/raid1/www/Hosts/bankrupt/TCRLA_Public/231024.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, October 24, 2023, Vol. 24, No. 213
Headlines
A R G E N T I N A
ARGENTINA: Anxiety Boils Over For Bond Investors Ahead Of Vote
ARGENTINA: US$500MM Cash Pile at Main Airport Unnerves Banks
MUNICIPALITY OF CORDOBA: Fitch Affirms 'CC/CCC-' LongTerm IDRs
B R A Z I L
BRAZIL: August Retail Sales Beat Estimates But Pressures Remain
CEMIG: Fitch Affirms 'BB' IDRs, Outlook Stable
USIMINAS: S&P Affirms 'BB' Global Scale ICR, Outlook Stable
D O M I N I C A N R E P U B L I C
[*] DOMINICAN REPUBLIC: Advances in World Bank Governance Indicator
M E X I C O
GRUPO AEROMEXICO: S&P Hikes Global Scale ICR to 'B', Outlook Stable
P U E R T O R I C O
GGG INVESTMENTS: Seeks to Hire Real Home of America as Realtor
- - - - -
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A R G E N T I N A
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ARGENTINA: Anxiety Boils Over For Bond Investors Ahead Of Vote
--------------------------------------------------------------
Kevin Simauchi & Scott Squires at Bloomberg News report that angst
is spreading among holders of Argentina's US$65 billion in
sovereign bonds before the presidential election took place, with
nearly every scenario pointing to further investment losses.
A victory by libertarian frontrunner Javier Milei could usher in
untested policies to dollarize the nation's stumbling economy,
according to Bloomberg News. Pro-business Patricia Bullrich's plan
to lift capital controls would almost certainly spark another peso
devaluation, while economy minister-turned-candidate Sergio Massa
would spell continuity of left-wing policies investors see as
failures, Bloomberg News notes.
For bondholders, that's created something of a noxious mix,
Bloomberg News relays. For weeks, most of Argentina's foreign
notes have lingered below 30 cents on the dollar, with surging
yields that signal a tenth default is looming as major debt
repayments resume next year, Bloomberg News discloses.
"Argentina has become toxic," said Diego Ferro, founder of M2M
Capital in New York, who says he's steering clear of the bonds for
now. "You cannot make a rational investment thesis for the
country. It's more akin to gambling at this point," he added.
It's easy to understand why investors are so uncertain: Argentina
is on the brink of its sixth recession in a decade, the central
bank is devoid of dollars and Argentines are suffering under the
weight of runaway inflation, Bloomberg News notes.
The country's bonds due 2030 have handed holders losses of 40
percent since they were issued during the latest restructuring
agreement in 2020, according to data compiled by Bloomberg. That's
compared with an average 18 percent slump in Latin American
sovereign bonds over the same period, the data show, Bloomberg News
relays.
It marks a sharp departure from the enthusiasm seen just eight
years ago, when large US-based funds rushed into Argentina on a bet
the nation would turn business friendly under former president
Mauricio Macri, Bloomberg News notes. After Macri failed to return
the economy to growth, a surprise win by leftist Alberto Fernandez
in 2019 sent assets into a tailspin, generating massive losses for
the nation's biggest private creditors, Bloomberg News says.
Bloomberg News points to three potential scenarios that investors
are bracing for:
Milei Wins Big
Bond traders fear that prices for Argentine securities will spiral
if Milei, a combative congressman often compared to Donald Trump,
wins the October 22 vote outright -- or takes a hefty percentage of
votes ahead of a November run-off, Bloomberg News relays.
His hallmark proposal to wrestle high prices by ditching the peso
for the dollar is a move that many economists say would stoke
short-term inflation even further, Bloomberg News notes. How he
would get that done without a legislative majority remains unknown,
Bloomberg News says.
"In a Milei victory, his lack of support in the Senate and Lower
House provides gridlock against his more radical ideas," said
Trevor Yates, an investment analyst at Global X in New York,
Bloomberg News discloses. "If he truly wants to dollarise the
economy, he will need to normalise fiscal and economic policy in
the short-term," he added.
Bullrich Faces Off With Milei
Cutting the deficit and lifting capital controls are also part of
former security minister Bullrich's platform, Bloomberg News
relays. Bonds could get a boost if Bullrich - many investors'
preferred choice - performs well enough, Bloomberg News relays
She's run her campaign by touting an orthodox approach to combating
inflation: slash public spending and stop printing pesos to cover
the government's bills, Bloomberg News discloses.
"It's more an issue of who has the best ability to implement the
policies after the elections," said Claudia Calich, the head of
emerging-market debt at M&G Investments, Bloomberg News relates.
There's "a very long laundry list of things that need to be done by
whoever gets elected," she added.
Massa Makes It to Run-Off
Bond traders fear that prices for Argentina's bonds will slump
further should Milei face Massa in a November run-off, Bloomberg
News relays. That's because Massa is seen continuing his spending
programmes financed through money printing, amping up inflation
already surging at 138 percent, Bloomberg News says.
"Milei versus Massa in a second-round run-off, I think, would be
the worst of all possible scenarios," said Patrick Esteruelas of
Emso Asset Management. Massa's spending tactics are "turning what
was an already poisoned chalice for whoever ends up succeeding him,
into an undrinkable chalice," Bloomberg News discloses.
Wild Card Vote
And with any election, there's the chance for an unexpected
outcome. Given Milei's outperformance in August's primaries, the
chances of Milei getting knocked out for a Bullrich-Massa run-off
are slim — but not impossible. In that event, investors see
Bullrich as a likely winner, which may push bond prices higher,
Bloomberg News discloses.
"With elections right around the corner and sovereign prices where
they are, you have to fasten your seatbelt and get ready for
another Argentine roller coaster," said Ray Zucaro, the chief
investment officer of RVX Asset Management, Bloomberg News adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
0its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
ARGENTINA: US$500MM Cash Pile at Main Airport Unnerves Banks
------------------------------------------------------------
Ignacio Olivera Doll at Bloomberg News reports that restrictions
imposed by Argentina's government left as much as US$500 million in
US cash stranded at the country's main airport for three days,
unnerving local bank executives amid a surge in withdrawals.
The country's top lenders were due to receive the greenbacks from
the US Federal Reserve after importing them through Bank of
America, according to people familiar with the situation who asked
not to be named discussing sensitive matters, according to
Bloomberg News. The cash was shipped on cargo planes in bundles of
US$1.6 million, one of the people said, Bloomberg News says.
Argentina's banks have seen a sharp increase in dollar withdrawals
at their branches ahead of the October 22 presidential election,
Bloomberg News notes. They've been forced to import cash to meet
the surge in demand and a government move meant to stem
"irregularities" in foreign trade compounded their concern,
Bloomberg News sats.
The country's tax authority, AFIP, issued a 72-hour shutdown order
at the main international airport's cargo terminal on October 10,
amid a sharp sell-off in the peso that saw Argentina's black market
exchange rate top 1,000 per dollar, Bloomberg News discloses. The
nation allows savers to hold accounts in dollars, Bloomberg News
says.
Reserves at Argentina's Central Bank have fallen sharply in recent
weeks, fuelling investor concerns about a possible run on the
financial system in the midst of the election cycle, Bloomberg News
notes. Net reserves, the difference between Central Bank dollar
assets and short-term liabilities, are now approaching a record
negative US$10 billion, according to private consulting firms,
Bloomberg News discloses.
The hurdles at the airport in Buenos Aires didn't disrupt liquidity
operations because the shutdown order was lifted before the full
term elapsed and because banks usually import more than needed to
meet client demand, the people said, Bloomberg News relays. Banks
have brought in close to US$2 billion in US cash since outsider
candidate Javier Milei — a libertarian economist who wants to
dollarise the economy — was the surprise winner of an August
primary vote, the people said, Bloomberg News notes.
Local lenders, such as Banco Macro SA, Banco de Galicia and Banco
Santander Rio, worked with Bank of America to bring the cash into
Argentina, Bloomberg News discloses. The US financial giant has a
banknote service for foreign companies and clients, and the
Argentina shipment was a routine transaction, Bloomberg News
relays.
The plane carrying the cash was also stranded for a day in Miami
due to Argentina's cargo terminal issues, one of the people said,
Bloomberg News notes.
AFIP's press office said the restriction was lifted after 24 hours
but didn't give further details on the situation. Bank of America
declined to comment.
Officials at local Argentine banks informally alerted the Central
Bank to the problem, so that it could relay concerns to government
authorities, the people said, Bloomberg News relays. The banks
even considered submitting a formal letter on the issue, the people
added.
Argentine savers have already withdrawn nearly US$2 billion - 10
percent of total private sector dollar holdings - since a February
peak in deposits, Bloomberg News notes. The import of banknotes
from the United States is exacerbating the decline of the Central
Bank's reserves, Bloomberg News adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
0its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
MUNICIPALITY OF CORDOBA: Fitch Affirms 'CC/CCC-' LongTerm IDRs
--------------------------------------------------------------
Fitch Ratings has affirmed Municipality of Cordoba's (MCOR)
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'CC' and
Local Currency IDR at 'CCC-'.
The rating action reflects MCOR's exposure to discretionary
transfers, adequate debt service coverage ratio over the next 12-24
months and the high exposure to exchange rate risk. The
municipality's standalone credit profile (SCP) is assessed at
'ccc-'. Fitch relied on its ratings definitions to position the
municipality's ratings and SCP.
MCOR managed to contain opex growth in 2022 relative to
inflationary pressures. The real positive evolution of the
operating revenues, with a real containment of operating expenses,
determined strengthening of budgetary results in 2022, and
prospective debt metrics.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
Fitch assesses the province's Risk Profile as 'Vulnerable' in line
with other Fitch-rated Argentine local and regional governments
(LRGs). MCOR's risk profile combines all six factors assessed at
Weaker (revenue, expenditure, and debt and liquidity frameworks)
and considers the sovereign IDR.
The assessment reflects Fitch's view that there is a very high risk
of the issuer's ability to cover debt service with the operating
balance weakening unexpectedly over the scenario horizon
(2023-2024) due to lower revenue, higher expenditure or an
unexpected rise in liabilities or debt-service requirement.
Revenue Robustness: 'Weaker'
The assessment reflects the evolving nature of the national fiscal
framework, dependence on a 'CC' sovereign counterparty (Argentina)
and a 'CCC+' provincial counterparty risk (Province of Cordoba),
for 38 % (three year-average) of its operating income, amid an
adverse macroeconomic environment riddled with higher inflation.
National GDP dropped 2.6% in 2018, a further 2.1% in 2019, and 9.9%
in 2020 due to the coronavirus pandemic, in real terms. The
national GDP recovered 10.4% in 2021 and 3.0% in 2022 but will
decelerate in 2023 to -3.4%. In that context, at YE 2022, operating
income increased 5.6% in real terms, the national and provincial
transfers increased 12.5%, and local collection revenues increased
3.4% in real terms, amid an inter-annual average inflation rate of
70.7%.
Revenue Adjustability: 'Weaker'
MCOR's ability to generate additional revenue in response to
possible economic downturns is limited, like all Fitch-rated
Argentine LRGs. Fitch considers that local revenue adjustability is
low and is challenged by the country's large and distortive tax
burden. The negative macroeconomic environment further limits the
subnational's ability to increase tax rates and expand tax bases to
boost its local operating revenues. Structurally high inflation
also constantly erodes real-term revenue growth and affects
affordability. On its rating case, Fitch expects operating revenues
to increase below the average inflation rate for 2023-2024.
Local collection revenues represent 61.3% (three year-average) of
the operating income, but its ability to raise revenue is
constrained by the moderate income of the city's residents by
international standards and social-political sensitivity to tax
increases.
Expenditure Sustainability: 'Weaker'
The country's fiscal regime is structurally imbalanced regarding
revenue-expenditure decentralization, leading to Fitch's 'Weaker'
assessment of its expenditure sustainability. Spending during the
last five years has been influenced by high inflation and high
spending responsibilities. Currently, the MCOR is largely
responsible for the provision of public services, including
education and healthcare (these are mainly provincial services).
Local economic strengths and revenue growth above inflation and
expenditure dynamics benefited MCOR's budgetary performance during
2021 and 2022. At YE 2022, the MCOR's operating balance was of
19.3% of operating revenues (2021: 16.4%) due to economic inertia
and the city's prudent budgetary control. MCOR has managed to
contain opex growth relative to inflationary pressures (19.5% below
inflation between 2022 and 2017). MCOR's operating balance is
estimated to average around 11.6% in 2023-2025.
Expenditure Adjustability: 'Weaker'
For Argentine sub-nationals, infrastructure needs and expenditure
responsibilities are deemed as high, with leeway or flexibility to
cut expenses viewed as low. National capex is low and insufficient
in translating capex burdens to LRGs. Fitch views the flexibility
to cut expenses for the municipality as weak relative to
international peers. On average, in 2018-2022, 16.4% of total
expenditure corresponds to capex. Capex levels recovered in 2021
and 2022 to an average of 22.8%, from an average of 12.2% between
2018 and 2020.
MCOR's ratio of staff expenses in its opex structure is high (but
with a decreasing trend) at 48.3% in 2022 (from 63.3% in 2049);
with opex totaling around 73.8% of total expenditure (from 84.6% In
2019).
Liabilities and Liquidity Robustness: 'Weaker'
Unhedged foreign currency debt exposure is an important weakness
considered, along with the weak national framework for debt and
liquidity and underdeveloped local market. The assessment also
considers a 'CC' sovereign that restructured its debt during 2020,
thus curtailing external market access to LRGs. By YE 2022, direct
debt increased by about 77.9% underpinned by high inflation and
currency depreciation, totaling ARS39.6 billion. Approximately
69.6% of MCOR's direct debt is denominated in foreign currency and
is unhedged, mainly in U.S. dollars, which is a rating risk in the
current environment of high inflation and currency depreciation.
On a positive note, refinancing risk is expected to remain
controlled until 2023 as a result of DDE completion in 2020. The
city will face debt-capital payments starting in March 29, 2024
(USD 19.4 million in March and USD19.4 million in September). In
2023, the municipality has been active in the local market, with
the issuance of short-term program treasury bills up to ARS11,000
million and mid-term securities for ARS2,000 million.
Regarding pension liabilities, this is not a direct contingency for
the municipality as they are covered through the provincial
system.
Liabilities and Liquidity Flexibility: 'Weaker'
Fitch perceives the Argentine national framework in place for
liquidity support and funding available to subnationals as
'Weaker', as there are no formal emergency liquidity support or
bail-out mechanisms established. Weak sovereign counterparty at
'CC'. For liquidity, Argentine LRGs rely mainly on their own
unrestricted cash. In YE 2022, MCOR's unrestricted cash totaled
around ARS12.3 billion. MCOR's liquidity coverage ratio averaged
3.3x during 2018-2022, and Fitch projects it's going to average
1.3x during 2023-2024.
The current context of national capital controls is another risk
captured in the liquidity flexibility assessment, as the imposition
of exchange regulations could ultimately affect LRGs' ability to
fulfil their financial obligations.
DEBT SUSTAINABILITY: 'aa' category
Considering the current sovereign 'CC' rating level, curtailment of
the external market amid a volatile macroeconomic and regulatory
context, Fitch is only projecting a rating case for YE 2024. Debt
sustainability metrics are analyzed to evaluate MCOR-specific debt
repayment capacity and its liquidity position in the next 12
months.
The score considers a 'aaa' primary payback ratio of 2.9x for 2024
under Fitch's rating case (from 'aa' in las review). Also, debt
sustainability considers an override from the 'bbb' actual debt
service coverage ratio (ADSCR) of 1.3x in 2024 (0.8x in 2024 in
last review). Debt sustainability metrics are analyzed to evaluate
MCOR specific debt repayment capacity and its liquidity position in
the next 12 months.
The overall debt sustainability score at 'aa' is underpinned by the
medium-term maturity of debt in tandem with high refinancing risks
stemming from a 'CC' macroeconomic environment where transfer and
convertibility risks prevail.
DERIVATION SUMMARY
Fitch relied on its rating definitions to position MCOR's ratings
and standalone credit profile. The rating action reflects MCOR's
debt service coverage ratio above 1.0x in the next 12-24 months.
The MCOR's 'ccc-' SCP is derived from a 'Vulnerable' Risk Profile
and a 'aa' debt sustainability score, but also reflects the
issuer's very high level of credit risk, including the risk that
"default is a real possibility". The SCP considers comparison with
peers, including the provinces of Chaco, Salta, State of Rio de
Janeiro (Brazil) and Municipality of Manisa (Turkey). Fitch does
not apply any asymmetric risk or extraordinary support from
upper-tier government.
The MCOR's Long-Term Foreign IDR of 'CC' is capped by the sovereign
rating. On the other hand, the Long-Term Local IDR of 'CCC-' is not
capped by the sovereign rating. The 'CC' IDR reflects challenges
ahead that could hinder the repayment capacity, such as transfer
and convertibility risks and inability to access external markets
to address financing needs. The municipality's IDRs reflect the
exposure to macroeconomic counterparty risks and unpredictable
regulatory framework.
KEY ASSUMPTIONS
Qualitative Assumptions:
Risk Profile: 'Vulnerable'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Weaker'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Debt sustainability: 'aa'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Sovereign Floor: 'N/A'
Quantitative Assumptions - Issuer Specific:
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2018-2022 figures and 2023-2025 projected
ratios. The key assumptions for the scenario include:
- Operating revenue average growth of 126% for 2023-2025; assuming
growth below average inflation towards the medium term.
- Operating expenditure average growth of 135% for 2023-2025;
assuming growth above average inflation towards the medium term.
- Operating margin progressive reduction of the towards 14%-10%,
incorporating tax collection growth below inflation against
inflation-driven operating expenditure.
- Average capex/total expenditure levels of around 16%; close to
the 2018-2022 historical average of 16.4%.
- Cost of debt considers non-cash debt movements due to currency
depreciation with an average exchange rate of ARS301.1 per U.S.
dollar for 2023, ARS775.8 for 2024 and ARS1,746.1 for 2025;
- Consumer price inflation (annual average % change) of 124.1% for
2023, 142% for 2024, 122% for 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Foreign Currency IDR is capped by the sovereign rating.
Argentina's IDR upgrade would lead to a corresponding rating action
if its SCP remains at 'ccc-'
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Municipality of Cordoba would be downgraded to 'C' if there are
indications of any credit event that reflects a near default
situation.
ISSUER PROFILE
The city of Cordoba is the capital of the province of Cordoba
(CCC+) and the second-largest city in Argentina (CC), after Buenos
Aires (B-/Stable). The city represents one of the nation's most
important social, educational and economic centers, which provides
strong local tax revenue collection from commerce and industry. It
has a population of 1.5 million inhabitants and accounts for
approximately 0.4% of the national GDP. The poverty level is 39.5%
and unemployment 8.5%.
ESG CONSIDERATIONS
The Municipality of Cordoba has an ESG Relevance Score of '4' for
Rule of Law, Institutional and Regulatory Quality, Control of
Corruption, reflecting the negative impact the weak regulatory
framework and national policies of the sovereign have over the
municipality in conjunction with other factors.
The Municipality of Cordoba has an ESG Relevance Score of '4' for
Creditor Rights, reflecting that despite the issuer's improved
willingness to service and repay its debt obligations, the latest
DDE continues to weigh on its credit profile and debt coverage is
expected to remain pressured, therefore, the issue of Creditor
Rights remains relevant to the rating in conjunction with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Cordoba,
Municipality of LT IDR CC Affirmed CC
LC LT IDR CCC- Affirmed CCC-
===========
B R A Z I L
===========
BRAZIL: August Retail Sales Beat Estimates But Pressures Remain
---------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that retail sales
volumes in Brazil overshoot market expectations but still posted a
small decrease in August on a monthly basis, statistics agency IBGE
said, signaling the sector remains under pressure amid high
borrowing costs.
In Latin America's largest economy, retail sales were down 0.2% in
August from July, above the median forecast of a 0.7% decrease in a
Reuters poll of economists but still in negative territory,
according to globalinsolvency.com.
The sector has been alternating between gains and losses this year
as tight monetary policy keeps sales in check, the report notes.
The small monthly changes mean the key economic indicator has been
roughly stable this year, according to the statistics agency, the
report notes.
"With the exception of a 4% rise in January, the figures point to
stability," research manager Cristiano Santos said, the report
relays. "All the other months had variations close to zero - four
months of stability and three of low volatility," he added.
Four of the eight core segments surveyed by the statistics agency
were down in August, with sales of furniture, home appliances and
personal household items among the biggest drags, IBGE noted in a
statement obtained by the news agency. Those drops were partially
offset by an increase in sales of supermarket items, including food
and beverages, which have been boosted by falling food inflation in
the country, the agency added.
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).
CEMIG: Fitch Affirms 'BB' IDRs, Outlook Stable
----------------------------------------------
Fitch Ratings has affirmed Companhia Energetica de Minas Gerais'
(Cemig) and its subsidiaries Cemig Distribuicao S.A.'s (Cemig D)
and Cemig Geracao e Transmissao S.A.'s (Cemig GT) Local Currency
(LC) and Foreign Currency (FC) Issuer Default Ratings (IDRs) at
'BB'. Fitch has also affirmed the National Scale Ratings for the
three entities at 'AA+(bra)'. The Rating Outlook is Stable.
Cemig's ratings reflect the group's solid and diversified asset
base, sound financial profile and positive operating performance in
the Brazilian power sector. Fitch estimates the group's aggressive
capex plan will drive negative FCFs throughout the rating horizon
and will increase leverage.
KEY RATING DRIVERS
Aggressive Capex Plan Pressures FCF: Fitch estimates that Cemig
will be consistently cash flow negative in the next four years, as
it executes its aggressive capex plan of BRL25 billion for
2023-2026 period, with BRL5.0 billion in 2023 and BRL5.3 billion in
2024. The capex plan is mainly concentrated at Cemig D
(Distribution Business) with the aim to reinforce its asset base,
which will be considered in the next tariff review in 2028. The
base case scenario for the rating estimates negative consolidated
FCFs of BRL1.9 billion in 2023 and BRL2.7 billion in 2024,
incorporating a dividend payment of 50% of net income. Fitch
forecasts EBITDA around BRL7.0 billion in 2023 and 2024 and cash
flow from operations of BRL5.4 billion and BRL4.7 billion,
respectively.
Higher Leverage: Cemig's consolidated adjusted net leverage is
expected to increase to around 3.0x in 2026 from 1.7x expected for
2023, as a result of the debt fund capex plan. EBITDA to interest
expense will be pressured, weakening to 3.5x in 2026 from 7.0x in
2023. Consolidated net leverage, excluding off-balance-sheet from
guarantees to nonconsolidated investments, should continue below
2.5x until 2026. Fitch's adjusted debt for Cemig includes
guarantees of BRL3.4 billion to nonconsolidated companies, while
adjusted EBITDA includes dividends received of BRL730 million.
Favorable Generation Segment: Cemig's asset diversification and
operations in different segments within the Brazilian power sector
is viewed as a credit strength. The generation segment (Cemig GT)
performance is key for its consolidated credit profile; Gemig GT is
fully contracted until 2026, and is estimated to generate an
average annual EBITDA of BRL2.7 billion during 2023-2026 with an
EBITDA margin of around 30%. Outside the rating horizon, Cemig GT
faces recontracting risk, as it has two generation concessions that
will expire in 2027 that represent 51% of its contracted energy.
High Predictability from Distribution: Cemig D has been able to
drive strong performance despite an unfavorable trend in energy
volumes distributed in its concession area - a drop of 0.3% in 2022
and an expected growth of modest 1.6% in 2023. Cemig D's tariff
review in May 2023 increased by 12% (+BRL349 million) the
regulatory EBITDA to BRL3.2 billion, from BRL2.8 billion. Fitch's
base case scenario incorporates annual increase in demand of 1.7%,
on average, from 2023 to 2025. Cemig D should generate EBITDA of
BRL3.0 billion in 2023 and BRL3.5 billion in 2024, remaining above
the regulatory level.
Ratings Equalization: As per as Fitch's Parent and Subsidiary
Linkage Rating Criteria, Fitch equalizes Cemig, Cemig D and Cemig
GT's ratings. This mainly reflects the high legal incentives that
the holding company would have to support the subsidiaries in a
stress scenario. Cemig consolidates the subsidiaries and guarantees
a significant portion of their debts. There are also cross-default
clauses in the majority of the group's debt instruments. Debt
financial covenants are measured on a consolidated basis, with
centralized strategy and cash management. Fitch also views the
subsidiaries as the core business of Cemig. Cemig's ratings are not
capped by the credit profile of its controlling shareholder, the
State of Minas Gerais.
DERIVATION SUMMARY
Compared with Brazilian peers in the power sector, Cemig's credit
profile is weaker than Engie Brasil S.A. (Engie Brasil) and
Transmissora Alianca de Energia Eletrica S.A. (Taesa), both LC and
FC IDRs rated 'BBB-' and 'BB+', respectively. Cemig presents higher
business risk coming from its distribution segment and typically
worse operational performance as a state-owned company. Taesa
operates in the highly predictable transmission segment (13,800km
of transmission lines across the country, compared with 5,017km for
Cemig), while Engie Brasil is the largest private player in the
generation segment (installed capacity of 8.2 GW, compared with 5.3
GW for Cemig).
Compared with Brazilian peers on the National Scale, Cemig's credit
profile is weaker than Companhia Paranaense de Energia (Copel;
AAA(bra)/Stable) and higher than Centrais Eletricas de Santa
Catarina (Celesc; AA(bra)/Stable). In comparison with Copel, which
has a similar business profile, this company has greater relevance
in the generation segment in the consolidated results (66% of the
consolidated EBITDA, compared with 46% for Cemig), without
concession risk in generation segment and lower capex program over
the next years. Fitch considers that, despite the solid financial
profile of Celesc, benefiting from a conservative leverage ratio
(net leverage below 2.0x) and less intense investment plan, its
worse business profile with much higher exposure to the
distribution segment (80% of the consolidated EBITDA) justifies the
rating differentiation.
KEY ASSUMPTIONS
- Cemig D energy distribution increase in its concession area of
1.6% in 2023 and average annual growth of 1.8% in 2024-2026;
--Cemig D's non-manageable costs fully passed through tariffs;
- Cemig GT's average sales price of BRL243/MWh in 2023-2024, with
annual energy sales of 4.8GWh per year;
- Average annual consolidated capex of BRL6.2 billion during
2023-2026;
- Dividend payout of 50% of net income.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Neutral to positive FCF;
- Consolidated net adjusted leverage below 3.0x on a sustainable
basis;
- EBITDA interest coverage above 4.5x on a sustainable basis.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Consolidated net adjusted leverage higher than 4.0x on a
sustainable basis;
- EBITDA interest coverage below 3.0x on a sustainable basis;
- Short-term debt exceeding cash;
- Significant operational issues in its mains subsidiaries Cemig D
and Cemig GT;
- Loss or costly renewal of generation concessions, depending on
the financial structure.
LIQUIDITY AND DEBT STRUCTURE
Sound Liquidity: Cemig group should continue with broad access to
financing sources and gradually reduce its debt maturity
concentration in 2024. Liquidity strengthened in 2023, benefiting
from positive operating results and the debenture issuance of
BRL2.0 billion at Cemig D level, due in 2026. At the end of June
2023, cash and equivalents were BRL3.7 billion, compared with
short-term debt of BRL1.1 billion. Cash inflow from the asset sale
of BRL421 million, concluded in October 2023, also reinforces the
group's liquidity. On June 30, 2023, Cemig group's total adjusted
debt amounted to BRL15 billion, including off-balance-sheet debt of
BRL3.4 billion, with the balance mainly consisting of debentures of
BRL8.1 billion and Cemig GT's Eurobonds of BRL3.7 billion.
ISSUER PROFILE
Cemig is the holding of one of the largest integrated power utility
groups in Brazil. The group operates in the distribution segment
through Cemig D and in generation and transmission mainly through
Cemig GT. Cemig is controlled by State of Minas Gerais.
SUMMARY OF FINANCIAL ADJUSTMENTS
Revenues and EBITDA do not incorporate construction revenues and
construction costs.
ESG CONSIDERATIONS
Companhia Energetica de Minas Gerais (CEMIG) has an ESG Relevance
Score of '4' for Governance Structure due to the inherent
governance risks that arise with a dominant state shareholder,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Cemig Geracao e
Transmissao S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Affirmed AA+(bra)
senior
unsecured LT BB Affirmed BB
senior
unsecured Natl LT AA+(bra)Affirmed AA+(bra)
Cemig
Distribuicao
S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Affirmed AA+(bra)
senior
unsecured Natl LT AA+(bra)Affirmed AA+(bra)
Companhia
Energetica de
Minas Gerais
(CEMIG) LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra)Affirmed AA+(bra)
USIMINAS: S&P Affirms 'BB' Global Scale ICR, Outlook Stable
-----------------------------------------------------------
S&P Global Ratings affirmed its 'BB' global scale and 'brAAA'
national scale ratings on Brazil-based integrated steel producer
Usinas Siderurgicas de Minas Gerais (Usiminas), as well as its
'brAAA' issue rating on the senior unsecured debentures, with a '3'
recovery rating, given the expected average recovery of 65%
(rounded estimate).
The stable outlook reflects that despite weaker industry
fundamentals that could weaken certain metrics, the company's
robust cash cushion, expected improved capital expenditure (capex)
and working capital, and a gradual recovery in price adjustments in
2024 should bring gross debt to EBITDA to 2.5x-3.0x in 2024-2025
and turn free operating cash flow (FOCF) positive.
Usiminas is controlled through a shareholders' agreement between
T/T Group, Nippon Steel Corp. (NSC Group; BBB+/Stable/--), and
Previdencia Usiminas (Usiminas' employees' pension fund), which
together form the controlling group of the company's voting capital
with 68.6% of the total voting shares. T/T Group increased its
stake recently to 61.3% of the controlling group's shares in
Usiminas, with the right to appoint the majority of executive
directors and the board and to determine strategic decisions. Thus
T/T Group is now the ultimate parent company, and its credit
quality reflects the group's.
Usiminas' assets will complement T/T Group's operations in Brazil
and continue to enhance the group's presence in Latin America. S&P
said, "We also expect T/T Group will further increase its stake in
Usiminas by acquiring the remainder of NSC Group in the next two
years. In addition, we expect Usiminas, as a relevant subsidiary,
to contribute to about 30% of T/T Group's revenue and 15% of
EBITDA. However, we do not expect the group to include
cross-default clauses in its financial contracts or provide direct
guarantees, given this is the same way it operates with other
subsidiaries. But we think the group could provide situational
support to Usiminas, even considering that this need seems
remote."
S&P said, "We view the credit quality of T/T Group as higher than
Usiminas', but potential support would be more uncertain in a
sovereign default scenario. Nevertheless, we continue to rate
Usiminas one notch above our foreign currency rating on Brazil,
based on the company's ability to pass a stress test related to a
sovereign default scenario.
"We have revised our estimates for Usiminas' credit metrics, taking
into consideration more conservative domestic steel demand and
pressure on prices as increased import competition in Brazil makes
price adjustments more difficult, even with the government's
implementation of higher taxes on imported products. Moreover, we
expect input costs to continue hampering margins, given continued
inflationary pressure, slab acquisition instead of
production--because of the company's blast furnace maintenance --
and lower expected steel volume, which complicate the dilution of
fixed costs. We expect EBITDA margins to fall to below 7% in 2023
from 15% in 2022 and steel margins to be only about 4%. We expect
gross leverage will peak close to 4.5x in 2023."
These weaker metrics, coupled with the company's high investment in
revamping its blast furnace and building up slab inventories--which
has pressured working capital -- will contribute to negative free
cash flow generation in excess of approximately Brazilian real (R$)
2 billion this year. For 2024, S&P expects a release of inventories
and a gradual recovery in prices, bolstered by lower inflation and
interest rates boosting consumption, will lower production costs
and capex, which should turn FOCF positive in the coming years,
bringing leverage to 2.5x-3.0x in 2024 and afterward.
S&P anticipates Usiminas will maintain this comfortable liquidity
even though a higher portion of capex is already committed to the
company's expansion plan in the next 12 months and even though we
expect continued shareholder remuneration, according to the
company's minimum dividend policy. The strong liquidity could also
owe to the company's smooth debt maturity profile until 2026, which
leads S&P to expect a comfortable position to meet financial
covenants and net leverage of 3.0x in 2023.
===================================
D O M I N I C A N R E P U B L I C
===================================
[*] DOMINICAN REPUBLIC: Advances in World Bank Governance Indicator
-------------------------------------------------------------------
Dominican Today reports that on World Ethics Day, the General
Directorate of Ethics and Government Integrity (DIGEIG) highlighted
the Dominican Republic's significant progress in the six governance
indicators of the World Bank (WB) over the past three years, based
on data provided by the Ministry of Finance (MH).
The indicators that have shown improvement in the Dominican
Republic include control of corruption, rule of law, voice, and
responsibility, the effectiveness of the Government, regulatory
quality, political stability, and absence of violence, according to
Dominican Today.
Notably, there has been substantial progress in the Government
effectiveness indicator, with the country moving from the 38.1
percentile to the 50.0 percentile in the last three years, the
report notes. This progress places the Dominican Republic among
the top-performing countries in this regard, the report relays.
In the rule of law indicator, the country has improved by 7.14
percentage points since 2019, reaching the 50.5th percentile, the
report notes. Similarly, the indicator for political stability and
absence of violence has advanced by 8.02 percentage points, the
report relays.
Regarding regulatory quality, there has been a 1.39 percentage
point improvement in the current government's management, the
report says. Additionally, the indicator for voice and
responsibility in the Dominican Republic has seen a positive shift
of 4.83 percentage points, reversing a declining trend observed
since 2012, the report relays.
These World Bank indicators play a crucial role in enhancing the
country's credit profile and advancing toward the goal of achieving
investment-grade status, the report says. This, in turn, has a
direct impact on public finances and the national economy, the
report discloses.
World Ethics Day, celebrated on the third Wednesday of October,
serves as a reminder of the importance of ethics in shaping a
better future, emphasizing its significance for individuals and
organizations alike, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
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 wealth levels 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.
===========
M E X I C O
===========
GRUPO AEROMEXICO: S&P Hikes Global Scale ICR to 'B', Outlook Stable
-------------------------------------------------------------------
S&P Global Ratings, on Oct. 19, 2023, raised its global scale
issuer credit rating on Mexico's leading airline Grupo Aeromexico
S.A.B. de C.V. (Aeromexico) to 'B' from 'B-'. S&P also raised its
issue-level rating to 'B+' from 'B' on the company's 8.5% senior
secured notes due 2027, one notch above the issuer credit rating.
The recovery rating of '2' reflecting its expectation for
substantial recovery (70%-90%; rounded estimate: 75%) in the event
of a payment default, remains unchanged.
The stable outlook reflects S&P's view that Aeromexico will
continue delivering above-average profitability and improving funds
from operations (FFO) to debt above 20% and solid liquidity
position for the next 12-18 months.
The recovery in the number of passengers serviced reached record
highs with a 16.3% growth as of August 2023 (from 2022), with 52.4
million passengers during the first eight months of 2023. These
figures represented an approximately 108% of pre-pandemic levels
for Mexico, which is higher than about a 100% recovery in North
America. Aeromexico benefitted from this growth by maintaining a
39% share of the domestic market with 11.8 million passengers and
47% of the international market with 4.7 million passengers during
the first eight months of 2023. In addition, the Aeromexico Rewards
loyalty program reached a penetration rate of 28% and S&P's expect
to enable the company increase passenger retention in the coming
years.
S&P said, "Moreover, upon the return of Mexico to a category 1 air
safety rating, we expect Aeromexico to add about 17 new routes to
nine destinations that will start operations gradually beginning
January 2024. Therefore, we believe the company will continue
benefiting and focusing on its international market presence."
Following the business and financial reorganization ended in 2022,
Aeromexico has further denoted its business model as a premium
airline because of its competitive advantage through its portfolio
of routes/destinations and quality products, as well as strong
position in Mexico's airports that allow it to be an attractive
option for passengers, despite higher prices. This has provided the
flexibility for Aeromexico to pass through its fares the effects of
increased inflation and fuel prices, without harming its market
share or passenger volumes.
This strategy enabled Aeromexico to post EBITDA margins of 29%
during the second quarter of 2023, which is above industry average
of more than 15%, and S&P expects the company to maintain this
trajectory for the next 12-18 months.
S&P said, "In our previous review, we believed Aeromexico could
deviate from our base-case scenario given the sharp growth in fuel
prices, as well as a potential delay in passenger volume recovery.
However, Aeromexico's leverage metrics have been improving on
increased prices, surpassing our base-case scenario for the end of
2023 and for 2024. For the second quarter of 2023, FFO to debt
reached 28.7% and FFO interest coverage 4.7x, compared with less
than 12% and 2.0x in our base-case scenario. And we now expect
these metrics to remain the same for the next 12-18 months."
Aeromexico hasn't required additional debt, reporting a constant
level of $3.6 billion among exit financing, other loans and leases
as of June 30, 2023. S&P doesn't expect additional debt. On the
contrary, Aeromexico repaid additional $100 million in debt due to
higher-than-expected cash position.
Aeromexico has maintained a cash position of $1 billion as of June
30, 2023, the same amount after emerging from Chapter 11, primarily
through a planned and organized growth strategy than prior to the
pandemic, in line with market needs and by monitoring expected
returns. The company maintained load factors above 80% even with
the addition of new aircraft, while maximizing cash generation.
Additionally, the company's capital structure has long-term
amortizations, lowering liquidity pressures for the next 12-24
months.
S&P said, "We expect Aeromexico to maintain its growth strategy
based on protecting margins and cash position, and avoiding
aggressive financing requirements if market conditions tighten.
Furthermore, we believe that over the next 12 months, its liquidity
position will withstand low-probability stress scenarios such as
sharp increases in fuel prices and/or declines in passenger
volumes."
During 2023, the Mexican government announced the creation of a
state-owned airline using the rights to the former Mexicana de
Aviacion. The new airline will operate in the low-cost air travel
category and will offer 20 domestic routes through its fleet of 10
B-737 aircraft, with the new airport in Mexico City as its main
hub. S&P said, "We estimate the new airline's average prices to be
about 20% lower than the current ones in the Mexican market.
However, we don't expect an immediate risk for Aeromexico at this
time, given that the company doesn't serve the low-cost air travel
segment. Aeromexico's business model relies on the value-added
services and premium revenue than those of low-cost carriers, as
well as its focus on the international market. We will continue to
evaluate the effect that the entry of the new airline could have on
market shares, fares, and consolidation over the coming months."
=====================
P U E R T O R I C O
=====================
GGG INVESTMENTS: Seeks to Hire Real Home of America as Realtor
--------------------------------------------------------------
GGG Investments, Inc. seeks approval from the U.S. Bankruptcy Court
for the District of Puerto Rico to employ Ramonita Martinez Mendez,
a member at Real Home of America, as realtor.
The Debtor needs a realtor to procure the sale of its realty.
Mrs. Martinez will be paid a 3 percent commission for the sale of
the Debtor's realty.
The realtor disclosed in a court filing that she is a
"disinterested person" as the term is defined in Section 101(14) of
the Bankruptcy Code.
The professional can be reached at:
Ramonita Martinez Mendez
Real Home of America
9 Av. Turabo
Caguas, PR 00727
Telephone: (787) 800-7757
About GGG Investments
GGG Investments, Inc. filed Chapter 11 petition (Bankr. D.P.R. Case
No. 23-02407) on Aug. 4, 2023, with $100,001 to $500,000 in both
assets and liabilities. Judge Maria De Los Angeles Gonzalez
oversees the case.
Alexis Fuentes-Hernandez, Esq., at Fuentes Law Offices, LLC
represents the Debtor as bankruptcy counsel.
*********
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 * * *