/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/220422.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 Friday, April 22, 2022, Vol. 23, No. 75 Headlines A R G E N T I N A ARCOS DORADOS: To Release Q12022 Financial Results on May 18 GENNEIA SA: Discloses 163.5 MW of Wind, Solar Projects at Home B O L I V I A BOLIVIA: To Strengthen Statistical System with $100MM IDB Loan B R A Z I L BANCO BS2: Fitch Affirms 'B' LongTerm IDRs, Outlook Negative BANCO DAYCOVAL: Fitch Affirms 'BB-' IDRs, Outlook Negative BANCO FIBRA: Fitch Affirms 'B+' IDRs, Outlook Negative BANCO PINE: Fitch Affirms 'B-' IDRs & Alters Outlook to Stable DEXCO SA: Fitch Assigns 'BB+' Foreign Currency IDR, Outlook Neg. TUPY SA: S&P Affirms 'BB' ICR on Acquisition of MWM do Brasil C H I L E CHILE: President Boric Unveils Economic Recovery Plan GUACOLDA ENERGIA: Fitch Cuts IDR to 'CCC-' Then Withdraws Rating J A M A I C A [*] DIGICEL GROUP: Sees Improvement in Revenue M E X I C O PETROLEOS MEXICANOS: Under Pressure to Resume Debt Repayments - - - - - ================= A R G E N T I N A ================= ARCOS DORADOS: To Release Q12022 Financial Results on May 18 ------------------------------------------------------------ Arcos Dorados Holdings Inc. invited everyone for a webcast to discuss the Company's results for the first quarter ended March 31, 2022, which will be released before the market opens on Wednesday, May 18, 2022. Marcelo Rabach, Chief Executive Officer, and senior management will host the webcast. Opening remarks will be followed by a question and answer period. Participants will be able to join the webcast (Google Chrome is recommended) with the title Arcos Dorados First Quarter 2022 Results Webcast. The link will be available on the Events section of the Company's Investor Relations webpage, www.arcosdorados.com/ir. The webcast replay will be available using the same link, through August 16, 2022. About Arcos Dorados Arcos Dorados is the world's largest independent McDonald's franchisee, operating the largest quick service restaurant chain in Latin America and the Caribbean. It has the exclusive right to own, operate and grant franchises of McDonald's restaurants in 20 Latin American and Caribbean countries and territories with more than 2,250 restaurants, operated by the Company or by its sub-franchisees, that together employ over 90 thousand people (as of 03/31/2022). The Company is also committed to the development of the communities in which it operates, to providing young people their first formal job opportunities and to utilize its Recipe for the Future to achieve a positive environmental impact. Arcos Dorados is listed for trading on the New York Stock Exchange (NYSE: ARCO). To learn more about the Company, please visit the Investors section of our website: www.arcosdorados.com/ir. The Troubled Company Reporter-Latin America reported on Apr 20, 2022,reported that Moody's Investors Service assigned a Ba2 rating to the proposed seven to 10-year senior unsecured sustainability-linked notes to be issued by Arcos Dorados B.V., fully and unconditionally guaranteed by its parent company, Arcos Dorados Holdings Inc. ("Arcos Dorados"). The Ba2 ratings on Arcos Dorados existing notes remain unchanged. The outlook is stable. Fitch Ratings has also assigned a 'BB' to the proposed new sustainability-linked unsecured notes issued by Arcos Dorados B.V. The notes will be fully and unconditionally guaranteed by Arcos Dorados Holdings Inc. Proceeds of the notes are for debt refinancing. GENNEIA SA: Discloses 163.5 MW of Wind, Solar Projects at Home -------------------------------------------------------------- Renewables Now reports that Argentine power producer Genneia SA said that it will invest USD200 million (EUR 184.6 million) in two new projects to add 163.5 MW of wind and solar capacity to its domestic clean energy portfolio. The additional capacity will be divided between the 60-MW Tocota III solar farm, which Genneia will build in the province of San Juan, and the 103.5-MW La Elbita wind farm in Buenos Aires province, according to Renewables Now. The company said it had secured these projects in the latest MATER auction, Argentina's power purchasing scheme that connects generators with large consumers that need to comply with renewable energy targets, the report notes. At present, Genneia operates 866 MW of wind and solar farms in Argentina. With the 80-MW Sierras de Ullum solar farm it is currently building in San Juan, and the two new projects, Genneia stands to become the first company in the country to have more than 1 GW of installed renewable energy capacity, it said, the report relays. Over the past five years, Genneia invested some USD 1.2 billion in renewables, the company added, the report notes. As reported in the Troubled Company Reporter-Latin America on April 15, 2022, Fitch Ratings has affirmed Genneia S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'CCC'. Fitch has also affirmed Genneia's senior secured notes due 2027 at 'CCC'/'RR4'. ============= B O L I V I A ============= BOLIVIA: To Strengthen Statistical System with $100MM IDB Loan -------------------------------------------------------------- Bolivia will upgrade its statistical system to increase the use of official statistics in public and private decision-making through a $100 million loan from the Inter-American Development Bank (IDB). The program will fund measures to improve the quality of official statistical information in terms of relevance, timeliness, reliability, and accessibility, and to strengthen the National Statistics Institute (INE) both technically and institutionally. The program will provide technical and financial support for a new round of censuses, including the Population and Housing Census, Agricultural Census, and Economic Establishments Census, following international standards and best practices. To this end, the program will promote innovation through state-of-the-art technologies such as satellite images, digital cartography, digital instruments for information capture, and modern and secure technological instruments for information processing and dissemination. The initiative will also help consolidate an integrated system of household surveys that includes instruments with a gender perspective, such as the Comprehensive Survey on the Situation of Women and the Time Use Survey, along with operations such as the Household Budget Survey and Victimization and Citizen Security Survey, among others. In addition, the program will finance the technical and institutional strengthening of the INE. The goal is for the information it generates through censuses, surveys, and administrative records to be of high quality and that it includes innovations in all phases of the production process of official statistics, particularly data collection and interaction with surveyed individuals. In this context, the IDB loan will help fund training, technical assistance, systems, equipment, and processing and dissemination of statistical data, among other activities. The central government and its decentralized units will benefit from this program by counting on quality, reliable, timely, and relevant information to develop public policies, plans, and socioeconomic projects, and to measure the progress of these initiatives and actions. In particular, INE will benefit from having an updated database on the entire population, living and housing conditions, and the business and agricultural sectors. It will also have modern tools for data capture, processing, and dissemination, including trained personnel. Civil society will also benefit from having updated and disaggregated census information that will help formulate plans, investment projections, supply of goods and services, and conducting scientific and academic studies and research. This operation is in line with Vision 2025, created by the IDB as a roadmap to achieve recovery and inclusive growth in Latin America and the Caribbean in the areas of digital economy, gender and inclusion, and climate change. The IDB's $100 million loan has a 20-year maturity, a 10-year grace period, an interest rate based on SOFR, and $40 million in counterpart funds for the Population and Housing Census from FONPLATA - Development Bank. =========== B R A Z I L =========== BANCO BS2: Fitch Affirms 'B' LongTerm IDRs, Outlook Negative ------------------------------------------------------------ Fitch Ratings has affirmed Banco BS2 S.A.'s (BS2) Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'B' and Viability Rating at 'b'. At the same time, Fitch has downgraded BS2's National Long-Term Rating to 'BBB-(bra)' from 'BBB(bra)'. Fitch has also maintained the Negative Rating Outlook on BS2's Long-Term IDR and National Long-Term Rating. Fitch has withdrawn BS2'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 BS2 a Government Support Rating (GSR) of 'ns'. KEY RATING DRIVERS Long-Term National Rating Downgrade: The downgrade of BS2's long-term national rating reflects Fitch´s view that the deterioration on the bank´s financial profile, particularly on earnings and capitalization, coupled with the difficulties the bank is having to reverse this negative trend, makes the existing rating no longer commensurate with the risk and because of that, the bank no longer compares to the other entities rated at 'BBB(bra)' level. Outlook Remains Negative: BS2's Negative Outlook reflects Fitch's assessment that the bank´s profitability is likely to remain low in 2022 while capitalization metrics are expected to remain weak. The Outlook also mirrors the execution risks stemming from the bank's ability to develop its strategy but above all to achieve a sustainable breakeven point under the rating horizon over the next 12-24 months. Strategy Limited by Retail Exit Execution: BS2's ratings continue to reflect the challenges the bank has in developing its strategy in parallel with the exit of its retail digital bank unit. The observed changes in the bank's business model in addition to the difficulties the entity has in properly execute its strategy limit its ratings. BS2 has advanced in its objectives of leaving its retail activities - e.g. sale of its credit card processing software, transfer of clients and sale of its investment arm. The bank repositioned its franchise in 2021, focusing on developing its SME digital bank ecosystem, comprising both credit and fee based products. In Fitch´s view, the bank's capacity for generating positive results from the proper execution of its strategy has been limited by the duration of its retail exit plan coupled with the limited capacity the bank has to grow. Profitability Improvements Still Uncertain: BS2's profitability continues to be dragged by the costs associated with its retail digital bank unit. The bank's 2021 results heavily benefited from non-recurring, non-operational results (namely the sale of specific non-core assets) coupled with the positive performance of the group acquiring subsidiary. BS2's operating profit-to-risk-weighted assets ratio stood at 0.1%, from negative 1.6% in 2020. BS2´s profitability will remain pressured in 2022 as the retail unit disinvestments at the same time the investments to develop its current strategy will continue throughout the year. Fitch considers that the recovery of the bank's long-term profitability continues to be dependent on the execution success of its strategy plan. The bank expects to achieve a breakeven point during 2023. Capitalization Remains Pressured: BS2's capitalization metrics at end-2021 remain tight and below peers even considering the results reported and the capital injections made. BS2´s CET1 ratio stood at 10.6% at end-2021, from 8.5% at end-2020, while its total regulatory ratio went up to 13.1%, from 11.4% at 2020. Fitch expects BS2's capitalization metrics to remain weak and pressured given the bank's growth strategy coupled with weak profitability metrics in 2022. Adequate Asset Quality Metrics: Despite the bank's overall strategy reorientation, BS2's asset quality metrics remains adequate and aligned with its peers. Loans classified as 'D-H' ratings went down to 1.7% at end-2021, from 5% at end-2020, also benefiting from the strong growth in loans in the period, 34.9% on a yoy comparison. The bank's coverage stood at 104.1%, up from 43% a year before. Although the bank has a strategy to increase its SME client base, diversifying sectors, BS2 continues to report relatively high concentrations on top clients; top 10 clients account for 61.2% at end-2021, up from 55.2% at end-2020. Funding Profile Will Not Change After Retail Exit: The bank's funding structure and liquidity remain stable and are considered adequate for its current rating levels and its strategy. BS2's funding base is broadly based on agreements with brokerages that distribute the bank's investment options to retail clients. No structural changes on funding and liquidity are expected with the runoff of BS2's retail activities given the low representativeness of the bank's retail clients on the overall funding base. The bank's loan to-deposits ratio adjusted for the local deposit-like products stood at 21%, a level that compared favorably with peers and due to the bank's relatively low loan book when compared with assets. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- BS2's ratings would be negatively affected if the bank's recurring operating profit generation capacity does not improve in the next 12-18 months or if losses lead to a material decline in the bank´s total regulatory capital ratio, CET 1 below 9.5%; -- Further deterioration of Fitch´s assessment of the bank´s competitive and business. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The Outlook could be revised to Stable if BS2 is able to develop its current strategy, concluding its business model and franchise reorientation, resulting in profitability improvements in the short term, leading to an operational breakeven point; -- Improvements in capital buffers to levels comfortably above requirements, CET1 level sustainably above 11%; -- Maintenance of current asset quality metrics. VR ADJUSTMENTS The Asset Quality Score of 'b+' has been assigned below the implied 'bb' Asset Quality Score due to the following adjustment reason: Concentration (negative). The Funding & Liquidity Score of 'bb-' has been assigned below the implied 'bbb' Funding & Liquidity Score due to the following adjustment reason: Deposit Structure (negative). 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. 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 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. DEBT RATING PRIOR ---- ------ ----- Banco BS2 S.A. LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B Affirmed B LC ST IDR B Affirmed B Natl LT BBB-(bra) Downgrade BBB(bra) Natl ST F3(bra) Affirmed F3(bra) Viability b Affirmed b Support WD Withdrawn 5 Support Floor WD Withdrawn NF Government Support ns New Rating BANCO DAYCOVAL: Fitch Affirms 'BB-' IDRs, Outlook Negative ---------------------------------------------------------- Fitch Ratings has affirmed Banco Daycoval S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlook on the IDRs is Negative. In addition, Fitch has affirmed the bank's National Long-Term Rating at 'AA(bra)'. The Rating Outlook on the National Long-Term Rating is Stable. Fitch has withdrawn Daycoval'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 Daycoval a Government Support Rating (GSR) of 'ns'. KEY RATING DRIVERS Daycoval's IDRs and National Ratings are driven by its intrinsic strength, as reflected in its 'bb-' viability rating (VR). The VR reflects the bank's well established niche franchise, in particular in the SME segment, sound earnings generation capacity through economic cycles and adequate capitalization and funding structure. The Long-Term IDR and VR are constrained by the Brazilian sovereign rating (BB-/Negative), reflecting the concentration of its activities in the country and high sovereign-related exposure relative to equity. The Negative Outlooks on their Long-Term IDRs reflect Brazil's rating. Strong Niche Franchise: Daycoval is Brazil's largest midsized bank. Its overall banking franchise is small in national terms (with 0.6% of domestic banking assets at end-2021); however, the bank's sound niche franchise confers some pricing power, and has supported adequate business volumes among multiple periods. Well-Managed Risk Profile: Daycoval's lending book is sensitive to the performance of domestic SMEs (77% of loans), which Fitch views as more vulnerable borrowers relative to large corporates or other types of secured loans. However, the risk controls are sound, underpinned by Daycoval's well demonstrated risk pricing expertise in the SME segment and a share of well-collateralized payroll and auto loans (about 23% of loans). Lower than Expected Asset Quality Deterioration: Daycoval's impaired ratio improved to 3.7% at YE 2021 from 4.4% at YE 2029 owing to a combination strong loan growth and the relatively contained inflow of stressed exposures and non-performing loans (NPLs) since the onset of the pandemic. Fitch expects delinquency ratios to normalize over 2022 as relief loans continues to expire, but likely result in more limited deterioration than initially expected. The relatively contained amount of pandemic-related renegotiated loans (1.4% of loans) also signals that borrowers' repayment capacity remained broadly adequate during the pandemic. Earnings is a Rating Strength: The bank has a resilient pre-impairment profitability underpinned by its good-yielding SME lending assets and robust cost efficiency, providing adequate loss absorption capacity given the bank's strategic focus on SMEs. The short duration of its assets allows the bank to reprice loans relatively quickly, maintaining controlled interest rate sensitivity. Operating profit/risk-weighted assets (RWAs) reached 5.2% in 2021 and averaged 5.1% in the last four years, with minimal volatility. Adequate Capitalization: Capitalization levels are adequate considering Daycoval's chosen business model and credit risk profile. The bank's common equity Tier 1 (CET1) ratio of dropped to 10.8% at YE 2021 from 13.1% at YE 2020, despite good earnings retention in the period, reflecting risk-weighted asset inflation on loan growth. Daycoval's business volumes remained strong in 2021 thanks to strong client demand for credit. The stock of loans was 70% higher at YE 2021 compared with pre-pandemic levels. Fitch expects the bank to maintain a Tier 1 ratio of around 14% and a dividend pay-out ratio of 50%, in line with its strategic targets. Stable Funding and Liquidity: Daycoval largely funds its SME-oriented loan book through a combination of wholesale deposits and financial bills (Letras Financeiras), which accounted for around 80% of total funding (loans-to-deposits ratio of 106% at YE 2021. Liquidity management is supported by the short-term profile of assets and the possibility to sell payroll lending assets, that enjoys adequate investors' appetite in the domestic market. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: The most likely trigger for a downgrade of Daycoval's VR would be the bank's inability to maintain its good earnings generation capacity, resulting in an operating profit structurally below 2% of RWA, and without credible prospects to restore it over the medium to long term. This could stem from a structural deterioration in Daycoval's revenue (i.e. prolonged lower business activity) or higher-than-expected credit risks. A sovereign rating downgrade would result in a similar action on Daycoval's VR and Long-Term IDRs due to the constraint of the sovereign's ratings. Factors that could, individually or collectively, lead to positive rating action/upgrade -- Daycoval's IDRs currently have a Negative Outlook, which makes an upgrade highly unlikely in the near future. -- A sustained recovery in the macroeconomic environment, including a reduction of vulnerabilities in the Brazilian economy could underpin an Outlook revision to Stable; -- A positive rating action on the sovereign would lead to a similar action on the bank. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Daycoval's senior unsecured debt is rated in line with its IDRs as the likelihood of default on these obligations reflects the likelihood of default of the entity. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: Daycoval's senior unsecured debt ratings is sensitive to a change in its IDR. Therefore, a downgrade on the bank's IDR would automatically trigger a downgrade on the debt ratings. VR ADJUSTMENTS The Earnings and Profitability 'bb-' has been assigned below the implied 'bbb' Earnings & Profitability Score due to the following adjustment reason: Revenue Diversification (negative). The Funding & Liquidity of 'bb-' has been assigned above the implied 'b' Funding & Liquidity Score due to the following adjustment reason: Deposit Structure (positive). BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. 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. DEBT RATING PRIOR ---- ------ ----- Banco Daycoval S.A. LT IDR BB- Affirmed BB- ST IDR B Affirmed B LC LT IDR BB- Affirmed BB- LC ST IDR B Affirmed B Natl LT AA(bra) Affirmed AA(bra) Natl ST F1+(bra)Affirmed F1+(bra) Viability bb- Affirmed bb- Support WD Withdrawn 5 Support Floor WD Withdrawn NF Government Support ns New Rating senior unsecured LT BB- Affirmed BB- BANCO FIBRA: Fitch Affirms 'B+' IDRs, Outlook Negative ------------------------------------------------------ Fitch Ratings has affirmed Banco Fibra S.A.'s (Fibra) Long-Term, Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B+'. The Rating Outlook on the IDRs is Negative. In addition, Fitch has affirmed the bank's National Long-Term Rating (NLTR) at 'BBB+(bra)'. The Rating Outlook on the NLTR is Stable. KEY RATING DRIVERS Fibra's IDRs and National Ratings are driven by its intrinsic strength, as reflected in its 'b+' Viability Rating (VR). The VR reflects Fibra's improved risk profile since its retail portfolio run-off. This has supported continuous progress on the execution of its restructuring plan and has led to notable improvements in asset quality in the last four years. However, the ratings also reflect Fibra's modest, albeit improving, core operating profitability and capitalization metrics that are at the low end for its rating category. Since dropping its retail segment, the bank has adopted a more conservative underwriting standard, with a focused client target market approach and mainly offering structured credit products with some kind of guarantee. This approach proved to be beneficial, resulting in a steady improvement in asset quality measures. The Negative Outlooks on the Long-Term IDRs mirror the Outlook on Brazil's sovereign rating. In Fitch's view, the bank's capitalization is pressured, and this will limit credit growth especially when considering the negative operating environment of Brazil. Stabilization on the Business Profile: Fibra's business profile is focused on structured loans with receivables as guarantees and it benefits from the synergy it has with the group by providing loan operations with the suppliers, especially the suppliers of Compania Siderurgica Nacional (CSN). The bank's main focus are corporates with over BRL 300MM in revenue, SMEs and agrobusiness, which provided the bank with some stability during the uncertain economic period driven by the COVID 19 pandemic in 2020. The business model reflects the bank's relatively small size, modest but upward profitability and limited client base and product offerings relative to its peers. Well-Managed Risk Profile: Fibra's risk profile is in line with standard industry practices. The bank is focused on structured loans with collateral (guarantees or receivables) and plays within its strengths. Risks and reporting tools are adequate, and risk limits are well-monitored. Fibra's exposure to market risk is very low, representing only 4% of its RWA and in line with its peers. The Expanded Loan Portfolio totaled BRL 6.2 billion at the end of December 2021, with growth of 2.4% in 2021. Good Asset Quality Ratios: Fitch's asset quality compares favorably against its peers, with an NPL ratio of 0.6% in December 2021 (1.6% in December 2020 and 4.5% in December 2019). The improving NPL ratio is a result of a combination of credit portfolio growth and a nominal reduction in delinquent loans. To date, the bank has not experienced any material deterioration in asset quality measures despite the weak macroeconomic environment caused by the pandemic. The impaired Loans average last four years was 4.5%. With a Loan Loss Reserve of 85% in December 2021, Fitch believes the bank is in an adequate position to absorb credit deterioration. Earnings and Profitability Remain Low: Fibra's core banking earnings has improved over the past three years (2018, 2019 and 2020) on the back of growing business volumes and on reduced loan impairment charges. However, profitability still falls short in comparison with its peers due to less diversified revenue sources and comparatively weaker cost efficiency. In 2021 operating results were low and the core metric, Operating Profits/RWA 4 Years Average was 0.62%. Over the near term, continued momentum in client growth following will be important to support 2022 earnings, although Fitch anticipates that underlying profitability will remain modest. Modest Capital Ratios: In terms of capitalization, Fibra's CET1 ratio was 9.0% at 2021 (9.4% in February 2022). Although adequate and above regulatory cushion, its capital ratios are modest compared to some of its peers. The bank has not paid dividends and plans to continue to limit dividend distribution to shore up its capital through internal capital generation. Funding and Liquidity Remains Stable: Fibra largely funds its loan book through wholesale deposits and financial bills (Letras Financeiras), distributed through a series of partner brokerages. The result was a funding expansion of 13% compared to 2022 and a loan to customer deposits ratio of 81.0% in December 2021 and a 97.8% four-year average, which is in line with its peers. Liquidity remained adequate when compared with short-term needs. Liquid assets totaled BRL1.7 billion in December 2021. Government Support Rating (GSR): Fibra's GSR reflects Fitch's view that the bank cannot rely on receiving extraordinary support from the sovereign. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A sustained reduction in the bank's capitalization driven by fast credit portfolio expansion, significantly outpacing its internal capital generation to a CET 1 ratio below 8%. -- A substantial deterioration of the bank's asset quality and earnings driven by a significant change in long-term strategy. -- Operational losses in 2022. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A sustained improvement in operating profitability (Operating Profit/RWA) of over 3.0% without deterioration in asset quality metrics. -- Improvement in capitalization metrics (e.g. a CET 1 ratio above 14%). -- An upgrade is unlikely in the near future. -- A potential upgrade of Fibra's GSR is unlikely for the foreseeable future, as this would only arise from a material gain in the bank's systemic importance. VR ADJUSTMENTS The VR has been assigned in line with the implied VR. 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 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. DEBT RATING PRIOR ---- ------ ----- Banco Fibra S.A. LT IDR B+ Affirmed B+ ST IDR B Affirmed B LC LT IDR B+ Affirmed B+ LC ST IDR B Affirmed B Natl LT BBB+(bra) Affirmed BBB+(bra) Natl ST F2(bra) Affirmed F2(bra) Viability b+ Affirmed b+ Government Support ns Affirmed ns BANCO PINE: Fitch Affirms 'B-' IDRs & Alters Outlook to Stable -------------------------------------------------------------- Fitch Ratings has affirmed Banco Pine S.A.'s (Pine) Viability Rating (VR) at 'b-' and its Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B-'. At the same time, Fitch has affirmed Pine's Long-Term National Rating at 'BB+(bra)'and Short-Term National Rating at 'B(bra)'. The Long-Term (LT) Rating Outlooks are revised to Stable from Negative. Fitch has withdrawn Pine'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 Pine a Government Support Rating (GSR) of 'ns'. KEY RATING DRIVERS IDRS, VR AND NATIONAL RATINGS Outlook Revision: The revision of Pine's Long-Term Rating Outlook to Stable primarily reflects the gradual improvements observed in profitability metrics, although the bank continues to report operational losses. In Fitch's assessment, despite considering that Pine will report weak profitability metrics in 2022, the bank will be able to sustain capital buffers close to those reported at YE 2021. Pine's current rating level already captures execution risks stemming from its business profile and the volatility expected as a result in its financial profile, especially on earnings and capitalization. Strategy Development Still Limited: Pine's current business model, which focuses on both small and medium enterprises (SMEs) - 41% of total loans, in addition to large corporates (59%), remained relatively stable. Pine's business model changes in addition to the difficulties the bank has to proper execute its strategy limits its ratings. In Fitch's view, Pine's ability to successfully implement its current strategy has been curbed by weak capitalization metrics. At the same time, Pine's difficulties selling its relevant consolidated foreclosed assets have also prevented the bank from fully implementing its strategy. Legacy Disinvestment Key for Profitability: Despite gradually improving, Pine's profitability continues to be limited by the scale of its business, which has been hampered by the size of foreclosed assets and tight capitalization metrics. In 2021, Pine reported a negative 0.2% operating profit/RWA ratio, from negative 1.8% a year before. Despite improvements on margins, provisions reversions and the maintenance of a strict fixed cost expansion, Pine's ability to achieve a sustainable operational breakeven remains dependent on the bank's execution to reduce its foreclosed assets, which not only will release capital for core asset growth but also further improve revenues. Fitch expects Pine's profitability to remain limited and dependent on the execution of asset sales. However, a recurring sustainable operational breakeven achievement is not expected to occur in 2022. Tight Buffers Limits Growth: Pine continues to report pressured and below peer's capitalization metrics. Despite the reported growth on loans, Pine was able to sustain its common equity Tier 1 (CET1) ratio. At YE 2021, the bank reported a 9.6% CET1 ratio, from 10.7% a year before. At the same time, total regulatory capital ratio fell to 11.1% from 11.7% at YE 2020. Pine's current capitalization constrains the bank's ability to absorb potential losses and to proper implement its business model. The bank is currently in a follow-on offer that has the potential to inject up to BRL70 million in 2Q22. Fitch expects that Pine will maintain tight capitalization metrics given that the additional capital will be used for growth coupled with Fitch's assessment that earnings will remain pressured. However, Fitch's assessment considers that the bank will maintain a modest growth appetite, as a result Fitch expects capitalization metrics at end-2022 to be close to current levels. Delinquency Trend Benefits from New Strategy: Pine's asset quality metrics continues to gradually improve although still higher than peers as a result of the expansion of its new strategy. Pine's impaired loans ratio declined to 7.6% at YE 2021 (0.3% NPLs), from 8.6% (0.6%) at YE 2020 as a combination of the high level of renegotiations (10.7% of total loans in 2021), clean-up of part of its legacy portfolio over the last two years coupled with the good performance of its lending activities under the new strategy. Pine's impaired loans coverage declined to 70.6% in 2021, from 88.4% a year before, as a result of a specific write-off. At the same time, the bank's NPLs coverage reached 17.6x at end-2021, from 13.7x in end-2020. Fitch expects Pine's delinquency ratios to kept relatively stable but still dependent on the execution of its legacy portfolio management, which corresponds to BRL 997 million or 6.5% of total assets at end-2021. Funding and Liquidity Remains Stable: Pine's liquidity and funding structure, which is broadly based on agreements with brokerages that distribute Pine's investment options, mainly term deposits to individuals with no liquidity, remains good and stable. At YE 2021, Pine reported a reduction on its liquidity, from to BRL1.2 billion, from BRL2.4 billion a year before. The reduction observed was already expected given that the bank has been reducing its liquidity carrying costs. On top of that, over the past years, Pine adopted a strategy to increase its funding tenor, reducing concentrations, at the same time, hedging its funding cost to have a better predictability on margins. The bank's loan-to-deposits ratio adjusted for the local deposit-like products stood at good 59.8% at YE 2021, which compares favorably with peers. 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 9.0%. -- A substantial deterioration of the bank's asset quality stemming from a higher risk appetite; -- Execution problems on foreclosed assets disinvestment targets and/or relevant operational losses in 2022. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade is highly unlikely in the short term. In the medium term, Pine's ratings could benefit from improvements of its business profile stemming from the development of its current strategy, coupled with improvements in profitability, operating profit/risk weighted assets ratios above 1%; -- The maintenance of a CET 1 ratio above 10.5%. VR ADJUSTMENTS The Viability Rating has been assigned in line with the implied Viability Rating. 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 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. DEBT RATING PRIOR ---- ------ ----- Banco Pine S.A. LT IDR B- Affirmed B- ST IDR B Affirmed B LC LT IDR B- Affirmed B- LC ST IDR B Affirmed B Natl LT BB+(bra) Affirmed BB+(bra) Natl ST B(bra) Affirmed B(bra) Viability b- Affirmed b- Support WD Withdrawn 5 Support Floor WD Withdrawn NF Government Support ns New Rating DEXCO SA: Fitch Assigns 'BB+' Foreign Currency IDR, Outlook Neg. ---------------------------------------------------------------- Fitch Ratings has assigned 'BB+' Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) to Dexco S.A. (Dexco). The Rating Outlook for the FC IDR is Negative and for the LC IDR is Stable. Fitch currently rates Dexco's National Scale Long-Term rating 'AAA(bra)'/Stable. Dexco's ratings reflect its strong business position in the Brazilian wood panel and building materials industries, as well as its proven ability to generate robust operating cash flows throughout economic cycles. Dexco demonstrates strong financial discipline, underpinned by a long track record of operating with low financial leverage and a strong liquidity position. This has resulted in strong access to both banks and the local capital market. The Negative Outlook for the FC IDR mirrors the Outlook of Brazil's sovereign rating. The Stable Outlook for the LC IDR reflects Fitch's expectation that Dexco's adjusted net leverage will remain below 3.0x over the rating horizon, despite a punctual and moderate peak of 3.3x in 2022, due to higher investments. Dexco should continue to present growing operating cash flow generation and healthy profitability. KEY RATING DRIVERS Strong Business Position: Dexco's large operating scale and strong product portfolio are key competitive advantages. These factors, in addition to the fragmented nature of its customers, allows the company to pass through most cost increases and maintain operating margins throughout cyclical downturns. Dexco is the largest Brazilian wood panel producer, with an estimated market share of 33%. This segment represented 68% of EBITDA in 2021. Dexco's product portfolio is also comprised of the Deca division, which accounts for about 20% of EBITDA and consists of sanitary products. Dexco is also one of the main players in the ceramic tiles segment. Increasing Diversification: Dexco's 49% stake in dissolving pulp producer LD Celulose will diversify its business model and contribute to a dividends flow in hard currency in the long term. LD Celulose, which is a JV with Lenzing, is in the process of ramping up a mill that has an annual production capacity of 500,000 tons of dissolving pulp; the investment related to this pulp mill cost about USD1.4 billion. Dexco does not consolidate LD Celulose on its balance sheet, and Fitch's rating case incorporates dividends inflow starting only in 2025. The mill will have some of the lowest costs in the industry, and all production will be absorbed by Lenzing through an off-take agreement valid until 2035. Challenging 2022 Scenario: Fitch expects Dexco to face some headwinds in 2022 due to an economic downturn in Brazil and slower global GDP growth rates. Fitch projects sales volume increasing by 1% in 2022 in wood panels and Deca and by 2.5% in ceramic tiles, supported by additional installed capacity. The rating case assumes a 10% to 12.5% increase in revenue per unit in 2022. While demand from homebuilders should remain solid, supported by high launches in the last years, the unstable business conditions could slowdown demand in the retail segment and momentum for more aggressive upward price adjustments. Dexco's sales volumes increased in 2021 by 10% in wood panel, 8% in Deca and 4% in ceramic tiles, while revenue per unit increased by 20% to 33%. Robust Cash Flow Generation: Fitch expects Dexco to generate EBITDA of BRL2.0 billion and cash flow from operations (CFFO) of BRL1.1 billion in 2022, and BRL2.3 billion and BRL1.7 billion, respectively, in 2023. This compares with BRL2.1 billion of EBITDA and BRL1.6 billion of CFFO in 2021. Fitch's projections considered a modest EBITDA margin reduction to 21.5% in 2022 from a strong 26% in 2021, due to inflationary pressures. In the medium term, Fitch expects margins in the 23%-24% range, as a result of Dexco's strategy in recent years to improve operating efficiency and optimize cost structure. New Investment Cycle: Dexco's FCF is projected to be negative in 2022 and 2023, at BRL1.1 billion and BRL375 million, respectively, and return to positive in 2024, following a period of higher investments. The company's new investment cycle includes factory modernization, forestry base increase, portfolio mix improvement and additional production capacity. Fitch's projections incorporate elevated investments of BRL3.7 billion in 2022 and 2023, while dividends should remain limited at 30% of net income. Conservative Capital Structure: Dexco has strong credit metrics and remains committed to preserve a conservative balance sheet. Fitch projects a temporary increase in adjusted net leverage to 3.3x in 2022 due to higher investments before returning to below 3.0x in 2023. Dexco has historically maintained its adjusted net debt/EBITDA ratio below 2.5x. Dexco's BRL6.3 billion adjusted total debt at end-2021 included BRL2.4 billion of off-balance debt from LD Celulose guaranteed by the company. Fitch forecasts Dexco's net debt to increase by BRL1.4 billion by 2024 and the off-balance sheet debt should increase to BRL2.9 billion by this year, before starting to reduce in 2023. Once LD Celulose's dissolving pulp mill is fully operational, it should generate an average of BRL1.5 billion of EBITDA per year. Rating Above Country Ceiling: Dexco's 'BB+' FC IDR is one notch higher than Brazil's 'BB' Country Ceiling, based on Fitch's expectation that EBITDA from exports and the Colombian operations would cover HC debt service in the next 12 months by 1.5x, in case of foreign currency issuances. The Negative Outlook for the FC IDR reflects the Outlook of Brazil's sovereign rating (BB-/Negative). Dexco's 'BB+' LC IDR with a Stable Outlook reflects its underlying credit quality. DERIVATION SUMMARY Dexco has a weaker business risk profile than its Latin American pulp & paper peers Celulosa Arauco y Constitucion S.A. (FC IDR BBB/Stable), Eldorado Brasil Celulose S.A. (FC IDR BB-/Positive), Empresas CMPC (FC IDR BBB/Stable), Klabin S.A. (FC IDR BB+/Stable) and Suzano S.A. (FC IDR BBB-/Stable). These peers all have greater operating scale, strong revenue flow from the pulp division and a more export-oriented business profile. Dexco, on the other hand, is more exposed to demand from the local market than its peers, which makes it more vulnerable to the domestic macroeconomic conditions. Dexco's rating equals Klabin's due to a track record of maintaining a more conservative capital structure. Dexco is rated above Eldorado, which is constrained by a 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 the Rating Case for the Issuer: -- Wood sales volume of 3.2 million m³ in 2022 and in 2023; -- Deca division sales volume of 29.8 million items in 2022 and 31.6 million items in 2023; -- Ceramic tiles sales volume of 25.9 million sqm in 2022 and 29.1 million sqm in 2023; -- Investments of BRL5 billion during 2022-2024. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Positive rating action for the company's FC IDR would be associated with the combination of an upgrade on Dexco's LC IDR and an upgrade on Brazil's Country Ceiling and/or improvement in offshore structural enhancements, allowing an uplift of two notches above the Country Ceiling; -- Positive rating action for the company's LC IDR would be associated to greater geographical or business diversification coupled with net adjusted debt/EBITDA ratio recurrently below 2.0x; -- An upgrade is not possible for the National Scale rating as it is at the highest level. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade on Brazil's Country Ceiling or a worsening in offshore structural enhancements would result in a similar rating action on Dexco's FC IDR; -- Negative rating action for the LC IDR and National Scale rating would be associated with a deterioration of Dexco's financial profile, with EBITDA margin recurrently below 18%, additional and material capital injections at the JV LD Celulose, pressuring its capital structure and/or net adjusted debt/EBITDA ratio recurrently above 3.0x. 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: Dexco has historically maintained strong cash reserves, and Fitch expects the company to preserve an extended debt amortization profile and conservative liquidity. At end-2021, Dexco had BRL1.4 billion of cash and marketable securities and BRL3.9 billion of total debt. The company's cash position comfortably covers debt maturities up to the end of 2023 of BRL1.4 billion. Dexco's financial flexibility is enhanced by its multiple access to financing, potential sale of forestry assets, if necessary, and a BRL500 million unused revolving credit facility. The accounting value of Dexco's biological assets was about BRL1.3 billion as of Dec. 31, 2021. Dexco's total debt consists of debentures (31%), Certificates Agribusiness Receivables (18%), FINAME lines (14%), export credit notes (14%), export financing (10%) and others (13%). Debt is denominated in local currency with a competitive cost. ISSUER PROFILE Dexco is the leading wood panel producer in Brazil, with 3.5 million cubic meters of annual domestic production and 0.3 million cubic meters in Colombia. Dexco is also one of the largest producers of sanitary ware and metals in Brazil, the second largest shower producer, and one of the main ceramic tile producers. SUMMARY OF FINANCIAL ADJUSTMENTS -- Fitch excludes from EBITDA: asset impairment, results from asset sale, biological asset's fair value variation and impact from business restructuring. 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. DEBT RATING ---- ------ Dexco S.A. LT IDR BB+ New Rating LC LT IDR BB+ New Rating TUPY SA: S&P Affirms 'BB' ICR on Acquisition of MWM do Brasil ------------------------------------------------------------- S&P Global Ratings affirmed its 'BB' issuer credit and issue-level ratings on Brazil-based auto supplier Tupy S.A. as well as its 'brAAA' national scale rating. Recovery rating of '3' (65%) remains unchanged. The positive outlook on the global scale rating indicates a possible upgrade in the next 12 months if S&P has confidence that Tupy will post gross debt to EBITDA at 2.0x-2.5x and free operating cash flow (FOCF) to debt above 10% after the acquisition. The outlook on the national scale rating remains stable. On April 18, 2022, Tupy S.A. announced the acquisition of International Industria Automotiva da America do Sul (MWM do Brasil or MWM) for an enterprise value of R$865 million. MWM reported net revenue close to R$2.7 billion in 2021, which would be slightly more than 30% of Tupy's likely consolidated revenue for 2022. MWM's main revenue comes from contract manufacturing of engines, which will allow Tupy to offer various services to its existing client base. MWM's acquisition will also enable Tupy to enter new segments: the "decarbonization" segment through the production of generator sets and conversion of engines for natural gas, biodiesel, biogas and biomethane; the "aftermarket" segment of components for engines and generators that has a countercyclical nature; and the "marine" segment in which MWM offers its own and third-party engines and gensets. On the other hand, MWM's EBITDA margin of about 8% in 2021 is significantly lower than Tupy's historical levels of 13%-14%. Also, S&P expects increasing costs for Tupy in the short term--mainly energy, raw materials, and labor--to delay the margin improvements through synergy gains from Teksid's recent acquisition. As a result, S&P will likely see Tupy's consolidated profitability closer to 11% after the incorporation of MWM. S&P said, "Upon the likely closing of the acquisition in the fourth quarter this year, Tupy will pay R$865 million. We believe the company will raise new debt for this payment, raising consolidated gross debt to R$3.3 billion – R$3.5 billion over the next few years from R$2.6 billion in 2021. As a result, we forecast debt to EBITDA close to 3.0x at the end of 2022, with no EBITDA contribution from MWM given the uncertain date for closing. We expect the ratio to improve to 2.0x-2.5x in 2023 and 2024 on higher EBITDA generation from current operations (Tupy and Teksid) and the contribution from MWM. "With the recently announced acquisition, Tupy's revenue base reaches the upgrade threshold, but with weaker profitability and higher leverage. As a result, we need to have a greater visibility for the company's EBITDA margin not falling significantly below 11% and for FOCF to gross debt remaining above 10%. According to management, MWM's business model is less capital intensive than Tupy's, which could strengthen cash flows. Tupy's track record of maintaining solid cash position, and consequently, stronger net leverage metrics, compensate for the weaker credit metrics at this point. But that's still insufficient for the company to have a 'BB+' rating." ESG Credit Indicators: E-3, S-2, G-2 S&P said, "Environmental factors are a moderately negative consideration in our credit rating analysis of Tupy. Electrification and the transition to CO2-neutral mobility are disruptive forces that will shape the industry. In Europe and North America, regulatory rules are well advanced for light vehicles, but those for heavy vehicles will be implemented in the long term. On the other hand, Tupy offers structural component products that have minimal dependence on the evolution of the internal combustion engine, and it supplies mainly for producers of commercial/heavy vehicles (85% of revenue in 2021). Another mitigating risk factor is that more than 90% of the company's raw materials is scrap metal, supporting a circular economy. Tupy also has several research and development initiatives that should help its clients reduce carbon emissions, such as for battery recycling and hydrogen. The acquisition of MWM also brings additional possibilities for the decarbonization process, because the company produces generator sets and converts engines for biofuels, such as natural gas, biodiesel, biogas and biomethane. These methods reduce the level of carbon emissions in the agribusiness sector, used to produce electricity in rural areas, and as fuel for truck fleets, buses, and tractors." ========= C H I L E ========= CHILE: President Boric Unveils Economic Recovery Plan ----------------------------------------------------- Buenos Aires Times reports that Chile's new leftist president, Gabriel Boric, whose election in December was met with market scepticism, announced an economic recovery plan worth US$3.7 billion that envisages the creation of half a million jobs. The millennial leader also promised a freeze on public transport ticket prices whose increase sparked protests in 2019 against economic hardship and deep-rooted social inequality, according to Buenos Aires Times. With the Chilean economy showing signs of a slowdown after rebounding in 2021 on the back of the worst phase of the pandemic, Boric announced a plan he called "Active Chile," the report notes. "We know that this recovery plan is just a start," he said in the capital Santiago. "Big changes are not achieved overnight," he added. Some US$1.3 billion will be dispersed directly to families in need, US$1.4 billion will go towards job creation, and another billion to propping up small and medium enterprises, Boric announced, the report discloses. Chile's unemployment rate is 7.5%, the report relays. The plan's freeze on public transport prices applies to sales in the year 2022 and comes despite global fuel price rises, the report notes. Boric had campaigned on a promise to install a "welfare state" in Chile, one of the world's most socially unequal nations. He pledged after his election to "expand social rights" but to do so with "fiscal responsibility," the report discloses. "We will do it protecting our macro-economy," he said at the time, the report says. The Santiago Stock Exchange closed 6.18% lower on Boric's win over neoliberal rival Jose Antonio Kast, and the Chilean peso plummeted to a historic low to the US dollar, the report notes. Chile's GDP grew 11.7% in 2021, spurred by government grants amounting to some US$3 billion to stimulate a pandemic-ravaged economy and individual withdrawals from private pension funds totaling US$50 billion, the report relays. The spending boost triggered inflation, which is expected to reach 10 percent by mid-2022, the report relays. The Central Bank reduced growth projections for 2022, the report adds. GUACOLDA ENERGIA: Fitch Cuts IDR to 'CCC-' Then Withdraws Rating ---------------------------------------------------------------- Fitch Ratings has downgraded Guacolda Energia SpA's (Guacolda) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC+'. Fitch has also downgraded Guacolda's senior unsecured notes due 2025 to 'CC'/'RR5' from 'CCC+'/'RR4'. The ratings have been removed from Rating Watch Negative. Simultaneously, Fitch has withdrawn Guacolda's ratings for commercial reasons. Guacolda's downgrade reflects its shareholders' ambiguous business strategy and refinancing plan for Guacolda's notes due 2025 coupled with the issuer's weaker contractual position over the rated horizon, resulting in higher leverage. Ratings recovery downgrade to 'RR5' reflects Fitch's recovery ratings scale analysis below average, between 11% and 30% according to the Waterfall Generated Recovery Computation (WGRC) per Fitch's Corporates Recovery Ratings and Instrument Ratings Criteria, for the outstanding notes. Fitch is withdrawing the ratings for commercial reasons as Guacolda has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for Guacolda. KEY RATING DRIVERS Ambiguous Business Strategy: Guacolda's principal shareholder, Capital Advisors', ambiguous business and refinancing strategy for the company's notes due 2025, raises serious concerns regarding the issuer's ability and willingness to repay its outstanding debt. Since taking control of Guacolda, the new shareholder has remained silent regarding its financial policy and intentions for the company's long-term plan, coupled with limited controls in place that prevent the owner from extracting Guacolda's cash. Increasing Unsustainable Leverage: Fitch believes the company's leverage in 2021 will be 5.4x compared with 3.0x in 2020. The increase in leverage is due to lower EBITDA explained by lower contracted volumes and more spot sales over the rated horizon. Fitch estimates Guacolda's EBITDA will average USD94 million between 2021 and 2023 and will decrease to an average of USD76 million between 2024 and 2025. Fitch's rating case assumes no additional debt beyond the company's USD500 million senior unsecured note due 2025. Dividends are not expected through 2025, and will negatively affect the rating. Net debt to EBITDA is estimated to average 2.1x between 2021 and 2025, and FFO interest coverage will average 3.7x between 2021 and 2025. Given Guacolda is a coal fired plant in Chile, Fitch expects the company will not easily access funding to refinance its bond. Declining Contractual Position: Guacolda has a weakening contractual position, which is credit negative. The company's contractual position will decrease by 50% in 2021 compared with 2020, followed by a 21% decrease in contractual position by YE 2022. The decreased position in 2021 is due to expiration of the company's regulated power purchase agreement (PPA) with Chilectra (Enel Distribucion) of 810 GWh/year, representing 12% of the total contracted position. The company's PPA is with non-regulated contracts, which are investment-grade credit counterparties in the mining and energy sectors. In 2021, Fitch estimates 60% of total energy sales are contracted, and are expected to average 30% of total volumes thereafter through 2025. Uncertain Regulatory Environment: Chile's decarbonization initiative threatens the viability of Guacolda. Further, the issuer is at risk of being disposed by the expansion of renewables to the Chilean grid. That said, if Guacolda is allowed to continue to operate past 2025, Guacolda has a competitive operating cost at USD30/MWh, which can bode well for the credit. The company is well placed even when considering the aggressive expansion of renewables into the grid, as the marginal cost of coal is materially below that of thermal gas at an average range of approximately USD55MWh-USD70MWh. ESG - Management Strategy: Guacolda's new shareholder business strategy is unclear, pertaining to contracted position, refinance and liquidity among other relevant topics, has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating. ESG - Group Structure: Fitch has no visibility on Guacolda's board independence and effectiveness, coupled with ownership concentration in one shareholder has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating. ESG - Financial Transparency: Guacolda has been silent on the strategy to repay or refinance its existing debt, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating. DERIVATION SUMMARY Guacolda's ratings downgrade reflects its higher leverage due to contract expiration over the rated horizon. Fitch expects gross leverage to be 5.4x in 2021, resulting in a more stressed capital structure compared with its peers AES Andes (BBB-/Stable), Enel Generacion Chile (A-/Stable), Engie Energia Chile S.A. (BBB+/Stable) and Colbun (BBB+/Stable). In terms of business profile, all of Guacolda's peers benefit from a diverse generation portfolio, with long-term contracted energy sales with investment-grade counterparties or regulated customers, with a contracted life of 10 years, providing stable and predictable cash flows. Guacolda's ratings are the lowest compared with its Chilean peers as a result of the company's relatively weaker financial profile, although the peers carry similar business risks. Guacolda's consolidated gross leverage, which is expected to 5.4x in 2021, is higher than that of AES Andes at 1.6x. Colbun's credit profile is quite similar to Engie, both consistent in the 'BBB+' rating level with leverage between the range of 2.2x and 2.9x measured as total debt to EBITDA and significantly stronger than Guacolda's capital structure. Enel Generacion's capital structure is the strongest among its peers in Chile, with gross leverage averaging 1.5x in recent years. Enel Chile has a lower business risk profile than its peers in the country, due to the integration of the traditional power generation business from its subsidiary Enel Generación Chile, the power generation from non-conventional renewable sources through Enel Green Power and the power distribution business through Enel Distribucion Chile. In terms of credit metrics, Enel Chile has consistently shown total debt to EBITDA of around 2.5x, resulting in a higher rating than its peers. Unlike its Chilean electricity GenCos mentioned above, Guacolda's credit profile does not benefit from having a diverse generation portfolio, having exclusively coal power plants, and faces material expiration of its contractual position. RATING SENSITIVITIES Rating sensitivities are not applicable as ratings has been withdrawn. 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 Position: As of Sept. 30, 2021, Guacolda had USD149 million in cash and equivalents, which covers eight years of interest expense of USD18.5 million. The company's debt consist solely of its 4.56% US$500 million senior unsecured notes due April 2025. ISSUER PROFILE Guacolda owns and operates a coal-fired thermoelectric generation facility, with a gross installed capacity of 760 MW. ESG CONSIDERATIONS Guacolda Energia SpA has an ESG Relevance Score of '5' for Management Strategy due to its unclear business strategy, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating. Guacolda Energia SpA has an ESG Relevance Score of '5' for Group Structure due to uncertainty regarding legal structure of the company and its shareholders, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating. Guacolda Energia SpA has an ESG Relevance Score of '5' for Financial Transparency due to silent approach to refinancing existing debt, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating. Guacolda Energia SPA is a single asset coal fired plant. Therefore, Fitch has assigned an ESG relevance score of '4' to Exposure to Environmental Impacts and GHG Emissions & Air Quality. Chile has announced a decarbonization strategy to be emission neutral by 2040, and Fitch believes that Guacolda is exposed to potential market disruption. 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. Following the withdrawal of ratings for Guacolda, Fitch will no longer be providing the associated ESG Relevance Scores. DEBT RATING RECOVERY PRIOR ---- ------ -------- ----- Guacolda Energia SpA LT IDR CCC- Downgrade CCC+ LT IDRWD Withdrawn CCC- LC LT IDR CCC- Downgrade CCC+ LC LT IDR WD Withdrawn CCC- senior unsecured LT WD Withdrawn CC senior unsecured LT CC Downgrade RR5 CCC+ ============= J A M A I C A ============= [*] DIGICEL GROUP: Sees Improvement in Revenue ---------------------------------------------- RJR News reports that there was an improvement in the financial performance of Digicel's business segments during the quarter ended December. A report in the Irish Times says mobile revenue rose by 5% and 12% for business solutions, according to RJR News. The Digital-plus home services unit, including fibre broadband and TV packages recorded 9% increase, the report notes. Digicel had 13.2 million subscribers in 32 markets across the Caribbean and Pacific regions at the end of the period, the report adds. About Digicel Group Digicel Group is a mobile phone network provider operating in 33 markets across the Caribbean, Central America, and Oceania regions. The company is owned by the Irish billionaire Denis O'Brien, is incorporated in Bermuda, and based in Jamaica. As reported in the Troubled Company Reporter-Latin America in April 2020, Moody's Investors Service downgraded Digicel Group Limited's probability of default rating to Caa3-PD from Caa2-PD. At the same time, Moody's downgraded the senior secured rating of Digicel International Finance Limited to Caa1 from B3. All other ratings within the group remain unchanged. The outlook is negative. Also in April 2020, the TCR-LA reported that Fitch Ratings has downgraded Digicel Limited to 'C' from 'CCC', and its outstanding debt instruments, including the 2021 and 2023 notes to 'C'/'RR4' from 'CCC'/'RR4'. Fitch has also downgraded Digicel International Finance Limited to 'CCC+' from 'B-'/Negative, and its outstanding debt instruments, including the 2024 notes and the 2025 credit facility, to 'CCC+'/'RR4' from 'B-'/'RR4'. Fitch has removed the Negative Rating Outlook from DIFL. =========== M E X I C O =========== PETROLEOS MEXICANOS: Under Pressure to Resume Debt Repayments ------------------------------------------------------------- Anthony Esposito at Reuters report that Mexico's cash-strapped state oil firm Petroleos Mexicanos (Pemex) is under pressure to resume financial debt repayments despite promises from President Andres Manuel Lopez Obrador that his government would pay them until 2024. Pemex (PEMX.UL) is due to pay some EUR1 billion to redeem a 2015 bond, two sources with knowledge of the matter told Reuters. "Pemex will make payment of its maturities this month with its own resources, since the finance ministry did not make capital contributions to the company in April (for that)," said one of the sources, who asked to remain anonymous, according to Reuters. Neither the finance ministry nor Pemex responded to requests for comment. Pemex, one of the world's most-indebted oil companies, has struggled with years of declining crude production and in 2020 lost its coveted investment-grade debt rating, the report relays. The source said between May and December, Pemex faces outstanding principal and interest payments, mainly related to bonds, worth some $3.8 billion, the report discloses. "The finance ministry notified Pemex about three weeks ago the company had to pay the eurobond, arguing it has more funds due to the increase in . . . oil prices," the source added. Pemex has said it must shoulder peso-denominated financial debt maturities in 2022 worth some $8.4 billion, and another $15.2 billion of debt commitments in other currencies, the report notes. The ministry has in recent weeks also pressed Pemex to resume amortizations linked mainly to debt issuances, which this year amount to some $7.5 billion, another $7.4 billion in 2023 and $8.8 billion in 2024, the source said, the report relays. In 2021, debt amortizations totaled about $6.4 billion, the report says. The second source told Reuters "the additional income from Pemex will be significant, and that allows the company to receive less (government) support", without giving details on how much extra income was expected due to the increase in crude oil prices following Russia's invasion of Ukraine. Pemex's financial debt closed 2021 at $109.0 billion. Net losses were $10.9 billion last year, the report recalls. Pemex has begun drawing up a refinancing plan for some $3.5 billion in financial debt, anticipating the funds will not come from the government for now, the first source said, the report notes. Mexico in January swapped short-term Pemex bonds for a new 10-year bond as part of a scheme to lower debt and reduce medium-term financial pressure on the firm, the report relays. Mexico's government in 2021 made capital contributions to Pemex of 202.569 billion pesos for debt repayments and granted the firm 73.280 billion pesos in tax incentives, the report notes. Pemex officials recently said the government will provide it with capital this year in accordance with its maturity profile, the report discloses. Last month, Lopez Obrador said Mexico will reduce refining output at Pemex while it modernizes its refineries, as the government capitalizes on high oil prices, the report recalls. Mexico has said it will use extra revenue collected from oil prices to subsidize domestic gasoline and diesel prices, helping to contain inflation, the report adds. As reported in the Troubled Company Reporter-Latin America on March 28, 2022, Fitch Ratings has affirmed Petroleos Mexicanos' (PEMEX) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlook is Stable. The rating action applies to approximately USD80 billion of international notes outstanding. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *