/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/231020.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, October 20, 2023, Vol. 24, No. 211 Headlines B R A Z I L LIGHT SA: Taps Regulation Director to Replace CEO PRIO SA: S&P Affirms 'BB-' LongTerm ICR, Outlook Stable D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Employees Among Those With Least Tax Burden EGE HAIMA: Fitch Affirms BB- LongTerm IDRs, Outlook Stable H A I T I HAITI: Considers Formulas to Avoid Depending on Dominican Products J A M A I C A JAMAICA: Moody's Hikes Issuer Rating to B1 & Alters Outlook to Pos. M E X I C O OPERADORA DE SERVICIOS MEGA: Moody's Affirms 'B2' CFR, Outlook Neg OPERADORA DE SERVICIOS MEGA: S&P Affirms 'B' LT ICR, Outlook Neg. P U E R T O R I C O ESJ TOWERS: Hires Julio Cesar Alejandro Serrano as Local Counsel LANDMARK COMMERCIAL: Case Summary & Four Unsecured Creditors T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: Benefits Outweigh Challenges, Regulator Says - - - - - =========== B R A Z I L =========== LIGHT SA: Taps Regulation Director to Replace CEO ------------------------------------------------- Peter Frontini at Reuters reports that Brazilian electric utility Light (LIGT3.SA) said it will replace Chief Executive Officer Octavio Pereira Lopes with its regulatory and institutional relations director, Alexandre Nogueira. The change at the top of the company, which entered bankruptcy protection in May, will take place either at the end of this year or when Light completes its financial reorganization, whichever comes first, the firm said in a securities filing, according to Reuters. Shares in the firm fell 1.15% in the Brazilian stock exchange, while the benchmark Bovespa index (.BVSP) was down 0.6% in midafternoon trading on Oct. 18, the report notes. Light provides services in 31 municipalities in the state of Rio de Janeiro and has around 4.5 million customers, the report adds. About Light S.A. As reported in the Troubled Company Reporter-Latin America on June 13, 2023, Bloomberg News reported that investor Nelson Tanure said he'll vote in favor of the bankruptcy process for Rio de Janeiro's power company Light SA at a shareholders' meeting, making the approval of the measure practically certain. Moody's Investors Service has downgraded to Ca from Caa3 Light S.A.'s (Light) Corporate Family Rating, the Issuer Ratings and Backed Senior Unsecured ratings of its operating subsidiaries Light Servicos De Eletricidade S.A. (Light SESA) and Light Energia S.A. (Light Energia), both guaranteed by Light. The outlooks remain negative. These actions follow the court approval of Light's judicial recovery request under the Brazilian Bankruptcy and Reorganization Law. The judicial recovery in Brazil is the closest equivalent to Chapter 11 of the US Bankruptcy Code. PRIO SA: S&P Affirms 'BB-' LongTerm ICR, Outlook Stable ------------------------------------------------------- S&P Global Ratings affirmed its 'BB-' long-term issuer credit rating on Prio S.A. S&P also affirmed its 'BB' issue-level rating on Prio's senior secured notes, with a recovery rating of '2', and its 'brAA+' rating on the senior unsecured debentures with a '3' recovery rating. The outlook remains stable, incorporating S&P's view that Prio will continue strengthening operations with rising production and cash flows, balanced with its lower business diversification than higher-rated peers. S&P believes Prio's daily production will continue rising in the next couple years from the revitalization plan of Albacora Leste and higher production in Frade than initially expected from its drilling campaign. S&P assumes six months of Wahoo's daily oil production of around 35,000 bbl in 2024. The company is awaiting final environmental permits to start drilling wells at Wahoo, while required infrastructure has already been ordered and is expected to arrive on time. S&P believes the company has significant growth prospects based on the size of its reserves, 547.3 million bbl of oil as of January 2023. Lifting cost was $7.4/bbl in second-quarter 2023, compared with $11.1/bbl in the same period last year. After consolidating the mature assets acquired, Prio has reaped benefits from the negotiation of contracts on a larger scale and its revitalization plan reducing maintenance needs. S&P expects the company to continue delivering solid profitability, with an EBITDA margin between 80%-84% in 2023-2025, mostly from higher scale diluting fixed cost considering its assumption of stable oil prices. S&P said, "Specifically, we forecast gross debt to EBITDA consistently below 1.0x and funds from operations (FFO) to debt above 75%, from the rising internal cash flows and debt amortization in the next two years, compared with 1x-1.5x and 25%-30% in 2023, respectively. The continued low leverage improves our view of the company's financial risk profile. We expect the company to deliver low leverage even under our midcycle Brent oil price assumptions of $55/bbl, with debt to EBITDA below 1.5x. "Our forecast indicates Prio's operating cash flows of $1.6 billion in 2023 and around $2.3 billion in 2024-2025 will be enough to cover working capital needs, capital expenditures (capex), and debt amortization if the company doesn't engage in a new large merger or acquisition." Prio also has lower daily production of 100,000–130,000 bbl in 2023-2025, versus above 150,000 for some global players. Some global peers have greater geographic presence in regions with solid oil prospects, such as Gulf of Mexico, North Africa, and Latin America, while Prio operates in a single basin and country. Moreover, some of these players, such as Murphy Oil Corp., Endeavour Energy Resources, and Neptune Energy Group, also have exposure to the European gas market, which can mitigate oil price volatility through the cycles. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Employees Among Those With Least Tax Burden --------------------------------------------------------------- Dominican Today reports that every year, the Executive Branch includes various provisions in the Nation's general budget bill, temporarily altering legislation to address resource allocation challenges and revenue reduction concerns. One such provision relates to the annual inflation adjustment for employee income tax (ISR) in the Dominican Republic. Since 2017, the Dominican Government has frozen the ISR exemption at RD$34,685 per month, and it remains unchanged despite inflation, according to Dominican Today. Consequently, employees find themselves paying taxes on their income without any adjustment for rising living costs, the report notes. If inflation had been factored in since this legal mandate was established, the ISR exemption for employees would now be no less than RD$45,000 per month, the report relays. This lack of inflation adjustment negatively impacts workers earning over RD$34,685 per month, reducing their take-home income as they are required to pay taxes on the surplus amount, the report discloses. While some voices have called for the removal of the inflation adjustment, it is not currently on the government's official agenda. Despite no plans for tax reform this year or the next, the government intends to maintain revenue estimates based on existing tax structures, the report notes. Finance Minister Jochi Vicente acknowledges the importance of annual inflation adjustments for formal worker taxes but asserts that the state cannot currently afford to forgo this income, the report says. He also highlights that the Dominican Republic offers one of the highest ISR exemption thresholds for salary levels in Latin America, with approximately 80% of employees being exempt from income tax, the report notes. However, the high proportion of exempt workers may suggest that formal employee salaries are generally lower than RD$34,685 per month, the report discloses. To illustrate this point, the Minister compared the Dominican Republic to countries like Costa Rica, where the annual exemption is US$1,436, Paraguay at US$3,200, Mexico and Brazil at US$4,600, among others. Uruguay is the only regional exception, with an exemption of US$9,500, the report relays. This discrepancy arises because when converting the RD$34,685 monthly income to US dollars, it amounts to approximately US$7,350 at the current exchange rate, the report notes. In terms of ISR for employees, the withholding table is based on annual income, even though Dominican workers are typically paid every month, often divided into two fortnights, the report says. Monthly income levels determine tax obligations for formal employees: -- Those earning less than RD$34,685 per month are exempt from income tax. -- Those earning between RD$34,685 and RD$52,027 monthly pay 15% ISR on the difference. -- Those earning between RD$52,027 and RD$72,269.25 have their employers withhold 20%, in addition to the 15% deducted from the first bracket. -- Those with monthly incomes exceeding RD$72,269.25 pay 25% on the amount exceeding that threshold, along with deductions from the previous tax brackets. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. TCR-LA reported in April 2019 that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. On August 14, 2023, the TCR-LA reported that Moody's Investors Service has changed the outlook on the Government of Dominican Republic's ratings to positive from stable and affirmed the local and foreign-currency long-term issuer and senior unsecured ratings at Ba3. Moody's said the key drivers for the outlook change to positive are: (i) sustained high growth rates have enhanced the scale and wealthclevels of the economy; and (ii) a material decline in the government debt burden coupled with improved fiscal policy effectiveness will support medium-term debt sustainability. The affirmation of the Ba3 ratings balances the Dominican Republic's strong economic growth dynamics and relatively contained susceptibility to event risks, with a comparatively weaker fiscal position, reflecting long-standing credit challenges which include: (i) a shallow revenue base compared to peers, (ii) weak debt affordability metrics, and (iii) high exposure to foreign currency borrowing. S&P Global Ratings, in December 2022, raised its long-term foreign and local currency sovereign credit ratings on the Dominican Republic to 'BB' from 'BB-'. The outlook on the long-term ratings is stable. S&P affirmed its 'B' short-term sovereign credit ratings. S&P also revised its transfer and convertibility (T&C) assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's expectation of continued favorable GDP growth and policy continuity over the next 12-18 months that will likely stabilize the government's debt burden. In February 2023, S&P said its BB ratings reflect the country's fast-growing and resilient economy. It also incorporates the country's historical political and social challenges in passing structural reforms to contain fiscal deficits, despite recent improvements in the electricity sector. The ratings are constrained by relatively high debt, a hefty interest burden, and limited monetary policy flexibility. Fitch Ratings, in December 2022, affirmed the Dominican Republic's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Rating Outlook. EGE HAIMA: Fitch Affirms BB- LongTerm IDRs, Outlook Stable ---------------------------------------------------------- Fitch Ratings has affirmed Empresa Generadora de Electricidad Haina, S.A.'s (EGE Haina) Long-Term Foreign and Local Currency Issuer Default Ratings at 'BB-'. The Rating Outlook is Stable. In addition, Fitch has affirmed EGE Haina's USD300 million senior unsecured notes at 'BB-'. EGE Haina's credit quality is linked to the sovereign rating given state-owned distribution companies' (EGE Haina's main clients) dependence on government transfers. The ratings also reflect the size and diversification of its generation asset base. Fitch projects leverage to increase to around 5.0x between 2023-2025 as EGE Haina will increase its debt to finance it expansion plan. Fitch expects EGE Haina´s leverage will start deleveraging in 2026 to 4.2x. KEY RATING DRIVERS Heightened Counterparty Exposure: EGE Haina depends on payments from the state-owned distribution companies with a history of high energy distribution losses (33% in 2022), low collection rates, and electricity tariffs that do not account for true energy costs. The regular delays in government transfers pressure working capital needs and adds volatility to its cash flows. The company mitigates payment delays by keeping a strong liquidity position above USD50 million per year and maintaining available credit lines that cover six months of electricity sales. Diversified Asset Base: EGE Haina's credit profile benefits from a diversified asset portfolio of power generation assets using different sources of energy (natural gas, fuel oil, wind, coal and solar). By year-end 2023, thermal sources will account for 65% of EGE Haina's generation capacity, 16% from wind and 19% from solar, after adding 90MW of new solar capacity. Expansion Plan Impacts Cash Flow: Fitch expects that between 2023-2025, EGE Haina will maintain negative annual average FCF of USD180 million due to an ambitious expansion plan. Between 2023 and 2024, through its subsidiary, Siba Energy (51% owned by EGE Haina), USD207 million will be directed to the construction of a 250 MW closed cycle power plant scheduled for completion by 2025; 190MW of which is already online in an open cycle since June 2023. In addition, throughout 2023-2026, EGE Haina expects to invest USD650 million in adding more than 500 MW of renewal generation capacity to its asset base. Elevated Credit Metrics: Fitch expects gross leverage levels will increase from 4.0x in 2022 to an average of 5.0x between 2023-2025. This incorporates USD280 million additional debt EGE Haina will take directly to finance its increased investment plan in solar farms and USD230 million from the Siba subsidiary to finance its expansion. Fitch expects the company will deleverage to 4.2x in 2026, once the solar plants are operational and the SIBA Energy power plant is completed. Long-Term Contracts Support Cash Flow: Fitch expects that between 2023 and 2025 more than 80% of EGE Haina's revenues will come from long-term purchased power agreements (PPAs), which have adequate cost pass-through provisions that support cash flow generation stability. In 2022, EGE Haina signed eight PPAs with non-regulated clients that are going to be supplied with the recently opened Esperanza Solar Park. In addition, the company signed three PPAs with the state distribution companies related to the Siba natural gas power plant. These agreements rely on capacity payments that from 2023 onward will add revenue predictability. Fitch projects EGE Haina's EBITDA at nearly USD155 million in 2023, and close to USD170 million in 2024. DERIVATION SUMMARY EGE Haina's rating is similar to AES Andres (BB-/Stable), the Dominican Republic's other primary electricity generator. Both AES Andres and EGE Haina's ratings are restricted by the counterparty exposure from the state-owned distribution companies, which are their main offtakers and link both companies' credit profiles to the sovereign rating. The Dominican electricity sector is dependent on government transfers due to high energy losses, low level of collections and important subsidies. EGE Haina's credit profile benefits from its asset base in operation with 1,149 MWh capacity, larger than the combined capacity of AES Andres and its related company Dominican Power Partners at 677MWh. EGE Haina has a diversified energy matrix that uses different sources of energy (natural gas, fuel oil, wind, coal and solar), while AES Andres' generation units are mainly dependent on natural gas and fuel oil. In addition, AES Andres has an integrated operation with a natural gas port, regasification, storage and gas pipeline facilities. EGE Haina is expected to increase its leverage to an average 5.0x in 2023-2025 to finance the construction of a natural gas plant through it new subsidiary Siba Energy Corporation and its expansion in solar projects. Fitch projects that gross leverage will reduce after 2025. AES Andres leverage is expected to be almost 3.5 by the end of 2023, and its medium-term strategy includes expanding its natural gas transportation network. KEY ASSUMPTIONS - Installed capacity in operation of 1,149MW in 2023; 1,314 MW in 2024; 1,584MW in 2025; and 1,734MW in 2026; - Siba Energy Closed Cycle is completed by 2025; - Energy generation without including Siba has an average yoy 3% growth between 2022-2025; - Account receivables days of 84 with no material delays in government payments; - Annual average capex of EGE Haina without Siba close to USD170 million between 2022-2025; - Total capex of Siba Energy of USD208 million in 2023 and 2024; heightened capex in 2023 and 2025 will be mostly financed with incremental debt; - In 2Q23, the Siba Energy natural gas plant starts operation and generates an additional EBITDA of close to USD10 million in 2023 and USD25 million in 2024; - Average dividends payment 2023-2025 of USD30 million. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - An upgrade of the Dominican Republic's sovereign ratings. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A downgrade of the Dominican Republic's sovereign rating; - Operational cash flow deterioration that leads to a sustained leverage of more than 4.5x; - Sustained EBITDA/Interest Coverage below 2.5x; - Negative FCF outside of expansion period; - Cash position below USD50 million. LIQUIDITY AND DEBT STRUCTURE Adequate liquidity: EGE Haina maintains adequate liquidity, supported by its available cash balance predictable revenue and its debt maturity terms. As of June of 2023, EGE Haina had USD56 million in cash and an expected USD70 million cash from operation for 2023, with short-term obligations of USD139 million. EGE Haina has USD211 million in available credit lines with liquidity support in order to face volatility in the collection profile of its accounts receivable or if in need of extra liquidity. EGE Haina does not have a materially significant debt payment until 2028. ISSUER PROFILE EGE Haina is one of the Dominican Republic's main electricity generation companies and is 50% controlled by Haina Investment Co. Ltd, a private holding firm incorporated in the Cayman Islands, and 49.993% held by Fondo Patrimonial de las Empresas Reformadas (FONPER), a holding company fully owned by the Dominican Government. 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 ----------- ------ ----- Empresa Generadora de Electricidad Haina, S.A. LT IDR BB- Affirmed BB- LC LT IDR BB- Affirmed BB- senior unsecured LT BB- Affirmed BB- ========= H A I T I ========= HAITI: Considers Formulas to Avoid Depending on Dominican Products ------------------------------------------------------------------ Dominican Today reports that with the border closed for the second consecutive day due to the decisions of neighboring countries, Haiti is actively seeking solutions to reduce its dependence on imports from the Dominican Republic. The Haitian Secretary of Commerce has organized a series of meetings with business leaders and importers, with the cooperation of Mexico, to explore options for replacing food imports from the Dominican Republic in both the short and long term, according to Dominican Today. One of the initial measures under consideration is to boost local egg production. Haiti aims to increase its domestic egg production capacity and insists that Dominican poultry exports meet international regulatory standards, the report notes. Michel Chancy, former Secretary of State for Animal Production, emphasized the need to revitalize egg production within the country, the report relays. He believes that with proper infrastructure and government support for local producers, Haiti can recapture a significant share of the egg market within the next two years, the report discloses. Chancy, who is a veterinarian, acknowledged that the closure of the largest egg-producing company had posed challenges, the report relays. However, he pointed out that other producers are still in operation and are currently supplying the market following the border closure imposed by the Dominican Republic, the report discloses. According to Chancy, Haitian producers have the potential to compete with Dominican egg exports, even if the border reopens, the report notes. He emphasized the importance of enforcing health standards when importing fresh food. Currently, Dominican eggs enter Haiti without proper authorization and packaging that complies with international standards, the report says. International food trade regulations require that fresh products, including eggs, adhere to specific health procedures, such as indicating the farm of origin and the laying date on packaging, which Dominican eggs do not currently meet, the report adds. ============= J A M A I C A ============= JAMAICA: Moody's Hikes Issuer Rating to B1 & Alters Outlook to Pos. ------------------------------------------------------------------- Moody's Investors Service has upgraded the Government of Jamaica's long-term issuer and senior unsecured ratings to B1 from B2, and senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has been changed to positive from stable. The upgrade of Jamaica's rating to B1 reflects the government's sustained commitment to fiscal consolidation and debt reduction, which Moody's expects to be effective in delivering further results. This commitment has been demonstrated over the course of several shocks. Government debt is now below pre-pandemic levels and it will likely continue to decline over the next several years. The reduction in government debt, along with progress on structural reforms, has increased the economy's overall shock absorption capacity. The positive outlook reflects Moody's assessment that a continuation of the favorable fiscal trajectory will further increase Jamaica's credit resilience. Given the improvements in institutions and governance strength, additional declines in Jamaica's debt and interest burdens would support a higher rating. A less contractionary fiscal stance would also increase growth prospects for the economy. In a related action, Moody's has also upgraded the backed senior unsecured debt ratings of government-related entities Air Jamaica Limited and National Road Operating and Construct. Co Ltd to B1 from B2. These ratings are based on an explicit debt guarantee provided by the government. These rating outlooks were also changed to positive from stable. Moody's has also raised Jamaica's long-term local-currency ceilings to Baa3 from Ba1, as well as the long-term foreign-currency ceiling to Ba2 from Ba3. The four-notch gap between the local-currency ceiling and the sovereign rating reflects the strong rule of law and policy predictability as well as the low level of government involvement in the economy and low political risk. The two-notch gap between the foreign-currency ceiling and the local currency ceiling incorporates the strong institutional capacity of the government against a moderately high external debt burden and relatively closed capital account. RATINGS RATIONALE RATIONALE FOR THE UPGRADE OF THE RATINGS TO B1 SUSTAINED COMMITMENT TO FISCAL CONSOLIDATION AND DEBT REDUCTION HAS MATERIALLY IMPROVED THE SOVEREING CREDIT PROFILE The steady progress Jamaica made in improving its fiscal strength up until 2019 was temporarily halted by the impact of the coronavirus pandemic, when the government debt burden increased to 110% of GDP in the fiscal year ending March 31, 2021 (fiscal 2020). Over the past two years, Jamaica has successfully reversed pandemic-related rise in debt and has returned to fiscal policies that put debt on a firmly downward trajectory. The fiscal reforms undertaken prior to the pandemic, and the maintenance of sizeable primary surpluses will lead to a steady improvement in Jamaica's fiscal strength. Over time, Moody's expects Jamaica's debt and interest burdens will converge with those of higher-rated sovereigns. After a narrowing of the primary surplus to 3.5% of GDP in fiscal 2020, Jamaica's primary surplus improved to 6.7% of GDP and 5.8% of GDP in fiscal 2021 and fiscal 2022, in line with budget targets. Fiscal consolidation in fiscal 2021 and fiscal 2022 has been aided by above-trend growth for Jamaica, which has supported tax collection and also allowed for the removal of pandemic-related spending. Government debt declined to 78% of GDP at the end of fiscal 2022, more than 30 percentage points of GDP below the pandemic-induced increase to 110% of GDP in fiscal 2020, and below the 93% debt-to-GDP in fiscal 2019. The declining debt stock and increase in government revenue also contributed to an improvement in debt affordability. Interest to revenue improved to 18% in fiscal 2022, albeit still higher than the B-rated median of 9.4%. Moody's expects the government will maintain its prudent fiscal stance, which will ensure fiscal and primary surpluses remain consistent with rapidly declining debt burden and in line with the government's 60% debt-to-GDP target by the end of fiscal 2027. The government's debt structure remains exposed to adverse foreign exchange movements because a significant portion of its debt is denominated in foreign currency. Foreign-currency denominated debt accounts for around 63% of government debt at the end of fiscal 2022, and Moody's expects this ratio will remain at a similar level going forward. Nearly 60% of Jamaica's external debt consists of international bonds, which exposes Jamaica's debt profile to shifts in market sentiment. However, this risk is minimized by limited maturities coming due in the next few years. Additionally, the government intends to use funding under the IMF Resilience and Sustainability Facility (RSF) to repay maturing external commercial debt. STEADY PROGRESS ON THE STRUCTURAL REFORM FRONT HAS INCREASED THE ECONOMY'S SHOCK ABSORPTION CAPACITY Jamaica's ability to withstand the coronavirus shock without a permanent deterioration in its credit fundamentals reflects structural reforms undertaken prior to the pandemic, which resulted in the buildup of buffers to limit the impact of economic shocks. Fiscal policy is anchored by a Fiscal Responsibility Framework (FRR) and fiscal rules, first introduced in 2014 and amended in June 2020, that together bolster fiscal transparency and guide annual budgets. The government publishes medium-term fiscal and debt management strategies, which aid budgetary policy. The key elements embedded in the fiscal rules include a fiscal balance rule and a debt rule, which targets reducing government debt to 60% of GDP by fiscal 2027. Reforms to the central bank have contributed to increased macroeconomic stability. The Bank of Jamaica (BOJ), which only became formally independent in 2021, has demonstrated a high degree of monetary policy credibility through the pandemic and the commodity price shock. The BOJ raised interest rates significantly in 2021 due to building inflationary pressures; between end-September 2021 and November 2022, the central bank tightened monetary policy by a cumulative 650 basis points, taking the overnight deposit rate to 7.0%. Inflation is likely to fall back to target by the end of 2023, or early 2024. Additionally, the exchange rate, which is now free floating, is the first line of defense to absorb shocks. Despite the shock to tourism in 2020, followed by higher fuel and food prices in 2022, Jamaica's current account balance has oscillated between a 2% of GDP surplus and deficits since the end of 2019. Strong growth in remittances, which stood at $3.2 billion in 2022, equivalent to 19% of GDP, provide an important offset to a wider trade deficit. The central bank has accumulated sizeable foreign exchange reserves, which as of August 2023 were sufficient to cover close to 6 months of goods and services imports. In addition, the government has access to $968 million under a Precautionary and Liquidity Line (PLL) with the IMF, which it doesn't intended to draw on. RATIONALE FOR THE POSITIVE OUTLOOK The positive outlook reflects Moody's expectations that reforms undertaken by the government have improved policy effectiveness and the government's ability to formulate credit-positive fiscal, monetary and economic policies which support increased economic resiliency. Over time, the continued improvement in Jamaica's fiscal strength and governance and institutions will increasingly align Jamaica's credit profile with those of Ba3-rated peers. As the government's debt burden declines over time moving toward 60% of GDP by fiscal 2027, a trend Moody's expects will be supported by recurrent primary and fiscal surpluses, the interest burden will be reduced. This will free up domestic resources to finance targeted social programs and infrastructure spending without deviating from the authorities' medium-term fiscal, allowing the government to address structural constraints to the country's growth prospects. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Jamaica's ESG Credit Impact Score of CIS-3 reflects its exposure to social risks, which is mitigated by robust governance. Jamaica's overall E-3 issuer profile score reflects the country's exposure to the impact of climate change. Jamaica is exposed to a number of weather-related natural disasters, such as hurricanes, tropical storms, earthquakes, droughts, floods and landslides. According to the EM-DAT database, based on 23 reported storms since 1960, the expected loss due to a storm event is estimated at around 5% of GDP. These events will have a significant impact on Jamaica's credit profile: increasing volatility of GDP through the impact of floods on agriculture output, lower revenue and higher government debt as a result of lower GDP growth and cost of reconstruction following severe tropical storms and hurricanes. Jamaica's S-4 issuer profile score reflects exposure to social risks related mainly to health and safety, which captures the country's very high crime and murder rate. International estimates of the impact of crime suggest crime-related costs equal up to 4% of GDP, highlighting the negative impact on Jamaica's economic environment. In addition, high rates of outward migration, particularly among highly skilled workers, result in a loss of human capital. Jamaica's G-2 governance issuer profile score captures Jamaica's history of default, which weighs on otherwise improving institutional capacity and policy effectiveness. Jamaica ranks particularly well regarding government effectiveness, control of corruption and regulatory quality, which are all ranked between the 40th and 70th percentiles, while the rule of law is ranked in the 40th percentile among the sovereigns Moody's rate. Low wealth levels and an already high debt burden limit the degree of resilience. GDP per capita (PPP basis, US$): 12,159 (2022) (also known as Per Capita Income) Real GDP growth (% change): 5.2% (2022) (also known as GDP Growth) Inflation Rate (CPI, % change Dec/Dec): 9.5% (2022) Gen. Gov. Financial Balance/GDP: 0.3% (2022) (also known as Fiscal Balance) Current Account Balance/GDP: -0.8% (2022) (also known as External Balance) External debt/GDP: 84% (2022) Economic resiliency: ba1 Default history: At least one default event (on bonds and/or loans) has been recorded since 1983. On October 13, 2023, a rating committee was called to discuss the rating of the Jamaica, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutions and governance strength, have materially increased. The issuer's fiscal or financial strength, including its debt profile, has not materially changed. The issuer's susceptibility to event risks has not materially changed. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS Continued improvement in debt burden and debt affordability will put additional upward pressure on the rating. Higher-than-projected real GDP growth that signals increased economic competitiveness would also generate upward rating pressures, as it would accelerate the improvement in government debt metrics further increasing the resilience of the economy to shocks. FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS A downgrade of the rating is unlikely given the positive outlook. However, a likely deterioration in government debt metrics would weaken the prospects for an upgrade and if not reversed would put downward pressure on the rating. Increased external vulnerability reflected by a decline in the international reserve buffer, and severe weather-related events that significantly strain government finances affecting the sovereign's ability to service debt could also trigger negative rating actions. The principal methodology used in these ratings was Sovereigns published in November 2022. =========== M E X I C O =========== OPERADORA DE SERVICIOS MEGA: Moody's Affirms 'B2' CFR, Outlook Neg ------------------------------------------------------------------ Moody's Investors Service has affirmed Operadora de Servicios Mega, S.A. de C.V., SOFOM, E.R.'s (Mega) long-term Corporate Family Rating at B2. At the same time, Moody's downgraded Mega's long-term global local and foreign currency issuer ratings to B3, from B2, as well as its long-term global foreign currency senior unsecured debt rating to B3, from B2. The short-term global local and foreign currency issuer ratings were affirmed at Not Prime. Moody's also maintained the negative outlook. RATINGS RATIONALE Moody's downgrade of Mega's long-term global issuer ratings and senior unsecured debt ratings to B3, from B2, reflects a growing reliance on secured debt financing amid persistently difficult refinancing conditions for Mexican finance companies in 2023 and 2024 that continue to constrain the access of the segment to international and local markets. Mega recently announced an offer to exchange its existing $350 million senior notes due in February 2025 and in light of limited access to unsecured refinancing alternatives, Moody's foresees that liquidity needs will increase the company's reliance on secured market financing options. Mega's dependence on secured funding has increased in the past three quarters, reaching around 15% of tangible assets in June 2023, above the 10% reported in December 2022. Moody's expects that secured funding could reach as much as 30% by the end of 2024. The B3 senior unsecured debt rating incorporates Mega's B2 CFR and its expected capital structure with higher levels of secured financing, that will likely change the priorities of claims and asset coverage in the company's current liability structure. In particular, an expected increase in the total size of Mega's secured financing indicates higher loss-given default for senior unsecured creditors, given the subordination to secured creditors, leading to long-term global issuer ratings one notch below the company's B2 CFR. Moody's affirmation of Mega's B2 CFR reflects ongoing weakness in the lessor's financial profile, driven by pressures on the company's liquidity position and risks associated with tight funding conditions for finance companies in Mexico. The rating affirmation also incorporates Moody's expectation that the announced exchange will alliviate liquidity needs into 2024 and 2025. The company has slowed down its cash outflows by limiting loan origination and focusing on collections to preserve liquidity in the first half of 2023, which, in turn, affected asset quality, and profitability, at the same time higher funding costs and reinforced loan loss provisions also compressed bottom line results in the period. In the first six months of 2023, bottom line results were boosted by the one-off gains related to deferred taxes, which, if eliminated, net income would have fallen to low historic levels of 0.4% of total assets, from 0.7% reported one year earlier. While asset risks are relatively mitigated by Mega's sound levels of reserves coverage for loan losses, and its highly collateralized portfolio, period Mega's gross loans contracted 2% in the first six months of 2023, which resulted in a deterioration of nonperforming loans, measured as stage 3 loans, to a 3.8% of gross loans in June 2023, from 3.0% in December 2022. Capitalization remained stable with tangible common equity at an adequate 12.1% of average managed assets in June 2023, from the 12.2% reported in December 2022, which also supported the affirmation of the company's B2 corporate family rating. The negative outlook continues to reflect Moody's expectation of continuing risks in 2024 around the finance company's refinancing plans and heightened pressures on Mega's financial profile arising from higher funding costs that will continue to limit the growth of its operations, factors that will further weight on earnings generation and capital replenishment capacity. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Negative rating action could be triggered by heightened refinancing risks in the short-term evidenced by the company's inability to execute its funding strategy. At the same time, a higher-than-expected deterioration of the lessor's core earnings generation that would hurt bottom line results and ultimately capitalization, could add further pressure to ratings. A downgrade to the lender's CFR would add negative pressure on Mega's issuer and senior unsecured ratings. In light of the negative outlook, limited prospects exist for the rating to be upgraded. However, the outlook on Mega's ratings could be stabilized upon successful progress in the lessor's funding plan, alleviating future refinancing pressures and costs into 2024. Key credit drivers to support a positive rating movement would also be a sustained improvement in core earning generation, while maintaining its asset quality and capital metrics sound. Mega's senior unsecured rating could be upgraded should its CFR be upgraded. The principal methodology used in these ratings was Finance Companies Methodology published in November 2019. OPERADORA DE SERVICIOS MEGA: S&P Affirms 'B' LT ICR, Outlook Neg. ----------------------------------------------------------------- S&P Global Ratings affirmed its long-term 'B' global scale issuer credit rating on Operadora de Servicios Mega S.A. de C.V. SOFOM E.R. (GFMega) and its 'B' issue-level rating on the 2025 senior unsecured notes. Also, S&P assigned its 'B' issue-level rating to GFMega's proposed senior unsecured notes due 2028. The outlook remains negative. The proposed exchange of GFMega's existing senior unsecured notes is still 16 months away from their maturity (February 2025). Therefore, the company would have more than a year to implement alternative strategies to refinance its debt if the proposed exchange isn't successful. On the other hand, if the transaction occurs, GFMega's refinancing risk would diminish, funding diversification would improve, and the debt maturity profile would be better distributed. During the last quarter of 2023 and in 2024, the company will face a manageable maturity profile and will have enough resources to cover its financial obligations. GFMega's debt payments for the upcoming year represent less than 20% of total debt, consisting of monthly payments of its credit lines (no bullet payments) from commercial banks, developments banks, and international funds. As of September 2023, the company maintained a conservative cash position (MXN 1.2 billion) and about 15% of its credit lines are available. Therefore, S&P believes the company will be able to cover its liquidity needs in the next 12 months. S&P said, "According to the proposed transaction's conditions, we believe investors will receive an adequate compensation for the longer tenor of the new notes, terms of which are in line with market conditions. In the early exchange period, investors could receive a total exchange consideration of up to $1,050 per each $1,000 principal amount of the 2025 notes, a portion of which will be payable in cash, and the remainder will be payable in principal amount of the 2028 notes. Total exchange consideration for investors that participate in the exchange offer after the early exchange period has ended would be of $950 per each $1,000. The proportion payable in cash and in principal amount of the new notes will be determined based on the amount of the 2025 notes tendered. This total cash payment for all investors would be equal to $70 million, which is 20% of the 2025 notes' outstanding amount. Moreover, the new notes will pay semi-annual coupons at a fixed rate of 12% (up from 8.25%), or the company will have the option to pay 12.5% of which 10.5% will be payable in cash and 2% will be payable by capitalizing such interest and adding it to the principal amount. Even though the total exchange consideration after the early exchange period has ended will be below par, we believe that the offer has other compensation mechanisms including the 375 basis-point increase on the coupon rate and the cash payment that result in an adequate compensation for investors. The transaction is subject to a minimum acceptance rate of 50% among holders of the 2025 notes. "GFMega is aiming to obtain additional secured credit facilities before the end of 2023 to reduce upcoming debt maturities and, to a lesser degree, to meet its modest business growth targets. In our view, if the company obtains new secured funding, resulting in some funding relief for the following months, but this might also dent its financial flexibility. We estimate the loans pledged as collateral could increase to 30%-35% of total portfolio from 20% currently, while our ratio of unencumbered assets to unsecured debt could decrease to about 120% from 138% by the end of 2023. More importantly, if this scenario materializes, our ratio of priority debt (secured credit facilities) to adjusted assets could be close to 25%. According to our methodology, if this ratio is consistently above 30%, we could lower our issue-level ratings on GFMega by one notch below the issuer credit rating. Currently, our issue-level ratings are at the same level as the 'B' issuer credit rating. We could lower debt ratings in the next 12-24 months if the company continues increasing its secured facilities at a faster pace than its asset accumulation, while access to unsecured funding sources remains restricted. "GFMega's proposed 2028 notes will represent a 375 basis-point rate increase over those of the 2025 notes. We estimate that the new notes could represent about 20% of total liabilities. Therefore, we expect funding costs to increase and curtail the company's margins. Additionally, we believe that the currently tough market and economic conditions (particularly for small and midsize enterprises) could erode the payment capacity of GFMega's clients. This would weaken GFMega's asset quality and raise loan provisions, which would intensify pressures on the company's already modest profitability. In this sense, we will be closely monitoring the company's profitability trend. If it deviates from our base-case scenario because of worsening conditions and increased delinquency levels, we could downgrade GFMega because of its weakening financial and business position." ===================== P U E R T O R I C O ===================== ESJ TOWERS: Hires Julio Cesar Alejandro Serrano as Local Counsel ---------------------------------------------------------------- The official committee of unsecured creditors of ESJ Towers, Inc. d/b/a Mare St. Clair Hotel Debtor seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to employ Julio Cesar Alejandro Serrano as local counsel. The firm's services include: a. advising the Committee with respect to its duties and powers under the Bankruptcy Code and related law in connection with the continued operation and liquidation of the business and financial affairs of the Debtor; b. assisting the Committee with respect to legal issues arising from the current state of the Debtor's affairs, the desirability of the continuation of its business, and any other matters relevant to this Case; c. assisting the Committee concerning the formulation and terms of any proposed plan of liquidation or reorganization; d. assisting the Committee in preserving or disposing of the assets of the estate; and e. rendering legal advice in such other matters as may arise from time to time for which the Committee may need legal assistance. The firm will be paid at the rate of $160 per hour. The firm will be paid a retainer in the amount of $10,000. 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: Julio Cesar Alejandro Serrano USDC-PR 216602 100 Plaza Pradera SC Ste. 20 PMB 130 Toa Baja, PR 00949 Telephone: (787) 647-6632 Email: alejandroj.abogadopr@gmail.com About ESJ Towers, Inc. ESJ Towers, Inc. owns the ESJ Towers in Carolina, P.R. The luxury apartments and condo units at ESJ Towers have direct access to Isla Verde Beach, widely considered one of the best in Puerto Rico. ESJ sought protection under Chapter 11 of the U.S. Bankruptcy Code (Bankr. D.P.R. Case No. 22-01676) on June 10, 2022, with as much as 50 million in both assets and liabilities. ESJ President Keith St. Clair signed the petition. Judge Enrique S. Lamoutte Inclan oversees the case. The Debtor tapped Charles A. Cuprill, Esq., at Charles A. Cuprill, PSC Law Offices as bankruptcy counsel; Ramon Luis Nieves, Esq., at RL Legal Consulting Services, LLC and Luis Daniel Muniz, Esq., as special counsels; Dage Consulting CPAS, PSC as financial advisor; CPA Luis R. Carrasquillo & Co., P.S.C. as financial consultant; and De Angel & Compania, PA, LLC as auditor. The U.S. Trustee for Region 21 appointed an official committee of unsecured creditors on Sept. 12, 2022. The committee tapped the Law Office of Jonathan A. Backman as lead bankruptcy counsel; Julio Cesar Alejandro Serrano, Esq., at JCAS Law as local counsel; and Dage Consulting CPAS, PSC as financial advisor. LANDMARK COMMERCIAL: Case Summary & Four Unsecured Creditors ------------------------------------------------------------ Debtor: Landmark Commercial Centers Development Inc. Carretera Num. 2 San German, PR 00683 Business Description: The Debtor is primarily engaged in renting and leasing real estate properties. Chapter 11 Petition Date: October 16, 2023 Court: United States Bankruptcy Court District of Puerto Rico Case No.: 23-03338 Debtor's Counsel: Wigberto Lugo Mender, Esq. LUGO MENDER GROUP, LLC 100 Carr 165 Suite 501 Guaynabo, PR 00968-8052 Tel: (787) 707-0404 Fax: (787) 707-0412 Email: wlugo@lugomender.com Total Assets: $6,555,072 Total Liabilities: $8,609,063 The petition was signed by Jose A. Feliciano-Ruiz as president. A full-text copy of the petition containing, among other items, a list of the Debtor's Four unsecured creditors is available for free at PacerMonitor.com at: https://www.pacermonitor.com/view/PDEEKNY/LANDMARK_COMMERCIAL_CENTERS_DEVELOPMENT__prbke-23-03338__0001.0.pdf?mcid=tGE4TAMA ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: Benefits Outweigh Challenges, Regulator Says --------------------------------------------------------------- Trinidad Express reports that as Trinidad and Tobago approaches six months since the full proclamation of the Procurement Act, procurement regulator Beverly Khan acknowledges that while there have been some teething problems, she believes that the benefits will far outweigh the challenges. Delivering the feature address in a webinar hosted by the Trinidad and Tobago Transparency Institute (TTTI) Khan stated that full proclamation of the Act represents an important milestone in this country’s development, and offers us the best opportunity to establish a fundamentally new and different culture aimed at driving public sector performance rooted in good governance principles, according to Trinidad Express. "These teething problems are a normal part of the development process especially where the change is so significant. However, the benefits to Trinidad and Tobago as the system progresses and then matures, and the potential sustainability of those benefits far outweigh these early challenges," she said, the report notes. The report relates that Ms. Khan said as taxpayers we are all keen to ensure that public funds are effectively utilized by the government in furtherance of the country’s development and the well-being of all citizens. "The current system is still in its early stages but it is here to stay and at the OPR (Office of the Procurement Regulator) we accept that there are issues to address and efficiencies still to be gained as we gather more experience in implementation," Ms. Khan said, the report discloses. Ms. Khan said the OPR is committed to building effective partnerships. According to the World Bank, governments around the world spend an estimated US$49.5 trillion in public contracts every year, Khan said, the report relays. Ms. Khan said here in T&T the OPR estimates that last year the value of public contracts in the central government alone accounted for approximately $9 billion which represented four per cent of GDP and 17 per cent of government expenditure, the report notes. "We know that this figure will be far higher when public contracts awarded by state enterprise and statutory bodes are taken into account. If indeed the total value were to be in the range of 15 to 22 per cent of GDP then we can easily have $30 to $40 billion being expended in the system on an annual basis," she said, the report relates. "Over the next full year of operations under the Act the OPR will collect the data that will allow for more in-depth analysis of the value and the nature of public contracts and the performance of the system using key indicators aligned with the objects of the Act," Ms. Khan said, the report relays. Ms. Khan said any analysis of the performance of the procurement system must be juxtaposed against performance on the international corruption perception index, the report notes. Last year, T&T recorded a score of 42 out of 100 on the Corruption Perception index and ranked 77 out of 180 countries, the report recalls. "Based on the data used to compile the CPI, the Act has the potential to impact the CPI score in areas of improving access to information on public procurement, reducing bureaucracy, improving efficiency, offering redress, providing protection from victimisation, and ultimately establishing strict penalties for breached of the Act," she said. The Public Procurement and Disposal of Property Act was fully proclaimed on April 26 and aims to reform the procurement laws of Trinidad and Tobago in keeping with the principles of good governance, such as accountability, transparency, integrity and value for money, the report adds. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2023. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *