/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/230323.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 Thursday, March 23, 2023, Vol. 24, No. 60 Headlines A R G E N T I N A BLOCKFI INC: Says It's 'Fine' Despite $227-Mil. SVB Exposure RAGHSA SA: Moody's Gives Caa2 Rating on Unsecured Notes Due 2030 B O L I V I A BCP BOLIVIA: Fitch Cuts LongTerm IDRs to 'B-', Outlook Negative B R A Z I L AMERICANAS SA: CVM Launches New Probes Into Accounting Fiasco BRAZIL: Cuts GDP Growth Forecast in 2023 & Hikes Inflation Forecast GOL LINHAS: Fitch Hikes IDRs to 'CCC+' on Post-Restructuring Risk C H I L E LATAM AIRLINES: Plans Return to US Capital Markets D O M I N I C A N R E P U B L I C [*] DOMINICAN REPUBLIC: Sargassum is "Catastrophe" for Economy G U A T E M A L A GUATEMALA: Economy Continued to Show Resilience in 2022 J A M A I C A JAMAICA: Point-to-Point Inflation Drops to 7.8% for February P E R U AUNA SAA: Fitch Lowers LongTerm IDRs to 'B-', On Watch Negative T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: Cement Price Increases Bad for Industry - - - - - ================= A R G E N T I N A ================= BLOCKFI INC: Says It's 'Fine' Despite $227-Mil. SVB Exposure ------------------------------------------------------------ Jeremy Hill of Bloomberg News reports that BlockFi Inc. has ample access to cash and is in no immediate danger despite more than $200 million of exposure to failed Silicon Valley Bank, a lawyer for the bankrupt crypto lender said. "BlockFi is fine," Christine Okike of Kirkland & Ellis said on behalf of the company in a bankruptcy hearing Monday, March 13, 2023. "We have access to cash to operate in the normal course, including paying employees and vendors." The company expects to have access to a large chunk of cash held with SVB, she said. Most of its exposure is through third-party money-market mutual funds. 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. RAGHSA SA: Moody's Gives Caa2 Rating on Unsecured Notes Due 2030 ---------------------------------------------------------------- Moody's Investors Service has assigned a Caa2 foreign currency rating to Raghsa S.A.'s proposed senior unsecured notes due in 2030. The outlook is stable. Net proceeds from the proposed issuance will be used primarily for a tender offer for Raghsa's 2024 notes. Raghsa's purpose for the proposed debt exchange offer is to extend its debt maturity profile and will not result in additional cash proceeds or increase in the company's indebtedness. The rating of the proposed notes assumes that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and assume that these agreements are legally valid, binding and enforceable. Assignments: Issuer: Raghsa S.A. Senior Unsecured Regular Bond/Debenture, Assigned Caa2 RATINGS RATIONALE Raghsa's Caa2 rating is mainly supported by its high-quality assets; high occupancy rates; healthy tenant base; and good liquidity. The rating reflects Raghsa's moderate leverage for the rating category compared with its high-quality assets, which are mostly unencumbered and support its liquidity sources. Raghsa's rating is also supported by the company's strong brand name and position in the Argentine market, and management's solid track record in the industry. Key rating challenges for Raghsa's ratings are its small size relative to its global industry peers, and the concentration of its office portfolio (104,000 m2 of gross leasable area) in three buildings in the City of Buenos Aires. However, the company's property portfolio is also diversified outside of Argentina, mainly through a luxury residential building in New York City (One Union Square South, acquired in 2020); a property in New York City, acquired with a partner in 2017; and a luxury residential building under development in Uruguay. As of 30 November 2022, Raghsa reported total assets of ARS254 billion (around $1.5 billion). Raghsa's Caa2 rating also reflects Moody's view that the creditworthiness of Raghsa cannot be completely de-linked from the credit quality of the Government of Argentina (Ca stable), and thus the rating needs to closely reflect the risk that the company shares with the sovereign. A weaker sovereign has the potential to create a rating drag on companies operating within its borders, and, therefore, it is appropriate to limit the extent to which the company can be rated higher than the sovereign, in line with Moody's cross-sector rating methodology Assessing the Impact of Sovereign Credit Quality on Other Ratings, published in June 2019 and available on www.ratings.moodys.com. In addition, Raghsa has exposure to foreign-exchange risk because most of its debt is denominated in US dollars. However, this exposure is mitigated by (1) its revenue base in Argentina is indexed to the depreciation of the Argentine peso because lease rent for tenants are set in US dollars but payable in Argentine pesos, (2) its international property portfolio, mainly in the United States; and (3) the company's large holdings of cash and marketable securities denominated in US dollars held outside of Argentina relative to cash requirements in coming years. Raghsa has good liquidity. The company's liquidity and funding have been historically reliant on internally generated cash, proceeds from property sales (all of Raghsa's assets in Argentina are unencumbered), notes' issuances and, to a lesser extent, bank loans. Raghsa's near term debt obligation are the $91.9 million in senior unsecured notes due in March 2024 that are subject to the exchange offer; the remaining balance is composed of $58.3 million in senior unsecured notes due in May 2027; and a $ 114.5 million mortgage loan associated to the acquisition of One Union Square South in 2020. Raghsa's liquidity profile is aided by hard currency cash and marketable securities held outside of Argentina. As of November 30, 2022, cash and marketable securities in the company's balance sheet were denominated in US dollars and amounted to $142 million, including $105 million in US treasury bonds. In the proposed transaction, Raghsa offers bondholders of its dollar-denominated senior unsecured 7.25% notes due 2024 ($91.9 million of principal outstanding) the possibility to exchange any and all of their holdings for newly issued dollar-denominated senior unsecured 8.25% notes due 2030. Raghsa's primary purpose for the exchange offer is to extend the maturity of its outstanding financial debt. Bondholders will receive, for each $1,000 in principal amount of existing 2024 senior unsecured notes, $1,000 in principal amount of proposed 2030 senior unsecured. As a result, Raghsa will not receive any cash proceeds from the issuance of the proposed notes and its indebtedness will not increase. Raghsa's stable rating outlook reflects Moody's view that the creditworthiness of the company will be supported by steady revenue and cash flow generation from the broad base of tenants, high occupancy rates and multiple-year lease contracts. Raghsa's creditworthiness cannot be completely de-linked from the credit quality of Argentina, however, where it generates the bulk of its revenue, and therefore the company's rating and outlook also incorporate the risks that it shares with the sovereign, in line with Moody's cross-sector rating methodology, Assessing the Impact of Sovereign Credit Quality on Other Ratings, published in June 2019. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING A rating upgrade of the Argentine Government's bond rating could result in positive rating action for the company to maintain the issuers' current notching gap relative to the sovereign in the absence of any significant change in its underlying credit quality. Raghsa's ratings could also be upgraded if the company increases diversification of operations outside Argentina. Similarly, a rating downgrade of the Argentine Government's bond rating would likely result in negative rating actions for the company to maintain the issuers' current notching gap relative to the sovereign in the absence of any significant change in its underlying credit quality. A significant deterioration in the company's liquidity profile can also lead to a rating downgrade. The principal methodology used in this rating was REITs and Other Commercial Real Estate Firms published in September 2022. ============= B O L I V I A ============= BCP BOLIVIA: Fitch Cuts LongTerm IDRs to 'B-', Outlook Negative --------------------------------------------------------------- Fitch Ratings has downgraded Banco de Credito de Bolivia S.A.'s (BCP Bolivia) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B-' from 'B'. The Rating Outlook is Negative. Fitch has also downgraded the bank's Shareholder Support Rating (SSR) to 'b-' from 'b' and affirmed BCP Bolivia's Viability Rating (VR) and Short-Term Foreign and Local Currency IDRs at 'b-' and 'B', respectively. The downgrade follows the recent downgrade of Bolivia's Long-Term Foreign Currency IDR to 'B-' from 'B' with a Negative Outlook. For additional details see "Fitch Downgrades Bolivia to 'B-'; Outlook Negative" dated March 14, 2023. Although BCP Bolivia's Local and Foreign Currency IDRs benefit from the support it would receive from its higher-rated parent, these are currently capped by the sovereign and country ceiling. KEY RATING DRIVERS Support from Parent: BCP Bolivia's IDRs and SSR reflect expected support the bank would receive from its parent, Credicorp Ltd. (BBB/Negative), if required. Fitch views BCP Bolivia is a strategically important subsidiary for Credicorp as it is an integral part of the group since it contributes to the parent's geographical expansion. Nevertheless, BCP Bolivia's Foreign Currency IDR is capped by Bolivia's Country Ceiling, now at 'B-', which captures transfer and convertibility risks and constrains Fitch's assessment of the ability of the shareholder to support its subsidiary. BCP's Local Currency IDR is constrained by the sovereign due to history of intervention in the banking system. The Negative Outlook on BCP Bolivia's support driven IDRs, reflect the Negative Outlook on the sovereign as the parent, Credicorp Ltd. is rated several notches above. Challenging Operating Environment: The downgrade of BCP's Bolivia VR reflects the increased downside risks from the operating environment and liquidity risks associated with the sustained fall in international reserves to low levels that have rendered the banking system vulnerable to risk of a confidence shock. BCP Bolivia's VR is in line with its implied VR and is influenced by Bolivia's sovereign rating as well as the challenging and deteriorated operating environment within a highly regulated and interventionist framework. The outlook for the Bolivian banking system is still deteriorating for 2023 as economic growth will decelerate to about 2.5%, while legacy issues related to regulatory forbearance measures due to the pandemic will continue to weigh on banks' asset quality and profitability metrics. Good Franchise: As of YE 2022, BCP Bolivia was the sixth largest bank in its market as measured by total assets, with a market share of 8%. The entity is 100% owned by Credicorp Ltd., the largest financial group in Peru. BCP Bolivia benefits significantly from the reputation, synergies, technological developments and strategies of its shareholder; however, this has yet to materialize in a stronger franchise in Bolivia. Historically, the bank's branch expansion in the country has not been aggressive. Adequate Asset Quality: BCP Bolivia's impaired loan ratio worsened to 2.2% in 3Q22 from 1.4% average in 2018-2021, driven by the end of regulatory and compulsory relief measures for all the banking system and modest loan portfolio growth of 1.2%. The loan loss allowance/impaired loan ratio declined accordingly to 115%, although it still remains sufficient given the bank's decision to increase impaired loan coverage since 2020 to strengthen its loss absorption capacity to support expected deterioration. Fitch expects asset quality metrics to stabilize as loans currently under a grace period resume payment. Pressured Profitability: The bank's profitability weakened in 2022 due to higher loan impairment charges driven by the end of regulatory relief measures and lower net interest income due to modest loan growth. BCP Bolivia's operating profit to RWA ratio declined to 0.59% at 3Q22 from an average of 1.49% during 2018-2021. The bank's income generation decreased as a large portion of the loan portfolio was under a payment grace period (of principal and interest) until 1H22. As a result, a significant portion of the loan portfolio became non-earning assets (about 13% of total loans). Fitch expects additional profitability pressures from lower business volumes, an increase in the cost of credit, and reduced fee income due to lower transactions. Improving but Still Limited Capitalization Levels: Capitalization ratios improved at 3Q22 mainly due to higher retained earnings but still remained weak. The Fitch Core Capital (FCC) ratio improved by 60 bps to 10.2%. BCP Bolivia's capitalization is adequate compared with local peers and the Bolivian banking system. The regulatory capital ratio of 11.6% is above the FCC ratio due to subordinated bond issuances; however, these are not considered loss absorbing capital under Fitch's criteria. Fitch believes that current metrics and loss absorption capacity will be tested given the expected asset quality and profitability deterioration. Funding Concentration and Access to FX Liquidity Uncertain: The bank's loan to deposit ratio of 99.5% is commensurate with its rating category. Although funding concentration is a systemic issue, Fitch believes the bank's high funding concentration (the largest 20 deposits account for about 50% of total deposits) is one of its main weaknesses, although, this is partially offset by the bank's solid liquidity, reflected in its LCR and NSFR ratios well above 100%. In addition, liquidity risks may arise from reduced cash flows resulting from the ongoing liquidity restriction in foreign and local currency. Shareholder Support Rating: BCP Bolivia's downgraded SSR to 'b-' from 'b' reflects Fitch's view of external support from its majority shareholder Credicorp Ltd. if required (100% ownership). The SSR also reflects limited probability of support being forth coming because of significant uncertainties about the ability or propensity of the provider of support to do so. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - IDRs and VR are sensitive to changes in the sovereign rating, or further deterioration in the local operating environment. Negative rating actions on the bank's IDRs will mirror those of the sovereign. - IDRs are also sensitive to a change in the parent's willingness to support the bank. - Should Bolivia's sovereign rating be downgraded, the SSR will also be downgraded. - BCP's VR could be negatively affected if the bank's operating profit to risk weighted assets is consistently negative or near zero or its FCC ratio falls below 7%. - A significant deterioration of its access to funding or sustained pressure on the bank's liquidity profile would also be negative for creditworthiness. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Rating actions on the bank's IDRs would mirror those of the sovereign. - BCP's VR upside potential is limited given the sovereign's current rating and unstable operating environment. Over the medium term, ratings could be upgraded due to an improvement in the operating environment and the bank's business and financial profile; - BCP Bolivia's SSR is constrained and an upgrade could only occur if there is an upgrade of the sovereign rating, which is not likely as its Outlook is currently Negative. VR ADJUSTMENTS The Operating Environment score has been assigned below the implied score due to the following adjustment reason(s): Macroeconomic Stability (negative). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch revised its intangible asset calculation to factor in some accounts that were classified as other assets and other accounts receivable under Bolivian GAAP. The bank cannot rely on these assets in case of a liquidation process to pay for financial obligations. Therefore, Fitch classified prepaid and deferred expenses as intangibles and deducted these from the Fitch Core Capital calculation. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS BCP Bolivia's IDRs are support driven from its ultimate parent, Credicorp Ltd. ESG CONSIDERATIONS BCP Bolivia's Environmental, Social and Corporate Governance (ESG) Relevance Score for Management Strategy of '4' reflects a track record of high government intervention in the Bolivian banking sector. Government intervention in the country's banking regulatory framework challenges BCP Bolivia's ability to define and execute its own strategy. This has a negative impact on the rating. BCP Bolivia's ESG Relevance Score for Governance Structure is '3', aligned with the standard scoring for all banks globally. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Prior ----------- ------ ----- Banco de Credito de Bolivia S.A. LT IDR B- Downgrade B ST IDR B Affirmed B LC LT IDR B- Downgrade B LC ST IDR B Affirmed B Viability b- Affirmed b- Shareholder Support b- Downgrade b =========== B R A Z I L =========== AMERICANAS SA: CVM Launches New Probes Into Accounting Fiasco ------------------------------------------------------------- Reuters reports that Brazilian securities watchdog CVM said it has launched two new probes into retailer Americanas SA's accounting scandal and the firm's reorganization process. CVM said it launched an administrative proceeding to analyze "failures to disclose relevant information by (Americanas) regarding proposals for capitalization and the renegotiation of debts with creditors and the assessment of the sale of assets," according to Reuters. Americanas entered bankruptcy protection in January shortly after disclosing accounting inconsistencies worth 20 billion reais (US$3.78 billion) and overall debt of more than $8 billion, the report notes. CVM and other Brazilian authorities have since launched investigations, the report relays. Earlier this month, the retailer said it had offered a capital injection to its creditors of 10 billion reais (US$1.93 billion) which would come from top shareholders, the report notes. CVM is also looking into any irregularities regarding compensation paid by Americanas to former Chief Executive Sergio Rial, who took over the company just nine days before the scandal broke and resigned shortly thereafter, the report says. The launch of the probes comes a day after Americanas' former CEO Miguel Gutierrez testified before CVM, 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: Cuts GDP Growth Forecast in 2023 & Hikes Inflation Forecast ------------------------------------------------------------------- Richard Mann at Rio Times Online reports that the Brazilian Government lowered the Gross Domestic Product (GDP) growth forecast for this year from 2.1% to 1.61% and raised it for inflation from 4.6% to 5.31%. As the Ministry of Finance disclosed in the Macrofiscal Bulletin, the previous GDP projection, published in November last year, minimized the effects of high-interest rates on the economy and the credit market, according to Rio Times Online. "These effects (economic slowdown) were already partially verified during the last quarter of 2022 when the economy retreated 0.2 percent and credit concessions began to decelerate more sharply," Macrofiscal Bulletin noted, the report relays. 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). GOL LINHAS: Fitch Hikes IDRs to 'CCC+' on Post-Restructuring Risk ----------------------------------------------------------------- Fitch Ratings has downgraded GOL Linhas Aereas Inteligentes S.A.'s (GOL) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'RD' from 'C', following is debt restructuring which Fitch considered to be a distressed debt exchange (DDE). Simultaneously, Fitch has upgraded GOL's IDRs to 'CCC+' from 'RD' to reflect its post-restructuring risk profile. In addition, Fitch has downgraded GOL Finance Inc.'s unsecured bonds to 'RD' from 'C', as well as GOL's Long-Term National Scale rating to 'RD(bra)' from 'C(bra)'. At the same time, Fitch has upgraded GOL unsecured bonds to 'CCC'/'RR5' from 'RD', as well as GOL's Long-Term National Scale rating to 'CCC(bra)' from 'RD(bra)'. KEY RATING DRIVERS Transaction Qualified as DDE: GOL has completed the issuance of USD1.4 billion senior secured notes due 2028 to Abra Group Limited (Abra), a new holding company established to control the operations of GOL and Avianca Group International Limited (Avianca). GOL contributed with around USD1.077 billion face value of its bonds at a USD312.6 million discount to par (USD764 million) and Abra agreed to disburse, until 2028, additional funds of up to USD451 million. The issuance is secured by first-lien on intellectual property and brand of Smiles (GOL's loyalty program), and a pari passu lien on the intellectual property, brand and spare parts of GOL. Abra has the option to request this secured notes to be replaced by an exchangeable senior secured note due 2028. The transaction constituted a DDE under Fitch's criteria, as bondholders that accepted the deal had a haircut on its bonds (83% for 2024 bonds, 47% for 2025, 61% for 2026 and 10% for the perpetuals). Bondholders that did not accept the deal also faced material reduction in the terms of their existing notes due to the elimination of some restrictive covenants as well as structural subordination. Excluding leasings, secured debt will represent around 66% of GOL's total debt which compares to 18% before this transaction. GOL's current outstanding issuances, the senior secured notes due 2028 are USD70 million senior exchangeable notes due 2024, USD341 million for the unsecured notes due 2025, USD251 million for the 2026 notes and USD138 million for the perpetual notes. Increased Financial Flexibility: Despite having no major benefit on capital structure and higher interest rates, the transaction improves GOL's financial flexibility. The company has secured access to new a credit line, reduced refinancing risks for 2024-2026 period and lower interest outflows in the medium term (paid-in-kind interests). GOL has access to USD451 million of new funds, that could be used f general corporate purposes, including debt prepayment, working capital needs or capex. On a pro forma basis, this new credit line enhances GOL's liquidity position and covers financial debt amortizations until mid-2025 (pro forma and excluding leasing payments). During 4Q22, GOL issued USD200 million of secured amortizing notes which were used to extend certain lease deferral obligations by an additional year to 2026 and reduced disbursements during 2023. Operations to Improve in 2023: The solid passenger traffic levels in Brazil, elimination of PIS/Confins taxes, a reduction in fuel prices and cost structure improvements, including fleet optimization, are expected to continue to drive improvements in GOL's operating cash flow during 2023. Fitch expects GOL's adjusted EBITDA to reach BRL4.6 billion in 2023, which compares with the BRL2.9 billion of 2022. The spike in fuel prices (68%) during 2022 was only partially offset by a substantial increase in yields (47%). The yield management strategy has been supported by pent-up demand following the pandemic and a strong rebound in corporate traffic demand. Brazilian domestic market demand has rebounded strongly, with the passenger traffic during 2022 only 7% lower than pre-pandemic (2019). The rational behavior of the three largest players in the domestic market has been key for the industry recovery. In a scenario of increasing capacity for few players, traffic levels normalization and weaker macroeconomic environment yields are likely to deteriorate during 2023, but Fitch expects it remain at healthy levels. Capex to Pressure FCF: GOL remains with the challenge to improve operating cash flow generation to cope with the scenario of higher interest rates, its leasings obligations while supports growing capex (ongoing fleet renewal). Per Fitch's calculations, the company generated positive operating cash flow during 4Q22 for the first time since the pandemic. CFFO was positive at BRL252 million, after BRL236 million of interest and BRL731 million of leasings payments in the quarter. For 2023 and 2024, Fitch forecasts GOL's FCF to be negative at BRL1.6 billion and BRL1.1 billion, considering BRL2.5 billion and BRL2.0 billion of capex, respectively. For 2022, FCF was positive at BRL226 million, after BRL857 million of capex. Fitch expects GOL's total and net leverage, per the agency's criteria, to move around 5.9x and 5.3x in 2023 and 5.2x and 4.8x in 2024. Good Market Position: GOL has a leading business position in the Brazilian airline domestic market, which Fitch views as sustainable over the medium term, with a market share of around 34% as measured by RPK in 2022. As this is the company's key market, GOL's operating results are highly correlated to the Brazilian economy. Fitch assesses GOL on stand-alone basis and has not incorporated any new developments related to the creation of ABRA, despite the recent debt restructuring. Fitch believes there could be opportunities for cost savings under a group framework in a medium long-term horizon. GOL and Avianca are likely to continue to operate independently and maintain their respective brands. DERIVATION SUMMARY GOL's 'CCC+' rating reflects the company's challenge to recover and sustain a positive operating cash flow generation post-pandemic period and after the recently announced debt restructuring, that Fitch considered as DDE. GOL's medium-term refinancing risks remains. GOL has a weaker position relative to global peers given its limited geographic diversification and relatively high operating leverage. Its strong position in the Brazilian regional market and high operating margins have nevertheless been key rating drivers. Foreign exchange risk exposure is a negative credit factor for GOL considering its limited geographic diversification; the company operates currency hedging which partially mitigates this risk. KEY ASSUMPTIONS - For 2023, Fitch's base case includes a recovery in GOL's domestic RPK to 2019 levels and and by 5% increase in 2024; - WTI oil prices remaining around USD80/barrel for 2022 and declining towards USD70/barrel through 2024. - Load factors around 80% during 2023 and 2024; - Average Capex of BRL2.5billion in 2023 and BRL2 billion in 2024. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Continued solid rebound of the Brazilian domestic air traffic; - Gross and net leverage ratios consistently below 5.5x and 5.0x; - FFO fixed-charge coverage sustained at or above 2x; - FCF generation above Fitch's base case expectations; - Maintenance of adequate liquidity with no major refinancing risks in the next 18-24 months. Factors that could, individually or collectively, lead to a negative rating action/downgrade: - Gross and net leverage ratios consistently above 6.5x and 6.0x; - Competitive pressures leading to severe loss in market-share or yield deterioration; - FFO fixed-charge coverage sustained at or below 1x. LIQUIDITY AND DEBT STRUCTURE Improved Financial Flexibility: The access to new credit line and partial refinancing of its medium-term bonds has decreased GOL's refinancing risks. The company remains with the challenge to continue to rollover short-term maturities. On a pro forma basis, this new credit line enhances GOL's liquidity position and covers financial debt amortizations until mid-2025 (pro forma and excluding leasing payments). This represents an improvement from Dec. 31, 2022, as liquidity, per Fitch's criteria, was covering only 51% 2023 financial debt. GOL's short-term maturities totaled BRL3.1 billion as of Dec. 31, 2022, consisting of BRL1.1 billion of financial debt and BRL2.0 billion of leasing obligations. Readily available cash, per Fitch's criteria, was only BRL573 million. GOL considers its accounts receivable (BRL887 million) and a secured issuance program as sources of liquidity. At the same period, total debt was BRL23.2 billion and was mainly composed by BRL11 billion of leasing obligations, BRL10.4 billion cross-border senior notes and BRL1.1 billion in local debentures with final maturity in 2024. ISSUER PROFILE GOL is a leading Brazilian airline, with around 34% market share in the domestic market, per revenue per RPK in 2022. As of YE 2022, GOL's fleet included 146 Boeing 737 aircraft, with 108 NGs and 38 MAXs. ESG CONSIDERATIONS Gol Linhas Aereas Inteligentes S.A has an ESG Relevance Score of '4' for Management Strategy due to announcement of a corruption case and charges implemented by The Securities and Exchange Commission (SEC) and Department of Justice (DOJ) during 2022. This has a negative impact on 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 ----------- ------ -------- ----- GOL Linhas Aereas Inteligentes S.A. LT IDR RD Downgrade C LT IDR CCC+ Upgrade RD LC LT IDR RD Downgrade C LC LT IDR CCC+ Upgrade RD Natl LT RD(bra) Downgrade C(bra) Natl LT CCC(bra)Upgrade RD(bra) Gol Finance Inc. senior unsecured LT RD Downgrade C senior unsecured LT CCC Upgrade RR5 RD GOL Linhas Aereas S.A. LT IDR RD Downgrade C LT IDR CCC+ Upgrade RD LC LT IDR RD Downgrade C LC LT IDR CCC+ Upgrade RD Natl LT RD(bra) Downgrade C(bra) Natl LT CCC(bra)Upgrade RD(bra) ========= C H I L E ========= LATAM AIRLINES: Plans Return to US Capital Markets -------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that Latin America's largest airline is planning a return to US capital markets after cutting nearly $4 billion of debt during a years-long restructuring. Latam Airlines Group SA will seek to re-list its American depositary receipts on the New York Stock Exchange this year after they were suspended during the bankruptcy, Chief Financial Officer Ramiro Alfonsin said in a video interview, according to globalinsolvency.com. It also expects to return to international bond markets next year, he said, the report notes. The Santiago-based carrier, which emerged from chapter 11 in November, is trying to reduce debt-to-earnings ratios even as it adds routes to its network, the report relays. "We have a good opportunity for the market to recognize and better understand the new Latam," Alfonsin said, the report notes. "In 2024, it's likely we'll start to address the question of refinancing," he added. The company, which operates 310 aircraft and has the largest share of at least four South American markets, was one of three big Latin American carriers to restructure in US bankruptcy courts when the Covid-19 pandemic crippled air travel in 2020, the report says. The company has about $6.5 billion in debt, including more than $1 billion in secured notes due in 2027 and 2029 that were issued as private placements during the restructuring, the report adds. About LATAM Airlines Group LATAM Airlines Group S.A. -- http://www.latam.com/-- is a pan-Latin American airline holding company involved in the transportation of passengers and cargo and operates as one unified business enterprise. It is the largest passenger airline in South America. Before the onset of the COVID-19 pandemic, LATAM offered passenger transport services to 145 different destinations in 26 countries, including domestic flights in Argentina, Brazil, Chile, Colombia, Ecuador and Peru, and international services within Latin America as well as to Europe, the United States, the Caribbean, Oceania, Asia and Africa. LATAM and its 28 affiliates sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 20-11254) on May 25, 2020. Affiliates in Chile, Peru, Colombia, Ecuador and the United States are part of the Chapter 11 filing. The Debtors disclosed $21,087,806,000 in total assets and $17,958,629,000 in total liabilities as of Dec. 31, 2019. The Hon. James L. Garrity, Jr., is the case judge. The Debtors tapped Cleary Gottlieb Steen & Hamilton LLP as bankruptcy counsel, FTI Consulting as restructuring advisor, Lee Brock Camargo Advogados as local Brazilian litigation counsel, and Togut, Segal & Segal LLP and Claro & Cia in Chile as special counsel. The Boston Consulting Group, Inc. and The Boston Consulting Group UK LLP serve as the Debtors' strategic advisors. Prime Clerk LLC is the claims agent. The official committee of unsecured creditors formed in the case tapped Dechert LLP as its bankruptcy counsel, Klestadt Winters Jureller Southard & Stevens, LLP as conflicts counsel, UBS Securities LLC as investment banker, and Conway MacKenzie, LLC as financial advisor. Ferro Castro Neves Daltro & Gomide Advogados is the committee's Brazilian counsel. The ad hoc group of LATAM bondholders tapped White & Case, LLP as counsel. Glenn Agre Bergman & Fuentes, LLP, led by managing partner Andrew Glenn and partner Shai Schmidt, has been retained as counsel to the ad hoc committee of shareholders. =================================== D O M I N I C A N R E P U B L I C =================================== [*] DOMINICAN REPUBLIC: Sargassum is "Catastrophe" for Economy -------------------------------------------------------------- Dominican Today reports that the main economic, tourist, and environmental threat for the greater Caribbean and Mexico, but specifically for the Dominican Republic, are thousands of tons of sargassum that invade its waters, beaches, and coasts, considered an epidemic that has escaped human control. The alert is from the Ministry of the Environment and Natural Resources through the Vice Ministry of Coastal and Marine Resources, after noting that said algae already impact different regions of the country such as the East, North, and South, according to Dominican Today. Jose Ramon Reyes, Vice Minister of Coastal and Marine Resources, defines the presence of sargassum in the island's waters as a true catastrophe for the economy, especially for a nation whose main activity that generates resources is tourism, the report notes. "In 2018, it was considered the record year for the presence of sargassum in the Caribbean and the Coast of Mexico, but in 2020, there was also a considerable increase in the algae with some 60,000 metric tons," he said, the report relays. He explained that "by 2022, the presence of the algae in the region was estimated to be 64,000 tons, while it is estimated that in one month of 2023, 15,000 metric tons of sargassum entered the waters of the Caribbean, which foresees a catastrophic situation, not only for the region but in a timely manner, for the DR this year, the report discloses. He argued that sargassum is already one of humanity's biggest environmental problems, which is why it has been classified as an epidemic that has escaped the control of human beings, the report says. He warns that also the beaches of Florida, so valuable for tourism, have been totally impacted, 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. ================= G U A T E M A L A ================= GUATEMALA: Economy Continued to Show Resilience in 2022 ------------------------------------------------------- An International Monetary Fund (IMF) mission, led by Ms. Maria A. Oliva, visited Guatemala City during February 28 - March 13 for the 2023 Article IV consultation. At the end of the visit, the mission issued the following statement: Guatemala should continue to build on the achievements made in economic policy. The Guatemalan economy continued to show resilience in 2022, with growth exceeding its potential. Macroeconomic and financial stability was preserved despite an unfavorable global context—trading partners' growth slowing down, prices surging, and global monetary conditions tightening. Large remittance inflows and vibrant bank credit to the private sector have played an important role in sustaining solid private consumption. Also, large levels of international reserves persist. Stability was also the result of prudent monetary and fiscal policies. Inflationary pressures in Guatemala continued to add complexity to the policy mix design in the short and medium term. Even though at the onset the main determinants of the pickup in inflation were external factors, second round-effects and demand and supply pressures have been gaining ground and contributing to increase inflation. In this context, the Bank of Guatemala policy rate increases have played an important role in anchoring medium-term expectations. Nevertheless, it is important to stress the need to further strengthen the operationalization of the inflation targeting framework and ensure swift action to accelerate the implementation of the pro-growth structural agenda. Addressing gaps in infrastructure, education, and health, improving governance, and the fight against corruption remain of the first order. Reforms are not only needed to attract foreign direct investment, but to secure a sustainable and inclusive growth. Guatemala's prudent macroeconomic policy record has been paying off Guatemala's prudent macroeconomic policies—reflected in low fiscal deficits, low debt-to-GDP ratio, a stable currency, and large international reserves—have helped shelter the economy from the challenging global environment and the tightening of global financial conditions. After a strong rebound in 2021, Guatemala's 2022 growth moderated, and in 2023, growth will decelerate further to 3.4 percent, close to potential growth. A strong external position, with a positive current account and currently dominated by large remittance inflows, also fueled robust domestic consumption. The recovery of the labor market to above pre-pandemic levels and new foreign direct investment projects are also positive signs of strength. These conditions have been widely recognized in the international community, with a recent credit rating upgrade and low sovereign debt spreads. However, inflationary pressures and uncertainty will continue to pose challenges on the horizon. Inflation is not yet on a declining trend, even though the trend should be expected to revert soon. Imported inflation has been the largest component of headline inflation, but domestic factors (demand and supply pressures and so-called second-round effects) have been gaining steam, forcing the Bank of Guatemala to tighten its stance further in the past months. Easing price pressures will require a reversal of the still widely accommodative stance in the economy. The outlook is expected to remain broadly positive, but risks are in the downside. Guatemala's exposure to the U.S. economy and reliance on large remittance inflows make it vulnerable to a sharper U.S. economic slowdown, particularly to the U.S. labor market outlook, even though remittances have proven resilient in past episodes. A significant decline in remittance inflows would have material effects on the most vulnerable. An economic policy response would then be required to provide insurance to the most vulnerable households. Other risk scenarios, common to various economies, would include, among others: a de-anchoring of inflation expectations, natural disasters, and high commodity price volatility, causing discomfort among the most vulnerable . Challenging times for monetary policy open new opportunities for further strengthening the framework and practices in monetary operations. The unanimous decisions to hike the policy rate in the past months send a strong message from the Bank of Guatemala in the resolve to fight Inflation consistent with its Inflation Targeting (IT) framework. The decline in U.S. inflation and base effects kicking in from April 2023 will help tame pressures. However, continued monetary policy efforts will be required. To support Banguat's efforts, the mission proposed a mix of technical measures related to the monetary and operational framework. The gradual transfer of market risk management to the private sector will support the foreign exchange rate's role as a shock absorber. Other urgent measures to help the Bank of Guatemala further improve the effectiveness of monetary policy include the recapitalization of the Bank of Guatemala and the development of hedging tools for the private sector to manage foreign exchange volatility, however, remain. A renewed opportunity to strengthen public finances and the spending agenda In 2022, tax administration reform efforts (customs, tax administration enforcement, and digitalization) started to pay off, with an estimated tax collection outturn of 12.1 percent of GDP. These are the proper steps to address the country's investment needs—i.e., social programs, infrastructure, and education and health spending, among others. The continuity of the Superintendence of Tax Administration management team played an important role in achieving these outcomes. The reappointment of these posts should draw on an effort result-based assessment to achieve the medium-term strategic objectives towards properly planning the multi-annual budget. For example, a good understanding of factors limiting VAT collection and streamlining tax exemptions should help further increase the revenue-to-GDP ratio. But a much-needed structural increase in tax collection—necessary to attain the country's development targets— will require renewing past efforts to develop the bases for a comprehensive fiscal reform that supports closing of social and investment gaps, within the framework of a medium-term, multi-year, and pro-growth fiscal budget. Further strengthening the country's spending efforts, and ensure high quality of spending, requires sound medium-term planning. The multi-year planning should ensure consistency with the medium-term revenue and debt projections against the medium-term spending needed to attain the authorities' economic development goals. The strategy Guatemala no se detiene is a good step in planning medium-term. However, closing existing gaps, implementing a transformative infrastructure plan that incorporates resilience to natural shocks in the design, and avoids further implementation delays, will require more effort. A strategic vision, implemented gradually, will be required to ensure connectivity throughout the country and abroad, fostering the country's competitive edge. For instance, the budget should be flexible enough to allow for a multi-year ambitious infrastructure investment agenda that is consistent with the medium-term targets set. Also, the budget should also link national, subnational, and sectoral planning. Project appraisal procurement should be simplified in line with the size of the project to reduce implementation gaps. Portfolio management and implementation with clear timelines and specific delivery targets, would help fast-track projects. Also, the procedures around PPP investments need to be streamlined. A PIMA/C-PIMA (starting late May 2023) is geared towards identifying gaps in the investment governance framework with a view to increasing high-quality investments and achieving sustainable, inclusive development. Guatemala's debt-to-GDP ratio is low, and the country's risk premium has remained stable and low. The development of the secondary debt markets and completion of the yield curve would not only further help secure low-risk, lower-rates financing but also facilitate private sector access to external financing at lower rates. The latter is particularly relevant to the efforts of Guatemala's private sector to expand further. The financial sector has proven to be resilient and could further support Guatemala's development Guatemala's banking sector has proven to be resilient to shocks. An inter-bank market that needs a further development, and the high levels of informality in the economy are some of the limiting factors. The launching of a new digital bank is a step forward. The mission advised the passing of the 2002 Banking Law and Financial Groups reform, aligning regulatory and supervisory practices to international standards, to equipping the authorities with up-to-date tools to monitor risks and vulnerabilities affecting Guatemala's financial system, and responding if needed. Also, the publication of the Financial Stability Report would provide a tool to communicate with market participants. Banks' disclosure of their balance sheet and financial statements using international accounting standards would also help lower some of the costs of borrowing abroad. Guatemala's financial sector should further deepen, with the insurance sector playing a role in managing climate-related risks. Focus on sustainable investments, resilient to climate risks, would also be key to minimizing reconstruction costs, if needed, and open opportunities to areas that are affected by climate events. Time for renewed efforts to advance the structural reform agenda, strengthen institutions, and improve the investment climate Guatemala is at a critical juncture. The country has strong fundamentals thanks to its track record of conducting prudent policies over many years. Also, the Guatemalan authorities have made important strides in reinvigorating opportunities for the private sector. The approval of the leasing and insolvency laws, the law to simplify requirements and administrative procedures, and the law encouraging foreign investment are some examples. The approval of draft laws on civil service reform and infrastructure is also urgent. More is needed, however, if the country is to gear up toward a higher-growth path that is more equitable and sustainable. A higher potential growth path would require: Continue adopting measures to expand the formal labor market further, strengthen productivity, and attract investment by widening access to technology and innovation, investing in human capital, and reducing regulatory uncertainty. Scaling up efforts to improve governance and legal certainty and guarantee responsible and independent anti-corruption institutions, is essential for enhancing the business climate and attracting more investment. The approval of legislation on Anti-Money Laundering and combating the financing of terrorism that brings Guatemala in line with international standards and ensuring its effective implementation is particularly urgent. ============= J A M A I C A ============= JAMAICA: Point-to-Point Inflation Drops to 7.8% for February ------------------------------------------------------------ RJR News reports that inflation up to February hit its lowest point-to-point rate since December 2021. For the 12 months up to February, the cost of goods and services increased by 7.8 per cent, according to RJR News. In the comparative period last year, inflation was 10.7 per cent, according to RJR News. February's inflation outturn reflects a continued fall in price movements, which peaked at 11.8 per cent last April, the report notes. The Statistical Institute of Jamaica (STATIN) says the rise in the cost of goods over the 12 months was due to an 11.3 per cent increase in the cost of 'Food and Non-alcoholic Beverages', along with 'Restaurants and Accommodations Services', as well as Gas and other Fuels,' the report relays. For the month of February alone, prices rose by 0.5 per cent. STATIN says the increase was mainly due to a 2.7 per cent rise in the division 'Housing, Water, Electricity, Gas, and other Fuels,' 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. ======= P E R U ======= AUNA SAA: Fitch Lowers LongTerm IDRs to 'B-', On Watch Negative --------------------------------------------------------------- Fitch Ratings has downgraded Auna S.A.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B-' from 'B+' and placed the ratings on Rating Watch Negative. Fitch has also downgraded Auna's unsecured notes to 'B-'/'RR4' from 'B+'/'RR4' and placed them on Rating Watch Negative. The downgrade reflects Auna's increased refinancing risks amid the current tight credit market conditions, which should result in weaker than expected financial flexibility and leverage ratios in the short to medium term. The Rating Watch Negative indicates that additional negative rating action could follow in the next weeks if the company does not complete the refinancing of its bridge loans (USD406 million) used to finance acquisitions during 2022 (USD822 million). KEY RATING DRIVERS High Refinancing Risks: Auna has an important challenge to address its short- to medium-term refinancing risks under more uncertain credit and debt markets and tighter financing conditions. Higher interest rates and collateral packages could reduce Auna's financial flexibility. This refinancing mainly refers to USD406 million one-year secured bridge loans (USD56 million due April 20, 2023 and USD350 million due October 2023). Auna has additional USD300 million unsecured bonds due 2025, which are expected to be refinanced in the medium term. Fitch's base case scenario does not incorporate any dividend pressure from Auna to its shareholders in terms of the equity support (USD342 million) received to help fund acquisitions during 2022. Any deviation from that could bring further pressure to the ratings. Leverage to Remain Pressured: Despite the equity support, Auna's leverage remains high. On a proforma basis, including the LTM EBITDA for the acquired assets, Fitch expects AUNA's net leverage to be around 5.0x by 2022 year-end and to move to around 4.0x-4.5x in the next two years. As of Dec. 31, 2022, Auna's net leverage should be around 5.9x. This includes only three quarters of IMAT and one quarter of OCA. During 2021, Auna's net leverage was 6.3x. Acquisitions to Benefit Business Profile: The acquisitions in Colombia and Mexico are expected to improve Auna's business risks with improvement in diversification, scale and profitability. Auna acquired a controlling stake in IMAT, a leading healthcare group in Monteria, Colombia. It specializes in oncology, cardiology and high complexity services, and, with upcoming expansions, is expected to add approximately 427 beds in two hospitals. Following these expansions, Auna's total operating beds in Colombia would increase to 1.062 (484 in Peru). Auna has also acquired 100% ownership stake in OCA, a leading healthcare group in Mexico providing premium healthcare and oncological services in Monterrey. OCA operates three high-complexity hospitals representing the largest infrastructure footprint in Monterrey´s healthcare market, with 550 operating beds and approximately 35% market share based on number of beds. On a pro forma basis, around 42% of Auna's revenue is expected to be generated in Peru, 33% in Colombia and 26% in Mexico. This represents an improvement in revenue diversification compared with 2021, when 65% of Auna's revenues were originated in Peru and 35% in Colombia. The hospital operations in Monterrey offer a high-quality asset base with a track record of robust operating margins (average of 34%). Fitch foresees Auna's consolidated EBITDA margins moving around 22% by 2024, an improvement from its historical 14% pre-pandemic levels and 10.5% average during 2020-2021. Operating Cash Flow Improving: Fitch expects Auna to generate adjusted EBITDA of around PEN724 million in 2023 and PEN826 million in 2024, which compares to proforma EBITDA of PEN673 million in 2022, considering full year of acquisitions. Operating cash flow should be around PEN96 million in 2023 and PEN108 million in 2024, pressured by higher interest expenses, leading to a negative free cash flow generation in the PEN100 million - PEN130 million range. The company is expected to focus on maintenance capex and continue to seek opportunities to improve profitability. Fitch incorporates around PEN230 million of capex in 2023 and 2024 (includes PEN60 million of Dentegra acquisition in 2023). Solid Business Position: Auna operates through three business segments: (1) Oncosalud Peru, (2) Healthcare Services in Peru, which consists of its Auna Peru network, and (3) Healthcare Services in Colombia, which consists of its Auna Colombia network. In Peru, Auna has a solid business position as one of the largest and most recognized players in the health care industry due to its highly regarded oncology services. Oncosalud is considered the leading brand in Peru, maintaining approximately 30% market share in terms of private insurance plan members with 1,039,000 members as of Sept. 30, 2022. This market position makes Oncosalud the largest single private health care plan in the country. Auna has achieved integration in its Peruvian oncology platform through its ownership and management of hospitals and clinics in all of the major cities in the country. DERIVATION SUMMARY Auna's ratings reflect the company's strong market position as one of Peru's largest and well-known, reputable health care providers and its growing presence in Colombia, and more recently in Mexico. The company's current capital structure and financial flexibility are pressured by recent acquisitions and the challenges to refinance short-term debt, representing an important factor for its 'B-' ratings. Auna's strong brand, reputation in the industry, and R&D platform are among its competitive advantages, translating into strong relationships with payers and bargaining ability with third parties. Fitch views Auna as weaker compared with regional peers in terms of business scale and size of coverage. However, recent acquisitions and diversification movements are positive for its business profile. Rede D'Or Sao Luiz S.A. (BB/Stable) and Diagnosticos Da America S.A. - DASA (DASA; AA[bra]), comparably with Auna, both have strong relationships with payers, as well as providers and insurance companies, in Brazil due to the two companies' positive brands and reputations. In terms of capital structure, Auna has projected higher leverage than both. Although Auna has comparable business risk with many players in the health care industry, the company benefits from the growing Peruvian and Colombian operating markets with predominantly middle-class demographics, and its strong asset base and market-share in Monterrey, Mexico. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer Include: - Revenue growth reflecting ongoing acquisitions, reaching around PEN3.5 billion in 2023 with a full year of operations of the acquired assets; - EBITDA margins of around 21%-22% for 2023-2024; - Average capex of PEN220 million during 2022-2024; - No dividend payment during 2022-2024. RATING SENSITIVITIES The Rating Watch Negative would be removed by the time the bridge loan is fully refinanced. Failure to complete the refinancing in the next few weeks could lead to multiple notch downgrades. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Successful refinancing, with a well-spread debt maturity schedule and limited recurring short-term debt. - Fitch's adjusted EBITDA margin consistently above 22%; - Fitch's net adjusted leverage ratio consistently below 4.5x; Factors that could, individually or collectively, lead to negative rating action/downgrade: - Inability to complete the bridge loan refinancing; - In a scenario of refinancing of the bridge loans with permanent secured loans, Fitch could reassess the actual structural subordination of the unsecured bonds - Maintenance of aggressive growth strategy limiting improvements in capital structure as expected; - Major legal contingencies issues that represent a disruption in the company's operations or a significant impact to its credit profile. LIQUIDITY AND DEBT STRUCTURE High Refinancing Risks: As of Sept. 30, 2022, Auna had PEN136 million of cash and cash equivalents, PEN669 million of short-term debt, and total debt of around PEN2.1 billion per Fitch's criteria, which excludes leases. On a proforma basis, following the transaction, AUNA has around PEN1.6 billion secured bridge-loans to refinance by October 2023, while facing ongoing working capital lines of PEN121 million in the short term, PEN162 million in 2023, PEN32 million in 2024, and another sizable bullet payment of PEN1.2 billion of its unsecured notes in 2025. Remaining working capital lines are more manageable at PEN50 million per year by 2025-2027. ISSUER PROFILE Auna S.A. is one of the largest and most recognized players in the Peruvian health care industry, with a growing presence in Colombia's health care industry, and more recently in Mexico. The company offers oncology and general health care plans and operates hospitals and clinics. ESG CONSIDERATIONS Auna S.A.A. has an ESG Relevance Score of '4' for Management Strategy management's appetite for debt financed growth (albeit adding diversification to the business) that underscores higher than expected event risk and potentially higher comfort with elevated/longer periods of leverage than anticipated, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Auna S.A.A. has an ESG Relevance Score of '4' for Financial Transparency as financial transparency/reporting continues to be relatively weaker than peers, 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 ----------- ------ -------- ----- Auna S.A.A. LT IDR B- Downgrade B+ LC LT IDR B- Downgrade B+ senior unsecured LT B- Downgrade RR4 B+ ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: Cement Price Increases Bad for Industry ---------------------------------------------------------- Marshelle Haseley at Trinidad and Tobago Newsday reports that UNC MP for Pointe-a-Pierre David Lee said the increase in cement prices by Trinidad Cement Ltd (TCL) will have a negative trickle-down effect on the economy, the lives of many who work in the construction industry and will only be profitable for a foreign company - not TT. In an interview with Newsday Lee said, "This is the problem that exists when there is a monopoly with any product." He said the government has limited the possibility for other entities to enter the market, creating a situation where stakeholders and consumers are subject to whatever the monopoly decides on as the price, according to Trinidad and Tobago Newsday. Lee highlighted Rock Hard Distribution and their exit from the domestic cement market in 2021 following negotiations which resulted unfavourably for the company, the report notes. "I have spoken with contractors and people from my constituency, Pointe-a-Pierre, which is where TCL is based. They are all concerned about this pending price increase," the report relays Lee said allowing other producers to enter the market is not a complicated process and that is the simple resolution to creating a space for competitive prices, the report discloses. "If there is more competition, the competition will drive the prices downward," the report relays. He said more reasonable prices would have been the outcome of having more cement distributors operating in TT, like the St Lucia-based cement importer Rock Hard, the report says. "The income generated by Cemex, a Mexican company, does not benefit the people of TT or the local economy," the report notes. He said when the most simple material for construction increases, that is the beginning of a problem for anyone who wants to do any kind of construction, the report relays. "An increase in cement prices is likely to trigger an increase in the prices of other building materials. This will impact many people because the building and construction industry is one of the largest industries and employers in TT," the report discloses. The owner of a construction company based in Pointe-a-Pierre, who asked to remain anonymous, told Newsday the increase in cement prices will hurt all business owners and workers in the building construction industry. He said many people will forego building projects due to price limitations, the report relays. "Many customers won't be able to afford projects anymore. Many of them will have to revisit their budgets, so even we as contractors are likely to lose jobs because of this," the report notes. Asked if the increase in prices of cement is likely to affect the prices of other building products and supplies, he said no, the report relays. "If people can't afford cement, they won't see the sense in buying steel, sand and blocks. We are going to see a lot of things staying on the shelves," the report says TCL said the ex-factory prices will increase by five per cent for ECO cement and eight per cent for premium plus - before-VAT increases of $2.08 to $43.65, and $3.54 to $47.83, respectively, per 42.5kg bag, the report relays. In December 2021, TCL raised the price of a 42.5kg bag of ECO cement by eight per cent to $43.71 VAT-inclusive, and by 15 per cent to $46.56 VAT-inclusive for premium of the same weight, the report notes. At that time, the before-VAT prices were $38.85 and $41.39 respectively, the report relays. However, the new proposed price list showed before-tax prices of $41.57 and $44.29 respectively, suggesting there was another adjustment since 2021, the report adds. ********* 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 * * *