/raid1/www/Hosts/bankrupt/TCRLA_Public/230104.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
Wednesday, January 4, 2023, Vol. 24, No. 4
Headlines
A R G E N T I N A
ARGENTINA: Black-Market Peso Slumps to Record Ahead of Holidays
BLOCKFI LENDING: Calif. Regulators Want to Revoke Lending License
B R A Z I L
BRAZIL: Stops Exporting US$11 Billion in Engineering Services
BRAZIL: Trade Confidence Remains Stable in December
STATE OF ALAGOAS: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
D O M I N I C A N R E P U B L I C
AES ANDRES: Fitch Updates Dec. 7 Ratings Release
E C U A D O R
ECUADOR DPR 2023-1: Fitch to Give 'BB-(EXP)' Rating, Outlook Stable
J A M A I C A
[*] JAMAICA: Gov't Partners With Lynk to Disburse Payments
M E X I C O
BED BATH & BEYOND: Extends Exchange Offers Until Jan. 4
UFN F18247-6: Fitch Cuts LongTerm Global Scale Rating to 'CCCsf'
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Black-Market Peso Slumps to Record Ahead of Holidays
---------------------------------------------------------------
Ignacio Olivera Doll at Bloomberg News reports that Argentina's
black market exchange rate plunged to a record low last week as
people bought dollars ahead of their holidays and a recent Central
Bank resolution drained fresh dollar bills from visiting tourists
at exchange houses.
The street rate, known locally as the "dolar blue" or "blue
dollar", plunged to 357 pesos to the dollar on December 29,
according to the Dolarhoy.com website, notes Bloomberg News. The
exchange rate, which is widely used to circumvent capital controls,
fell nine percent last week, the report notes. The official rate,
tightly controlled by the Central Bank, is 176 pesos, the report
relays.
The risk for the authorities is that the sudden drop will spread to
other sectors of the economy, as the exchange rate is used as a
benchmark for some imported consumer goods and transactions, the
report discloses. The country already faces annual inflation rate
approaching 100 percent and a chronic deficit of dollars needed to
finance trade and prop up the currency, the report notes.
"The rise of the blue dollar is the most relevant data for the
macroeconomy," PPI analysts led by Pedro Siaba Serrate wrote in a
note to clients, the report relays. "The rise in the blue dollar
could obviously be an early indicator of what the other financial
exchange rates will do," he added.
The extension of foreign exchange controls in Argentina has
generated many differing exchange rates for sectors such as
farmers, tourists and even concert tickets to pay for foreign
musical events, the report relays.
One of the most recent changes in exchange rate policies is to
offer foreign tourists a better rate when they use their foreign
credit cards locally, one of close to 333 pesos to the dollar, the
report discloses. This has meant that fewer US$100 notes are
exchanged at informal exchange houses and, in turn, fewer dollars
are available for Argentines to buy, the report says.
The CCL ('contado con liquidacion') dollar, another parallel
exchange rate derived from buying securities locally and selling
them abroad, weakened to 348 pesos to the dollar, also a record
high, the report notes.
Another factor behind the weakness on the black market is that a
fee for Argentines to use credit cards abroad became too expensive
compared to buying dollars on the street before boarding a plane,
the report relays.
PPI estimates the currency's value is closer to 425 to the dollar,
based on a calculation involving the amount of pesos in
circulation, 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.
BLOCKFI LENDING: Calif. Regulators Want to Revoke Lending License
-----------------------------------------------------------------
California's Department of Financial Protection and Innovation on
Dec. 19, 2022, announced that Commissioner Clothilde V. Hewlett
has moved to revoke BlockFi Lending LLC's (BlockFi) California
Financing Law (CFL) license.
The move to revoke is the result of the department's examination,
which found that the New Jersey-based finance lender failed to
perform adequate underwriting when making loans and failed to
consider borrowers' ability to repay these loans, in violation of
California's financing laws and regulations.
The Commissioner may issue an order revoking BlockFi's license if
the company does not request a hearing by Dec. 30,
2022. BlockFi
reports to the DFPI that it has ceased offering loans in California
and asks clients not deposit to the BlockFi Wallet or its interest
accounts.
On Nov. 11, one day after BlockFi paused all withdrawals from its
crypto asset platform citing "significant exposure to FTX" and
affiliated entities, the department issued a notice of intent to
suspend BlockFi's CFL license. BlockFi did not request a
hearing,
and the department suspended the license through Dec. 18,
2022.Â
BlockFi filed a petition for Chapter 11 bankruptcy in New Jersey on
Nov. 28, 2022.
In February 2022, the Commissioner entered into a settlement with
BlockFi resolving BlockFi's alleged violations of California's
securities laws. Under this settlement, BlockFi agreed to
desist
and refrain from offering or selling unqualified, non-exempt
securities in the form of BlockFi interest accounts in California.
The DFPI expects any person offering securities, lender, or other
financial services provider that operates in California to comply
with our financial laws. If you have been impacted by these
events,
please contact the DFPI online (dfpi.ca.gov/file-a-complaint) or
call toll-free at (866) 275-2677.
The DFPI administers the state's lending and banking laws, the
recent California Consumer Financial Protection Law, and the
state's securities laws, which govern broker-dealers, investment
advisers, and commodities. Learn more at dfpi.ca.gov.
About BlockFi
BlockFi is building a bridge between digital assets and traditional
financial and wealth management products to advance the overall
digital asset ecosystem for individual and institutional
investors.
BlockFi was founded in 2017 by Zac Prince and Flori Marquez and in
its early days had backing from influential Wall Street investors
like Mike Novogratz and, later on, Valar Ventures, a Peter
Thiel-backed venture fund as well as Winklevoss Capital, among
others. BlockFi made waves in 2019 when it began providing
interest-bearing accounts with returns paid in Bitcoin and Ether,
with its program attracting millions of dollars in deposits right
away.
BlockFi grew during the pandemic years and had offices in New York,
New Jersey, Singapore, Poland and Argentina.
BlockFi worked with FTX US after it took an $80 million hit from
the bad debt of crypto hedge fund Three Arrows Capital, which
imploded after the TerraUSD stablecoin wipeout in May 2022.
BlockFi had significant exposure to the companies founded by former
FTX Chief Executive Officer Sam Bankman-Fried. BlockFi received a
$400 million credit line from FTX US in an agreement that also gave
FTX the option to acquire BlockFi through a bailout
orchestrated by Bankman-Fried over the summer. BlockFi also had
collateralized loans to Alameda Research, the trading firm
co-founded by Bankman-Fried.
BlockFi is the latest crypto firm to seek bankruptcy amid a
prolonged slump in digital asset prices. Lenders Celsius Network
LLC and Voyager Digital Holdings Inc. also filed for court
protection this year. Kirkland & Ellis is also advising Celsius
and Voyager in their separate Chapter 11 cases.
BlockFi Inc. and eight affiliates sought protection under Chapter
11 of the Bankruptcy Code (Bankr. D.N.J. Lead Case No. 22-19361)
on
Nov. 28, 2022. In the petitions signed by their chief executive
officer, Zachary Prince, the Debtors reported $1 billion to $10
billion in both assets and liabilities.
Judge Michael B. Kaplan oversees the cases.
The Debtors taped Kirkland & Ellis and Haynes and Boone, LLP as
general bankruptcy counsels; Walkers (Bermuda) Limited as special
Bermuda counsel; Cole Schotz, P.C. as local counsel; Berkeley
Research Group, LLC as financial advisor; Moelis & Company as
investment banker; and Street Advisory Group, LLC as strategic and
communications advisor. Kroll Restructuring Administration, LLC
is the notice and claims agent.
===========
B R A Z I L
===========
BRAZIL: Stops Exporting US$11 Billion in Engineering Services
-------------------------------------------------------------
Pledge Times reports that the largest Brazilian construction
companies lost space in the Brazilian and global market from 2015
onwards, the year of the peak of total revenue and participation in
engineering export services.
Brazil had only 0.5% of the global engineering services export
market in 2020, according to lawyer Evaristo Pinheiro's estimate,
notes the report. From 2017 to 2019, he was legal director at
Odebrecht and president of Sinicon (National Union of the Heavy
Construction-Infrastructure Industry).
Pledge Times relates that Pinheiro surveyed global data on the
evolution of engineering services exports in recent decades. In
2020, the year of the most recent data, the total reached US$ 420
billion, equivalent to BRL1.4 trillion.
According to the report, Brazil reached 3.2% of this market, in
2015, when the total was higher: US$ 500 billion (BRL2.7 trillion).
Had it maintained the same share, the country would have exported
US$11 billion more in 2020, according to Pinheiro's estimate.
The presence of Brazilian engineering in other countries began to
grow more during the government of Fernando Henrique Cardoso
(1995-2002), with export financing programs: it went from 1.5% to
3.2% of the global market in 2015, the report recalls.
But from 2015, construction companies had a drop in revenue due to
the loss of contracts and punishments imposed by Lava Jato, notes
Pledge Times. The revenue of the largest companies dropped down
from BRL 108 billion in 2015 to BRL 12 billion in 2019, the most
recent data available, according to a survey by the Power360. The
drop was 89%.
The report relates that the drop in the global export share of
engineering services from 2015 to 2020 was 85%. The main reason for
this was the reduction in official credit lines from 83% to 91%,
according to Pinheiro's survey.
Pinheiro considers it a mistake for the government to stop offering
export credit focused on heavy construction, notes the report. "All
countries that have the largest market share do this. The benefits
are great, because, in addition to services, the works lead to the
export of products with high added value," the report quotes
Pinheiro as saying.
The 1st place in the ranking of engineering services exports in
2020 was China, with 26% of the market. Most of China works abroad
are in Africa. Spain was in 2nd place, with 15%, Pledge Times
relates.
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 was sworn in on January 1,
2023, as the 39th president of Brazil, succeeding Jair
Bolsonaro.
As reported in the Troubled Company Reporter-Latin America
on January 3, 2023, Fitch Ratings has affirmed Brazil's
Long-Term Foreign Currency Issuer Default Rating (IDR) at
'BB-' with a Stable Outlook. The ratings are constrained by
high government indebtedness, a rigid fiscal structure, weak
economic growth potential, and a record of governability
challenges that have hampered efforts to address these fiscal
and economic issues and clouded policy predictability.
The Stable Outlook reflects Fitch's expectation that growth
will slow in the coming year and that recent fiscal
improvement will erode under a new government, but within a
margin consistent with the current rating, and from a better
starting point than previously expected. Uncertainty is
elevated regarding the plans of the incoming government and
the extent to which these could ease or aggravate fiscal and
economic challenges. However, Fitch does not expect policies
that jeopardize broad economic stability.
BRAZIL: Trade Confidence Remains Stable in December
---------------------------------------------------
Rio Times Online reports that the Trade Confidence Index was stable
in December 2022, remaining at the level of 87.2 points, the lowest
level since April (85.9 points).
In the metric of quarterly moving averages, there was a decrease of
4.9 points, the second consecutive one after eight consecutive
months of positive results, according to Rio Times Online.
The index was released by the Brazilian Institute of Economics of
the Getulio Vargas Foundation, the report adds.
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 was sworn in on January 1,
2023, as the 39th president of Brazil, succeeding Jair
Bolsonaro.
As reported in the Troubled Company Reporter-Latin America
on January 3, 2023, Fitch Ratings has affirmed Brazil's
Long-Term Foreign Currency Issuer Default Rating (IDR) at
'BB-' with a Stable Outlook. The ratings are constrained by
high government indebtedness, a rigid fiscal structure, weak
economic growth potential, and a record of governability
challenges that have hampered efforts to address these fiscal
and economic issues and clouded policy predictability.
The Stable Outlook reflects Fitch's expectation that growth
will slow in the coming year and that recent fiscal
improvement will erode under a new government, but within a
margin consistent with the current rating, and from a better
starting point than previously expected. Uncertainty is
elevated regarding the plans of the incoming government and
the extent to which these could ease or aggravate fiscal and
economic challenges. However, Fitch does not expect policies
that jeopardize broad economic stability.
STATE OF ALAGOAS: Fitch Affirms 'BB-' LongTerm IDRs, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed the State of Alagoas' Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) at 'BB-'. The
Rating Outlook is Stable. In addition, Fitch has affirmed Alagoas'
Short-Term Foreign and Local Currency IDR at 'B', National
Long-Term Rating at 'AA(bra)'/Stable Outlook, and National
Short-Term Rating at 'F1+(bra)'. Alagoas Standalone Credit Profile
(SCP) was affirmed at 'b+'.
Alagoas IDRs are supported by the sovereign, considering the
federal government is its most significant creditor. Fitch views
intergovernmental debt as more favorable since it can be used as an
instrument of support by the sovereign in periods of distress. In
fact, Alagoas currently benefits from debt service relief in
exchange for tax losses that followed the ICMS tariff ceiling for
fuels, electricity and telecommunications instituted by the
national congress in mid-2022.
KEY RATING DRIVERS
Risk Profile: 'Weaker'
The Weaker assessment reflects Fitch's view of a high risk relative
to international peers that the issuer's ability to cover debt
service with the operating balance may weaken unexpectedly over the
forecast horizon (2022-2026) due to lower revenue, higher
expenditure, or even an unexpected rise in liabilities or debt or
debt-service requirement.
Revenue Robustness:
Weaker
The Brazilian tax collection framework transfers a large share of
the responsibility to collect taxes to states and municipalities.
Constitutional transfers exist as a mechanism to compensate poorer
entities. For that reason, a high dependency towards transfers is
considered a weak feature for Brazilian LRGs.
The primary metric for Revenues Robustness is the transfers ratio
(transfers to operating revenues). LRGs that report a transfer
ratio above or equal to 40% are classified as weaker, while others
with a ratio below 40% are classified as Midrange. The State of
Alagoas reports a relatively high dependency towards the federal
government, which drives this Weaker assessment. As of 2021,
transfers represented 43.5% of operating revenues (47.7% average
for 2017-2021).
Revenue Adjustability: 'Weaker'
Fitch believes Brazilian states and municipalities have a little
capacity to enact revenue increases in response to downturns.
Additional taxation is not very affordable, given tax tariffs are
near the constitutional national ceiling, and a small number of
taxpayers represent a large share of tax collection, driving the
Weaker factor.
The most relevant tax, the ICMS, has a concentrated taxpayer base
like other Brazilian states. Fitch estimates that the 10 largest
tax payers correspond to approximately 40% of total ICMS tax
collection in Alagoas. This creates a challenging environment for
the state to expand own revenues collection during a downturn.
Moreover, the National Congress recently set a limit for ICMS tax
tariffs for electricity, telecommunications and fuels. Such goods
should be treated as essential goods and tariffs are limited to
around 17%, creating further challenges for revenue adjustability.
Alagoas is one of the poorest states in Brazil. GDP per capita was
at 50% of the national average in 2019, and the poverty rate
approximately 47% in 2019. Low per capita income and high poverty
create challenges for further tax increases given that a
significant share of the population spends all its income on basic
items that are essential for survival.
Expenditure Sustainability: 'Midrange'
Responsibilities for states are moderately countercyclical since
they are engaged in healthcare, education and law enforcement.
Expenditure tends to grow with revenues as a result of earmarked
revenues. States and municipalities are required to allocate a
share of revenues in health and education. This results in a
procyclical behavior in good times, as periods of high revenue
growth result in a similar behavior for expenditures.
However, due to the big weight of personal expenditures and salary
rigidity, downturns that result in lower revenues are not followed
by similar drops in expenditures. LRGs that better manage human
resources and pension systems tend to be more efficient.
Alagoas has shown moderate control over expenditure growth with
sound margins. Operating margins averaged 17.4% between 2017 and
2021. The state is current on its payroll bill and has no
significant delays for the payment of suppliers. Operating
expenditure real CAGR reached 2.8% between 2017 and 2021,
considerably below the 8% real CAGR observed for operating
revenues. Nonetheless, Fitch views operating margins shrinking in
its rating case, as the state adjust salaries and contracts to past
inflation, such as indicated in the data available until October
2022.
Expenditure Adjustability: 'Weaker'
Fitch assesses the state's ability to reduce spending in response
to shrinking revenue as weak. As per the Brazilian Constitution,
there is low affordability of expenditure reduction especially in
salaries. As a result, whenever there is an unpredictable reduction
in revenues, operating expenditure does not follow automatically.
In addition, there is a high share of inflexible costs, as there is
close to a 90% share of mandatory and committed expenditures.
Consequently, capex represented on average 10% of the state's total
expenditures for the 2017-2021 period, also corroborating to the
Weaker assessment.
Liabilities & Liquidity Robustness: 'Weaker'
Access to new loans is restricted as Brazilian LRGs are not allowed
to access the market through bond issuances. Lenders consist mainly
of public commercial and development banks and multilateral
organizations. Often, loans are guaranteed by the federal
government, especially for foreign currency loans. For that reason,
the federal government has strict control over new lending to
LRGs.
There is a moderate national framework for debt and liquidity
management since there are prudential borrowing limits and
restrictions on loan types. Under the Fiscal Responsibility Law
(LRF) of 2000, Brazilian LRGs must comply with indebtedness limits.
Consolidated net debt for states cannot exceed 2x (200%) of net
current revenue. Alagoas reported a debt ratio of 37.9% as of
December 2021. The LRF also sets limits for guarantees (22% of net
current revenues). Alagoas reported a 1.69% ratio as of December
2021.
The state is currently benefitting from debt service relief in
compensation for the ICMS tax losses after the implementation of
the tariff limit for fuels, electricity and telecommunications. The
Supreme Court determined that the federal government should
compensate Alagoas for ICMS tax collection losses, which are above
5% the expected tax collection. The compensation will be monthly
and benefits intergovernmental and guaranteed debt. Fitch expects
further discussions on the topic, which could lead to a unified
approach across Brazilian LRGs, given the importance of the ICMS
tax for state and municipalities.
There is moderate off-balance sheet risk stemming from the pension
system, which is a burden for most Brazilian LRGs, especially for
states given their mandate over education and public security.
Another relevant contingent liability refers to the payment of
judicial claims, the so-called "precatorios". The national congress
has determined that subnational governments must fully amortize
such liabilities until 2029.
Liabilities & Liquidity Flexibility: 'Midrange'
There is a framework of providing emergency liquidity support from
the federal government via the granting of extended maturity over
the prevalent federal debt portion.
One of the metrics analyzed by the Brazilian National Treasury to
LRGs borrows with Federal Government with guarantees (CAPAG -
Capacidade de Pagamento) is the liquidity rate, measured by LRGs'
short-term financial obligation to net cash. The trigger of Federal
Government to rate this ratio as 'A' is 100%.
Fitch sets a trigger of 100% for the average of last three years
(2019-2021 year-end) together with the last year-end available (Dec
2021) below 100% to assess this factor as "midrange". Alagoas
reported a three-year average liquidity ratio of 24.7% and 25.8% in
December 2021 (source: Relatorio de Gestão Fiscal - RGF). Thus,
corroborating the Midrange assessment.
Debt Sustainability:
Debt Sustainability: 'a' category
Debt Sustainability is assessed at 'a' and considers an override
from the secondary metric, which is two levels below the primary
metric. Fitch's rating case forward looking scenario indicates that
the payback ratio (net direct risk to operating balance)
- the primary metric of the debt sustainability assessment
- will reach an average of 6.9x for the 2024-2026 period, which is
aligned with a 'aa' assessment. The actual debt service coverage
ratio
- the secondary metric
- is projected at 1.4x for the average of 2024-2026, aligned with
an 'bbb' assessment. Fiscal debt burden is projected at 59% for the
same period.
Debt sustainability is stable at the 'a' category from the previous
annual review. Nonetheless, Fitch observed a deterioration of
metrics within this category due to the strong adjustment to
operating expenditures observed until October 2022. This is likely
the result of adjustments of wages and contracts to past inflation,
given that states were forbidden from granting wages increases in
2020-2021 by MP 173, a federal law that allowed for extraordinary
transfers during the pandemic, while creating incentives for fiscal
adjustments.
Considering Alagoas' robust operating margins, there is some room
to accommodate increases in expenditures, as long as the state
continues to pursue fiscal prudence as it has done in the last few
years.
DERIVATION SUMMARY
Fitch assesses Alagoas' SCP at 'b+', reflecting a combination of a
'Weaker' risk profile and debt sustainability metrics assessed in
the 'a' category under Fitch's rating case scenario. The SCP,
positioned at 'b+', also reflects the peer comparison. Alagoas'
'BB-' IDR benefits from an uplift from the state's SCP because the
federal government is Alagoas' most significant creditor. The
Rating Outlook is Stable.
Short-Term Ratings
Alagoas' Short-Term Foreign and Local Currency ratings are
positioned at 'B' following the Rating Correspondence Table.
For the national scale, the correspondence table indicates an
'F1+(bra)' Short-Term rating.
National Ratings
Alagoas' national scale rating is 'AA(bra)'. Alagoas' IDRs are
equalized with the sovereign due to federal support through
intergovernmental finance. Therefore, the national scale rating is
positioned at the sovereign equivalent level of 'AA(bra)'.
KEY ASSUMPTIONS
Risk Profile: 'Weaker'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Midrange'
Debt sustainability: 'a'
Support (Budget Loans): '1'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign Cap (LT IDR): 'BB-'
Sovereign Cap (LT LC IDR) '-'
Sovereign Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2017-2021 figures and 2022-2026 projected
ratios. The key assumptions for the scenario include:
- yoy 4.5% increase in operating revenue on average in 2022-2026;
- yoy 7.1% increase in tax revenue on average in 2022-2026;
- yoy 9.0% increase in operating spending on average in 2022-2026;
- Net capital balance of BRL 1,820 million on average in
2022-2026;
- Cost of debt: 4.9% on average in 2022-2026.
Quantitative assumptions - Sovereign Related
Figures as per Fitch's sovereign actual for [2021] and forecast for
[2023], respectively (no weights and changes since the last review
are included as none of these assumptions was material to the
rating action):
Liquidity and Debt Structure
Net adjusted debt considers BRL 9.4 billion of direct debt and
unrestricted cash of BRL3 billion as of December 2021. Fitch
estimates that close to 20% of debt is external debt with federal
guarantee. Meanwhile, debt owed to the federal government
corresponds to 65% of total debt.
Alagoas has a history of strong liquidity, with an A score under
the National Treasury CAPAG for the last three years.
Issuer Profile
State of Alagoas is classified by Fitch as Type B LRGs, which are
required to cover debt service from cash flow on an annual basis.
Alagoas is home to 3.3 million people, equal to approximately 1.6%
of the Brazilian population, with below average socioeconomic
indicators. Its revenue sources are mainly composed of transfers
from the Federal Government in addition to taxes. The main spending
responsibilities cover education, healthcare and law enforcement.
According to budgetary regulation, Alagoas has the right to borrow
on domestic market and externally, subject to Federal Government
approval.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A downgrade of the sovereign would result in a similar action on
the ratings of Estado de Alagoas.
- A negative rating action on Alagoas' SCP could result from a
deterioration of its operating balance, with a payback ratio higher
than 13x and actual debt service coverage ratio below 1x.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A positive rating action on Brazil's IDR would lead to a
corresponding rating action on the Estado Alagoas given that its
ratings are equalized with the sovereign through intergovernmental
support.
- A positive rating action on Alagoas' SCP could result from an
improvement of its operating balance, with actual debt service
coverage ratio above 1.5x and provided that its payback ratio
remains below 9x.
ESG Considerations
Estado de Alagoas has an ESG Relevance Score of '4' for Population
Demographics due to the negative weight the municipality's poverty
rate has on its revenue raising ability, which has a negative
impact on the credit profile, and is relevant to the rating[s] in
conjunction with other factors.
Estado de Alagoas has an ESG Relevance Score of '4' for Human
Development, Health and Education due to its Human Development
Index (calculated as a geometric average of health, education and
income) at the bottom of the ranking among Brazilian states, 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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings of Estado de Alagoas are supported by the Brazilian
sovereign through intergovernmental finance.
Entity/Debt Rating Prior
----------- ------ -----
Estado de Alagoas LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Natl LT AA(bra) Affirmed AA(bra)
Natl ST F1+(bra) Affirmed F1+(bra)
===================================
D O M I N I C A N R E P U B L I C
===================================
AES ANDRES: Fitch Updates Dec. 7 Ratings Release
------------------------------------------------
This is an update of a release originally published Dec. 7, 2022.
Fitch Ratings has affirmed AES Andres B.V.'s (Andres) Long-Term
Foreign Currency Issuer Default Rating (IDR) at 'BB-' with a Stable
Outlook. Fitch has also affirmed Andres' USD300 million notes due
2028 at 'BB-' and its National Scale rating at 'AA(dom)' with a
Stable Outlook. The ratings consider the combined operating assets
of Andres and Dominican Power Partners (DPP; jointly referred to as
AES Dominicana), which are joint obligors of Andres' USD300 million
notes due 2028.
Andres' ratings reflect a strong linkage to the Dominican
Republic's (BB-/Stable) credit quality due to high government
subsidies, as well as an historically strong balance sheet and a
diversified asset portfolio. The ratings incorporate a weakening in
near-term credit metrics as high commodity (liquid natural gas,
LNG) prices drive a temporary change to the company's operating
profile. Fitch expects leverage should decline following a 2025
peak at 4.1x, assuming a return to a more stable and predictable
contracted structure, in which merchant and LNG sales are
de-emphasized.
A parent and subsidiary relationship exists between AES Andres and
AES Corporation (BBB-/Stable) due to the latter's pledge of shares
in the operating companies, but Fitch rates AES Andres on a
standalone basis, not assuming implicit support from the parent
company.
KEY RATING DRIVERS
Weakening Leverage Profile: Fitch expects AES Andres' credit
profile to weaken in 2023 through 2025 due to a temporary reduction
in the company's dispatch of electric generation and expiration of
its traditional purchased power agreements (PPAs) with the
state-owned public distribution companies (discos). This reduction
is because near-term, the company's new LNG supply contract with
Total, benchmarked to the TTF index, will make electricity
generation highly uneconomical for the discos, contrary to Andres'
historic position as the country's most cost-effective generator.
While Fitch-calculated leverage (debt/EBITDA) should stay favorable
yoy at 2.4x in fiscal 2022, Fitch expects leverage to steadily
increase thereafter as revenues reduce and become dependent on
unpredictable LNG and merchant sales. Leverage will approximate
4.1x by 2025, approaching Fitch's downward rating sensitivity of
4.5x. Fiscal 2022 EBITDA of USD346 million increased 27% yoy fiscal
2021 EBITDA, owing to stronger revenues, but should reduce to an
average USD226 million through 2026, weaker than historic norms.
Expanding Natural Gas Business: Andres operates the country's sole
LNG import terminal, offering regasification, storage, and
transportation infrastructure. In 2023, in lieu of its traditional
PPAs, AES Andres will increase third-party and extraordinary LNG
sales, as well as remain contracted with non-regulated users (NRUs,
which typically average 24% of revenues) and provide merchant spot
and peaking generation to the grid. LNG sales comprised 44% of
fiscal 2021 revenues and are estimated to grow to an average 55% in
2022 and 2023, including extraordinary one-time sales.
Extraordinary sales are primarily being generated in 2022 by
diverting a portion of the long-term contracted LNG at NYMEX Henry
HUB (jointly subscribed with third party sale agreements and
currently supplied by TOTAL ENERGIES) into the international LNG
market, mostly at higher TTF index-linked prices. The company
expects to be able to capture similar opportunities in 2023 and
2024. Fitch prices those international sales, indexed to TTF, at
USD45/MMBTU in 2022 and 2023, USD20/MMBTU in 2024 and beyond, much
higher than HH Prices.
Dependence on Government Transfers: High energy distribution losses
have averaged a chronic 33% due to low collection rates and
important subsidies for end-users. This has created a strong
dependence on government transfers for the country's generation
companies, and is been exacerbated by the country's exposure to
fluctuations in fossil-fuel prices and strong energy demand growth
from discos. The regular delays in government transfers have
pressured generators' working capital needs and added volatility to
their cash flows.
This situation increases sector risk, especially at a time of
rising fiscal vulnerabilities affecting the Central Government's
finances. Cash flow to Andres and DPP has historically been
affected by delays in payment from the state-owned distribution
companies, particularly during periods of high fuel oil prices,
which have pressured the system financially. Payment delays should
stabilize following regulatory changes.
Moderate Cash Flow Volatility: Cash flow to Andres and DPP has
historically been affected by delays in payment from the
state-owned distribution companies, particularly during periods of
high fuel oil prices, which have pressured the system financially.
As of September 2022, distribution companies owed Andres and DPP a
combined USD119 million, in line with the prior year but down
considerably from past levels. Both Andres and DPP maintain USD165
million in working capital lines of credit to manage collection
issues.
High-Quality Asset Base: Historically, Andres has ranked among the
lowest-cost electricity generators in the country. Andres's
combined-cycle plant with dual natural gas as well as fuel oil No.
6 (diesel), and is generally expected to be fully dispatched as a
base-load unit as long as the LNG price is not more than 15% higher
than the price of imported diesel.
Given the currently high costs of LNG, the company will utilize
comparatively lower-cost diesel fuel for its near-term generation
needs. The company continues to invest in renewable assets as well,
adding 150 MW of solar and wind assets to the portfolio over the
past several years at zero variable cost.
DERIVATION SUMMARY
Andres's ratings are linked to and constrained by the Dominican
Republic's ratings, from which it indirectly receives its revenues.
This is the same situation for Empresa Generadora de Electricidad
Haina, S.A. (EGE Haina; BB-/Stable), another Dominican Republic
power generator. The two companies are exposed to working capital
volatility due to operating difficulties tied to state-owned
Dominican electric distribution companies, which are characterized
by high dependency on government transfers due to their and high
energy loss and lower collection rates.
AES Andres has a thermal generation asset with competitive cost
generation. In addition, AES Andres has an integrated operation
with a natural gas port, regasification, storage and gas pipeline
facilities, as well as an expanding renewables business. Meanwhile,
EGE Haina benefits from a diversified energy matrix which includes
thermal and nonconventional renewable energy assets. EGE Haina's
leverage should increase to 4.6x by 2022 as a new subsidiary, Siba
Energy Corporation (Siba), will issue debt to finance the
construction of a new natural gas plant. This short-lived leverage
spike is similar to Andres' expected leverage of 4.1x leverage
expected in 2024.
Andres's capital structure is strong relative to similarly rated,
unconstrained peers. The Orazul Energy Peru S.A. (BB/Stable)
ratings reflect the company's predictable cash flows supported by
an adequate contractual position, historically efficient and
reliable hydroelectric generation assets, and cost structure
flexibility. Historically elevated leverage levels have tempered in
the last fiscal year due to asset sales and debt reduction, and
leverage is projected to remain commensurate with the rating
category over the medium term.
KEY ASSUMPTIONS
- Both Andres and DPP reduce generation volumes in favor of
lower-cost generators, expiring disco PPAs during 2023 but
continuing non-regulated user contracts. Most margin driven through
spot market and LNG sales;
- Andres and DPP increase generation through physical PPAs, with
margins driven by capacity revenues;
- By 2026 both generators resume financial PPAs with discos and
margins revert to generation;
- Additional USD250 million to support ongoing capex and dividend
payments equivalent to 100% of prior year's net income;
- Monomic contract prices of USD159/MWh in 2022, USD101/MWh in
2023, USD254/MWh in 2024 and USD188 in 2024 for AES Andres & DPP;
- Electricity spot prices of USD132/MWh over the rating horizon;
- Santanasol I comes online in 2022, Santanasol II and Mirasol I in
2023, and Mirasol II in 2024 with each unit having a total capacity
of 50MW;
- Fuel prices track Fitch price deck;
- Additional USD240 million in debt to support capex and
dividends;
- Dividends average USD95 million through 2026, with year-end cash
estimated at no less than USD93 million.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade in the Dominican Republic's sovereign ratings,
inclusive of the electricity sector achieving financial
sustainability through proper policy implementation.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A downgrade in the Dominican Republic's sovereign ratings;
- Sustained deterioration in the reliability of government
transfers;
- Continued exposure to spot sales and gas sales that collectively
represent more than 60% of EBITDA, coupled with a financial
performance deterioration resulting in the combined Andres/DPP
ratio of debt-to-EBITDA to above 4.5x for a sustained period.
LIQUIDITY AND DEBT STRUCTURE
Well-spread Maturities: Andres and DPP have historically reported
very strong combined credit metrics for the rating category. Both
companies have financial profiles characterized by low to moderate
leverage and strong liquidity. Combined EBITDA as of LTM June 30,
2022 totaled USD270 million (versus USD272 million at Dec. 31,
2021), total debt/EBITDA of 2.3x and FFO interest coverage of 5.3x.
The companies' strong liquidity position is further supported by
the refinancing of their 2026 international bond to a bond due in
2028. Andres also has local, amortizing bonds due in 2027.
ISSUER PROFILE
AES Andres is a 319 MW combined cycle power station and has a
160,000 m3 LNG storage facility, regasification terminal and a 34km
pipeline to DPP. The company also operates 100 MW of solar and 50
MW of wind assets, with more in the pipeline. DPP is a combined
cycle natural gas-fired plant with an installed capacity of 359
MW.
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
----------- ------ -----
AES Andres B.V. LT IDR BB- Affirmed BB-
Natl LT AA(dom) Affirmed AA(dom)
senior unsecured LT BB- Affirmed BB-
=============
E C U A D O R
=============
ECUADOR DPR 2023-1: Fitch to Give 'BB-(EXP)' Rating, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed the existing series 2020-1 loans and
series 2022-1 notes issued by Ecuador DPR Funding at 'BB-' and
expects to rate the $200 million series 2023-1 loan to be
originated 'BB-(EXP)'. The Rating Outlook is Stable.
Entity/Debt Rating Prior
----------- ------ -----
Ecuador DPR Funding
2020-1 LT BB- Affirmed BB-
2022-1 27928YAA5 LT BB- Affirmed BB-
2023-1 LT BB-(EXP)Expected Rating
TRANSACTION SUMMARY
The future flow program is backed by existing and future U.S.
dollar-denominated diversified payment rights (DPRs) originated by
Banco Pichincha C.A. (BP) in Ecuador. The majority of DPRs are
processed by designated depository banks (DDBs) that have signed
acknowledgement agreements (AAs), irrevocably obligating them to
make payments to an account controlled by the transaction trustee.
Upon issuance of the proposed series 2023-1 loan, the total program
size will be approximately $612.5 million.
Fitch's ratings address timely payment of interest and principal on
a quarterly basis.
KEY RATING DRIVERS
Future Flow Rating Driven by Originator's Credit Quality: The
rating of this future flow transaction is tied to the credit
quality of the originator, BP. On Nov. 21, 2022, Fitch affirmed
BP's Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable
Outlook. The bank's Viability Rating (VR) or standalone
creditworthiness drive the IDR of BP. Fitch believes Ecuador's
Sovereign Rating ('B-'/Stable) and broader operating environment
considerations highly influence the VR of BP as it impacts the
sustainability of its financial profile.
Going Concern Assessment Supports Notching Differential: Fitch uses
a Going Concern Assessment (GCA) score to gauge the likelihood that
the originator of a future flow transaction will stay in operation
through the transaction's life. Fitch assigns a GCA score of 'GC1'
to BP based on the bank's systemic importance and standing as the
largest bank in the Ecuadorian banking system in terms of assets
and deposits. The score allows for a maximum of six notches above
the Local Currency (LC) IDR of the originator; however, additional
factors limit the maximum uplift.
Factors Limit Notching Uplift from IDR: The 'GC1' score allows for
a maximum six-notch rating uplift from the bank's IDR, pursuant to
Fitch's future flow methodology. However, uplift is tempered to
three notches from BP's IDR given certain factors including no
lender of last resort in Ecuador and high future flow debt relative
to BP's non-deposit funding.
High Future Flow Debt Relative to BP's Balance Sheet Limits
Notching Differential: Fitch estimates future flow debt will
represent 4.8% of BP's total funding and 43.03% of non-deposit
funding based on September 2022 non-consolidated financials and
adjusting to include the proposed new issuance of $200 million,
three executed debt facilities expected to fund prior to
transaction closing, and the current outstanding balance on the
program today ($412.5 million).
Fitch does not allow the maximum uplift for originators that have
future flow debt greater than 30% of the overall non-deposit
funding; nevertheless, given the benefits of the proposed structure
and quality of flows, the agency allows for some differentiation
(three notches) from BP's LT LC IDR. Fitch is comfortable with this
level at the assigned rating and expects these levels to continue
to be high given the program remains a main source of funding for
the bank.
Coverage Levels Commensurate with Rating: The proposed loans are
expected to have an interest-only period of two years with the
first principal payment not expected to be due until March 2025.
Considering average rolling quarterly DDB flows over the past five
years (November 2017 - October 2022) and the maximum periodic debt
service over the life of the program, including the proposed new
issuance amount of $200 million and Fitch's 'BB-' interest rate
stress for the series 2023-1 floating-rate loan, Fitch's projected
quarterly debt service coverage ratio (DSCR) is 46.7x. The program
can withstand a reduction in flows of approximately 97.9% and still
cover the maximum quarterly debt service obligation. Nevertheless,
Fitch will continue to monitor the impact of macroeconomic
pressures on the performance of the flows as this could potentially
affect the assigned rating.
No Lender of Last Resort: Ecuador is a dollarized economy without a
true lender of last resort. While certain mechanisms are in place
to help fend off a banking system crisis, this limits the notching
differential of the transaction.
Reduced Redirection/Diversion Risk: The structure mitigates certain
sovereign risks by collecting cash flows offshore until collection
of the periodic debt service amount, allowing the transaction to be
rated over the sovereign country ceiling. Fitch believes payment
diversion risk is partially mitigated by the AAs signed by the five
correspondent banks processing the vast majority of U.S. dollar DPR
flows originating in the U.S.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The transaction ratings are sensitive to changes in the credit
quality of BP, which in turn is sensitive to changes in the credit
quality of Ecuador and its operating environment. A deterioration
of the credit quality of BP by one notch is likely to pose a
constraint to the rating of the transaction from its current
level.
- The transaction ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score
and a change in Fitch's view on the bank's GCA score can lead to a
change in the transaction's rating. Additionally, the transaction
rating is sensitive to the performance of the securitized business
line. The expected quarterly DSCR is approximately 46.7x, and
should therefore be able to withstand a significant decline in cash
flows in the absence of other issues. However, significant further
declines in flows could lead to a negative rating action. This new
issuance will also result in high future flow debt relative to BP's
balance sheet. If these ratios were to increase further, this could
also lead to a negative rating action. Any changes in these
variables will be analyzed in a rating committee to assess the
possible impact on the transaction ratings.
No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The main constraint to the program rating is the originator's
rating and BP's operating environment. If upgraded, Fitch will
consider whether the same uplift could be maintained or if it
should be further tempered in accordance with criteria.
- In December 2022, Fitch revised its "Global Economic Outlook"
forecasts as a result of central banks being forced to toughen up
in their fight against inflation and China's property market
outlook deterioration. Downside risks have increased and Fitch has
published an assessment of the potential rating and asset
performance impact of a plausible, but worse than expected, adverse
stagflation scenario on Fitch's major structured finance (SF) and
covered bond (CVB) subsectors ("What a Stagflation Scenario Would
Mean for Global Structured Finance"). Fitch expects LatAm's Global
Cross-Sector's financial future flow transactions in the assumed
adverse scenario to experience a "Virtually No Impact," indicating
a low risk for rating changes.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=============
J A M A I C A
=============
[*] JAMAICA: Gov't Partners With Lynk to Disburse Payments
----------------------------------------------------------
RJR News reports that the government has partnered with digital
wallet provider Lynk to facilitate payments.
The company says just fewer than 100 workers in two St. Andrew
constituencies were involved in a pilot of government funds
disbursements, according to RJR News.
The pilot, in partnership with the Bank of Jamaica and the
Constituency Development Fund, tested the issuing of large payments
through the Lynk app, the report notes.
Chief Product Officer of Lynk, John-Matthew Sinclair, says the
pilot is a guide for integrating JAMDEX as a method of payment for
government workers and welfare programs, the report relays.
He says the process of sensitization, information distribution,
onboarding and recruiting businesses to accept digital payments via
Lynk began in early October, the report notes.
December marks a year since the digital wallet has been in
operation, 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
===========
BED BATH & BEYOND: Extends Exchange Offers Until Jan. 4
-------------------------------------------------------
Bed Bath & Beyond Inc. said it has further extended its previously
announced offers to exchange any and all of its outstanding Senior
Notes.
The extension includes the offers to exchange:
(i) 3.749% Senior Notes due 2024 for new 3.693% Senior
Second
Lien Secured Non-Convertible Notes due 2027 and/or new 8.821%
Senior Second Lien Secured Convertible Notes due 2027, at the
option of the holder of the 2024 Notes;
(ii) 4.915% Senior Notes due 2034 for new 12.000% Senior Third
Lien Secured Convertible Notes due 2029; and
(iii) 5.165% Senior Notes due 2044 for New Third Lien Convertible
Notes.
In connection with the Exchange Offers, the Company is also
soliciting consents to amend the indenture governing the Old
Notes.
Each of the Exchange Offers and Consent Solicitations, which were
previously scheduled to expire at 11:59 p.m., New York City time,
on Dec. 19, 2022, has been extended until 11:59 p.m., New York City
time, on Jan. 4, 2023. Tenders of Old Notes may be withdrawn at
any time at or prior to the Expiration Time, but not thereafter,
subject to limited exceptions and except as otherwise required by
applicable law, unless extended.
Except for the extension of the Expiration Time and Withdrawal
Deadline, all other terms of the Exchange Offers and Consent
Solicitations remain unchanged.
As of 11:59 p.m., New York City time, on Dec. 19, 2022, which was
the previous expiration time for the Exchange Offers, the principal
amounts of Old Notes validly tendered and not validly withdrawn, as
advised by Global Bondholder Services Corporation, the exchange
agent for the exchange offers, are set forth below:
Title of Old
Notes Outstanding Principal
to be
Tendered Principal Amount
Amount Tendered
3.749% Notes due
2024 $215,403,000 $39,234,000
4.915% Notes due
2034 $209,712,000 $51,948,000
5.165% Notes due
2044 $604,820,000 $67,702,000
As of Dec. 19, 2022 the Comany had a total of approximately 117.3
million shares of common stock outstanding.
A Registration Statement on Form S-4, including a prospectus and
consent solicitation statement forming a part thereof, which is
subject to change, relating to the issuance of the New Notes has
been filed with the Securities and Exchange Commission, but has not
yet become effective. The New Notes may not be sold nor may
offers to buy be accepted prior to the time the Registration
Statement becomes effective. If and when issued, the New Notes
will be registered under the Securities Act of 1933, as amended.
Copies of the Prospectus pursuant to which the Exchange Offers and
Consent Solicitations are being made may be obtained from Global
Bondholder Services Corporation, the information agent and exchange
agent for the Exchange Offers and Consent
Solicitations. Requests for documentation and questions
regarding procedures for tendering the Old Notes can be directed to
Global Bondholder Services Corporation at (855) 654-2015 (for
information U.S. Toll-free) or (212) 430-3774 (information for
brokers). Questions regarding the terms and conditions of the
Exchange Offers and Consent Solicitations should be directed to the
dealer manager, Lazard Freres & Co. LLC, at (212) 632-6311.
The Exchange Offers and Consent Solicitations are being made only
by and pursuant to the terms and subject to the conditions set
forth in the Prospectus, which forms a part of the Registration
Statement, and the information in this press release is qualified
by reference to such Prospectus and the Registration Statement.
About Bed Bath &
Beyond
Bed Bath & Beyond Inc. is an omnichannel retailer selling a wide
assortment of merchandise in the Home, Baby, Beauty and Wellness
markets. Additionally, the Company is a partner in a joint
venture which operates retail stores in Mexico under the name Bed
Bath & Beyond.
The Company reported a net loss of $559.62 million for the fiscal
year ended Feb. 26, 2022, a net loss of $150.77 million for the
year ended Feb. 27, 2021, and a net loss of $613.82 million for the
year ended Feb. 29, 2020. As of Aug. 27, 2022, the Company had
$4.66 billion in total assets, $5.24 billion in total liabilities,
and a total shareholders' deficit of $577.65 million.
* * *
As reported by the TCR on Nov. 16, 2022, S&P Global Ratings lowered
its issuer credit rating on Union, N.J.-based specialty home
retailer Bed Bath & Beyond Inc. (BBBY) to 'SD' (selective default)
from 'CC'. This action follows the Company's announcement of
privately negotiated exchanges of over $150 million par value of
its senior unsecured notes for the company's common stock. S&P
views the exchange as distressed and not opportunistic.
As reported by the TCR on Nov. 28, 2022, Moody's Investors Service
retained Bed Bath's corporate family rating at Ca and the outlook
remains stable. According to Moody's, Bed Bath & Beyond's Ca
corporate family rating reflects the very high likelihood of
further defaults over the next twelve months.
UFN F18247-6: Fitch Cuts LongTerm Global Scale Rating to 'CCCsf'
----------------------------------------------------------------
Fitch Ratings has downgraded Trust 18247-6 Credit Line's long-term
global scale rating to 'CCCsf' from 'BBB+sf', and national scale
rating to 'CCC(mex)vra' from 'AAA(mex)vra', and has removed the
Rating Watch Negative. The credit line is provided by Banco
Santander Mexico, S.A., Institucion de Banca Multiple (Santander
Mexico) as lender to Banco Nacional de Mexico, S.A., Institucion de
Banca Multiple (Citibanamex) as trustee of Fideicomiso Irrevocable
de Administracion y Fuente de Pago con Derechos de Reversion Numero
18247-6 (UFN F18247-6).
Entity/Debt Rating Prior
----------- ------ -----
UFN F18247-6 (2019)
UFN F18247-6
(2019) LT CCCsf Downgrade BBB+sf
UFN F18247-6
(2019) Natl LT CCC(mex)vra Downgrade AAA(mex)vra
The downgrade reflects enduring collection delay that has impacted
the transaction's cashflow dynamics and collateral credit
performance. In a previous commentary, Fitch anticipated a
heightened probability of a potential disruption of Unifin
Financiera S.A.B. de C.V.'s (Unifin; rating withdrawn; previous
rating 'D') servicing and reporting activities, which currently
appear as recurrent. The portfolio's performance has greatly
deteriorated since August 2022, as Unifin has not replaced
defaulted loans.
The poor performance could be related to delinquencies, information
inconsistencies, remaining collections deposited into Unifin's
accounts, impaired servicing or cash transfer delays from the
servicer. However, Fitch lacks the information needed to determine
the specific impact of these or other factors, and relies on
information it receives from Unifin to clarify and define
reasonable assumptions for concentrations, expected defaults and
recoveries.
TRANSACTION SUMMARY
The transaction consists of a securitization of a pool of equipment
lease contracts originated and serviced by Unifin. The structure is
a credit facility provided to an SPV in the form of a trust. Unifin
was the settlor and the collateral includes a pool of equipment
lease contracts and, to a lesser extent, cash and convertible
short-term securities investments. The credit facility UFN F18247-6
was provided by Banco Santander México, S.A., Institucion de Banca
Multiple, Grupo Financiero Santander Mexico (Santander, rated
'BBB+'/Stable and 'AAA(mex)'/Stable).
KEY RATING DRIVERS
Sustained Exposure to Commingling Risk: Although collections can be
deposited in the Master Collection Trust (MCT), the majority of
collections are received in UNIFIN accounts, which are then
transferred to the MCT within two days, according to the governing
documents. Accelerated portfolio deterioration and declining
collection levels suggest an ongoing delay in the collection
process. Despite Santander's efforts to notify borrowers to deposit
directly into the MCT, collections continue to be deposited into
Unifin's accounts, exposing the transaction to commingling risk.
Servicing and Operational Disruption: Fitch believes the asset pool
has standard characteristics and enough market participants to
replace servicing activities for a suitable transition process.
However, recent "concurso mercantil" filed by the entity,
specifically prevent the SPV from substituting the primary
servicer, enhancing the likely reliance on Unifin for continued
asset pool servicing. The transaction's reporting delays,
information inconsistencies and impaired servicing has pressured
performance, clouding real credit risk or concentration exposures,
and mostly exhibiting operational risk linked to a distressed
company.
Overcollateralization Impacted by Default Metrics: The
transaction's current portfolio levels have decreased over the last
three months and since the interruption of substitution or new
transfers of leases to the SPV. In its previous commentary and
considering information provided by the company, Fitch considered
15% of substitutions as defaults and the rest were due to
rebalancing of assets to address concentration limits (industry,
geographic or obligor) between three different SF transactions.
However, after the termination of revolving period, default rates
of the resulting static portfolio have reached 17.65% as of October
2022 (vs initial BCDR of 6%). Accordingly, OC was 2.49% below
target level (20.6%).
Insufficient OC to Cover Stressed Loss or Concentrations: Although
the rating actions are driven by heightened operational risk, Fitch
estimated the maximum levels of gross loss that the transaction
could withstand. Considering the current portfolio and the credit
line's outstanding balance reported at the end of October 2022, the
levels obtained would barely cover the reported loss. However,
Fitch perceives deficiencies in the transaction reports that may
represent omissions that reduce reliance on estimates of losses,
which could lead to errors in the credit risk assessment.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Major delinquency levels, OC reduction or lack of liquidity with
further pressure towards transaction default could lead to a
downgrade.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch will continue monitoring the transactions through monthly
reports and surveillance with the Master Servicer and lenders. If
there are improvements on collection transfers from Unifin,
obligors depositing in SPV's accounts and a decrease on default
metrics followed by an increase in credit protection, an upgrade
could be evaluated.
ESG CONSIDERATIONS
UFN F18247-6 (2019) has an ESG Relevance Score of '4' for
Transaction & Collateral Structure due to Asset Isolation and
Collateral Structure due to obligor risk concentration, which has a
negative impact on the credit profile, and is 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.
*********
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 2023. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
* * * End of Transmission * * *