/raid1/www/Hosts/bankrupt/TCRLA_Public/230711.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, July 11, 2023, Vol. 24, No. 138
Headlines
A R G E N T I N A
AUTOPISTAS DE SOL: Fitch Affirms 'B' Rating on International Notes
B R A Z I L
BANCO PAN: Fitch Affirms 'BB-' IDRs & Alters Outlook to Positive
BRAZIL: Bank Lending Delinquency Reaches Highest Level in May
BRAZIL: Central Bank Sees Chance of Rate Cut in August
C O S T A R I C A
BANCO BAC SAN JOSE: Fitch Affirms 'BB/BB+' LongTerm IDRs
BANCO DAVIVIENDA: Fitch Affirms 'BB/'BB+' LongTerm IDRs
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Signs Cooperation Memorandum with Singapore
DOMINICAN REPUBLIC: Water Service Shortage Worsens in the Country
M E X I C O
ENGENCAP HOLDING: S&P Affirms 'B+' ICR & Alters Outlook to Stable
P U E R T O R I C O
PUERTO RICO: Oversight Board Plans to Cut PREPA Bond Offer by Half
- - - - -
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A R G E N T I N A
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AUTOPISTAS DE SOL: Fitch Affirms 'B' Rating on International Notes
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Fitch Ratings has affirmed Autopistas del Sol, S.A.'s (AdS)
international notes at 'B' and national scale rating on its local
notes at 'A(cri)'. The Rating Outlook is Stable. The international
and local notes are supported by the cash flow generation from
Costa Rica's Ruta 27 toll road.
RATING RATIONALE
AdS's ratings reflect the asset's traffic and revenue profile as a
toll road that serves a strong reference market within Costa Rica,
which is supported by an adequate toll adjustment mechanism. Mostly
used by commuters, the project may face significant competition in
the medium term once the main competing road is improved, and
especially if its tariffs are significantly lower than those of
Ruta 27. Toll rates are adjusted quarterly to the exchange rate and
annually to reflect changes in the U.S.' Consumer Price Index
(CPI). The ratings also reflect a fully amortizing senior debt
structure with a fixed interest rate and a net present value (NPV)
cash trap mechanism that prevents an early termination of the
concession before debt is fully repaid.
Fitch's rating case average debt service coverage ratio (DSCR) of
1.2x is in line with Fitch's criteria guidance for the assigned
rating. Nonetheless, minimum DSCR is 0.9x. Fitch believes the
eventual shortfalls in debt coverage will likely be covered by the
reserve accounts available within the structure. Under this
scenario, Fitch expects the project will receive minimum revenue
guarantee (MRG) payments from 2028 onward, which totals 7% of
annual revenues on average.
KEY RATING DRIVERS
Heavy Traffic of Mostly Commuters Growing [Revenue Risk - Volume:
Midrange]
The asset is a toll road that serves a strong reference market,
playing an important role in the broader transportation system. The
road serves as a link between San Jose (Costa Rica's capital city)
and its surrounding metropolitan area with the Pacific Coast, and
is used by commuters on workdays and by San Jose residents
traveling to beaches on the weekends. The road could face
significant competition once major improvements to the existing and
congested San Jose-San Ramon Route are made. The concession
agreement provides an MRG that compensates the issuer if revenue is
below certain thresholds, somewhat alleviating this risk.
Adequate Rate Adjustment Mechanism [Revenue Risk - Price:
Midrange]
Toll rates are adjusted quarterly to reflect changes in the Costa
Rican colon (CRC) to U.S. dollar (USD) exchange rate, and annually
to reflect changes in the U.S. CPI. Tolls may be adjusted prior to
the next adjustment date if the U.S. CPI or the CRC/USD exchange
rate varies by more than 5%. Historically, tariffs have been
updated appropriately.
Suitable Capital Improvement Program [Infrastructure Development &
Renewal: Midrange]
The asset is operated by an experienced global company with a
higher-than-average expense profile due to its geographical
attributes. The majority of the investments required by the
concession have been made. The concession requires lane expansions
when congestion exceeds 70% of the ideal saturation flow, which
triggers the need for further investments. However, the project
would only require the grantor to perform these investments to the
extent they do not represent a breach in the DSCRs assumed by the
issuer in the financing documents.
Structural Protections Against Shortened Concession [Debt
Structure: Midrange]
Debt is senior secured, pari passu, fixed-rate, and fully
amortizing. The debt is denominated in USD, but no significant
exchange rate risk exists due to the tariff adjustment provisions
set forth in the concession and because CRC-denominated toll
revenues will be converted to USD daily. The structure includes an
NPV cash trap mechanism to prepay debt if revenue outperforms the
base case revenue indicated in the issuer's financial model, which
largely mitigates the risk of the concession maturing before the
debt is fully repaid. Typical project finance features include a
six-month debt service reserve account (DSRA), a six-month backward
and forward-looking 1.2x distribution trigger and limitations on
investments and additional debt.
Financial Profile
Under Fitch's base case, the project yields a minimum and average
DSCR of 1.0x (in 2023) and 1.4x, respectively. While under Fitch's
rating case, minimum and average DSCR are 0.9x (in 2023) and 1.2x,
respectively. The eventual shortfalls in debt coverage will likely
be covered by the reserve accounts available within the structure.
The concession is expected to expire in July 2033. It assumes
payments under the MRG starting in 2028, which amounts in average
to 7% of annual revenues. The metrics are in line with Fitch's
applicable criteria for the assigned rating.
PEER GROUP
Comparable projects in the region include TransJamaican Highway
(TJH; BB-/Positive) in Jamaica. AdS and TJH are similar projects as
they are both strong commuting assets within their respective
country's capital cities. Although they share similar attributes,
the difference in ratings comes from AdS's lower metrics (average
DSCR of 1.2x versus 2.2x of TJH under Fitch's rating case) and
because TJH has no dependency on traffic growth in order to repay
the rated debt. TJH is rated above the Jamaican sovereign
(B+/Positive) and is constrained by Jamaica's 'BB-' Country
Ceiling.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Traffic performance (expressed as Weighted Annual Average Daily
Traffic or WAADT) significantly below the Fitch's rating case
expectation of 42,304 vehicles in 2023;
- Substantially greater than expected traffic loss occurs due to
the advancement of works in the competing route. Fitch's rating
case expectation is a loss of 15.0% in 2025 and 23.5% in 2028;
- A deterioration of the liquidity available for debt service,
beyond the expected use of reserves.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Traffic performance (WAADT) above Fitch's base case expectation
of 43,177 vehicles in 2023 and 43,613 vehicles in 2024.
TRANSACTION SUMMARY
The asset serves as a connection between the city of San Jose and
its metropolitan area with Puerto Caldera, along the Pacific Coast.
The asset is operated by Globalvia, one of the world leaders in
infrastructure concession management, which manages 28 concessions
in seven countries. The company was established in 2007 by FCC
Group and Bankia Group. In March 2016, Globalvia was acquired by
pension funds OPSEU Pension Plant Trust Fund (40%), PGGM N.V. (40%)
and Universities Superannuation Scheme Ltd (20%).
CREDIT UPDATE
As of May 2023, traffic was 99% of 2019 volume, above Fitch's Base
and Rating case expectations of 97% and 96%, respectively.
According to the concessionaire, the increase in traffic is
possibly due to a decrease in oil prices, the appreciation of the
CRC, which could have improved purchasing power, and macroeconomic
conditions in Costa Rica.
Traffic mix has shifted slightly since the pandemic, with a
proportional increase of heavy vehicles (7.5% in 2022 from 6.3% in
2019) as it decreased less than other categories, and a decline in
bus traffic generally due to pandemic-related effects that prevail
on public transportation. This is consistent with what Fitch has
observed with other toll roads, given the significant effects of
pandemic-related measures on commuting and touristic traffic.
Revenues from January to May 2023 of USD38.2 million surpassed 2019
revenues for the same period by 20%. The higher tariffs and a
traffic mix leaning to heavy vehicles have resulted in a faster
recovery in revenues. Actual revenues in this period were generally
in line with Fitch's cases. During the same period, total expenses
were USD13.7 million, also in line with Fitch's expectation of
USD13.6 million. Tariffs in 2023 increased in line with U.S.
inflation, maintaining their real value in USD terms.
According to the concessionaire, part of the road is built on a
sloping embankment, which has presented constant settlement issues.
As this situation worsened, it was concluded that to avoid the risk
of landslide, it was necessary to construct a viaduct without any
support on the potentially sliding surface. Construction began in
2021, but was delayed due to lack of permits and other negotiations
with the government. It is projected to be completed in October
2023, with an expected investment of USD12 million. Almost half of
the investment (USD6.3 million) has already been contributed by the
shareholders and the remaining amount is expected to be made
between July and August 2023.
DSCR as of May 2023 was 1.3x (considering the contribution of
USD6.3 million), slightly higher than the expected 1.2x and 1.1x in
Fitch's last review base and rating case. As of March 2023
(according to the last financial statement report) the debt service
reserve account is fully funded.
According to the concessionaire, the first of five phases of
undelayable work to the competing route San Jose-San Ramon (Ruta
Uno) has been completed. However, the next four phases have been
severely delayed, which has resulted in an updated expected
completion date of 2025, and the expansion of the truncal road is
expected to be completed in 2028. Ruta Uno announced that they will
increase the road's tariffs to maintain financial equilibrium.
Nonetheless, the total tolls are expected to be less than those of
Ruta 27.
FINANCIAL ANALYSIS
Fitch's base case assumes traffic recoveries in 2023 and 2024 to
99% and 100%, respectively, relative to 2019 levels. From 2025
until 2033, Fitch expects a compounded annual growth rate (CAGR) of
4%. From this baseline, Fitch deducts the expected effect of the
expansion and improvement of the competing road with traffic drops
of 7.5% in 2025 and 11.8% in 2027. O&M and major maintenance
expenses were projected following the issuer's budget plus 5%
stress plus annual U.S. inflation, which is forecast at 3.7% for
2023, 2.7% for 2024 and 2.0% afterward. This scenario resulted in a
minimum and average DSCR of 1.0x (in 2023) and 1.4x, respectively.
Fitch's rating case assumes traffic recoveries in 2023, 2024 and
2025 of 97%, 98% and 100%, respectively, relative to 2019 levels.
From 2026 until 2033, Fitch expects a compounded annual growth rate
of 4%. From this baseline, Fitch deducts the expected effect of the
expansion and improvement of the competing road with traffic drops
of 15% in 2025 and 23.5% in 2027. O&M and major maintenance
expenses were projected according to the issuer's budget with a
stress rate of 7.5% plus annual U.S. inflation. The inflation
estimate is the same as in the base case.
This scenario resulted in a minimum and average DSCR of 0.9x (in
2023) and 1.2x, respectively. Under this scenario, MRG will be
received from 2028 onward.
According to the concessionaire, the USD5.7 million shareholders'
contribution to finance the remaining works is expected to be
received in July or August. Given such contribution does not
constitute a formal commitment nor an enforceable obligation, and
the shareholders' capacity to make the payment is unknown by Fitch,
it has not considered it in its cases it, which results in a cash
shortfall in 2023. Nonetheless, Fitch has comfort in the fact that
the structure's available liquidity would be sufficient to
withstand transitory shortfalls if needed.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable 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.
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B R A Z I L
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BANCO PAN: Fitch Affirms 'BB-' IDRs & Alters Outlook to Positive
----------------------------------------------------------------
Fitch Ratings has revised the Rating Outlook on Banco Pan S.A.'s
(Pan) Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs) to Positive from Stable, and affirmed its Long-Term IDRs at
'BB-'. Fitch has also revised the Outlook to Positive from Stable
and affirmed Pan's Long-Term National Ratings at 'AA(bra)'.
The Outlook revision follows a recent similar rating action on the
parent, Banco BTG Pactual S.A. (BTG Pactual; BB-/Positive/B); see
Fitch Revises BTG Pactual and BTGH's Outlook to Positive; Affirms
IDRs at 'BB-', published on June 23, 2023.
The bank's Viability Rating (VR) was not part of this review and
was last affirmed on Oct. 22, 2022. There has not been any
significant development in the bank's financial performance since
then.
KEY RATING DRIVERS
Parent Change Drives Outlook Revision: Pan's IDRs, National
Ratings, and Shareholder Support Rating (SSR) are equalized with
BTG Pactual's Long-Term IDRs and reflect Fitch's view of a high
probability of support from Pan's parent bank, in case of need. The
Positive Outlooks on Pan's Long-Term IDR and National Ratings
mirrors that of its parent.
Alongside the parent's moderate ability to support strength, as
reflected in its 'BB-' Long-Term IDR, our assessment of
institutional support also considers that the parent and Pan
operate in the same jurisdiction, are subject to the same
regulations and belong to the same prudential perimeter in Brazil.
BTG Pactual holds 100% of Pan's voting shares and we believe its
parent has strong incentives to provide support to Pan as we
consider it a strategic division of the group's consumer finance
activities in Brazil.
Highly Integrated Entity: The high degree of integration of Pan's
operations and management with those of BTG Pactual, and Fitch's
view that a default on Pan would constitute huge reputational risks
to its parent as well as the cross-default clauses on BTG Pactual
's international issuances and potential acceleration of parent
debt, also contribute to the overall support assessment.
VR Not Affected: The bank's VR, which indicates its standalone
credit strengths, is not affected by this development. Pan's VR
reflects its well-established niche franchise in Brazil, relative
to its mid-sized peers, with its focus on consumer finance to
low-income clients. Asset quality and profitability are therefore
more variable over economic cycles, but have been held with a good
degree of resilience, aided by the bank's adequate business mix,
effective risk controls and a large share of secured lending. The
VR also factors in the bank's improved capitalization and funding
profiles, as well as prudent liquidity management.
For details on the key rating drivers and sensitivities of Pan's
VR, please see the press release "Fitch Affirms Banco Pan's IDRs at
'BB-' and National Rating at 'AA(bra)'; Outlook Stable", dated Oct.
20, 2022.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Pan's IDRs, SSR and National Ratings would be downgraded if BTG
Pactual's IDR was downgraded, if the subsidiary becomes less
strategic for the group or if Pan becomes significantly less
integrated, which Fitch does not expect. Pan's IDRs also remain
sensitive to a downgrade of Brazil's sovereign rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Conversely, Pan's Long-Term IDRs could be upgraded if BTG Pactual
gets upgraded. This assumes that the parent's propensity to support
the bank remains broadly intact.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PAN's ratings are driven by BTG's ratings.
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.
BRAZIL: Bank Lending Delinquency Reaches Highest Level in May
-------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that Brazil's
delinquency rate reached its highest level in over five years in
May, accompanied by a rise in average consumer interest rates,
reflecting deteriorating credit conditions, according to data
released by the central bank.
A broad measure of default rates for non-earmarked credit,
encompassing both individuals and businesses, increased from 4.8%
in April to 4.9% in May, the worst reading since February 2018. In
May of last year, the delinquency rate stood at 3.7%, according to
globalinsolvency.com.
The rising non-payment rate has been driven by higher borrowing
costs, as the central bank has maintained its benchmark interest
rate at a 13.75% cycle-high since September to curb inflationary
pressures, the report notes.
While the average interest rate for non-earmarked credit grew to
45.4% per year in May, it surged to 455.1% for revolving credit
card debt, while delinquency in this credit category only reached
54%, 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: Central Bank Sees Chance of Rate Cut in August
------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Brazil's
central bank said it may be able to start cutting interest rates in
August after President Luiz Inacio Lula da Silva and top members of
his economic team demanded clarity about the timing of an expected
monetary easing cycle.
While policymakers hadn't ruled out an August rate cut in a short
statement issued together with their June 21 decision, the minutes
of that meeting published were much more explicit about that
possibility, according to globalinsolvency.com.
The change in tone followed growing outrage in the administration
about the board's decision to hold borrowing costs at 13.75%,
without clearly saying when cuts could start, the report notes.
The minutes revealed a disagreement among policymakers led by
Roberto Campos Neto about how explicit they should be about their
next steps, the report discloses.
Part of the board was "more cautious," arguing that easing
inflation estimates and "more evidence" of lower price pressures
were needed before they could clearly indicate looser monetary
policy, the report says.
Yet the "the prevailing assessment was that the continuation of the
ongoing disinflationary process, with its consequent impact on
expectations," may allow for the beginning of a "parsimonious
process of inflection at the next meeting," central bankers wrote,
the report relays.
Copom, as the board is known, still warned that "premature" rate
cuts could accelerate inflation, hurting the monetary authority's
credibility as well as financial conditions, 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).
===================
C O S T A R I C A
===================
BANCO BAC SAN JOSE: Fitch Affirms 'BB/BB+' LongTerm IDRs
--------------------------------------------------------
Fitch Ratings has affirmed Banco BAC San Jose, S.A. 's (BAC SJ)
Long-Term (LT) Foreign Currency (FC) Issuer Default Rating (IDR) at
'BB' and its Local Currency (LC) IDR at 'BB+'. The Rating Outlook
for the LT IDRs remains Stable. Fitch has also affirmed BAC SJ's
Short-Term (ST) FC and LC IDRs at 'B', its Viability Rating (VR) at
'bb-' and the Shareholder Support Rating (SSR) at 'bb'. At the same
time, Fitch has affirmed BAC SJ's National LT Rating at 'AAA(cri)'
with a Stable Outlook and its National ST Rating at 'F1+(cri)' both
for the bank and its issuances local programs.
KEY RATING DRIVERS
IDR and SSR
Support-Driven Ratings: BAC SJ's IDRs, SSR and National Scale
ratings reflect Fitch's view of the propensity and ability of BAC
International Bank, Inc. (BIB; BB+/Stable), BAC SJ's shareholder,
to provide timely support, if needed. The national rating reflects
BIB's relative creditworthiness with respect to other rated
entities in Costa Rica. The Stable Outlook on the bank's long-term
ratings mirrors the same Outlook as its shareholder.
Country Risk Exposure: Fitch caps BAC SJ's SSR and FC IDR one notch
above the 'BB-' Costa Rican sovereign rating to reflect domestic
banks' exposure to country risks. The LT LC IDR is not constrained
by transfers and convertibility risks, captured in the country
ceiling of 'BB' that could limit BIB's ability to provide support
or BAC SJ's ability to use it, allowing it to be rated two notches
above Costa Rica's sovereign rating. The Outlook on BAC SJ's IDRs
mirrors that of its parent, and also that of the sovereign.
Core Role in Group: Fitch views BIB's propensity and ability to
support BAC SJ as very high, due to its Costa Rican subsidiary's
importance for BIB's regional diversification strategy. The bank is
a core operation for its parent, as its strong market position in
terms of loans and deposits and provides products in a jurisdiction
identified as strategically important.
Close Integration, Reputational Risks: BIB's subsidiaries in
Central America operate under the same brand and benefit from a
high strategic and operational integration that derives in
competitive advantages and enhanced franchise in each country.
Therefore, Fitch's assessment of support considers that an event of
unexpected default of one of its rated subsidiaries would
constitute a huge reputational risk for BIB and could have
significant impact on its franchise.
VR
Strong Market Position: Despite the bank has a good credit profile
in the country underpinned by a sound domestic franchise and solid
business profile, Fitch considers the operating environment as a
constrain on the VR, as it can influence the bank's financial
profile and drives BAC SJ's VR to 'bb-', one notch below the
implied VR. The bank ranks third by total assets, leads the market
in certain business lines and is recognized as the largest domestic
provider of liquidity in U.S. dollars. The bank has a broad and
balanced business diversification, with a solid retail and
corporate banking franchise. This results in good pricing power and
access to large, stable deposit base.
Moderate Risk Profile: Fitch downgraded BAC SJ's risk profile to
'bb-' from 'bb'. The downgraded was influenced by exchange rate
volatility, as its balance sheet is highly dollarized. Recent
depreciation periods of the local currency against the U.S. dollar,
followed by a subsequent appreciation cycle, brought accounting
fluctuations in the bank's financial statements. Although Fitch
considers that despite this volatility, the average financial
indicators remained consistent and are expected to continue to do
so over the rating horizon given its observed risk management.
Good Asset Quality: BAC SJ's assets maintain strong quality
compared to other regional peers. Appropriate risk controls and
moderate loan growth has resulted at 1Q23 in a ratio of loans over
90 days past due of 1.6% of gross loans (four-year average of
2.2%), which is expected to remain consistent and commensurate with
its current rating in the foreseeable future. The bank's loan loss
reserves (LLRs), notably higher than its private peers', lead to a
coverage ratio of 2.8x as of 1Q23. The relevant focus on the retail
segment enables to maintain one of the lowest concentrations in the
sector below 1x FCC.
Profitability Sensitive to FX fluctuation: BAC SJ's Operating
Profitability is sensitive to fluctuations in FX, but Fitch expects
profits to recover, reflecting good revenue diversification, high
net interest income, net fees and lower loan impairment charges
(LICs) due to its strong asset quality, which compares well with
local peers. Even so, exchange rate differential losses drove its
1Q23 operating income to risk-weighted assets ratio to 1.1% from a
four-year average of 2.5% (1Q23 adjusted core metric excluding FX
losses: 5.2%). Favorably, according to figures published by the
regulator, these losses have remained nominally stable and are
therefore diluted in higher revenues, favoring the rebound of this
ratio.
Satisfactory Capital Buffers: As of 1Q23, BAC SJ's Fitch Core
Capital (FCC) to RWA ratio was 13.5% (2022: 12.5%) in a context of
FX fluctuation. The bank has maintained a relatively stable core
metric with a four-year average (2019-2022) of 12.9%. It also,
maintains satisfactory capital buffers above regulatory
requirements with a regulatory capital ratio at 13.9% at the end of
March 2023 (Dec-2022: 12.8%), despite dividend payments. In Fitch's
view, capitalization is also supported by high reserve coverage and
ordinary support from BIB, in case of need.
Stable Funding and Liquidity: BAC SJ is mainly funded by granular,
retail deposits and its gross loans/deposit ratio was a reasonable
81.4% as of 1Q23 (2022: 84.1%). Foreign currency deposits account
for more than 50% of the total, these exhibit relatively long
maturities and good stability. Liquidity levels are adequately
managed, allowing the bank to have up to 2x coverage of upcoming
liability maturities. In addition, liquid assets provide coverage
of about 41.7% of total deposits and are reflected in sound
regulatory liquidity ratios.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Negative changes in BAC SJ's IDRs and SSR would mirror any
negative movement in Costa Rica's sovereign ratings and Country
Ceiling;
- Any perception by Fitch of a relevant reduction in BIB's
propensity of support may trigger a downgrade of BAC San Jose's
IDRs, SSR and National Ratings.
- A one notch downgrade of BIB's IDRs could lead to downgrade of
BAC SJ's LC IDR. A downgrade of BIB's IDRs by more than one notch
could lead to a downgrade of BAC SJ's FC and LC IDRs, as well as
its SSR and National Ratings.
- BAC SJ's VR could be downgraded in the case of a material
deterioration of the bank's financial performance resulting from a
material asset-quality deterioration that significantly erodes its
profitability and drops its FCC to RWA consistently below 9%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- BAC SJ's FC IDR and SSR could be upgraded if Costa Rica's Country
Ceiling are upgraded; while the LC IDR would be upgraded if BIB's
IDRs and Costa Rica's sovereign rating are upgraded;
- The VR could be upgraded if Fitch revises upward its OE
assessment while the bank maintains a very strong financial
profile;
- The National Ratings of BAC SJ are at the top of the scale, so
there is no room for positive actions.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Unsecured Debt: BAC SJ's national scale ratings of its
outstanding senior unsecured obligations are at the same level of
the issuer's National Ratings, as the likelihood of default of the
obligations, in Fitch's opinion, is the same as for BAC San Jose,
given the debt does not have specific guarantees.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to changes
in the rating
BAC SJ's senior unsecured debt National Ratings would mirror any
potential negative change on the entity's National Ratings. There
is no room for positive action given that the national ratings are
at the top of the national scale.
VR ADJUSTMENTS
The Viability Rating of 'bb-' has been assigned below the implied
Viability Rating of 'bb' due to the following adjustment reason:
Operating Environment / Sovereign Rating Constraint (negative).
SUMMARY OF FINANCIAL ADJUSTMENTS
Pre-paid expenses and other deferred assets were re classified as
intangibles and deducted from total equity, to reflect its low
absorption capacity.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
BAC SJ's IDRs are driven by the potential support it could receive
from its parent, BAC International Bank, Inc., if required.
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.
BANCO DAVIVIENDA: Fitch Affirms 'BB/'BB+' LongTerm IDRs
-------------------------------------------------------
Fitch Ratings has affirmed Banco Davivienda (Costa Rica), S.A.'s
(Davivienda CR) Long-Term (LT) Foreign Currency (FC) Issuer Default
Ratings (IDR) at 'BB' and LT Local Currency (LC) IDR at 'BB+'. In
addition, Fitch has affirmed the FC and LC Short-Term (ST) IDRs at
'B', Shareholder Support Rating (SSR) at 'bb' and Viability Rating
(VR) at 'bb-'. Fitch has also affirmed the bank's National LT and
ST Ratings at 'AAA(cri)' and 'F1+(cri)', respectively, as well as
the ratings of the local debt issue programs. The Rating Outlook
for the LT FC and LC IDRs and LT National Rating is Stable.
KEY RATING DRIVERS
Shareholder Support-Driven Ratings: Davivienda CR's IDR and
national ratings are based on Fitch's assessment of the capacity
and propensity of its parent, Banco Davivienda S.A. (Davivienda;
BB+/Stable), to provide support, if required. Davivienda's relative
credit strength with respect to the Costa Rican sovereign
(BB-/Stable) and other rated issuers in the country, enable
Davivienda CR's national ratings to be placed at the top of the
national scale with a Stable Outlook.
Ratings Constrained by Country Risk: With a high degree of
influence, Fitch also considers the possible transfer and
convertibility (T&C) risks, reflected in Costa Rica's country
ceiling of 'BB', which could limit Davivienda CR's ability to
receive support and Davivienda's ability to provide it, which
results in Davivienda CR's SSR and LT FC IDR being rated one notch
below its parent's IDR.
The LT LC IDR of 'BB+' is equalized to its parent's LT FC IDR and
two notches above Costa Rica's sovereign rating, since it is not
constrained by T&C risks, according to Fitch's criteria. The Stable
Outlook for the bank's LT IDRs mirrors that on its shareholder,
also considering that of the sovereign.
High Reputational Risk: In the evaluating of propensity to support,
Fitch considers the huge reputational risk that the Davivienda
group could face in the event of a possible default by its
subsidiary in Costa Rica, with whom it shares the same brand, as
highly important.
Strategic Role in Group: In Fitch's support analysis, the key role
that Davivienda CR has in the group's geographic diversification
strategy by operating in a market considered strategic and with
which it also shows operating synergies, carries moderate weight.
Well Established Business Profile: Davivienda CR's VR of 'bb-',
equal to its implied VR, incorporates the agency's assessment of
its business profile, which reflects the consistent and
well-diversified business model between corporate and personal
banking, as well as the moderate size of its franchise, being the
second-largest private bank in Costa Rica, with market shares of
7.3% and 6.4% in credit and deposits, respectively, as of May
2023.
Risk Profile: The Risk Profile assessment, at the same level of the
Costa Rican Operating Environment (OE), is influenced by the bank's
sensitivity to exchange risk, given that the bank is characterized
by the high percentage of its balance in U.S. dollars (loans: 64.9%
as of March 2023), which explains the drop in loans and
profitability as of 1Q23, due to the effect of appreciation of the
colon against U.S. dollars. However, the agency expects the
financial performance would stabilize over the foreseeable future.
Good Asset Quality: Fitch upgraded Davivienda CR's asset quality
score to 'bb' from 'bb-'. Fitch weighs within the VR, Davivienda
CR's moderate risk appetite that has translated to a good and
stable asset quality ratio, with a NPLs metric of 1.9% as of March
2023 (2019-2022: 1.9%) and net charge-off levels around 1% of gross
loans, reserve coverage for NPL of 162.7%, and good levels of
collaterals that offset the higher credit concentrations than
peers.
Profitability Affected by Exchange Rate Volatility: Davivienda CR's
profitability has been moderate in recent years, with an operating
profit to risk-weighted assets (RWA) ratio of 1.5% on average from
2019 to 2022. However, as of March 2023 it was negative 1.6%,
completely due to losses derived from the exchange rate variations;
however, when excluded, result in profits at similar levels to
2022. In its base scenario, the agency considers that the
indicators of profitability would stabilize during 2023-2024 at
their historical values.
Adequate Capital Levels: Davivienda CR's capitalization ratios
improved in recent years. As of March 2023, the Fitch Core Capital
(FCC) to RWA metric registered 13.0% versus 12.4% in 2022. This
despite of operating losses in colones, given the entity's
conservative strategies to protect its capitalization against
exchange rate volatility, which Fitch considers prudent. In
addition, the bank's capital position benefits from its ordinary
parent support.
Stable and Diversified Funding Profile: Davivienda CR's funding and
liquidity profiles are favored by its customer deposit base, which
represented around 67% of total funding as of March 2023, as well
as the synergies generated between its parent. The loan-to-deposit
ratio decreased to 109.3% (2019-2022: 126.2%), supplemented with
issuances in the local market and credit lines with financial
institutions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Negative changes in Davivienda CR's IDRs and SSR would mirror any
movement in Costa Rica's sovereign ratings and Country Ceiling;
- Any perception by Fitch of the parent's significantly reduced
propensity to support the subsidiary may trigger a downgrade of
IDRs, SSR and national ratings;
- A multi-notch downgrade of Davivienda's IDRs would also entail a
downgrade in Davivienda CR's FC and LC IDRs, SSR and national
ratings, while a one notch downgrade in Davivienda's IDRs would
trigger a downgrade in Davivienda CR's LC IDR;
- A downgrade of Davivienda CR's VR could result from a material
deterioration of the banks' financial performance that drops its
FCC/RWA ratio consistently below 9% alongside incurring in
operating losses consistently.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Davivienda CR's FC IDR and SSR could be upgraded in the event of
an upgrade of Costa Rica's Country Ceiling, while the LC IDR would
be upgraded if Davivienda's IDRs and Costa Rica sovereign rating
are upgraded;
- Davivienda CR's VR could be upgraded in the event of an
improvement in the local OE and if the bank continues with
consistent financial performance metrics;
- The bank's national scale ratings are at the top of the scale,
and therefore there is no room for positive actions.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Unsecured Debt: Unsecured senior debt is rated at the same
level as Davivienda CR's national ratings, as Fitch considers that
the probability of default of its debt is the same as that of the
bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Senior unsecured debt national ratings would be downgraded in the
case of negative rating actions on the bank's national ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Debt issue programs national ratings are at the top of the scale.
Therefore, there is no room to upgrade.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch reclassified prepaid expenses as intangibles and deducted
them from equity to reflect their lower absorption capacity.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Davivienda CR's ratings are support-driven by Davivienda.
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.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Signs Cooperation Memorandum with Singapore
---------------------------------------------------------------
Dominican Today reports that the Minister of Environment and
Natural Resources of the Dominican Republic and the Minister of
Commerce and Industry of Singapore have established a significant
agreement by signing a memorandum for international cooperation.
This partnership aims to facilitate the generation and sale of
carbon credits while promoting investment, job creation in the
green economy, and technological exchange for sustainable
development, according to Dominican Today.
During a virtual meeting attended by technical delegations from
both countries, Miguel Ceara Hatton, the Dominican minister,
emphasized the vulnerability of island states to the impacts of
climate change, as indicated in the sixth IPCC report, Dominican
Today discloses. Rising sea levels, changes in rainfall patterns,
and temperature fluctuations pose significant risks, including food
insecurity, health issues, and reduced water security, the report
relays.
In the meeting, Ceara Hatton was accompanied by Milagros de Camps,
the Vice Minister for Climate Change, while Mr. Gan Kim Yong was
joined by Fam Wee Wei, the director of the Industry Division, along
with Assistant Principal Dorothy Lee, Senior Assistant Director
Deanna Tan, and Assistant Director Lydia Tang, Dominican Today
discloses.
The signed agreement demonstrates the shared commitment of both
countries to global climate action and the promotion of sustainable
development that benefits their citizens, the report relays. Ceara
Hatton highlighted the Dominican Republic's efforts in achieving
emissions reduction goals, such as transforming the country's
energy matrix, developing the National REDD+ Strategy, and
establishing a Measurement, Reporting, and Verification System, the
report notes. The nation is committed to implementing Nationally
Determined Contributions (NDCs) by adapting mechanisms and actions
according to its unique characteristics and capabilities, the
report relays.
Through collaboration with Singapore, Ceara Hatton expressed
confidence in gaining knowledge and experience that will enhance
mitigation strategies and foster sustainable development within the
Dominican Republic, the report says. Recognizing the critical
nature of the current climate situation, he emphasized the need for
cooperative efforts to mitigate the impacts of climate change and
ensure a brighter future for future generations, the report
discloses.
Mr. Gan Kim Yong also acknowledged the urgency of addressing
climate change, describing it as an existential challenge that
demands effective collaboration among countries, the report notes.
He emphasized the commitment of Singapore and the Dominican
Republic to their climate goals and global climate action, the
report relays. This memorandum marks the initial step toward
carbon credit initiatives between the two countries and will
facilitate pilot projects to stimulate investment, job creation,
technology collaboration, and sustainable development within their
communities, 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.
DOMINICAN REPUBLIC: Water Service Shortage Worsens in the Country
-----------------------------------------------------------------
Dominican Today reports that the limited distribution of drinking
water or, in some cases, the lack of supply of this liquid has been
a persistent reality in sectors of greater Santo Domingo, as
Listín Diario has verified in multiple visits.
The social development accompanied by improvised urbanization has
generated hundreds of thousands of citizens without an underground
drinking water supply, according to Dominican Today. This creation
is the responsibility of the Corporation of Aqueduct and Sewerage
of Santo Domingo (CAASD), the report notes.
However, other sectors lack this right despite having this
distribution system, the report relays. The situation has worsened
even more due to the seasonal drought, the report discloses.
This reality has forced the communities to buy water trucks from
companies incorporated by the Federacion Nacional de Transporte
Dominicano (Fenatrado), whose union has dozens of trucks available
to market the liquid to impoverished neighborhoods, the report
relays.
This business is, to a certain extent, linked to the CAASD since
the water extracted by these companies comes from the cisterns or
submersible pumping stations that the public institution has
installed in different parts of the Capital, and which, in turn, it
administers, the report notes.
According to union workers, the truck owners must pay CAASD
representatives or employees, who control the cisterns, an amount
of RD$100 or RD$200, depending on the truck size, the report says.
The purchased drinking water is then marketed to the community for
a cost ranging from RD$1,500 to RD$2,800, according to a driver who
works at one of the CAASD supply points near the Quisqueya Juan
Marichal Stadium, the report dicloses.
However, the public entity indicates that the Fenatrado union has
to make three daily trips in vulnerable areas due to the lack of
this liquid, which they analyze, the report relays.
The CAASD has pointed out that in periods like these, where the
country is going through a seasonal drought, the requirement has
increased, so they have had up to 150 trucks, with three trips per
unit, the report notes.
The rental of these trucks costs RD$1,900, according to information
provided by the institution, the report says.
"We have a link, a contract to be contractors to give free services
to the people and they (CAASD) reimburse us," said another driver,
who preferred to remain anonymous for security reasons, the report
discloses.
There is Also Free
Failures in the distribution system have caused water shortages in
several neighborhoods, which has led to the creation of businesses
to distribute this liquid, the report notes.
The CAASD provides free services with its own tanker trucks to
counteract these irregularities, the report relays. However, this
operation has not been well supported by the citizens, the report
discloses.
This reality has been exposed by community members of the 24 de
Abril sector of the National District in a publication entitled
"Residents of the 24 de Abril sector suffer hardships due to lack
of water in the "letter carrier" street," the report relays.
Luis Alberto, a resident of this area, said that when the CAASD
usually provides the service, it only does so for no more than 10
to 15 minutes, the report notes. "Today (June 13), it arrived at
6:00 in the morning, and by 6:10, it was gone," he testified, and
that he woke up early to fill his water tanks but was
unsuccessful.
Sector 24 de Abril, National District
Residents indicated that the entity sends weekly water trucks to
the street to distribute it in a few portions, but they have no
interest in finding a solution to the problem, the report relays.
They do not go
Charlie Tavares pointed out that Caasd has not gone to the
neighborhood to explain the reason for the limitation of the water
service, the report discloses.
The CAASD
The areas of preference to receive drinking water because "they
face the greatest problem with the supply, as a result of the
drought" are the Los Alcarrizos, Pedro Band, and Santo Domingo
Oeste municipalities, 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.
===========
M E X I C O
===========
ENGENCAP HOLDING: S&P Affirms 'B+' ICR & Alters Outlook to Stable
-----------------------------------------------------------------
S&P Global Ratings revised its outlook on Mexican-based leasing
company Engencap Holding S.A. de C.V. SOFOM E.N.R. to stable from
negative. In addition, S&P affirmed its 'B+' long-term global scale
rating on Engencap.
Despite the default of some competitors, Engencap has been able to
refinance its liabilities and obtain new funding sources.
Therefore, its funding profile has remained stable and become
slightly more diversified than we had observed in the past few
years. As of March 2023, asset-backed securities (ABS) represented
70% of total liabilities (35% public securitizations and 35%
private securitizations), while the other 30% corresponds to credit
lines with commercial and development banks. Engencap maintains a
high portion of secured debt, about 87% of total liabilities, while
only 13% is unsecured.
S&P said, "We believe this funding structure could limit the
company's financial flexibility, as most of its loan portfolio is
granted as collateral. However, this type of funding has also
proven to be more resilient than unsecured debt. ABS are backed by
existing assets and separate the originator's risk by depositing
collections from the securitized portfolios directly in the trust's
accounts. Consequently, investors have recently preferred
securitizations over unsecured issuances in the local market. In
fact, over the past 24 months, Engencap has been able to issue
about Mexican peso (MXN) 4.5 billion in public securitizations,
while the unsecured market for independent NBFIs remains closed.
"Going forward, we expect Engencap to continue tapping the secured
local debt market in Mexico. At the same time, we expect the
company to continue expanding its unsecured funding sources.
Consequently, we foresee stable funding and liquidity, which will
result in enough resources to maintain liquidity while increasing
business volume.
"Due to its reliance on ABS funding, we believe Engencap's assets
and liabilities are well-matched. The company faces a manageable
maturity profile, where only about 11% of its debt matures in less
than a year and corresponds to monthly scheduled payments on its
credit lines.
"Therefore, we don't expect the company will face refinancing risk
that could affect business operations in the next 12 months. The
company has also maintained a solid cash position to avoid any
liquidity contingency. As of March 2023, the company's unrestricted
cash was almost MXN 2.3 billion, explained by the slowdown in
originations for the past few years and the company's conservative
approach amid economic difficulties.
"Going forward, we anticipate lower cash levels, in line with our
expectation of higher loan originations for 2023 and 2024. However,
we expect the company to maintain adequate liquidity to cover
liquidity needs for the next 12 months, supported by its stable
collection levels, resilient funding base, and comfortable debt
maturity schedule."
Since the COVID-19-induced economic shock and the Mexican NBFI
crisis, the company has been prioritizing asset quality and
liquidity levels over portfolio expansion. Therefore, as of
December 2022, the loan portfolio had contracted 16% versus 2019
levels.
Despite lower business volume, operating revenue and bottom-line
results have continued to grow. As of year-end 2022, net income
stood at MXN 600 million, up 14% over the previous year. This
resulted from the company's net interest margin (NIM) growth and
stable asset quality indicators, resulting in manageable generation
of credit provisions.
The company was able to raise its active rates to increase
profitability while containing funding costs due to proactive
asset-liability management strategies and hedging liabilities
against interest rates and foreign exchange volatility. As a
result, NIM stood at 8.3% as of year-end 2022, which is
significantly better than the previous three-year average of 5.5%.
S&P said, "Likewise, return on average assets stood at 1.9%, in
comparison with the previous three-year average of 0.9%. In this
sense, our risk-adjusted capital (RAC) ratio for 2022 improved to
close to 10% and we expect it to be slightly below 10% going
forward, considering our expectation of 10%-15% portfolio growth as
the company aims to return to its pre-pandemic business volume.
"As of March 2023, Engencap's nonperforming asset (NPA) ratio was
3.3%, with reserve coverage of 119% and no loans written off during
the first quarter. For 2023- 2024, we don't expect Engencap's asset
quality metrics to deviate much from historical trends. We expect
the company's growth to be consistent with its conservative
underwriting standards and risk management, so we expect asset
quality to remain stable. We anticipate the NPA ratio will be
around 3.5%, with net charge-offs below 1%, and reserve coverage
remaining above 100%."
The consolidated loan portfolio is not significantly concentrated
by industry, asset type, or individual borrower. Engencap itself
has higher concentrations due to its larger tickets from loans to
larger corporates, but the portfolio of TIP de Mexico--which
Engencap acquired in 2019--adds diversification to the consolidated
portfolio. As of December 2022, the company's top 20 loans
represented around 20% of the portfolio and 1.2x total adjusted
capital.
=====================
P U E R T O R I C O
=====================
PUERTO RICO: Oversight Board Plans to Cut PREPA Bond Offer by Half
------------------------------------------------------------------
Michelle Kaske of Bloomberg News reports that Puerto Rico's
financial oversight board is considering slashing -- by about half
-- the amount of new bonds it claims the island's bankrupt power
utility can repay, a potential offering that bondholders will most
likely reject.
The federally appointed board calculates that Puerto Rico's
Electric Power Authority, called Prepa, can only repay $2.5 billion
to its creditors, less than half the $5.68 billion offered in its
March debt-restructuring plan. It's far below the $10 billion it
owes, including nearly $9 billion to bondholders and fuel-line
lenders.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States. The chief of state is the President of the
United States of America. The head of government is an elected
Governor. There are two legislative chambers: the House of
Representatives, 51 seats, and the Senate, 27 seats. The
governor-elect is Ricardo Antonio "Ricky" Rossello Nevares, the
son
of former governor Pedro Rossello.
In 2016, the U.S. Congress passed PROMESA, which, among other
things, created the Financial Oversight and Management Board and
imposed an automatic stay on creditor lawsuits against the
government, which expired May 1, 2017.
The members of the oversight board are: (i) Andrew G. Biggs, (ii)
Jose B. Carrion III, (iii) Carlos M. Garcia, (iv) Arthur J.
Gonzalez, (v) Jose R. Gonzalez, (vi) Ana. J. Matosantos, and (vii)
David A. Skeel Jr.
On May 3, 2017, the Commonwealth of Puerto Rico filed a petition
for relief under Title III of the Puerto Rico Oversight,
Management, and Economic Stability Act ("PROMESA"). The case is
pending in the United States District Court for the District of
Puerto Rico under case number 17-cv-01578. A copy of Puerto Rico's
PROMESA petition is available at
http://bankrupt.com/misc/17-01578-00001.pdf
On May 5, 2017, the Puerto Rico Sales Tax Financing Corporation
(COFINA) commenced a case under Title III of PROMESA (D.P.R. Case
No. 17-01599). Joint administration has been sought for the Title
III cases.
On May 21, 2017, two more agencies -- Employees Retirement System
of the Government of the Commonwealth of Puerto Rico and Puerto
Rico Highways and Transportation Authority (Case Nos. 17-01685 and
17-01686) -- commenced Title III cases.
U.S. Chief Justice John Roberts named U.S. District Judge Laura
Taylor Swain to preside over the Title III cases.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose LLP; and Hermann D. Bauer, Esq.,
at O'Neill & Borges LLC are onboard as attorneys.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains the case web site
https://cases.primeclerk.com/puertorico
Jones Day is serving as counsel to certain ERS bondholders.
Paul Weiss is counsel to the Ad Hoc Group of Puerto Rico General
Obligation Bondholders.
*********
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
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contact Peter A. Chapman at 215-945-7000.
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