/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/220517.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Tuesday, May 17, 2022, Vol. 23, No. 92 Headlines A R G E N T I N A ARGENTINA: Inflation Reaches 6% in April and 23.1% in 1st 4 Mos ARGENTINA: Slams Brake On Crypto, Banning Purchases Through Banks B R A Z I L BRAZIL: April Inflation Rate Hits 26-Year High BRAZIL: Services Activity Beats Forecasts With 1.7% Rise in March D O M I N I C A N R E P U B L I C BANCO DE RESERVAS: Fitch Affirms BB- LongTerm IDRs, Outlook Stable BANCO MULTIPLE BHD: Fitch Affirms 'BB-' LT Issuer Default Ratings G U A T E M A L A ENERGUATE TRUST: Fitch Alters Outlook on BB- IDRs to Positive J A M A I C A JAMAICA: Delay in Full Introduction of JAM-DEX JAMAICA: Inflation Rate Holds Steady M E X I C O FORD CREDIT DE MEXICO: Fitch Affirms BB+ Issuer Default Rating OPERADORA DE SERVICIOS MEGA: S&P Alters Outlook on ICR to Stable P U E R T O R I C O PUERTO RICO: Bankruptcy Stay Protects Government Employees - - - - - ================= A R G E N T I N A ================= ARGENTINA: Inflation Reaches 6% in April and 23.1% in 1st 4 Mos --------------------------------------------------------------- Juan Martinez at Rio Times Online reports that the cost of living in Argentina rose 6% in April and accumulated an increase of 23.1% so far this year, one of the highest rates in the world, which the government attributed in part to the war in Ukraine. Twelve-month inflation reached 58%, according to the official statistics institute Indec, one of the country's highest in three decades, according to Rio Times Online. "Part of the inflation is due to the increase in food prices resulting from the war," Argentine President Alberto Fernández said at a press conference in Paris as part of a European tour, the report notes. Twelve-month inflation reached 58%, according to the official statistics institute Indec, one of the country's highest in three decades, the report relays. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. As reported by The Troubled Company Reporter - Latin America on April 14, 2022, Fitch Ratings affirmed Argentina's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'CCC'. Fitch said Argentina's 'CCC' ratings reflect weak external liquidity and pronounced macroeconomic imbalances that undermine debt repayment capacity, and uncertainty regarding how much progress can be made on these issues under a new IMF program. Fitch added that it is uncertain whether the EFF will be a strong anchor for macroeconomic stabilization. Its policy requirements are fairly unambitious relative to other IMF programs and in light of the economy's deep imbalances, but it faces heightened risk nonetheless from weak political support and spill-overs from the Russia-Ukraine war, says Fitch. Standard & Poor's credit rating for Argentina stands at CCC+ with stable outlook, which was a rating upgrade issued on Sept. 8, 2020. Moody's credit rating for Argentina was last set at Ca on Sept. 28, 2020. DBRS' credit rating for Argentina is CCC, given on Sept. 11, 2020. ARGENTINA: Slams Brake On Crypto, Banning Purchases Through Banks ----------------------------------------------------------------- Ignacio Olivera Doll & Patrick Gillespie at Bloomberg News report that Argentina's Central Bank dealt cryptocurrencies a blow prohibiting financial institutions in the South American country from offering clients any operations involving unregulated digital assets. The monetary authority banned operations that allow bank clients to purchase crypto, just days after two large institutions announced they would let clients buy Bitcoin and other digital currencies, according to Bloomberg News. The ban also includes assets whose returns are determined by the fluctuations of cryptocurrencies, Bloomberg News notes. Argentines are embracing cryptocurrencies at a quick pace as recurring currency crises and inflation running above 50 percent annually erodes the value of their savings, Bloomberg News relays. The country is among the world's top 10 with the highest adoption of crypto, according to specialised website Chainalysis, Bloomberg News discloses. Banco Galicia, the country's largest private bank by market value, and digital bank Brubank announced they would allow their customers to purchase crypto including Bitcoin, Ether and USDC, Bloomberg News discloses. With the measure published, the Central Bank banned such operations for the entire financial sector, saying it aims to "mitigate the risks" involved in transactions of digital assets," Bloomberg News says. Those include high volatility, cyberattacks and money-laundering, according to a statement, Bloomberg News notes. Financial institutions should focus on "financing investment, production and consumption of goods and services," it added. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. As reported by The Troubled Company Reporter - Latin America on April 14, 2022, Fitch Ratings affirmed Argentina's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'CCC'. Fitch said Argentina's 'CCC' ratings reflect weak external liquidity and pronounced macroeconomic imbalances that undermine debt repayment capacity, and uncertainty regarding how much progress can be made on these issues under a new IMF program. Fitch added that it is uncertain whether the EFF will be a strong anchor for macroeconomic stabilization. Its policy requirements are fairly unambitious relative to other IMF programs and in light of the economy's deep imbalances, but it faces heightened risk nonetheless from weak political support and spill-overs from the Russia-Ukraine war, says Fitch. Standard & Poor's credit rating for Argentina stands at CCC+ with stable outlook, which was a rating upgrade issued on Sept. 8, 2020. Moody's credit rating for Argentina was last set at Ca on Sept. 28, 2020. DBRS' credit rating for Argentina is CCC, given on Sept. 11, 2020. =========== B R A Z I L =========== BRAZIL: April Inflation Rate Hits 26-Year High ---------------------------------------------- Buenos Aires Times reports that Brazil's inflation rate hit a 26-year high for the month of April, the government said as spiralling prices continued to defy the central bank's push to rein them in. The national statistics institute, IBGE, said inflation in the 12 months through April rose to 12.13 percent, the highest since 2003 and well above the central bank's target of 3.5 percent, according to Buenos Aires Times. The rate for April came in at 1.06 percent, the highest for the month since 1996, IBGE said, the report notes. That was worse than the forecast of one percent by analysts polled by business daily Valor, the report relays. Food prices were the main inflation driver in April, rising more than two percent, the report discloses. Fuel prices remained an underlying factor, up more than 33 percent in the past year, the report notes. "The strength of price pressures is likely to keep policymakers at the central bank concerned," William Jackson, chief emerging markets economist at consulting firm Capital Economics, said in a note, the report relays. Brazil's central bank has been on one of the most aggressive monetary tightening cycles in the world, rapidly hiking the key interest rate from two percent in March 2021 to 12.75 percent currently, the report discloses. But inflation has so far remained stubbornly high, hurting Brazilians' wallets -- and President Jair Bolsonaro's popularity as he gears up to seek reelection in October, trailing leftist ex-president Luiz Inacio Lula da Silva (2003-2010) in the polls, the report adds. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Jair Bolsonaro is the current president, having been sworn in on Jan. 1, 2019. As reported in the Troubled Company Reporter-Latin America on April 15, 2022, Moody's Investors Service affirmed the Government of Brazil's long-term Ba2 issuer ratings and senior unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the stable outlook. Standard & Poor's credit rating for Brazil stands at BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and short-term foreign and local currency sovereign credit ratings for Brazil were affirmed in December 2021 with stable outlook. Fitch Ratings' credit rating for Brazil stands at 'BB-' with a negative outlook (November 2020). Fitch's 'BB-' Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) has been affirmed in December 2021. DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). BRAZIL: Services Activity Beats Forecasts With 1.7% Rise in March ----------------------------------------------------------------- globalinsolvency.com, citing Reuters, reports that services activity in Brazil rose more than expected in March and at a record pace for the month, official figures showed marking a strong recovery from the severe downturn caused by the COVID pandemic. Services activity increased 1.7% in March from February, more than double the 0.7% growth expected by economists according to a Reuters poll, reaching its highest level since May 2015, the government statistics agency IBGE reported, according to globalinsolvency.com. That put the sector 7.2% above the level of February 2020, before the onset of the pandemic, according to globalinsolvency.com. All five activities surveyed in the sector expanded, with the biggest increases seen in transport at +2.7% and information and communication services at +1.7%, IBGE said, the report relays. Services activity gained 11.4% from March 2021, also above the 8.5% increase forecast in the Reuters poll, the report discloses. In the first quarter, it grew 9.4% over the same period last year, rising 1.8% over the previous quarter, the report relays. Research manager Rodrigo Lobo said the weak comparison base pushed the sector higher, noting that Brazil in March 2021 faced a second wave of COVID-19 that imposed strict restrictions on mobility, the report adds. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Jair Bolsonaro is the current president, having been sworn in on Jan. 1, 2019. As reported in the Troubled Company Reporter-Latin America on April 15, 2022, Moody's Investors Service affirmed the Government of Brazil's long-term Ba2 issuer ratings and senior unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the stable outlook. Standard & Poor's credit rating for Brazil stands at BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and short-term foreign and local currency sovereign credit ratings for Brazil were affirmed in December 2021 with stable outlook. Fitch Ratings' credit rating for Brazil stands at 'BB-' with a negative outlook (November 2020). Fitch's 'BB-' Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) has been affirmed in December 2021. DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). =================================== D O M I N I C A N R E P U B L I C =================================== BANCO DE RESERVAS: Fitch Affirms BB- LongTerm IDRs, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples' (Banreservas) Local and Foreign Currency Long-Term Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlook is Stable. Fitch has also affirmed the Banreservas' National Ratings and those of its subsidiary, Inversiones y Reservas, S.A. (I&R) at 'AA+(dom)' and 'F1+(dom)'. The Rating Outlook is Stable. KEY RATING DRIVERS BANRESERVAS Support Driven: Banreservas' IDRs and National Ratings reflect Fitch's assessment of the Dominican Republic government's reasonable ability and propensity to support the bank due to its systemic importance, policy role and full ownership by the government. Government Support Rating: The 'bb-' Government Support Rating reflects Banreservas' systemic importance with a deposit market share of 34.5%, its policy role by collecting funds for the government's single treasury account to pay debt obligations, its role as a provider of public sector loans, and its 100% government ownership. The GSR also reflects moderate probability of support being forthcoming because of uncertainties about the ability or propensity of the Dominican Republic due to its speculative-grade IDR, should it be needed. Stable Outlook: The Stable Rating Outlook on Banreservas' IDRs is aligned with that of the Sovereign, reflecting the faster-than-expected economic recovery in 2021 and stable outlook on Fitch's assessment of the bank's operating environment; the agency expects this to be translated into the bank's good business prospects and consistent financial performance. Strong Franchise: Banreservas's 'b+' VR reflects the strength of the bank's business profile market by its largest franchise in the Dominican Republic with a market share by assets and loans of 32% and 27% at YE21, respectively. It enjoys a leadership position in the commercial and consumer segments. Improved Asset Quality: At YE21, the 90-days NPL ratio improved to 1.2% at YE21 from 1.8% yoy, the lowest level during the last four years. It reflects the improvement in commercial and consumer segments' performance and the loan portfolio growth. The loan loss allowances coverage of impaired loans significantly increased to 587.9% at YE21 since the bank created countercyclical provisions the previous year. Fitch believes that asset quality will remain sound in 2022 despite potential deterioration related to increasing interest rates and high inflation. Increased Profitability: The bank's operating profitability to risk weighted assets (RWA) ratio improved to 5.2% at YE21 from 2.9% at YE20, due to lower funding costs and higher non-interest income from increased commissions and extraordinary net gains for trading. Fitch expects profitability to benefit in 2022 from a higher financial margin, controlled asset quality deterioration, and the use of extraordinary loan loans allowances to face further possible asset quality pressures. Moderate Capitalization: The Fitch Core Capital to RWA ratio reduced to 12.5% at YE21 from 15.3% yoy, reflecting the high asset growth mainly by investment securities, as well as tangible assets significant increase due to pre-paid taxes. This ratio is below the banking system average of 17.4% and closest peers. However, the bank's loss-absorbing capacity benefits from maintaining ample reserve coverage. Sound Liquidity: The bank's liquidity position is sound and strengthened by ample ability to collect stable demand deposits. The loan-to-deposit ratio improved to 53.9% at YE 2021 from 60.3% at YE 2020, as demand deposits grew by 30.9%. Customer deposits have covered 85% average over the last four years. Banreservas has the largest deposit market share in the Dominican Republic (34.5% at YE21), serves as paying agent and administrator of most payroll accounts for the government and has been a haven in times of systemic stress. Fitch believes that liquidity will remain comfortable, benefiting from an ample and stable deposit base. Subordinated Debt: Banreservas' outstanding subordinated debt are plain vanilla bonds as they do not have loss absorption capacity features. The anchor rating for the international subordinated issues is the IDR, given the bank's government ownership and policy role. This issuance is rated two notches below the bank's IDR, reflecting the baseline notching for loss severity of two notches, due to its subordination nature and no coupon deferral. I&R: I&R's national ratings are aligned with those of Banreservas, its sole shareholder, reflecting Fitch's opinion about the bank's high propensity and capacity to support I&R, if needed. In Fitch's view, I&R is a key and integral part of Banreservas' business as it provides investment and trading services to its core clients. Furthermore, a clear commercial identification among this entity with Banreservas, and the reputational risk to which it would be exposed in the event of an I&R default results in a high probability of shareholder support, should it be required. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: BANRESERVAS IDRS, VR AND NATIONAL RATINGS -- The IDR could be upgraded if there is a similar sovereign rating action; -- Over the medium term, the VR could be upgraded by the confluence of improvements in the operating environment and the financial profile of the bank; -- There is limited upside for the bank's National Ratings since are at the maximum level of the scale. SUBORDINATED DEBT -- Banreservas' subordinated debt rating is sensitive to any upgrade in the bank's IDR and National Long-Term rating. Consequently, there is limited upside potential. GSR -- Banreservas' GSR could be upgraded if the sovereign rating is upgraded. I&R -- There is limited upside potential for I&R's national ratings since are at the maximum level of the scale. Factors that could, individually or collectively, lead to negative rating action/downgrade: BANRESERVAS IDRS, VR AND NATIONAL RATINGS -- The IDRs would be downgraded following a downgrade in the sovereign rating; -- The bank's IDRs and National Ratings are sensitive to a change in Fitch's perception of the Dominican sovereign of propensity to support the bank; -- A relevant deterioration in asset quality or profitability, or sustained pressures on Banreservas' Fitch Core Capital to RWA ratio to below 9.0% could trigger a downgrade of its VR. SUBORDINATED DEBT -- Banreservas' subordinated debt rating is sensitive to any downgrade in the bank's IDR and National Long-Term rating. GSR -- Banreservas' GSR would be affected if Fitch negatively changes its assessment of the Dominican government's propensity to provide timely support to the bank. This could also arise in the event of a sovereign negative rating action. I&R -- I&R's ratings are sensitive to a negative change in Banreservas's ratings or a change in the ability or propensity of Banreservas to provide support. 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. SUMMARY OF FINANCIAL ADJUSTMENTS VR ADJUSTMENTS BANRESERVAS Fitch has assigned a Business Profile score of 'bb' that is above the 'b' category implied score due to the following adjustment reasons: Market Position (positive). Fitch has assigned a Funding and Liquidity score of 'bb-' that is above the 'b' category implied score due to the following adjustment reasons: Deposit Structure (positive). 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 de Reservas de la Republica Dominicana, Banco de Servicios Multiples (BANRESERVAS) 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+(dom) Affirmed AA+(dom) Natl ST F1+(dom) Affirmed F1+(dom) Viability b+ Affirmed b+ Gov't Support bb- Affirmed bb- subordinated LT B Affirmed B subordinated Natl LT AA-(dom) Affirmed AA-(dom) Inversiones y Natl Reservas, S.A. LT AA+(dom) Affirmed AA+(dom) Natl ST F1+(dom) Affirmed F1+(dom) BANCO MULTIPLE BHD: Fitch Affirms 'BB-' LT Issuer Default Ratings ----------------------------------------------------------------- Fitch Ratings has affirmed Banco Multiple BHD Leon S.A.'s (BHDL) Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlooks on the IDRs are Stable. Fitch has also affirmed BHDL's Viability Rating (VR) at 'bb-' and National Ratings at 'AA+(dom)'. The Rating Outlook on the National Rating is Stable. BHDL's related entity, BHD Leon Puesto de Bolsa, S.A.'s (BHDLPB) National Ratings were also affirmed at the same level. BHDLPB's Rating Outlook is Stable. KEY RATING DRIVERS Stable Outlook: BHDL's VR drives its Long-Term IDRs and National Ratings. The Stable Outlook on its IDR is aligned with that of the sovereign and Fitch's stable outlook assessment of the operating environment (OE) for Dominican Republic banks. Fitch expects good economic growth in the upcoming years, supporting a favorable environment for credit growth, sustainable asset quality and profitability. Strong Franchise and Diversified Business Model: BHDL is the third largest bank in Dominican Republic, with a market share of 15.2% by assets as of YE21. BHDL's loan portfolio is fairly diversified, with commercial loans accounting for 59.1% of total loans, 29.7% consumer and 11.3% mortgages. The business model has been stable through the economic cycle; BHDL has a long track record of earnings stability, which have proven to be resilient. Sound Asset Quality: BHDL has maintained adequate and stable asset quality metrics. As of YE21, the 90-day NPL ratio improved to 1.6% from 1.8% in YE20 due to the strengthen of risk controls and underwriting standards, in addition with a more dynamic growth (impaired loans decreased 0.3% and loans increased 11.2%). Loan loss allowances to impaired loans ratio of 317.2% is considered conservative and provides protection against possible adverse situations. Fitch expects asset quality to show pressures from the expected loans growth of 23%; however, deterioration is not expected to be material, given its adequate risk profile. Resilient Profitability: BHDL profitability has remained adequate through the economic cycles. Operating profit-to-risk-weighted assets ratio (RWA) increased at YE21 to 3.3% from 2.6% yoy, driven mainly by lower impairment charges and higher trading income. The bank managed to improve its profitability despite a lower interest margin, which has decreased in recent years, mainly due to lower interest rates in the market. Fitch expects BHDL's profitability metrics to experience further pressures from a lower interest margin and higher impairment charges that could arise from the expected double-digit loans growth. However, in Fitch's view, profitability will remain adequate with the bank's current rating levels. Adequate Capitalization: BHDL's capitalization ratios have decreased due to higher RWA driven by loans growth. As of YE21 the Fitch Core Capital (FCC) to RWA ratio slightly decreased to 14.5% (YE20:15.3%). Despite this, BHDL's capitalization remains adequate for its business model. Loss-absorbing capacity benefits from adequate reserve coverage, which has proven to be a good cushion during times of crisis. Fitch expects the FCC ratio to evidence moderate pressures in the medium term given the loans growth expected for 2022. Sound Liquidity: BHDL's liquidity position is sound and deposit growth has been adequate. Loan-to-deposit ratio stood at 71.5% as of YE21. Historically, customer deposits have covered more than two-thirds of the bank's funding needs (85.4% at YE 2021), and BHDL maintains access to local capital debt markets and wholesale funding. Liquidity remains commensurate with the bank's current rating levels. Government Support Rating (GSR): BHDL' GSR of 'b+' reflects Fitch's expectation of a moderate probability of sovereign support, because of uncertainties about the ability or propensity of the government to do so. BHDL is a domestic systemically important bank with a market share of 15% of customer deposits; however, Fitch regards the likelihood of support for BHDL to be lower than the large state bank due to BHDL's private ownership. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: IDRs, VR and National Ratings: -- Negative changes in the BHDL's IDRs and VR would mirror any movement in the Dominican Republic's sovereign ratings and Country Ceiling; -- Downgrades of BHDL's VR could also result from significant pressure on the bank's financial profile, such as a relevant deterioration in asset quality or profitability combined with a FCC to RWAs ratio consistently below 10%. Government Support Rating (GSR): -- A downgrade of BHDL's GSR could occur if the sovereign's ability to support the bank weakened, as reflected in a sovereign downgrade, or if the sovereign's propensity to support the bank becomes less likely. Factors that could, individually or collectively, lead to positive rating action/upgrade: IDRs, VR and National Ratings: -- Upside potential is limited. Over the medium term, the VR could be upgraded by the confluence of improvements in the operating environment and the financial profile of the bank. Government Support Rating (GSR): -- An upgrade of BHDL's GSR is possible in the event of a sovereign upgrade if it coincides with a strengthening of the sovereign's ability and propensity to support the bank. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Subordinated Debt: BHDL' outstanding domestic subordinated debts include two domestic issuances, one for up to DOP10 billion due 2030 and another one of up to DOP10 billion due 2028. Subordinated bonds are basic issues as they do not have loss absorption capacity features. The bank's subordinated debt rating is two notches below its National Long-Term rating, 'AA+(dom)', reflecting the baseline notching for loss severity of two notches, due to its subordination nature since there is no coupon deferral. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: Subordinated Debt: -- BHDL' subordinated debt rating is sensitive to any downgrade in the bank's IDR and National Long-Term rating. Factors that could, individually or collectively, lead to positive rating action/upgrade: Subordinated Debt: -- BHDL' subordinated debt rating is sensitive to any upgrade in the bank's IDR and National Long-Term rating. Consequently, there is limited upside potential. SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS National Ratings BHDLPB's ratings reflect Fitch's opinion about its sole shareholder's, Centro Financiero BHD Leon (CFBHDL), high propensity and ability to support its subsidiary if needed. In Fitch's view, CFBHDL creditworthiness is highly linked to BDHL. BHDLPB is a key and integral part of CFBHDL's diversified financial business model as it provides specific financial products. Moreover, a clear branding identification between this entity with BHDL and CFBHDL, and the reputational risk at which they would be exposed in the case of potential financial difficulties in BHDLPB ultimately result in a high probability of direct or indirect support by BHDL and CFBHDL, should it be required. SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: BHDLPB's ratings are sensitive to a negative change in BHDL's ratings or a change in the ability or propensity of BHDL to provide support. Factors that could, individually or collectively, lead to positive rating action/upgrade: BHDLPB's ratings have limited upside potential. VR ADJUSTMENTS Fitch has assigned a Business Profile score of 'bb' that is above the 'b' category implied score due to the following adjustment reasons: Business Model (positive). Fitch has assigned a Funding and Liquidity score of 'bb-' that is above the 'b' category implied score due to the following adjustment reasons: 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. SUMMARY OF FINANCIAL ADJUSTMENTS Deferred charges and intangible assets were deducted from stockholders' equity, because the agency considers that they do not have a robust component to absorb losses. 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 ---- ------ ----- BHD Leon Puesto de Bolsa, S.A. Natl LT AA+(dom) Affirmed AA+(dom) Natl ST F1+(dom) Affirmed F1+(dom) Banco Multiple BHD Leon, 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+(dom) Affirmed AA+(dom) Natl ST F1+(dom) Affirmed F1+(dom) Viability bb- Affirmed bb- Gov't Support b+ Affirmed b+ subordinated Natl LT AA-(dom) Affirmed AA-(dom) ================= G U A T E M A L A ================= ENERGUATE TRUST: Fitch Alters Outlook on BB- IDRs to Positive ------------------------------------------------------------- Fitch Ratings has affirmed ENERGUATE Trust's (Energuate) Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-' and its USD330 million bond due in 2027 at 'BB-'. The Rating Outlook for the IDRs is revised to Positive from Stable. Energuate's is rated on a stand-alone basis and its ratings reflect the combined operations of Distribuidora de Electricidad del Oriente S.A. (DEORSA) and Distribuidora de Electricidad del Occidente S.A. (DEOCSA), two rural electricity distribution companies. The ratings primarily reflect the company's strong linkage to Guatemalan sovereign rating (IDR BB-/Positive); in fiscal 2021, 55% of the company's EBITDA originated from government subsidies. KEY RATING DRIVERS Outlook Revised to Positive Based on Sovereign: Fitch revised Guatemala's sovereign rating (BB-) Outlook to Positive from Stable on April 26, 2022, reflecting its better than expected fiscal performance. Energuate's strong linkage to the government is based on government subsidies that have averaged 72%, over the last three years, of the company's total EBITDA. The subsidy eligibility threshold temporarily increased over the course of the pandemic due to hardship, rising inflation, and energy prices; however, the standard 88kWh subsidy threshold should resume in January 2023. VAD Tariff Supports Strong Cash Flow: Energuate's gross margin is primarily driven by the regulated value added from distribution (VAD) charges to customers, representing around 99% of total rate payers and leading to a favorable average of 22% in EBITDA margin over the past five years. The VAD tariff is set by the independent regulator Comision Nacional de Energia Electrica (CNEE), and it is determined to recover the company's operating expenses, capex and cost of capital of a model efficient distribution company. The VAD is updated every five years and was last approved through October 2024. The VAD is adjusted semi-annually based on inflation, fuel cost increases, and local currency exchange rates against the U.S. dollar. Electricity charges adjust on a quarterly basis to reflect variations in the actual cost of electricity purchased versus projected costs. As a distribution-only company, Energuate is not subject to electricity price changes, as energy, capacity and transmission costs are passed through directly to the customer. Moderate Leverage Increase; Decline Expected: Energuate's total debt/EBITDA increased in fiscal 2021 to 3.8x from 3.2x the prior year due to the incurrence of USD230 million in new debt, for the primary purpose of distributing dividends to Nautilus Distribution Holdings LLC's (Nautilus). Energuate adds material cash flows and business diversification to Nautilus' consolidated profile, averaging around 30% of total EBITDA. No further debt is currently anticipated for issuance by Energuate, and Fitch expects ongoing tariff adjustments and debt amortization to generate gross leverage consistent with a previously-expected downward trend, settling in the 3.1x-2.5x level over the medium term. Challenging Structural Inefficiencies, Cost Savings Plan: The rural service area presents financial and operational challenges, including high energy theft, violent crime and an underdeveloped formal economy. Energy losses have averaged a high 19.7% since fiscal 2017, therefore Energuate Trust employs cost savings initiatives and technology-based energy theft reduction improvements to improve repair response times when theft occurs. The VAD compensates for 15% of energy losses, anything above which is a loss for the company. Geographic Factors Discourage Competition: The low population density of Energuate's service area, coupled with high investment requirements to reach new clients, disincentivizes competition and mitigates risks related to the non-exclusivity of the concession. The concession includes 20 of 22 departments in Guatemala - all except metropolitan Guatemala City and Sacatepéquez. The area includes 91,557 km of distribution lines that delivered 2,954GWh of electricity across a dispersed area of approximately 101,914 km2. DERIVATION SUMMARY Energuate's profitability continues to compare favorably to regional peers such as AES El Salvador Trust II (AES SLV; CCC+/Stable) and Elektra Noreste S.A. (ENSA; BBB/Stable). Its EBITDA margin continued a steady upward trajectory in 2021 at 25%, higher than that of peers, which tend to have EBITDA margins of 13%‒14%. Energuate's leverage increased to 3.8x in 2021 due to a new bond issuance of $230 million to pay a dividend to its parent company. It nonetheless remains comparable to the 3.6x for AES SLV and 3.2x for ENSA. The distribution model generally supports higher leverage than other industries, and Energuate's deleveraging trajectory is in line with the 'BB' category. Similar to AES SLV, Energuate derives a material component of its cash flow from government subsidies. In contrast to the Salvadoran government, the government of Guatemala has maintained a strict 30-day payment cycle, and will shut off service should non-payment occur for two months. Nevertheless, Energuate's central rating sensitivity remains its exposure to an increasingly fraught political environment and material government counterparty risk. KEY ASSUMPTIONS -- VAD tariff prices increase by inflation based on 2021 average annual prices; -- Annual average Inflation of around 4% from 2022 through 2026; -- Annual taxes averaging around 25% of income; -- Average energy losses of 19% in the next four years; -- Flat annual customer growth; -- Minimal FX fluctuation, reflecting Guatemala's managed float; -- Dividends paid increasing to USD220 million in 2022 then averaging USD50 million in subsequent years; -- Average capex of around USD56 million annually through the medium term, supported by FCF; -- No additional debt in forecast period. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Considering Energuate's geographically limited operations and fundamental exposure to macroeconomic conditions, an upgrade is unlikely barring a positive rating action on the sovereign in combination with sustained debt/EBITDA below 3.5x. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade to Guatemala's sovereign rating; -- A significant weakening in the country's electricity regulation system, either regarding tariff adjustments or a material change in subsidies received by Energuate; -- Weaker operational results due to higher than expected energy losses and lower than anticipated tariff increases; -- A downgrade of Energuate's parent, Nautilus Distribution Holdings LLC, coupled with significant interference in Energuate's capital structure. -- Sustained debt/EBITDA of 5.5x or greater. 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: Energuate Trust's liquidity is supported by stable cash flow generation, comfortable amortization profile and committed credit lines. Its main financial obligations include a USD330 million bond due in 2027, as well as a local currency loan for USD232.1 million loan obtained from Banco Industrial, payable over 13 years, and local currency loans totaling USD89 million. As of December 2021, the company maintained committed credit facilities of USD40 million, of which USD40 million was available, and available uncommitted facilities of USD30 million to cover potential liquidity shortfalls should trade collections lag. Energuate plans to adjust dividends to shareholders to match future cash flow. Fitch expects the company's 2027 bond to be rolled over upon maturity. ISSUER PROFILE Energuate Trust is the holding trust of Guatemala's two largest rural electricity distribution companies, DEORSA in the north and DEOCSA in the south. The service area covers 73% of the population, excluding Guatemala City, with approximately 2.2 million regulated customers across 20 of the country's 22 departments at YE 2021. 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. ============= J A M A I C A ============= JAMAICA: Delay in Full Introduction of JAM-DEX ---------------------------------------------- RJR News reports that the full introduction of Jamaica's central bank digital currency JAM-DEX has been delayed. A news release from the Bank of Jamaica says the digital currency which was scheduled to be officially launched this quarter, is undergoing a phased rollout, the report notes. It says comprehensive implementation has been stalled pending amendments to the Bank of Jamaica Act, the report discloses. The amendments will make the central bank digital currency legal tender and the BOJ the sole issuer, the report relays. As at March, 6 million dollars in CBDC was in circulation, the report notes. National Commercial Bank is currently the only digital wallet provider through its Lynk platform, the report relays. The BOJ says other digital wallet providers are being assessed in preparation for distributing JAM-DEX later this year, the report adds. As reported in the Troubled Company Reporter-Latin America on March 11, 2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. JAMAICA: Inflation Rate Holds Steady ------------------------------------ Royal Gazette reports that consumers paid 2.5 per cent more in February than they did a year ago for the basket of goods and services included in the Consumer Price Index, the Ministry of Economy and Labour reported. This level of inflation was the same as the January annual inflation rate, according to Royal Gazette. In a summary of the February CPI from the Department of Statistics, the transport and foreign travel sector continued to be the largest contributor to the 12-month increase in the CPI (+9.4 per cent), the report discloses. On average, annual increases were reported in the cost of premium fuels (+13.9 per cent) and mixed fuels (+12.9 per cent), the report relays. The food sector and the education, recreation, education and reading sector also strongly impact the annual rate of inflation, as price shifts in these sectors were 5 per cent and 3.2 per cent, respectively, the report notes. Goods in the food sector such as fresh and frozen lamb leg (+13.8 per cent), frozen green beans (+10.8 per cent) and rice (+9.8 per cent) reported notable annual average increases, the report discloses. Within the education, recreation, education and reading sector, annual average increases were reported in the cost of pleasure boats (+20 per cent), and the cost of movie theatres and shows (+9.1 per cent), the report says. Year-over-year, the health and personal care sector advanced 3.3 per cent as the annual average cost of health insurance jumped 4.7 per cent, the report adds. As reported in the Troubled Company Reporter-Latin America on March 11, 2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. =========== M E X I C O =========== FORD CREDIT DE MEXICO: Fitch Affirms BB+ Issuer Default Rating -------------------------------------------------------------- Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Ford Motor Company (Ford), Ford Motor Credit Company LLC (Ford Credit) and Ford Credit's subsidiaries at 'BB+'. Fitch has also affirmed the senior unsecured debt ratings of Ford at 'BB+'/'RR4' and Ford Credit at 'BB+'. Fitch has assigned a Shareholder Support Rating (SSR) of 'bb+' to Ford Credit and its subsidiaries, in line with Fitch's updated "Non-Bank Financial Institutions Rating Criteria" dated Jan. 31, 2022. The Rating Outlooks for Ford and Ford Credit have been revised to Positive from Stable. The revision of Ford's Rating Outlook to Positive reflects expected improvements in the company's profitability and core FCF that are likely lead to margins and credit protection metrics that are in line with its positive rating sensitivities over the intermediate term. Although supply chain and inflationary pressures are likely to continue for much of 2022, Fitch expects Ford's profitability to improve as it benefits from ongoing redesign activities, as well as execution on its Ford+ plan. Fitch expects FCF to be supported by positive working capital under more normalized operating conditions, although distributions from Ford Credit will likely be lower. DEBT RATING PRIOR ---- ------ ----- FCE Bank Plc LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B Shareholder Support bb+ New Rating senior unsecured LT BB+ Affirmed BB+ senior unsecured ST B Affirmed B short-term deposits ST B Affirmed B Ford Motor Credit Co. of Puerto Rico, Inc. ST IDR B Affirmed B Shareholder Support bb+ New Rating Ford Credit de Mexico, S.A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad Regulada LT IDR BB+ Affirmed BB+ Shareholder Support bb+ New Rating Ford Motor Company LT IDR BB+ Affirmed BB+ senior unsecured LT BB+ Affirmed RR4 BB+ Ford Motor Credit Company LLC LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B Shareholder Support bb+ New Rating senior unsecured LT BB+ Affirmed BB+ senior unsecured ST B Affirmed B Ford Holdings LLC LT IDR BB+ Affirmed BB+ Shareholder Support bb+ New Rating senior unsecured LT BB+ Affirmed BB+ Ford Credit Canada Company LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B Shareholder Support bb+ New Rating senior unsecured LT BB+ Affirmed BB+ senior unsecured ST B Affirmed B Ford Capital B.V. LT IDR BB+ Affirmed BB+ Shareholder Support bb+ New Rating KEY RATING DRIVERS Rating Concerns: Near-term rating concerns include ongoing production difficulties stemming from supply-chain related challenges and the coronavirus pandemic, elevated commodity and logistics costs, rising interest rates, and the impact of inflation on consumer confidence. Other concerns include tightening emissions regulations in various global regions, as well as substantial investments that the company is making in both electrification and vehicle autonomy. All of these factors will weigh on profitability and FCF generation over the next several years. Despite these headwinds, vehicle demand remains strong, and it has outpaced supply in the major global regions for the past two years. Fitch expects Ford will continue to experience a strong pricing environment, which will help to mitigate some of the inflationary pressure on the company's margins. That said, Fitch expects the combination of inflation and technology-related investment spending to result in some margin dilution over the next several years, although overall profitability is likely to improve relative to the period leading up to the pandemic. Corporate Reorganization: In March 2022, Ford announced that it would reorganize its automotive business into three separate units, Ford Blue (Blue) and Ford Model e (Model e), as well as the existing Ford Pro business focused on commercial customers. Notably, Blue will comprise the company's traditional internal combustion engine (ICE) business and will be focused largely on cost reduction and profit maximization. Model e will focus on the electric vehicle (EV) business, as well vehicle connectivity and software. Ford will treat the two units as separate business segments for financial reporting purposes, which will bring enhanced transparency to the profitability of the ICE business and the investments it is making in emerging technologies. Ford's decision to focus on a reorganization, rather than a spin-off, is a credit positive. A spin-off could leave Ford's legacy business with little long-term value as the auto industry rapidly moves toward electrification. Keeping the two units within the same company will allow Ford to use the cash generated from Blue's ICE business to fund Model e's technology investments. There are also likely to be operational synergies in keeping the two businesses together, without the incremental costs that would be incurred in operating as two separate companies. Improving FCF: Fitch expects Ford's automotive FCF (based on Fitch's methodology) to remain under pressure over the next couple of years as the company continues to work through its global redesign, with a relatively modest cash outflow expected in 2022 as the company spends $1.0 billion-$1.5 billion on redesign work. However, excluding the redesign initiatives, Fitch expects the company's FCF to be solidly positive over the next several years with a more benign market backdrop, although the pandemic and ongoing supply-chain challenges remain near-term concerns. Increasing EV investments will also weigh on FCF over the next several years. Fitch expects Ford's automotive FCF margins, according to Fitch's calculations and excluding the redesign initiatives, to run near 2.0% over the intermediate term. Actual automotive FCF (based on Fitch's methodology) in 2021 was $3.1 billion when excluding $1.9 billion in cash costs associated with the redesign, equivalent to a 2.5% FCF margin. However, automotive FCF in 2021 was supported by $7.5 billion in Ford Credit distributions, which was more than double the typical level of recent years. Fitch expects those distributions to run at more normalized levels over the next few years. Low Automotive Leverage: Fitch expects Ford's automotive EBITDA gross leverage (according to Fitch's calculations) to remain low and generally in-line with pre-pandemic levels over the next several years. Leverage declined significantly in 2021 due to a combination of debt reduction and higher EBITDA. In 2021, Ford reduced automotive debt by $3.9 billion, leaving it with about $20 billion of automotive debt outstanding at YE 2021. The EBITDA increase was partially due to the increased distributions from Ford Credit. (Fitch adds affiliate dividends to EBITDA in its calculation of leverage.) Looking ahead, Fitch expects EBITDA gross leverage to rise slightly, toward the upper-1x range by YE 2022, largely due to lower Ford Credit dividends, as Fitch expects debt to decline a bit and EBITDA excluding Ford Credit dividends to rise on higher production levels. Over the longer term. Fitch expects leverage to decline back toward the low-1x range, largely due to higher levels of EBITDA. FORD CREDIT IDRs AND SENIOR DEBT: The affirmation of Ford Credit's ratings and the revision of the Outlook to Positive from Stable are driven by the affirmation and Ford's Outlook revision. Ford Credit's ratings and Outlook are linked to those of Ford, as Fitch considers Ford Credit a core subsidiary of Ford. This view is supported by the high percentage of Ford vehicle sales financed by Ford Credit and the strong operational and financial linkages between the two companies. Ford Credit also has a support agreement with Ford, which requires Ford to make capital contributions to Ford Credit if its leverage ratio (defined as debt to equity) is higher than 12.5x. Ford Credit's ratings also reflect its consistent operating performance, peer superior asset quality historically and adequate liquidity. Ford Credit's 'BB+' SSR is aligned with Ford's IDR and indicates the minimum level to which Ford Credit's IDR could fall if Fitch does not change its view on potential support from Ford. A 'BB+' SSR indicates a moderate probability of external support. Ford Credit's asset quality performance was strong in 2021 as delinquencies and charge-off rates improved materially yoy. The portfolio continued to benefit from unprecedented government support programs to consumers, higher used vehicle prices, resulting in elevated gains on lease terminations, and higher recoveries on defaulted loans. Ford Credit's net charge-off rate on its worldwide portfolio declined to 0.07% in 2021, down from 0.27% in 2020. Fitch expects delinquencies and credit losses to trend higher in the near term as deferral programs granted to customers have expired and the macro backdrop has become more challenging. Ford Credit's pre-tax earnings increased 81% in 2021 primarily due to a decrease in loan loss provision expense based on lower reserve needs given the economic recovery coming out of the pandemic and lower credit losses. Additionally, the company's interest expense declined during 2021 as a result of lower debt balances and a lower cost of funding. Fitch believes that the strong profitability experienced in 2021 is not sustainable and that earnings will normalize as credit metrics return to historical levels. While used vehicle prices should remain a strength in the near-term, the more challenging macro backdrop is expected to be a headwind for consumers. Fitch believes Ford Credit had sufficient liquidity at YE 2021 to address total debt maturities over the next 12 months of approximately $46.5 billion (both secured and unsecured debt). Available liquidity of $32 billion at Dec. 31, 2021, which included cash and available capacity on credit facilities, is further augmented by cash flow collections on underlying loans and lease receivables and expectations for continued market issuance. Ford Credit's funding diversification has steadily improved in recent years, in Fitch's view, with a greater mix of unsecured debt. Unsecured debt as a percentage of total debt increased to 61% at YE 2021, up from 59% at YE 2020. Fitch views Ford Credit's utilization of unsecured funding favorably as it provides enhanced flexibility in times of stress, as a larger pool of unencumbered assets could be pledged to secured facilities to generate liquidity. While Ford Credit's leverage, as measured by debt to tangible equity, of 9.5x at YE 2021, was higher than other captives and stand-alone finance & leasing companies, Fitch believes it is mitigated by the higher quality loan/lease portfolio, which has shown superior credit performance. Ford Credit's unsecured debt ratings are equalized with the Long-Term IDR and reflect the proportion of unsecured debt in the capital structure and the expectation for average recovery prospects under a stress scenario. The affirmation of Ford Credit's Short-Term IDR at 'B' reflects the rating linkage between the Short-Term IDR and the Long-Term IDR. Ford Credit's commercial paper (CP) rating remains equalized with the company's Short-Term IDR. DERIVATION SUMMARY Ford's business profile is similar to other large global volume auto manufacturers. From an automotive revenue perspective, it is larger than General Motors Company (GM) but smaller than Stellantis N.V. (Stellantis). Compared with GM, Ford's operations are more globally diversified, with significant operations in most major auto markets. However, from a brand perspective, Ford is less diversified than Volkswagen AG (VW), Stellantis or GM, focusing primarily on its global Ford brand and, to a much lesser extent, its Lincoln luxury brand, which is only available in North America and China. However, the company sells a wide range of vehicles under the Ford brand globally, ranging from small economy passenger cars to heavy trucks in certain markets. Ford has a particularly strong market share in the highly profitable North American pickup and European light commercial vehicle segments. For the past several years, Ford's credit profile has been weaker than that of many of its global mass-market peers in the 'BBB' category, such as GM, Stellantis and VW. Ford's EBIT and FCF margins have been lower and gross leverage has been a little higher than these other global auto manufacturers. Partially offsetting the credit profile effect of lower FCF and higher leverage, Ford has one of the global auto industry's strongest liquidity positions, providing it with significant financial flexibility. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: -- Global industry light vehicle production rises by 5% in 2022, including an 8% increase in U.S., with continued effects from the global supply chain challenges. Beyond 2022, global industry production rises back toward pre-pandemic levels. -- Capex runs near 4%-5% of revenue over the next several years, with capex in 2022 running at the higher end of the range. -- Working capital is a source of cash in 2022 on increased wholesale volumes and a more normalized production environment in the latter half of the year. Working capital continues to be a source of cash in later years on higher production levels. -- The post-dividend FCF margin excluding redesign cash expenses runs at about 1% in 2022, then increases toward 2% in later years. -- The company maintains automotive cash above $20 billion over the forecast horizon, with total liquidity, including credit facility capacity, above $30 billion. -- Ford Credit continues to distribute dividends to Ford, although at a lower level than seen in 2021, and this is included in Fitch's FCF calculations. RATING SENSITIVITIES Factors that could, individually or collectively, lead to a positive rating action/upgrade: -- Fitch does not expect Ford's ratings to be considered for an upgrade until the global auto production environment has stabilized; -- Sustained North American automotive EBIT margin of 6.0%; -- Sustained global automotive EBIT margin near 3.0%; -- Sustained FCF margin near 1.5%, excluding restructuring costs; -- Sustained EBITDA leverage (total debt/operating EBITDA) below 2.0x. Factors that could, individually or collectively, lead to a negative rating action/downgrade: -- An extended decline in automotive cash below $15 billion; -- Sustained breakeven global automotive EBIT margin; -- Sustained negative FCF, excluding restructuring costs; -- Sustained EBITDA leverage above 3.0x. FORD CREDIT Factors that could, individually or collectively, lead to positive rating action/upgrade are largely dependent on Ford's ratings and Outlook, given the rating linkage. Ford Credit's ratings are expected to move in tandem with its parent, although any change in Fitch's view on whether Ford Credit remains core to its parent, based on an assessment of its size, ownership, and strategic alignment with Ford, could change this rating linkage. Fitch does not envision a scenario where Ford Credit would be rated higher than the parent. Factors that could, individually or collectively, lead to negative rating action/downgrade are largely dependent on Ford's ratings and Outlook, given the rating linkage. However, a material increase in leverage, an inability to access funding for an extended period, consistent and sustained operating losses, significant deterioration in the credit quality of the underlying loan and lease portfolio, and/or material impairment of the liquidity profile could become constraining factors on the parent and subsidiary ratings. The unsecured debt rating is primarily sensitive to changes in the Long-Term IDR and is expected to move in tandem. However, a material increase in the proportion of secured funding could result in the unsecured debt rating being notched down from the IDR. The Short-Term IDR is primarily sensitive to changes in the Long-Term IDR and, by extension, to Fitch's view of institutional support, and also Fitch's view of the funding and liquidity profiles of Ford Credit and Ford. The CP rating is sensitive to changes in Ford Credit's Short-Term IDR and, therefore, would be expected to move in tandem. The SSR is primarily sensitive to changes in Ford Credit's IDR, and secondarily, to changes in Fitch's assessment of the probability of support being extended to Ford Credit from Ford. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity Position: Ford had about $29 billion in automotive cash and marketable securities as of March 31, 2022 (excluding Fitch's adjustments for not readily available cash). Marketable securities included $5.1 billion of stock in Rivian Automotive, Inc. In addition to its cash and marketable securities, as of March 31, 2022, Ford also had nearly full availability on its $13.5 billion primary revolver (after accounting for $25 million in LOCs) and full availability on its $2.0 billion supplemental revolver. Ford also had a total of about $450 million available on various local credit facilities around the world. About $3.4 billion of the primary revolver commitments mature in 2024 and $10.1 billion matures in 2026. The supplemental revolver matures in 2024. As part of its captive finance adjustment, Fitch's Non-Bank Financial Institutions team has calculated an allowable debt-to-equity ratio of 4.0x for Ford Credit. This is lower than the actual ratio of 9.5x, as calculated by Fitch at YE 2021. As a result of its analysis, Fitch has assumed that Ford makes a theoretical $13.6 billion equity injection into Ford Credit, funded with balance sheet cash, to bring Ford Credit's debt-to-equity ratio down to 4.0x. Fitch has included the adjustment in its calculation of Ford's not readily available cash. The resulting adjustment reduces Fitch's calculation of Ford's readily available automotive cash, but the company's metrics remain supportive of its 'BB+' IDR and Positive Outlook. In addition to the captive-finance adjustment, according to its criteria, Fitch has treated an additional $3.2 billion of Ford's automotive cash as "not readily available" for purposes of calculating net metrics. This is based on Fitch's estimate of the amount of cash needed to cover typical seasonality in Ford's automotive business. However, even after excluding the amounts noted above from its liquidity calculations, Fitch views Ford's automotive liquidity position as strong. Debt Structure: As of March 31, 2022, Ford's automotive debt structure consisted primarily of about $16 billion of senior unsecured notes, $1.5 billion of delayed draw term loan borrowings and $806 million of remaining borrowings outstanding under the U.S. Department of Energy's Advanced Technology Vehicles Manufacturing incentive program, along with various other long- and short-term borrowings. ISSUER PROFILE Ford is a global automotive manufacturer that builds and sells light vehicles primarily under the Ford and Lincoln brands, as well as Ford-brand commercial vehicles. Ford also offers financial services to dealers and customers through Ford Motor Credit Company LLC. ESG CONSIDERATIONS Ford previously had an ESG Relevance Score of '4' for Management Strategy due to the complexity and costs of the company's global redesign strategy, which had a negative impact on the credit profile, and was relevant to the ratings in conjunction with other factors. Given the positive financial results seen from the global redesign strategy over the past several years and the company's ability to manage the costs of the program, Fitch has revised the ESG Relevance Score for Management Strategy to '3' from '4'. 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. OPERADORA DE SERVICIOS MEGA: S&P Alters Outlook on ICR to Stable ---------------------------------------------------------------- S&P Global Ratings revised its outlook on Operadora de Servicios Mega S.A. de C.V. (GFMEGA) to stable from negative. In addition, S&P affirmed its 'BB-' long-term global scale and 'mxA-/mxA-2' national scale ratings on GFMEGA. At the same time, S&P affirmed its 'BB-' issue-level rating on GFMEGA's senior unsecured notes for up to $500 million and its 'mxA-2' national scale on its short-term debt. In 2021, GFMEGA's risk-weighted assets (RWAs) jumped 33%, due to the 22% expansion of the loan portfolio and higher cash position, while its total adjusted capital (TAC) remained flat. S&P said, "This cause our RAC ratio to drop below 10%. Although the company received a capital infusion of MXN218 million from shareholders, TAC didn't rise due to the volatility in GFMEGA's derivative hedging strategy valuation. The latter led to a net loss of MXN48 million in 2021 and higher deferred tax assets (DTAs) stemming from the unrealized losses, which we deduct from the company's TAC. We expect volatility in earnings to fall, following GFMEGA's adoption of IFRS standards in January 2022, because the valuation effects of derivatives instruments are recorded only within capital revaluation line, removing previous impacts on profits and losses, specifically on operating revenues and bottom-line results. Moreover, our forecast incorporates a gradual improvement in profitability and a double-digit loan portfolio growth, which leads us to project net income of about MXN280 million in 2022. However, we believe that such internal capital generation won't be sufficient for the RAC ratio to return to levels of more than 10%, given loan portfolio growth of about 20% and modest profitability. In this sense, we estimate our RAC ratio to be about 8.1% for the next 12-24 months." As of March 2022, a single international debt issuance accounted for about 61% of GFMEGA's total funding base. However, despite adverse market conditions for the nonbanking financial institution (NBFI) sector in the country, the company has diversified its funding sources by obtaining new financing. GFMEGA has credit facilities from more than 20 financial institutions, including international funds, and commercial and development banks. In addition, management repaid 20% of the 2025 bond in order to reduce the potential refinancing risk while bolstering the net interest margin. The recently announced issuance of an unsecured sustainable bond for MXN3 billion underscores GFMEGA's funding diversification and access to domestic capital markets, while allowing the company to maintain healthy liquidity levels and extend its debt maturity profile. S&P said, "All the above, coupled with no immediate liquidity pressures--given the absence of large maturities until 2025--led us to add a notch to the comparative rating adjustment. We believe that the company's funding and liquidity profile is moving closer to a threshold for a stronger category." Although gradually decreasing due to sharp loan portfolio growth, GFMEGA's single-client concentration is above that of its peers. As of December 2021, top 20 loans represented 37% of total portfolio and 3.6x of TAC, with a single client (the state of Jalisco) representing almost 10%. Despite such concentration and the company's focus on small- to mid-size enterprises, GFMEGA's credit operations have remained stable thanks to rigorous origination standards. S&P said, "We don't expect the company's nonperforming assets (NPAs) and net charge-offs (NCOs) to deviate much from recent trends. We forecast NPAs to be 3.5%-4.0% and NCOs below 0.5% for the next two years. Additionally, we expect reserves coverage to NPAs to be about 80%, given that the company owns the leased asset. Finally, we believe that GFMEGA's rapid lending growth will widen the portfolio's diversification, securing its position as the third-largest independent leasing company in Mexico." ===================== P U E R T O R I C O ===================== PUERTO RICO: Bankruptcy Stay Protects Government Employees ---------------------------------------------------------- Daniel Gill of Bloomberg Law reports that Puerto Rico 'bankruptcy' stay protects government employees. Puerto Rico's bankruptcy-like restructuring protects its government employees from an insurance firm's civil rights lawsuits that target them personally, the First Circuit ruled. The plaintiff firm, Victor J. Salgado & Associates, didn't directly sue the Puerto Rico government. But there's a possibility that the commonwealth will be called on to defend and possibly indemnify the government employees as required by a local law, the US Court of Appeals for the First Circuit said in a decision May 12, 2022. About Puerto Rico Puerto Rico is a self-governing commonwealth in association with the United States that's facing a massive bond debt of $70 billion, a 68% debt-to-GDP ratio and negative economic growth in nine of the last 10 years. The Commonwealth of Puerto Rico has sought bankruptcy protection, aiming to restructure its massive $74 billion debt-load and $49 billion in pension obligations. The debt restructuring petition was filed by Puerto Rico's financial oversight board in U.S. District Court in Puerto Rico (Case No. 17-01578) on May 3, 2017, and was made under Title III of 2016's U.S. Congressional rescue law known as the Puerto Rico Oversight, Management, and Economic Stability Act ('PROMESA'). The Financial Oversight and Management Board later commenced Title III cases for the Puerto Rico Sales Tax Financing Corporation (COFINA) on May 5, 2017, and the Employees Retirement System (ERS) and the Puerto Rico Highways and Transportation Authority (HTA) on May 21, 2017. On July 2, 2017, a Title III case was commenced for the Puerto Rico Electric Power Authority ("PREPA"). U.S. Chief Justice John Roberts has appointed U.S. District Judge Laura Taylor Swain to oversee the Title III cases. The Honorable Judith Dein, a United States Magistrate Judge for the District of Massachusetts, has been designated to preside over matters that may be referred to her by Judge Swain, including discovery disputes, and management of other pretrial proceedings. Joint administration of the Title III cases, under Lead Case No. 17-3283, was granted on June 29, 2017. The Oversight Board has hired as advisors, Proskauer Rose LLP and O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic consultant, Citigroup Global Markets, as municipal investment banker, and Ernst & Young, as financial advisor. Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M. Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at O'Neill & Borges are on-board as attorneys. McKinsey & Co. is the Board's strategic consultant, Ernst & Young is the Board's financial advisor, and Citigroup Global Markets Inc. is the Board's municipal investment banker. Prime Clerk LLC is the claims and noticing agent. Prime Clerk maintains a case web site at https://cases.primeclerk.com/puertorico Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA, and PREPA. O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), the agency responsible for negotiations with bondholders. The Oversight Board named Professor Nancy B. Rapoport as fee examiner and to chair a committee to review professionals' fees. * * * The two Title III plans of adjustment have been confirmed to date, for the Commonwealth and COFINA debtors. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. 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. 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