/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/230905.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, September 5, 2023, Vol. 24, No. 178 Headlines A R G E N T I N A ARGENTINA: Reaches Export Financing Deal With Brazil BLOCKFI INC: Fights With 3 Arrows, FTX Over Possible Repayments B R A Z I L BRAZIL: 69% of Homes Ended 2022 With Debt BRAZIL: Central Bank's Selic Cut Cost Trust, Barclays Says BRAZIL: Needs US$200BB to Hit 2030 Climate Goals, Study Says CENTRAIS ELETRICAS: Moody's Affirms 'Ba2' CFR, Outlook Stable MINERVA SA: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable H O N D U R A S TEGUCIGALPA: Fitch Affirms LongTerm IDRs at 'B', Outlook Stable J A M A I C A JAMAICA: Cost of Manufacturing Outputs Decline P U E R T O R I C O PUERTO RICO: BlackRock Deal Will Cut Debt by 75% X X X X X X X X [*] Caribbean Economies at a Crossroads - - - - - ================= A R G E N T I N A ================= ARGENTINA: Reaches Export Financing Deal With Brazil ---------------------------------------------------- Buenos Aires Times reports that Brazilian Finance Minister Fernando Haddad and Argentina's Economy Minister Sergio Massa have announced an agreement to fund Brazilian exports to the tune of US$600 million. The deal between the two Mercosur partners, which comes with Argentina facing a severe economic crisis and lack of foreign currency, comes after months of talks between officials from both nations to prevent paralysis in bilateral trade, according to Buenos Aires Times. The mechanism to ensure the purchase of Brazilian products by Argentina will chiefly benefit the auto-parts sector, and the food sector to a lesser extent. It will involve the Bank of Brazil (BB), the National Bank for Economic and Social Development (BNDES) and the Development Bank of Latin America and the Caribbean (CAF), Massa confirmed after a meeting with Haddad and President Luiz Inacio Lula da Silva at the Planalto presidential palace in Brasilia, the report notes. "The BB will guarantee Brazilian exports, and the CAF will act as guarantor," Haddad said, the report discloses. The Brazilian minister explained that the operation must still be approved in September by the CAF, once both countries submit documents to back the exports, the report says. "When you export auto-parts to Argentina, you guarantee foreign currency for that country," Haddad said, adding that supplies to the neighbouring country will then have the subsequent capacity to sell cars to Brazil and honour payments, the report notes. Haddad offered to re-establish the trade flow to Argentina using yuan, the Chinese currency, as a payment method, but that option was set aside to Brazilian surprise. Buenos Aires was not keen, he explained, as it would mean "giving up reserves," the report relays. Massa said he had secured "the agreement to finance exports from Brazil to Argentina, which gives us US$600 million of leeway in terms of reserves with a guarantee from the Development Bank of Latin America," the report discloses. "It ensures work for the auto and auto part sector in Argentina for the rest of the year until we can reinstate the reserves that the drought took away," he told reporters in Brasilia, the report relays. Massa thanked Haddad, whom he called a "fabulous host," for his "good will" during a "critical" time for Argentina, the report discloses. At a later press conference, the economy minister also announced the reopening of the Brazilian market for poultry exports from Argentina, which had been closed previously due to bird flu concerns, the report says. Massa also stressed the reopening of the joint construction of the naval fleet between Argentina and Brazil "to gain back some presence in the regional naval industry, on the understanding that Brazil and Argentina have the longest coastlines on the continent," the report notes. He also said the move would "ensure the Santo Tome-Sao Borja border pass, which for one more year continues with the documentary mechanism facilitating the crossing from either side of the border to the other," the report relays. 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. S&P Global Ratings, on June 13, 2023, raised its local currency sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed its 'CCC-/C' foreign currency sovereign credit ratings on Argentina. The outlook on the long-term ratings is negative. S&P's 'CCC-' transfer and convertibility assessment is unchanged. None of its rated bond issues are affected. S&P said the negative outlook on the long-term ratings is based on the risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Divisions within the government coalition, and infighting among the opposition, constrain the sovereign's ability to implement timely changes in economic policy. Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from 'C' and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'. Fitch typically does not assign Outlooks to sovereigns with a rating of 'CCC+' or below. The upgrade of the FC IDR reflects that Fitch no longer deems a default-like process to have begun, as the authorities have not signaled a clear intention to follow through with an intra-public debt swap announced in March. The new 'CC' rating signals a default event of some sort appears probable in the coming years, regardless of the outcome of upcoming elections. The affirmation of the LC IDR at 'CCC-' follows the peso debt swap in June that Fitch did not deem to be a "distressed debt exchange" (DDE). 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. BLOCKFI INC: Fights With 3 Arrows, FTX Over Possible Repayments --------------------------------------------------------------- Jonathan Randles of Bloomberg Law reports that bankrupt crypto lender BlockFi Inc. wants to block attempts by FTX and Three Arrows Capital to get back billions of dollars exchanged between the firms before all three companies unraveled last year. BlockFi said in court filing that it was victimized by Sam Bankman-Fried's platform and, as a result, failed crypto exchange FTX isn't entitled to more than $5 billion being sought. Similarly, BlockFi accused the collapsed crypto hedge fund Three Arrows of using fraud to borrow money from the lender and isn't entitled to potential repayment. About BlockFi Inc. BlockFi is building a bridge between digital assets and traditional financial and wealth management products to advance the overall digital asset ecosystem for individual and institutional investors. BlockFi was founded in 2017 by Zac Prince and Flori Marquez and in its early days had backing from influential Wall Street investors like Mike Novogratz and, later on, Valar Ventures, a Peter Thiel-backed venture fund as well as Winklevoss Capital, among others. BlockFi made waves in 2019 when it began providing interest-bearing accounts with returns paid in Bitcoin and Ether, with its program attracting millions of dollars in deposits right away. BlockFi grew during the pandemic years and had offices in New York, New Jersey, Singapore, Poland and Argentina. BlockFi worked with FTX US after it took an $80 million hit from the bad debt of crypto hedge fund Three Arrows Capital, which imploded after the TerraUSD stablecoin wipeout in May 2022. BlockFi had significant exposure to the companies founded by former FTX Chief Executive Officer Sam Bankman-Fried. BlockFi received a $400 million credit line from FTX US in an agreement that also gave FTX the option to acquire BlockFi through a bailout orchestrated by Bankman-Fried over the summer. BlockFi also had collateralized loans to Alameda Research, the trading firm co-founded by Bankman-Fried. BlockFi is the latest crypto firm to seek bankruptcy amid a prolonged slump in digital asset prices. Lenders Celsius Network LLC and Voyager Digital Holdings Inc. also filed for court protection this year. Kirkland & Ellis is also advising Celsius and Voyager in their separate Chapter 11 cases. BlockFi Inc. and eight affiliates sought protection under Chapter 11 of the Bankruptcy Code (Bankr. D.N.J. Lead Case No. 22-19361) on Nov. 28, 2022. In the petitions signed by their chief executive officer, Zachary Prince, the Debtors reported $1 billion to $10 billion in both assets and liabilities. Judge Michael B. Kaplan oversees the cases. The Debtors tapped Kirkland & Ellis and Haynes and Boone, LLP as general bankruptcy counsels; Walkers (Bermuda) Limited as special Bermuda counsel; Cole Schotz, P.C., as local counsel; Berkeley Research Group, LLC as financial advisor; Moelis & Company as investment banker; and Street Advisory Group, LLC as strategic and communications advisor. Kroll Restructuring Administration, LLC, is the notice and claims agent. =========== B R A Z I L =========== BRAZIL: 69% of Homes Ended 2022 With Debt ----------------------------------------- Richard Mann at Rio Times Online reports that a new report from Kantar says 69% of Brazilian homes ended 2022 with debt. The study also found that 73% of Brazilians changed how they spend money to cover bills in early 2023, according to Rio Times Online. The survey talked to 4,915 homes from October to November 2022. About one-third of people said their salary barely covers monthly bills, the report notes. Most money went to buying things like food, drinks, and cleaning supplies. The cost of cleaning supplies went up by 15% from last year, 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. Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-', with a Stable Outlook. The upgrade reflects better-than-expected macroeconomic and fiscal performance amid successive shocks in recent years, proactive policies and reforms that have supported this, and Fitch's expectation that the new government will work toward further improvements. In mid-June 2023, S&P Global Ratings, revised the outlook on its long-term global scale ratings on Brazil to positive from stable. S&P affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. S&P also affirmed its 'brAAA' national scale rating, and the outlook remains stable. The transfer and convertibility assessment remains 'BB+'. The positive outlook reflects signs of greater certainty about stable fiscal and monetary policy that could benefit Brazil's still-low GDP growth prospects. Continued GDP growth plus the emerging framework for fiscal policy could result in a smaller government debt burden than expected, which could support monetary flexibility and sustain the country's net external position. 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 Inc., on August 15, 2023, upgraded Brazil's Long-Term Foreign and Local Currency - Issuer Ratings to BB from BB (low). At the same time, DBRS Morningstar confirmed Brazil's Short-term Foreign and Local Currency - Issuer Ratings at R-4. The trend on all ratings is Stable.(March 2018). BRAZIL: Central Bank's Selic Cut Cost Trust, Barclays Says ---------------------------------------------------------- Richard Mann at Rio Times Online reports that Barclays says Brazilian central bank's Selic cut cost trust. Roberto Secemski from Barclays pointed out that this move goes against the bank's previous careful approach, according to Rio Times Online. He thinks starting the reduction process more slowly would have been better and helped lower inflation expectations, the report notes. Secemski mentioned that making money decisions always involves some give and take, the report says. The choice to reduce by 0.50pp lost trust and might slow progress towards the goal. However, the inflation expectations for 2025 and 2026 remain steady at 3.5%, 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. Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-', with a Stable Outlook. The upgrade reflects better-than-expected macroeconomic and fiscal performance amid successive shocks in recent years, proactive policies and reforms that have supported this, and Fitch's expectation that the new government will work toward further improvements. In mid-June 2023, S&P Global Ratings, revised the outlook on its long-term global scale ratings on Brazil to positive from stable. S&P affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. S&P also affirmed its 'brAAA' national scale rating, and the outlook remains stable. The transfer and convertibility assessment remains 'BB+'. The positive outlook reflects signs of greater certainty about stable fiscal and monetary policy that could benefit Brazil's still-low GDP growth prospects. Continued GDP growth plus the emerging framework for fiscal policy could result in a smaller government debt burden than expected, which could support monetary flexibility and sustain the country's net external position. 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 Inc., on August 15, 2023, upgraded Brazil's Long-Term Foreign and Local Currency - Issuer Ratings to BB from BB (low). At the same time, DBRS Morningstar confirmed Brazil's Short-term Foreign and Local Currency - Issuer Ratings at R-4. The trend on all ratings is Stable.(March 2018). BRAZIL: Needs US$200BB to Hit 2030 Climate Goals, Study Says ------------------------------------------------------------ Arkady Petrov at Rio Times Online reports that a study says Brazil needs US$200 billion to hit its 2030 climate goals. Most of this money should go to farming and energy, according to a report by consulting firm Oliver Wyman, notes Rio Times Online. Energy projects include wind and solar parks, better energy storage, and more efficient power use, the report notes. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He was sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-', with a Stable Outlook. The upgrade reflects better-than-expected macroeconomic and fiscal performance amid successive shocks in recent years, proactive policies and reforms that have supported this, and Fitch's expectation that the new government will work toward further improvements. In mid-June 2023, S&P Global Ratings, revised the outlook on its long-term global scale ratings on Brazil to positive from stable. S&P affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. S&P also affirmed its 'brAAA' national scale rating, and the outlook remains stable. The transfer and convertibility assessment remains 'BB+'. The positive outlook reflects signs of greater certainty about stable fiscal and monetary policy that could benefit Brazil's still-low GDP growth prospects. Continued GDP growth plus the emerging framework for fiscal policy could result in a smaller government debt burden than expected, which could support monetary flexibility and sustain the country's net external position. 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 Inc., on August 15, 2023, upgraded Brazil's Long-Term Foreign and Local Currency - Issuer Ratings to BB from BB (low). At the same time, DBRS Morningstar confirmed Brazil's Short-term Foreign and Local Currency - Issuer Ratings at R-4. The trend on all ratings is Stable.(March 2018). CENTRAIS ELETRICAS: Moody's Affirms 'Ba2' CFR, Outlook Stable ------------------------------------------------------------- Moody's Investors Service affirmed Centrais Eletricas Brasileiras SA-Eletrobras' (Eletrobras) corporate family rating at Ba2. Simultaneously, Moody's downgraded Eletrobras baseline credit assessment (BCA) to ba3 from ba2. The outlook remains stable. Affirmations: Issuer: Centrais Eletricas Brasileiras SA-Eletrobras Corporate Family Rating, Affirmed Ba2 Downgrades: Issuer: Centrais Eletricas Brasileiras SA-Eletrobras Baseline Credit Assessment, Downgraded to ba3 from ba2 Outlook Actions: Issuer: Centrais Eletricas Brasileiras SA-Eletrobras Outlook, Remains Stable RATINGS RATIONALE The decision to downgrade Eletrobras' BCA to ba3, was primarily based on Moody's updated view on the company's prospective capital structure and future cash flows, amid lower than anticipated market-based power prices in Brazil and growing investment plans that will limit the pace of leverage reduction. The Baseline Credit Assessment (BCA) represents Moody's opinion of the company's standalone credit quality. It takes into consideration the company's dominant position in the local market and its strong business profile following the renewal of hydropower concessions and the growing share of transmission revenues, which add predictability to the company's cash flows. It also incorporates its adequate liquidity position and long debt amortization profile. Following the equity offering in June 2022, the company's leverage increased due to the consolidation of BRL20 billion in debt from Santo Antonio power plant through Eletrobras' subsidiary Furnas Centrais Eletricas S.A. and the recognition of about BRL40 billion in long-term concession liabilities, mainly the Energy Development Account (CDE) and the Sao Francisco river basin revitalization. Higher leverage would be compensated over time with the re-contracting of power generation capacity at substantially higher energy prices; however the current market conditions now indicate power prices 47% lower than what Moody's initially anticipated. As a result, Eletrobras' lower coverage ratio and higher indebtedness will likely take longer to revert. For the twelve months ended June 2023, Eletrobras' consolidated leverage, as measured by the cash flow from operations pre-working capital (CFO pre-WC) to net debt ratio and incorporating Moody's adjustments, reached 12.6%, down from 15.5% in the three-year average between 2020 and 2022. At the same time, the cash interest coverage has deteriorated to 2.0x from 2.6x. Moody's updated projections consider the CFO pre-WC to net debt around 10% through 2026, with interest coverage ranging from 2.0x to 2.3x. Previously, the rating case incorporated leverage staying around 17.5% and interest coverage at 2.6x. The ratings base case incorporates continuity in Eletrobras' strategic business plan, along with enhanced controls and other initiatives to support operating efficiency gains, leading to a recurring EBITDA around BRL17-20 billion per year in the projected period. It also considers the company maintaining a disciplined approach towards investments and dividends while pursuing other growth opportunities in the local market. The company's current budget already comprises BRL17 billion to be invested through 2027, on greenfield power and transmission projects and upgrades of existing facilities. As a government-related issuer, Eletrobras' Ba2 corporate family rating takes into consideration the application of Moody's Joint Default Analysis. This framework incorporates assumptions of high interdependence with the Government of Brazil (Ba2 stable), the controlling shareholder, and a moderate level of support. Following the capitalization in 2022, shareholders' voting power was limited to 10% as to maintain the company's status as a true corporation. Despite a decrease in influence on the board, the Brazilian government maintains its position as the largest individual shareholder, holding a 42.9% ownership interest in the company's total share capital. The affirmation of the Ba2 CFR considers Moody's view that the federal government will continue to provide support to the company if needed, given its significance as the primary electric company in Brazil, responsible for 22% of the country's generation capacity and 38% of the installed transmission lines. The stable outlook on Eletrobras' ratings follows the stable outlook on the Government of Brazil's Ba2 rating. It also incorporates Moody's view that the company's stand-alone credit profile will be maintained over the next 12 to 18 months, reflecting adequate liquidity and adequate debt maturity profile. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Eletrobras' CIS-3 considers a limited impact of ESG considerations on the current rating, with potential for future negative impact over time. This scores encompasses Moody's view on the company's current exposure to ESG risks and several management practices in place, which are integrated within its business strategy to mitigate potential risks in the future. Moody's assigns Eletrobras an E-3 rating primarily due to its exposure to physical climate risks, particularly in relation to extreme weather patterns. The company's minority stake on nuclear power plants also contributes to some exposure to waste and pollution risks. However, these risks are offset by a positive carbon transition exposure, as the company has minimal fossil fuel-fired generation. Social risk exposure S-3 reflects its susceptibility to social risk, which arises from the demographic and societal patterns that heighten public apprehension regarding affordability matters. This exposure may result in unfavorable regulatory political intervention, aligning with the prevailing conditions observed among other utilities in the Latin America region. These potential risks are counterbalanced by a modest level of vulnerability in areas such as health and safety, human resources, customer relations, and sustainable production. The G-3 governance score is primarily influenced by the company's current financial strategy and risk management, as well as its board structure, policies, and procedures. Additionally, it considers a assessment of adequate management credibility and track record. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade of Eletrobras' Ba2 rating would depend on a similar action on Moody's ratings on the government of Brazil. Quantitatively, positive rating pressure on the standalone credit profile would materialize if the CFO pre-WC to total net debt ratio stays above 20%, and the interest coverage ratio approaches 4.2x on sustained basis. A rating upgrade would also depend on the company maintaining an adequate liquidity profile. Negative rating pressure would increase if the company's financial policy shifts ecompassing higher risk for creditors, such as excessive dividend distributions, or signs of negative government or regulatory interference. From a quantitative standpoint, a rating downgrade will be considered if the CFO pre-WC to total net debt ratio falls consistently below 10% and the interest coverage ratio remains below 2.8x. Headquartered in Rio de Janeiro, Centrais Eletricas Brasileiras SA-Eletrobras is a holding company in which federal government has a 42.9% stake in the overall share capital. Eletrobras is the country's largest energy company with a total installed capacity of 43 gigawatts (GW), equivalent to 22% of Brazil's total power generation segment and interests on a total of 73,736 kilometers (km) high voltage transmission lines, equivalent to 38% of the country's electricity network. Investments are held under separate subsidiaries, being Furnas, Chesf and Eletronorte the largest ones. In the last twelve months ended June 30, 2023, the company's net revenues reached BRL35.5 billion, according to Moody's standard adjustments, of which 59% derived from the generation business and 40% from the transmission segment. The methodologies used in these ratings were Unregulated Utilities and Unregulated Power Companies published in May 2017. MINERVA SA: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed Minerva S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' and its senior unsecured notes rating, issued by the wholly off-shore Minerva Luxembourg S.A., at 'BB'. Fitch has also affirmed Minerva's Long-Term National Scale rating at 'AA+(bra)'. The Rating Outlook is Stable. These rating actions follow Minerva's announced intent to acquire several assets from Marfrig Global Foods S.A. (Marfrig) in Latin America, which will increase its production capacity by 40% and lower business risk by significantly strengthening its market position and geographic diversification. They also factor into consideration the possibility of a temporary increase in net leverage beyond the negative rating action trigger of 3.0x, as well as an expectation that this metric would drop below this threshold within 12 to 18 months. Minerva's credit ratings benefit from its high financial flexibility and forecast positive FCF, which are projected to allow it to meet this acquisition payment and rollover existing debt. KEY RATING DRIVERS Strengthening of Business Profile: Minerva and Marfrig signed share purchase and sale agreements on Aug. 28, 2023, in which Minerva will acquire from Marfrig 16 slaughtering assets and one distribution centre in Brazil, Argentina, Uruguay and Chile. Fitch views this acquisition as positive for the company's business profile as it strengthens its strategic market share and improves geographic diversification within the region, while preserving manageable leverage and liquidity profile. If this transaction is approved by authorities in these markets, Minerva would become the largest beef player in Latin America, increasing its exposure to international markets. The positive track record of integrating several assets places Minerva in a favorable position to face the material challenge to integrate such large acquisition. The acquired assets increase Minerva's slaughtering capacity by about 40%. Deleverage to Delay: The BRL7.5 billion acquisition of Marfrig's assets should delay Minerva's deleveraging trend. The issuer paid BRL1.5 billion at the time of the announcement, with the remaining BRL6.0 billion to be paid at the closing of the transaction, expected within the next 12 months. Minerva's net adjusted leverage should be close to 3.0x in 2023 and 2024, compared with 2.5x in the previous base case scenario for the ratings. In 2024, the debt increase to finance the acquisition, together with working capital and maintenance capex requirements, which is expected to be around BRL800 million, should be offset by the BRL1.5 billion incremental EBITDA coming from the new assets. Resilient Profitability Margins: Minerva's diversified footprint in Latin America and its export platform support its margin and lowers earnings volatility caused by changes in input costs and protein prices. Fitch forecasts Minerva's EBITDA margins to remain limited to 9% after the acquisition of the new assets, compared with 9%-10% previously projected (9.1% in the last twelve months ended on June 2023). The pace of margin expansion depends on the ability of Minerva to capture synergies from the acquired assets. The company has shown resilience in profitability over the last four years with an average EBITDA margin close to 9.5%-10.0%. DERIVATION SUMMARY Minerva's ratings reflect its solid business profile as a pure-player in the beef industry, with a large presence in South America and small presence in Australia. The ratings consider Minerva's lack of significant diversification across other proteins, making the company less diversified from a product standpoint than JBS S.A. (BBB-/Stable) or Tyson Foods (BBB/Stable). Minerva has developed a more export-oriented business model, whereas Marfrig Global Foods S.A. (BB+/Stable) has a strong presence in the U.S. domestic market through its subsidiary National Beef. Minerva is smaller than its peers, such as Marfrig, JBS or Tyson. From a financial standpoint, the ratings are supported by Minerva's strong liquidity position, with cash sufficient to amortize its debt through 2026 and good profitability for the sector due to exports. KEY ASSUMPTIONS - Revenue growth driven by volume growth and the ramp-up of the acquired assets; - Revenues of the recent acquired assets of BRL18 billion in 2024; - EBITDA to reach BRL3 billion in 2023 and BRL4.7 billion in 2024, proforma to the acquisition of Marfrig's assets; - Net debt/EBITDA steady at about 3.0x by YE23 and YE24. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Gross leverage to below 3.5x and interest coverage above 3.5x, respectively, on a sustained basis; - Sustainable positive FCF generation. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Gross leverage above 4.5x and net leverage above 3.0x on a sustainable basis; - Sharp contraction of Minerva's performance. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: Fitch considers Minerva's liquidity profile as strong, based on high cash position and ample access of diversified funding resources. Cash and cash equivalents were BRL6.2 billion and total debt was BRL14.2 billion, with BRL3.5 billion maturing in the short term as of June 2023. The acquisition is not expected to reduce Minerva's liquidity, given the company's track record of financial discipline when acquiring assets. Minerva has a BRL6.0 billion committed credit line with JP Morgan to finance the acquisition, but will have the challenge to manage the takeout of their bridge loan without pressuring liquidity. ISSUER PROFILE Minerva is the South American leader in beef exports, operating in the processing segment and selling its products to over 100 countries. Currently, the company has a daily slaughtering capacity of 29,350 heads of cattle. Present in Brazil, Paraguay, Argentina, Uruguay, Colombia and Australia, Minerva operates 29 slaughtering and deboning plants and three processing plants. ESG CONSIDERATIONS Minerva S.A. has an ESG Relevance Score of '4' for Governance Structure due to ownership concentration, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Minerva S.A. has an ESG Relevance Score of '4' for Waste & Hazardous Materials Management; Ecological Impacts due to land use and supply chain management as Minerva is exposed to cattle sourcing and needs to monitor direct and indirect suppliers in South America, which could expose Minerva as well the beef sector in general to export bans, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Minerva Luxembourg S.A. senior unsecured LT BB Affirmed BB Minerva S.A. LT IDR BB Affirmed BB LC LT IDR BB Affirmed BB Natl LT AA+(bra)Affirmed AA+(bra) =============== H O N D U R A S =============== TEGUCIGALPA: Fitch Affirms LongTerm IDRs at 'B', Outlook Stable --------------------------------------------------------------- Fitch Ratings has affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of Honduras' Alcaldia Municipal del Distrito Central, Tegucigalpa (AMDC) at 'B'. The Rating Outlook is Stable. In addition, Fitch has affirmed AMDC's Short-Term IDR at 'B'. The affirmation reflects Fitch's unchanged view that AMDC's operating performance and debt ratios will remain in line with 'B' rated peers over the medium term. The assessment also takes into account AMDC's capex trend that, if maintained, will need to be financed with new debt in the rating case scenario. AMDC's standalone credit profile (SCP) has been assessed at 'b+'. KEY RATING DRIVERS Risk Profile: Revised to 'Weaker' from 'Vulnerable' In accordance with Fitch's International Local and Regional Government (LRG) Rating Criteria, AMDC's Risk Profile has been reassessed at 'Weaker' due to a combination of three 'Midrange' (revenue robustness and expenditure sustainability and adjustability) and three 'Weaker' key rating factors (revenue adjustability, liabilities and liquidity robustness and flexibility). Fitch has reassessed the 'Revenue Robustness' Key Risk Factor to 'Midrange' from 'Weaker' due to low volatility and stable growth pattern on its own-revenue structure in tandem with negligible dependence on central government transfers (6.2% average 2014-2022). The 'Weaker' risk profile reflects Fitch's view that there is a high risk of the issuer's ability to cover debt service with the operating balance weakening unexpectedly over the scenario horizon (2023-2027) due to lower revenue, higher expenditure, or an unexpected rise in liabilities or debt-service requirements. It also reflects the weak institutional framework in which local and regional governments (LRGs) operate in Honduras. Revenue Robustness: Revised to 'Midrange' from 'Weaker' For 2018-2022, tax collection has remained fairly stable growing by 6.5% while nominal GDP grew by 7.8%. In 2022, tax collection grew by 21.1% in nominal terms, while operating revenue increased 8.8% versus 2021. In its rating case for a stressed economy, Fitch forecasts a nominal average increase in operating revenue around 8.6% in 2023-2027 driven by moderate economic growth prospects. AMDC's own revenues are correlated to political cycles and the implementation of tax relief programs; nonetheless, the city benefits from a stable and diversified tax and non-tax revenue structure that shows low correlation with the economic cycle. Own revenues represent 94.9% of its operating revenue at YE2022. AMDC is not reliant on government transfers, which account for a negligible 4.8% of total revenue. Revenue Adjustability: 'Weaker' AMDC's ability to generate additional revenue in response to possible economic downturns is limited. The city has formal tax-setting authority over several local taxes and fees that accounted for about 95.2% of total revenue in 2022. However, its affordability to raise revenue is constrained by the lower-middle income of residents by international standards and social-political sensitivity to tax increases. Expenditure Sustainability: 'Midrange' AMDC's main responsibilities are centered on providing public services (water services, waste collection, sewage, among other services) but not on providing health or education services, adding fiscal space. The city's control over operating expenditure is remarkable, with a track record of keeping spending growth (2.7%) below that of operating revenue (6.0%) for the period of 2018-2022, allowing for a stable operating margin of around 53.7% on average in 2018-2022. Overall, in comparison to 2021, opex increased 8.0% annually while operating balance grew 26.1% resulting in an operating margin at 57.1% of operating revenues. Expenditure Adjustability: 'Midrange' In its rating scenario, Fitch expects AMDC to continue to report large operating margins of 41.9%. Over the last three years, on average 40.0% of expenditure before debt service is capital outlays, keeping the share of inflexible expenditure below 70%, in line with the Midrange threshold for this factor. This represents a moderate flexibility to control and cut expenses in a scenario of lower revenues. AMDC's high investment program, with capex averaging 45.9% of total in 2018-2022, eased in 2022 reaching 33.1% of total expenditure. Fitch estimates that capex outlays will recover its trend by YE 2023, as of July 2023, capex is growing 39% y-o-y. Over the medium to longer term, high level of capex is necessary to maintain local attractiveness amid demographic pressures calling for more spending on infrastructure such as water distribution and roads. Liabilities and Liquidity Robustness: 'Weaker' Its assessment reflects the weak national framework for debt and liquidity management. Besides bank loans, there is no track record of capital market access for financing. The central government sets a public debt ceiling for LRGs. However, this can be waived if Honduras' Congress allows subnational governments to acquire new debt. Their direct long-term debt has fixed interest rates, and the maturity profile of this debt has no concentration risk; however, there is a weak national framework for debt and liquidity management. At YE 2022, direct debt totaled HNL5,522 million with no short-term bank loans. Average cost of debt is around 8.8%. Long- and short-term debt is paid through a trust mechanism that ensures timely debt service payments. All of AMDC's debt is with local commercial banks. As of July 2023, direct debt stood at HNL5,522 million, and there are no short-term bank loans registered. In its rating case, net adjusted debt is expected to increase towards HNL12,895 million by end-2027 underpinned by large infrastructure needs in sectors such as public transport, roads and water. Fitch assumes that the city's investment program will be maintained. Liabilities and Liquidity Flexibility: 'Weaker' AMDC's available liquidity is weaker with respect to payables (end-2022: 0.17x; average 2018-2022: 0.10x). In addition, the city has exhibited high concentration of counterparty risk on bank credit lines (bank ratings) below 'BBB' category, triggering a 'Weaker' assessment for this factor. Historically, local governments in Honduras prefer to tap bank loans rather than other funding options due to shallow capital markets. As of July 2023, AMDC had no outstanding short-term debt. Debt sustainability: 'a' category, unchanged AMDC's benefit from a stable fiscal performance with a sound operating margin above 50% supported by a low volatile own-revenue structure and an opex growth rate that has remained subdue. Its rating case envisages a progressive reduction of the operating margin towards 38%-46%, incorporating a larger increase in opex, underpinned by the need to strengthen the provision of public services, in comparison to operating revenue. Under Fitch's rating case scenario, AMDC's payback ratio (net adjusted debt to operating balance) is forecast at 7.7 years in its 2023-2027 projections; this is the primary metric of debt sustainability, and is assessed in the 'aa' category. Fitch overrides the primary metric by one rating category, to incorporate an actual debt service coverage ratio (operating balance to debt service) below 1.0x in its rating case. The overall final score for debt sustainability is 'a'. AMDC's net Fitch-adjusted debt is expected to reach HNL12,895 million by 2027, or 293% of revenue. Fitch estimates capex outlays of HNL2,251 million along the rating case scenario, largely funded by the city's own revenues and long-term debt. This assumption is underpinned in AMDC's large infrastructure needs. DERIVATION SUMMARY AMDC's SCP is assessed at 'b+', reflecting a combination of weaker risk profile and debt sustainability in the 'a' category. The notch-specific rating positioning factors in comparison with international peers, including Argentine, Turkish and Nigerian peers. Fitch factors in the credit quality of the sovereign but does not apply any asymmetric risk or extraordinary support from upper-tier government, which results in an IDR of 'B'. The short-term rating of 'B' is derived from AMDC's Long-Term IDR. KEY ASSUMPTIONS Qualitative assumptions: Risk Profile: 'Weaker' from 'Vulnerable' Revenue Robustness: 'Midrange' from 'Weaker' Revenue Adjustability: 'Weaker' Expenditure Sustainability: 'Midrange' Expenditure Adjustability: 'Midrange' Liabilities and Liquidity Robustness: 'Weaker' Liabilities and Liquidity Flexibility: 'Weaker' Debt sustainability: 'a' category Support (Budget Loans): 'N/A' Support (Ad Hoc): 'N/A' Asymmetric Risk: 'N/A' Sovereign credit quality: 'Yes' Sovereign Floor: 'N/A' Quantitative assumptions - Issuer Specific Fitch's rating case is a 'through-the-cycle' scenario, which incorporates a combination of revenue, cost and financial risk stresses. It is based on 2018-2022 figures and 2023-2027 projected ratios. The key assumptions for the scenario include: - Operating revenue growth 2022-2027: 8.6%, in tandem with nominal GDP growth; - Opex growth 2022-2027: 16.9%, considering the historical trend of operating margins and assuming higher growth in opex in comparison to that of operating revenue, underpinned by the need to strengthen the provision of public services; - Net capital expenditure (average per year): HNL2,228. Capex is expected to grow at least in line with inflation in the rating case, which is to be financed with operating margins and new debt. The starting amount for 2023 is the five-year average for 2018-2022. The city's large infrastructure needs and requirements underpinned this assumption. - Cost of debt for 2023-2027 at 9.3%; long-term debt has a fixed interest rate. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - The SCP could be raised if the debt sustainability score improves such that the payback ratio remains between 5x and 9x with an improved debt service coverage ratio between 2.0x and 4.0x and coupled with a fiscal debt burden between 50% and 100%; - Improvement in Fitch's internal assessment on the sovereign's credit quality, provided that AMDC maintains its debt sustainability metrics. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A sustained deterioration of the payback ratio above 9x due to a weakened operating balance; - An actual coverage ratio consistently below 1.0x; - If AMDC compares unfavorably with peers; - A lowering of Fitch's credit quality of the sovereign. LIQUIDITY AND DEBT STRUCTURE Fitch-adjusted debt include AMDC's direct debt at end-2022 of HNL5,522 million. Liquidity includes a HNL351.7 million of total cash, which Fitch deems as earmarked to offset payables. ISSUER PROFILE Tegucigalpa, AMDC is Honduras's capital city. With 1.1 million citizen, its GDP per capita is estimated to be 89% above Honduras USD3,528, but it is low by international standards. AMDC's economic structure is well diversified, fueled by public and private investment, which supports robust internally generated revenues. AMDC covers debt service with its operating balance. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch's net-adjusted debt corresponds to the difference between Fitch's adjusted debt and AMDC YE cash that Fitch views as unrestricted. Unrestricted cash is calculated as cash net of earmarked items or payables. Sources of Information The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Tegucigalpa, Alcaldia Municipal del Distrito Central LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B Affirmed B ============= J A M A I C A ============= JAMAICA: Cost of Manufacturing Outputs Decline ---------------------------------------------- RJR News reports that producers in the manufacturing industry saw a marginal decline in the cost of outputs. On an annual basis up to July, the Statistical Institute of Jamaica says the cost to produce goods in the manufacturing industry fell by 1.9 per cent, according to RJR News. This was mainly due to a 20.2 per cent decline in the cost of fuel, the report notes. But there were increases in the cost to produce for 'Food, Beverages & Tobacco', as well as 'Chemicals & Chemical Products,' the report relays. Output prices for producers in the month of July alone in the manufacturing industry increased by 0.6 per cent, the report says. The increase in the index for the manufacturing industry was mainly due to a 4.1 per cent rise in the cost of 'Refined Petroleum Products,' the report notes. About Jamaica Jamaica is an island country situated in the Caribbean Sea. Jamaica is an upper-middle income country with an economy heavily dependent on tourism. Other major sectors of the Jamaican economy include agriculture, mining, manufacturing, petroleum refining, financial and insurance services. Standard & Poor's credit rating for Jamaica stands at B+ with negative outlook (April 2020). Moody's credit rating for Jamaica was last set at B2 with stable outlook (December 2019). Fitch's credit rating for Jamaica was last reported at B+ with stable outlook (April 2020). In March 2022, Fitch Ratings 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 ===================== PUERTO RICO: BlackRock Deal Will Cut Debt by 75% ------------------------------------------------ Michelle Kaske of Bloomberg News reports that Puerto Rico's bankrupt power utility has reached a deal with BlackRock Financial Management and Nuveen Asset Management to slash its debt load by about 75%, even as other creditors have said they oppose the accord. The island's federally-appointed financial oversight board, which is managing Puerto Rico Electric Power Authority's bankruptcy, struck the agreement with a new group of investors holding $2.4 billion of utility debt including BlackRock, Nuveen, Franklin Advisers, Taconic Capital Advisors and Whitebox Advisors. The deal aims to reduce combined claims of $10 billion down to about $2.5 billion of new bonds. 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. =============== X X X X X X X X =============== [*] Caribbean Economies at a Crossroads --------------------------------------- A new report from the Inter-American Development Bank (IDB) highlights the progress in economic recovery in most Caribbean economies, despite persistent external shocks, but it warns that risks remain in the near-term. Global and Regional Economies at a Crossroads notes that tourism-oriented economies have recovered more rapidly than expected from the sharp pandemic-induced contraction of 2020. Commodity prices have declined, though they remain above pre-pandemic levels, with persistent negative effects on households across the region, while at the same time buoying macroeconomic prospects for commodity exporters. The global economy is characterized by softening growth combined with lingering above-average inflation, as noted in the spring edition of the IMF's World Economic Outlook. The IMF's Regional Economic Outlook for the Western Hemisphere, titled "slower growth, stubborn inflation." The IDB Macro Report earlier this year called for "preparing the macroeconomic terrain for renewed growth" as Latin America and the Caribbean face the triple threat of social, fiscal and growth challenges. The Caribbean is at a crossroads in addressing these challenges as well. The key findings of the report: After the economic recovery of 2021 and 2022, key forecasters expect a global economic slowdown in 2023, driven mostly by expected lower growth in advanced economies. That said, those advanced economies remain the key drivers of demand for Caribbean tourism exports as well as commodity prices. Regional economies have grown faster than the global economy, recovering from a deeper shock, but growth rates are likely to converge to pre-pandemic levels unless there are significant structural changes to enhance productivity, as noted in other editions of this periodical. In the near-term, key macroeconomic risks and economic growth opportunities remain relevant. Risks include external shocks from commodity prices, a potential synchronized downturn in advanced economies and external financing conditions. Emerging opportunities include near-shoring (especially for global services), a renewed impetus for regional integration (especially for agriculture), and strengthening of existing lead sectors, with a focus on environmental sustainability and green energy. Government and private sector responses to take advantage of emerging opportunities can steer economies onto the high path in the current crossroads, with superior economic growth than what was experienced pre-pandemic. Country circumstances vary substantially, as noted in the country sections of this report. Some countries' (The Bahamas and Jamaica) tourism sectors have recovered more rapidly than others (Barbados), and there is the hydrocarbon-fueled extraordinary growth of Guyana that dwarfs the economic growth of all countries in the Western Hemisphere. Key risks and opportunities also vary across countries, and these are analyzed in the country sections of the report. "Government and private sector responses to take advantage of emerging opportunities can steer economies onto the high path in the current crossroads, with superior economic growth than what was experienced pre-pandemic. Continued efforts to mitigate risks through macroeconomic policy strengthening continue to be a key enabler for future investment and innovation." said David Rosenblatt, the Regional Economic Advisor for the IDB's Caribbean Department. Global and Regional Economies at a Crossroads is part of the IDB's Caribbean Economics Quarterly series. In addition to a regional overview section, it has country-specific sections for The Bahamas, Barbados, Guyana, Jamaica Suriname, and Trinidad and Tobago. ********* 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. 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