/raid1/www/Hosts/bankrupt/TCRLA_Public/230228.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, February 28, 2023, Vol. 24, No. 43
Headlines
A R G E N T I N A
ARGENTINA: Not Even a World Cup Win Can Save Economy From Decline
ARGENTINA: Trade with Ukraine & Russia Down 40% Since War Outbreak
EMERGENT FIDELITY: BlockFi Seeks to Dismiss U.S. Bankruptcy
IRSA: S&P Withdraws 'CCC+' LongTerm Issuer Credit Rating
B R A Z I L
AMERICANAS SA: Meeting With Bondholders Culminate Without Deal
C O S T A R I C A
COSTA RICA: S&P Raises LT Sovereign Credit Ratings to 'B+'
D O M I N I C A N R E P U B L I C
AEROPUERTOS DOMINICANOS XXI: S&P Hikes ICR to 'BB', Outlook Stable
M E X I C O
CREDITO REAL: Gets Okay for $62MM U.S. Assets Sale in Chapter 15
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A R G E N T I N A
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ARGENTINA: Not Even a World Cup Win Can Save Economy From Decline
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Patrick Gillespie at Bloomberg News reports that Argentina's
economy contracted more than expected in December even after the
country won its much-celebrated third World Cup title, confirming
the view that the nation will likely enter recession later this
year.
Economic activity declined one percent in December from November,
the fourth straight month of declines, according to government data
published, according to Bloomberg News. From a year ago, activity
dropped 1.2 percent, worse than economists' expectations for 0.9
percent growth and the first negative annual print since early
2021, Bloomberg News notes.
The economy's poor performance in December dispels any hopes that
Argentina's World Cup victory during the month, the first in 36
years, would boost growth. Other countries that won the tournament
saw growth pick up after winning, according to one study, Bloomberg
News relays.
"The surprising plunge in December Argentine activity will end a
five-quarter streak of robust expansion, and lowers the impulse for
2023 growth. Along with slashed soybean production projections,
that may raise pressure for policy stimulus ahead of the October
election," said Adriana Dupita, Bloomberg's Latin America
economist.
Although the government expects two percent annual growth this
year, economists surveyed by the Central Bank see gross domestic
product expanding only 0.5 percent in 2023, Bloomberg News
discloses. Analysts also forecast that the economy contracted for
two straight periods on a quarterly basis at the end of 2022 and
the start of this year, constituting a recession, Bloomberg News
says.
Annual inflation near 99 percent is wiping out wage growth for
millions of Argentines, while a severe drought is wilting the
country's soy crop that's crucial for exports, tax revenue and
economic growth, Bloomberg News discloses.
The deteriorating economic situation is expected to have a
significant impact on the October presidential elections, with
candidacies started to be discussed in the two main party
coalitions, Bloomberg News 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.
S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign
currency and 'CCC-/C' local currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings remains negative.
S&P's 'CCC+' transfer and convertibility assessment is unchanged.
The negative outlook on the long-term ratings reflects risks
surrounding pronounced economic imbalances and policy uncertainties
before and after the 2023 national elections. Global capital
markets are closed to Argentina. Moreover, disagreement within the
government coalition and infighting among the opposition constrains
the sovereign's ability to implement timely changes in economic
policy.
Fitch Ratings, on the other hand, downgraded in October 2022
Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC)
Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade
reflects deep macroeconomic imbalances and a highly constrained
external liquidity position, which Fitch expects to increasingly
undermine repayment capacity as foreign-currency debt service ramps
up in the coming years.
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS 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.
ARGENTINA: Trade with Ukraine & Russia Down 40% Since War Outbreak
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Buenos Aires Times, citing new data, reports that Argentina's trade
with Russia and Ukraine has slumped by more than 40 percent since
war broke out 12 months ago.
Argentina has a favourable balance of trade with both although the
volume is obviously greater with the Eurasian giant, according to
the Noticias Argentinas news agency, the report notes.
In 2021, trade with Ukraine reached US$61.58 million, of which
US$41.21 million were Argentine exports for a surplus of US$20.84
million, according to Buenos Aires Times. The main sales to
Ukraine were frozen fish, lemons and peanuts while buying minerals
and fertilizers from that country, the report relays.
Meanwhile in that same year, trade with Russia reached US$1.33
billion, of which Argentine exports were US$679.98 million, making
for a narrow surplus of US$29.27 million, the report discloses.
Nevertheless, the decision of Russian President Vladimir Putin to
invade Ukraine hit the world economy hard, the report relays.
According to the official data from the INDEC national statistics
bureau, last year saw the trade of goods and services with Ukraine
shrink to barely US$36.41 million for a plunge of almost 41 percent
in comparison to 2021 with Argentine exports (with the same product
range but a much smaller volume) hit the hardest, the report
notes.
Argentine exports reached US$19,25 million while buying from
Ukraine products worth US$17.16 million for a trade surplus of
barely US$2.09 million, the report notes.
Last year's trade with Russia totalled US$777.56 million, 42
percent down from 2021, the report says.
International analysts are not estimating that the conflict will
end any time soon so that the shrinkage of Argentine trade with
Russia and Ukraine stands to continue, 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.
S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign
currency and 'CCC-/C' local currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings remains negative.
S&P's 'CCC+' transfer and convertibility assessment is unchanged.
The negative outlook on the long-term ratings reflects risks
surrounding pronounced economic imbalances and policy uncertainties
before and after the 2023 national elections. Global capital
markets are closed to Argentina. Moreover, disagreement within the
government coalition and infighting among the opposition constrains
the sovereign's ability to implement timely changes in economic
policy.
Fitch Ratings, on the other hand, downgraded in October 2022
Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC)
Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade
reflects deep macroeconomic imbalances and a highly constrained
external liquidity position, which Fitch expects to increasingly
undermine repayment capacity as foreign-currency debt service ramps
up in the coming years.
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS 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.
EMERGENT FIDELITY: BlockFi Seeks to Dismiss U.S. Bankruptcy
-----------------------------------------------------------
Crypto lender BlockFi Inc. urged the Bankruptcy Court in Delaware
to dismiss Sam Bankman-Fried-owned Emergent Fidelity Technologies
Ltd.'s Chapter 11 bankruptcy case so that it could take ownership
of Robinhood Markets Inc. shares.
"Neither law nor equity require the doing of a futile act. But
this bankruptcy case asks the Court to do just that -- to
"reorganize" an empty shell. Emergent has no employees, no income,
and no business; its sole assets were shares in Robinhood Markets
Inc. (the "Shares") worth hundreds of millions of dollars.
Emergent pledged the Shares and their proceeds to secure repayment
to BlockFi of over $600 million in loans and failed to deliver.
Then the Government seized the Shares, allegedly for the benefit of
the victims of the FTX Debtors and Samuel Bankman-Fried's ("SBF")
fraud. Those victims include BlockFi to the tune of approximately
$1 billion. As a result, the Shares or the value thereof will
eventually go to BlockFi and its clients, in whole or in part. And
-- importantly here -- Emergent's only assets, its raison d'etre,
left Emergent's estate at least 30 days before its petition date
and will never return.
BlockFi, which is in the midst of its own bankruptcy proceeding,
notes that the law captures the futility of Emergent's bankruptcy
in two ways:
* First, the Bankruptcy Code requires all debtors to have
property.
* Second, under Third Circuit precedent, a bankruptcy case must
be filed in good faith or must be dismissed.
To file in "good faith," a debtor must seek to maximize the value
of its assets or preserve itself as a going concern. But Emergent
seeks neither.
"So, why did Emergent file? As a last-ditch litigation tactic.
Since November 21, 2022, Emergent has been controlled by Angela
Barkhouse and Toni Shukla, first as receivers and later as joint
provisional liquidators ("JPLs") appointed by a court in Antigua.
In those three months, the JPLs and their hired professionals have
managed to incur at least $1.7 million in fees," BlockFi says in
court filings.
"But since the JPLs' appointment, Emergent's claim to the Shares --
and the JPLs' chance of payment -- has grown steadily weaker.
First, the Bankruptcy Court for the District of New Jersey
"identified a property interest held by [BlockFi in the Shares as a
result of the Emergent Pledge Agreement]," such that BlockFi's
property interest "is deserving of protection under 11 U.S.C. Sec.
362(a)." Ex. B-21, pp. 88â€"89. Second, the Government seized
the
Shares as part of its criminal investigation into SBF."
"Through this bankruptcy filing, however, the JPLs seek to obtain
an advantage in the ongoing litigation over BlockFi's interest in
the Shares. First, the automatic stay at least temporarily
handcuffs the BlockFi court, which has before it the first-filed
action concerning the Shares and has stated that it "intends to
pursue its jurisdiction and authority in the pending adversary
proceeding" concerning the Shares Ex. B-21, p. 88. Second, the JPLs
keep alive their slim hopes of getting paid. Neither of these
purposes constitute "good faith.""
Accordingly, BlockFi asks the Court to dismiss the Chapter 11 case
as Emergent's bankruptcy -- existing solely to advance the JPLs'
interests -- was not filed in good faith.
About Emergent Fidelity Technologies
Emergent Fidelity Technologies is a holding company owned by Sam
Bankman-Fried that is based in Antigua and Barbuda. Emergent
Fidelity owns 55 million shares of Robinhood Markets, Inc., and
$20.7 million cash, which is apparently proceeds from the sale of
additional such shares. Emergent is 90% owned by Sam
Bankman-Fried.
Emergent Fidelity Technologies sought relief under Chapter 11 of
the U.S. Bankruptcy Code (Bankr. D. Del. Case No. 23-10149) on Feb.
3, 2023. In its petition, the Debtor reported $500 million to $1
billion in assets and liabilities. The petition was signed by
Angela Barkhouse as Joint Provisional Liquidator of Emergent.
MORGAN, LEWIS & BOCKIUS LLP, led by Jody C. Barillare, is the
Debtor's counsel.
About FTX Group
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9 struck a deal to sell
itself to its giant rival Binance, but Binance walked away from
the
deal amid reports on FTX regarding mishandled customer funds and
alleged US agency investigations.
At 4:30 a.m. on Nov. 11, Bankman-Fried ultimately agreed to step
aside, and restructuring vet John J. Ray III was quickly named new
CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
million in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year. According to Reuters, SBF
shared a document with investors on Nov. 10 showing FTX had $13.86
billion in liabilities and $14.6 billion in assets. However, only
$900 million of those assets were liquid, leading to the cash
crunch that ended with the company filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims agent,
maintaining the page https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
About BlockFi Inc.
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.
IRSA: S&P Withdraws 'CCC+' LongTerm Issuer Credit Rating
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S&P Global Ratings withdrew its 'CCC+' long-term issuer credit
rating on Argentine real estate company, IRSA Inversiones y
Representaciones S.A. (IRSA), at its request. At the time of the
withdrawal, the outlook was stable.
On Feb. 8, 2023, the company fully redeemed in advance its $121
million international senior unsecured notes due March 23, 2023,
the outstanding amount at that date (the original issue amount was
$360 million).
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B R A Z I L
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AMERICANAS SA: Meeting With Bondholders Culminate Without Deal
--------------------------------------------------------------
Tas Fuoco of Bloomberg News reports that the meeting between
Americanas and representatives of bondholders held Feb. 17, 2023,
ended without progress, Valor said, citing sources who spoke on
condition of anonymity.
The Company presented to the holders the same proposal made to the
banks: capitalization of 7 billion reais by the reference
shareholders, conversion of 18 billion reais of the company's total
debt into shares and subordinated debt and the repurchase of 12
billion reais in debt, according to the report.
Americanas has 6 issues of local notes, 5 of which bring together
credits of more than 4 billion reais and are represented by
Felsberg Advogados.
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.
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C O S T A R I C A
===================
COSTA RICA: S&P Raises LT Sovereign Credit Ratings to 'B+'
----------------------------------------------------------
S&P Global Ratings, on Feb. 23, 2023, raised its long-term foreign
and local currency sovereign credit ratings on Costa Rica to 'B+'
from 'B'. The outlook is stable. S&P affirmed its 'B' short-term
foreign and local currency sovereign credit ratings. S&P also
raised the transfer and convertibility assessment to 'BB' from
'BB-.'
Outlook
S&P said, "The stable outlook incorporates our assumptions that
over the next year, fiscal execution will remain solid, though we
expect the deficit to increase slightly and growth to slow given
the global backdrop. We believe maintaining access to official
financing -- including disbursements under the IMF's Extended Fund
Facility (EFF) and newly created Resiliency and Sustainability Fund
(RSF) -- amid challenging and uncertain global economic conditions
is key to funding flexibility and confidence in the local and
global capital markets." Costa Rica is the first country approved
for access to the RSF, which is designed to bolster resilience for
climate change.
Downside scenario
S&P said, "We could lower the ratings over the next 12 months if
policy reversals or fiscal implementation setbacks threaten smooth
debt management. While the government's funding needs have declined
as deficits have come down, they remain high at around 9.5% of GDP
this year and next. Success in tapping global capital markets on
favorable terms this year would likely be predicated on signals of
continued fiscal commitment and compliance with IMF reviews.
"If policy setbacks occur, recourse to the central bank or other
unconventional financing could cause us to view the country's
institutional framework and ability to support public finances less
favorably -- despite widespread checks and balances and a solid
democratic tradition--and lead us to lower the ratings."
Upside scenario
Conversely, S&P could raise the ratings over the next 12 months if
the government and the Legislative Assembly maintain fiscal
measures that have supported deficit reduction. Success thus far
has stemmed from implementation of the 2018 reform. The public
employment reform due to come into effect this year is expected to
play a role. Such steps would likely underpin investor confidence,
and sustain access to the local market and external (official and
capital market) borrowing. In the complex global climate, Costa
Rica appears to be benefiting from nearshoring or friend-shoring.
Strength in foreign direct investment (FDI) and exports, associated
with special trade zones and tourism, could reduce the country's
external vulnerability, supporting growth and fiscal performance.
These factors could lead to an upgrade.
Rationale
The upgrade reflects Costa Rica's improved fiscal execution
beginning in 2021. Debt peaked in 2020, and the turnaround in
fiscal performance in 2021 extended into 2022, despite slower
growth, a cyberattack on some government systems, and change in
administration. Robust revenues in 2021 benefited from one-offs and
a strong post-pandemic bounce in GDP. But, continued solid
performance in 2022 indicates that the revenue enhancements from
the 2018 fiscal reform are paying off. In addition, spending has
been contained, also in line with the 2018 reform, since debt
surpasses 60% of GDP, and this too has been a key contributor to
the better fiscal outturn that generated the first primary
(non-interest) surplus in over a decade. Increased spending over
the last decade was the main factor underpinning the rise in Costa
Rica's debt. The 2022 fiscal results surpassed targets established
under the EFF and facilitated IMF disbursements at the end of last
year. Legislative approval to issue debt in global capital markets
this year, and over several years subject to conditionality,
facilitates the government's plans to improve the tenor of its debt
profile.
The ratings on Costa Rica reflect its long-established democracy,
which has brought political stability amid solid checks and
balances, and its generally prosperous economy and standards of
living compared with regional peers. They also incorporate a trend
of political fragmentation--which coalition building would be key
to addressing, in S&P's view -- that has at times complicated
timely legislative action. Fiscal slippage over the past decade did
not elicit a policy response as proactive as that seen in
higher-rated sovereigns. This led to a doubling of government debt
as a share of GDP prior to the COVID-19 pandemic.
Costa Rica's fiscal and external profiles include rigidities and
vulnerabilities in the government's debt management procedures.
Financing and loans must be approved by the Legislative Assembly.
The legislature has at times held back approval, forcing the
government to rely on a small domestic market. Such political
obstacles have weighed on the predictability of debt management and
reduced the government's financial flexibility.
Institutional and economic profile: A strong democratic tradition
has supported a prosperous economy, but the country's record of
addressing fiscal weaknesses has not been timely
-- Costa Rica's stable political system and social indicators
compare positively with those of peers.
-- However, increased political fragmentation over the past
decade has contributed to slow progress in redressing
long-standing fiscal weaknesses.
-- S&P expects real GDP growth to average 3.1% in 2023-2026,
notwithstanding a global slowdown this year, on dynamism in
exports and investment in free trade zones, and recovery in
tourism.
In S&P's assessment, Costa Rica has a strong democratic tradition
of stable political institutions, high social indicators, and
overall predictable, albeit slow, policymaking. The country's low
poverty and low crime compare positively with its Central American
peers. However, the country's fragmented decision-making process
gives even small numbers of representatives in the Legislative
Assembly the ability to stall approval of legislation. This dynamic
has slowed, and at times impeded, progress on fiscal measures that
have been debated under multiple administrations.
Political outsider Rodrigo Chaves won the 2022 presidential
elections. His victory, and defeat of former president Jose Maria
Figueres, reflects a decade-long trend in Costa Rica of a move away
from the two long-standing political parties and fragmentation of
the political spectrum. In addition, it's in line with global
antiestablishment electoral patterns. The president's Social
Democratic Progress Party has nine seats and is one of five parties
in the unilateral 57-seat Legislative Assembly. President Chaves'
approval ratings of over 70% (as of late 2022, per a CIEP survey)
provide popular support for his negotiating across party lines in
the legislature.
During the first year of the Chaves administration, solid fiscal
results and success in meeting EFF reviews partly are due to the
legacy of policies put in place by the prior administration. S&P
assumed that aspects of the EFF would be mutually reconfigured
after the elections, whoever won. Some aspects are pending and
potentially will be clarified in the fourth program review in
March/April.
Potential policy adjustments on the horizon include changes to the
parameters of the fiscal spending rule. S&P expects any
refinements, which would need legislative approval, will uphold the
core of the reform that generates solid fiscal results.
Implementation of the public employment reform bill approved last
March is to come into effect this year. Additional plans include
making the tax code more progressive, facilitating nonresidents
holding locally issued government debt, and strengthening the
statutes of the central bank and depth of the foreign exchange
market.
Alongside the successful third review in November 2022, Costa Rica
become the first nation to apply and qualify for an RSF loan worth
$725 million. Semiannual disbursements are to coincide with the
remainder of EFF that ends March 25, 2025. They provide a cheaper
source of financing the nation's climate change agenda, such as
bolstering infrastructure resilience, and spurring additional
financing for related infrastructure.
In the past, Costa Rica's Legislative Assembly has often withheld
approval for external financing, including for official borrowing,
forcing the government to rely on the small domestic market. While
the country benefits from a captive local market, state-owned
banks, institutional investors (with ties to the public sector),
and state-owned enterprises are key creditors to the government.
Smooth access to global markets and MLI financing would help
diversify funding. At the end of 2022, the legislature approved a
$5 billion multiyear global bond borrowing authority for 2023-2025,
subject to some conditionality beginning the second half of 2022.
Execution would signal an easing of some of the obstacles that
inform S&P's view of debt management and the government's financial
flexibility.
In 2022, real GDP grew 4.3%, following a 7.8% rebound in 2021.
Solid growth in 2022 stemmed from private investment and
manufacturing exports from free-trade zones, with some recovery in
services, including tourism. A dichotomy persists between the more
subdued rate of growth of the domestically oriented economy and the
higher rate seen in export zones. A key developmental challenge is
to create linkages, such as with local suppliers, between these two
segments. In April and May 2022, some of the government's systems
(tax, customs, health) suffered from a cyberattack. There was no
apparent impact on growth. The government responded by consulting
with experts and taking down various systems for several months,
while its recovery included upgrading its digital infrastructure
and revamping personnel and training. S&P expects real GDP growth
to average 3.1% in 2023-2026.
The country's overall good business climate and long-standing
commitment to decarbonization should continue to support steady FDI
flows--which jumped to over 5% of GDP in 2021 and were close to 4%
in 2022. Costa Rica's special trade zones in life sciences, digital
technology, and services could benefit further from global
nearshoring or friend-shoring. Intel's presence in Costa Rica began
in 1997, but its facilities evolved to research and development,
and over time, it shifted manufacturing to Asia. In 2020, however,
it reestablished a manufacturing facility in the country (with $1
billion investment as of 2022). It also opened its only
semiconductor assembly and test unit in the Western Hemisphere last
August.
As of November 2022, there were 50 new companies undertaking FDI in
Costa Rica, higher than the 39 in 2021. This dynamic could support
even more solid growth in years ahead. In addition, Costa Rica's
decarbonization model/credentials attract foreign investment. The
energy matrix relies on 98% of clean energies, well above the 59%
of other Latin American countries.
Flexibility and performance profile: Fiscal indicators and high
external vulnerability are prominent rating weaknesses
-- Net general government debt at over 60% of GDP and a
heavy interest burden underscore the importance of
deficit-reduction measures.
-- External indebtedness and financing needs are rating
weaknesses, despite steady FDI inflows that mostly
finance the current account deficit (CAD).
-- The country's monetary policy credibility reflects inflation
targeting, flexibility in the colon exchange rate regime, and
some decline in dollarization.
With robust revenue performance for a second year in a row and
spending restraint following the 2018 fiscal rule, Costa Rica
generated a primary surplus and a 2% of GDP general government
deficit last year. The deficit was down from 5% of GDP in 2021 and
8% in 2020. S&P forecasts the general government deficit--which
also includes the central bank and social security besides the
central government and decentralized agencies--will average 3.4% of
GDP in 2023-2026. Accordingly, S&P projects that the change in net
general government debt will average 3.7% of GDP in 2023-2026. S&P
assumes spending will remain restrained, generally in line with the
2018 fiscal reform given current debt levels. There are
implementation risks amid the rise in inflation and pressure to
make the law more flexible.
Net general government debt in 2022 eased to 62% of GDP from its
peak of 66% in 2020. S&P projects net general government debt will
remain around current levels through 2026. At the same time, S&P
expects interest payments of over 17% of general government revenue
(up from 8% in 2010). About 40% of the general government's debt is
denominated in foreign currency, a vulnerability. However,
three-quarters of total debt is issued in the local market, a
strength. The country's constitution requires the Legislative
Assembly to approve all individual borrowings, and external debt
with a two-thirds majority in two voting rounds. This includes
borrowings from global capital markets and from multilateral and
official lenders. The approval process has often been slow, and
political resistance has stymied multiyear borrowing authorization
-- making effective debt management more difficult, with still-high
funding needs of over 9% of GDP.
S&P said, "We expect the current account and trade deficits to
narrow over the forecast period through 2026 on lower oil prices
and recovery in tourism. We expect the CAD to average above 3.3% of
GDP in 2023-2026, incorporating income deficits driven by interest
payments on external debt and a surplus in services. FDI remains
solid. We expect the sovereign's gross external financing needs to
hover around 109% of current account receipts (CAR) and usable
reserves over the next three years, and we expect its narrow net
external debt to average 52% of CAR in 2023-2026."
Monetary policy credibility and execution benefit from an
inflation-targeting regime, exchange rate flexibility under a
managed float, and some decline and stabilization in the level of
dollarization in the financial system. Dollar deposits in banks
ticked up slightly above 40% of deposits, while dollar-denominated
loans from Costa Rica's banks are also around 40% of total loans to
the private sector. On balance, dollarization has declined over the
past decade and now poses less of a constraint on the conduct of
monetary policy. That said, an unexpectedly sharp change in the
exchange rate could create asset quality problems in the financial
system. Dollarization also limits the central bank's ability to act
as a lender of last resort.
Inflation was 7.9% at the end of 2022, above the 3% plus/minus 1%
target, but it's down from the 12% peak in August. Consumer price
inflation averaged 8.3% in 2022, versus 1.7% in the prior five
years. S&P expects inflation to average 6.5% in 2023 and 3.3% in
2024-2026. The central bank started a hiking cycle in December 2021
and has raised the policy rate to 9%--a total increase of 825 basis
points.
Given that the banking system's assets-to-GDP ratio is about 95%
and that S&P's Banking Industry Country Risk Assessment (BICRA) for
Costa Rica is '8', it considers Costa Rica's contingent liabilities
to be limited. (BICRAs are grouped on a scale from '1' to '10',
ranging from what we view as the lowest-risk banking systems [group
'1'] to the highest-risk [group '10'].)
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
UPGRADED
TO FROM
COSTA RICA
Transfer & Convertibility Assessment
Local Currency BB BB-
COSTA RICA
Senior Unsecured B+ B
UPGRADED; RATINGS AFFIRMED
TO FROM
COSTA RICA
Sovereign Credit Rating B+/Stable/B B/Stable/B
===================================
D O M I N I C A N R E P U B L I C
===================================
AEROPUERTOS DOMINICANOS XXI: S&P Hikes ICR to 'BB', Outlook Stable
------------------------------------------------------------------
S&P Global Ratings, on Feb. 21, 2023, raised its issuer credit and
issue-level ratings on the Dominican Republic-based airport
operator Aeropuertos Dominicanos Siglo XXI S.A. (Aerodom) to 'BB'
from 'BB-'.
The stable outlook indicates that S&P expects Aerodom's operating
and financial performance to continue improving gradually in the
next 12 months amid an expected year-over year-increase of 5%-7% in
2023.
Given Aerodom's passenger volumes of about 5.5 million at the end
of 2022 across its six airports, pointing to a fast and steady
recovery. Moreover, we expect this steady growth to continue in
upcoming years: 5%-7% and 6%-8% for 2023 and 2024, respectively.
S&P said, "Despite our expectations of a slight contraction volumes
from the main origin and destination, the U.S., we don't believe
that it would dent total passenger growth at the company's
airports, as demand for air travel to the Dominican Republic has
been robust and much more resilient than to other countries thanks
to additional routes that bolster traffic volumes. In addition,
about 40% of international passenger volume at Aerodom's Las
Americas airport consists of Dominicans who live in the U.S., which
is a stable source of traffic. Following the latest traffic data,
we forecast a continued improvement in the company's financial
performance and credit metrics, reaching about $180 million and
$190 million of EBITDA in 2023 and 2024, respectively. In addition,
the average consumption per passenger continued to boost commercial
revenues, and we expect this trend to continue, after the full
resumption of airport operations and the opening of new duty-free
shops and restaurant areas in the Las Americas airport. Due to
these factors, we expect debt to EBITDA of about 1.5x and funds
from operations (FFO) to net debt close to 40% for 2023, improving
to 1.0x-1.5x and 55%-60% by 2024, respectively. Moreover, we
forecast more stable credit metrics for the next 12-24 months."
S&P views Aerodom as a moderately strategic subsidiary of Vinci,
and consequently, potentially receive support from it. However,
given that its ratings on Aerodom are currently at the level of the
Dominican Republic, the potential group support doesn't provide an
additional notch to ratings.
ESG credit indicators: E-3, S-3, G-3
S&P said, "ESG factors are a moderately negative consideration in
our rating analysis of Aerodom. We consider the Dominican Republic
to be exposed to physical risks, even though the airports have high
safety standards that allow operations under extreme climatic
conditions, such as hurricanes. In addition, we company's
governance risks stem from the sovereign, rather than to
entity-specific concerns, given that Aerodom's governance standards
are in line with those of the parent company. Despite the
pandemic's harsh economic and industry impact in 2020, when air
traffic plummeted 55%, Aerodom's comparatively rapid and steady
recovery is attributable to the fact that more than 70% of
passengers come from North America."
===========
M E X I C O
===========
CREDITO REAL: Gets Okay for $62MM U.S. Assets Sale in Chapter 15
----------------------------------------------------------------
Mexican specialty finance lender Credito Real, S.A.B. de C.V.,
SOFOM, E.N.R., received court approval from a Delaware bankruptcy
judge to sell its equity interests in an American auto lending firm
in a $62 million deal with a Mexican financial services firm.
Upon the amended motion dated Nov. 29, 2022 filed by the Foreign
Representative of the Mexican Liquidation Proceeding of Credito
Real, U.S. Bankruptcy Judge John T. Dorsey entered an order
authorizing and approving the sale of substantially all of the
Chapter 15 Debtor's direct and/or indirect equity interests (the
"CRUSAFin Interests") in a majority-owned, U.S. subsidiary,
Credito Real USA Finance, LLC ("CRUSAFin") to Bepensa
Capital, Inc. in accordance with the terms of the purchase and sale
agreement (the "Successful SPA").
The Sale Agreement provides for an Initial Purchase Price of
$62,000,000 and a Base Purchase Price (means the Initial Purchase
Price, less the value allocated to the remaining unpurchased
Seagrave Interests) of $60,536,000.
The Sale Order requires Credito Real USA to, prior to or
substantially contemporaneous with a closing of the sale, dividend
all CRUSAFin Interests held by it to the Chapter 15 Debtor such
that, following such dividend, Credito Real USA Finance, LLC will
be a direct subsidiary of the Chapter 15 Debtor.
The Sale Order approves the sale of the CRUSAFin Interests free and
clear of any liens, claims, or interests under section 363(f) of
the Bankruptcy Code. The Sale Order provides that all interests of
any kind or nature existing as to the CRUSAFin Interests after
giving effect to the Reorganization are released, discharged and
terminated. All Parties shall have 14 days from the date the Sale
Order was entered by the Bankruptcy Court to appeal the Sale
Order.
About Credito Real SAB
Credito Real SAB de CV SOFOM ENR is a Mexico-based company that
provides consumer financing. Credito is Mexico's biggest payroll
lender and second largest non-bank lender after Real Unifin.
Credito Real provides loans, either by providing direct financing
to consumers or by establishing financing programs with consumer
financing dealers that sell to Credito Real the collection rights
from consumer financing products. It also provides financing
directly to individuals that are employed by corporations with
payroll deduction agreements with consumer financing dealers
authorized by Credito Real. Credito Real operates through a number
of subsidiaries, including AFS Acceptance LLC.
Three alleged creditors signed a petition to send Credito Real to
Chapter 11 bankruptcy on June 22, 2022 (Bankr. S.D.N.Y. Case No.
22-10842). Institutional Multiple Investment Fund LLC, of Boston,
Massachusetts; Banco Monex, S.A., of Mexico, and Solitaire Fund, of
Liechtenstein, who claim to own an aggregate $8 million of
unsecured bond debt, signed the involuntary Chapter 11 petition.
David H. Botter, Esq., at Akin Gump Strauss Hauer & Feld LLP is
advising the three bondholders.
Despite efforts by bondholders to force the company to pursue a
Chapter 11 restructuring in the U.S., the Debtor opted to pursue
proceedings in Mexico instead. On June 28, 2022, Angel Francisco
Romanos Berrondo, one of the Debtor's shareholders and the former
CEO of Credito Real, filed a petition, in his capacity as a
shareholder, with the Mexican Court seeking to commence the Mexican
Liquidation Proceeding.
On June 30, 2022, the Mexican Court entered an order commencing the
dissolution and liquidation proceedings for the Company and
appointing Mr. Fernando Alonso-de-Florida Rivero as the Mexican
Liquidator.
The liquidator for Credito Real filed a Chapter 15 bankruptcy
petition (Bankr. D. Del. Case No. 22-10630) on July 14, 2022, to
seek U.S. recognition of the Mexican proceedings. The petition was
signed by Robert Wagstaff, the foreign representative of the
liquidator. Richards, Layton & Finger, P.A., led by John Henry
Knight, is counsel in the U.S. case.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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