/raid1/www/Hosts/bankrupt/TCRLA_Public/231115.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
Wednesday, November 15, 2023, Vol. 24, No. 229
Headlines
A R G E N T I N A
ARGENTINA: IMF Toughens Stance, Questions Massa's Measures
B E R M U D A
BORR IHR: Fitch Assigns Final 'B' Rating on Sr. Secured Notes
B R A Z I L
BRAZIL: Inflation Rate Dips But Remains Over Target
BRAZIL: October Sees Drop in Brazilian Vehicle Production
C A Y M A N I S L A N D S
ITTIHAD INTERNATIONAL: Fitch Corrects Nov. 1 Ratings Release
C O L O M B I A
CITY OF MEDELLIN: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Border is Open for Commercialization
J A M A I C A
JAMAICA: CBTT Explains Suspension of TT$ Exchange in Country
JAMAICA: Signs US$1.2MM Technical Cooperation Agreement With IDB
P U E R T O R I C O
EMINENCE CORPORATION: Case Summary & Five Unsecured Creditors
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: We Saved the Country's Reputation, Imbert Says
U R U G U A Y
ACI AIRPORT: Fitch Alters Outlook on 'BB+' Notes Ratings to Stable
- - - - -
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A R G E N T I N A
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ARGENTINA: IMF Toughens Stance, Questions Massa's Measures
----------------------------------------------------------
Buenos Aires Times reports that the International Monetary Fund is
toughening its stance on Argentina's multi-billion-dollar
credit-line, with concerns growing in Washington over recent
measures taken by Economy Minister Sergio Massa and the nation's
dwindling Central Bank reserves.
An exclusive report by the Reuters news agency said that executive
directors on the multilateral lender's board have expressed
concerns over "how fast the country has been burning through
international reserves since the latest program review in August,"
according to Buenos Aires Times.
Quoting three unnamed sources, who asked to remain anonymous, the
article said that directors had discussed worries about Argentina's
record package and subsequently decided to sharpen its language to
reflect as much, the report notes.
With "depleted reserves and an overvalued currency, recent economic
measures are not aligned with the program," one of the sources is
quoted as saying in the piece, the report relays.
The fears were voiced at a board meeting on October 30 and the IMF
has since toughened its rhetoric on Argentina's economic
management, reported Reuters journalist Jorgelina do Rosario, the
report notes.
Argentina is a recipient of IMF disbursements via its
US$44.5-billion debt program with the multilateral lender, some of
which has been used to protect the value of the peso on foreign
exchange markets, the report discloses.
Recent measures taken to boost pockets in the lead-up to the
October 22 election and protect the strength of the currency have
exacerbated inflation and prevented the accumulation of
international reserves, the report relays.
The sharpening of the agency's critical view of the agreement stems
from the meeting held by the IMF's board of executive directors,
which was not previously reported and consisted of an informal
briefing on Argentina by the Fund's staff, the report notes.
Following the meeting, the IMF used harsher language than
previously deployed to criticize Argentina's government, in
particular the "mismanagement" of the economic program, the report
notes.
Back in August, President Alberto Fernández's government was
granted a series of waivers after missing targets set out in the
Fund's quarterly review, the report says. The change in stance
from the IMF could affect the next assessment, which is due to
begin later this month and will determine if Argentina receives
another tranche of funds from the multilateral lender, the report
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.
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B E R M U D A
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BORR IHR: Fitch Assigns Final 'B' Rating on Sr. Secured Notes
-------------------------------------------------------------
Fitch Ratings has assigned Borr IHC Limited and Borr Finance LLC's
notes a final senior secured rating of 'B'. The Recovery Rating is
'RR4'. The notes will be guaranteed by Borr Drilling Limited (Borr;
B/Stable).
Borr's 'B' Long-term Issuer Default Rating (IDR) reflects its
strong near-term revenue visibility from a robust contracted order
backlog, its high-specification jack-up fleet and its strong
relationship with key customers, which is partially offset by
exposure to Petroleos Mexicanos (PEMEX; B+/Rating Watch Negative).
The rating further reflects high leverage with a strong
deleveraging trajectory from 2024 and a new capital structure that
consists mostly of amortising debt. Borr's IDR also incorporates
moderate scale, a concentrated rig fleet of only jack-up rigs and
the inherent cyclicality of the offshore drilling market.
KEY RATING DRIVERS
Positive Industry Trend: The jack-up rig market is showing signs of
recovery as some supply of rigs has left the market over the last
five years. Further security-of-supply concerns alongside
supportive hydrocarbon prices have resulted in renewed demand for
jack-up rigs from major producers as they look to replace reserves.
Fitch expects Borr's day rates and rig utilisation, which have been
increasing year-to-date, will continue to improve as recently
signed contracts ramp up and existing contracts expire and are
repriced.
Backlog Provides Near-term Revenue Visibility: Borr's 2Q23 backlog
was USD1.9 billion. Of this, USD805 million is set to be realised
as revenue in 2024 and USD634 million in 2025, covering around 86%
and 62%, respectively, of its revenue forecast for these years.
This substantially reduces the downside risk to its expectation of
deleveraging and a return to positive free cash flow (FCF)
generation.
High-Spec Jack-Up Fleet: With an average age of around six years,
Borr's jack-up fleet is among the newest on the market. The fleet
of high-specification rigs is expected to have relatively low
run-rate capex requirements of around USD30 million-USD40 million a
year, with assets able to service complex projects in a variety of
geographies. Fitch expects the company's assets to be sought after
by customers looking to develop higher complexity shallow-water
projects where the efficiency and technical specifications of rigs
are key.
No Liquidity Constraints Post-Refinancing: The refinancing has
pushed out all effective maturities to 2028 and later, and Fitch
expects the company's Fitch-defined FCF will become consistently
positive from 2025. This leads to a manageable liquidity profile
over its forecast, with high debt service costs somewhat offsetting
the company's otherwise strong cash-flow generation.
Newbuild Rigs Carved Out: Borr's last two newbuild rigs are
expected to be delivered in late 2024, which will mark the end of
the company's growth cycle. Delivery of the rigs will entail
payment of a USD295 million final instalment, of which USD260
million will be financed from asset-level debt, effectively
ring-fenced from the rest of the company's debt stack, and the
remaining USD35 million will be funded internally. Fitch therefore
carves out the two newbuild rigs from its recovery analysis.
Backlog and Utilisation Volatility: Since its inception in 2017,
Borr's backlog and fleet utilisation has been volatile during
periods of weakness in the oil market. This has resulted in low
EBITDA generation and negative FCF during 2019-2021. Current market
trends are favourable, and customers are willing to accept growing
rates and longer contracts amid a backdrop of high oil prices.
Consequently, Fitch expects that day rates, utilisation, and
backlog will remain volatile across macro cycles. This is somewhat
mitigated by the roll-off of growth capex, which will help the
company preserve liquidity sources during periods of lower EBITDA
generation.
Mixed Customer Base: As of 2Q23, Borr's customer base was
diversified across geographies and customer groups, with 36% of
backlog coming from the Americas, 15% west Africa, 20% south east
Asia, and 29% the Middle East, from customers of which 37% were
international oil companies and 63% national oil companies.
There is good customer and geographic diversification, but the
company retains substantial exposure to PEMEX, which contributed
23% of 1H23 revenues, is currently in financial distress, and has
in the past delayed payments to its suppliers. This is partially
offset by strong relationships with other, higher quality customers
such as Saudi Arabian Oil Company (Saudi Aramco; A+/Stable),
QatarEnergy (AA-/Positive), PTT Exploration and Production Public
Company Limited (BBB+/Stable), and European oil majors.
DERIVATION SUMMARY
Fitch rates Borr in line with Shelf Drilling, Ltd. (B/Stable) due
to the latter's higher mid-cycle EBITDA, lower order book
volatility and higher quality customer base. This is offset by
Borr's better asset quality owing to its very young fleet and wider
geographic diversification, alongside higher profitability per
rig.
Fitch rates Borr in line with CGG SA (B/Stable) due to similar
mid-cycle EBITDA and order book volatility. However, Fitch expects
CGG to generate stronger FCF and have lower mid-cycle leverage.
This is offset by Borr's good demand prospects for the jack-up rig
market over its forecast period, alongside access to more varied
funding sources.
Fitch rates Borr one notch below Valaris Limited (B+/Stable) due to
the latter's higher mid-cycle EBITDA, stronger liquidity, and lower
mid-cycle leverage, alongside a more diversified asset base. This
is partially offset by Borr's higher EBITDA margins.
Fitch rates Borr one notch below KCA DEUTAG ALPHA LIMITED
(B+/Positive) due to the latter's more diversified business profile
with high exposure to lower-risk onshore drilling in the Middle
East, lower leverage, stronger liquidity, and larger size. This is
partially offset by Borr's higher profitability.
KEY ASSUMPTIONS
Key Assumptions Within Its Rating Case for the Issuer:
- Utilisation rate averaging 92% for 2023-2026
- Day rates averaging around USD120,000 per day for 2023-2026
- EBITDA margin averaging around 53% for 2023-2026
- Capex averaging USD222 million per year for 2023-2026
- Dividend payments commencing in 2025
- Contractual amortisation of new debt
RECOVERY ANALYSIS
The recovery analysis assumes that Borr would be liquidated in a
bankruptcy rather than reorganised as a going concern (GC). This is
driven by the fact that Borr's assets are very new, with several
decades of useful life left absent large-scale investment needs.
Other oilfield services companies in its rating universe, such as
Shelf Drilling and Valaris, have assets that are older, have less
useful life left or require more substantial investments leading to
lower asset valuations, although EBITDA generation within its
forecast horizon may be similar or even higher than that of Borr.
Fitch assumes the USD150 million super senior revolving credit
facility (RCF; excluding the letter of credit portion) is fully
drawn. The RCF is super senior to the senior secured bonds.
Fitch excludes assets, and debt attributable to Borr's newbuild
assets to be delivered in 2024 as they are not part of the
restricted group.
Fitch bases its recovery ratings on a liquidation value, which
takes into account 2Q23 reported accounts receivable of USD136
million with a 70% advance rate which takes into account the
quality of its customer base, and USD3.4 billion of net property,
plant and equipment primarily comprising the value of rigs per
third-party provider valuation report dated September 2023, with a
30% advance rate.
- After a deduction of 10% for administrative claims, and taking
into account Fitch's Country-Specific Treatment of Recovery Ratings
Criteria, its waterfall analysis generated a waterfall-generated
recovery computation (WGRC) in the 'RR4' band, indicating a 'B'
instrument rating. The WGRC output percentage on current metrics
and assumptions was 50%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA gross leverage sustained below 2.5x
- Improvement of liquidity and reduction of gross debt with no
material near-term refinancing risk
- Sustained stronger jack-up market fundamentals, including higher
day rates, larger contracted backlog value, and longer average
contract tenor
- Increased geographical diversification of cash flows
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA gross leverage above 3.5x on a sustained basis
- Weakening liquidity
- Deteriorating market fundamentals, including lower day rates or
rig utilisation
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity Post-Refinancing: At end-June 2023, Borr's
liquidity was weak as short-term debt of USD97.9 million exceeded
cash of USD83.8 million and Fitch expects FCF to be negative over
the next 12 months. The high-yield notes have moved maturities to
2028-2030 with manageable amortisation. Fitch expects negative FCF
in 2023 to turn positive in 2025 and beyond as capex winds down.
Liquidity is further supported by the USD150 million RCF (excluding
the letter of credit portion) maturing in 2028.
ISSUER PROFILE
Borr is an offshore shallow-water drilling contractor to the oil
and gas industry.
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 Recovery Prior
----------- ------ -------- -----
Borr Finance LLC
senior secured LT B New Rating RR4 B(EXP)
Borr IHC Limited
senior secured LT B New Rating RR4 B(EXP)
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B R A Z I L
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BRAZIL: Inflation Rate Dips But Remains Over Target
---------------------------------------------------
Richard Mann at Rio Times Online reports that as measured by the
IPCA (National Consumer Price Index Broad), Brazil's inflation
slowed from 5.19% in September to 4.82% in October.
This change ended a three-month trend of rising rates, according to
Rio Times Online. However, it remains above the 3.75% target
ceiling, with a tolerance up to 4.75%, the report notes.
The stats agency IBGE released these inflation figures on November
10, 2023, Rio Times adds.
In a separate report, Buenos Aires Times says Brazil's below five
percent inflation rate in October is its first decline after three
straight jumps, adding to the case for the Central Bank to continue
growth-boosting interest-rate cuts.
The rate came in below analyst forecasts, BA Times notes.
However, analysts said the dip meant the Central Bank would likely
keep slashing its benchmark interest rate, which left-wing
President Luiz Inacio Lula da Silva argues is needed to kickstart
Latin America's biggest economy, the report says.
The Central Bank, which aggressively raised the interest rate to
fight inflation unleashed by the Covid-19 pandemic and then the war
in Ukraine, has cut it by half a percentage point at each of its
past three meetings, the report discloses.
"Inflation will continue to fall in the coming months, paving the
way for further interest rate cuts," consulting firm Capital
Economics said in a note, BA Times relays.
However, it said "fiscal risks" meant the bank would likely remain
cautious, after Lula caused market jitters last month when he said
his government was unlikely to hit its target of bringing the
deficit to zero next year, the report notes.
The monthly inflation rate came in at 0.24 percent, the report
adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-',
with a Stable Outlook. The upgrade reflects better-than-expected
macroeconomic and fiscal performance amid successive shocks in
recent years, proactive policies and reforms that have supported
this, and Fitch's expectation that the new government will work
toward further improvements.
In mid-June 2023, S&P Global Ratings, revised the outlook on its
long-term global scale ratings on Brazil to positive from stable.
S&P affirmed its 'BB-/B' long- and short-term foreign and local
currency sovereign credit ratings on Brazil. S&P also affirmed its
'brAAA' national scale rating, and the outlook remains stable. The
transfer and convertibility assessment remains 'BB+'. The positive
outlook reflects signs of greater certainty about stable fiscal and
monetary policy that could benefit Brazil's still-low GDP growth
prospects. Continued GDP growth plus the emerging framework for
fiscal policy could result in a smaller government debt burden than
expected, which could support monetary flexibility and sustain the
country's net external position.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
BRAZIL: October Sees Drop in Brazilian Vehicle Production
---------------------------------------------------------
Oliver Mason at Rio Times Online reports that October's vehicle
production in October fell by 4.4%, totaling 199,758 units, which
shows a decrease when compared to September's output.
This year-over-year comparison also reflects a 3.1% decline,
according to Rio Times Online.
The National Association of Automotive Vehicle Manufacturers, known
as Anfavea, provided this data in their detailed monthly briefing,
the report notes.
Conversely, Brazil's vehicle exports rose by 14% from September,
reaching 31,276 units, the report relays.
Despite this monthly increase, there was a 26.9% drop when looking
at October of the prior year, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-',
with a Stable Outlook. The upgrade reflects better-than-expected
macroeconomic and fiscal performance amid successive shocks in
recent years, proactive policies and reforms that have supported
this, and Fitch's expectation that the new government will work
toward further improvements.
In mid-June 2023, S&P Global Ratings, revised the outlook on its
long-term global scale ratings on Brazil to positive from stable.
S&P affirmed its 'BB-/B' long- and short-term foreign and local
currency sovereign credit ratings on Brazil. S&P also affirmed its
'brAAA' national scale rating, and the outlook remains stable. The
transfer and convertibility assessment remains 'BB+'. The positive
outlook reflects signs of greater certainty about stable fiscal and
monetary policy that could benefit Brazil's still-low GDP growth
prospects. Continued GDP growth plus the emerging framework for
fiscal policy could result in a smaller government debt burden than
expected, which could support monetary flexibility and sustain the
country's net external position.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
===========================
C A Y M A N I S L A N D S
===========================
ITTIHAD INTERNATIONAL: Fitch Corrects Nov. 1 Ratings Release
------------------------------------------------------------
Fitch Ratings issued a correction of a rating action commentary on
Ittihad International Investment LLC published on November 1, 2023.
It includes various disclosures related to the sukuk that were
omitted from the original release.
The amended ratings release is as follows:
Fitch Ratings has assigned Ittihad International Investment LLC
(Ittihad) a first-time expected Long-Term Issuer Default Rating
(IDR) of 'B+(EXP)' and an expected senior unsecured debt rating of
'B+(EXP)'/RR4. The Outlook on the IDR is Stable.
Fitch has also assigned Ittihad's proposed sukuk trust
certificates, to be issued through Ittihad International Ltd
(Ittihad International), an expected rating of 'B+(EXP)' with a
Recovery Rating of 'RR4'.
The ratings reflect Ittihad's high but improving leverage, and
moderately negative free cash flow (FCF) as working capital (WC)
normalises. Rating strengths are a strong regional presence in
paper, cement, building materials and copper production, with a
competitive position in the local market.
Fitch rates Ittihad on a consolidated basis using the generic
approach due to its diversified portfolio of companies spread
across the industrials, healthcare and utilities sectors. The
expected IDR and the senior unsecured debt rating reflect Fitch's
expectation that the sukuk issues will be used to refinance debt at
various group and subsidiaries. The final ratings are reliant on
the partial refinancing of its senior secured debt and partial
release of encumbered assets.
The assignment of the final rating is also contingent on the
receipt of final issuance documents materially conforming to
information already reviewed. If the Sukuk is not issued, or is
issued under materially different terms than Fitch has assumed,
Fitch would review the rating.
Ittihad International is the issuer of the certificates and
trustee. The trustee is an exempted company with limited liability
incorporated in the Cayman Islands and has been incorporated solely
for the purpose of participating in the transactions contemplated
by the transaction documents to which it is a party and its shares
are held by MaplesFS Limited as share trustee.
KEY RATING DRIVERS
Competitive Regional Position: Ittihad's paper businesses benefit
from geographic connectivity and competitive advantage, while
allowing it to build long-standing relationships with global
companies across 25 markets. It has a diversified pool of suppliers
in Latam, North America and Europe, adding further visibility in
its value chain while reducing dependency risk on single supplier.
Diversified Portfolio Mix: Ittihad operates under four key sectors
with two sub-sectors - paper and building materials - being the
biggest contributors to revenues and earnings. These two
sub-sectors contributed 58% and 21%, respectively, of consolidated
gross profit in 2022. The group's paper and tissue manufacturer
operates to global standards and is the largest producer of
uncoated wood-free paper and the largest importer of pulp in the
Middle East. The building materials operations comprise the largest
standalone producer of copper rods in the region and an established
distributor of straight steel bars.
On pulp and steel commodities, the group maintains around 35 to 60
days worth of inventory backed by customer orders. It has long
order backlog visibility and faces minimal cancellations on client
orders. The impact of rising raw material cost is mitigated by
price increase.
Evolving Capital Structure: Ittihad's funding is fairly
centralised, but substantial debt obligations were raised at
operating companies (opco) on a secured and guaranteed basis. It
expects its sukuk issue to materially reduce prior-ranking debt at
opcos by nearly 50%. The unencumbered asset cover will remain below
1x post sukuk issue. Fitch expects the impact on leverage to be
neutral. As of end-2022, Fitch-adjusted readily marketable
inventory (RMI) gross leverage stood at 5.7x, which Fitch expects
to gradually decline to 4.6x in 2025.
FCF Under Pressure: Fitch expects negative FCF margins in 2023-2024
following capex and WC outflows. Post 2025, Fitch forecasts low
maintenance capex as a share of revenue in single digits. Capex is
committed and prefunded by external debt. Fitch expects WC outflows
in 2023 and 2024, driven by high inventory levels at subsidiary
UCR, due to back-to-back contracts, and by increased receivables
from the paper and pulp businesses. The group has stable but thin
consolidated EBITDA margins (2022: 4.4%), which Fitch expects to
improve to average 4.8% by 2026, supported by high revenue
visibility from its consumer goods and business services segments.
Enhanced Operating Environment: Ittihad benefits from strong market
fundamentals in the UAE and in the Middle East. Underlying demand
in its businesses remains robust. Demand for copper rods is
expected to increase to support growth in electrical cables and
utilities in the region. UCR produces on average 220,000 MT per
year, representing nearly half of the UAE's copper rods production
capacity. Similarly, the steel rebar market in the Gulf Cooperation
Council is expected to benefit from increased momentum in
infrastructure projects primarily in the UAE and Saudi Arabia.
Low Commodity Price Exposure: Ittihad operates a physical
arbitrage-based model for its copper operations, enabling it to
hedge against swings in commodity prices. It has back-to-back
contracts with suppliers and customers, ensuring full pass-through
of price risk. Exposure to copper price volatility is limited by
the LME copper price being a fairly modest component of its
products. In addition around 80% of copper is procured through
annual contracts with global companies and the balance is sourced
via recycled copper.
Ittihad International - Sukuk Issuer
The Sukuk issuance rating is aligned with Ittihad's IDR. This
reflects Fitch's view that a default of these senior unsecured
obligations would reflect a default of Ittihad, in accordance with
the agency's rating definitions.
Fitch has given no consideration to any underlying assets or
collateral provided, as the agency believes that the trustee's
ability to satisfy payments due on the certificates will ultimately
depend on Ittihad satisfying its unsecured payment obligations to
the trustee under the transaction documents described in the
prospectus and other supplementary documents. The sukuk structure
includes a guarantee from wholly-owned subsidiaries of Ittihad such
as Ittihad Paper Mill (IPM) and other guarantors in favour of the
trustee
In addition to Ittihad's propensity to ensure repayment of Ittihad
International's obligations, Fitch believes it would also be
required to ensure full and timely repayment of Ittihad
International's sukuk obligations, due to its role and obligations
under the sukuk structure and documentation, which include
especially but are not limited to the features below:
- The rental payment by and the instalment payment of any profit
amount is intended to be sufficient to fund the periodic
distribution amount payable by the trustee under the trust
certificates.
- On any dissolution or default event, the aggregate amounts of
deferred sale price then outstanding will become immediately due
and payable; and the trustee will have the right under the purchase
undertaking to require Ittihad to purchase all of its rights,
title, interests, benefits and entitlements in, to and under the
lease assets at an exercise price.
- The exercise price payable by Ittihad under the purchase
undertaking to the trustee, together with the aggregate amounts of
the deferred sale price then outstanding, if any, are intended to
fund the dissolution distribution amount payable by the trustee
under the trust certificates. The dissolution distribution amount
should equal the sum of (i) the outstanding face amount of the
certificates; and (ii) any accrued but unpaid periodic distribution
amounts relating to such certificates.
- In a total loss event or partial loss event (unless the relevant
lease assets have been replaced by Ittihad), if there is a
shortfall from the insurance proceeds, Ittihad undertakes to pay
the loss shortfall amount directly into the transaction account. If
the service agent is not in compliance with the obligation to
insure the assets against total loss or partial loss events, it
will immediately deliver written notice to the trustee and the
delegate of such non-compliance and the details thereof, and this
will constitute an obligor event.
- Ittihad's payment obligations under the lease agreement, purchase
undertaking, service agency agreement, and master murabaha
agreement will be direct, unsubordinated, unconditional and
unsecured obligations and will at all times rank at least equally
with all other present and future unsecured and unsubordinated
obligations of Ittihad from time to time outstanding.
- Additionally, Ittihad's subsidiaries (acting as guarantors) have
agreed to unconditionally, irrevocably and jointly and severally
guarantee, in favour of the trustee, the delegate and the agents,
the due and punctual performance by Ittihad of all of its payment
obligations under, and in accordance with the terms of, the
transaction documents to which the Ittihad is a party. To the
extent that Ittihad does not pay any sum payable by it under the
transaction documents by the time and on the date specified for
such payment, the guarantors will pay that sum as directed.
- The obligations of each guarantor under the guarantee will be
direct, unconditional, unsubordinated and unsecured obligations of
such guarantor, which at all times rank at least equally with all
other present and future unsecured and unsubordinated obligations
from time to time outstanding of such guarantor.
The sukuk documentation includes an obligation for Ittihad to
ensure that at all times, the tangible asset ratio (defined as the
ratio of the value of the lease assets to the aggregate value of
the lease assets plus the outstanding deferred sale price) is more
than 50%. Failure of Ittihad to comply with this obligation will
not constitute an obligor event.
If the tangibility asset ratio falls below 33% (tangibility event),
the certificates will be delisted and certificate holders will have
the option to require the redemption of all or any of its
certificates at the dissolution distribution amount. In this event,
there would be implications on the tradability and listing of the
certificates. Fitch expects Ittihad to maintain the tangibility
ratio above 50% with support from the asset base held by the seller
IPM (a wholly-owned subsidiary of Ittihad). IPM's tangible fixed
assets totaled over USD300 million as of 31 December 2022.
- Ittihad's sukuk documentation includes a change-of-control
clause. It also includes restrictive covenants and cross
acceleration provisions; financial reporting obligations to the
trustee/delegate; and certain Ittihad events. It also includes
cross-default clauses.
- Certain transaction documents will be governed by English law
while others will be governed by the laws of Abu Dhabi and the
federal laws of the UAE. Fitch does not express an opinion on
whether the relevant transaction documents are enforceable under
any applicable law. However, Fitch's rating on the certificates
reflects the agency's belief that Ittihad would stand behind its
obligations.
Fitch does not express an opinion on the certificates' compliance
with sharia principles when assigning ratings to the certificates
to be issued.
DERIVATION SUMMARY
Ittihad's asset portfolio consists of investments in various
sectors including steel, copper, cement, paper, energy, and medical
services. It does not have close publicly rated peers. Ittihad has
conservative financial and investment policies, strong operational
oversight over subsidiaries and a high leverage profile, leading to
commensurate leverage metrics for its rating category.
Unlike other commodity trading peers, Ittihad has stable margins
and power in the value chain with hedged exposure to commodities.
Fitch analysed Ittihad's subsidiaries based on their respective
peers in each sector. Fitch used Mytilineos S.A. (BB+/Stable) and
JSC Uzbek Mettalurgical Plant (BB-/Stable) for peers in the steel
and copper segment. Mytilineos operates on a larger scale than
Ittihad with a stronger financial profile and higher margins. JSC
Uzbek has similar scale to Ittihad's but a stronger financial
profile.
The sukuk's ratings are derived from Ittihad's Long-Term IDR and
are in line with the company's senior unsecured rating.
KEY ASSUMPTIONS
Key Assumptions Within Its Rating Case for the Issuer are:
- Revenue to decrease 2% in 2023 on copper price declines, before
growing on average 3.5% for 2024- 2027
- Stable recovery of EBITDA margin to 2027 on an improved product
mix and price increases
- Higher WC outflow in 2023 on increases in inventory and
receivables, followed by flat WC to 2027 after cash collection and
destocking
- Increased capex for 2023 and 2024 due to expansion of new plants,
followed by declines in 2025 to 2027
- No M&A planned
- Common dividends of AED20 million paid annually
- Release of AED184 million of restricted cash after debt
repayment
- Gradual deleveraging to 2027 after debt repayments and on
improved profitability
RECOVERY ANALYSIS
- The recovery analysis assumes that Ittihad would be liquidated
rather than restructured in bankruptcy
- Its estimate of liquidation value (LV) value available for
creditor claims is about AED2.7 billion due to high-value assets in
contrast to its low EBITDA margins
- A 10% administrative claim
- Fitch estimates the total amount of senior debt claims at AED1.7
billion, which comprises the WC facilities, AED2.2 billion of
unsecured debt, assuming a fully drawn revolving credit facility
(RCF), and the proposed sukuk
- The allocation of value in the liability waterfall results in
recoveries corresponding to 'RR2' and a 'BB' debt rating for the
senior secured notes and 'RR4' and a 'B+' instrument rating for the
senior unsecured debt
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- RMI-adjusted EBITDA gross leverage below 4x on a sustained basis
- EBITDA interest coverage above 3x on a sustained basis
- FCF margin above 2% on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- RMI-adjusted EBITDA gross leverage above 5x on a sustained basis
- EBITDA interest coverage below 2x on a sustained basis
- Negative FCF margin on a sustained basis
- Adoption of a more aggressive financial policy with a lower
percentage of inventories hedged or pre-sold
Ittihad International's Rating Sensitivities
The ratings will be sensitive to changes in Ittihad's IDR. The
ratings may also be sensitive to changes to the roles and
obligations of Ittihad and Ittihad International under the sukuk's
structure and documents.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Ittihad had AED478 million of readily available
cash as of June 2023, supported by an undrawn committed facility of
AED385 million. Fitch expects a further release of restricted
deposits of AED184 million during 2023, which will strengthen the
group's liquidity.
Low Refinancing Risk: The group will have no significant maturities
to 2027 post sukuk issue, refinancing of its term loans and partial
repayment of its WC facilities. Its capital structure relies on WC
facilities as part of their commodity trading businesses. Those
facilities are short term and generally self-liquidating on receipt
of payments against commodity delivery. Fitch assesses the credit
risk of these facilities as low, as they are marked to market and
hedged. The refinancing risk for the short-term facilities is low
as Fitch assumea them to be continuously rolled over each year.
ISSUER PROFILE
Ittihad is based in UAE, with investments in consumer goods (paper
and chemicals), infrastructure and building materials (copper rods,
steel bars and cement), healthcare and utilities.
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 Recovery
----------- ------ --------
Ittihad
International Ltd
senior
unsecured LT B+(EXP)Expected Rating RR4
Ittihad
International
Investment LLC LT IDR B+(EXP)Expected Rating
senior
unsecured LT B+(EXP)Expected Rating RR4
===============
C O L O M B I A
===============
CITY OF MEDELLIN: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed City of Medellin's ratings as follows:
- Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB+';
Outlook Stable;
- Long-Term Local Currency IDR at 'BB+'; Outlook Stable;
- National Long-Term Rating (NLTR) at 'AAA(col)'; Outlook Stable;
- NLTR of the senior unsecured notes for COP248,560 million issued
in 2014 at 'AAA(col)';
- National Short-Term (NSTR) Rating at 'F1+(col)'.
Medellin's operating performance was in line with Fitch's
expectations at 2022 year-end. Tax collection was fueled by a
rebound in local activity that partially alleviated
inflationary-driven expenditure increases. The city also maintained
a sound and stable operating margin. Fitch assesses Medellin's
Standalone Credit Profile (SCP) at 'bb+' given that the debt
sustainability metrics would result in a score of 'a' under the
rating case scenario.
KEY RATING DRIVERS
Risk Profile: 'Low Midrange'
Medellin's risk profile assessment of 'Low Midrange' results from a
combination of five key risk factors at 'Midrange' and one at
'Weaker'. The assessment reflects a moderately high risk relative
to international peers that the issuer may see its ability to cover
debt service with the operating balance weaken unexpectedly over
the forecast horizon (2023-2027) either because of
lower-than-expected revenue or expenditure overshooting
expectations, or because of an unanticipated rise in liabilities or
debt-service requirements.
Revenue Robustness: 'Midrange'
Around 45% of Medellin's operating revenues are locally collected
taxes. The diversified economy has been a positive driver of tax
revenue growth (on average 6.3% per annum over 2018-2022 period)
and has moderated its exposure to cyclical economic activities.
Medellin's tax revenues are primarily from property taxes (41%) and
commercial & manufacturing activities (36%).
At 2022 year-end, Medellin's operating collection totaled COP4.7
trillion, an increase from 2019 by about 16.7% in nominal terms.
Fitch believes this uptick reflects a sound recovery from the
pandemic. Economic rebound over the last two years, especially from
household consumption and government spending, benefited
municipality tax collection, increasing it close to 10%
year-over-year. However, in Fitch's rating case Medellin's tax
revenue growth rate would slow down and be at a similar level to
economic activity growth.
Fitch views the dividends received from Empresas Publicas de
Medellin E.S.P. (EPM, BB+/Rating Watch Negative) as a strength of
Medellin's revenues. Dividends reached COP1.9 trillion in 2022,
accounting for 28.1% of total revenue. Historically, these revenues
have been stable and are an important source of financing for the
city's social expenditures.
The midrange assessment factors in Medellin's reasonable fiscal
autonomy, as transfers received from the national government
account for less than 50% of operating revenues. Fitch does not
envisage material changes to the city's revenue structure.
Revenue Adjustability: 'Midrange'
Medellin has a certain degree of discretionary leeway to increase
tariffs within legal limits established by the national congress.
The city's local rates are relatively close to the maximums. Fiscal
room exists on property taxes, the rates for which are primarily
set in accordance with the taxpayer's socioeconomic profile and
land-use. Thus, additional revenue increases from using the maximum
property tax rate could eventually be enforced on properties with
higher cadastral values. Tax collection increases may cover at
least 50% of reasonably expected declines in revenue.
Fitch considers as moderate the affordability of taxpayers to
withstand marginal tax rate increases, despite political reluctance
to do so. This is based on the city's diversified output as well as
its socioeconomic profile, which is above average national peers.
Expenditure Sustainability: 'Midrange'
Health and education services are the principal responsibilities of
Medellin, which are moderately countercyclical spending. The city's
operating expenditure has grown in tandem with revenue, maintaining
a positive and stable operating margin that averages 18.6% over
2018-2022. EPM's dividends, along with national transfers, are the
main source of financing of Medellin's social services spending,
which allows Medellin to have broad fiscal room on its own-revenue
sources.
In Fitch's rating scenario, Medellin's operating margins would
continue to be positive and stable but would be impacted by
inflationary pressures and by the national context of a tightening
growth revenue rate.
Expenditure Adjustability: 'Midrange'
Medellin has a compliance track record of subnational expenditure
fiscal rule. Fitch estimates that the city's mandatory expenditure
averages 56.2% of total expenditure, while capital expenditure
accounted for 41.1%. In addition, the current balance funded around
13.3% of total spending. This indicates Medellin's moderate
capacity to curtail spending growth, particularly capital
expenditure, if an economic downturn takes place.
Fitch expects that Medellin will implement future budget
allocations (FBA) during 2024-2037, mainly for the Metro Ligero de
la Via 80 (Via 80's Metro) and local prison construction projects.
Annual arranged expenses represent less than 10% of total spending.
However, Fitch categorizes Medellin's responsibility for Via 80's
Metro as part of other Fitch-classified debt.
Liabilities & Liquidity Robustness: 'Midrange'
Medellin has extensive debt capacity from varied sources, which
operate under subnational regulatory borrowing limits and an
evolving financial market. The city's long-term debt balance was
COP2.1 trillion as of August 2023. The city has some appetite for
risk since around 74% of its debt is linked to a floating interest
rate. This creates some interest rate exposure, especially under
the current tighter credit conditions. FX risk also arises from
Agence Française de Développement's (AFD) loans, which roughly
account for 26%.
Although the city's weighted average life of debt is fairly short
at 4.8 years, Fitch does not envisage highly refinancing risk as
its debt profile is mostly amortizing without maturity
concentration. Some bullet maturities stem from two senior
unsecured bonds that represent about 12% of long-term debt.
Medellin will redeem a note for COP134.8 billion in 2024.
Medellin's framework for debt is moderate as its direct debt
includes the intergovernmental obligation with the national
government for Medellin's metro infrastructure. Fitch's rating case
includes an estimated off-balance-sheet liability related to the
pro-rata debt for the Via 80's Metro project (COP2,2 trillion in
total), which would be raised by Empresa de Transporte Masivo del
Valle de Aburrá Ltda. (Medellin's government-related entity)
during 2023-2025. The city would finance 30% of the project in the
form of FBAs. The remaining 70% would be covered by the national
government's FBA.
Liabilities & Liquidity Flexibility: 'Weaker'
Although Medellin has access to short- and long-term loans with
local banks, liquidity flexibility assessment is limited by
counterparty risk, which is below investment grade. The city's
liquidity consists of unrestricted cash that stems from internal
resources and EPM dividends. At the end of fiscal 2022, total cash
balance totaled COP1.3 trillion, of which 7.5% was unrestricted
cash. Historically, Medellin's liquidity availability has been
relatively volatile as it is influenced by the political spending
cycle, which also supports the 'weaker' assessment.
Debt Sustainability: 'a category'
Medellin's debt sustainability score of 'a' is the result of a
payback ratio score of 'aa' (averaging 7.0x) adjusted one category
downwards because of the 'weaker' score of its actual debt service
coverage ratio (ADSCR). Fitch expects ADSCR to reach an average of
1.7x (score of 'a') and the fiscal debt burden will level off at
around 100% (score of 'a').
Fitch calculates a supplementary debt ratio excluding
intergovernmental obligation, which informs an "enhanced debt
sustainability ratio". The enhanced payback ratio averaged 4.0x
over the forecast horizon (2023-2027) and the enhanced synthetic
debt service coverage ratio averaged 2.1x. These ratios would be an
indication of potential improvement in the city´s SCP if the
"normal ratios" were negatively impacted.
DERIVATION SUMMARY
Medellin's IDRs are based on its SCP, which is assessed at 'bb+',
reflecting a combination of a 'Low Midrange' risk profile and debt
sustainability metric assessed in the 'a' category under Fitch's
rating case. The SCP also factors in a comparison of Medellin with
national and international peers, such as Bogota District Capital,
Barranquilla, Metropolitan Municipality of Lima, and Sao Paulo,
State of. Fitch does not consider any extraordinary support from
upper tiers of government and does not identify any additional
asymmetric risk.
Short-Term Ratings
The National Short-Term Rating is assessed at 'F1+(col)' and is
derived from the NLTR.
National Ratings
Fitch has affirmed Medellin's National Long-term rating at
'AAA(col)'. This is based on the city's LT IDR of 'BB+', which is
at the same level as the sovereign and is compatible with the
highest level of Fitch's national rating scale. In addition, Fitch
views Medellin's risk profile and debt ratios as comparable to
national peers rated 'AAA(col)', such as Santiago de Cali.
KEY ASSUMPTIONS
Risk Profile: 'Low Midrange'
Revenue Robustness: 'Midrange'
Revenue Adjustability: 'Midrange'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Midrange'
Liabilities and Liquidity Robustness: 'Midrange'
Liabilities and Liquidity Flexibility: 'Weaker'
Debt sustainability: 'a'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: 'N/A'
Rating Cap (LT IDR): 'N/A'
Rating Cap (LT LC IDR) 'N/A'
Rating Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2018-2022 figures and 2023-2027 projected
ratios. The key assumptions for the scenario include:
- Tax revenue growth is close to national nominal GDP resulting in
annual growth rate of 7.0%;
- Current transfers received grow at average annual rate of 12.9%,
following the Fitch-estimated historical four-year moving average
of the national government's current revenues;
- Operating revenue grows at an average rate of 9.7% per annum;
- Operating expenditure grows at 10.6% annual average rate, which
is based on operating revenue growth as well as inflationary
pressures on staff spending mainly;
- Net capital expenditure for COP1.1 trillion average per year;
- Debt level considers Medellin´s long-term debt plan and its
potential indebtedness level in accordance with local regulatory
borrowing limits;
- Apparent cost of debt is a weighted average cost of Medellin's
fixed- and floating-rate long-term debt at fiscal year-end 2022;
- Fitch's adjusted debt includes an estimate of Medellin's
obligations with the national government for the financing of the
original infrastructure of the city's metro system;
- Other Fitch classified debt includes an estimated share of the
financing for Metro Ligero de la Via 80 project.
Liquidity and Debt Structure
At end-2022, the city's adjusted debt was made up of COP2.3
trillion long-term debt and approximately COP2.5 trillion
intergovernmental debt from the metro system infrastructure. The
net adjusted debt totaled COP4.7 trillion as a result of
subtracting Medellin's COP96.8 billion unrestricted cash balance.
In Fitch's rating case is estimated an off-balance-sheet liability
related to the pro-rata debt for the Via 80's Metro project, which
averages 35% of Medellin's operating balance over the 2023-2027
forecast horizon. It also incorporates Medellin's debt plan, which
consists of log-term loan up to COP965.7 billion, of which COP221.6
billon would disbursed in 4Q 2023 and the remaining in the
2024-2027 next administration (COP314.5 billion in 2024, COP209.6
billion in 2025, and COP220 billon in 2026).
Issuer Profile
Medellin has a population close to 2.6 million (5.0% of national)
and is Colombia's second-most important city, contributing to
slightly more than 7.0% of national GDP. Medellin's economy is
well-diversified, and its service sector has exhibited sound
consolidation over the last few years. This has benefited the
city's labor market, and the unemployment rate is below the
national average. Fitch classifies Medellin, and all Colombian
LRGs, as type B as it covers debt service from its cash flow on an
annual basis.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- If the enhanced payback ratio is close to 9.0x, coupled with an
enhanced synthetic debt service coverage ratio (DSCR) below 1.5x,
under Fitch's rating case, a negative rating action is possible.
- A downgrade of Colombia's sovereign rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Colombia's sovereign rating would lead to a
corresponding rating action on Medellin. The city's national
ratings are already at the highest level on the scale, so positive
rating actions are not possible.
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
----------- ------ -----
City of Medellin LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(col) Affirmed AAA(col)
Natl ST F1+(col) Affirmed F1+(col)
senior
unsecured Natl LT AAA(col) Affirmed AAA(col)
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Border is Open for Commercialization
--------------------------------------------------------
Dominican Today reports that Minister of Industry and Commerce,
Victor Ito Bisono, has stated that the Dominican side of the border
with Haiti is open for trade, but they are waiting for the Haitian
government to reciprocate.
According to Bisono, the decision of whether Haitian goods come
across the border or not is not within their control, according to
Dominican Today. However, he noted that in recent weeks, some
trade has resumed, says the report.
The government's goal is to find alternative markets for the
products that were previously sold to Haiti, thereby increasing
exports to other countries in the region, the report relays.
In response to complaints from businessmen, Bisono mentioned that
they maintain ongoing communication with them to address any
potential issues that may arise, 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.
=============
J A M A I C A
=============
JAMAICA: CBTT Explains Suspension of TT$ Exchange in Country
------------------------------------------------------------
The Central Bank of Trinidad and Tobago says the decision to
suspend the exchange of Trinidad and Tobago dollar banknotes by the
Bank of Jamaica was taken to reduce costs and to prevent the
possibility of criminal activities, including money laundering.
This, in response to questions from the Trinidad Guardian
newspaper, said its counterpart institutions in the Caribbean have
a long standing arrangement to redeem each other's currency.
It said these and other currency arrangements were constantly being
reviewed and discussed among the staff of the banking departments
of the various central banks.
The BOJ said as of November 6, the exchange of Trinidad and Tobago
dollars at its banking counter is suspended until further advised.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's 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. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
JAMAICA: Signs US$1.2MM Technical Cooperation Agreement With IDB
----------------------------------------------------------------
RJR News reports that there is to be an increase in infrastructure
investments with the signing of a Project Preparation Facility
Technical Assistance agreement between the Inter-American
Development Bank and the Government of Jamaica.
The project is valued at US$1.25 million, according to RJR News.
The IDB says the technical assistance agreement aims to increase
infrastructure investment, promote good practices in project
preparation, and produce value for money for government and
infrastructure-based service users, the report notes.
It will focus on creating environmentally sustainable, bankable,
and fiscally responsible public-private partnership projects, the
report relays.
The initiative will be executed by the Development Bank of Jamaica
in partnership with IDB, the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's 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. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
=====================
P U E R T O R I C O
=====================
EMINENCE CORPORATION: Case Summary & Five Unsecured Creditors
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Debtor: Eminence Corporation
URB Ext Roosevelt
555 Calle Cabo H Alverio
San Juan, PR 00918
Chapter 11 Petition Date: November 10, 2023
Court: United States Bankruptcy Court
District of Puerto Rico
Case No.: 23-03714
Debtor's Counsel: Modesto Bigas Mendez, Esq.
MODESTO BIGAS LAW OFFICE
PO Box 7462
Ponce, PR 00732
Tel: (787) 844-1444
Fax: (787) 842-4090
Email: mbigasmendez@gmail.com
Total Assets: $1,777,391
Total Liabilities: $1,537,640
The petition was signed by Irmgard A. Pagan Rivera as president.
A full-text copy of the petition containing, among other items, a
list of the Debtor's five unsecured creditors is available for
free
at PacerMonitor.com at:
https://www.pacermonitor.com/view/3IHM6BI/EMINENCE_CORPORATION__prbke-23-03714__0001.0.pdf?mcid=tGE4TAMA
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T R I N I D A D A N D T O B A G O
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TRINIDAD & TOBAGO: We Saved the Country's Reputation, Imbert Says
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Kim Boodram at Trinidad Express reports that Finance Minister Colm
Imbert has defended the Government's debt management framework,
stating that his ministry recently "saved" Trinidad and Tobago from
losing its reputation as having never defaulted on public debt.
Imbert was speaking in the Senate during the Opposition's private
motion, "Annulment of the Public Procurement and Disposal of Public
Property (Exemption) (Financing Services) Order, 2023," according
to Trinidad Express.
The minister called the motion "frivolous" and a waste of
parliamentary time as he outlined some processes by which the State
monitored and was consistently advised on the management of public
debt, the report relays.
The motion was moved by United National Congress (UNC) Senator
Jayanti Lutchmedial for Opposition senator Wade Mark, asking that
the Public Procurement and Disposal of Public Property
(Exemption)(Financing Services) Order 2023 be annulled, the report
notes.
The Minister of Finance was the first to join the debate, followed
by four more contributions, before the wind-up by Lutchmedial, the
report discloses.
With 11 votes for, 17 votes against and no abstentions, the motion
was not approved, the report says.
Imbert criticised the Opposition's presentations as "reprehensible"
and called on those senators to do "research" before coming to the
House.
Imbert said public debt management is a "highly specialised area"
and that the Ministry of Finance has, over decades, invested in
significant training of its staff, the report notes.
He said there were "experts" within the State's debt management
teams and received technical assistance from multilaterals all the
time, the report relays.
The minister questioned why State enterprises should be given the
responsibility to do debt and financing management, calling it
"bureaucracy" when they do not have the expertise or resources,
including funding, the report says.
Imbert said the State did not want the "bunching of debt", noting
that when the Government recognised that an amendment "made in good
faith" could have excluded government-guaranteed financing, an
adjustment was made in accordance with the laws, the report
discloses.
Imbert said "chaos" had ensued at two State enterprises after two
government-guaranteed borrowings were arranged in accordance with
the new regulations, the report relays.
"They did not know what to do," Imbert said, adding that "financial
institutions would run rings around them and they would not get
value," the report relays.
Imbert also said the ministry had moved to manage a large bond,
taken out some ten years ago, that matured in September 2023, the
report recalls.
The State-raised bond was taken out some ten years ago and
guaranteed under the previous government, he said.
Imbert said as September approached, the relevant State enterprise
was asked whether it could complete the transaction, including
tenders and the selection of a financial institution, the report
notes.
"Eventually, we realised they couldn't and we were going to default
on government debt," the minister said.
He said T&T has had the "enviable" reputation since 1962 of never
defaulting on government debt, the report relays.
He said the State enterprise concerned didn't have the expertise
and "we had to move in and solve that problem with cash that had
already been allocated for another purpose," the report discloses.
"We saved the day," Imbert stated.
"The debt was paid and there was no default."
Imbert said T&T had retained its "first class" reputation and that
the country was able to borrow "fairly easily", locally and
internationally, because its reputation is good, the report says.
Debts Accountable
In questioning the Opposition's argument, Imbert also asked why the
Office of the Procurement Regulator should have to go through the
hiring and training of personnel for debt management, the report
relays.
He said the Government had to account to the Parliament on public
debt and was available to do so, the report says.
Imbert further stated that advice came from several areas,
including from the Commonwealth Secretariat, which wrote a paper
for T&T advising on debt management, the report notes.
He said the International Monetary Fund (IMF) regularly visited T&T
to look at the Government's debt management and offer advice, the
report discloses.
Imbert added that this country has been called an "outlier" by the
World Bank over its expenditure of over $1 billion every year on
pharmaceuticals for the public health system.
"We are an outlier," Imbert said, adding that much of the $1
billion was "borrowed money".
He said a team from the World Bank was in T&T looking at its social
safety network, free education and healthcare, as well as social
grants for disabilities and various forms of public assistance, the
report relays.
Imbert said "everything will be transparent" and that the Ministry
of Finance would continue to report on public financing through
different fora, including Joint Select Committees of the Parliament
and the national budget documents, the report notes.
He further stated that the Opposition could have passed and
proclaimed procurement legislation when it held 26 seats in the
Parliament - but that it failed to do so because the legislation
was defective, the report discloses.
He reiterated that the Procurement Act is in effect and dealing
with complaints and challenges, going on to congratulate the Office
of the Procurement Regulator for the "good" job being done, the
report notes.
Imbert said of the Opposition that it was "nice to make these noisy
presentations" but "it is clear that the hidden agenda, or
not-so-hidden agenda, is to grind the country to a halt," the
report adds.
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U R U G U A Y
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ACI AIRPORT: Fitch Alters Outlook on 'BB+' Notes Ratings to Stable
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Fitch Ratings has affirmed the 'BB+' ratings of ACI Airport
SudAmerica, S.A.'s $246.2 million senior secured notes (2021 notes)
due in 2034 and the $14.6 million senior secured notes (2015 and
2020 notes) due in 2032. The Rating Outlook was revised to Stable
from Negative.
The Stable Outlook reflects the continuous traffic growth, above
Fitch's rating case in 2022 and the first half of 2023, and the
expectation of continued improvement in operational performance,
leading to reduced reliance on structure liquidity. Continued
traffic recovery, with better than expected financial performance,
are the main drivers for the Outlook stabilization.
RATING RATIONALE
The ratings are driven by Carrasco International Airport's (MVD)
strategic but modest traffic base and its strong Origin &
Destination profile, with passenger traffic through September of
this year at 87% of 2019 levels. The concession extension granted
up to 2053 allowed the issuer to refinance its debt, adding
significant liquidity enhancement including an extended principal
grace period and a six-month debt service reserve account (DSRA),
which is funded with Letters of Credit (LOCs) at closing. The debt
is at the HoldCo level and benefits from a springing guarantee from
the OpCo.
The notes' scheduled and target amortization provides flexibility
to the transaction in case of additional stress. Under Fitch's
rating case, the minimum and average debt service coverage ratios
(DSCRs) are 0.96x and 1.65x (2024-2034), respectively. The minimum
DSCR occurs in 2024 but is not a constraint as the project has
sufficient liquidity to honor its obligations, in addition to
having up to USD15 million available in an unsecured working
capital facility. The IPA balance will be fully used in 2023, as
expected. After 2024, DSCRs have a growing profile and are
commensurate with higher ratings.
KEY RATING DRIVERS
Main Uruguayan Airport, Modest Catchment Area [Revenue Risk -
Volume: Midrange]:
Located in Uruguay's capital city of Montevideo, MVD is the main
international gateway to Uruguay with approximately 85% of the
country's flights and a catchment area with 3.4 million people. As
a result, its traffic has primarily been from international
passengers traveling from Brazil, Panama, Spain, as well as Chile.
MVD is almost exclusively an O&D airport with less than 1% of
passengers transferring to other destinations. The carrier
concentration is moderate, with Copa Airlines (not rated) and LATAM
Airline Group S.A. (LATAM; BBB(cl)) accounting for 18% and 12% of
the passengers, respectively. The six new regional airports added
to the concession are not expected to increase the overall traffic
base.
Inflation and Exchange Adjusted Tariffs [Revenue Risk - Price:
Midrange]:
Revenues are 95% denominated in U.S. dollars, mostly in the form of
regulated passenger tariffs adjusted by a global index that
considers foreign exchange and inflation rates. Tariffs cannot
decrease under the concession adjustment scheme, and increases must
be approved by the Uruguayan government pursuant to a decree.
Commercial revenues derived from the airport's duty-free store,
restaurant, and other concessions are not regulated but are also
influenced by traffic patterns.
Well-Defined Capex Plan for Regional Airports [Infrastructure
Development & Renewal: Stronger]:
The concession includes six regional airports and some certain
investment obligations expected to be funded with Montevideo's cash
flow generation. According to the technical advisor's analysis
(ALG), the investments are considered simple and are capped at USD
67 million per the concession contract extension. Under the
concession agreement, there is an obligation to build a new taxiway
in MVD, which is triggered by volume or shall be completed up to
2033. The MVD current capacity of 4.5 million passengers per year
is well above Fitch's Rating Case forecast over the next 10 years.
No other significant mandatory investments are needed in the
remaining concession term.
Fully Amortizing Debt at HoldCo Level [Debt Structure: Midrange]:
The notes are fixed-rate and fully amortizing over the life of the
debt and benefit from a springing guarantee. Debt benefits from a
six-month DSRA funded by a letter of credit. The notes will benefit
from a legal amortization schedule complemented by a partial cash
sweep up to a target debt balance. Failure to meet the target debt
balance is not an event of default, therein providing flexibility
to the transaction in the event that certain years perform below
original expectations.
Financial Profile
For this review, Fitch adopted base and rating cases given the
recent asset performance far above the severe downside case, as
well as the positive trend observed in Uruguay reflected in its
recent upgrade. Fitch assumes a full recovery to 2019 levels for
2024 and 2025 for Base and Rating case, respectively.
Under Fitch's Rating Case, average DSCR has practically stayed the
same, and only the minimum DSCR slightly deteriorated compared with
the prior review, due to adjustment in the passenger curve in this
year and additional stress applied to commercial revenues. DSCR has
a growing profile (considering mandatory amortizations only) from
2024 to 2034, with a minimum and average of 0.96x and 1.65x,
respectively. The minimum DSCR occurs in 2024, but the project is
not expected to tap DSRA nor to use its working capital facility.
Average DSCR is commensurate with higher ratings.
PEER GROUP
Sociedad Concessionaria Operadora Aeroportuaria Internacional, S.A.
(OPAIN), the concessionaire of El Dorado International Airport in
Bogota (BB+/Outlook Stable), is a peer for ACI in Fitch's LATAM
airport portfolio. Both airports are the main gateways in their
respective countries, but OPAIN has a stronger traffic profile, a
larger O&D base, and less dependence on international traffic.
OPAIN's DSCR profile of 1.3x after 2023 is consistent with its
'BB+' rating, and the Outlook was recently stabilized to account
for the pace of traffic recovery, which has reached pre-pandemic
levels. ACI's rating reflects its strategic importance and the
recurring improvement in traffic volume, leading to an enhanced
financial performance with strong average DSCR of 1.65x.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Reduced traffic growth consistently below Fitch's Base Case that
could lead to reliance on existing liquidity sources;
- Operational costs growth above inflation;
- Inability in renewing commercial contracts in similar or enhanced
conditions.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Continuous traffic growth to levels above Fitch's base case;
- Renewal of commercial contracts in conditions better than the
current ones.
CREDIT UPDATE
Traffic reached 87% of pre-pandemic levels from January to
September 2023 on an accrued basis. Traffic volume in 2022 was
above both Fitch's rating case and Fitch's severe downside case,
which were projected at 65% of 2019's traffic. Regarding 2023, for
the first nine months traffic has been 3.9% and 19.6% above Fitch's
rating and severe downside case, respectively. Furthermore, traffic
has been progressively improving throughout 2023 in a monthly
basis. In September 2023, traffic was 94% of the September 2019
figure.
The Uruguayan Issuer Default Rating upgrade to 'BBB' in June of
2023 due to enhanced fiscal credibility and resilience to economic
shocks also adds a positive environment for traffic growth.
Revenues reached USD69.0 million in 2022, and USD46.6 million in
1H23, above Fitch's rating case by 18% and 4.2%. Operating expenses
in 2022 were 40.2% above Fitch's rating case, mainly because of
variable costs, which are linked to pax volume and these were
higher than expected, in addition to wage readjustments higher than
inflation in 2022 and 2023. Opex in 1H23 is in line with rating
case in 1H23. Coupling the effects of a greater traffic and a
higher tariff, even in light of a higher Opex in 2022, EBITDA
outperformed Fitch's rating case projections in 2022 by 15% and in
1H23 by 13%.
Capex in 2022 was USD17 million, of which USD13 million
corresponded to the new airports and the remainder allocated in
MVD's needs. In this same year, the company invested more than
forecast due to expropriations that were anticipated in order to
perform some works in the regional airports. This is likely to
occur again by the end of 2023. For the first half of 2023, capex
was USD12.9 million against USD18.7 million, which is in line with
Fitch's cases, especially given the amount of investments expected
for the last months of the year when the company opens two regional
airports.
In 2022, the Uruguayan government approved a tax benefit in
connection to the investment plan to improve the airports
facilities. The tax benefit reduces income tax over the next years,
enhancing the coverage metrics from 2027 onwards and so far has
been working adequately according to management.
FINANCIAL ANALYSIS
Fitch resumed its base case for the credit given its recent
outperformance, with a higher traffic recovery, as well as
expectations for it to keep improving traffic volumes and positive
trends observed for Uruguay, which led to an upgrade of the
sovereign in 2023. Fitch is assuming its Base Case for 2023 to be
equal to management's projections of 1.8 million passengers and 2.0
million passengers in 2024. Afterwards, a CAGR of 3.4% was applied
up to 2035. In the Rating Case, traffic reaches 1.7 million and 1.9
million passengers per year, for 2023 and 2024, respectively. Then,
a CAGR of 3.0% was applied up to 2035.
Under the Base Case, Fitch assumed management's assumption for both
operational and capital expenditures. Under the Rating Case, Fitch
has assumed a 5% stress in opex for the new airports, as a
potential margin of error in comparison to the cost budge.
Macroeconomic assumptions such as inflation and foreign exchange
were also updated in line with Fitch's Sovereigns group's forecasts
as of September 2023.
Fitch did not consider any down payment from the duty-free operator
in 2023 related to an expected contract extension. The projections
assume the current conditions will be maintained for the Base Case
and a stress of 10% over the current fees for the Rating Case.
In the Base Case, minimum and average DSCRs from 2024 to 2034 are
0.96x and 2.03x, respectively. In the Rating case, minimum and
average DSCRs for the same period, are 0.96x and 1.65x,
respectively.
SECURITY
The security package supporting the 2021 notes is typical for
project finance and includes a pledge of the shares of the OpCo; a
pledge of the shares of Cerealsur S.A., direct owner of PDS's
shares, and a guarantee from the entity; all of the issuer's
shares; and all present and future payments, proceeds and claims of
any kind with respect to the foregoing, in a pari passu basis with
the remaining 2015 and 2020 notes, and a pledge over account into
which all dividends and distributions from PdS to Cerealsur and
from Cerealsur to the Issuer are deposited. The 2021 notes benefit
from a six-month DSRA, funded by a standby letter of credit. The
2021 notes also enjoyed a prefunded Interest Payment Account (IPA),
which must be fully depleted in November of 2023.
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
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ACI Airport
SudAmerica, S.A.
ACI Airport
SudAmerica,
S.A./Airport
Revenues –
First Lien/1 LT LT BB+ Affirmed BB+
ACI Airport
SudAmerica,
S.A./Airport
Revenues –
Subordinate
Lien/2 LT LT BB+ Affirmed BB+
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S U B S C R I P T I O N I N F O R M A T I O N
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