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/raid1/www/Hosts/bankrupt/TCRLA_Public/220511.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 Wednesday, May 11, 2022, Vol. 23, No. 88 Headlines C H I L E LATAM AIRLINES: $1.4 Billion Internal Loans Valid Under NY Law LATAM AIRLINES: GE Sued for Failure to File Chapter 11 Claim G U A T E M A L A GUATEMALA: Fitch Alters Outlook on 'BB-' LongTerm IDRs to Positive P E R U PERU: Risk Rises 1 Basis Point & Closes at 1.74 Percentage Points P U E R T O R I C O CONDADO ROYAL: Case Summary & Two Unsecured Creditors S T . V I N C E N T A N D T H E G R E N A D I N E S ST. VINCENT AND GRENADINES: To Reborrow US$9 Mil from Venezuela V E N E Z U E L A VENEZUELA: Maduro's 3% Tax is Pushing Local Back Into Bolivars - - - - - ========= C H I L E ========= LATAM AIRLINES: $1.4 Billion Internal Loans Valid Under NY Law -------------------------------------------------------------- Vince Sullivan of Law360 reports that a New York bankruptcy judge ruled late April 29, 2022, that $1.4 billion in intercompany loan claims asserted in the Chapter 11 case of LATAM Airlines Group SA are valid loans under New York law, overruling a claims objection from the debtor's official committee of unsecured creditors. In a 44-page opinion, U.S. Bankruptcy Judge James L. Garrity Jr. said LATAM Finance, an entity created by the debtor in 2016 to raise funds through note issues, provided five loans to the parent debtor through another affiliate, and that all the transfer agreements contained the necessary elements to be treated as a legitimate intercompany loan. About LATAM Airlines Group LATAM Airlines Group S.A. -- http://www.latam.com/-- is a pan-Latin American airline holding company involved in the transportation of passengers and cargo and operates as one unified business enterprise. It is the largest passenger airline in South America. Before the onset of the COVID-19 pandemic, LATAM offered passenger transport services to 145 different destinations in 26 countries, including domestic flights in Argentina, Brazil, Chile, Colombia, Ecuador and Peru, and international services within Latin America as well as to Europe, the United States, the Caribbean, Oceania, Asia and Africa. LATAM and its 28 affiliates sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in Chile, Peru, Colombia, Ecuador and the United States are part of the Chapter 11 filing. The Debtors disclosed $21,087,806,000 in total assets and $17,958,629,000 in total liabilities as of Dec. 31, 2019. The Hon. James L. Garrity, Jr., is the case judge. The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as bankruptcy counsel, FTI Consulting as restructuring advisor, Lee Brock Camargo Advogados as local Brazilian litigation counsel, and Togut, Segal & Segal LLP and Claro & Cia in Chile as special counsel. The Boston Consulting Group, Inc. and The Boston Consulting Group UK LLP serve as the Debtors' strategic advisors. Prime Clerk LLC is the claims agent. The official committee of unsecured creditors formed in the case tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters Jureller Southard & Stevens, LLP as conflicts counsel, UBS Securities LLC as investment banker, and Conway MacKenzie, LLC as financial advisor. Ferro Castro Neves Daltro & Gomide Advogados is the committee's Brazilian counsel. The Ad Hoc Group of LATAM Bondholders tapped White & Case LLP as counsel. Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew Glenn and partner Shai Schmidt, has been retained as counsel to the Ad Hoc Committee of Shareholders. LATAM AIRLINES: GE Sued for Failure to File Chapter 11 Claim ------------------------------------------------------------ Rick Archer of Law360 reports that investment firm Invictus Global Management has filed suit against a General Electric Co. subsidiary in a New York state court, alleging the firm bought a $15. 5 million claim being made against a bankrupt airline, but it was rendered worthless because GE missed a filing deadline. In a complaint filed in New York County Supreme Court May 5, 2022, Invictus said it paid GE Engine Services nearly $10.8 million for the right to collect on GE's claim for a contract canceled by bankrupt Chilean carrier LATAM Airlines, only for the bankruptcy court to rule the claim invalid because GE had failed to file for Chapter 11 claim. About LATAM Airlines Group LATAM Airlines Group S.A. -- http://www.latam.com/-- is a pan-Latin American airline holding company involved in the transportation of passengers and cargo and operates as one unified business enterprise. It is the largest passenger airline in South America. Before the onset of the COVID-19 pandemic, LATAM offered passenger transport services to 145 different destinations in 26 countries, including domestic flights in Argentina, Brazil, Chile, Colombia, Ecuador and Peru, and international services within Latin America as well as to Europe, the United States, the Caribbean, Oceania, Asia and Africa. LATAM and its 28 affiliates sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in Chile, Peru, Colombia, Ecuador and the United States are part of the Chapter 11 filing. The Debtors disclosed $21,087,806,000 in total assets and $17,958,629,000 in total liabilities as of Dec. 31, 2019. The Hon. James L. Garrity, Jr., is the case judge. The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as bankruptcy counsel, FTI Consulting as restructuring advisor, Lee Brock Camargo Advogados as local Brazilian litigation counsel, and Togut, Segal & Segal LLP and Claro & Cia in Chile as special counsel. The Boston Consulting Group, Inc. and The Boston Consulting Group UK LLP serve as the Debtors' strategic advisors. Prime Clerk LLC is the claims agent. The official committee of unsecured creditors formed in the case tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters Jureller Southard & Stevens, LLP as conflicts counsel, UBS Securities LLC as investment banker, and Conway MacKenzie, LLC as financial advisor. Ferro Castro Neves Daltro & Gomide Advogados is the committee's Brazilian counsel. The Ad Hoc Group of LATAM Bondholders tapped White & Case LLP as counsel. Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew Glenn and partner Shai Schmidt, has been retained as counsel to the Ad Hoc Committee of Shareholders. ================= G U A T E M A L A ================= GUATEMALA: Fitch Alters Outlook on 'BB-' LongTerm IDRs to Positive ------------------------------------------------------------------ Fitch Ratings has revised Guatemala's Rating Outlook to Positive from Stable, and has affirmed its Long-Term Foreign and Local Currency Issuer Default Rating (IDR) at 'BB-'. KEY RATING DRIVERS Strong Fiscal Consolidation: The Outlook revision to Positive reflects better than expected fiscal performance, driven by strong economic recovery and structural improvements in tax collection. Fitch expects that the combination of modest deficits and strong economic growth will keep the debt-to-GDP ratio at low levels, even in a less favorable external environment. Current account surpluses starting in 2016 have pushed international reserves up, improving already strong external liquidity. Credit Fundamentals: Guatemala's 'BB-' rating is supported by a track record of macroeconomic stability and conservative fiscal policies that have minimized government borrowing. These strengths are balanced by governance and human development indicators that compare unfavorably with the 'BB' and 'B' category, a low revenue-to-GDP ratio and political gridlock that limits the sovereign's ability to address these weaknesses. Swift 2021 Fiscal Consolidation: The central government deficit fell sharply to 1.2% of GDP in 2021 from 4.9% in 2020, driven by a historic 28% growth in revenue and the phase-out of extraordinary pandemic-related social transfers. Revenue growth was driven by the strong economic rebound and a one-off receipt from a large transaction in the telecommunications sector (0.2% of GDP), but likely also reflects structural improvements in tax administration. The tax agency has made important strides in improving tax compliance via better controls at the border and seaports that improve import tax collection, targeted taxpayer audits and expanded electronic invoicing. Modest Widening of the Deficit: Fitch expects that the central government deficit will rise to 2.2% of GDP in 2022, which incorporates execution of a supplemental infrastructure bill (0.4% of GDP) and temporary energy subsidies (0.2% of GDP), both passed by congress in March. For 2023, Fitch's baseline assumes the deficit will remain in line with 2022; however, presidential elections in June 2023 could put upward pressure on expenditures. The government has published general government data that Fitch has incorporated into its Sovereign Rating Model. The most important improvement with respect to central government data is in the interest-to-revenue ratio, as revenue is higher and interest lower due to consolidation within the general government. Deposit Buffer Limits Borrowing: Debt-to-GDP fell to 28.5% of GDP in 2021 after peaking at 29.2% in 2020, and Fitch expects it will fall to 27.4% by 2023, compared to a projected 2023 'BB' median of 55.0%. Strong revenue collections and issuance of a USD1 billion (1.2% of GDP) Eurobonds in 2021 resulted in an accumulation of 1.8% of GDP in deposits. The government plans to use around half of this deposit accumulation for budgetary financing in 2022. Fitch expects net external funding of around zero in 2022, as new borrowing is offset by a USD700 million bond due in June. Currently, the government is working to secure congressional approval of a USD500 million (0.5% of GDP) loan from the World Bank. Potential Growth by 2023: In 2021 the economy grew by 8.0%, which after a mild 1.5% contraction in 2020, is one of the region's strongest recoveries. Strong remittances from the U.S. were a major driver of growth, along with pent-up investment, high prices for agricultural exports, low interest rates and nearshoring by U.S. companies as a response to supply chain disruptions. Fitch expects that growth will cool down this year to 3.8% and return to potential (3.5%) by 2023. Higher oil prices (17% of imports in 2021) and monetary tightening by the U.S. Fed could pose headwinds for growth. Current Account Surpluses: Guatemala's current account balance surplus moderated to 2.5% of GDP in 2021 from its record-high 4.9% in 2020, close to its pre-pandemic 2019 level. Remittances surged 35% in 2021 to a record high USD15.3 billion (17.8% of GDP), contributing to an even larger 42% growth in imports. FDI inflows rose to a record-high USD3.5 billion due to the sale of a cell phone operator for USD2.2 billion, but net of this transaction remained roughly in line with the recent average of around USD1 billion (1.5% of GDP). Fitch projects that the current account surplus will moderate in 2022 to 1.5% of GDP due to strong imports and higher cost of imported oil. Build-up in Reserves: The central bank (Banguat) has continued to accumulate reserves as a result of strong FX inflows. Reserve adequacy is very high, representing 8.3 months of current external payments (CXP) in 2021. The substantial reserve buildup reflects the difficult balance Banguat faces in allowing for greater exchange-rate flexibility consistent with its inflation-targeting regime, while preventing remittance-fueled appreciation pressures from eroding competitiveness for its tradable sectors. Banguat estimates that the exchange rate is in line with fundamentals, while the IMF estimates a substantial undervaluation in the presence of a current-account surplus. Inflation Remains Subdued: Inflation was 4.2% yoy in March, demonstrating a much more subdued dynamic than regional peers. The lower inflation in Guatemala is partly due to favorable local climatic conditions that have contained pressure on food prices. Inflation expectations at the 12- and 24-month horizon remain anchored around the 4% (+/- 1pp) target. Fitch expects domestic inflation will rise to 4.7% by year-end. However, risks are to the upside given uncertainty around second-round effects of the recent global commodity price shock. Accommodative Monetary Policy: Banguat has not yet initiated a tightening cycle in light of low inflation and a relatively strong currency, keeping its policy rate (1.75%) unchanged since June 2020. However, in light of a closed output gap, continuing effects of global price pressures, high domestic credit growth and the start of rate hikes by the U.S. Fed, policy tightening is likely needed in order to keep expectations anchored going forward. ESG - Governance: Guatemala has an ESG Relevance Score (RS) of '5' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch's proprietary Sovereign Rating Model. Guatemala has a low WBGI ranking at 27th percentile, reflecting the relatively weak rights for participation in the political process, weak institutional capacity, uneven application of the rule of law and a high level of corruption. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Public Finance: A large widening of the deficit, for example, caused by an erosion in the recent gains in tax collection; -- Structural: Political gridlock that constrains government financing flexibility and effective policy making, such as failure to pass annual budgets and/or interruptions in financing; -- Macro: Lower-than-expected growth performance or weaker medium-term growth prospects; for example, caused by lower remittances, social unrest and/or governability challenges. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Public Finances: Entrenchment of institutional improvements that support improved tax collection; -- Macro: Robust economic growth that keeps the debt-to-GDP ratio on a sustainable path, for example, by effective investment in infrastructure and higher productivity; -- Structural: Improvements in governance and human development indicators relative to peers, particularly on control of corruption and rule of law. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Guatemala a score equivalent to a rating of 'BB' on the Long-Term Foreign Currency IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign Currency IDR by applying its QO, relative to SRM data and output, as follows: -- Structural: -1 notch, to reflect congressional fragmentation and gridlock that has previously impeded the passage of the budget and limits the government's ability to pass reforms. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within Fitch's criteria that are not fully quantifiable and/or not fully reflected in the SRM. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. ESG CONSIDERATIONS Guatemala has an ESG Relevance Score of '5' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '4' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Guatemala, as for all sovereigns. Guatemala has track record of 20+ years without a restructuring of public debt, this has a positive impact on the credit profile. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). DEBT RATING PRIOR ---- ------ ----- Guatemala LT IDR BB- Affirmed BB- ST IDR B Affirmed B LC LT IDR BB- Affirmed BB- LC ST IDR B Affirmed B Country Ceiling BB Affirmed BB senior unsecured LT BB- Affirmed BB- ======= P E R U ======= PERU: Risk Rises 1 Basis Point & Closes at 1.74 Percentage Points ----------------------------------------------------------------- Rio Times Online reports that Peru's country risk closed May 6's session at 1.74 percentage points, adjusted after the close, rising one basis point from the previous session, according to the EMBI+ Peru calculated by investment bank JP Morgan. Peru (1.74 percentage points) reported the lowest country risk in the region, followed by Mexico (2.33 points) and Brazil (2.99 points), according to Rio Times Online. As reported in the Troubled Company Reporter-Latin America on May 6, 2022, the International Monetary Fund said economic activity in Peru rebounded strongly in 2021 from its deepest downturn in decades. The strong policy response in 2020 help mitigate the impact of the pandemic and created the conditions for a rapid recovery. Real GDP rose 13.3 percent in 2021, supported by robust external demand, favorable terms of trade, and pent-up domestic demand. Real GDP surpassed its pre-pandemic level but remains below its pre-pandemic trend. In addition, labor force participation and total employment haven't fully recovered. Poverty increased significantly in 2020 and is still above pre-pandemic levels despite some improvement in 2021. Volatility in financial markets has increased amid heightened political uncertainty. Moreover, uncertainty around the outlook is high and the balance of risks is tilted to the downside. Growth is expected to slow to 3 percent in 2022 as external conditions tighten and the policy stimulus is withdrawn. ===================== P U E R T O R I C O ===================== CONDADO ROYAL: Case Summary & Two Unsecured Creditors ----------------------------------------------------- Debtor: Condado Royal Palm, Inc. 1120-1122 Avenida Ashford San Juan, PR 00908 Business Description: Condado Royal is primarily engaged in renting and leasing real estate properties. Chapter 11 Petition Date: May 4, 2022 Court: United States Bankruptcy Court District of Puerto Rico Case No.: 22-01282 Judge: Hon. Mildred Caban Flores Debtor's Counsel: Wigberto Lugo Mender, Esq. LUGO MENDER GROUP, LLC 100 Carr 165 Suite 501 Guaynabo, PR 00968-8052 Tel: (787) 707-0404 Email: wlugo@lugomender.com Total Assets: $8,300,995 Total Liabilities: $15,493,286 The petition was signed by Jose A. Ramirez de Arellano, president. A full-text copy of the petition containing, among other items, a list of the Debtor's two unsecured creditors is available for free at PacerMonitor.com at: https://www.pacermonitor.com/view/P3RCM6I/Condado_Royal_Palm_Inc__prbke-22-01282__0001.0.pdf?mcid=tGE4TAMA =========================================================== S T . V I N C E N T A N D T H E G R E N A D I N E S =========================================================== ST. VINCENT AND GRENADINES: To Reborrow US$9 Mil from Venezuela --------------------------------------------------------------- RJR News reports that the St. Vincent and the Grenadines government has obtained permission from Venezuela to borrow US$9 million it paid on loans owed to the ALBA Bank. The money had been held in an escrow account at the Eastern Caribbean Central Bank, as sanctions imposed on Venezuela by the United States prevented its transfer to Caracas, according to RJR News. Prime Minister Dr. Ralph Gonsalves says US$4 million is to be used to buy vessels for the fishing industry, the report notes. ================= V E N E Z U E L A ================= VENEZUELA: Maduro's 3% Tax is Pushing Local Back Into Bolivars -------------------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that for years, the bolivar drifted toward irrelevancy as Venezuelans embraced the economic stability brought on by the widespread use of the U.S. dollar. But the Socialist regime, always reluctant to fully turn its economy over to the dollar, is now making a surprise bid to revive the local currency, according to globalinsolvency.com. Emboldened by surging oil exports that are fueling economic growth and helping keep the foreign-exchange rate steady, the government is pushing Venezuelans to use the bolivar more by slapping a 3% tax on purchases made with dollars in shops, restaurants and grocery stores, the report notes. One study done by a private firm indicates there was a slight shift away from the dollar in the days after the tax took effect, the report relays. A separate report found the use of bolivars in Caracas rose sharply in April, the first full month after its introduction, the report discloses. The move is a sign that President Nicolas Maduro is increasingly confident the economy is on solid footing after a series of free-market reforms and that Venezuelans believe his government will manage to prevent a return of the kind of hyperinflation that ravaged the country for years, the report notes. But it's a high-risk strategy that could backfire given the length and depth of the economic collapse -- the worst in the Western Hemisphere in decades -- and the tepidity of consumer and investor confidence, 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. 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 * * *