/raid1/www/Hosts/bankrupt/TCRLA_Public/211214.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
Tuesday, December 14, 2021, Vol. 22, No. 243
Headlines
B A R B A D O S
BARBADOS: Gets $100M IDB Loan for Sustainable Development Program
B R A Z I L
BRAZIL: Senate OKs Opening of Accounts in Dollars and Euro
BRAZIL: Will Control Inflation Earlier Than Rich Countries
C H I L E
LATAM AIRLINES: Reaches Plane Lease Claims Settlement With Sajama
C O L O M B I A
BANCO DAVIVIENDA: Fitch Affirms 'BB+' LT IDRs, Outlook Stable
BANCO DE BOGOTA: Fitch Affirms 'BB+' LT LC IDR, Outlook Stable
OLEODUCTO CENTRAL: Fitch Affirms 'BB+' LT IDRs, Outlook Stable
C O S T A R I C A
REVENTAZON FINANCE: Moody's Affirms B1 CFR, Outlook Now Stable
D O M I N I C A N R E P U B L I C
AES ANDRES: Fitch Affirms 'BB-' FC IDR, Alters Outlook to Stable
DOMINICAN REPUBLIC: Economist Says New Jobs Lack Quality
DOMINICAN REPUBLIC: Informal Jobs Prop Recovery, Central Bank Says
EMPRESA GENERADORA: Fitch Affirms 'BB-' IDRs, Outlook Now Stable
M E X I C O
SU CASITA 2007: Fitch Affirms 'CC' Rating on Class A Notes
P A N A M A
AVIANCA HOLDINGS: Fitch Withdraws 'D' Issuer Default Rating
PANAMA CANAL RAILWAY: S&P Affirms 'BB-' ICR, Outlook Now Stable
P U E R T O R I C O
REMLIW INC: Jan. 12, 2022 Plan Confirmation Hearing Set
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: 'All Not Bright' at Downtown Stores
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B A R B A D O S
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BARBADOS: Gets $100M IDB Loan for Sustainable Development Program
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The Inter-American Development Bank (IDB) has approved a $100
million loan to support sustainable development in Barbados. The
program is the second in a series of three policy-based loans. The
program will support maintaining a stable macroeconomic environment
and deepen the reforms initiated under the first operation, an $80
million loan approved in March, 2020. It provides budget support
tied to the strengthening and consolidation of public policies
focused on improving sustainability in three thematic areas.
The first area of policy reform is the regulatory framework for
spatial planning, managing the impacts of development activity, and
water resource management. Among other initiatives this covers
development of regulations and plans for the Planning and
Development (Amendment) Act of 2020, and progress in regulating
Rainwater Harvesting, Water Reuse, and Ground Water Zoning and
Protection.
It will also foster further development of the regulatory framework
for natural asset management, including the approval of the updated
Integrated Coastal Zone Management Plan, the Guidelines and
Protocols for the Operation of Solid Waste Management Facilities,
and the approval of an Integrated Blue Economy Policy Framework and
Strategic Action Plan.
In addition, the program will help governance reforms to enhance
disaster management and resilience, through a financial protection
mechanism for natural hazard-induced disaster shocks, and the
submission of Barbados' update to the Nationally Determined
Contributions (NDC) to the United Nations Framework Convention on
Climate Change (UNFCCC) Secretariat, among other activities.
The entire population of Barbados of approximately 285,000 people
will benefit from the series of Loans. Some regulatory reforms and
programming in Coastal Zone Management, disaster management and
resilience will particularly help low and middle-income households
with higher vulnerability to climate effects.
This operation is aligned with Vision 2025 - Reinvesting in the
Americas: A Decade of Opportunities, created by the IDB to achieve
sustainable recovery and inclusive growth in Latin America and the
Caribbean with one of its medium-term strategic goals, which is to
strengthen good governance and institutions, and climate change as
one of its key areas of action.
The $100 million IDB loan is for a 20-year term and a 5.5-year
period of grace.
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B R A Z I L
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BRAZIL: Senate OKs Opening of Accounts in Dollars and Euro
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Rio Times Online reports that the Brazilian Senate approved a bill
that authorizes any person to open foreign currency accounts in the
country, including dollar and euro accounts.
As the bill had already been approved by the Chamber of Deputies in
2020, it now only depends on the presidential sanction to become
law, according to Rio Times Online.
The initiative was approved by a symbolic vote in the Upper House
after the spokesmen of all parties in the Senate expressed their
support for the reform of the foreign exchange market in Brazil,
the report notes.
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).
BRAZIL: Will Control Inflation Earlier Than Rich Countries
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Rio Times Online reports that the Central Bank acted fast, and
Brazil will control inflation earlier than advanced countries, the
Minister of Economy, Paulo Guedes, said in the Invest in Brazil
event, held by Apex Brasil.
He stated that the country is prepared to do the fight from the
institutional point of view. On the other hand, he acknowledged
that the tax reform should no longer advance in Congress. "I don't
know if it will move forward. I don't think so. It's politics," he
justified, without giving more details, according to Rio Times
Online.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
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).
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C H I L E
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LATAM AIRLINES: Reaches Plane Lease Claims Settlement With Sajama
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Daniel Gill of Bloomberg Law reports that LATAM Airlines Group
S.A., the Latin American carrier currently undergoing
bankruptcy in the U.S., has reached a settlement with an
investment firm that bought LATAM creditors' claims related to
leased aircraft.
Under the settlement, Sajama Investments LLC would hold a single
$695 million claim in LATAM's bankruptcy, according to a filing
in the U.S. Bankruptcy Court for the Southern District of New
York. Sajama had argued that it holds claims worth $6.5
billion against multiple co-debtor LATAM affiliates.
The claims originally derive from LATAM's 17 leased aircraft and
their engines. LATAM rejected these leases in its bankruptcy.
About LATAM Airlines Group
LATAM Airlines Group S.A. -- http://www.latam.com/-- is a
pan-Latin American airline holding company involved in the
transportation of passengers and cargo and operates as one unified
business enterprise. It is the largest passenger airline in South
America.
Before the onset of the COVID-19 pandemic, LATAM offered passenger
transport services to 145 different destinations in 26 countries,
including domestic flights in Argentina, Brazil, Chile, Colombia,
Ecuador and Peru, and international services within Latin America
as well as to Europe, the United States, the Caribbean, Oceania,
Asia and Africa.
LATAM and its 28 affiliates sought Chapter 11 protection (Bankr.
S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in
Chile, Peru, Colombia, Ecuador and the United States are part of
the Chapter 11 filing.
The Debtors disclosed $21,087,806,000 in total assets and
$17,958,629,000 in total liabilities as of Dec. 31, 2019.
The Hon. James L. Garrity, Jr., is the case judge.
The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as
bankruptcy counsel, FTI Consulting as restructuring advisor, Lee
Brock Camargo Advogados as local Brazilian litigation counsel, and
Togut, Segal & Segal LLP and Claro & Cia in Chile as special
counsel. The Boston Consulting Group, Inc. and The Boston
Consulting Group UK LLP serve as the Debtors' strategic advisors.
Prime Clerk LLC is the claims agent.
The official committee of unsecured creditors formed in the case
tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters
Jureller Southard & Stevens, LLP as conflicts counsel, UBS
Securities LLC as investment banker, and Conway MacKenzie, LLC as
financial advisor. Ferro Castro Neves Daltro & Gomide Advogados is
the committee's Brazilian counsel.
The Ad Hoc Group of LATAM Bondholders tapped White & Case LLP as
counsel.
Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew
Glenn and partner Shai Schmidt, has been retained as counsel to the
Ad Hoc Committee of Shareholders.
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C O L O M B I A
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BANCO DAVIVIENDA: Fitch Affirms 'BB+' LT IDRs, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Banco Davivienda S.A.'s (Davivienda)
Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs)
at 'BB+'. The Rating Outlook for the Long-Term IDRs is Stable.
Fitch has also affirmed Grupo Bolivar S.A.'s (GB) National Ratings
at 'AAA(col)'/Stable.
Fitch is also withdrawing Davivienda's Support Rating and Support
Rating Floor as they are no longer relevant to the agency's
coverage following the publication of Fitch's updated Bank Rating
Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch
has assigned a Government Support Rating (GSR) of 'bb'.
KEY RATING DRIVERS
Davivienda's IDRs are driven by the bank's VR and consider its
intrinsic strength, as reflected in its sound company profile due
to its domestic franchise as the second and third largest bank in
Colombia by loans and assets, respectively, and its adequate
franchise in Central America where its business also operates.
The influence of the operating environment on the Davivienda's VR
has been revised to moderate as Fitch does not anticipate a
material impact on the bank's financial profile from any remaining
pressures on the operating environment, such as upcoming elections
or a higher than expected deceleration in economic growth.
Davivienda has a leading franchise in Colombian mortgage and retail
segment and ranks among the top players in Corporates and the
Central American market where it operates. The bank's business
model benefits from geographical and revenues diversification as
well as continuous efforts to develop cutting edge digital
technologies.
Davivienda has reported sound asset quality indicators through
economic cycles, although the ultimate effects from the coronavirus
pandemic are still difficult to foresee. The level of the bank's
past-due loans improved to 3.8% at 3Q21 from 4.4% at YE20;
meanwhile, the take-up rate for payment relief initiatives in
Colombia gradually decreased to 8% of gross loans in Colombia and
Central America as of September 2021, down from 32% in May 2020.
Reserve coverage has increased consistently up to 1.3x as of
September 2021 since an average of 1.1x between 2016 to 2020 as
part of the process to protect the bank of the asset deterioration.
Stage 3 reserve coverage remained around 60% as part of the risk
assessment. Davivienda has a solid level of real guarantees given
its business model, which includes leasing operations and
mortgages. Central American subsidiaries asset quality follows
similar adherence to Colombian relief measures amid different
lockdowns measures. Fitch has revised the Outlook on the 'bb+'
asset quality score to Stable from Negative based on reduced
downside risks.
Davivienda's profitability is underpinned by its resilient
performance supported by adequate cost control, a consolidated
franchise and geographical diversification. However, loan
impairment charges, mainly related to conservative provisions for
the deteriorated expected scenario resulted from the coronavirus
pandemic, and limited business growth weigh on profitability.
Fitch's core metric ratio of operating profit to RWAs improve to
1.79% at September 2021 since 0.42% at YE20 and compare closely
with the average of 2.0% from 2016 to 2019.
The recession pressured credit costs, with loan impairment charges
consuming 89% of pre-impairment operating profit at YE20, compared
with an average of 50% from 2015-2019; however, as of September
2021, this pressure has decreased gradually to 64%. Fitch expects
that profitability will continue improving during the second half
of the year, as a result of higher operating revenues, increases in
interest rates levels and lower credit expansion.
Fitch views the bank's capital as sufficient considering its
relatively ample loan loss reserves, good asset quality, recurrent
earnings generation and adequate risk management. The bank's CET1
ratio reached 12.3% in September 2021. Limited asset growth,
profits recovery and currency depreciation drive the ratio
performance. CET1 plus an additional Tier 1 ratio was 14.19%;
hybrids provided additional buffer and enhanced total regulatory
metric to 18.5%.
Despite operating environment challenges faced during 2020,
operating profits have increased its room to maneuver credit cost.
Fitch does not anticipate significant pressures for the new capital
requirements during the Basel III implementation period under a
scenario of conservative risk management and gradual business
recovery.
Davivienda boasts a wide deposit base of well-diversified, stable
and relatively low-cost funds and good liquidity. Customer deposits
consistently provide over 73% of total funding. Additionally,
Davivienda has established market access to international and local
debt markets. Its loans/deposits ratio of around 124% at September
2021, exceeds the peer average as of the bank utilizes longer tenor
funding that helps to better match its assets and liabilities
structure. Davivienda's subsidiaries are funded independently in
their home markets and must be self-sufficient to avoid contagion
effect. Fitch does not anticipate major effects from the
coronavirus in its evaluation of the funding and liquidity score.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
VR, IDRS AND NATIONAL RATINGS
-- Davivienda's VRs and IDRs are sensitive to a material
deterioration in the local operating environment or a negative
sovereign rating action;
-- The ratings could be downgraded from a continued deterioration
of the operating environment due to an extended period of
economic disruption as a result of the coronavirus that leads
to a significant deterioration of the asset quality and/or
profitability (Operating profit to RWA consistently below
1.5%), resulting in an erosion of capital cushions if the CET1
ratio falls consistently below 10%.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
VR, IDRS AND NATIONAL RATINGS
-- Given the limitations of the operating environment, a ratings
upgrade is unlikely in the medium term;
-- Over the longer-term, an improvement in the operating
environment along with the restoration of financial metrics
toward pre-pandemic levels could be positive for
creditworthiness.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
GOVERNMENT SUPPORT RATING
The bank's Government support of 'bb' reflect Davivienda's size,
systemic importance and the country's historical support policy.
Fitch believes there is a high probability of sovereign support.
Colombia's ability to provide such support is reflected in the
sovereign's Long-term IDR (BB+/Stable).
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Davivienda's subordinated debt is rated two notches below its VR;
one notch for loss severity (-1) and one notch for non-performance
risk (-1), given the terms of the issuances (plain-vanilla
subordinated debt).
Davivienda's AT1 notes are rated four notches below Davivienda's
VR. The notching reflects the notes' higher loss severity in light
of their deep subordination, and additional non-performance risk
relative to the VR, given the high write-down trigger of CET1 at
5.125% and full discretion to cancel coupons. The debt has thus
been affirmed due to the affirmation of Davivienda's VR.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Davivienda's GS are potentially sensitive to any change in
assumptions as to the propensity or ability of Colombia to
provide timely support to the bank;
-- Junior Subordinated debt ratings will mirror any action on the
bank's VR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Davivienda's GS are potentially sensitive to any change in
assumptions as to the propensity or ability of Colombia to
provide timely support to the bank;
-- Subordinated and Junior Subordinated debt ratings will mirror
any action on the bank's VR.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
GRUPO BOLIVAR NATIONAL RATINGS AND SENIOR DEBT
GB's National Ratings reflect the creditworthiness of its main
subsidiary, Banco Davivienda, which it owns 58.5% of. GB's ratings
are aligned with Davivienda's because of its low double leverage
(June 2021: 101%) supported by a high level of earnings retention
and strong cash flow metrics that sufficiently meet its debt
service requirements. Fitch expects a weakening of the dividend
flow due to the effects of the coronavirus. However, it considers
that GB's prudent liquidity management, as well as the flexibility
of the investment plans and contingency plans sustains a projected
cash flow that sufficiently covers the debt service.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- GB's National ratings will mirror any action taken on
Davivienda's national ratings. Additionally, a substantial
increase of GB's leverage (double leverage above 120%) or a
decline in the dividend flows from the operating companies
that result in a sustained deterioration of its debt coverage
ratios could pressure GB's ratings.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The national scale ratings of GB's are at the highest level on
the national scale; therefore, they cannot be upgraded.
VR ADJUSTMENTS
The operating environment score has been assigned above the implied
score due to the following adjustment reason: Sovereign Rating
(positive). International operations are a relevant positive factor
in the assessment.
The business profile score has been assigned above the implied
score due to the following adjustment reason: Business Model,
market position and composition of operating income (positive).
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Grupo Bolivar's ratings are driven by the rating of its main
subsidiary, Banco Davivienda
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.
BANCO DE BOGOTA: Fitch Affirms 'BB+' LT LC IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Banco de Bogota S.A. (Bogota) and
selected related entities and subsidiaries' international and
national ratings. Fitch has affirmed Bogota's Viability Rating (VR)
and Long-Term (LT) Foreign and Local Currency Issuer Default
Ratings (IDRs) at 'bb+' and 'BB+', respectively. The Rating Outlook
for the LT IDRs is Stable, indicating that Fitch expects any
additional fallout from the pandemic to be manageable at current
rating levels.
Fitch is also withdrawing Bogota's, Banco de Occidente S.A.'s
(Occidente), Banco de Occidente Panama's (BOP), Corporacion
Financiera Colombiana S.A.'s (Corficolombiana) and Grupo Aval
Acciones y Valores S.A.'s (Grupo Aval) Support Ratings as well as
Bogota's and Aval's Support Rating Floors as they are no longer
relevant to the agency's coverage following the publication of
Fitch's updated Bank Rating Criteria on Nov. 12, 2021.
In line with the updated criteria, Fitch has assigned Bogota and
Aval new Government Support Ratings (GSR) at 'bb' and 'ns'
respectively. Finally, Fitch has assigned Occidente, BOP and
Corficolombiana new Shareholder Support Ratings (SSR) at 'bb+'.
KEY RATING DRIVERS
VR AND IDRS
Bogota's VR is highly influenced by its business profile, which is
underpinned by its leading franchise. The bank's ratings also
consider its consistent financial performance, reasonable credit
and risk policies and its ample and diversified funding base.
Capitalization remains the bank's main credit weakness relative to
international peers, although it has improved during 2021.
The influence of the operating environment on Bogota's VR has been
revised to moderate as Fitch does not anticipate a material impact
on the bank's financial profile from any remaining pressures on the
operating environment, such as upcoming elections or a higher than
expected deceleration in economic growth.
Bogota is Colombia's second-largest bank by assets and third by
deposits (14.7% and 13.3% market share respectively at September
2021), the largest bank by net income (31.1% market share) and
third-largest bank by loans (12.6%). It is the largest bank by
assets (11.5%), net loans (12.7%) and deposits (12%) in Central
America, as well as the second largest bank by net income (15.5%).
Given its size, the bank is a systemically important financial
institution (SIFI) in Colombia.
Bogota's loan portfolio quality remained sound during 2021, despite
the relief programs after the COVID-19 outbreak. The 90-days NPL
improved to 2.93% as of September 2021 (Dec. 2020: 3.30), thanks to
a better than expected performance in the consumer loans after
finalizing the relief period in Panama and Colombia and especially
by the improvement in the corporate and commercial loans thanks of
the normalization of Avianca's loan. Fitch expects this ratio to
remain stable or slightly improve during the short to mid-term
thanks to the low amount of loans under relief (2% at the
consolidated level) and the expected 8%-10% loan growth for 2021
and 2022.
Nevertheless, since the Colombian operations have a higher NPL
ratio compared to that of Central America, after the proposed BAC's
spin-off, loan quality ratios are expected to deteriorate and will
resemble closer to those of the Colombian operations and will be
monitored by Fitch.
Fitch notes that Bogota's asset quality is in line with its local
peers' and includes controlled charge-off ratios. As of September,
2021, loan loss reserve coverage ratio was 1.7x; returning to its
historical level (1.6x).
Bogota's capital has been sustained through a mix of sustained
profitability and moderate dividend policies. Bogota's CET1
improved to 11.1% at September 2021 (June 2021: 10.2%), as a
consequence of higher profitability compared to that of 2020, the
change in RWA calculation after Basel III implementation (Risk
Weighted Assets to Total Assets ratio decreased to 70.1%, compared
with 81% in average during 2017-2020) and especially as a
consequence, of the COP 1,302.3 billion income from Porvenir's
investment valuation update to its fair value, as a result of the
deconsolidation process. In September 2021, Bogota's FCC and
tangible equity ratios reached 11.4% and 7.9%, respectively.
Bogota's performance during 2021 improved thanks to decreasing loan
impairment charges due to the coronavirus along with lower, yet
improving NIM, with an operating profit/RWA ratio of 3.74% at 3Q21,
above that of YE20 (1.99%) and to the average for 2017-2019
(2.69%). This result is better than its local peers', but it is
also influenced by the decreasing RWA density. Fitch expects this
ratio to remain stable during 2022 thanks to a stable operating
environment, higher loan growth and margins, lower loan impairment
charges and despite the expected spin-off of BAC.
Bogota boasts an ample, well-diversified and low-cost depositor
base that funds all its lending activities. As of September 2021,
deposits grew 4.3% yoy, especially supported in saving and current
accounts. Bogota's loan to customer deposits ratio compares
favorably with local and regional peers, as a consequence of having
about 84% of customer deposit in its funding mix. In Fitch's
opinion, Bogota's liquidity position and liquidity management are
appropriate for the risks the bank faces, and compares better than
its peers'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Bogota's VRs and IDRs are sensitive to a material
deterioration in the local operating environment or a negative
sovereign rating action;
-- The ratings could be downgraded from a continued deterioration
of the operating environment due to an extended period of
economic disruption as a result of the coronavirus that leads
to a significant deterioration of the asset quality and/or
profitability (operating profit to RWA consistently below
1.5%), resulting in an erosion of capital cushions if the CET1
ratio falls consistently below 10%;
-- After the announcement to spin-off BAC Holding International
Corp. (former Leasing Bogotá S.A. Panama - LBP), Fitch
expects
Bogota's financial ratios to remain commensurate with its
current rating even taking into consideration potential
changes, especially in the bank's capitalization and asset
quality levels after BAC's spin-off. Potential financial
ratios variations will be monitored by Fitch and could take
several months to become clear. However, if there is
eventually a material change in Fitch's assessment of the
capital adequacy and/or double leverage of Bogota or Grupo
Aval during or after the completion of the corporate
reorganization, this could potentially trigger a negative
rating action, although this is not the baseline scenario.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Given the limitations of the operating environment, a ratings
upgrade is unlikely in the medium term;
-- Over the longer term, an improvement in the operating
environment along with improvement of capital metrics and
profitability after BAC deconsolidation could be positive for
creditworthiness.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
GOVERNMENT SUPPORT RATING
BOGOTA
Bogota's GSR of 'bb', reflects the agency's estimation of a
moderate probability of sovereign support, if required, given the
bank's systemic importance. The ability of the sovereign to provide
support is based on its 'BB+'/Stable rating.
SENIOR AND SUBORDINATED DEBT
BOGOTA
Bogota's Senior Unsecured obligations are rated at the same level
than the bank's IDR. Its subordinated debt is rated two notches
below the bank's VR.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
GOVERNMENT SUPPORT RATING
Bogota's GSRs would be affected if Fitch changes its assessment of
the government's ability and/or willingness to support the bank.
SENIOR UNSECURED DEBT
The ratings of Bogota's debt would move in line with the bank's
IDRs and VR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
GOVERNMENT SUPPORT RATING
Bogota's GSRs would be affected if Fitch changes its assessment of
the government's ability and/or willingness to support the bank.
SENIOR UNSECURED DEBT
The ratings of Bogota's debt would move in line with the bank's
IDRs and VR.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
GRUPO AVAL ACCIONES Y VALORES S.A. (GRUPO AVAL)
Grupo Aval's ratings are driven by the business and financial
profile of its main operating subsidiary, Bogota. Low double
leverage, good cash flow metrics and a sound competitive position
in multiple markets also support Grupo Aval's ratings.
On a consolidated basis, asset quality has improved, although 11.5%
of the gross loans remain under relief program at June 2021. The
holding company's operating profit to estimated risk weighted
assets (RWA) ratio has returned to pre-pandemic levels (3.67% at
September 2021) thanks to lower estimated RWA density and the gains
after the deconsolidation of Porvenir on July, 2021.
On an unconsolidated basis, Grupo Aval's double leverage is
moderate (1.09x at September 2021 or 1.18x when including the AT1
bonds acquired after MFG's acquisition). This ratio is expected to
remain stable in the short term, although it could be pressured
after BAC deconsolidation. Fitch expects this ratio to remain below
1.20x shortly after the transaction finishes.
CORPORACION FINANCIERA COLOMBIANA S.A. (CORFICOLOMBIANA)
Corficolombiana's IDRs are driven by its Viability Rating (VR),
which reflects its business profile. The ratings also consider
Corficolombiana's strong financial profile.
The influence of the operating environment on Corficolombiana's VR
has been revised to moderate as Fitch does not anticipate a
material impact on the bank's financial profile from any remaining
pressures on the operating environment, such as upcoming elections
or a higher than expected deceleration in economic growth.
Under Fitch's current assessment, Corficolombiana's IDR will likely
remain at the level determined by its own Viability Rating (VR), or
at the same level as its main shareholder and its controlling
company, whichever is higher.
Corficolombiana is an investment-holding company that controls or
holds significant interests in various companies in Colombia and
abroad. The entity's equity investment policy is focused on low
risk, consistent dividend-generating companies. Corficolombiana
profitability and capital metrics have sustained sound in spite of
the current challenges in the operating environment.
BANCO DE OCCIDENTE (OCCIDENTE)
Occidente's IDRs are driven by its Viability Rating (VR) of 'bb+'.
The bank's VR reflects its intrinsic strength that is highly
influenced by its business profile. The ratings also consider the
bank's gradual return of its financial metrics to pre-pandemic
levels. In Fitch's view, Colombian banks have already absorbed most
of the provision expense pressures from deteriorating loan quality
as a result of the economic downturn in 2020.
Fitch's business profile assessment considered group benefits as
Occidente is Grupo Aval's second largest franchise, representing
15% of total consolidated assets and contributing 13% of cash
dividends as of December 2020. Occidente enjoys some synergies with
its sister banks, which, nevertheless, compete with the bank in
some sub-segments, in line with its holding company guidelines. The
bank focuses its efforts in mid-sized companies and affluent
customers and counts with a local leadership within Colombia's
southwest region and with government related business. The bank
also has a strong position in the leasing and vehicles niche,
offering a wide array of banking services and products in the
commercial and consumer segments.
The influence of the operating environment on Occidente's VR has
been revised to moderate as Fitch does not anticipate a material
impact on the bank's financial profile from any remaining pressures
on the operating environment, such as upcoming elections or a
higher than expected deceleration in economic growth.
Occidente's conservative credit and risk management policies
underpin its resilient asset quality. The bank's impaired loans to
gross loans ratio decreased to 3.6% from a peak of 5.0% at YE20 and
is gradually returning to its historical average of 3.0% from 2016
to 2019. Asset quality is similar to the Colombian banking system's
ratio of 3.2% in the same period. The take-up rate for payment
relief initiatives reached a high of approximately 40% in July 2020
and has gradually decreased to 5.7% as of September 2021 after the
first and second round of forbearance concluded (banking system
level of forbearance: 7%).
Reserve coverage increased to 1.5x of 90-day PDLs at September 2021
from 1.2x at YE20 and an average of 1.6x for the last five years
— a level considered adequate given the bank's asset quality,
collateral, conservative policies and profit generation. Fitch has
revised the outlook on the 'bb+' asset quality score to stable from
negative based on reduced downside risks.
Occidente's resilient margins and sustainable generation of
non-interest revenues support profitability. Profitability as of
September 2021 showed signs of a gradual recovery as a consequence
of the bank's strategy to focus on boosting the growth of its
banking revenues through healthy loan growth and fee-generating
banking services. The weight of loan impairment charges to
operating profit declined to 49.7% from a peak of 80.5% at YE20.
Fitch's core metric ratio of operating profit to RWAs of 2.0% at
September 2021 compared favorably with its average of 1.8% from
2016 to 2019, but was below the Colombian banking system's ratio of
2.6% at the same date.
Consistent capital generation underpins Occidente's capital
metrics. However, moderate asset growth, limited profitability and
recurrent dividend payments narrow capital ratios relative to
peers, though this is offset by ordinary support from its parent.
The bank's Common Equity Tier 1 (CET1) ratio was 9.2% at September
2021. Fitch views Occidente's capital ratios as adequate, given its
excess loan loss reserves and asset quality. Fitch expects the bank
to continue generating organic growth. Nevertheless, capitalization
ratios could continue narrowing in the near future if profits
decline due to increase in credit cost under a less benign
operating environment.
As a medium-sized bank with ample presence throughout the country,
Occidente boasts a stable and ample deposit base and good
liquidity. Deposits come primarily from institutional and public
investors, resulting in higher funding costs and depositor
concentrations compared to banks with a wider retail deposit base.
Concentration risk is mitigated by the bank's long-standing
relationships with its major depositors, most of whom are
institutional clients to whom the entity provides cash management
services. Its loans/deposits ratio of around 108% at September 2021
benefits from a mix of deposits and several bond issuances in the
local market. This has improved the bank's funding profile by
providing a better match between short- to medium-term assets and
short-term liabilities structure.
BANCO DE OCCIDENTE PANAMA (BOP)
BOP's IDRs reflect the potential support it would receive from
Occidente should it be required. The parent's ability to support
its Panamanian subsidiary is primarily based on Occidente's IDR of
'BB+' Stable Outlook. BOP's IDRs also reflect the importance of the
subsidiary in expanding Occidente's international presence while
maximizing synergies with Grupo Aval, Occidente's and BOPs ultimate
parent. Furthermore, Occidente's propensity to support its
Panamanian subsidiary is considered high by Fitch given the
reputational risk associated at the parent level associated with a
default at the subsidiary level. Additionally, Occidente's expected
support to BOP is bolstered by the operational synergies and
alignment of risk controls and business practices.
FIDUCIARIA DE OCCIDENTE S.A. AND FIDUCIARIA CORFICOLOMBIANA S.A.
Fiduoccidente is a wholly owned financing subsidiary of Occidente
whose debt ratings are aligned with the bank's national ratings.
Fiduciaria Corficolombiana S.A.'s national ratings reflect the
potential support it would receive from its parent,
Corficolombiana, should it be required.
In Fitch's view, Fiducaria de Occidente and Fiduciaria
Corficolombiana are integral part of their respective parent's
business models and core to their strategy. Fitch also incorporates
in its support view the negative reputational implications of a
potential subsidiary default for their respective parents.
GOVERNMENT SUPPORT RATING
GRUPO AVAL
As the focus of regulators is on protecting banks' depositors, not
their shareholders, it is not likely that they would support a bank
holding company. Hence, Grupo Aval's GSR was assigned at 'ns' (no
support).
SHAREHOLDER SUPPORT RATING
OCCIDENTE
The bank's SSR of 'bb+' reflects its role as one of the most
important subsidiaries of Grupo Aval, as the Group's second largest
bank. In Fitch's opinion, Occidente is core for Grupo Aval's
strategy and institutional support should be forthcoming, if
required. Grupo Aval has a consistent track record of support for
its subsidiaries and its ability to support them is illustrated by
its 'BB+'/Stable rating.
CORFICOLOMBIANA
The entity's SSR of 'bb+' reflects its importance to the strategy
and business of the parent and its main shareholder. In Fitch's
opinion, support for Corficolombiana would come from its main
shareholder. Its ability to support Corficolombiana is reflected in
its 'BB+'/Stable rating.
BOP's
The propensity of support is based on the strategic role the
Panamanian subsidiary plays in implementing its parent's global
strategy of deepening the product reach offered to its corporate
and private banks customers.
GRUPO AVAL LIMITED
The ratings for Grupo Aval Limited's senior unsecured debt are
aligned with those of Grupo Aval, as this entity guarantees the
senior bonds issued by the former.
CORFICOLOMBIANA
Corficolombiana's Senior Unsecured obligations are rated at the
same level than the bank's long-term national-scale rating.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
GRUPO AVAL and GRUPO AVAL LIMITED
Grupo Aval's IDR would remain at the same level as Bogota's and
would move in tandem with any rating actions on its main operating
subsidiary. However, the relativity between these two entities'
ratings could also be affected, in the event of a material and
sustained increase in Grupo Aval's double-leverage metrics (above
1.2x), but also considering the holding company's liquidity
position and its management. Additionally, a change in the dividend
flows from the operating companies or debt levels at the holding
company that affects its debt coverage ratios could also be
detrimental to its ratings.
The ratings for Grupo Aval Limited's senior unsecured debt would
move in line with Grupo Aval's IDRs.
CORFICOLOMBIANA
-- Corficolombiana's VR is sensitive to any rating action on
Colombia's sovereign ratings or a material deterioration in
the local operating environment. However, if the VR were
downgraded, the IDR could become support-driven and remain
equalized to its main shareholder's, given Fitch's "higher of"
approach and Fitch's assessment of the subsidiary being core
for Grupo Aval. In this latter case, the Rating Outlook or
Watch would mirror that of the parent.
OCCIDENTE
-- Occidente's VR and IDRs are sensitive to material
deterioration in the local operating environment or a negative
sovereign rating action;
-- The ratings could be downgraded from continued deterioration
of the operating environment due to extended economic
disruption from the pandemic that leads to significant
deterioration of asset quality or profitability, with
operating profit/RWA consistently below 1.5%, resulting in an
erosion of capital cushions if the CET1 ratio falls
consistently below 10%.
FIDUCIARIA DE OCCIDENTE AND FIDUCIARIA CORFICOLOMBIANA
Fiduciaria de Occidente's and Fiduciaria Corficolombiana's National
ratings are support-driven and, therefore, these ratings would
mirror any changes in Banco de Occidente's and Corficolombiana's
National-scale ratings, respectively.
BANCO DE OCCIDENTE PANAMA (BOP)
BOP's IDRs would change if Fitch's assessment of its parent's
ability and/or willingness to support BOP changes. In general, the
IDRs would move in line with those of its parent.
GOVERNMENT SUPPORT RATING
Grupo Aval's GSRs would be affected if Fitch changes its assessment
of the government's ability and/or willingness to support the bank
or the holding company.
SHAREHOLDER SUPPORT RATING
Occidente's, BOP's and Corficolombiana's SSRs would be affected if
Fitch changes its assessment of the respective parents' willingness
and/or ability to provide support.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
GRUPO AVAL and GRUPO AVAL LIMITED
Grupo Aval's IDR would remain at the same level as Bogota's and
would move in tandem with any rating actions on its main operating
subsidiary.
The ratings for Grupo Aval Limited's senior unsecured debt would
move in line with Grupo Aval's IDRs.
CORFICOLOMBIANA
-- There is limited upside potential for Corficolombiana's VR
given the sovereign's current rating and Outlook.
OCCIDENTE
-- Given the operating environment, an upgrade is unlikely in the
medium term.
-- Over the longer term, an improvement in the operating
environment along with the restoration of financial metrics
toward pre-pandemic levels could be positive for
creditworthiness.
FIDUCIARIA DE OCCIDENTE AND FIDUCIARIA CORFICOLOMBIANA
Fiduciaria de Occidente's and Fiduciaria Corficolombiana's National
ratings are support-driven and, therefore, these ratings would
mirror any changes in Banco de Occidente's and Corficolombiana's
National-scale ratings, respectively.
BANCO DE OCCIDENTE PANAMA (BOP)
BOP's IDRs would change if Fitch's assessment of its parent's
ability and/or willingness to support BOP changes. In general, the
IDRs would move in line with those of its parent.
GOVERNMENT SUPPORT RATING
Grupo Aval's GSRs would be affected if Fitch changes its assessment
of the government's ability and/or willingness to support the bank
or the holding company.
SHAREHOLDER SUPPORT RATING
Occidente's, BOP's and Corficolombiana's SSRs would be affected if
Fitch changes its assessment of the respective parents' willingness
and/or ability to provide support.
VR ADJUSTMENTS
BOGOTA
The Operating Environment score has been assigned above the implied
score due to the following adjustment reason: Sovereign Rating
(positive);
The Capitalization and Leverage score has been assigned above the
implied score due to the following adjustment reason: Historical
and Future Metrics (positive).
OCCIDENTE
The Operating Environment score has been assigned above the implied
score due to the following adjustment reason: Sovereign Rating
(positive);
The Business Profile score has been assigned above the implied
score due to the following adjustment reason: Group Benefits and
Risk (positive);
The Capitalization and Leverage score has been assigned above the
implied score due to the following adjustment reason: Ordinary
Support (positive).
CORFICOLOMBIANA
The Funding and Liquidity score has been assigned above the implied
score due to the following adjustment reason: Sovereign Rating
(positive);
The Funding and Liquidity score has been assigned below the implied
score due to the following adjustment reason: Deposit Structure
(negative).
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings of Banco de Occidente (Panama), S.A. and Fiduciaria de
Occidente S.A. are support-driven from Banco de Occidente S.A.; The
ratings of Fiduciaria Corficolombiana S.A. are support-driven from
Corporacion Financiera Colombiana S.A. (Corficolombiana); The
ratings of Grupo Aval Acciones y Valores are support-driven from
its main subsidiary Banco de Bogota S.A.; The rating of Grupo Aval
Limited issuance is linked to the rating of Grupo Aval Acciones y
Valores S.A.
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.
OLEODUCTO CENTRAL: Fitch Affirms 'BB+' LT IDRs, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign and Local Currency
Issuer Default Ratings (IDRs) of Oleoducto Central S.A. (OCENSA) at
'BB+'. The Rating Outlook is Stable.
OCENSA's ratings reflect the linkage with the credit profile of
Ecopetrol S.A. (BB+/Stable), which indirectly owns 72.648% of
OCENSA. Fitch believes operational integration and strategic ties
between both entities to be important enough to create economic
incentives for Ecopetrol to effectively support OCENSA. The ratings
also incorporate the company's strong competitive position as the
largest and most reliable crude oil transportation company in
Colombia, which gives it cost advantages over its main
competitors.
The company's moderate exposure to volume risk and the regulated
nature of the business provide stability in cash flow generation
metrics and help minimize margin volatility. Fitch considers the
company's financial profile well positioned to withstand the
effects of the coronavirus pandemic and lower crude oil production
on transported volumes in Colombia.
KEY RATING DRIVERS
Linkage to Ecopetrol: OCENSA's ratings reflect its linkage to the
credit profile of Ecopetrol. In terms of operational integration,
OCENSA's operations are an integral part of Ecopetrol's core
business, which represents OCENSA's main off-taker. Ecopetrol
heavily relies on OCENSA's infrastructure to transport crude oil
from production fields to its refineries and export terminal. Fitch
considers OCENSA strategically important for Ecopetrol.
Strong Competitive Position: OCENSA is the largest crude oil
transportation company in Colombia, connecting the most important
oil basins with the country's main crude oil export terminal, also
acting as a gateway to the country's largest refineries. The
company represents the most important and reliable crude oil
transportation system for Ecopetrol and Colombia, transporting 74%
of the country's oil production and 73% of oil exports in 2020.
The geographic location of the assets has made it less vulnerable
to attacks and increases the reliability of the system, allowing
the company to report relatively stable throughputs. High
utilization rates give OCENSA cost advantages over its main
competitors and positively affects the stability of cash flow.
Conservative Capital Structure: Fitch forecasts OCENSA's leverage
will remain below 0.5x and does not anticipate pressures on its
credit metrics. The company's demonstrated ability to generate
strong and consistent operating cash flow allowed it to fund a
substantial portion of capex without resorting to significant use
of leverage.
Fitch expects the company's cash flow from operations (CFO) will be
strong enough to fund capex requirements and meet dividend payments
without pressuring its capital structure. OCENSA's financial debt
was mainly concentrated in its USD500 million seven-year senior
unsecured notes due 2027 as of Sept. 30, 2021.
Consistent and Predictable CFO: The company's revenue profile
provides stability in cash flow measures and helps minimize margin
volatility. CFO benefits from the regulated nature of the crude oil
transportation tariffs in Colombia, which is approved by the
Ministry of Mines and Energy, fixed in U.S. dollars, adjusted by
inflation and reviewed every four years.
Most of OCENSA's revenues are tied to fee-based and fixed-price
arrangements through ship-and-pay contracts with no direct exposure
to commodity prices. From mid-2017, the company entered into firm
ship-or-pay contracts linked to additional capacity of 135 thousand
barrels per day (kbpd), which makes up roughly 22% of the company's
revenues base. CFO is also positively affected by the exposure of
OCENSA to Ecopetrol, the biggest crude oil producer in the country,
which currently makes up roughly 78% of the company's total
revenues.
Manageable Volume Risk: OCENSA is exposed to volume risk, but Fitch
believes this risk is manageable, based on the demonstrated
resilience to the last oil price cycle. The company's competitive
positioning as the largest, lowest-cost and most reliable crude oil
transportation system in Colombia helped the company to outperform
the industry as was seen during the last crude oil price crisis.
The low availability of alternative transportation systems and the
non-programmed interruptions of Cano Limon-Covenas pipeline system
(CLC) has historically favored OCENSA's volumes. However, the
pandemic, the decrease in crude oil prices and lower interruptions
of CLC, affected the crude oil production and transported volumes
in 2020. Crude oil production decreased to 781 kbpd in 2020 from
886 kbpd in 2019 and Ocensa's transported volumes declined to 561
kbpd in 2020 from 664 kbpd in 2019. Fitch expects transported
volumes will decline by 20 kbpd during 2021, mainly due to the
negative effect of social unrest, lower exports and maintenance
activities at the Port of Covenas, with no credit impact on
Ocensa's credit profile.
DERIVATION SUMMARY
OCENSA's ratings compare well relative to tolling-based natural gas
peers in the region, such as Transportadora de Gas Internacional
S.A. ESP (TGI; BBB/Stable) and Transportadora de gas del Peru, S.A.
(TGP; BBB+/Stable) due to stable and predictable cash flow
generation.
OCENSA has a stronger financial profile, with leverage of 0.5x in
the rating horizon, which offsets higher exposure to volume risk,
given its greater reliance on take-and-pay contracts relative to
peers. Fitch considers TGI and TGP to have lower business risk
resulting from a solid long-term contractual structure and low or
no exposure to commodity prices or volume risk.
OCENSA's ratings remain three notches below TGP and two notches
below TGI, even though TGP and TGI have less conservative capital
structures. TGP has a stronger business profile with revenue
derived from long-term ship-or-pay contracts with an average
remaining life of around 13 years.
TGI's average contract length is five years, which reduces revenue
visibility compared with TGP. TGI is rated in line with its parent,
Grupo Energia Bogota S.A. E.S.P. (GEB; BBB/Stable), and maintains a
strong linkage to GEB. OCENSA's ratings reflect strong operational
and strategic ties to Ecopetrol. Therefore, Fitch considers it
unlikely that both companies will have different credit profiles.
KEY ASSUMPTIONS
-- Volumes for ship-and-pay contracts declining 4% in 2021 due to
lower crude oil production, growing 1.6% from 2022.
-- Volumes for ship-and-pay contracts according to negotiated
terms with off-takers.
-- Current tariffs remain valid through 2023.
-- Capex intensity equivalent to 6% of revenue.
-- Dividend pay-outs of 100%.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of Ecopetrol's credit ratings.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Ecopetrol's credit ratings.
-- A weakening of the company's linkage with Ecopetrol and
material deterioration of OCENSA's capital structure.
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 Not a Concern: The company's liquidity position is
supported by cash on hand, strong internal cash flow generation and
favorable debt maturities. As of Jun. 30, 2021, OCENSA had COP216
billion of cash on hand, COP2.8 trillion of CFO and no short-term
maturities. Fitch expects CFO to average COP3 trillion through the
medium term, although a significant proportion of this cash flow
will likely be up streamed to shareholders through dividend
distributions. Fitch expects OCENSA to generate neutral to positive
FCF in the short to medium term, given the absence of sizable
capex.
ISSUER PROFILE
Oleoducto Central S.A. (Ocensa) is Colombia's largest crude oil
transportation company, with pipelines covering 836 km underground
and 12 km underwater. It connects Colombia's most prolific oil
basins and main crude oil export terminal and is a gateway to the
country's largest refineries.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
OCENSA's ratings are linked to the credit profile of Ecopetrol.
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 O S T A R I C A
===================
REVENTAZON FINANCE: Moody's Affirms B1 CFR, Outlook Now Stable
--------------------------------------------------------------
Moody's Investors Service affirmed the ratings of Instituto
Costarricence de Electricidad (ICE) and Reventazon Finance Trust at
B1 and changed the outlook to stable from negative.
This rating follows the outlook change to stable from negative of
the Government of Costa Rica.
RATINGS
Affirmations:
Issuer: Instituto Costarricense de Electricidad (ICE)
Corporate Family Rating, Affirmed B1
Baseline Credit Assessment, Affirmed b1
Senior Unsecured Regular Bond/Debenture, Affirmed B1
Issuer: Reventazon Finance Trust
Corporate Family Rating, Affirmed B1
Senior Secured Regular Bond/Debenture, Affirmed B1
Outlook Actions:
Issuer: Instituto Costarricense de Electricidad (ICE)
Outlook, Changed To Stable From Negative
Issuer: Reventazon Finance Trust
Outlook, Changed To Stable From Negative
RATINGS RATIONALE
The affirmation of ICE's B1 ratings, one-notch above the Government
of Costa Rica's sovereign rating of B2, illustrate its key role as
an autonomous government entity and dominant position as the
largest vertically integrated utility in the country. Moreover, the
rating considers the relatively stronger financial metrics and the
expectation that the regulatory framework will remain reliable and
supportive.
ICE's rating outlook change to stable from negative, in line with
the Government of Costa Rica's rating outlook, recognizes the deep
linkages with the government such as ownership, revenue derived
from the same domicile and exposure to common risks including
interest rates, foreign exchange and economic performance.
The affirmation on the Reventazon's assigned rating of B1 and
change of outlook to stable considers the significant dependance on
ICE's financial performance given the obligations it assumed under
the contractual operational and financial arrangements. ICE acts as
Reventazon's sponsor, operator, lessee, EPC contractor and
off-taker.
ICE falls under the category of Government-Related Issuers as it is
wholly-owned by the Government of Costa Rica. ICE's Baseline Credit
Assessment ("BCA"), a representation of the entity's standalone
creditworthiness without taking into consideration any potential
extraordinary support from the sovereign is b1. This rating
recognizes ICE's strategic position in the domestic market and an
overall credit-supportive regulatory framework.
Per Moody's Government-Related Issuers ("GRI") rating methodology,
Moody's believes ICE has a "high" default dependence as a
consequence of the reliance on the same revenue base and common
credit risks shared with the Costa Rican government. Furthermore,
Moody's considers ICE to have a "high" level of government support
during extraordinary events because of its significance to the
domestic economy and national security.
The rationale behind the high levels of support from and dependence
on the government is derived from (i) the company's obligation to
reinvest all net profit in further developing the national
electrification and generation development plans with no dividend
payments; (ii) electric operations being exempt from income taxes;
and (iii) strategic importance to the overall Costa Rican economy
and key role as executant of the government's energy policies and
development plans.
RATINGS OUTLOOK
ICE's and Reventazon's stable rating outlooks are in line with the
stable outlook on Costa Rica's sovereign rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
Given that ICE's ratings are one notch above the Government of
Costa Rica, an upgrade is unlikely in the next 12-18 months. Upward
pressure would require an upgrade of Costa Rica's sovereign rating
while ICE records cash interest coverage above 3.0x and CFO
pre-WC/Debt above 13% on a sustained basis.
An upgrade of ICE's ratings would likely drive an upgrade of
Reventazon Finance Trust's rating.
FACTORS THAT COULD LEAD TO A DOWNGRADE
A downgrade of Costa Rica's sovereign rating could lead to a rating
downgrade for ICE. Additionally, if ICE's debt increases
significantly above the expected levels, such that its credit
metrics deteriorate and cash flow interest coverage falls below
2.0x or retained cash flow (RCF)/debt declines below 6% for an
extended period, downward pressure on the ratings will rise.
A downgrade of ICE's ratings would also likely result in a
downgrade of Reventazon Finance Trust's rating.
The methodologies used in these ratings were Regulated Electric and
Gas Utilities published in June 2017.
COMPANIES' PROFILE
Headquartered in San Jose, Costa Rica, Instituto Costarricense de
Electricidad (ICE) is a government-owned vertically integrated
electric utility and an integrated telecommunications services
provider. ICE's electric and telecommunications operations are
subject to the purview of the Costa Rican regulatory bodies
Autoridad Reguladora de los Servicios Publicos and Superintendencia
de Telecomunicaciones, respectively. As of June 2021, ICE reported
consolidated assets of around $6.8 billion and cash flow from
operations (CFO) pre-working capital (WC) of around $376 million.
Reventazon Finance Trust is a financing vehicle used to raise
proceeds for the construction of the 305.5 MW hydroelectric plant
located on the Reventazon River in Costa Rica, which is owned and
operated by ICE.
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D O M I N I C A N R E P U B L I C
===================================
AES ANDRES: Fitch Affirms 'BB-' FC IDR, Alters Outlook to Stable
----------------------------------------------------------------
Fitch Ratings has affirmed AES Andres B.V.'s (Andres) Long-Term
Foreign Currency Issuer Default Rating (IDR) at 'BB-' and revised
the Rating Outlook to Stable from Negative. Fitch has also affirmed
Andres' USD300 million notes due 2028 at 'BB-' and its National
Scale rating at 'AA(dom)' with a Stable Outlook. The ratings
consider the combined operating assets of Andres and Dominican
Power Partners (DPP; jointly referred to as AES Dominicana), which
are joint obligors of Andres's USD300 million notes due 2028.
Andres' ratings reflect the Dominican Republic's electricity
sector's high dependency on government transfers, which link the
credit quality of the distribution and generation companies to that
of the sovereign. Low end-user collections, high electricity losses
and subsidies have undermined distribution companies' cash
generation capacity, exacerbating generation companies' dependence
on public funds. The ratings also consider the companies' solid
asset portfolio, strong balance sheet, and well-structured purchase
power agreements (PPAs).
KEY RATING DRIVERS
Dependence on Government Transfers: High energy distribution losses
of 33.4% as of 2Q21, low level of collections and important
subsidies for end-users, have created a strong dependence on
government transfers. This dependence has been exacerbated by the
country's exposure to fluctuations in fossil-fuel prices and strong
energy demand growth from distribution companies. The regular
delays in government transfers have pressured generators' working
capital needs and added volatility to their cash flows. This
situation increases sector risk, especially at a time of rising
fiscal vulnerabilities affecting the Central Government's
finances.
Strong Credit Metrics: The combined credit metrics for Andres and
DPP are strong for the rating category, with expected 2021 EBITDA
of USD273 million for the combined companies. Fitch expects 2021
debt to EBITDA to be 2.4x, down slightly from 2.7x in 2020,
following issuance of new notes. Leverage is expected to fall
through 2022 before increasing to 4.2x in 2023 as renegotiation of
Andres's gas supply contract lowers EBITDA. While the commencement
of operations of the government's 750MW coal-fired Punta Catalina
power plant has lowered spot prices, Andres and DPP are
substantially contracted through 2022, and their lower leverage
provides a cushion against eventual PPA revaluations.
High-Quality Asset Base: Andres ranks among the lowest-cost
electricity generators in the country. Andres's combined-cycle
plant burns natural gas, and is expected to be fully dispatched as
a base-load unit as long as the liquefied natural gas (LNG) price
is not more than 15% higher than the price of imported fuel oil No.
6. In March 2021, Andres brought the 50 MW Bayasol solar plant
online, adding just over 100 GWh of power production at zero
variable cost.
Moderate Cash Flow Volatility: Cash flow to Andres and DPP has
historically been affected by delays in payment from the
state-owned distribution companies, particularly during periods of
high fuel oil prices, which have pressured the system financially.
Fitch expects future payment delays to stablize with the entrance
of the 750 MW Punta Catalina plant, which will lower spot prices
and relieve financial pressure on the system. As of October 2021,
distribution companies owed Andres and DPP a combined USD117
million, which is down considerably from past levels.
Expanding Natural Gas Business: Andres operates the country's sole
LNG import terminal, offering regasification, storage, and
transportation infrastructure. In the medium term, the company
plans to expand its transportation network and processing capacity
for its LNG operations, as illustrated by the recent 10-year gas
supply agreement with Barrick.
In addition, a 50-kilometer gas pipeline from Andres's terminal to
San Pedro de Macoris was constructed in February 2020 to facilitate
the conversion of 730 MW of generation capacity from heavy fuel oil
to natural gas combined cycle in that region. Andres' gas supply
contract with BP plc prices gas imports at the NYMEX Henry Hub
benchmark plus USD1.20; gas costs are expected to rise
significantly upon the contract's expiration in April 2023.
DERIVATION SUMMARY
Andres's ratings are linked to and constrained by the Dominican
Republic's ratings, from which it indirectly receives its revenues.
This is the same situation for Empresa Generadora de Electricidad
Haina, S.A. (EGE Haina; BB-/Stable), another Dominican Republic
power generator. The two companies are exposed to working capital
volatility due to operating difficulties tied to state-owned
Dominican electric distribution companies, which are characterized
by high dependency on government transfers due to their and high
energy loss rand lower collection rates.
AES Andres has a thermal generation asset with competitive cost
generation. In addition, AES Andres has an integrated operation
with a natural gas port, regasification, storage and gas pipeline
facilities. Meanwhile, EGE Haina benefits from a diversified energy
matrix which includes thermal and nonconventional renewable energy
assets. EGE Haina's expected leverage for 2021 is 3.3x, similar to
AES Andres, which is expected to be 2.4x.
Andres's capital structure is strong relative to similarly rated,
unconstrained peers. Orazul Energy Peru S.A. (BB/Stable), whose
current rating reflects the results of the sale of subsidiary
Aguaytia Energy del Peru S.R.L., still has higher installed
capacity at 376MW, not including the for-sale asset. Orazul is
expected to generate around USD70 million in EBITDA annually, with
estimated leverage of just below 5.0x.
Orazul Energy Peru is now expected to have weaker market position
as a result of an indication of core asset sales which offsets
previous expectations of a capital structure improvement after the
ongoing and future tender offers. The company will be less
diversified and have a smaller scale resulting from the potential
thermal business sale comprised of the exploration and production
assets. Comparatively, the combined Andres/DPP operations are
expected to generate approximately USD273 million of EBITDA in
2021, with leverage below 3.0x over the next two years.
KEY ASSUMPTIONS
-- Monomic contract prices of USD101/MWh in 2021, USD94/MWh in
2022, USD91/MWh in 2023 and 2024 for AES Andres;
-- Monomic contract prices of USD121/MWh in 2021, USD123/MWh in
2022, USD97/MWh in 2023 and USD96/MWh in 2024 for DPP;
-- Santanasol I comes online in 2022, Santanasol II and Mirasol I
in 2023, and Mirasol II in 2024 with each unit having a total
capacity of 50MW;
-- Electricity spot prices of USD55/MWh over the rating horizon;
-- Fuel prices track Fitch price deck;
-- Majority of previous year's net income distributed as
dividends through 2024;
-- Accounts receivable days normalize at 56 over the rating
horizon.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action for Andres could occur if the
Dominican Republic's sovereign ratings are upgraded or if the
electricity sector achieves financial sustainability through
proper policy implementation.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A negative rating action for Andres would occur if the
Dominican Republic's sovereign ratings are downgraded; if
there is sustained deterioration in the reliability of
government transfers; or financial performance deteriorates to
the point of increasing the combined Andres/DPP ratio of debt-
to-EBITDA to 4.5x for a sustained period.
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
Well-spread Maturities: Andres and DPP have historically reported
very strong combined credit metrics for the rating category. Both
companies have financial profiles characterized by low to moderate
leverage and strong liquidity. Combined EBITDA as of LTM June 30,
2021 totaled USD221.5 million (versus USD234.4 million at Dec. 31,
2020), with total debt/EBITDA of 2.8x and FFO interest coverage of
2.9x. The companies' strong liquidity position is further supported
by the refinancing of their 2026 international bond to a bond due
2028. Andres also has local bonds due in 2027.
ISSUER PROFILE
AES Andres is a 319 MW combined cycle power station and has a
160,000 m3 LNG storage facility, regasification terminal and a 34km
pipeline to DPP. DPP is a combined cycle natural gas-fired plant
with an installed capacity of 359 MW.
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.
DOMINICAN REPUBLIC: Economist Says New Jobs Lack Quality
--------------------------------------------------------
Dominican Today reports that although the Dominican labor market
has been recovering the dynamism it lost, due to the impact of the
COVID-19 pandemic on the economy, the jobs being created are of
lower quality than those that existed before the arrival of the
virus.
Vice Minister of Planning and Public Investment of the Ministry of
Economy, Planning and Development (Mepyd), Pavel Isa Contreras,
highlighted that informal jobs in the country have grown four times
faster than formal ones, according to Dominican Today.
"Before the pandemic, for every 104 informal jobs there were 100
formal jobs, today that ratio is 122 for every 100. We have many
more jobs than we had coming out of the pandemic or in the middle
of the pandemic, but they are not jobs of all the quality we had
before," Isa said, the report relays.
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.
As reported in the Troubled Company Reporter-Latin America on
Dec. 10, 2021, Fitch Ratings has revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'
TCRLA 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).
DOMINICAN REPUBLIC: Informal Jobs Prop Recovery, Central Bank Says
------------------------------------------------------------------
Dominican Today reports that construction, commerce and "other
services" are the economic activities that have been supporting the
recovery of the jobs lost due to the effects of the COVID-19
pandemic.
However, they are jobs with a negative characteristic: they belong
to the informal sector, according to Dominican Today.
Labor informality grew 8.2% between January and March 2020 and the
third quarter of this year, according to data from the Central
Bank, the report notes.
In that period, informal jobs went from 2,089,488 to 2,261,674,
equal to a net increase of 172,186, the report relays.
The opposite occurred in the formal sector at the same time. From
employing 2,256,583 people the number fell to 2,071,957, a
reduction of 184,626, a 2% fall, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
As reported in the Troubled Company Reporter-Latin America on
Dec. 10, 2021, Fitch Ratings has revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'
TCRLA 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).
EMPRESA GENERADORA: Fitch Affirms 'BB-' IDRs, Outlook Now Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Foreign and Local Currency Long-Term
Issuer Default Ratings of 'BB-' to Empresa Generadora de
Electricidad Haina, S.A. (EGE Haina) and revised the Rating Outlook
to Stable from Negative. Fitch has also affirmed EGE Haina's USD300
million senior unsecured notes at 'BB-'.
The Stable Outlook reflects Fitch's revision of the Outlook on the
Dominican Republic's sovereign rating. Haina's credit quality is
linked to the sovereign rating given the dependency of state-owned
distribution companies from government transfers given the high
risk of the Dominican Republic electricity sector, which has high
energy losses, low level of collections and important subsidies.
The ratings also reflect the company's contracted revenue and lower
exposure to the spot market, the size and diversification of its
generation asset base and the appropriate leverage.
KEY RATING DRIVERS
High Sector Risk Pressures Working Capital: The Dominican electric
sector has high energy distribution losses (33% in 2020), low
collection and high end-users' subsidies, which weaken distribution
companies' financial position. This increases the industry's
dependence on government transfer in order to be able to fulfil
their obligations with the power generators. This situation
increases sector risk, especially at a time of rising
vulnerabilities affecting the government's finances. Upward
pressure on fossil fuel prices could further stress the management
of working capital. The regular delays in government transfers
pressure working capital needs and add volatility to power
generators' cash flows.
Diversified Asset Base: EGE Haina's credit profile benefits from a
diversified asset portfolio of power generation assets using
different sources of energy (natural gas, fuel oil, wind, coal and
solar), which secures its dispatch position across the merit list
and, ultimately, backs its operational results. In 2020, the
company converted the Quisqueya II plant to gas power with a 225MW
capacity, and in 2021 started operating Solar Park Girasol with
120MW capacity. EGE Haina has a long-term strategy to build a power
generation asset base of 1,000MW with nonconventional renewable
energies.
Long-Term Contract Reduces Cash Flow Volatility: In August 2020,
EGE Haina signed a 10-year PPA with Corporación Dominicana de
Empresas Eléctricas Estatales (CDEEE) based on natural gas that is
indexed to its fuel costs, resulting in more revenue visibility and
stability in earnings.
The company has also entered into long-term contracts with
nonregulated clients and a regulated state-owned distribution
company to be supplied from the new Solar Park Girasol. Fitch
expects that between 2021 and 2023 more than 80% of revenues will
come from long-term agreements supporting EBITDA, which is
projected to be USD122 million in 2021 and USD128 million in 2022.
Continued Negative FCF: EGE Haina is expected to have negatives FCF
throughout the rating horizon due to its capex associated expansion
into renewables. FCF is expected to be negative USD95 million in
2021, explained by its USD105 million dividend payment and a capex
investment plan of USD54 million of the new Solar Park Girasol. In
2020, EGE Haina reported a negative FCF of USD110 million as a
result of lower operating earnings, higher capex and lower levels
of payment collection.
Strong Credit Metrics: EGE Haina has a strong credit profile for
the rating category. The latest 12 months (LTM) leverage as of 2Q21
stood at 2.9x. EGE Haina is estimated to have a gross leverage
close to 3.3x in 2021, which includes it USD300 million bond
issuance completed in 2021. Fitch expects EGE Haina will maintain
its gross leverage levels of 3.3x over the rating horizon, which
incorporates additional debt to finance expansion.
DERIVATION SUMMARY
EGE Haina´s rating, as with other Dominican power generators like
AES Andres (BB-/Stable), is linked to and constrained by the
Dominican Republic's sovereign rating, from which it indirectly
receives most of its revenues. The two companies are exposed to
working capital volatility due to operating difficulties tied to
state-owned Dominican electric distribution companies, which are
characterized by high dependency on government transfers due to
their high energy loss and lower collection rates.
AES Andres has a thermal generation asset with competitive cost
generation. In addition, AES Andres has an integrated operation
with a natural gas port, regasification, storage and gas pipeline
facilities. Meanwhile, EGE Haina benefits from a diversified energy
matrix which includes thermal and nonconventional renewable energy
assets. EGE Haina´s expected leverage for 2021 is 3.3x, similar to
AES Andres, which is expected to be close to 2.4x.
KEY ASSUMPTIONS
Fitch's key assumptions within the Agency's rating case for the
issuer include:
-- Energy Generation has an average yoy 5% growth between 2020-
2023;
-- Account receivables days of 108 with no material delays in
government payments;
-- Annual average capex of USD71 million in 2021-2023;
-- Dividend payment of USD105 million in 2021 and USD50 million
in 2022 and 2023.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action for EGE Haina could occur if the
Dominican Republic's sovereign ratings are upgraded or if the
electricity sector achieves financial sustainability through
proper policy implementation.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A negative rating action for EGE Haina would occur if the
Dominican Republic's sovereign ratings are downgraded; if
there is sustained deterioration in the reliability of
government transfers; or financial performance deteriorates to
the point of increasing the debt-to-EBITDA to 4.5x for a
sustained period.
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
EGE Haina maintains adequate liquidity, supported by its available
cash balance and its debt maturity terms. As of June of 2021, EGE
Haina had USD33 million in cash and an expected USD65 million cash
from operation for 2021, which compares favorably with its
short-term obligations of USD75 million.
The new issuances will strengthen Haina's liquidity as it will
extend most of the payments after 2030. Additionally, EGE Haina has
approximately USD114 million in available credit lines with
liquidity support in order to face volatility in the collection
profile of its accounts receivable or if in need of extra
liquidity.
ISSUER PROFILE
EGE Haina is one of the main electricity generation companies in
the Dominican Republic.
===========
M E X I C O
===========
SU CASITA 2007: Fitch Affirms 'CC' Rating on Class A Notes
----------------------------------------------------------
Fitch Ratings has affirmed the ratings of Su Casita Trust 2007's
class A and class B residential mortgage backed securities (RMBS):
-- Su Casita Trust Class A International Scale at 'CCsf';
-- Su Casita Trust Class A National Scale at 'CC(mex)vra';
-- Su Casita Trust Class B at 'D(mex)vra'.
KEY RATING DRIVERS
Transaction Coronavirus-Related Impact: Fitch expects the Mexican
economy to grow 2.8% in 2022 after the macroeconomic disruptions
caused by the coronavirus pandemic. Currently, the measures put in
place to limit the spread of the virus are less restrictive than a
year before, therefore no affectations are expected on collection
and REO monetization activities. Fitch increased its base case
assumption and applied a 1.37x to Mexican UDI loans expected
losses, however, the maximum stress for a 'AAA(mex)' rating is
maintained considering a rating through the cycle approach,
resulting in a multiple compression.
Deteriorated Asset Quality: As of October 2021, defaults +180 days
as a percentage of the original balance are at 13.2% (14.5% on
November 2020), slightly improving as restructuring activities
continue. However, significant deterioration of the portfolio
persists, the defaulted portfolio represents a high 63.8% of the
outstanding balance, increasing from 62.7% a year ago. LTM average
CPR is at 6.9% as of October 2021 (5.9% November 2020), as the
Mexican economy has improved and more borrowers prepaid their
mortgages.
As of November 2021, a total of 621 properties integrated the REO
inventory while 16 had been sold during the present year,
maintaining the decrease in repossessions observed in the last
review due social distancing measures and closing of courts that
delayed the outstanding processes. Average net recovery rate
calculated by Fitch as the sale price minus costs divided by the
outstanding balance is 30.9%. Considering the reported portfolio
characteristics as of October 2021, Fitch used its internal model
to calculate the total portfolio weighted average foreclosure
frequency (WAFF) and loss given default (LGD). For an
expected-case, the WAFF of the total outstanding loan portfolio
with adjusted assumptions due to coronavirus the WAFF is 84.5% and
the LGD 36.4%.
As of October 2021, portfolio remains pulverized with 2,485 loans,
74.3% UDI denominated and 25.7% MXN-denominated. Weighted average
seasoning is 160 months with a remaining term of 96 months and
annual interest rate of 10.3%. Reported current loan to value
(CLTV) is of 70.0%. Geographical concentration by top 3 states are
25% in Baja California, 13% in Estado de Mexico and in Nuevo Leon
and Chihuahua with 10% each, stable levels compared to the last
year.
Decreasing Overcollateralization (OC) Levels: As of October 2021,
the OC levels with defaults +180 days continue decreasing reaching
-148.1% and -234.5% for class A and class B, respectively, (-137.3%
and -213.8% as of October 2020, respectively). The senior bond
balance decreased to 20.7% as of October 2021 from 22.4% a year
ago, maintaining a stable amortization pace. Transaction structure
considers a dual waterfall mechanism, where interest collections
are used after expenses to pay interest and principal collections
are used for amortization. During the LTM, interest coverage ratio
was on average 0.45x, incomplete interest payments for class A are
made by the guarantor (MBIA, not rated by Fitch; hence no credit is
given to the notes ratings), while total unpaid interest for class
B as of October 2021 is MXN119.7 million.
Mitigated Payment Interruption Risk: Commingling and payment
interruption risks are mitigated given that collections are
directly received in a bank account on behalf of the issuing trust
F-430 at CI Banco., Institucion de Banca Multiple (A[mex], Stable),
hence there is no exposition to disruption in the collection
process. For the A notes, the third-party guarantor allows for
mitigation of default risk.
Adequate Servicing Activities: The portfolio has had three primary
servicers since its origination, with Adamantine Servicios S.A. de
C.V. (Adamantine) performing as the current primary servicer
(AAF3+(mex)/Negative). Nevertheless, special servicing has remained
adequate and in line with the current ratings. While servicing
activities have remained active in terms of restructuring of the
deteriorated loans and monetization of assets, portfolio has
continued deteriorating. Despite this, servicing activities remain
stable and uninterrupted.
Assumptions Subject to Mexico's IDR: Current assumptions were
derived considering the current macroeconomic conditions of Mexico
rated Local Currency Long-Term Issuer Default Rating (LC LT IDR) at
'BBB-' with a Stable Outlook. A change in the country LC LT IDR
could produce a recalibration of assumptions related to mortgage
portfolios according to the Latin America RMBS Rating Criteria.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Class A notes could be downgraded if the third-party guarantor
stopped making payments to the swap provider since class A's
interest and principal at maturity depends heavily on this
external credit protection.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Class A's rating maintains limited upgrade potential due to
current portfolio deterioration and available credit
enhancement (CE). As for class B notes, rating may be upgraded
if past due interest were to be paid in full and the
transaction exhibited sustained and consistent payment
capacity for its subordinated tranche.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven 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 seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The sources of information used to assess these ratings were
monthly collection and distribution reports provided by Adamantine
Servicios, S.A. de C.V. and The Bank of New York Mellon.
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.
===========
P A N A M A
===========
AVIANCA HOLDINGS: Fitch Withdraws 'D' Issuer Default Rating
-------------------------------------------------------------
Fitch Ratings has withdrawn Avianca Holdings S.A. (Avianca)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
of 'D', as well as those of its subsidiaries, due to the completion
of the company's debt restructuring plan. Fitch has also withdrawn
the 'C'/'RR6' ratings on Avianca's senior secured and unsecured
notes.
Fitch has withdrawn the ratings of Avianca for commercial reasons
as well as the lack of information on the reorganization of the
rated entity, which prevents us from taking a rating action at the
time of withdrawal.
KEY RATING DRIVERS
Key Rating Drivers do not apply as the company's ratings have been
withdrawn.
Following the withdrawal of international ratings for Avianca,
Fitch will no longer be providing the associated ESG Relevance
Scores.
DERIVATION SUMMARY
Avianca's 'D' rating reflected the company participation in the
voluntary reorganization process under Chapter 11.
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.
ISSUER PROFILE
Avianca is one of largest airline in Latin America, and it is the
market leader in the domestic market of Colombia (the third largest
domestic market in Latin America) and within Central America.
Avianca operates an extensive route network from its multi-hub
strategy in Colombia, Peru, and El Salvador (plus the focus markets
of Costa Rica and Ecuador). As of Sep. 30 2021, Avianca's total
fleet was 142 aircrafts (mainly composed by 115 Airbus).
ESG CONSIDERATIONS
Avianca Holdings S.A. has an ESG score of '4' for Labor Relations &
Practices reflecting significant pilot strikes that affected the
company, which has a negative impact on the credit profile, and is
relevant to the rating[s] in conjunction with other factors.
Avianca Holdings S.A. has an ESG score of '4' for Group Structure
due to its complex shareholder structure, which has a negative
impact on the credit profile, and is relevant to the rating[s] in
conjunction with other factors.
Fitch will no longer be providing the associated ESG Relevance
Scores for the issuer following the withdrawal of Avianca's
ratings.
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.
PANAMA CANAL RAILWAY: S&P Affirms 'BB-' ICR, Outlook Now Stable
---------------------------------------------------------------
S&P Global Ratings revised its outlook on Panama Canal Railway Co.
(PCRC) to stable from negative. At the same time, S&P affirmed its
'BB-' issuer credit and issue-level ratings on PCRC.
The stable outlook reflects S&P's expectation that PCRC will keep
debt to EBITDA below 2.0x and funds from operations (FFO) to debt
above 45% in 2022.
PCRC has fully recovered from the operating setback involving a
vessel colliding with the Gamboa Bridge that forced the railroad to
suspend operations in the third quarter of 2020 and resulted in a
spike in its leverage ratios. In the first nine months of 2021, the
company reported a solid operating performance transporting about
226,340 containers, which is 98% of the total freight volume that
we considered in our previous base case for 2021. S&P now forecast
PCRC to generate about $47.0 million in revenue in 2021--excluding
the proceeds from the business interruption insurance claim that
the company received in August 2021--well above its previous
expectations of about $36 million.
The solid operating performance is mainly due to high economic
activity in Panama's ports. Data from Autoridad Marítima de
Panamá (AMP) shows that in the first 10 months of 2021, Panama's
transship volumes grew 9.2% in terms of metric tons and 11.0% in
terms of the number of containers, compared with the same period
last year, which also had a good performance despite the COVID-19
outbreak. Since the beginning of the pandemic, some companies have
opted to unload in Panama's ports and redistribute shipments to
their final destinations, given its strategic location and because
Panama's ports have continue operating even through the most
restrictive phase of the pandemic, in contrast to other ports in
the region. PCRC's solid operating performance has translated into
a faster deleveraging than we anticipated, with adjusted debt to
EBITDA of about 1.9x and FFO to debt above 45% in last 12 months
ended Sept. 30, 2021, compared to 3.4x and 22.3%, respectively,
reported in the same period last year.
S&P said, "For the next 12 months, we expect PCRC's freight volume
to grow about 2%, in line with our expectations of GDP growth for
the for the region, and to maintain EBITDA margins of about 53%.
This should translate into EBITDA of $25 million-$26 million in the
next 12 months. The company's high cash business conversion model
and low capital expenditures (capex) should enable PCRC to generate
adjusted free operating cash flow (FOCF) of about $20 million,
which together with its flexible dividend distribution gives it
cushion to meet scheduled debt amortizations.
"We continue to evaluate PCRC's credit metrics on a gross basis, so
we expect the amortizing structure of its debt to help deleverage
its capital structure. We forecast adjusted debt to EBITDA of about
1.5x and FFO to debt approaching 60% by the end of 2022. We
recognize supply chain bottlenecks are a downside risk that could
result in lower freight volume, revenue, cash flows, and
potentially higher leverage. However, in our view PCRC has
sufficient cushion on its credit metrics to face this risk."
PCRC operates through an exclusive concession that was signed in
1998 for a 25-year period. The concession includes the option for
the company to renew for an additional 25 years, subject to PCRC
being in compliance with its obligations under the concession. Some
of these obligations are a minimum investment of $30 million, the
annual reporting of audited financials, and maintaining a
performance bond. In addition, it is also obligated to pay the
Panamanian government 10% of the gross income from activities
undertaken in the concession area. PCRC has indicated it has abided
with all of its obligations and is in the process of obtaining a
formal certification of compliance from the government, which
should happen in 2022.
S&P said, "We think PCRC's expertise in operating the concession
area and the investments made by the company, which as of November
2021 are above $160 million, are positive factors for the renewal.
As a result, we expect PCRC to renew the concession with no major
complications. We will closely monitor the renewal process to
evaluate any factor that may lead us to think the company could
fail to renew its concession agreement, although this is not in our
base case."
Recently, PCRC signed a new contract with A.P. Moller - Maersk A/S
(BBB+/Stable/--) and its subsidiary, Hamburg Süd (not rated) for a
duration of four years, ending in August 2025. This contract is key
for PCRC because we expect both companies to continue representing
more than 80% of the railroad's freight volume in the next 12-18
months. Maersk and PCRC have been operating together for more than
20 years (since 2001) and have built a strong relationship.
Historically, the average length of the contract has been two to
three years. However, in recent years, the contract's term has been
for only one year. In that sense, PCRC had been seeking since 2019
to resume a longer-term agreement, but negotiations were frozen
mainly because the companies hadn't agreed on the tariffs. S&P
said, "In our view, the four-year agreement reflects the importance
of the railroad for Maersk's operations at the Balboa port.
Moreover, we think the new long-term agreement will help PCRC
maintain solid profitability, given new tariffs, and provides more
cash flow visibility for the next few years. Still, in our view,
high customer concentration lessens PCRC's ability to withstand
economic stress or industry headwinds."
=====================
P U E R T O R I C O
=====================
REMLIW INC: Jan. 12, 2022 Plan Confirmation Hearing Set
-------------------------------------------------------
On Oct. 15, 2021, Debtors Remliw Inc. and Monte Idilio Inc. filed
with the U.S. Bankruptcy Court for the District of Puerto Rico a
Disclosure Statement referring to a Plan.
On Dec. 6, 2021, Judge Edward A. Godoy approved the Disclosure
Statement and ordered that:
* Jan. 12, 2022 at 1:30 PM via Microsoft Teams is the hearing
for the consideration of confirmation of the Plan and of such
objections as may be made to the confirmation of the Plan.
* Acceptances or rejections of the Plan may be filed in
writing by the holders of all claims on/or before 14 days prior to
the date of the hearing on confirmation of the Plan.
* Any objection to confirmation of the plan shall be filed
on/or before 14 days prior to the date of the hearing on
confirmation of the Plan.
* Objections to claims must be filed prior to the hearing on
confirmation.
A copy of the order dated Dec. 06, 2021, is available at
https://bit.ly/3rNdune from PacerMonitor.com at no charge.
About Remliw, Inc.
Remliw Inc. is a privately held company, which owns a motel located
at Carr 639 Km 2.1 Arecibo, Puerto Rico.
Remliw Inc. filed a voluntary Chapter 11 petition (Bankr. D.P.R.
Case No. 19-01179) on March 2, 2019. In the petition signed by
Wilmer Tacoronte Negron, administrator, the Debtor disclosed
$2,776,090 in total liabilities. Damaris Quinones Vargas, Esq., at
LCDA Damaris Quinones, is the Debtor's counsel.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: 'All Not Bright' at Downtown Stores
------------------------------------------------------
Andrea Perez-Sobers at Trinidad Express reports that it's another
bleak Christmas for some store owners in Downtown Port of Spain.
This is the second year store owners are saying things are very
slow, due to the Covid-19 pandemic, according to Trinidad Express.
The Express visited Excellent City Centre at Frederick Street, Port
of Spain, and there was not much foot traffic, as has been in
previous years, during the Christmas season, the report relays.
Owner of Glam Store Terry-Ann Gonzales said things are slow despite
two weeks to go until Christmas, along with many people out of
jobs, the report discloses.
"It's not what we were expecting, because from November to
December, there is usually a flow of people in the store. What is
keeping us afloat right now is people coming to buy one or two
dresses for small weddings, house dinners and birthdays. But to say
people are shopping for Christmas gifts, no. Also, the rise in
Covid cases can also be deterring persons from coming out to shop,"
Gonzales said, the report notes.
She noted that in anticipation of a better year than last year, she
paid an extra cost in air freight to get the clothes in the store
in time, and then the cases started rising day by day, the report
relates.
"In the morning you may get a couple people, but after lunch it is
very quiet in Excellent City Centre, and in November we started
paying full rent, so it's challenging to juggle less sales and
overhead expenses at this time. I'm really hopeful that next year
this virus vanishes, and business across the world can once again
thrive," Gonzales added, the report notes.
'Barely Surviving'
Valentine Browne, owner of Intellicom in the shopping centre,
described things as being very bleak, the report relays.
He lamented that his business is barely surviving, as it's
difficult to cover rent and salary costs, the report discloses.
"I sell computers and mobiles, but remember I'm also competing with
persons who are selling online for 50 per cent cheaper than me, as
they do not have rent and overhead expenses to deal with. Things
are really bad, and I do not know what the future holds for 2022 in
terms of my business," he said, the report relays.
Browne noted that his sales have been cut by 75 per cent, due to
the pandemic, the report notes.
"I think more help by the Government is also needed, because many
businesses did not get the assistance during this pandemic and the
loans the Government said were available, it was too much red tape
to qualify for such. Business owners are struggling," Browne
stressed, the report relays.
However, across at Anton's Gold Rush, it was a different scenario.
Manager Jodey Edmund told Express the outlet has been doing very
well leading up to Christmas, the report relates.
"Since the restrictions were lifted in August, Anton's has been
doing very well, as many people purchase jewelry for different
occasions, and around Christmas you find more people gravitating
towards jewelry, especially at Anton's," the report discloses.
Edmund is hopeful that sales continue to do well in 2022, and that
there will not be a fourth lockdown, the report relays.
And, at Trendy Kids on Frederick Street, manager Tammy Rowley
attributed the slow sales to the spike in Covid-19 cases, as she
said last year even though the virus was present, the sales were
not bad at all, the report notes.
"While we are getting sales, it's not like last year. I would have
thought that people would have come out in the morning early to
shop, but that is not happening. We still remain hopeful that in
the next two weeks, things pick up, as we have exciting toys and
clothes, and even though the shipping cost has doubled, we kept the
prices at a reasonable cost," Rowley added.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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