/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/220322.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 22, 2022, Vol. 23, No. 52 Headlines A R G E N T I N A ARGENTINA: President Hails Congressional Backing for IMF Deal ARGENTINA: Ukraine War Will Impact Targets in New Program, Says IMF B R A Z I L BANCO ORIGINAL: Fitch Affirms 'B-' LT IDR, Outlook Now Evolving ELDORADO BRASIL: Fitch Affirms 'BB-' LT IDR, Alters Outlook to Pos. C H I L E LATAM AIRLINES: Court Approves $700M Fee for Hedge Funds LATAM AIRLINES: Obtains $3.7 Bil. of Debt to Repay Oaktree, Apollo C O S T A R I C A REVENTAZON FINANCE: Fitch Alters Outlook on 'B+' Notes to Stable D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Supermarkets Climb Price-Slashing Bandwagon M E X I C O GRUPO KALTEX: S&P Lowers ICR to 'CCC-', Put on CreditWatch Neg. P E R U INRETAIL SHOPPING: S&P Upgrades ICR to 'BB+' on Lower Leverage RUTAS DE LIMA: S&P Raises Debt Rating to 'BB-' on Tariff Increase P U E R T O R I C O LIBERTY COMMUNICATIONS: Fitch Affirms BB+ LCPR Loans & Notes Rating PUERTO RICO: Plan of Adjustment Now Effective - - - - - ================= A R G E N T I N A ================= ARGENTINA: President Hails Congressional Backing for IMF Deal ------------------------------------------------------------- Buenos Aires Times reports that President Alberto Fernandez hailed the congressional approval of his government's agreement with the International Monetary Fund, declaring that it would help tackle runaway inflation in Argentina. "It has been a historic moment, for the first time the refinancing of a debt with the IMF is being discussed and approved in Congress," Fernandez said in a recorded message from the Olivos presidential residence as he announced a host of measures against inflation, which is currently running at more than 50 percent a year, according to Buenos Aires Times. "Never again will a president be able to get into debt behind the backs of the Argentine people," he added. The Senate approved the government's US$45-billion agreement with the IMF to restructure the record US$57-billion Stand-By loan agreed in 2018 by ex-president Mauricio Macri, the report relays. Among other measures, Fernandez announced the creation of a "stabilisation fund" to decouple prices from international prices at a time when the world is experiencing a sharp rise in commodity prices as a consequence of Russia's war against Ukraine, the report notes. Argentina's consumer price index rose 4.7 per cent in February, with a 7.5 percent increase in food prices, the report relays. Inflation over the last year totals 52.3 percent - one of the highest rates in the world, the report discloses. "Inflation is a historical phenomenon in Argentina, almost a curse," said Fernandez, the report relays. The president called on all economic and social sectors to work together to confront "a recurring impasse from which it seems impossible to get out," the report discloses. "The agreement with the IMF allows us to begin to put in order the central macroeconomic variables in the fight against inflation," he said, the report notes. He also argued that it will help "Argentina to have more reserves and calm expectations of devaluation," the report relays. To enter into force, the agreement endorsed by Argentina's Congress must now be approved by the IMF's board of directors in Washington, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Standard & Poor's credit rating for Argentina stands at CCC+ with stable outlook, which was a rating upgrade issued on Sept. 8, 2020. Moody's credit rating for Argentina was last set at Ca on Sept. 28, 2020. Fitch's credit rating for Argentina was last reported on Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS' credit rating for Argentina is CCC, given on Sept. 11, 2020. As reported by The Troubled Company Reporter - Latin American, DBRS noted that the recent upgrade in Argentina's ratings (September 2020) follows the closing of two debt restructuring agreements between the Argentine government and private creditors. The first restructuring involved $65 billion in foreign-law bonds. The deal achieved the requisite participation necessary to trigger the collective action clauses and finalize the restructuring on 99% on the aggregate principal outstanding of eligible bonds. DBRS added that the debt restructurings conclude a prolonged default and provide the government with substantial principal and interest payment relief over the next four years. DBRS further relayed that Argentina is also seeking a new agreement with the International Monetary Fund (IMF) to replace the canceled 2018 Stand-by Agreement. Formal negotiations on the new financing began in November 2020. Obligations to the IMF amount to $44 billion, with major repayments coming due in 2022 and 2023. ARGENTINA: Ukraine War Will Impact Targets in New Program, Says IMF ------------------------------------------------------------------- Buenos Aires Times reports that a spokesperson for the International Monetary Fund has admitted that the economic consequences of Russia's attack on Ukraine will likely impact upon the targets outlined in Argentina's new financing program. The agreement between the IMF and President Alberto Fernandez's government, which was ratified by Argentina's Congress and is awaiting approval by the Fund's Executive Board, is intended to lower the country's runaway inflation, which last year exceeded 50 percent, according to Buenos Aires Times. "The program seeks to begin to reduce persistent high inflation," said IMF spokesman Gerry Rice. "This, of course, will be a challenging task. In light of the evolving global conjuncture, as rising commodity prices are impacting inflation throughout the world," the report notes. Rice said Argentina is already feeling the economic impact of the Russian invasion of Ukraine, which was launched by Russian President Vladimir Putin on February 24, the report relays. "Argentina, like other emerging economies, is already being affected by the war in Ukraine, including with the rise in global commodity prices already impacting inflation," she told a press conference, the report discloses. "IMF staff [are] assessing the potential broader impact on growth, as well as on external and fiscal balances. Uncertainties, however, remain large, and depend on the duration of the conflict," Rice added. Rice said the newly agreed program features a "multi-pronged strategy" to lower inflation, which involves "a reduction of monetary financing of the fiscal deficit and a new framework for monetary policy implementation to deliver positive real interest rates to support peso asset demand," the report discloses. Inflation in Argentina reached 50.9 percent in 2021; it totaled 36.1 percent in 2020, a year of economic paralysis due to the Covid-19 pandemic, and in 2019 it reached 53.8 percent, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Standard & Poor's credit rating for Argentina stands at CCC+ with stable outlook, which was a rating upgrade issued on Sept. 8, 2020. Moody's credit rating for Argentina was last set at Ca on Sept. 28, 2020. Fitch's credit rating for Argentina was last reported on Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS' credit rating for Argentina is CCC, given on Sept. 11, 2020. As reported by The Troubled Company Reporter - Latin American, DBRS noted that the recent upgrade in Argentina's ratings (September 2020) follows the closing of two debt restructuring agreements between the Argentine government and private creditors. The first restructuring involved $65 billion in foreign-law bonds. The deal achieved the requisite participation necessary to trigger the collective action clauses and finalize the restructuring on 99% on the aggregate principal outstanding of eligible bonds. DBRS added that the debt restructurings conclude a prolonged default and provide the government with substantial principal and interest payment relief over the next four years. DBRS further relayed that Argentina is also seeking a new agreement with the International Monetary Fund (IMF) to replace the canceled 2018 Stand-by Agreement. Formal negotiations on the new financing began in November 2020. Obligations to the IMF amount to $44 billion, with major repayments coming due in 2022 and 2023. =========== B R A Z I L =========== BANCO ORIGINAL: Fitch Affirms 'B-' LT IDR, Outlook Now Evolving --------------------------------------------------------------- Fitch Ratings has affirmed Banco Original S.A.'s (Original) Foreign and Local Currency Long-term Issuer Default Ratings (IDRs) at 'B-', National Long-Term Rating at 'BB+(bra)' and Viability Rating at 'b-'. Fitch has also revised the Rating Outlook on Original's Long-Term IDR and National Long-Term Rating to Evolving from Negative. Fitch has withdrawn Original's Support Rating of '5' and Support Rating Floor of 'NF' as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch has assigned Original a Government Support Rating (GSR) of 'ns'. KEY RATING DRIVERS IDRS, VR AND NATIONAL RATINGS The Outlook revisions to Evolving from Negative reflects Fitch's expectation that Original's overall credit profile could continue to stabilize, owing to ongoing progress on the consolidation of its business plan that has started to reflecting in incremental, albeit modest, internal capital generation. This could be positive for Fitch's assessment of earnings and profitability and capitalization and leverage. However, it also reflects Fitch's view that such trend will be subject to significant executions risks notably from its unsecured loan portfolio growth, in the context of Brazil's still uncertain operating environment. Particularly, it reflects the significant influence that Original's rapidly growing exposure to consumer finance lending, which Fitch views as more vulnerable borrowers, has on asset quality expectations. Therefore, the conflicting positive and negative on the fundamentals justifies the Evolving Outlook. Fitch have revised the outlook on Original's business profile score of 'b' to stable from negative to reflect the view that, after several delays on previously stated business and financial targets, the bank's business model has become more stable with the potential to be developed in the upcoming years. Original's business model is focused on retail digital banking, which ended 2021 as the main business revenue vertical of the bank, but also includes commercial banking activities and small and midsize entities (SME). Revenue generation and business volumes benefited from a strong performance on retail lending, leading to a 67% consolidated loan portfolio growth in 2021, from a meager 7% in 2020. Fitch expects the bank to maintain a higher appetite on unsecured loan lines in 2022, which is likely to support incremental revenue generation over the rating horizon. Original achieved in 2021 its first-time recurring operational profit since 2011 (0.2% operating profit/risk weighted assets ratio; -1.3% four-year average from 2018-2020), which Fitch views as evidence of its overall business progress. In Fitch's base case, Fitch expects profitability to continue to improve in the medium term, supported growth in fee income and cost containment. However, profitability is likely to remain pressured and below peer-average and yet be highly sensitive to changes in impairment charges behavior in the context of strong expansion on consumer finance lending, particularly if macroeconomic conditions pressure borrowers' creditworthiness. Therefore, Fitch has affirmed the earnings and profitability score at 'ccc+' and revised the outlook to evolving from negative. At end-2021, Original's CET 1 capital ratio improved to 11.1% at end-2021, from 10.1% reported at end-2020, benefiting from a BRL 400 million capital injections. Fitch's base-case expectations of continued earnings recovery and restricted cash dividends indicate that the bank's capitalization is likely to recover in 2022, but any improvement is likely to gradually be tempered by its continued pursuit of rapid loan growth. Fitch has affirmed the capitalization and leverage score at 'b-', revising the outlook to stable, as Fitch believes the risks of it breaching the regulatory minimum still persists. Fitch has revised Original's asset quality score to 'b-' from 'b', reflecting the observed deterioration in the bank's asset quality ratio over the last year following the current business strategy of expanding its retail arm trough unsecured loans, especially credit cards for direct and third-party clients. The bank's growing exposure toward unsecured consumer lending was 43% of Original's loan portfolio at YE 2021, up from 20% a year prior. In Fitch´s opinion, this rapid growth pressures its credit metrics as unsecured consumer lending is particularly sensitive to interest rate and economic cycles. However, Original's wholesale portfolio continues to present good overall asset quality metrics despite moderate concentration. At end-2021, the impaired loan ratio (loans classified between D-H according to local regulation) reached a high of 13.1%, up from 4.9% in 2020. Loan loss allowance coverage decreased to a low of 44%, up from 64.5%, which indicates that impairment charges in 2022 are likely to be high. Fitch expects that Original's asset quality metrics will remain pressured given the short track record of the vintages, which might further deteriorate, and the growth perspectives for 2022. However, the expected levels are commensurate with the current asset quality factor level. Original funding structure and liquidity remain stable and adequate for the bank's business profile and size. Its funding base is composed of deposits offered through agreements in brokerages, mainly term deposits to individuals with no liquidity in addition to its digital bank, where it directly offers products. The bank's loan-to-deposits ratio adjusted for the local deposit-like products stood at an adequate 82% at December 2021, a level close to its peers. Despite lending growth, Original continues to report adequate liquidity levels of BRL 3.4 billion liquid assets at end-2021 and BRL 3.7 billion a year before. The bank's loan portfolio is also largely short-term, which has been key to reinforcing its liquidity and reducing potential cash flow mismatches. Original sold its minority share of PicPay Instituicao de Pagamento S.A. (PicPay). Despite being now sister companies, Original's capitalization metrics continues to fully consolidated for regulatory purposes PicPay's operations and Fitch had a clear view about individual capitalization metrics. In Fitch's view, Original's capitalization metrics no longer relies in PicPay's individual capital to meet minimum regulatory requirements, which is a credit positive. The agency believes that PicPay's own capital is not entirely fungible and are not as loss absorbing, although the procedure is aligned with regulators' requests. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A sustained reduction in the bank's capitalization, CET 1 ratio below 9.5%. -- A substantial deterioration of the bank's asset quality stemming from a higher risk appetite, leading to operational losses in 2022. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- In the medium term, Original's ratings could benefit from the consolidation of its business model and franchise, coupled with improvements in profitability, operating profit/risk weighted assets ratios above 1.5% and a stabilization or contained deterioration of currently asset quality metrics; -- The maintenance of a CET 1 ratio above 11%. VR ADJUSTMENTS The Operating Environment of 'b+' has been assigned below the implied 'bb' Operating Environment Score due to the following adjustment reason: Macroeconomic Stability (negative). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Original's ESG Relevance Score (ESG.RS) for Governance Structure was changed to '3' from '5' reflecting the observed reduction over the past year of Original's capital adequacy reliance on related entities capital consolidation. In Fitch's view, as of today Original no longer relies on its consolidated capital adequacy ratio to meet minimum regulatory capital requirements. In the first quarter of 2021 Original has an ESG.RS for Group Structure at '4' due to intra-group dynamics that result in a high level of related-party transactions, which adds to group complexity and limits transparency. 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'. 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. ELDORADO BRASIL: Fitch Affirms 'BB-' LT IDR, Alters Outlook to Pos. ------------------------------------------------------------------- Fitch Ratings has affirmed Eldorado Brasil Celulose S.A.'s (Eldorado) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-' and upgraded its National Scale Long-Term Rating to 'AA-(bra)' from 'A+(bra)'. Fitch has also upgraded to 'AA-(bra)' from 'A+(bra)' Eldorado's fourth local debentures issuance. The Rating Outlook on the corporate ratings was revised to Positive from Stable. The Positive Outlook reflects Eldorado's solid operating performance and strong credit metrics for the rating category. Eldorado's strong cash flow generation allowed capital structure improvements while reducing short-term refinancing risk. The company, however, still has the challenge to further extend its debt amortization profile. The rating action also incorporates the expectation that Eldorado will generate strong operating cash flow and net leverage will remain below 1.5x in the next two years, as the company continues to focus to use FCF to pay down debt. The upgrade of the National Scale rating incorporates the strengthening of Eldorado's credit profile within the 'BB-' rating category. KEY RATING DRIVERS Above-Average Business Profile: Eldorado has limited scale of operations compared with peers in Latin America and only one pulp mill, which is located in Brazil. This mill has an annual production capacity of 1.7 million tons of bleached eucalyptus hardwood pulp (BEKP). Nevertheless, Eldorado is extremely competitive in the industry due to its productive forests, a favorable climate for growing trees and a modern pulp mill. The company's cash cost of production was about USD125 per ton during 2021, which places it firmly in the lowest quartile of the cost curve. Eldorado also has some financial flexibility from its forest base, with the accounting value of the biological assets of its forest plantations at BRL3.3 billion as of Sept. 30, 2021. Litigation Limits Flexibility: Eldorado's financial flexibility remains limited while the conclusion of the process remains uncertain. The company has demonstrated good access in the local market, but access to international capital markets remains limited. The company announced the conclusion of the arbitration process between J&F and Paper Excellence on Feb. 3, 2021. Paper Excellence won the process, allowing it to acquire the remaining 50.6% of Eldorado owned by J&F, thereby increasing its stake in the company to 100%. However, an annulment proceeding was filed by J&F and the final conclusion of the arbitration process will take longer than expected, postponing the release of J&F's guarantees and the change of Eldorado's control. Lower Refinancing Risk: Eldorado improved its capital structure and reduced refinancing risk following the amortization of its USD350 million notes in June 2021 and the BRL1.2 billion new debt issued in the local market that allowed the company to reduce short term pressure. Considering these issuances, Eldorado had about BRL1 billion of debt maturing up to year end 2022, including trade finance lines, and BRL4.0 billion in 2023. Despite lower debt maturities in the short term, Eldorado still has the challenge to preserve a more extended debt amortization profile. Elevated Pulp Prices: The market pulp industry is cyclical; prices move sharply in response to changes in demand or supply. Pulp prices increased sharply during 2021 after two challenging years of low prices, supported by supply and logistical constraints caused by mill closures, maintenance downtime and the shortage of containers. Fitch projects BEKP prices to lose momentum during the second half 2022 and to average USD625/ton during the year, compared with USD677 in 2021. The upward movement of prices permitted Eldorado to generate strong FCF and to lower its net debt by approximately BRL1.5 billion in 2021. Strong FCF: Eldorado is expected to generate about BRL2.9 billion of EBITDA and BRL2.4 billion of cash flow from operations (CFFO) in 2022 and BRL2.6 billion and BRL2.2 billion, respectively, in 2023. This compares with strong EBITDA of BRL3.3 billion and CFFO of BRL2.4 billion expected for 2021. Still elevated pulp prices should support strong operating margins, despite the expected cost pressure. Fitch expects the company to report strong FCF between BRL1.0 billion and BRL1.5 billion in the next three years. Base case projections consider investments of about BRL1.3 billion in 2022, including investments in the new port, and BRL730 million in 2023 and no dividends. Leverage to Remain Low: Fitch projects a continued leverage reduction due to strong FCF. The company's net leverage is expected to fall to about 1.4x during 2022 and below 1.0x in 2023, from 1.9x in the LTM ended September 30, 2021 and 3.7x in 2020. Net debt reduced by approximately BRL1.5 billion during 2021 and should reduce by an additional BRL1 billion to about BRL4.1 billion by the end of 2022. Eldorado's continued leverage reduction will depend on the absence of expansion projects and the company's ongoing focus to use FCF to pay down debt. Eldorado's deleveraging strategy in the past few years should allow the company's balance sheet to absorb a period of higher investments, if the Vanguarda II project is approved. ESG - Governance Structure: Uncertainties associated with Eldorado's future shareholding structure, related to the arbitration process between J&F Investimentos S.A. (J&F) and Eldorado's minority shareholder Paper Excellence, limit the company's financial flexibility. Fitch will reassess the company's strategy and credit quality once there is a conclusive outcome of the arbitrage process. DERIVATION SUMMARY Similar to other Latin American pulp producers, Eldorado's pulp production cash costs are among the lowest in the world, ensuring its long-term competitiveness. This places the company's business risk profile in line with Latin America pulp companies like Suzano (BBB-/Stable), Empresas CMPC (BBB/Stable) and Celulosa Arauco (BBB/Stable). However, Eldorado has only one mill located in Brazil, while its peers have higher scale of operations and geographic diversification. Eldorado is also concentrated only in pulp and is therefore more exposed to the cyclicality of pulp prices compared with companies with higher product diversification like Arauco and CMPC, which are leaders in the wood products segment and tissue markets, respectively. Compared with its investment-grade peers, Eldorado's ratings are constrained by more concentrated debt amortization profile and by the ongoing litigation issues at its controlling shareholders and weak corporate governance standards. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- Pulp sales volume of 1.75 million tons in 2022 and 2023; -- Average net hardwood pulp prices of USD625 per ton in 2022 and USD600 per ton in 2023; -- Average FX rate of 5.5 BRL/USD in 2022 and 5.4 BRL/USD in 2023; -- No dividends; -- Base case does not incorporate investments in the new pulp mill. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Continue to show strong operating performance and ability to extend debt amortization profile. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Continuous uncertainties about a conclusive decision of the arbitrage process, affecting Eldorado's ability to access adequate financing locally or abroad; -- Failure to refinance short-term debt maturities and extend debt amortization 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 Refinancing Risk Reduced: Eldorado's refinancing risk in the short term decreased following the amortization of its USD350 million notes in June 2021 and the BRL1.2 billion new debentures and CRA issued in the local market. Proceeds from the issuances were used to prepaid loans from the Brazilian Development Bank (BNDES). Eldorado had cash and marketable securities of BRL1.2 million as of September 30, 2021 and total debt of BRL7.1 billion, of which BRL4.0 billion was due up to December 2022. Considering the new issuances, Eldorado successfully reduced short term debt maturities to about BRL1 billion up to year end 2022, including trade finance lines, and BRL4.0 billion in 2023. Despite lower debt maturities in the short term, Eldorado still has the challenge to preserve a more extended debt amortization profile. ISSUER PROFILE Eldorado started operations in December 2012 and has one pulp mill located in Mato Grosso do Sul State in Brazil. Eldorado's pulp mill has an annual production capacity of 1.7 million tons of BEKP. ESG CONSIDERATIONS Eldorado has an ESG Relevance Score of '4[+]' for EFM Environment -- Energy Management as the company sells excess energy to the grid from cogeneration based upon a renewable resource, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Eldorado has an ESG Relevance Score of '5' for GGV -- Governance Structure due to the arbitrage process involving J&F and the company's non-controlling shareholder, Paper Excellence, which has a negative impact on the credit profile and is highly relevant to the rating, resulting in a change to the rating. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ========= C H I L E ========= LATAM AIRLINES: Court Approves $700M Fee for Hedge Funds -------------------------------------------------------- Jeremy Hill of Bloomberg News reports that a federal judge has approved financing arrangements tied to Latam Airlines Group SA's plan to exit bankruptcy that would hand investment firms including SVPGlobal, Sculptor Capital Management and Sixth Street Partners a more than $700 million fee. U.S. Bankruptcy Judge James Garrity signed off on the so-called backstop agreements, which are designed to ensure the Chilean airline gets the financing it needs to exit bankruptcy. The deals faced stiff opposition from some creditors because they allow a group of Latam investors to collect a fee worth nearly a quarter of the $4 billion the group promised to invest. About LATAM Airlines 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. LATAM Airlines Group S.A. 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 Airlines Group S.A. 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 general bankruptcy counsel; FTI Consulting as restructuring advisor; and Togut, Segal & Segal LLP and Claro & Cia in Chile as special counsel. Prime Clerk LLC is the claims agent. LATAM AIRLINES: Obtains $3.7 Bil. of Debt to Repay Oaktree, Apollo ------------------------------------------------------------------ Jeremy Hill of Bloomberg News reports that Latam Airlines Group gets $3.7 billion of debt to repay Oaktree, Apollo. Latam Airlines Group found lenders willing to provide some $3.7 billion to the Chilean air carrier while it navigates bankruptcy, with JPMorgan Chase & Co. committing to lend just over $2 billion, according to regulatory and court filings. The new debtor-in-possession financing will be used in part to repay funds lent by Oaktree Capital Management and Apollo Global Management, court papers show. JPMorgan and a syndicate arranged by the bank will provide up to $2.05 billion of the funds, while certain existing creditors to Latam will lend as much as $1.65 billion, according to regulatory filings. About LATAM Airlines 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. LATAM Airlines Group S.A. 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 Airlines Group S.A. 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 general bankruptcy counsel; FTI Consulting as restructuring advisor; and Togut, Segal & Segal LLP and Claro & Cia in Chile as special counsel. Prime Clerk LLC is the claims agent. =================== C O S T A R I C A =================== REVENTAZON FINANCE: Fitch Alters Outlook on 'B+' Notes to Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Reventazon Finance Trust's USD135 million fixed-rate notes at 'B+sf' and revised the Rating Outlook to Stable from Negative. The rating action follows Fitch's revision of Instituto Costarricense de Electricidad's (ICE) Outlook to Stable from Negative, which mirrors the recent revision of Costa Rica's sovereign Outlook to Stable. Fitch's rating addresses timely payment of interest and ultimate principal at legal maturity DEBT RATING PRIOR ---- ------ ----- Reventazon Finance Trust Notes 76138QAA5 LT B+sf Affirmed B+sf Notes REGS USG75463AA02 LT B+sf Affirmed B+sf KEY RATING DRIVERS Repayment of Notes Reliant on ICE Lease Payments: The notes are backed by 100% participation interest on the Inter-American Development Bank's (IDB) B-loan acquired through a participation agreement, which gives the right to receive payments under IDB's B-loan. ICE's lease payments from a non-cancellable financial lease agreement for the operation and maintenance of the hydropower plant will cover all payments on the loan. Transaction Rating Linked to ICE's Issuer Default Rating (IDR): Given the unconditional and irrevocable nature of the lease payments, Fitch views the credit risk of these payments as linked to ICE's credit quality. On March 15, 2022, Fitch affirmed ICE's Foreign Currency (FC) and Local Currency (LC) IDRs and revised the Rating Outlook to Stable from Negative, which mirrors the recent revision of Costa Rica's sovereign Outlook to Stable. Grupo ICE's ratings are supported by its linkage to the sovereign rating of Costa Rica (B/Stable), which stems from the company's government ownership and the implicit and explicit expectation of government support. Lease Payment Obligation Supported by IDB as Lender of Record: To determine the strength of the lease payment obligation, Fitch considered the role of IDB as lender of record of the obligation being covered by ICE's payments, tied to ICE's ownership structure. As the IDB will continue to be the lender of record and administer IDB's B-loan, Fitch believes the holders of the rated notes will benefit from the B-loan preferential, de facto, status provided by IDB. Because of this benefit, the credit quality of the payment obligation is considered to be in line with other obligations of Costa Rica with the IDB and therefore was notched upward (one notch) from ICE's IDR. Noteholders Benefit from IDB's Preferred Creditor Status: Historically, sovereigns have prioritized certain obligations, such as obligations from multilateral development banks (MDBs), when the government cannot service all of the country's external debt. While the B-loan is not a direct obligation of the sovereign, Fitch believes treatment of the IDB as a preferred creditor extends to ICE as the debtor, since ICE is a strategic government-owned entity that receives underlying sovereign support. Although Costa Rica has defaulted in the past (1981), neither the sovereign nor ICE have ever defaulted on debt issued by a preferred creditor. Currently, IDB's share of Costa Rica's external debt is approximately 17%, in line with historical figures, which makes it an essential preferred creditor for the country. Adequate Liquidity Present: The rated notes benefit from a debt service reserve account equivalent to the next principal and interest payment due amount. This liquidity provides certainty in case the transaction is exposed to temporary liquidity shock. As of November 2021, the external account had sufficient liquidity to cover debt service on the issued notes payment due in May 2022. The KRDs listed in the applicable sector criteria, but not mentioned above, are not material to this rating action. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The notes' ratings are linked to the Long-Term (LT) FC IDR of ICE; hence, a downgrade of ICE's IDR would trigger a downgrade of the rated notes in the same proportion; -- A rating action of ICE not tied to a rating downgrade of the sovereign may not trigger a rating action on the notes if Fitch's view on the strength of the payment obligation is not affected by such rating action. Additionally, changes in Fitch's view of the treatment of the IDB as a preferred creditor may trigger a rating action on the notes. Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch does not currently anticipate developments with a high likelihood of triggering an upgrade. Nevertheless, the notes' ratings are linked to the LT FC IDR of ICE; hence, an upgrad of ICEs IDR would trigger an upgrade of the rated notes in the same proportion. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. CRITERIA VARIATION Fitch's "Single- and Multi-Name Credit Linked Notes Rating Criteria," dated Feb. 12,2021, establishes that the credit quality of the primary risk contributors in a credit linked notes (CLN) transaction is typically determined by an IDR assigned by Fitch. However, in some situations, a committee would consider using the actual bond rating (e.g. senior unsecured rating, subordinate rating) of an asset in place of the IDR. For this transaction, it has been determined that the credit quality of the primary risk contributor is not commensurate with the IDR or any particular bond rating of the obligor, as sovereign ratings do not directly address all forms of obligations. To determine the credit quality of the sovereign obligation and its notching from the sovereign IDR, Fitch incorporated perspectives from its sovereign group. During the analysis, it was determined that the appropriate notching uplift from the primary risk contributor would be one notch. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Supermarkets Climb Price-Slashing Bandwagon --------------------------------------------------------------- Dominican Today reports that National and Jumbo supermarkets joined the campaign of the Price Stabilization Institute (Inespre) and the General Directorate of Strategic and Special Projects of the Presidency (Propeep) to offer combos of basic family products at a cost of 1,000 pesos, which constitutes a saving for the domestic economy of 30%. The staples will be available in both National and Jumbo Supermarkets every Thursday starting March 17, according to Dominican Today. "The basic basket products will be packed in a bag to facilitate the acquisition by the consumer," the report notes. These products include select rice (10 pounds), pinto beans (800 grams), oil (16 ounces), eggs (30 units), salami (2 pounds), spaghetti (400 grams), tomato paste (16 ounces), sardines (125 grams) and frozen chicken (approximately 3.5 pounds), the report relays. "This initiative is carried out with the intention of contributing to Dominican families so that they can stock up on everything they need for their home at a special price," said Jose Miguel González, executive president of Centro Cuesta Nacional, 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 =========== GRUPO KALTEX: S&P Lowers ICR to 'CCC-', Put on CreditWatch Neg. --------------------------------------------------------------- On March 18, 2022, S&P Global Ratings lowered its long-term issuer credit and issue-level ratings on Mexico-based textile and apparel company Grupo Kaltex S.A. de C.V. to 'CCC-' from 'CCC' and placed them on CreditWatch with negative implication. The CreditWatch negative listing reflects the uncertainty over the notes' refinancing and increasing near-term default risk, given the company's tight liquidity. Kaltex's outstanding $218 million senior secured notes are set to mature on April 11, 2022. In S&P's view, there's an increased risk of default in the near term because the company has not yet refinanced this debt. While Kaltex is working on an alternative refinancing plan, because it was unable to secure its refinancing via the debt capital market, it still remains pending to complete and disburse, which increase significantly the company refinancing risk amid its upcoming notes maturity. Absent any refinancing completion, S&P believes Kaltex won't have sufficient funds to pay its $218 million senior notes due April 11, 2022. Therefore, it believes that Kaltex is facing a near-term default risk in relation to its 2022 notes. In November 2021 and February 2022, the company announced its intention to issue new $220 million five-year senior secured notes to refinance its existing notes through a cash tender offer, but the transaction didn't close. The company is currently seeking to raise funds through a private placement to refinance its outstanding 2022 notes. However, this alternative hasn't materialized yet, which increase sharply refinancing risk for Kaltex prior to its debt maturity on April 11, 2022. ESG credit indicators: E-2, S-2, G-3 ======= P E R U ======= INRETAIL SHOPPING: S&P Upgrades ICR to 'BB+' on Lower Leverage -------------------------------------------------------------- On March 18, 2022, S&P Global Ratings raised its long-term issuer credit and issue-level ratings on Peruvian real estate company InRetail Shopping Malls (ISM), to 'BB+' from 'BB'. The outlook remains stable and reflects S&P's view that the company will maintain a steady operating and financial performance in the next 12 months, along with relatively high occupancy rates, increasing its EBITDA and cash flows, and posting net debt to EBITDA below 6x. ISM posted revenue and EBITDA of PEN531 million and PEN302 million, respectively, in 2021, swiftly recovering after the pandemic disrupted operations in 2020. S&P said, "We estimate that ISM's operations will continue improving in the next 12 months, with occupancy rates above 93% and virtually all of its gross leasable area (GLA) open, without major pandemic restrictions. The lifting of operating restrictions, the stabilization of Real Plaza Puruchuco, and the expansion of Real Plaza Cusco will fuel double-digit growth in ISM's top-line revenue through fixed and variable rents. As a result, its financial performance will continue to improve compared with 2021, surpassing pre-pandemic levels. We expect ISM's key credit metrics will reach pre-pandemic levels and its financial risk to ease, given the low likelihood of new lockdowns in Peru. We estimate ISM's net debt to EBITDA to be 5.0x-6.0x and debt to capital to remain below 50% in the next 12 months, without netting to debt ISM's reported investments in InRetail Peru Corp.'s (IPC's) shares. "We expect economic slowdown in Peru, with GDP growth near 3% due to adverse internal and external factors. The removal of fiscal stimulus and slowing economic activity due to political instability should weigh on consumption, which along with higher inflation and monetary policy tightening, will cause economic fundamentals weaken in 2022. Nevertheless, we consider that ISM's operations will be resilient, given that bulk of its GLA and rental income is tied to essential consumption and services, such as supermarkets, banks, or pharmacies, which we consider to be less vulnerable than other segments. Moreover, the company has a long track record of passing through rising operating costs to its tenants, given the terms and conditions of its leasing contracts. As a result, we expect its profitability to withstand most of these inflationary pressures. On the other hand, management's initiatives to curb operating costs and capital expenditures (capex), have strengthened the company's cash reserves by the end of 2021, providing headroom for potential investment projects, either new ones or expansions. We expect ISM to continue seeking in the next 12-24 months projects that will generate value for ISM and the broader economic group to which the company belongs, without compromising its leverage and credit profile. Additionally, ISM's extended debt maturity profile benefits its growth strategy, given that about 80% of its debt matures beyond 2025. "We consider ISM as a highly strategic subsidiary of IPC (not rated), which Intercorp Retail Inc. (IR; not rated) directly owns. IR is the retail division of the investment holding company, Intercorp Peru Ltd. (BBB-/Stable/--). However, we consider IR as the ultimate parent for our group analysis, because we typically don't factor in support or a ratings cap from investment holding companies. Given ISM's role as the real estate operator and developer unit for IR, we consider ISM to be a highly strategic subsidiary of the group, while its operations are in line with and dependent upon the group's strategy and objectives. Therefore, we consider that if the group were to be in financial distress, it could draw support from ISM, while we also expect the latter to receive support from the group if it were to experience the same." ESG Credit Indicators: E-2 S-2 G-2 RUTAS DE LIMA: S&P Raises Debt Rating to 'BB-' on Tariff Increase ----------------------------------------------------------------- On March 18, 2022, S&P Global Ratings raised its issue-level rating on Rutas de Lima (RdL) to 'BB-' from 'B+'. The stable outlook mainly reflects S&P's expectations of steady traffic growth in the next 12 months, leading to a debt service coverage ratio (DSCR) of 1.8x-2.0x for the next three years. RdL has a 30-year concession agreement with the municipality of Lima to operate and execute mandatory and complementary construction and maintenance work along the three main road access points into Lima. The concession includes about 115 kilometers (km) of road infrastructure on an aggregate basis: 95.3 km of which are brownfield highways and 19.3 km of which are greenfield. RdL's road network is divided into three sections: -- Panamerica Norte (PN; 31.5 km); -- Panamerica Sur (PS; 54.1 km), both of which are the main access roads to Lima from the north and south; and -- Ramiro Priale (RP; 9.7 km of an existing road and 19.3 km of new construction), the access road to the city from the east. Strengths The project benefits from robust liquidity. As of Dec. 31, 2021, it had cash of about $86 million that included a $17.5 million debt service reserve account (DSRA), an O&M reserve account of $6 million (both of which are funded with a letter of credit [LoC]), a major maintenance reserve account of $21 million, a restricted payment account of about $24 million, and an additional reserve account of $22 million. Risks RdL's revenue depends on traffic performance. Therefore, and even though unlikely in the upcoming years, a sharp dip in traffic volumes could undermine the project's capacity to comply with its financial obligations. S&P expects some volatility in the cash flow available for debt service (CFADS) mainly due to unstable economic conditions and higher competition from alternative free roads. After the city procures the land to construct RP's subtranche, RdL will have to secure funding within the following 18 months. Otherwise, RdL must construct the road using its operating cash flows, which could tighten financial metrics. The project continues to be exposed to an event of default covenant that could trigger the prepayment of the notes if it doesn't complete the construction on PN and PS by December 2023 and by December 2024 for RP. This adjustment increases the tariffs for using the toll road by almost 20%, to PEN6.50 from PEN5.50. S&P said, "Because we consider the tariff increases as discretionary--meaning we don't assume any additional tariff increases throughout the life of the project--this adjustment significantly improves our forecast minimum and average DSCR to 1.23x and 1.8x, respectively, from 0.97x and 1.41x." This adjustment comes after a long period of frozen tariffs—the last increase of 10% was implemented in November 2018. S&P doesn't consider any additional increases because although the concession contract determines that tariffs are annually adjusted by Peruvian inflation, the municipality of Lima has opposed adjustments on several occasions and the president of Peru has publicly stated that the government will revise each of the concession contracts, increasing uncertainty about upcoming tariff hikes. The project has yet to complete works on PN and PS, given that the Derby project is nearly at 81% completion and the remaining works are related to utility reallocation works. For the works on Canta Callao, these are still pending delivery of the property land rights. The project also needs to conclude utility reallocation work for the sections that have obtained the land permits. In addition, the project is also pending the land permits for the RP section, which haven't had material progress since 2017. If the work on both sections isn't concluded by Dec. 31, 2023, for PN and PS and Dec. 31, 2024, for RP, a refusal of the bondholders to approve an extension could potentially trigger a default. S&P said, "This would mean that RdL's debt could, ultimately, be accelerated, which we view as a weakness from a credit perspective compared to similarly rated projects. For this reason, we assign a negative comparable ratings analysis. Nevertheless, we see a record of the bondholders agreeing to amend the limit date under harsher traffic and economic conditions, so we think it's likely they could grant another extension." ===================== P U E R T O R I C O ===================== LIBERTY COMMUNICATIONS: Fitch Affirms BB+ LCPR Loans & Notes Rating ------------------------------------------------------------------- Fitch Ratings has affirmed Liberty Communications of Puerto Rico LLC's (LCPR) revolving credit facility (RCF), LCPR Loan Financing LLC's 2028 Term Loan, and LCPR Senior Secured Financing Designated Activity Company's 2027 and 2029 notes at 'BB+'/'RR1'. Fitch has also affirmed LCPR's Long-Term Issuer Default Rating (IDR) at 'BB-'/Outlook Stable. The ratings reflect the company's solid market positions in mobile, fixed broadband and Pay-TV, and scale and product diversification in Puerto Rico and the U.S. Virgin Islands. The ratings are tempered by Puerto Rico's adverse demographic trends and Fitch's expectation that LCPR, along with Liberty Latin America Group (LLA) and sister company, Cable & Wireless Communications Limited (C&W; BB-/Stable), will have net leverage in the 4.0x-4.5x range. LCPR's secured instrument ratings qualify as "Category 1 first lien," which result in a 'RR1' (plus two notches) Recovery Rating. KEY RATING DRIVERS Significant Scale and Diversification: The consolidated entity, Liberty Communications PR Holdings (LCPRH), tripled in size after the acquisition of AT&T's mobile operations in Puerto Rico. LCPR's ratings benefit from LCPRH's product diversification and size, as both LCPR and the operating companies holding the acquired mobile assets are indirect borrowers of rated debt. Fitch expects LCPRH revenue of USD1.5 billion-USD1.6 billion, with EBITDA of USD570 million-USD 600 million over the rating horizon. EBITDA growth is expected to accelerate in 2024 as integration expenses subside and broadband penetration continues to grow. EBITDA margins are forecast around 40%, in the long term as the company realizes synergies. A strong market position and the limited mature island market act as natural barriers to entry, which supports EBITDA margins around 40% or above. Strong Market Position: LCPRH has strong market shares in both wireless (No. 2), broadband (No. 1), and Pay-TV (No. 1) in Puerto Rico. These services represented 51%, 17% and 11%, respectively of LCPRH's consolidated 2021 revenue, with the remainder primarily generated by the provision of broadband internet, video, fixed-line telephony, mobile and managed services to enterprises. T-Mobile US Inc. has the No. 1 mobile position on the island, but does not have a significant broadband or fixed-line presence. America Movil S.A.B. de C.V.'s Claro unit has the No. 2 position in broadband and No. 3 in mobile, although LCPRH's mobile subscriber base is weighted toward postpaid, while America Movil's is more heavily weighted towards prepaid customers, which typically generate lower average revenue than postpaid users. Stable Leverage Expected: Fitch expects the company to manage with net leverage in the 4.0x-4.5x range over the longer term as LCPRH generates healthy FCF before distributions to LLA, which should strengthen gradually over time. When including distributions to LLA, Fitch expects negative FCF to offset EBITDA growth resulting in stable leverage. The company had a strong performance in fixed and B2B services in 2021, and a relatively stable performance in mobile, which resulted in EBITDA slightly above expectations. Linkages with Liberty Latin America: LLA's financial management strategy targets net proportionate leverage around 4.0x across its operating subsidiaries. Although the credit pools are legally separate, LLA has a history of moving cash around the group for investments and acquisitions. This approach improves financial flexibility and supports a linkage of the ratings; however, it also limits prospects for material deleveraging at the subsidiaries. Fitch forecasts LLA's leverage to remain stable around 4.0x-4.5x on a consolidated LLA basis. LLA generated EBITDA of USD1.8 billion in 2021, and had USD9.2 billion in debt and cash of USD1.1 billion. These figures include EBITDA of USD260 million, debt of USD1.5 billion and cash of USD142 million of LLA's subsidiary VTR Finance N.V., which is pending a transaction to merge with America Movil's Chilean operations in a 50-50 joint venture. Mixed Operating Environment Trends: LCPRH benefits from a dollarized economy with relatively high GDP per capita within the region and favorable systemic governance characteristics. High per-capita GDP supports Puerto Rico's mobile base, which is comprised mostly of 4G postpaid customers, comparing favorably with other markets in Latin America and the Caribbean. GDP and population trends, however, have been largely negative for the island for several years. Secured Instrument Recovery Prospects: The instrument ratings reflect Fitch's approach to Recovery Ratings under its "Corporate Recovery Ratings and Instrument Ratings Criteria". Secured debt ratings of 'BB+' incorporate collateral support included in the transaction structure. The instruments qualify as Category 1 designation, an 'RR1' recovery rating, and a two-notch uplift from LCPR's 'BB-' Issuer Default Rating. DERIVATION SUMMARY LCPRH's credit profile is in line with CWC, which has a strong competitive position in its market, offset by the lack of geographic diversification on an individual basis. Both are expected to maintain EBITDA net leverage at or above 4.0x, and each has LLA's financial management strategy targets of net leverage around 4.0x. LLA moves cash around the group to fund acquisitions and investments, which supports the equalization of ratings across both credit pools. Compared with Caribbean peer Digicel International Finance Limited (B-/Positive Watch), LCPRH has a more diversified product portfolio, which is more subscription based, and a less leveraged capital structure. Consolidated parent-level leverage is much lower at LLA than at Digicel Group Holdings Limited (CCC/Positive Watch). LLA has a business profile similar to Millicom International Cellular SA's (MIC; BB+/Stable), a holding company whose subsidiaries have leading positions in several markets. LLA's revenue base has more U.S. dollars and subscription revenue, while Millicom's revenue is primarily local currency-denominated. Both have seen leverage increase from acquisitions. However, LLA's leverage remains higher than MIC's, which Fitch expects to decline to 2.5x-3.0x in 2022. LCPRH's business profile and diversified service offerings in Puerto Rico are similar to those of MIC's Cable Onda, S.A. (BBB-/Stable) in Panama. Cable Onda's benefits from lower leverage, supporting the multi-notch difference in ratings. KEY ASSUMPTIONS Fitch's key assumptions within its rating case for the issuer include: -- Fixed revenue generating units (RGUs) to grow about 1% overall, as expanding broadband penetration offsets flat to declining pay TV and telephone over the medium term; -- Blended fixed ARPU to remain at USD39-USD41 as broadband increases offset decreasing pay TV and telephone over the medium term; -- Flat mobile RGUs, with ARPUs growing approximately 1%-3% as the company focuses on the higher-end market; -- Blended EBITDA margins of 38%-40% over the medium term, equivalent to USD570 million-USD600 million; -- Capex of around USD200 million-USD250 million, or approximately 14%-16% of revenues; -- Excess cash upstreamed to LLA. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Fitch does not anticipate an upgrade in the near term, given the company's and the larger group's elevated leverage profiles; -- Longer-term positive actions are possible if total debt/EBITDA and net debt/EBITDA are sustained below 4.50x and 4.25x, respectively, at LCPR and LLA. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A meaningful contraction of mobile or fixed market share or increased competition that leads to lower cash flow generation; -- Total debt/EBITDA and net debt/EBITDA at LCPR sustained above 5.25x and 5.00x, respectively, due to organic cash flow deterioration or M&A; -- While the three credit pools are legally separate, net debt/EBITDA at LLA sustained above 5.0x could result in negative rating actions for one or more entities in the group. 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 Sound Liquidity: LCPRH's liquidity benefits from a long-dated maturity profile, and the financial flexibility that LLA enables by moving cash between entities in the three credit pools. The company had USD158 million in readily available cash and equivalents as of YE 2021 and no near-term maturities. Access to a USD173 million revolving credit facility, which bolsters liquidity. The USD1.44 billion raised during 2021 improved LCPRH's debt profile and extended its amortization schedule. The proceeds were used to repay LCPRH's Term Loan B, as well as for general corporate purposes, including a cash upstream to LLA. Fitch expects that LLA will continue to manage LCPRH similarly to its other subsidiaries, with moderately high levels of leverage and excess cash used for shareholder distributions and M&A. ISSUER PROFILE Liberty Cablevision of Puerto Rico (LCPR) is a fixed line service operator that offers Pay-TV, broadband and fixed telephony services to residential customers, as well as medium and large businesses in Puerto Rico. ESG CONSIDERATIONS Liberty Communications of Puerto Rico LLC has an ESG Relevance Score of '4' for Exposure to Environmental Impacts due to due to its presence in a hurricane-prone region, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Liberty Communications of Puerto Rico LLC has an ESG Relevance Score of '4' for Financial Transparency because LLA's financial disclosures are somewhat opaque relative to peers in the region, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. PUERTO RICO: Plan of Adjustment Now Effective --------------------------------------------- The Financial Oversight and Management Board for Puerto Rico announced March 15, 2022, that the Plan of Adjustment to reduce the Commonwealth of Puerto Rico's debt by nearly 80% became effective. This marks a historic day for Puerto Rico's future and one of the concluding chapters in the largest bankruptcy in the history of the municipal bond market. The Puerto Rico Government completed the exchange of more than $33 billion of existing bonds and other claims into $7 billion of new bonds. Annual debt service will decrease from a maximum of $3.9 billion before the debt restructuring to a stable, affordable, and predictable $1.15 billion each year. The Plan saves the Government of Puerto Rico more than $50 billion in debt service payments. The Commonwealth is making more than $10 billion in cash payments to various creditor groups on the effective date, including payments to public employees of the Puerto Rico Government and unsecured creditors, that mostly reside in Puerto Rico, who held longstanding claims against the government. Nearly 20 percent of cash payments are made to creditors living and working in Puerto Rico. These cash payments enable the government to significantly reduce debt service going forward, making it affordable and vastly lowering the burden on future generations. In addition, the effective date implements the Pension Reserve Trust provisions created in the Plan of Adjustment. Importantly, the Pension Reserve Trust is projected to be funded with more than $10 billion in contributions over the next 10 years, and up to $1.4 billion this year alone, to protect and preserve the ability to pay retirement benefits to current and future government retirees. The Pension Reserve Trust is designed to prevent Puerto Rico from repeating the mistakes of the past and in which it ran out of funds to keep the promises made to public employees. "The effective date represents a critical step to bring Puerto Rico's financial crisis to an end" said the Oversight Board's Chairman David Skeel. "the Puerto Rico Government formally moves on PO Box 192018 San Juan, PR 00919-2018; www.oversightboard.pr.gov; comments@promesa.gov from fiscal instability and insolvency into a future of opportunity and growth, making a truly historic day." "The Plan of Adjustment opens a path to sustainable economic growth by removing the dark cloud of bankruptcy that has been felt, in one way or another, by every resident and every business in Puerto Rico," Skeel said. "Executing the debt exchange and cash payments ends this painful chapter for Puerto Rico's Government, even if the debt of other institutions still has to be resolved, particularly the debt of the Puerto Rico Electric Power Authority (PREPA) and the Highway Transportation Authority (HTA)." "I want to thank everyone at the Oversight Board and in the Government for the tremendous effort invested in making it possible. Completing more than 170 workstreams has enabled us to achieve a significant reduction of $33 billion in claims, the creation of the $10 billion pension trust to preserve and protect pensions, the deposit of $1.5 billion into Act 106-2017 Defined Contribution accounts for Sistema 2000 participants and Act 1/447 retirees, and the finalization of Social Security and Act 106-2017 Defined Contribution plan enrollment for teachers and judges to assure they finally receive equivalent benefits to other government employees," said the Oversight Board's Executive Director Natalie Jaresko. The $10 billion cash component of the Plan of Adjustment paid on the effective date includes $8.3 billion in debt related claims. Importantly, it also includes $1.8 billion that will be paid to a multitude of residents of the Island, local creditor groups, including: * $1.5 billion for current and former employee related claims, including $1.4 billion deposited into Act 106-2017 Defined Contribution accounts to restore employee contributions made to Sistema 2000 and $94 million in payments to more than 35,000 Act 1 and Act 447 participants who were affected by the 2013 pension freeze * $200 million paid to the General Unsecured Creditors' reserve * The first of three $49 million payments to Puerto Rico medical centers and $10 million payments to Puerto Rico's dairy producers * Nearly $10 million in $1,000 bonuses for AFSCME/SPU represented employees through a special payroll run. Individuals are expected to receive check disbursements no later than mid-April Not all cash payments authorized under the Plan of Adjustment, however, will be paid on the effective date. For example, only the first $200 million installment of the total $575 million payment to the General Unsecured Creditors, many of whom are Puerto Rico residents, will be made into a reserve fund for future payments to those creditors. Puerto Rico's teachers and judges, meanwhile, will be enrolled in the Act 106-2017 Defined Contribution Plan and become eligible for Social Security. Teachers and judges over 45 years of age have until May 13, 2022 to elect to be covered under Social Security. Those electing to contribute to PO Box 192018 San Juan, PR 00919-2018; www.oversightboard.pr.gov; comments@promesa.gov Social Security will contribute 6.2% to Social Security and the government will make a matching 6.2% contribution to Social Security. The Plan of Adjustment also establishes a Debt Management Policy to prevent Puerto Rico from repeating past practices that led to the accumulation of its unsustainable debt. New debt may only be used to finance capital improvements, not operating deficits. The government can only refinance debt to reduce borrowing costs, not to take on more liabilities. "Restructuring the debt is only the tip of the iceberg. Puerto Rico needs to improve financial management, ensuring financial transparency and accountability, to produce long term growth and stability," said Jaresko. "Puerto Rico should never fall back to the financial mismanagement practices of the past. The Government will need to redouble its efforts to manage its resources carefully for the benefit of the people of Puerto Rico." About Puerto Rico Puerto Rico is a self-governing commonwealth in association with the United States that's facing a massive bond debt of $70 billion, a 68% debt-to-GDP ratio and negative economic growth in nine of the last 10 years. The Commonwealth of Puerto Rico has sought bankruptcy protection, aiming to restructure its massive $74 billion debt-load and $49 billion in pension obligations. The debt restructuring petition was filed by Puerto Rico's financial oversight board in U.S. District Court in Puerto Rico (Case No. 17-01578) on May 3, 2017, and was made under Title III of 2016's U.S. Congressional rescue law known as the Puerto Rico Oversight, Management, and Economic Stability Act ('PROMESA'). The Financial Oversight and Management Board later commenced Title III cases for the Puerto Rico Sales Tax Financing Corporation (COFINA) on May 5, 2017, and the Employees Retirement System (ERS) and the Puerto Rico Highways and Transportation Authority (HTA) on May 21, 2017. On July 2, 2017, a Title III case was commenced for the Puerto Rico Electric Power Authority ("PREPA"). U.S. Chief Justice John Roberts has appointed U.S. District Judge Laura Taylor Swain to oversee the Title III cases. The Honorable Judith Dein, a United States Magistrate Judge for the District of Massachusetts, has been designated to preside over matters that may be referred to her by Judge Swain, including discovery disputes, and management of other pretrial proceedings. Joint administration of the Title III cases, under Lead Case No. 17-3283, was granted on June 29, 2017. The Oversight Board has hired as advisors, Proskauer Rose LLP and O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic consultant, Citigroup Global Markets, as municipal investment banker, and Ernst & Young, as financial advisor. Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M. Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at O'Neill & Borges are on-board as attorneys. McKinsey & Co. is the Board's strategic consultant, Ernst & Young is the Board's financial advisor, and Citigroup Global Markets Inc. is the Board's municipal investment banker. Prime Clerk LLC is the claims and noticing agent. Prime Clerk maintains a case web site at https://cases.primeclerk.com/puertorico Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA, and PREPA. O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), the agency responsible for negotiations with bondholders. The Oversight Board named Professor Nancy B. Rapoport as fee examiner and to chair a committee to review professionals' fees. * * * The two Title III plans of adjustment have been confirmed to date, for the Commonwealth and COFINA debtors. ********* 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. 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