/raid1/www/Hosts/bankrupt/TCRLA_Public/230210.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
Friday, February 10, 2023, Vol. 24, No. 31
Headlines
A R G E N T I N A
BANCO HIPOTECARIO: Fitch Affirms & Then Withdraws 'CCC-' IDRs
B R A Z I L
AMERICANAS SA: Evaluates Whether to Request for BRL1b Bridge
BRAZIL: Holds Rates & Sounds Alarm on Rising Inflation Bets
LIGHT SA: Fitch Lowers Issuer Default Ratings to 'CCC+'
OI SA: Fitch Lowers LongTerm IDRs to 'C' Amid Court Injunction
C O L O M B I A
EMPRESA DE TELECOMUNICACIONES: Fitch Affirms LongTerm IDR at 'BB+'
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Sector Will Study Salary Increase Proposal
J A M A I C A
JAMAICA: NIR Fell in January
[*] JAMAICA: Economy is Now Recovering Strongly, IMF Says
M E X I C O
CONSUBANCO SA: Fitch Affirms & Then Withdraws LongTerm IDRs at BB-
P U E R T O R I C O
ESJ TOWERS: Hires CPA Luis R. Carrasquillo as Financial Advisor
- - - - -
=================
A R G E N T I N A
=================
BANCO HIPOTECARIO: Fitch Affirms & Then Withdraws 'CCC-' IDRs
-------------------------------------------------------------
Fitch Ratings is affirming and simultaneously withdrawing Banco
Hipotecario S.A.'s Long-Term Foreign and Local Currency Issuer
Default Ratings (IDR) at 'CCC-'. Fitch is also affirming and
withdrawing all other ratings including the Viability Rating (VR)
at 'ccc-'.
Fitch has chosen to withdraw the ratings for commercial reasons.
Fitch will no longer provide ratings or analytical coverage for
this bank.
KEY RATING DRIVERS
Fitch has chosen to withdraw the ratings for commercial reasons.
Fitch will no longer provide ratings or analytical coverage for
this bank.
The key rating drivers of the issuer are the same as those in
detailed in "Fitch Ratings Upgrades Banco Hipotecario S.A.'s IDR to
'CCC-'" published on Sept. 15, 2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Negative rating sensitivities are not applicable as the ratings
have been withdrawn.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Positive rating sensitivities are not applicable as the ratings
have been withdrawn.
VR ADJUSTMENTS
- The implied 'ccc' Viability Rating has been adjusted to 'ccc-'
due to operating environment/sovereign rating constraint
(negative);
- The Operating Environment score of 'ccc' has been assigned below
the implied score of 'b' due to the following adjustment reason:
Sovereign Rating (negative);
- The Business Profile score of 'ccc' has been assigned below the
implied score of 'b' due to the following adjustment reason:
Business Model (negative).
ESG CONSIDERATIONS
Following the withdrawal of ratings for Banco Hipotecario, Fitch
will no longer be providing the associated ESG Relevance Scores.
Prior to today's withdrawal, Banco Hipotecario S.A. had an ESG
Relevance Score of '4' for Management Strategy due to the high
level of government intervention in the Argentine banking sector.
The imposition of interest rate caps can lead to inadequate loan
pricing, and, together with the imposition of interest rates floors
on time deposits, puts significant pressure on a bank's net
interest margins. In addition, restrictions on fee levels can
negatively affect performance ratios. This challenged Banco
Hipotecario's ability to define and execute its own strategy. This
had a moderately negative impact on the rating in conjunction with
other factors.
Other than the above-mentioned '4' rating for Management Strategy,
the highest level of ESG credit relevance was a score of '3'. This
meant that ESG issues were credit-neutral or had only a minimal
credit impact on the entity, either due to their nature or the way
in which they were being managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Banco Hipotecario
S.A. LT IDR CCC- Affirmed CCC-
LT IDR WD Withdrawn CCC-
ST IDR C Affirmed C
ST IDR WD Withdrawn C
LC LT IDR CCC- Affirmed CCC-
LC LT IDR WD Withdrawn CCC-
LC ST IDR C Affirmed C
LC ST IDR WD Withdrawn C
Viability ccc- Affirmed ccc-
Viability WD Withdrawn ccc-
Government Support ns Affirmed ns
Government Support WD Withdrawn ns
===========
B R A Z I L
===========
AMERICANAS SA: Evaluates Whether to Request for BRL1b Bridge
------------------------------------------------------------
Alex Vasquez of Bloomberg News reports that Americanas S.A. said it
is
assessing whether to request a BRL1 billion (minimum amount) bridge
loan for companies in trouble, known as DIP financing, before a
commercial court in the city of Rio de Janeiro. DIP financing
would help maintain the company's business and strengthen its
liquidity, Americanas said in a regulatory filing. If the loan is
approved, it will allow for the maintenance of working capital
investments and the financing of obligations not subject to the
bankruptcy protection, including payments to suppliers and
partners, Americanas said.
About Americanas SA
Americanas was one of the largest diversified retail chains in
Brazil, with a wide platform of physical stores, robust e-commerce,
fintech, and has just entered into the niche food retail. It is
listed on B3, being indirectly controlled by billionaire Jorge
Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles.
The retailer nosedived in January 2023 after becoming mired in an
accounting scandal. The firm filed for bankruptcy at a court in
Rio de Janeiro on Jan. 19, 2023.
Americanas sought protection under Chapter 15 of the U.S.
Bankruptcy Code (Bankr. S.D.N.Y. Case No. 23-10092) on Jan. 25,
2023. White & Case LLP, led by John K. Cunningham, is the U.S.
counsel.
BRAZIL: Holds Rates & Sounds Alarm on Rising Inflation Bets
-----------------------------------------------------------
Buenos Aires Times reports that Brazil's Central Bank kept its key
interest rate unchanged and expressed concern about the costs of
taming rising inflation expectations that have been fuelled by
tensions with President Luiz Inacio Lula da Silva's new
government.
Policymakers held the benchmark Selic at 13.75 percent for the
fourth straight meeting, in line with investor consensus, according
to Buenos Aires Times. In a statement widely considered to be
hawkish, board members wrote they will assess if keeping rates
steady "for a longer period" than previously expected will slow
inflation to target, the report notes.
"The current scenario, particularly uncertain on the fiscal side
and with inflation expectations drifting away from the inflation
target on longer horizons, requires further attention when
evaluating risks," they wrote, the report notes. "The Committee
judges that this scenario raises the cost of the disinflation that
is needed to reach the targets" established for the years ahead,
the report discloses.
Policymakers led by Roberto Campos Neto are battling rising
cost-of-living expectations that make it more difficult to justify
rate cuts, even as annual inflation has consistently eased over the
past few months - to 5.87 percent, from last year's peak of more
than 12 percent, the report discloses. The decline has been driven
by tax cuts and restrictive borrowing costs, but fuel prices are
now going up while core measures that strip out the most volatile
items are accelerating, the report notes.
"Officials referred to the strategy of holding rates for longer
than what's assumed in its forecasts, i.e. consensus projections.
We think that's an attempt to sound hawkish without suggesting a
rate hike. Currently, the consensus forecast is for the first rate
cut to come in September. The statement language suggests it may
come later," said Adriana Dupita, Bloomberg's economist for Brazil
and Argentina, the report relays.
The decision comes amid high political tensions, as Lula has
questioned the Central Bank's independence and its inflation goals,
suggesting it should pursue a 4.5 percent target, the report
discloses. Currently, the bank targets price increases of 3.25
percent for 2023 and 3 percent for the next two years, the report
notes.
Finance Minister Fernando Haddad added to speculation that policies
may change, saying that Brazil needs ambitious, yet feasible
targets, the report says.
Investors are also fretting about the fiscal outlook, as Haddad is
expected to propose new spending rules by April, replacing the
current law that limits public expenditure increases to the prior
year's inflation rate, the report discloses. The new government is
also deploying 168 billion reais (US$33 billion) in additional
spending, including social aid, while weighing a higher minimum
wage, the report says.
"The statement is hawkish," said Felipe Sichel, economist and
partner at Modal Asset Management Ltda, the report notes. "It
leaves the door open to keeping rates steady for a longer period
and clearly warns about worsening inflation expectations," the
report relays.
Sichel added that he sees no borrowing-cost cuts this year, the
report adds.
Extremely Harsh
In the statement, board members wrote that expectations for
consumer price increases "have shown deterioration at longer
horizons," the report relays. Meanwhile, the global economy
remains under inflationary pressure despite positive signs at the
margin, they wrote, the report notes.
Earlier, the Federal Reserve slowed the pace of rate rises but said
more increases are in store. Regionally, policymakers from Mexico
to Colombia continue to hike, while Chile's central bank President
Rosanna Costa has pushed back against investor bets of the start of
an easing cycle, the report discloses.
In an outlook considering rate cuts starting in September as shown
in its weekly economist survey, Brazil's Central Bank sees consumer
price increases above the ceiling of its tolerance range in 2023
and above target next year, the report relays. In an alternative
scenario with a constant Selic, inflation forecasts stand lower, at
5.5 percent for this year and 2.8 percent for next, the report
notes.
In the outlook with steady borrowing costs, "inflation is closer to
the three percent target in 2024," said Leonardo Costa, an
economist at Asa Investments, the report relays. "That indicates
the central bank's plan is to keep rates steady for a longer
period," the report says.
Meanwhile, analysts see consumer prices rising above the bank's
mid-term goal for the foreseeable future, the report discloses.
Officials will set the 2026 target this year, the report notes.
"The statement was extremely harsh," said Carla Argenta, chief
economist at CM Capital, the report relays. "The Central Bank
understands that, under current conditions, we don't have
inflationary convergence, and that the institution should make some
change in its monetary policy or keep rates steady for longer," 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 recently reported in the Troubled Company Reporter-Latin
America, Fitch Ratings, in December 2022, 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.
Standard & Poor's affirmed its 'BB-/B' long- and short-term
foreign and local currency sovereign credit ratings on Brazil, and
the outlook remains stable (June 2022). The stable outlook
reflects S&P's base-case assumption that Brazil will maintain its
fiscal anchors over the next two years despite an increasing
interest burden, preventing significant fiscal slippage and
limiting the rise in its already high debt burden.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS's credit rating for Brazil is BB (low) with stable outlook
(March 2018).
LIGHT SA: Fitch Lowers Issuer Default Ratings to 'CCC+'
-------------------------------------------------------
Fitch has downgraded the Local Currency and Foreign Currency Issuer
Default Ratings (IDRs) of Light S.A. (Light) and its wholly owned
subsidiaries Light Servicos de Eletricidade S.A. (Light Sesa) and
Light Energia S.A.'s (Light Energia) to 'CCC+' from 'BB-'. Fitch
has also downgraded the National Scale Ratings of these entities to
'CCC(bra)' from 'AA-(bra)'. The ratings of foreign currency and
local currency debt instruments were downgraded to 'CCC+'/'RR4' and
'CCC(bra)'.
The downgrades reflect substantial credit risk for Light in making
timely payment of principal and interest on its obligations
following the announcement that it had hired Laplace Finanças with
the purpose to improving its capital structure and the more
restrictive credit market due to Americanas' default. The
confluence of these factors substantially reduces the group's
ability to raise financing needs to support its expected negative
FCF and debt amortization. Prior to these recent developments,
Fitch expected Light to raise up to BRL1.8 billion in 2023 through
the securitization of receivables to meet its funding
requirements.
KEY RATING DRIVERS
Potential Debt Restructuring: To avoid a restructuring in the midst
of a challenging backdrop, Light will need to maintain access to
bank or capital market funding. In the absence of additional
funding, the company will need some combination of asset sales, a
follow-on equity offering, or more clarity on the renewal of the
concession of Light Sesa, the company's main subsidiary. Fitch
believes that the engagement of Laplace, which has been an advisor
for several companies that have restructured debt in Brazil,
materially reduces creditors' willingness to provide new financings
to the group to cover its 2023 and 2024 funding needs.
Americanas' recent judicial recovery may also play a role in the
group's ability to raise debt, as several lenders suffered material
losses. The potential effect upon Light's ability to refinance debt
due to the uncertainty surrounding the renewal of Light Sesa's
concession had already been a key credit consideration for the last
revision of the Outlook to Negative from Stable, but new debt
issuances will likely become more challenging.
High Refinancing Needs: Fitch has concerns about Light's ability to
secure funding. The agency had estimated that the group would raise
up to BRL1.8 billion of financing in 2023, and at least BRL1.5
billion in 2024. In case of non-renewal of the Light Sesa
concession, the company should receive an indemnity for unamortized
assets equal to its asset base, currently valued at BRL10.1
billion, which compares with on-balance-sheet consolidated debt of
around BRL13 billion and a cash position of BRL4.0 billion in
September of 2022. The indemnification supports the recovery
prospect of debt holders, if needed.
Moderate Consolidated Leverage: Light's consolidated adjusted
leverage should remain at moderate levels, despite being moderate
to high at Light Sesa's level. The base case scenario estimates a
net adjusted debt/EBITDA of 4.3x in 2022 and 4.1x in 2023,
including guarantees provided to Norte Energia S.A. as off-balance
sheet debt (BRL733 million on September 2022). For Light Sesa, net
leverage is estimated at 5.5x in 2022 and 5.2x in 2023, from 6.9x
in September of 2022.
Debt Ratings Capped: Fitch applies a bespoke approach to recovery
for issuers rated 'B+' and lower, using the higher of going-concern
and liquidation estimates to enterprise valuation. In the case if
Light, Fitch forecasts recovery rates commensurate with an 'RR1'
for secured debts (BRL1.7 billion) and 'RR3' for unsecured debts
(BRL11.0 billion), which could potentially lead to uplift on the
bonds' rating from Light's FC IDR.
However, Fitch's "Country-Specific Treatment of Recovery Ratings
Criteria" caps at 'RR4' the recovery for debt instruments in
Brazil, resulting in an instrument rating equal to Light's FC IDR.
These caps reflect Fitch's concerns over the enforceability of
creditor rights in certain jurisdictions, where average recoveries
tend to be lower.
DERIVATION SUMMARY
Light's accessibility to capital has significantly weakened its
credit profile, as reflected in the downgrade. The company faces
credit risks similar to those of GOL Linhas Aereas S.A. (GOL;
Long-Term Foreign and Local Currency IDRs B-/Negative) and
InterCement Brasil S.A. (InterCement; FC and LC IDRs B-/Stable).
Both Gol and InterCement operate in sectors with higher business
risk and their cash flows have been pressured by macroeconomic
factors, such as high fuel costs. Their high financial leverage
coupled with high interest rates weaken their financial
flexibility.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Light maintains its ability to receive funding from banks or
the capital market;
- The group sells assets or raises equity in a follow-on
issuance;
- Renewal of Light Sesa's concession on more favorable terms.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The announcement of a debt restructuring plan;
- Insufficient liquidity to cover funding requirements
over the next 12 months.
LIQUIDITY AND DEBT STRUCTURE
Heightened Refinancing Risk: Light's ability to secure funding in
the short term is uncertain. At the end of 3Q22, Light reported
BRL4.0 billion in cash and equivalents, which should cover the
expected negative FCF (BRL1.6 billion) and debt payments (BRL2.2
billion) through 2023. Adjusted consolidated debt was BRL13.5
billion, of which BRL2.6 billion was short-term. The remaining
included BRL356 million due 4Q23 and BRL2.3 billion due 2024.
Adjusted debt mainly comprises of debentures (BRL7.8 billion) and
Eurobonds (BRL3.2 billion), with off-balance sheet debt of BRL733
million related to guarantees provided to Norte Energia S.A. There
is no debt at the holding level.
ISSUER PROFILE
Light Sesa is the fourth largest power concession in Brazil,
serving more than 70% of Rio de Janeiro's consumption, and accounts
for 70% of the group's EBITDA. Light Energia has 511 MW of assured
energy, on a consolidated basis. Light S.A. is listed on B3 and has
a pulverized share ownership.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Remuneration of concession's financial asset not included in
EBITDA calculation;
- Construction revenues and costs excluded from the Income
Statement.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Light Servicos
de Eletricidade
S.A. LT IDR CCC+ Downgrade BB-
LC LT IDR CCC+ Downgrade BB-
Natl LT CCC(bra)Downgrade AA-(bra)
senior
unsecured LT CCC+ Downgrade RR4 BB-
senior
unsecured Natl LT CCC(bra)Downgrade AA-(bra)
Light Energia
S.A. LT IDR CCC+ Downgrade BB-
LC LT IDR CCC+ Downgrade BB-
Natl LT CCC(bra)Downgrade AA-(bra)
senior
unsecured LT CCC+ Downgrade RR4 BB-
senior
unsecured Natl LT CCC(bra)Downgrade AA-(bra)
Light S.A. LT IDR CCC+ Downgrade BB-
LC LT IDR CCC+ Downgrade BB-
Natl LT CCC(bra) Downgrade AA-(bra)
OI SA: Fitch Lowers LongTerm IDRs to 'C' Amid Court Injunction
--------------------------------------------------------------
Fitch Ratings has downgraded Oi S.A.'s Long-Term Local and Foreign
Currency Issuer Default Ratings (IDRs) to 'C' from 'CC'. In
addition, Fitch has downgraded Oi's unsecured senior notes due 2025
and senior secured 2026 notes to 'C'/'RR4' from 'CC'/'RR4'. The
National Long-Term Rating was downgraded to 'C(bra)' from
'CC(bra)'.
The downgrades follow Oi's announcement that it has obtained an
injunction from Rio de Janeiro's court establishing, among other
protection measures, the suspension of enforceability of all
obligations related to financial instruments, such as debt
principal and interest. The ratings will be downgraded to 'RD' if
in Fitch's opinion Oi experiences an uncured payment default in its
2025 notes. Oi's ratings will be downgraded to 'D' if the company
files for bankruptcy protection.
KEY RATING DRIVERS
Standstill Obtained: The injunction allows Oi to suspend the
enforceability of obligations for the next 30 days, mainly the
coupon payment of the 2025 notes due February 5 and pension fund
obligations. The objective of the injunction petition was to
preserve cash, avoid acceleration of its debt, protect assets and
ensure the continuity of operations. Fitch considers this event a
standstill as Oi's payment capacity is irrevocably impaired.
Unsustainable Leverage: The company's EBITDA will continue to be
significantly pressured by a heavy cost structure due to concession
payments of its fixed telephony business as well as by liabilities
of its legacy operations. Oi's LTM EBITDA as of Sept. 30, 2022 was
BRL517 million which compares with BRL35 billion of debt at face
value. In addition, Oi needs to invest BRL1.0 billion to BRL1.2
billion of capex per year over the next two years to sustain its
plans to expand its broadband services strategy while it migrates
its customers to fiber-optic solutions from copper.
Weak Liquidity: Oi's liquidity is weak. The company is projected to
generate negative FCF during the rating horizon due to interest
payments of around BRL1.8 billion and capex in the range of BRL1
billion to BRL1.2 billion. Oi has high debt of BRL35 billion at
face value and a weak interest coverage meaningfully below 1.0x
despite grace periods in part of this debt. The company had a cash
balance of approximately BRL3.0 billion at the end of 2022. The
company faces financial debt maturities of BRL400 million in 2023
and BRL800 million in 2024.
DERIVATION SUMMARY
The current IDRs incorporate Oi's standstill situation and will
likely enter a debt restructuring with creditors.
KEY ASSUMPTIONS
Fitch's estimate of recovery is based on a going concern EBITDA of
BRL1.2 billion-BRL1.5 billion, which is considered achievable in
the medium term. Fitch uses a multiple of 4x, which is in the low
end of the range of telecom multiples and reflects the heavy
competition in Brazil's fixed broadband market.
Fitch estimates the value of Oi's stake in the V.tal at
approximately BRL7.0 billion. Based on these assumptions, the
forecast recovery rate for Oi is consistent with an 'RR4'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A ratings upgrade is considered unlikely prior to a debt
restructuring.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- An uncured payment default on financial obligations after
injunction relief period or the formal announcement of a distressed
debt exchange would lead to a downgrade to 'RD';
- A filing for bankruptcy protection would lead to a downgrade to
'D'
ISSUER PROFILE
Oi owns copper telecommunications infrastructure and provides fiber
optic and other digital services for residential and corporate
customers.
ESG CONSIDERATIONS
Oi S.A. has an ESG Relevance Score of '4' for Financial
Transparency. Reporting is adequate, but the complexity of the
financial and operational restructuring weighs on the overall
assessment of Transparency, 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 Recovery Prior
----------- ------ -------- -----
Oi S.A. LT IDR C Downgrade CC
LC LT IDR C Downgrade CC
Natl LT C(bra)Downgrade CC(bra)
senior
unsecured LT C Downgrade RR4 CC
senior secured LT C Downgrade RR4 CC
===============
C O L O M B I A
===============
EMPRESA DE TELECOMUNICACIONES: Fitch Affirms LongTerm IDR at 'BB+'
------------------------------------------------------------------
Fitch Ratings has affirmed Empresa de Telecomunicaciones de Bogota,
S.A., E.S.P.'s (ETB) Long-Term Foreign and Local Currency Issuer
Default Ratings (IDR) at 'BB+'. Fitch has also affirmed ETB's
National Long-Term Rating at 'AA+(col)'. The Rating Outlook is
Stable.
ETB's ratings reflect low leverage and its business concentration
in the city of Bogota, with a revenue structure concentrated mainly
in its business-to-business (B2B) and government segment (40% of
revenues), and home and small-and-medium-size-business (SME)
segment (52% of revenues). The affirmation reflects ETB's continued
network deployment, which has resulted in roughly 1.7 million homes
passed with fiber-to-the-home (FTTH). ETB's ratings are constrained
by its limited geographic diversification and a take-up ratio of
approximately 30% on its FTTH network, which limits the company's
ability to achieve meaningful revenue and EBITDA growth in the
short term.
KEY RATING DRIVERS
Low but Rising Leverage: Fitch Ratings expects ETB's total gross
and net EBITDA leverage to be 2.1x and 0.9x, respectively, as of YE
2022. Fitch forecasts net leverage will increase to a peak of 1.1x
in 2023 due to high capex needs to support ongoing conversion of
ETB's fiber network, as well as dividends owed to the District of
Bogota. Fitch expects gross leverage to trend toward 1.9x over the
next few years.
Continued Revenue Diversification: ETB's commercial strategy seeks
to continue reducing the percentage of revenues coming from its
copper network (projected to be less than 10% in 2022) and increase
revenues coming from its fiber network. This restructuring of the
company's revenue structure is key for ETB and will help improve
EBITDA margin and obtain payback on its major network investments.
Fitch estimates approximately 40% of the company's revenues comes
from the more stable B2B services, while 52% comes from the home
business. Additionally, the recently announced partnership
agreement with Tigo UNE will add incremental revenue as Tigo UNE
will use ETB network to grow its presence in Bogota and is expected
to enhance ETB's margin potential as usage of its network expands.
Intense Competition: Fitch expects the company's competitive
position to remain under pressure as local integrated telecom
operators push their commercial strategies to retain and/or grow
their subscriber base in Bogota, while ETB continues to implement
its strategy of replacing legacy copper subscribers with FTTH
clients. ETB is the second leading fixed operator in Bogota based
on subscriber market share, after leader Comunicacion Celular S.A.
Comcel S.A. (Claro).
On a national level, ETB´s estimated market share is of 14% in
fixed telephony, 8% in broadband and 2% in pay TV. Claro is the
market leader within Colombia, with estimated subscriber market
shares of 42%, 37% and 47%, respectively, in the same fixed
businesses.
Sustained Negative FCF: Fitch expects ETB's FCF to be negative over
the rating horizon, given the increased capex related to improving
penetration of its FTTH network in Bogota and dividend payments to
the District of Bogota. Capex intensity is expected to peak around
38% in 2022 as ETB has focused on improving the quality and
maintenance of its FTTH network. Fitch expects capex outlay to
decrease toward 22% of revenues by 2025.
DERIVATION SUMMARY
ETB is rated one notch lower than Colombia Telecomunicaciones S.A.
E.S.P. (ColTel; BBB-/Stable), a more diversified telecom, with a
growing fixed operation and a strong mobile footprint in Colombia.
ColTel exhibits a more levered capital structure at 3.1x gross
debt/EBITDA than ETB at 1.3x. ETB is rated the same as Telefonica
Celular del Paraguay S.A. (BB+/Stable), the leading mobile operator
in Paraguay (BB+/Stable), which exhibits a strong competitive
position and higher gross leverage of 3.6x. ETB is rated two
notches above WOM S.A. (BB-/Stable), a Chilean-based mobile service
provider with low diversification and a weaker financial profile.
ETB is rated on a standalone basis, as any recurring support from
the District of Bogota, its controlling shareholder, is unlikely.
Fitch views the district's 2017 decision to restructure ETB's
dividend liability into a 10-year obligation with a two-year grace
period as extraordinary support of the company's cash position,
which is not likely to reoccur in the future. No Country Ceiling
and/or operating environment constraint were in effect for these
ratings.
KEY ASSUMPTIONS
- Total revenues grow low-to-mid-single-digits over the rating
horizon, backed by increased FTTH network penetration;
- Net leverage projected to reach maximum of 1.1x during 2023,
remain steady thereafter;
- Capital intensity peaking at 38% in 2022 and trending down
toward 22% over the medium term;
- Payment of dividends owed to the District of Bogota;
- Negative FCF over the rating horizon.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A positive rating action would require an upgrade of the
rating of the District of Bogota, plus improvements in the
company's operating performance.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Muted revenue growth, due to slower than expected subscriber
growth in non-traditional services, amid continued material
revenue erosion in copper-based services;
- EBITDA margin deterioration without a material improvement
in market position;
- Consistently negative FCF generation with a low cash balance;
- Total debt/EBITDA above 2.0x and/or net debt/EBITDA above 1.5x
on a sustained basis.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: On Jan. 18 2023, ETB announced that it had
completed the payment on the maturity of its COP354 billion
international notes. This was financed largely through long-term
loans signed with Scotiabank Colpatria in November 2022. The
company's FCF is expected to continue to be negative over the
rating horizon given the burden of higher capex requirements and
COP460 billion of extraordinary dividends to be paid to the
District of Bogota between 2022 and 2027.
As of September 2022, the company's cash on hand declined to COP191
billion from COP416 billion at YE 2021, with short term debt
comprised of the aforementioned international notes, and a
short-term loan from Scotiabank (both of which have subsequently
been repaid). ETB reported lines of credit of COP702 billion
available as of Sept. 30, 2022.
ISSUER PROFILE
ETB is an integrated Colombian telecommunication company owned
86.36% by the District of Bogota. The company's main services
offered include fixed voice traditional services (local and long
distance), broadband (BB) and subscription TV services on its
copper and fibre networks.
SUMMARY OF FINANCIAL ADJUSTMENTS
Standard lease adjustments.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Empresa de
Telecomunicaciones
de Bogota, S.A.,
E.S.P. LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
Natl LT AA+(col) Affirmed AA+(col)
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Sector Will Study Salary Increase Proposal
--------------------------------------------------------------
Dominican Today reports that after requesting an extension during
the National Salary Committee meeting, business representatives
will study the union confederations' proposal for a 35% salary
increase for workers.
"The business sector has asked the committee to give them a prudent
time to know the union sector's position… for them to study it
and see it to make a decision," Martin Mieses, president of the
National Salary Committee, told members of the press, according to
Dominican Today. The meeting's goal was to start a dialogue
between employers and workers about raising the pay of public and
private employees, the report notes. Still, no agreement was
reached due to the business union's request, the report relays.
Rafael "Pepe" Abreu, president of the National Confederation of
Trade Union Unity (CNUS), stated that the business union is
attempting to postpone the dialogue and that the proposal was made
well in advance, the report notes. "When it is not one thing, it's
another," says the business community, the report discloses.
"Since he walked in, he's been saying they're ready to be sworn in,
but they need time for consultation and study," Abreu explained,
the report relays.
The workers' primary justification for the wage increase is the
inflationary process, which they claim makes it nearly impossible
for them to survive on incomes less than the amount of the basic
food basket, the report discloses. "With the wages we have today,
we have no chance of living with dignity," said Gabriel del Rio, a
representative of the Autonomous Class-oriented Trade Union
Confederation (CASC), the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCRLA reported in April 2019 that the Dominican To related that
Juan Del Rosario of the UASD Economic Faculty cited a current
economic slowdown for the Dominican Republic and cautioned that if
the trend continues, growth would reach only 4% by 2023. Mr. Del
Rosario said that if that happens, "we'll face difficulties in
meeting international commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Fitch Ratings, in December 2021, revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'.The
revision of the Outlook to Stable reflects the narrowing of
Dominican Republic's government deficit and financing needs since
Fitch's last review resulting in the stabilization of the
government debt/GDP ratio, as well as the investment-driven
economic momentum, reflected in the faster-than-expected economic
recovery in 2021 that Fitch expects to carry into above-potential
GDP growth during 2022 and 2023.
Standard & Poor's, also in December 2021, revised its outlook on
the Dominican Republic to stable from negative.S&P also
affirmed its 'BB-' long-term foreign and local currency sovereign
credit ratings and its 'B' short-term sovereign credit ratings. The
stable outlook reflects S&P's expectation of continued favorable
GDP growth and policy continuity over the next 12 to 18 months that
will likely stabilize the government's debt burden, despite lack of
progress with broader tax reforms, S&P said.A rapid economic
recovery from the downturn because of the pandemic should mitigate
external and fiscal risks.
Moody's affirmed the Dominican Republic's long-term issuer and
senior unsecured ratings at Ba3 and maintained the stable outlook
in March 2021.
=============
J A M A I C A
=============
JAMAICA: NIR Fell in January
----------------------------
RJR News reports that Jamaica's Net International Reserves fell in
the month of January.
At the end of the month, the NIR was registered at US$3.87 billion,
according to RJR News.
This is US$110.6 million lower than recorded in December's reserves
of US$3.98 billion, the report relays.
The reserves at the end of January could cover up to 25 weeks of
goods and services imports, the report adds.
As reported in the Troubled Company Reporter-Latin America in March
2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
[*] JAMAICA: Economy is Now Recovering Strongly, IMF Says
---------------------------------------------------------
The Executive Board of the International Monetary Fund (IMF)
concluded the Article IV consultation with Jamaica.
Over the past few years, Jamaica has been buffeted by a difficult
global environment—from COVID, the war in Ukraine, and the
ongoing tightening of global financial conditions. Supported by
sound policy frameworks and policies prioritizing macroeconomic
stability, the economy is now recovering strongly. As COVID waned,
stopover flight arrivals had rebounded to pre-crisis levels, and
2022 real GDP growth is expected to be around 4 percent. Pushed by
global factors—in particular, the impact of the war in Ukraine on
commodity prices—inflation has risen above the central bank's
target band but is expected to decline during the course of 2023.
High commodity prices have resulted in an increase in the current
account deficit. However, international reserves remain at healthy
levels. The financial system is well-capitalized and liquid.
The outlook points to a continued recovery in activity and
inflation falling back within the Bank of Jamaica's target range by
end-2023. Nonetheless, global risks remain high. The war in Ukraine
may push commodity prices higher, a stronger-than-envisaged
tightening of global financial conditions may curb capital flows
and reduce remittances, and new COVID variants could disrupt
tourism and trade. The authorities' response to recent shocks has
been well designed. The fiscal policy response to COVID was nimble,
supporting the economy in 2020 but then quickly resuming a downward
path for the debt as the impact of the pandemic faded. Similarly,
the response to the upward surge in fuel and food prices was to
allow for full pass-through while providing targeted support to the
poor within the existing fiscal envelope. The Bank of Jamaica has
followed a data dependent tightening of monetary policy to counter
the inflationary impulse arising from the rapid recovery in demand
and increases in global prices. These policies have struck the
right balance in responding to shocks, protecting the vulnerable,
countering inflationary pressures, and further securing debt
sustainability.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal.
They commended the authorities' strong track record of building
institutions and prioritizing macroeconomic stability, which
together with a nimble and prudent policy response helped Jamaica
navigate successfully the pandemic and other recent global shocks.
Directors noted that the continued recovery faces elevated
uncertainty and risks from higher commodity prices,
tighter-than-envisaged global financial conditions, new COVID
outbreaks, and natural disasters.
Directors agreed that maintaining the planned path of primary
balances coupled with continued data-dependent monetary policy
tightening should further enhance debt sustainability, curb
inflation, and create fiscal space to respond to future shocks.
This prudent fiscal envelope should also identify resources for
climate-resilient infrastructure, investments in health, security,
and education. Directors also welcomed continued improvement of the
fiscal policy framework, including strengthening tax and customs
administration and public financial management systems, the
recently established Fiscal Commission, and reforms of the wage
structure to simplify the system and reward performance.
Directors supported ongoing reforms strengthening financial
stability by adopting Basel III regulatory standards and bolstering
supervision. They emphasized the need to enhance crisis management
and consolidated supervision, and strongly encouraged the
authorities to step up efforts to improve the AML/CFT framework in
line with the action plan agreed with FATF. Directors also called
for further efforts to deepen FX markets and refine the
macroprudential framework. They took note of the nascent benefits
for financial inclusion of central bank digital currency adoption,
while stressing the need to manage possible risks.
Directors encouraged a multipronged approach to overcome
constraints to growth. They stressed the need to strengthen
education and training, upgrade infrastructure, digitalization of
government services, reduce crime and barriers to trade. Social
inclusion will benefit from the strengthened cash transfer program.
Evidence-based policymaking would benefit from improved data
quality and timeliness leading to subscription to the SDDS.
Directors encouraged reforms alleviating climate change challenges
and long-term vulnerabilities. These reforms should strengthen
physical and fiscal resilience, incentivize renewable energy
generation, reduce energy consumption, develop markets for "green"
financial instruments, and ensure proper recognition and management
of climate risks. Reduced climate vulnerability would help catalyze
private sector financing for climate-related investments. Directors
looked forward to continued and enhanced collaboration with other
international organizations to support these efforts.
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
===========
CONSUBANCO SA: Fitch Affirms & Then Withdraws LongTerm IDRs at BB-
------------------------------------------------------------------
Fitch Ratings has affirmed and withdrawn Consubanco, S.A.,
Institucion de Banca Multiple's (Consubanco) Long-Term Foreign and
Local Currency Issuer Default Ratings (IDRs) at 'BB-', Short-Term
Foreign and Local Currency IDRs at 'B', as well as the Viability
Rating (VR) at 'bb-' and the Government Support Rating (GSR) at
'ns'. The Rating Outlook of the Long-Term IDRs were Stable prior to
the ratings withdrawal.
Fitch will continue providing national-scale ratings for this bank,
which currently remain at 'A-(mex)' with a Stable Outlook and
'F2(mex)' for the Long-Term and Short-Term National Ratings,
respectively.
Fitch has withdrawn the international ratings for commercial
reasons.
KEY RATING DRIVERS
The key rating drivers of the issuer are the same as those in the
Rating Action Commentary "Fitch Affirms Consubanco at 'BB-';
Outlook Stable", published on Oct. 21, 2022.
Consubanco's 'No Support' GSR reflects Fitch expectation of there
is no reasonable assumption that such support will be available as
the bank is not a domestic systemically important bank (D-SIB). As
of 3Q22, Consubanco's deposits represented around 0.15% of the
Mexican banking system's total.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Negative rating sensitivities are not applicable as the
international ratings have been withdrawn.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Positive rating sensitivities are not applicable as the
international ratings have been withdrawn.
VR ADJUSTMENTS
The Business Profile Score of 'bb-' has been assigned above the 'b'
category implied score due to the following adjustment reason:
Market Position (positive).
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch has reclassified Account Receivables from employers as loans,
with those overdue by more than 90 days reclassified as impaired.
Reserves related to these account receivables from employees were
reclassified as loan loss reserves. Capitalized fee expenses and
other deferred assets were reclassified as intangibles and deducted
from total equity due to its lower loss absorption capacity.
Sources of Information
Financial figures are in accordance with the local banking
regulator (Comision Nacional Bancario de Valores) criteria. 1Q22,
2Q22 and 3Q22 figures include recent accounting changes in the
process to converge to International Financial Reporting Standards.
Prior years did not include this change, and Fitch believes they
are not directly comparable.
ESG CONSIDERATIONS
Consubanco, S.A., Institucion de Banca Multiple has an ESG
Relevance Score of '4' for Customer Welfare - Fair Messaging,
Privacy & Data Security due to its exposure to reputational and
operational risks as its main business targets are government
employees and dependencies through credits with relatively high
rates, which has a negative impact on the credit profile, and is
relevant to the ratings in conjunction with other factors.
Consubanco, S.A., Institucion de Banca Multiple has an ESG
Relevance Score of '4' for Exposure to Social Impacts due to its
exposure to a shift in social or consumer preferences or to
government regulation of its lending offer, which has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Following the withdrawal of Consubanco's international ratings,
Fitch will no longer be providing the associated ESG Relevance
Scores.
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
----------- ------ -----
Consubanco, S.A.,
Institucion de
Banca Multiple LT IDR BB- Affirmed BB-
LT IDR WD Withdrawn BB-
ST IDR B Affirmed B
ST IDR WD Withdrawn B
LC LT IDR BB- Affirmed BB-
LC LT IDR WD Withdrawn BB-
LC ST IDR B Affirmed B
LC ST IDR WD Withdrawn B
Viability bb- Affirmed bb-
Viability WD Withdrawn bb-
Government Support ns Affirmed ns
Government Support WD Withdrawn ns
=====================
P U E R T O R I C O
=====================
ESJ TOWERS: Hires CPA Luis R. Carrasquillo as Financial Advisor
---------------------------------------------------------------
ESJ Towers, Inc. received approval from the U.S. Bankruptcy Court
for the District of Puerto Rico to employ CPA Luis R. Carrasquillo
& Co., P.S.C. as its financial advisor.
The Debtor needs a financial advisor to assist in the financial
restructuring of its affairs by providing advice in strategic
planning; assist in the preparation of a plan of reorganization,
disclosure statement and business plan; participate in
negotiations
with creditors; and assist the Debtor's legal counsel in
investigating financial transactions and disbursements and
undertake the corresponding actions.
The firm will be paid at these rates:
Partners $175 per hour
Seniors $90 to $125 per hour
Juniors $45 to $60 per hour
Administrative Support $35 per hour
The retainer fee for the firm's services is $15,000.
As disclosed in court filings, the firm and its members are
disinterested persons within the meaning of Section 101(14) of the
Bankruptcy Code.
The firm can be reached through:
Luis R. Carrasquillo, CPA
CPA Luis R. Carrasquillo & Co., P.S.C.
28Th Street, # TI-26
Turabo Gardens Ave.
Caguas, P.R. 00725
Tel: (787) 746-4555/(787) 746-4556
Fax: (787) 746-4564
Email: luis@cpacarrasquillo.com
About ESJ Towers
ESJ Towers, Inc. owns the ESJ Towers in Carolina, P.R. The luxury
apartments and condo units at ESJ Towers have direct access to Isla
Verde Beach, widely considered one of the best in Puerto Rico.
ESJ sought protection under Chapter 11 of the U.S. Bankruptcy Code
(Bankr. D.P.R. Case No. 22-01676) on June 10, 2022, with as much as
50 million in both assets and liabilities. ESJ President Keith St.
Clair signed the petition.
Judge Enrique S. Lamoutte Inclan oversees the case.
The Debtor tapped Charles A. Cuprill, Esq., at Charles A. Cuprill,
PSC Law Offices as legal counsel; Ramon Luis Nieves, Esq., at RL
Legal Consulting Services, LLC as special counsel; Dage Consulting
CPAS, PSC as financial advisor; and De Angel & Compania, PA, LLC as
auditor.
The U.S. Trustee for Region 21 appointed an official committee of
unsecured creditors on Sept. 12, 2022. MRO Attorneys at Law, LLC
and Dage Consulting CPAS, PSC serve as the committee's legal
counsel and financial advisor, respectively.
*********
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.
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