/raid1/www/Hosts/bankrupt/TCRLA_Public/221114.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Monday, November 14, 2022, Vol. 23, No. 221
Headlines
A R G E N T I N A
[*] Fitch Lowers IDRs on 7 Argentinian Entities to 'CCC-'
B R A Z I L
AMERICANAS S.A: Fitch Affirms BB- Foreign Currency IDR, Outlook Neg
CIELO SA: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
INPASA AGROINDUSTRIAL: Fitch Affirms 'BB-' LongTerm IDRs
JBS SA: Foresees Obstacles of Net Zero Emissions Target by 2040
OI SA: S&P Cuts ICR to 'CCC-' on Rising Risk of Debt Restructuring
C A Y M A N I S L A N D S
SEAGATE HDD: Moody's Lowers CFR & Sr. Unsecured Notes to 'Ba2'
C H I L E
VTR FINANCE: Fitch Lowers LongTerm IDRs to 'B', On Watch Negative
G U Y A N A
GUYANA: To Open Bidding for 14 New Offshore Blocks
J A M A I C A
CIBONEY GROUP: Finsac Processing Bids for Firm
[*] JAMAICA: Will Look at Ways to Improve Efficiency at Ports
M E X I C O
GRUPO AEROMEXICO: S&P Affirm 'B-' ICR & Alters Outlook to Stable
P U E R T O R I C O
PUERTO RICO: Judge Warns Board as PREPA Debt Plan Deadline Nears
X X X X X X X X
[*] BOND PRICING: For the Week Nov. 7 to Nov. 11, 2022
- - - - -
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A R G E N T I N A
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[*] Fitch Lowers IDRs on 7 Argentinian Entities to 'CCC-'
---------------------------------------------------------
Fitch Ratings has downgraded the Foreign Currency (FC) and Local
Currency (LC) Issuer Default Ratings (IDR) of numerous corporate
issuers as a result of Fitch's recent downgrade of Argentina's
sovereign foreign currency and local currency issuer default rating
to 'CCC-' from 'CCC.'
The issuers whose ratings were either downgraded or affirmed due to
Argentina's rating change are:
- Generacion Mediterranea S.A.
- IRSA Inversiones y Representaciones S.A.
- Telecom Argentina S.A.
- Central Termica Roca S.A.
- Capex S.A.
- Genneia S.A.
- Mastellone Hermanos Sociedad Anonima
- MSU Energy S.A.
- Agua y Saneamientos Argentinos S.A.
- Compania General de Combustibles S.A.
- Arcor S.A.I.C.
- YPF S.A.
- Pampa Energia S.A.
- AES Argentina Generacion S.A.
- CLISA-Compania Latinoamericana de Infraestructura y Servicios
Further, Fitch has taken numerous rating actions on the rated
securities of select issuers, assigning a higher recovery rating of
'RR3' from 'RR4', which resulted in either an upgrade or an
affirmation of the rated issuance. The revised recovering ratings
reflects historical precedents of numerous distressed debt
exchanges done by Argentine corporates, that did not result in
reduction in principal, and the recoveries were above the implied
recovery of an 'RR3' (51%-70%), and the previous recovery rating of
'RR4' (31%-50%), even when considering the intrusive capital
controls laws. As Per Fitch's Country-Specific Treatment of
Recovery Criteria, when an issuer actually enters a distressed or
defaulted state, such as Argentina (CCC-), Fitch can assign a
higher recovery rating for an issuer instrument if it believes that
recoveries in the individual case will be consistent with a higher
recovery rating.
KEY RATING DRIVERS
Downgrade of Issuer Default Ratings: Fitch has downgraded numerous
Argentine corporates in line with the one notch downgrade of the FC
and LC IDR of Argentina to 'CCC-' from 'CCC'.
The ratings of Argentine Utilities: AES Argentina Generacion S.A.,
Generacion Mediterranea S.A., Genneia S.A., and MSU Energy S.A.,
have been downgraded to 'CCC-' from 'CCC' in line with the
sovereign, as each issuer's revenues are highly exposed to the
government. Argentine electricity utilities are exposed to CAMMESA,
who depends on financial support by the Argentine government in the
form of subsidies, representing nearly 80% of the total cost of the
system.
YPF SA ratings have been downgraded to 'CCC-' form 'CCC' in line
with the sovereign, as its ratings are linked to the Republic of
Argentina due to its ownership structure, as well as historical
precedents of government intervention. Argentina controls the
company through its 51% stake, and provincial government officials
serve on the company's board of director. Per Fitch's assessment of
the Government Related Entities criteria, the strategic incentive
to support and impact of a default are high and the ratings are
equalized, even though Fitch's considers the standalone credit
profile of the company to be above that of the sovereign.
IRSA Inversiones y Representaciones S.A. FC and LC IDR ratings were
downgraded to 'CCC-' from 'CCC' to reflect the company's exposure
to Argentina. The company's real estate assets are all in Argentina
and are subjected to the deteriorating macroeconomic environment of
the sovereign. IRSAs is exposed to the devaluation of the Argentine
peso compared to its U.S. dollar debt, and its challenges to
maintaining its rental income in real terms given the macroeconomic
environment.
CLISA-Compania Latinoamericana de Infraestructura y Servicios FC
and LC IDR ratings were downgraded to 'CCC-' from 'CCC' reflecting
its tight liquidity profile, in great part due to its significant
working capital needs from the prolonged period of repayments for
its receivables in relation to its payables. The company usually
manages this with a combination of short and long-term financing.
Arcor S.A.I.C. and Mastellone Hermanos Sociedad Anonima LC IDR were
downgraded one notch to 'B' from 'B+' and 'B' from 'B' following
the LC downgrade of the sovereign. Their FC IDR's were affirmed at
'B' and 'B-' with a Stable Outlook.
Affirmed Ratings: The FC and LC ratings of Compania General de
Combustibles S.A. (CGC) , Pampa Energia S.A., Capex S.A., and
Telecom Argentina S.A. were affirmed, as were the FC IDRs of Arcor
and Mastellone. The affirmations reflect their idiosyncratic
businesses profiles that have proved to be resilient, over the
years, to a deteriorating macroeconomic environment plagued with
inflation and devaluation of the local currency. The companies have
maintained their strong leverage profile, liquidity and diversified
cash flow, some of which are supported through business outside of
Argentina and/or exports that have bode well for the credits.
In the case of Pampa Energia, CGC, Telecom Argentina, and Arcor
their ratings are capped by the country ceiling of Argentina, which
was affirmed at 'B-', but their credit profiles are consistent with
a higher rating category.
Agua y Saneamientos Argentinos S.A.'s (AySA) ratings were affirmed
at 'CC' to reflect Fitch's expectation that the company will
announce some type of liability management exercise to remain in
compliance with the Central Bank of the Argentine Republic's
restrictions on a hard-currency debt refinancing that will likely
be deemed a Distressed Debt Exchange (DDE).
Revised Recovery Ratings: Fitch has revised the recovery ratings of
numerous bonds to RR3 from RR4, given recent precedents in
Argentina, where issuers launched DDEs in response to the intrusive
capital control laws, which requires issuers refinance a minimum of
60% of their hard-currency principal in order to access the
official foreign exchange market controlled by the Central bank of
Argentina.
None of the respective exchanges resulted in a reduction in
principal, and the recoveries were above the implied recovery of an
'RR3' (51%-70%), and the previous recovery rating of 'RR4'
(31%-50%). Per Fitch's Country-Specific Treatment of Recovery
Criteria, when an issuer actually enters a distressed or defaulted
state, such as Argentina (CCC-), Fitch can assign a higher recovery
rating for an issuer instrument if it believes that recoveries in
the individual case will be consistent with a higher RR, as is in
this case.
The bond ratings of Arcor, Capex, Pampa Energia and Telecom
Argentina were upgraded one notch to reflect the higher recovery
rating of 'RR3', which allows the rating of the security to be one
notch above the FC IDR.
Similarly, the bond rating of AES Argentina, Genneia, GEMSA, IRSA
and MSU Energy were affirmed and the recovery rating were revised
to 'RR3' from 'RR4', one notch above their FC IDR.
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 Recovery Prior
----------- ------ -------- -----
Generacion
Mediterranea S.A. LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior unsecured LT CCC Affirmed RR3 CCC
IRSA Inversiones y
Representaciones S.A. LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior unsecured LT CCC Affirmed RR3 CCC
Telecom Argentina S.A. LT IDR B- Affirmed B-
LC LT IDR B Affirmed B
senior unsecured LT B Upgrade RR3 B-
Central Termica
Roca S.A.
senior unsecured LT CCC Affirmed RR3 CCC
Capex S.A. LT IDR CCC+ Affirmed CCC+
LC LT IDR CCC+ Affirmed CCC+
senior unsecured LT B- Upgrade RR3 CCC+
Genneia S.A. LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior secured LT CCC Affirmed RR3 CCC
Mastellone Hermanos
Sociedad Anonima LT IDR B- Affirmed B-
LC LT IDR B- Downgrade B
senior secured LT B- Affirmed RR4 B-
MSU Energy S.A. LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior secured LT CCC Affirmed RR3 CCC
Agua y Saneamientos
Argentinos S.A. LT IDR CC Affirmed CC
LC LT IDR CC Affirmed CC
senior unsecured LT CC Affirmed RR4 CC
Compania General
de Combustibles S.A. LT IDR B- Affirmed B-
LC LT IDR B- Affirmed B-
Arcor S.A.I.C. LT IDR B Affirmed B
LC LT IDR B Downgrade B+
senior unsecured LT B+ Upgrade RR3 B
senior unsecured LT B+ Upgrade RR3 B
YPF S.A. LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior unsecured LT CCC- Downgrade RR4 CCC
Pampa Energia S.A. LT IDR B- Affirmed B-
LC LT IDR B- Affirmed B-
senior unsecured LT B Upgrade RR3 B-
AES Argentina
Generacion S.A. LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior unsecured LT CCC Affirmed RR3 CCC
CLISA-Compania
Latinoamericana de
Infraestructura y
Servicios LT IDR CCC- Downgrade CCC
LC LT IDR CCC- Downgrade CCC
senior secured LT CCC- Downgrade RR4 CCC
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B R A Z I L
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AMERICANAS S.A: Fitch Affirms BB- Foreign Currency IDR, Outlook Neg
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Fitch Ratings has affirmed Americanas S.A. (Americana)'s 'BB'
Long-Term Foreign Currency (FC) Issuer Default Rating (IDR) and
senior unsecured global notes issued by its wholly owned
subsidiaries JSM Global S.a r.l. and B2W Digital Lux S.a.r.l. At
the same time, Fitch has downgraded the company's Long-Term Local
Currency (LC) IDR to 'BB', from 'BB+', and its Long-Term National
Scale Rating to 'AA+(bra)', from 'AAA(bra)'. In addition, Fitch has
downgraded Americanas' unsecured debentures to 'AA+(bra)', from
'AAA(bra)'. The Rating Outlook for the corporate ratings is
Negative.
The downgrade of the LC IDR and National Scale Rating reflects the
company's high total and net leverage metrics expected to 2022 and
2023, inconsistent with the previous ratings. Slow improvements in
EBITDA generation, high interest expenses and relevant working
capital needs should result in relevant cash burn in 2022, which
should be financed by additional debt. The company's strategy to
delay high total debt level reduction is also seen as a negative
credit consideration. The Negative Outlook reflects the
uncertainties Americanas has to improve cash generation and reduce
its leverage to levels consistent with the current ratings in a
challenging macroeconomic scenario in Brazil.
Americanas' large business scale and strong competitive position in
the Brazilian non-food retail industry, and reported long track
record of adequate operating cash flow through several economic
cycles support the ratings. The ratings also reflect Fitch's
expectation that the company's liquidity will remain robust and
debt amortization schedule adequate.
KEY RATING DRIVERS
Increasing Leverage Metrics: During 2022, Americanas' total and net
adjusted leverage are expected to materially increase to 7.2x and
4.7x, respectively, and should remain above 5.0x and 3.5x over the
next two years, according to Fitch's projections. Relevant cash
burn during 2022 should result in increasing net debt by material
amount of BRL3.8 billion. Net debt is not expected to decline in
the following years. Fitch's concerns are also on the outstanding
total debt, which should remain high, different from its previous
projection, which is likely to put pressure in the company's
cashflow due to the high interest rate in Brazil.
Margin Contraction: The expectation of a weak economic environment,
combined with strong competition and a greater share of the online
business, should pressure Americanas' operating margins in 2022 and
2023. The company's EBITDAR margin should decrease to around
11%-13%, in 2022 and 2023, compared to margins close to 16% from
2018 to 2021. The agency's rating case incorporates same store
sales (SSS) growth slightly above inflation from 2022 onwards.
Online businesses should remain pressured by weak consumption power
and increasing competition, combined to the inflationary scenario,
which should limit sales expansion.
FCF Under Pressure: Working capital needs, high interest expense
and expansion investments should continue to negatively impact
Americanas' FCF. The base case scenario assumes that EBITDAR and
cash flow from operations will reach, respectively, BRL3.4 billion
and negative BRL1.2 billion in 2022 and BRL3.8 billion and BRL600
million in 2023, with negative FCF by around BRL4.0 billion in the
two years. The marketplace should represent 20% to 25% of
consolidated EBITDAR in the medium term. Annual investments are
expected to be around BRL2.0 billion from 2022 to 2025, with the
company's physical sales area growing by 4% in 2022 and 3% from
2023 onwards.
Solid Business Profile: Americanas operates the largest chain of
physical department stores in Brazil, which allows it to have a
resilient performance over several economic cycles. The company
also has one of the largest e-commerce platforms in Latin America,
which contributes to its diversification of sales channels and
represented 41% of its consolidated revenues in 2021.
In addition to its non-food retail chain, the company has just
entered into the food retail market in order to strengthen and
diversify its client basis. Aggressive competition from large
groups remains an important challenge for Americanas. The ongoing
strategic investments in technology and logistics should strengthen
its presence in the Brazilian market of physical stores and online
retail.
DERIVATION SUMMARY
Americanas' 'BB' FC IDR is below great part of Latin American
peers. Its geographic concentration in Brazil differs from
Falabella S.A. (BBB/Stable), which operates in more than one market
in Latin America. Americanas' exposure to Brazil's economic
environment and negative FCF trends also differentiates the
company's risk from its peers. Although El Puerto de Liverpool
S.A.B. de C.V. (BBB+/Stable) is also concentrated in only one
market -- Mexico -- it is one of the strongest rated retailers in
Latin America.
The company's historical retail only adjusted gross adjusted
leverage is consistently below 1.0x, stronger than Americanas'
metric above 4.0x. Americanas and Grupo Unicomer Corp
(BB-/Positive) enjoy similar business profile, operating with a
diversified portfolio in department store segment; however,
Americanas is better positioned than Unicomer due to its higher
profitability. Despite geographic diversification, most of the
sovereign ratings of countries in which Unicomer operates are in
the 'B' rating category.
KEY ASSUMPTIONS
- Sales area expansion of 4% in 2022 and 3% from 2023 onwards;
- SSS growth of 9.7% in 2022 and 7.5% in 2023;
- Marketplace representing 60% of online gross merchandise value in
2022 and 65% in 2023;
- Total capex of BRL4.0 billion in the 2022-2023 period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The Negative Outlook may be revised to Stable if adjusted net
debt/EBITDAR ratio tends towards 4.0x;
- Positive Rating Action can occur if the total adjusted
debt/EBITDAR and adjusted net debt/EBITDAR ratios are 4.5x and
3.0x, respectively, on a sustainable basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Negative action on the sovereign rating could lead to negative
action on the Americanas' Foreign Currency IDR and the rating of
the unsecured notes;
- Weakening liquidity;
- Adjusted net debt/EBITDAR ratio above 4.0x on a sustainable
basis.
LIQUIDITY AND DEBT STRUCTURE
Liquidity Remains Strong: The robust liquidity position continues
to be key rating support for the 'BB' rating. The analysis
incorporates the expectation that the company will maintain sound
liquidity profile and a manageable debt amortization schedule. The
company has also a broad access to credit lines to finance its
negative FCFs. As of June 2022, cash and equivalents were BRL6.8
billion, compared to total adjusted debt of BRL23.2 billion,
including approximately BRL5.3 billion in rental obligations, as
per Fitch's methodology.
Of the BRL3.9 billion short-term debt, BRL2.3 billion correspond to
anticipated receivables related to retail activity (disregarding
the discount of receivables from marketplace businesses), according
to Fitch's methodology, and is not dependent on the company's cash
for liquidation.
ISSUER PROFILE
Americanas is one of the largest diversified retail chains in
Brazil, with a wide platform of physical stores, a robust
e-commerce, a fintech, and has just entered into the niche food
retail. It is listed on B3, being indirectly controlled by Jorge
Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Fitch uses a multiple of 5x to capitalize Brazilian companies
leasing adjusted debt.
- Fitch includes the factoring of account receivables on debt.
Fitch adjusts short-term and long-term marketable securities back
to cash and equivalents. Fitch considers the financing to the
marketplace sellers as finance activity. Applying methodology, the
finance service activity has a debt/equity leverage ratio of 2.0x.
The asset of the financial service activity corresponds to the
receivables related to the marketplace business, so, half of this
asset is financed by debt, which is deconsolidated from total
debt.
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
----------- ------ -----
B2W Digital Lux
S.a.r.l.
senior unsecured LT BB Affirmed BB
Americanas S.A. LT IDR BB Affirmed BB
LC LT IDR BB Downgrade BB+
Natl LT AA+(bra)Downgrade AAA(bra)
senior unsecured Natl LT AA+(bra)Downgrade AAA(bra)
JSM Global S.a r.l.
senior unsecured LT BB Affirmed BB
CIELO SA: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Cielo S.A.'s Foreign and Local Currency
Long-Term Issuer Default Ratings (IDRs) at 'BB' and its Long-Term
National Scale Rating at 'AAA(bra)'. At the same time, Fitch has
affirmed the senior unsecured notes for Cielo's wholly owned
subsidiary, Cielo USA Inc., at 'BB' and to the senior unsecured 6th
debentures issued by Cielo at 'AAA(bra)'. The Rating Outlook for
the corporate ratings is Stable.
Cielo's ratings reflect its leading position in the Brazilian card
payment industry, low risk of credit loss and its relationship with
and distribution network of Banco do Brasil and Bradesco. The
company's commitment to maintain strong liquidity, with
conservative credit metrics and strong financial flexibility,
underpinned by a sizable pool of receivables and strong access to
funding remain key rating drivers.
KEY RATING DRIVERS
Highly Competitive Environment: The market dynamics for the
Brazilian payment industry will continue to change quickly and
Fitch expects competition to remain strong in the near term. The
sector should continue to evolve rapidly, with technological
innovations and new payment options, structurally changing the
traditional business model. Cielo has the important challenge of
quickly adapting its business model, and improve diversification in
other products like financial solutions and software services.
Leading Position in the Brazilian Market: Cielo is the largest
Brazilian merchant acquirer, with an estimated market share of 31%
as of June 2022, based on a proxy with the six largest Brazilian
acquirers. The company lost approximately 17 p.p. of market share
since 2017, when about half of Brazil's total payment volume (TPV)
was processed through Cielo, and Fitch expects market share to
stabilize at current levels. Capitalized market participants
contributed to a more aggressive growth strategy, significantly
pressuring operating margins and requiring business model
innovation. Despite the significantly increased of competition in
recent years, the industry still remains highly concentrated, with
the two largest participants still accounting for approximately 57%
of the market.
Financial Volumes to Grow in Line with Industry: Fitch projects
Cielo's TPV to grow in line with the industry for next couple of
years. Base case scenario incorporates a 23% TPV growth in 2022 and
14% in 2023. Cielo processed BRL641 billion in credit and debit
transactions in the 9M22, a 27% increase in relation to 9M21.
Brazilian market TPV is expected to grow 23% in 2022, followed by
an annual growth of 14% for 2023 and 11% for 2024. Historically,
the industry has presented growth rates well above the GDP levels,
supported by the still low penetration of cards in the country,
increased market opportunities in the small and micro-merchants'
segments and higher penetration of e-commerce. Fitch projects
Brazil's GDP to increase 2.5% in 2022 and 0.8% in 2023.
Operating Margins Recovery: Cielo is gradually improving
profitability, after several years of contracting operating cash
flows and margins, pressured by increased competition. The greater
penetration of small and medium merchants and of prepayment
products, the gradual improvement in product diversification,
together with the greater stability of Cateno's (JV responsible for
managing services related to Banco do Brasil's card business)
results, are contributing to the profitability recovery. Merchant
E-Solutions' (MeS) divestiture, in the 1Q22, also had a positive
impact on Cielo's operating margins, as MeS had a small
contribution to the consolidated EBITDA. Fitch's base-case
considers EBITDA margin between 37% and 43% in 2022-2024, compared
with the average of 29% from 2019 to 2021.
Cielo is expected to generate a strong EBITDA of BRL4.5 billion in
2022, including income from acquisition of receivables, and BRL4.8
billion in 2023, compared with BRL3.1 billion generated in 2021, as
per Fitch's calculations. Higher volume of pre-payment products
should contribute to this growth. Fitch expects negative FCF of
BRL3.5 billion for 2022 and positive BRL123 million in 2023, as
Cielo's working capital needs is directly linked to the company's
strategy to finance the acquisition of receivables to merchants.
Base case projections incorporate average annual investments of
BRL800 million and dividends around BRL400 million per year.
Low Risk of Credit Loss: Cielo has no direct credit exposure to
cardholders, as the card-issuing bank guarantees cardholders'
payments, while the company's exposure to merchants is limited. The
company is, however, partially exposed to card-issuing bank
defaults on a payment settlement for Visa and MasterCard
transactions. The risk associated with Visa and MasterCard
transactions is mitigated because more than 95% of the volume of
transactions is concentrated in the five largest Brazilian banks,
Banco do Brasil (BB-/Stable), Banco Bradesco (BB/Stable), Itau
(BB/Stable), Caixa (BB-/Stable), and Santander Brasil (not rated).
For some non-investment-grade banks, Cielo's risk management policy
requires the card-issuing bank to pledge collateral.
Strong Capital Structure: Cielo's net adjusted leverage, measured
by the net debt to adjusted EBITDA ratio, including financial
income derived from the acquisition of receivables from merchants,
should be close to 2.4x in 2022 and to remain between 2.0x and 2.5x
in the next three years. As of Sept. 30, 2022, net adjusted
leverage was 2.5x.
DERIVATION SUMMARY
Cielo is the leading company in Brazil's merchant acquiring and
payment processing industry, with an estimated 31% market share.
The second-largest is Redecard (not rated; controlled by Itau
Unibanco Holding S.A.) with a 26% share, and the third-largest is
GetNet (not rated; controlled by Grupo Santander) with 16%.
Compared with independent players, such as Stone and PagSeguro,
both with 13%, the three leaders have some competitive advantages
due to their controlling shareholders' structure, as their
relationship with leading commercial banks gives them access to a
broad customer base to acquire merchant accounts. As is
characteristic of the industry in Brazil, Cielo and its peers have
no direct credit exposure to cardholders, as the card-issuing bank
guarantees cardholders' payments.
KEY ASSUMPTIONS
- Revenues of Cielo Brasil to remain around BRL6.0 billion in 2022
and BRL7.0 billion in 2023;
- Revenues of Cateno to increase by 29% in 2022 and 6% in 2023;
- Sale of MeS for BRL650 million in 2022;
- Annual investments in the range of BRL800 million;
- Dividends of 35% of net income in 2022 and 2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A positive rating action on Brazil's sovereign ratings that leads
to positive rating actions on Banco do Brasil, Bradesco, Caixa
Economica Federal and Itau.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- An increase in the volume of credit and debit transactions with
banks rated 'BB-' and below without collateral being pledged by the
card-issuing bank or not guaranteed by MasterCard;
- Weakening credit profile of the main banks that operate with
Cielo;
- A significant loss due to fraud and chargebacks;
- Tougher competition leading to a significant loss of market share
and profitability;
- Significant changes in regulatory risk;
- A negative rating action on Brazil's sovereign ratings that leads
to negative rating actions on Banco do Brasil, Bradesco, Caixa
Economica Federal and Itau.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Cielo has strong liquidity and financial
flexibility. As of Sept. 30, 2022, the company reported cash and
marketable securities of BRL3.2 billion (excluding restricted cash)
and total debt was BRL13.9 billion. Cielo has BRL3.8 billion of
debt maturing in the short term, including its bond maturing in
November 2022, and BRL3.4 billion due in the last quarter 2023. The
company concluded the issuance of BRL3 billion local debentures in
September 2022, strengthening its liquidity. Cielo has good
financial flexibility to address upcoming maturities and strong
access to the bank and capital markets.
About 20% of Cielo's total debt as of Sept. 30, 2022 was
denominated in foreign currency. Total debt was composed of private
debentures (24.2%), FIDC (52.9%), bonds (19.7%) and others (3.2%).
ISSUER PROFILE
Cielo is the leading player in the Brazilian card payment industry.
The company is a multi-brand acquirer, who captures, transmits,
processes and settles transactions between large to small merchants
with consumers under international brands such as Mastercard, Visa,
Amex and local brands.
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
----------- ------ -----
Cielo USA Inc.
senior unsecured LT BB Affirmed BB
Cielo S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra)Affirmed AAA(bra)
senior unsecured Natl LT AAA(bra)Affirmed AAA(bra)
INPASA AGROINDUSTRIAL: Fitch Affirms 'BB-' LongTerm IDRs
--------------------------------------------------------
Fitch Ratings has affirmed Inpasa Agroindustrial S.A (Inpasa)
Long-Term Local and Foreign Currency Issuer Default Ratings (IDR)
at 'BB-', and its Long-Term National Scale rating at 'A+(bra)'. The
Rating Outlook is Stable.
The ratings reflect Inpasa's large-scale operations and low
production cash cost in the volatile Brazilian ethanol industry.
The high volatility of Brazil's corn and ethanol prices and the
lack of meaningful short-term price correlation between these two
commodities remain as key considerations.
Inpasa's cash flow generation capacity should improve as the
company increases its crushing capacity and the ratings incorporate
the expectation of negative FCF in 2022 due to expansionary
investments, with a quick recovery in 2023 as the expansion project
starts operations. Inpasa's adequate liquidity and more
concentrated debt amortization profile were also considered in the
analysis.
The Stable Outlook reflects the expectation that net leverage
should reduce to below 1.0x in 2023, supported by higher sales
volume.
KEY RATING DRIVERS
High Price Volatility: Inpasa is exposed to price volatility from
corn, its main raw material, and ethanol, its main output. Corn
prices adjust rapidly to global supply and demand imbalances and
follow parity with Chicago Board of Trade (CBOT) corn prices over
the long run. Brazilian ethanol prices depend largely on local
gasoline price levels, which move in tandem with international oil
prices and the Brazilian FX rate, according to the price policy set
by Petrobras. Ethanol prices are also indirectly influenced by
sugar prices, as near 90% of all Brazilian ethanol produced comes
from sugar cane processors, which typically shift a portion of
production between ethanol and sugar depending on prevailing price
parity with sugar.
Weaker Corn and Ethanol Prices in Short Term: Corn prices in Brazil
are currently at historical highs but are expected to decline in
2023 following an expected reduction in international price levels.
Fitch projects international corn prices of USD6,75 per bushel in
2022 and USD6,00 per bushel in 2023. Hydrous ethanol prices are
currently trading at near BRL2.33/liter, which is 36% lower than
ethanol prices of BRL3.62/liter in April 2022 due to a temporary
reduction of taxes on fuels set by the Brazilian Government that
finishes in the end of 2022. Fitch projects average Brent prices of
USD100/bbl in 2022 and of USD85/bbl in 2023.
Large Scale Corn-Based Ethanol Producer: Inpasa's business model
benefits from its sizable ethanol production capacity. The
company's cash flow generation should improve over the rating
period, as the company increases its crushing capacity to 6.5
million tons and annual ethanol production capacity to 2.9 billion
liters by the end of 2023, making Inpasa Brazil's largest
corn-based ethanol producer.
The new plant in Dourados, State of Mato Grosso do Sul became
operational in May 2022 and added 2 million tons of crushing
capacity and 900 million liters of ethanol volume annually. In
2021, Inpasa completed an investment in Sinop that added 1 million
tons and 470 million liters of corn crushing and ethanol production
capacities, respectively. In 2023, Inpasa will complete the
investments in Nova Mutum plant that will add 1 million tons and
460 million liters corn crushing and ethanol production
capacities.
Competitive Cost Structure: Inpasa is the most efficient corn-based
ethanol producer in the country and its cash cost structure is in
line with some of the most efficient sugar cane producers. The
company produces and sells DDGS and corn oil, the prices of which
tend to correlate with corn prices, providing a natural hedge
against corn price volatility. The expected 55% coverage of corn
costs provided by animal nutrition products from 2022 to 2024 is
high in for industry standards. The average cost of the corn was
around BRL64,00 per bag in 2021, and Fitch estimates it will
increase to around BRL 66,00 per bag in 2022. The company already
fixed all of its expected corn needs until June 2023 at an average
price of BRL67,00 per bag.
Strong Operating Cash Flows: Inpasa is expected to generate EBITDA
of BRL2.3 billion and negative CFFO of BRL283 million in 2022, due
to higher working capital needs, compared with EBITDA of BRL1.5
billion and CFFO of BRL879 million in 2021. In 2023, EBITDA of
BRL4.5 billion and CFFO of BRL2.3 billion are expected due to
higher sales volume. The expectation of lower ethanol prices and
higher corn costs and corn resale activity should reduce EBITDA
margin to 28% in 2022 and 35% in 2023. Fitch expects negative FCF
of BRL1.9 billion in 2022 due to Inpasa expansionary investments,
but positive FCF of BRL1.5 billion in 2023 when new sales volume
kicks in. Base case projection incorporates investments of BRL1.3
billion in 2022 and BRL400 million in 2023, with dividends pay-out
of 25% from 2022 on.
Low Leverage: Fitch expects Inpasa to preserve net leverage at low
levels during its new investment cycle. Inpasa's net debt/EBITDA
should temporarily increase to 1.6x in the end of 2022 and reduce
to below 1.0x in 2023, as volume increase. This compares with 1.1x
in 2021. Initially, the company's growth in Brazil has been largely
financed by the group, with intercompany loans, and short-term bank
debt, but this has been gradually replaced by bank debt as
operating cash flow generation improves. Inpasa reported total debt
of BRL2.5 billion as of June 30, 2022, of which bank debt and
related party loans amounted to BRL2.1 billion and BRL480 million
respectively. The former includes a BRL600 million 4.5-year
syndicated debenture and short-term borrowings secured by corn
inventories.
DERIVATION SUMMARY
Inpasa's IDR's are four notches lower than Raizen S.A. and Raizen
Energia S.A. (together Raizen; BBB/Stable). Inpasa has lower scale;
is more exposed to commodity price risk compared with sugar cane
processors, which rely on a market pricing mechanism that links
sugar cane costs to commodity prices; and has weaker liquidity than
Raizen.
Inpasa's business model is similar to FS Ltda. (FS; BB-/Stable,
National Scale AA-[bra]/Stable) and both companies are low-cost
producers, with capacity to produce ethanol with cash cost
comparable with Jalles Machado S.A. (AA-[bra]/Stable), a cost
benchmark in the industry. Both FS and Inpasa are investing to
build their third plant, and a quick deleveraging capacity is
expected following the startup of the plant. FS's National Scale
rating benefits from its stronger liquidity and more diversified
access to financing compared to Inpasa, while Inpasa is still
challenged to increase its access to both the banking and capital
markets in Brazil.
Inpasa's National Scale Rating is one notch below that of Jalles
Machado (Jalles; National Scale AA-[bra]/Stable). Both companies
are well positioned in the Brazilian food and renewable energy
market landscape in terms of cash costs. Jalles should consume its
currently high liquidity as it advances with its investments plan,
but still its National Scale rating benefits from stronger
liquidity and more diversified access to financing than Inpasa.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Ethanol sales volumes of 2.0 billion liters in 2022 and 2.9
billion liters in 2023 following investments in capacity expansion.
Hydrous ethanol will make up 75% of total ethanol volumes going
forward.
- Sales of animal nutrition products of 1.2 million tons in 2022
and over 1.5 million tons in 2023.
- Ethanol prices to vary in tandem with a combination of oil prices
and the FX rate. Brent crude prices have been forecast to average
USD100/bbl in 2022 and USD85/bbl in 2023.
- Corn prices at BRL66,3/bag in 2022 and BRL68,7/bag in 2023. The
company already fixed all of its expected corn needs until
June/2023 at average price of BRL67/bag.
- Average FX rate at BRL5.20/USD in fiscal 2022 and 2023.
- Animal nutrition products providing more an average 55% coverage
for total corn costs.
- Total investments of BRL1.3 billion in 2022 and BRL400 million in
2023.
- Dividends equivalent of 25% of net profit as from 2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Longer track record in different cycles of ethanol and corn
prices;
- FCF consistently positive, with the maintenance of conservative
capital structure;
- Improved liquidity and positive track record in accessing the
banking and capital markets.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Deterioration in liquidity and/or difficulties refinancing
short-term debt;
- EBITDA margins below 20% on a sustainable basis;
- Net leverage above 3.0x on a sustainable basis.
LIQUIDITY AND DEBT STRUCTURE
Improving Liquidity: Inpasa's liquidity has improved, but the
company will need to increase bankability and access to the capital
markets with long-term credit facilities to finance working capital
and investments on a sustainable basis. As of June 30 2022, Inpasa
reported cash and marketable securities of BRL1.3 billion and total
debt of BRL2.5 billion, of which BRL1.4 billion is due in the short
term.
Corn inventories and offtake contracts with large fuel distributors
reduce refinancing risks and improve financial flexibility;
inventories can be easily monetized and accounts receivables can be
used as collateral under new credit facilities, if required.
ISSUER PROFILE
Inpasa produces corn-based hydrous and anhydrous ethanol, dried
distillers' grains with Solubles for animal nutrition, corn oil and
energy from cogeneration. The company runs three plants with total
capacity to crush 4.5 million tons of corn and produce 2.0 billion
liters of ethanol annually.
ESG CONSIDERATIONS
Inpasa has an ESG Relevance Score of '4' for Governance Structure
due to lack of board independence and effectiveness. Inpasa has no
independent members on the board and one-man risk is present, as
decision making is highly concentrated in the hands of the founder
and main shareholder. The ESG Relevance Score of '4' has a negative
impact on the credit profile, and is relevant to the rating in
conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Inpasa Agroindustrial
S/A LT IDR BB- Affirmed BB-
LC LT IDR BB- Affirmed BB-
Natl LT A+(bra)Affirmed A+(bra)
JBS SA: Foresees Obstacles of Net Zero Emissions Target by 2040
---------------------------------------------------------------
Eric Barker at beefcentral.com reports that the world's largest
meat processor, JBS SA, has highlighted some of the hurdles the
company will need to overcome to reach its environmental target of
"net zero emissions by 2040".
JBS is currently going through the baselining phase of its target,
taking stock of all its emissions across the supply chain,
according to beefcentral.com. The net zero target is different to
carbon neutral and has tight controls on the purchasing of offsets
- the target will include producers selling cattle, the report
notes.
Speaking at the TropAg conference in Brisbane earlier,
sustainability manager Sam Churchill said the company was still
trying to work out how it planned to reach the target, the report
discloses.
"It's kind of like putting a man on the moon, we don't know how we
are going to get there but we need to start the journey and chart
the course," Mr Churchill said, the report relays.
"Most of our full value chain emissions come from the paddock and
most of it is attributable to livestock," the report says.
JBS has made several commitments to help reach the 2040 target,
including:
-- 100 percent renewable electricity by 2040, 60pc by 2030.
-- A $1 billion investment into JBS facilities and a $100
million research and development fund.
-- A 30pc reduction in scope one and two emissions by 2030,
Which includes JBS operations and upstream suppliers.
-- Zero deforestation by 2025.
"The biggest challenge for use with the deforestation target is in
Brazil where the supply chains are incredibly opaque and it is
really hard to track the cattle back to the point of origin," Mr
Churchill said, the report relays.
"But there is a huge amount of work happening in those supply
chains in Brazil and we hope to make some progress there soon."
Like many beef companies looking to make sustainability claims, JBS
will need its suppliers to keep the carbon credits they generate so
they can be claimed against the livestock, the report relays. Mr
Churchill said incentivising producers to keep credits will be a
challenge, the report notes.
"These credits will be worth a lot of money to producers," he
added.
"Whether they are doing soil sequestration, vegetation projects or
feeding supplements to their livestock they will have an
opportunity to sell them outside the supply chain. It is still a
great outcome, because the reductions are real but it is a
challenge for emissions accounting," the report discloses.
Australian Carbon Credit Units are currently hovering around the
$30 mark after almost reaching $60 earlier in the year. While some
hurdles are in front of the market, many are forecasting it to keep
increasing for the next 10 years, the report relays.
Mr. Churchill referred to Microsoft's purchase of soil carbon
credits from farms across New South Wales in 2019 – which meant
the credits could not be claimed by the beef supply chain, the
report relays. He said the company was still trying to work out
how it would incentive producers to keep the credits, the report
notes.
"There is no simple answer at the moment and there is no real
answer as to how it will be handled from a carbon accounting point
of view," he added.
"This is something the industry needs to discuss and work out –
these accounting issues are not trivial."
Rolling Out Feed Additives
JBS has partnered with Dutch company DSM to facilitate the
development of a methane-reducing feed additive called Bovaer, the
report relays.
Mr. Churchill said more work was needed to enable the use of the
supplements on a commercial scale, the report discloses.
"It is great to see the development of the feed additives and it is
something that gives us hear that there is progress and opportunity
being made," he said.
"We really need to address the cost of these supplements because we
need a real incentive for producers to use it," he added.
Using the feed additives in grazing systems has also been flagged
as an issues, with prominent agricultural scientist Richard Eckard
last week telling Beef Central more investment was needed, the
report relays. Mr Churchill said getting the additives into
paddocks was the main priority for JBS, the report relays.
"You think about the animals that are grazing in outback Australia
that don't see people for years. How are we going to get feed
additives into them?," he added.
"Most of the cattle in Australia are in grassfed systems, so if we
need a solution to get it to them," the report notes.
Maintaining Food production
With food production being the main business for JBS, Mr Churchill
said the company was not willing to compromise production to meet
the target, the report relays.
"At the moment, the easiest option for many producers to sequester
carbon is plant trees," he added.
"While that is a good outcome to some degree, at some point it had
a negative trade-off on food production. If Australia sacrifices
food production to plant trees at scale than that food will need to
be produced elsewhere and the environmental consequences could be
significant," the report notes.
Mr. Churchill said the company would like to see measures that
increase carbon sequestration and agricultural production, the
report notes.
"That is the best outcome for the world and we have heard some
great examples with that around soil sequestration," he said, the
report relays.
"I would encourage everybody in the supply chain to take stock of
emissions, understand where they are and look for removals," he
added.
About JBS SA
As reported in the Troubled Company Reporter-Latin America in
August 2021, S&P Global Ratings revised the global scale outlook on
JBS S.A. (JBS) and its fully owned subsidiary JBS USA Lux S.A. (JBS
USA) to positive from stable and affirmed its 'BB+' issuer credit
rating. The recovery expectations remain unchanged, and S&P
affirmed the 'BB+' ratings on the senior unsecured notes and the
'BBB' ratings on the secured term loans.
OI SA: S&P Cuts ICR to 'CCC-' on Rising Risk of Debt Restructuring
------------------------------------------------------------------
S&P Global Ratings lowered its global scale issuer credit rating on
Oi S.A. to 'CCC-' from 'CCC+' and the national scale rating to
'brCCC-' from 'brBB'. S&P also lowered its issue ratings on the
senior unsecured debt to 'CCC-' from 'CCC+' and on the senior
secured debt to 'CCC' from 'B-', with no change in the recovery
ratings.
The negative outlook indicates that S&P could further downgrade Oi
S.A. if the company takes steps toward debt refinancing that it
might consider as potentially distressed.
Even though Oi has concluded its asset sales plan, its credit
metrics are still weak. S&P forecasts adjusted gross debt to EBITDA
above 15x and EBITDA interest coverage below 1x in the next two
years. Its liquidity remains less than adequate, with a cash
position of R$5 billion as of June 2022, expected to fall to about
R$3 billion in the third quarter. S&P also expects relatively weak
cash flow compared with working capital and capital expenditure
(capex) needs, in addition to less access to credit and equity
markets.
Oi announced that it has hired Moelis & Co. to advise in a process
to optimize its capital structure with creditors. Although the
company has no large principal debt maturity until 2025, S&P thinks
there's a high likelihood that the negotiation with creditors could
result in a debt restructuring in the short term.
Oi is currently in an arbitrage process regarding the post-closing
price of its mobile assets, with a potential reduction of about
R$3.2 billion in the sale amount. Even though no formal decision
has been made and the company is objecting to the claims, a
negative outcome would hurt the company's liquidity.
ESG credit indicators: E-2, S-2, G-3
===========================
C A Y M A N I S L A N D S
===========================
SEAGATE HDD: Moody's Lowers CFR & Sr. Unsecured Notes to 'Ba2'
--------------------------------------------------------------
Moody's Investors Service downgraded Seagate HDD Cayman's (Seagate)
Corporate Family Rating and the ratings for its senior unsecured
notes to Ba2, from Ba1, and its Speculative Grade Liquidity rating
to SGL-2, from SGL-1. The ratings outlook is stable. Seagate HDD
Cayman is an indirect subsidiary of Seagate Technology Holdings
plc.
Downgrades:
Issuer: Seagate HDD Cayman
Corporate Family Rating, Downgraded to Ba2 from Ba1
Probability of Default Rating, Downgraded to Ba2-PD from Ba1-PD
Speculative Grade Liquidity Rating, Downgraded to SGL-2 from
SGL-1
Gtd Senior Unsecured Global Notes, Downgraded to Ba2 (LGD4) from
Ba1 (LGD4)
Outlook Actions:
Issuer: Seagate HDD Cayman
Outlook, Remains Stable
RATINGS RATIONALE
The downgrade of the CFR to Ba2 reflects Seagate's aggressive
shareholder capital returns that have left the company with
significantly reduced financial flexibility to weather a steep
cyclical downturn underway. The company's cash balances have
steadily declined and debt has increased since the end of fiscal
year 2019 as a result of its dividends and share repurchases.
Seagate's financial policy targets maintaining a minimum liquidity
of $2 billion, including availability under its $1.75 billion
revolving line of credit. This reflects a financial policy bias
toward large shareholder returns despite the company's deeply
cyclical business and technology risks.
Seagate generated its highest revenues and adjusted operating
income in its fiscal year ended July 1, 2022, benefiting from
robust demand for Hard Disk Drives (HDDs) across its end markets
and a benign pricing environment. However, demand for HDDs is now
declining sharply and Moody's expects Seagate's adjusted operating
income to fall 60% to 70% in FY '23, driven by revenue declines and
an erosion in operating margins. Moody's expects Seagate's total
debt to EBITDA to approach or exceed 5x (Moody's adjusted) by the
end of FY '23, and negative free cash flow (after dividends) in FY
'23. Moody's base case scenario assumes that growth in
year-over-year operating income will resume in the first half of
Seagate's FY '24, although heightened macroeconomic uncertainties
increase downside risks for a weaker-than-expected demand recovery.
Furthermore, US Department of Commerce has alleged that Seagate
violated certain U.S. export regulations. Seagate believes that it
has not engaged in prohibited conduct but the company's liquidity
could be materially impacted if the US Department of Commerce
prevails in its allegations. The company has completed an amendment
to its credit agreement that will allow it greater operating
cushion under its total debt to EBITDA financial covenant as
profitability will weaken substantially over the next few quarters.
Seagate intends to maintain its common dividends but it has paused
share repurchases after consummating approximately $1.8 billion of
share repurchases in the LTM F1Q '23 period.
Moody's downgraded Seagate's Speculative Grade Liquidity rating to
SGL-2, from SGL-1, reflecting Seagate's declining cash balances
($761 million at F1Q '23), and Moody's expectations for negative
free cash flow in the current fiscal year. The SGL-2 Speculative
Grade Liquidity rating reflects Moody's expectation that Seagate
will maintain good liquidity primarily supported by partial
availability under its $1.75 billion of revolving credit facility
and cash balances. Seagate's revolving credit facility was undrawn
at F1Q '23. The company has approximately $608 million of debt
maturities (including term loan amortization) over the next 12
months. The company has additional financial flexibility from an
unsecured capital structure.
The Ba2 CFR is supported by Seagate's good operating scale and its
strong market position as one of the two suppliers of high-capacity
HDDs. Hard Disk Drivers are the primary, cost-effective storage
solutions for the fast-growing cloud segment as well as
applications that have data storage requirements, such as video and
imaging use cases. But the company has high business risks from its
revenue concentration in the HDD product category, ongoing
substitution risks from flash memory in legacy end markets that
still account for a meaningful share of its revenues, and sustained
pricing pressure that it needs to offset through technology
innovation and growth in capacity shipments. Product cycles are
short and execution risk in managing technology transitions with
increasingly complex storage technologies is high. Moody's expects
that strong long-term demand for HDDs from the hyperscale cloud
providers will more than offset declining demand for HDDs in
Seagate's legacy markets. However, growing revenue concentration in
the hyperscale cloud end market and customers within that market
could increase revenue variability. The rating is primarily
constrained by Seagate's shareholder-friendly financial policies
that have reduced the company's flexibility to manage cyclical
downturns that are endemic in the industry due to ample capacity to
supply and abrupt shifts in demand.
Seagate's senior unsecured notes are rated Ba2, the same as CFR, as
the entire debt capital structure consists of unsecured debt.
Seagate's debt obligations are guaranteed by the intermediate
holding company, Seagate Technology Unlimited Company (formerly
known as Seagate Technology plc), but not by material operating
subsidiaries of the borrower. The ratings for senior unsecured
notes are susceptible to downward ratings pressure if meaningful
amounts of senior secured debt are added to the capital structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Seagate's ratings are unlikely to be upgraded over the next 12 to
18 months given its shareholder-friendly financial policies,
elevated financial leverage, and high business risks. Over time,
the ratings could be upgraded if the company commits to and
establishes a track record of conservative financial policies such
that Moody's expects Seagate will sustain average total debt to
EBITDA (Moody's adjusted) below 3.5x through industry cycles, it
generates sustained growth in profits with lower revenue
volatility, and it meaningfully strengthens its cash position
considering its investment requirements and industry cyclicality.
Conversely, the ratings could be downgraded if execution or
competitive challenges, a protracted cyclical downturn, or elevated
shareholder returns result in total debt to EBITDA above 4.5x or
free cash flow below the high single digit percentages of total
debt for an extended period of time, or liquidity erodes.
Seagate Technology Holdings plc is a leading provider of data
storage solutions.
The principal methodology used in these ratings was Diversified
Technology published in February 2022.
=========
C H I L E
=========
VTR FINANCE: Fitch Lowers LongTerm IDRs to 'B', On Watch Negative
-----------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Local Currency and
Foreign Currency Issuer Default Ratings (IDRs) of VTR Finance N.V.
to 'B' from 'BB-'. Fitch has also downgraded VTR Finance's senior
secured USD550 million notes due in 2028 to 'B-'/'RR5' from
'BB'/'RR3' as well as VTR Comunicaciones SpA revolving credit
facilities (RCF), senior secured notes of USD480 million (2028) and
senior secured notes for USD410 million (2029) to 'B+'/'RR3' from
'BB+'/'RR2'. In conjunction with these moves, Fitch has placed all
of the rating on Rating Watch Negative (RWN).
The downgrades reflect the continued deterioration of VTR's fixed
business and the weak operating performance of Claro Chile that
have resulted in higher forecasted leverage metrics for the
combined entities for 2023 than previously projected. They
incorporate the limited prospects of deleveraging given intense
competition in Chile.
The RWN reflects a high degree of uncertainty surrounding the
financial strategy of the joint venture (JV) and its final
organizational structure. The RWN and the downgrades reflect our
assumption that the servicing of VTR's debt will be primarily, if
not exclusively, through cash flow generated by VTR's operations
and that the shareholders of VTR and Claro Chile will not inject
equity into the JV to strengthen the overall capital structure and
liquidity position of the JV. The RWN is expected to be resolved
once the finance strategy and legal structure is determined; this
could take more than six months to resolve.
KEY RATING DRIVERS
High Leverage: Fitch expects VTR's net leverage to increase to 11x
in YE 2022 before declining in the medium term based upon
expectations of a slow recovery of operational performance. Fitch
forecasts a Net leverage of VTR /Claro Chile combined operations at
around 7.5x in 2023, which is substantially higher than Fitch
previous expectations and when compared with negative sensitivities
for the rating. These forecasts are based on combined net debt of
around CLP1.6 billion in 2023, and EBITDA of around CLP 200 billion
(19% EBITDA Margin).
Given the high investment needs for 5G and fiber broadband
development in the midst of intense competition, the deleveraging
capacity of the JV over the next two-three years will not only
depend upon attaining merger synergies, but will likely require
extraordinary shareholder measures.
Weak Operating Performance: VTR has not been able to halt the loss
of clients and the deterioration of its EBITDA margin. The
company's broadband subscribers declined to less than 1.2 million
from 1.3 million since the start of the pandemic, while its ARPUs
declined more than 13% due to pressure related to aggressive offers
by Movistar and Mundo Pacifico. As a result of the aforementioned
factors, VTR's EBITDA margin has declined to 27% for the LTM ended
June 30, 2022 from 40% in 2019, while its EBITDA has declined to a
forecasted CLP100 billion in 2023 from CLP260 billion before the
pandemic.
Claro Chile's operations have been equally impacted, as its
quarterly ARPUs declined to less than CLP3,500 in 3Q22 from more
than CLP5,500 before the start of the pandemic and its EBITDA
margins dropped to 15% as of 3Q22 from 22% in 2020. Fitch expects
Claro Chile's EBITDA will continue to weaken in the near term from
the CLP120 billion reported as of the LTM ended Sept. 30, 2022, due
to the increasingly competitive mobile market.
Investments Pressure FCF: Fitch forecasts negative FCF generation
for the combined operations of VTR/Claro Chile between 2023 and
2025. This is driven by high capex requirements of the JV in order
to improve the quality of its services and network competitiveness;
the focus will be related to Fiber and 5G development, as the
company seeks to maintain healthy organic growth in terms of
subscribers in the medium term.
Shareholder Alignment: Uncertainty around the business strategy and
capital structure that the JV shareholders will pursue in the
medium term is a key credit concern. The merged entity will be 50%
owned by Liberty Latin America Group (LLA) and 50% by America Movil
S.A.B de C.V (A-). Both are large telecom operators Latin America,
but have differences in their business model and capital
structures. LLA has a higher appetite for leverage and independent
management of each affiliate, with movements of cash around the
group for investments and acquisitions. AMX has a strong credit
profile due to its solid business position in most markets in Latin
America and the low level of leverage it has operated with
historically.
Capturing Synergies is Key: The performance of the JV will be
closely dependent on the execution of its business strategy and the
ability to materialize synergies, estimated by shareholders at
around USD140 million within the first three years post completion,
mostly related to cost savings from the combination. An additional
USD40 million would be captured beyond that timeframe.
Fitch believes cost savings will be mainly related to reducing
commercial costs, programming costs, personnel and roaming, among
others. However, the company faces meaningful challenges to
translate synergies into EBITDA margin recovery, considering the
intense competition in the market, and expected ARPU pressure.
Strong Market Position and Diversification Path: The combined
operations of VTR/Claro Chile will enhance the companies' market
position and product diversification. In a proforma based upon
information provided by Subtel as of June 2022, the combined
operations will have the leading position in fixed broad band with
a 37% market share in terms of subscribers and will have a 40%
market share in Pay TV, which is a relatively similar position to
that of the main player of the industry, the incumbent competitor,
Telefonica Chile S.A. (BBB+/Stable). In the mobile business, the
combined operations will consolidate as the third and fourth
largest provider of voice and mobile broad band, with shares of 22%
and 19%, respectively, with about six million of subscribers.
VTR Finance N.V. has an ESG Relevance Score of '4' for Financial
Transparency due to the company's relatively opaque financial
disclosure and management strategy, which has a negative impact on
the credit profile, and is relevant to the ratings 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. For more information on Fitch's ESG
Relevance Scores, visitwww.fitchratings.com/esg.
DERIVATION SUMMARY
VTR's competitive position compare favorably with other
speculative-grade telecoms in the region, considering the strong
company's diversification after the closing of combined operations
with Claro Chile. In spite of that, the deterioration in VTR's
operational performance in last periods has become its financial
profile as one of the most leveraged in the region.
Compared with sister company Cable & Wireless, VTR combined
operation benefits from the Chilean operating environment and its
status as first player in fixed broadband service and the largest
pay TV operator by subscriber share. Cable & Wireless strong scale,
better service and geographical diversification than VTR. Following
the AT&T acquisition, LCPR's scale is more than twice that of
VTR's, and with greater product diversification.
VTR has a similar fixed-line operating profile to Telefonica Chile
(BBB+/Negative), although Telefonica Chile benefits from leverage
metrics around 2.0x-2.5x lower than VTR's. Considering the combined
business with Claro Chile, new JV VTR/Claro Chile reach a very
similar scale and diversification provided by its parent Telefonica
Moviles Chile S.A. (BBB+).
Compared with WOM Mobile S.A. (WOM; BB-/Stable), VTR combined
operation has better diversification and scale, and similar EBITDA
margin. WOM's ratings reflect the company's short but solid track
record in Chile, taking on much larger competitors. WOM's ratings,
like VTR's, incorporate Fitch's expectations that the company will
be managed to moderately high levels of net leverage.
When compared to Millicom International Cellular S.A.'s
(BB+/Stable) subsidiaries, Comcel (CT Trust; BB+/Stable) and
Telefonica Celular del Paraguay (Telecel; BB+/Stable), VTR has is
less diversified and operates in a more competitive market, but in
a stronger operating environment. Comcel and Telecel have more
dominant market positions and significantly lower net leverage at
around 3x and 2x, respectively. Millicom's consolidated net
leverage, at about 3x, is lower than LLA's leverage of around 5x.
Comcel's and Telecel's ratings reflect a strong linkage with their
parent as Millicom heavily relies on these two wholly-owned
subsidiaries' dividend upstream to service its debt.
KEY ASSUMPTIONS
- Start of the Combined operations VTR /Claro Chile in 2023;
- Consider 30% of the projected synergies for 2025;
- Claro Chile added, around seven million of mobile customers, and
1.2 million of Fixed Business. Reduction in revenues due to
elimination of DTH Service;
- Slow recovery on internet subscribers;
- Revenue reduction of 13% in 2022 and slightly negative to neutral
the following years;
- Combined EBITDA margins of around 20%;
- Capex in a range of 22% to 18% in 2022-2024 period.
Key Recovery Rating Assumptions
Fitch Criteria consider bespoke recovery analysis for Issuers with
IDR of 'B+' and below. The bespoke recovery analysis assumes that
VTR would be considered a going concern in bankruptcy and that the
company would be reorganized rather than liquidated.
Going-Concern Approach: VTR's going-concern EBITDA of CLP130
billion is based on Fitch's expectation of a sustainable,
post-reorganization EBITDA level. This compares with an LTM EBITDA
of CLP150 billion and reflects the intense competition in the
Chilean market. The EV/EBITDA multiple applied is 5.0x; this figure
reflects VTR's sold market position.
Fitch applies a waterfall analysis to the post-default enterprise
value (EV) based on the relative claims of the debt in the capital
structure. The agency's debt waterfall assumptions consider the
company's total debt at June 30, 2022. These assumptions result in
a recovery rate for the secured bonds and RCF of VTR Comunicaciones
(Opco affiliate) within the 'RR3' range, which, per Fitch's
criteria, leads to a one notch uplift to the IDR (B). For
structural subordination, the result of recovery analysis of VTR
Finance Senior secured debt of USD550 million is a 'RR5', which is
one notch below the IDR, resulting in 'B-' rating. Fitch has
applied concession allocation payments to VTR Finance debts.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Stabilization of subscriber base and EBITDA margin in the flowing
12 months-18 months, and the ability of JV Combined operation to
reach relevant synergies;
- Shareholder supports oriented to strength the financial
flexibility and reduce the leverage;
- Maintain a strong liquidity position;
--Positive rating actions are possible to the extent that net debt
to EBITDA sustained below 5.0x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade;
- The inability to halt the client losses and stabilize its EBITDA
margin;
- Relevant Deterioration in cash position;
- Lack of evidence to return to net debt/EBITDA ratios below 6.0x,
in a sustained basis, at VTR.
LIQUIDITY AND DEBT STRUCTURE
Pressure on Liquidity but Comfortable Debt Schedule: VTR does not
face any debt maturities until 2028 (senior secured notes of USD550
million and USD480 million). The issuance of USD410 million (due in
2029) was used to refinance CLP174 million (USD240 million) of term
loan and prepay 20% (USD120 million) of VTR Comunicaciones SpA's
outstanding 2028 notes.
Despite this schedule, the financial flexibility of VTR shows a
relevant decrease in the last quarters, due to the reduction in FCF
generation explained by the deterioration in operational
performance. The company's cash balance amounted to CLP62 billion
by the end of June 2022, which represent 89% the short-term debt of
CLP70. Liquidity is further supported by VTR's access to committed
credit facilities, which as of June 2022 are completely undrawn.
ISSUER PROFILE
VTR is a relevant Telecom operator in Chilean Market. With around
2.8 million RGUs (1.2 million of internet, 1.0 million of pay TV
and 0.5 million fixed telephony), the company is the second largest
provider of fixed internet services (with 28% market share),
closely following the leader, Telefónica Group (29%), and the
largest provider of multi-channel video services with a 30% market
share. The company offers its services through HFC (Hybrid Fiber
Coaxial) network developed in Santiago and in the main Chilean
cities.
ESG CONSIDERATIONS
VTR Finance N.V. has an ESG Relevance Score of '4' for Financial
Transparency due to {DESCRIPTION OF ISSUE/RATIONALE}, which has a
negative impact on the credit profile, and is relevant to the
rating[s] 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/Debt Rating Recovery Prior
----------- ------ -------- -----
VTR Comunicaciones SpA
senior secured LT B+ Downgrade RR3 BB+
VTR Finance N.V.
LT IDR B Downgrade BB-
LC LT IDR B Downgrade BB-
senior secured LT B- Downgrade RR5 BB
===========
G U Y A N A
===========
GUYANA: To Open Bidding for 14 New Offshore Blocks
--------------------------------------------------
Jamaica Observer reports that the Government of Guyana, via its
Ministry of Natural Resources, is planning the auction off 14 oil
blocks in the nation's first-ever competitive offshore oil and gas
sale. Royalty required of investors will be higher, this time
around, according to Jamaica Observer.
Previously, blocks were sold to a consortium led by Exxon Mobil
which to date has been responsible for all output in Guyana, since
the Stabroek block began producing in 2019, the report notes.
It is indicated that qualified and local companies with a proven
track record of technical, financial, health and safety, and
environmental capabilities can bid, the agency said, the report
relays.
Bidders will be assessed based on their guaranteed work programs
which will be weighed with the offered signing bonus, the report
discloses. Local content commitments will also be fully examined,
the report notes.
On offer are 14 oil blocks in the nation's first-ever competitive
offshore oil and gas licensing round, the report relays.
The auction will be done under new fiscal terms that will guide
future offshore investments should projects reach production stage,
the Government said in a release on November 4, the report
relates.
The blocks range in acreage from 1,000 sq km to 3,000 sq km. Eleven
are in shallow water, while the remaining three are in ultra-deep
water, the report discloses. Oil companies participating in the
upcoming auction will be required to pay a minimum signing bonus of
US$10 million for shallow blocks while deep-water blocks carry a
signing bonus of US$20 million, the report says.
As part of this new model agreement, the royalty has been increased
to 10 per cent from the two per cent granted to Stabroek block, the
report says.
The current 75 per cent cost recovery ceiling has been lowered to
65 per cent, the report relays. Profit sharing after cost recovery
remains the currently applied 50-50 system between the contractor
and the Government of Guyana, the report notes. These new terms
have doubled Guyana's share to 27.5 per cent from 14.5 per cent,
plus the newly introduced 10 per cent corporate tax, the report
discloses.
There will be no restrictions on how many bids a company may
submit, however, each successful bidder will be limited to an award
of three blocks, the report notes.
The ministry notes that to facilitate the auction, the Government
of Guyana will make amendments to the Petroleum (Exploration and
Production) Act 1986 to reflect, where necessary, fiscal changes
identified for this national bid round and all future operations,
the report says. The licensing round process is expected to last
for five months and should be concluded by the end of first quarter
2023, the report relays.
Guyana's earnings from oil have already surpassed US$1 billion, the
report says. To date, it is projected that deposits into the
National Resources Fund for 2022 will total US$957.6 million,
comprising some US$857.1 million earned from the Government lifts
of profit oil, and an additional US$100.5 million from royalties,
the report relays.
About 10 billion barrels of recoverable oil resources have been
found in the Stabroek block, the report adds.
=============
J A M A I C A
=============
CIBONEY GROUP: Finsac Processing Bids for Firm
----------------------------------------------
Jamaica Observer reports that Finsac (Financial Sector Adjustment
Company) Limited - the entity set up by the Government in 1997 to
address the liquidity and solvency crisis which existed in the
financial sector in the early 1990s - is processing bids for its
72.1411 per cent stake in Ciboney Group Limited which needs an
injection of cash to avoid being delisted from the Jamaica Stock
Exchange (JSE).
Finsac made its latest attempt to dispose of its stake in the
former tourism company when it put out an advertisement in October
2021, according to Jamaica Observer. Finsac had selected a
preferred bidder and was finalising the decision in early June by
way of relevant approvals as per government policy, the report
relays. However, the preferred bidder withdrew its bid at the end
of June which left the company seeking a new buyer for the shares,
the report notes, the report discloses.
"We really cannot speak on behalf of the majority shareholders, but
based on the unique see that I have, I'm aware that the majority
shareholders have received offers and that has been the case for a
little while. They are doing the necessary due diligence process.
So, it will take some time for any final, firm decision to be made,
one way or the other," said Ciboney Chairman Errol Campbell at the
company's virtual annual general meeting (AGM) held with board
members present in person at the Ministry of Finance, the report
discloses.
A ministerial paper, which was tabled in the House of
Representatives and released on Friday, September 9, indicated that
the company carries shareholder's net deficit of $2.7 million on
balance sheet, which has therefore placed the entity in breach of
JSE rules and put the company in danger of being delisted, the
report discloses.
Ciboney's cash position stood at $1.02 million at the end of its
first quarter (June to August) with the company's income tax
recoverable of $2.63 million as its other asset, the report
discloses. Campbell confirmed that Ciboney paid its payable of
$700,000 owed to its auditor KPMG subsequent to the first quarter,
the report says.
The company paid no director fees in its 2022 financial year and
only paid $300,000 as consultancy fees to Sonado Limited for Q1
2021, the report notes. Sonado Limited is connected to former
Executive Director Geoffrey Messado and Jennifer Messado, the
report relays.
The company's share price of $0.60 gives it a market capitalisation
of $327.45 million, the report relays. Ciboney's second quarter
ends this month with the results due by January 14, the report
discloses. However, based on the company's market cap, it will be
required to pay an annual listing fee of $934,920 which becomes due
on January 1, the report relays.
When asked what's expected to happen to the company if it runs out
of cash, Campbell said, "As we have said repeatedly as the company
here, the majority shareholders are looking to sell their shares
and we expect that at some point when it is done, additional cash
will be injected into the company. So, these matters will be
addressed in that way. If that is done, then the matter of
delisting won't come into effect at all because the new majority
shareholder would then look at injecting cash," the report relays.
Campbell told the Jamaica Observer in September that he would be
seeking legal advice as to the way forward, the report notes.
All resolutions at the meeting were approved including the
appointment of new auditors Crichton Mullings & Associates after
KPMG did not seek reappointment which delayed the AGM from its
original October 14 date, the report discloses. KPMG was
represented by Zaphnian Edwards-Newman at the AGM, the report says.
JSE Chief Regulatory Officer Andrae Tulloch was present in the
meeting after attending the 2021 AGM, the report relays.
A reverse takeover of a similarly distressed company occurred this
year where SSL Venture Capital Limited was taken over by MFS
Acquisition Limited, the report discloses. SSL Capital has since
been renamed MFS Capital Partners and executed a receivables
financing transaction in its first quarter after being acquired,
the report relays. This was facilitated by due to related party
arrangement which resulted in it getting a net amount of $28.22
million, the report relays. MFS Capital also executed two
memorandums of understanding to complete two strategic acquisitions
recently, the report notes.
Campbell indicated that five bids were received from the original
October advertisement and that the preferred bidder gave no reason
for withdrawing their bid except that the letter indicated that
they no longer had further interest in acquiring Finsac's stake,
the report says. Finsac controls Trumpton Limited, Crown Eagle
Life Insurance Company Limited and Crown Eagle Merchant Bank of
Jamaica Limited, the report discloses. Errol Campbell and
Tricia-Grant Mitchell were listed as the proxies by Finsac and the
other shareholders for the AGM. Five proxies were received with
about eight shareholders joining virtually, the report relays.
"The bottom line is the majority shareholders are looking to sell
their shares and as when that happens, then the new majority
shareholder will start some trading activity within the company,"
Campbell added.
Based in Kingston, Jamaica, Ciboney Group Limited was involved in
the acquisition, development, and letting of resort properties.
Ciboney Group Limited is a subsidiary of Crown Eagle Life
Insurance Company Limited.
* * *
As reported in the Troubled Company Reporter-Latin America in
January 2019, RJR News reports that listed company Ciboney Group
continues to operate in the red. It suffered a J$2.3 million loss
during the six months to November 2018, according to RJR News. In
the previous year, it reported a J$2.5 million loss.
[*] JAMAICA: Will Look at Ways to Improve Efficiency at Ports
-------------------------------------------------------------
RJR News reports that Finance Minister Dr. Nigel Clarke has
responded to concerns regarding increases in the time for
processing shipments coming into the country's container ports.
Responding to queries raised by Opposition Spokesman on Commerce
Anthony Hylton, Dr. Clarke said the government will have to look at
strategies to improve efficiency at the ports, according to RJR
News.
"We have a lot of activity at our ports and we're going to have to
make adjustments so that the additional volume can be accommodated.
But one compromise that we cannot make is on the security side," he
explained, the report notes.
"The security procedures have to be followed and maintained, and we
have to support the Customs administration, as far as that is
concerned. But we will, at the same time, need to introduce
measures that can alleviate some of the congestion," he added.
President of the Jamaica Society of Customs Brokers, Junior Waugh,
lamented the increased processing time at the ports to clear
containers, the report relays.
Mr. Waugh said shipments for Christmas could be delayed, the report
relays.
Despite requests for interviews, the Jamaica Customs Agency has
declined to comment on the matter, the report discloses.
Radio Jamaica News was directed to a press release dated September
22, which says Jamaica Customs "has increased its vigilance and
process controls at the various ports of entry, which may impact
the turnaround time for clearances," the report adds.
As reported in the Troubled Company Reporter-Latin America in March
2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
===========
M E X I C O
===========
GRUPO AEROMEXICO: S&P Affirm 'B-' ICR & Alters Outlook to Stable
----------------------------------------------------------------
S&P Global Ratings revised its outlook on Mexico's leading airline,
Grupo Aeromexico S.A.B. de C.V. (Aeromexico), to stable from
developing. S&P also affirmed its 'B-' global scale issuer credit
rating on Aeromexico.
S&P said, "At the same time, we also affirmed our 'B' issue-level
rating on the company's 8.5% senior secured notes due 2027, one
notch above the issuer credit rating, with a recovery rating of '2'
reflecting our expectation for substantial recovery (70%-90%;
rounded estimate: 75%) in the event of a payment default.
"The stable outlook reflects our view that Aeromexico will continue
to execute operational strategies to minimize the negative effects
of fuel price volatility, while maintaining growth in its number of
routes and frequencies in line with passenger traffic recovery.
This will allow the company to strengthen its profitability margins
in the next 12 months to above 15.0% and post funds from operations
(FFO) to debt of 12.0%.
"We previously thought that Aeromexico could deviate from our
base-case scenario given the accelerated growth in fuel prices, as
well as a potential delay in passenger traffic recovery in 2022.
However, so far this year, Aeromexico's passengers carried grew
33.0% to 15.6 million (versus 11.7 million in the first three
quarters of 2021) due to higher demand for transportation during
vacation seasons as COVID-19-related measures were relaxed in
Mexico. On the other hand, as we expected, fuel costs to available
seat kilometers (ASK) increased 75.6% in the first nine months of
2022 (versus the same period in 2021) due to higher crude oil
prices and the airline's inability to hedge its usual 50.0% of
total fuel consumption like in previous years, given its Chapter 11
proceedings and hedging costs. The company managed to maintain an
adjusted EBITDA margin of 18.5% so far this year as of Sept. 30,
2022 (versus 8.0% during the same period in 2021) based on its
strategy to pass through fuel price increases to passengers in
ticket fares.
"Based on the increased EBITDA generation, the airline's leverage
metrics have been improving, approaching our base-case scenario
assumption for year-end 2022. As of Sept. 30, 2022, FFO to debt was
5.4x and FFO interest coverage 1.4x, compared to negative 4.2x and
0.6x as of Dec. 31, 2021. Although the company's metrics for the
nine months up to Sept. 30, 2022, have significantly recovered in
line with the industry recovery, we will continue to monitor any
ticket price increases to mitigate the negative effects of fuel
price volatility, as well as Aeromexico's ability to hedge its fuel
consumption in the next 12 months."
The Mexican antitrust authority approved the PLM transaction on
June 16, 2022, and as of July 15, 2022, PLM is now a wholly owned
subsidiary of Aeromexico. S&P said, "In our opinion, this
transaction supports the company's intention to increase its market
share of loyalty programs to grow its customer base, accelerate
redemptions, and result in higher revenues. In addition, PLM
continues to be part of Aeromexico's collateral on its 8.5% senior
secured notes due 2027. In hypothetically adverse conditions in
which the company would face a default on its financial
obligations, we assume about a 75% recovery from all its assets and
collateral that will be used to meet its first-lien financial
obligations."
ESG credit indicators: E-3, S-5, G-2
S&P said, "Environmental factors are a moderately negative
consideration in our credit rating analysis of Aeromexico, given
the industry's long-term risk from tighter greenhouse gas emissions
regulations. But we don't view this as a material disadvantage,
given Aeromexico's shift to newer aircraft models. Social factors
are a very negative consideration in our credit rating analysis
because the company filed for bankruptcy proceedings in 2020,
stemming from a 54% plunge in passenger traffic during the
pandemic, limiting its ability to meet its financial obligations.
Governance factors are neutral to our credit analysis because we
view management's expertise and experience as extensive."
=====================
P U E R T O R I C O
=====================
PUERTO RICO: Judge Warns Board as PREPA Debt Plan Deadline Nears
----------------------------------------------------------------
John Nancarrow and Michelle Kaske of Bloomberg News report that a
judge overseeing the five-year bankruptcy case for Puerto Rico's
main power utility is pressuring island officials to come up with a
debt-cutting plan by Dec. 1, saying she aims to complete the
workout by June.
US District Court Judge Laura Taylor Swain on Wednesday, November
2, 2022, warned Puerto Rico's financial oversight board, which is
managing the bankruptcy, that if it fails to submit a confirmable
debt proposal by Dec. 1, 2022 her response could be far-reaching.
The warning is a signal that she may be prepared to dismiss the
case altogether.
As reported in the TCR in early October 2022, US District Court
Judge Laura Taylor Swain approved a request by the island's
Congressionally appointed oversight board to litigate how much of
the power utility's revenue bondholders are entitled to. She also
decided that court-ordered mediation should continue and set the
Dec. 1, 2022 deadline for a new plan to reduce
$9 billion of Puerto Rico Electric Power Authority debt.
The Financial Oversight and Management Board for Puerto Rico
announced Sept. 16, 2022, that it has reached an impasse in
mediations with bondholders over the restructuring of PREPA's debt
and filed a required schedule with the U.S. District Court for the
District of Puerto Rico to resume litigation against PREPA
bondholders.
The Oversight Board filed its proposed litigation schedule in
compliance with a prior court order requiring it to file, among
other options, an expedited litigation schedule for various
disputes with PREPA's creditors. The Oversight Board also
encouraged further mediation and negotiations with all parties as
the litigation progresses.
The litigation will focus on whether the bondholders' security
interest securing their bond claims is limited to the money PREPA
deposits in accounts the bond trustee created pursuant to the trust
agreement governing the issuance of the bonds. The trust agreement
requires PREPA to deposit money into these accounts only after
PREPA pays its operating expenses. The Oversight Board asserts the
trust agreement limits the bondholders' security interest to monies
in this fund, and that bondholders have no claim against PREPA that
is not satisfied by the money currently in the fund.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and to chair a committee to review professionals' fees.
* * *
Title III plans of adjustment have been confirmed for the
Commonwealth and COFINA debtors.
===============
X X X X X X X X
===============
[*] BOND PRICING: For the Week Nov. 7 to Nov. 11, 2022
------------------------------------------------------
Issuer Name Cpn Price Maturity Country Curr
----------- --- ----- -------- ------- ---
Noble Holding Internat 6.2 62.2 8/1/2040 KY USD
Provincia del Chaco Ar 4.0 0.0 12/4/2026 AR USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
Avadel Finance Cayman 4.5 55.0 2/1/2023 US USD
Provincia de Cordoba 7.1 74.7 8/1/2027 AR USD
Sylph Ltd 2.4 65.1 9/25/2036 KY USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Argentina Bonar Bonds 7.6 74.4 4/18/2037 AR USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
Provincia de Rio Negro 7.8 70.4 12/7/2025 AR USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Argentine Republic Gov 6.3 74.1 11/9/2047 AR EUR
Fospar S/A 6.5 1.2 5/15/2026 BR BRL
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Noble Holding Internat 5.3 60.5 3/15/2042 KY USD
Metrogas SA/Chile 6.0 41.6 8/1/2024 CL CLP
Argentine Republic Gov 4.3 70.0 12/31/2033 AR JPY
Provincia de Cordoba 7.1 72.7 8/1/2027 AR USD
Argentina Bonar Bonds 5.8 75.2 4/18/2025 AR USD
Esval SA 3.5 49.9 2/15/2026 CL CLP
Noble Holding Internat 6.1 62.0 3/1/2041 KY USD
City of Cordoba Argent 7.9 73.1 9/29/2024 AR USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Argentine Republic Gov 7.1 75.7 6/28/2117 AR USD
AES Tiete Energia SA 6.8 1.2 4/15/2024 BR BRL
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Cia Latinoamericana de 9.5 73.9 7/20/2023 AR USD
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Provincia de Buenos Ai 7.9 75.3 6/15/2027 AR USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
Cia Latinoamericana de 9.5 74.3 7/20/2023 AR USD
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
Argentine Republic Gov 0.5 27.6 12/31/2038 AR JPY
Argentine Republic Gov 6.9 75.2 1/11/2048 AR USD
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
Provincia del Chubut A 4.5 2208 3/30/2021 AR USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Provincia del Chaco Ar 9.4 74.8 8/18/2024 AR USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
*********
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.
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