/raid1/www/Hosts/bankrupt/TCRLA_Public/230908.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, September 8, 2023, Vol. 24, No. 181
Headlines
B R A Z I L
BRAZIL: Lula Tightens Grip on Politics as Economy Defies Odds
BRAZIL: Reports Sharp Increase in Deficit in July
COMPANHIA SIDERURGICA: Fitch Affirms BB LongTerm IDR, Outlook Pos.
JSL SA: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
MOVIDA PARTICIPACOES: Fitch Affirms BB LongTerm IDR, Outlook Stable
SIMPAR SA: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
VIA: Taps Banks for Potential $205 Million Share Offering
M E X I C O
ALSEA SAB DE CV: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
P E R U
HUNT OIL: Moody's Affirms Ba1 CFR & Rates $450MM Unsec. Notes Ba1
P U E R T O R I C O
BANCO SAN JUAN: NY Fed Defends Cutoff of Bank After Crackdown
GRUPO HIMA: Court Directs U.S. Trustee to Appoint PCO
GRUPO HIMA: Hires Pietrantoni Mendez as Special Counsel
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B R A Z I L
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BRAZIL: Lula Tightens Grip on Politics as Economy Defies Odds
-------------------------------------------------------------
Richard Mann at Buenos Aires Times reports just six months ago,
grim warnings about Brazil's economy were looming over Luiz Inacio
Lula da Silva's pledge to restore the prosperity he oversaw during
his previous presidency.
But now with the first half of the year under his belt, the economy
that soared on his watch two decades ago is once again defying the
odds, according to Buenos Aires Times.
Official data released showed gross domestic product expanded 0.9
percent in the April-June period from the previous quarter, three
times more than expected by economists surveyed by Bloomberg,
Buenos Aires Times notes. That's the second straight period of
solid growth, and many analysts see the economy outperforming at
least through December despite headwinds, Buenos Aires Times
relays.
Lula is "stronger today than when he assumed office" on January 1,
said Christopher Garman, managing director at political risk
consultancy Eurasia Group, Buenos Aires Times discloses. "We've had
positive shock which means Lula is going to be much stronger for
much longer than we were handicapping for."
At the start of 2023, economists braced for sluggish growth as
steep borrowing costs and above-target inflation chipped away at
consumers' spending power, Buenos Aires Times relays. Investors
fretted that ambitious plans to fight poverty would overburden
Brazil with debt, Buenos Aires Times says. And the leftist leader
was staring down a divided congress and an emboldened opposition
whose most radical supporters stormed congress mere days after his
inauguration, Buenos Aires Times notes.
Fast forward to September: Lula's approval rating is touching 60
percent, major banks have raised their 2023 GDP forecasts, with
Bank of America Corp betting on an expansion of three percent -
over three times the rate most analysts were calling for in January
- and Fitch Ratings has upgraded Brazil on the government's
spending reform progress, Buenos Aires Times says.
To be fair, not all sectors are benefiting equally, Buenos Aires
Times notes. Key industries like manufacturing have wobbled from
tight financial conditions and lack of investment even as overall
growth powered forward, Buenos Aires Times says. Much of the bump
wasn't of Lula's making either, Brazil's massive agriculture sector
saw strong harvests in the first quarter, inflation cooled on tight
central bank policy while the labor market stayed surprisingly
strong, Buenos Aires Times discloses.
In the second quarter, industry gained 0.9 percent on a strong
performance in extractive sectors like mining while services grew
0.6 percent, representing the top drivers of the period, Buenos
Aires Times relays. Meanwhile agriculture contracted 0.9 percent
after seeing a major jump in the previous three months, the
statistics agency said, Buenos Aires Times says.
Brazil's benchmark stock exchange, the Ibovespa, opened on the
green on Sept. 1 after stronger than expected GDP data, rising 1.6
percent in Sao Paulo in morning trading, Buenos Aires Times notes.
The index was boosted by materials and consumer discretionary
stocks, while the real gained 0.4 percent against the dollar,
Buenos Aires Times relays.
The Brazilian president welcomed the economic data, but said the
gains "needed to be distributed" among the population, Buenos Aires
Times notes.
Lula has so far managed to defy naysayers and please supporters who
voted him back into office on hopes he'd resurrect the glory days.
On the campaign trail last year, fans donned red caps with white
stitched letters that read: "Make Brazil 2002 Again." It was a
throwback to when he was first elected president, Buenos Aires
Times discloses.
During his 2003-2010 administration, the now 77-year-old head of
state oversaw a commodities-fuelled economic renaissance that
pulled millions of people into the ranks of the middle class,
Buenos Aires Times relays. When he left office, he was by far
Brazil's most popular leader since the end of military
dictatorship, Buenos Aires Times notes.
Popularity Soars
According to Buenos Aires Times, the economy's current performance
is still short of that boom. Even so, Lula is reaping the benefits
with supporters and detractors alike, the report discloses.
Between April and August, Lula's approval rating rose 9 percentage
points to 60 percent, according to the pollster Quaest, Buenos
Aires Times relays. It also jumped to 50 percent or above among
conservative demographics that largely opposed him during last
year's election, including evangelicals and residents of the
wealthy south of Brazil, Buenos Aires Times notes.
That's almost double the ratings Lula's ideological allies are
getting elsewhere in South America, Buenos Aires Times discloses.
After winning elections on mandates for change, Chile's Gabriel
Boric and Colombia's Gustavo Petro are both mired in economic
slumps, struggling to advance their agenda and polling in the low
30s, Buenos Aires Times relays.
"Lula has chosen to debate the economy and its effects," said
Felipe Nunes, the director of Quaest. He "is neutralizing the
divisive aftermath of the election and opening space to conquer
part of the opposition," Buenos Aires Times notes.
A bitterly fought race against former president Jair Bolsonaro
culminated in Lula's victory with the slimmest margin in Brazil's
modern history, Buenos Aires Times notes. The right-wing leader's
refusal to explicitly recognise his loss, combined with false
claims he spread about voter fraud, fanned the rage of Bolsonaro
backers who rioted in Brasilia on Jan. 8, recounts Buenos Aires
Times.
In his third term, Lula has concerned himself more with budgetary
matters and rewriting Brazil's byzantine tax code than with his
predecessor's legacy, Buenos Aires Times discloses. Most of Lula's
public bouts of anger have been directed not at Bolsonaro, but
rather his central bank chief for resisting calls for looser
monetary policy, Buenos Aires Times relays.
The fracas shook financial markets, but the central bank since
began easing its key rate in August, which should boost growth
further on and may also serve to soothe Lula, Buenos Aires Times
notes.
Investors have also found an unlikely ally in Lula's Finance
Minister Fernando Haddad, notes the report. The longtime confidant
of the president is credited with striking a balance between the
market's concerns and demands of the ruling Partido dos
Trabalhadores (Workers' Party, PT), Buenos Aires Times says. Lula
signed a major fiscal reform into law.
Garman, the political risk analyst, says Lula's popularity is
strengthening his hand in congress, and the passage of key parts of
his economic agenda could help growth in the mid-term, Buenos Aires
Times notes.
"It creates a positive feedback loop that generates the conditions
for an economic rebound in the second half of next year," he
added.
Brazil is still facing plenty of challenges. Its dominant trade
partner, China, is in an economic slowdown. Interest rates in the
US are expected to stay higher for longer, which could weigh on
monetary policy locally. The long process of turning Lula's reforms
into laws is also likely to take toll on his popularity, Buenos
Aires Times notes.
For now at least, Lula seems vindicated when he declared "Brazil is
back" after getting elected last year. Looking at the economic
data, it's hard to prove him wrong, Buenos Aires Times 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: Reports Sharp Increase in Deficit in July
-------------------------------------------------
Richard Mann at Rio Times Online reports that Brazil saw a
significant rise in its deficit in July.
The country reported a primary minus of BRL35.9 billion (US$7
billion), compared to a surplus of BRL18.9 billion during the same
period last year, according to Rio Times Online.
The report, released by the National Treasury, showed that between
January and July 2023, the total deficit was BRL78.2 billion, or
1.3% of the GDP, 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).
COMPANHIA SIDERURGICA: Fitch Affirms BB LongTerm IDR, Outlook Pos.
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Fitch Ratings has affirmed Companhia Siderurgica Nacional's (CSN)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB', and National Long-Term ratings at 'AAA(bra)'. Fitch has
also affirmed CSN Inova Ventures' and CSN Resources S.A.'s senior
unsecured notes, which are guaranteed by CSN, at 'BB'/RR4', and CSN
Mineracao S.A. National Long-Term ratings and senior unsecured
notes at 'AAA(bra)'. The Rating Outlooks for the IDRs is Positive,
and the Outlook for the National Scale Ratings is Stable.
The Positive Outlook reflects Fitch's expectation of continued
improvement in CSN's business risk profile with recent acquisitions
supporting cash flow diversification, which along with alternative
measures to enhance capital structure could boost CSN's ratings.
The ratings reflect the scale and cost competitiveness of CSN's
vertically integrated iron ore and flat steel operations in Brazil,
and its growing presence in the Brazilian cement and energy
sectors. CSN remains with the task of effectively reducing gross
and net debt basis while optimizing shareholder returns.
KEY RATING DRIVERS
Diversifying Business Position: CSN's business position as a
low-cost integrated steelmaker remains solid, underpinned by
captive access to raw materials (iron ore/energy), high value-added
portfolio of products and an important share in the flat steel
industry in Brazil. The company has a diversified portfolio of
assets with operations in the mining, steel, energy, cement and
interests in railways and ports operations. Fitch forecasts that
the mining and steel making businesses contribution to EBITDA
generation will decrease to 77% in 2023 and 64% in 2024 from 86% in
2022 as the participation of the cement and energy divisions grows
and diversifies CSN's cash flow generation.
Capital Allocation to Drive FCF Trend: The weakening of iron ore
and steel operating cash flows is expected to be partially
mitigated by the increasing business diversification, and CSN`s
decisions on investment plans and dividend distribution will be key
for FCF trends. Fitch projects CSN will generate BRL11.7 billion of
EBITDA and -BRL1.9 billion of FCF during 2023 after spending BRL4.4
billion on capex and BRL3.5 billion in dividends. CSN obtained
BRL13.9 billion of EBITDA and FCF of -BRL5.1 billion in 2022. CSN's
track record of opportunistic acquisitions may affect capital
allocation in the short term.
Manageable Leverage Burden: Fitch forecasts CSN will end 2023 with
a gross and net debt/EBITDA ratio of 3.7x and 2.8x, which compares
with 3.1x and 2.2x during 2022 and average of 2.7x and 1.9x during
the last three years. These ratios are expected to improve slightly
to about 3.3x for gross, and 2.7x for net leverage in the rating
horizon as lower iron ore prices will meet new mining production
coming from the Itabirito plant projects, and stronger results from
CSN's steel, cement and energy divisions. Partial sales of CSN
Cimentos or the energy business in an IPO or in a transaction with
a strategic partner would be alternatives to further enhance
capital structure.
Higher Iron Ore Activity: The Chinese reopening caused iron prices
to hover around USD118/ton in 1H23. However, lower than expected
shipments and expected steel production cuts in China and fewer
weather-related supply disruptions in Brazil and Australia reduced
prices. Fitch expects prices to fall in 2023 for a yearly
USD105/ton average, and follow a multiyear downtrend through 2026
to USD70/ton. Fitch forecasts 40 million tons of iron ore to be
sold in 2023 as the Central Plant enters full operation. These
volumes are 22% higher than 2022, when heavy rain affected output.
Softening Steel Environment: Fitch forecasts CSN's steel volumes
sold will decrease 2% and that domestic prices will fall by 13% in
2023. The Brazil Steel Institute registered an 0.5% decrease in
apparent consumption in January 2023-July 2023 relative to the same
period of a year ago. The fall in prices follows the temperance of
raw material costs, the reconnection of global supply chains after
the pandemic-related disruption and a higher steel imports
penetration rate of 17% into Brazil until July from 12.8% a year
prior. Fitch expects CSN's EBITDA/ton of nearly USD135 in 2023.
Consolidated Approach: Fitch applies its Parent and Subsidiary
Rating Linkage criteria to CSN Cimentos, CSN Mineracao and their
parent, CSN. The parent is stronger than the subsidiary and legal
incentives for support are assessed as medium, as the presence of
cross acceleration clauses in CSN Cimentos and CSN Mineracao
mitigate the absence of corporate guarantees from CSN.
Fitch deems strategic incentives for support as high, as the
integration into iron ore bolsters CSN's steel business cost
advantage, and because Fitch expects the cement business
contribution to CSN's EBITDA to increase to 13% from about 9% in
the near term. CSN's LafargeHolcim's 10.3 million tons of cement
capacity acquisition made CSN Cimentos the third largest cement
producer in Brazil. The integration of these assets and any likely
corporate restructuring of the cement operations are already
incorporated in the analysis. Synergies exist between the iron ore,
steel and cement businesses, and management and strategies are
fully integrated, with both companies closely sharing reputational
risks.
DERIVATION SUMMARY
CSN's more integrated business profile and diversified portfolio of
assets compare well with Usinas Siderurgicas de Minas Gerais S.A.'s
(BB/Stable). Both issuers are highly exposed to the local steel
industry in Brazil. CSN and Usiminas show weaker business positions
than Brazilian steel producer Gerdau S.A (BBB/Stable), which has a
diversified footprint of operations with important operating cash
flow generated from its assets abroad, mainly in the U.S., and
flexible business model (mini-mills) that allow it to better
withstand economic and commodities cycles.
Among the three business steel producers, Gerdau has consistently
maintained the strongest balance sheet, most manageable debt
amortization schedule, and has consistently made efforts to improve
its capital structure through assets sales or equity issuances.
Gross debt levels at CSN remain high relative to Gerdau and
Usiminas. CSN also has a more challenging debt amortization
schedule than either Usiminas or Gerdau.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within The Rating Case for the Issuer:
- Benchmark iron ore prices average USD105/ton in 2023, USD85/ton
in 2024 and USD75/ton in 2025;
- Iron ore volumes expand by 22% in 2023 to 40 million tons, remain
flat in 2024 and grow 5% in 2025;
- Iron ore EBITDA/ton at USD30 in 2023, USD22 in 2024, and USD17 in
2025;
- Steel volumes decrease 2% to 4.3 million tons in 2023 and stay
flat in 2024 and 2025;
- Steel EBITDA/ton at USD135 in 2023, USD140 in 2024 and USD153 in
2025;
- Cement volumes grow 60% to 11.5 million tons in 2023 and grow 22%
in 2024 and 7% in 2025;
- Cement EBITDA/ton at BRL95 in 2023, BRL112 in 2024 and BRL115 in
2025;
- Capex reaches BRL4.4 billion in 2023, BRL5 billion in 2024 and
BRL5.5 billion in 2025;
- An exchange rate of BRL5.10/USD1.00 at YE 2023, BRL5.20 in 2024
and BRL5.25 in 2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Additional asset sales in order to support gross debt reduction;
- Improved debt amortization schedule;
- Sustained adjusted total debt/EBITDA ratio below 3.5x and/or
adjusted net debt/EBITDA ratio below 2.5x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Large debt funded acquisitions;
- Increased pressure from main shareholder's on dividend payments;
- Sustained adjusted total debt/EBITDA ratio above 4.5x and/or
adjusted net debt/EBITDA ratio above 3.5x;
- Adverse regulatory changes in Brazil's mining industry.
LIQUIDITY AND DEBT STRUCTURE
Continued Refinancing: CSN had BRL46.9 billion (USD9.7 billion) of
Fitch adjusted total debt as of June 30, 2023. Fitch's debt figure
includes BRL5.3 billion of advances received from Glencore for a 33
million tons iron ore supply contract and excludes lease related
debt from its adjustments. Capital markets debt represents 52% of
the Fitch adjusted debt total, while banks account for 29% of debt,
the Glencore advance represents about 11% of debt and Export Credit
Agencies agreements, about 7%.
CSN holds a track record of keeping robust cash balances but
remains challenged by optimizing exposure risks to local banks and
capital markets. Fitch estimates that CSN has about BRL10 billion
to be refinanced by 2025.
Including the Glencore debt, approximately 60% of the company's
debt is denominated in U.S. dollars or euros. CSN has about BRL2.7
billion of debt due during 2023 and an average of BRL5.2 billion in
2024-2026. About 70% of these maturities are comprised of bank
debt.
Readily available cash and marketable securities reached BRL11.9
billion (USD2.5 billion) as of June 30, 2023. CSN holds
approximately 55 million Usiminas preferred shares and 107 million
ordinary shares not included in the readily available cash measure
because Fitch excludes equity holdings from marketable securities.
ISSUER PROFILE
CSN is an integrated high value-added steelmaker with a large
market share in the Brazilian flat steels market and presence in
Germany, the U.S. and Portugal. CSN is the second largest iron ore
exporter of Brazil.
ESG CONSIDERATIONS
Companhia Siderurgica Nacional (CSN) has an ESG Relevance Score of
'4' for Governance Structure due to key person risk and limited
board independence through a single powerful shareholder, which has
a negative impact on the credit profile, and is relevant to the
rating[s] 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 Recovery Prior
----------- ------ -------- -----
Companhia
Siderurgica
Nacional (CSN) LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
CSN Mineracao
S.A. Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
CSN Inova
Ventures
senior
unsecured LT BB Affirmed RR4 BB
CSN Resources
S.A.
senior
unsecured LT BB Affirmed RR4 BB
JSL SA: Fitch Affirms LongTerm IDRs at 'BB', Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed JSL S.A.'s (JSL) Long-Term Foreign
Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs)
at 'BB' and its Long-Term National Scale Rating at 'AAA(bra)'.
Fitch has also affirmed JSL senior unsecured debentures at
'AAA(bra)'. The Rating Outlook for the corporate ratings is
Stable.
Fitch equalizes the ratings of JSL and Simpar S.A. (Simpar, FC and
LC IDR BB/Stable), reflecting the medium legal and strong
operational and strategic incentives that the holding has to
support JSL, if needed.
Simpar's 'BB' IDRs reflect its large scale, robust business profile
and strong competitive position within the Brazilian rental and
logistics industry. Simpar group benefits from a diversified
service portfolio and long-term contracts for a significant part of
its revenues, with a solid and resilient operating performance. The
ratings also incorporate the group's ample financial flexibility
and the expectation that EBITDA expansion and lower capex levels
will lead to a gradual and consistent leverage reduction. Fitch
considers that there is limited room for frustration on expected
cash generation, capex and more meaningful acquisitions without
pressuring the ratings.
On a standalone basis, JSL has a strong business profile as a
result of its robust scale, diversified portfolio of services,
resilient profitability, and leadership position in the Brazilian
road logistics and dedicated services segments, where it has
experienced rapid growth - both organic and via acquisitions. JSL
consolidated financial leverage should remain moderate, despite of
expected negative FCFs, as the company improves EBITDA generation.
The company has consistent access to funding and wealthy liquidity,
allowing it to properly manage its debt amortization schedule.
KEY RATING DRIVERS
Parent and Subsidiary Linkage: JSL's ratings reflect Simpar's
medium legal and strong operational and strategic incentives to
support its subsidiary, which equalize the ratings of both
companies. In addition to the cross-default clauses on Simpar's
debt and the relevant shareholding control, JSL has strong growth
potential and important commercial synergies, which contributes to
the group's greater bargaining power with customers, suppliers and
in vehicle purchases. Additionally, Simpar's controlling
shareholders and its managers form the majority of JSL's board of
directors.
Strong Business Profile: JSL's strong business profile is a result
of its robust scale in the fragmented and competitive outbound
logistics market (FTL) in Brazil - a segment with relatively low
capital intensity, average business risk, strongly correlated with
the economic cycle and with few barriers to entry. The company also
benefits from its broad service portfolio, its diversified customer
base and a relevant presence at inbound logistics, a more
capital-intensive segment, where the strategic and operational
nature of the services provided and the medium to long-term
contracts mitigate its exposure to more volatile economic cycles.
JSL's robust scale provides greater bargain purchase power to buy
assets for the inbound segment and in the routing of its outbound
activities.
Negative FCF: JSL's should increase its EBITDA generation as a
result of organic growth, not considering any potential new
acquisition. Fitch's rating case scenario considers EBITDA at
BRL1.4 billion in 2013 and BRL1.8 billion in 2024, versus BRL946
million in 2022 and BRL1.3 billion in the LTM period ended on June
2023. EBITDA margins should average 19% on rating horizon, slightly
better than the 17% average between 2019 and 2022. Fitch projects
negative FCFs around BRL1 billion in 2023 and BRL630 million in
2024 as a result of high capex averaging BRL1.6 billion in the same
period.
Moderate Leverage: Fitch's base case scenario considers that the
net adjusted debt/EBITDA should decline to level below 3.5x.
Several acquisitions and substantial capex pressured JSL's
leverage, which is predominantly asset light, in a scenario of high
interest rates and spreads. JSL's net debt/EBITDA was 4.0x in 2022
and 3.6x in the LTM ended on June 2023.
DERIVATION SUMMARY
Simpar's business profile is above that of Localiza Rent a Car S.A.
(Localiza; FC and LC IDR BB+/Stable), and much stronger than that
of Unidas Locacoes e Servicos S.A. (Unidas; FC and LC IDRs
BB-/Stable). Compared with Localiza, Simpar has similar scale, a
much more diversified service portfolio but a weaker financial
profile - with higher leverage and more pressured FCF. Compared
with Unidas, Simpar has a much stronger business profile, higher
liquidity, better access to credit market and similar leverage.
Compared to CEMEX, S.A.B. de CV. (LC and FC BB+/Positive), Simpar
has a more diversified business profile, higher profitability, less
volatile cash flow generation and a more liquid/tradable asset
base. On the other hand, Cemex has higher scale, a historic of
positive cash flow generation and slightly lower leverage on the
rating horizon.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenue growth of 32% in 2023, 24% in 2024 and 15% in 2025;
- EBITDA margin averaging 19% between 2023 and 2025;
- Total capex of BRL1.6 billion, on average, between 2023 and
2025;
- Dividends payout at 30%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Upgrade on Simpar's ratings.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Downgrade of Simpar's ratings;
- Deterioration of Simpar's legal, strategic and operational
incentives to provide support.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: JSL's adequate liquidity and access to capital
markets help the company to manage its well spread debt
amortization schedule and expected negative FCFs. JSL's cash to
short-term debt ratio has been 2.6x, on average, during the last
three years. JSL had BRL759 million of cash and equivalents and
BRL5.6 billion of total debt (17% unsecured), with BRL586 million
due in the short term (1.3x cash/short-term debt) and an additional
BRL755 million in the second half of 2024 and BRL1.2 billion in
2025 as of June 2023. The company's debt profile is mainly
comprised of local debentures and promissory notes (33%) and bank
loans (55%).
ISSUER PROFILE
JSL is the largest integrated road logistics company in Brazil,
operating outbound and inbound logistics, serving corporate clients
in Brazil, Mercosul and South Africa. JSL is publicly traded on B3
S.A. - Brasil, Bolsa, Balcão - with a free float of 22.1%, having
Simpar (71.9%) as its main shareholder.
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
----------- ------ -----
JSL S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
MOVIDA PARTICIPACOES: Fitch Affirms BB LongTerm IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed Movida Participações S.A.'s (Movida)
Long-Term Foreign Currency (FC) and Local Currency (LC) Issuer
Default Ratings (IDRs) at 'BB' and Movida Locacoes de Veículos
S.A. (Movida Locacao) and Movida Long-Term National Scale Ratings
at 'AAA(bra)'. At the same time, Fitch has affirmed the senior
unsecured bond issuance of Movida Europe at 'BB'. The Outlook for
the corporate ratings is Stable.
Fitch equalizes the ratings of Movida and Simpar S.A. (Simpar, FC
and LC IDR BB/Stable), reflecting the medium legal and strong
operational and strategic incentives that the holding has to
support Movida, if needed. Movida and Movida Locacao's ratings are
also equalized due to Movida' strong incentives to support its
subsidiary.
Simpar's 'BB' IDRs reflect its large scale, robust business profile
and strong competitive position within the Brazilian rental and
logistics industry. Simpar group benefits from a diversified
service portfolio and long-term contracts for a significant part of
its revenues, with a solid and resilient operating performance. The
ratings also incorporate the group's ample financial flexibility
and the expectation that EBITDA expansion and lower capex levels
will lead to a gradual and consistent leverage reduction. Fitch
considers that there is limited room for frustration on expected
cash generation, capex and more meaningful acquisitions without
pressuring the ratings.
On a standalone basis, Movida has a solid position in the
competitive Brazilian car and fleet rental business, with relevant
scale and positive operating performance. Movida's consolidated
financial leverage should remain moderate, despite of expected
negative FCFs after 2023. The company has consistent access to
funding and significant liquidity, allowing it to properly manage
its debt amortization schedule.
KEY RATING DRIVERS
Parent and Subsidiary Linkage: Movida's ratings reflect Simpar's
medium legal and strong operational and strategic incentives to
support its subsidiary, which equalize the ratings of the two
companies. In addition to the cross-default clauses on Simpar's
debt and the relevant shareholding control, Movida has strong
growth potential and important commercial synergies, which
contributes to the group's greater bargaining power with customers,
suppliers and in vehicle purchases. Additionally, Simpar's
controlling shareholders and its managers form the majority of
Movida's board of directors.
Solid Business Position: As the second largest player in the car
and fleet rental industry in Brazil, Movida has a strong business
position, supported by its relevant scale, positive operating
performance, a national footprint and an adequate used car sale
operation. As of June 2023, Movida's total fleet of 204 thousand
vehicles, consisting of 90 thousand in rent-a-car (RaC) and 114
thousand in fleet management (GTF), secured meaningful market
shares both in RaC and GTF. As a result, the company has proven
bargaining power with automobile manufacturers and is able to
capture economies of scale. At year-end 2023 and 2024, Fitch
forecasts Movida's own total fleet at around 215 thousand and 224
thousand vehicles, respectively.
Resilient Operating Performance: Movida's EBITDA should grow
gradually based on organic growth, resilient rental margins and
adequate used car sales. Balanced demand and supply dynamics allow
adequate rental rates, resulting in a return on invested capital
(ROIC) spread in line with historic levels. The rating scenario
considers Movida´s total revenues around BRL10.8 billion (31%
EBITDA margin) in 2023 and BRL11 billion (33% EBITDA margin) in
2024, comparing with BRL9.6 billion (35% margin) in 2022 and
BRL10.5 billion (32% margin) in the LTM ended on June 2023.
Less Pressured FCFs: Movida's CFO, which considers fleet renewal
capex, should be at BRL800 million in 2023 and BRL670 million in
2024, facing lower growth capex of around BRL400 million and BRL1
billion, respectively, and annual dividends of approximately BRL170
million. As a result, Fitch forecasts positive FCF of BRL200
million in 2023 and an average of negative BRL1.2 billion over the
next three years, considered manageable due to the company's
adequate financial flexibility.
Moderate Leverage: Fitch's base case scenario considers that net
adjusted debt/EBITDA should range from 3.5x to 3.7x. Actual growth
capex of BRL4.0 billion in 2022 versus the forecast BRL2.2 billion
lead to consolidated net leverage of 3.7x in 2022 and 3.8x in the
last twelve months (LTM) ended on June 2023, comparing with an
average of 3.2x from 2019 to 2021. High interest rates, high credit
spreads and a mild economic activity challenge Movida to find a
faster deleveraging path, which would also require lower growth.
The company's recent efforts to reduce its total debt (debt buys
back/tender offers) are positive to the extent that they may
benefit Movida's overall cost of capital and cash flow from
operations (CFO), ultimately supporting the company's leverage
reduction.
Capital Intensive Industry: The capital-intensive nature of the
rental industry, which demands sizable and regular investments to
grow and renew the fleet, pressures the financial profile of the
companies in the sector during strong expansion periods. Therefore,
lower funding costs and strong access to credit markets are key
competitive advantages. On the other hand, the business model
allows the companies to postpone fleet renewal and adjust its size,
if needed.
DERIVATION SUMMARY
Simpar's business profile is above that of Localiza Rent a Car S.A.
(Localiza; FC and LC IDR BB+/Stable), and much stronger than that
of Unidas Locacoes e Servicos S/A (Unidas; FC and LC IDRs
BB-/Stable). Compared with Localiza, Simpar has similar scale, a
much more diversified service portfolio but a weaker financial
profile, with higher leverage and more pressured FCF. Compared with
Ouro Verde, Simpar has a much stronger business profile, higher
liquidity, better access to the credit market and similar
leverage.
KEY ASSUMPTIONS
- Total fleet decreasing 4% in 2023 and increasing 6% on average on
the next three years;
- Average ticket for RaC increasing 3% in 2023 and 2024;
- Average ticket for GTF increasing 14% in 2023 and 8% in 2024;
- Growth capex of around BRL400 million in 2023 and BRL1 billion in
2024;
- Dividend payout around 30% throughout the rating horizon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Upgrade on Simpar's ratings.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Downgrade of Simpar's ratings;
- Deterioration of Simpar's legal, strategic and operational
incentives to provide support.
LIQUIDITY AND DEBT STRUCTURE
Robust Liquidity: Movida presents a robust liquidity position,
proven access to capital markets and a well spread debt
amortization schedule. The issuer's cash to short-term debt ratio
has been 3.2x on average during the last three years. Movida had
BRL2.6 billion of cash and equivalents and BRL15 billion of total
debt (95%+ unsecured), with BRL1.6 billion due in the short term,
an additional BRL526 million in the second half of 2024 and BRL2.8
billion in 2025.
Movida's debt profile is mainly comprised of local debentures and
promissory notes (58%), bank loans (22%) and the fully hedged U.S.
dollar denominated bonds due 2031 (14%). The company's ability to
postpone growth capex to adjust to the economic cycle and the
considerable number of the group's unencumbered assets, with a book
value of fleet over net debt at around 1.3x, add to its financial
flexibility.
ISSUER PROFILE
Movida is the second largest vehicle and fleet rental company in
Brazil, both in terms of fleet size and revenue, and also operates
in the sale of used vehicles. The company is publicly traded, with
shares traded on B3 and a free float of 36.81%, with Simpar
(63.03%) being the main shareholder.
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
----------- ------ -----
Movida Europe
senior
unsecured LT BB Affirmed BB
Movida Locacao
de Veiculos S.A. Natl LT AAA(bra) Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra) Affirmed AAA(bra)
senior secured Natl LT AAA(bra) Affirmed AAA(bra)
Movida
Participacoes S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra) Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra) Affirmed AAA(bra)
senior secured Natl LT AAA(bra) Affirmed AAA(bra)
SIMPAR SA: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Simpar S.A.'s (Simpar) Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) at 'BB' and its
Long-Term National Scale Rating at 'AAA(bra)'. At the same time,
Fitch has affirmed the senior unsecured bond issuances of Simpar
and its financial vehicles at 'BB'. The Rating Outlook for the
corporate ratings is Stable.
Simpar's 'BB' IDRs reflect its large scale, robust business profile
and strong competitive position within the Brazilian rental and
logistics industry. Simpar group benefits from a diversified
service portfolio and long-term contracts for a significant part of
its revenues, with solid and resilient operating performance. The
ratings also incorporate the group's ample financial flexibility
and the expectation that EBITDA expansion and lower capex levels
will lead to a gradual and consistent leverage reduction. Fitch
believes there is limited room for missing expected cash
generation, higher than expected capex and more meaningful
acquisitions without pressuring the ratings.
KEY RATING DRIVERS
Strong Business Profile: Simpar's large scale and leading position
in the Brazilian rental and logistics industry allow for
competitive advantage on assets purchase and operating costs
relative to peers. The group's credit profile also benefits from
its diversified service portfolio and presence in multiple sectors
of the economy. Simpar' strategic and operational nature of the
service it provides, its competitive cost structure and a revenue
stream based on long-term contracts for most of its rental and
logistic businesses minimize its exposure to more volatile economic
cycles in Brazil.
Movida (35% of net revenue and 44% of EBITDA, the second largest
player) focuses on light vehicles and fleet rental; JSL (23% of net
revenue and 20% of EBITDA, the market leader) concentrates on
supply chain management and transportation; and Vamos (20% of net
revenue and 30% of EBITDA, the market leader) focuses on heavy
vehicles and equipment rentals.
Solid and Growing EBITDA: Rating case scenario presents consistent
and gradually improving consolidated EBITDA based on recent
acquisitions, organic growth and resilient margins. Balanced demand
and supply dynamics should continue to allow adequate rental and
service rates, resulting in a return on invested capital (ROIC)
spread in line with historic levels. Simpar should reach
consolidated net revenue of BRL33 billion (+37% over 2022) and
EBITDA of BRL8.5 billion (25% margin and +26% over 2022) in 2023
and BRL38 billion and BRL10 billion (26% margin) in 2024, from
BRL29 billion and BRL7.5 billion (26% margin), respectively, in the
LTM ended on June 2023.
Negative FCF: The capital-intensive nature of the rental industry
(75% of Simpar's EBITDA), which demands sizable and regular
investments to grow and renew the fleet, pressures the group's cash
flow. FCF should remain negative, on average, at BRL5.6 billion
from 2023 to 2025, after annual average growth capex of BRL5.7
billion, down from BRL12 billion in 2022. In 2022, the group has
seen some opportunities in anticipating asset purchases on Vamos
and Movida. Cash flow from operations (CFFO) should reach negative
BRL643 million in 2023 and positives BRL43 million in 2024 and
BRL1.7 billion in 2025, benefitting from stronger EBITDA and
decreasing interest expenses and working capital needs.
Leverage to be Reduced: Fitch expects Simpar to reduce its net
adjusted leverage to moderate levels close to 4.0x, which is more
consistent with the current ratings. In 2022, continued high
interest rates in Brazil and more robust capex than initially
anticipated to prepare the group for growth and competition
pressured its ability to deleverage. Consolidated net adjusted
leverage was 4.8x in 2022 and 5.0x in the last twelve months (LTM)
ended on June 2023, comparing with an average of 4.1x from 2019 to
2021. Positively, total adjusted debt/EBITDA has come down after it
peaked at 7.6x in 2021 to 6.0x in the LTM ended on June 2023,
mainly as a result of EBITDA expansion.
DERIVATION SUMMARY
Simpar's business profile is above that of Localiza Rent a Car S.A.
(Localiza; FC and LC IDR BB+/Stable), and much stronger than that
of Unidas Locacoes e Servicos S/A (Unidas; FC and LC IDRs
BB-/Stable). Compared with Localiza, Simpar has similar scale, a
much more diversified service portfolio but a weaker financial
profile, with higher leverage and more pressured FCF. Compared with
Unidas, Simpar has a much stronger business profile, higher
liquidity, better access to credit market and similar leverage.
Compared with CEMEX, S.A.B. de CV. (LC and FC IDRs BB+/Positive),
Simpar has a more diversified business profile, higher
profitability, less volatile cash flow generation and a more
liquid/tradable asset base. On the other hand, Cemex has higher
scale, a history of positive cash flow generation and slightly
lower leverage on the rating horizon.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for Simpar:
- Average consolidated annual revenue growth at 21% from 2023 to
2025;
- Consolidated EBITDA margin at 26%, on average, from 2023 to
2025;
- Consolidated growth capex at around BRL5.6 billion, on average,
from 2023 to 2025;
- Cash balance remains strong compared with short-term debt;
- Dividends at 25% net income.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Consolidated net adjusted debt/EBITDA below 3.5x on a sustainable
basis;
- Strengthening of the company's scale and profitability, without
further deterioration of its' capital structure.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Limits to Simpar's unrestricted ability to access the operating
companies' cash;
- Failure to preserve liquidity and inability to access adequate
funding;
- Prolonged decline in demand coupled with company inability to
adjust operations;
- Consolidated net adjusted leverage above 4.5x on a sustainable
basis;
- Material deterioration of the group's fleet rental and logistics
businesses.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Simpar's robust consolidated liquidity position
is a key credit consideration, with cash covering short-term debt
by an average of 3.2x during the last four years. The group's
expected negative FCF, a result of its growth strategy, will be
financed by debt in the rating scenario as the group benefits from
ample access to different sources of funding. Simpar had BRL7.9
billion of cash and equivalents and BRL45.3 billion of total
adjusted consolidated debt (approximately 2% secured), with final
maturity at 2037. Around BRL5.3 billion is due in the short term
(1.5x cash coverage ratio), an additional BRL2.1 billion at the
second half of 2024 and BRL6.4 billion in 2025 as of June 2023.
At the holding level, Simpar had BRL3.2 billion of cash and
equivalents (considering the BRL434 million of Vamos follow-on) and
BRL8.1 billion of total adjusted debt, BRL700 million due in the
short term, an additional BRL2.7 billion maturing up to 2030 and
BRL4.7 billion in 2031. Simpar's board control and relevant
ownership stakes in its operating companies mitigate the structural
subordination of its debt, with no upstream dividends or
intercompany loans restrictions that a majority board vote cannot
overcome.
The group's consolidated debt profile is mainly comprised of local
debentures (45%), bank loans (34%) and fully hedged U.S.
denominated bonds (11%). Simpar's financial flexibility is also
supported by the group's ability to postpone growth capex to adjust
to the economic cycle and the groups considerable number of
unencumbered assets, with the market value of the fleet over net
debt at around 1.2x.
ISSUER PROFILE
Simpar is a non-operational holding company that controls and
manages seven independent companies that provide mainly rental,
logistics and mobility services, focused on long-term contracts.
The company is listed on the Brazilian stock exchange and its main
shareholder is JSP Holding S.A. (57.4%), the Simoes family holding
company.
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
----------- ------ -----
Simpar S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
Simpar Europe
senior
unsecured LT BB Affirmed BB
Simpar Finance
S.a.r.l.
senior
unsecured LT BB Affirmed BB
VIA: Taps Banks for Potential $205 Million Share Offering
---------------------------------------------------------
Gabriel Araujo and Alberto Alerigi Jr. at Reuters report that
Brazilian retailer Via said it has hired banks to manage a
potential follow-on share offering aimed at raising about BRL1
billion ($204.62 million) to improve its capital structure.
The company said in a securities filing that Bradesco BBI, BTG
Pactual, UBS BB, Itau BBA and Santander Brasil have been tapped to
coordinate the potential offering, which can also include an
overallotment, according to Reuters.
The move comes as share offerings regain steam in Brazil, with
several companies having launched or announced plans for offerings
in recent weeks, including homebuilders MRV and Tenda and food
processor BRF, the report notes.
It also follows Via's recent announcement of a restructuring plan
that includes reducing inventories and reworking its financing
after a string of quarters in the red, as pressures on Brazil's
retail sector mount with high interest rates and following the
bankruptcy of major retailer Americanas, the report relays.
"The announcement does not come as a surprise," analysts at
JPMorgan said in a note to clients, adding that the move implies a
share base dilution of at least 47% at current price levels,
although a "relevant discount" is expected, the report discloses.
"(But) looking at the suggested amount, it does not solve Via's
leverage issues," they noted. "We would not be surprised to see
another capital raise later on once the transformation plan starts
to show results," the report relays.
Existing reference shareholders Goldentree, Michael Klein and the
Twinsf investment fund have expressed interest in exercising their
priority rights in the potential offering, Via said, the report
notes.
The firm's final decision to proceed with the offering still
depends on corporate approvals, as well as favorable political and
macroeconomic conditions and investor appetite, it added.
Shares of Via are down roughly 45% so far this year, and have sunk
more than 35% in August alone. The company is one of Brazil's
largest retailers, owning the Casas Bahia and Ponto chains, the
report adds.
===========
M E X I C O
===========
ALSEA SAB DE CV: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed the Foreign and Local Currency Long-Term
Issuer Default Ratings of Alsea, S.A.B. de C.V. (Alsea) at 'BB',
its senior unsecured notes at 'BB' and the senior unsecured notes
under its subsidiary Food Service Project, S.A. at 'BB'. In
addition, Alsea's National Long-Term rating has been affirmed at
'A+(mex)', and its National Short-Term rating at 'F1(mex)'. The
Rating Outlook is Stable.
Alsea's ratings reflect its solid business position as an owner and
franchise operator of quick service restaurants, cafeterias and
casual dining restaurants in Mexico, Latin America and Europe.
Alsea has a diversified portfolio of recognized brands, store
formats and geographical footprint.
KEY RATING DRIVERS
Solid Business Position: Alsea's ratings reflect its solid business
position, supported by a portfolio of leading international
franchise brands and recognized national and international own
brands that lead in the segments in which they participate. Fitch
believes that this portfolio of brands provides a significant
competitive advantage by covering different demographic segments
and consumer preferences. Some of the most relevant brands are
Starbucks, Domino's Pizza, Burger King, Vips, Foster Hollywood,
Chili's, Italianni's, P.F. Changs and Archies, among others.
The company operates 4,477 restaurants and 15 brands in 12
countries. About 77% of the restaurants are operated directly by
the company, and the remaining 23% are operated indirectly as
franchised restaurants as of June 2023.
Geographic Diversification: Alsea's credit profile benefits from
geographically diversified operations outside of Mexico that allow
it to mitigate business risk and cash flow volatility. During the
LTM ended June 30, 2023, Alsea's operations outside of Mexico
represented around 48% of consolidated revenues and 37% of
consolidated EBITDA. Fitch views Alsea's geographic diversification
of territories outside Mexico positively, as it helps the company
to counterbalance its exposure between developed and emerging
economies and giving access to hard-currency revenue.
Resilient EBITDA: Alsea's revenues have shown continued growth.
Alsea reported a revenue increase of 13%, which led to EBITDA
growth of 19%, to MXN4.8 billion as of 2Q23 YTD. Its EBITDA margin
went to 13.4% from 12.7% during this period. As expected, Alsea's
same store sales (SSS) growth has moderated at lower levels after
the post-pandemic spikes. Keeping with the positive trend, 2Q23 SSS
increased by 18.6% compared with 2Q22.
Fitch expects sales to keep growing, but at a smoother pace. The
company will continue executing several commercial and digital
strategies to boost its sales, as well as productivity initiatives
and costs reductions to improve its results. Alsea's key brands
continued to gain market share, thanks to their ample product
offering and customer experience.
Leverage Trend: Fitch expects Alsea's leverage ratios to slightly
improve. The gradual strengthening of Alsea's leverage metrics will
be supported mainly by EBITDA growth as total debt is projected to
remain at around MXN28.5 billion on average for 2023-2024. Fitch
expects Alsea's total debt adjusted for leases to EBITDAR will be
around 3.8x, by YE 2023, and remain around that level by YE 2024.
For the LTM ended June 30, 2023, Alsea's adjusted leverage,
calculated by Fitch, was 4.1x, which compares with 4.4x for the
same period in 2022.
Positive FCF: Fitch estimates that Alsea's FCF will remain
positive, based on projected EBITDA growth and no dividend
payments. Alsea is projected to generate cash flow from operations
above MXN6 billion in 2023 and around MXN6.5 billion in 2024. With
these results, FCF will be close to MXN0.5 billion on average for
2023-2024, after covering capex of an average of MXN6 billion per
year during that period. For the LTM ended June 30, 2023, Alsea's
FCF calculated by Fitch was MXN3 billion.
DERIVATION SUMMARY
Alsea's long-term ratings are based on its business profile, which
benefits from the portfolio of recognized restaurant brands and
formats, positive operating performance, as well as the scale and
geographic diversification of its operations. Alsea's business
position and diversification compares in line with other
Fitch-rated issuers in the 'BB' category, such as Arcos Dorados
(BB+/Stable); however, Alsea's financial profile is weaker than
Arcos due to higher leverage and lower fixed charge coverage.
Alsea's strategies allowed it to normalize its operations and
recover from the pandemic.
The company's ratings are lower than its international peer Darden
Restaurants, Inc. (BBB/Stable) given its weaker business profile in
terms of size and scale and diversification. The company also has
lower profitability and higher leverage when compared with Darden
Restaurants.
KEY ASSUMPTIONS
- Increase in revenues of around 10% in 2023 and 8.5% in 2024;
- EBITDA margin around 13.5% in 2023-2024;
- Capex of MXN6 billion in average for 2023-2024;
- Ratios of total debt to EBITDA and total debt adjusted to EBITDAR
around 2.7x and 3.8x, respectively, by YE2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Consistent improvement in operational performance above Fitch's
expectations;
- Robust FCF generation on a sustained basis that strengthens
Alsea's financial profile;
- Total adjusted debt to EBITDAR below 3.5x on a sustained basis;
- Operating EBITDAR to gross interest expense, plus leases expense
above 2.0x on a sustained basis, combined with a strong liquidity
profile.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A sustained deterioration in the operational performance of its
main markets;
- Negative FCF generation on a sustained basis;
- A weakening in its liquidity profile;
- Total adjusted debt to EBITDAR above 4.5x on a sustained basis.
LIQUIDITY AND DEBT STRUCTURE
Robust Liquidity: As of June 30, 2023, Alsea had an available cash
position of MXN4.3 billion and debt amortizations of MXN1.1 billion
in 2023. The company faces debt maturities in 2024 of MXN2.8
billion, which the agency expects will be covered by the company's
liability management. Alsea has access to different financing
alternatives, evidenced by its debt refinancing completed in
December 2021 and January 2022, which included a combination of a
senior unsecured notes issuance of USD500 million due in 2026 and
an unsecured notes issuance of EUR300 million due in 2027.
ISSUER PROFILE
Alsea is the leading operator of fast food establishments, coffee
shops, casual dining and family restaurants in Latin America and
Europe. As of June 30, 2023, Alsea had 3,460 corporate stores and
1,017 franchised stores, Totaling 4,477.
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
----------- ------ -----
Alsea, S.A.B.
de C.V. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT A+(mex) Affirmed A+(mex)
Natl ST F1(mex) Affirmed F1(mex)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT A+(mex) Affirmed A+(mex)
senior
unsecured Natl ST F1(mex) Affirmed F1(mex)
Food Service
Project, SA
senior
unsecured LT BB Affirmed BB
=======
P E R U
=======
HUNT OIL: Moody's Affirms Ba1 CFR & Rates $450MM Unsec. Notes Ba1
-----------------------------------------------------------------
Moody's Investors Service affirmed the Ba1 Corporate Family Rating
and senior unsecured rating of Hunt Oil Co. of Peru L.L.C., Suc.
Del Peru (HOCP). At the same time, Moody's assigned a Ba1 senior
unsecured rating to HOCP's up to $450 million 10-year amortizing
trust-enhanced global senior unsecured notes. The outlook is
stable.
The company will use the proceeds of the notes for debt refinancing
and for general corporate purposes. The rating of the proposed
notes assumes that the final transaction documents will not be
materially different from draft legal documentation reviewed by
Moody's to date and that these agreements are legally valid,
binding and enforceable.
Assignments:
Issuer: Hunt Oil Co. of Peru L.L.C., Suc. Del Peru
Senior Unsecured Regular Bond/Debenture, Assigned Ba1
Affirmations:
Issuer: Hunt Oil Co. of Peru L.L.C., Suc. Del Peru
Corporate Family Rating, Affirmed Ba1
Senior Unsecured Regular Bond/Debenture, Affirmed Ba1
Outlook Actions:
Issuer: Hunt Oil Co. of Peru L.L.C., Suc. Del Peru
Outlook, Remains Stable
RATINGS RATIONALE
The Ba1 ratings affirmation and the assigned Ba1 rating of the
proposed notes reflect the company's large proved gas reserves,
equivalent to 16 years of life; solid asset base in world-class,
prolific Camisea gas fields; and low volume risk given solid demand
both in the local and international markets. The ratings also take
into account Moody's view of relatively stable prices for natural
gas and natural gas liquids through 2023 which will lead to strong
credit metrics for its rating category, pro forma for the proposed
notes.
On the other hand, the ratings are tempered by HOCP's small
production size; asset concentration in only two gas blocks;
operating dependence on only two pipelines, owned by Transportadora
de Gas del Peru (TGP) (Baa1, stable); no operating control over the
gas blocks; vulnerability to commodities prices; and high dividend
payout rate.
The proposed notes will start to amortize in 2029 and will be
protected by a trust account under Peruvian law as the outstanding
notes. The trust account will be pledged for the benefit of the
noteholders. Moody's considers the debt agreement's provisions that
help ring-fence HOCP from its parent to be beneficial to HOCP's
credit profile as distributions will be limited in case of a
triggered retention event, such as registering debts service
coverage below 1.3x.
Moody's estimates that the company's debt/EBITDA ratio and
EBITDA/interest coverage ratio will pro-forma for the proposed
issuance be at 1.7x and 12.5x, respectively, in 2023 from 0.8x and
15.3x in 2022. However, HOCP's retained cash flow (funds from
operations less dividends) to total debt will be weak, given the
company's relatively high dividend payout. This is mitigated by
HOCP's relatively low capital reinvestment requirements to maintain
production.
HOCP has good liquidity pro-forma for the proposed notes and debt
repayment. Cash in the amount of $64 million as of June 2023 plus
$283 million in cash from operations, and roughly $150 million in
net new debt will fund $28 million in capital spending plus
shareholders distributions in the next 12 months. The company also
counts on a $90 million three-year committed revolving credit
facility that matures in 2024. The new issuance will allow HOCP to
reprofile its debt profile, a credit positive.
The stable rating outlook reflects Moody's belief that HOCP will
sustain its low business risk profile, maintain solid financial
policies, and be able to reduce its financial leverage per the
amortizations of the notes.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could drive an upgrade in HOCP's ratings include an
important increase on average daily production to at least 100
Mboe/day, significant debt reduction on a sustained basis without
affecting its operating performance and a, increase on retained
cash flow (RCF) to keep a solid cash position resulting in RCF /
Debt higher than 40%. The credit profile of HOCP's parent company,
Hunt Oil Company, would be relevant information to consider a
positive action on HOCP's rating.
HOCP's ratings could be downgraded if it faces extended operational
disruptions or if its production declines. An interest coverage, as
measured by EBITDA/interest ratio, below 6x could also trigger a
negative rating action.
PROFILE
HOCP is a wholly-owned, indirect subsidiary of Hunt Oil Company,
one of the largest privately-owned hydrocarbon companies in the
United States. HOCP was incorporated in 1999 and began its
activities in 2000. HOCP is one of the leading gas exploration and
production companies in Peru. Its primary assets include a 25.2%
interest in license contracts related to the largest natural gas
producing fields in Peru, the Camisea Fields, which include Block
88 and Block 56 in the Ucayali Basin of Peru. Block 88, whose
license expires 2040, in is the largest source of natural gas
production in Peru, and also contains the largest number of proven
reserves. Block 56, whose license expires in 2044, is the second
largest in Peru in terms of natural gas production and proven
reserves levels. HOCP also owns a 25.2% interest in the facilities
related to the Camisea Fields, including the Malvinas Plant, a NG
processing plant near the Camisea Fields, and the Pisco Plant, a
liquids fractionation facility near Pisco, Peru on the Pacific
coast.
The principal methodology used in these ratings was Independent
Exploration and Production published in December 2022.
=====================
P U E R T O R I C O
=====================
BANCO SAN JUAN: NY Fed Defends Cutoff of Bank After Crackdown
-------------------------------------------------------------
Reuters reports that the Federal Reserve Bank of New York defended
its plan to cut off a Puerto Rican lender's access to the U.S.
central banking system following a federal crackdown on banks with
links to Venezuela.
In July, Banco San Juan Internacional (BSJI) sued the New York Fed
to halt the looming termination of its "master account," which lets
banks access the Fed's electronic payment system, because of
concerns about its compliance with U.S. sanctions and anti-money
laundering rules, Reuters recounts.
BSJI said that it had improved compliance during a previous
22-month suspension of its master account between 2019 and 2020,
the report relays. That followed a federal probe into credit
agreements it had with state oil company Petroleos de Venezuela,
which is subject to U.S. sanctions, the report notes.
The bank said the suspension "decimated" its customer
relationships, the report discloses.
In court papers, the New York Fed said BSJI processed transactions
that had "multiple red flags for money laundering or other illicit
activity," the report relays.
It said that as of June, BSJI served only 13 customers, most based
in Curacao and including close family members of the bank's owner
Marcelino Bellosta, the report notes. The New York Fed also said
BSJI could still seek to access the U.S. financial system through a
third-party correspondent bank, the report adds.
A lawyer for BSJI declined to comment, notes the report.
BSJI has said Bellosta, a Venezuelan national, has lived in the
United States and Europe for much of the last 25 years, relates the
report.
The bank in 2020 paid $1 million to resolve the PDVSA probe, while
maintaining that the credit agreements were lawful, and federal
authorities returned $53 million in seized funds, Reuters relays.
It further notes that Puerto Rico's banking industry has
historically had close ties to Venezuela, an OPEC member.
In 2019, the New York Fed said it would stop approving master
accounts for some Puerto Rican banks because of U.S. sanctions
aimed at ousting Venezuela's socialist President Nicolas Maduro,
Reuters reported at the time.
GRUPO HIMA: Court Directs U.S. Trustee to Appoint PCO
-----------------------------------------------------
Judge Enrique Lamoutte of the U.S. Bankruptcy Court for the
District of Puerto Rico directed the U.S. Trustee for Region 21 to
appoint a patient care ombudsman for Grupo HIMA San Pablo, Inc.
The bankruptcy judge finds that the provisions of Section
333(a)(1)
of the Bankruptcy Code for appointment of a patient care ombudsman
apply to Grupo HIMA after having filed its bankruptcy petition,
indicating that it operates a health care business.
About Grupo HIMA San Pablo
Grupo HIMA San Pablo, Inc. serves as a diversified healthcare
services holding company pursuant to a corporate reorganization of
several businesses related by common ownership. Through its
subsidiaries and affiliates, the company primarily owns and
operates hospital facilities and other healthcare related
businesses. As of August 2023, the HIMA GROUP operates four
hospitals, with over 1,200 licensed beds, including an oncological
hospital, a multi-specialty physician practice management company,
home care service (including infusion therapies and wound care), a
free-standing ambulatory center and a 16-ambulance service
company.
Grupo HIMA San Pablo filed Chapter 11 petition (Bankr. D. P.R. Case
No. 23-02510) on Aug. 15, 2023, with $500 million to $1 billion in
assets and $100 million to $500 million in liabilities. Armando J.
Rodriguez-Benitez, chief executive officer, signed the petition.
Judge Enrique S. Lamoutte Inclan oversees the case.
Wigberto Lugo Mender, Esq., at Lugo Mender Group, LLC, represents
the Debtor as legal counsel.
GRUPO HIMA: Hires Pietrantoni Mendez as Special Counsel
-------------------------------------------------------
Grupo Hima San Pablo, Inc. and its affiliates seek approval from
the U.S. Bankruptcy Court for the District of Puerto Rico to employ
Pietrantoni Mendez & Alvarez LLC as special counsel.
The firm will provide legal advice and assistance regarding general
corporate, regulatory, compliance and litigation matters.
The firm will be paid at these rates:
Attorneys $230 to $405 per hour
Associates $160 to $225 per hour
Paralegals $120 to $130 per hour
The firm will also be reimbursed for reasonable out-of-pocket
expenses incurred.
As disclosed in a court filing that the firm is a "disinterested
person" as the term is defined in Section 101(14) of the Bankruptcy
Code.
The firm can be reached at:
Jaime E. Santos, Esq.
PIETRANTONI MENDEZ & ALVAREZ LLC
Popular Center 19th Floor
208 Ponce de Leon Ave.
San Juan, PR 00918
Tel: (787) 274-1212
Fax: (787) 274-1470
Email: info@pmalaw.com
About Grupo Hima San Pablo, Inc.
Grupo HIMA San Pablo, Inc. serves as a diversified healthcare
services holding company pursuant to a corporate reorganization of
several businesses related by common ownership. Through its
subsidiaries and affiliates, the Company primarily owns and
operates hospital facilities and other healthcare related
businesses. As of August 2023, the HIMA GROUP operates four
hospitals, with over 1,200 licensed beds, including an Oncological
Hospital, a multi-specialty physician practice management company,
Home Care Service (including infusion therapies and wound care), a
free-standing Ambulatory Center and a 16-Ambulance Service
Company.
The Debtor sought protection under Chapter 11 of the U.S.
Bankruptcy Code (Bankr. D. P.R. Case No. 23-02510-EAG11) on August
15, 2023. In the petition signed by Armando J. Rodriguez-Benitez,
chief executive officer, the Debtor disclosed up to $1 billion in
assets and up to $500,000 in liabilities.
Judge Enrique S. Lamoutte Inclan oversees the case.
Wigberto Lugo Mender, Esq., at Lugo Mender Group, LLC, represents
the Debtor as legal counsel. Pietrantoni Mendez & Alvarez LLC as
special counsel.
*********
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