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/raid1/www/Hosts/bankrupt/TCRLA_Public/220303.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Thursday, March 3, 2022, Vol. 23, No. 39 Headlines B R A Z I L REDE D'OR: Fitch Affirms 'BB' Foreign Currency IDR, Outlook Neg. C A Y M A N I S L A N D S ATLAS FINANCIAL: Cayman Court OKs Scheme of Arrangement D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Aprocovici Concerned of Hike in Cement Price G R E N A D A GRENADA: Economy is Recovering, IMF Says J A M A I C A JAMAICA: Complaints Related to Utility Companies Increase, CAC Says P E R U TELEFONICA DEL PERU: Fitch Lowers LT IDRs to 'BB+', Outlook Neg. V E N E Z U E L A PETROLEOS DE VENEZUELA: Locals Accused of Looting Accounts X X X X X X X X [*] LATAM: Israel Commits $2MM Grant for Cybersecurity Initiative - - - - - =========== B R A Z I L =========== REDE D'OR: Fitch Affirms 'BB' Foreign Currency IDR, Outlook Neg. ---------------------------------------------------------------- Fitch Ratings has affirmed Rede D'Or Sao Luiz S.A.'s Long-Term Foreign Currency Issuer Default Rating (LT FC IDR) at 'BB', Long-Term Local Currency IDR (LT LC IDR) at 'BBB-' and National Long-Term Rating at 'AAA(bra)'. Fitch has also affirmed Rede D'Or's National Scale local debentures at 'AAA(bra)' and Rede D'Or Finance S.a.r.l.'s unsecured bonds issuance at 'BB'. The Rating Outlook for the LT FC IDR is Negative, while the Outlook for the LT LC IDR and the National LT Rating are Stable. The rating action follows Rede D'Or announcement on Feb. 23, 2022, that it has entered into an agreement with Sul America S.A. (SASA; BB-/Negative, AA-(bra)/Negative) to merge their operations through an all-shares transaction. Following the conclusion of the deal, SASA's shareholders should have 13.5% of Rede D'Or's capital. This agreement has been approved by their respective Boards of Directors. The transaction is subject to customary conditions to closing, including the approval of relevant regulatory authorities, and is expected to close by year-end. Fitch expects Rede D'Or to remain committed to a conservative credit profile while it navigates the healthcare industry consolidation in Brazil. KEY RATING DRIVERS Acquisition of Sul America: The acquisition is expected to enhance Rede D'Or business position within the healthcare industry in Brazil given SASA's strong brand and fourth largest position in the health insurance market. At least in the short to medium term, Rede D'Or is expected to maintain SASA as a separate entity, not fully integrated within the hospital businesses. This operation should bring opportunities to explore new services and products for the Rede D'or's group, while bringing relevant know-how in the insurance market. Rede D'Or has a good track record of execution in consolidating the hospital industry in Brazil; as such, despite Sul America being a new business, Fitch considers the execution risks to be manageable. Equity Deal No Impact on Leverage: The all-shares transaction and SASA's business scale and low leverage profile should have no impact on Rede D'Or net leverage on a pro forma basis. On pro forma basis, Fitch forecasts Rede D'Or consolidated net leverage to remain around 2.0x-2.3x during 2022 and 2023. Leading Business Position: Rede D'Or is the largest private hospital network in Brazil's fragmented and underserved hospital industry. The company owns 63 hospitals (10,098 beds - 8,761 operating beds) and is the administrator for another hospital as of Sept. 30, 2021. Rede D'Or has a solid business position and large scale of operations in its key markets, which serves as a key competitive advantage, allowing for lower fixed-costs and significant bargaining power with counterparties and the medical community. This scale, in addition to a strong brand, act as strong barriers to entry over the medium term. Country Ceiling Constrain: Rede D'Or's LT FC IDR is constrained by Brazil's 'BB' Country Ceiling since its operations are domiciled in Brazil. The Negative Outlook for the FC IDR is linked to the Outlook for Brazil's sovereign rating (BB-/Negative). The investment-grade LT LC IDR reflects the resilience of Rede D'Or's business to economic downturns, and the positive prospects over the longer term. Strong Insurance Player: SASA's ratings reflect the company's favorable business profile relative to other Brazilian insurers, very strong and resilient financial performance and earnings over cycles, and comfortable capitalization levels, partially offset by the weaknesses in the Brazilian insurance industry's profile and operating environment. The Negative Outlook reflect Brazil's sovereign rating's Negative Outlook. SASA's business profile has further consolidated its focus toward providing coverage for people-related risks, mainly through the health and dental segment, as well the life, accidents and pension business lines. During 2021, 92% of total premiums originated from the health and dental segment, in which SASA is the second-largest insurer, with a market share of more than 10%. Fitch considers SASA's capitalization and leverage remain in adequate levels at the end of 2021, with the financial leverage ratio (debt/(equity capital + debt)) at 29%. DERIVATION SUMMARY Rede D'Or's ratings reflect Brazil's private hospital industry's low business risk and its positive business fundamentals, adequate capital structure and strong financial flexibility. Compared to Auna S.A.A.'s (BB-/Stable), Rede D'Or has stronger business scale and capital structure. Rede D'Or compares well in terms of business scale and operating margins with the Brazilian non-for-profit hospital Sociedade Beneficente Israelita Brasileira Hospital Albert Einstein (Einstein; AAA(bra)/Stable), but Einstein has a track record of lower leverage. Compared to the Brazilian diagnostic and hospital competitor Diagnostico da America S.A (Dasa; AAA(bra)/Stable), Rede D'Or has lower business risk, due to much lower competitive pressures. Both companies have aggressive growth strategies. From a financial risk perspective, currently Rede D'Or has lower leverage and greater financial flexibility following the IPO. Rede D'Or, Auna, Einstein and Dasa all benefit from strong brands and reputation in the industry, which offer important competitive advantages and translate to strong relationships with counterparties. On a global scale, the dynamics of the Brazilian hospital industry and regulation are not directly comparable to other countries. Rede D'Or's operating margins and financial metrics are quite sound compared with other rated hospitals within Fitch's global universe. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for the issuer include (Rede D'Or): -- Revenue growth reflecting ongoing acquisitions and greenfield/brownfields projects; -- EBITDA margins of around 24%-26% (only Rede D'Or); -- Working capital needs to remain on historical levels; -- Average capex of BRL2 billion annually; -- BRL3 billion in acquisitions disbursements per year; -- A 25% minimum dividend payout. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Positive rating action for the LT FC IDR is limited by Brazil's 'BB' Country Ceiling; -- Upward rating potential for Rede D'Or's 'BBB-' LT LC IDR is limited by its ongoing aggressive growth strategy, through both organic and M&A movements, and its lack of geographic diversification, which leads to large exposure to the local economy in Brazil. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A change in management's strategy with regard to its conservative capital structure could also lead to a downgrade, as could a deterioration in the company's reputation and market position; -- EBITDA margins declining to below 20% or below 14% if Sul America is consolidated. -- Net leverage consistently above 2.5x; -- Deterioration of a sound liquidity position leading to refinancing risk exposure; -- Major legal contingencies that represent a disruption in the company's operations or a significant impact to its credit profile. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Rede D'Or has a track record of maintaining strong cash balances, with an average coverage of cash/short-term debt ratio of 6.4x during the last four years, and coverage of 7.1x as of Sept. 30, 2021. The company's financial flexibility is solid, and the company has shown good access to the local and cross- border capital markets. The company had BRL24.8 billion of debt (net of derivatives and obligations with acquisitions), as of Sept. 30, 2021, of which BRL1.8 billion is due in the short term. Rede D'Or's BRL13.2 billion of cash on hand is sufficient to support debt amortization up to mid-2025. Fitch expects Rede D'Or will maintain a strong liquidity position and its proactive approach in liability management to avoid exposure to refinancing risks. Around 33% of Rede D'Or debt, as of Sept. 30, 2021, was linked to the U.S. dollar, including USD1.7 billion senior unsecured notes due 2028-2030. The company utilizes hedging instruments to moderate currency mismatch risks, since revenues are nearly 100% originated in Brazil. Rede D'Or does not have committed credit facilities. ISSUER PROFILE Rede D'Or is the largest private hospital player in Brazil, with 63 hospitals totalling 8.8 thousand operational beds as of Sept. 30, 2021. The company has solid business positions, with ample scale differential in the states where it operates: Rio de Janeiro, Sao Paulo, Minas Gerais, Brasilia, Mato Grosso do Sul, Pernambuco, Paraiba, Bahia, Sergipe, Ceara, Maranhao, Federal District, Parana and Rio Grande do Sul. ESG CONSIDERATIONS Rede D'Or has an Environmental, Social and Corporate Governance (ESG) Score of '4' for Labor Relations & Practices due to labor/ tax litigation. The company registers their employees (mostly physicians) as service providers, not as Rede D'Or employees. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG Credit Relevance is a Score of '3'. 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 A Y M A N I S L A N D S =========================== ATLAS FINANCIAL: Cayman Court OKs Scheme of Arrangement ------------------------------------------------------- The Grand Court of the Cayman Islands on February 25, 2022, issued an order sanctioning and approving Atlas Financial Holdings, Inc.'s scheme of arrangement pursuant to section 86 of Part IV of the Companies Act (2021 Revision) of the Cayman Islands. The Scheme had been proposed by the Company and related to its restructuring. Prior to the Cayman Court's sanctioning of the Scheme, holders of 91.83% of the Company's 6.625% senior unsecured notes due 2022 in number and 99.34% par amount of those voting, voted in favor of the Scheme in a scheme meeting held on February 21, 2022. Pursuant to the Scheme, the Notes will be canceled and exchanged for new securities on or around April 26, 2022. The accrued but unpaid interest on the Notes as of the date the New Notes are issued will effectively be added onto the principal of the New Notes. The New Notes will be issued by the Company pursuant to a second supplemental indenture and will have a maturity date of April 27, 2027. The New Notes will be unsecured, have a par value of $25.00 per note and have an interest rate of 6.625% per annum, if paid in cash, and 7.25% per annum, if paid in kind, with a paid-in-kind option allowing the Company's to pay interest in kind for up to two years from the date the New Notes are issued. Additionally, the Company will have the option to redeem the New Notes after three years at the principal amount to be redeemed, plus any accrued but unpaid interest, with no penalty. The Company intends to utilize the extended maturity of the New Notes to execute on its technology and analytics driven managing general agency strategy, with the objective of creating value for all stakeholders. The New Notes are expected to be issued in reliance on the exemption to registration provided by Section 1145 of the Bankruptcy Code; however, the Company intends to use its best efforts to seek registration of the New Notes following the Restructuring. The Scheme is subject to certain conditions precedent (unless such conditions are waived), including that a U.S. Bankruptcy Court enters an order (or orders) recognizing the Cayman proceeding commenced before the Cayman Court and enforcing the Scheme within the territorial jurisdiction of the United States. In the coming days, the Company intends to commence the recognition proceeding under chapter 15 of the United States Bankruptcy Code by filing a petition to obtain the Recognition and Enforcement Order. The filing of the Recognition Petition will be made in accordance with the RSA. The filing of the Recognition Petition will not impact the Company's day-to-day operations. The Company is authorized to issue 800,000,001 ordinary voting common shares and, as of February 28, 2022, had 15,052,839 ordinary voting common shares issued and 14,797,334 ordinary voting common shares outstanding. The Scheme does not affect the authorized, issued or outstanding ordinary voting common shares of the Company. DLA Piper LLP (US) is acting as restructuring legal counsel to the Company, together with Conyers Dill & Pearman LLP retained as Cayman Islands local counsel, in connection with the Restructuring. A copy of the Sanctions Order is available at https://bit.ly/3M78dih About Atlas Financial Holdings Atlas Financial Holdings, Inc. -- http://www.atlas-fin.com/, http://www.agmiinsurance.com,and http://www.getopton.com/-- provides commercial automobile insurance in the United States, with a niche market orientation and focus on insurance for the "light" commercial automobile sector including taxi cabs and limousine/livery (including full-time transportation network company drivers) and business auto. Atlas' specialized infrastructure is designed to leverage analytics, expertise and technology to efficiently and profitably provide insurance solutions for independent contractors, owner operators and other smaller accounts. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Aprocovici Concerned of Hike in Cement Price ---------------------------------------------------------------- Dominican Today reports that the Association of Promoters and Home Builders of Cibao (Aprocovici) expressed its concern about the rise in the price of cement in the last two years. Landy Colón, president of the entity, assures that in the last 24 months this material for construction has increased by 35%, according to Dominican Today. He indicated that by March 2020 the average cost of a cement bag in hardware stores was RD$315. While for December 2021 its price was already oscillating at RD$425, the report notes. The head of the Cibao Home Builders and Promoters Association stated that, being a locally produced material, such an increase is considered unjustifiable, 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. 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, in December 2021, 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-'. The revision of the Outlook to Stable reflects the narrowing of Dominican Republic's government deficit and financing needs since Fitch's last review resulting in the stabilization of the government debt/GDP ratio, as well as the investment-driven economic momentum, reflected in the faster-than-expected economic recovery in 2021 that Fitch expects to carry into above-potential GDP growth during 2022 and 2023. Standard & Poor's, also in December 2021, revised its outlook on the Dominican Republic to stable from negative. S&P also affirmed its 'BB-' long-term foreign and local currency sovereign credit ratings and its 'B' short-term sovereign credit ratings. The stable outlook reflects S&P's expectation of continued favorable GDP growth and policy continuity over the next 12 to 18 months that will likely stabilize the government's debt burden, despite lack of progress with broader tax reforms, S&P said. A rapid economic recovery from the downturn because of the pandemic should mitigate external and fiscal risks. Moody's affirmed the Dominican Republic's long-term issuer and senior unsecured ratings at Ba3 and maintained the stable outlook in March 2021. ============= G R E N A D A ============= GRENADA: Economy is Recovering, IMF Says ---------------------------------------- The International Monetary Fund (IMF) issued a concluding statement of the 2022 Article IV Mission on Grenada. Concluding Statement Grenada's tourism-dependent economy was hit hard by the COVID-19 pandemic. The authorities' decisive policy response-supported by the policy space that was created from past fiscal prudence-has helped contain the spread of the virus, protect lives and livelihood, and pave the way for a gradual recovery. The immediate priorities are to accelerate vaccination and provide time-bound fiscal support. Once the recovery is firmly in place, fiscal buffers should be rebuilt -including by returning to the fiscal rules in 2023-while reprioritizing spending to make space for needed investments in building resilience to climate change. Prospects for growth and job creation would be strengthened by enhancing the domestic value added of tourism, including through strengthening agricultural sector linkages, investing in skills development and training, and shifting toward renewable energy. Grenada put in place a strong fiscal and public health response to the pandemic. While the government's early lockdown in the Spring of 2020 contained the number of COVID-19 cases, the impact on the economy was severe. Real GDP shrank by 14 percent in 2020 as tourism-related activities collapsed and in-person classes at Saint George's University were suspended. To counter the social and economic effects of the pandemic, the government suspended its fiscal rules in 2020-2021 in order to increase health, social, and capital expenditure. At the same time, loan moratoria and regulatory forbearance have supported credit provision and mitigated the impact of the pandemic on Grenada's financial system. The economy is recovering. Real GDP is estimated to have expanded by 5.6 percent in 2021. Stay-over tourist arrivals picked up strongly in the last months of 2021 but remained at only 25 percent of pre-crisis levels for the year as a whole. Construction and agriculture did, though, rebound faster. The fiscal balance excluding interest payments is estimated to have maintained a surplus of around 2 percent of GDP and public debt declined to 70 percent of GDP in 2021. Real GDP is projected to expand by 4.3 percent in 2022. Risks to the outlook are significant. The main risk is a more prolonged pandemic, with implications for tourism and offshore education. Accelerating the pace of vaccination would substantially mitigate this risk and lessen the potential for serious illness and loss of life that could be associated with new variants. Higher food and oil prices and prolonged supply chain disruption could lead to further increases in inflation, including through second-round effects. Tighter global financial conditions could reduce liquidity domestically and affect credit provision. Natural disasters continue to be an ever-present risk. On the positive side, the effective deployment of public investment and accelerating the introduction of growth-enhancing reforms would both support a stronger recovery. Supporting the Recovery and Building Resilience Continuing to provide fiscal support in 2022 will help strengthen the recovery and lessen the burden of the pandemic on vulnerable households. The authorities have rightly triggered the escape clause for the fiscal rules for the third year allowing the 2022 Budget to provide essential support to economic activity. Targeted social spending will assist the vulnerable and address potential scarring. Additionally, measures to provide fiscal relief have helped mitigate the impact on households of rising living costs. It will be important, though, to ensure these fiscal relief measures are temporary. The government should be able to return to the fiscal rules in 2023 while continuing to support sustainable development and resilience building. The fiscal rules have been instrumental in providing fiscal credibility and ensuring debt sustainability which gave the government significant room to maneuver when the pandemic hit. Recent increases in public investment-particularly those targeted at building resilience to climate change-should be sustained. It will be important to secure concessional financing and mobilize domestic resources to fund these outlays. Finally, in the coming years, the government should design and implement a comprehensive pension reform (including an increase in contributions and a phased raise of the retirement age) so as to improve the financial position of the pension system. There is scope to increase the efficiency of public spending. Efforts are underway to improve the implementation of public investment projects while reducing costs and lessening fiscal risks. Implementing the 2017 Public Service Management Reform Strategy would increase the quality of public service delivery. Finally, better targeting and enhanced coordination across ministries, including through a comprehensive database of beneficiaries, would increase the impact of the existing social assistance programs. The current conjuncture provides an opportunity to carefully reconsider the design of the fiscal framework. The framework should be centered on the medium-term debt anchor and could be simplified while ensuring a predictable return to the targeted debt path after an unanticipated shock. The framework should be embedded within a realistic and credible medium-term macro-fiscal framework. The roles and responsibilities of the Fiscal Responsibility Oversight Committee could be strengthened in assessing fiscal plans and performance and conditions for activating the escape clause. Finally, fiscal transparency would be enhanced by timely publishing audited financial statements of the public sector, audited COVID-related spending, and reports of state-owned enterprises (SOEs). Sustaining Growth and Creating Jobs Given a potentially long-lasting reduction in the demand for cruises, the government should aim to facilitate a shift in the tourism model toward stay-over tourists. Domestic value added of the tourism sector can be strengthened by working with local producers to align output with the demands of hotels and restaurants. A diversification of tourism revenues can be achieved by increasing the number of flights, leveraging the presence of Saint George's University to offer health services to visitors, and advancing investments in fishing and eco-tourism ventures. Implementing Grenada's Disaster Resilience Strategy should receive a high priority. The establishment of a public asset registry should help prioritize maintenance spending on critical resilient infrastructure. Working with the private sector to enforce building codes and broaden insurance coverage-particularly catastrophe risk insurance-will help in responding to natural disasters. The legislative framework for Disaster Risk Management Act should be finalized and a "risk map" for hydro-meteorological and geological hazards should be developed (to help guide scenario planning and disaster response). The Citizenship-by- Investment (CBI) Program inflows can be used to ramp up resilience building and developments in other sectors, such as agri-business and ICT, to promote growth and job creation. Grenada can reduce its carbon footprint and strengthen its external position by shifting to renewables and investing in energy conservation . This can be supported by regulatory adjustments, changes to construction standards, and incentives to invest in renewables. It will also be important to assess and mitigate any resulting impact of this energy transition on the poor and vulnerable. Bolstering Financial Stability The financial sector has weathered the pandemic well. Nonperforming loans in credit unions rose to 7.4 percent of total loans in end-2021 but those among banks remain low. However, there is a risk that asset quality may deteriorate, including as loan moratoria and regulatory forbearance expire. Banks have met the ECCB's recently-revised guidance on loss provisioning, but credit unions need to increase their provisioning. Given the country's vulnerability to natural disasters and climate change, there is a need to strengthen the monitoring of climate-related financial stability risks, particularly for the insurance sector. The oversight of credit unions needs to be strengthened. Despite being smaller than banks, credit unions have grown rapidly and are highly concentrated. The local financial regulator has appropriately enhanced the frequency and intensity of monitoring of credit unions. Efforts should continue to ensure there are routine stress tests, governance is strengthened, capital requirements are increased, and more granular data is collected and published. Continued efforts to strengthen the anti-monetary laundering and combating financing of terrorism (AML/CFT) framework will be critical to lessen risks to correspondent banking relationships. To strengthen financial integrity, Grenada has designated the ECCB as the competent AML/CFT authority for banks. Cooperation between Grenada Authority for the Regulation of Financial Institutions, Grenada's Financial Intelligence Unit, and the ECCB can be increased. Also, due diligence of the CBI program should remain robust. Data Issues Data quality and timeliness need to be enhanced to help inform government and private sector planning. Data provision is broadly adequate for surveillance but has important shortcomings. CARTAC has provided technical assistance on national accounts, consumer price index, and external sector statistics. There is room for further improvement, though, in the collection of high frequency indicators, publication of consolidated financial statements of SOEs, and preparation of balance of payments data. The compilation of statistics has been negatively affected by mobility restrictions during the pandemic as well as turnover in the statistics office. Rebuilding staffing levels and investing in training should be a priority going forward. ============= J A M A I C A ============= JAMAICA: Complaints Related to Utility Companies Increase, CAC Says ------------------------------------------------------------------- RJR News reports that the Consumer Affairs Commission (CAC) says 16.9 per cent of the complaints it receives relate to utility companies. CEO of the CAC, Dolsie Allen, reported that between April 2021 and last month, there was an uptick in complaints, according to RJR News. "And the basic problem is really service delivery in terms of broad band issues, the JPS, water commission, problems with their billing and in terms of service delivery also," she said while adding that the agency is looking to ramp up surveillance of the various service providers, the report notes. Meanwhile, the Fair Trading Commission is looking to conduct a widescale assessment of competition in the energy and electricity sectors, the report discloses. Head of the FTC, David Miller, says the overview started this fiscal year, and will intensify in coming months, the report relays. "Our examination of the electricity act concluded that although there are no competition concerns within the act itself,areas within the all island electricity license granted to the JPS, may raise competition concerns and therefore we may be examining licenses in the upcoming financial year," said Miller, who was speaking at a media briefing, the report adds. As reported in the Troubled Company Reporter-Latin America on Nov. 25, 2021, Moody's Investors Service has affirmed the Government of Jamaica's long-term issuer and senior unsecured ratings at B2. The senior unsecured shelf rating has also been affirmed at (P)B2. The outlook on the ratings remains stable. ======= P E R U ======= TELEFONICA DEL PERU: Fitch Lowers LT IDRs to 'BB+', Outlook Neg. ---------------------------------------------------------------- Fitch Ratings has downgraded all of Telefonica del Peru's S.A.A.'s (TdP) ratings to 'BB+' from 'BBB-'. The rating action applies to the Long Term (LT) Foreign Currency (FC) Issuer Default Rating (IDR), the LT Local Currency (LC) IDR, and the PEN1.7 billion notes due 2027. The Outlook on the IDRs remains Negative. The downgrade of TdP's ratings reflect a deterioration in the company's financial profile, resulting from an intense competitive environment and cost inflation pressures. While TdP benefits from its scale as the largest operator in Peru as well as its diversified product portfolio, the company's cash flow has weakened to a level more in line with non-investment-grade issuers. Improvement in the company's cash flow is dependent on successful cost reduction efforts, as revenue is not expected to recover to pre-pandemic levels in the near term. Increasing profitability along with an improvement in subscriber trends and clarity regarding tax liabilities could result in a stabilization of the ratings. KEY RATING DRIVERS Tax Liability Uncertainty: As of Dec. 31, 2021, the total tax liability on the company's balance sheet was PEN2.8 billion. Pre-pandemic, Fitch expected additional clarity from the Peruvian tax authority on the timing and size of the payments; however, this was largely put on pause as a result of the pandemic. At present, the timing and structure of the liability remain unclear and could have negative implications for the rating. Other Peruvian companies facing tax liabilities have reached negotiations that resulted in large cash outlfows with relatively short instalment periods. Any near-term, material payments would drastically pressure the company's financial profile. Weak Profitability, Negative FCF Trends: Fitch expects FCF to gradually improve over the rating horizon, but will remain negative and continue to weigh on the company's financial profile. Despite experiencing a partial recovery in mobile revenues off of pandemic lows, EBITDA margins continued to deteriorate in 2021 as cost inflation pressures have mounted. The company experienced flat yoy growth in revenues in its fixed segment in 2021, driven by slow rollout of its fiber network and intense competition. Fitch expects an acceleration of fiber rollout and low single digit ARPU growth to offset declining demand for fixed voice, generating revenue growth in the low single digits for the fixed business over the rating horizon. A more stable mobile competitive environment, growing demand for broadband, and cost containment efforts should result in modest EBITDA margin expansion over the rating horizon, albeit below historic levels and below that of investment-grade peers. Leverage Expected to Remain Elevated: EBITDA compression resulted in net debt/EBITDA of 3.1x in 2021. Fitch forecasts capital intensity of roughly 10% while margins will likely only improve marginally as competition spurs network investments, limiting FCF improvement. As a result, Fitch expects the company's net leverage to remain near 3.0x in the medium term as gradually improving EBITDA is offset by capex needs. Positively, proceeds from asset sales could mitigate the need for debt financing in the near term. Fitch forecasts net and gross leverage of around 3.0x and 3.2x, respectively, commensurate with a 'BB+' rating. A steadily improving Peruvian economy should help drive better operating performance, which will be offset by the high level of competition in mobile and fixed. Strong Market Shares and Diversification: TdP's business profile, particularly in terms of market share and diversification, remains solid. TdP is well-diversified between fixed and mobile service offerings despite market share losses in recent years due to intense competition, most notably on the mobile side as Entel and Bitel (Viettel Group) continue to attract customers. Fitch estimates TdP has a mobile subscriber share of approximately 30% and a fixed-line subscriber share of over 60%. The company plans to focus on expanding and improving its fixed services over the medium term, mainly through the acceleration of fiber deployment. Fitch expects marginal improvement in ARPUs on price increases as consumer spending improves and the product portfolio shifts to higher value services. Uncertain Prospects for Strategy: TDP has so far been largely unable to execute its growth strategy to offer quad-play services through its Movistar Total offering and the company has fallen behind competitors in postpaid mobile. Expanding 4G coverage and fiber deployment have failed to translate into sufficient revenue growth to offset cost pressures. In particular, stubbornly low broadband penetration in Peru and high competition have impacted the company's ability to profit from increased demand for data packages. Linkages with Telefonica S.A.: Fitch rates TdP on a standalone basis, and does not factor in any expectation of support from parent Telefonica SA (TEF, BBB/Stable). TEF has indicated its intention to divest its Hispano-American operations, including TdP, Telefonica Moviles Chile SA (BBB+/Stable), and Colombia Telecomunicaciones SA ESP (BBB-/Stable), and nonrated entities in Mexico, Argentina and elsewhere. Fitch rates TDP on a standalone basis, given the stronger financial profile of parent Telefonica SA relative to TdP, while legal, strategic, and operational incentives for support from the parent are deemed low. DERIVATION SUMMARY In comparison to other regional peers in the 'BBB' rating category, TDP's business position is toward the lower end of the category given its still-leading, but weakening market positions in the highly competitive Peruvian telecom industry. The company's financial profile has deteriorated since 2016 due to intense competition. This has caused a decline in operating margins and cash flow generation, which are more in line with 'BB' category issuers. Total debt/EBITDA at the company, above 3.5x, is at the upper end of investment grade. TdP's business position is roughly in line with sister company Telefonica Chile (BBB+/Stable) in terms of service diversification and market position, although TCH is stronger financially, supported by lower leverage and consistently positive FCF. TdP's business profile is comparable to Colombian peers UNE EPM Telecomunicaciones S.A. (Tigo UNE) (BBB-/Stable) and Colombia Telecomunicaciones S.A. E.S.P. (BBB-/Stable) with respect to market shares in fixed and mobile, although Tigo UNE and ColTel have higher margins and lower leverage metrics that are more in line with investment-grade issuers. TdP is rated one notch below competitor Empresa Nacional de Telecomunicaciones S.A. (Entel) (BBB/Stable), which was recently upgraded by Fitch as Entel has been able to capitalize on its improved scale in Peru and sustained its strong operational performance in Chile. Although TdP's large fixed-line presence supports its business position in Peru, Entel has a superior financial profile due to the continued strength in its Chilean operations and improving profitability metrics in Peru. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for the issuer include: -- Mobile revenues growing from PEN3.5 billion to PEN3.9 billion over the rating horizon; -- Low single-digit growth in mobile subscribers, with modest ARPU growth and handset sales resuming their pre-pandemic trend as consumer spending improves; -- Fixed revenues growing from PEN3.6 billion to PEN3.8 billion over the rating horizon; -- Continued double digit declines in fixed-line voice subscribers, partially offset by broadband and pay-tv subscribers growing in the low single digits, with fixed ARPUs growing in the low single digit percentage range; -- EBITDA margins gradually improving to around 13.5% with an improved pricing environment offset by mix-shift and cost inflation; -- Capital intensity in the low double-digits percentage range; -- Fitch does not factor in a payment of the tax liability in the base case, due to uncertainties. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Stabilization of the ratings is dependent on attaining greater clarity on manageability of tax liability payments and the company achieving stability in market position and margin expansion materially above forecasts. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Continued deterioration of margins and competitive position regardless of credit metrics; -- Total debt/EBITDA sustained above 3.5x or net debt/EBITDA above 3.0x; -- Materialization of large debt-funded tax liability payments could result in a multiple notch downgrade. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity Supports Flexibility: As of Dec. 31, 2021, the company had PEN299 million in short-term debt, and readily available cash of PEN610 million. TdP benefits from its manageable amortization schedule, with PEN2.1 billion of its PEN2.7 billion long-term debt, maturing beyond 2025. However, projected negative FCF implies that the company with continue to depend on asset sales to fund scheduled amortizations in 2022-2024 of around PEN250 million, in the absence of debt. The company's debt consists primarily of long-term bonds (PEN3.0 billion). TDP has a PEN1.7 billion note due 2027. The company's debt is completely payable in PEN, limiting FX risk for the company. ISSUER PROFILE Telefonica del Peru S.A.A. (TDP) is the largest integrated telecom operator in Peru in terms of revenue share. The company provides mobile and fixed-line telephony, broadband and Pay-TV though its Movistar brand, as well as IT solution services for corporate clients. TDP has leading market positions in the highly competitive Peruvian mobile and fixed markets, with subscriber market shares in each segment accounting for around 30% and 65%, respectively, of the total industry. However, the company's 30% mobile market share is a decline from 52% in 2015, caused by intense competition within Peru. 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. ================= V E N E Z U E L A ================= PETROLEOS DE VENEZUELA: Locals Accused of Looting Accounts ---------------------------------------------------------- Buenos Aires Times reports Venezuelans are accused of looting Petroleos de Venezuela, S.A.-held (PDVSA) accounts at Credit Suisse. More than 20 Venezuelans linked to corruption involving state energy firm PDVSA had "assets of more than US$273 million in 25 Credit Suisse accounts," a new investigation reveals, according to the report. Swiss banking group Credit Suisse Group managed accounts for clients involved in human rights abuses, corruption and drug-trafficking, according to reports based on leaked data on more than 18,000 accounts that together held more than US$100 billion. An anonymous whistleblower gave the information to German newspaper Sueddeutsche Zeitung, which shared the data with the Organised Crime and Corruption Reporting Project (OCCRP), a consortium of 47 media outlets including La Nacion, Infobae, Le Monde, The Guardian and Miami Herald, according to Buenos Aires Times. After months of reviewing data, La Nacion noted, journalists identified that "dozens of accounts belonged to corrupt politicians, convicted criminals, criminals under investigation by the justice system, spies, dictators and other shady characters," the report notes. The data covers accounts opened from the 1940s until well into the last decade, The New York Times wrote, the report relays. Among the individuals with accounts identified by the 'Suisse Secrets' investigation are a number of Venezuelan clients who have been accused of looting state oil company PDVSA, the report discloses. "It was determined that more than 20 Venezuelans" linked to corruption schemes involving PDVSA had "assets of more than US$273 million in 25 Credit Suisse accounts and possibly much more," reported Venezuelan investigative journalism websites Armando, the report relays. Info and Efecto Cocuyo. Most of these accounts were opened between 2004 and 2015, they reported, the report discloses. "Hundreds of millions of dollars flowed into the bank's accounts at a time when [Venezuela's] public coffers were being emptied," journalist Hugo Alcondra-Mon wrote for local daily La Nacion. "The bank kept the accounts of these Venezuelan clients open, even when their involvement in corruption cases had been exposed in the media," the report relays. According to Armando.Info, one of the Venezuelans identified with secret accounts at Credit Suisse is Nervis Villalobos, a former Venezuelan government official in the energy sector, who has been accused of money laundering and receiving bribes from foreign companies in search of contracts with PDVSA, the report discloses. Credit Suisse issued a statement soon after the stories were published, saying it "strongly rejects the allegations and insinuations about the bank's purposed business practices," the report relays. It said the information is "based on partial, inaccurate, or selective information taken out of context, resulting in tendentious interpretations of the bank's business conduct," the report notes. According to Armando.info, the bank did not respond to specific questions about Villalobos or other Venezuelans, although lawyers for the financial institution "rejected the assertion" that it "had inadequate due diligence procedures or facilitated financial crimes," the report says. "Credit Suisse does not tolerate or support tax evasion, money-laundering or other illegal activities, has strict control mechanisms in place, and reviews and develops its policies on an ongoing basis," the bank's law firm, Latham & Watkins LLP, said in a letter, the report relays. Former bank employees cited in the investigation said that while the bank handles "due diligence" on average clients, "when it comes to high-net-worth accounts, the bosses encourage everyone to look the other way," the report adds. About PDVSA Founded in 1976, Petroleos de Venezuela, S.A. (PDVSA) is the Venezuelan state-owned oil and natural gas company, which engages in exploration, production, refining and exporting oil as well as exploration and production of natural gas. It employs around 70,000 people and reported $48 billion in revenues in 2016. In May 2019, Moody's Investors Service withdrew all the ratings of Petroleos de Venezuela, S.A. including the senior unsecured and senior secured ratings due to insufficient information. At the time of withdrawal, the ratings were C and the outlook was stable. Citgo Petroleum Corporation (CITGO) is Venezuela's main foreign asset. CITGO is majority-owned by PDVSA. CITGO is a United States-based refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. However, CITGO formally cut ties with PDVSA at about February 2019 after U.S. sanctions were imposed on PDVSA. The sanctions are designed to curb oil revenues to the administration of President Nicolas Maduro and support for the Juan Guaido-headed party. =============== X X X X X X X X =============== [*] LATAM: Israel Commits $2MM Grant for Cybersecurity Initiative ----------------------------------------------------------------- The Government of Israel, through its Ministry of Finance (MoF) and the National Cyber Directorate (INCD) have joined the Inter-American Development Bank (IDB) to establish a new cybersecurity initiative. Through a $2 million contribution, Israel is helping strengthen cybersecurity capabilities in Latin America and the Caribbean (LAC). This contribution is an additional floor for the cybersecurity efforts carried out since 2016 by the IDB with Israeli support. Israeli former Cyber Director General Yigal Unna met with IDB President Claver-Carone in 2021 to explore opportunities to expand Israel's support for LAC's cybersecurity transformation which began in 2016. "Digital transformation can be the bedrock for historic development opportunities across Latin America and the Caribbean, but we must ensure the benefits of digitalization are adequately protected against inherent cyber risks by leveraging the best available cybersecurity measures and capabilities," said IDB President Mauricio Claver-Carone. "Thanks to Israel's financial support, unique expertise, and our expanding partnership, we will be better positioned to help our member countries apply top-tier standards to withstand the most difficult threats. Israel is a recognized global leader in cybersecurity and digital innovation-and we are grateful for this collaboration." "The cybersecurity initiative is paving the way for the safe and secure digitalization of Latin America and the Caribbean, one of the key elements for growth in the post-COVID era," stressed Matan Lev-Ari, Israel's representative at the IDB's Board. "The successful synergy between Israeli technology and the IDB presence in the region will provide governments in LAC state-of-the-art tools and knowledge to assess their cybersecurity needs and tailor effective policy, capacity building and protection strategies." "The Joint Fund of the Government of Israel and the Inter-American Development Bank is another pillar in Israel's commitment to Latin America and an example of the recognition of cybersecurity as a key element in development operations. Israel is a world leader in cybersecurity and as such, understands the importance of strong, reliable, and accessible cyber technology. Digitalization can assist in the efforts reducing inequality, improving transparency, and uprooting corruption, but require special safekeeping. Israel is a proud member of the Inter-American Development Bank that works tirelessly to assist in the development of Latin America and the Caribbean. The Fund is an additional component of the longstanding partnership between Israel and the IDB," said Avigdor Lieberman, Minister of Finance. Israel's funding will help build cyber capacity across the region by giving officials and policymakers access to the forefront practices and world-leading knowledge and expertise. The initiative builds on cybersecurity work done by the IDB and Israel since 2016 and aims to enhance cybersecurity at the national level, strengthen cybersecurity capabilities across different economic sectors providing critical services, and improve organizational capacity to boost cyber defenses. As countries in the region increasingly embrace digital technologies to accelerate development, strengthening cybersecurity becomes ever more essential. This is critical not just to safeguarding public services and protecting data, but also to safeguarding the rights of individual citizens in the digital sphere, protecting critical infrastructure, promoting trust in technology, and driving a safe, inclusive digital transformation. All of that, in turn, is critical to promoting digitalization throughout society. Digitalization is key to improving public services, enhancing education, empowering businesses and creating jobs. That is why it is a key pillar of Vision 2025, the IDB's blueprint for powering economic recovery and sustainable development. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *