/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/240102.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, January 2, 2024, Vol. 25, No. 2 Headlines A R G E N T I N A ARGENTINA: Publishes Decree Dismissing Around 7,000 State Workers ARGENTINA: Pulls Out of Plans to Join Brics Bloc GAUCHO GROUP: Postpones Stockholder Meeting to Feb. 29 B R A Z I L BANCO BRADESCO: Fitch Affirms 'BB+' LT IDRs, Alters Outlook to Neg. ITAU UNIBANCO: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable TRANSMISSORA ALIANCA: Fitch Lowers Local Currency IDR to 'BB+' D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Advances in 2023 in Risk Rating J A M A I C A JAMAICA: Clothing, Shoes & Other Apparel Prices up 4.5% in Nov P E R U AUNA SA: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable P U E R T O R I C O GOLDEN INDUSTRIAL: Taps Jacqueline Rivera Gonzalez as Accountant GRUPO HIMA SAN PABLO: Committee Taps Gibbins as Financial Advisor - - - - - ================= A R G E N T I N A ================= ARGENTINA: Publishes Decree Dismissing Around 7,000 State Workers ----------------------------------------------------------------- Buenos Aires Times reports that Argentina's government has put a serious damper on the festive celebrations of around 7,000 state workers after publishing a decree that orders the cessation of their employment. Carrying the signatures of President Javier Milei and Cabinet Chief Nicolas Posse, the publication of Decree 84/2023 in the Official Gazette confirms the dismissal of public employees who joined the civil service from January 1, 2023 onwards and are not considered essential, according to Buenos Aires Times. In most cases, expiring contracts will not be renewed. The decree applies to those in positions without seniority within the government and decentralized state bodies, affecting non-permanent temporary employees "and any other type of contract that ends on December 31, 2023," the report relays. The decree also establishes new rules for the hiring of personnel, the report discloses. In addition, the executive branch vows in its decree to review the employment situation of state workers who have been in office since before that date, the report notes. The decision applies to around 7,000 employees across different areas of government, according to government sources, the report says. It includes public bodies such as ANSES, PAMI and AFIP, the report relays. President Milei, who said during the election campaign that he would target state employees (known pejoratively as 'noquis') whose roles are not essential for dismissal, the report says. News of the decree's publishing prompted immediate criticism from unionized state workers representatives, the report discloses. "They were afraid that Argentina could be Venezuela and they are taking us to Haiti. It's crazy," said ATE state workers union chief Daniel Catalano in a radio interview, the report says. "Throwing out 7,000 workers who earn 200,000 pesos does not move anyone's ammeter, you only harm 7,000 families who will be left without work on December 31," he charged, the report relays. "The government is promoting more poverty and unemployment. It is not solving absolutely nothing with this," added Catalano, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Javier Milei is the current president of Argentina after winning the November 19, 2023 general election. He succeeded Alberto Angel Fernandez 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: Pulls Out of Plans to Join Brics Bloc ------------------------------------------------ RJR News reports that Argentina's new President, Javier Milei, has withdrawn the country from its planned entry into the expanding Brics club of nations. In a letter to the leaders of Brazil, Russia, India, China and South Africa, Mr. Milei said decisions taken by the preceding government had been revised, according to RJR News. Argentina would have been admitted to the Brics club on January 1, alongside Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates, the report notes. Its change of heart comes after Mr. Milei won a surprise election victory in November with radical pledges to overhaul the South American nation's ailing economy, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Javier Milei is the current president of Argentina after winning the November 19, 2023 general election. He succeeded Alberto Angel Fernandez 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. GAUCHO GROUP: Postpones Stockholder Meeting to Feb. 29 ------------------------------------------------------ Gaucho Group Holdings, Inc. announced that its Special Meeting of Stockholders, scheduled to be held on December 28, has been postponed and will now take place on Thursday, February 29, 2024. A formal notice setting forth the exact location and time of the rescheduled meeting will be distributed to the stockholders of the Company in due course. The Board of Directors has determined it to be in the best interests of the stockholders to postpone the Stockholder Meeting to allow stockholders sufficient time to review the following new proposal to be considered at the Stockholder Meeting: To approve for purposes of complying with Nasdaq Listing Rule 5635(d), the full issuance and exercise of shares of Gaucho common stock to be issued pursuant to that certain Securities Purchase Agreement, dated February 21, 2023, that certain senior secured convertible promissory note dated February 21, 2023, that certain common stock purchase warrant dated February 21, 2023, and that certain Registration Rights Agreement, dated February 21, by and between the Company and an institutional investor. The record date for the postponed Stockholder Meeting will be changed. Amended proxy materials will be filed with the Securities and Exchange Commission prior to the rescheduled Stockholder Meeting. The amended proxy materials and a new proxy card will be distributed to the stockholders by the Company in advance of the rescheduled meeting date. About Gaucho Group Headquartered in New York, NY, Gaucho Group Holdings, Inc.'s (gauchoholdings.com) mission has been to source and develop opportunities in Argentina's undervalued luxury real estate and consumer marketplace. The Company has positioned itself to take advantage of the continued and fast growth of global e-commerce across multiple market sectors, with the goal of becoming a leader in diversified luxury goods and experiences in sought after lifestyle industries and retail landscapes. Gaucho Group reported a net loss of $21.83 million for the year ended Dec. 31, 2022, compared to a net loss of $2.39 million for the year ended Dec. 31, 2021. As of March 31, 2023, the Company had $21.01 million in total assets, $8.60 million in total liabilities, and $12.40 million in total stockholders' equity. New York, NY-based Marcum LLP, the Company's auditor since 2013, issued a "going concern" qualification in its report dated April 17, 2023, citing that the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. =========== B R A Z I L =========== BANCO BRADESCO: Fitch Affirms 'BB+' LT IDRs, Alters Outlook to Neg. ------------------------------------------------------------------- Fitch Ratings has revised the Rating Outlook on Banco Bradesco S.A.'s (Bradesco) Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at 'BB+'. Fitch has also affirmed Bradesco's Viability Rating (VR) at 'bb+' and National Long-Term rating at 'AAA(bra)'/Outlook Stable. Fitch has affirmed NCF Participacoes S.A.'s (NCF) Long-Term National Rating at 'AA+(bra)'/Outlook Stable. The Negative Outlook on Bradesco's IDRs reflects greater deterioration of its asset quality and profitability than Fitch previously expected. The bank incurred a significant increase in payment delays on retail loans, mainly from unsecured loans in the low-income segment. This further pressured the bank's asset quality ratios, which had already been negatively affected by a specific corporate impairment. These factors culminated in additional provisions that, combined with a more limited credit appetite, compressed Bradesco's margins and profitability. Bradesco is already taking significant measures to improve its ratios. However, Fitch believes the bank's general expenses will still increase in 2024 and that material recovery results will only begin taking effect in 2025. KEY RATING DRIVERS VR Drives Ratings: Bradesco's IDRs are driven by its VR, which reflects a stable business profile with diversified revenue. Bradesco's ratings are one notch above the sovereign's IDRs (BB/Stable), reflecting its robust credit profile and significant role in the Brazilian financial system, which provides the bank more headroom to absorb potential risks from macroeconomic conditions compared with lower rated peers. In Fitch's view Bradesco would likely retain the capacity to service their obligations in the case of a sovereign default, without any restrictions from the sovereign. The uplift on the ratings is limited to one notch due to the group's high exposure to the sovereign, primarily through its holdings of government securities, and as the majority of its operations are concentrated in Brazil. Operating Environment Affirmed: The operating environment score for Brazilians Banks is 'bb', which is in line with the implied assessment based on Brazil's GDP per capita of USD9.97 and Fitch's Operational Rating Index (ORI) index of 47.4 (percentile ranking). Fitch projects Brazilian GDP growth of 1.5% in 2024, reflecting normalization in agricultural output along with steady domestic demand. Consumption should remain supported by the labor market, and less restrictive monetary policy could balance out the impact of moderate fiscal tightening. Strong and Diversified Business Profile: Bradesco's business profile strongly benefits from its banking and insurance franchises in Brazil across multiple business unities. The franchises provide the group with pricing power, earnings generation capacity, financial flexibility through stable customer deposits and capital markets access. Bradesco is a multiple bank mainly financed by stable and low-cost deposits and is viewed by depositors as a reliable choice in times of uncertainty. The bank is focused on the Brazilian market, with a large distribution network across the country and all economic classes through the segmentation of its client base. Well-Balanced Risk Profile: Bradesco has a relatively moderate and well-controlled risk appetite, including its exposure to securities and its activities in insurance. The granting and monitoring of credit is well controlled and performed by sophisticated and segmented systems. During the last cycle, the bank had greater volatility in credit risk ratios, due to greater exposure to unsecured credit portfolios, especially when compared with its main peers. The market risk inherent to its interest rate and foreign currency positions can be volatile, although internal limit exposures are relatively low. However, the risk profile is sensitive due to a concentration of activities in Brazil and significant sovereign exposure. Asset Quality Deterioration: Impaired loans (D-H)/gross loans increased to 13.6% in September 2023 from 12.6% in YE2022 and 10.6% of 4YE average (2022-2019) largely due to retail loan deterioration and a large corporate client that was 100% provisioned. Non-performing loans more than 90 days/gross loans (NPL 90 days) showed some stability in 3Q23, even at NPL 90 days ratios above the bank's history. NPL 90 days increased to 6.1% in September 2023, from 4.3% in YE2022 and 2.8% in YE2021. Bradesco continues to present adequate coverage ratios as NPL 90 days was 155% and impaired loans was 69% in September 2023. Fitch expects Bradesco's asset quality ratios will still be under pressure in 2024, with adjustments to its concession and control scores as credit growth returns improvements likely throughout 2025. Lower Profitability Ratios: Bradesco's recurring profitability has declined. Its adjusted core metric (adjusted to account for the tax effects of the hedges on investments abroad) of operating profits to risk-weighted assets was 1.8% on 9M13 annualized and averaged 2.9% over the past four years. ROE declined to 11.5% for annualized 9M23 from 13.7% at YE2022 and 15.1% at YE2021.Revenue generation in 3Q23 continued to moderate, and Fitch expects the profitability ratios will remain under pressure. The loan impairment charge is high, and Bradesco's financial margin is still impacted by record high funding costs and by the repositioning of the bank's appetite for growth throughout 2024. Satisfactory Capitalization: Bradesco's capitalization was maintained with satisfactory buffers over regulatory minimum requirements, with the regulatory Common Equity Tier 1 (CET1) ratio at 11.8% at end-September 2023 (12.1% average 2019-2022). Pre-impairment operating profit provides a sizeable buffer to absorb loan impairment charges through the income statement without affecting capital Excess Liquidity and Stable Funding: Bradesco's liquidity remains solid, supported by the historical stability of its deposits, significant securities portfolio and the bank's capacity to access long-term financing. Bradesco's ample distribution network allows it to continuously capture deposits at an attractive cost. During stress periods, the bank has benefited from flight-to-quality movements, due to its position as one of the largest banks in the sector. NCF PARTICIPACOES - NATIONAL RATINGS One Notch Below Bradesco: NCF's National Long-Term Rating and the rating on its issuance of debentures are one notch below the rating of its main operating subsidiary, Bradesco. NCF is a pure holding company. Its ownership stake is small at only 5.37% of Bradesco's total capital, which is its main source of support. The company's double leverage, measured as investments in subsidiaries and intangible assets/equity was low (around 70% in September of 2023). There were no relevant dividend flows compared with its liability structure, despite the evident links with the group, such as common management and aligned strategies. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade BRADESCO IDRs and VR - Bradesco's LT IDRs and VR are limited by Brazil's sovereign ratings. As a result, a negative action on the sovereign ratings would result in a similar action on the bank's ratings. - Bradesco's VR may be negatively affected if the bank is not able to consistently execute its strategies over the next year, culminating in a decline in its loss-absorbing capacity, deterioration of the asset quality and / or if there is a sustained reduction in its CET1 to less than 10%. - A sustained decline in the bank's operating profits/risk-weighted assets (RWAs) of less than 2.5% may also lead to a downgrade of Bradesco's ratings. National Ratings - Bradesco's National Ratings are sensitive to changes in creditworthiness relative to other Brazilian issuers. NCF PARTICIPACOES National Ratings - A negative rating action on Bradesco's ratings would result in a similar action on NCF Participacoes. Additionally, a substantial increase in the holding's double leverage ratios (more than 120%), or deterioration of its debt service indicators could also lead to a negative rating action. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade BRADESCO IDRs and VR - The Outlook could be revised to Stable if Bradesco can make improvements in its financial profile, especially in its asset quality and profitability ratios, maintaining satisfactory capitalization levels and adequate liquidity and funding ratios, National Ratings - Bradesco's National Ratings are sensitive to changes in their creditworthiness relative to other Brazilian issuers. NCF PARTICIPACOES National Ratings - An upgrade is possible should NCF Participacoes increase its ownership to a large majority stake of Bradesco. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS BRADESCO - SENIOR UNSECURED Bradesco's senior unsecured debt is rated in line with its IDRs as the likelihood of default on these obligations reflects the likelihood of default of the entity. NCF - SENIOR UNSECURED NCF's senior unsecured debt is rated in line with its National Ratings as the likelihood of default on these obligations reflects the likelihood of default of the entity. BRADESCO - SUPPORT RATING Bradesco's Government Support Rating (GSR) of 'bb-' reflects a limited probability of support from the Brazilian authorities, if required. The government's limited financial flexibility and capacity to provide support, as indicated by its sovereign rating, highly influence its GSR, despite contagion risks stemming from Bradesco's position as a domestic systemically important bank with dominant market shares OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES - Bradesco's senior unsecured debt ratings are sensitive to a change in its IDR. - NCF's senior unsecured debt ratings are sensitive to a change in its National Rating. - The Support Rating is sensitive to any change in assumptions of propensity or ability of the sovereign to provide support to the bank. VR ADJUSTMENTS The asset-quality score of "bb" has been assigned above the 'b & below" category implied score because of the following adjustment reason: collateral and reserves. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Bredesco's Government Support Rating (GSR) is linked to Brazil's sovereign rating 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 ----------- ------ ----- Banco Bradesco S.A. LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B LC LT IDR BB+ Affirmed BB+ LC ST IDR B Affirmed B Natl LT AAA(bra)Affirmed AAA(bra) Natl ST F1+(bra)Affirmed F1+(bra) Viability bb+ Affirmed bb+ Government Support bb- Affirmed bb- senior unsecured LT BB+ Affirmed BB+ NCF Participacoes S.A. Natl LT AA+(bra)Affirmed AA+(bra) Natl ST F1+(bra)Affirmed F1+(bra) senior unsecured Natl LT AA+(bra)Affirmed AA+(bra) ITAU UNIBANCO: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable --------------------------------------------------------------- Fitch Ratings has affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of Itau Unibanco Holding S.A. (IUH) and its operating subsidiary Itau Unibanco S.A. (Itau Unibanco) at 'BB+' and Long-Term National Ratings at 'AAA(bra)'. The Rating Outlooks are Stable. Fitch has also affirmed IUH and Itau Unibanco's Viability Rating (VR) at 'bb+' and Government Support Rating (GSR) at 'bb-'. KEY RATING DRIVERS VR Drives Ratings: The IDRs and National Ratings are driven by the entities' standalone creditworthiness, as expressed by their 'bb+' VR. The VRs are one notch above Brazil's (BB/Stable) sovereign rating, reflecting the group's very strong standalone credit profile and Fitch's view that these entities would likely retain the capacity to service their obligations in the case of a sovereign default, without any restrictions from the sovereign. The uplift on the ratings is limited to one notch due to the group's high exposure to the sovereign, primarily through its holdings of government securities, and as the majority of its operations are concentrated in Brazil. The Stable Outlook on the Long-Term IDRs mirrors Brazil's Outlook. Group VR: Fitch rates IUH and its main bank subsidiary, Itau Unibanco S.A., at the same level in the consolidated group reflecting its view that the entities have the same failure risk. This is because the Central Bank of Brazil regulates the group as a consolidated entity. Capital and liquidity are highly fungible among the entities, as well as operational integration Business, Risk Profile Key Strengths: IUH's ratings reflects the group's leading domestic franchise among several products. This supports good pricing power, revenue diversification and access to large, stable deposit bases. The ratings also reflect adequate capital buffers and good asset quality protection through strong provisioning buffers, the group's rigorous risk-control approach and moderate risk diversification from the bank's international footprint, mostly in Chile (A-/Stable). Leading Franchise, Consistent Business Model: IUH's business profile score of 'bbb' is underpinned by the group's strong and diversified business model, with significant contributions from fee income, which have supported a steady earnings generation over the years. IUH's four-year average total operating income is USD21.458 million, which is the largest among private sector direct peers in the region. Proactive Risk Management: IUH's progress to accelerate its tightening of underwriting standards and overall portfolio rebalancing over the past years, as well as its recent shifts towards less risky lending in Brazil, should continue to help to contain large inflows of impaired loans domestically relative to peers. This, combined with the group's risk diversification internationally, underpins the resilience of the group's asset quality in periods of stress and helps to reduce its risk sensitive to the domestic economy in light of the concentration of activities within Brazil and significant sovereign exposure. Above Peer Reserve Coverage: Despite current affordability pressures among households and small businesses, Fitch expects the impaired loan (D-H loans) ratio to remain below 7% by end-2024 (6.4% at end-September 2023), combining IUH's significant asset-desking, a fairly well balanced client and product mix, and write-offs. IUH's prudent loan provision policy remains a rating strength and current impaired loan coverage (96.6% at end-September 2023) provides some protection to risks of higher-than-expected asset-quality pressures. Sound Structural Profitability, Good Cost Efficiency: IUH manages to deliver resilient operating profitability through the cycles. Profitability improved on still high interest rates and resilient business performance in 2023 supporting asset-repricing and healthy net interest margin. Subdued loan growth and some pressures on credit costs from residual asset-quality normalization will remain as key headwinds over the medium term, but Fitch expects the earnings ratio to remain strong and above 3.0% of risk-weighted assets in 2023-2024 (RWAs; 9M23: 3.4%). IUH's cost control-oriented culture (with a cost/income ratio on Brazil consistently close to 40% since 1Q22) and the group's strong progress in simplifying and digitalizing the bank over the past years also provides an important first line of defense. Adequate Capitalization: Fitch believes the group is well capitalized relative to its risk profile. Fitch has revised its capitalization and leverage assessment of IUH to bb from bb-, reflecting the maintenance of adequate buffers relative to regional peers and the bank's risk profile. IUH's capital buffers have improved through 2023 reflecting sound earnings generation and regulatory impacts, with a common equity Tier 1 (CET1) ratio of 13.1% at end-September 2023. Fitch expects the core ratio to converge close to 12% on the long run, as excess capital should be used to fund RWA growth, address upcoming regulatory changes or, potentially distributed via share buybacks or dividends. However, capitalization will continue to benefit from IUH's strong loss-absorbing buffers in the form of ample provisions, the group's established internal capital generation, and proven access to equity markets. Excess Liquidity and Stable Funding: IUH's funding benefits from a stable and large deposit base and good pricing power. Funding and liquidity management also benefits from deep global capital market access at the group level. Its approach requires foreign subsidiaries to be locally funded. Loans-to-deposits ratio was 97.5% in end-September 2023 and Fitch expects the moderate loan growth prospects to keep the ratio at a similar level in the near term. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The entities' VRs and Long-Term IDRs would come under pressure if its CET1 ratio declines sustainably below 10% without a credible plan to rebuild it in the short term, including as a result of greater-than-expected asset-quality deterioration or unexpected events. A meaningful erosion of the bank's earnings resilience (i.e. operating profit/risk weighted assets (RWAs) below 2% on a sustained basis) would also likely result in a negative rating action. - IUH's ratings remain sensitive to a downgrade of Brazil (BB/Stable) or to the group's current operating environment score (bb), the latter being particularly sensitive to the economic and banking prospects of IUH domestic and international markets. - The National Ratings are sensitive to a weakening creditworthiness relative to other Brazilian issuers. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - An upgrade would be contingent on an upgrade of Brazil's sovereign rating, resulting in a better assessment of the group's operating environment. An upgrade would also require a CET1 ratio above 12% and an impaired loan ratio structurally below 6%, while preserving the group's earnings resilience. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS SENIOR UNSECURED DEBT IUH's senior unsecured debt is rated in line with its IDRs as the likelihood of default on these obligations reflects the likelihood of default of the entity. SUBORDINATED AND JUNIOR SUBORDINATED DEBT IUH's subordinated debt is rated two notches below IUH's 'bb' VR. The notching is driven by the subordinated status and the expected high loss severity of the notes. No notching for non-performance is applied, because there is no coupon flexibility (i.e., coupons must be paid as they are not deferrable and the write-off trigger is close to the point of non-viability). As a result, Fitch believes that the incremental non-performance risk is not material from a rating perspective. IUH's additional Tier 1 (AT1) notes are four notches below IUH's 'bb+' VR in accordance with Fitch's criteria for assessing and rating bank subordinated and hybrid securities. The notching reflects the notes' higher expected loss severity relative to senior unsecured creditors (two notches) and higher non-performance risk (two notches). GSR IUH's GSR of 'bb-' reflects a limited probability of support from the Brazilian authorities, if required. Despite contagion risks stemming from IUH's position as a domestic systemically important bank with dominant market shares, the government's limited financial flexibility and capacity to provide support as indicated by its sovereign rating, highly influence its GSR. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES SENIOR DEBT IUH's senior debt ratings are primarily sensitive to changes in IUH's IDRs, from which they are equalized. SUBORDINATED AND JUNIOR SUBORDINATED DEBT IUH's subordinated debt is rated two notches below IUH's 'bb' VR. The notching is driven by the subordinated status and the expected high loss severity of the notes. No notching for non-performance is applied, because there is no coupon flexibility (i.e., coupons must be paid as they are not deferrable and the write-off trigger is close to the point of non-viability). As a result, Fitch believes that the incremental non-performance risk is not material from a rating perspective. IUH's additional Tier 1 (AT1) securities' ratings at 'B', four notches below the bank's VR. Fitch's baseline notching for such high loss-absorbing and subordinated securities is to notch them four notches below the VR (two for loss severity and two for non-performance risk). GSR An upward revision of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In Fitch's view, this is highly unlikely, although not impossible. VR ADJUSTMENTS The asset-quality score of "bb" has been assigned above the 'b & below" category implied score because of the following adjustment: Collateral and reserves PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS The entities GSR are linked to Brazil's sovereign rating. 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 ----------- ------ -------- ----- Itau Unibanco Holding S.A. LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B LC LT IDR BB+ Affirmed BB+ LC ST IDR B Affirmed B Natl LT AAA(bra)Affirmed AAA(bra) Natl ST F1+(bra)Affirmed F1+(bra) Viability bb+ Affirmed bb+ Government Support bb- Affirmed bb- senior unsecured LT BB+ Affirmed BB+ subordinated LT BB- Affirmed BB- subordinated LT B Affirmed B Itau Unibanco S.A. LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B LC LT IDR BB+ Affirmed BB+ LC ST IDR B Affirmed B Natl LT AAA(bra)Affirmed AAA(bra) Natl ST F1+(bra)Affirmed F1+(bra) Viability bb+ Affirmed bb+ Government Support bb- Affirmed bb- TRANSMISSORA ALIANCA: Fitch Lowers Local Currency IDR to 'BB+' -------------------------------------------------------------- Fitch Ratings has downgraded Transmissora Alianca de Energia Eletrica S.A.'s (Taesa) Local Currency (LC) Issuer Default Rating (IDR) to 'BB+' from 'BBB-'. At the same time, Fitch has affirmed Taesa's 'BB+' Foreign Currency (FC) IDR and 'AAA(bra)' National Scale Rating and its senior unsecured debentures. The Rating Outlook for the IDRs and for the corporate National Scale Rating are Stable. The downgrade of the LC IDR reflects the expectation that Taesa will keep its net adjusted leverage above 3.5x over the next years due to relevant capex plan and high dividend payments. The company's total capex of BRL5.1 billion during 2023 to 2025 should contribute to its negative FCF and keep credit metrics at levels not consistent with the previous LC IDR. Taesa's credit profile benefits from its low business risk related to its diversified portfolio of energy transmission assets in Brazil, with predictable revenues and high operating margins. The analysis considers the company's moderate liquidity, extended debt maturity profile and proved access to funding. KEY RATING DRIVERS Pressured FCF: Aggressive capex plan and significant dividends distribution will pressure Taesa's FCF until at least 2025. It should approximate negative BRL670 million in 2024 and BRL1.1 billion in 2025, after expected negative BRL1.3 billion in 2023. The four new concessions under construction should require investments of BRL3.8 billion out of the BRL5.1 billion during 2023-2025, with a peak of BRL2.0 billion in 2023. High payout ratios should represent an average annual disbursement of BRL1.1 billion during the 2023-2026 period. Leverage to Increase: Adjusted net leverage should range from 3.5x to 4.5x until 2026, not consistent with its previous LC IDR. The base case scenario considers Taesa's adjusted net debt-to-adjusted EBITDA ratio of 3.5x in 2023, 3.8x in 2024 and 4.3x in 2025, declining to 3.7x in 2026 after the end of the current investment cycle. Fitch includes off balance sheet debt related to guarantees provided as well as dividends received from non-consolidated companies on those ratios. As of September 2023, off balance sheet debt totaled BRL1.4 billion, with BRL1.2 billion from Interligação Elétrica Ivaí S.A. (Ivaí) and BRL205 million from Empresa Diamantina de Transmissão de Energia S.A. (EDTE). Fitch does not factor the corporate guarantee for Ivaí at the end of 2023 into Taesa's adjusted debt as the precedent conditions for the release were already concluded. Robust Asset Portfolio: Taesa has a strong and diversified asset portfolio and no exposure to concession renewals until 2029. The company is one of the largest power transmission companies in Brazil. It has 11,943km of transmission lines in operation and 735km under construction across the country, considering its stake in each project. The company's participation in 43 concessions adds to asset diversification and dilutes operational and regulatory risks. The consolidated Permitted Annual Revenue (PAR) in the 2023/2024 cycle, of BRL2.6 billion, should gradually increase until 2026 by projects under development, which will add BRL467 million. Favorable Business Profile: Taesa's credit profile benefits from the low business risk associated with the power transmission segment in Brazil, as revenues are based on asset availability rather than volume transported. Positively, PARs are annually adjusted by inflation indexes, which tend to compensate cost pressures in the medium term. Companies in this segment have a diversified client base and guaranteed payment structure, which significantly reduces counterparty risks. EBITDA margins are expected to remain high, ranging from 82% to 84%, with EBITDA, calculated through regulatory accounting, around BRL2.0 billion from 2023 to 2025. Robust operational cash generation will be important to reduce the effect of the aggressive investment plan and the significant dividends distribution. Standalone Approach: Taesa's ratings are not constrained by the credit quality of one of its shareholders, Companhia Energetica de Minas Gerais (Cemig; LC and FC IDRs BB/Stable), because Cemig shares control of Taesa with Interconexion Electrica S.A. E.S.P. (ISA; LC and FC IDRs BBB/Stable), and its access to Taesa's cash is limited to dividends. The analysis does not incorporate an expected change in its shareholder structure. Despite of Cemig's plan to sell its stake in Taesa, the timing and final outcome are uncertain. DERIVATION SUMMARY Taesa's financial profile compares favorably with that of Latin American peers Interconexion Electrica S.A. E.S.P. (LC IDR BBB/Stable) and Consorcio Transmantaro S.A. (LC IDR BBB/Stable) in Colombia, and Transelec S.A. (LC IDR BBB/Stable) in Chile. All these peers have low business risk profiles and predictable cash flow generation, characteristic of electricity transmission companies in a regulated industry. The main differences in ratings for these companies include the country where they generate their main revenues and the location of assets. While Taesa's peers are in higher-rated countries, its ratings are negatively affected by Brazil's Country Ceiling of 'BB+'. KEY ASSUMPTIONS - PARs adjustments based on inflation indexes; - Operational expenses adjusted by inflation (IPCA); - Capex of BRL3.1 billion during 2024-2025; - Current portfolio under construction fully operational until 2026; - Dividends distribution based on net income calculated through regulatory accounting rules. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Positive rating action for the company's FC IDR would be associated with an upgrade of the LC IDR and an upgrade of Brazil's sovereign rating; - Positive rating action for the LC IDR would be associated to net adjusted leverage limited to 3.5x on a sustainable basis; - Upgrade not applicable to the National Scale Rating as it is at the highest level. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Negative rating action for the LC IDR would be associated with net adjusted leverage above 4.0x on a sustainable basis; - A downgrade on Brazil's sovereign rating would result in a similar rating action on Taesa's FC IDR; - A downgrade on Taesa's LC IDR would lead to a downgrade on the National Scale Rating. LIQUIDITY AND DEBT STRUCTURE Moderate Liquidity: Taesa should maintain moderate liquidity compared with its short-term debt, in the range of 0.5x to 1.0x, and continue to benefit from broad access to bank credit lines and the local capital market to finance the expected negative FCFs and rollover the debt over the next years. As of Sept. 30, 2023, consolidated cash and equivalents amounted to BRL1.7 billion, as per Fitch's calculations, which were strong compared with short-term debt of BRL1.2 billion, but should weaken over time. The 14th debenture issuance of BRL800 million, raised in September 2023 and maturing in 2038, will finance part of the expected negative FCF. Taesa's consolidated debt is characterized by a manageable maturity schedule and no foreign currency risk. As of Sept. 30, 2023, the group's total adjusted debt was BRL11.7 billion, considering its proportional stake guarantee in debt of non-consolidated subsidiaries of BRL1.4 billion. Its BRL10.3 billion consolidated on balance sheet debt mainly consisted of BRL9.7 billion in debentures. ISSUER PROFILE Taesa is the third largest transmission power company in Brazil with 12,678 km of lines, including 735km under development. It has participation in 43 concessions across the country, with four under construction. Taesa is controlled by the Brazilian group Cemig and ISA, which own 36.97% and 26.03% of the voting shares, respectively. SUMMARY OF FINANCIAL ADJUSTMENTS Net revenues and EBITDA based on Brazilian regulatory accounting rules. 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 ----------- ------ ----- Transmissora Alianca de Energia Eletrica S.A. LT IDR BB+ Affirmed BB+ LC LT IDR BB+ Downgrade BBB- Natl LT AAA(bra) Affirmed AAA(bra) senior unsecured Natl LT AAA(bra) Affirmed AAA(bra) =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Advances in 2023 in Risk Rating --------------------------------------------------- Dominican Today reports that the Dominican Republic made significant progress in 2023, improving its credit rating, but there is still some way to go to reach investment grade. After Standard and Poor's upgraded the Dominican Republic's outlook from Ba3 stable to Ba3 positive in December 2022, the country achieved two more upgrades in 2023: in August of this year, Moody's raised the Dominican Republic's outlook from Ba3 stable to Ba3 positive, and in late November, Fitch Ratings raised the country's outlook from BB- stable to BB- positive, according to Dominican Today. But to achieve investment grade, which is the goal announced by the Minister of Finance, Jochi Vicente, essential reforms are required because although the economy has made progress in terms of diversification, resilience, and institutionality, there is a big task in one of the critical aspects that rating agencies take into account to grant investment grade to a country: fiscal strength, the report notes. Much needs to be done, starting with the fact that the country has, according to a recent World Bank report, an "overly complicated" tax system, with an "extremely narrow" tax base due to a large number of exemptions, so that long-term sustainability risks are present if revenues and public spending are not improved, the report relays. The World Bank warns that the country's limited tax revenue growth, combined with the fact that approximately one-fifth of tax revenues go to pay down debt, resulted in a decline in public investment from 3.2 % in 2000 to 2.6 % of GDP in 2022, the report discloses. Faced with this reality, a responsible fiscal reform is needed, one that leaves no room for either precariousness or waste and makes fiscal surpluses the norm, going deficits only for history, the report relays. Do the benefits of investment grade compensate for the effort required to achieve it? Of course, they do. With investment grade, the country's financial costs in the international capital markets are lowered, the cost of private financing is improved through bank ratings, and the universe of investors is broadened since some institutional investors have lower limits for the risk they can assume in their investments and will choose a portfolio composition, taking into account the credit risk indicated by the rating, the report notes. In other words, the effort to reach investment grade will generate good dividends for the country, 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 December 4, 2023, the TCR-LA reported that Fitch Ratings has affirmed Dominican Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' and revised the Outlook to Positive from Stable. Fitch says the Positive Outlook reflects a trend improvement in governance, and robust growth prospects that should lead to continued gains in per capita income. According to Fitch, growth has decelerated in 2023, but it expects Dominican Republic to recover to high levels during 2024-2025. External liquidity metrics have improved in recent years, and foreign currency share of government debt is on a downward path. In August 2023, Moody's Investors Service 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. ============= J A M A I C A ============= JAMAICA: Clothing, Shoes & Other Apparel Prices up 4.5% in Nov -------------------------------------------------------------- RJR News reports that the cost of clothing, shoes and other apparel increased by 4.5 per cent on an annual basis as at November. For the month of November alone, STATIN says the index for the 'Clothing and Footwear' increased by 0.3 per cent, according to RJR News. Compared to October, Jamaicans paid 0.2 per cent more for shoes and other footwear, the report notes. The cost of clothing however rose by 0.3 per cent for the period, 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 E R U ======= AUNA SA: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable --------------------------------------------------------- Fitch Ratings has upgraded Auna S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B+' from 'B'. Fitch has also assigned a final 'B+'/'RR4' rating to Auna's new secured notes due 2029, and affirmed its outstanding USD57 million unsecured notes due 2025 at 'B'/'RR5'. The Rating Outlook is Stable. The upgrade reflects Auna's lower refinancing risks following the completion of the refinancing of its 2025 bonds and private placement notes due 2028, used to finance past year acquisitions. The ratings remained constrained by limited financial flexibility and challenges to improve its capital structure. Auna's ratings reflect its solid brand and market position, good operating margins, geographical diversification and deleveraging trend. Fitch projects net debt/adjusted EBITDA will decline to 4.3x at YE 2023 and to 3.4x by 2024 from 5.0x in 2022. KEY RATING DRIVERS Successful Refinancing: Auna has completed its debt refinancing, comprised of USD253 million of new 10% senior secured notes due 2029, in exchange for 6.5% senior unsecured notes due 2025, and USD550 million in a new dual currency term loan due 2028. The transaction unifies collateral into one shared pool between all senior creditors, as the collateral securing obligations under the new term loan is also securing the new notes on a pari passu basis. On proforma basis, Auna's debt schedule amortization presents a short to medium term relief; with remaining outstanding notes due 2025 at USD57 million. The new term loan has instalment maturities from a previous bullet structure. Fitch's base case scenario does not incorporate any dividend pressure from Auna to its shareholders. Any deviation from that would pressure the ratings. Stronger Business Profile: The recent acquisitions in Colombia and Mexico enhanced Auna's business profile with improvement in diversification, scale and profitability. In April 2022, Auna acquired a controlling stake in IMAT Oncomedica, a leading health care group in Monteria, Colombia, and, in October 2022, OCA, a premium health care and oncological services provider in Monterrey, Mexico, for a total amount of USD822 million. IMAT specializes in oncology, cardiology and high complexity services, and has a capacity of 427 beds in two hospitals. OCA operates three high-complexity hospitals representing the largest infrastructure footprint in Monterrey's health care market, with 708 operating beds and approximately 35% market share based on number of beds. As of September 30 2023, Auna's total hospitals operations amounted to 375 operating beds in Peru, 1109 in Colombia and 708 in Mexico. On a pro forma basis, around 41% of Auna's revenue is now generated in Peru, 29% in Colombia and 30% in Mexico. This represents an improvement in revenue diversification compared with 2021, when 65% of Auna's revenues were originated in Peru and 35% in Colombia. The hospital operations in Monterrey offer a high-quality asset base with a track record of robust operating margins (average of 34%). Fitch foresees Auna's consolidated EBITDA margins moving to around 24% by 2024, an improvement from its historical 14% pre-pandemic levels and 10.5% average during 2020-2021. Operating Cash Flow Improving: Fitch expects Auna to generate adjusted EBITDA of around PEN815 million in 2023 and PEN964 million in 2024, which compares with proforma EBITDA of PEN673 million in 2022, considering a full year of acquisitions. Operating cash flow should be around PEN131 million in 2023 and PEN320 million in 2024, pressured by higher interest expenses. FCF will be approximately negative PEN165 million in the first year and only PEN55 million during 2024. The company is expected to focus on maintenance capex and non-material opportunities to improve profitability. Fitch incorporates around PEN296 million of capex in 2023, including Detengra, and PEN265 million in 2024. Leverage to Decline: Fitch expects Auna's net leverage to move to 4.3x in 2023 and down to 3.4x by 2024 as it completes the integration of the acquired assets and implements new operating and service standards. Those ratios represent an important improvement compared with proforma figures in 2022 and 2021 of 5.0x and 6.3x, respectively, per Fitch's calculations. Solid Market Position: Auna operates through four business segments: (1) Oncosalud Peru; (2) Health care services in Peru, which consists of its Auna Peru network; (3) Health care services in Colombia, which consists of its Auna Colombia network; and (4) Health care services in Mexico, which consists of its Auna Mexico network and its insurance business from Dentegra. In Peru, Auna has a solid business position as one of the largest and most recognized players in the health care industry due to its highly regarded oncology services. Oncosalud is considered the leading brand in Peru, maintaining approximately 30% market share in terms of private insurance plan members with 1,244,006 members as of September. 30, 2023. This market position makes Oncosalud the largest single private health care plan in the country. Auna has achieved integration in its Peruvian oncology platform through its ownership and management of hospitals and clinics in all of the major cities in the country. DERIVATION SUMMARY Auna's ratings reflect the company's strong market position as one of Peru's largest and well-known, reputable health care providers and its growing presence in Colombia, and more recently in Mexico. The company's current capital structure and financial flexibility are pressured by recent acquisitions and the challenges to pursue continuous improvements on its debt profile, representing an important factor for its 'B' ratings. Auna's strong brand, reputation in the industry, and R&D platform are among its competitive advantages, translating to strong relationships with payers and bargaining ability with third parties. Fitch views Auna as weaker compared with regional peers in terms of business scale and size of coverage. However, recent acquisitions and diversification movements are positive for its business profile. Rede D'Or Sao Luiz S.A. (BB+/Stable) and Diagnosticos Da America S.A. - DASA (DASA; AA[bra]/Negative Outlook) are comparable to Auna. Both have strong relationships with payers, as well as providers and insurance companies, in Brazil due to the two companies' positive brands and reputations. Auna's higher leverage and refinancing risks are currently a rating constraint. Although Auna has comparable business risk with many players in the health care industry, the company benefits from the growing Peruvian and Colombian operating markets with predominantly middle-class demographics, and its strong asset base and market-share in Monterrey, Mexico. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer Include: - Revenue growth reflects organic growth and integration of acquired assets, reaching around PEN3.6 billion in 2023, PEN4.0 billion in 2024 and PEN4.7 billion in 2025; - EBITDA margins of around 23%-25% for 2023-2025; - Average capex of PEN275 million in 2023-2024, declining to PEN183 million in 2025; - No dividend payments during 2023-2025. RECOVERY ANALYSIS Key Recovery Rating Assumptions The recovery analysis assumes that Auna would be considered a going concern in bankruptcy and that the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim. Going Concern Approach Auna's going concern EBITDA is based on pro forma results reflecting its recent acquisitions. The going concern EBITDA estimate reflects Fitch's expectation of a sustainable, post-reorganization EBITDA level, upon which Fitch bases the valuation of the company. The enterprise value/EBITDA multiple applied is 6.0x, reflecting Auna's strong brand and market position in the regions it operates. Fitch applies a waterfall analysis to the post-default enterprise value based on the relative claims of the debt in the capital structure. The agency's debt waterfall assumptions reflect the company's total debt at Sept. 30, 2023. These assumptions result in a recovery rate for the secured bonds within the 'RR1' range, but due to soft cap of Peru at 'RR4', Auna's secured notes are rated at 'B+'/'RR4', while its unsecured notes would be rated at 'B'/'RR5'. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Fitch's adjusted EBITDA margins consistently above 23.5%; - Fitch's net adjusted leverage ratios consistently below 3.5x; - EBITDA interest coverage above 2.5x. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Failure to complete 2025 bonds refinancing; - Fitch's net adjusted leverage ratio consistently above 5.5x; - Maintenance of aggressive growth strategy or shareholder-friendly policies limiting expected improvements in its capital structure; - Major legal contingency issues that disrupt operations or significantly impact the company's credit profile. LIQUIDITY AND DEBT STRUCTURE Improvement in Medium Term Refinancing Risk: As of Sept. 30, 2023, Auna had PEN337 million of cash and cash equivalents, PEN481 million of short-term debt, and total debt of around PEN3.7 billion per Fitch's criteria, which excludes leases. On proforma basis, including the current transaction, Auna's debt schedule amortization was extended with the refinancing of part of the 2025 bonds to 2029. Fitch estimates PEN501 million coming due in 2024, PEN61 million in 2025, average maturity PEN411 million per year 2026-28 and remaining coming from 2029 onward. ISSUER PROFILE Auna S.A. is one of the largest and most recognized players in the Peruvian health care industry, with a growing presence in Colombia's health care industry, and more recently in Mexico. The company offers oncology and general health care plans and operates hospitals and clinics. ESG CONSIDERATIONS Auna has an ESG Relevance Score of '4' for Management Strategy due to management's appetite for debt-financed growth, though it diversifies the business, which underscores higher than expected event risk and potentially higher comfort with elevated/longer periods of leverage than anticipated. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors. Auna has an ESG Relevance Score of '4' for Financial Transparency, as financial transparency and reporting continue to be relatively weaker than for peers, 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 Recovery Prior ----------- ------ -------- ----- Auna S.A. LT IDR B+ Upgrade B LC LT IDR B+ Upgrade B senior unsecured LT B Affirmed RR5 B senior secured LT B+ New Rating RR4 B+(EXP) ===================== P U E R T O R I C O ===================== GOLDEN INDUSTRIAL: Taps Jacqueline Rivera Gonzalez as Accountant ---------------------------------------------------------------- Golden Industrial Laundry, Inc. seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to employ Jacqueline I. Rivera Gonzalez, a professional from Ponce, Puerto Rico, as accountant. The Debtor requires Jacqueline I. Rivera Gonzalez to provide general accounting and financial consulting services in connection with this bankruptcy petition and file the disclosure statement and plan of reorganization. The Debtor will compensate the professional at $300 per hour. Jacqueline I. Rivera Gonzalez, BBA, assured the Court that she is a "disinterested person" as the term is defined in Section 101(14) of the Bankruptcy Code and does not represent any interest adverse to the Debtor and its estates. Ms. Gonzalez may be reached at: Jacqueline I. Rivera Gonzalez, BBA Urb. La Rambla 1108 Avila St. Ponce, PR 00730 Telephone: (787) 843-1679 About Golden Industrial Laundry Golden Industrial Laundry, Inc. filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 23-03509) on Oct. 30, 2023, listing $964,229 in total assets and $1,874,299 in total liabilities. Judge Maria De Los Angeles Gonzalez oversees the case. Landrau Rivera & Assoc., led by Noemi Landrau Rivera, Esq., serves as the Debtor's legal counsel. GRUPO HIMA SAN PABLO: Committee Taps Gibbins as Financial Advisor ----------------------------------------------------------------- The official committee of unsecured creditors of Grupo Hima San Pablo, Inc. and its affiliates seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to employ Gibbins Advisors, LLC as its financial advisor. The firm's services include: a) assistance in the review of financial related disclosures required by the Court, including the Schedules of Assets and Liabilities, the Statement of Financial Affairs, Debtor-In-Possession financing budgets and Monthly Operating Reports; b) assistance with the assessment and monitoring of the Debtors' short term cash flow, liquidity, and operating results; c) assistance with the review of the Debtors' analysis of business assets and the potential disposition or liquidation of assets, including, among other things, operational assets, causes of action and accounts receivable; d) assistance with the review of the Debtors' cost/benefit analysis with respect to the affirmation or rejection of various executory contracts and leases to the extent ongoing; e) assistance with the review of the Debtors' identification of potential cost savings, including overhead and operating expense reductions and efficiency improvements; f) assistance in the review and monitoring of the asset sale process to the extent ongoing, including, but not limited to an assessment of marketing processes, completeness of buyer lists, review and quantifications of bids; g) assistance with review of any tax issues associated with, but not limited to, preservation of net operating losses, refunds due to the Debtors, plans of reorganization, and asset sales; h) assistance in the review of the claims reconciliation and estimation process; assistance in the review of other financial information prepared by the Debtors, including, but not limited to, cash flow projections and budgets, business plans, cash receipts and disbursement analysis, asset and liability analysis, and the economic analysis of proposed transactions for which Court approval is sought; i) attendance at meetings and assistance in discussions with the Debtors, potential investors, banks, other secured lenders, the Committee and any other official committees organized in these chapter 11 proceedings, the U.S. Trustee, other parties in interest and professionals hired by the same, as requested; j) assistance in the review and/or preparation of information and analysis necessary for the confirmation of a plan and related disclosure statement in these chapter 11 proceedings; k) assistance in the evaluation and analysis of avoidance actions, including fraudulent conveyances and preferential transfers; l) assistance in the prosecution of Committee responses/objections to the Debtors' motions, including attendance at depositions and provision of expert reports/testimony on case issues as required by the Committee; and m) provision of such other general business consulting or such other assistance as the Committee or its counsel may deem necessary that are consistent with the role of a financial advisor and not duplicative of services provided by other professionals in this proceeding. Gibbins' current hourly rates are: Managing Director/Principal $650 to $775 Director/Senior Director $475 to $610 Associate/Senior Associate $350 to $450 Ronald Winters, co-founder and principal of Gibbins Advisors, attests that Gibbins is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. The firm can be reached through: Ronald Winters Gibbins Advisors, LLC 1900 Church Street Nashville, TN 37203 Tel: (615) 696-6556 Email: rwinters@gibbinsadvisors.com About Grupo Hima San Pablo, Inc. Grupo HIMA San Pablo, Inc. serves as a diversified healthcare services holding company pursuant to a corporate reorganization of several businesses related by common ownership. Through its subsidiaries and affiliates, Grupo HIMA San Pablo primarily owns and operates hospital facilities and other healthcare related businesses. As of August 2023, the HIMA GROUP operates four hospitals, with over 1,200 licensed beds, including an Oncological Hospital, a multi-specialty physician practice management company, Home Care Service (including infusion therapies and wound care), a free-standing ambulatory center and a 16-ambulance service company. Grupo HIMA San Pablo and its affiliates filed Chapter 11 petitions (Bankr. D. P.R. Lead Case No. 23-02510) on Aug. 15, 2023. In the petition signed by its chief executive officer, Armando J. Rodriguez-Benitez, Grupo HIMA San Pablo disclosed $500 million to $1 billion in assets and $100 million to $500 million in liabilities. Judge Enrique S. Lamoutte Inclan oversees the cases. Wigberto Lugo Mender, Esq., at Lugo Mender Group, LLC and Pietrantoni Mendez & Alvarez, LLC serve as the Debtors' bankruptcy counsel and special counsel, respectively. The U.S. Trustee for Region 21 appointed an official committee of unsecured creditors on Sept. 7, 2023. Porzio, Bromberg & Newman, P.C. is the committee's legal counsel. Edna Diaz De Jesus is the patient care ombudsman appointed in the Debtors' Chapter 11 cases. ********* 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 2024. 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. 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