/raid1/www/Hosts/bankrupt/TCRLA_Public/220315.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, March 15, 2022, Vol. 23, No. 47
Headlines
A R G E N T I N A
STONEWAY CAPITAL: Files Amendment to Disclosure Statement
B R A Z I L
BRAZIL: To End Port Costs in Tax Calculation to Cheapen Imports
C H I L E
LATAM AIRLINES: Unsecureds Call $1.3-Bil. Claim a Fake Loan
C O S T A R I C A
COSTA RICA: Fitch Affirms 'B' LT IDRs, Alters Outlook to Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Hotel Accommodation Preference Falls to 72%
DOMINICAN REPUBLIC: Russia-Ukraine Clash Impacts Trade, Tourism
M E X I C O
AXTEL SAB: Fitch Affirms 'BB' LT IDRs, Outlook Stable
P A R A G U A Y
PARAGUAY: IDB OKs $260M-Loan to Support National Development Plan
S U R I N A M E
SURINAME: Gets $50MM IDB Loan to Restore Fiscal Sustainability
V E N E Z U E L A
VENEZUELA: Battered Bolivar Plays Vital Role in Crisis-Hit Country
- - - - -
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A R G E N T I N A
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STONEWAY CAPITAL: Files Amendment to Disclosure Statement
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Stoneway Capital Ltd., and its Affiliated Debtors submitted a
Revised Disclosure Statement for a First Amended Joint Chapter 11
Plan dated March 7, 2022.
In order to give effect to the Plan and the Restructuring
Transactions in Canada, the CBCA Applicants commenced the CBCA
Proceedings with the intention of obtaining the Canadian Court's
approval of the CBCA Plan of Arrangement. The CBCA Applicants are
SCC and Stoneway Power, each of which is a Debtor, and Stoneway
Arrangeco, a non-Debtor.
Stoneway Arrangeco, which originally was incorporated under the
CBCA for the purposes of completing the implementation of the
corporate plan of arrangement (the "2020 CBCA Plan of Arrangement")
in the proceedings under the CBCA that previously had been
commenced by SCC and Stoneway Arrangeco in 2020 (the "2020 CBCA
Proceedings"), will be used to complete the current CBCA Plan of
Arrangement. Stoneway Arrangeco has no operations or liabilities
and is a wholly owned subsidiary of Stoneway Power.
In the CBCA Proceedings, the CBCA Applicants, among other things,
are seeking a release and discharge of the guarantees in respect of
the Senior Notes provided by the Argentine Operating Subsidiaries
(the "Argentine Notes Guarantees"). Additionally, in connection
with the implementation of the CBCA Plan of Arrangement and the
Restructuring Transactions, and in accordance with the
Restructuring Steps Plan, on the Effective Date, the Amalgamation
will occur. Prior to completion of the CBCA Plan of Arrangement,
Stoneway Power will change its jurisdiction of incorporation and
continue under the laws of the CBCA.
On March 24, 2022, the Canadian Court held an initial hearing in
the CBCA Proceedings (the "Initial CBCA Hearing"). At the
conclusion of the Initial CBCA Hearing, the Canadian Court granted
an interim order (the "CBCA Interim Order"), which, among other
things, gives effect to the Solicitation and Voting Procedures
appended to this Disclosure Statement, to the extent applicable,
for the purposes of soliciting votes cast for or against, as the
case may be, the resolution authorizing, adopting and approving the
CBCA Plan of Arrangement (the "Arrangement Resolution").
Additionally, the CBCA Interim Order, among other things,
authorizes the Notice and Claims Agent's distribution of the
solicitation packages prepared in connection with the Plan for
purposes of the CBCA Proceedings and the CBCA Plan of Arrangement,
and permits the shareholders of certain of the CBCA Applicants to
pass a resolution to approve the CBCA Plan of Arrangement.
Only Holders of Senior Notes Claims and Term Loan Facility Claims
will be entitled to vote on the CBCA Plan of Arrangement. [Under
the terms of the CBCA Interim Order, the Debtors and the CBCA
Applicants are not conducting a separate vote in respect of the
CBCA Plan of Arrangement. Rather, subject to the terms of the CBCA
Interim Order, votes cast by holders of Senior Notes Claims and
Term Loan Facility Claims in respect of the Plan will also
constitute votes for or against the Arrangement Resolution]. If the
CBCA Plan of Arrangement is approved by the requisite majority of
security holders entitled to vote on each respective plan, then the
CBCA Applicants will seek approval of the CBCA Plan of Arrangement
pursuant to a final order from the Canadian Court that will provide
for, among other things, the discharge of the Argentine Notes
Guarantees (the "CBCA Final Order"). A hearing to consider the CBCA
Final Order is currently scheduled to be heard by the Canadian
Court on May 3, 2022.
In connection with the CBCA Proceedings, WD Capital Markets, Inc.
("WDC"), an independent financial advisor to SCC and Stoneway
Power, has provided an opinion (the "Fairness Opinion") to the
boards of directors of SCC and Stoneway Power. The Fairness Opinion
provides that, subject to the assumptions, qualifications and
limitations, in the opinion of WDC: (i) the CBCA Plan of
Arrangement is fair, from a financial point of view, to SCC and
Stoneway Power; (ii) the Senior Noteholders, Term Loan Lenders and
holders of common shares of SCC and Stoneway Power would be in a
better position, from a financial point of view, under the CBCA
Plan of Arrangement, than if SCC and Stoneway Power, were
liquidated; and (iii) the consideration provided to the Senior
Noteholders and Term Loan Lenders under the CBCA Plan of
Arrangement is fair, from a financial point of view, to the Senior
Noteholders and Term Loan Lenders.
The Plan and the CBCA Plan of Arrangement are intended to be
implemented together. Accordingly, entry of the CBCA Final Order is
a condition precedent to the Effective Date of the Plan, and the
satisfaction of the conditions precedent for occurrence of the
Effective Date of the Plan is a condition precedent to
implementation of the CBCA Plan of Arrangement.
The Amended Disclosure Statement does not alter the proposed
treatment for unsecured creditors and the equity holder:
* Class 6 consists of General Unsecured Claims. Each Holder of
an Allowed General Unsecured Claim shall receive payment in full in
Cash within 90 days after the later of (i) the Effective Date and
(ii) the date such Allowed General Unsecured Claim comes due under
applicable law or in the ordinary course of business in accordance
with the terms and conditions of the particular transaction,
agreement, conduct, or judgment giving rise to such Allowed General
Unsecured Claim. This Class will receive a distribution of 100% of
their allowed claims.
* Class 7 consists of Parent Group Debtor General Unsecured
Claims. On the Effective Date, each Allowed Parent Group Debtor
General Unsecured Claim will be discharged and released and each
Holder of such Allowed Parent Group Debtor General Unsecured Claims
shall not receive or retain any distribution, property, or other
value on account of its Allowed Parent Group Debtor General
Unsecured Claim.
* Class 12 consists of Intercompany Interests and GRM
Interests. On the Effective Date, each Allowed Intercompany
Interest and GRM Interests shall be Reinstated. Any Intercompany
Interest not included among the Purchased Assets and any GRM
Interest shall not receive a distribution under the Plan and shall
be cancelled or liquidated pursuant to the Wind Down.
The Sale Transactions are an integral part of the Plan. Through the
Sale Transactions, the Buyer will acquire the business enterprise
of the Debtors in exchange for consideration to be distributed to
the Estates of the Debtors under the Plan.
SCC UK will be the issuer of the New Secured Notes and the New
Preferred Stock. As such, SCC UK will be responsible for satisfying
all of the obligations under the New Secured Notes and the New
Preferred Stock.
All Cash required for the payments to be made under the Plan shall
be obtained solely from (a) Excluded Cash and (b) any proceeds of
the BNYM Reserve Account Balance obtained by the Debtors, and, for
the avoidance of doubt, the Post-Sale Company shall have no
obligations to fund any amounts required to be paid under the
Plan.
Counsel to the Debtors:
Fredric Sosnick, Esq.
Ned S. Schodek
Jordan A. Wishnew
Shearman & Sterling, LLP
599 Lexington Avenue
New York, NY 10022
Tel: (212) 848-4000
Fax: (646) 848-8174
E-mail: fsosnick@shearman.com
ned.schodek@shearman.com
jordan.wishnew@shearman.com
About Stoneway Capital Corp.
Stoneway Capital Corporation is a limited corporation incorporated
in New Brunswick, Canada, formed for the purpose of owning and
operating, through its Argentine subsidiaries, power generation
projects that will provide electricity to the wholesale electricity
markets in Argentina. The Argentine subsidiaries operate four
power-generating plants in Argentina that provide electricity to
the wholesale electricity market in Argentina.
Stoneway is 100% owned by GRM Energy Investment Limited.
On Oct. 8, 2020, the Company commenced proceedings under the Canada
Business Corporations Act (the "CBCA"). The Debtors were well on
the way toward closing the consensual restructuring when on Dec. 4,
2020, the Argentine Supreme Court issued a decision in an ongoing
noise discharge dispute involving one of the Generation Facilities
located in Pilar, Argentina. The Argentine Supreme Court Decision
created significant uncertainty as it overturned a decision of the
federal appeals court in San Martin, Buenos Aires.
As a result of the looming expiration of the informal standstill
arrangement, the Debtors commenced chapter 11 cases in the U.S. in
order to put the automatic stay in place, maintain the status quo
pending resolution of the various issues in Argentina, and ensure
that neither the Indenture Trustee nor the Argentine Trustee takes
any action that could be detrimental or value destructive to the
Company.
Stoneway Capital Ltd. and five related entities, including Stoneway
Capital Corp., sought Chapter 11 bankruptcy protection (Bankr.
S.D.N.Y. Case No. 21-10646) on April 7, 2021. Stoneway estimated
liabilities of $1 billion to $10 billion and assets of $500 million
to $1 billion.
Judge James L. Garrity, Jr., oversees the cases.
The Debtors tapped Shearman & Sterling LLP as bankruptcy counsel,
Bennett Jones LLP as Canadian counsel, Lazard Freres & Co. LLC as
investment banker, and RSM Canada LLP as tax services provider.
Prime Clerk, LLC is the claims agent and administrative advisor.
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B R A Z I L
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BRAZIL: To End Port Costs in Tax Calculation to Cheapen Imports
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Brazil's government is planning to allow port costs to be excluded
from tax calculations to lower the cost of imports, three Economy
Ministry sources told Reuters, in a measure backed by the country's
industry lobby, globalinsolvency.com reports.
At the same time, the government is mulling cutting the tax levied
on shipping freight, two of the officials said, according to
globalinsolvency.com.
The moves are prompted by the surge in commodity prices and higher
shipping costs caused by the war in Ukraine, the report notes.
The expense of unloading containers and moving goods within port
areas is part of the base for calculating import and other taxes
such as the IPI industrial tax, the ICMS state tax and the
PIS/Cofins sales tax, the report relays.
The National Confederation of Industry (CNI), Brazil's top industry
lobby, said in a 2020 study that ending the inclusion of port
expenses in taxation on importers could add BRL134.5 billion to the
economy over 20 years by expanding the flow of trade and direct
investment in the country, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Standard & Poor's credit rating for Brazil stands at BB- with
stable outlook (April 2020). S&P's 'BB-/B' long-and short-term
foreign and local currency sovereign credit ratings for Brazil were
affirmed in December 2021 with stable outlook. 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
December 2021. 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: Unsecureds Call $1.3-Bil. Claim a Fake Loan
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Steven Church, writing for Bloomberg News, reports that a panel of
unsecured creditors of Latam Airlines Group SA said a unit of
Latam should be blocked from collecting $1.3 billion from another
subsidiary of the air carrier because the claim was never a valid
loan and would result in repaying international bondholders more
than they deserve.
The airline began a two-day court fight in New York on March 10,
2022, over a so-called intercompany claim owed by Latam's Peuco
Finance unit to a sister company also owned and controlled by Latin
America's biggest airline.
"This matters," the official committee of unsecured creditors said
in court papers filed March 4, 2022.
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 S T A R I C A
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COSTA RICA: Fitch Affirms 'B' LT IDRs, Alters Outlook to Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Costa Rica's Long-Term (LT) Foreign
Currency (FC) and Local Currency Issuer Default Ratings (IDR) at
'B' and revised the Rating Outlook to Stable from Negative.
KEY RATING DRIVERS
Revised Rating Outlook to Stable: The revision of Costa Rica's
Outlook to Stable from Negative reflects the significantly
better-than-expected improvements in the fiscal position and
economic activity following the 2020 pandemic-related shock.
Fitch's fiscal expectations have improved following a robust 2021
outturn, supported by strong revenue performance adherence to a
spending cap, while recent passage of the Public Employment Reform
supports compliance with the three-year USD1.8 billion IMF Extended
Fund Facility (EFF) approved in March 2021.
Fitch expects the better fiscal position, improved domestic
borrowing costs and the ongoing economic recovery will be
sufficient to place debt/GDP on gradual downward path, and that
this will continue under the new administration to be led by the
winner of April's second round of the presidential election. The
sharp rise in oil prices poses risks to Costa Rica as an energy
importer, as foreign reserves have been declining over the past
three years.
Improved Fiscal Position: The 2021 primary deficit of 0.3% of GDP
was 3.1 percentage points lower than 2020, and far below the EFF
target of -1.7%. Revenues benefitted from a robust economic
recovery, higher-than-expected yields from the 2018 reform and
one-offs (0.7% of GDP) that Fitch does not expect to be repeated
going forward. Expenditures balanced lower primary spending growth
in compliance with the fiscal rule while interest payments continue
to increase at a rapid pace. The total deficit reached 5.0% in 2021
from 8.0% in 2020.
Fiscal Improvement to Continue: Fitch expects the government will
reach a 0.4% of GDP primary surplus in 2022, beating the -0.3% EFF
target given the better-than-expected starting point, and that the
overall deficit will narrow to 4.5%. Fitch projects this
improvement will continue in coming years. These projections are
consistent with compliance with the fiscal rule (1.96% total
expenditure growth in 2022), but do not assume that revenue
measures included in the budget will be implemented due to lack of
political appetite.
The fiscal rule has been pivotal in the fiscal consolidation
efforts and its strict implementation will be essential for further
fiscal consolidation. The rule caps spending growth to fractions of
average nominal GDP growth of the past four years. Compliance with
the spending cap could be politically difficult, particularly as
the fiscal rule becomes more stringent given that central
government debt to GDP is above 60%. Furthermore, if revenues
continue to outperform, the perceived concern over the fiscal
situation could diminish.
Congress Approves Public Employment Reform: The legislative
assembly approved in early March the Public Employment Law, a key
EFF structural benchmark. The government estimates savings of 0.7%
of GDP per year in reduced central government wages during the
first years of implementation. The reform creates a single pay
scale across the public sector and eliminates salary components
including bonuses and annuities. Reducing the large wage bill
facilitates compliance with the fiscal rule, avoiding the need to
severely reduce discretionary spending. Wages account for one-third
of central government spending and absorbed roughly 40% of central
government revenues in 2021.
Uneven Compliance with IMF Program: The IMF reached staff-level
agreement (pending IMF's Executive Board approval) in March 2022
for the first and second reviews of the EFF program, originally
scheduled for October 2021 and March 2022. The IMF will disburse
close to USD300 million if approved by the Fund board. The
government had met all the quantitative targets but staff-level
agreement had not been reached due to delays in the recently
approved Public Employment Law.
The 2021 fiscal outperformance means a better starting point to
meet the IMF program fiscal targets, but does not obviate the
program's revenue measures pending approval. Increasing opposition
from the presidential candidates to these measures pose some risks
to the EFF program and could lead to renegotiation of adjustment
measures. The next EFF program revision is scheduled for October
2022.
Debt Reduction: Fitch anticipates general government debt stabilize
in 2022 and gradually decline over the coming five years, absent
any deviation from the projected consolidation path, reflecting a
better primary balance and a real interest rate-to-growth
differential that has significantly improved. Full implementation
of fiscal measures included in the IMF program would enable faster
debt/GDP reduction. The central government debt burden rose to
68.3% of estimated GDP by 2021 from 67.2% in 2020 and 56.4% in
2019. Fitch estimates general government debt (net of social
security holdings) reached 61.3% of GDP in 2021, below the current
'B' median of 68% this year.
Improved Financing Conditions: Fiscal consolidation and approval of
the IMF program boosted confidence and lowered domestic borrowing
costs. Five-year local market yields around 5.3% at end-2021 were
280bp lower than in 2021 and 580bp lower than a peak in early 2019
when concerns around the fiscal situation were high. Lower
borrowing costs will ease fast rising government interest payments;
however, non-compliance with the IMF program may result in lower
multilateral lending access. Monetary policy tightening and
heightened global financial volatility could negatively impact
domestic financial conditions, especially if external financing
options remain limited.
Presidential Elections: Presidential elections on Feb. 6, 2022 saw
former president Jose Maria Figueres of the center-left PLN win
with 27.3% of the vote, followed by former finance minister Rodrigo
Chaves of the centrist PSD party with 16.7%. Figueres and Chaves
will contest a second-round vote scheduled for April 3, 2022. Both
candidates agree on the need for fiscal consolidation and the EFF
program. However, both have indicated less appetite for revenue
measures (not formally required) but important for meeting
medium-term fiscal targets.
Political Gridlock Remains: Regardless of the second-round result,
the next president will have to rely on political alliances to
secure approval of any legislation, as the congressional election
results divided the 57 seats among six political parties. PLN
secured the most seats (18) while the PSD secured only nine,
leaving both well short of a simple majority and of the two-thirds
supermajority needed to approve external funding (including
multilateral lending).
Better-than-expected economic recovery: Fitch estimates real GDP
grew 7.6% in 2021 after a 4.1% contraction in 2020. Economic
activity benefitted from robust external demand that fueled major
growth in the countries high-tech free trade zones, and increasing
business confidence, lifting private investment. Improved labour
market conditions led consumption to recover, although unemployment
remains elevated at 13.1% as of January 2022.
Fitch projects growth of 3.7% in 2022 and 3.5% in 2023 as the
output gap continues to close. Continued improvement in labour
market conditions will favour consumption, although this will be
offset by higher inflation given rising energy prices. External
demand will remain supportive, but on a lesser scale than in 2021.
Russia's invasion of Ukraine will lead to higher inflationary
pressures and current account deficit given the rising fuel
prices.
Credit Fundamentals: Costa Rica's 'B' rating reflects weaknesses in
public finances and political gridlock that has prevented timely
passage of reforms addressing these and constrained the
government's external financing capacity. This is counterbalanced
by structural strengths relative to the 'B' category with strong
governance, higher economic development and per-capita income. An
economic model centered on high-value-added manufacturing and
service activities has supported macroeconomic stability.
ESG -- Governance: Costa Rica has an ESG Relevance Score of '5'/'5'
[+] for Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in Fitch's proprietary Sovereign Rating
Model. Costa Rica has a high WBGI ranking at 73, reflecting its
long track record of stable and peaceful political transitions,
well established rights for participation in the political process,
strong institutional capacity, effective rule of law and a low
level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Public Finances: Renewed fiscal deterioration that increases
concerns about debt sustainability, for example due to failure
to adhere to the IMF program or the fiscal rule, a weaker
economic recovery, or increase in borrowing costs;
-- External: Evidence of external liquidity stress; for example,
a significant sharp decline of international reserves;
-- Public Finances: Deterioration in government financing
flexibility, demonstrated for example by a sharp rise in
borrowing costs.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Public Finances: Greater confidence in the political
commitment to maintain the fiscal consolidation that puts the
trajectory of the government's debt/GDP ratio on sustained
downward path;
-- Structural: Reduction of political fragmentation that supports
more cohesive policy making, for example, a significant
improvement in the relationship between the executive branch
and the legislative assembly;
-- Public Finances: Sustained improvement in government financing
flexibility and the cost of borrowing.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary soverign rating model (SRM) assigns Costa Rica
a score equivalent to a rating of 'BBB-' on the LT FC IDR scale.
In accordance with its rating criteria, Fitch's sovereign rating
committee decided to adjust the rating indicated by the SRM by more
than the usual maximum range of +/- three notches because of the
extent of Costa Rica's sharply rising debt burden and fiscal budget
financing constraints leading to concerns about debt
sustainability, as well as the emergence of macroeconomic
vulnerabilities.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final LT FC IDR by applying its qualitative
overlay (QO), relative to SRM data and output, as follows:
-- Structural: -2 notches; reflects a long track record of
institutional gridlock that has hindered timely progress on
necessary reforms and external financing, which is not fully
captured in the high governance scores that feed into the SRM.
Fitch added a -1 notch on structural given the continued
fragmented Congressional make-up that hinders timely passage
of reform and external financing (with a 2/3 majority needed
for approval) that is not adequately captured in the SRM given
Costa Rica's relatively high governance indicators.
-- Macro: Fitch has removed the -1 notch on macro reflecting
greater policy consistency in the context of fiscal
improvement and better domestic financing conditions.
-- Fiscal: -2 notches; reflects the severe constraints on fiscal
financing flexibility and continuing risks over wide fiscal
deficits, notwithstanding the more positive financing outlook
underpinned by the IMF EFF program. Central government fiscal
metrics are much weaker than the general government metrics
that feed into the SRM, signaling greater fiscal financing and
rigidity challenges.
-- External Finances: -1 notch; reflects the institutional
gridlock that led to periodic barriers to external bond
issuance, and reserve adequacy metrics that are low in the
context of a managed exchange rate and high financial
dollarization. Absent authorization for further external bond
issuances, the government would be a net buyer of foreign
exchange rather than a supplier, increasing external
vulnerabilities.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Costa Rica has an ESG Relevance Score of '5' for Political
Stability and Rights, as WBGIs have the highest weight in Fitch's
SRM, are highly relevant to the rating and a key rating driver with
a high weight. As institutional gridlock has hindered progress on
fiscal reforms impacting Costa Rica's sovereign rating, this has a
negative impact on the credit profile.
Costa Rica has an ESG Relevance Score of '5' [+] for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption, as
WBGIs have the highest weight in Fitch's SRM, and are therefore
highly relevant to the rating and are a key rating driver with a
high weight.
Costa Rica has an ESG Relevance Score of '4' [+] for Human Rights
and Political Freedoms, as strong social stability and voice and
accountability are reflected in the WBGIs that have the highest
weight in the SRM. They are relevant to the rating and a rating
driver.
Costa Rica has an ESG Relevance Score of '4' [+] for Creditor
Rights, as willingness to service and repay debt is relevant to the
rating and is a rating driver for Costa Rica, as for all
sovereigns.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, is a score of '3'. This means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or to the way in which they
are being managed by the entity.
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D O M I N I C A N R E P U B L I C
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DOMINICAN REPUBLIC: Hotel Accommodation Preference Falls to 72%
---------------------------------------------------------------
Dominican Today reports that from 2015, and probably much further
back, until 2019, more than 90% of tourists who came to the
Dominican Republic preferred hotel establishments to stay. However,
in the last three years, that trend has changed.
Between 2015 and 2019, without interruption, almost all
non-resident foreigners in the country stayed in hotels, but as of
2020, when the coronavirus pandemic began to affect the national
territory, the number began to decline, according to Dominican
Today.
In 2020, 83.08% of tourists used hotel establishments as their
accommodation option; in 2021, 71.5% and in January of 2022, 72.0%,
according to the reports of the tourist flow of the Central Bank,
the report notes.
These numbers show that hotel accommodation is showing a downward
trend, which could be related to the economic effects of the
pandemic or the rise of digital accommodation platforms such as
Airbnb, which offer multiple options to stay at different prices,
the report relays.
Most foreign tourists who visit the Dominican Republic are
satisfied with the services they receive in hotels; about 70% rated
them as excellent or very good in 2020, according to the "Survey of
opinion, attitude, and motivation to non-resident foreigners" of
the Central Bank, the report discloses.
The majority (about 68%) were also satisfied with hotel facilities
and prices, the report relays. This means that changes in
travelers' preferences are not due to dissatisfaction with hotels,
most of which are characterized as offering all-inclusive (food,
drinks, beds, entertainment, etc.), 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.
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.
DOMINICAN REPUBLIC: Russia-Ukraine Clash Impacts Trade, Tourism
---------------------------------------------------------------
Dominican Today reports that the Russia-Ukraine conflict has a
direct and immediate impact on the trade and tourism sectors in the
Dominican Republic.
In the case of tourism, if the situation continues, the Caribbean
country would stop receiving 22,467 tourists each month from Russia
and Ukraine, according to Dominican Today.
According to an analysis by the Export and Investment Center of the
Dominican Republic (ProDominicana), shared at the request of Diario
Libre, the country would lose US$33.7 million per month for tourism
from those countries and, if the conflict extends for six months,
it would be US$202.2 million, the report notes.
Likewise, it estimates that the Dominican Republic would stop
receiving US$1.12 million per day and in one week it would stop
receiving US$8.02 million, the report relays.
ProDominicana explains that, taking the results of 2021 as a
pattern, it is observed that visits from Russia were 183,700
tourists and from Ukraine 85,912 visitors, the report says. In
general, the visitors from the two nations were 269,612 tourists,
the report notes.
"We have considered an average expenditure of US$150 per tourist
per night and an average stay of 10 nights for each tourist. With
these values, it is estimated that the income generated by tourism
from those countries for the year 2021 was US$404.4 million. 68.1%
would be from Russia with US$275.5 million while 31.9% would be
from Ukraine with US$128.85 million," 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.
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.
===========
M E X I C O
===========
AXTEL SAB: Fitch Affirms 'BB' LT IDRs, Outlook Stable
-----------------------------------------------------
Fitch Ratings has affirmed Axtel, S.A.B de C.V.'s (Axtel) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB'.
Fitch has also affirmed Axtel's National Long-Term Rating at
'A(mex)' and the 2024 USD senior unsecured notes at 'BB'. The
Rating Outlook is Stable.
The ratings reflect the company's positive FCF and steady
deleveraging. Axtel has cut its gross debt from MXN20 billion at YE
2017 to MXN13 billion at YE 2021. The ratings are tempered by
Axtel's relatively small operating scale. Axtel has reorganized
itself into a service unit (Alestra) and an infrastructure unit
(Axtel Networks) and has been exploring a sale of both businesses.
Fitch does not include a sale of either unit in its base case, due
to the uncertainties surrounding valuation and timing. Fitch
expects proceeds from a sale would be used to pay down Axtel's
debt, including the outstanding USD440 million notes due 2024.
KEY RATING DRIVERS
Improving Financial Structure: In 2021, Axtel's net leverage ticked
up slightly, stemming from lower revenues as certain government
contracts expired and the implementation of new enterprise
contracts was delayed as a result of the global semiconductor
shortage. However, the company continued to reduce its debt levels
in 2021, and Fitch expects Axtel's leverage metrics to continue
improving, due to stable profitability and moderate levels of
capex. Net debt/EBITDA is projected to improve to 3.0x in 2022 and
continue to gradually decline to below 2.5x by 2024, consistent
with Fitch's rating sensitivity and expectations.
Stable Profitability, Cash Flows: Axtel consistently generates
EBITDA margins of roughly 30%, and Fitch expects EBITDA margins to
remain steady over the next several years as demands for the
company's data-driven connectivity, IT solutions and infrastructure
services continue to grow. Combined with manageable cash taxes and
declining interest payments, Fitch expects operating cash flows to
grow over the rating horizon. Fitch expects capital intensity to be
in the range of 15%-16% over the rating horizon, which should
enable the company to generate positive FCF of over MXN500 million
in 2022 and growing to over MXN900 million by 2025.
Sticky Consumers, Steady Revenues: Axtel's ratings benefit from the
company's relatively steady cash flows in both services and
infrastructure. The business model supports stable cash flow due to
the recurrent nature of the business and the relatively high costs
to switch to another provider. There is a secular decline in voice
revenues, but Fitch expects growth in managed networks and data to
more than offset this decline in the medium-to-long-term.
Fitch expects the company's core telecom and IT services business
to resume low-to-mid-single-digit growth in 2022. The
infrastructure business is expected to grow at faster rates over
the medium-term, though the overall prospects are unclear, given
the dynamic competitive environment.
Small Scale in Competitive Market: Axtel operates in a competitive
landscape that will constrain its ratings to the 'BB' category. In
fixed enterprise telecom services, Axtel is the second largest
participant, with approximately 20% market share, competing with
Telefonos de Mexico S.A.B. de C.V. (Telmex; A-/Positive), which has
a market share above 60%. Axtel's market share is smaller in IT
services, but the competitive position is more balanced, given the
fragmented nature of that segment.
Strategic Refocusing: The separation of the business into the
services and infrastructure units is complete. The infrastructure
unit provides connectivity and internet services to wholesale
customers. A neutral infrastructure provider can aggregate
wholesale telecom demand, providing a cost-effective solution to
carriers, which face pressure to profitably expand network coverage
and capacity. As carriers plan for 5G deployment, Axtel hopes to
capitalize on increased demand for fiber to the tower.
Axtel has been exploring a sale of one or both units since 2020;
Fitch does not include any sale in its base case. Fitch expects
that, were a sale to occur, Axtel would likely prepay its debt,
including the U.S. dollar notes, with the remainder going to parent
Alfa S.A.B. de C.V. (BBB-/Stable). If the company is sold
piecemeal, Fitch expects Axtel Networks would carry higher debt and
leverage, supported by the stability of the infrastructure model.
Parent/Subsidiary Linkages with Alfa: A Parent-Subsidiary Linkage
exists between Alfa S.A.B. de C.V. (Alfa; BBB-/Stable) and Axtel,
as Alfa owns 52% of Axtel. Alfa exhibits a stronger standalone
credit profile with its diversified business portfolio, strong
market position in its industries, and geographic diversification
with a global footprint.
Fitch assesses the legal, strategic, and operational incentives of
Alfa toward Axtel to be low. There are no cross-default ties or
guarantees between the two companies. Axtel is the smallest of
Alfa's subsidiaries (~5% of Alfa's total consolidated revenues) and
does not have significant operational or treasurial integration
with Alfa. Notably, Alfa plans to divest Axtel, underscoring the
weak strategic ties between the parent and subsidiary.
DERIVATION SUMMARY
Axtel has lower financial leverage compared with WOM S.A. (WOM;
BB-/Stable). Axtel and WOM are relatively undiversified carriers,
both service-wise and geographically. WOM benefits from the
relative health of the Chilean operating environment, as well as
the more balanced market, while Axtel's revenues are exposed to the
slowing Mexican economy. Axtel's relatively stable B2B service
business consistently has generated positive FCF, whereas WOM's FCF
is frequently negative.
Axtel has less service and geographical diversification than Cable
& Wireless Communications Limited (CWC; BB-/Stable). CWC also has
greater scale and a stronger market position, as it operates
primarily in a series of duopoly markets, which supports stronger
EBITDA margins than Axtel's. However, CWC exhibits a weaker
financial profile.
Axtel's business profile could be considered similar to Empresa de
Telecomunicaciones de Bogota's (ETB, BB+/Stable), in that both are
small scale undiversified fixed-line providers. ETB benefits from
lower net leverage. Both companies are undergoing transitions, as
ETB attempts to reorient its product portfolio around fiber-based
solutions.
Relative to CWC's sister company, VTR Finance BV (BB-/Stable),
Axtel has a more comparable business position, given the two
companies' scale, fixed-line telecom focus, and lack of geographic,
product and service diversification. While VTR has a stronger
competitive position as a leader in the Chilean broadband and
pay-TV market, Axtel benefits from lower leverage than VTR.
Axtel's ratings are not influenced by Mexico's Country Ceiling
(BBB+). Fitch rates Axtel on a standalone basis, and does not give
any uplift due to parent/subsidiary linkages with Alfa S.A.B. de
C.V. (BBB-/Stable).
KEY ASSUMPTIONS
-- Revenues of MXN12.0 billion in 2022, growing 3%-4% thereafter;
-- EBITDA margins compressing slightly in 2022 due to mix shift,
remaining steady thereafter;
-- Stable working capital, with cash taxes of approximately
MXN60-MXN100 million;
-- Capital intensity of 15%-16%;
-- No dividends but some opportunistic share repurchases;
-- The sales of one or both units are not included in Fitch's
base case.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Total Debt/EBITDA below 2.5x or net debt/EBITDA below 2.0x,
supported by stable and growing EBITDA margins and cash flow.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Total Debt/EBITDA sustained above 3.5 or net debt/EBITDA
sustained above 3.0x;
-- Prolonged deterioration in revenues and EBITDA resulting from
macroeconomic headwinds and competitive pressures;
-- Large shareholder distributions preventing continued
deleveraging.
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: As of Dec. 31, 2021, Axtel had readily
available cash and equivalents of MXN1.6 billion, against
short-term debt of MXN252 million. In March 2021, Axtel prepaid
USD60 million of its USD500 million senior notes, due 2024, leaving
USD440 million in principal remaining. Axtel's liquidity is
supported by a manageable amortization schedule, positive FCF and a
revolving credit facility, although the company will need to
refinance its 2024 senior notes to manage its liquidity needs.
ISSUER PROFILE
Axtel S.A.B. de C.V. (BB/Stable) is a Mexican provider of
telecommunications and information technology (IT) services to
corporate and government clients. Axtel is unique among Fitch-rated
telecoms companies in Latin America, which tend to derive most of
their revenue from retail consumers.
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 R A G U A Y
===============
PARAGUAY: IDB OKs $260M-Loan to Support National Development Plan
-----------------------------------------------------------------
The Inter-American Development Bank (IDB) has approved a $260
million loan to support Paraguay's National Development Plan
through the expansion of the electricity transmission system, which
will provide the country with a sustainable, reliable and efficient
energy supply.
With this loan, Paraguay will boost the capacity of its National
Interconnected System to satisfy short and medium term demand,
particularly in the central and metropolitan systems. The program
will also increase the electricity service's reliability and
efficiency by reducing transmission system losses and boosting
women's participation in leadership positions.
Paraguay's electricity service currently serves 99.6 percent of the
population, but points of power generation are very far from
consumption hubs and the current transmission capacity is not
enough to secure a reliable future supply given the forecasted
short and medium term demand.
The loan is in line with Paraguay's 2030 National Development Plan,
which aims to enhance the population's well-being by raising the
quality of public services, particularly with the strategic focus
on inclusive economic growth and the crosscutting area of
competitiveness and innovation.
It is also consistent with Vision 2025, the IDB Group's roadmap
towards recovering sustainable and inclusive growth in Latin
America and the Caribbean in the key areas of digitalization,
climate change action, and gender and inclusion.
This is the second operation of a conditional credit line for
investment projects for the "Sustainable Energy Investment Program
in Paraguay," and will be available over a 12-year period in the
amount of $400 million.
As reported in the Troubled Company Reporter-Latin America on Jan.
25, 2022, S&P Global Ratings assigned its 'BB' issue rating to
Paraguay's US$500.6 million notes due 2033, at a 3.849% interest
rate. The rating on the notes is the same as the long-term foreign
currency sovereign credit rating on Paraguay (BB/Stable/B).
===============
S U R I N A M E
===============
SURINAME: Gets $50MM IDB Loan to Restore Fiscal Sustainability
--------------------------------------------------------------
Suriname will implement a program to restore its macroeconomic and
fiscal sustainability with a $50 million loan approved by the
Inter-American Development Bank (IDB).
The loan will help Suriname to implement their economic reform
programs in which they address the country's macroeconomic and
fiscal challenges while allowing the country to continue servicing
its debt.
The IDB loan is structured as a Special Development Financing
(SDL), an IDB financial instrument for budget support to address
macroeconomic crises and preserve social progress and economic
growth in member countries. This latest IDB loan is part of a
financial package the Bank is providing Suriname to implement
economic reforms and it complements financial and technical
assistance being provided by the International Monetary Fund
(IMF).
The loan is supporting enactment of budget measures to strengthen
fiscal sustainability and reforms to promote monetary and financial
stability and strengthen monetary policy independence. The country
is also strengthening its governance framework to reduce its
vulnerability to corruption. Such reforms are expected to help the
country slow inflation and reduce its level of indebtedness in the
next two years. This operation is in line with Vision 2025 -
Reinvesting in the Americas: A Decade of Opportunities, created by
the IDB to achieve recovery and inclusive growth in Latin America
and the Caribbean, in the areas of institutional strengthening and
governance.
The IDB $50 million loan has a 3-year grace period and a seven-year
maturity period.
=================
V E N E Z U E L A
=================
VENEZUELA: Battered Bolivar Plays Vital Role in Crisis-Hit Country
------------------------------------------------------------------
EFE News reports that the bolivar has gone through different
adjustments this century as part of the Venezuelan government's bid
to tame hyperinflation. But now, it is playing a pivotal role in
the South American country's de facto dollarized economy, making up
for a scarcity of low-denomination greenbacks needed for retail
transactions.
This dynamic can be seen at stores and street stalls on Quinta
Crespo, a busy commercial district of downtown Caracas, where
bolivars are used to purchase food items like meat, maize flour,
eggs, coffee, milk cream, tomatoes, plantains, peaches and
strawberries, several store owners and street sellers told EFE.
The manager of one of those retail outlets, who preferred not to be
identified, said consumers pay everything that costs less than $5
in local currency, says the report. He added that they mainly use
500,000 and 1 million bolivar bills, which were supposedly going to
be phased out after last October's monetary overhaul hacked six
zeros off the local currency and created a new, so-called "digital
bolivar."
Venezuela's Central Bank (BCV) on March 8, 2021, shook up its
then-existent currency regime, introducing three new
large-denomination bolivar notes - 200,000, 500,000 and 1,000,000
bills - to counter hyperinflation, EFE recalls.
A year later, those latter two notes - equal to around 0.5 and 1
digital bolivars, respectively - are currently the most-circulated
local currency bills on the Venezuelan streets, even outpacing the
five and 10 digital bolivar notes issued five months ago as part of
that nation's third monetary overhaul this century, notes EFE.
According to BCV data, 52 million 500,000 bolivar and 56.2 million
1,000,000 bolivar notes were put into circulation in October and
November, after the latest monetary overhaul had already taken
effect, EFE reports.
By contrast, there is no sign of any 20, 50 or 100 digital bolivar
notes in circulation on the street, and the BCV's records show no
indication that any those banknotes - introduced as part of the
latest overhaul - have been printed.
The report further notes that older bills that date back prior to
last year's adjustments are now out of circulation and used only as
arts-and-crafts material and stationery.
As reported in the Troubled Company Reporter-Latin America on
Sep. 22, 2021, S&P Global Ratings withdrew its 'SD/D' foreign
currency sovereign credit ratings and 'CCC-/C' local currency
ratings on Venezuela due to lack of sufficient information. At the
same time, S&P withdrew its 'D' issue rating on 15 bonds.
*********
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
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re-mailing and photocopying) is strictly prohibited without prior
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Information contained herein is obtained from sources believed to
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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.
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* * * End of Transmission * * *