/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/221122.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Tuesday, November 22, 2022, Vol. 23, No. 227 Headlines A R G E N T I N A ARGENTINA: Prices Have Risen by 88% Over Last 12Mos, INDEC Says B E L I Z E BELIZE: IDB OKs $10M Loan to Promote Digital Innovation B R A Z I L BRAZIL: Ceiling-breaking PEC Should Raise Public Debt BRAZIL: Investors No Longer Sure of Economy's Safety Under New Pres BRAZIL: Pres Defends Agribusiness Committed to the Environment MERCADOLIBRE INC: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable C H I L E INVERSIONES LATIN: Fitch Cuts $403.9M Sr. Sec. Notes Rating to BB- C O L O M B I A ECOPETROL SA: Fitch Affirms LongTerm IDRs at 'BB+', Outlook Stable M E X I C O BANCO DEL BAJIO: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable MEXICO: Continues to Qualify for Flexible Credit Line, IMF Affirms P E R U NAUTILUS INKIA: S&P Affirms 'BB' ICR, Outlook Stable PERU: Economy Grows by 1.66% in September, Slight Dip from August P U E R T O R I C O CEDIPROF INC: Seeks Chapter 11 Bankruptcy Protection X X X X X X X X [*] Simpson Thacher Elevates 36 Attorneys to Partner - - - - - ================= A R G E N T I N A ================= ARGENTINA: Prices Have Risen by 88% Over Last 12Mos, INDEC Says --------------------------------------------------------------- Buenos Aires Times reports that inflation in October reached 6.3 percent and prices in Argentina have risen by 88 percent over the last 12 months, the INDEC national statistics bureau announced. The data means that the cost of living has increased 76.6 percent since the turn of the year, with the country's annual 2022 inflation rate now very likely to enter into the triple digits, according to Buenos Aires Times. At 88 percent over the last 12 months, inflation is now at its highest since November, 1991, a C&T Consultores survey found, the report notes. According to the most recent Central Bank survey of market analysts and economists, Argentina will close out the year with an inflation rate surpassing 100 percent, with price increases of 96 percent to follow in 2023, the report relays. The same poll projected an October inflation rate of 6.5 percent, meaning the official figure slightly undershot expectations, the report discloses. Argentina continues to struggle with runaway price hikes, which are eating away at the purchasing-power of citizens, the report notes. In October, communications rose a whopping 12.1 percent according to INDEC, mainly due to previously delayed increases in telephone and Internet services, the report relays. The second largest hikes were recorded in housing, water, electricity, gas and other fuels (7.5 percent), also led by government-approved hikes in electricity and gas services, the report says. Domestic appliances and maintenance (up 4.9 percent), healthcare (up 7.1 percent) and transport (4.5 percent) also pushed the cost of living to soar last month, the report discloses. One of the government's primary focuses, food and non-alcoholic beverages, saw large seasonal increases in all regions of the country, notably in fruits, the report relays. The foodstuffs rising the most was potatoes and sweet potatoes, at 57 percent and 48 percent respectively, the report relays. The prices of alcoholic beverages and tobacco rose by 5.4 percent in October compared to the previous month, the report notes. Price hikes in Buenos Aires City for October were seven percent, with Greater Buenos Aires and Patagonia registering increases of 6.6 percent, the report discloses. The cost of living in Argentina is once again out of control, despite the implementation of multiple price control schemes with large companies over the last three years of President Alberto Fernandez's administration, the report says. The government confirmed the introduction of the so-called 'Precios Justos' plan covering more than 1,700 staple food, personal hygiene and cleaning products, the report relays. "There is a commitment by supermarket chains and wholesalers to refuse [supplies] to companies that violate the agreement on price lists," Economy Minister Sergio Massa said, the report relays. Massa has pushed for new limits on money printing, interest rate hikes and cuts in utility subsidies in a bid to close out the year with a 2.5 percent fiscal deficit, as agreed with the International Monetary Fund under the terms of Argentina's US$44.5-billion debt restructuring deal agreed last March, the report discloses. Persistent price rises are having an impact on poverty, which rose to affect 36.5 percent of the population in the first half of the year, the report relays. In 2021, inflation totalled 50.9 percent, 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 in the Troubled Company Reporter-Latin America on Nov. 18, 2022, S&P Global Ratings affirmed its 'CCC+/C' foreign currency sovereign credit ratings on Argentina. S&P lowered the long-term local currency sovereign credit rating to 'CCC-' from 'CCC+' and the national scale rating to 'raCCC+' from 'raBBB-'. S&P also affirmed its 'C' short-term local currency rating. The outlook on the long-term ratings is negative. S&P's 'CCC+' transfer and convertibility assessment is unchanged. 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. =========== B E L I Z E =========== BELIZE: IDB OKs $10M Loan to Promote Digital Innovation ------------------------------------------------------- Belize will promote the digitalization of companies and government services, and boost local economic growth, financed by a $10 million loan from the Inter-American Development Bank. The initiative, which is aimed at benefitting micro, small and medium-sized enterprises (MSMEs) and has a focus on women-owned or led companies, will foster the adoption of digital technological solutions and train entrepreneurs to hone their digital skills. The program will also help reengineer and digitalize government services related to firms, which will help reduce transaction costs for MSMEs. The program will also help optimize and digitalize government processes related to citizen registration services, including the online application for birth, death, and marriage certificates. This will lower the cost of these certificates while reducing the time required to issue them. It will also create a website to efficiently register and route citizen requests and to help implement an adequate legal and regulatory framework for digital procedures and transactions. In addition, the program will train 300 businesses - mostly MSMEs - and hundreds of citizens in digital literacy through gender sensitive digital awareness campaigns . The initiative will also help train another 160 civil servants in both change management and the management of digital tools and services. Meanwhile, the program will provide about 200 businesses with digital vouchers to adopt digital technology. The five-year program aims to increase the number of firms in Belize using digital payment methods by 18 percent while increasing the number of companies using more innovative methods for information processing and communication by 11 percent. The program also looks to cut in half the time it takes to obtain a business operating license while reducing the processing time for a personal registration service by 30 percent. The 25-year, $10 million loan, which comes from the Bank's ordinary capital, has a 5.5-year grace period and an interest rate based on the Secured Overnight Financing Rate (SOFR). =========== B R A Z I L =========== BRAZIL: Ceiling-breaking PEC Should Raise Public Debt ------------------------------------------------------ The Rio Times Online reports that the transition team of president-elect Luiz Inacio Lula da Silva (PT) presented a proposal to leave BRL175 billion out of the Budget to fund the Brazil Aid. The ceiling-breaking PEC (Proposed Constitutional Amendment) presented by the government of President-elect Luiz Inacio Lula da Silva (PT) should raise the public debt to 92.9% of GDP (Gross Domestic Product) by the end of the mandate, according to The Rio Times Online. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He will be sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating at 'BB-' and revised the Rating Outlook to Stable from Negative. In June 2022, S&P Global Ratings also affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. Moody's, in April 2022, affirmed Brazil's long-term Ba2 issuer ratings and senior unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the stable outlook. On the other had, DBRS, in August 2022, confirmed Brazil's Long-Term Foreign and Local Currency Issuer Ratings at BB (low). BRAZIL: Investors No Longer Sure of Economy's Safety Under New Pres ------------------------------------------------------------------- Rio Times Online reports that this year, Brazil's assets had outperformed their peers as investors became convinced that Luiz Inacio Lula da Silva would be a safe pair of hands for the economy. However, now that he is about to take office, they are not so sure. After winning the election last month, Lula da Silva has stepped up his plans to boost social spending, while his transition team includes names who played key roles in the government of Dilma Rousseff, his handpicked successor who led the economy to a severe recession, notes the report. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He will be sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating at 'BB-' and revised the Rating Outlook to Stable from Negative. In June 2022, S&P Global Ratings also affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. Moody's, in April 2022, affirmed Brazil's long-term Ba2 issuer ratings and senior unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the stable outlook. On the other had, DBRS, in August 2022, confirmed Brazil's Long-Term Foreign and Local Currency Issuer Ratings at BB (low). BRAZIL: Pres Defends Agribusiness Committed to the Environment -------------------------------------------------------------- Iolanda Fonseca at Rio Times Online reports that Brazil's president-elect, Luiz Inacio Lula da Silva, defended an agribusiness committed to the environment and reiterated that he would fight environmental crimes and seek to comply with international agreements related to climate, disclosed his advisory. "The true agribusiness entrepreneur knows where he cannot burn, where he cannot destroy the forest. The true agribusiness entrepreneur commits because he knows the price you pay when you are irresponsible," said da Silva during the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) in Egypt, according to Rio Times Online. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He will be sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. In July 2022, Fitch Ratings affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating at 'BB-' and revised the Rating Outlook to Stable from Negative. In June 2022, S&P Global Ratings also affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. Moody's, in April 2022, affirmed Brazil's long-term Ba2 issuer ratings and senior unsecured bond ratings, (P)Ba2 senior unsecured shelf ratings, and maintained the stable outlook. On the other had, DBRS, in August 2022, confirmed Brazil's Long-Term Foreign and Local Currency Issuer Ratings at BB (low). MERCADOLIBRE INC: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has affirmed MercadoLibre, Inc.'s (MELI) Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlook is Stable. In addition, Fitch has affirmed MELI's USD1.1 billion senior unsecured notes due in 2026 and 2031, and has affirmed MercadoLivre.com Atividades de Internet Ltda.'s (Mercado Livre) and Mercado Pago Instituicao de Pagamento Ltda. ("Mercado Pago", previously denominated MercadoPago.com Representacoes Ltda.'s) Long-Term National Scale Ratings at 'AAA(bra)'. The Rating Outlook is Stable. MELI's ratings reflects its leadership position in the competitive and underpenetrated e-commerce sector in Latin America, high geographic footprint across the region and the expectation that leverage will improve as the company strengthens its cash flow. Fitch also considered MELI's adequate liquidity and the favorable long-term fundamentals for the industry. The high relevance of the operation in Argentina is a negative factor. Mercado Livre's and Mercado Pago's ratings incorporate their strong operating and legal ties with its controlling entity, MELI and therefore, ratings are based on Fitch's "Parent and Subsidiary Linkage Criteria" and the consolidated credit profile. KEY RATING DRIVERS Near-Term Headwinds: Subdued economic growth in main Latin American countries in 2023, combined with high interest rates and continuing inflationary pressures will likely curb consumption in the region in the near term. The end of government stimulus that boosted spending in the last two years, and the return to shopping offline as economies reopen, are set to reduce MELI's commerce growth rates after robust pandemic-driven demand. Fitch believes MELI is prepared to withstand near-term headwinds due to its vast scale and product assortment, large seller and consumer base and cost dilution driving profitability. The rating case incorporates Gross Merchandise Volume (GMV) expanding 18% in 2022 and 15% in 2023, after 50% in 2020 and 35% in 2021. Strong Business Profile: MELI's ratings reflect its leadership position in the e-commerce and payment solutions in Latin America, its geographic footprint across 18 countries in the region and diversified service offering. MELI's scale and verticalization through marketplace, classified, advertising, logistics, payments and credit are key competitive advantages difficult to replicate. Long-term industry fundamentals remain positive, and MELI will continue to benefit from ongoing shifts to online shopping and digital payments. The region is still highly underpenetrated, as only 10%-12% of retail sales are online, and roughly half of the population lacks adequate access to financial services. Scale Drives Profitability: Fitch estimates MELI's EBITDA at USD1.2 billion in 2022 and USD1.6 billion in 2023, with EBITDA margins between 11.6% and 12.2%, respectively from 9.1% in 2021. MELI's scale gains over the last three years and increasing penetration of fulfillment, advertising (~70% margin) and credit will drive higher profitability in the medium term. Credit origination expansion should decelerate in 2023 in light of a more challenging economic environment and higher funding costs. MELI's consumer loans target unbanked and underbanked individuals, which suffered from high household indebtedness in Brazil (54% of credit outstanding). Low exposure per user and the short duration of the portfolio provides MELI some flexibility to adjust the size of the portfolio and NPLs. Adequate Leverage: Fitch forecasts MELI's consolidated gross and net leverage ratios at 4.0x and 2.1x in 2022 and 3.3x and 1.8x in 2023, with e-commerce-only gross and net leverage, applying captive finance adjustment at 3.7x, 1.2x in 2022, and 2.9x and 1.0x in 2023. Fitch expects MELI to manage credit origination growth in the short term until NPLs return to more satisfactory levels. In 3Q22, NPLs over 90 days peaked to 37% from 28% a year earlier. Fintech growth should continue dictating the company's leverage as capital expenditures as a proportion of revenues should average 5.4% per year during 2022 to 2024 from 8.6% in 2021. As of September 2022, MELI's debt totaled USD4.7 billion, including USD1.5 billion senior notes due in 2026, 2028 and 2031, USD1.2 billion in collateralized debt through SPEs and USD916 million in deposit certificates within its non-banking financial institution in Brazil. Competitive Environment: Industry competition is fierce, which Fitch does not expect will ease over the rating horizon. Besides competing with traditional retailers that built efficient omnichannel models over the last decade, such as Americanas, Falabella, Liverpool and Walmex, MELI also competes with pure online retailers such as Amazon, Aliexpress, Shopee and Shein. After an aggressive strategy from new entrants to gain market share and entice consumer and sellers with aggressive pricing, free shipping and low take rates, competition should be more rationale in the near term, following a deterioration in market conditions. In payments and financial solutions, MELI's main peers are smaller banks and fintechs, which predominantly operate on a domestic level. No Constraint from Country Ceiling: MELI is headquartered in Uruguay and generates significant revenues and cashflow in Argentina (IDR CCC-) and Brazil (BB-), which accounted for about 24% and 55% of consolidated sales and 46% and 42% of direct contribution during the last nine months of 2022. The ratings reflect that MELI's operations in Brazil will be able to service hard currency debt in the coming years. The 'BB+' Long-Term Foreign Currency IDR is not constrained by Brazil's 'BB' country ceiling given the company's ability to cover hard currency debt service with cash held offshore (U.S.) plus revolving credit facility. Between 2022 and 2023 Mexico should be able to cover hard currency debt service as well. Strong Linkages with Controller: The Mercado Livre and Mercado Pago ratings reflect the high legal, strategic and operational incentives that would support MELI if needed, and are based on the entity's consolidated credit profile. The operational linkages are characterized by the financial and strategic importance of the Brazilian subsidiaries, which are both fully controlled by MELI, directly or indirectly. The legal ties are strengthened by cross acceleration clauses between the subsidiaries and the parent. MELI also guarantees part of the Brazilian subsidiaries' debt. Besides being MELI's largest market, Brazil also offers strong long-term growth potential. DERIVATION SUMMARY MELI presents significantly lower scale as measured by revenues and EBITDA when compared to international peers such as Amazon (AA-/Stable), Alibaba (A+/Stable) and PayPal Holdings (A-/Stable). This is due to the current market stage in Latin American countries, which remains highly underpenetrated and offer better long-term growth potential compared to the U.S., Europe and China. MELI's lower profitability, with 11.6% EBITDA margin forecast to 2022, versus 15% to 24% for most of its peers reflects its growth strategy that demands high marketing expenses, free shipping investments, personnel and product and technology development expenses. MELI is also exposed to a fiercer competitive environment than its peers, particularly in Brazil and Mexico, where it competes with large and capitalized local and international peers. Medium to longer term, Fitch expects MELI to reduce the gap as the company increases penetration of profitable products, such as advertising and credit. MELI's peers operate with more conservative gross leverage ratios between 1.0x and 2.0x for Amazon, Alibaba, Paypal and Elektra, negatively compared with 4.0x for MELI in 2022F. MELI's 'BB+' ratings compare favorably with Americanas S.A. due to higher geographic diversification and larger scale. Americanas's 'BB'/Negative Foreign Currency IDR is capped by Brazil's Country Ceiling (BB), as the company operates only in Brazil and does not have assets or material cash held abroad. Fitch also expects Americanas to present higher leverage -- 2022 forecast of total and net adjusted leverage at 7.2x and 4.7x, respectively -- as the company faces more challenges with Brazil's weak economic environment. MELI is exposed to higher operating environment risk compared with its international peers due to its presence in Latin America, which exposes the company to currency fluctuations and volatile economies. Most of MELI's revenues and profitability originate from non-investment grade countries such as Brazil (BB-/Stable) and Argentina (CCC-). KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer: - GVM and TPV growing 18% and 60% in 2022 and 15% and 30% in 2023; - Commerce take rate at 14.5% and 14.6% in 2022 and 2023, led by increasing advertisements, managed network and cost dilution; - Fintech take rate at 3.8% and 3.9% in 2022 and 2023; - Credit revenues representing 43% of fintech revenues in 2022 and 2023; - Capex equivalent to 4.9% of net revenues in 2022 and 5.8% in 2023; - No dividend distribution from 2021 to 2023. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Increased revenue and EBITDA contribution from investment-grade countries; - Commerce-only debt/EBITDA below 3.5x on a sustained basis; - Commerce-only net debt/EBITDA below 2.0x on a sustainable basis; Factors that could, individually or collectively, lead to negative rating action/downgrade: - Brazilian operations not covering hard currency debt service; - Material reduction in USD cash at holding level not enough to cover debt service of the notes; - Significant deterioration of market position and/or operating performance resulting in commerce-only debt/EBITDA and net debt/EBITDA above 4.5x and 3.0x; - A multi-notch downgrade of Brazil's sovereign ratings and country ceiling. LIQUIDITY AND DEBT STRUCTURE Robust Financial Flexibility: MELI should preserve strong liquidity profile during the rating horizon, with hefty available cash and manageable debt amortization schedule. During the last two years, short-term debt increased to finance credit origination through deposit certificates and securitization of receivables instead of discounting receivables. Fitch expects MELI to prudently manage its liquidity over the next years, seeking long-term funding to avoid a deterioration in its cash coverage indicator. As of September 2022, MELI reported USD2.4 billion readily available cash, USD400 million undrawn revolving credit facility and USD1.9 billion short-term debt. The company has good access to the local and international banking and the capital markets though several funding sources. ISSUER PROFILE MELI is the largest e-commerce operator in Latin America with roughly 88 million active users, as of September 2022. The company operates in 18 Latin American countries, and offers a wide range of commerce and fintech services, including marketplace, advertising, logistics management, payments solutions and personal loans and credit cards. 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 ----------- ------ ----- MercadoLivre.com Atividades de Internet Ltda. Natl LT AAA(bra) Affirmed AAA(bra) Mercado Pago Instituicao de Pagamento Ltda. Natl LT AAA(bra) Affirmed AAA(bra) MercadoLibre, Inc. LT IDR BB+ Affirmed BB+ LC LT IDR BB+ Affirmed BB+ senior unsecured LT BB+ Affirmed BB+ ========= C H I L E ========= INVERSIONES LATIN: Fitch Cuts $403.9M Sr. Sec. Notes Rating to BB- ------------------------------------------------------------------ Fitch Ratings has downgraded Inversiones Latin America Power Limitada's (ILAP) USD403.9 million senior secured notes, to 'BB-' from 'BB+'. Fitch also maintained the Rating Watch Negative. The notes are supported by cash flows from two windfarms in Chile, San Juan, S.A. (San Juan) and Norvind, S.A. (Totoral). The downgrade follows deterioration of ILAP's financial profile resulting from spot price volatility and pressured working capital driven by the extension of the electricity tariff stabilization mechanism. The sharp increase in international coal and fossil fuel prices has upwardly pressured spot prices, eroding ILAP's liquidity position via unfavorable price mismatches at injection and withdrawal nodes. Transmission congestion and ILAP's highly contracted position compared to its generation profile have amplified the financial margin declines. The Rating Watch Negative reflects the potential for further negative rating action should cash generation be insufficient to cover the next debt service due in January 2023 and liquidity keep deteriorating, driven by detrimental market dynamics. Higher-than-expected spot prices and decoupling costs that further erode project liquidity by significantly depleting the reserve account would trigger further downgrades, while generation of cash that is adequate to cover debt service without further drawing upon reserves could lead to rating stabilization. RATING RATIONALE The rating for ILAP's portfolio of two windfarms in Chile, San Juan (81% of total generation capacity) and Totoral (19%), reflects its mostly contracted position, averaging 73% of its revenues contracted with distribution companies (DisCos) through regulated, fixed-priced, long-term power purchase agreements (PPAs) and short-term bilateral PPAs through 2033. The transaction is exposed to profitability erosion risk due to varying prices between the energy injection node and the DisCo withdrawal node, which is expected to be mitigated over the medium term due to transmission network expansions. The rating is not limited by counterparty risk, as the projects' most relevant counterparties are either investment grade or DisCos under regulated PPAs, which benefit from protective regulatory step-in provisions. The transaction will also have a mostly merchant tail once the regulated PPAs expire in 2033, although this is somewhat mitigated by the long remaining useful life of the larger plant, San Juan, which Fitch assumes will end in 2042 (25 years total). Together, both farms have a P90/P50 differential of 13%, indicating moderate wind resource variability, and have performed at around P50 in most years. The windfarms have some curtailment risk, which is expected to persist going forward. Both farms have presented an adequate operating track record and benefit from long-term, fixed-price service and availability agreements with Vestas Chile, guaranteed by Vestas Wind Systems A/S, which is considered an experienced O&M contractor. The overall debt structure is solid, with a mandatory amortization schedule complemented by a partial cash sweep up to a target debt balance. Refinancing risk exists by way of a balloon payment that is expected to be equal to roughly 16% of the original value of the notes under Fitch's cases. Under Fitch's rating case, debt service coverage ratios (DSCRs) are no longer commensurate with the previous rating of 'BB+', with an expected rating case DSCR of 0.5x for the second half of 2022, which implies the use of reserves will be critical, and an average and minimum rating case DSCRs of 1.2x and 0.9x, respectively from 2023 onward. KEY RATING DRIVERS Robust O&M Agreement Provides Comfort (Operation Risk - Midrange): Vestas Chile, which is supported by a guarantee of its parent company, Vestas Wind Systems A/S, is a provider of equipment and O&M contracts and has a long and proven track record with the plants' technology. The plants benefit from a comprehensive service and availability agreement (SAA) with fixed and defined costs, including scheduled and unscheduled maintenance covering the majority of the life of the debt. The SAAs also provide minimum availability guarantees of 97% for both windfarms in 2021 and of 98% for San Juan starting in 2022. However, the transaction will be exposed to re-contracting risk once these agreements expire, in 2037 for San Juan and 2029 for Totoral, which could lead to increases in costs or lower availability guarantees. Life extension programs are planned for both farms to add to their useful life, bringing them up to 30 years, although Fitch has assumed a maximum of 25 years for conservatism per applicable criteria. A three-month O&M maintenance reserve account (OMRA) supports the structure. Evolving Track Record (Revenue Risk - Volume: Midrange): Both farms benefit from a resource forecast that considers operating history, with a longer track record considered for the smaller windfarm, Totoral, having started operations on 2010. Both farms have P90/P50 differentials of 13%, indicating moderate wind resource variability. San Juan has a shorter operating track record and has been exposed to wake effect since 2020 due to the construction of neighboring windfarms. Although wake effect remains a risk for this plant, losses have been conservatively estimated by the project's independent engineer (IE), included in the resource forecast utilized by Fitch. Both plants are also exposed to some curtailment risk, which is expected to continue as additional renewables incorporate themselves into the system. Long Term PPAs Mostly Contracted with Fixed Price (Revenue Risk - Price: Midrange): The plants have some merchant exposure during the life of the notes given that the majority of revenues (around 70%) are contracted through long-term, inflation-linked, fixed-priced PPAs. Price exposure mainly originates from the differential between injection node and withdrawal node. This is because the company earns the injection price where the plants are located, north of Santiago, and pays the withdrawal price for most of its PPAs in Central Chile, where the majority of the energy demand is located. The withdrawal price is generally higher due to the concentration of energy demand. The transaction will have a merchant tail post-2033 to retire the remaining debt after the balloon payment is refinanced. Spot prices are expected to be capped in the long term through the entry of more renewable energy projects and newer technologies, such as batteries, that would lower the marginal cost of energy production. Solid Structure, Some Refinancing Risk (Debt Structure - Midrange): The debt is amortizing with manageable refinancing risk. The plants will benefit from a legal amortization schedule complemented by a partial cash sweep up to a target debt balance. Failure to meet the target debt balance is not an event of default, therein providing flexibility to the transaction in the event that certain years perform below original expectations. Under Fitch's base case, the balloon payment would be equivalent to 16% of the original amount of the notes, which is considered a moderate refinancing risk exposure. The transaction benefits from an adequate covenant and security package, including a 1.2x backward- and forward-looking dividend distribution test. The project's six-month debt service reserve account (DSRA) also provides some comfort to the structure. Financial Summary: Debt service coverage ratios (DSCRs) are no longer consistent with the previous rating of 'BB+'. DSCR for the second half of 2022 is expected to be 0.7x and 0.5x under its base and rating cases respectively. From 2023 onward, these metrics average 1.3x, with a minimum of 1.1x (in 2023) under its base case and an average of 1.2x with a minimum of 0.9x (in 2023) under its rating case. Refinancing risk is mitigated by a project life coverage ratio (PLCR) of 2.3x and 1.5x, for its base and rating cases respectively, at the time of the notes' maturity in 2033; this is considered adequate versus applicable criteria to offset potential merchant volatility after 2033. PEER GROUP Fitch considers other wind energy generation projects in the region as peers for this project, such as Energia Eolica S.A. (Inka), rated 'BBB-', with a rating case DSCR minimum of 1.1x and an average of 1.25x under Fitch's rating case. Parque Eolico Tres Hermanas, S.A.C. is also rated 'BBB-', with a rating case DSCR minimum of 1.41x and an average of 1.53x. Like ILAP, these projects also have a large proportion of revenues originating from contracted energy sales. However, when compared to these investment-grade peers, ILAP has lower average and minimum rating case DSCRs. The lower metrics alongside ILAP's higher revenue risk profile (in terms of basis risk and exposure to DisCo demand) coupled with the deteriorating liquidity position and an exposure to refinancing risk are consistent with its lower rating. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - Net spot revenue losses exceeding USD19 million during 2023 driven by adverse operating performance or market dynamics; - Reserves being drawn for more than USD10million for the next debt service; Factors that could, individually or collectively, lead to positive rating action/upgrade: - A positive rating action is unlikely, given the rating is on Rating Watch Negative. The Negative Watch could be removed if the decoupling costs are persistently below or equivalent to USD15 per MWh, yielding an average forecast DSCR above 1.2x and if project liquidity improves, leading to operational cash generation above debt service. CREDIT UPDATE 2022 has been a challenging year for power generation companies in Chile. The rising cost of commodities such as coal, diesel and LNG driven by world-wide trends, including the war in Ukraine, have increased the cost of power generation beyond previously expected levels. This has been exacerbated by a hydrology that has improved since 2021 but is still well below average. The increase in renewable generation has also presented challenges. Solar projects have been driving spot prices to close to zero during certain solar hours and have created congestion in a transmission system that has been outpaced by the new capacity coming online. The stabilized price program has been extended through the PEC II, which is expected to cap revenues from regulated PPAs creating an account receivable for the difference between the regulated price and the PPA price. Liquidity issues for generation companies is expected to be alleviated through a factoring line with the IDB currently being structured which is expected to be available in Q1 2023. The working capital cost is currently borne by the generators. Up to September 2022, the generation for the wind farms was below P50 generation but above Fitch's rating case expectation of P90 generation. On the revenue side, net spot energy losses through September 2022 were -USD16.6 million versus the expected -USD8 million in Fitch's rating case and USD3 million in the base case. This was partly caused by large energy purchases at expensive withdrawal nodes not fully offset by injection-node spot revenues. Margin erosion is driven by elevated spot prices and intraday volatility resulting from congestion and system imbalance, pushing prices down during sun hours and up during non-solar hours as thermal power plants set the marginal costs. The lower than expected generation during a few months also caused shortfalls versus contracted energy, which had to be bought at high spot prices further deteriorating results. Additionally, during July, 10-day repairs to transmission infrastructure isolated the north of Chile, materially increasing price differentials and greatly contributing to decoupling costs during this period. DisCo oversupply was lower than expected at 28% instead of Fitch's rating case 36%, which contributed to slightly higher PPA revenues. Through September 2022 total revenues (contracted sales, spot revenues and capacity revenues) of USD23 million were significantly lower than the USD40 million estimated in Fitch's base case and USD35 million expected in Fitch's rating case due to the losses experienced in the spot market. Opex was generally in line with expectations, although higher than expected inflation increased inflation-linked O&M costs slightly above its forecasts. Cash Flow Available for Debt Service (CFADS) through September 2022 was USD9 million, which was below Fitch's expectation of USD28 million in its base case and USD23 million in its rating case. This resulted in a DSCR of 0.34x versus the expected 1.17x and 0.9x in its base and rating case respectively. The shortfall in debt service was covered with an extraordinary contribution from project sponsors for USD5 million and working capital management. The lower than expected cash generation led to the drawdown of the O&M reserve by USD4.5 million during October, in order to cover a breach in liquidity derived from the poor performance of previous periods. The DSRA is fully funded at USD16.5 million. FINANCIAL ANALYSIS Fitch's base case reflects the agency's view of long-term sustainable performance. Fitch's base case assumes P50 generation with an additional production haircut of 3% to account for forecast uncertainty and potential wake losses before planned transmission expansion infrastructure comes online, which will significantly reduce congestion. After this point, the haircut will be 2%. The operational cost profile assumed is in line with the sponsor's original assumptions given the long-term, full-scope SAA. Fitch considers only five additional years of useful life beyond the expiration of the Vestas contracts, for a total of 25 years of useful life for each asset. For the refinancing of the balloon payment, Fitch did not stress the coupon rate of the notes in the base case. Inflows from the first program of stabilized price receivables were not considered in coverage metrics, but were considered as cash-flows to reach target amortizations. Fitch's rating case reflects a reasonably likely combination of uncorrelated stresses that could occur in any given year but which are not expected to persist. The rating case assumes P90 generation and the same generation haircut as the base case. The rating case assumes a 7.5% stress on operating expenses, excluding SAA costs. However, to reflect the agency's view that operating costs may increase after the typical 20-year useful life of a wind asset, Fitch stressed the SAA costs by 12.50% after year 20 of operation. Availability is also reduced to 96% for San Juan and 95% for Totoral after year 20 of operation of each farm to account for potential increases in major maintenance events during the last years of project life. For the refinancing of the balloon, Fitch assumed a higher rate of 7.5%, in comparison with the base case interest rate. All other assumptions mirror the base case. Fitch revised other projection assumptions to reflect expectations going forward and to be consistent with the reality faced by the project in current conditions. Fitch updated its U.S. inflation expectations to 7.0%, 3.60%, 2.7% and 2% for 2022, 2023, 2024 and long-term, respectively. Fitch's adjusted spot price curve for central Chile nodes (the main withdrawal nodes) was shifted upwards, consistent with Fitch's expectation of a spot price of around USD100/MWh for Q4 2022, given the currently high commodity prices. Followed by a decrease to USD66/MWh on average for 2023 and 2024, USD47/MWh on average for 2025 to 2028 and USD39/MWh on average for 2029 to 2033, caused by the new renewable generators coming online, the decarbonization process and lower expected commodity prices. To assess the refinancing risk, Fitch uses a spot price of real USD36/MWh on average. To account for basis risk and the prevalent volatility in injection and withdrawal prices, Fitch considered injection prices on USD20 below the mentioned spot prices for 2023 and injection prices USD15 below withdrawal prices from 2024 to 2030. Similarly, the agency increased its curtailment expectation to 5% from 3.5% until 2029, given the congestion caused by new renewable projects expected to come online. In 2029 and onwards, Fitch believe the COD of new transmission infrastructure will ease congestion concerns and close the spot price differential between northern and central nodes. Fitch considered the working capital effect of the PEC II price stabilization program throughout 2022, with an expected recovery of these receivables in Q1 2023 through the IDB credit line. Contracted revenues from PPA with DisCos are not projected to be reduced due price stabilization after this point given that ILAP expects to factor all future receivables from this program. DisCo oversupply was adjusted according to the most recent expectations, which averages 28% from 2023 to 2026 and is up from its previous expectation of 21% average from 2023 to 2025. Under Fitch's base case, average DSCRs are 1.3x with a minimum of 1.1x in 2023 with a PLCR at refinancing date of 2.4x. Under the rating case, these metrics erode to an average of 1.2x with a minimum of 0.9x in 2023 and a PLCR at refinancing date of 1.5x. Fitch also ran break-even analyses to evaluate the project's financial resilience to extreme stresses. These analyses indicated, under Fitch's base case conditions, that the project could withstand a sustained minimum real merchant price of 25USD/MWh before PLCR is below 1x at refinancing date. This result is strong, as it is below historical spot prices and the expected levelized cost of energy for a renewable plant. Even though project metrics are mostly consistent with the assigned rating and has a strong PLCR at the time of refinancing, the near-term low coverage is a concern, although the DSRA is expected to cover forecasted shortfalls. 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 ----------- ------ ----- Inversiones Latin America Power Ltda. Inversiones Latin America Power Ltda./Senior Secured Notes/1 LT LT BB- Downgrade BB+ USD 403.9 mln 5.125% bond/note 15-Jun-2033 46137NAC2 LT BB- Downgrade BB+ =============== C O L O M B I A =============== ECOPETROL SA: Fitch Affirms LongTerm IDRs at 'BB+', Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Ecopetrol S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlook for the IDRs is Stable. Fitch has also affirmed the company's National Long- and Short-Term ratings at 'AAA(col)'/'F1+(col)'. The Rating Outlook for the National Long-Term rating is Stable. Ecopetrol's ratings reflect the close linkage with the Republic of Colombia (Foreign and Local Currency IDRs BB+/Stable), which currently owns 88.5% of the company. Ecopetrol's ratings also reflect the company's strategic importance for the country, as well as its ability to maintain a solid financial profile. KEY RATING DRIVERS Linkage to Sovereign: Ecopetrol's ratings reflect the strong linkage between the credit profile of the Republic of Colombia, which owns 88.5% of the company's total capital. The ratings also reflect the very strong incentives of the Colombian government to support Ecopetrol in the event of financial distress, given the company's strategic importance to the country, as it supplies virtually all liquid fuel demand in Colombia, and owns 100% of the country's refining capacity. The company relies on the receipt of funds from the Colombian government, through its stabilization fund Fondo de Estabilizacion de Precios de los Combustibles (FEPC), to offset the difference from selling fuel in the local market at lower prices versus the export market. At September 2022, the amount accrued in the FEPC was COP 20.4 trillion (USD $5 billion). As the Colombian government continues to increase retail prices of fuel, Fitch expects that the balance in the FEPC account will decrease. So far, the price has been adjusted by COP 400/gallon, and further increases are expected in the next six months. Deconsolidated with ISA: Fitch expects that the majority of Ecopetrol's consolidated EBITDA will continue to be generated from its energy business. Fitch estimates that on a deconsolidated basis, ISA's EBITDA in 2022 adjusted to Ecopetrol's ownership, is expected to represent 5.1% of Fitch's projected Ecopetrol EBITDA for 2022. Thus, currently, the ISA acquisition is not expected to materially impact Ecopetrol's leverage metrics over the rated horizon. Fitch estimates that consolidated pro forma gross leverage, defined as total debt to EBITDA, will be low during the rating horizon at 1.0x for FYE 2022, and 1.2x on average through 2026. Pro forma for ISA's debt and EBITDA, leverage in 2022 increases to 1.5x in 2022 and averages 2.1x through the rating horizon. Strong Financial Profile: Ecopetrol's 'bbb' Standalone Credit Profile (SCP) reflects the company's strong financial profile. Fitch calculated gross leverage as measured by total debt to EBITDA decreased to 2.4x in 2021 from approximately 2.9x at YE 2020. Fitch expects leverage to continue to be low though the rating profile as Brent process continue supporting EBITDA generation, and debt is expected to remain at current levels. Fitch expects Ecopetrol's interest coverage as measured by EBITDA to interest expense coverage to exceed 20x consistently through the rating horizon. Positive FCF Expected: Fitch expects Ecopetrol's FCF to be positive going forward, subject to revisions to investment and dividends plans. Fitch's base case assumption includes the company having an average annual capex budget of approximately USD5.0 billion over the next three years, and that it will pay 60% of previous year's net income in line with its 40% to 60% dividend policy. This, coupled with Fitch's price assumptions for Brent crude oil price of USD100/bbl in 2022, USD85/bbl in 2023, and USD53/bbl in the long term, would result in positive FCF over the next three years. Stable Operating Metrics: After production cuts of 4% implemented in 2020, and subsequent 6% reduction in reserves resulting from lower global hydrocarbon prices, Ecopetrol's operating metrics have recovered and are well underway to reach pre-pandemic levels. Fitch assumes total hydrocarbons production to be 704 thousand barrels of oil equivalent per day (boe/d) in 2022 exhibiting a trend or recovery expected to continue over the next three years. The company's proved reserve (1P) of 2,002 million boe gave the company a reserve life of 9.0 years as of 2021. Fitch assumes a 105% reserve replacement rate. Ecopetrol's leverage, as measured by total debt/proved reserves was USD7.5/boe as of YE 2021 (this including ISA debt), and lowered than previously forecasted at USD10/boe for YE 2021 as a portion of the debt was repaid during the year and reserves increased by 95 MM boe. Fitch's calculated implied pretax break-even crude oil price for Ecopetrol has remained relatively stable over the past three years at approximately USD38/boe. DERIVATION SUMMARY Ecopetrol's rating linkage to the Colombian sovereign ratings is in line with the linkage present for most national oil and gas companies (NOCs) in the region; including Petroleos Mexicanos (Pemex; BB-/Stable), Petroleo Brasileiro S.A. (Petrobras; BB-/Stable), Petroperu S.A. (BB+/Negative) and Empresa Nacional del Petroleo (A-/Stable). In most cases in the region, NOCs are of significant strategic importance for energy supply to the countries where they operate, as is the case in Mexico, Colombia and Brazil. NOCs can also serve as a proxy for federal government funding as in Mexico, and have strong legal ties to governments through their majority ownership, strong control, and governmental budgetary approvals. Ecopetrol's SCP is commensurate with a 'bbb' rating, which is in line with that of Petrobras at 'bbb' given Petrobras' recent significant debt reduction. Excluding IFRS16 leases, Ecopetrol's leverage as of in year-end 2021 was 3.1x. Ecopetrol's credit profile is materially higher than that of Pemex 'ccc-' SCP as a result of Ecopetrol's deleveraging capital structure versus Pemex increasing leverage trajectory. Ecopetrol will continue reporting a stable production, which Fitch expects to stabilize around 700,000boe/d. This production trajectory further supports the notching differential between the two companies' SCP. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer: - Ecopetrol remains majority owned by Colombia; - Brent average USD100/bbl in 2022 and USD85/bbl in 2023 before trending toward USD53/bbl in the long term; - USD 15bbl discount to Brent; - Stable production growth of 2% per annum between 2022 through 2024; - 105% reserve replacement ratio per year; - Aggregate capex of approximately USD5.0 billion per year for the next three years; - Dividends of 60% of previous year's net income. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Although not expected in the short- to medium term, an upgrade of Colombia's sovereign ratings. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A downgrade of Colombia's sovereign ratings; - A significant weakening of the company's linkage with the government and a lower government incentive to support couple with a deterioration of its standalone credit profile. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: Ecopetrol's strong liquidity profile is supported by cash on hand, strong access to the capital markets and an adequate debt maturity profile. Ecopetrol reported COP 13 trillion (USD3.2 billion) of cash and equivalents on hand in Sept. 30, 2022 compared with roughly USD3.5 B of principal maturities due in 2022 and 2023 and the USD774 million of debt service over the same period of time. The company utilized its USD1.2 billion committed credit line in September 2022, in order to repay a portion of the debt associated with the acquisition of ISA. ISSUER PROFILE Ecopetrol is a leading integrated energy and infrastructure company in the Latin American and Central American region. The company is the largest in Colombia in relation to their Upstream, Midstream, and Downstream business segments, and the company is the largest energy transmission company in region in connection with the Interconexion Electrica S.A. acquisition. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Ecopetrol S.A.'s LT IDR is linked to the sovereign rating of Colombia. ESG CONSIDERATIONS Ecopetrol S.A. has an ESG Relevance Score of '4' for Governance Structure due to its nature as a majority government-owned entity and the inherent governance risk that arise with a dominant state shareholder, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Ecopetrol S.A. has an ESG Relevance Score of '4' for Exposure to Social Impacts due to multiple attacks to its pipelines, 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. Entity/Debt Rating Prior ----------- ------ ----- Ecopetrol S.A. LT IDR BB+ Affirmed BB+ LC LT IDR BB+ Affirmed BB+ Natl LT AAA(col) Affirmed AAA(col) Natl ST F1+(col) Affirmed F1+(col) senior unsecured LT BB+ Affirmed BB+ =========== M E X I C O =========== BANCO DEL BAJIO: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Banco del Bajio S.A. Institucion de Banca Multiple's (BanBajio) Viability Rating (VR) at 'bb+' and its Long- and Short-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+' and 'B', respectively. Fitch has affirmed BanBajio's Government Support Rating (GSR) at 'bb-'. Fitch has also affirmed BanBajio's and Financiera Bajio, S.A. de C.V. Sofom E.R.'s (FIBA) Long- and Short-Term National scale ratings at 'AA(mex)' and 'F1+(mex)', respectively. The Rating Outlook on the Long-Term ratings is Stable. Fitch revised its assessment of the trend for the operating environment scored at 'bb+' for Mexican banks to 'Stable' from 'Negative'. Fitch believes bank will face downside risks once again in 2023 due to decelerating economic growth and high inflation; however, Fitch expects bank performance to remain resilient and, most banks' core metrics have sufficient headroom to face these risks. KEY RATING DRIVERS Good Credit Profile: BanBajio's IDRs and VR are driven by the bank's well-recognized regional market position and by its business model with specialization in the agribusiness and SME segments, which has consistently generated profitability through economic cycles. BanBajio's national scale ratings are relative rankings of creditworthiness within Mexico's jurisdiction and reflect the bank's good market position in the country's banking industry as well as its good and resilient financial performance. Solid Regional Market Position: BanBajio's business profile assessment incorporates its strong market position in the Bajio region (35.7% of total loans) and that in recent years it has increasingly diversified its footprint across different Mexican States. The evaluation also considers the bank's well-recognized market position in the agribusiness and SME segments that have generated some pricing power and stability to its income generation through economic cycles. However, BanBajio's diversification continues to lag behind the major domestic banks in terms of credit segments and geography. Well-Managed Risk Profile: Fitch view's BanBajio's risk profile as moderate, with conservative underwriting standards in its loan and investment portfolio, as well as adequate risk controls that are commensurate with its business profile. Asset Quality Remains Controlled: Fitch expects BanBajio to maintain a non-performing loans (NPLs) ratio at healthy levels supported by adequate underwriting standards, as well as good reserves, collateral and government guarantees. Even though the bank's loan portfolio is more vulnerable than the major banks because of its higher loans to SMEs and individual borrower concentrations, its delinquency ratios compare better. Fitch expects any asset-quality deterioration due to the challenging OE to be modest with sufficient headroom to remain consistent with its rating. As of September 2022, the NPLs to total loans ratio was 1.2%, well below the 2.3% average reported in August 2022 by the seven largest Mexican banks, while the reserve coverage of impaired loans remains adequate at 183.5%. Profitability Sustains Recovery: BanBajio's profitability continues to recover, driven by higher margins, low loan provisions, and operating efficiency. The bank's operating profit to risk-weighted assets (RWA) of 4.6% as of September 2022, is significantly up from 3.1% in YE21. Fitch expects the bank to maintains the improved metrics, but it will depend on credit growth, the maintenance of a net interest margin benefitted by interest rates and better access to lower costs of funding, and provided there are no significant negative pressures on asset quality. Adequate Capitalization: BanBajio maintains good loss absorption capacity, as reflected by its CET1 to RWA ratio of 14.8%, and loan loss allowances to past-due loans of 183.5%. Although the core metric has tightened due to dividend payments (2018-2021: CET1 ratio average 17.0%), Fitch expects the CET1 ratio to remain consistent with its ratings and national peers, underpinned by improved earnings generation that should offset dividend payments and credit expansion. Stable Funding and Liquidity: BanBajio's loans-to-customer deposits ratio slightly improved to 104.9% as of September 2022, which is below pre-pandemic levels but still higher than the largest local banks' ratios. The bank has effectively made improvements in its funding base, which has led to lower funding costs and will support profitability as interest rates rise. The bank's liquidity coverage and net stable funding ratios of 138.4% and 115.8%, respectively, as of September 2022 were stable and comfortably above the 100% regulatory requirement. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - BanBajio's IDRs, VR and National Ratings could be downgraded due to a material deterioration of its financial performance that leads to a sustained decline in a CET1 ratio below 13% and operating profit to RWAs ratio below 2%. Factors that could, individually or collectively, lead to positive rating action/upgrade: - BanBajio's IDRs, VR and National Ratings could be upgraded by the confluence of an improvement of the OE and the credit profile of the bank. Specifically, if the bank significantly enhances its market position while continuing to diversify its business model, maintains a healthy financial profile and improves its capital metrics to 20%. Government Support Rating (GSR): BanBajio's 'bb-' GSR reflects Fitch's expectation that although the bank is not a domestic systemically important bank (D-SIB) there is moderate probability of sovereign support in case of need, given the bank's mid-size franchise and moderate market share of core customer deposits. As of August 2022, BanBajio's deposits were around 2.6% of the Mexican banking system. - BanBajio's GSR could be downgraded if Fitch believes that the government's propensity to support the bank has declined due to reasons such as a material loss in the market share of retail customer deposits. An upgrade of BanBajio's GSR is limited and could only occur over time with a material gain in the bank's systemic importance. SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS Core Subsidiary for BanBajio: The national ratings of FIBA are aligned with BanBajio's national ratings, based on Fitch's institutional support assessment that the subsidiary is core to the bank's strategy due to its relevant role in providing core products such as factoring and leasing, which complement the bank's offering. SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES - FIBA 's national ratings would mirror any movement on BanBajio's ratings. A modification of the entity's strategic importance to the bank could negative affect FIBA's ratings. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch classified pre-paid expenses and other deferred assets as intangibles and deducted them from total equity due to their low loss absorption capacity. Sources of Information Financial statements are in accordance with the local banking regulator's (Comision Nacional Bancario de Valores) criteria. 3Q22 statements include recent accounting changes related to the convergence with International Financial Reporting Standards (IFRS). Prior years did not include this change, and Fitch believes they are not directly comparable. 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 del Bajio, 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(mex) Affirmed AA(mex) Natl ST F1+(mex) Affirmed F1+(mex) Viability bb+ Affirmed bb+ Government Support bb- Affirmed bb- Financiera Bajio, S.A. de C.V., SOFOM, E.R. Natl LT AA(mex) Affirmed AA(mex) Natl ST F1+(mex) Affirmed F1+(mex) MEXICO: Continues to Qualify for Flexible Credit Line, IMF Affirms ------------------------------------------------------------------ On November 16, 2022, the Executive Board of the International Monetary Fund (IMF) completed its review of Mexico's qualification for the arrangement under the Flexible Credit Line (FCL) and affirmed Mexico's continued qualification to access FCL resources. The current two-year FCL arrangement for Mexico in an amount equivalent to SDR 35.6508 billion (400 percent of quota, about US$50 billion)1 was approved by the IMF's Executive Board on November 19, 2021. The Mexican authorities stated their intention to treat the arrangement as precautionary. Following the Executive Board's discussion on Mexico, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, made the following statement: "Mexico's recovery from the pandemic is underway, but a more turbulent external environment, a surge in global inflation and tighter global financial conditions, and slowing U.S. economic activity present new challenges and risks to the recovery. The economy has nonetheless demonstrated resilience owing to its very strong policies and institutional policy frameworks, including a flexible exchange rate regime, a credible inflation targeting framework, a fiscal responsibility law, and a well-regulated financial sector. "The Mexican economy remains exposed to external risks. The global surge in inflation has touched off a round of monetary tightening and rising global risk aversion and threatened growth. Elevated risks from an advanced economy slowdown, disorderly global financial market tightening, Russia's invasion of Ukraine, slowdown in China, and changes in commodity prices continue to cloud the outlook. The Flexible Credit Line (FCL) will continue to play an important role in supporting the authorities' macroeconomic strategy by providing insurance against tail risks and bolstering market confidence. "The authorities have a track record of sound policy management and are firmly committed to maintaining prudent policies going forward. Owing to heightened external risks, they have decided to maintain their current access levels, but nevertheless reaffirmed their commitment to pursuing a gradual path to exit, conditional on the evolution of external risks. The authorities intend to continue to treat the arrangement as precautionary. ======= P E R U ======= NAUTILUS INKIA: S&P Affirms 'BB' ICR, Outlook Stable ---------------------------------------------------- On Nov. 18, 2022, S&P Global Ratings affirmed its 'BB' issuer credit rating on Nautilus Inkia Holdings SCS and 'BB-' issue-level rating on its notes. The stable outlook reflects that S&P expects leverage of the parent, Nautilus Energy Holdings LLC (Nautilus or the group; not rated) to remain below 5.0x in 2022 and 2023. On Nov. 14, 2022, Nautilus Inkia Holdings SCS, Nautilus Distributions Holdings LLC, and Nautilus Isthmus Holdings LLC (all referred to as Inkia; BB/Stable/--) announced plans to perform a cash tender offer for a portion of its $373 million senior unsecured notes that matures in 2027. S&P views the transaction as pure liability management and in line with the company's strategy, although the offer is below par. S&P said, "We affirmed our ratings on Inkia and kept the stable outlook after the company's announcement of its cash tender offer for up to $150 million of its $373 million senior unsecured notes due 2027. In accordance with our criteria, we believe that the transaction is proactive liability management, well ahead of the notes' final maturity. Moreover, we don't believe Inkia will face any insolvency or bankruptcy risks if the offer isn't accepted." The tender offer will be funded through cash on balance sheet as a result of $175 million of additional debt that Inkia's subsidiary, Estrella Cooperatief B.A. (Estrella; not rated), will issue upon the consent of the majority of Inkia's note holders to the tender and to certain amendments to the indenture governing the notes. These amendments will allow Estrella to offer its shares as collateral for the $175 million loan, as well as the shares of its subsidiary, Energuate (not rated). If the holders of the $373 million senior unsecured notes accept the tender offer prior to the early tender date (Nov. 28, 2022), the notes will be purchased at $960 for every $1,000 exchanged. However, if the tender is accepted between Nov. 29 and Dec. 12, 2022, the note holders will receive $910. Inkia's strategy is to repay a portion of its consolidated debt and decrease associated interest expenses. In addition, as part of the ongoing strategy of generating value through portfolio optimization, the group could divest assets in the future. Depending on which assets are sold, net cash sale proceeds could be used to make additional offers to repurchase the existing notes. In addition, if future asset sales slash the company's current scale and business strengths, we could lower the ratings. PERU: Economy Grows by 1.66% in September, Slight Dip from August ----------------------------------------------------------------- Reuters reports that Peru's economy expanded by 1.66% in September compared with the same month a year earlier, figures from the national statistics institute (INEI) showed, a slight dip from an increase of 1.68% in August. INEI said growth in the world's No. 2 copper producer was driven by most sectors of the economy in September, pointing to gains in construction, transportation, hotels and restaurants, commerce, agriculture, power utilities and other services, according to Reuters. By contrast, mining, finance, telecommunications, manufacturing and fishing were among the sectors where activity slipped, it said, the report notes. The latest figures meant that during the first nine months of this year, the Peruvian economy expanded by 2.90%, the institute said, the report relays. ===================== P U E R T O R I C O ===================== CEDIPROF INC: Seeks Chapter 11 Bankruptcy Protection ---------------------------------------------------- The Center for the Development and Innovation of Pharmaceutical Products (Cediprof, in Spanish) filed for Chapter 11 bankruptcy protection at the US Bankruptcy Court in San Juan, listing $33.7 million in debt. Located in Caguas, Cediprof was established in 2014 as a research, experimentation, and development center for generic pharmaceutical products in Puerto Rico. It is a part of the Neolpharma Pharmaceutical Group family of companies. At the time, generics pharmaceutical firm Neolpharma invested $12 million in machinery and construction equipment to establish the 2,000 square-foot plant and a 4,000 square-foot warehouse. Its list of secured creditors is headed by Oriental Bank, which is owed $3.2 million. The list of unsecured creditors includes International Finance Corp., to which it owes $15 million, and Sandoz Inc., which is owed closed to another $15 million. Over the years, Cediprof has manufactured several generic drug products. In 2020, Cediprof entered into an interim exclusive supply and distribution agreement with Philadelphia-based Lannett Company Inc. for Cediprof's FDA approved Levothyroxine Sodium Tablets USP, according to a press release. The interim agreement ended July 31, 2022, at which time, a previously announced 10-year exclusive supply and distribution agreement with Cediprof kicked in. That distribution agreement set off a lawsuit by Sandoz, which claimed breach of a marketing and distribution contract related to a partnership of 17 years. In the bankruptcy filing, Cediprof lists some $28 million in assets. About CEDIPROF INC CEDIPROF INC. is a pioneer center for the development of generic phamaceutical products in solid dosage forms than include tablets, capsules and controlled release beads. CEDIPROF INC filed a petition for relief under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 22-03198) on Nov. 4, 2022. In the petition filed by Marco Monrouzeau Bonilla, as president, CEO and assistant, the Debtor reported $33.7 million in debt and $28 million in assets. The Debtor is represented by CARMEN D CONDE TORRES of C. Conde & Associates. =============== X X X X X X X X =============== [*] Simpson Thacher Elevates 36 Attorneys to Partner ---------------------------------------------------- Simpson Thacher & Bartlett LLP on Nov. 17 disclosed that it has elevated the following attorneys to Partner, effective January 1, 2023: -- Jessica A. Asrat, Capital Markets (New York) -- Jacqui N. Bogucki, M&A (Houston) -- Adam J. Brunk, Real Estate (London) -- Catherine N. Burns, Banking & Credit (New York) -- Jonathan E. Cantor, Tax (New York) -- Toby Chun, Environmental (Washington, D.C.) -- Beth Cowen, Private Funds (London) -- Ross Ferguson, Litigation / Antitrust (Brussels / London) -- Lucy Gillett, M&A (London) -- Steven Grigoriou, Registered Funds (Washington, D.C.) -- Drew Harmon, Private Funds (New York) -- Marc Hecht, Restructuring (London) -- Steven Homan, Private Funds (New York) -- Sage E. Hughes, Private Funds (New York) -- Bryan Jin, Litigation (Palo Alto) -- Meredith Karp, Litigation (New York) -- Caitlin A. Lucey, Executive Compensation and Employee Benefits (New York) -- Borja Marcos, Latin America / Corporate (New York) -- Johanna Mayer, M&A (New York) -- Jessica A. O’Connell, Private Funds (New York) -- Jonathan S. Pall, Banking and Credit (New York) -- Benjamin S. Persina, Banking and Credit (Washington, D.C.) -- Jodi Schneider, Tax (New York) -- Mark B. Skerry, Litigation / National Security and Regulatory (Washington, D.C.) -- Spencer A. Sloan, Financial Institutions Regulatory (New York) -- William J. Smolinski, Tax (New York) -- Rachel S. Sparks Bradley, Litigation (New York) -- Jonathan G. Stradling, M&A (Tokyo) -- Lia Toback, Capital Markets (New York) -- Chris Vallance, M&A (London) -- Mark C. Viera, M&A (New York) -- Erik Wang, M&A (Hong Kong) -- Alicia N. Washington, Litigation (New York) -- Leanne M. Welds, Real Estate (New York) -- Claire Williams, Banking and Credit (London) -- David Zylberberg, Restructuring (New York) About Simpson Thacher Simpson Thacher & Bartlett LLP -- http://www.simpsonthacher.com-- is one of the world's leading international law firms. The Firm was established in 1884 and has more than 1,000 lawyers. Headquartered in New York with offices in Beijing, Brussels, Hong Kong, Houston, London, Los Angeles, Palo Alto, Sao Paulo, Tokyo and Washington, D.C., the Firm provides coordinated legal advice and transactional capability to clients around the globe. ********* 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. 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