/raid1/www/Hosts/bankrupt/TCRLA_Public/220822.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
Monday, August 22, 2022, Vol. 23, No. 161
Headlines
A R G E N T I N A
ARGENTINA: Bond Rebound Stalls as New Minister Faces Challenges
BANCO BBVA ARGENTINA: Fitch Affirms 'CCC' LT IDRs
BANCO MARCO: Fitch Affirms 'CCC' LongTerm IDRs
BANCO SANTANDER: Fitch Affirms 'CCC' LT Issuer Default Rating
B R A Z I L
BRAZIL: Central Bank Pres. Says He Won't Accept New Term in 2024
PETROLEO BRASILEIRO: Refineries Sale Should Take 2 to 3 Years
E C U A D O R
ECUADOR DIVERSIFIED: Fitch Affirms B+ Rating on 2020-1 Loans
REPUBLIC OF ECUADOR: Egan-Jones Retains BB Sr. Unsecured Ratings
J A M A I C A
JAMAICA: BOJ Defends Interest Rate Hike
JAMAICA: Import Spending Up, Export Earnings Also Up
M E X I C O
GRUPO AEROMEXICO: Egan-Jones Hikes Senior Unsecured Ratings to C
UNIFIN FINANCIERA: Fitch Cuts IDRs to C on Debt Service Cessation
P E R U
PERU LNG: Fitch Affirms 'B+' LT IDRs & Alters Outlook to Stable
P U E R T O R I C O
PUERTO RICO: PREPA Takes More Time to Reach Debt Deal
- - - - -
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A R G E N T I N A
=================
ARGENTINA: Bond Rebound Stalls as New Minister Faces Challenges
---------------------------------------------------------------
Scott Squires at Bloomberg News reports that the rebound in
Argentine debt in late July has stalled as the new economy minister
races against time to convince investors he can turn his
market-friendly words into actions.
The nation's benchmark dollar bonds due in 2030 leaped more than 5
cents to around 22 cents on the dollar in just over a week amid
speculation Sergio Massa would be appointed as "super" economy
minister, which was confirmed on July 28. But since peaking on
August 8, the debt has edged lower, according to Bloomberg News.
For the bonds to gain any further, Massa needs to rein in inflation
hurtling toward triple digits, slash the budget deficit and bolster
foreign-currency reserves, Bloomberg News relays. The first stage
in achieving any of that would be convincing grain exporters to
bring revenue back into the country, boosting Argentina's dollar
holdings, Bloomberg News notes. That won't be easy though,
Bloomberg News adds.
"The market is looking for concrete measures," said Carolina
Gialdi, head of international markets sales and trading at Max
Capital in Buenos Aires. "But without closing the exchange-rate gap
or eliminating export taxes, I don't see how Massa can encourage
farmers to sell."
Argentina's gross international reserves have dipped to their
lowest since December 2016, while net reserves are so low that the
government may not be able to avert a one-time devaluation for much
longer, Bloomberg News discloses. But President Alberto
Fernandez's administration has repeatedly stated it would not
devalue the official exchange rate, arguing that it would trigger
another wave of price hikes and higher inflation, which is seen
topping 90% this year, Bloomberg News says.
Massa's team is said to have asked the crop exporters and
processing companies to bring as much as US$1 billion into the
country, offering to pay interest on the dollars, in order to boost
central bank reserves, Bloomberg News notes. The government will
also offer banks a 180-day Treasury note to invest deposits from
export sales, Bloomberg News relays.
"There is huge urgency here," said Alberto Bernal, chief strategist
at XP Investments, Bloomberg News discloses. "The central bank
cannot keep on selling reserves, as they're already at levels that
are not consistent with financial stability," he added.
Argentina hiked interest rates by the most in almost three years in
a bid to cool inflation already running above 70%, Bloomberg News
notes. The nation is also moving forward with politically
unpopular subsidy cuts on utility bills in a bid to comply with its
US$44 billion program with the International Monetary Fund,
Bloomberg News relays.
To be sure, if the government can't turn the situation around in
the coming months, Argentina's market-friendly opposition will
likely fare better in the October 2023 presidential elections,
Bloomberg News says. In a best case scenario, sovereign bonds
could climb to as high as 40 cents on the dollar by December 2023,
Javier Casabal, a fixed-income strategist at Adcap wrote in a note,
Bloomberg News relays.
But without making good on commitments to rein in fiscal spending
and stop printing money to fund the deficit, Argentina is doomed to
high inflation until then, especially if it increases social
spending ahead of the elections, according to Joaquin Almeyra, a
fixed-income trader at Bulltick LLC in Miami, Bloomberg News
notes.
"Inflation will remain high if there is no real change on the way,"
Almeyra said, Bloomberg News discloses. "Fernandez's government
will try to cut some spending in the short term, but in the end
they'll fall right back into old habits when the heat goes away,"
he 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
Aug. 12, 2022, S&P Global Ratings affirmed its foreign and
local-currency sovereign credit ratings of 'CCC+/C' on the
Republic
of Argentina. The outlook remains stable. S&P also affirmed its
national scale 'raBBB-' rating and its 'CCC+' transfer and
convertibility assessment. S&P said the stable outlook reflects
the challenges in managing pronounced economic imbalances ahead
of the 2023 national elections given disagreement on policy
within the government coalition and financing pressures in the
local market.
Last 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.
On July 19, 2022, Fitch Ratings placed Argentina's Long-Term
Foreign
Currency Issuer Default Rating (IDR) and Long-Term Local Currency
IDR Under Criteria Observation (UCO) following the conversion of
the agency's Exposure Draft: Sovereign Rating Criteria to final
criteria. The UCO assignment indicates that ratings may change as
a direct result of the final criteria. It does not indicate a
change in the underlying credit profile, nor does it affect
existing Rating Outlooks.
Moody's credit rating for Argentina was last set at Ca on
Sept. 28, 2020.
DBRS has also confirmed Argentina's Long-Term Foreign Currency
Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at
CCC (high) on July 21, 2022.
BANCO BBVA ARGENTINA: Fitch Affirms 'CCC' LT IDRs
-------------------------------------------------
Fitch Ratings has affirmed Banco BBVA Argentina S.A.'s (BBVA Arg)
Foreign- and Local-Currency Long-Term Issuer Default Ratings (IDR)
at 'CCC'.
Fitch has also withdrawn BBVA Arg's Support Rating of '5' and
Support Rating Floor of 'NF' as these ratings are no longer
relevant to the agency's coverage following the publication of its
updated Bank Rating Criteria on Nov. 12, 2021. In line with the
updated criteria, Fitch has assigned BBVA Argentina a Government
Support Rating (GSR) of 'ns' (No support).
KEY RATING DRIVERS
In Fitch's view, regardless of its overall adequate financial
condition, BBVA Arg's VR and IDRs are highly influenced by the
operating environment and are constrained by the low IDRs of
Argentina.
The operating environment is constrained by the sovereign rating
and remains highly challenging as asset quality continues to be
pressured by a long recession, which has been exacerbated by the
coronavirus pandemic and severe political uncertainties.
Additionally, low loan growth (in real terms), rising nonperforming
loans, significant margin pressure due to regulatory imposed
interest rates caps and floors, and increasing operating costs due
to continued high inflation will continue to affect profitability.
Diverse Business Profile: BBVA Arg is a universal commercial bank
and one of the leading top-four private sector banks in Argentina.
It provides retail and corporate banking services to individuals,
small and medium companies and large-sized corporates. As of March
2022, the bank's consolidated market share of private sector
deposits was approximately 7.1% and the consolidated share of
private sector loans was approximately 7.9%. However, despite a
diverse business profile, the majority of the bank's operations are
concentrated in a high-risk operating environment.
Asset Quality Indicators Remains Strong: Despite its large retail
and middle market corporate portfolios, the bank has maintained
strong asset quality indicators that compare well with its closest
peers. The bank maintains an internal policy of exceeding
regulatory loan loss reserve requirements. The bank's impaired loan
ratio strengthened to only 1.3% at the end of March 2022 from 1.9%
at YE2021 and while coverage of impaired loans declined, it
remained a comfortable level of nearly 220%, which also compares
favorably with its peer group.
Pressured Profitability: In spite of the adverse operating
environment, BBVA Arg has managed to post an acceptable level of
profitability. For the first quarter ended March 31, 2022, its
operating profit (adjusted for inflation)/RWA ratio was 3.27%,
slightly higher than the full year 2021 ratio. Fitch expects BBVA's
performance to remain under pressure until the political and
economic situation recovers leading to an increase in credit
demand, which seems unlikely in the short term. The bank
prioritizes asset quality and liquidity over profitability.
Comfortable Capitalization: Similar to other banks in the financial
system, BBVA Arg's capitalization has continued to strengthen over
the past few years given the low loan growth. Its Common Equity
Tier 1 (CET 1) ratio was strong at nearly 23% at March 31, 2022.
Given the bank's traditionally conservative risk appetite, Fitch
expects management to maintain the bank's capital cushion at
comfortable levels in the short term, but as the operating
environment improves, the ratio will likely revert to a lower level
similar to that of YE 2019 when it was slightly over 17%.
Very Strong Liquidity: Like many other banks in the Argentine
banking system, BBVA Arg's main funding source is deposits from its
customer base. BBVA has a long track record of attracting and
maintaining a stable customer base. As of March 31, 2022, these
deposits accounted for slightly over 96% of the bank's total
non-equity funding. The bank's loan to deposit ratio as of the same
date continued to shrink to a low of 53% reflecting a modest risk
appetite and low customer credit demand which is driven by the
challenging operating environment.
No Government Support: BBVAArg's GSR of 'no support' (NS) reflects
Fitch's view that despite the bank's systemic importance,
government support cannot be relied upon given constraints on the
government's ability to provide support.
Fitch does not consider any potential support from its parent Banco
Bilbao Vizacaya Argentaria (BBVA; BBB+/Stable) given the risk of
government intervention in the Argentine financial system.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- BBVA's IDRs and VR would be pressured by a downgrade of
Argentina's sovereign rating or a deterioration in the local
operating environment beyond current expectations that leads
to a significant deterioration in its financial profile;
-- Any policy announcements that would be detrimental to the
bank's ability to service its obligations would be negative
for creditworthiness.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- BBVA Arg's IDRs and VR would benefit from an upgrade of
Argentina's sovereign rating.
VR ADJUSTMENTS
-- The Operating Environment score of 'ccc' has been assigned
below the implied score of 'b' due to the following adjustment
reason: Sovereign Rating (negative);
-- The Earnings & Profitability score of 'ccc' has been assigned
below the implied score of 'bb' due to the following
adjustment reason: Earnings Stability (negative);
-- The Capitalization & Leverage Score of 'ccc' has been assigned
below the score of 'bb due to the following adjustment reason:
Historical and Future Metrics (Negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
BBVA Arg's ESG score for Management Strategy of '4' reflects the
high level of government intervention in the Argentine banking
sector. The imposition of interest rate caps can lead to inadequate
loan pricing and, together with the imposition of interest rates
floors on time deposits, puts significant pressure on banks' net
interest margins. In addition, restrictions on fee levels can
negatively affect performance ratios. This challenges the bank's
ability to define and execute its own strategy. This has a
moderately negative impact on the rating in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Banco BBVA LT IDR CCC Affirmed CCC
Argentina S.A.
ST IDR C Affirmed C
LC LT IDR CCC Affirmed CCC
LC ST IDR C Affirmed C
Viability ccc Affirmed ccc
Support WD Withdrawn 5
Support Floor WD NF
Withdrawn
Government Support ns
New Rating
BANCO MARCO: Fitch Affirms 'CCC' LongTerm IDRs
----------------------------------------------
Fitch Ratings has affirmed Banco Macro S.A.'s (Macro) Foreign and
Local Currency Long-Term Issuer Default Ratings (IDRs) at 'CCC'.
Fitch has withdrawn Macro's Support Rating of '5' and Support
Rating Floor of 'NF', as these are no longer relevant to the
agency's coverage following the publication of its updated Bank
Rating Criteria on Nov. 12, 2021. In line with the updated
criteria, Fitch has assigned Macro a Government Support Rating
(GSR) of 'ns' (No Support).
KEY RATING DRIVERS
In Fitch's view, regardless of its overall satisfactory financial
condition, Macro's Viability Rating (VR) and IDRs are highly
influenced by the operating environment (OE) and are constrained by
the low IDRs of Argentina.
Highly Challenging Operating Environment: Macro's VR and IDRs are
highly influenced by Fitch's assessment of the operating
environment and are constrained by the low IDRs of Argentina,
despite the bank's comparably stronger financial profile relative
to other private sector commercial banks in similar operating
environments. The operating environment remains highly challenging
as asset quality continues to be pressured by a long recession,
which has been exacerbated by the coronavirus pandemic and severe
political uncertainties.
Additionally, low loan growth (negative in real terms for more than
4 years), rising nonperforming loans at certain banks, significant
margin pressure due to regulatory imposed interest rates caps and
floors, and increasing operating costs due to continued high
inflation will continue to affect profitability.
Ample Capitalization: Macro's capitalization is supported by
consistent earnings retention and a conservative risk appetite. As
of March 2022, the bank's CET 1 ratio was at a very comfortable
33.7% an increase from 30.9% at Dec. 31, 2021. The ratio was
strengthened in part by the internal capital generation and lower
loan growth rate of 6.3% during the first quarter. This ratio
compares very well to the bank's local and international peer
groups and far exceeds the regulatory capital minimums.
Given the bank's conservative risk appetite, Fitch expects Macro's
capital cushion to remain at comfortable levels even though this
cushion is likely to decline in the coming quarters as the economy
recovers and exposure to credit-worthy borrowers is increased. As
the economy improves and credit demand grows, Fitch expects Macro's
CET 1 ratio to decrease, but to remain conservative when compared
to peers.
Diverse Business Profile: Banco Macro is a universal bank, which
focuses on low, and middle income, individuals and small and
mid-sized companies (SMEs). It differentiates from most of the
other large banks as its strongest presence is outside of Buenos
Aires. The bank benefits from its strong nationwide presence, which
places it among the top four private sector banks in Argentina in
terms of loans and deposits. As of March 31, 2022, the loan and
deposit market share was approximately 7% and 5.5%, respectively.
Although Macro benefits from its diverse business profile and
strong nationwide franchise, its business profile score has been
assigned below its implied score as the majority of its activities
are concentrated in a high-risk operating environment.
Asset Quality Remains Strong: Macro's risk appetite is relatively
higher than its closest peers due to its middle market focus, and
its retail focus on low to middle income individuals. However,
these generally higher risks are usually mitigated by management's
conservative underwriting policies and sound risk controls, which
benefit asset quality metrics. In addition, the semi-secured nature
of the bank's payroll/pension-backed loan portfolio contributes to
a lower-level of impairments.
The bank's impaired loans to gross loans ratio as calculated by
Fitch as of March 31, 2022 was at a satisfactory level of 1.6%.
Although not as strong as the 0.9% reported as of Dec. 31, 2021,
this higher level still compares favorably to the averages of its
private-sector peers. The impaired loan coverage ratio stood at a
satisfactory 1.6x as of the end of 1Q22.
Adequate Profitability despite Challenges: Since 2018, Macro's
profitability as measured by operating profit to risk-weighted
assets (RWA) saw a significant decrease especially during fiscal
2021 driven by low loan demand and growth. The ratio fell from 8.4%
to 4.1%. The same ratio for the first-quarter of 2022 came in
slightly lower at 3.9% as lower demand from wary clients, as well
as the current high level of government intervention (through
interest caps on loans, interest rate floors on time deposits, and
restrictions on fee increases) weighed on revenues.
Fitch expects Argentine bank performance to remain under pressure
until the political and economic situation recovers and enables an
increase in credit and services, which seems unlikely in the short
term.
Satisfactory Funding and Liquidity Metrics: The bank's liquidity
metrics remain at very comfortable levels, which benefit from
Macro's diverse funding profile. This funding profile is supported
by a generally stable retail deposit base and complemented by
demonstrated access to capital markets. As of March 2021, customer
deposits accounted for 81% of total funding and the bank's Loan to
Deposit ratio was at a low 64%.
Macro also provides financial agency services to four provincial
governments, and thus benefits from the related mobilization of
public sector institutional deposits. In addition, the bank
provides payroll services to over two million retail clients,
providing another source of stable and low-cost funding.
No Government Support: Macro's GSR of 'no support' (NS) reflects
Fitch's view that despite the bank's systemic importance,
government support cannot be relied upon given constraints on the
government's ability to provide support.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The IDRs and VRs would be pressured by a downgrade of
Argentina's sovereign rating or a deterioration in the local
operating environment beyond current expectations that leads
to a significant deterioration in its financial profile;
-- Any policy announcements that would be detrimental to the
bank's ability to service its obligations, including a
tightening of capital controls to the extent that they
restrict debt payments, would be negative for
creditworthiness.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Macro's VR and IDRs would benefit from an upgrade of
Argentina's sovereign rating.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Macro's subordinated debt's 'C'/'RR6' rating is two notches below
the bank's VR reflecting Fitch's base case notching for loss
severity. These securities are plain vanilla subordinated
liabilities, without any deferral feature on coupons and/or
principal. The 'RR6' for subordinated debt reflects poor recovery
prospects due to a low priority position relative to Macro's senior
unsecured debt.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Sensitivities: Any change, either positive or negative, to Macro's
VR could result in a similar change to the subordinated debt
rating.
VR ADJUSTMENTS
-- The implied Viability Rating of 'ccc+' has been adjusted to
'ccc' due to operating environment/sovereign rating constraint
(negative);
-- The Operating Environment score of 'ccc' has been assigned
below the implied score of 'b' due to the following adjustment
reason: Sovereign Rating (negative);
-- The Business Profile score of 'ccc+' has been assigned below
the implied score of 'bb' due to the following adjustment
reason: Business Model (negative);
-- The Earnings & Profitability Profile score of 'ccc' has been
assigned below the implied score of 'bb' due to the following
adjustment reason: Earnings Stability (negative);
-- The Capitalization & Leverage score of 'ccc+ has been assigned
below the implied score of 'bb' due to the following
adjustment reason: Historical and Future Metrics (negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Banco Macro S.A. has an ESG Relevance Score of '4' for Management
Strategy, which has a moderately negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors. The '4' score reflects the current high level of
government intervention in the Argentine banking sector.
The imposition of interest rate caps can lead to inadequate loan
pricing and, together with the imposition of interest rate floors
on time deposits, puts significant pressure on banks' net interest
margins. Also, restrictions on fee levels can negatively affect
performance ratios. This challenges Banco Macro's ability to define
and execute its own strategy.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
RATING ACTIONS
ENTITY/DEBT RATING RECOVERY PRIOR
----------- ------ -------- -----
Banco Macro S.A. LT IDR CCC Affirmed CCC
ST IDR C Affirmed C
LC LT IDR CCC Affirmed CCC
LC ST IDR C Affirmed C
Viability ccc Affirmed ccc
Support WD Withdrawn 5
Support Floor WD Withdrawn NF
Government Support ns
New Rating
subordinated LT C Affirmed RR6 C
BANCO SANTANDER: Fitch Affirms 'CCC' LT Issuer Default Rating
-------------------------------------------------------------
Fitch Ratings has affirmed Banco Santander Rio S.A.'s (Santander
Argentina) Foreign and Local Currency Long-Term Issuer Default
Rating (IDR) at 'CCC'.
Fitch has also withdrawn Santander Argentina's Support Rating of
'5' and Support Rating Floor of 'NF' as these ratings are no longer
relevant to the agency's coverage following the publication of its
updated Bank Rating Criteria on Nov. 12, 2021. In line with the
updated criteria, Fitch has assigned Santander Argentina a
Government Support Rating (GSR) of 'no support' (ns).
KEY RATING DRIVERS
In Fitch's view, regardless of its overall adequate financial
condition, Santander Argentina's Viability Rating (VR) and Issuer
Default Ratings (IDRs) are highly influenced by the operating
environment and constrained by Argentina's low IDRs.
The operating environment remains highly challenging as asset
quality remains pressured by a long recession, which has been
exacerbated by the coronavirus pandemic and severe political
uncertainties. Additionally, low loan growth (in real terms),
rising nonperforming loans, significant margin pressure due to
regulatory imposed interest rates caps and floors, and increasing
operating costs due to continued high inflation will continue to
affect profitability.
Santander Argentina is a universal commercial bank with a strong
market position. As of January 2022, Santander Argentina was the
second largest bank by assets and the third by deposits, with
market shares of 8.8% and 8%, respectively. Spain's Banco Santander
S.A., currently holds 99.30% of the bank's capital, with the
balance held by independent investors. However, despite the bank's
diversified operations and strong market share, Santander
Argentina's business profile score has been assigned below the
implied score due to the concentration of its operations in a high
risk operating environment.
Santander Rio's asset quality has been under pressure since 2017
given the adverse operating environment. Non-performing loans
(NPLs) have increased in spite of the bank's good credit risk
management. However, these remain at reasonable levels considering
the depth of the economic crisis in Argentina. As of Dec. 31, 2021,
Santander Rio's NPLs rose to 3.7% from 2.2% at YE 2020, as the
latter had benefitted from regulatory forbearance.
In 1Q22, NPLs decreased due to better repayment capacity from the
bank's debtors, and was aided by higher charge-offs. The latter had
been relatively low at 1.6% of total loans in 2021 but increased to
3.9% (annualized) in 1Q22 due to the write-off of a large
commercial debtor. Loan loss reserve coverage remains at sound
levels, of 191.7% of NPLs and 4.9% of total gross loans as of March
31, 2022.
Since 2018, loan growth has significantly fallen in Argentina due
to economic and operating environment deterioration, with very high
inflation and interest rates, which together with political
uncertainties and the pandemic, led to a slump in credit demand and
negative loan growth in real terms for more than four years. In
addition, profitability is affected by some distorting regulations
passed by the Central Bank since 2020, such as capping interest
rates offered on loans and placing floors for deposit rates,
imposing restrictions on fee increases, among others.
In spite of the adverse operating environment, Santander Argentina
has managed to post an acceptable level of profitability. In 2021,
its operating profit (adjusted for inflation)/RWA ratio was 2.76%,
lower than previous years given the low loan growth (in real terms)
and the effect of higher inflation. Fitch expects Argentine banks'
performance to remain under pressure until the political and
economic situation recovers leading to an increase in credit
demand, which seems unlikely in the short term.
As with the rest of the financial system, Santander Argentina's
capitalization has significantly improved in the recent past given
the very low loan growth. Its CET1 ratio rose to 17.38% at March
31, 2022.
Like other Argentine systemic banks, Santander Argentina's main
funding source is its customer deposits base. These have grown at a
solid pace in line with the high inflation in Argentina and
comprised 98.1% of the bank's total funding as of March 31, 2022.
As with most of its local peers, Santander Argentina's loan to
deposits ratio has significantly decreased as deposit growth has
outpaced loan growth and at March 2022 it reached a low 53.86%.
Liquidity is sound, with a liquidity coverage ratio (LCR) at a
comfortable 243% and a net stable funding ratio (NSFR) of 165% as
of March 31, 2022. In addition, cash and due from banks represented
21.3% of total deposits and 57% considering also central bank
securities.
No Government Support: Santander Argentina's GSR of 'no support'
(ns) reflects Fitch's view that despite the bank's systemic
importance, government support cannot be relied upon given
constraints on the government's ability to provide support.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The IDRs and VRs would be pressured by a downgrade of
Argentina's sovereign rating or a deterioration in the local
operating environment beyond current expectations that leads
to a significant deterioration in its financial profile;
-- Any policy announcements that would be detrimental to the
bank's ability to service its obligations would be negative
for creditworthiness.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Santander Argentina's IDRs and VRs would benefit from an
upgrade of Argentina's sovereign rating.
Fitch does not consider any potential support from its parent
(Banco Santander, S.A. (SAN; A-/Stable Outlook) given the risk of
government intervention in the Argentine financial system.
Changes in the GSR of Santander Argentina are unlikely in the
medium term given the low sovereign rating of Argentina.
VR ADJUSTMENTS
-- The Operating Environment score has been assigned below the
implied score due to the following adjustment reason:
Sovereign Rating (negative);
-- The Business Profile score has been assigned below the implied
score due to the following adjustment reason: Company Profile
and Business Model (negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Santander Argentina's ESG score for Management Strategy of '4'
reflects the high level of government intervention in the Argentine
banking sector. The imposition of interest rate caps can lead to
inadequate loan pricing and, together with the imposition of
interest rates floors on time deposits, puts significant pressure
on banks' net interest margins.
In addition, restrictions on fee levels can negatively impact on
performance ratios. This challenges Santander Argentina's ability
to define and execute its own strategy. This has a moderately
negative impact on the rating in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Banco Santander LT IDR CCC Affirmed CCC
Rio S.A.
ST IDR C Affirmed C
LC LT IDR CCC Affirmed CCC
LC ST IDR C Affirmed C
Viability ccc Affirmed ccc
Support WD Withdrawn 5
Support Floor WD Withdrawn NF
Government Support ns
New Rating
===========
B R A Z I L
===========
BRAZIL: Central Bank Pres. Says He Won't Accept New Term in 2024
----------------------------------------------------------------
Central Bank (BC) President Roberto Campos Neto said at an event
sponsored by BTG Pactual that he will not accept reappointment for
a new term in 2024.
"When the autonomy rule was made, I was against reappointment. I
wanted to remove reappointment from the project. I think it is
unhealthy because it leads to vulnerability in the middle of the
mandate because a president of the Central Bank will be interested
in reappointment and will be subject to the executive's will at
that moment."
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
July 18, 2022, Fitch Ratings has affirmed Brazil's Long-Term
Foreign Currency Issuer Default Rating at 'BB-' and revised the
Rating Outlook to Stable from Negative.
On June 17, 2022, S&P Global Ratings affirmed its 'BB-/B' long-
and short-term foreign and local currency sovereign credit
ratings on Brazil.
Moody's Investors Service also affirmed on April 15, 2022,
Brazil's long-term Ba2 issuer ratings and senior unsecured bond
ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the
stable outlook.
DBRS Inc. confirmed Brazil's Long-Term Foreign and Local Currency
Issuer Ratings at BB (low) on Aug 12, 2022. At the same time,
DBRS Morningstar confirmed the Federative Republic of Brazil's
Short-term Foreign and Local Currency Issuer Ratings at R-4.
The trend on all ratings is Stable.
PETROLEO BRASILEIRO: Refineries Sale Should Take 2 to 3 Years
-------------------------------------------------------------
Rio Times Online reports that Brazil's Administrative Council for
Economic Defense (CADE) is in the 4th revision of the term of
cessation of conduct (TCC) of refining, which requires Petroleo
Brasileiro S.A. (Petrobras) to sell 8 of its refineries.
According to counselor Gustavo Augusto Freitas de Lima, the process
should be completed in the next 2 to 3 years, the report notes.
"What are we renegotiating? The timeframe. We are saying at what
point Petrobras has to do the teaser [stage of launching the
divestiture process]. This timeline is what has been discussed a
lot," he said in an interview with Poder360, according to Rio Times
Online.
As reported in the Troubled Company Reporter-Latin America on July
14, 2022, Egan-Jones Ratings Company on July 8, 2022, upgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Petroleo Brasileiro S.A. - Petrobras to BB+ from
BB.
=============
E C U A D O R
=============
ECUADOR DIVERSIFIED: Fitch Affirms B+ Rating on 2020-1 Loans
------------------------------------------------------------
Fitch Ratings has affirmed the outstanding series 2020-1 loans
originated by Ecuador Diversified Payment Rights (DPR) at 'B+'. The
Rating Outlook is Negative.
The Negative Outlook reflects downside risks to the originating
bank's credit quality from the continued economic implications of
the coronavirus pandemic.
Rating Action
Rating Prior
------ -----
Ecuador Diversified Payment Rights
2020-1 G2921#AA9 LT B+ Affirmed B+
TRANSACTION SUMMARY
The future flow program is backed by U.S.-dollar-denominated,
existing and future DPRs originated in the U.S. by Banco del
Pacifico S.A. (BdP) of Ecuador. The majority of DPRs are processed
by designated depository banks (DDBs) that executed account
agreements (AAs).
KEY RATING DRIVERS
Future Flow (FF) Rating Driven by Originator's Credit Quality: The
rating of this future flow transaction is tied to the credit
quality of the originator, BdP. BdP's IDR is in line with the
credit quality of Ecuador, BdP's operating environment. BdP's
credit quality continues to be exposed to increased downside risks
from the economic implications of the coronavirus pandemic.
Going Concern Assessment (GCA) Score Supports Notching
Differential: Fitch uses a GCA score to gauge the likelihood that
the originator of a future flow transaction will stay in operation
throughout the transaction's life. Fitch assigned a going concern
assessment (GCA) score of 'GC1' to Banco BdP, based on the bank's
systemic importance and its state-owned shareholder. The score
allows for a maximum of six notches above the LC IDR of the
originator; however, additional factors limit the maximum uplift.
Factors Limit Notching Differential: The 'GC1' score allows for a
maximum six-notch rating uplift from the bank's IDR, pursuant to
Fitch's future flow methodology. However, uplift is tempered to two
notches from BdP's IDR due to factors mentioned below, including
Ecuador's lack of last resort lender, large beneficiary
concentration and high future flow debt relative to total funding.
Relatively High Future Flow Debt: Total future flow debt, including
the DPR series 2020-1 loan, represents approximately 3.2% of BdP's
total funding and 38.8% of non-deposit funding utilizing financials
as of December 2021. Fitch considers the ratio of future flow debt
to overall non-deposit funding to be relatively high and will not
allow the financial future flow ratings up to the maximum uplift
indicated by the GCA score.
Coverage Levels Commensurate with Assigned Rating: Historical
coverage levels and performance of the DPR program support the
notching differential of the rating on the outstanding DPR backed
notes from the rating of the originator. When considering average
rolling quarterly DDB flows over the last three years (July
2019-June 2022) and the remaining maximum periodic debt service
over the life of the program (including Fitch's B+ interest rate
stress), Fitch's projected quarterly DSCR is 19.2x.
Flows have remained resilient throughout the life of the program
including in most recent years when, despite experiencing the
macroeconomic impacts brought on by the coronavirus pandemic,
coverage levels remained sufficient to meet debt service
obligations. Nevertheless, notching is tempered given the DPR
program's exposure to large payment orders and capital flows, which
Fitch believes are more volatile and less reliable than export and
remittance flows.
No Lender of Last Resort: Ecuador is a dollarized economy without a
true lender of last resort. While certain mechanisms are in place
to help fend off a banking system crisis, this limits the notching
differential of the transaction.
Redirection/Diversion Risk: The structure mitigates certain
sovereign risks by collecting cash flows offshore until collection
of the periodic debt service amount, allowing the transaction to be
rated over the sovereign country ceiling. Fitch believes payment
diversion risk is partially mitigated by the AAs signed by the
three correspondent banks processing the vast majority of U.S.
dollar DPR flows.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The transaction ratings are sensitive to changes in the credit
quality of BdP. A deterioration of the credit quality of BP is
likely to pose a constraint to the current rating of the
transaction;
-- The transaction ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score
and a change in Fitch's view on the bank's GCA score can lead to a
change in the transaction's rating. Additionally, the transaction
rating is sensitive to the performance of the securitized business
line. The quarterly minimum unadjusted DSCR is estimated to be
19.2x and should therefore be able to withstand a moderate decline
in cash flows in the absence of other issues. However, significant
declines in flows could lead to a negative rating action. Any
changes in these variables will be analyzed in a rating committee
to assess the possible impact on the transaction ratings;
-- No company is immune to the economic and political conditions
of its home country. Political risks and the potential for
sovereign interference may increase as a sovereign's rating is
downgraded. However, the underlying structure and transaction
enhancements mitigate these risks to a level consistent with the
assigned rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The main constraint to the program rating is the originator's
rating and BdP's operating environment. If a positive ration
action/upgrade occurs, Fitch will consider whether the same uplift
could be maintained or if it should be further tempered in
accordance with criteria;
-- Fitch has revised global economic outlook forecasts as a result
of the Ukraine War and related economic sanctions. Downside risks
have increased and Fitch has published an assessment of the
potential rating and asset performance impact of a plausible, but
worse-than-expected, adverse stagflation scenario on Fitch's major
SF and CVB sub-sectors ("What a Stagflation Scenario Would Mean for
Global Structured Finance"). Fitch expects LatAm's Global
Cross-Sector's financial future flow transactions in the assumed
adverse scenario to experience "Virtually No Impact" indicating a
low risk for rating changes.
REPUBLIC OF ECUADOR: Egan-Jones Retains BB Sr. Unsecured Ratings
----------------------------------------------------------------
Egan-Jones Ratings Company, on August 9, 2022, retained its 'BB'
foreign currency and local currency senior unsecured ratings on
debt issued by the Republic of Ecuador.
Ecuador is a country straddling the equator on South America's west
coast.
=============
J A M A I C A
=============
JAMAICA: BOJ Defends Interest Rate Hike
---------------------------------------
RJR News reports that the Bank of Jamaica said the economic
downside risks are still high, despite some favorable signs.
BOJ Governor Richard Byles said despite slowing inflation,
declining international commodity prices and relative stability in
the exchange rate, the 50 basis point increase in interest rates
was warranted, according to RJR News.
The rate now stands at six per cent, the report notes.
Mr. Byles cited the geo-political situation between Russia and
Ukraine, Europe's knock-on commodity price risks, labor shortages
in select sectors and inflationary pressures as factors that led to
the rate hike, the report relays.
He said high inflation in the United States and other trading
partners also prompted a "program of faster monetary adjustment
which could cause capital outflows from Jamaica and cause exchange
rate depreciation if domestic monetary policy is not properly
aligned," the report notes.
However, with projections seeing inflation trending downwards, the
Monetary Policy Committee is inclined to consider pausing interest
rate increases, the report says.
Since October last year, the BOJ has increased the policy interest
rate by 550 basis points, the report discloses.
In response, a number of banks and financial institutions have
increased their own interest rates charged to clients, the report
adds.
As reported in the Troubled Company Reporter-Latin America in March
2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
JAMAICA: Import Spending Up, Export Earnings Also Up
----------------------------------------------------
RJR News reports that Jamaica spent more money on imports at the
end of April this year, compared to April 2021.
The Statistical Institute of Jamaica (STATIN) said for January to
April, spending on imports amounted to US2.3 billion, according to
RJR News.
That represents a 34 per cent increase in imports compared to the
same four month period in 2021, the report notes.
The up-tick was driven by increased spending in the categories Raw
Materials/Intermediate Goods, and Fuel, the report relays.
Export Earnings
The country also earned more money from exports, the report
discloses.
STATIN has reported that the country earned US$511 million from
locally produced goods sold outside of Jamaica, the report says.
Export earnings for January to June this year were 1.3% higher than
the corresponding period in 2021, when $504 million was earned, the
report notes.
The increase in exports was due primarily to a 53 per cent jump in
the value of exports in the category Mineral Fuels, the report
adds.
As reported in the Troubled Company Reporter-Latin America in March
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
===========
GRUPO AEROMEXICO: Egan-Jones Hikes Senior Unsecured Ratings to C
----------------------------------------------------------------
Egan-Jones Ratings Company, on August 10, 2022, upgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Grupo Aeromexico SAB de CV to C from D. EJR also
retained its 'D' rating on commercial paper issued by the Company
to B from A3.
Headquartered in Mexico City, Mexico, Grupo Aeromexico SAB de CV
operates as an airline.
UNIFIN FINANCIERA: Fitch Cuts IDRs to C on Debt Service Cessation
-----------------------------------------------------------------
Fitch Ratings has downgraded Unifin Financiera, S.A.B. de C.V.'s
(Unifin) Long- and Short-Term Foreign and Local Currency Issuer
Default Ratings (IDRs) to 'C' and 'C' from 'BB-' and 'B',
respectively.
The National Scale Long-Term and Short-Term Ratings have also been
downgraded to 'C(mex)' and 'C(mex)' from 'A-(mex)' and 'F2(mex)',
respectively.
In addition, Fitch has downgraded the ratings of the company's
senior notes and hybrid securities to 'C' and 'C', respectively.
KEY RATING DRIVERS
The downgrades follow Unifin's announcement on August 8 that it
intends to stop paying interest and principal on its debt and seek
to negotiate a standstill agreement with its creditors to implement
a debt restructuring. The company indicated that the announcements
are in response to meaningfully constrained funding sources
affecting its capital structure and liquidity.
Fitch believes these developments constitute that a default process
has begun. The company's next global bond maturity is Aug. 12,
2022, after which Fitch expects the company will enter into the
30-day grace or cure period afforded under the terms of the debt
instrument.
Prior to the announcement, Unifin exhibited reasonable financial
flexibility particularly considering the maturity extension of the
USD200 million bond due in August 2022 and the addition of a new
USD500 million secured credit facility provided by Credit Suisse.
Pro forma for these actions and based on 2Q22 financial
information, the company's unsecured debt to total debt was 71%,
while cash and equivalents covered 25% of next 12 months debt
maturities.
Fitch believes Unifin faces significantly elevated execution risks
related to the company's revised strategy and uncertainty regarding
its franchise and long-term viability. Fitch considers these
execution risks to have a negative impact on the ratings in
combination with other factors.
SENIOR DEBT
The senior global debt rating is equalized with Unifin's 'C' IDR,
as the likelihood of a default of the notes is the same as for the
company. Fitch has not assigned a Recovery Rating for the
instrument reflecting that the potential recovery outcome for the
instrument is highly variable.
HYBRID SECURITIES
Unifin's hybrid securities rating is equalized with Unfin's 'C'
IDR. While the instruments were previously notched two notches
below the IDR to reflect increased loss severity due to deep
subordination and heightened risk of non-performance relative to
existing senior obligations, this is no longer feasible at the
bottom end of the rating scale, one notch above 'D'/'RD'. Fitch has
not assigned a Recovery Rating for the instrument reflecting that
the potential recovery outcome for the instrument is highly
variable.
Fitch has revised Unifin's Management Strategy ESG Relevance Score
to '5' from '4' reflecting significantly elevated execution risk
surrounding the company's revised strategy and uncertainty
regarding the company's franchise and long-term viability. Fitch
considers these execution risks to have a negative impact on the
credit profile in conjunction with other factors.
RATING SENSITIVITIES
Fitch will monitor the sufficiency of information for the ongoing
evaluation of the entity's creditworthiness, which could result in
a rating withdrawal at the current level if the entity does not
disclose sufficient information to Fitch and the market.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The IDRs would be downgraded to 'RD' if the company enters to
a debt restructuring process or distressed debt exchange on a
bond, loan or other material financial obligation;
-- The IDRs would be downgraded to 'RD' in the event of a missed
interest or principal payment, after the expiration of the
applicable grace period;
-- The IDRs would be downgraded to 'D' if the entity enters into
bankruptcy proceedings, administration, receivership,
liquidation or other formal winding-up procedures or if it
ceases operations.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Although highly unlikely, an upgrade could potentially occur
if the company abandons its current intention to cease
interest and principal payment of its financial liabilities.
Otherwise, upside potential is limited due to current
uncertainties;
-- In the event a debt restructuring process is initiated and
sufficient disclosure of the company's plans and financial
information is provided, the IDRs and national scale ratings
would be reassessed.
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
Fitch reclassified pre-paid expenses as intangibles and deducted
from total equity due to low loss absorption capacity under
stress.
ESG CONSIDERATIONS
Unifin has an ESG Relevance Score of '4' for Financial Transparency
due to weaker third-party disclosures relative to international
best practices. In addition, Fitch was not aware of the company's
intention to cease debt service payments and seek a restructuring
until it was publicly disclosed by the company. Fitch's considers
the limited transparency to have a negative impact on the credit
profile in conjunction with other factors.
Fitch has revised Unifin's Management Strategy ESG Relevance Score
to '5' from '4' reflecting significantly elevated execution risk
surrounding the company's revised strategy and uncertainty
regarding the company's franchise and long-term viability. Fitch
considers these execution risks to have a negative impact on the
credit profile in conjunction with other factors.
Unifin has an ESG Relevance Score of '4' for Governance Structure
due to concerns regarding the previously-planned expansion into
non-core strategies to sustain financial metrics, which has a
negative impact on the credit profile in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed being managed by the entity.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Unifin Financiera, LT IDR C Downgrade BB-
S. A. B. de C. V.
ST IDR C Downgrade B
LC LT IDR C Downgrade BB-
LC ST IDR C Downgrade B
Natl LT C(mex) Downgrade A-(mex)
Natl ST C(mex) Downgrade F2(mex)
senior unsecured LT C Downgrade BB-
subordinated LT C Downgrade B
=======
P E R U
=======
PERU LNG: Fitch Affirms 'B+' LT IDRs & Alters Outlook to Stable
---------------------------------------------------------------
Fitch Ratings has affirmed PERU LNG S.R.L.'s (PLNG) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'B+';
and revised the Rating Outlook to Stable from Negative. Fitch has
also affirmed PLNG's USD940 million senior unsecured notes due 2030
at 'B+'/'RR4'.
PLNG's Outlook revision to Stable reflects the improvement in
operational performance over the rated horizon, after the company
realized an unexpected suspension in operations last year and
increased costs.
The 'B+' IDR incorporates the company's volatile financial profile
derived from exposure to fluctuations in international liquefied
natural gas (LNG) prices; gross leverage is expected to be strong
in 2022 and 2023 at 1.5x and 2.0x, respectively, caused by elevated
prices, compared to 6.9x and 18.1x in 2021 and 2020.
The Recovery Rating for PLNG's 'B+' senior unsecured notes is
capped at 'RR4' due to Peru's designation as a Group D country
within Fitch's Country-Specific Treatment of Recovery Ratings
Criteria.
KEY RATING DRIVERS
Improved Operating Performance: PLNG's Outlook has been revised to
Stable after the company has operated at full capacity since
September 2021, without interruptions. Over the rating horizon, the
rating case assumes that PLNG's operations will produce 218 Tbtu in
2022 and 225 Tbtu on average between 2023-2025. This follows a
severe 70-day shutdown in 2021, whereby the company incurred USD30
million of additional costs.
Volatile Financial Profile: PLNG's earnings and leverage profile
are highly volatile and tend to fluctuate drastically. The company
has a Sales and Purchase Agreement (SPA) with Shell International
Trading Middle East Limited (SITME) that limits its upside revenue
potential and intensifies exposure to commodity price risk. Per the
agreement, up to 67% of PLNG's revenues are indexed to Henry-Hub
(HH) destination prices and the remaining can be sold more
optimistically to high price markets, such as National Balance
Point (NPB) and Japan Korea Marker (JKM). As per the agreement,
this condition will be reduced close to 50% in 2026, and will not
apply afterwards.
In 2022, the company stands to benefit from elevated LNG prices,
with EBITDA estimated to reach USD624 million, compared USD144
million in 2021, a 4.3x increase; gross leverage, defined as total
debt to EBITDA, was 1.9x as of LTM June 2022, compared to 6.9x by
the end of 2021 and 18.1x in 2020, a result of the volatile
fluctuation in LNG prices.
Strategic Asset in the Country: PLNG is a strategic asset for the
country that supports continued gas development in the country.
Fitch estimates that the government stands to receive between
USD100 million and USD150 million annually over the medium term
related to both natural gas production and associated liquids from
Block 56 in the Camisea field. The company has no domestic
competitors given the high investment barriers to entry and the GSA
that effectively gives it exclusive rights to much of the country's
exportable gas supply, allocated form the prolific
low-cost operations of Block 56.
Manageable Capex Program: Fitch estimates total capex of USD31
million during 2022, including PLNG's investments in an ethane
recovery project and shore tension vertical units project at the
company's marine terminal. Going forward, Fitch expects PLNG's
regular maintenance capex will be flat at USD5 million during
normal years, increasing to a range of USD12 million and USD15
million in those years when major maintenance is expected. Fitch
believes PLNG could cover these investments, with the company's
internal cash flow generation, without incurring in additional
debt.
Strong Shareholders: PLNG is rated on a stand-alone basis, but
Fitch believes it benefits from having strong shareholders: Shell
Plc (AA-/Stable, 20%)Hunt Consolidated, Inc (50%), SK Innovation
(20%), and Marubeni Corporation (10%). All companies have strategic
and operational incentive to support the company in the event it
falls under financial distress. Strong shareholder agreement
reflects the commitment to maintain the company's viability, both
in supportive contracts, as well as direct support, including a
USD60 million capital injection in 2016 that bolstered PLNG's
already robust liquidity position.
DERIVATION SUMMARY
PLNG has limited regional peers. Even outside Latin America, LNG
plants tend to operate on a more purely take-or-pay, capacity-based
on a tolling business model, whereas PLNG incorporates commodity
price risk. Tolling based peers such as Transportadora de Gas del
Peru (BBB+/Stable) and GNL Quintero S.A. (BBB+/Stable) benefit from
the related cash flow stability afforded by their revenue
structure.
GNL Quintero, in particular, supports a significantly higher
leverage (between 6.0x to 7.0x through the medium term), as it
operates a tolling terminal unloading, storing and re-gasifying
liquefied natural gas on behalf of gas buyers under 20-year
exclusive term use-or-pay agreement.
While TGP has a projected leverage of 2.1x in the near term, its
revenues derived from long-term ship or pay contracts to transport
natural gas and natural gas liquids from the country's main gas
production formation, Camisea, to the main consumption area and
export terminal. Similar to GNL Quintero, PLNG is considered a
strategic asset for the country, while GNL Quintero allows the
liquefaction from imported natural gas in Chile, PLNG is the main
infrastructure allowing Peru to export natural gas.
In the U.S. corporate universe, Cheniere Energy Partners, L.P.
(CQP; BB+/Stable) rating is supported by a secured debt structure
and subsidiary business models consistent with the aforementioned
tolling structure. Its rating is primarily linked to the structural
subordination of CQP's debt to significant project-level debt at
subsidiary level. TransCanada PipeLines Limited's (A-/Negative)
large scale and diversity across regulatory-based and long-term
contracted businesses in natural gas pipelines warrants a higher
rating compared with PLNG's single operation.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within The Rating Case for the Issuer:
-- Fitch's Gas price deck for HH at USD6.25 per MMBtu during 2022
and long-term price at USD2.75;
-- Fitch's gas price deck for National Balance Point (NBP) at
USD25.0 per MMBtu during 2022 and long-term price at USD5.0;
-- HH-indexed destinations receive 67% of shipments, with the
remainder evenly distributed between NBP and JKM-indexed
destinations;
-- Exported volumes at 218 Tbtu during 2022, 225 Tbtu during per
year 2023-2025;
-- Transportation costs annually adjusted by the U.S. Producer
Price Index;
-- Annual capex of USD31 million in 2022. Long-term maintenance
capex of USD5 million;
-- No dividends payments during rating horizon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Amendments to contracts that would reduce price and volume
risk, similar to its tolling-based peers in the region;
-- Debt-to-EBITDA and net debt-to-EBITDA ratios consistently
below 3.5x and 2.0x, respectively;
-- Consistent track record of built up cash over the rating
horizon with EBITDA interest coverage consistently over 3.5x;
-- Hedge strategy to mitigate the company's exposure to commodity
price risk;
-- Greater visibility on medium- to long-term re-contracting
options.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Material disruptions in gas supply or other operational
outages eroding the company's cash flow generation;
-- Consecutive years of negative FCF;
-- Debt-to-EBITDA ratio consistently above 4.5x; and EBITDA
interest paid coverage ratio below 2.5x over the rating
horizon.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As of June 2022, Fitch estimates that PLNG had
USD400 million of cash on hand. PLNG faces no significant
maturities in the short term, as the bond starts amortizing in
September 2024. In addition, the company has a USD40 million
committed credit line Banco de Credito del Peru (BCP), out of which
USD23 million is currently available. Higher LNG prices have
favored PLNG's liquidity. Fitch estimates FCF to be positive
through the rating cycle, as the company's FFO should be enough to
cover for working capital and capex without incurring in additional
debt, plus the expectation of no dividend distributions.
ISSUER PROFILE
PERU LNG S.R.L. was created on 2003 with the purpose of developing,
building, and operating a LNG plant. The company operates a 4.5
million mtpa gas liquefaction plant, and its related facilities, a
marine terminal and a 408km pipeline that transports NG from the
Camisea fields to the coast.
Rating Prior
------ -----
PERU LNG S.R.L. LT IDR B+ Affirmed B+
LC LT IDR B+ Affirmed B+
senior unsecured LT B+ Affirmed RR4 B+
=====================
P U E R T O R I C O
=====================
PUERTO RICO: PREPA Takes More Time to Reach Debt Deal
-----------------------------------------------------
Michelle Kaske of Bloomberg News reports that Puerto Rico's
Electric Power Authority and its creditors will keep negotiating
through Sept. 9, 2022 to strike a potential deal to reduce $9
billion of debt.
A mediation team that manages the debt talks said it needs more
time beyond an Aug. 15 deadline for discussions, according to a
court filing.
"Based on recent developments, negotiations are continuing to make
progress in the mediation process and the mediation team believes
it is beneficial to continue the mediation process and extend the
mediation termination date (and all related deadlines) to Sept. 9,
2022," according to the court filing.
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
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