/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/221027.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Thursday, October 27, 2022, Vol. 23, No. 209 Headlines A R G E N T I N A ARGENTINA: Massa to Meet With Paris Club Oct. 27-28 for Debt Talks MUNICIPALITY OF CORDOBA: Fitch Affirms LongTerm IDRs at 'CCC-' B A R B A D O S BARBADOS: Fitch Assigns 'B' LongTerm Foreign Currency IDR B R A Z I L BANCO BMG: Fitch Affirms LongTerm IDRs at 'B+', Outlook Stable BANCO PAN: Fitch Affirms LongTerm IDRs at 'BB-', Outlook Stable BANESE: Moody's Withdraws 'Ba3' Deposit Rating BRAZIL: Economic Activity Index Falls More Than Expected in August [*] BRAZIL: Rio to Propose Tax-Free Shopping for Foreign Tourists C A Y M A N I S L A N D S YANKUANG GROUP CAYMAN: Moody's Affirms 'Ba1' Sr. Unsec. Bond Rating D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Economy Grows 5.4% Between Jan. to Sept. 2022 EGE HAINA: Fitch Affirms LongTerm IDRs at 'BB-', Outlook Stable M E X I C O INTERJET: Ordered to Pay $7 Million in Class Action Suit MEXARREND SAP: Pays Senior International 2019 Bond P U E R T O R I C O ELITE PRODUCTS: Unsecureds to Recover 5% via Quarterly Payments V I R G I N I S L A N D S THREE ARROWS: Liquidators Say Founders Ducking Subpoenas - - - - - ================= A R G E N T I N A ================= ARGENTINA: Massa to Meet With Paris Club Oct. 27-28 for Debt Talks ------------------------------------------------------------------ globalinsolvency.com, citing Reuters, reports that Argentina's economy minister Sergio Massa said that he will meet Paris Club officials on Oct. 27 and 28 in France to wrap up negotiations over $2 billion in debt that the country owes to the creditor group. Talks will include the repayment schedule and the interest rate for the loan from the creditors which include the governments of the United States, Germany and Italy, according to globalinsolvency.com. The Paris Club last year gave Argentina more time to repay the debt, which allowed Buenos Aires time to negotiate a revamp of its IMF program, the report relays. Argentina sealed an agreement with the IMF earlier this year for a $45 billion program to refinance a failed loan from 2018, the report discloses. Argentina's Massa met the head of the Paris Club, Emmanuel Moulin, in Washington, D.C., the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. 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. MUNICIPALITY OF CORDOBA: Fitch Affirms LongTerm IDRs at 'CCC-' -------------------------------------------------------------- Fitch Ratings has affirmed the Municipality of Cordoba's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'CCC-'. Fitch relied on its ratings definitions to position the municipality's ratings and standalone credit profile. The rating action reflects Cordoba's exposure to discretionary transfers, adequate debt service coverage ratio over the next 12-24 months and the high exposure to exchange rate risk. The municipality's stand- alone credit profile (SCP) is assessed at 'ccc-'. KEY RATING DRIVERS Risk Profile: 'Vulnerable' The Municipality of Cordoba's 'Vulnerable' risk profile reflects Fitch's 'Weaker' assessment on all six key risk factors: revenue robustness and adjustability, expenditure sustainability and adjustability, and liabilities and liquidity robustness and flexibility. The 'Vulnerable' risk profile reflects a very high risk that the city's cash flow available for debt service will remain low over the rating case horizon. Argentine local and regional governments (LRGs) operate in a context of a weak institutional revenue framework and sustainability, high expenditure structures, and tight liquidity and foreign currency debt risks, further worsened by macroeconomic volatility, high inflation, and sharp currency depreciation. Revenue Robustness: 'Weaker' The city has strong local revenue collection; hence its operating revenue is mostly made up of local contributions (2021: 65.1%, provisional figures), the growth prospects of which are constrained by a weak economic environment, and high inflation. At YE 2021 co-participation transfers account for a share of 34.9% of operating revenue, highlighting a revenue structure of a reasonable fiscal autonomy and a modest reliance on co-participation. Revenue Adjustability: 'Weaker' For Argentine LRGs, Fitch considers that local revenue adjustability is low, and challenged by the country's large and distortive tax burden, and high inflation dynamics that impact real-term revenue growth and affordability. The weak macroeconomic environment also limits LRGs' ability to increase tax rates and expand tax bases to boost their local operating revenues. The Municipality of Cordoba has formal tax-setting authority over several local taxes and fees that accounted for about 65.1% of operating revenue in 2021. Its ability to raise revenue is constrained by the moderate income of residents by international standards and social-political sensitivity to tax increases. Expenditure Sustainability: 'Weaker' The country's fiscal regime is structurally imbalanced regarding revenue-expenditure decentralization, leading to Fitch's 'Weaker' assessment of its expenditure sustainability. Spending during the last five years has been influenced by high inflation and high spending responsibilities. Currently, the Municipality of Cordoba is largely responsible for the provision of public services, including education and healthcare (these are mainly provincial services). In addition, although the transportation system has been part of expenditure responsibilities, they have not represented an important share of operating expenditure (1.3% of 2023 opex), as transfers from the province and nation cover most of the expenses. Fitch will monitor the continuity in the agreements established by the municipality and the province for the provision of these services. At YE 2021, the Municipality of Cordoba's operating balance represented 16.4% of operating revenue, supported by the important recovery in taxes, resulting in a higher, relative to historical average, 7.9% (2017-2020). Under its rating case scenario, Fitch expects the municipality's expenditure will accelerate to a level closer to inflation in a context of historically high levels, and will reach an indicator of 6.6% in 2024. Expenditure Adjustability: 'Weaker' For Argentine sub-nationals, infrastructure needs and expenditure responsibilities are deemed as high, with leeway or flexibility to cut expenses viewed as low. Fitch views leeway or flexibility to cut expenses for the Municipality of Cordoba as weak relative to international peers, considering an average of around 14.2% of total expenditures corresponded to capex from 2017-2021. Compared with international peers, the municipality has a high share of operating expenditure to total expenditure, at around 83.4% during 2021 (provisional figures). Staff expenses represented 47% of operating expenses, deemed high relative to international peers, and triggered by a high inflation environment and salary adjustments pressures. Liabilities and Liquidity Robustness: 'Weaker' Unhedged foreign currency debt exposure is an important structural weakness considered in this KRF assessment, along with a weak national framework for debt and liquidity management and an underdeveloped local financial market. This KRF assessment also considers a 'CCC'/UCO rated sovereign that restructured its debt during 2020, thus curtailing external market access to LRGs. Direct debt increased by about 39.1% in 2021 underpinned by currency depreciation, totaling around ARS22 billion. Approximately 72% of the Municipality of Cordoba's direct debt is denominated in foreign currency, mainly in U.S. dollars. Refinancing risk could resurge towards 2024, when capital payments begin after DDE debt relief. Foreign currency debt was used to finance capex outlays and refinance debt. The municipality has recently been active in the local market, with the issuance of short-term treasury bills of ARS1,779 million at YE 2021 with a continued use during 2022. Regarding pension liabilities, this is not a direct contingency for the municipality as they are covered through the provincial system. Liabilities and Liquidity Flexibility: 'Weaker' Fitch considers the Argentine national framework regarding liquidity support and funding available to subnationals as 'Weaker', as there are no formal emergency liquidity support mechanisms established or bail-out mechanisms. The current context of national capital controls is another risk captured in the liquidity flexibility assessment, as the risk of imposition of further exchange regulations could ultimately affect LRGs' ability to fulfill their financial obligations. Despite the municipality's financial improvement at YE 2021, liquidity metrics are still weak and compare unfavorably with peers. As such, the city has been tapping the local currency capital market, issuing short-term debt on a regular basis. DEBT SUSTAINABILITY: 'a' category Considering the current sovereign 'CCC'/UCO rating level, curtailment of access to the external market amid a volatile macroeconomic and regulatory context, Fitch projects a rating case for YE 2024 only. Debt sustainability metrics are analyzed to evaluate the municipality's specific debt repayment capacity and liquidity position. Under Fitch's rating case scenario (2022-2024), the debt payback ratio (net adjusted debt-to-operating balance), the primary metric of debt sustainability, will reach 5.8x by 2024, which corresponds to a 'aa' assessment. In addition, actual debt service coverage ratio (operating balance-to-debt service), secondary metric of debt sustainability at 0.8x in 2024, leading to a 'b' assessment. The overall debt sustainability score at 'a' is underpinned by the medium-term maturity of debt in tandem with high refinancing risks stemming from a 'CCC' macroeconomic environment where transfer and convertibility risks prevail. The Municipality of Cordoba has an ESG Relevance Score of '4' for Rule of Law, Institutional & Regulatory Quality, Control of Corruption reflecting the negative impact the weak regulatory framework and national policies of the sovereign have over the Municipality in conjunction with other factors. The Municipality of Cordoba has an ESG Relevance Score of '4' for Creditor Rights, revised from '5', due to the entity´s improved willingness to service and repay its debt obligations. The November 2020 DDE continues to weigh on Cordoba's credit profile in conjunction with other factors. DERIVATION SUMMARY Fitch has relied on its rating definitions to position the municipality's IDRs at 'CCC-'. Cordoba's SCP is assessed at 'ccc-', reflecting a combination of vulnerable risk profile and debt sustainability in the 'a' category. The SCP also factors in national and international peer comparison, in particular, the province of La Rioja (CCC-), Entre Rios (CCC-) and Ukrainian municipality of Dinipio (CCC-). Fitch does not apply any asymmetric risk or ad-hoc support from the central government and assesses intergovernmental financing as neutral to the municipality´s ratings. The 'CCC-' IDR reflects challenges ahead that could hinder the Cordoba's repayment capacity, such as transfer and convertibility risks and the inability to access external markets to address financing needs. KEY ASSUMPTIONS Qualitative Assumptions Risk Profile: Vulnerable Revenue Robustness: Weaker Revenue Adjustability: Weaker Expenditure Sustainability: Weaker Expenditure Adjustability: Weaker Liabilities and Liquidity Robustness: Weaker Liabilities and Liquidity Flexibility: Weaker Debt sustainability: 'bb' category, raised Quantitative Assumptions: Issuer Specific In line with its LRG criteria, for an entity with base case financial profile indicating an SCP of 'b' or below, the base case analysis alone may be sufficient to evaluate the risk of default and transition for the debt. Therefore, in the case of the municipality, Fitch's base case is the rating case which already incorporates a very stressful scenario, based on 2017-2021 figures. The key assumptions for the scenario include: - Operating revenue average growth of 58% for 2022-2024; - Operating expenditure average growth of 63% for 2022-2024; - Average net capital balance of around minus ARS21,840 million during 2022-2024; - Cost of debt considers non-cash debt movements due to currency depreciation with an average exchange rate of ARS135.4 per U.S. dollar for 2022, ARS222.6 per U.S. dollar for 2023, and ARS346.5 per U.S. dollar for 2024. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Improved operating balance that strengthens the actual DSCR above 1.0x on a sustained basis, fueled by better economic prospects along with a containment in the expenditure front; - A structural improvement in cash flow generation over the rating case horizon. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Liquidity stress that could compromise debt repayment capacity in the coming years, including evidence of increased refinancing risk in its foreign currency notes. ISSUER PROFILE The Municipality of Cordoba is the capital of the province of Cordoba and the second most-populated city in Argentina, after the city of Buenos Aires. Cordoba is one of the nation's most important social, educational and economic centers. ESG CONSIDERATIONS The Municipality of Cordoba has an ESG Relevance Score of '4' for Rule of Law, Institutional & Regulatory Quality, Control of Corruption reflecting the negative impact the weak regulatory framework and national policies of the sovereign have over the Municipality in conjunction with other factors. The Municipality of Cordoba has an ESG Relevance Score of '4' for Creditor Rights, revised from '5', due to the entity´s improved willingness to service and repay its debt obligations. The November 2020 DDE continues to weigh on Cordoba's 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 by the entity. Entity Rating Prior ------ ------ ----- Cordoba, Municipality of LT IDR CCC- Affirmed CCC- LC LT IDR CCC- Affirmed CCC- =============== B A R B A D O S =============== BARBADOS: Fitch Assigns 'B' LongTerm Foreign Currency IDR --------------------------------------------------------- Fitch Ratings has assigned Barbados a Long-Term Foreign-Currency (FC) Issuer Default Rating (IDR) of 'B' with a Stable Rating Outlook. Fitch Ratings has also assigned a Short-Term IDR of 'B,' a Country Ceiling of 'B' and senior unsecured debt level of 'B.' KEY RATING DRIVERS Strong Governance; High Debt: Barbados's ratings balance high GDP per capita and governance scores, a strengthened external liquidity position, and a more favorable debt repayment profile following a comprehensive 2018-2019 restructuring, against its vulnerability to external shocks due to its heavy reliance on tourism, high public debt levels and limited appetite for domestic debt from local commercial banks. The rating is supported by the recent IMF staff-level agreement to access the Resilience and Sustainability Trust (RST), with an accompanying Extended Fund Facility (EFF) program, which would underpin reform momentum and alleviate financing constraints, as well as Fitch's expectation of a relatively quick reduction in the debt burden from high levels in the forecast period. Tourism Recovery Begins: The economy has begun to recover, with growth in the first half of 2022 reaching 10.5%, driven both by base effects and a recovery of the tourism sector. The rebound has been slower than initially expected, with the government expecting the economy to return to 2019 levels of GDP by 2024 and for the tourism sector to fully recover by 2025. Long-stay arrivals have begun to pick up, although from January to June were only at 56% of 2019 levels. New high-end hotel capacity is expected to open in January 2023. Fitch forecasts real GDP growth of 9% in 2022 and 3% in 2023, although recessions in key source markets the US and UK pose downside risks. New IMF Program to Support Reforms: Barbados became the first country to reach a staff-level agreement to access the RST, with an accompanying EFF, in September 2022. Barbados will gain access to about USD189 million (3.2% of 2022 projected GDP) under the RST, which aims to provide concessional, long-term financing to help build resilience to climate change. In addition, the 36-month EFF program will provide a further USD114 million to support ongoing structural reforms, including to the pension system and State-Owned Enterprises (SOEs). The IMF program is expected to 'crowd in' other multilateral financing, thereby providing ample financing for the projected fiscal deficits over the next two years. Successful IMF Program Concludes: The final disbursement under the four-year Barbados Economic Recovery and Transformation (BERT) EFF was disbursed in June 2022, bringing the total to USD458 million (9% of GDP). Barbados achieved all 39 structural benchmarks under the program, which focused on restoring fiscal and debt sustainability, rebuilding international reserves, and promoting growth. Key achievements include a revised central bank law that establishes greater independence and autonomy and reforms to loss-making SOEs responsible for significant government outlays. High But Declining Public Debt: Fitch forecasts central government debt to fall to 122% of GDP in 2022 (compared with 58% for the 'B' median) from 137% in 2021 primarily as a result of high nominal GDP growth. The IMF program envisioned a debt target of 60% of GDP by FY2033/2034, now delayed by two years due to fiscal easing during the pandemic. This would require large and sustained primary surpluses, which are highly vulnerable to external shocks. The majority of government debt is domestic (91% of GDP in 2021); external commercial debt is 11% of GDP. The 2029 external bond (USD530 million, a product of the debt restructuring) is amortizing, with the first principal payment (10% semi-annual instalments) due in 2025. A recent debt-for-nature swap bought back a portion of higher interest external and domestic debt in exchange for more concessional financing supported by Inter-American Development Bank and Nature Conservancy guarantees, with the interest savings channeled into a marine conservation trust. Projected Primary Surpluses: Fitch expects the government to return to primary surpluses starting in 2022 (0.6% of GDP, 3.8% of GDP overall deficit) reflecting its commitment to bring down debt. The previous IMF program originally envisioned sustained primary surpluses of 6%, which the government achieved in the first year of the program (FY19/20) before the onset of the pandemic. The new IMF program could help anchor achievements made to date and support future progress. Domestic Market Still Recovering: Issuance in the local market is still constrained after the 2018-2019 debt restructuring. Commercial banks have limited appetite for new government paper, as the central bank had increased statutory minimum requirements prior to the restructuring. Near-term domestic amortizations are low as banks agreed to rollover treasury bills for ten years. An offer of special, one-off pandemic-related Treasury notes in November 2021 had very limited uptake, signaling it may still take some time for the domestic market to recover. The central bank has been buying government debt within the parameters of the 3% of GDP limit allowed by the declared state of emergency. Financing since the debt restructuring has largely come from IFIs. Reserves Recover; High CAD: International reserves have recovered to reach historic highs (USD1.5 billion, 7.5 months import cover as of August) primarily through disbursements from IFIs in recent years. Fitch expects the current account deficit to rise to 11.4% in 2022 (from 10.9% in 2021) as a result of higher food and fuel import prices and tourism's slower than expected recovery. In the medium term, the government's plan to shift to renewable energy sources should lower fuel imports. FDI has been relatively resilient, with several new hotel investments expected in the next few years. The exchange rate peg (BBD2=1USD) is a key pillar of the economy, and Fitch expects it will be maintained. Banking Sector Liquid and Well-Capitalized: The banking sector remains well-capitalized and liquid. Capital adequacy ratio was 17.7% as of June 2022, up from 13.5% in 2019. Credit growth is negative as banks cite a lack of new bankable projects, although retain optimism around investments in renewables projects. NPLs were 7% in June 2022. Government has Strong Mandate: The rating benefits from very strong governance indicators (78th percentile, compared with 'B' median of 37th percentile). Prime Minister Mia Mottley's Barbados Labour Party won all 30 seats in the Parliament in a snap election in January 2022, providing a strong mandate to continue reforms that began under her first term (2018-22). The 2018 election resulted in the revival of the tripartite social partnership between workers, government and private sector and allowed for more collaborative decision-making to take place ahead of the debt restructuring and subsequent IMF program. Natural Disaster Clause: The 2029 foreign currency external bond includes a natural disaster clause, and is the first such bond rated by Fitch. The clause could suspend principal and interest payments for up to two years upon certain pre-defined measurable natural disaster events. This clause can be triggered up to three times but no later than 2027 to ensure that final maturity remains the same. Fitch has equalized the bond rating to the sovereign LT FC IDR and would not treat payment deferrals, if in line with the bond terms, as a default event. Fitch's rating reflects several features of the clause, namely that deferred amounts (either principal of interest) accrue interest, that deferral events are properly defined in the documentation and are triggered by measurable events, and that final maturity remains the same despite deferrals. Barbados has an ESG Relevance Score (RS) of '5'[+] for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch's proprietary Sovereign Rating Model (SRM). Barbados has a high WBGI ranking at 78.5, reflecting its long track record of stable and peaceful political transitions, well established rights for participation in the political process, strong institutional capacity, effective rule of law and a low level of corruption. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - Public Finances: Emergence of financing constraints, for example due to a breakdown in relations with IFIs or failure to consolidate fiscal accounts; - External Finances: Sharp reduction in external liquidity, for example due to a deterioration in the current account deficit stemming from an external shock. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Public Finances: A sharp and sustained reduction in the government debt to GDP ratio reflecting persistently high primary surpluses; - Public Finances: Diversification of financing sources, for example through a full reopening of the domestic debt market; - Macro: Progress on economic reforms that improve the investment outlook and lead to higher trend growth. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Barbados a score equivalent to a rating of 'BB-' on the Long-Term Foreign-Currency (LT FC) IDR scale. Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to SRM data and output, as follows: - Public Finances: -1 notch, to reflect a very high government debt burden and still constrained financing options due to limited appetite for domestic debt. The SRM is estimated on the basis of a linear approach to government debt/GDP and does not fully capture the risk at high debt levels. - External Finances: -1 notch, to reflect external vulnerability to shocks, stemming from natural disasters and the economy's high dependence on international tourism. NEW FINANCIAL INSTRUMENTS A screening committee was held in advance of this committee, determining that the Barbados 2029 bond with natural disaster clause could be rated the same as the sovereign FC IDR. ESG CONSIDERATIONS Barbados has an ESG Relevance Score of '5[+]' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Barbados has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. Barbados has an ESG Relevance Score of '5[+]' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Barbados has a percentile rank above 50 for the respective Governance Indicators, this has a positive impact on the credit profile. Barbados has an ESG Relevance Score of '4[+]' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As Barbados has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. Barbados has an ESG Relevance Score of '4' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Barbados, as for all sovereigns. As Barbados has a fairly recent restructuring of public debt in 2019, this has a negative impact on the credit profile. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. Entity Rating ------ ------ Barbados LT IDR B New Rating ST IDR B New Rating Country Ceiling B New Rating senior unsecured LT B New Rating =========== B R A Z I L =========== BANCO BMG: Fitch Affirms LongTerm IDRs at 'B+', Outlook Stable -------------------------------------------------------------- Fitch has affirmed Banco BMG S.A.'s (BMG). Foreign and Local Currency Long-Term Issuer Default Ratings (IDR) at 'B+', Viability Rating (VR) at 'b+' and National Long-Term Rating at 'A(bra)'. The Rating Outlook on the Long-Term IDRs and National Rating is Stable. Fitch has withdrawn BMG's Support Rating of '5' and the 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 BMG a Government Support Rating (GSR) of 'ns' (No Support). This is based on Fitch's belief that the bank is not considered to be a significant financial institution locally because of the size of its market share. Thus, it is unlikely to receive external support from the Brazilian sovereign. KEY RATING DRIVERS Despite the challenges the pandemic posed to the domestic environment, given the financial system's historical resilience and stable performance in times of stress, Fitch has revised the Operating Environment (OE) score mid-point to 'bb-' from 'b+', in line with the implied score as per Fitch's criteria. However, the score has a Negative Outlook, as risks tied to high inflation, increased household indebtedness and electoral uncertainty in Brazil remain as main downside risks of banks' performance and risk profiles in the medium term. The revision of the OE midpoint resulted in a change to the benchmark ranges used by Fitch to determine the implied rating scores. BMG's intrinsic creditworthiness, as expressed by its VR of 'b+' underpins its IDRs. The VR is in line with the implied VR and takes into account the bank's business risk and financial profiles. BMG's national ratings reflect its creditworthiness relative to Brazilian peers. The Outlook on the Long-Term ratings is Stable as Fitch expects the bank's performance to remain within the benchmarks of its current ratings. The bank's company profile remains satisfactory as BMG has continued to grow its traditional, lower risk, pension/payroll-backed (consignado) credit portfolio. This portfolio consists primarily of its payroll credit card product, followed by its payroll loan product, together accounting for 64% of the total credit portfolio and the bulk of its of revenues, of which the great majority have the risk of the federal government. To diversify its sources of revenues, the bank has also enhanced a handful of other retail and wholesale products and invested heavily to grow its digital bank capabilities, which has already seen its number of digital account holders reach 7.4 million as of June 30, 2022. Following credit portfolio growth of 14% during 2021, the bank was able to increase the size of the credit portfolio by nearly 30% during the first half of 2022. Fitch believes the growth is sustainable if asset quality continues to remain satisfactory and further deterioration in capital ratios is not very relevant. BMG has also been active at growing a variety of other revenue sources such as its insurance products and the FGTS lending product. BMG's focus is 90% retail-oriented. The bank also has a wholesale portfolio that is managed conservatively, favoring secured transactions. Achieving consistent, recurring operating profitability over the past few years continues to be a challenge for BMG. Operating profitability was near break-even (0.2% for full-year 2021 and for the first half of 2022). This was due in part to rising funding costs and the continued regulatory caps on interest rates, notably in the payroll businesses. In addition, operating expenses, such as investments in new products and systems, and personnel costs remain high as the bank added new employees. Credit costs have also remained high due to conservative provisioning. Furthermore, the bank also maintained a high level of liquidity which adds to carrying cost expenses. The bank's return on average assets and return on average equity at June 30, 2022 was only 0.55% and 5.23% respectively. Management expects stronger profitability ratios in the coming quarters as it begins to benefit from the various investments to reduce costs and credit impairments and benefits from the increased volume of clients and the resulting cross-selling opportunities. BMG's capitalization ratios remain adequate despite a recent reduction driven in part by an increase in risk-weighted assets and other capital reductions. As of June 30, 2022, the bank's Common Equity Tier I ratio was slightly under 12% and the total capital ratio was 13.4%. Over the medium term, Fitch expects a strengthening of these ratios. Asset quality remains satisfactory as BMG's impaired loans (BACEN D-H) to gross loan ratio remained on a generally a positive trend over the past five years, coming in at 5.6% at June 30, 2022 down from 6.4% at Dec. 31, 2021. Based on non-performing loans over 90 days, (BACEN E-H) the impairment ratio improved to 4.4% and the loan loss coverage ratio is at a satisfactory 104%. Management expects asset quality to continue to improve as the bank maintains its main focus on secured lending, which usually has a lower level of impairment. For instance, the impairment level of the bank's largest credit product segment, the payroll/pension-backed credit card product at June 2022 was only 2.3% compared with 3.3% at June 2021. It is also worth noting that some of the less representative, unsecured credit products have, as expected, much higher average NPL ratios, but this is mitigated by premium pricing. The fact that the vast majority of the payroll-backed credit product is tied to federal government risk (85%) serves as a mitigation to asset quality deterioration. For the past few years BMG has been operating with a comfortable liquidity position, which was partially enhanced by securitizations of receivables, funding from diversified customer deposits and the strategic downsizing of its commercial portfolios. The bank's loans to customer deposits ratio at June 30, 2022 was at a conservative level of approximately 92%. The bank's liquid asset position also remained high at BRL 3.8 billion. These levels are expected to decrease during the next few quarters to support credit growth and improve profitability. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - Weak financial performance (negative trend in operating profit-to-risk-weighted assets from current low levels); - A sustained deterioration in its asset quality (non-performing loans over 90 days remaining above 8%); - A deterioration in capitalization (CET I ratio falling below 9%). Factors that could, individually or collectively, lead to positive rating action/upgrade: - Positive trends in its credit metrics (notably asset quality and operating profits) could result in IDR and National Rating Outlook revisions to Positive within the next 12 to 18 months; - A consolidation of the bank's business model, including a relevant and sustained improvement in its operating profitability, especially if coupled with further and sustained declines in its impaired loan ratio (D-H) to below 5% of total loans, without deteriorating charge-offs and foreclosed assets; - Maintenance of CET 1 ratio above 12%. VR ADJUSTMENTS The Earnings and Profitability Score of 'b' has been assigned below the implied 'bb' Earnings and Profitability Score due to the following adjustment reason: Revenue Diversification (negative). The Funding and Liquidity Score of 'b+' has been assigned below the implied 'bb' Funding and Liquidity Score due to the following adjustment reason: Deposit Structure (negative). ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity Rating Prior ------ ------ ----- Banco BMG S.A. LT IDR B+ Affirmed B+ ST IDR B Affirmed B LC LT IDR B+ Affirmed B+ LC ST IDR B Affirmed B Natl LT A(bra) Affirmed A(bra) Natl ST F1(bra) Affirmed F1(bra) Viability b+ Affirmed b+ Support WD Withdrawn 5 Support Floor WD Withdrawn NF Government Support ns New Rating BANCO PAN: Fitch Affirms LongTerm IDRs at 'BB-', Outlook Stable --------------------------------------------------------------- Fitch Ratings has affirmed Banco PAN S.A.'s (PAN) Long-Term (LT) Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-', Long-Term National Rating at 'AA(bra)' and Viability Rating (VR) at 'bb-'. The Rating Outlooks are Stable. At the same time, Fitch has also affirmed PAN's Shareholder Support rating at 'bb-'. KEY RATING DRIVERS IDRs, NATIONAL RATINGS AND SUPPORT RATING Operating Environment Revision: Despite the challenges the pandemic posed to the domestic environment, given the financial system's historical resilience and stable performance in times of stress, Fitch has revised the Operating Environment (OE) score mid-point to 'bb-' from 'b+', in line with the implied score as per Fitch's criteria. However, the score has a Negative Outlook, as risks tied to high inflation, increased household indebtedness and electoral uncertainty in Brazil remain as well as main downside risks of banks' performance and risk profiles in the medium term. The revision of the OE midpoint resulted in a change to the benchmark ranges used by Fitch to determine the implied rating scores. Ratings Driven by Support: The IDRs, National Ratings, and SSR of PAN reflect Fitch's view of a high probability of support from their parent bank, Banco BTG Pactual S.A. (BTG; BB-/Stable/bb-), in case of need. The Stable Outlooks on PAN's Long-Term IDR and National Ratings mirrors that on its parent. PAN's Long-Term IDRs are equalized with BTG's Long-Term IDRs to reflect Fitch's view that the parent company has strong incentives to provide support to PAN as Fitch considers it a strategic division of the group's consumer finance activities in Brazil. Fitch's assessment of shareholder support also considers that the parent and PAN operate in the same jurisdiction, are subject to the same regulations and belong to the same prudential perimeter in Brazil. The high degree of integration of PAN's operations and management with those of BTG, Fitch's view that a default on PAN would constitute huge reputational risks to its parent as well as the cross default clauses on BTG's international issuances and potential acceleration of parent debt, also contribute to the overall support assessment. Improved Intrinsic Creditworthiness: PAN's ratings are further underpinned by its intrinsic strength, which is reflected in the VR of 'bb-'. PAN's VR reflects its well-established niche franchise in Brazil, relative to its mid-sized peers, with its focus on consumer finance to low-income clients. Asset quality and profitability are therefore more variable over economic cycles, but have been held with a good degree of resilience, aided by the bank's adequate business mix, effective risk controls and a large share of secured lending. The VR also factors in the bank's improved capitalization and funding profiles, as well as prudent liquidity management. Asset-Quality Risks Well Managed: PAN's impaired loans ratio of 9.7% (four-year average of 8.9%) is higher than its peer average of 4.9% and is highly influenced by the bank's business model, where yields are also usually high for the risks taken. Fitch expects inflows of impaired loans to remain high compared with 2021 and 2020, due to the pressured operating environment, but without having a material impact on LIC and still maintaining PAN's impaired loan ratio under 10.5%. PAN's risk management is also underpinned by a dominant share of less risky secured payroll and FGTS (Guarantee Fund for Length of Service) backed lending (44% of loans at 2Q22) and collateralized auto lending (43% of loans). However, the recent offer of credit backed by the Auxilio Brasil benefit to economically vulnerable citizens is being monitored by Fitch, as this new credit line may have risks not yet tested by the banks that are participating in this program. Improved Profitability: PAN's profitability has been solid and in line with Fitch's expectations. The bank's improved capitalization buffers from end-2019 levels has been paving the way for greater business volumes retention which, alongside with a decreasing share of legacy costly funding supports the bank's healthy operating income/risk-weighted assets ratio of 3.2% at 2Q22 (four-year average 3.1%), compared with an average of 1.3% for its peers in the same period. Fitch expects the bank to maintain an operating profit of above 3% of RWA in the medium term, driven by contained asset-quality deterioration and LICs and the contribution of growth and product diversification initiatives. Based on these expectations, Fitch has revised the earnings and profitability assessment to 'bb-' from 'b'. Comfortable Capitalization: Fitch has revised PAN's capitalization & leverage midpoint to 'bb-' from 'b+', now at the same level of BTG's capitalization score. After the full acquisition of PAN's voting shares by BTG in 2021, both are part of the same prudential group under Brazil's Central Bank regulation perimeter and regulatory capitalization requirements are reported on a group basis. At 2Q22, the group's consolidated CET1 was 13.4%, and PAN's stand-alone CET1 ratio of around 17%, which continues to be provided on a managerial basis and held above-peer averages, underpinned the assessment. Adequate Liquidity Metrics: PAN's funding and liquidity profile is a relative rating weakness (b+) due to a less-developed customer deposit franchise (compared with higher-rated Brazilian banks) and a still moderate (albeit recently improved) reliance on institutional funding. Fitch's assessment also reflects PAN's appropriate liquidity position which according to Fitch's calculation reached around BRL 5.2billion at end-June 2022, and was enough to cover more than 30% of one-year funding maturities. BTG's strategy is to maintain PAN as a self-funded unit but PAN's contingent access to BRL2.2 billion of interbank lines with its parent BTG reinforces Fitch's view that potential ordinary support from the group would be available, if needed. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: IDRs, NATIONAL RATINGS, SHAREHOLDER SUPORT RATING and VR PAN's IDRs would be downgraded if both BTG's IDRs and PAN's VR were downgraded. PAN's IDRs also remain sensitive to a downgrade of Brazil's sovereign rating. The most likely trigger for a downgrade of PAN's VR would be the bank's inability to maintain its good earnings generation capacity, resulting in an operating profit structurally below 2.5% of RWA and stand-alone CET1 ratio below 12% and without credible prospects to restore it over the medium to long term. This could stem from prolonged lower business activity or higher-than-expected credit risks. PAN's VR is also sensitive to a lower operating environment assessment (currently scored bb-/Negative). PAN's SSR would be downgraded if BTG's IDRs were downgraded, or if PAN becomes less strategic for the group or significantly less integrated, which Fitch does not expect. Factors that could, individually or collectively, lead to positive rating action/upgrade: IDRs, NATIONAL RATINGS, SHAREHOLDER SUPORT RATING and VR Positive rating action would require an upgrade of BTG's IDRs, which in turn is contingent upon an upgrade of Brazil's sovereign rating. An upgrade of PAN's VR is currently unlikely in the medium term, reflecting the bank's less-diversified business model, compared with higher-rated Brazilian banks. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS PAN's ratings are driven by BTG's ratings. 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. Entity/Debt Rating Prior ----------- ------ ----- Banco PAN S.A. LT IDR BB- Affirmed BB- ST IDR B Affirmed B LC LT IDR BB- Affirmed BB- LC ST IDR B Affirmed B Natl LT AA(bra) Affirmed AA(bra) Natl ST F1+(bra) Affirmed F1+(bra) Viability bb- Affirmed bb- Shareholder Support bb- Affirmed bb- BANESE: Moody's Withdraws 'Ba3' Deposit Rating ---------------------------------------------- Moody's Investors Service has withdrawn all ratings and assessments assigned to Banco do Estado de Sergipe S.A. ("Banese"). Prior to the withdrawal, the outlook on the bank's deposit ratings was stable. RATINGS RATIONALE Moody's has decided to withdraw the ratings for its own business reasons. Banese is owned by the state of Sergipe, and had total assets of BRL8.7 billion and shareholders' equity of BRL579.3 million, as of June 30, 2022. LIST OF AFFECTED RATINGS AND ASSESSMENTS Withdrawals: Issuer: Banco do Estado de Sergipe S.A. Adjusted Baseline Credit Assessment, Withdrawn, previously rated ba3 Baseline Credit Assessment, Withdrawn, previously rated ba3 ST Counterparty Risk Assessment, Withdrawn, previously rated NP(cr) LT Counterparty Risk Assessment, Withdrawn, previously rated Ba2(cr) ST Counterparty Risk Rating (Foreign), Withdrawn, previously rated NP ST Counterparty Risk Rating (Domestic), Withdrawn, previously rated NP LT Counterparty Risk Rating (Foreign), Withdrawn, previously rated Ba2 LT Counterparty Risk Rating (Domestic), Withdrawn, previously rated Ba2 ST Bank Deposit Rating (Foreign), Withdrawn, previously rated NP ST Bank Deposit Rating (Domestic), Withdrawn, previously rated NP LT Deposit Rating (Foreign), Withdrawn, previously rated Ba3, Outlook Changed To Rating Withdrawn From Stable LT Deposit Rating (Domestic), Withdrawn, previously rated Ba3, Outlook Changed To Rating Withdrawn From Stable Outlook Actions: Issuer: Banco do Estado de Sergipe S.A. Outlook, Changed To Rating Withdrawn From Stable BRAZIL: Economic Activity Index Falls More Than Expected in August ------------------------------------------------------------------ globalinsolvency.com, citing Reuters, reports that economic activity in Brazil fell much more than expected in August, a central bank index showed, confirming expectations of a slowdown in the second half. The IBC-Br economic activity index, considered a leading indicator of gross domestic product, fell a seasonally adjusted 1.13% in August from July, more than double the 0.5% drop expected by economists polled by Reuters, according to globalinsolvency.com. In August, activity services growth once again beat expectations. The sector accounts for about 70% of the Brazilian economy and has been vital in the recovery after the pandemic, the report relays. The IBC-Br index was up 4.86% on a non-seasonally adjusted basis from August 2021, and grew 2.08% in the 12 months, added the central bank, the report discloses. The Brazilian economy showed a more robust performance than expected at the beginning of the year, and the government's official expectations are for a 2.7% expansion this year, on the back of higher private investment, resilient service activity and improved job market, the report notes. 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. [*] BRAZIL: Rio to Propose Tax-Free Shopping for Foreign Tourists ----------------------------------------------------------------- Rio Times Online reports that the State of Rio de Janeiro intends to present a proposal to introduce tax-free shopping for foreign tourists at the National Council for Fiscal Policy (Confaz) meeting in November. In addition to the unanimous approval of the 27 Secretaries of State of the Council of Finance, the policy must be voted in the Legislative Assembly of the State of Rio de Janeiro (Alerj) to be implemented, according to Rio Times Online. The issue was discussed at the Commerce Association of Rio de Janeiro (ACRJ), 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 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. =========================== C A Y M A N I S L A N D S =========================== YANKUANG GROUP CAYMAN: Moody's Affirms 'Ba1' Sr. Unsec. Bond Rating ------------------------------------------------------------------- Moody's Investors Service has affirmed the Ba1 corporate family ratings of Shandong Energy Group Company Limited (Shandong Energy) and Yankuang Energy Group Company Limited (Yankuang Energy). In addition, Moody's has also affirmed the b1 Baseline Credit Assessment (BCA) of Shandong Energy. Moody's has also affirmed the Ba1 senior unsecured rating of the bonds issued by Yankuang Group (Cayman) Limited and guaranteed by Shandong Energy, and the Ba1 senior unsecured rating of the bonds issued by Yancoal Int'l Resources Development Co., Ltd and guaranteed by Yankuang Energy. The outlook on the ratings remains stable. "The ratings affirmation and stable outlook reflect Moody's expectation that Shandong Energy's and Yankuang Energy's leverage will remain stable over the next 12 to 18 months, thanks to the strong cash flows from their diversified mining assets and lowcost operations. Such cash flow will enable Shandong Energy to fund its large investment programs and maintain its leverage. In addition, we expect Shandong Energy to continue receiving a strong level of support from the government, and that Yankuang Energy's importance to Shandong Energy will remain intact," says Gerwin Ho, a Moody's Vice President and Senior Credit Officer. RATINGS RATIONALE Shandong Energy's Ba1 CFR incorporates its BCA of b1 and a three-notch uplift, reflecting Moody's assessment of the company's strong likelihood of support from and a high level of dependency on the Shandong government and ultimately the Government of China (A1 stable), in times of stress. Moody's support assumption reflects Shandong Energy's 100% ownership by the Shandong government; the importance of Shandong Energy's mining assets to Shandong province in terms of economic contribution and employment; the company's strategic role in safeguarding energy security in Shandong province as the only provincial state-owned energy investment platform; the track record of government support to the company; and the Chinese government's strong ability to support Shandong Energy through the Shandong government, as indicated by China's A1 sovereign rating. Moody's high dependency assumption reflects the fact that Shandong Energy and the central government are exposed to common political and economic event risks. Shandong Energy's b1 BCA primarily reflects the company's large scale and diversified coal mining assets, and its low-cost mining operations in Shandong province and Australia (Aaa stable). At the same time, Shandong Energy's BCA is constrained by the company's high leverage; exposure to long-term carbon transition risks; exposure to high coal price volatility particularly outside China; substantial capital spending needs to fund multiple large projects and the resultant project execution risks. Under Shandong government's mandates to secure energy security, seek new economic growth drivers and upgrade the industry base, Shandong Energy has been undertaking several high-profile and strategic projects or acquisitions in the petrochemical, new energy and financial industries. While these capital-intensive projects will help to diversify the company's business away from coal and further reinforce Shandong Energy's importance to the Shandong government, these investments will pressure the company's short-term funding needs. However, Moody's expects that Shandong Energy can fund these large projects mainly through its internal cash flow and maintain its leverage, as measured by Moody's-adjusted debt/EBITDA, consistent with its rating, albeit at relatively high level. Shandong Energy has benefited from higher coal prices in 2021 and the first half (1H) of 2022. Its leverage improved to 4.9x for the last 12 months (LTM) ended June 2022 from 6.5x in 2020. Moody's expects the company's leverage to further fall to 4.0x in 2022 and gradually soften to 4.8x-5.9x in 2023 and 2024 with the normalization of coal prices. Such metrics remain appropriate for the company's b1 BCA. Shandong Energy's liquidity is weak. Its cash on hand and projected operating cash flow are insufficient to cover its debt maturities and expected capital spending over the next 12 months. The stable rating outlook reflects Moody's expectation that, over the next 12-18 months, Shandong Energy's credit metrics will stay appropriate for its b1 BCA; there will be no drastic decline in coal prices in China; the company will be prudent in its investment strategy in accordance with its current plan; its importance to the Shandong province and ultimately the Chinese government will remain unchanged; and the government's ability to support will remain intact, as reflected in the stable outlook of China's sovereign rating. Yankuang Energy's Ba1 CFR incorporates its standalone credit profile and a two-notch uplift based on likely support from its parent Shandong Energy. Moody's support assumption considers the strategic importance of Yankuang Energy's mining assets to Shandong Energy and ultimately to the Shandong government, in terms of economic contributions and employment; Shandong Energy's majority ownership and control over Yankuang Energy; Yankuang's track record of receiving support from Shandong Energy and Shandong government; and the reputational damage to Shandong Energy and the Shandong government if Yankuang defaults. Yankuang Energy's standalone credit profile is supported by its diversified coal mining assets and related infrastructure; the good quality of Australian coal assets under its subsidiary Yancoal Australia Ltd, which has low financial leverage; its low-cost mining operations in Shandong province; and its good liquidity. At the same time, Yankuang Energy's standalone credit profile is constrained by the company's moderately high debt leverage relative to its rated global and regional peers' following years of expansion and acquisitions; carbon transition risk in the long term; and the exposure to coal price volatility as coal mining continues to drive the majority of its earnings. Due to benefit of high coal prices, Yankuang Energy's leverage improved to 2.9x in 2021 and further improved to 1.8x in the last 12 months (LTM) ended June 2022, from 6.9x in 2020. Moody's forecasts the company's leverage will remain at 1.7x-2.0x over the next 12-18 months. Despite Yankuang Energy's improved leverage, the rating agency considers the credit profiles of Shandong Energy and Yankuang Energy to be closely linked. As Shandong Energy's flagship subsidiary, Yankuang Energy contributes a substantial amount of Shandong Energy's businesses, accounting for 40% and 53% of Shandong Energy's adjusted assets and EBITDA in 2021, respectively. Moody's expects Yankuang Energy to continue playing an essential role for Shandong Energy in executing its business strategy. Yankuang Energy has a good liquidity profile. Its cash on hand and projected operating cash flow are more than sufficient to cover its planned capital expenditure and debt maturities over the next 12 months. Shandong Energy's and Yankuang Energy's ratings also consider the following environmental, social and governance (ESG) risks. Both companies face elevated environmental risks associated with the coal mining industry, including carbon transition risks, as countries reduce their reliance on coal power. They are also exposed to high social risks associated with the coal mining industry, including health and safety and responsible production. With respect to governance, Shandong Energy has limited information transparency on its investment strategy and financial policy, which have been materially influenced by the Shandong government given the government's ultimate control and full ownership over the company. It also needs to manage integration challenges related to its past and ongoing mergers, acquisitions and investment projects. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade Shandong Energy's rating if (1) the likelihood of government support increases; or (2) the company's BCA improves significantly. Shandong Energy's BCA could improve if the company lowers its debt leverage through stronger cash flow generation and be disciplined in capital spending, and successfully integrates its newly acquired businesses and manages the execution risks related to ongoing projects. Credit metrics indicative of upward rating pressure on the BCA include adjusted debt/EBITDA below 3.0x-3.5x on a sustained basis. Moody's could downgrade Shandong Energy's rating if (1) the likelihood of government support decreases; or (2) the company's BCA weakens meaningfully. Shandong Energy's BCA could weaken if it undertakes large-scale debt-funded investments, resulting in further deterioration in its financial profile; if there is a substantial disruption in its core mining operations; or if material execution risks arise from its investment projects. Credit metrics indicative of downward rating pressure on the BCA include adjusted debt/EBITDA above 6.0x-6.5x over a prolonged period. Yankuang Energy's rating would be upgraded if Shandong Energy's rating is upgraded, which would reflect Shandong Energy's ability to strengthen its financial profile without any adverse changes in Moody's assumption of government support. Yankuang Energy's rating would be downgraded if Shandong Energy's rating is downgraded, which would reflect a material deterioration in the group's financial profile. A weakening of government support for Shandong Energy would also pressure Yankuang Energy's rating. The principal methodologies used in rating Shandong Energy Group Company Limited and Yankuang Group (Cayman) Limited were Mining published in October 2021. Shandong Energy Group Company Limited is the largest coal mining group in Shandong province and the third-largest coal mining group in China in terms of coal production volume in 2021. The company is also involved in other businesses, including high-end coal chemical, logistics and trading, power generation, machinery manufacturing, financial services and others. Shandong Energy is ultimately owned by the Shandong government; it is directly held by the Shandong State-owned Assets Supervision and Administration with a 70% holding share. Shandong Guohui Invt Hldg Grp Co., Ltd. (Baa2 stable) and the Shandong Caixin Asset Management Co., Ltd hold the remaining 20% and 10% stakes in the company, respectively. In 2021, Shandong Energy produced 255 million tons of raw coal, reported revenue of RMB774 billion and assets of RMB751 billion. Yankuang Energy Group Company Limited listed on the Shanghai and Hong Kong stock exchanges in 1998. As of June 30, 2022, it was 54.92% owned by Shandong Energy Group Company Limited. As of June 30, 2022, Yankuang Energy owned and operated various coal mines across China and Australia, including in Shandong and Shaanxi provinces and the Inner Mongolia Autonomous Region in China, as well as in the Australian states of Queensland, New South Wales and Western Australia. In 2021, Yankuang Energy produced 105 million tons of raw coal, reported revenue of RMB109 billion and assets of RMB302 billion. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Economy Grows 5.4% Between Jan. to Sept. 2022 ----------------------------------------------------------------- Dominican Today reports that the Dominican economy grew 5.4% in January-September 2022. Only in the month of September, it was 4.8 % inter-annually, according to the results of the real gross domestic product (GDP) of the monthly indicator of economic activity (IMAE). And inflation registered 0.29 % in the month of September 2022, after 0.21 % in the month of August, variations that reflect an important moderation with respect to the previous 26 months in which monthly inflation averaged 0.78 %, according to Dominican Today. From January to September, inflation was 5.86 %, and from September 2021 to September 2022 (year-on-year), 8.63 percent, the report relays. These data were offered by the governor of the Central Bank of the Dominican Republic, Héctor Valdez Albizu while delivering the ceremonial speech on the occasion of the institution's 75th anniversary, the report notes. He pointed out that when analyzing data from 18 Latin American economies, it is evident that the Dominican Republic's inter-annual inflation rate was lower than that of eleven countries in the region at the end of September 2002, the report discloses. At the event, he highlighted that the BCRD's projection models forecast that inflation would end the year at around 7.0 % and would continue reducing in inter-annual terms in the following months to converge to the target range of 4.0 %± 1.0 % in the first half of 2023, the report relays. They also estimate that real GDP growth would be in the range of 5.0 % to 5.5 % by 2022, i.e., around the potential pace of the economy, the report says. More Growth The most notable sectoral performance of the GDP in January-September is that of services, with an accumulated inter-annual variation of 7.2 %, constituting approximately 60.0 % of the total economy, the report relays. Among the best-performing activities are hotels, bars, and restaurants (28.9 %), which is the activity with the greatest impact on GDP performance in the first nine months of the year, accounting for approximately one-third of the total expansion of the same in the referred period, by exhibiting a relative variation of 28.9 % in terms of real value added, the report notes. Other services with increases are health (11.7 %), other service activities (9.1 %), public administration (7.8 %), transportation and storage (7.0 %), commerce (6.6 %), and financial services (5.7 %), the report discloses. Regarding industries, free trade zone activity grew 6.6 %, local manufacturing 4.3 %, and construction 2.2 %, while agriculture and livestock grew 3.8 % in January-September 2022, the report relays. Labor Market At the labor level, the open unemployment rate, which comprises the unemployed who are actively looking for work, has experienced a reduction of 3.2 percentage points, from 8.0 % in January-March 2021 to 4.8 % in July-September 2022, according to the preliminary results of the Continuous National Labor Force Survey (ENCFT), the report relays. External Sector In his presentation, the president of the Monetary Board highlighted that, according to preliminary figures, total exports amounted to US$10,543.3 million during the first nine months, growing by 14.2 % year-on-year, the report notes. Within these figures, those from free trade zones stand out, approaching US$6,000 million, for an increase of 11.7 %, the report discloses. Flows in the order of US$2,870.4 million in foreign direct investment (FDI) was received in January-September 2022, increasing by 19.1 % over the same period in 2021, the report relays. Valdez Albizu said that tourism registered foreign exchange earnings of US$6,341.9 million, for an increase of 65.7 %, the report discloses. Similarly, remittances were US$7,309.4 million, reflecting the solidarity of the Dominican diaspora, the report notes. Peso Appreciation And Reserves Higher foreign exchange inflows have favored the relative stability of the exchange rate, reflected in a cumulative appreciation of the local currency of 7% at the end of September, the report relays. International reserves remain close to US$14 billion in September 2022, equivalent to 12.3% of GDP and 5.7 months of imports, the report notes. The Dominican financial system is profitable and solvent. The financial system has consolidated its financial strength, as its main indicators showed adequate solvency, profitability, and low delinquency levels at the end of September 2022, the report discloses. According to data revealed by the Governor of the Central Bank, Héctor Valdez Albizu, the solvency position reached 16.0 % as of July 2022, which coincides with the most recent information published by the Superintendency of Banks, which evidences compliance with the minimum requirement of 10% demanded by the legal provisions in force, the report relays. And the return on equity (ROE) indicator was 22.7%, the report says. The return on average assets (ROA) was 2.6 %. The non-performing loan ratio was only 1.0 %, the report notes. In the case of commercial banks, which represent 88.4% of the national financial system in terms of assets, they presented solvency of 14.6%, a return on equity of 25.3%, a return on assets of 2.6%, and a delinquency ratio of 0.9%, the report discloses. Valdez Albizu recalled that since the end of 2021, they initiated a gradual process of monetary restriction to avoid an overheating economy and a potential capital outflow, the report relays. He pointed out that the Monetary Policy Rate has been increased by 525 basis points, from 3.0 % in November 2021 to 8.25 % at present and that the liquidity surplus of the financial system has been reduced with open market operations, the report adds. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. TCRLA reported in April 2019 that the Dominican Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Fitch Ratings, in December 2021, revised the Outlook on Dominican Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDRs at 'BB-'. The revision of the Outlook to Stable reflects the narrowing of Dominican Republic's government deficit and financing needs since Fitch's last review resulting in the stabilization of the government debt/GDP ratio, as well as the investment-driven economic momentum, reflected in the faster-than-expected economic recovery in 2021 that Fitch expects to carry into above-potential GDP growth during 2022 and 2023. Standard & Poor's, also in December 2021, revised its outlook on the Dominican Republic to stable from negative. S&P also affirmed its 'BB-' long-term foreign and local currency sovereign credit ratings and its 'B' short-term sovereign credit ratings. The stable outlook reflects S&P's expectation of continued favorable GDP growth and policy continuity over the next 12 to 18 months that will likely stabilize the government's debt burden, despite lack of progress with broader tax reforms, S&P said. A rapid economic recovery from the downturn because of the pandemic should mitigate external and fiscal risks. Moody's affirmed the Dominican Republic's long-term issuer and senior unsecured ratings at Ba3 and maintained the stable outlook in March 2021. EGE HAINA: Fitch Affirms LongTerm IDRs at 'BB-', Outlook Stable --------------------------------------------------------------- Fitch Ratings has affirmed Empresa Generadora de Electricidad Haina, S.A. 's (EGE Haina) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB-'. The Rating Outlook is Stable. In addition, Fitch has affirmed EGE Haina's USD300 million senior unsecured notes at 'BB-'. Haina's credit quality is linked to the sovereign rating, given state-owned distribution companies (EGE Haina's main clients) dependence on government transfers. This is due to the high risk of the Dominican Republic's electricity sector, which experiences chronically high energy losses, low collection levels, and requires material subsidies. The ratings also reflect the size and diversification of EGE Haina's generation asset base and the expectation that around 90% of its revenue will come from long-term contracts. Fitch expects leverage to increase to 4.6x by 2022 as a new subsidiary, Siba Energy Corporation (Siba), will issue debt to finance the construction of a new natural gas plant. The rating anticipates cash flow growth commencing in 1Q23 as Siba's already-signed three long-term capacity contracts begin, reducing EGE Haina's leverage to nearly 4.0x by FYE 2023. KEY RATING DRIVERS Heightened Counterparty Exposure: EGE Haina depends on payments from the state-owned distribution companies, which are characterized by chronically high energy distribution losses (33% in 2Q22), low collection rates, and electricity tariffs that do not account for true energy costs. This increases the industry's reliance on government transfers in order to fulfil obligations with the power generators. This in turn increases sector risk, as upward pressure of fossil fuel prices could further stress Haina's working capital. The regular delays in government transfers pressure working capital needs and add volatility to power generators' cash flows. Credit Metrics Elevated by Siba Project: Fitch expects EGE Haina will increase its gross leverage levels from 3.1x in 2021 to 4.6x in fiscal 2022, which incorporates USD150 million additional debt from the Siba subsidiary to finance its expansion. By 2023, once Siba starts generating cash flow, Fitch projects that gross leverage will reduce to close to 4.0x, which is within the rating category. As Siba is an unrestricted subsidiary, the additional debt taken from this company will not affect current EGE Haina's covenants and restrictions. Long-Term Contracts Reduce Cash Flow Volatility: Fitch expects that between 2022 and 2025 approximate 90% of EGE Haina's revenues will come from long-term purchased power agreements (PPAs), which have adequate cost pass-through provisions that support cash flow generation stability. In 2021, 87% of revenues came from PPAs. In 2022, EGE Haina signed nine additional PPAs with a state-owned distribution company and with non-regulated clients that are going to be supplied with Girasol Solar Park and with the upcoming Esperanza Solar Park. In addition, the company signed three PPAs related to the Siba natural gas power plant that relies on capacity payments that from 2023 onward will add revenue predictability. Fitch projects EGE Haina's EBITDA at nearly USD120 million in 2022, and close to USD170 million in 2023, concurrent with a decline in leverage. Expansion Plan Impacts Cash Flow: EGE Haina's credit profile benefits from a diversified asset portfolio of power generation assets using different sources of energy (natural gas, fuel oil, wind, coal and solar). By 2021, thermal sources accounted for 71% of EGE Haina's generation capacity, 17% from wind and 11% from solar. In 2021, the company opened the 120MW Solar Park Girasol, and in 2022 started the construction of Esperanza Solar Park, with 90MW expected to commence operations in 2023. These projects are part of a long-term strategy to build a power generation asset base of 1,000MW with non-conventional renewable energies. In addition, EGE Haina has a 51% stake in Siba Energy. This project includes a fully-contracted natural gas plant that will begin operations in 1Q23. The plant will open initially with 190MW open cycle capacity, but transition to a closed cycle at 250MW capacity by the end of 2024. The natural gas plant construction and capex related to renewal projects is expected to pressure EGE Haina's FCF throughout the rating horizon. Accordingly, Fitch expects FCF to be negative USD165 million in 2022 due to a capex of USD254 million that year. In 2021, EGE Haina reported a negative FCF of USD93 million as a result of a high USD105 million dividend payment. DERIVATION SUMMARY EGE Haina's rating is similar to AES Andres (BB-/Stable), the Dominican Republic's other primary electricity generator. EGE Haina's credit profile benefits from its asset base with 1,094 MW capacity, which is larger than the combined capacity of 677MW of AES Andres and its related company Dominican Power Partners. EGE Haina has a diversified energy matrix that uses different sources of energy (natural gas, fuel oil, wind, coal and solar), while AES Andres generation units are mainly dependent on natural gas and fuel oil that have a competitive cost generation. In addition, AES Andres has an integrated operation with a natural gas port, regasification, storage and gas pipeline facilities. EGE Haina is expected to increase its leverage from 3.1x in 2021 to 4.6x in 2022 to finance the construction of a natural gas plant through its new subsidiary Siba Energy Corporation, which will commence generating cash flow in 1Q23; Fitch projects that gross leverage will reduce to close to 4.0x by 2023. AES Andres is expected to have leverage of 2.3x by the end of 2022, and its medium-term strategy includes expanding its natural gas transportation network. Both AES Andres' and EGE Haina's ratings are restricted by the counterparty exposure from the state-owned distribution companies which are their main offtakers. This links both companies credit profiles to the sovereign rating, given the dependency of the Dominican electricity sector on government transfers due to high energy losses, low levels of collections and important subsidies. KEY ASSUMPTIONS - Energy generation without including Siba has an average yoy 2.5% growth between 2021-2024; - In 1Q23 the Siba Energy natural gas plant starts operation and generates an additional EBITDA of close to USD30 million in 2023 and USD50 million in 2024; - Assuming an effective tax rate of 20%; - Account receivables days of 110 with no material delays in government payments; - Annual average capex close to USD70 million in 2021-2023; - Total capex of Siba Energy of USD300 million; heightened capex in 2023 and 2025 will be mostly financed with incremental debt; - USD30 million minority shareholder equity injection in 2022 to support SIBA project; - Annual dividend payment of USD45 million. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Electricity sector achieves financial sustainability through proper policy implementation; - An upgrade of the Dominican Republic's sovereign ratings. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A downgrade of the Dominican Republic's sovereign rating; - There is sustained deterioration in the reliability of government transfers; - Operational cash flow deterioration that leads to a sustained leverage of more than 4.5x. LIQUIDITY AND DEBT STRUCTURE Adequate liquidity: EGE Haina maintains adequate liquidity, supported by its available cash balance predictable revenue and its debt maturity terms. As of June of 2022, EGE Haina had USD72 million in cash and an expected USD100 million cash from operation for 2022, which compares favorably with its short-term obligations of USD59 million. Additionally, EGE Haina has approximately USD108 million in available credit lines with liquidity support in order to face volatility in the collection profile of its accounts receivable or if in need of extra liquidity. EGE Haina does not have a materially significant debt payment until 2028. ISSUER PROFILE EGE Haina is one of the Dominican Republic's main electricity generation companies and is 50% controlled by Haina Energy Investment Co. Ltd, a private holding firm incorporated in the Cayman Islands, and 49.99% held by Fondo Patrimonial de las Empresas Reformadas (FONPER), a holding company fully owned by the Dominican Government. 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. Entity/Debt Rating Prior ----------- ------ ----- Empresa Generadora de Electricidad Haina, S.A. LT IDR BB- Affirmed BB- LC LT IDR BB- Affirmed BB- senior unsecured LT BB- Affirmed BB- =========== M E X I C O =========== INTERJET: Ordered to Pay $7 Million in Class Action Suit -------------------------------------------------------- Kylie Madry at Reuters reports that Mexican airline Interjet, which was declared bankrupt by a judge in August, has been ordered to pay out 144 million pesos (US$7.23 million) to thousands of clients in a class action lawsuit, the country's consumer protection office said. The ruling is a win for fliers who faced flight cancellations, delays and unjust charges from 2018 to 2020, the prosecuting office known as Profeco said in a statement obtained by Reuters. A spokesperson for Interjet did not immediately respond to a Reuters request for comment. Interjet abruptly stopped flying in 2020, and the carrier's union has since been protesting for what they allege amounts to months of unpaid wages and benefits, the report discloses. Interjet's outstanding payments are suspended until a March deadline, by which it is required to reach a deal with its creditors, according the August bankruptcy ruling, the report says. Other affected passengers will have until next October to join a second phase of the class action suit, Profeco said. ($1 = 19.9090 Mexican pesos), the report adds. About Interjet Interjet is an international airline based in Mexico City carrying almost 14 million passengers annually within Mexico and between Mexico, the United States, Canada, Central, and South America. In all, it provides air service to 54 destinations in 10 countries offering its passengers greater connections and travel options through agreements with major airlines such as Alitalia, All Nippon Airways (ANA), American Airlines, British Airways, Emirates, Air Canada, LATAM Group, EVA Air, Iberia, Lufthansa, Hainan Airlines,Hahn Air, Qatar Airlines and Japan Airlines. MEXARREND SAP: Pays Senior International 2019 Bond -------------------------------------------------- Mexarrend, a leading financial company in the Mexican market, announced the payment of its Senior International Bond issued in 2017 (DOCUFO 9 1/4). The issuance was originally for US$150 million, however most of the issuance was prepaid in 2019 through a tender offer, with US$30.6 million remaining. Despite challenging market conditions driven by rising interest rates and sector turbulence, Mexarrend has demonstrated its category leadership in Mexico and Latin America by consistently fulfilling its obligations. This payment reflects the Company's strong business model, strict liquidity control and solid institutional relationships. "Concluding our first international bond payment represents a major milestone for the company and reaffirms our successful financing strategy and prudent liquidity management in a challenging economic environment" said Abelardo Loscos, Chief Financial and Sustainability Officer. Adding that, "Meeting our financial obligations demonstrates our commitment to investors and solidifies our position as a leading alternative lender in the region." The Company also announces that it expects to finalize the legal consolidation of its business with Zinobe - a leading Colombian fintech developing world-class financial products - to establish Tangelo in November. Tangelo is positioned as one of the largest regional financial technology companies, specializing in embedded credit solutions targeting consumers and SME's. About Mexarrend Mexarrend, S.A.P.I. de C.V., has grown to become one of the largest independent leasing (asset-based lender) companies in Mexico in the last 25 years. The Company specializes in offering financing solutions to rapidly growing and underserved small and medium-sized enterprises ("SMEs") for the acquisition of productive assets and equipment to support growth. Mexarrend provides reliable and competitive funding sources through its four main products: capital leases, financing, operating leases, and renting. As reported in the Troubled Company Reporter-Latin America on Oct. 21, 2022, Fitch Ratings has affirmed Mexarrend, S.A.P.I. de C.V.'s Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'B', senior unsecured Long-Term debt rating at 'B'/'RR4', Long-Term National Ratings at 'BBB-(mex)' and the Short-Term National Ratings, and the short-term portion of the senior unsecured notes program at 'F3(mex)'. Fitch has removed all ratings from Rating Watch Negative (RWN). The Rating Outlooks for the Long-Term IDRs and National Long-Term Rating are Negative. ===================== P U E R T O R I C O ===================== ELITE PRODUCTS: Unsecureds to Recover 5% via Quarterly Payments --------------------------------------------------------------- Elite Products, Inc., filed with the U.S. Bankruptcy Court for the District of Puerto Rico a Plan of Reorganization dated October 20, 2022. Elite is a corporation dedicated to the transport of equipment, towing services and roadside assistance. Debtor does not own any real property and has two vehicles that are used for the operation of its business. Elite has the designated office address of: Valle de Lirios Lote 9 A5 Juncos, PR 00777. The COVID-19 Pandemic caused a considerable decreased on Debtor's business. Consequently, Debtor had fallen behind on certain obligations to its creditors. This petition was filed to stay, by and through the Automatic Stay provisions of the Code, any collection action and to provide for an orderly restructuring of any debt allegedly owed to Hacienda, Popular Auto, ValenCoop and the other creditors. This Plan of Reorganization proposes to pay creditors of the Debtorfrom cash flows generated mainly from the Debtor's post-petition operations. This Plan provides for three classes of claims and interests: (a) allowed secured claim of Popular Auto, (b) allowed secured claim of Cooperativa A/C del Valenciano ("ValenCoop") (c) allowed general unsecured claims, and (d) equity interests. In addition, the Plan provides for the payment to Priority Unsecured Creditors. General Unsecured Creditors, with Allowed Claims, will receive a distribution of $922.98 equal to a 5.00% distribution on its allowed general unsecured claims. This Plan also provides for the payment of administrative claims. Class 1 consists of the Allowed Secured Claim of ValenCoop allowed under 502 of the Code. ValenCoop filed Proof of Claim #1 in the total amount of $60,946.90, of which $60,946.90 is claimed as a secured claim. If Allowed as filed, the ValenCoop's Allowed Class One Claim will be in the amount of $60,946.90. If allowed as filed, ValenCoop shall have a Class 1 Allowed Secured Claim equal to $60,946.90. The Principal Balance in the amount of $57,700.64 shall be satisfied via 60 monthly and consecutive payments in the amount of $1,122.24. The Principal Balance shall be satisfied based on a yearly rate of interest of 6.25%. The accrued interest and late charges in the amount of $3,246.22 shall be satisfied via 60 monthly and consecutive payments in the amount of $54.10. The combined monthly payments will be in the amount of $1,176.34. Payments shall commence on the first day of the second month following the Effective Date of the Plan. Class 2 consists of the Allowed Secured Claim of Popular Auto allowed under 502 of the Code. Popular Auto filed Proof of Claim #2 in the total amount of $68,410.32, of which $68,410.32 is claimed as a secured claim. However, based on the value of the collateral, Popular Auto's Allowed Class Two Claim will be in the amount of $50,000.00. Any unsecured portion, if Allowed, shall be deemed an Allowed Class Three General Unsecured Claim. If allowed, Popular Auto shall have a Class 2 Allowed Secured Claim equal to $50,000.00. If any, the Allowed Class 2 Secured Claim shall be satisfied via 60 monthly and consecutive payments in the amount of $978.31. Payments shall commence on the first day of the second month following the Effective Date of the Plan. Allowed Class 2 Secured Claims shall be satisfied based on a yearly rate of interest of 6.50%. Class 3 Claim consists of the Allowed General Unsecured. This Class consists of the prepetition unsecured claims against the Debtor, to the extent Allowed, if any. It is estimated that Allowed Class 3 General Unsecured Claims will be in the amount of $18,459.53. The Debtor shall satisfy the Class 3 Claims via 20 quarterly payments in the amount of $46.15 for a total distribution on Allowed Class 3 Claims of $922.98 or an estimated 5.00% distribution. Payments shall commence on the first day of the second month following the Effective Date of the Plan. Class 4 consists of Debtor's Equity (Ownership) Interest over Property of the Estate. Debtor will retain its Ownership Interest in the Property of the Estate. The Plan establishes that the Plan will be funded from the proceeds generated by the operating business of the Debtor, Elite. It generally consists of the Debtor's funds generated from the rendered services of transport of equipment, towing services and roadside assistance. The Debtor will contribute its cash flow to fund the Plan commencing on the Effective Date of the Plan and continue to contribute through the date that Holders of Allowed Class 1, Class 2 and Class 3 Claims receive the payments specified for in the Plan. A full-text copy of the Plan of Reorganization dated October 20, 2022, is available at https://bit.ly/3zhklbE from PacerMonitor.com at no charge. Debtor's Counsel: William Rivera Velez, Esq. The Batista Law Group, PSC Las Vistas Shopping Village, Suite #41, 300 Ave. Las Cumbres, San Juan, PR 00926 (787) 620-2856 About Elite Products Elite Products Inc. sought protection under Chapter 11 of the U.S. Bankruptcy Code (Bankr. D.P.R. Case No. 22-02142) on July 22, 2022, listing under $1 million in both assets and liabilities. Judge Mildred Caban Flores oversees the case. The Debtor tapped Jesus E. Batista Sanchez, Esq., at The Batista Law Group as counsel and Xavier Flores Rios as financial consultant. =========================== V I R G I N I S L A N D S =========================== THREE ARROWS: Liquidators Say Founders Ducking Subpoenas -------------------------------------------------------- The foreign representatives of bankrupt cryptocurrency hedge fund Three Arrows Capital have asked a New York judge for permission to serve subpoenas on the company's founders through alternative means because they have not cooperated with an investigation of its assets. Russell Crumpler and Christopher Farmer, in their joint capacities as the duly authorized foreign representatives of Three Arrows Capital, Ltd, which is the subject of an insolvency proceeding currently pending in the British Virgin Islands ("BVI") before the Eastern Caribbean Supreme Court in the High Court of Justice Virgin Islands (Commercial Division), are asking the U.S. Bankruptcy Court for authority to serve subpoenas for the production of documents and testimony on the Debtor's founders, investment managers, and third parties that the Foreign Representatives reasonably determine during the course of their investigation may have information relevant to the Debtor's assets, affairs, rights, obligations, or liabilities. From the outset of the BVI Proceeding, the Foreign Representatives have been pursuing their investigation with urgency and by all lawful means available to them. The Foreign Representatives have engaged directly with banks, cryptocurrency exchanges (both public and over the counter), brokers, the Debtor's administrator, auditor and legal representatives, the principals and management of certain underlying investment assets and other custodians and counterparties with which the Foreign Representatives believe the Debtor or its affiliates have accounts. The Foreign Representatives have also utilized the formal discovery tools in furtherance of their continued efforts to identify and preserve the Debtor's assets. Specifically, following the Chapter 15 Provisional Relief Order entered by the U.S. Court on July 12, 2022, the Foreign Representatives served 18 subpoenas. The recipients of such subpoenas include banks, cryptocurrency exchanges, and brokers that the Foreign Representatives have identified as having information regarding the Debtor's assets and/or maintaining accounts and digital wallets in the name of the Debtor. The Foreign Representatives have also attempted to serve subpoenas on the Debtor's founders, Su Zhu and Kyle Livingstone Davies (the "Founders"). As the Founders' whereabouts remain unknown, the Foreign Representatives requested that Advocatus Law LLP, Singapore counsel purporting to represent the Founders, accept service of the subpoenas on behalf of the Founders. Advocatus has declined to accept service and, consequently, the Foreign Representatives have filed with the U.S. Court seeking authority to serve the subpoenas on the Founders by certain alternative means. Additionally, the Founders are still yet to offer any forthright cooperation, whether formal or informal, consistent with their duties owed to the Debtor. The Foreign Representatives have attempted to engage with the Founders' counsel continuously regarding a number of informal information requests, among other matters. Namely, the Foreign Representatives have requested specific information regarding the Debtor's assets and accounts and for cooperation in obtaining access to, and control over, them. The Founders, through counsel, have made only selective and piecemeal disclosures. In addition to the discussions with the Founders, the Foreign Representatives have been provided with email addresses, which they have been told can be used to send specific inquiries directly to the Founders. The Foreign Representatives have sent several inquiries to these email addresses, and have yet to receive any response. Despite the Foreign Representatives' numerous requests for cooperation in identifying and gaining control of the Debtor's assets, the Founders have provided only an incomplete list of the Debtor's assets. In addition to selective disclosure of the Debtor's assets, the Foreign Representatives also have reason to believe that the Founders have continued to withhold "seed phrases" and other information in their possession that is essential to accessing and controlling certain of the Debtor's digital assets. Likewise, the Founders have refused to cooperate with the Foreign Representatives' efforts to gain access to the Debtor's books and records in their possession. The Founders, through counsel, implausibly insist that the meager information provided to the Foreign Representatives represents all of the documents in their possession relating to the Debtor. In addition, the Foreign Representatives believe that the Debtor's investment manager and former investment manager -- Three AC Ltd, a BVI entity (the "Current Investment Manager") and the Former Investment Manager respectively (together with the Current Investment Manager, the "Investment Managers") -- possess critical information regarding the Debtor's assets and affairs. The Former Investment Manager was the investment manager of the Debtor until August 20, 2021, at which point the Current Investment Manager assumed that role. The Foreign Representatives have engaged with Solitaire LLP, Singapore counsel purporting to represent the Former Investment Manager, which has in the past represented itself as counsel to the Founders. The Foreign Representatives have requested, through Solitaire, that the Investment Managers provide the Foreign Representatives with access to the Debtor's books and records as well as other information relating to the Debtor in the Investment Managers' possession and control. The Investment Managers have provided only certain login details for some of the Debtor's brokerage accounts and certain historical asset information for the Debtor's feeder funds. The Investment Managers piecemeal, selective disclosures are insufficient and their lack of forthright cooperation has hindered the Foreign Representatives' ability to perform their duties. About Three Arrows Capital Three Arrows Capital Ltd. was an investment firm engaged in short-term opportunities trading, and is heavily invested in cryptocurrency, funded through borrowings. As of April 2022, the Debtor was reported to have over $3 billion of assets under its management. Three Arrows Capital Ltd. was incorporated as a business company under the laws of the British Virgin Islands. Its sole shareholder owning all of its "management shares" is Three Arrows Capital Pte. Ltd., which previously operated as a regulated fund manager in Singapore until 2021, when it shifted its domicile to the BVI, as part of a global corporate plan to relocate operations to Dubai. The Debtor borrowed digital and fiat currency from multiple lenders to fund its cryptocurrency investments. After cryptocurrency lost 99% of its value, and then prices of other cryptocurrencies had rapid declines, the Debtor reportedly defaulted on its obligations. On June 24, 2022, one of the Debtor's many creditors -- DRB Panama Inc. -- filed an application to appoint joint provisional liquidators -- and thereafter, full Liquidators -- in the Eastern Caribbean Supreme Court in the High Court of Justice (Commercial Division) located in BVI. The application was assigned claim Number VIHCOM2022/0117. Subsequently, on June 27, 2022, the Debtor filed its own application for the appointment of joint liquidators before the BVI Commercial Court. On June 29, 2022, the Honorable Mr. Justice Jack of the BVI Commercial Court appointed Russell Crumpler and Christopher Farmer of Teneo (BVI) Limited as joint liquidators of Three Arrows Capital Ltd. On July 1, 2022, liquidators of Three Arrows Capital filed a Chapter 15 bankruptcy in the U.S. (Bankr. S.D.N.Y. Case No. 22-10920) to seek recognition of the BVI proceedings. Judge Martin Glenn is the case judge. Latham & Watkins, led by Adam J. Goldberg is counsel in the U.S. case. The law firm of Ogier, led by Grant Carroll, is advising the liquidators in the BVI proceedings. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *