/raid1/www/Hosts/bankrupt/TCRLA_Public/230607.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, June 7, 2023, Vol. 24, No. 114
Headlines
A R G E N T I N A
ARGENTINA: Renews China Currency Swap Deal to Strengthen Reserves
B R A Z I L
BRAZIL: IMF "Will be Surprised" with Economic Progress in 2023
BRAZIL: New Fiscal Rules Stricter Than They Look, Ministry Says
ENERGISA SA: Fitch Affirms 'BB/BB+' LongTerm IDRs, Outlook Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Tourism is Spearhead of Economy, Albizu Says
E C U A D O R
CUENCA DPR 2021-1: Fitch Alters Outlook on 'B-' Rating to Negative
ECUADOR DIVERSIFIED: Fitch Affirms B+ Rating on 2020-1 Loans
ECUADOR DPR: Fitch Affirms 'BB-' Rating on 3 Note Tranches
FIDEICOMISO MERCANTIL 5: Fitch Alters Outlook on 'B-' Rating to Neg
GUAYAQUIL MERCHANT: Fitch Affirms BB- Rating on 2019-1 Notes
J A M A I C A
JAMAICA: Goods Producing Industry Declined by 0.7% in 1Q
P U E R T O R I C O
ECSEM CORP: Court Approves Disclosure and Confirms Plan
V E N E Z U E L A
CITGO PETROLEUM: Claims Pursuing Assets Surpass $20 Billion
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A R G E N T I N A
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ARGENTINA: Renews China Currency Swap Deal to Strengthen Reserves
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Buenos Aires Times reports that Argentina renewed a three-year
currency swap agreement with China worth 130 billion yuan (around
US$19 billion) to strengthen its reserves, the country's Central
Bank announced from Buenos Aires.
The agreement was signed in Beijing by the president of the Central
Bank of Argentina (BCRA), Miguel Angel Pesce, and the head of the
People's Bank of China, Yi Gang, according to Buenos Aires Times.
It comes within the framework of a mission to China headed by
Economy Minister Sergio Massa, the report notes.
A official communique from the bank highlighted "the early renewal
of the swap for 130 billion yuan for a period of three years" and,
in addition, "an extension procedure" of the amounts with free
availability to use in the immediate term "from 35 to 70 billion
yuan," equivalent to around US$10 billion, the report says.
The sum is earmarked "for trade between the two countries,"
according to the statement obtained by the news agency.
China is Argentina's second-largest trading partner and the
currency swap eases the South American country's foreign currency
shortage, the report relays.
Argentina will pay for imports from China in yuan via an account in
that currency opened at the Central Bank, the report discloses.
The country's first currency swap agreement with China was signed
in 2009 and it has since been renewed by different governments, the
report says.
The Central Bank's monetary reserves stood at some US$32.8 billion
at the end of May, though the latest figures do not specify how
much is sidelined for exchange market interventions, the report
relays.
Argentines are suffering from runaway inflation that reached 108.8
percent year-in-year in April, the report notes. On parallel
exchange markets the dollar trading at almost double the official
rate of 249 pesos per greenback, the report says.
Argentina will go to the ballot box for presidential elections on
October 22, the report discloses. Poverty affects around 40
percent of the population, 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 March 29, 2023, lowered its long-term
foreign currency sovereign credit rating on Argentina to 'CCC-'
from 'CCC+'. S&P also affirmed its 'C' short-term foreign currency
sovereign credit rating and its 'CCC-/C' local currency ratings on
Argentina. The outlook on the long-term ratings is negative. S&P
also lowered the transfer and convertibility assessment to 'CCC-'
from 'CCC+'. The negative outlook on the long-term ratings
reflects risks surrounding pronounced economic imbalances and
policy uncertainties before and after the 2023 national elections.
Divisions across the political spectrum constrain the sovereign's
ability to implement timely changes in economic policy. Global
capital markets are closed to Argentina. In the local market, swaps
are being deployed to manage large maturities before placing debt
through traditional auctions. The central bank continues to play a
key role as a backstop for local debt management in the secondary
market. The ongoing severe drought has exacerbated pressures in the
already disrupted foreign exchange (FX) market.
Fitch Ratings, on the other hand, downgraded Argentina's Long-Term
Foreign Currency Issuer Default Rating (IDR) to 'C' from 'CCC-',
and has affirmed the Long-Term Local Currency IDR at 'CCC-' on
March 24, 2023. Fitch's downgrade of Argentina's rating to 'C' from
'CCC-' follows an executive decree that forces domestic
public-sector entities into operations involving their holdings of
sovereign debt securities, which would involve unilateral exchanges
and forced currency conversion that constitute default events under
Fitch's criteria. The 'C' rating reflects Fitch's view that default
is thus imminent. Fitch said the rating would be downgraded to
'Restricted Default' (RD) upon execution of the exchanges.
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, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
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B R A Z I L
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BRAZIL: IMF "Will be Surprised" with Economic Progress in 2023
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Richard Mann at Rio Times Online reports that the president of
Brazil, Luiz Inacio Lula da Silva, assured this that the
International Monetary Fund (IMF) "will be surprised" by the
performance of Latin America's largest economy in 2023.
The Brazilian Institute of Geography and Statistics (IBGE)
announced that the Gross Domestic Product (GDP) grew 1.9 percent in
the first quarter of this year compared to the last three months of
last year, according to Rio Times Online.
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: New Fiscal Rules Stricter Than They Look, Ministry Says
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globalinsolvency.com, citing Reuters, reports that Brazil's newly
introduced fiscal framework is stricter than they appear and will
require a discussion of important spending cuts, Gabriel Galipolo,
the executive secretary of the Finance Ministry said.
Lawmakers in the lower house of Congress passed the main text of
legislation that is set to replace the current spending cap, which
has been breached several times in recent years to allow higher
government spending, according to globalinsolvency.com.
Under the new rules, government expenditures will not be allowed to
rise by more than 70% of any increase in revenue, with spending
growth also limited to between 0.6% and 2.5% per year above
inflation, the report relays.
If the goals are not met, expenditure growth will be restricted to
50% of revenue rises as a penalty, the report notes. The Senate is
set to vote on the legislation, 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).
ENERGISA SA: Fitch Affirms 'BB/BB+' LongTerm IDRs, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Energisa S.A.'s (Energisa) Foreign
Currency (FC) and Local Currency (LC) Long-Term Issuer Default
Ratings (IDRs) at 'BB' and 'BB+', respectively. Fitch has also
affirmed the Long-Term National Scale Rating at 'AAA(bra)' for
Energisa and its senior unsecured debenture issuances. In addition,
Fitch has affirmed the ratings of Energisa's 11 rated subsidiaries.
The Rating Outlook is Stable.
Energisa group's credit profile benefits from its profitable and
diversified portfolio of concessions in the Brazilian power sector.
The group should continue to present robust operational cash
generation and ample financial flexibility to support its expected
negative FCF and rollover its debt amortizations, while leverage
metrics remain at moderate levels. The equalization of the ratings
of Energisa and its subsidiaries reflects the high legal incentives
that the holding company would have to support them, if necessary.
The FC IDR is constrained by Brazil's Country Ceiling, 'BB', and
its Stable Outlook follows that of the Brazilian sovereign rating,
'BB-'.
KEY RATING DRIVERS
Strong Business Profile: Energisa's credit profile benefits from a
diversified portfolio of concessions mainly in the energy
distribution segment, which dilute its operational and regulatory
risks. The group has concessions in four regions of Brazil through
nine distributors. Concessionaires can pass on their unmanageable
costs to consumer tariffs, though there is some exposure to demand
volatility and periodic tariff review processes.
Energy distribution should continue to be the group's most
important business, accounting for over 80% of EBITDA by 2026, even
with its increased presence in energy transmission. Fitch does not
anticipate a major problem with the expiration of three of its
concessions in 2027 (Energisa Mato Grosso [EMT], Energisa Mato
Grosso do Sul [EMS] and Energisa Sergipe), which jointly
represented 49% of its energy distributed in 2022, as it considers
renewals very likely.
Positive Increase in Business Diversification: Energisa owns eight
transmission lines in the operational phase with Allowed Annual
Revenue (RAP) of BRL665 million (2022/2023 cycle), adjusted
annually for inflation, without exposure to demand risk. Assets in
this segment reduce the group's business risk and add to revenue
predictability. The four pre-operational transmission lines will
bring additional RAP of BRL116 million by 2027. The energy
transmission segment should represent 8% of the consolidated EBITDA
during 2023-2026.
The closing of the acquisition of Companhia de Gas do Estado do
Espirito Santo (ES Gas) is expected by July 2023 and also increases
Energisa's business diversification as the group enters into the
natural gas distribution sector, characterized by moderate risk
profile and strong growth prospect. ES Gas is a small business
within the group, and it is expected to represent about 3% of
consolidated EBITDA.
Resilient Concession Areas: Energy consumption in Energisa's main
concession areas in the energy distribution segment should benefit
from more favorable economic conditions than the national average,
mainly due to the strength of agribusiness. Fitch's base scenario
considers an average annual growth in energy consumption in the
group's concession areas of 1.4%, from 2023 to 2026. The first
quarter of 2023 was seasonably weak for volume for the group -
increase by 0.1%, compared with the national average of 2.0%. Fitch
considers a recovery in Energisa's volumes over the coming
quarters, which already started in April 2023, when volumes
increased by 2.6% compared with April 2022.
Positive Operating Performance: Energisa's ratings benefit from the
efficient operating performance of its distributors. In the
12-month period ended in March 2023, the combined EBITDA of the
nine distributors was BRL5.5 billion, compared with regulatory
EBITDA of BRL3.6 billion. The planned investments should improve
operational efficiency and reduce energy losses, mainly in Energisa
Rondonia and Energisa Acre, and should boost the company's EBITDA
in 2023. The tariff review of three concessions in April 2023,
including the two largest (EMT and EMS), had a neutral impact on
the company's regulatory EBITDA. Combined EBITDA in this segment
should increase to around BRL6.0 billion in 2023 and 2024 from
BRL5.4 billion in 2022.
Manageable Negative FCF: Fitch forecasts Energisa's consolidated
FCF to remain negative in the coming years, considering the group's
significant investment plan of BRL13.8 billion from 2023 to 2025
and a dividends pay-out ratio of 50% of net income. For 2023,
consolidated EBITDA and cash flow from operations (CFFO) should
reach BRL6.9 billion and BRL3.8 billion, respectively, with
negative FCF of BRL2.5 billion after investments of BRL5.2 billion
and dividend distributions of BRL1.1 billion. Consolidated FCF
should remain negative at around BRL2.0 billion in 2024 and BRL830
million in 2025.
Moderate Leverage: Energisa Group should maintain the adjusted net
debt/EBITDA ratio, according to Fitch's methodology, at around 3.5x
from 2023 to 2026, despite the ES Gas acquisition and expected
negative FCF. Efficiency gains, energy demand growth and favorable
annual tariff readjustments in distribution concessions should
continue to strengthen consolidated performance, also benefiting
from greater contribution of new operating assets in other
segments. Energisa group's adjusted net leverage should reach 3.6x
in 2023 and 3.7x in 2024. Adjusted gross leverage and net leverage
ratios were 4.8x and 3.7x, respectively, in the last twelve months
(LTM) ended in March 2023.
Subsidiaries' Ratings Equalized: Fitch equalizes the IDRs of
Energisa Paraiba, Energisa Sergipe and Energisa Minas Rio and the
National Scale ratings of the 11 rated subsidiaries with Energisa's
ratings. This mainly reflects the high legal incentives that the
holding company would have to support them in a stress scenario.
Energisa consolidates the subsidiaries and guarantees a significant
portion of their debts. In addition, there are cross-default
clauses in some of the group's debt instruments. Fitch also views
the subsidiaries as the core business of Energisa and they are
centrally managed.
DERIVATION SUMMARY
Energisa's financial profile is more aggressive than its peers in
Latin America, such as Enel Americas S.A. (A-/Stable), Empresas
Publicas de Medellin E.S.P. (EPM; BB+/Rating Watch Negative), and
Grupo Energia Bogota S.A. E.S.P. (GEB; BBB/Stable). Energisa's IDRs
reflect its geographic concentration in Brazil, compared with other
countries in the region such as Chile (A-/Stable) and Colombia
(BB+/Stable).
Compared with other Brazilian power companies with operations
predominantly in the distribution segment, Energisa operates in
concession areas with economic growth above the national average
and with a strong agribusiness activity. Energisa's business
profile is worse than that of Companhia Energetica de Minas Gerais
(Cemig; BB/Stable), which has a higher business diversification
with more presence in the energy generation segment. Cemig faces
uncertainty related to the renewal of its two largest hydroelectric
plants concessions, which has an expected expiration of 2027 and
which accounts for about 50% of the group commercial capacity, or
around 17% of consolidated EBITDA, justifying a rating one-notch
lower than Energisa. Different from the Discos concessions, typical
concessions from the generation segment return to the Federal
government after the expiration of the concession, which are then
auctioned again with a new grant payment.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer:
- Average growth in energy consumption in Energisa's concession
area of 1.4% from 2023 to 2026;
- Dividend distributions equivalent to 50% of net income;
- Average annual investments of BRL4.6 billion from 2023 to 2026;
- Transmission lines concluded according to the company's
schedule;
- Closing of ES Gas acquisition in July 2023 with a BRL1.4 billion
payment;
- No asset sales or new acquisitions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade on the Foreign Currency IDRs is unlikely as they are
constrained by the country ceiling (BB);
- An upgrade on the Local Currency IDRs will depend on the group's
ability to bring its net leverage to around 2.5x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Total debt/EBITDA above 4.0x on a recurring basis;
- Net debt/EBITDA above 3.5x on a recurring basis;
- Deterioration in the liquidity profile at the holding or the
consolidated level;
- New projects or acquisitions involving significant amounts of
debt;
- A downgrade of the sovereign rating would trigger a downgrade on
the FC IDR.
LIQUIDITY AND DEBT STRUCTURE
High Financial Flexibility: Energisa has demonstrated access to
different sources of funding, which is a key credit consideration.
Despite a sizable liquidity position, the group presents high debt
concentration, maturing as soon as 2024 (BRL11.4 billion),
projected negative FCF, and ES Gas' acquisition payment (BRL1.4
billion). The issuance of BRL1.4 billion in preferred shares and
the BRL2.0 billion raised through debenture issuances and bank
loans during the first quarter of 2023 reinforced the group's
liquidity position.
At the end of March 2023, the group had BRL6.7 billion in cash and
marketable securities, compared with total adjusted debt of BRL29.3
billion and short-term debt of BRL7.6 billion. Total adjusted debt
was mainly comprised of debentures (BRL14.7 billion) and Resolucao
4131 (BRL5.2 billion). Fitch considers 50% of the subholding
Energisa Participacoes Minoritarias' (EPM) BRL1.8 billion
outstanding issued preferred shares as debt, according to the
agency's criteria.
The holding company benefits from the receipt of dividends from its
operating subsidiaries, which totaled BRL2.7 billion in the LTM
period ended March 2023. Fitch considers an annual average of
dividends to be received of BRL1.7 billion from 2023 to 2026. As of
March 31, 2023, the holding had BRL1.0 billion in cash and
marketable securities, compared with short-term debt of BRL865
million. Fitch expects Energisa to finance the acquisition of ES
Gas through additional debt at the holding level, although the
BRL1.4 billion of preferred shares raised at EPM is a source of
funding.
ISSUER PROFILE
Energisa S.A. is a non-operating holding company in the electric
energy sector, mainly through nine energy distribution
concessionaires serving around 8.4 million customers. The group is
the fifth largest electric utility in Brazil with additional
operations and investments in the energy transmission and
generation segments.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
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Energisa Mato Grosso -
Distribuidora de
Energia S.A. Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa Sergipe
- Distribuidora
de Energia S/A LT IDR BB Affirmed BB
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa Mato
Grosso do Sul
- Distribuidora
de Energia S.A. Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa Paraiba
- Distribuidora
de Energia S/A LT IDR BB Affirmed BB
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Alsol Energias
Renovaveis Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa Minas
Rio -
Distribuidora
de Energia S.A. LT IDR BB Affirmed BB
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa Acre
- Distribuidora
de Energia S.A. Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa S.A. LT IDR BB Affirmed BB
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa
Rondonia
Distribuidora de
Energia S.A. Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa Sul
Sudeste -
Distribuidora
de Energia S/A Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa
Tocantins -
Distribuidora
de Energia S/A Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Energisa
Transmissao de
Energia S.A. Natl LT AAA(bra)Affirmed AAA(bra)
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D O M I N I C A N R E P U B L I C
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DOMINICAN REPUBLIC: Tourism is Spearhead of Economy, Albizu Says
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Dominican Today reports that the governor of the Central Bank of
the Dominican Republic (BCRD), Hector Valdez Albizu, said that
tourism is the spearhead of the economy, as it generated revenues
of more than US$8.4 billion in 2022, with the arrival of 8.5
million non-resident visitors, of which 7.2 million arrived by air
and 1.3 million on cruise ships.
In his conference "Economic News & Prospects 2023," during the
annual luncheon organized in Santiago de los Caballeros by the
Association of Industrialists of the Northern Region (AIREN),
Valdez Albizu highlighted the importance of the Northern region,
which "in 2022 received more than 1.1 million tourists through its
airports and 80% of cruise ship passengers," according to Dominican
Today.
Valdez Albizu also announced that "according to the latest
estimates of the BCRD, inflation would enter the target range of 4%
± 1% at the end of May, earlier than expected," and expressed that
"this achievement would provide the necessary space for the Central
Bank to adopt timely measures that will contribute to relaunch
growth during the rest of the year, preserving macroeconomic
stability," the report relays.
With respect to remittance flows, in 2022, the arrival of almost
US$10 billion was accounted for throughout the national territory,
of which 40% were destined for the Cibao. Meanwhile, foreign direct
investment (FDI) exceeded US$4 billion last year, of which nearly
US$1 billion went to projects located in this area, the report
discloses.
In this context of high foreign exchange generation and in order to
avoid an abrupt appreciation of the Dominican peso that would harm
the competitiveness of foreign sector activities, the Central Bank
has been buying significant amounts of dollars from financial
intermediaries through auctions on its electronic platform, the
report notes.
Valdez Albizu stated in this regard that "during 2022, the Central
Bank made net purchases of foreign exchange for some US$1.6
billion, which has contributed to the strengthening of
international reserves that stand at around US$16.3 billion to
date," the report relays.
In his lecture, the governor noted that "the Central Bank has
always recognized the contribution of the Northern region to the
growth of the nation, and for that reason created in 2017 the
Regional Studies and Statistics Division, based in the Santiago
Regional Office," the report relays.
He also noted that "research carried out points to the fact that
the fourteen provinces of this geographic enclave contribute
between 32% and 38% of the national economic activity," the report
notes.
Other conclusions reveal that "the Cibao has remained as a leader
in agricultural production, being the main food supplier of our
country, supplying about 55% of the national agricultural
production, the report discloses. The Cibao concentrates 77% of
the area planted with cocoa and more than 90% of the national
production of tobacco," the report says.
On the other hand, he reported that "the Northern region stands out
in the free trade zone sector, concentrating more than half of the
industrial parks in the country, which house almost 400 companies
of this type, the report dicloses. In addition, this activity was
one of the most important in the recovery process after the
pandemic and has contributed to sustain employment, generating more
than 200 thousand direct jobs nationwide, of which about 70
thousand are in the Cibao region," the report relays.
According to Central Bank estimates, the Northern region has an
incidence of 40% of the construction activity at the national
level, in addition to housing several of the main cement and steel
producing companies in the country. The region is also home to the
largest mining companies that contribute the most to the national
gross domestic product (GDP), the report notes.
The governor said that "this economic boost of the Cibao is
reflected in the development of the financial system, concentrating
37% of the country's banking offices, which has allowed greater
access to financing for businesses and households, the report
relays.
In addition, through the Santiago Regional Office, around 40% of
the processing of banknotes, deposits and cash withdrawals by
financial intermediaries is carried out," 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.
=============
E C U A D O R
=============
CUENCA DPR 2021-1: Fitch Alters Outlook on 'B-' Rating to Negative
------------------------------------------------------------------
Fitch Ratings has affirmed the outstanding series 2021-1 loan
issued by Cuenca DPR at 'B-'. The Rating Outlook was revised to
Negative from Stable. The revision of the Outlook of the rating on
the notes considers the recent affirmation of Banco del Austro's
Issuer Default Rating (IDR) at 'CCC+' and Viability Rating (VR) at
'ccc+', but no Rating Outlook is assigned to ratings in the 'CCC'
category or below. However, Autsto's ratings are sensitive to its
local operating environment, Ecuador. On May 23, 2023, Fitch
revised Ecuador's Rating Outlook to Negative from Stable.
Entity/Debt Rating Prior
----------- ------ -----
Cuenca DPR
2021-1 G2706*AA4 LT B- Affirmed B-
TRANSACTION SUMMARY
Cuenca DPR entered into a Loan Agreement with various lenders to
receive a disbursement of $87.5 million as part of a new future
flow program backed by U.S. dollar-denominated existing and future
diversified payment rights (DPRs) originated by Banco del Austro
S.A. (Austro) of Ecuador. 100% of DPR flows are processed in the
U.S. by Citibank N.A. (Citibank), the sole designated depository
bank (DDB) in this transaction, that executed an Account Agreement
(AA) irrevocably obligating the bank to make payments to an account
controlled by the transaction trustee.
Fitch's rating addresses timely payment of interest and principal
on a quarterly basis.
KEY RATING DRIVERS
Future Flow Rating Driven by Originator's Credit Quality:
The rating of this future flow transaction is tied to the credit
quality of the originator, Banco del Austro S.A. On May 31, 2023,
Fitch affirmed Austro's Long-Term (LT) Issuer Default Rating (IDR)
at 'CCC+' and Viability Rating (VR) at 'ccc+'. Austro's IDR and VR
are sensitive to its local operating environment, Ecuador
(B-/Negative). On May 23, 2023 Fitch affirmed Ecuador's IDR and
revised its Outlook to Negative from Stable.
Notching Differential Limited by Going Concern Assessment (GCA)
Score:
Fitch GCA score to gauge the likelihood that the originator of a
future flow transaction will stay in operation through the
transaction's life. Fitch's Financial Institutions (FI) group
assigns a GCA score of 'GC3' to Austro, which reflects the bank's
position as the seventh largest bank in Ecuador by total assets
with a market share of around 4% as of March 2023. Although
Austro's business model is adequately diversified, it does not have
any relevant product leadership position within Ecuador, which is
also reflected in the GCA score.
Several Factors Limit Notching Uplift from IDR:
The 'GC3' score allows for a maximum uplift of two notches from the
bank's IDR, pursuant to Fitch's future flow methodology. However,
uplift is tempered to one notch from Austro's IDR due to factors
mentioned below, including high future flow debt to non-deposit
funding and DDB concentration risk, among others.
High Future Flow Debt Relative to Balance Sheet:
The future flow issuance represents approximately 4% of Austro's
total funding and 45.3% of non-deposit funding, based on March 2023
financials. Fitch does not allow the maximum uplift for originators
that have future flow debt greater than 30% of the overall
non-deposit funding. Nevertheless, given the benefits of the
proposed structure and quality of flows, the agency allows for some
differentiation (one-notch) from Austro's LT IDR.
Coverage Levels Commensurate with Assigned Rating:
When considering average rolling quarterly DDB flows over the last
five years (May 2018 - April 2023) and the maximum periodic debt
service over the life of the program, including Fitch's interest
rate stress, the projected quarterly debt service coverage ratio
(DSCR) is 28.3x. Additionally, the transaction can withstand a
decrease in flows of 96.5% and still cover the proposed maximum
quarterly debt service obligation. Nevertheless, Fitch will
continue to actively monitor the performance of the flows.
Potential Redirection/Diversion Risk:
The structure mitigates certain sovereign risks by collecting cash
flows offshore until collection of the periodic debt service
amount. In Fitch's view, diversion risk is partially mitigated by
the AA signed by the sole DDB (Citibank) in the transaction.
However, as Citibank processes 100% of DPR flows, Fitch believes
this exposes the transaction to a higher degree of diversion risk
relative to other Fitch-rated DPR programs in the region, limiting
the overall notching differential.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's ratings are sensitive to changes in the credit
quality of Austro. A deterioration of the credit quality of Austro
by one notch would pose a constraint to the rating of the
transaction from its current level.
The transaction's ratings are also sensitive to the ability of the
DPR business line to continue operating, as reflected by the GCA
score, and a change in Fitch's view on the bank's GCA score could
lead to a change in the transaction's rating.
Additionally, the transaction's rating is sensitive to the
performance of the securitized business line. The expected
quarterly DSCR is approximately 28.3x, which includes Fitch's
interest rate stress, and should therefore be able to withstand a
significant decline in cash flows in the absence of other issues.
However, significant further declines in flows could lead to a
negative rating action. Fitch will analyze any changes in these
variables in a rating committee to assess the possible impact on
the transaction ratings.
No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The main constraint to the program rating is the originator's
rating and Austro's operating environment. If upgraded, Fitch will
consider whether the same uplift could be maintained or if it
should be further tempered in accordance with criteria.
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.
ECUADOR DIVERSIFIED: Fitch Affirms B+ Rating on 2020-1 Loans
------------------------------------------------------------
Fitch Ratings has Affirmed the Series 2020-1 loans originated by
Ecuador Diversified Payment Rights' (Ecuador DPR) at 'B+'. The
Rating Outlook is Stable.
This rating action reflects the recent revision of Ecuador's
Sovereign Outlook to Negative from Stable on May 23, 2023. Fitch
believes the loan's performance supports the transaction's ratings
and the Stable Outlook.
Entity/Debt Rating Prior
----------- ------ -----
Ecuador Diversified
Payment Rights
2020-1 G2921#AA9 LT B+ Affirmed B+
TRANSACTION SUMMARY
The future flow program is backed by U.S. dollar-denominated,
existing and future DPRs originated in the U.S. by Banco del
Pacifico S.A. (BdP) of Ecuador. The majority of DPRs are processed
by designated depository banks (DDBs) that executed account
agreements (AAs).
KEY RATING DRIVERS
Future Flow Rating Driven by Originator's Credit Quality: The
rating of this future flow transaction is tied to the credit
quality of the originator, BdP. The Ecuadorian sovereign rating and
broader operating environment have a moderate influence on Fitch's
view of BdP's credit quality. Fitch believes that although the bank
is government owned and has a relevant market share and local
franchise, there is no reasonable assumption of support being
forthcoming from the sovereign, due to Ecuador's limited financial
flexibility. Consequently, Fitch's view of BdP's credit quality is
driven by the bank's intrinsic strength.
Going Concern Assessment (GCA) Score Supports Notching
Differential: Fitch uses a GCA score to gauge the likelihood that
the originator of a future flow transaction will stay in operation
throughout the transaction's life. Fitch assigned a GCA score of
'GC1' to Banco BdP, based on the bank's systemic importance and its
state-owned shareholder. The score allows for a maximum of six
notches above the LC IDR of the originator; however, additional
factors limit the maximum uplift.
Factors Limit Notching Differential: The 'GC1' score allows for a
maximum six-notch rating uplift from the bank's IDR, pursuant to
Fitch's future flow methodology. However, uplift is tempered to two
notches from BdP's IDR due to factors mentioned including maximum
uplift reserved by Fitch for originators on the lower end of the
rating scale, large beneficiary concentration, potential volatility
in cash flows, amongst others.
Moderate Future Flow Debt: Total future flow debt including the DPR
series 2020-1 loan represents approximately 1.5% of BdP's total
funding and 21.8% of non-deposit funding utilizing financials as of
March 2023. Fitch considers the ratio of future flow debt to
overall non-deposit funding to be moderate and will not allow the
financial future flow ratings up to the maximum uplift indicated by
the GCA score.
Coverage Levels Commensurate with Assigned Rating: Historical
coverage levels and performance of the DPR program support the
notching differential of the rating on the outstanding DPR backed
notes from the rating of the originator. When considering average
rolling quarterly DDB flows over the last three years (May
2020-April 2023) and the remaining maximum periodic debt service
over the life of the program (including Fitch's 'B+' interest rate
stress), Fitch's projected quarterly DSCR is 20.3x. Flows have
remained resilient throughout the life of the program.
Nevertheless, notching is tempered given the DPR program's exposure
to large payment orders and capital flows which Fitch believes are
more volatile and less reliable than export and remittance flows.
Redirection/Diversion Risk:
The structure mitigates certain sovereign risks by collecting cash
flows offshore until collection of the periodic debt service
amount, allowing the transaction to be rated over the sovereign
country ceiling. Fitch believes payment diversion risk is partially
mitigated by the AAs signed by the three correspondent banks
processing the vast majority of U.S. dollar-denominated DPR flows.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The transaction ratings are sensitive to changes in the credit
quality of BdP, which in turn is sensitive to changes in the credit
quality of Ecuador and its operating environment. A deterioration
of the credit quality of BdP by more than one notch could pose a
constraint to the rating of the transaction from its current
level;
- The transaction ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score
and a change in Fitch's view on the bank's GCA score can lead to a
change in the transaction's rating. Additionally, the transaction
rating is sensitive to the performance of the securitized business
line. The quarterly minimum unadjusted DSCR is estimated to be
20.3x and should therefore be able to withstand a moderate decline
in cash flows in the absence of other issues. However, significant
declines in flows could lead to a negative rating action. Any
changes in these variables will be analyzed in a rating committee
to assess the possible impact on the transaction ratings;
- No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The main constraint to the program rating is the originator's
rating and BdP's operating environment. If a positive rating
action/upgrade occurs for Ecuador, Fitch will consider whether the
same uplift could be maintained or if it should be further tempered
in accordance with criteria.
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.
ECUADOR DPR: Fitch Affirms 'BB-' Rating on 3 Note Tranches
----------------------------------------------------------
Fitch Ratings has affirmed the Series 2020-1 Loan, 2022-1 Notes,
and 2023-1 Loan issued by Ecuador DPR Funding Limited at 'BB-'. The
Rating Outlook is Stable.
This rating action takes into account the recent revision of Banco
Pichincha C.A.'s (BP) Rating Outlook to Negative from Stable on May
31, 2023, which followed the revision of Ecuador's Rating Outlook
to Negative from Stable on May 23, 2023. Fitch believes that
strength of the program, as reflected in the quality of its flows,
together with the decreasing future flow debt relative to balance
sheet ratios continue to support the transaction's ratings and the
Stable Outlook.
Entity/Debt Rating Prior
----------- ------ -----
Ecuador DPR Funding
2020-1 LT BB- Affirmed BB-
2022-1 27928YAA5 LT BB- Affirmed BB-
2023-1 LT BB- Affirmed BB-
TRANSACTION SUMMARY
The future flow program is backed by existing and future U.S.
dollar-denominated diversified payment rights (DPRs) originated by
Banco Pichincha C.A. (BP) in Ecuador. The majority of DPRs are
processed by designated depository banks (DDBs) that have signed
acknowledgement agreements (AAs), irrevocably obligating them to
make payments to an account controlled by the transaction trustee.
Fitch's ratings address timely payment of interest and principal on
a quarterly basis.
KEY RATING DRIVERS
Future Flow Rating Driven by Originator's Credit Quality: The
rating of this FF transaction is driven by the Long-Term (LT)
Issuer Default Rating (IDR) of the originator, BP. On May 31, 2023,
Fitch affirmed BG's LT IDR at 'B-', its Viability Rating (VR) at
'b-', and revised the Outlook to Negative from Stable. The Negative
Outlook on the banks mirrors the sovereign's Outlook. In Fitch's
view, BP's rating is driven by its intrinsic profile and
constrained by the sovereign's rating of 'B-'.
Going Concern Assessment (GCA) Score Supports Notching
Differential: Fitch uses a Going Concern Assessment (GCA) score to
gauge the likelihood that the originator of a future flow
transaction will stay in operation through the transaction's life.
Fitch assigns a GCA score of 'GC1' to BP based on the bank's
systemic importance and standing as the largest bank in the
Ecuadorian banking system in terms of assets and deposits. The
score allows for a maximum of six notches above the Local Currency
(LC) IDR of the originator; however, additional factors limit the
maximum uplift.
Factors Limit Notching Differential: The 'GC1' score allows for a
maximum six-notch rating uplift from the bank's IDR, pursuant to
Fitch's future flow methodology. However, uplift is tempered to
three notches from BP's IDR given certain factors including high
future flow debt relative to BP's non-deposit funding and Fitch
reserving the maximum notching uplift for originator's rated at the
lower end of the rating scale.
Relatively High Future Flow Debt Relative to Balance Sheet: Future
flow debt represents approximately 3.3% of BP's total funding and
33.1% of non-deposit funding when considering the current
outstanding balance of the program ($456.3 million) as of March 31,
2023 and utilizing March 2023 non-consolidated financials. Fitch
does not allow the maximum uplift for originators that have future
flow debt greater than 30% of the overall non-deposit funding;
nevertheless, given the benefits of the structure and quality of
flows, the agency allows for some differentiation (three notches)
from BP's LT LC IDR. Fitch is comfortable with this level at the
assigned rating and expects these levels to continue to be high
given the program remains a main source of funding for the bank.
Coverage Levels Commensurate with Assigned Rating: The series
2023-1 loan has an interest-only period of two years with the first
principal payment not expected to be due until March 2025.
Considering average rolling quarterly DDB flows over the past five
years (May 2018 - April 2023) and the maximum periodic debt service
over the life of the program, including Fitch's 'BB-' interest rate
stress for the series 2023-1 floating-rate loan, Fitch's projected
quarterly debt service coverage ratio (DSCR) is 48.7x. The program
can withstand a reduction in flows of approximately 97.9% and still
cover the maximum quarterly debt service obligation. Nevertheless,
Fitch will continue to actively monitor the performance of the
flows.
Reduced Redirection/Diversion Risk: The structure mitigates certain
sovereign risks by collecting cash flows offshore until collection
of the periodic debt service amount, allowing the transaction to be
rated over the sovereign country ceiling. Fitch believes payment
diversion risk is partially mitigated by the Account Agreements
signed by the five correspondent banks processing the vast majority
of U.S. dollar DPR flows originating in the U.S.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The transaction ratings are sensitive to changes in the credit
quality of BP, which in turn is sensitive to changes in the credit
quality of Ecuador and its operating environment. A deterioration
of the credit quality of BP by more than one notch could pose a
constraint to the rating of the transaction from its current
level.
- The transaction ratings are sensitive to the ability of the DPR
business line to continue operating, as reflected by the GCA score
and a change in Fitch's view on the bank's GCA score can lead to a
change in the transaction's rating. Additionally, the transaction
rating is sensitive to the performance of the securitized business
line. The expected quarterly DSCR is approximately 48.7x, and
should therefore be able to withstand a significant decline in cash
flows in the absence of other issues. However, significant declines
in flows could lead to a negative rating action. Any changes in
these variables will be analyzed in a rating committee to assess
the possible impact on the transaction ratings.
No company is immune to the economic and political conditions of
its home country. Political risks and the potential for sovereign
interference may increase as a sovereign's rating is downgraded.
However, the underlying structure and transaction enhancements
mitigate these risks to a level consistent with the assigned
rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The main constraint to the transaction ratings is the
originator's rating and BP's operating environment. If upgraded,
Fitch will consider whether the same uplift could be maintained or
if it should be further tempered in accordance with criteria.
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.
FIDEICOMISO MERCANTIL 5: Fitch Alters Outlook on 'B-' Rating to Neg
-------------------------------------------------------------------
Fitch Ratings has affirmed the ratings assigned to the notes issued
by Fideicomiso Mercantil Titularizacion Hipotecaria de Banco
Pichincha 5 (FIMEPCH 5) and revised the Rating Outlook to Negative
from Stable.
The Outlook revision on the notes follows Fitch's revision of Banco
Pichincha C.A. y Subsidiarias' (BP) Outlook on May 31, 2023. For
more details, see "Fitch Takes Actions on Five Ecuadorian Banks
Following Sovereign Revision to Negative" at www.fitchratings.com.
The series A notes are capped at the rating of the Transaction
Account Bank provider BP and Ecuador's Country Ceiling.
Entity/Debt Rating Prior
----------- ------ -----
Fideicomiso
Mercantil
Titularizacion
Hipotecaria de
Banco Pichincha 5
A2 LT B-sf Affirmed B-sf
A3 LT B-sf Affirmed B-sf
A4 LT B-sf Affirmed B-sf
KEY RATING DRIVERS
Transaction Account Bank on Outlook Negative: The series A notes
are capped at the rating of the Transaction Account Bank provider
(currently Banco Pichincha). For the 'Bsf' rating category the
Transaction Account Bank must have at least the same rating as the
notes, according to Fitch's Structured Finance and Covered Bonds
Rating Criteria. However, in this case, the eligible bank has been
defined as an entity with a rating equal to or maximum one notch
below Ecuador's sovereign rating (B-/Negative), which constrains
the ratings. As Banco Pichincha rating is 'B-', and the Outlook was
revised to Negative from Stable on May 31, 2023, the transaction's
Outlook is also revised to Negative from Stable.
Stable Pool Characteristics: The portfolio has finished the
replenishment phase and has been static since January 2022. Pool
characteristics remained similar since issuance. As of March 2023,
Fitch has updated the weighted average (WA) foreclosure frequency
to 18.4% from 17.0%, and WA recovery rate to 87.2% from 85.2% for
the 'B-sf' stress scenario, which are similar from initial
assumptions. These assumptions consider the stability of assets
main characteristics, with the average original loan-to-value
(OLTV) of 67%, the assets original term averaging 18 years, the
remaining term averaging 13 years, and 30.4% of the portfolio
concentrated in properties valued equal to or less than 300 minimum
wages at origin.
As of March 23, just 13 loans (0.3%) reached 180 dpd, while its
initial assumption for the same period is 1.6%, and only two loans
(0.04%) have been restructured. The portfolio has performed better
than Fitch's initial expectations.
Adequate Capital Structure Supports Ratings: The series A notes
benefit from a sequential pay structure, where their target
amortization payments are senior to interest and principal payments
on the series B notes. Series A also benefits from credit
enhancement (CE) of 13.7% as of March 2023 and an interest reserve
account equivalent to 3x their next interest payment, which allows
them to pass the 'B-sf' stress. In addition, although they benefit
from excess spread, due to their Net WA coupon feature, Fitch does
not consider this variable.
Higher Stresses Applied Due to Ecuador's Macroeconomic Environment:
Ecuador's Issuer Default Ratings (IDRs) are 'B-'/Negative and its
Country Ceiling is 'B'. Fitch applied higher stresses to the rated
notes to reflect the macroeconomic environment and Latin America's
potential idiosyncratic risks. The stresses applied are
commensurate to the stresses equivalent to three rating categories
above the cap level (defined at B+sf for Ecuador) for an uncapped
country, in accordance with Fitch's Structured Finance and Covered
Bonds Country Risk Rating Criteria.
Operational Risk Mitigated: Pursuant to the servicer agreement,
Banco Pichincha will perform the role of primary servicer. Fitch
has reviewed Banco Pichincha's systems and procedures and is
satisfied with its servicing capabilities. Additionally,
Corporacion de Desarrollo de Mercado Secundario de Hipotecas CTH
S.A. (CTH) has been designated as master and back-up servicer,
mitigating the exposure to operational risk.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The ratings are sensitive to the Ecuadorian sovereign's credit
quality, as well as Banco Pichincha's (acting as the transaction
account bank holder) credit quality. A downgrade of Ecuador's
ratings (especially of its Country Ceiling) to levels below the
transaction current rating or a downgrade of Banco Pichincha would
result in a downgrade of the series A notes.
The transaction's performance may also be affected by changes in
market conditions and economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce CE available to the
notes.
Additionally, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain note ratings susceptible
to potential negative rating actions depending on the extent of the
decline in recoveries.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The ratings assigned to the class A notes issued by FIMEPCH 5 are
sensitive to the credit quality of the Ecuadorian sovereign, as
well as to the credit quality of Banco Pichincha (acting as the
transaction account bank holder). An upgrade of the sovereign
rating of Ecuador (especially of its Country Ceiling) and an
upgrade of Banco Pichincha, which ultimately constraint the rating,
could result in an upgrade of the series A notes.
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.
GUAYAQUIL MERCHANT: Fitch Affirms BB- Rating on 2019-1 Notes
------------------------------------------------------------
Fitch Ratings has affirmed the outstanding series 2019-1 notes
issued by Guayaquil Merchant Voucher Receivables Ltd. at 'BB-'. The
Rating Outlook on the notes has been revised to Negative from
Stable following the recent revision of Banco Guayaquil's (BG)
Rating Outlook to Negative from Stable on May 31, 2023, which
followed the revision of Ecuador's Rating Outlook to Negative from
Stable on May 23, 2023.
Entity/Debt Rating Prior
----------- ------ -----
Guayaquil Merchant
Voucher Receivables
Limited
2019-1 401539AA9 LT BB- Affirmed BB-
TRANSACTION SUMMARY
The transaction is backed by future flows due from American Express
(AmEx), Visa International Service Association (Visa) and
Mastercard International Incorporated (Mastercard) related to
international merchant vouchers acquired by BG in Ecuador.
Fitch's ratings reflect timely payment of interest and principal on
a quarterly basis.
KEY RATING DRIVERS
Future Flow (FF) Rating Driven by Originator's Credit Quality: The
rating of this FF transaction is driven by the Long-Term (LT)
Issuer Default Rating (IDR) of the originator, BG. On May 31, 2023,
Fitch affirmed BG's LT IDR at 'B-', its Viability Rating (VR) at
'b-', and revised the Outlook to Negative from Stable. The Negative
Outlook on the bank mirrors the sovereign's Outlook. In Fitch's
view, BG's rating is driven by its intrinsic profile and
constrained by the sovereign's rating of 'B-'.
GCA Supports Notching Differential: Fitch uses a going concern
assessment (GCA) score to gauge the likelihood that the originator
of a FF transaction will stay in operation throughout the
transaction's life. Fitch assigned a GCA score of 'GC2' to BG based
on the bank's systemic importance. The score allows for a maximum
of four notches above the Local Currency IDR of the originator, but
additional factors limit the maximum uplift.
Factors Limiting Notching Differential: The 'GC2' allows for a
maximum four notch-rating uplift from the bank's LT IDR pursuant to
Fitch's FF methodology. However, Fitch currently limits the rating
uplift for the FF program to three notches from BG's IDR due to
factors including exposure to de-dollarization risk when it comes
to flow volumes and Fitch reserving the maximum notching uplift for
originator's rated at the lower end of the rating scale.
Moderate Future Flow Debt: The existing merchant voucher program
represents approximately 2.5% of BG's total funding and
approximately 18.3% of BG's non-deposit funding when considering
the outstanding balance on the notes as of March 2023 and utilizing
nonconsolidated financials as of March 2023. Fitch considers these
ratios small enough to differentiate the credit quality of the
financial future flow transaction from the originator's LT IDR.
Furthermore, these ratios have the flexibility to increase as Fitch
expects future flow debt to remain a main source of funding for the
bank.
Coverage Levels Commensurate with Rating: Coverage levels have
remained sufficient to cover quarterly debt service payments and
remain commensurate with the rating on the outstanding notes.
Maximum quarterly debt service began in January 2022 and is
approximately $10.4 million. When considering average rolling
quarterly flows over the past five years (April 2018 - March 2023)
and the maximum periodic debt service over the life of the program,
Fitch's projected minimum quarterly debt service coverage ratios is
4.6x throughout the life of the program. Furthermore, the
transaction can withstand a drop in flows of approximately 78% and
still cover the maximum quarterly debt service obligation.
Nevertheless, Fitch will continue to actively monitor the
performance of the flows.
De-dollarization Risk: While the dollarization regime anchors
macroeconomic stability, the risk of de-dollarization exists. It
would only occur in an extreme scenario but would be a major shock
to the Ecuadorean system.
Reduced Redirection/Diversion Risk: The structure mitigates certain
sovereign risks by collecting cash flows offshore until investors
are paid. Fitch believes diversion risk is mitigated by notice,
consent and agreements obligating AmEx, Visa, and MasterCard to
remit payments to the collection accounts controlled by the
trustee.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The transaction ratings are sensitive to changes in the credit
quality of BG. A deterioration of the credit quality of BG by one
notch would pose a constraint to the rating of the transaction from
its current level.
- The transaction ratings are sensitive to changes to the bank's
IDR; the ability of the credit card acquiring business line to
continue operating, as reflected by the GCA score; and further,
unforeseen changes in the sovereign environment. Changes in Fitch's
view of the bank's GCA score can lead to a change in the
transaction's rating. The transaction's ratings are sensitive to
the performance of the securitized business line. Additionally, the
merchant voucher programs could also be sensitive to significant
changes in the credit quality of American Express, Visa, or
MasterCard to a lesser extent.
Any changes in these variables will be analyzed in a rating
committee to assess the possible impact on the transaction
ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The main constraint to the transaction ratings is the
originator's rating and BG's operating environment. If a positive
rating action/upgrade occurs, Fitch will consider whether the same
uplift could be maintained or if it should be further tempered in
accordance with criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=============
J A M A I C A
=============
JAMAICA: Goods Producing Industry Declined by 0.7% in 1Q
--------------------------------------------------------
RJR News reports that real value added for the goods producing
industry declined in the January to March quarter.
Dr. Wayne Henry, Director General of the Planning Institute of
Jamaica, said the contraction was largely influenced by the dry
conditions experienced in the first three months of the year,
according to RJR News.
"Outputs of the goods producing industry fell by an estimated 0.7
per cent due to contractions in all industries, with the exception
of mining and manufacturing. This performance largely reflected
the impact of drought conditions and a slowdown in some capital
projects," Dr. Henry outlined, 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 U E R T O R I C O
=====================
ECSEM CORP: Court Approves Disclosure and Confirms Plan
-------------------------------------------------------
Judge Mildred Caban Flores has entered a final order approving
ECSEM Corporation's Disclosure Statement filed on April 14, 2023 as
supplemented.
The Amended Plan filed by the Debtor dated April 14, 2023 is
confirmed as supplemented on May 11, 2023 and May 21, 2023.
Ecsem Corporation is a "for profit" corporation organized under the
laws of the Commonwealth of Puerto Rico, since May 6, 1999, and is
dedicated to the rental of commercial properties. Debtor owns 2
real properties located in Toa Baja and Cidra, Puerto Rico. The
property located at Toa Baja has 5 commercial spaces and the
property in Cidra is a vacant lot composed of 5.28 "cuerdas".
Ecsem submitted a Chapter 11 Small Business Plan and a Disclosure
Statement on April 14, 2023. General unsecured creditors are
classified in Classes 6 and 7. Classes 6 and 7 will receive a
distribution of 5% of their allowed claims over a period of 5
years.
Under the Plan, Class 6 General Unsecured Claims of $5,500 or more
total $87,722. Allowed claims in this class shall receive a
dividend of 5% over the course of 5 years from the Effective Date,
in monthly instalments in full payment of their claims. Class 6 is
impaired.
Class 7 General Unsecured Claims of $5,499 or less total $7,788.
Allowed claims in this class shall receive a dividend of 5% on
Effective Date in full payment of their claims. Class 7 is
impaired.
Payments and distributions under the Plan will be funded by
business income or any other income to which the Debtor may be
eligible.
Counsel for the Debtor:
Mary Ann Gandia Fabian, Esq.
GANDIA FABIAN LAW OFFICE
PO Box 270251
San Juan, PR 00928
Tel: (787) 390-7111
Fax: (787) 729-2203
E-mail: gandialaw@gmail.com
About Ecsem Corporation
Ecsem Corporation is a "for profit" corporation organized under the
laws of the Commonwealth of Puerto Rico, and is dedicated to the
rental of commercial properties. It owns two real properties
located in TOa Baja and Cidra, Puerto Rico. The property located
at Toa Baja has 5 commercial spaces and the property in Cidra is a
vacant lot composed of 5.28 "cuerdas".
Ecsem Corporation filed a Chapter 11 bankruptcy petition (Bankr.
D.P.R. Case No. 22-03006) on Oct. 19, 2022, with up to $500,000 in
both assets and liabilities. Judge Mildred Caban Flores oversees
the case.
The Debtor tapped Mary Ann Gandia-Fabian, Esq., at Gandia-Fabian
Law Office as legal counsel and Jimenez Vazquez & Associates, PSC,
as accountant.
=================
V E N E Z U E L A
=================
CITGO PETROLEUM: Claims Pursuing Assets Surpass $20 Billion
-----------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that a growing number
of Venezuela-related expropriation claims at U.S. courts pursuing
Citgo Petroleum's assets surpass $20 billion, making difficult for
the Houston-based refiner to compensate them all, but some payments
can be negotiated, said the chief of a board supervising the
company.
Horacio Medina, head of the PDV ad-hoc board that since 2019
oversees the refiner, said Citgo has financial ability to meet some
payment demands by creditors, especially once one of its parent
companies, Citgo Holding, pays off its debt entirely later this
year, leaving room for new financing, according to
globalinsolvency.com.
Citgo had a net profit of $937 million in the first quarter on firm
fuel demand, refining output and margins, and last year posted a
record $2.8 billion profit, a series of strong results that could
help the firm negotiate with creditors, the report notes. Medina
did not elaborated on how many of the claims the company would be
able to resolve through direct negotiations, the report adds.
About CITGO Petroleum
Citgo Petroleum Corporation is a United States-based refiner,
transporter and marketer of transportation fuels, lubricants,
petrochemicals and other industrial products. Based in Houston,
Texas, Citgo is majority-owned by PDVSA, a state-owned company of
the Venezuelan government (although due to U.S. sanctions, in 2019,
they no longer economically benefit from Citgo.)
As reported in the Troubled Company Reporter-Latin America in June
2022, S&P Global Ratings affirmed its 'B-' long-term issuer credit
ratings on CITGO Holding Inc. and core subsidiary CITGO Petroleum
Corp.
*********
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.
.
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