/raid1/www/Hosts/bankrupt/TCRLA_Public/210820.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, August 20, 2021, Vol. 22, No. 161
Headlines
A R G E N T I N A
ARGENTINA: Tightens Capital Controls Ahead of Midterm Vote
CLISA: S&P Upgrades ICR to 'CCC' on Exchange Offer Completion
B E R M U D A
NABORS INDUSTRIES: Egan-Jones Keeps CCC- Senior Unsecured Ratings
B R A Z I L
JBS SA: S&P Alters Outlook to Positive, Affirms 'BB+' ICR
LOCALIZA RENT A CAR: Fitch Affirms 'BB' FC IDR, Outlook Negative
RIO DE JANEIRO: Fitch Affirms 'BB-' LT IDRs, Outlook Negative
SANTA CATARINA: Fitch Affirms 'BB-' LT IDRs, Outlook Negative
[*] BRAZIL: Rio de Janeiro State Plans to Resume Tourism Safely
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Gov't. Guarantees Chicken Supply, Stable Price
ITABO: Fred's Flotsam Shuts Down Major Power Plant
M E X I C O
GRUPO AEROMEXICO: Reaches Deal With Creditors on Max 737 Leases
P U E R T O R I C O
ALLIED FINANCIAL: Gen. Unsecureds Get 3% of Allowed Claim in Plan
EDUCATIONAL TECHNICAL: Seeks to Tap C. Conde & Assoc. as Counsel
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A R G E N T I N A
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ARGENTINA: Tightens Capital Controls Ahead of Midterm Vote
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Patrick Gillespie and Ignacio Olivera Doll at Bloomberg News report
that Argentina's central bank is making it harder for investors to
buy dollars as the already draconian capital controls fail to stop
the gap between the official and parallel exchange rates from
widening.
Regulators are tightening the screws on operations where investors
buy assets in pesos and sell them abroad in dollars to obtain
foreign currency, according to Bloomberg News. The measures, aimed
at money laundering and tax evasion, were announced Aug. 12, the
report relays.
It's the latest set of controls to prevent dollars flowing out of
Argentina's crippled economy, the report notes. The measures have
spawned a series of parallel exchange rates where the Argentine
currency trades at a weaker rate to the official one, Bloomberg
News discloses. Regulators are trying to stop that breach widening
ahead of midterm elections in November as a stable currency is seen
as key to the coalition's election success.
The new controls on the so-called blue-chip market "is bound to
fail like it did in 2020," Juan Manuel Pazos, TPCG Valores SA chief
economist, wrote in a note, Bloomberg New relays. "Controls, like
taxes, follow a Laffer curve. Once you're past the optimum point,
additional controls tend to have the opposite effect than what's
planned."
Long History
The central bank started to impose capital controls even before
President Alberto Fernandez came to power in December 2019 as the
nation headed for a default on its foreign debt, Bloomberg News
discloses.
Argentines can only exchange pesos for $200 a month at a bank and
must pay two taxes on top of that, Bloomberg News notes.
Authorities increased the limits to blue-chip swap operations last
month, limiting the amount of bonds that traders can sell on open,
regulated platforms, Bloomberg News relays. As a result, broker
demand for dollars has moved to the OTC market, says the report.
The new exchange rate is now starting to stray away from the
blue-chip that trades on open platforms and that traders can see on
their screens, Bloomberg News notes.
Dollar demand at banks is picking up as inflation accelerates above
50% and speculation mounts that the central bank will allow a
faster depreciation of the official exchange rate after the
elections, Bloomberg News relays. About 443,000 individuals bought
dollars in June, up from 304,000 in May, according to the latest
central bank data, adds the report.
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8,
2020.
Moody's credit rating for Argentina was last set at Ca on Sept. 28,
2020. Fitch's credit rating for Argentina was last reported on
Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS'
credit rating for Argentina is CCC, given on Sept. 11, 2020.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Formal negotiations on the new financing
began in November 2020. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
CLISA: S&P Upgrades ICR to 'CCC' on Exchange Offer Completion
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On Aug. 18, 2021, S&P Global Ratings raised its issuer credit
rating on Argentine conglomerate CLISA - Compania Latinoamericana
de Infraestructura y Servicios S.A. (CLISA) to 'CCC' from 'SD' and
its issue-level ratings on the remaining unexchanged notes to 'CCC'
from 'D'. At the same time, S&P affirmed its 'CCC' issue-level
rating to CLISA's new secured notes that mature in 2027.
The positive outlook reflects that S&P believes that CLISA's
liquidity will improve over the next 6-12 months, mainly because
interest payment-in-kind (PIK) option reduces overall interest
payment while the construction segment gradually recovers. In this
scenario, S&P would expect a reduction in refinancing risk for
short-term commitments.
On Aug. 12, 2021, CLISA announced that 97% of the bondholders of
its 2023 senior secured and unsecured notes accepted the exchange
offer for new senior secured notes due 2027. The new notes have a
lower interest rate (stepping up to 10.5% from 4.5%) than that on
the outstanding notes (9.5%) and an interest PIK option until 2024.
The lower interest rate and the PIK option reduces interest burden
and improves liquidity, thus reducing refinancing risk.
In S&P's view, CLISA's construction business has potential to
recover to pre-pandemic levels, contributing 25%-35% of total
EBITDA. However, Argentina's economy remains very fragile, with a
high fiscal deficit that somewhat limits spending on public works,
and CLISA's client portfolio is mainly composed of public entities.
This brings CLISA exposure to payment delays, and working capital
outflows, as well as delays in tariff renegotiations and cost
adjustments amid high inflation in the country.
The proposed senior secured notes are rated at the same level as
our issuer credit rating. This is because S&P doesn't believe there
would be relevant structural or contractual subordination. Although
the new notes would be secured, it believes there are uncertainties
about the value of the collateral (shares pledged) in a bankruptcy
restructuring scenario. The new notes would be issued by CLISA, at
the holding level, and would have guarantees from its two main
subsidiaries: Benito Roggio e Hijos S.A. (the engineering and
construction unit) and Cliba Ingeniería Urbana S.A. (the waste
management unit).
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B E R M U D A
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NABORS INDUSTRIES: Egan-Jones Keeps CCC- Senior Unsecured Ratings
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Egan-Jones Ratings Company, on August 10, 2021, maintained its
'CCC-' foreign currency and local currency senior unsecured ratings
on debt issued by Nabors Industries Ltd. EJR also maintained its
'C' rating on commercial paper issued by the Company.
Headquartered in Hamilton, Bermuda, Nabors Industries Ltd., is a
land drilling contractor, and also performs well servicing and
workovers.
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B R A Z I L
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JBS SA: S&P Alters Outlook to Positive, Affirms 'BB+' ICR
---------------------------------------------------------
On Aug. 18, 2021, S&P Global Ratings revised the global scale
outlook on JBS S.A. (JBS) and its fully owned subsidiary JBS USA
Lux S.A. (JBS USA) to positive from stable and affirmed its 'BB+'
issuer credit rating. The recovery expectations remain unchanged,
and S&P affirmed the 'BB+' ratings on the senior unsecured notes
and the 'BBB' ratings on the secured term loans. S&P also affirmed
its 'brAAA' national scale issuer credit and debt ratings, and the
outlook on the national scale rating remains stable.
The positive global scale outlook reflects that S&P could upgrade
JBS in the next 12-18 months if the company shows commitment to
keeping leverage low despite its growing appetite for acquisitions
and larger shareholders' remuneration, along with a longer record
of its improved governance standards. Financial targets and
adherence to financial policies would also be key for a higher
rating.
Some of JBS' operations are facing lower margins, such as Friboi
and Seara, because of higher cattle and grain prices that rose more
than 50%-70% in the past 12 months. Pilgrim's Pride Corp.'s (PPC)
volumes are still recovering as the demand for food service rises
in the U.S., while volume demand is increasing for Tulip in Europe,
although PPC will still face uncertainties about labor and grain
inflation. JBS' U.S. beef operations currently represent over half
of revenues, with momentum growing as demand skyrockets in the U.S.
domestic market and while export prices are robust on still sizable
protein demand from Asia. In addition, the high availability of
cattle has provided record high cutout beef margins and,
consequently, EBITDA margins and cash flow.
S&P said, "In our opinion, U.S. beef margins could decline by more
than half and would still be profitable by 5%-7%. For the past five
years, margins have been in the high single digits and should
continue benefiting from large investments in the cattle herd and
no significant production increase, while the U.S. economy should
remain strong along with consumers' demand. The Australian cattle
herd should grow in the next few years, contributing to margins
after years of cattle scarcity and correlated high cattle costs.
"We expect U.S. pork to remain stable with margins of 8%-10%. More
events and higher food service demand will somewhat offset labor
and grain cost pressures. The U.S. harvest should help dictate
margins for the next year, but this business line has sustained
margins even through production cuts and price adjustments.
"We forecast PPC's EBITDA margins in the second half of 2021 to be
in line with, if not better than, a year ago because better
year-over-year chicken pricing should offset higher feed costs. We
expect margins to remain 10%-12% over the next two years, with very
stable profits from Moy Park. Tulip's profitability should improve
because it expanded its market share from Germany's export ban, and
PPC has gained higher and more stable margins from its acquisition
of the meats and meals business from the Kerry Group.
"Friboi's historical margins are 8%-11%, but we expect margins of
3%-4% this year. The cattle arroba in Brazil is priced at more than
R$310 and has resulted in record high price increases for beef in
the domestic market, but not enough to compensate for costs. We see
limited capacity to generate positive margins in the Brazilian
domestic market, while the good export demand and foreign exchange
rates are somewhat helping to sustain volumes, although
slaughtering has been about 10% lower than in 2020." However,
cattle availability should increase in 2022-2023, easing cost
pressures.
S&P said, "Higher soybean and corn prices have lowered Seara's
margins, which we forecast at 8%-10% in the second half 2021
compared to the 12%-15% we expect for 2022-2023. The processed
products have enjoyed higher prices that along with export margins
partly offset the weaker in natura poultry prices.
S&P still views JBS' governance as weak, which negatively affects
the ratings by two notches. While more than four years have passed
since the corruption scandal involving the owners and former JBS
executives, during part of this time the company had limited
flexibility to add leverage to the balance sheet. JBS had a
normalization agreement with banks that it had to use all excess
cash to prepay debt that was valid until July 2021, but it fully
prepaid in September 2019. After that, JBS kept leverage controlled
for a while because it needed to concentrate all efforts on
avoiding production disruptions because of the COVID-19 pandemic.
JBS has increased senior compliance and control positions and
increased scrutiny on money laundering initiatives. Also, it has
closed all class actions or lawsuits from the leniency agreement at
JBS, its subsidiaries including PPC's fixed price discussion, and
its parent J&F Investimentos S.A. (J&F; not rated). However, S&P
views its history of litigations as a negative factor, and it still
has dual positions at the executive and board levels that limit
effective governance.
S&P said, "Although we don't factor in the pro forma EBITDA from
acquired assets and some of them require antitrust approval, the
acquisitions and increased shareholders' remuneration have
leveraged the company by about 0.8x. While we acknowledge JBS'
aggressive historical growth appetite, we think its approach to
mergers and acquisitions (M&A), share repurchases, and dividends
will be key to assess its financial policy and governance risk
tolerance for a potential higher rating. For a positive rating
action, we would need to see debt to EBITDA below 3x even amid
acquisitions, especially as the U.S. beef business margin
normalization could increase debt to EBITDA by about 1x.
"JBS has diversified its business into assets that we expect to
make cash flow more stable, such as the plant-based European
producer Vivera, Kerry Corp's meal and meal European portfolio, and
Huon's salmon business in Australia. JBS also just announced it's
acquiring PPC's remaining outstanding shares for about $1.3
billion."
The delisting of PPC and the change in the U.S. bond structures in
the beginning of July 2021 could accelerate JBS' listing on the
U.S. stock exchange. S&P said, "Since we already analyze the group
on a consolidated basis, this potential listing would not cause a
change in our analytical approach. BNDES holds 23% of JBS' shares
and has been vocal that it intends to sell those shares; the
shareholders agreement between JBS and BNDES expired in December
2019. If J&F controls more than 50% of JBS (it currently has 43%),
we would need to analyze its credit quality to see if there's an
impact on JBS' creditworthiness, including its governance and
financial strategies. However, JBS currently represents more than
95% of J&F's revenues and EBITDA and more than 80% of debt, so we
don't anticipate a large shift from our current analytical
approach."
LOCALIZA RENT A CAR: Fitch Affirms 'BB' FC IDR, Outlook Negative
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Fitch Ratings has affirmed Localiza Rent a Car S.A.'s (Localiza)
Local Currency (LC) and Foreign Currency (FC) Issuer Default
Ratings (IDRs) at 'BB+' and 'BB', respectively, and the Long-Term
National Scale Rating of Localiza and its wholly owned subsidiary
Localiza Fleet S.A. (Localiza Fleet) at 'AAA(bra)'. The Rating
Outlook for Localiza's LC IDR and for the National Scale Ratings is
Stable. The Rating Outlook for Localiza's FC IDR is Negative.
The ratings reflect the group's leading position in the Brazilian
car and fleet rental business, its large scale and resilient
operating performance throughout economic cycles. The analysis
incorporates that Localiza' will keep its consolidated leverage at
moderate levels, despite of the expected negative FCF related to
its growth prospects. The group has proven access to funding and
strong liquidity. The FC IDR is limited by Brazil's country ceiling
and its Negative Outlook follows the same Outlook of the Brazilian
sovereign.
KEY RATING DRIVERS
Leading Market Position: Localiza has a leading and prominent
business position within the car and fleet rental industry in
Brazil, underpinned by its large scale, proven operating expertise,
national footprint and a strong used car sale operation. As of June
2021, Localiza's total fleet of 274,342 vehicles, consisting of
208,520 in rent-a-car (RaC) and 65,822 in fleet management (GTF),
secured meaningful market shares in RaC (market leader) and in GTF
(second) by fleet size. As a result, the company has strong
bargaining power with automobile manufacturers and is able to
better capture economies of scale. At YE 2021 and 2022, Localiza's
own total fleet should be around 303,041 and 345,210 vehicles,
respectively.
Solid Operating Performance: Localiza has a track record of strong
margins and a solid operating performance, in both rentals and used
car sales, throughout challenging environments - as seen during the
COVID-19 pandemic and the Brazilian depression in 2015-2016. In
Fitch's rating case scenario, Localiza's EBITDA will reach BRL3.2
billion (28% margin/+41% YoY) in 2021 and BRL3.5 billion (23%
margin/+8% YoY) in 2022, as a result of a strong demand, higher
rental tariffs, and increasing used car sales margins. The
temporary imbalance between the supply and demand for new vehicles
and rental services should fade away during 2022, but some gains
should remain and keep margins higher than historical.
Moderate Leverage: A slower than expected growth in 2021 and 2022,
due to the global shortage of new vehicles, will help to keep
leverage in moderate levels. Localiza's consolidated net leverage,
measured by total net debt/EBITDA, should be 2.5x in 2021 and 3.1x
in 2022, comparing with an average of 3.1x in the last four years
and the 2.4x as of LTM ended on June 2021. As a stronger growth
resumes in mid-2022, leverage should increase slightly, to 3.5x,
but remaining consistent with the current ratings.
Pressured FCF: Localiza's cash flow from operations (CFFO), which
considers fleet renewal capex, should be at BRL176 million and
BRL357 million. Those amounts are insufficient to meet its growth
capex of BRL1.6 billion and BRL2.7 billion, respectively, and
annual dividends of around BRL400 million. The forecasted negative
FCFs of BRL1.8 billion in 2021 and BRL2.7 billion in 2022 are
manageable due to the company's strong financial flexibility. In
the LTM ended on June 2021, as Localiza's total fleet shrink
slightly, the CFFO, capex and FCF were BRL1.1 billion, BRL128
million and BRL973 million, respectively.
Merger Under CADE Review: The merger of Localiza and Unidas,
respectively the largest and second largest car and fleet rental
companies in Brazil, will strengthen the business position of the
combined entity and still result in a group with solid capital
structure and strong liquidity position. The deal is subject to the
Brazilian antirust authority's (CADE) approval, which may take up
to the end of 2021. Considering the strong presence of both
companies in the RaC market and the low barriers to entry in this
segment of the industry, the deal may be approved with remedies.
Capital Intensive Industry: The capital-intensive nature of the
rental industry, which demands sizable and regular investments to
grow and renew the fleet, pressures the financial profile of the
companies in the sector during strong expansion periods. Therefore,
lower funding costs and strong access to credit markets are key
competitive advantages. On the other hand, the business model
allows the companies to postpone fleet renewal and adjust its size,
if needed. Main risks for this industry in 2021/2022 are the
uncertainty regarding the new vehicles production recovery, which
limits growth, constrained credit markets, a stronger than expected
increase in interest rates and a worsening economic activity.
DERIVATION SUMMARY
Localiza's ratings reflect its robust performance and leadership
position in the Brazilian fleet and car rental industry. As of June
2021, the company had 274 thousand vehicles, being more than 1.5x
bigger than its closest domestic peers, such as Companhia de
Locacao das Americas (Unidas, National Scale Rating AA+(bra)/
Positive) with 178 thousand cars and Movida Participacoes S.A
(Movida, National Scale Rating AA-(bra)/Stable) with 134 thousand
vehicles. As a result, it has stronger negotiating power with
automobile manufacturers and is better able to capture economies of
scale. Simpar S.A. (FC and LC IDRs BB-/Positive), a leading
logistic player in Brazil, has a similar market leadership position
but lower consolidated margins.
Additionally, Localiza's competitiveness is strengthened by its
financial profile, which is underpinned by an adequate capital
structure (net adjusted debt/EBITDA at 2.4x as of LTM June 2021)
and good financial flexibility due to the value and the quality of
its fleet, robust cash holdings (cash and cash
equivalents/short-term debt at 1.7x as of June 2019) and a well
spread debt amortization schedule. Localiza has the lowest
financing cost among its closest peers and wide access to local
capital markets.
KEY ASSUMPTIONS
-- Total fleet growth, in 2021 and 2022, of 8% and 14% for RaC,
respectively, and of 14% for GTF, in both years;
-- Average ticket for RaC increasing 14.0% in 2021 and 3.0% in
2022;
-- Average ticket for GTF increasing 7.0% in 2021 and 3.5% in
2022;
-- Growth capex of BRL1.6 billion in 2021 and BRL2.7 billion in
2022;
-- Dividend payout around 25% throughout the rating horizon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action for the Localiza's FC IDR would be
associated to an upgrade on Brazil's sovereign rating;
-- An upgrade on Localiza's LC IDR would depend on the ability
further improve its business profile and/or to bring its
consolidated leverage ratios to more conservative levels, with
net debt-to-EBITDA moving towards 2.0x on a recurring basis;
-- Upgrade not applicable to the National Scale rating.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Failure to preserve liquidity and inability to access adequate
debt funding;
-- Prolonged decline in demand coupled with company inability to
adjust operation, leading to a higher than expected fall in
operating cash flow;
-- Increase in total leverage to more than 4.5x and in net
leverage to more than 3.5x on a regular basis;
-- A further negative rating action on Brazil's sovereign rating
and country ceiling could result in negative rating action for
the company's 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
Robust Liquidity Profile: Localiza's robust liquidity position and
track record of a proactive liability management is a key credit
consideration, with cash covering its short-term debt by an average
over 3.0x during the last four years. The company's expected
negative FCF, a result of its resumed growth strategy, will be
financed by debt in the rating scenario. Localiza had BRL4 billion
of cash and equivalents and BRL10.7 billion of total debt (3%
secured), with BRL2.4 billion due in the short term and an
additional BRL1.2 billion up to the end of 2023 (1.7x
cash/short-term debt) as of June 2021.
The company's debt profile is mainly comprised of local debentures
(70%), and bank loans, promissory notes and working capital lines
(28%). Additionally, Localiza's financial flexibility is supported
by the company's ability to postpone growth capex to adjust to the
economic cycle and to the considerable number of the group's
unencumbered assets, with a book value of fleet over net debt at
2.0x.
ISSUER PROFILE
Localiza is the largest car and fleet rental company in Brazil,
either by fleet size or revenue. It operates in the Rent a Car,
Fleet Rental and Used Car Sale segments. As of the LTM ended at
June 2021, the company reached revenue, EBITDA and fleet size of
BRL 11.5 billion, BRL 2.8 billion, and 274,342 vehicles,
respectively.
SUMMARY OF FINANCIAL ADJUSTMENTS
-- Growth capex was moved from the CFO to the CFI;
-- The effects of IFRS 16 were reversed;
-- Capex funded by OEM payables affecting FCF but not FFO.
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.
RIO DE JANEIRO: Fitch Affirms 'BB-' LT IDRs, Outlook Negative
-------------------------------------------------------------
Fitch Ratings has affirmed the State of Rio de Janeiro's (ERio)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB-' with a Negative Outlook. Fitch has also affirmed the
state's National rating at 'AA(bra)' with a Stable Outlook. ERio's
Standalone Credit Profile (SCP) is assessed at 'd'.
The rating action reflects Fitch's expectations that the federal
government (Brazil; BB-/Negative) will continue honoring the
state's guaranteed debt, while providing debt service relief for
the portion of the debt owed directly to the federal government.
KEY RATING DRIVERS
Risk Profile: 'Weaker'
The State of Rio de Janeiro's 'Weaker' risk profile is based on
Weaker attributes for all the six key risk factors. The assessment
reflects Fitch's view of a high risk relative to international
peers that the issuer's ability to cover debt service with the
operating balance may weaken unexpectedly over the forecast horizon
(2021-2025) due to lower revenue, higher expenditure, or an
unexpected rise in liabilities or debt or debt-service
requirement.
Revenue Robustness: 'Weaker'
The Brazilian tax collection framework transfers to states and
municipalities a large share of the responsibility to collect
taxes. Constitutional transfers exist as a mechanism to compensate
poorer entities. The State of Rio de Janeiro reports a high fiscal
autonomy, with a low transfer ratio. As of 2020, transfers
represented 14% of operating revenues. However, the recent history
of fiscal imbalances and dependency towards volatile revenue
sources related to oil drives this factor to weaker.
Revenue Adjustability: 'Weaker'
Fitch considers Brazilian states and municipalities to have a low
capacity level for revenue increase in response to downturn. There
is low affordability of additional taxation given that tax tariffs
are close to the constitutional national ceiling and a small number
of taxpayers represent a large share of tax collection, driving
this factor to weaker.
Expenditure Sustainability: 'Weaker'
Expenditure tends to grow with revenues as a result of earmarked
revenues. States and municipalities are required to allocate a
share of revenues in health and education. This results in a
procyclical behavior in good times, as periods of high revenue
growth result in a similar behavior for expenditures. However, due
to the big weight of personal expenditures and salary rigidity,
downturns that result in lower revenues are not followed by similar
drops in expenditures. Rio accumulated significant delays on its
payroll and other payments for goods and services throughout
2015-2019. The recent history of imbalances, payroll and commercial
payment delays leads this factor to weaker
Expenditure Adjustability: 'Weaker'
As per the Brazilian Constitution, there is low affordability of
expenditure reduction. As a result, whenever there is an
unpredictable reduction in revenues, operating expenditure does not
follow automatically. In addition, there is high share of
inflexible costs since there is more than a 90% share of mandatory
and committed expenditures. Consequently, capex represents less
than 10% of the state's total expenditures.
Liabilities and Liquidity Robustness: 'Weaker'
There is a moderate national framework for debt and liquidity
management since there are prudential borrowing limits and
restrictions on loan types. Nonetheless, the State of Rio de
Janeiro is currently not servicing all of its debt. In fact, all
guaranteed debt is serviced by the federal government and the state
only performs debt service of non-guaranteed debt. The state is
also not honoring debt service of intergovernmental debt owed
directly to the federal government, which alone corresponds to
around 75% of the debt stock. External debt is guaranteed by the
federal government and corresponded for 8.5% of total debt by the
end of 2020.
As of September 2017, the state engaged in the so-called Fiscal
Recovery Regime (RRF), sponsored by the federal government. The
program was valid for three years and its main objective was to
provide Rio with a debt service relief, while pushing for fiscal
austerity. Under the program, the federal government would honor
guarantees and postpone debt service of intergovernmental debt and,
at the same time, would not make use of counter-guarantees, such as
the possibility to hold constitutional transfers to pay ERio's debt
service. The program ended in September 2020 and the state is
currently negotiating a new one, the so-called New Fiscal Recovery
Regime (NRRF). The RRF conditions continue to hold through a
judicial decision and Fitch expects it to hold until the NRRF is
signed.
Liabilities and Liquidity Flexibility: 'Weaker'
There is a framework of providing emergency liquidity support from
the federal government via the granting of extended maturity over
the prevalent federal debt portion. Nonetheless, ERio reports
unsatisfactory internal liquidity levels: short-term financial
obligations represent 141.5% of free cash position, as calculated
by the Brazilian national treasury (CAPAG liquidity ratio).
Debt Sustainability: 'DS Score' category
Since the state of Rio de Janeiro is not able to comply with its
financial obligation, the calculation of the debt sustainability
becomes less relevant.
ESG - Creditor Rights: Rio de Janeiro State has an ESG Relevance
Score of '5' for Creditors Rights due to its track record in the
breach of legal documentation stating the full debt service
payments, reflecting the very low willingness to pay, which has a
negative credit impact.
ESG - Rule of Law, Institutional & Regulatory Quality, Control of
Corruption: Rio de Janeiro State has an ESG Relevance Score of '4'
for Rule of Law, Institutional & Regulatory Quality, Control of
Corruption due to the fact that government effectiveness and
institutional & regulatory quality was not sufficient to prevent
the state from resorting to external financial support (namely the
federal government) to pursue fiscal balance, which has a negative
credit impact, and is relevant to the rating[s] in conjunction with
other factors.
DERIVATION SUMMARY
State of Rio de Janeiro has been unable to fully service its debt
since mid-2016 given increased deep financial imbalances that
became evident in late 2015. The majority of ERio's financial debt
has been serviced by the federal government on its behalf since
then.
This is commensurate with an SCP of 'd'. According Fitch´s rating
definitions, a 'd' is commensurate with failure to make payment of
principal and/or interest under the contractual terms of the rated
obligation.
The State of Rio de Janeiro's IDR is derived from the sovereign
support to the state's debt. The federal government has serviced
most of Rio's debt since 2016. For that reason, ERio's IDRs are at
the same level as the sovereign. Fitch estimates that close to 95%
of the state's debt is either directly guaranteed by the federal
government, or benefits from debt service postponement for the case
of debt owed to the Federal Government.
The state engaged on the RRF by September 2017, which lasted three
years and provided ERio with debt service relief, while pushing for
austerity measures. The state is currently negotiating a NRRF with
the federal government, with start date expected for January 2022.
During the transition from the original program to the new one,
federal guarantees still hold and the federal government is
prohibited from accessing counter-guarantees through a judicial
decision. Therefore, despite the end of the RRF, conditions still
apply and are expected to hold until the beginning of the NRRF.
KEY ASSUMPTIONS
Does not apply to the rating considering that ERio's SCP is
assessed at 'd'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Once ERio recovers and it is able to honor its committed
financial obligations in due time with no federal government
aid, then Fitch will revise its SCP.
-- Also, the IDRs are linked to the sovereign. Any rating action
affecting Brazil would result in a similar rating action for
the State of Rio de Janeiro.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Should the state fail to sign the New Fiscal Recovery Program
and its debt should not be honored by the federal government
or by the state, Fitch would revise Rio de Janeiro´s ratings.
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.
ISSUER PROFILE
State of Rio de Janeiro is classified by Fitch as Type B LRGs,
which are required to cover debt service from cash flow on an
annual basis. Rio de Janeiro has the second largest economy in
Brazil, contributing for 10.8% of national GDP.
ESG CONSIDERATIONS
Rio de Janeiro. State of has an ESG Relevance Score of '5' for
Creditor Rights due to its track record in the breach of legal
documentation stating the full debt service payments, reflecting
the very low willingness to pay, which has a negative credit
impact, and is highly relevant to the rating, resulting in an
implicitly lower rating.
Rio de Janeiro. State of has an ESG Relevance Score of '4' for Rule
of Law, Institutional & Regulatory Quality, Control of Corruption
due to the fact that government effectiveness and institutional &
regulatory quality was not sufficient to prevent the state from
resorting to external financial support (namely the federal
government) to pursue fiscal balance, which has a negative credit
impact, and is relevant to the rating[s] 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.
SANTA CATARINA: Fitch Affirms 'BB-' LT IDRs, Outlook Negative
-------------------------------------------------------------
Fitch Ratings has affirmed the Brazilian State of Santa Catarina's
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB-' with a Negative Rating Outlook and its Short-Term Foreign
and Local Currency IDR at 'B'. The Outlook reflects that of the
sovereign. Fitch has also affirmed Santa Catarina's National
Long-Term Rating at 'AA(bra)' with a Stable Outlook and National
Short-Term rating at 'F1+'.
The ratings reflect the combination of 'Weaker' risk profile and
'a' debt sustainability under Fitch's rating case scenario. Santa
Catarina's IDRs benefit from an uplift from its Standalone Credit
Profile (SCP) due to the fact that the federal government is a
relevant creditor of the state. As of December 2020,
intergovernmental debt represented almost 50% of total debt.
KEY RATING DRIVERS
Risk Profile: Weaker
The assessment reflects Fitch's view of a high risk relative to
international peers that the issuer's ability to cover debt service
with the operating balance may weaken unexpectedly over the
forecast horizon (2021-2025) due to lower revenue, higher
expenditure, or an unexpected rise in liabilities or debt or
debt-service requirement.
Revenue Robustness: 'Midrange'
The Brazilian tax collection framework transfers to local and
regional governments (LRGs) a large share of the responsibility to
collect taxes. Constitutional transfers exist as a mechanism to
compensate lower-income entities and a high dependency toward
transfers is considered a weak feature for a Brazilian LRG. The
State of Santa Catarina reports a high fiscal autonomy (tax
collection representing 66.7% of operating revenues in 2020), with
a low transfer ratio, thus leading this factor to midrange. As of
2020, transfers represented 19.1% of operating revenues.
Revenue Adjustability: 'Weaker'
Fitch considers Brazilian LRGs to have a low capacity level for
revenue increase in response to a downturn. There is low
affordability of additional taxation given that tax tariffs are
close to the constitutional national ceiling and a small number of
taxpayers represent a large share of tax collection. The most
relevant tax, the Imposto Sobre Circulacao de Mercadorias e
Servicos (ICMS, a tax on circulation of goods and services) has a
concentrated taxpayer base, like other Brazilian states, in which
the 10 largest corresponded to around 34.4% of total tax
collections in December 2020, in a stable trend in relation to the
previous years. This creates a challenging environment for LRGs to
expand own revenues collection during a downturn, leading this
factor to 'weaker'.
Expenditure Sustainability: 'Midrange'
Responsibilities for states are moderately countercyclical since
they are engaged in healthcare, education and law enforcement.
Santa Catarina presents moderate control over expenditure growth,
considering that operating revenue growth has been increasing
higher than operating expenditure growth, which allowed the state
to remain presenting positive operating margins. Also, Santa
Catarina does not present aggressive off-loading of investments and
borrowings, also corroborating the midrange assessment.
Expenditure Adjustability: 'Weaker'
As per the Brazilian Constitution, there is low affordability of
expenditure reduction. As a result, whenever there is an
unpredictable reduction in revenues, operating expenditure does not
follow automatically. In addition, there is high share of
inflexible costs since there is more than a 90% share of mandatory
and committed expenditures. Consequently, capex represents less
than 10% of the state's total expenditures.
Liabilities and Liquidity Robustness: 'Weaker'
There is a moderate national framework for debt and liquidity
management and the federal government guarantees all U.S.
dollar-denominated debt of the state. As of December 2020, external
debt represented 16% of total debt with no significant maturity
concentration. Debt directly owed to the Federal Government
represented around 50% of total debt in the same period. However,
the pension system is a burden for most Brazilian LRGs, especially
for states given their mandate over education and public security.
Therefore, there is material off-balance sheet risk stemming from
the pension system, which has been compromising around 40% of
personnel expenditures in 2020, being one of the main drivers of
expenditure growth together with payroll and leading this factor to
weaker.
Liabilities and Liquidity Flexibility: 'Midrange'
There is a framework of providing emergency liquidity support from
the federal government via the granting of extended maturity over
the prevalent federal debt portion. Moreover, Santa Catarina has
satisfactory liquidity levels: short-term financial obligations
represented less than 100% of free cash positions, as calculated by
the Brazilian national treasury (CAPAG liquidity ratio).
Debt sustainability: 'a' category
Fitch assesses Santa Catarina's debt sustainability at 'a'. Fitch's
rating case forward-looking scenario indicates a payback ratio (net
direct risk to operating balance), which is the primary metric of
debt sustainability assessment, to reach levels between 5x and 9x
in 2025, while the secondary metric, debt service coverage ratio
(DSCR) is between 1.5x and 2x in line with an assessment of 'a'.
Under its rating case for 2021-2025, which integrate a 5.1% growth
on operating revenue and a 6.0% growth on operating expenditure,
Fitch projects the state's debt payback will rise to about 5x-6x,
from 4.1x in 2020. Fitch's rating case projects that the fiscal
debt burden will slightly decrease and remain strong at below 50%
in 2025, versus 51% in 2020. The state's actual DSCR (ADSCR) will
worsen to 1.5x-2.0x in 2021-2025, from 3.7x in 2020.
The payback and fiscal debt burden correspond to a 'aa' and 'aaa'
debt sustainability, respectively, while debt coverage (ADSCR) is
assessed at 'a'. This results in a final debt sustainability
assessment in the 'a' category.
The state's 2020 results were better than Fitch's expectations due
to higher transfers from federal government as well as support to
vulnerable population, which reflected in a slight increase in
taxes. Santa Catarina's operating balance was BRL4.584 billion in
2020, well above BRL3.387 billion in 2019, also reflecting state's
efforts to increase revenues and contain expenditures.
The state's net adjusted debt reached BRL18.8 billion in 2020,
presenting a slightly decrease from previous year, mainly due to
higher unrestricted cash in the period. In Fitch's rating case
scenario, net adjusted debt is expected to increase to around
BRL23.2 billion by 2025, driven by plans to new debt of BRL3.4
billion in 2021-2024. This trend is also explained by expectation
to unrestricted cash to remains in amounts of average of last five
years of around BR1.2 billion.
DERIVATION SUMMARY
State of Santa Catarina's ratings reflect the combination of a
'Weaker' risk profile and a 'a' debt sustainability assessment
under Fitch's rating case scenario. The state's SCP is 'b+' and
factors in the state's comparison with international and national
peers in the same rating category. Santa Catarina's 'BB-' IDR
benefits from an uplift from the state's SCP considering the
support derived from the fact that the federal government is a
relevant creditor of the state, as of December 2020,
intergovernmental debt represented almost 50% of total debt. The
Negative Outlook reflects the sovereign's Outlook.
Fitch distinguishes the debt owed to the federal government as it
offers greater flexibility in its terms compared with traditional
debt. All debt types are included in the debt sustainability
metrics that produce the SCP. As a result, Fitch calculates a
supplementary ratio excluding intergovernmental debt, known as the
enhanced debt sustainability ratio. This is used to estimate the
uplift between the SCP and IDR, which is limited by the sovereign's
IDR. The enhanced debt sustainability ratio is 'aa', meaning that
the enhanced debt metrics are strong and commensurate with the IDR
of 'BB-'.
KEY ASSUMPTIONS
Qualitative and quantitative assumptions
-- Risk Profile: Weaker
-- Revenue Robustness: Midrange
-- Revenue Adjustability: Weaker
-- Expenditure Sustainability: Midrange
-- Expenditure Adjustability: Weaker
-- Liabilities and Liquidity Robustness: Weaker
-- Liabilities and Liquidity Flexibility: Midrange
-- Debt sustainability: 'a' category
-- Budget Loans or Ad-Hoc Support: n/a
-- Asymmetric Risk: n/a
-- Rating Cap or Rating Floor: n/a
Quantitative assumptions - Issuer Specific
Fitch's rating case scenario is a "through-the-cycle" scenario,
which incorporates a combination of revenue, cost and financial
risk stresses. It is based on the 2016-2020 figures and 2021-2025
projected ratios. The key assumptions for the scenario include:
-- Income tax & fees fines and other operating revenues linked to
inflation;
-- Transfers linked to nominal GDP growth;
-- Operating expenditures also linked to inflation;
-- Long-term debt increase based on estimates of new credits.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action on Santa Catarina's IDR could result
from an improvement of Brazil's sovereign rating or an
improvement of its SCP in conjunction with a sovereign action
of upgrade. An increase in SCP should derive from improvement
in operating balance, with payback ratio lower than 9x and
ADSCR higher than 2x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Santa Catarina's Long-Term IDRs could be downgraded if its
enhanced payback ratio deteriorates on a sustained basis in
Fitch's rating case scenario to higher than 5x, combined with
an enhanced DSCR below 2x. This could happen if its operating
balance deteriorates significantly or turns negative.
-- A downgrade of Brazil's sovereign rating.
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.
ISSUER PROFILE
Santa Catarina is classified by Fitch as Type B LRGs, which are
required to cover debt service from cash flow on an annual basis.
The state has a granular economy based on services, with increased
activity mainly in the agricultural segment and presents a GDP per
capita of roughly BRL42,000.
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.
[*] BRAZIL: Rio de Janeiro State Plans to Resume Tourism Safely
---------------------------------------------------------------
Rio Times Online reports that Rio de Janeiro Governor Claudio
Castro met with the federal Ministers of Health Marcelo Queiroga,
and Tourism Gilson Machado Neto to discuss vaccination against
Covid-19 and the resumption of tourism in the state of Rio de
Janeiro.
Queiroga pointed out that the state is strictly complying with the
National Vaccination Plan (PNI), according to Rio Times Online.
"Fortunately we are in a more positive scenario, but we cannot fail
to take all precautions. We are working to fast-track our
immunization campaign and the expansion of our testing capacity. We
are working to fast-track our immunization campaign and the
expansion of our testing capacity," he said, the report relays.
The governor of Rio de Janeiro stressed that the Delta variant is a
concern, "but we are working hard to continue the vaccination
process to contain the spread of Covid-19," Rio Times says.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Fitch Ratings' credit rating for Brazil stands at 'BB-' with a
negative outlook (November 2020). Fitch's 'BB-' Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) has been affirmed
in May 2021. Standard & Poor's credit rating for Brazil stands at
BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and
short-term foreign and local currency sovereign credit ratings for
Brazil were affirmed in December 2020. Moody's credit rating for
Brazil was last set at Ba2 with stable outlook (April 2018). DBRS's
credit rating for Brazil is BB (low) with stable outlook (March
2018).
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Gov't. Guarantees Chicken Supply, Stable Price
-------------------------------------------------------------------
Dominican Today reports that Dominican Government and the country's
leading supermarket chains ensured that chicken meat supply and
price stability are guaranteed.
The information was offered by The Minister of Agriculture, Limber
Cruz, after holding a meeting with the representatives of the
bravo, Ramos Group, Cuesta Nacional Center, Ole, and Carrefour
businesses, who promised to work hand in hand with the government
for the benefit of consumers, according to Dominican Today.
The head of the agricultural ministry said that the first
containers with white meat imported from the United States arrived
to supply the population and avoid speculation in its price, the
report notes.
He said that imports would remain uninterrupted as long as the high
demand of the citizens persists, the report relays.
The executives of the chains said that although demand has
skyrocketed in recent weeks, prices in the gondolas remain between
RD$72 and RD$73 per pound, the report says. As for pork, they
assured that its sale remains stable, 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).
ITABO: Fred's Flotsam Shuts Down Major Power Plant
--------------------------------------------------
Dominican Today reports that tons of flotsam pushed by Tropical
Storm Fred reached the water intake of the Itabo power plant,
forcing unit I to temporarily take out of operation, which
contributes 128 MW to the National Electric System and with great
risk of having to shut down Unit II, which provides the same amount
of megawatts.
Itabo's plants are an essential part of electrical stability,
producing 328 megawatts of electricity on a constant basis,
according to Dominican Today. The outage of Itabo I took place
with the objective of carrying out cleanup tasks to clear the
cooling water intake, the report notes.
"Every time we have to forcibly remove the units due to the garbage
issue, that costs millions of pesos in cost overruns of electricity
generation for the country, since the Itabo are the second cheapest
units in the system," Itabo said, the report adds.
As reported in the Troubled Company Reporter-Latin America reported
on June 3, 2020, Fitch Ratings has affirmed the rating of Empresa
Generadora de Electricidad Itabo, S.A.'s senior unsecured notes due
2026 at 'BB-' and affirmed the Long-Term Foreign- and
Local-Currency Issuer Default Ratings of Itabo at 'BB-'.
===========
M E X I C O
===========
GRUPO AEROMEXICO: Reaches Deal With Creditors on Max 737 Leases
---------------------------------------------------------------
Andrea Navarro of Bloomberg News reports that Grupo Aeromexico and
its Committee of Unsecured Creditors have reached an agreement on
the airline's intent to sign new leases for 737 Max aircraft,
according to a motion filed before a N.Y. bankruptcy court.
Creditors have agreed for Aeromexico to continue the lease
negotiations and any contracts that result will only be effective
pending the court's approval.
The final hearing on the motion is set for Aug. 30, 2021.
About Grupo Aeromexico
Grupo Aeromexico, S.A.B. de C.V. (BMV: AEROMEX) --
https://www.aeromexico.com/ -- is a holding company whose
subsidiaries are engaged in commercial aviation in Mexico and the
promotion of passenger loyalty programs.
Aeromexico, Mexico's global airline, has its main hub at Terminal 2
at the Mexico City International Airport. Its destinations network
features the United States, Canada, Central America, South America,
Asia and Europe.
Grupo Aeromexico and three of its subsidiaries sought Chapter 11
protection (Bankr. S.D.N.Y. Lead Case No. 20-11563) on June 30,
2020. In the petitions signed by CFO Ricardo Javier Sanchez Baker,
the Debtors reported consolidated assets and liabilities of $1
billion to $10 billion.
Timothy Graulich, Esq., of Davis Polk and Wardell LLP, serves as
counsel to the Debtors.
=====================
P U E R T O R I C O
=====================
ALLIED FINANCIAL: Gen. Unsecureds Get 3% of Allowed Claim in Plan
-----------------------------------------------------------------
Allied Financial, Inc. filed with the U.S. Bankruptcy Court for the
District of Puerto Rico a Second Amended Plan of Reorganization
dated August 6, 2021.
Funding of the Plan for the Settlement Agreement will be provided
by Allied Management Group, Inc. as per the terms of a Settlement
Agreement. Additional funding for the Plan will be provided by the
sale of the Debtor's assets and collection of accounts
receivables.
In addition, some claimants may receive the collateral itself as
payment of its equivalent of the allowed secured claim, unless
otherwise agreed. The Debtor's shareholders will also provide
other sources to fund the Plan, directly or through related
parties, if necessary, including additional capital contribution.
Classes of Claims and Interest under the Plan
* Class 1 Administrative Claims
This class shall consist of all allowed administrative expense
priority claims, including fees to the U.S. Trustee, fees and
expenses of the Debtor's counsel, accountant and other
professionals retained by the Debtor. Debt under this class is
approximately $25,000.
* Class 2 Priority Administrative Claim Held by Allied Management
Group, Inc.
Class 2 consists of all allowed administrative expense priority
claims on account of the postpetition financing by Allied
Management Group, Inc. As of August 6, 2021, the amount of secured
postpetition financing is $180,000.
* Class 3 Centro de Recaudacion de Ingresos Municipales (CRIM)
CRIM, the Municipal Revenues Collection Center of Puerto Rico,
filed a proof of claim in the total secured amount of $1,187 for
real property tax with a lien on 14 real estate properties
belonging to the Debtor.
* Class 4 Secured Creditor: Oriental Bank (now WM Capital
Partners 76 LLC)
Oriental Bank filed a proof of claim for $629,564. The Debtor
listed Oriental Bank as a secured creditor holding a lien over 13
real estate properties of the Debtor or a Debtor's client. With
the acquiescence of Oriental Bank, the Debtor sold properties that
serve as collateral and paid Oriental Bank the net proceeds. This
Claim was transferred to WM Capital Partners 76, LLC.
Thereafter, WM Capital Partners 76 LLC filed an amended proof of
claim totaling $277,880, which was later adjusted to $232,816 by
mutual agreement of the parties. The Debtor was able to sell two
more properties encumbered by the liens, and the net proceeds of
such sales were tendered to WM Capital Partners 76, LLC. Pursuant
to a Settlement Agreement, the agreed amount of the claim is
$156,349, with a secured portion of $66,000 and $90,349 as general
unsecured claim.
* Class 5 Secured Creditor: WM Capital Partners 53, LLC
The Debtor listed WM Capital Partners 53, LLC as a secured creditor
holding various mortgages over four real estate properties of the
Debtor or the Debtor's clients. WM Capital Partners 53, LLC filed
a claim for $1,950,310 as fully secured. After an amendment to the
Claim on April 30, 2021, balance of the claim total $1,750,310 of
which $766,000 is secured and the unsecured portion was reduced to
$984,310. Treatment of the Claim under the Plan is provided as set
forth in a Settlement Agreement.
* Class 6 RG Premier Bank (RG)/or Current Holder
The Debtor listed RG Premier Bank with an unliquidated secured
claim for $77,763 holding a lien over a certain property in
Guaynabo, Puerto Rico. The Debtor concluded foreclosure proceedings
over the property which guaranteed the Debtor's loan to RG, but
there is an apparent track problem at the Property Registry,
impeding the acquisition of title over the Property. RG Premier
did not file a proof of claim.
* Class 7 Priority Unsecured Claims
The Debtor listed unsecured priority claims aggregating $46,298,
which includes priority claims of CRIM, Departamento de Hacienda
and Municipality of San Juan. After reconciliation, however,
correct amount owed is $12,066.
* Class 8 General Unsecured Claims from Governmental Units and
Taxing Authorities
Class 8 includes the unsecured debt to Departamento de Hacienda,
CRIM, Municipality of San Juan and State Insurance Fund for
$33,141.
* Class 9 General Unsecured Creditors
As of August 6, 2021, Class 9 amounts to $50,662 representing
general unsecured claims that are not contingent, disputed and/or
unliquidated. Claims under Class 9 will be paid 3% of its allowed
claim in equal monthly installments within 36 months from the
Effective Date.
* Class 10 Contingent, Disputed and/or Unliquidated General
Unsecured Claims
The debt under this class is approximately $1,074,659.
* Class 11 Equity Security and/or Other Interest Holders
Class 11 includes all equity and interest holders of the Debtor's
stock, i.e. Rafael Portela and Jose R. Armstrong.
A copy of the Second Amended Plan is available for free at
https://bit.ly/3ABj0e2 from PacerMonitor.com.
About Allied Financial
Allied Financial, Inc., filed a Chapter 11 bankruptcy petition
(Bankr. D.P.R. Case No. 16-00180) on Jan. 15, 2016. At the time of
the filing, the Debtor disclosed total assets of $10.3 million and
total debt of $9.14 million. Judge Mildred Caban Flores oversees
the case. C. Conde & Assoc. is the Debtor's legal counsel.
EDUCATIONAL TECHNICAL: Seeks to Tap C. Conde & Assoc. as Counsel
----------------------------------------------------------------
Educational Technical College, Inc. seeks approval from the U.S.
Bankruptcy Court for the District of Puerto Rico to employ C.
Conde
& Assoc. as its legal counsel.
The firm will render these legal services:
(a) advise the Debtor regarding its duties, powers and
responsibilities in this Chapter 11 case;
(b) advise the Debtor whether a reorganization is feasible
and, if not, assist the Debtor in the orderly liquidation of its
assets;
(c) assist the Debtor with respect to negotiations with
creditors;
(d) prepare legal papers;
(e) appear before the bankruptcy court, or any court in which
the Debtor asserts a claim interest or defense related to this
case; and
(f) perform such other legal and necessary notary services.
The hourly rates of the firm's attorneys and staff are as follows:
Carmen D. Conde Torres, Senior Attorney $350
Associates $300
Junior Attorney $275
Paralegal/Law Clerk $150
In addition, the firm will seek reimbursement for expenses
incurred.
The firm received a retainer of $20,000 from the Debtor.
Carmen Conde Torres, Esq., senior attorney at C. Conde & Assoc.,
disclosed in a court filing that her firm is a "disinterested
person" as that term is defined in Section 101(14) of the
Bankruptcy Code.
The firm can be reached through:
Carmen D. Conde Torres, Esq.
C. Conde & Assoc.
254 De San Jose Street, Suite 5
Old San Juan, PR 00901-1523
Telephone: (787) 729-2900
Facsimile: (787) 729-2203
Email: condecarmen@condelaw.com
About Educational Technical College
Bayamon, P.R.-based Educational Technical College, Inc. filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy
Code (Bankr. D.P.R. Case No. 21-02392) on Aug. 9, 2021. At the
time of the filing, the Debtor listed $1,969,503 in assets and
$1,407,201 in liabilities. Judge Edward A. Godoy oversees the
case. Carmen D. Conde Torres, Esq., at C. Conde & Assoc. serves as
the Debtor's legal counsel.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2021. All rights reserved. ISSN 1529-2746.
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