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/raid1/www/Hosts/bankrupt/TCRLA_Public/220407.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Thursday, April 7, 2022, Vol. 23, No. 64 Headlines A R G E N T I N A ARGENTINA: Economy Shrank in January After Strong Finish to 2021 C H I L E LATAM AIRLINES: May 17 to 18 Hearings on Exit Plan RIPLEY CORP: Fitch Affirms 'BB' LT IDRs, Outlook Stable C O L O M B I A EMPRESAS PUBLICAS DE MEDELLIN: Fitch Keeps 'BB+' IDRs on Watch Neg. [*] COLOMBIA: IMF Says Recovery in 2021 Was Among Fastest in Region J A M A I C A JAMAICA: Inflation Could Peak 9-11% in Coming Months, BOJ Says M E X I C O OPERADORA DE SERVICIOS: Moody's Withdraws Ba2 Unsec. Debt Rating T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: Inflation Eased, but Imports Will Up Prices [*] TRINIDAD & TOBAGO: Met with IDB to Discuss Upcoming Plans V E N E Z U E L A VENEZUELA: Bolivar Managed to Stabilize Since October - - - - - ================= A R G E N T I N A ================= ARGENTINA: Economy Shrank in January After Strong Finish to 2021 ---------------------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that Argentina's economy contracted in January as a surge in coronavirus cases due to the omicron variant weighed on industrial manufacturing. Economic activity in January fell 0.5% from the prior month, better than analysts' median estimate for a 1.0% contraction, according to globalinsolvency.com. From a year ago, the economy expanded 5.4% in the first month of the year, according to government data, the report relays. The results signal a slowdown in growth for South America's second-largest economy, the report notes. Argentina has grown on a monthly basis for five out of the last seven months, the report discloses. Argentina saw a surge in the number of daily Covid-19 cases in January, hitting records on successive days before the wave peaked in mid-month, the report notes. While the death toll and hospital occupancy rates remained low in comparison to earlier waves and the government was able to avoid lockdowns to contain the virus, output slumped as the virus sidelined workers, the report says. The fishing sector was the only other sector to decline, with a drop of 15.3% compared to the previous year, the report relays. Compared to the previous year, 13 of 15 sectors analyzed in the report showed increased in activity, 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. Argentina obtained on March 25, 2022, approval from the Executive Board of the International Monetary Fund (IMF) of a 30-month extended arrangement under the Extended Fund Facility (EFF) amounting to SDR 31.914 billion (equivalent to US$44 billion). Under the new terms, Argentina secured a much-needed grace period that postpones repayment of its debt. However, IMF warned of exceptionally high risks to the program. ========= C H I L E ========= LATAM AIRLINES: May 17 to 18 Hearings on Exit Plan -------------------------------------------------- LATAM Airlines Group S.A., et al., submitted a Plan and a Disclosure Statement dated March 25, 2022. The Plan provides for a multi-billion-dollar capital infusion that will further strengthen LATAM's balance sheet. As part of the Plan, the Backstop Shareholders, CVL and the Eblen Group, as applicable, shall, subject to various terms and conditions and the execution of definitive documentation, make various contributions to the Debtors' reorganization including, without limitation: (i) waiver of certain preemptive rights under applicable Chilean law, (ii) agreements to provide required shareholder approvals of certain corporate actions required under Chilean law to implement the Plan and related transactions, (iii) agreement to backstop a portion of the ERO Rights Offering and issuance of the New Convertible Notes Class B for an extended period of up to ten months without requiring payment of a backstop payment (iv) agreement to subscribe to the New Convertible Notes Class B, which upon conversion shall be subject to a four-year lock-up that provides the benefits of significant long-term ownership and potentially reduces share price volatility in the years immediately following emergence, (v) entry into the Shareholders' Agreement (as defined in the Restructuring Support Agreement) and (vi) agreement to support certain amendments to bylaws of LATAM Parent. The terms of the Plan also further the Debtors' ability to implement the Plan and successfully emerge from their Chapter 11 Cases, as the Plan construct contemplates distributions and rights offerings that comply with the Bankruptcy Code and applicable Chilean corporate law, including the offering of the New Convertible Notes to Eligible Equity Holders during the New Convertible Notes Preemptive Rights Offering Period, which can be converted into common stock of Reorganized LATAM Parent (the "New Convertible Notes Back-Up Shares"); provided that, solely with respect to the New Convertible Notes Class A and the New Convertible Notes Class C, to the extent not subscribed and purchased by Eligible Equity Holders during such preemptive rights offering period, each will be distributed to certain LATAM Parent General Unsecured Creditors in accordance with the terms of the Plan. Under applicable Chilean law, Holders of Existing Equity Interests have certain preemptive rights to subscribe and purchase their pro rata share of any newly issued equity and convertible debt prior to such equity and debt being offered for sale to any other party. In compliance with such laws, the Plan contemplates that all Plan Securities issued pursuant to the Plan will first be made available to all Eligible Equity Holders before being distributed, offered or sold to other parties, and LATAM Parent will obtain the requisite shareholder approvals for such capital raises from Holders of Existing Equity Interests at a shareholders' meeting prior to the Effective Date. Pursuant to the Restructuring Support Agreement, the Backstop Shareholders, CVL and the Eblen Group, who collectively hold approximately 51% of the outstanding equity of LATAM Parent, have agreed to vote in favor of approving all capital increases, stock issuances and convertible debt issuances and/or bylaw amendments as may be contemplated as part of the Restructuring Transactions, including the issuance of all Plan Securities. Additional key components of the Plan include: -- Payment in full of all Allowed Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, and DIP Claims; -- A rights offering (the "ERO Rights Offering") in an amount of $800 million of new common stock of Reorganized LATAM Parent (the "ERO New Common Stock"), which: * shall be open to all Holders of Existing Equity Interests registered on the shareholders' registry of LATAM Parent as of midnight on the Equity Record Date except for any Holders of Existing ADS Interests (the "Eligible Equity Holders"), during the ERO Preemptive Rights Offering Period (as defined herein); and * $400 million of which shall be backstopped by the Commitment Creditors in their capacity as ERO New Common Stock Backstop Parties in exchange for an aggregate 20% backstop payment payable in cash on the Effective Date and the remaining $400 million shall be backstopped by the Backstop Shareholders (up to the Backstop Shareholders Cap, as described in the Restructuring Support Agreement) without a fee; -- The issuance of three series of convertible notes by Reorganized LATAM Parent, each with a maturity date of Dec. 31, 2121 (collectively, the "New Convertible Notes"). Eligible Equity Holders will have the right to subscribe and purchase the New Convertible Notes during the New Convertible Notes Preemptive Rights Offering Period, in compliance with applicable Chilean law. As set out in more detail in the New Convertible Notes Offering Procedures, the New Convertible Notes comprise: * the New Convertible Notes Class A in the principal amount of $1.4677 billion which, to the extent not subscribed and purchased by Eligible Equity Holders during the New Convertible Notes Preemptive Rights Offering Period, shall be distributed to Holders of General Unsecured Claims against LATAM Parent Pro Rata based on their Allowed Claims except those with respect to Holders that elect to participate in the alternative treatment available to Class 5b and to the extent they provide the new money Class 5b consideration (together with the New Convertible Notes Class C Backstop Parties, the "Participating Holders of General Unsecured Claims"); * the New Convertible Notes Class B in the principal amount of $1.373 billion which, to the extent not subscribed and purchased by Eligible Equity Holders during the New Convertible Notes Preemptive Rights Offering Period, shall be subscribed and purchased by the New Convertible Notes Class B Backstop Parties. The New Convertible Notes Class B shall be backstopped by the New Convertible Notes Class B Backstop Parties, who shall agree to exercise all their preemptive rights to subscribe and purchase the New Convertible Notes Class B, and backstop the remainder of the New Convertible Notes Class B not subscribed and purchased; and * the New Convertible Notes Class C in the principal amount of $6.816 billion which, to the extent not subscribed and purchased by Eligible Equity Holders during the New Convertible Notes Preemptive Rights Offering Period, shall be subscribed by the New Convertible Notes Class C Backstop Parties and those New Convertible Notes Class C Unsecured Creditors that elect to receive New Convertible Notes Class C in full satisfaction, settlement discharge and release of their Claims by providing consideration of $0.921692 of new money for each $1 of Allowed General Unsecured Claims held against LATAM Parent, and is fully backstopped by the New Convertible Notes Class C Backstop Parties. The Debtors believe that the Plan will give the Debtors appropriate leverage and liquidity to allow LATAM to execute its business plan, maintain flexibility and capture market opportunities on a go-forward basis. The Bankruptcy Court has scheduled a hearing to consider confirmation of the Plan for May 17-18 at 10:00 a.m., prevailing Eastern Time, before the Honorable James L. Garrity, Jr., United States Bankruptcy Court for the Southern District of New York, One Bowling Green, New York, NY 10004. The Bankruptcy Court has directed that objections, if any, to confirmation of the Plan be served and filed so that they are received on or before April 29, 2022 at 4:00 p.m., prevailing Eastern Time. Counsel for the Debtors: Richard J. Cooper, Esq. Lisa M. Schweitzer, Esq. Luke A. Barefoot, Esq. Thomas S. Kessler, Esq. CLEARY GOTTLIEB STEEN & HAMILTON LLP One Liberty Plaza New York, New York 10006 Telephone: (212) 225-2000 Facsimile: (212) 225-3999 A copy of the Disclosure Statement dated March 25, 2022, is available at https://bit.ly/3tI3oEV from Primeclerk, the claims agent. 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. RIPLEY CORP: Fitch Affirms 'BB' LT IDRs, Outlook Stable ------------------------------------------------------- Fitch Ratings has affirmed Ripley Corp. S.A.'s 'BB' Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs). The Rating Outlook is Stable. Ripley's ratings reflect the company's strong business position within the retail and real estate sector in Chile and Peru, its integrated retail-financial services business model, recovered capital structure following the disrupted operations during the pandemic and adequate financial flexibility. Fitch expects the company's cash flow from operations will comfortably cover capex and dividends outflow in the next three years with net leverage peaking at 4.0x in 2023 and falling to 3.0x once new development shopping mall operations in Peru kick in. KEY RATING DRIVERS Strong Business Position: Ripley's ratings reflect its position as a solid retail-financial services player in Chile and Peru. In Chile, it has approximately 20% of market share in department stores. Most recently, to overcome business disruptions due to the pandemic, the company focused on strengthening its omnichannel proposal, which proved to have a positive effect on its cash flow generation. In 2021, e-commerce sales increased by 34.6% yoy while representing 39.5% of total retail sales. Integrated Business Model: Ripley's business position is enhanced by the synergies between its retail sector and its financial service (FS) segment, which is comprised of its fully owned subsidiaries Banco Ripley Chile, rated 'A+(cl)'/Negative, and Banco Ripley Peru. These co-dependent businesses translate into a commercial strategy that mutually supports the competitive position of Ripley's brand in both business units. Growing Real Estate Business: Fitch's analysis incorporates expected organic growth following the company's construction of two malls in Peru in the next 18 months. These malls will increase the company's presence to five from three malls that it currently operates in Peru, and will expand its GLA by 55% to 316,302 square meters. Ripley's real estate business benefits from a stable source of cash flow generation in the form of rental revenues contracted out to over 10 years, along with EBITDA margins in the range of 80%. Adequate Capital Structure: Ripley's ratings incorporate an expectation that the company's corporate-only net adjusted leverage ratio will slightly increase to 4.0x in 2022 from 3.2x in 2021 mainly due to the elimination of government stimulus in Chile that heat up demand during the past two years and the expectations of higher inflation curbing consumer spending. These leverage figures are an improvement from the net leverage ratio of 12x in 2020. Fitch expects the company's cash flow from operations will comfortably cover capital expenditures and dividends outflow in the next three years with net leverage peaking at 4.0x in 2023 and falling to below 3.0x once new development shopping malls operations in Peru kick in. For debt calculation, Fitch considers the corporate only debt, including debt at holding level, and debt associated with operating activities in the real estate and retail segments. The lease-adjusted corporate-only debt includes CLP313 billion of corporate only debt and the balance relates to lease adjusted debt. Volatile Discretionary Business: Ripley's retail business focused on department stores, which are more volatile than other retail segments such as food and pharmacy. The company's results from retail stores, shopping malls and credit card operations improved materially in 2021 after suffering from imposed social restrictions. In 2021, the company's adjusted EBITDAR was CLP152 billion, which includes CLP15 billion of dividends received from FS entities and no dividends received from minority participation. These figures compare with total adjusted EBITDAR of CLP37 billion, FS and minorities dividends of CLP33 billion in 2020. Divestment of Investment: In 2020, Ripley announced its intention to evaluate the sale of its 22.5% minority interest in Nuevos Desarrollos S.A., an entity that owns eight shopping malls that are controlled and managed by Plaza S.A., rated 'AA+(cl)'/Stable. Fitch views this strategy could strengthen the company's financial flexibility in the medium term but doesn't not incorporate in its base case DERIVATION SUMMARY Ripley Corp.'s ratings compares with other issuers in Chile in the non-food retail sector such as Falabella S.A. (BBB/Stable) as both share retail operations integrated with a financial business and shopping centers. As with other non-food retailers, Ripley Corp. is exposed to pure online competition. Ripley is rated three notches below Falabella. Falabella benefits from its large integrated business with adjusted net leverage at 2.8x as of YE 2021. Ripley's operations are smaller and its capital structure is more pressured with net leverage at 3.2x as of YE2021. KEY ASSUMPTIONS -- Chile's retail business revenues dropping 12% drop in 2022; -- Two new shopping malls in Peru to be inaugurated in 2023 and 1Q24, currently under construction; -- Debt repayments of CLP34 billion in 2022 (bonds series H & E), CLP3 billion in 2023 and CLP53 billion in 2024; -- Dividend policy to distribute 30% of previous year net income. RATING SENSITIVITIES Factor that could, individually or collectively, lead to positive rating action/upgrade: -- Net adjusted corporate only leverage consistently below 4.0x that results in a strengthening of Ripley Corp.'s financial profile, evidenced through an improved operating cash flow performance and by debt reductions reached through the sale of minority interest. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Net adjusted corporate only leverage consistently above 5.0x that results from a lower than expected EBITDA recovery. -- A downgrade in Banco Ripley Chile could lead a negative rating action in Ripley Corp. 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, Ripley Corp.'s consolidated cash position was CLP506 billion, including the FS. Corporate only cash and equivalents totaled CLP181 billion of this figure, which positively compares with short-term debt of CLP56 billion, including CLP21 billion of revolving debt. Debt amortization scheduled for 2022 and 2023 is CLP34 billion and CLP3 billion, respectively. ISSUER PROFILE Ripley Corp is one of the largest retail companies in Chile and Peru. Ripley's three business segments are the retail business, the banking business and the real estate business. Ripley Corp currently operates 76 stores in Chile and Peru. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Rating Actions DEBT RATING PRIOR ---- ------ ----- Ripley Corp. S.A. LT IDR BB Affirmed BB LC LT IDR BB Affirmed BB =============== C O L O M B I A =============== EMPRESAS PUBLICAS DE MEDELLIN: Fitch Keeps 'BB+' IDRs on Watch Neg. ------------------------------------------------------------------- Fitch Ratings has maintained the Rating Watch Negative (RWN) on Empresas Publicas de Medellin E.S.P.'s (EPM) 'BB+' Foreign and Local Currency Issuer Default Ratings (IDRs) and on its 'AAA(col)' national scale Long-Term rating. Additionally, the RWN on the company's senior unsecured debt ratings of 'BB+' and on the standalone credit profile (SCP) of 'bbb-' has been maintained. The SCP assumes the company is not owned by the Municipality of Medellin and will not receive state support should the need arise. Fitch has also withdrawn the national Long-Term rating of the international Global COP 2021 issuance, which was repaid in full. EPM's ratings reflect strong ownership and control by its owner, the city of Medellin (BB+/Stable). The company's business risk is low resulting from its diversification and characteristics as a utility service provider. The company's ratings also reflect its somewhat aggressive growth strategy and solid credit protection measures supported by moderate projected leverage, healthy interest coverage and an adequate liquidity position. EPM's RWN reflects continued uncertainty regarding the closure of Ituango's blocked Auxiliary Diversion System since April 28, 2018, and final cost over-runs of its Ituango project. The possibility of major flooding downstream from the project exists until the diversion tunnel is closed. While the likelihood of this is remote, the environmental, financial and reputational damage to the company could be significant. Fitch's expectation is that 300MW of the project will be online by mid-2022. The company has a commitment with the regulator to bring the first two 300MW units online by Nov. 30, 2022. The resolution of the Rating Watch may extend longer than six months given these uncertainties. KEY RATING DRIVERS Strong Linkage with Parent: EPM consistently contributes significant cash flows in the form of dividends to its parent, the city of Medellin (BB+/Stable). These distributions comprised 20% of the city's total revenues in 2021, and have exceeded government revenues by 20% four out of the last five years. Under Fitch's criteria, a government-related entity that sustainably generates more than 10% of the government's revenues is considered a strong linkage factor that would lead to an equalization of the ratings. 2022 Ituango Entry Expected: Fitch continues to maintain the RWN until further confirmation that the diversion and auxiliary tunnels are appropriately plugged. The tunnels are expected to be secured by the end of 2022 as the company prioritizes the completion of its first two units to meet its firm energy commitment to the system and the tunnels are not part of the critical route to produce electricity. As of September 2021, the company reported 93.4% progress on pre-plug 2 of the right deviation tunnel. Fitch expects two 300MW units will come online per year between 2022-2025, and that once complete, Ituango will add over USD800 million to the company's generation revenue. Insurance Payment Improves Liquidity: The USD633 million final lump sum insurance payment received from Mapfre Seguros Generales de Colombia S.A. in January 2022 for the Ituango claim bolsters EPM's liquidity and is credit positive. This is in addition to the USD150 million received in 2019 and USD200 million received from Mapfre in 2020 for a total of USD983 million. While the funds are segregated and earmarked for the Ituango project, they do relieve pressure on EPM from selling assets to fund capex. Fitch expects that with the final payment, the company will have the funds necessary to complete the project, which is ~COP3 trillion, or USD769 million, as of the beginning of 2022. Deleveraging Expected: EPM's consolidated gross leverage, defined as total debt to EBITDA, will average 3.2x between 2022-2025. Leveraged peaked at 4.7x in 2020 as poor demand affected the company's distribution businesses, low hydrology impacted generation and Ituango incurred additional cost overruns and recovered to 3.7x in 2021. Gross leverage is expected to be 3.0x in 2025 and net leverage 2.7x. The deleveraging trend can be attributed to tariff increases at the company's distribution businesses, the normalization of operations at newly acquired Afinia and Ituango's generation units coming online, the first of which is expected in July 2022 and the second in October 2022. Moderate Regulatory Risk Exposure: EPM's exposure to regulatory risk is low. The bulk of EPM's consolidated revenues is generated by regulated tariffs or medium-term contracts. The latter exposes the company to potentially sustained low electricity prices. Historically, Colombian regulatory entities have ruled independently from the central government and have provided a fair and balanced framework for both companies and consumers. EPM's diversified business profile further mitigates the company's regulatory risk, as a simultaneous tariff decrease across all businesses is unlikely. Afinia Grows Distribution Business: Fitch views EPM's assumption in September 2020 of CaribeMar, a coastal electricity distribution company renamed Afinia, as positive for the business and credit neutral. Fitch estimates that once the Afinia business is stabilized in 2023, it will add ~USD1.2 billion in revenue and USD150 million in EBITDA. Fitch estimates capital expenditures of COP3.6 trillion, or USD935 million between 2022-2025. This investment will be necessary to lower high energy losses, which stood at roughly 28% in 2021 with the goal to lower this amount to below 22% by 2024. Stable Cash Flow Profile: EPM has a stable and predictable cash flow profile supported by regulated businesses in investment-grade markets. Fitch estimates 83% of EPM's 2021 EBITDA was derived from its energy business, where its generation segment comprised 33%; 43% was distribution; and the gas and transmission segments combined for 7%. EPM's distribution business operates in highly regulated markets, mostly concentrated in Colombia, where it is the largest distributor in the country, with a market share of 38.5%, which includes newly added Afinia's 13.7% market share. Fitch estimates that 17% of the company's EBITDA comes from its water and waste management services. Interference Weakens Corporate Governance: Fitch views EPM's corporate governance as weak due to the strong influence exerted by the company's owner, the city of Medellin. This follows a lawsuit against the Ituango project insurers and contractors and the contemplated change of the company's social objective in 2020, which prompted the resignation of all eight independent board members. EPM has an ESG Relevance Score of '4' for Governance Structure due to its nature as a majority government-owned entity and the inherent governance risk that arises with a dominant state shareholder. 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. DERIVATION SUMMARY EPM's ratings are linked to those of its owner, the Municipality of Medellin (BB+/Stable), due to the latter's strong ownership and control over the company. The company's low business-risk profile is commensurate with that of Grupo Energia Bogota S.A. E.S.P.'s (BBB/Stable), Enel Americas S.A. (A-/Stable), AES Andes (BBB-/Stable), Enel Colombia S.A. E.S.P. (BBB/Stable) and Promigas (BBB-/Stable). Fitch projects EPM's total leverage to average 3.2x over the rating horizon and 2.8x on a net basis. This is above AES Andes' expected average gross and net leverage of 2.6x and 1.9x and Enel Colombia's at 1.7x and 1.6x and below Promigas', which is expected to be 3.5x and 3.3x. In 2025, Fitch expects gross and net leverage to be 3.0x and 2.7x, respectively, reflecting advances in the Ituango project, an increase in rates at EPM's electricity distribution businesses and the normalization of operations at newly-acquired Afinia. EPM also compares well with electricity generation peers that have national ratings, namely Enel Colombia S.A. E.S.P., Isagen S.A. E.S.P. and Celsia Colombia S.A. E.S.P., all rated 'AAA(col)'. Similar to peers, EPM has an efficient portfolio of low-cost hydro assets. In 2021, EPM ranked second in installed capacity behind Enel Colombia and first in generation, ahead of Isagen and Enel Colombia, which were second and third, respectively. KEY ASSUMPTIONS -- Ituango units come online at a rate of two per year from 2022- 2025 with no penalties or significant further delays; -- Generation load factor of approximately 50% over the rated horizon; -- No dividends from UNE expected over the rated horizon; -- Dividend payout of 55% of previous year's net income; -- No divestments in 2022 or the rating horizon; -- No additional payments for the Ituango claim from insurance companies or other parties following the USD633 million payment in January 2022; -- Capex of COP7.3 trillion in 2022, COP5.9 trillion in 2023, COP5.4 trillion in 2024 and COP4.8 trillion in 2025; -- Electricity spot prices of COP250/KWh in 2022, COP230/KWh in 2023, COP200/KWh in 2024 and COP180/KWh in 2025. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Although unlikely in the near term, Fitch may consider a positive rating action if there is a positive rating action on the company's owner, the city of Medellin; -- Fitch may consider a resolution of the RWN once the company has secured the second deviation tunnel at its Ituango project, which Fitch expects by late 2022. In such a case, the Rating Outlook for the city of Medellin would likely apply. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A negative rating action on the city of Medellin's ratings; -- Failure to bring the first 300MW two units of Ituango online by the November 2022 deadline, an incurrence of penalties or loss of guarantees related to delays or the materialization of significant cost overruns and contingencies at the project that weaken the company's liquidity 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 Strong Liquidity: EPM is expected to have strong liquidity during 2022 after ending 2021 with a consolidated cash equivalents balance of COP4.9 trillion, or USD1.25 billion. This total includes COP1.8 trillion, or USD455 million, held directly at the parent company. In January 2022, the company received USD633 million from Mapfre as a final payment for the Ituango insurance claim. While the proceeds will be earmarked for the Ituango project, they will provide the company with the necessary funds to complete project. As of Dec. 31, 2021, the company had COP3.6 trillion, or USD935 million, in available credit lines, USD40 million of which were committed credit lines. All credit lines are in USD. Currently, the company's dividend policy is expected to remain in place despite the cash flow impact derived from Ituango's delay. Historically, EPM has transferred on average between 45% and 55% of its net income to the city of Medellin in the form of dividends. EPM's transfers to Medellin have historically represented approximately 20% to 30% of the city's investment budget. Although not likely in the near term, an increase in the company's dividend distribution policy could pressure its FCF generation, which is already expected to continue to be negative in the near term as the company continues to execute its investment plan. ISSUER PROFILE Founded in Medellin Colombia in 1955, EPM participates in the generation, transmission, distribution and commercialization of electricity, the distribution and commercialization of natural gas and the provision of water, sewage and waste management services. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS EPM's ratings are capped by that of its owner, the city of Medellin ('BB+'/Stable). ESG CONSIDERATIONS Empresas Publicas de Medellin E.S.P. (EPM) has an ESG Relevance Score of '4' for Governance Structure due to its nature as a majority government-owned entity and the inherent governance risk that arises with a dominant state shareholder. 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. Rating Actions DEBT RATING PRIOR ---- ------ ----- Empresas Publicas de Medellin E.S.P. (EPM) LT IDR BB+ Rating Watch Maintained BB+ LC LT IDR BB+ Rating Watch Maintained BB+ Natl LT AAA(col) Rating Watch Maintained AAA(col) senior unsecured LT BB+ Rating Watch Maintained BB+ senior unsecured Natl LT AAA(col) Rating Watch Maintained AAA(col) [*] COLOMBIA: IMF Says Recovery in 2021 Was Among Fastest in Region ------------------------------------------------------------------- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Colombia on March 25, 2022. This also included a discussion of the findings of the Financial Sector Assessment Program (FSAP) exercise for Colombia. Colombia's very strong policy frameworks and comprehensive policy response to the pandemic supported the economy's resilience. A flexible exchange rate, central bank credibility under inflation targeting, effective financial sector supervision and regulation, a medium-term fiscal rule, and strong institutions have helped the country to withstand external shocks and promote economic growth. Over the last two years, the authorities have used the flexibility of their macroeconomic framework to deliver a coordinated and timely response to mitigate the impact of the pandemic. Colombia's economic recovery in 2021 was among the fastest in the region. After a strong economic rebound last year, Colombia's economic momentum is expected to continue into 2022. Above-potential growth is expected around 5 3/4 percent this year, led by robust household consumption and continued recovery of investment and exports . Supported by a still accommodative monetary stance, the output gap is projected to close by 2022H1. Over the medium term, GDP growth is expected to converge to its potential growth rate of about 3 1/2 percent. The projected increase in the price of key commodity exports would lead to a significant reduction in the current account deficit from -5.7 percent of GDP in 2021 to -3.3 and -3.4 percent of GDP in 2022 and 2023, respectively. Inflation continues rising led by supply-side shocks in the context of strong demand. Higher inflation is expected to persist and will likely remain above the upper limit of the central bank's tolerance band (4 percent) throughout 2022, with upside risks. Inflation is projected at around 6 3/4 by end-2022. Risks to growth remain tilted to the downside. External risks remain elevated led by an intensification of the ongoing war in Ukraine. While Colombia stands to benefit from higher hydrocarbon prices, rising and volatile international prices for food and energy, as well as more persistent disruptions in global supply chains, would exacerbate domestic inflationary pressures. Global financial market volatility arising from the conflict or the monetary tightening cycle in major economies could also create shocks to capital flows. New outbreaks of Covid-19 variants could lead to subpar or volatile growth in trading partners . Domestic risks are also tilted to the downside-including uncertainty around the domestic evolution of the pandemic and political risks associated with the upcoming elections. The banking system entered the COVID-19 pandemic from a position of relative strength, and the authorities mounted a strong policy and support response. As a result, the financial system has weathered the pandemic relatively well so far. As outlined in the FSSA, overall, banks are largely resilient to solvency and liquidity shocks. But it is essential to monitor interconnectedness and contagion in view of the complexity of financial conglomerates and increasing cross-border exposures. Bank supervision has been enhanced, including by introducing a comprehensive framework for conglomerates. Macroprudential oversight is overall effective, but some macroprudential tools and data collection should be expanded to address leakages and risks from potential rapid household debt growth. The crisis management and safety net framework has been strengthened significantly, but recovery and resolution planning needs further improvements, including for cross-border institutions. Executive Board Assessment Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their very strong policy frameworks and a comprehensive pandemic response, which have supported the economy's resilience and a strong recovery. Directors noted that uncertainty and downside risks remain elevated, including from inflation, global financial conditions, and geopolitical tensions. They agreed that policies need to be recalibrated carefully to sustain the growth momentum, manage inflation, further strengthen public finances, and reduce external imbalances. Directors agreed that an accelerated monetary tightening is appropriate to reduce inflationary pressures and safeguard the credibility of the monetary policy framework. They emphasized the need to ensure that policy decisions remain data-driven and accompanied by clear communication. Directors welcomed the authorities' commitment to maintain a flexible exchange rate to help absorb the impact of global shocks, including swings in commodity prices. They encouraged the authorities to continue with international reserve accumulation over time to help maintain reserve adequacy and insure against external liquidity risks. Directors noted that the Flexible Credit Line provides additional buffers and enhances market confidence. Directors commended the authorities for the improved public finances and strong commitment to maintain fiscal credibility. They recommended continued efforts to save revenue windfalls, control spending, and phase out exceptional support measures, as conditions allow. Directors recognized that the Social Investment Law, including a new debt anchor, is an important step to strengthen the fiscal framework. They stressed that deeper fiscal reforms to secure new revenue sources and enhance spending efficiency would safeguard key social programs and public investment, while further reducing debt. Directors welcomed the strengthening of the regulatory and supervisory frameworks. They encouraged the authorities to build on this progress by implementing the 2022 FSAP recommendations. Directors underscored the need to enhance data availability, crisis management, and the bank resolution and macroprudential frameworks. Directors stressed the importance of further structural reforms to boost productivity, external competitiveness, and greener, inclusive growth. They called for continued efforts to strengthen governance and the anti-corruption and AML/CFT frameworks. Directors looked forward to further progress in implementing the green strategy, reducing trade barriers, and increasing labor force participation. They commended the authorities for their ongoing efforts to integrate Venezuelan migrants into the economy. [1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. [2] Disclaimer: This Staff Report was prepared by a staff team of the IMF for the Executive Board's consideration on March 25. The Staff Report reflects discussions with the Colombian authorities from February 1- 15, 2022 and is based on the information available at that time. It focuses on Colombia's near, and medium-term challenges and policy priorities given the pandemic and subsequent economic recovery. The report was prepared before the Russia-Ukraine conflict and, therefore, does not reflect the implications of these developments and related policy responses. The Supplementary Information is based on the information available as of March 11, incorporating initial effects from the ongoing conflict which has amplified uncertainty and downside risks around the outlook. [3] Under the FSAP, the IMF assesses the stability of the financial system, and not that of individual institutions. The FSAP assists in identifying key sources of systemic risk and suggests policies to help enhance resilience to shocks and contagion. The last FSAP exercise for Colombia took place in 2012-13. [4] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm. ============= J A M A I C A ============= JAMAICA: Inflation Could Peak 9-11% in Coming Months, BOJ Says -------------------------------------------------------------- RJR News reports that the Bank of Jamaica is projecting that inflation will continue to breach the 6% upper limit of its target range. In a news release, the central bank said over the next 8 to 10 months, inflation is likely to peak in the range of 9 to 11%, according to RJR News. The BoJ says this will be driven by higher-than-projected increases in international commodities and shipping prices, the report relays. These risks have been heightened by the Ukraine-Russia crisis, and the imposition of economic and financial sanctions on Russia by western industrialized nations, the report notes. This has resulted in higher volatility in international energy, commodity and financial markets, the report discloses. However, the BoJ says its monetary policy committee concluded that if domestic demand is lowered, inflation could fall, the report says. In a bid to temper demand, the BOJ increased the policy interest rate to 4.5% effective March 30, the report relays. The new rate will remain in place until May 19, the report adds. As reported in the Troubled Company Reporter-Latin America on March 11, 2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. =========== M E X I C O =========== OPERADORA DE SERVICIOS: Moody's Withdraws Ba2 Unsec. Debt Rating ---------------------------------------------------------------- Moody's de Mexico has withdrawn Operadora de Servicios Mega S.A. de C.V., SOFOM, E.R.'s A2.mx long-term Mexican National Scale debt ratings and Ba2 long-term global scale debt ratings to two proposed senior unsecured debt notes (GFMEGA 20X and GFMEGA 20-2X). LIST OF AFFECTED RATINGS The following ratings were withdrawn: Operadora de Servicios Mega S.A. de C.V., SOFOM, E.R. (825623734) Certificados Bursatiles Bancarios (GFMEGA 20X) Long-term global local currency senior unsecured debt rating of Ba2 Long-term Mexican National Scale local currency senior unsecured debt rating of A2.mx Certificados Bursatiles Bancarios (GFMEGA 20-2X) Long-term global local currency senior unsecured debt rating of Ba2 Long-term Mexican National Scale local currency senior unsecured debt rating of A2.mx RATINGS RATIONALE Moody's withdrew the ratings on Mega's two proposed senior debt notes because the company did not issue those notes. The principal methodology used in these ratings was Finance Companies Methodology published in November 2019. ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: Inflation Eased, but Imports Will Up Prices -------------------------------------------------------------- Trinidad and Tobago Newsday reports that the removal of VAT on a number of items helped to ease prices in the first quarter of the year, but may not be enough to shield Trinidad and Tobago from higher food prices as imported inflation continues to climb, according to the Central Bank's Monetary Report. "The MPC considered the increasing weight of external factors on current and short-term developments in TT. The consensus view among international analysts regarding further interest rate adjustments in the US and elsewhere were also considered," the report said, according to Trinidad and Tobago Newsday. "At the same time the committee took account of the early signs of domestic economic recovery facilitated by expansion in credit alongside still relatively low supply-driven inflation," the report notes. "While higher energy prices will augment fiscal revenues, wider supply disruptions and higher prices of food commodities will add to imported inflation," Trinidad and Tobago Newsday relays. The report said inflation dropped by 0.1%, standing at 3.8% in January as compared to 3.9% in October 2021. Core inflation, which excludes food items, remained steady year-on-year at three per cent, Trinidad and Tobago Newsday notes. It added that estimates from the bank's Quarterly Index of Economic Activity (QIEA) indicate a return to positive growth in the energy sector, and in the non-energy sector, the roll-back of covid19 restrictions and bank assistance are boosting business operations, Trinidad and Tobago Newsday says. Trinidad and Tobago Newsday relays that lowered employment has affected the creditworthiness of consumers to banks, prompting the banks to lean more to lending to businesses, rather than people. The report indicated that the unemployment rate of 6.1% realized in the third quarter persisted into later quarters and has remained at that rate, but business lending increased by 4.5% in December 2021 as compared to the 2.2% decline over the first three quarters of that year, Trinidad and Tobago Newsday notes. The report said despite good signs in the domestic economy, global economic uncertainty accelerated in the first quarter of 2022 owing to shocks coming from the Russian invasion of Ukraine, Trinidad and Tobago Newsday says. The spikes in energy prices, while adding to possible growth in the local energy sector, have increased concern in major economies around the world, pushing monetary responses to go the way of tightening rather than easing, Trinidad and Tobago Newsday discloses. The report said the US Federal Reserve and the Bank of England hiked their respective policy rates by 25 basis points, Trinidad and Tobago Newsday relays. Many other central banks have also raised their interest rates because of concern over rising inflation rates, external pressures in the global energy sectors and the impact of higher interest rates in advanced economies on the potential flow of capital, Trinidad and Tobago Newsday notes. The Monetary Policy Committee came to a consensus to keep the repo rate at 3.5%, Trinidad and Tobago Newsday adds. [*] TRINIDAD & TOBAGO: Met with IDB to Discuss Upcoming Plans ------------------------------------------------------------- Inter-American Development Bank (IDB) President Mauricio Claver-Carone and Trinidad and Tobago Minister of Planning & Development Pennelope Beckles met to discuss upcoming plans for the IDB's work in Trinidad and Tobago, as well as the IDB's work on digitalization and climate change in the Caribbean. The IDB's Board of Executive Directors approved a new country strategy with Trinidad and Tobago for the 2021-2025 period. The strategy aims to help the country implement its digital transformation agenda to achieve more sustainable and inclusive growth, which is the first pillar of the country's medium and long-term post-pandemic development plan. The new strategy will support the digital transformation of Trinidad and Tobago's economy. The strategy focuses on three areas: improving the business environment to enable digital transformation; expanding the use of digital tools to improve educational outcomes and digital skills; and enhancing the delivery of services. "This new strategy focuses on how the IDB and Trinidad and Tobago will work together to leverage digital transformation to promote sustainable and inclusive growth," said IDB President Mauricio Claver-Carone. "We are committed to helping Trinidad and Tobago maximize the benefits of digitalization to empower the private sector, improve public services, and strengthen institutions and governance." The Bank's main counterpart in country, the Ministry of Planning and Development, welcomed the continued strong partnership between the Bank and Trinidad & Tobago. IDB Governor and Minister of Planning and Development, The Honorable Pennelope Beckles, said, "It is indeed timely that the IDB's new Country Strategy with the country will focus on Digital Transformation, given the priorities outlined in Vision 2030 and the Roadmap to Recovery. Digital Transformation will be a critical factor in the post-pandemic recovery and Trinidad and Tobago has taken bold steps towards advancing this agenda including the establishment of a dedicated Ministry of Digital Transformation in 2021. The private sector has also signaled that this is an area of great priority to regain competitiveness. We look forward to working with the IDB to facilitate inclusive access to the benefits of digitalization for all stakeholders." A key element of the strategy focuses on using digitalization to bolster not only the public sector, and public sector services, but to empower the private sector and individual citizens of Trinidad and Tobago. The digitalization strategy will enhance and build on the IDB's partnership with Trinidad and Tobago, which includes its ongoing engagement in key development sectors such as state modernization, urban development and housing, health, energy, transportation, water and sanitation, environment, and the blue economy. For further information on the work of the IDB in Trinidad and Tobago, contact idbtrinidad@iadb.org. ================= V E N E Z U E L A ================= VENEZUELA: Bolivar Managed to Stabilize Since October ----------------------------------------------------- Buenos Aires Times reports that Venezuela has been in recession for eight years, suffered four years of hyperinflation and endured a currency in free fall. But the beleaguered bolivar has, against all odds, managed to stabilize since October. According to Buenos Aires Times, it is thanks to a US$2.2-billion investment by the state in a bid to slow down inflation in the South American nation. Last year ended with inflation at 686% - the highest in the world, the report recalls. But that was a significant improvement on the 130,000% in 2018, 9,585% in 2019 and 3,000% in 2020, the report says. According to consultancy Aristimuno Herrera & Associates, Venezuela's central bank has injected US$2.2 billion into the internal market in 2021-2022, the report notes. Banned for 15 years by the government, the US dollar was once scarce and highly prized, exchanging hands on the black market for significantly more than the official exchange rate, the report relays. 'Can it be Sustained?' "Offering more dollars than there is demand generates stability in the exchange rate," Cesar Aristimuno, director at Aristimuno Herrera & Associates, told AFP, the report notes. The bank has acknowledged 29 "interventions" since October 2021, although without giving details of the amounts, the report discloses. Last October, the bank slashed six zeros off the bolivar - making one new bolivar worth a million old ones - with the government saying this would improve faith in the local currency, the report recalls. At the same time, authorities imposed a three percent tax on foreign currency transactions and cryptocurrencies, the report relays. "The legal tender is and will continue to be the bolívar," Vice-President Delcy Rodriguez, who is also the economy and finance minister, told parliament, the report notes. Since October, the exchange rate against the dollar has moved from 4.18 to 4.32 bolivars, a depreciation of just 3.24%, the report relates. The report discloses that the compares favourably to the depreciation of 76% in 2021 and more than 95% in each of the previous three years. After shrinking by more than 80% during eight years of recession, Venezuelan GDP grew by four percent in 2021, the government claims, the report notes. "Our economy is so small that such a policy can be applied. The issue is how long will they sustain it," said Henkel Garcia, director at Econometrica, the report relays. Some experts fear that the government is "burning" international reserves but Aristimuno and Garcia both say the dollars have come from an increase in revenues from Venezuelan oil due to rising crude prices and a limited increase in production, the report says. State oil company PDVSA produced more than three million barrels a day in 2014 but that fell to 400,000 six years later, the report relays. It has now risen to 680,000 according to OPEC, the Organisation of the Petroleum Exporting Countries, the report notes. The central bank says it has US$10.8 billion in reserves, half the amount of 2014 and a third of the 2007 figure, the report relays. However, the bank is including US$5 billion provided by the International Monetary Fund to help mitigate effects of the coronavirus pandemic, but which has been withheld due to questions over the 2018 re-election of President Nicolas Maduro in a poll widely dismissed as a fraud, the report discloses. 'Collateral Damage' While the injection of dollars has beneficial effects, there is "collateral damage," said Aristimuno, the report relates. Since inflation is high and the exchange rate is stable, the dollar's buying power is falling, the report notes. Likewise, "exports are losing their attractiveness" compared to imports, the report relays. The report discloses that Carlos Fernandez Gallardo, president of the FEDECAMARAS employers federation, said he is worried. "There is an increase in dollar costs for producers, with a pernicious effect on the consumer," he told AFP. "What will happen if these dollars disappear?" In 2018, the government attempted to tackle inflation by obliging banks to keep 85% of their reserves in the central bank in an attempt to limit the printing of money, the report says. That served to reduce credit, which was already in free fall with the depreciating boíivar, the report relays. Venezuela is a credit minnow with less than US$140 million in 2021, compared to US$14 billion in neighbouring Colombia, the report notes. Aware that credit, investments and growth are intimately related, Caracas partially changed tack in February, allowing loans indexed against the dollar under certain conditions and reducing the obligatory reserves to 73%, the report relays. But the challenge remains, how to promote growth while keeping inflation under control, the report adds. 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 publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. 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