/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/230310.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, March 10, 2023, Vol. 24, No. 51 Headlines A R G E N T I N A ARGENTINA: To Change IMF Net Reserve Target for Third Time B E R M U D A NABOR INDUSTRIES: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable B R A Z I L BRAZIL: GDP Grew 2.9% in 2022, but Economy Slowed in 4th Quarter BRAZIL: Judiciary Should Force Businesses to Pay Equal Salaries PETROLEO BRASILEIRO: Cuts Fuel Prices After Tax Return in Brazil C A Y M A N I S L A N D S RUSSELL INVESTMENTS: S&P Affirms 'BB-' ICR & Alters Outlook to Neg. J A M A I C A DIGICEL GROUP: Minister Not Formally Advised of Proposed Changes JAMAICA: Fitch Alters Outlook on 'B+' LongTerm IDRs to Positive - - - - - ================= A R G E N T I N A ================= ARGENTINA: To Change IMF Net Reserve Target for Third Time ---------------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that Argentine officials intend to lower a key target in the country's $44 billion agreement with the International Monetary Fund (IMF) as a severe drought weakens the economic outlook, according to an Argentine government official. Both sides are discussing a smaller figure for net reserve accumulation in 2023, a cornerstone of the deal seen as the only major anchor providing some stability to the South American economy, according to globalinsolvency.com. Negotiators have met in Buenos Aires and Washington in recent weeks for the fourth review of the program, the report notes. A staff-level agreement may be announced as soon as Feb. 27, according to the official, who asked not to be identified as talks are ongoing, the report relays. The official expects the IMF executive board to vote on the fourth review of the program around March 22, which would disburse approximately $5.4 billion to the government to repay previous debts owed to the IMF, the report says. Argentina's fiscal and monetary targets under the program are expected to remain unchanged, according to the official, 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. ============= B E R M U D A ============= NABOR INDUSTRIES: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable ----------------------------------------------------------------- Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) for Nabors Industries, Ltd. and Nabors Industries, Inc. (collectively, Nabors) at 'B-' with a Stable Outlook. Fitch has also affirmed the 'BB-'/'RR1' rating for the revolving credit facility, the 'B+'/'RR2' rating for the senior priority guaranteed notes (SPGN) and the 'CCC'/'RR6' rating for the senior unsecured notes. Fitch has upgraded the issue-level ratings for the company's priority guaranteed notes (PGN) to 'B-'/'RR4' from 'CCC+'/'RR5' given improved recovery prospects following the successful redemption of the 9.00% SPGN due 2025. Nabors' 'B-' IDR reflects the improving U.S. drilling environment which should enhance EBITDA and FCF generation in 2023, stronger credit metrics, continued gross debt reduction, proactive management of the maturity profile and adequate liquidity profile. These factors are partially offset by the company's large note maturities starting in 2026-2028, which Fitch expects will likely need to be partially refinanced through capital markets. A potential decline in rig activity and dayrates could deteriorate cash flow and limit near-term gross debt reduction. Furthermore, the company's complicated capital structure and current high interest rate environment could limit refinancing options. KEY RATING DRIVERS Favorable Convertible Note Issuance: Fitch views the company's convertible note issuance favorably given the low 1.75% coupon which should improve interest expense and long-dated maturity in 2029. Nabors proactively addressed its near-term maturity wall through the successful redemption of the 9.00% SPGN notes due February 2025. The company now has approximately $474 million of 2025 maturities remaining, which Fitch believes the majority will be repaid with FCF. Improving U.S. Activity, Utilization: Fitch expects Nabors' U.S. drilling segment will improve through 2023 as the company was able to re-price the majority of its existing contracts at leading-edge dayrates in 2022. Nabors' U.S. lower 48 (L48) quarterly average rig count improved to 95 in 4Q22 from an average of 92 in 3Q22, and the company's gross margins improved to over $14,500 in 4Q22, which should persist through 2023, as dayrates have increased into the $30,000 range. Nabors forecasts L48 quarterly average rig count to increase by approximately one rig in 1Q23 and to improve to over 100 in 2023, as the demand for incremental super-spec rigs remains strong, given current market tightness. Fitch believes Nabors' U.S. segment will be the primary driver of stronger EBITDA and FCF generation in 2023, despite inflationary cost pressures. Stronger FCF Generation: Fitch's base case forecasts positive FCF generation of over $300 million for Nabors in 2023, which could improve and continue into 2024 if current favorable industry dynamics persist. Nabors forecasts capex of approximately $490 million for 2023, including approximately $180 million supporting the Saudi Aramco joint venture (JV) newbuild program. The JV deployed its first newbuild program startup rig in early July 2022 and the second in December 2022. Management expects the newbuild program will generate five rigs annually, with each rig contributing approximately $10 million of annual EBITDA. Fitch expects FCF will improve alongside rig count and utilization rate increases, but capex may increase, and higher dayrates may be required to bring idled rigs back to service, particularly after the company reaches 111 rigs in L48. Fitch expects management will prioritize FCF first toward reduction of the 2023 notes and then toward the 2024 exchangeable notes and 2025 senior unsecured notes. Fitch forecasts improvements in leverage as activity increases and FCF is allocated toward gross debt reduction, which should help the company address its maturity profile and maintain access to capital markets. Medium-Term Refinance Risk: Fitch believes there is medium-term refinance risk, given the company's large note maturities starting in 2025-2028. The company does have options to address its near-term maturities, including the 2025 senior notes, through a combination of FCF generation, common equity issuance and accessing the debt capital markets, given capacity at the SPGN and PGN levels. Fitch believes the company will generate enough FCF to repay all of the 2023 and 2024 notes with cash on hand and a majority of the 2025 notes. This will leave the company with approximately two years of runway to address the remainder of the 2025 and 2026 notes, which Fitch believes is enough time to generate meaningful FCF and position the company to refinance or pay down the maturities in 2026-2028, especially if the company starts receiving distributions from the JV. Negative trends in the drilling environment and a reduction in expected FCF generation, combined with the complicated capital structure, could present difficulty accessing capital markets to refinance debt in the medium term. Debt Reduction Continues: Nabors continues to reduce its absolute debt load, which has improved gross leverage. The company reduced its total outstanding notes balance by approximately $270 million in 2022, and reduction is expected to continue into 2023 as FCF proceeds are applied toward the 2023, 2024 and 2025 notes. Fitch forecasts debt/EBITDA will reach 2.4x in 2023 and could improve thereafter if strong market conditions persist. International Segment Stability, Limited Access: Nabors' international drilling segment exhibited resilience through the cycle, but a considerable portion of international EBITDA is generated through the Saudi Aramco JV, from which Nabors has a limited ability to extract cash in the near term. Double-digit EBITDA growth is expected for the JV as newbuilds are deployed, and Fitch believes the JV will reach its FCF inflection point in 2024. Fitch believes Nabors could receive distributions from the JV in 2025, although the timing and magnitude of distributions remains uncertain. International segment average rig count steadily improved to 76 rigs in 4Q22 from 71 in 4Q21 but did not experience as significant a decline in rig activity during 2020 compared with the U.S. segment. International margins have historically been slightly higher than U.S. margins, and the longer term of the contracts provide for more certainty on future utilization. Daily rig margin remained relatively resilient overall and has increased to $14,902 in 4Q22, up slightly from $14,589 in 3Q22. DERIVATION SUMMARY Fitch compares Nabors with Precision Drilling Corporation (B+/Stable), which is also an onshore driller with exposure to the U.S. and Canadian markets. It is estimated that Nabors has the third-largest market share in the U.S. at approximately 12%, compared with Precision at 8%. Nabors' gross margins in the U.S. are higher than Precision's margins, which are aided by its offshore and Alaskan rig fleet, which operate at significantly higher margins. Precision has the highest market share in Canada, while Nabors' Canadian drilling rigs and related assets were sold in July 2021. Nabors has a significant international presence, which typically has longer-term contracts, partially negating the volatility of the U.S. market. Precision has stronger credit metrics and a more extended maturity profile than Nabors, while the liquidity profiles are relatively similar. Both companies are expected to generate FCF over their respective forecast periods and use cash to reduce debt. KEY ASSUMPTIONS - WTI oil price of $81/bbl in 2023, $62/bbl in 2024 and $50/bbl in 2025 and thereafter; - Henry Hub natural gas price of $5.00/mcf in 2023, $4.00/mcf in 2024, $3.00/mcf in 2025 and $2.75/mcf thereafter; - Double-digit revenue and EBITDA growth in 2023 followed by high single-digit growth thereafter; - Capex of $490 million in 2023 with growth-linked increases thereafter; - FCF is expected to be positive with the expectation that FCF proceeds will be used to reduce gross debt. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Proactive management of the maturity profile that reduces medium-term refinance risks; - Positive FCF generation with proceeds applied to reduce of total gross debt toward $2.0 billion; - Maintain mid-cycle debt/EBITDA below 3.5x. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Inability to reduce gross debt and proactively manage the maturity schedule leading to heightened refinance risks; - Inability to access the revolving credit facility or other material reductions in liquidity; - Maintain mid-cycle debt/EBITDA above 4.5x. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: Cash attributable to Nabors at 4Q22 was approximately $148 million which is net of approximately $303 million the Saudi Aramco JV and not available to Nabors. The company also had full availability under its $350 million secured revolving credit facility which also includes an accordion feature for an additional $100 million of commitments, subject to lender approval. The revolver matures in January 2026, but is subject to springing maturity dates if certain issues of the company's 2023, 2024 and 2025 notes remain outstanding before their respective maturity dates. The facility is also subject to financial covenants including minimum interest coverage of 1.875x in 3Q22 which tightens to 2.75x by 2Q24 and a requirement that certain guarantors own a minimum of 90% of the consolidated PP&E of the company. Fitch believes Nabors will be able to address its near-term maturities to avoid a springing maturity on the revolver and forecasts the company to remain within covenants in the base case. KEY RECOVERY RATING ASSUMPTIONS - The recovery analysis assumes Nabors would be reorganized as a going-concern in bankruptcy rather than liquidated; - Fitch has assumed a 10% administrative claim. Going-Concern Approach Nabors' going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level, upon which Fitch bases the enterprise valuation. The going-concern EBITDA assumption for commodity sensitive issuers at a cyclical peak reflects the industry's move from top of the cycle commodity prices to mid-cycle conditions and intensifying competitive dynamics. The going-concern EBITDA assumption equals EBITDA estimated for 2025, which represents the emergence from a prolonged commodity price decline. Fitch assumes its stress case WTI oil price assumptions of $42/bbl in 2023, $32/bbl in 2024, $42/bbl in 2025 and $45/bbl for the long term. The going-concern EBITDA assumption reflects a loss of customers and lower margins, as E&P companies cut rigs and pressure oil service firms to reduce operating costs. The EBITDA assumption also incorporates the structural weakness outside of the Saudi Aramco JV and overall high rig supply, but improving demand. The assumption reflects corrective measures taken in the reorganization to offset adverse conditions that triggered default, such as cost-cutting and optimal deployment of assets. An enterprise value multiple of 4.0x EBITDA is applied to going-concern EBITDA to calculate a post-reorganization enterprise value. The choice of this multiple considered the following factors: The historical bankruptcy case study exit multiples for peer energy oilfield service companies have a wide range with a median of 6.1x. The oil field service sub-sector ranges from 2.2x to 42.5x due to the more volatile nature of EBITDA swings in a downturn. Fitch used a multiple of 4.0x to estimate a value for Nabors because of concerns of a downturn with a longer duration, a high mix of international rigs that are not easily mobilized and continued capital investment to remain competitive with peers to maintain high quality and technologically advanced rigs for operators. Liquidation Approach The liquidation estimate reflects Fitch's view of the value of balance sheet assets that can be realized in sale or liquidation processes conducted during a bankruptcy or insolvency proceeding and distributed to creditors. Fitch assigns a liquidation value to each rig based on management discussions, comparable market transaction values, and upgrades and new build cost estimates. Different values were applied to top of the line super spec rigs, lower-value super spec rigs, non-super spec rigs, and higher value international rigs. The secured credit facility is assumed to be fully drawn upon default and is super senior in the waterfall. The allocation of value in the liability waterfall results in recovery corresponding to 'RR1' for the secured credit facility, a recovery of 'RR2' for the SPGN notes, which are subordinated to the secured credit facility, and a recovery of 'RR4' for the PGN notes, which are subordinated to the SPGN notes. The senior unsecured notes result in a recovery of 'RR6'. ISSUER PROFILE Nabors is one of the largest drilling contractors in the world with operations in both the U.S. and International markets. Nabors also owns a Drilling Solutions business that offers specialized drilling technologies that enhance drilling performance and wellbore placement along with a Rig Technologies business that offers advanced drilling rig equipment that improve energy efficiency and reduce emissions. 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 ----------- ------ -------- ----- Nabors Industries, Ltd. LT IDR B- Affirmed B- senior unsecured LT B- Upgrade RR4 CCC+ Nabors Industries, Inc. LT IDR B- Affirmed B- senior unsecured LT CCC Affirmed RR6 CCC senior unsecured LT B+ Affirmed RR2 B+ senior secured LT BB- Affirmed RR1 BB- =========== B R A Z I L =========== BRAZIL: GDP Grew 2.9% in 2022, but Economy Slowed in 4th Quarter ---------------------------------------------------------------- Richard Mann at Rio Times Online reports that the Brazilian GDP grew 2.9% last year, show data from the Brazilian Institute of Geography and Statistics (IBGE) released on Mar. 2. And in the fourth quarter, there was a negative variation of 0.2%, in relation to the previous three months, pulled by high-interest rates, according to Rio Times Online. It is the second consecutive year of growth, after the 3.3% retraction of the GDP, in 2020 caused by the effects of the pandemic, then report notes. In 2021, the Brazilian economy had a 5% expansion in GDP, 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). BRAZIL: Judiciary Should Force Businesses to Pay Equal Salaries --------------------------------------------------------------- Fernando Cardoso at Reuters reports that the Brazilian judiciary should work on compelling businesses to pay equal wages for men and women in the same roles, Brazil's President Luiz Inacio Lula da Silva said. In an event marking International Women's Day, Lula also presented a bill to promote wage equality between women and men, among other measures directed toward women, according to Reuters. The president said the bill, which needs to be submitted to congress for approval, would make paying equal wages mandatory, "so that . . . no one will earn less just because they are a woman," the report notes. "Whoever works in the same post, with the same abilities, has the right to earn the same salary," Lula added. In a later Twitter post, Lula said the bill also includes measures encouraging greater wage transparency, the report relays. Companies that fail to comply with the law will be subject to a fine 10 times the highest monthly salary the company pays, according to planning and budget minister Simone Tebet, the report says. Tebet added that the bill also allows judges to rule wage differences on basis of gender be immediately rectified when proven, the report notes. 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). PETROLEO BRASILEIRO: Cuts Fuel Prices After Tax Return in Brazil ---------------------------------------------------------------- Rio Times Online reports that Petroleo Brasileiro S.A. disclosed the reduction of gasoline and diesel prices starting March 1 for distributors. The measure comes one day after the government agreed to resume taxation on fuel, despite political pressure, according to Rio Times Online. Petrobras shares fell after the announcement of price cuts for distributors, with investors getting rid of the papers, the report notes. About Petrobras Petroleo Brasileiro S.A. or Petrobras (in English, Brazilian Petroleum Corporation - Petrobras) is a semi-public Brazilian multinational corporation in the petroleum industry headquartered in Rio de Janeiro, Brazil. Petrobras control significant oil and energy assets in 16 countries in Africa, the Americas, Europe and Asia. But, Brazil represents majority of its production. The Brazilian government directly owns 54% of Petrobras' common shares with voting rights, while the Brazilian Development Bank and Brazil's Sovereign Wealth Fund (Fundo Soberano) each control 5%, bringing the State's direct and indirect ownership to 64%. A corruption scandal was uncovered in 2014 that involved Petrobras. The scandal related to money laundering that involved Petrobras executives. The executives were alleged to get received kickbacks from overpriced contracts, to the tune of about $3 billion in total. Over a thousand warrants were issued against politicians and businessmen in relation to the scandal. In 2016, Marcelo Odebrecht, CEO of Odebrecht, was sentenced to 19 years in prison after being convicted of paying more than $30 million in bribes to Petrobras executives. In January 2018, Petrobras agreed to pay $2.95 billion to settle a U.S. class action corruption lawsuit. In September 2018, Petrobras agreed to pay $853.2 million to settle with Brazilian and U.S. authorities. In July 2022, Fitch Ratings affirmed Petrobras' BB- Long-Term Issuer Default Rating. In addition, Fitch has revised the Rating Outlook to Stable from Negative following a similar revision to Brazil's Sovereign Rating Outlook. Also in July 2022, Egan-Jones Ratings Company upgraded the foreign currency and local currency senior unsecured ratings on debt issued by Petrobras to BB+ from BB. =========================== C A Y M A N I S L A N D S =========================== RUSSELL INVESTMENTS: S&P Affirms 'BB-' ICR & Alters Outlook to Neg. ------------------------------------------------------------------- S&P Global Ratings revised its outlook on Russell Investments Cayman Midco Ltd. to negative from stable. S&P also affirmed its 'BB-' issuer credit and first-lien term loan ratings. The '4' recovery rating on the first-lien term loan is unchanged, indicating an average (40%) recovery in the event of default. Russell has proposed extending the maturity of $1.16 billion of its $1.26 billion first-lien term loan to May 2028 from May 2025 and extending the maturity of its revolving credit facility to February 2028 from February 2025. The company plans to reduce the term loan B by $100 million by using cash from its balance sheet as part of the transaction. S&P view the lower debt balance and extended maturity favorably. However, the lengthened debt tenor and lower gross debt do not offset the impact of lower earnings on the company's debt to EBITDA. The company's earnings weakened in 2022 after strong results in 2021. Revenue declined 16%, while EBITDA declined 37% amid market declines and net outflows, which lowered the company's asset base. Year-over-year assets under management declined to $181 billion in 2022 from $229 billion at year-end 2021. Of the $48 billion decline, $8 billion stemmed from net asset outflows, primarily from institutional clients, and $40 billion stemmed from market depreciation. Fee compression also affected earnings, with a shift to institutional sales spurring lower fee rates in recent years. The outlook revision reflects S&P's expectation that Russell could operate with leverage, measured as debt to EBITDA, above 5.0x over the next 12 months. That said, the company has improved long term investment performance and net flow trajectory over the last 12 months, that may result in enhanced AUM, which could offset some of the increase in leverage. Russell has also executed on $225 million of expense savings since 2026 and has further cost savings plans for 2023, which may support higher EBITDA. However, if the current market volatility becomes protracted and if net outflows worsen, earnings could deteriorate further and leverage could stay above 5.0x. The negative outlook reflects S&P Global Ratings' expectation that Russell's weighted average leverage, measured as debt to EBITDA, could remain above the 5.0x downside threshold over the next 12 months. S&P said, "We could lower our ratings if debt to EBITDA remains above 5.0x. We could also lower the ratings if the company faces outsize net outflows or investment performance deteriorates. "We could revise the outlook to stable if Russell's weighted leverage stays comfortably below 5.0x while it stabilizes flows and investment performance." ============= J A M A I C A ============= DIGICEL GROUP: Minister Not Formally Advised of Proposed Changes ---------------------------------------------------------------- RJR News reports that Technology Minister Daryl Vaz says he has not yet been formally advised of proposed changes to Digicel's structure. Addressing the meeting of the Standing Finance Committee of Parliament, Mr. Vaz said he may need to call Digicel to a meeting to get a clearer understanding of what is happening, according to RJR News . "I got a telephone call during the week before the announcement came out to say that announcement would come out. I have not received anything formal, but based on what I read in the papers this morning in relation to the fact that a significant part of the shares will be transferred, then of course, it is my duty to do the due diligence," he told the committee, the report notes. Digicel indicated that shareholders are nearing a deal to clear $1.8 billion off its debt, the report notes. The deal, to be forged with bondholders owed by the company, would also see Digicel's founder Denis O'Brien, lose his majority stake, the report adds. About Digicel Group Digicel Group is a mobile phone network provider operating in 33 markets across the Caribbean, Central America, and Oceania regions. The company is owned by the Irish billionaire Denis O'Brien, is incorporated in Bermuda, and based in Jamaica. As reported in the Troubled Company Reporter-Latin America in April 2020, Moody's Investors Service downgraded Digicel Group Limited's probability of default rating to Caa3-PD from Caa2-PD. At the same time, Moody's downgraded the senior secured rating of Digicel International Finance Limited to Caa1 from B3. All other ratings within the group remain unchanged. The outlook is negative. Also in April 2020, the TCR-LA reported that Fitch Ratings has downgraded Digicel Limited to 'C' from 'CCC', and its outstanding debt instruments, including the 2021 and 2023 notes to 'C'/'RR4' from 'CCC'/'RR4'. Fitch has also downgraded Digicel International Finance Limited to 'CCC+' from 'B-'/Negative, and its outstanding debt instruments, including the 2024 notes and the 2025 credit facility, to 'CCC+'/'RR4' from 'B-'/'RR4'. Fitch has removed the Negative Rating Outlook from DIFL. JAMAICA: Fitch Alters Outlook on 'B+' LongTerm IDRs to Positive --------------------------------------------------------------- Fitch Ratings has revised the Rating Outlook on Jamaica's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to Positive from Stable and affirmed the IDRs at 'B+'. KEY RATING DRIVERS Positive Outlook: The revision of the Outlook reflects Jamaica's significant progress with debt reduction, despite the pandemic shock, its stability-oriented institutional framework and favorable financing conditions, reinforced by the new IMF facilities. Public debt has resumed its declining trajectory following the temporary increase in 2020 to an estimated 85% of GDP at the end of 2022, below its pre-pandemic level, although still much higher than the current 'B' median of 57% of GDP. Jamaica's 'B+' rating is also supported by World Bank Governance Indicators that are substantially stronger than the 'B' median. The ratings remain constrained by deep structural weaknesses, including a high crime rate, low productivity and weak demographics, reflected in subdued underlying growth potential, estimated between 1-2%. Declining Debt Trajectory: Fitch forecasts general government debt to GDP declines to 80% by the end of 2023 and to around 70% in 2026, but meeting the government's 60% debt target by 2028 looks challenging. Sizeable primary budget surpluses are expected to be the key driver of the debt decline. Strong Policy Framework: Jamaica has a strong, stability-oriented economic policy framework that is built on two key pillars: Bank of Jamaica (BoJ) inflation targeting monetary policy and fiscal policy anchored on debt reduction targets. The policy framework proved flexible enough to cope with the double shocks of the pandemic and more recently the exogenous energy and commodity price shocks. The government has built a track record of fiscal prudence that has gained credibility over recent years and it will be further institutionalized by the new independent fiscal commission which will judge the compliance of the draft annual budgets with the fiscal rule. Primary Budget Surpluses: The budget balance has improved significantly since 2020, when the pandemic support measures led to the first budget deficit since 2012. According to the latest data, the 12-month rolling balance of the central government was JMD42 billion (1.8% of GDP) in December 2022. Revenues grew by 18% yoy in December 2022, exceeding the growth rate of nominal GDP, while expenditures grew by 12% over the same period. The draft 2023-2024 budget, to be adopted by mid-March 2023, targets a primary surplus above 5% of GDP. The government envisages tight spending control on the expenditure side and improving tax collection, based on enhanced digitalization, to boost revenues. The public sector salary reform will add to expenditure pressures over the next three years, but its cost is forecast to be limited. Fitch forecasts a 4% of GDP primary surplus beyond 2022. New IMF Financing: The IMF has recently provided access to a total of USD1.7 billion financing. The staff level agreement was reached in December 2022 on the USD960 million Precautionary and Liquidity Line, that can serve as an insurance against downside risks, including extreme weather events, and the USD760 million Resilience and Sustainability Facility supports green projects. Jamaica has no need to issue external debt on the global financial markets given its prudent fiscal stance and low external maturities. The country also benefits from multilateral FX loans at favorable rates, but the interest payments to revenue ratio (three-year average) at 18.3%, is almost double the 'B' median. Resilient External Sector: Jamaica has had a persistent current account deficit in the range of 1%-4% of GDP. The surge in global commodity prices led to a widening of Jamaica's trade deficit in 1H22 to USD1.7 billion, despite the strong rebound in the tourism sector. The main financing item for the trade deficit is the large surplus on secondary incomes, consisting mainly of remittances from the diaspora. The U.S.-based Jamaican diaspora have increased their remittances in recent quarters, due partly to the relatively large pandemic-related fiscal stimulus in the U.S. Fitch forecasts international reserves at 5.5 months of current external payments at YE 2022, compared to the peer group median of 3.4 months. Pandemic Recovery, Weaker Growth Outlook: The Jamaican economic activity has recovered from the deep pandemic recession; GDP contracted by 10% in 2020 and growth was 4.6% in 2021 and an estimated at 4% in 2022. The recovery was boosted by the tourism rebound, especially for U.S. stopover visitors, the largest market. Fitch forecasts real growth to slow to 2.3% in 2023 and 2% in 2024, converging towards its medium-term potential rate, estimated around 1%-2% which is weak relative to rating peers. Inflation Declining From Very High Peak: The global surge in energy and commodity prices drove inflation to a peak of 11.8% in April 2022, declining to 8.1% in January 2023. Core inflation increased more persistently until 3Q22 but also started to decline from 8.5% in December to 7.1% in January 2023. Fitch forecasts inflation to moderate over the forecast horizon, primarily due to BoJ's monetary tightening in the context of the credible inflation targeting regime. Fitch forecasts inflation averages 7.5% in 2023 and to 4.9% in 2024, within the BoJ's 4%-6% CPI target. Significant Monetary Tightening: The BoJ hiked interest rates by a cumulative 650 bps as the domestic and global inflationary pressures started to intensify after the beginning of the pandemic rebound. The domestic yield curve has increased significantly during the monetary tightening cycle. The longer-term forward rates price in rate cuts starting in 2024, as the market judges that inflation will start to fall towards the inflation target band. Well-Capitalized Banks: The banking sector is well-capitalized and non-performing loans remained at low levels following the phasing out of pandemic support measures, due to the economic recovery from the pandemic shock. As of September 2022, the capital adequacy ratio was 13.4%, well above the regulatory requirement of 10% and the NPL ratio was 2.5%, below the five-year pre-pandemic average. ESG - Governance: Jamaica has an ESG Relevance Score (RS) of '5[+]' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in its proprietary Sovereign Rating Model. Jamaica has a medium WBGI ranking at the 58th percentile, reflecting its long track record of stable and peaceful political transitions, accountability of the government to civil society and regulatory quality. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - Public Finances: Sizeable fiscal deterioration, for example owing to a persistently loose fiscal stance or a marked increase in debt service costs; - Macro/External: A sizeable external shock that weakens growth and/or external finances, for example, a natural disaster or sharp fall in tourism. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Public Finances: Greater confidence in a sustained decline in government debt-to-GDP ratio over the medium term, based on consistent adherence to fiscal rules and further entrenchment of the policy framework. - Macro/External: Clear evidence of enhanced resilience of economic growth without the emergence of macro imbalances, and of external finances to shocks. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Jamaica a score equivalent to a rating of 'B+' on the Long-Term Foreign Currency (LT FC) IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM score to arrive at the final LT FC IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within its criteria that are not fully quantifiable and/or not fully reflected in the SRM. ESG CONSIDERATIONS Jamaica has an ESG Relevance Score of '5[+]' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Jamaica has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. Jamaica has an ESG Relevance Score of '5[+]' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Jamaica has a percentile rank above 50 for the respective Governance Indicators, this has a positive impact on the credit profile. Jamaica has an ESG Relevance Score of '4[+]'for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As Jamaica has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. Jamaica has an ESG Relevance Score of '4' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Jamaica, as for all sovereigns. As Jamaica had a fairly recent restructuring of domestic public debt in 2013, this has a negative impact on the credit profile. 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 ----------- ------ ----- Jamaica LT IDR B+ Affirmed B+ ST IDR B Affirmed B LC LT IDR B+ Affirmed B+ LC ST IDR B Affirmed B Country Ceiling BB- Affirmed BB- senior unsecured LT B+ Affirmed B+ ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2023. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *