in 2019 from USD2.5 billion in 2017 and 2018. Steep volume declines in Mexico accounted for about USD250 million of this drop. EBITDA increased to USD2.1 billion in 2020 as consumers spent more time at home boosting home improvement and residential construction in several of CEMEX's markets. This trend has continued in 2021 leading to expectations of EBITDA of USD2.6 for this year. Positive FCF: CEMEX managed to generate positive FCF of USD674 million in 2020 compared with USD71 million in 2019, mainly through capex reduction, foregone dividends and higher EBITDA cash conversion. FCF is forecast at around USD500 million in 2021 as capex normalizes. The company increased its stake in indirect subsidiary CEMEX Latam Holdings S.A. to 93% from 73% during 2020 for approximately USD100 million. This subsidiary generated USD175 million of EBITDA in 2020. Leverage Should Decline: Cemex net debt is projected to decline to USD8.3 billion in 2021 from USD9.4 billion in 2020 mainly driven by the sale of carbon credits for approximately USD600 million, FCF and other initiatives. Gross debt reduction of a similar magnitude is forecast this year. Lower net debt combined with forecast EBITDA growth should result in leverage declining below 3.5x in 2021 from 4.5x in 2020. Debt reduction in line with these expectations, combined with prospects of stable or growing EBITDA in subsequent years would likely result in an upgrade to 'BB'. Foreign Currency Exposure: CEMEX reported 94% of total debt was denominated in hard currency, compared with about 41% of EBITDA generated in hard currency during 2020. Main hard currency contributors are CEMEX's operations in the U.S., the U.K. and in several euro-based countries. The company has historically been successful in maintaining U.S. dollar prices after steep currency depreciation in Mexico, its main market. However, sharp price increases during 2015-2017 and, more recently, a market rejection to absorb prices in line with inflation in 2018-2020, suggest that prices measured in U.S. dollars could lag for a number of years should the U.S. dollar strengthen again. Strong Business Position: CEMEX is one of the world's largest cement producers, selling 63.8 million metric tons of cement during 2020. The company is the leading cement producer in Mexico and one of the top producers in the U.S. CEMEX also has a large global presence in ready-mix and aggregates, with 2020 sales of 47 million cubic meters of ready-mix and 132.8 million metric tons of aggregates. CEMEX's main geographic markets, in terms of EBITDA, include Mexico at 35%, the U.S. at 28%, Europe at 14%, Central and South America at 14%, and Asia, the Middle East and Africa at 9%. DERIVATION SUMMARY CEMEX's ratings reflect its diversified business position across several large markets, notably Mexico, the U.S. and some European countries; its vertical integration and economies of scale; and positive FCF generation. The company is the leading cement producer in Mexico and one of the top producers in the U.S. and the largest in Spain. CEMEX's closest peers are large global cement producers, such as LafargeHolcim Ltd (BBB/Stable), which CEMEX competes with in several markets. LafargeHolcim has broader geographic diversification, with operations spanning Europe at 25% of EBITDA, North America at 25%, the Middle East and Africa at 12%, Latin America at 16% and Asia at 27%. Latin America is CEMEX's largest region, representing about 50% of EBITDA, of which about 35% is generated in Mexico. The U.S. represented about 30% of CEMEX's EBITDA, with the remainder from Europe at about 15% and, to a lesser extent, Israel and the Philippines. CEMEX's broader geographic diversification and larger scale compare well with regional building materials companies, such as Martin Marietta Materials, Inc. (BBB/Stable) and cement producers Votorantim Cimentos S.A. (VCSA; BBB-/Stable) and InterCement Participacoes S.A. (CCC). VCSA, which has a dominant position in Brazil and operations in the U.S., Canada and throughout the world, is not a direct peer, as the rating is tied to Votorantim S.A. (BBB-/Stable), which includes mining, utilities and financial services subsidiaries. Martin Marrietta is focused in the U.S. and the Caribbean. InterCement's portfolio is weighted heavily toward volatile emerging market countries, such as Brazil, Argentina and Mozambique, which creates cash flow uncertainty and higher exposure to foreign currency risk, when compared with CEMEX. From a financial perspective, CEMEX's ratings reflect its weaker credit metrics when compared with higher rated global peers. CEMEX net EBITDA leverage was 4.5x in 2020 compared with LafargeHolcim at 2.2x and Votorantim below 2x. CEMEX's global scale, business position and funding access are all positive factors, as is the company's record of reducing debt. CEMEX's FFO interest coverage was 2.7x in 2020, which is quite low for a 'BB' category building materials issuer. However, coverage is projected to rise in 2021 and beyond. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- Mexican cement sales volumes rise mid-single digits in 2021 and contract low-single digits in 2022; -- U.S. cement sales volumes rise by low-single digits in 2021 and 2022; -- Capex of about USD1.3 billion in 2021 in line with management guidance and a similar level in 2022; -- An exchange rate of the Mexican peso to the U.S. dollar at around MXN20/USD1 or lower. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Net debt/EBITDA sustainably below 4.0x; -- Continued growth in the U.S. market coupled with sustained cash flows in Mexico and rebound in other key markets leading to more stable cash flow generation; -- A strengthening of CEMEX's business position in markets outside Mexico that leads to expectations of higher operating cash flow generation; Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A weakening of operating cash flow and FCF expectations so that net debt/EBITDA is forecast above 5.0x; -- Expectations of a pronounced deterioration of Mexico's economic environment that weakens EBITDA prospects . BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Sound Liquidity: CEMEX liquidity is solid. The company does not face meaningful maturities until 2024 when approximately USD1.5 billion of debt is due. In addition to USD1.3 billion of cash CEMEX had undrawn committed credit facilities for USD1.1 billion with a 2025 maturity as of 1Q21, which further support its liquidity. The company should be able to generate USD500 million in positive FCF. CEMEX issued USD1.75 billion in 10-year notes during January 2021 and used the proceeds to refinance notes maturing 2025 and 2026 for a similar combined amount. 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. ELEMENTIA SAB: Fitch Affirms 'BB-' IDRs & Alters Outlook to Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Elementia, S.A.B. de C.V.'s (Elementia) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-', as well as its long-term national scale rating at 'A-(mex)'. The Rating Outlook has been revised to Stable from Negative. Fitch has affirmed the short-term national scale rating at 'F2(mex)'. The revision of the Outlook to Stable reflects expectations of solid EBITDA increase in 2021 primarily due to favorable home improvement spending and residential construction, notably in Mexico and the U.S. The cost and expense restructuring implemented by the company, particularly in Metals and Building Systems should also contribute to cash flow generation in all three segments. Robust cash flow should allow Elementia to improve its liquidity position and leverage metrics. Elementia, S.A.B. de C.V.'s ratings reflect its geographic and product line diversification, leading market shares in copper and several of its building systems products. Other factors include its well-developed distribution network, stable operating results in cement and the strength of its shareholders. Factors limiting Elementia's ratings are its history of high and volatile leverage, exposure to industry cyclicality and input cost volatility. KEY RATING DRIVERS Wide Range of Products: Elementia has a diversified income base and a broad product offering; however, credit risk remains strongly tied to the cement division, which accounts for about 70% of EBITDA. The metals segment (13%) sells mainly copper pipe, tube, fittings, bars, valves and related products, primarily throughout Mexico and in the export market. The construction systems segment (17%) sells a variety of roofing, siding, water storage tanks and other products throughout the Americas. Volatile Operating Performance: Elementia's EBITDA was under pressure at the start of the pandemic due to weak performance in its metals and building systems segments. The combined EBITDA of both segments declined to $34 million in 2019 from $104 million in 2017. Lockdowns in several markets pressured building systems leading to combined metals and building systems EBITDA of USD18 million in 2020. The combined EBITDA is expected to increase strongly in 2021 to USD70 million driven by home improvement trends in most markets, as well as the tight supply of several building products. Spin-off Strategy: Elementia intends to proceed with the spin-off of its metals and building systems segments. Post spin-off, Elementia's primary assets will be three cement plants in central Mexico with 3.5 million metric tons (MT) of cement production capacity; a 55% stake in U.S.-based Giant, which the company will continue to consolidate in its results; and cement grinding facilities in Southern Mexico and in Costa Rica. Giant's capacity is approximately 2.8 MT. Proforma after the spin-off, Elementia's capital structure should reflect net leverage in the 2.5x-3.0x range. Mexican Market Remains Key: Cement consumption is rising at a pace of 5% per year in Mexico. This grow rate follows a strong year in 2020 in which home improvement boosted demand shortly after the beginning of the pandemic, as consumers remodeled their homes, overcompensating for weak formal construction. However, as homes get upgraded consumers will likely shift focus to other spending, making a rise in investment and business confidence necessary to sustain demand. U.S. Market Growing Modestly: Strong residential demand has a been a supportive driver of cement demand and longer-term demand drivers remain favorable. Housing starts will increase slightly this year, with single-family housing starts growing mid-single digits. Cement demand in the U.S. should face modest pressure in 2021 due to the steep contraction in commercial and industrial construction starts during 2020 and in 1Q21. However, recovering economic growth should support increasing investment toward 2023. Highway and street spending is forecast to grow modestly. Lower Leverage Expected: Elementia's consolidated EBITDA (excluding IFRS-16) is expected to increase to around USD220 million (MXN4.5 billion) in 2021 from USD152 million in 2020 (MXN3.3 billion). Consolidated net leverage is expected to decline to around 2.5x in 2021 from 3.8x in 2020 mainly due to increased EBITDA and positive FCF of USD35 million. Fitch expects net leverage after the spin-off, which could occur before year-end, to be slightly below 3x while the leverage of the spun-off metals and building systems segment to be close to 1.5x. DERIVATION SUMMARY Elementia has broad product offering relative to regional cement producers such as Grupo Cementos de Chihuahua (BBB-/Stable) and U.S. market leader of fiber-cement siding and backerboard, James Hardie (BBB-/Stable). However, weaker volumes sold of copper and building systems products along with higher costs have diminished its cash flow diversification. Elementia's more volatile leverage metrics, as well as relatively weaker standalone business profiles in cement or fiber-cement products, are also reflected in the ratings. Elementia's gross leverage ratio is projected at around 3x. This compares with projected gross leverage of around 1.5x for James Hardie and slightly below 2x. Elementia's controlling shareholders own large Mexican business groups, which increases Elementia's funding options. Grupo Cementos de Chihuahua (GCC), has a stronger cement business and its credit metrics position it well to capitalize on potential opportunities. Elementia's weaker competitive position and geographic diversification relative to major global peers, notably CEMEX, S.A.B. de C.V. based on scale and size of cement operations, is offset by Elementia's lower projected leverage relative to CEMEX. Fitch projects Elementia's consolidated net leverage at around 3x in 2021, which compares against expectations of slightly below 3.5x for Cemex. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for the issuer include: -- Cement volumes increase in the mid-single digits in 2021, and low single-digits in 2022 and beyond; -- Copper prices follow the Fitch base price of USD9,000 per ton in 2021, USD7,500 per ton in 2022 and USD6,700 per ton in 2023; -- Copper product volumes increase low-single digits 2021-2023; -- Capex represents about 4.5% of sales in 2021 and 5.5% in 2022; -- The exchange rate of the Mexican peso to the U.S. dollar remains around MXN20 per USD1. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Sustained EBITDA generation in the Metals and Building Systems segments; -- A larger scale and increased market position; -- Expectations of sustained cement demand in Mexico and the U.S. leading to strong EBITDA margins; -- Consolidated net debt to EBITDA sustained below 3.5x; -- Improved liquidity. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A weakening of operating cash flow and FCF expectations that lead to expectations of net debt to EBITDA over 4.5x; -- Expectations of a sharp deterioration in Mexico's economic environment leading to a significant contraction in the EBITDA outlook; -- Large debt-funded acquisitions; -- A weakening of liquidity. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Liquidity Tightened After Notes Repayment: Elementia faces debt amortizations of MXN11.6 billion over the next 36 months. MXN5.3 billion of this amount is due within the next 12 months and compares with cash of MXN2.3 billion as of 1Q21 and expected yearly cash flow from operations of around MXN2.4 billion. Elementia repaid USD425 million (MXN8.5 billion) of notes due 2025 in January 2021 and funded the payment with bank debt due 2024, short term loans, a short term MXN1billion local notes issuance and cash. Elementia's total debt was MXN15.0 billion as of 1Q21. ESG CONSIDERATIONS Elementia, S.A.B. de C.V. has an ESG Relevance Score of '4' for Waste & Hazardous Materials Management; Ecological Impacts due to a risk of litigation caused by its past use of chrysotile asbestos for fibre cement production, 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. GRUPO KUO: S&P Alters Outlook to Stable & Affirms 'BB-' ICR ----------------------------------------------------------- S&P Global Ratings revised its outlook on its global and national scale long-term issuer credit ratings on Mexican conglomerate Grupo Kuo S.A.B. de C.V. (KUO) to stable from negative. S&P also affirmed its 'BB-' and 'mxBBB+' ratings. The stable outlook reflects S&P's expectation that the company will increase its EBITDA in the next 12 months in line with economic recovery that will support demand across its three business segments, coupled with the startup of its new processing plant. In such a scenario, debt to EBITDA will be below 4.0x and funds from operations (FFO) cash interest expense will be above 4.0x. The completion and ramp-up of the new processing plant, and growth in strategic channels should support the pork segment's revenue growth in the next two years. As a result of the accident last year, the company had to shut down operations of its Sahe pork processing plant. Although KUO was able to compensate for the lost production by increasing output at its other two plants, consolidated EBITDA margins slipped to about 11% in 2020 from 13% in 2019. This was because Sahe plant focused on specialized cuts, which tend to be more profitable. The company was also able to increase its exports to China as a result of a weaker pork production in that country. KUO's exports also benefited from high pork prices as a result of the African swine flu, which translated into a revenue growth of 9.4% for the segment. S&P said, "Moreover, we expect a 4% and 13% revenue increase in 2021 and 2022, respectively. This will be due to growth in strategic channels (exports to China and Japan, and higher chicken sales in Maxicarne stores), higher mix prices, and the opening of the new processing plant, which is likely to be completed during the last quarter of 2021. We expect KUO's overall EBITDA margins to improve as the company opens its new processing plant, while its exports to high-end markets such as Japan, the main export destination for specialized cuts, recover, supporting the company's profitability. We also expect EBITDA margins to rise to about 13.5% in the following years." The increased demand for dual clutch transmission (DCT) transmissions will continue supporting revenue growth in the auto parts segment. KUO resumed operations at its transmission plants during the second half of 2020 after a two-month shutdown. In addition, demand for the company's DCT transmissions for Mustang Shelby and Corvette models rose (sales to General Motors, Ford, and Volvo represented about 70% of this segment's total sales in 2020). Moreover, the company's auto parts segment's revenue rose 35.7% because of higher volume from DCTs that compensated for the lower growth in engine and brakes parts amid Mexico's recession. S&P said, "We expect a 25.8% for 2021 and 7.6% for 2022 growth in the auto parts segment thanks to additional DCT volume for Corvette and Mustang platforms for the next two years. This is based on our estimates that the company's DCT operations will return to normal levels in 2021 amid the rising demand for its main products and likely new customers in the same segment. In addition, we expect growth in the domestic vehicle fleet, which will benefit the aftermarket segment. As a result, we expect a contribution of this segment to the 13.5% group EBITDA margin for the next two years." The chemicals segment will benefit from a domestic market recovery and a focus on export market amid styrene prices volatility. The chemicals segment had a difficult 2020, suffering a 6.5% decrease in revenue mainly due to a 20% drop in styrene prices, which fell in line with the WTI crude oil. S&P expects that the segment's performance will strengthen due to higher volume and demand from the packaging, electronics, food service sectors; an expected growth in the chemical distribution business; KUO's shift from the single-use applications to specialized products; exports (generating about 40% of the segment's total revenue); and a domestic market recovery despite the expected volatility in styrene prices. Dividends from JVs improved KUO's credit metrics in 2020. During 2020, Dynasol had low investment requirements, which allowed the company to distribute dividends for the first time to KUO. S&P said, "Given the incorporation of dividend flows from JVs into our calculations, KUO's EBITDA was 33% higher in 2020 than the 2019 level, totaling MXN4.7 billion. Out of MXN1.9 billion in dividends, Dynasol contributed MXN1.2 billion, while the remaining MXN688.6 million came from Herdez del Fuerte. We now expect JV dividends from Herdez and Dynasol to total about MXN900 million for the following few years." The stable outlook reflects S&P's expectation that the company will increase its EBITDA during the next 12 months in line with the economic recovery that will support demand across its three business, coupled with the startup of the processing plant. These factors will cause debt to EBITDA to drop below 4.0x and FFO cash interest expense rise above 4.0x. S&P could lower the ratings in the next 12 months if KUO's leverage metrics are not in line with the rating category, such as debt to EBITDA and FFO cash interest coverage above 4.0x and below 4.0x, respectively. This could occur due to: -- Lower-than-expected demand for chemical products or lower-than-expected styrene prices. -- A delay in the opening of the processing pork plant and lower-than-expected performance in the pork segment's strategic channels (exports and Maxicarne stores). -- Lower demand for DCTs or failure to expand the DCT backlog that could dent EBITDA. S&P will consider an upgrade in the next 12 months if the company improves its financial risk profile by posting debt to EBITDA at about 3.0x and FFO interest coverage above 4.0x. This could happen if: -- The new processing plant opens during 2021 and the company's exports to China and Japan return to normal levels. -- Demand grows for specialized products in the chemicals segment coupled with the exit from the production of single-use products, and an improved chemical distribution segment. -- Styrene prices perform in line with our forecast for the chemical segment's profitability. -- Higher demand for DCTs for Corvette and Mustang platforms and greater backlog. ===================== P U E R T O R I C O ===================== GUI-MER-FE: Case Summary & 2 Unsecured Creditors ------------------------------------------------ Debtor: GUI-MER-FE, Inc. 1656 Calle Santa Agueda URB San Gerardo San Juan, PR 00926 Chapter 11 Petition Date: May 27, 2021 Court: United States Bankruptcy Court District of Puerto Rico Case No.: 21-01659 Debtor's Counsel: Madeline Soto Pacheco, Esq. LUBE & SOTO LAW OFFICES, PSC 1130 Ave. FD Roosevelt San Juan, PR 00920-2906 Tel: 787-841-1704 Email: madelinesotopacheco@gmail.com Estimated Assets: $100,000 to $500,000 Estimated Liabilities: $1 million to $10 million The petition was signed by Mercedes Garcia Reyes, president. A full-text copy of the petition containing, among other items, a list of the Debtor's two unsecured creditors is available for free at PacerMonitor.com at: https://bit.ly/3fweNjX ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: 54% Decline in Oil And Gas Revenue, TTEITI Says ------------------------------------------------------------------ Trinidad Express reports that Trinidad and Tobago received a total of $7.37 billion from oil, gas and quarrying/mining companies in fiscal 2018, with the largest payment of $2 billion coming from majority State-owned National Gas Company (NGC). However, for the period 2019 to 2020, unaudited figures indicate a declining trend in revenue. This information was contained in the Trinidad and Tobago Extractive Industries Transparency Initiative's (TTEITI) latest report, which gives a snapshot of the performance of the energy and mining/quarrying sectors, according to Trinidad Express. The report highlights revenue trends and offers recommendations on how the Government can repair any deficient systems to earn greater returns and improve its data management and audit and assurance environment, Trinidad Express notes. The seventh TTEITI report covered fiscal 2018. However, in an effort to disclose more up-to-date tax and royalty information in the public domain, the TTEITI steering committee agreed to include unaudited and unreconciled information for fiscal 2019 and 2020 in this report, the report relates. According to the report, there was a 54 per cent decline in oil and gas revenue primarily because of royalties declining by 46 per cent, from TT$3.4 billion in 2019 to $1.7 billion in 2020, the report discloses. It said the share of profit the country earned from production sharing contracts also slid 20 per cent from $2.2 billion in 2019 to $1.8 billion in 2020, the report notes. Timing Differences Delivering the 2018 report at a virtual media conference, Riaz Ali of the auditing firm BDO Trinity Ltd noted there was a TT$24.6 million difference between what oil and gas companies reported they paid Government and receipts reported by Government, the report relays. He said after liaising with both parties it was found that the difference was due to foreign exchange fluctuations and timing differences, the report discloses. "Timing differences are usual and expected in reconciling items and arise when payments are carried out near the reporting date. Payments to the Ministry of Energy and Energy Industries (MEEI) are reported by the companies on the date paid, but are reported by the MEEI on the date the payment cleared in the MEEI's bank account. Timing differences mostly arise in cases where payments are carried out via electronic wire transfer and arrive several days later, after the actual payment," Ali explained, the report says. "Foreign exchange differences are also usual and expected in reconciling items and they arise when payments are made in US dollars, and different exchange rates are used to report the TT dollar equivalent by the Government and the company. In these instances, we reconcile the US dollar equivalent of the payment and no exceptions were noted," he added. Ali said that after the reconciliation process was completed, it was found that the receipts declared by Government were fully reconciled to the payments declared by the participating companies, the report relays. "In other words, all payments and receipts were accounted for and there were no unresolved discrepancies," he emphasized. Delivering the feature address at the launch, Energy Minister Stuart Young noted that independent verification was very important because in other countries, EITI reports revealed that millions that had gone missing and cannot be accounted for, the report discloses. "Thankfully, in Trinidad and Tobago, we can account for any difference between the company's payments and Government's receipts, the report notes. "This point should not be lost in how we, as citizens of T&T, should continue to be proud of the decisions made and the open, transparent and accountability of Government operating in this energy sector. As we know, in other sovereign jurisdictions, this is not the case," he said. Young said in fiscal 2018, NGC contributed a total of $2.055 billion to Government revenue, the report relays. He said the second highest taxpayer was BPTT ($1.65 billion), followed by EOG Resources ($1.050 billion), Shell ($656 million), Perenco T&T Ltd ($654 million), Petrotrin ($489 million) and BHP ($387 million), the report notes. He said the oil, gas and quarrying revenue figures were more than simple numbers, but were important in the context of T&T's economic recovery, the report relays. "This revenue helps those most affected by the global pandemic in our country-the patients in our hospitals, the unemployed and those in need of other social support, the report adds. "There is a direct link between these services and the revenues reconciled and verified in these IETI reports," he stressed. =============== X X X X X X X X =============== [*] BOND PRICING: For the Week May 24 to May 28, 2021 ----------------------------------------------------- Issuer Name Cpn Price Maturity Country Curr ----------- --- ----- -------- ------- --- Provincia del Chaco Ar 9.4 74.8 8/18/2024 AR USD Argentine Republic Gov 0.5 27.6 12/31/2038 AR JPY Noble Holding Internat 5.3 60.5 3/15/2042 KY USD Provincia de Cordoba 7.1 72.7 8/1/2027 AR USD Province of Santa Fe 6.9 74.7 11/1/2027 AR USD Banco Macro SA 17.5 65.2 5/8/2022 AR ARS Esval SA 3.5 49.9 2/15/2026 CL CLP Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD Enel Americas SA 5.8 32.7 6/15/2022 CL CLP Noble Holding Internat 6.1 62.0 3/1/2041 KY USD Provincia del Chaco Ar 4.0 0.0 12/4/2026 AR USD Provincia de Buenos Ai 7.9 75.3 6/15/2027 AR USD Noble Holding Internat 6.2 62.2 8/1/2040 KY USD Provincia de Rio Negro 7.8 70.4 12/7/2025 AR USD YPF SA 16.5 67.3 5/9/2022 AR ARS Provincia del Chubut A 4.5 2208 3/30/2021 AR USD Avadel Finance Cayman 4.5 55.0 2/1/2023 US USD Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD Sylph Ltd 2.4 65.1 9/25/2036 KY USD Provincia de Cordoba 7.1 74.7 8/1/2027 AR USD YPF SA 16.5 67.3 5/9/2022 AR ARS Automotores Gildemeist 8.3 54.2 5/24/2021 CL USD Cia Energetica de Pern 6.2 1.1 1/15/2022 BR BRL Banco Macro SA 17.5 65.2 5/8/2022 AR ARS Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD Cia Latinoamericana de 9.5 73.9 7/20/2023 AR USD Argentina Bonar Bonds 7.6 74.4 4/18/2037 AR USD Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD KrisEnergy Ltd 4.0 40.4 6/9/2022 SG SGD Metrogas SA/Chile 6.0 41.6 8/1/2024 CL CLP Corp Universidad de Co 5.9 64.2 11/10/2021 CL CLP City of Cordoba Argent 7.9 73.1 9/29/2024 AR USD Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD Province of Santa Fe 6.9 74.7 11/1/2027 AR USD Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD Argentine Republic Gov 6.9 75.2 1/11/2048 AR USD Argentina Bonar Bonds 5.8 75.2 4/18/2025 AR USD Argentine Republic Gov 4.3 70.0 12/31/2033 AR JPY Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD Province of Santa Fe 6.9 75.2 11/1/2027 AR USD Argentine Republic Gov 6.3 74.1 11/9/2047 AR EUR AES Tiete Energia SA 6.8 1.2 4/15/2024 BR BRL Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD Empresa Electrica de l 2.5 63.8 5/15/2021 CL CLP Argentine Republic Gov 7.1 75.7 6/28/2117 AR USD Cia Latinoamericana de 9.5 74.3 7/20/2023 AR USD Polarcus Ltd 5.6 71.8 7/1/2022 AE USD Fospar S/A 6.5 1.2 5/15/2026 BR BRL YPF SA 16.5 67.3 5/9/2022 AR ARS Automotores Gildemeist 8.3 54.2 5/24/2021 CL USD Province of Santa Fe 6.9 75.2 11/1/2027 AR USD ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2021. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *