/raid1/www/Hosts/bankrupt/TCRLA_Public/210623.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, June 23, 2021, Vol. 22, No. 119
Headlines
A N T I G U A A N D B A R B U D A
LIAT: Workers 'Shouldn't Get Preferential Treatment'
A R G E N T I N A
IRSA INVERSIONES: Fitch Withdraws CCC Issuer Default Ratings
TELECOM ARGENTINA: Fitch Removes 'B-' FC IDR From Negative Watch
B R A Z I L
ENERGISA SA: Fitch Alters Outlook on BB Foreign Curr. IDR to Stable
GLOBO COMUNICACAO: Moody's Lowers CFR to Ba2, Outlook Negative
PETROLEO BRASILEIRO: Bolivian Court Overturns US$61MM Ruling
USINAS SIDERURGICAS: Fitch Raises LT IDRs to 'BB', Outlook Stable
C H I L E
INVERSIONES LATIN AMERICA: Fitch Gives Final BB+ on Secured Notes
D O M I N I C A N R E P U B L I C
AERODOM: S&P Alters Outlook to Stable & Affirms 'B+' ICR
DOMINICAN REPUBLIC: Price of Bread to Increase, Gov't. Says
M E X I C O
CREDITO REAL: Fitch Lowers LT IDRs to 'BB', Outlook Negative
NUEVO LEON: Moody's Lowers Issuer Rating to Ba3, Outlook Stable
P U E R T O R I C O
PUERTO RICO: Creditors' Committee Opposes Plan & Disclosures
PUERTO RICO: Suiza Dairy Says It's Owed $45.3MM, Opposes Plan
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: Assets or Loan May be Needed by NIB
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A N T I G U A A N D B A R B U D A
=====================================
LIAT: Workers 'Shouldn't Get Preferential Treatment'
----------------------------------------------------
Marlon Madden at Barbados Today reports that one credit unionist is
not of the view that indebted, cash-strapped former LIAT Ltd.,
formerly known as Leeward Islands Air Transport or LIAT workers are
to be given any special treatment by the credit union movement as
they continue to struggle to meet their loan obligations.
In fact, stopping short of suggesting that it would be
discrimination for the former airline workers to get an ease and
not other members, Ashton Turney said credit unions will respond to
their members "with equity," according to Barbados Today.
He was responding to a recent Today's BUSINESS report, which
revealed that Prime Minister Mia Mottley had reached out to the
Barbados Co-operative and Credit Union League (BCCUL) requesting
that the indigenous financial institutions provide the ex-LIAT
workers with a moratorium on their loan repayments, or possible
debt relief, the report notes.
Mottley, who said she was making the request on behalf of the
former employees of LIAT 1974 Ltd., noted that the COVID-19
pandemic had impacted heavily on workers across the world "and most
severely on those in the aviation and tourism sectors," the report
relays.
"The LIAT staff is no different since when LIAT suspended its
operations they completely lost their livelihood. The indebtedness
to your member organisations is not because of an unwillingness to
pay, but because of an inability to pay," the Prime Minister said
in the letter addressed to the BCCUL President Hally Haynes, the
report notes.
However, Turney, who has served on several credit union boards over
more than two decades, told Today's BUSINESS the credit union
movement was well aware of the current climate brought on by the
COVID-19 pandemic, the report relays.
In a short comment, he insisted that one group of individuals
should not be given any special treatment, suggesting that other
individuals in other sectors were also struggling to meet their
debt obligations, the report discloses.
"The Prime Minister should be told that the credit union is a
member's institution and several of its members have undergone
similar challenges and there can be no discrimination demonstrated
by any credit union," said Turney, the report relays.
"The members are already aware of the climate and will respond to
all members with equity," he added, while making it clear that he
was in no way speaking on behalf of any credit union, the report
discloses.
Within weeks after the pandemic started to affect the island in
March last year, credit unions and other financial institutions
started to offer their members moratorium on loan payments
initially for a period of six months, the report says.
Some institutions continued to offer a moratorium on a case-by-case
basis, while others opted to continue for an additional six months,
the report notes.
Just under 100 Barbadian employees, who were among other Caribbean
colleagues placed on the breadline by the collapsed regional air
carrier, were each expected to start receiving a one-off gift of
$2,000 and a $2,000 monthly payment for a year initially, the
report relays.
In her letter to the credit union movement, Mottley pointed out
that the $2,000 monthly payment from Government was not enough to
allow the former airline workers to meet all their financial
commitments, the report notes.
She therefore asked the credit union movement to "exercise the
prerogative of mercy to these employees and provide further
moratoria and if at all possible, debt relief," the report adds.
About LIAT
LIAT Ltd., formerly known as Leeward Islands Air Transport or LIAT,
is an airline headquartered on the grounds of V. C. Bird
International Airport in Antigua. It operates high-frequency
inter-island scheduled services serving 15 destinations in the
Caribbean. The airline's main base is VC Bird International
Airport, Antigua and Barbuda, with bases at Grantley Adams
International Airport, Barbados and Piarco International Airport,
Trinidad and Tobago.
The airline is owned by seven Caribbean governments, with three
being the major shareholders: Barbados, Antigua & Barbuda and St.
Vincent and the Grenadines along with Dominica(94.7 %); other
Caribbean governments, private shareholders and employees (5.3%).
In the last few years, LIAT has been challenged with financial
difficulties, often needing additional funding as the airline dealt
with the high cost of operations. In November 2016, the Barbados
government defended LIAT's operations, even as opposition
legislators called for a cessation of the business. In early 2015,
LIAT offered early retirement packages to employees in efforts to
downsize. In 2014, LIAT knew it had to deal with unprofitable
routes to make operations viable. In the third quarter of 2013,
the airline's top management was shaken, with news Chief Executive
Officer Captain Ian Brunton's sudden resignation.
LIAT's current chief executive officer is Julie Reifer-Jones,
chairman is Jean Holder, and chief financial officer is Rojer
Inglis.
Dr. Ralph Gonsalves, prime minister of St. Vincent & the
Grenadines, serves as chairman of LIAT shareholders.
=================
A R G E N T I N A
=================
IRSA INVERSIONES: Fitch Withdraws CCC Issuer Default Ratings
------------------------------------------------------------
Fitch Ratings has withdrawn IRSA Inversiones y Representaciones
S.A.'s 'CCC' Long-Term (LT) Foreign Currency (FC) Issuer Default
Rating (IDR), and 'CCC' LT Local Currency (LC) IDR.
Fitch has chosen to withdraw IRSA's ratings for commercial reasons
following the issuer's prepayment of all of its cross-border bond
issuances.
KEY RATING DRIVERS
IRSA's key rating drivers were detailed in the last rating action
commentary published on Dec. 10, 2020 ('Fitch Downgrades IRSA's
IDRs to 'RD' on Exchange Completion; Subsequently Upgrades to
'CCC').
RATING SENSITIVITIES
Rating sensitivities are not applicable as the ratings have been
withdrawn.
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 and Debt Structure are not applicable as the ratings are
being withdrawn.
ESG CONSIDERATIONS
Following the withdrawal of international ratings for IRSA, Fitch
will no longer be providing the associated ESG Relevance Scores.
TELECOM ARGENTINA: Fitch Removes 'B-' FC IDR From Negative Watch
----------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign Currency (FC)
ratings of Telecom Argentina S.A., including the 'B-' FC Issuer
Default Rating (IDR) and the 'B-'/'RR4' USD unsecured notes. Fitch
has removed the Rating Watch Negative (RWN) from both the Long-Term
FC IDR and the USD notes, including the 2025 and 2026 notes. The
removal of the Rating Watch reflects the company's USD103.6 million
June 2021 maturity payment after successfully accessing dollars via
the official FX market.
The Long-Term Local Currency (LC) IDR was unaffected. A Stable
Rating Outlook has been assigned to the FC IDR, while the Outlook
on the Local Currency IDR remains Negative, reflecting increased
government interference and a weak operating environment.
KEY RATING DRIVERS
Repayment of 2021 Maturity: Telecom Argentina was able to
successfully access dollars via the FX market to service its
USD103.6 million note due June 15, 2021. Following payment of the
note, Fitch has removed the Negative Rating Watch from the Foreign
Currency IDR.
Country Ceiling Limits FC Ratings: Telecom Argentina's FC IDR is
constrained by the 'B-' country ceiling of the Argentina. Fitch
believes that the company's default would most likely be driven by
transfer and convertibility restrictions, not by a material
deterioration of the company's operating profile.
Strong Operator, Weak Operating Environment: Telecom Argentina is
the leading integrated operator, with strong competitive positions
in both fixed and mobile services. Fitch expects margins to decline
as a result of regulatory interference into the company's price
setting, lowering operating cash flow and causing net leverage to
increase from below 2.0x to 3.0x, which is still strong for a 'B'
category rating. Deterioration in organic cash flow generation will
likely be offset to a degree by capex cuts.
Government Interference, Litigation Drive Uncertainty: Substantial
uncertainty surrounding ongoing litigation, and the potential for
rate hike reversals and penalties are key considerations for the
Rating Outlook of Negative that remains on the company's 'B' LC
IDR. The Argentine government empowered the telecom regulator, Ente
Nacional de Comunicaciones (ENACOM), to regulate tariffs for
telecom services in August 2020. An appeals court granted Telecom
Argentina an injunction to suspend the effects of the presidential
decree that enabled ENACOM to regulate tariffs in May 2021. The
matter is before the Supreme Court.
DERIVATION SUMMARY
The speculative ratings of Telecom Argentina compares with those of
other Argentine issuers YPF S.A. (C) and Arcor S.A.I.C. (B/Stable)
that have solid business and capital structures but whose ratings
are restricted by the difficulties of operating in Argentina amidst
high inflation and government imposed capital controls. Similar to
YPF, Telecom Argentina faces high levels of regulation, which has
hindered its cash flow generation. Arcor's ratings are slightly
higher than those of YPF and Telecom Argentina due to its
operations in Brazil and the cash it holds abroad in its foreign
subsidiaries.
The company's business and financial profile are in line, or
superior to, diversified investment grade telecom operators
including Telefonica Moviles Chile S.A. (BBB+/Stable), Telefonica
del Peru S.A.A. (BBB-/Negative), and Colombia Telecomunicaciones
(BBB-/Stable). Telecom Argentina has either a more conservative
capital structure, or a stronger market position, or both.
Compared to regional peer UNE EPM Telecomunicaciones
(BBB/Negative), Telecom Argentina has comparable or higher market
shares in mobile and fixed, along with similar profitability and
lower leverage.
Ultimately, both the FC and LC IDR will continue to be driven by
the difficulties of the Argentine operating environment text.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- The company will have limited flexibility in 2021 and 2022 to
adjust prices.
-- Fitch-adjusted EBITDA margins declining from over 30% to the
mid-20% range, average capex around 16% - 20% of revenues
through the rating horizon, up to 2023.
-- The company continues rolling over bank and international
agency debt, with overall debt in the USD2.3 billion-USD2.5
billion range.
-- Net debt/EBITDA increasing to or above 3.0x by 2023 from 1.8x
in 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Telecom Argentina's FC IDR is bound by the 'B-' Country
Ceiling of Argentina; therefore, an upgrade of the Argentine
sovereign and concurrent upward move in the Country Ceiling of
Argentina would result in an upgrade.
-- The Negative Outlook on the LC IDR could be stabilized if the
company successfully implements price increases that offset
inflation impact, despite pressures from the regulator
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Telecom Argentina's FC IDR is bound by the 'B'- Country
Ceiling of Argentina; therefore, a downgrade upgrade of the
Argentine sovereign and concurrent downward move in the
Country Ceiling of Argentina would result in a downgrade.
-- Telecom Argentina's LC IDR will be downgraded if ENACOM or the
Argentine government's increasing interference in the telecom
sector material impair the company's financial profile.
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
Adequate Liquidity: Telecom Argentina held ARS31.6 billion, or
USD332 million, of cash and equivalents as of March 31, 2021 to
short-term debt of ARS49.6 billion. The unsecured USD104 million
notes were the company's main hard-currency maturity in 2021. The
company has USD323 million of international agency debt, along with
the USD140 million term loan in 2022. Telecom Argentina has some
flexibility to reduce capex and opex and maintain neutral to FCF
generation.
ISSUER PROFILE
Telecom Argentina S.A. is the largest integrated telecommunications
services provider in Argentina. In January 2018, Telecom Argentina
S.A., one of the largest mobile operators in Argentina, merged with
Cablevision SA, the largest broadband and pay TV provider in the
country. The company provides mobile and fixed services across
Argentina, including prepaid and postpaid mobile, broadband, pay-TV
and telephony.
SUMMARY OF FINANCIAL ADJUSTMENTS
Standard lease adjustments made; certain operating expenses and
working capital items reclassified
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.
===========
B R A Z I L
===========
ENERGISA SA: Fitch Alters Outlook on BB Foreign Curr. IDR to Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed Energisa S.A.'s Long-Term Foreign
Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs)
at 'BB' and 'BB+', respectively, and National Scale Rating at
'AAA(bra)'. In addition, Fitch has affirmed the ratings of
Energisa's 11 rated subsidiaries. The Rating Outlook for the Local
Currency IDRs and for the National Scale ratings was revised to
Stable from Negative. The Rating Outlook for the Foreign Currency
IDRs remains Negative.
The revision of the Outlook for the LC IDR and National Scale
rating reflects the group's ability to bring its consolidated
credit metrics in line with the current ratings. Energisa group's
credit profile benefits from its diversified portfolio of
concessions in the Brazilian power sector, with strong operating
performance, a positive outlook for future tariff readjustments,
and a recovery in energy consumption bolstering its distribution
segment. The FC IDR is constrained by Brazil's Country Ceiling of
'BB', with the group's Negative Outlook reflecting same Outlook of
Brazil's sovereign rating.
KEY RATING DRIVERS
Lower Leverage Trends: Energisa successfully lowered its leverage
over the past 12 months, and this trend should continue over the
coming years. Efficiency gains, favorable tariff annual
readjustments in its main concessions and the benefits from an
tariff review for the concessionaires in the States of Acre (EAC)
and Rondonia (ERO) will improve consolidated performance from 2021
onwards. Consolidated total debt/EBITDA and net debt/EBITDA ratios
are expected to be 4.1x and 3.5x, respectively, in 2021, falling to
3.7x and 3.0x, respectively, in 2022. For the LTM ending March
2021, these ratios were 4.6x and 3.4x, well below their March 2020
levels of 5.7x and 4.5x.
Diversified Portfolio: Energisa's credit profile benefits from the
diversification of its concessions in the energy distribution
segment, which reduces operational risks. The group has concessions
in four different regions in Brazil through 11 DisCos. Those
companies are allowed to pass through all their non-manageable
costs to end-users, which mitigates risks from exposure to demand
volatility and periodic tariff review processes. Energisa's
investments in the construction of five transmission lines, with
two of them going into operation last year is positive for the
group's business risk, although they will not be significant on a
consolidated basis.
Favorable Concession Areas: Energy consumption in Energisa's main
concession areas should benefit from stronger economic conditions
than Brazil as a whole, mainly due to the relative strength of the
agribusiness sector. Fitch's base case scenario considers average
annual energy consumption growth in the group's concession areas of
2.7% from 2021 to 2024. In 2020, even in the midst of the
coronavirus pandemic, energy consumption for the group grew 0.9%,
compared to a national decline of 1.6%. In the LTM ended in March
2021, demand from Energisa's DisCos grew by 0.1%, compared to -0.5%
in the country.
Positive Operating Performance: Energisa's ratings benefit from the
efficient operating performance of its DisCos. In the LTM ended in
March 2021, the pro forma EBITDA of the company's 11 DisCos was
BRL3.6 billion, compared to a regulatory EBITDA of around BRL2.5
billion. Planned investments should further improve operating
efficiencies and reduce energy losses. Tariff revisions that went
into effect in December 2020 have been positive for the EBITDA of
ERO and EAC. They increased the companies regulatory EBITDA to
BRL274 million and BRL107 million, from BRL107 million and BRL67
million, respectively. IGPM-referenced tariff readjustments in the
group's three main DisCos will also boost the group's consolidated
EBITDA in 2021 and 2022, which should reach BRL4.6 billion and
BRL5.5 billion, respectively.
Manageable Negative FCF: Energisa's consolidated FCF should be
negative in 2021 and 2022. In 2021, the group's BRL3.4 billion
investment plan, focusing heavily on transmission line projects,
will push FCF to negative BRL1.8 billion. Fitch expects a negative
FCF of BRL115 million in 2022 before the figure turns positive in
2023 as planned capex falls. Fitch considers average annual
investments and dividend distributions of BRL2.6 billion and BRL1.2
billion, respectively, from 2021 to 2023.
Subsidiaries Ratings Equalized: Fitch equalizes the IDRs of
Energisa Paraiba Distribuidora de Energia S.A., Energisa Sergipe
Distribuidora de Energia S.A., and Energisa Minas Gerais
Distribuidora de Energia S.A., as well as the National Scale
ratings of the 11 rated subsidiaries, with Energisa's rating. That
reflects strong legal, operational and strategic links among the
firms. Energisa consolidates the subsidiaries and also guarantees a
significant portion of their debt, and there are cross-default
clauses in some of the group's debt instruments. Fitch also sees
the subsidiaries' assets as important for the Energisa group.
DERIVATION SUMMARY
Energisa's financial profile is more aggressive than its peers in
Latin America, such as Enel Americas S.A. (A-/Stable), Empresas
Publicas de Medellin E.S.P. (EPM, BBB-/Rating Watch Negative), and
Grupo Energia Bogota S.A. E.S.P. (GEB, BBB/Stable). Energisa's IDRs
also consider its concentration in Brazil, which has lower
operating environment than other countries in the region such as
Chile (A-/Stable) and Colombia (BBB-/Negative).
Compared to other Brazilian power companies with operations
predominantly in the distribution segment, Energisa operates in a
concession area with economic growth above the national average and
with a strong agribusiness sector. Energisa's business profile is
better than that of Light S.A. (BB-/Stable), which has a more
aggressive financial profile, lower financial flexibility, worse
operational indicators and less asset diversification.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Average growth in energy consumption in Energisa's concession
area of 3.3% in 2021 and 2.5% from 2022 to 2024;
-- Average tariff readjustment of 10.9% in 2021 and 5.7% in 2022;
-- Dividend distributions equivalent to 50% of net income;
-- Average annual investments of BRL2.6 billion from 2021 to
2024;
-- Transmission lines concluded according to the company's
schedule;
-- No asset sales or new acquisitions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade on the Foreign Currency IDRs is unlikely as they
are constrained by the country ceiling (BB).
-- An upgrade on the Local Currency IDRs will depend on the
group's ability to bring its net leverage to 2.5x or below.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Total debt/EBITDA above 4.0x on a recurring basis;
-- Net debt/EBITDA above 3.5x on a recurring basis;
-- Deterioration in the liquidity profile at the holding or the
consolidated level;
-- New projects or acquisitions involving significant amounts of
debt;
-- A downgrade of the sovereign rating would trigger a downgrade
on the FC IDR.
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
High Financial Flexibility: Energisa group has proven access to
credit markets and has the financial flexibility needed to fund its
negative FCF and refinance short-term debt. At the end of March
2021, cash and financial investments of BRL5.1 billion covered
short-term debt of BRL4.6 billion by 1.1x. At the holding level,
the cash and financial investments position of BRL358 million
represented a modest 0.2x coverage of short-term debt of BRL1.8
billion. The holding company relies on dividends from its operating
subsidiaries, which totalled BRL1.2 billion in the LTM ending March
2021 and are expected to average BRL1.6 billion this year and next.
As of March 31, 2021, Energisa's total consolidated debt was
BRL19.0 billion, mainly composed of debentures (BRL10.5 billion)
and credit lines related to Law 4,131 (BRL3.7 billion).
ISSUER PROFILE
Energisa S.A. is a non-operating holding company that operates in
the electric energy sector mainly through eleven energy
distribution concessionaires, serving around 8.1 million customers,
which positions the group as the fifth largest in Brazil.
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.
GLOBO COMUNICACAO: Moody's Lowers CFR to Ba2, Outlook Negative
--------------------------------------------------------------
Moody's Investors Service downgraded Globo Comunicacao e
Participacoes S.A.'s Corporate Family Rating and senior unsecured
ratings to Ba2 from Ba1. The outlook remains negative.
Downgrades:
Issuer: Globo Comunicacao e Participacoes S.A.
Corporate Family Rating, Downgraded to Ba2 from Ba1
$325 million senior unsecured notes due 2025, Downgraded to Ba2
from Ba1
$500 million senior unsecured notes due 2030, Downgraded to Ba2
from Ba1
Outlook Actions:
Issuer: Globo Comunicacao e Participacoes S.A.
Outlook, Remains Negative
RATINGS RATIONALE
The downgrade reflects the ongoing deterioration of Globo's credit
metrics and increasingly competitive business environment, despite
the strong liquidity position with BRL12.5 billion in cash and BRL6
billion in total debt in March 2021. The ongoing shift in consumer
behavior and technology advances have increased the competition
from streaming platforms and digital media advertising placing
pressure on Globo because of its reliance on the traditional
open-air TV and pay-TV model. Globo revenues have been reducing on
an ongoing basis from BRL16 billion in 2014 to BRL14 billion in
2019 with gross margin reducing from 45% to 27% in the same period.
In 2020 lower advertising revenues, because of the COVID pandemic,
lead to a 11% drop in revenues to BRL12.5 billion. Additionally,
the sharp devaluation of the Brazilian real has resulted in a
deterioration in the company's credit metrics given its large
exposure to the US dollar including commitments to purchase
transmission and exhibition rights and almost all its indebtedness,
while most of its revenue is generated in the Brazilian real
resulting in an increase in leverage measured by total debt to
EBITDA to 5.1x in December 2020 from 2.2x in December 2019.
Globo's Ba2 ratings are mainly supported by its robust liquidity
and its leading market position in the Brazilian TV broadcasting
market, with a 33% share of the overall national audience and 38%
during prime time in 2020. The rating also reflects Globo's
diversification away from advertising revenue toward the
higher-margin content and programming segment, which accounted for
40% of revenue in 2020 -- up from 36% in 2019. The company's
high-quality content, with most of its prime-time programing
produced in-house, is an additional credit strength.
Constraining Globo's ratings are its dependence on Brazil's
economic growth, revenue concentration in the cyclical Brazilian TV
advertising market, with a degree of foreign-exchange exposure.
High-fixed-cost base stemming from its high-quality programming
strategy, margin compression, especially during economic downturns,
and strong competition from streaming platforms and digital media
advertising are also rating constrains.
To position itself as a strong player in an environment of
increasing importance of streaming platforms and digital
advertising Globo is undergoing a restructuring process as part of
its digital transformation strategy centralizing the production of
content and its digital businesses in a single business unit.
Globo will continue to strengthen its direct to consumer offers
with a balance of advertising and subscription revenues leveraging
its streaming platform Globoplay. In December 2020 the number of
views of Globoplay reached 65.8 million hours, 2.5x higher than
26.2 million hours in December 2019.
Moody's projects revenues for 2021 to be flat year-over-year at
BRL12.5 billion. EBITDA in 2021 should reduce 10.8% to BRL979
million, because of the recognition of costs related to
transmission and exhibit rights of BRL486 million, relating to 2020
calendar. But in 2022 Moody's believes EBITDA will recover to
around BRL1.4 billion favored by a gradual recovery in business
activity, increased participation of content revenues, and benefits
from cost savings. In 2022 Moody's expects gross leverage to reduce
to 3.8x, from 8.3x last twelve months March 2021, and
(EBITDA-Capex)/Interest Income to recover to 3.0x, from 1.3x last
twelve months March 2021.
Globo has a solid liquidity position, supported by total cash of
BRL12.5 billion as of March 2021. The company's increased liquidity
covers total adjusted debt of around BRL6 billion by 2.1x (down
from 3.0x in December 2019). Globo has a very comfortable debt
maturity profile, with no major maturities until 2025. Early in
2020 Globo issued USD500 million with maturity in 2030 and repaying
USD300 million in senior unsecured noted with maturity in 2022.
Around 97% of Globo's debt is denominated in US dollars, exposing
the company to foreign-currency fluctuations. Accordingly, the
company hedges at least its next 24-month foreign-currency exposure
and some debt maturities in 2025 and 2027, mitigating cash impacts.
With the lasting disruptions from the coronavirus outbreak and
relevant 2020 cost recognized in 2021 Moody's expect gross leverage
to close 2021 at 5.6x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook reflects the ongoing increase in competition
from streaming platforms and digital media advertising against the
traditional open-air TV and pay-TV and the risk that Globo credit
metrics will remain outside of downgrade triggers in the next 12 to
18 months. On the other hand, Moody's expects that Globo will
prudently manage its capital spending and dividend distributions to
maintain adequate liquidity to service its financial obligations.
Positive rating pressure would not arise until advertising spending
return to more normal levels and Globo proves that it is able to
return to higher and sustainable levels of profitability. At this
point Moody's would evaluate the company's capital structure,
positive rating pressure would require evidence that the company is
capable of substantially recovering its financial metrics while
maintaining strong liquidity.
Moody's could downgrade Globo if:
if there is significant reduction in liquidity from declining
margins, low profitability and cost inflexibility
there are clear expectations that the company will not be able to
maintain financial metrics compatible with the Ba2 rating:
gross adjusted leverage is expected to be sustainably above 3.8x
(8.3x in the LTM ended March 2021)
(EBITDA-CAPEX)/Interest Expense is expected to be sustainably
below 2.5x (1.3x in the LTM ended March 2021)
Headquartered in Rio de Janeiro and owned by the Marinho family,
Globo is Brazil's largest media group and leading broadcast TV
network, with net revenue of BRL12.5 billion (equivalent to $2.3
billion) in the last twelve months ended March 2021. Globo engages
in other business activities, including pay-TV production and
programing, sound recording, magazine publishing and internet
businesses, through its subsidiaries.
The principal methodology used in these ratings was Media Industry
published in June 2017.
PETROLEO BRASILEIRO: Bolivian Court Overturns US$61MM Ruling
------------------------------------------------------------
Rio Times Online reports that the Agro-environmental Court of the
Bolivian city of Sucre has overturned a lower court ruling that
sentenced Petrobras Bolivia (PEB), a subsidiary of Brazil's
state-owned oil company, to pay US$61 million in damages for the
use of the property where the San Alberto field facilities are
located, the oil company said.
According to Petrobras, the court ruling vindicated it fundamental
rights and constitutional guarantees, by overturning the lower
court ruling and all ancillary proceedings in the case, Rio Times
Online notes.
About Petrobras
Petroleo Brasileiro S.A. or Petrobras (in English, Brazilian
Petroleum Corporation - Petrobras) is a semi-public Brazilian
multinational corporation in the petroleum industry headquartered
in Rio de Janeiro, Brazil. Petrobras control significant oil and
energy assets in 16 countries in Africa, the Americas, Europe and
Asia. But, Brazil represents majority of its production.
The Brazilian government directly owns 54% of Petrobras' common
shares with voting rights, while the Brazilian Development Bank and
Brazil's Sovereign Wealth Fund (Fundo Soberano) each control 5%,
bringing the State's direct and indirect ownership to 64%.
A corruption scandal was uncovered in 2014 that involved Petrobras.
The scandal related to money laundering that involved Petrobras
executives. The executives were alleged to get received kickbacks
from overpriced contracts, to the tune of about $3 billion in
total.
S&P Global Ratings revised outlook on Petrobras to stable and
affirmed 'BB-' foreign currency and local currency credit ratings
on April 7, 2020. Fitch affirmed Petrobras' 'BB-' long term
foreign currency and local currency credit ratings in February
2021. Moody's Investors Service affirmed the 'Ba2' long term
foreign currency credit rating of Petrobras in August 2019.
As reported in the Troubled Company Reporter-Latin America,
Egan-Jones Ratings Company, in May 2021, maintained its 'B-'
foreign currency and local currency senior unsecured ratings on
debt issued by Petroleo Brasileiro S.A. EJR also maintained its
'B' rating on commercial paper issued by the Company.
USINAS SIDERURGICAS: Fitch Raises LT IDRs to 'BB', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has upgraded Usinas Siderurgicas de Minas Gerais
S.A.'s (Usiminas) Long-Term Foreign and Local Currency Issuer
Default Ratings (IDRs) to 'BB' from 'BB-', and its National Scale
rating to 'AA+(bra)' from 'A+(bra)'. In addition, Fitch has
upgraded Usiminas' senior unsecured notes due in 2026 issued by
Usiminas International S.A.R.L. and are guaranteed by Usiminas to
'BB' from 'BB-'. The Rating Outlooks for Usiminas' international
Foreign and Local Currency IDRs and its National Scale rating
remain Stable.
The rating upgrade reflects Usiminas' low absolute and relative
debt levels, manageable debt amortization profile, and performance
despite the pandemic, and maintenance of a sound operating profile
in the aftermath amid a positive steel environment in Brazil.
KEY RATING DRIVERS
Low Leverage: Fitch projects Usiminas' net leverage will fall to
0.2x in 2021 from 1.0x in 2020 and 1.9x in 2019. The company's
EBITDA is forecast to grow to BRL6.5 billion in 2021 from BRL2.6
billion in 2020. FCF will reach BRL1.7 billion due to rising capex,
working capital, taxes and dividends. Fitch's projections assume
8.7 million tons of iron ore sales, average iron ore prices of
USD160/ton, BRL1.5 billion of capex and an increase in steel
EBITDA/ton to USD132/ton. Catch-up investments, realignment and
preparations for a rescheduled blast furnace 3 stoppage by mid-2023
are key reasons for the increase in capex to BRL1.5 billion from
BRL800 million in 2020.
Solid Steel Backdrop: Usiminas steel sales are forecast to grow to
5.3 million tons in 2022 and 5.5 million tons by 2023 from 3.7
million tons in 2020. Steel prices remain high in Brazil amid
supply constraints. During 2020, production volumes in Brazil
dropped by 4.5%, while apparent consumption rose by 1.2%. Flat
steel consumption in January-April 2021 has been 45% higher than a
year ago, according to Aco Brasil. This is very supportive for
Usiminas given its large share in the flat steel used in automobile
and white goods production. Usiminas closed two blast furnaces
during April 2020 due to weak demand but has restarted them ever
since.
Elevated Iron Ore Prices: Usiminas' performance has been bolstered
during the past two years by elevated iron ore prices globally.
This has allowed the company to fund capex with strong cash flow
and to continue to buttress its liquidity position. High iron ore
spot prices are driven by strong demand from China, which has left
the market in deficit. Supply constraints are expected to ease in
2022 and Fitch is using USD100/ton in 2022 and USD80/ton in 2023
and beyond for its financial forecasts.
Country Ceiling: Fitch measures the relationship between cash flow
generation in a given country or region relative to hard currency
gross interest expense over a three- to five-year time horizon in
determining a company's applicable Country Ceiling. If Brazil's
'BB' Country Ceiling were downgraded, Fitch would continue to rate
Usiminas at 'BB', as the company's cash flow generated through
exports would allow it to comfortably cover its hard-currency debt
service.
DERIVATION SUMMARY
Usiminas' business risk is similar to that of peer Companhia
Siderurgica Nacional (BB-/Positive), as both are highly exposed to
the local steel industry in Brazil. While CSN has greater business
diversification, with larger mining operations and operations in
the cement industry, Usiminas' robust business position in its
niche markets and solid operating margins are a competitive
advantage.
Both Usiminas and CSN have a much weaker business position compared
with the other Brazilian steel producer, Gerdau S.A. (BBB-/Stable),
which has a diversified footprint of operations with significant
operating cash flows from its assets abroad, mainly in the U.S.,
and a more flexible business model that allows it to better
withstand economic and commodities cycles.
From a financial risk perspective, CSN has launched noteworthy
liability management exercises including bank debt renegotiation
and the listing of assets but Usiminas benefits from much lower
overall gross debt, more manageable cash outflows to maintain its
capital structure and a better debt maturities ladder than CSN,
which are all factored into the one-notch differential between the
companies' ratings. Gerdau has the lowest financial risk of the
three, and has been able to maintain positive FCF, strong liquidity
and no refinancing risks over the last few years of recession in
Brazil, as reflected in its investment-grade rating.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer
include:
-- Benchmark iron ore prices average USD160/ton in 2021 and
USD100ton in 2022;
-- Iron ore costs rise 75% in 2021, following the increase in
prices, and fall -5% in 2022;
-- Brazilian steel volumes increase 35% in 2021 and then 5% in
2022;
-- Capex of BRL1.5 billion in 2021 and 2022;
-- An exchange rate of BRL5.20/USD1.00 at YE 2021 and
BRL5.00/USD1.00 at YE 2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Net debt/EBITDA leverage ratios consistently below 2.5x would
be a consideration for a potential upgrade;
-- Consistent FCF generation;
-- Additional diversification in products and geography.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Maintenance of net debt/EBITDA leverage ratios above 3.5x;
-- Negative FCF;
-- A significant change in industry dynamics or an increase of
steel imports into Brazil.
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
Low Refinancing Risk: Usiminas had BRL6.3 billion of debt as of
March 31, 2021. The debt consists of BRL2 billion of Brazilian
real-denominated debentures that mature in 2023, 2024 and 2025; a
USD750 million (BRL3.8 billion) note that matures in 2026; and
BRL821 million of short-term forfaiting transactions Fitch includes
in its debt calculations.
Usiminas had BRL4.6 billion of cash and marketable securities at
the end of March 31, 2021. About BRL407 million of the company's
reported cash is held in foreign bank accounts. The company does
not face principal amortizations on its debt between 2020 and 2022.
The debentures begin to amortize in 2023 year-end, when a BRL703
million payment is due.
ISSUER PROFILE
Usiminas is the largest domestic supplier of cold rolled and
electro-galvanized steel products and holds approximately 35% share
of the flat steel market in Brazil. The company has a robust
position within the local automotive industry. Usiminas has a large
exposure to the Brazilian domestic steel industry.
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.
=========
C H I L E
=========
INVERSIONES LATIN AMERICA: Fitch Gives Final BB+ on Secured Notes
------------------------------------------------------------------
Fitch Ratings has assigned a final rating of 'BB+' to Inversiones
Latin America Power Limitada's (ILAP, the Issuer) senior secured
notes, supported by cash flows from two windfarms, San Juan, S.A.
(San Juan) and Norvind, S.A. (Totoral). The Rating Outlook is
Stable.
The notes carry a coupon of 5.125%, which is 0.225% below Fitch's
assumption in its cases for the expected rating. The debt quantum
was not modified, staying at USD 403.9 million, and financial
metrics are slightly stronger in Fitch's rating case due to the
lower interest rate and a revised higher U.S. inflation assumption,
as published in Fitch's June Global Economic Outlook. Sensitivity
analysis continues to show a strong resilience against operational
and financial stresses under the final debt structure. As a result,
the final rating is the same as the expected rating assigned to the
notes on June 4, 2021.
RATING RATIONALE
The rating for ILAP's portfolio of two windfarms in Chile, San Juan
(81% of total generation capacity) and Totoral (19%), reflects its
mostly contracted position, averaging 73% of its revenues
contracted with distribution companies (DisCos) through regulated,
fixed-priced, long-term power purchase agreements (PPAs) and
short-term bilateral PPAs through 2033. The transaction is exposed
to some potential profitability erosion due to varying prices
between the energy injection node and the DisCo withdrawal node,
which is expected to be mitigated over the medium term due to
transmission network expansions. The rating is not limited by
counterparty risk, as the projects' most relevant counterparties
are either investment grade or DisCos under regulated PPAs, which
benefit from protective regulatory step-in provisions.
The transaction will also have a mostly merchant tail once the
regulated PPAs expire in 2033, although this is somewhat mitigated
by the long remaining useful life of the larger plant, San Juan,
which Fitch assumes will end in 2042 (25 years total). Together,
both farms have a P90/P50 differential of 13%, indicating moderate
wind resource variability, and have performed at around P50 in most
years. The windfarms have some curtailment risk, which is expected
to persist going forward but will be less severe than historical
curtailment prior to the installation of the Cardones-Polpaico
transmission line in 2019.
San Juan is also exposed to wake effects due to recent windfarm
expansions near the plant site, for which the expected impact is
included in Fitch's financial analysis. Both farms have presented a
satisfactory operating track record and benefit from long-term,
fixed-price service and availability agreements with Vestas Chile,
guaranteed by Vestas Wind Farms A/S, which is considered an
experienced O&M contractor. The overall debt structure is solid,
with a mandatory amortization schedule complemented by a partial
cash sweep up to a target debt balance. Refinancing risk exists by
way of a balloon payment that is expected to be equal to roughly
20% of the original value of the notes under Fitch's cases.
Under Fitch's rating case, debt service coverage ratios (DSCRs)
including stabilized price receivables are mostly consistent with
the assigned rating despite a few periods of shortfalls versus
'BB+' thresholds over the near term. These metrics average 1.31x,
with a minimum of 1.13x (in 2021). Refinancing risk is mitigated by
a project life coverage ratio (PLCR) of 2.04x at the time of the
notes' maturity in 2033; this is considered adequate versus
applicable criteria to offset potential merchant volatility after
2033.
KEY RATING DRIVERS
Robust O&M Agreement Provides Comfort (Operation Risk - Midrange)
Vestas Chile, which supported by a guarantee of its parent company,
Vestas Wind Farms A/S, is a provider of equipment and O&M contracts
and has a long and proven track record with the plants' technology.
The plants benefit from a comprehensive service and availability
agreement (SAA) with fixed and defined costs, including scheduled
and unscheduled maintenance covering the majority of the life of
the debt.
The SAAs also provide minimum availability guarantees of 97% for
both windfarms in 2021 and of 98% for San Juan starting in 2022.
However, the transaction will be exposed to re-contracting risk
once these agreements expire, in 2037 for San Juan and 2029 for
Totoral, which could lead to increases in costs or lower
availability guarantees. Life extension programs are planned for
both farms to add to their useful life, bringing them up to 30
years, although Fitch has assumed a maximum of 25 years for
conservatism per applicable criteria. A three-month O&M maintenance
reserve account (OMRA) provides comfort to the structure.
Strong but Evolving Track Record (Revenue Risk - Volume: Midrange)
Both farms benefit from a resource forecast that considers
operating history, with a longer track record considered for the
smaller windfarm, Totoral, having started operations on 2010. Both
farms have P90/P50 differentials of 13%, indicating moderate wind
resource variability. San Juan has a shorter operating track record
and has been exposed to wake effect since 2020 due to the
construction of neighboring windfarms. Although wake effect remains
a risk for this plant, losses corresponding to future losses have
been conservatively estimated by the project's independent engineer
(IE), included in the resource forecast utilized by Fitch. Both
plants are also exposed to some curtailment risk, which is expected
to continue as additional renewables incorporate themselves into
the system but is not expected to reach pre-2019 levels.
Long Term PPAs Limits Risks (Revenue Risk - Price: Midrange)
The plants have low merchant exposure during the life of the notes
given that the majority of revenues (73%) are contracted through
long-term, fixed-priced PPAs. Price exposure mainly originates from
the differential between injection node and withdrawal node. This
is because the company earns the injection price where the plants
are located, north of Santiago, and pays the withdrawal price in
Central Chile, where the majority of the energy demand is located.
The withdrawal price is generally higher due to the concentration
of energy demand. The transaction will have a merchant tail
post-2033, to retire the remaining debt after the balloon payment
is refinanced. Spot prices are expected to be capped in the long
term through the entry of more renewable energy projects and newer
technologies, such as batteries, that would lower the marginal cost
of energy production.
Solid Structure, Some Refinancing Risk (Debt Structure - Midrange)
The debt is amortizing with manageable refinancing risk. The plants
will benefit from a legal amortization schedule complemented by a
partial cash sweep up to a target debt balance. Failure to meet the
target debt balance is not an event of default, therein providing
flexibility to the transaction in the event that certain years
perform below original expectations. Under Fitch's base case, the
balloon payment would be equivalent to 15% of the original amount
of the notes, which is considered a moderate refinancing risk
exposure. The transaction benefits from an adequate covenant and
security package, including a 1.2x backward- and forward-looking
dividend distribution test. The project's six-month debt service
reserve account (DSRA) also provides some comfort to the
structure.
Financial Profile
Under Fitch's base case, which represents expected financial
performance under normal operating conditions, DSCRs average 1.42x
with a minimum of 1.28x. Fitch's rating case represents a downside
scenario, with stresses on operational expenses and availability
after year 20 of each plant's useful life, among other factors.
Rating case DSCRs are lower than in the base case, averaging 1.31x
with a minimum of 1.13x (in 2021), including stabilized price
receivables that are expected between 2025 and 2027.
These metrics are mostly consistent with the rating assigned
despite shortfalls versus indicative thresholds over the near term
that do not constrain the rating, as they are short-term in nature
and not of a material magnitude. Break-evens demonstrate that
financial profile should be resilient against a variety of
stresses, including increasing withdrawal prices, an increasing
basis between injection and withdrawal node prices and decreases in
spot prices, which further supports the assigned rating. A 2.04x
PLCR in Fitch's rating case at the notes' maturity suggests a
sufficient buffer against potential long-term spot price
variability.
ILAP has an ESG Relevance score of '4' for Social Impacts due to
the rate stabilization mechanism that was signed into law following
social unrest in Chile in 2019. The rate stabilization law has
resulted in reduced revenues for energy generation projects with
regulated PPAs in Chile and is expected to continue to affect
ILAP's financial profile over the near term.
PEER GROUP
Fitch considers other wind energy generation projects in the region
as peers for this project, such as Energia Eolica S.A. (Inka),
rated 'BBB-', with a rating case DSCR minimum of 1.22x and an
average of 1.28x under Fitch's rating case. Parque Eolico Tres
Hermanas, S.A.C. is also rated 'BBB-', with a rating case DSCR
minimum of 1.22x and an average of 1.31x. Like ILAP, these projects
also have a large proportion of revenues originating from
contracted energy sales. However, when compared to these
investment-grade peers, ILAP has slightly lower average rating case
DSCRs and a similar minimum. The slightly lower metrics alongside
ILAP's higher revenue risk profile (in terms of basis risk and
exposure to DisCo demand) coupled with exposure to refinancing risk
are consistent with a lower rating.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Persistent generation near P50 levels leading to a rating case
DSCR profile above 1.3x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Persistent generation near P90 levels leading to a rating case
DSCR profile below 1.2x.
-- Injection prices that are consistently below 85% of those in
withdrawal nodes, resulting in a considerable erosion of
profitability.
-- DisCo energy demand that is consistently below 70% of
contracted maximums, leading to sustained lower revenues that
substantially deteriorate rating case credit metrics, with a
DSCR profile below 1.2x.
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.
TRANSACTION SUMMARY
The issuer issued USD 403.9 million in partially amortizing senior
secured notes, with a balloon payment due in 2033. This debt is
principally secured by a first priority security interest in all
assets, the material project documents and the project accounts.
The proceeds of the issuance were used to refinance existing debt;
pay transaction fees, expenses and general corporate purposes; and
pay for financing costs associated with the transaction and other
corporate purposes.
The transaction consists of the holding company, ILAP, which issued
all of the transaction debt and receives upstreamed cash flows in
the form of shareholder loan payments from the project companies
and guarantors, San Juan, S.A. and Norvind, S.A. San Juan, S.A.
owns and operates the San Juan windfarm in Vallenar, within the
Atacama region in Chile, with an installed capacity of 193.2 MW
that consists of 56 Vestas V117-3.45MW wind turbine generators.
This windfarm reached commercial operations in March 2017. Norvind,
S.A. owns and operates the Totoral windfarm in Canela, within the
Coquimbo region in Chile, with an installed capacity of 46 MW that
consists of 23 Vestas V90-2.0MW wind turbine generators. This
windfarm reached commercial operations in January 2010.
FINANCIAL ANALYSIS
Fitch's base case reflects the agency's view of long-term
sustainable performance. Fitch's base case assumes P50 generation
with an additional production haircut of 3% to account for
curtailment, forecast uncertainty and potential wake losses before
planned transmission expansion infrastructure comes online, which
will significantly reduce congestion. After this point, the haircut
is 2%. Spot price projections follow Valgesta's downside case and
fixed, long-term spot price of real USD 40/MWh, which was viewed as
reasonable versus other Chilean energy peers in Fitch's rated
portfolio.
The operational cost profile assumed is in line with the sponsor's
original assumptions given the long-term, full-scope SAA. Fitch
considers only five additional years of useful life beyond the
expiration of the Vestas contracts, for a total of 25 years of
useful life for each asset. For the refinancing of the balloon
payment, Fitch did not stress the coupon rate of the notes in the
base case. Similar to other rated projects in Chile with regulated
PPAs, Fitch assumed that rate stabilization will only negatively
affect ILAP's financial margins in 2021. Inflows from stabilized
price receivables were also cut by 25% versus the sponsor's
projections given the shorter duration of stabilized price
reductions assumed.
Fitch's rating case reflects a reasonably likely combination of
uncorrelated stresses that could occur in any given year but which
are not expected to persist. The rating case assumes P90 generation
and the same generation haircut as the base case.
The rating case also assumes a 7.5% stress on operating expenses,
excluding SAA costs. However, to reflect the agency's view that
operating costs may increase after the typical 20-year useful life
of a wind asset, Fitch stressed the SAA costs by 12.50% after year
20 of operation. Availability is also reduced to 96% for San Juan
and 95% for Totoral after this year to account for potential
increases in major maintenance events during the last years of
project life. For the refinancing of the balloon, Fitch assumed a
higher rate of 7.5%, in comparison to the base case interest rate,
to account for potentially higher future interest rates. All other
assumptions mirror the base case.
Under Fitch's base case, average DSCRs are 1.42x with a minimum of
1.28x. Under the rating case, these metrics erode to an average of
1.31x with a minimum of 1.13x. Rating case DSCRs are generally in
line with indicative thresholds for a 'BB+' rating. The low minimum
DSCR under Fitch's rating case is less of a concern, as Fitch
understands that the larger wind park, San Juan, has been
performing close to P50 in 2021.
Fitch also ran break-even analyses to evaluate the project's
financial resilience to extreme stresses. These analyses indicated,
under Fitch's base case conditions, that the project could
withstand a sustained minimum real merchant price of 20 USD/MWh
before defaulting. This result is considered strong, as it is below
relevant historical spot prices and the expected levelized cost of
energy for a renewable plant. The project was also able to
withstand a maximum increase on the differentials between its
withdrawal and injection node prices of 34%; this is considered an
adequate margin to protect against periods of congestion in
comparison to historical behavior. The transaction also shows solid
resiliency against stresses on generation, costs and interest
rates. These results were considered robust and commensurate with
the assigned rating.
SECURITY
This debt will be principally secured by a first priority security
interest in all assets, the material project documents and the
project accounts.
ESG CONSIDERATIONS
ILAP has an ESG Relevance score of '4' for Social Impacts due to
the rate stabilization mechanism that was signed into law following
social unrest in Chile in 2019. The rate stabilization law has
resulted in reduced revenues for energy generation projects with
regulated PPAs in Chile and is expected to continue to affect
ILAP's financial profile over the near term.
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
===================================
AERODOM: S&P Alters Outlook to Stable & Affirms 'B+' ICR
--------------------------------------------------------
S&P Global Ratings revised the outlook on Dominican airport
operator Aeropuertos Dominicanos Siglo XXI S.A. (Aerodom) to stable
from negative and affirmed the 'B+' issuer credit ratings.
The stable outlook indicates S&P expects operating and financial
performance to improve in the following 12 months amid a traffic
recovery for 2021 of 65%-70% of 2019 figures and a full recovery in
commercial revenues.
S&P expects Aerodom's financial performance will recover faster
than it previously anticipated amid a better recovery in
nonaeronautical revenues and growing passenger traffic.
In 2020, the amount of average consumption per passenger in duty
free and food & beverage stores almost doubled from our estimates.
Therefore, and despite the material traffic drop, commercial
revenues decreased only 20% while we assumed a decrease of 60%, as
S&P saw for other airports that it rates. As a result, in 2020
Aerodom posted EBITDA of about $74 million versus the expected $58
million and a cash position of $64 million versus the expected $56
million. Moreover, in the first quarter of 2021, average
consumption remained in line with that of 2020. S&P expects this
trend to continue, fostered by the expected opening of new stores
this year, which should lead to commercial revenues by the end of
the year similar to that of 2019, versus its previous assumption
that commercial revenues would recover in line with traffic
levels.
DOMINICAN REPUBLIC: Price of Bread to Increase, Gov't. Says
-----------------------------------------------------------
Dominican Today reports that the Dominican Republic Minister of
Agriculture Limber Cruz confirmed that bread will rise in prices,
although not at the level as several sectors had announced.
"You saw how they tried to attack the bread, you saw they put it at
10 pesos, whe bread was still at 5. The Minister of Industry and
Commerce, Víctor Bisono, has done a work of conversation with the
associations, with the producers, you have seen how it has been
maintained," according to Dominican Today.
"That it will go up, yes of course, because this is worldwide, it
will go up, but it will not go up to the extent that the enemies
want it to rise," 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, 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
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CREDITO REAL: Fitch Lowers LT IDRs to 'BB', Outlook Negative
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Fitch Ratings has downgraded Credito Real, S.A.B. de C.V., SOFOM,
E.N.R.'s (Credito Real) Long-Term (LT) Foreign and Local Currency
Issuer Default Ratings (IDRs) and its global senior unsecured debt
rating to 'BB' from 'BB+', the perpetual bonds ratings to 'B+' from
'BB-' and affirmed Short-Term (ST) Local and Foreign Currency IDRs
at 'B'. Fitch also downgraded Credito Real's LT National Ratings to
'A(mex)' from 'A+(mex)' and affirmed its ST National Rating at
'F1(mex)'. The Rating Outlook of the LT IDRs and LT National Rating
is Negative.
The downgrade reflects heightened pressures on Credito Real´s
capitalization, lower earnings generation and deteriorated asset
quality metrics. Fitch believes that Credito Real's current and
expected weakened financial profile reflect progressive changes in
its business model from recent changes in the Mexican Social
Security Institute (IMSS, 17% of the total portfolio) commercial
conditions and from increased exposures to less profitable and more
impairment-sensitive segments, such as SMEs, which now represents
23% of the total portfolio.
KEY RATING DRIVERS
The ratings factor in with high importance the company's profile
underpinned by its leadership in Mexico's payroll segment. As of
March 2021 (1Q21), 58.1% of its total portfolio (loans and leases)
are payroll loans to unionized state and federal public-sector
employees, a segment particularly less sensitive to unemployment.
Its geographic diversification benefits its franchise but results
in exposure to SMEs and operations in Central America, which are
more sensitive to the effects of the economic slowdown. The
Operating Environment (OE), now a moderate importance factor, will
continue to pressure Credito Real's financial profile.
Credito Real's profitability, also a high importance factor, has
relevantly weakened due to increased impairment charges and lower
net interest income. The company's pre-tax income to average assets
was 0.6% and 0.7% as of 1Q21 and YE20, respectively, well below the
5.2% average of 2017-2019. Profitability is likely to remain under
pressure given the still complex OE that may affect loan
origination and non-payroll related asset quality, while the
potential rate cap by the IMSS may also have a moderate effect on
Credito Real's profitability metrics, this ratio already has
limited room for deterioration to continue to be commensurate with
the 'BB' rating.
Credito Real's asset quality is also a high importance factor and
has deteriorated materially during 2020, primarily driven by the
effects of the pandemic on its SMEs portfolio and to some extent,
on its payroll segment. Fitch calculates Credito Real's adjusted
NPLs ratio (including leasing contracts with payments overdue by
more than 90 days, chargesoffs, the amount owed by distributors and
foreclosed asset) that increased to 11.5% at 1Q21 and 10.2% at YE20
from 6.6% at end-2019. In turn, the adjusted impaired loan ratio
without considering the amount owed by distributors was also high
at 9.2% as of 1Q21.
Lower earning generation and increasing indebtedness have pressured
Credito Real´s leverage metrics. As of March 2021, the tangible
leverage ratio (considering 50% of hybrid instruments as equity)
increased to 5.7x from the four-year average of 4.3x (2017-2020).
Fitch considers Credito Real's will maintain levels above 5.5x
given the expected limited earnings for 2021 and the entity´s
expectation to sustain loan growth. These levels are better
commensurate with the current 'BB' rating.
Credito Real's funding is flexible as it is concentrated in
unsecured sources, as of 1Q21, 79.5% of its debt was unsecured,
including the 50% of the hybrid Fitch considered debt. At the same
date, unpledged loans accounted for 89.1% of unsecured debt. Fitch
considers that Crédito Real has shown capacity to manage
refinancing risk and maintain an appropriate funding profile,
however its funding profile shows concentration in market debt (61%
of total debt).
The negative trend in the funding factor reflects Fitch's opinion
that debt markets remain very sensitive to investor sentiment which
deteriorated further due to some event related to another payroll
lender in Mexico and remaining economic uncertainties. The negative
trend also highlights refinancing risk challenges posed by the
upcoming debt maturity of its senior notes due February 2022. As of
May the entity has been able to renew some its funding facilities
which partially reduces stress due to the reduced access to the
capital markets.
Credito Real's corporate governance evaluation reflects Fitch's
view that aspects of the company's public information disclosure is
weaker than international best practices and lack sufficient detail
around some accounts; in particular, the issuer's approach to
reporting accrued interest of its loan portfolio in its 2020
audited financial statements differs from practices disclosed by
other payroll lenders in Mexico and in Fitch's view reduces
comparability and reflects there is still room for improvement in
transparency. This has a moderately negative impact on the ratings.
The operational, political, and reputational risks related to its
payroll business also have moderately negative impact on the
ratings in conjunction with other factors.
SENIOR DEBT
The senior global debt rating is at the same level as Credito
Real's 'BB' rating, as the likelihood of a default of the notes is
the same as for the company.
HYBRID SECURITIES
Credito Real's hybrids securities are rated two notches below its
LT IDR to reflecting the increased loss severity due to its deep
subordination and heightened risk of non-performance relative to
existing senior obligations.
Based on Fitch's analysis, the hybrid qualifies for 50% equity as
it meets Fitch's criteria with regard to the ability to defer
coupon payments, the existence of a coupon step-up of 500 basis
points (bps) in the event of a change of control and its perpetual
nature.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Credito Real's ratings could result from
further deterioration on asset quality from those recently
reported and if the company does not show a clear recovery
trend in profitability metric above 2%;
-- A total debt-to-tangible equity ratio consistently above 7.0x;
-- A substantial deterioration of its funding and liquidity
profile could also trigger a downgrade.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Outlook could be revised to Stable if the company's
ability to reverse deteriorations in profitability and rebuild
metrics above 2% and if asset quality metric stabilizes, once
downside risks from the pandemic decline;
-- The current Negative Outlook makes an upgrade highly unlikely
in the near term;
-- Over the medium term, the ratings could be upgraded if Credito
Real´s financial profile metrics strengthen significantly and
in sustained manner while preserving its strong company
profile.
SENIOR DEBT and HYBRID SECURITIES
-- Although the company's debt ratings do not have an explicit
Outlook, rating actions would mirror those of Credito Real's
IDRs. The senior unsecured debt ratings would continue to be
aligned with the company's IDRs, while the hybrid securities
would remain two notches below.
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
Pre-paid expenses and other deferred assets were reclassified as
other intangibles and deducted from capital. Results from
investments in associates were reclassified as operating income.
Income from leasing and factoring operations were reclassified as
interest income. Its operational lease portfolio and factoring
operations were included in gross loans, with the portion of
delinquent leases classified as impaired loans. The coupons of the
perpetual notes were reclassified as interests.
ESG CONSIDERATIONS
Fitch has changed Credito Real's Financial Transparency ESG
Relevance Score to '4' in contrast to a typical relevance score of
'3' to highlight that the issuer's approach for reporting and
registering accrued interest and the loan portfolio differ from
practices disclosed by other payroll lenders. Credito Real's public
information disclosure is weaker than international best practices
and lack sufficient detail in some accounts. This has recently
required the issuer to publish additional clarifications and
disclosures to the market. Such differences challenge Fitch's
ability to assess the company's financial profile. This has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Credito Real, S.A.B. de C.V., Sociedad Financiera de Objeto
Multiple, Entidad No Regulada has an ESG Relevance Score of '4' for
Exposure to Social Impacts due to its exposure to a shift in social
or consumer preferences or changes in government regulation or
contract agreements on the payroll deduction loans products, which
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Credito Real, S.A.B. de C.V., Sociedad Financiera de Objeto
Multiple, Entidad No Regulada has an ESG Relevance Score of '4' for
Customer Welfare - Fair Messaging, Privacy & Data Security due to
its exposure to reputational and operational risks as its payroll
deduction loans business targets government employees and
dependencies offering relatively high interest rates, 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.
NUEVO LEON: Moody's Lowers Issuer Rating to Ba3, Outlook Stable
---------------------------------------------------------------
Moody's de Mexico S.A. de C.V. downgraded the issuer ratings for
the State of Nuevo Leon to Ba3/A3.mx (Global Scale, local
currency/Mexico National Scale) from Ba2/A2.mx and downgraded its
baseline credit assessment to ba3 from ba2. The outlook changed to
stable from negative.
At the same time, Moody's downgraded the debt ratings to
Baa2/Aa2.mx from Baa1/Aaa.mx of the following eight enhanced loans
of the State of Nuevo Leon:
MXN1.5 billion (original face value) with Banamex and maturity of
20 years and a pledge of 4.1% of the state's general participations
fund revenues.
MXN1 billion (original face value) with Banco del Bajio and
maturity of 25 years and a pledge of 2.2% of the state's general
participations fund revenues
MXN500 million (original face value) with Banco del Bajio and
maturity of 20 years and a pledge of 1.1% of the state's general
participations fund revenues
MXN400 million (original face value) with Banco del Bajio and
maturity of 20 years and a pledge of 0.85% of the state's general
participations fund revenues
MXN5.006 billion (original face value) with Banobras and maturity
of 20 years and a pledge of 6.16% of the state's general
participations fund revenues.
MXN1.4 billion (original face value) with Banobras and maturity of
20 years and a pledge of 1.83% of the state's general
participations fund revenues.
MXN1.073 billion (original face value) with Banobras and maturity
of 20 years and a pledge of 1.4% of the state's general
participations fund revenues.
MXN1.414 billion (original face value) with BBVA and maturity of
15 years and a pledge of 4.81% of the state's general
participations fund revenues
Additionally, Moody's downgraded the debt ratings to Baa2/Aa2.mx
from Baa1/Aa1.mx of the following enhanced loan:
MXN8.852 billion (original face value) with Banorte and maturity
of 20 years and a pledge of 13.85% of the state's general
participations fund revenues
Finally, Moody's affirmed the debt ratings of Baa2/Aa2.mx of the
following two enhanced loans:
MXN2 billion (original face value) with Banobras and maturity of
20 years and a pledge of 3.83% of the state's general
participations fund revenues
MXN1.5 billion (original face value) with Banobras and maturity of
20 years and a pledge of 2.9% of the state's general participations
fund revenues
RATINGS RATIONALE
RATIONALE FOR THE DOWNGRADE OF THE ISSUER RATINGS AND BCA
The downgrade of the issuer ratings and BCA reflects a widening of
the state's recurring operating and financial deficits that has
caused a deterioration of liquidity as well as Moody's expectation
that these key credit metrics will not recover to pre-pandemic
levels in the next 12-18 months. Between 2016-2019, Nuevo Leon's
gross operating deficits averaged 5.5% of operating revenues and
cash financing deficits averaged 3.5% of total revenues. In 2020,
these deficits deepened, reaching 13.2% and 9.2%, respectively. As
a result, liquidity measured by cash to current liabilities
decreased to 0.22x in 2020 from 0.54x in 2019. Liquidity and gross
operating balances are no longer in line with the median of Ba2
Mexican peers of 0.5x and 4.7% of operating revenues,
respectively.
Moody's expects that as a result of the continuing fiscal
challenges facing Nuevo Leon in light of the ongoing pandemic,
negative gross operating balances and cash financing requirements
will continue to keep liquidity at the current level for the next
1-2 years.
In 2020, as a result of the pandemic Nuevo Leon's operating
revenues decreased by 0.8% and its total revenues were stagnant. At
the same time, Nuevo Leon's operating expenditures rose by 7.4%,
mainly driven by higher health related expenditures through
subsidies, materials and personnel services. While the state
controlled its capital expenditures and reallocated other operating
expenditures, it recorded a high financial deficit. This shortfall
was only partially covered with new long-term debt, resulting in a
decline in cash and an increase in current liabilities. Nuevo
Leon's weakened liquidity cushion will limit its capacity to manage
unexpected events during a still challenging period of recovery.
RATIONALE FOR THE STABLE OUTLOOK
The change of outlook to stable reflects Moody's expectation that
Nuevo Leon's credit profile will continue to benefit from the
state's relatively prosperous regional economy and its high level
of own-source revenue. The state's gross operating balances and
financial results will recover modestly in 2021-22, though they
will remain weaker than pre-pandemic levels, and liquidity will
remain relatively stable. Although Moody's estimates a drop in
federal transfers in 2021, Nuevo Leon's own-source revenues will
rise thanks to the expected rebound in regional GDP growth which
will support a recovery on total revenues. The stable outlook also
reflects that while liquidity is tight, the state has been paying
its short-term debt and the outstanding balance of MXN775 million
as of May 2021 -- equivalent to roughly 1.25% of operating revenues
-- will be paid in full in July 2021. The state must pay this
short-term debt balance in order to comply with the Financial
Discipline Law that obliges to pay it three months before the end
of the administration. Moody's expect that the next administration
will again contract short-term debt in amounts similar to those of
2019-2020 of MXN4-5 billion, or 8% of operating revenues.
RATINGS RATIONALE FOR THE ENHANCED LOAN RATINGS
The downgrade of the 9 enhanced loans ratings reflects the
downgrade on Nuevo Leon's issuer ratings. Moody's methodology on
rating enhanced loans in Mexico establishes that the loan ratings
are directly linked to the credit quality of the issuer, which
ensures that underlying contract enforcement risks, economic risks
and credit culture risks (for which the issuer rating acts as a
proxy) are embedded in the enhanced loans ratings.
The affirmation of the two enhanced loans reflects the material
strengthening of debt service coverage (DSC) ratios under both base
case and stress case scenarios which provides mitigating pressure
against the downgrade of the state's issuer ratings:
MXN2 billion (original face value) from Banobras: under Moody's
base case scenario, cash flows are projected to provide 4.6x debt
service coverage at the lowest point over the life of the loan.
Under a stress case scenario, estimated cash flows are projected to
provide 3.4x debt service coverage at the lowest point.
MXN1.5 billion (original face value) from Banobras: under Moody's
base case scenario, cash flows are projected to provide 4.7x debt
service coverage at the lowest point over the life of the loan.
Under a stress case scenario, estimated cash flows are projected to
provide 3.4x debt service coverage at the lowest point.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
If operating and financial results recover substantially, and as a
result liquidity position strengthens the ratings will face upward
pressure. Conversely, if operating and cash financing deficits
exceed projections, resulting in a drop in already tight liquidity,
this would put negative pressure on the ratings.
Given the links between the loans and the credit quality of the
obligor, an upgrade of the state's issuer ratings or a material
increase in debt service coverage could exert upward pressure on
the ratings of the loans. Conversely, a further downgrade of the
state's issuer rating, or a material decline in debt service
coverage to levels below Moody's expectations, could exert downward
pressure on the ratings.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental considerations are not material to Nuevo Leon's
ratings. Social risks are moderately negative for Nuevo Leon. While
the state has a wealthy economy and a good level of access to basic
services, it faces operating expenditures pressures related to
pensions and the coronavirus outbreak. Governance considerations
are material to the state's credit profile. The state complies with
the institutional framework determined for all state and municipal
governments, including disclosure and transparency practices.
Additionally, the state has high debt levels compared to national
peers, net direct and indirect debt is equivalent to 106% of
operating revenues.
The principal methodology used in rating the issuer ratings was
Regional and Local Governments published in January 2018.
=====================
P U E R T O R I C O
=====================
PUERTO RICO: Creditors' Committee Opposes Plan & Disclosures
------------------------------------------------------------
The Official Committee of Unsecured Creditors objects to the
Disclosure Statement for the Third Amended Joint Title III Plan of
Adjustment of the Commonwealth of Puerto Rico, et al.
The Committee asserts that the Oversight Board has filed a
Disclosure Statement that is misleading with regard to numerous
important issues, and glosses over others. For example:
* The Disclosure Statement contains no estimate of (i) the
recovery percentage that general unsecured creditors in Class 55
could expect under the Proposed Plan, or (ii) even the size of
their class.
* The Disclosure Statement artificially decreases the
estimates of the recovery percentages being offered to GO/PBA
Creditors and Clawback Creditors by attributing a zero valuation to
contingent bonds with a face value of approximately $9 billion that
will be issued in favor of such creditors.
* The Disclosure Statement artificially decreases the
estimates of the recovery percentages being offered to certain
GO/PBA Creditors by including in the agreed allowed amount of their
claim by approximately $250 million of unamortized original issue
discount, even though the Bankruptcy Code expressly disallows such
claims as claims for unmatured interest.
* The Disclosure Statement artificially decreases the
estimates of the recovery percentages being offered to Settling
Bond Creditors by failing to include in such estimates up to $490
million in various consent, consummation, and support fees. Nor
does it identify any legal entitlement to these fees.
* The Disclosure Statement articulates no rationale for the
separate classification of various types of unsecured claims, or
why claims in those classes will receive a recovery significantly
greater than the recovery offered to unsecured claims in Class 55.
* The Disclosure Statement makes it impossible for creditors
that have claims of the type covered by the ACR Order to know if
they will, in fact, be transferred to the ACR process and paid in
full, as other ACR claims have been.
* The Disclosure Statement does not discuss the value and
availability of the Debtors' assets, let alone explain to creditors
how the Oversight Board intends to demonstrate that its decisions
about the use, allocation, and monetization of its assets represent
a reasonable effort to satisfy the Debtors' obligations to their
creditors.
* The Disclosure Statement does not disclose the extent to
which the Proposed Plan is dependent on obtaining legislative
approval for certain actions under the Proposed Plan, or that the
Government is actively opposed to, and has passed litigation that
would make it impossible to consummate, the Proposed Plan.
Counsel to the Official Committee of Unsecured Creditors:
PAUL HASTINGS LLP
Luc A. Despins, Esq.
G. Alexander Bongartz, Esq.
200 Park Avenue
New York, New York 10166
Telephone: (212) 318-6000
E-mail: lucdespins@paulhastings.com
alexbongartz@paulhastings.com
Local Counsel to the Official Committee of Unsecured Creditors:
CASILLAS, SANTIAGO & TORRES LLC
Juan J. Casillas Ayala, Esq.
Israel Fernandez Rodriguez, Esq.
Juan C. Nieves Gonzalez, Esq.
Cristina B. Fernandez Niggemann, Esq.
P.O. Box 195075
San Juan, Puerto Rico 00919-5075
Tel: (787) 523-3434
Fax: (787) 523-3433
E-mail: jcasillas@cstlawpr.com
ifernandez@cstlawpr.com
jnieves@cstlawpr.com
crernandez@cstlawpr.com
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and chair of a committee to review professionals' fees.
PUERTO RICO: Suiza Dairy Says It's Owed $45.3MM, Opposes Plan
-------------------------------------------------------------
Creditor Suiza Dairy Corp. objects to the Disclosure Statement
proposed by the Financial Oversight and Management Board of Puerto
Rico and the Plan of Adjustment proposed concurrently for the
Commonwealth of Puerto Rico, the Employees Retirement System of the
Government of the Commonwealth of Puerto Rico, and the Puerto Rico
Public Buildings Authority.
Suiza claims that the Commonwealth's Plan results in an illegal
taking, in violation of the Fifth Amendment. That is, it runs
contrary to the Constitution, applicable law and case law as it
pertains to Suiza's non-dischargeable Takings Clause claim.
Suiza points out that the proposed Plan, Suiza would not receive
the monies which the parties deemed to be just compensation for the
property that was taken through ORIL's practices and regulations.
In fact, the proposed Plan would leave Suiza with an inadequate
compensation from the Commonwealth, in violation of the
requirements of the Fifth Amendment.
Suiza asserts that the DS filed by the Commonwealth classifies
Suiza's debt as part of Class 50. The description of the Class is
misleading, since it does not state that the claim is actually for
the settlement of a regulatory taking.
Suiza further asserts that the description of Class 50 as it is
included in the Disclosure Statement does not adequately inform
creditors of the true nature of the claim nor that it is non
dischargeable as a violation of the Takings Clause of the
Constitution. The DS and Plan state that the current debt owed to
Suiza is $44,832,199.28, while the correct amount of the debt is
$45,325,151.22.
Counsel for Suiza Dairy:
Rafael A. Gonzalez Valiente
Godreau & Gonzalez Law, LLC
PO Box 9024176
San Juan, PR 00902-4176
Telephone: 787-726-0077
E-mail: rgv@g-glawpr.com
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and chair of a committee to review professionals' fees.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: Assets or Loan May be Needed by NIB
------------------------------------------------------
guardian.co.tt reports that Trinidad and Tobago government assets
could be used as an alternative solution to ease the strain on the
National Insurance Board (NIB) given the conundrum of an ageing
population facing the insurance scheme.
This was the suggestion of Prakash Ramlakhan, Lecturer in banking
and finance, Department of Management Studies, UWI, according to
guardian.co.tt.
"The sustainability of the NIS is a major concern especially for
the Government and members of the fund. The fund receives most of
its income from contributions (members) and investments and uses
these income to pay pension, other benefits and cover the NIB
operating costs," said Ramlakhan who explained that the fund needs
to liquidate assets to generate cash to make payments given the
decreased incomes, the report notes.
"The assets of the funds can no longer support the projected
liabilities of the fund," Ramlakhan said as he explained what
contributed to the scheme's strain, "This risk increased with
longer lifespan (more funds required to pay pensioners over a
longer time), more pensioners calling on the NIB as they retire,
lower investment returns (especially on debt securities), and a
decline in contributions as employees lose their jobs and are not
replaced," the report relays.
The solutions Ramlakhan believes need to be considered are:
1. Increase the retirement age (phase in gradually)
2. Freeze benefits
3. Increase contributions
4. Injection of assets by state (transfer real estate, shares from
state enterprises to the fund.)
5. Issue a long-term interest bearing debt instrument to the NIB
"The solutions would not require the state to raise funds, no
significant reduction in cash flows to state. The increase in
contributions should be gradual so the effects would be
insignificant, non employees and employers," said Ramlakhan, "The
NIB must be supported to secure for social and economic stability,"
the report discloses.
Ramlakhan noted that it is incumbent the state is not put in a
position where it has to borrow funds to support the pension fund,
the report says.
"So with respect to the funding as one of the many solutions, I
don't want the government to go and borrow money and provide
capital to the NIB. So I'm thinking if the Government has assets
and income and assets, for example, FCB shares," he said, "The
Government can transfer some real estate as well, so take some of
their assets and transfer them to the NIB thereby increasingly
assets of the NIB and the NIB in turn will increase its returns,"
the report notes.
"So, in this case, the government will not have any need to borrow
money. So what you want, is a solution that will minimise a cash
impact on the government," Ramlakhan added.
Ramlakhan explained this strategy would ease cash flow issues while
allowing the scheme to be funded, the report notes.
"Now, the government may get dividends from FCB but that is
insignificant to the government. So there is no real negative cash
flow impact on the scheme. If they were to say, okay, take 10% of
FCB shares and put it in the NIB, take a certain percentage of the
real estate, perhaps $200 to $300 million of real estate and put it
into the NIB. So that is what I meant by no significant reduction
in cash flow to the state," Ramlakhan said, the report discloses.
Ramlakhan added NIS contributions would have to be increased but he
also stressed that if there is an increase in contributions, it
should be introduced gradually, the report notes.
"We have to increase contributions. You have to, let's say the
recommendation is a 20 or 15 per cent increase in contribution. Do
it over a five-year period. So, you gradually move into it. Don't
impose a ten per cent increase in the first year. Let it be a
gradual increase so that employers, and employees can adjust
accordingly. So, the solution should not be one. That is going to
be a huge cash impact on anyone whether is a plan member, an
employee or as plan sponsor, which is the state," he added.
While the ageing population contributed to the strain on the NIB,
Ramlakhan believes a lack of proper research and planning was the
architect of this problem.
"Previous governments, had promised an increase in NIS benefit
without proper actuarial analysis and I think the decision was made
without the appropriate data and was more political rather than
financial," Ramlakhan said, the report relays.
"I don't think it was prudent to promise benefits without attending
to the details of the plan or the fund," Ramlakhan added.
Now the onus has been placed on the state to find a way to fund the
scheme, after the fact, the report notes.
*********
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