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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
Monday, June 16, 2025, Vol. 26, No. 119
Headlines
A R G E N T I N A
ARGENTINA: Eases Bond Auction Rules in Aim to Lure More Dollars
ARGENTINA: Inflation in Buenos Aires City Slows to Monthly 1.6%
BANCO MACRO: Fitch Assigns CCC+(EXP) Rating on USD Unsecured Notes
BANCO MACRO: Moody's Rates New USD Sr. Unsecured Notes 'Caa2'
B R A Z I L
ANDRE MAGGI: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
BRAZIL: Fiscal Deficit Forecast Rises, Exposing Budget Risks
JBS SA: Aims for Global Growth on Wall Street
SAO PAULO: Fitch Affirms of 'BB' LongTerm IDRs, Outlook Stable
STATE OF ALAGOAS: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
C A Y M A N I S L A N D S
XP INC: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
J A M A I C A
DIGICEL MIDCO: Fitch Assigns 'B' LongTerm Foreign Currency IDR
MEDICAL DISPOSABLES: Incurs $281MM Net Loss in Year Ended March 3
P A R A G U A Y
BANCO CONTINENTAL: Fitch Affirms BB+ LongTerm IDRs, Outlook Stable
UENO BANK: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
P U E R T O R I C O
FIRST BANCORP: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable
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A R G E N T I N A
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ARGENTINA: Eases Bond Auction Rules in Aim to Lure More Dollars
---------------------------------------------------------------
Kevin Simauchi at Bloomberg News reports that Argentina's Central
Bank unveiled a slew of measures aimed at helping the nation amass
more hard-currency reserves, firepower the country needs to defend
the peso.
Officials said local currency bonds can now be purchased with US
dollars and that the minimum time requirements for foreign
investors to hold onto some Argentine bonds will be eliminated,
according to Bloomberg News. The monetary authority also said it
would unveil a second repurchase agreement with several
international lenders, of as much as US$2 billion, on June 11,
Bloomberg News discloses.
The announcements form part of a broader strategy by President
Javier Milei to bolster the country's war-chest of foreign reserves
just two months after scoring a multi-billion dollar agreement with
the International Monetary Fund, Bloomberg News says.
Dollars have proved elusive for Milei's predecessors and is cash he
needs to defend a historically volatile peso and make bond payments
abroad, Bloomberg News notes.
As part of its deal with the IMF, Milei's team committed to raising
its net international reserves by US$4.4 billion by June 13,
Bloomberg News relays. So far, they've refused to buy greenbacks
via Argentina's official currency market by offering pesos, in line
with its broader objective of avoiding monetary expansion and
taming inflation ahead of a key midterm vote in October, Bloomberg
News discloses.
The Central Bank added that it'll conduct a buyback of put
contracts that gave banks the right to sell Treasury bonds back to
the monetary authority, in an continued effort to clean up its
balance sheet and tighten control over the money supply, Bloomberg
News relays.
Aiding those efforts will also be a phase-out of short-term
liquidity notes known as LEFIs, which helped mop up excess pesos in
the economy, Bloomberg News notes. The government will swap those
securities for short-term Treasury bills, known as LECAPs, that
trade in the secondary market by mid-July, Bloomberg News 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.
In March 2022, the International Monetary Fund (IMF) approved a
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota) -- with an approved immediate
disbursement of an equivalent of US$9.65 billion. Argentina's
IMF-supported program sought to improve public finances and start
to reduce persistent high inflation through a multi-pronged
strategy.
On April 11, 2025, the IMF further approved a 48-month Extended
Fund Facility (EFF) arrangement for Argentina totaling US$20
billion (or 479 percent of quota), with an immediate disbursement
of US$12 billion, and a first review planned for June
2025 with an associated disbursement of about US$2 billion. The
program is expected to help catalyze additional official
multilateral and bilateral support, and a timely re-access to
international capital markets.
Fitch Ratings, on May 12, 2025, upgraded Argentina's Long-Term
Foreign-Currency and Local-Currency Issuer Default Rating (IDR) to
'CCC+' from 'CCC'. The upgrade reflects the launch of a new IMF
program, among other things. S&P Global Ratings, in February 2025
lowered its local currency sovereign credit ratings on Argentina to
'SD/SD' from 'CCC/C' and its national scale rating to 'SD' from
'raB+'. Moody's Ratings, in January 2025, raised Argentina's local
currency ceiling to B3 from Caa1 and the foreign currency ceiling
to Caa1 from Caa3. DBRS, Inc. upgraded Argentina's Long-Term
Foreign and Local Currency Issuer Ratings to B (low) from CCC in
November 2024.
ARGENTINA: Inflation in Buenos Aires City Slows to Monthly 1.6%
---------------------------------------------------------------
Buenos Aires Times reports that consumer prices in Buenos Aires
City rose 1.6 percent in May, lower than the expectations of most
analysts and a slowdown from the previous month.
The news will be welcomed by President Javier Milei's national
government, which is awaiting the publishing of the INDEC national
statistics bureau's national figure later, according to Buenos
Aires Times.
According to data from the Buenos Aires City Statistics Office,
prices in the capital were up 1.6 percent, down from the 2.3
percent recorded in April, the report relays. Most private
consultancy firms expected a rate of around two percent, the report
discloses.
Inflation so far this year in the capital totals 12.9 percent - a
massive drop on the 48.3 percent recorded over the same period in
2024, the report recalls.
Rent and housing services were up 2.1 percent last month,
contributing 0.41 points to the total index, the report relates.
Once again, healthcare had a strong impact, rising 2.9 percent.
Education averaged 2.4 percent, the report notes.
Food prices rose 1.2 percent, contributing 0.21 points to the
overall monthly figure for May, the report discloses.
Within this division, the main drivers were meat and meat-related
products (1.7 percent), bread and cereals (2.1 percent) and milk,
dairy products and eggs (2.1 percent), the report says. At the
other end of the scale, sharp declines in vegetables and legumes
(down 4.9 percent) were seen, the report relays.
The Information and communications category rose 3.8 percent, amid
rises in mobile phone prices and services, the report discloses.
Goods overall were up 0.8 percent, with services rising two
percent, the report says. Seasonal prices fell by 3.6 percent,
while regulated prices rose 1.7 percent, 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.
In March 2022, the International Monetary Fund (IMF) approved a
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota) -- with an approved immediate
disbursement of an equivalent of US$9.65 billion. Argentina's
IMF-supported program sought to improve public finances and start
to reduce persistent high inflation through a multi-pronged
strategy.
On April 11, 2025, the IMF further approved a 48-month Extended
Fund Facility (EFF) arrangement for Argentina totaling US$20
billion (or 479 percent of quota), with an immediate disbursement
of US$12 billion, and a first review planned for June
2025 with an associated disbursement of about US$2 billion. The
program is expected to help catalyze additional official
multilateral and bilateral support, and a timely re-access to
international capital markets.
Fitch Ratings, on May 12, 2025, upgraded Argentina's Long-Term
Foreign-Currency and Local-Currency Issuer Default Rating (IDR) to
'CCC+' from 'CCC'. The upgrade reflects the launch of a new IMF
program, among other things. S&P Global Ratings, in February 2025
lowered its local currency sovereign credit ratings on Argentina to
'SD/SD' from 'CCC/C' and its national scale rating to 'SD' from
'raB+'. Moody's Ratings, in January 2025, raised Argentina's local
currency ceiling to B3 from Caa1 and the foreign currency ceiling
to Caa1 from Caa3. DBRS, Inc. upgraded Argentina's Long-Term
Foreign and Local Currency Issuer Ratings to B (low) from CCC in
November 2024.
BANCO MACRO: Fitch Assigns CCC+(EXP) Rating on USD Unsecured Notes
------------------------------------------------------------------
Fitch Ratings has assigned an expected rating of 'CCC+(EXP)' to
Banco Macro S.A.'s (Macro) senior unsecured notes. The U.S. dollar
denominated notes are for an amount yet to be determined at the
rate to be set at the time of the issuance. The tenor of these
notes is also yet to be determined.
The final rating is contingent on the receipt of final documents
materially conforming to the information already received. The use
of proceeds will be for general corporate purposes.
Key Rating Drivers
Macro's senior unsecured notes are rated at the same level as
Macro's Long-Term Issuer Default Rating (IDR) of 'CCC+', as the
likelihood of default of the notes is the same as that of the
bank.
The notes will constitute Macro's direct, unconditional, unsecured
and unsubordinated obligations and will rank at all times at least
pari passu in right of payment with all other existing and future
unsecured and unsubordinated obligations.
Macro's 'ccc+' Viability Rating (VR) drives its IDRs. In Fitch's
view, regardless of the bank's overall adequate financial
condition, its ratings are constrained by Argentina's IDRs and the
agency's assessment of the Operating Environment (OE).
Additionally, the VR considers the bank's sound asset quality,
adequate profitability, strong capitalization, as well as its
adequate liquidity and funding metrics.
For more details on Macro, see "Fitch Upgrades Four Argentine Banks
Following Sovereign Rating Action," published May 19, 2025.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Macro's senior unsecured debt ratings are directly linked to the
bank's Long-Term IDR. Any negative rating action on the IDR will
result in a similar rating action on the debt ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Macro's senior unsecured debt rating will generally move in
tandem with the bank's Long-Term IDR.
ESG Considerations
ESG Relevance Score of '4' for Management Strategy due to the high
level of government intervention in the Argentine banking sector.
The enforcement of interest rate caps can lead to inadequate loan
pricing applies significant pressure on banks' net interest
margins. In addition, restrictions on fee levels can negatively
affect performance ratios. This challenges the bank's ability to
define and execute its own strategy, which has a negative impact on
the credit profile, and is relevant to the rating in conjunction
with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating
----------- ------
Banco Macro S.A.
senior unsecured LT CCC+(EXP) Expected Rating
BANCO MACRO: Moody's Rates New USD Sr. Unsecured Notes 'Caa2'
-------------------------------------------------------------
Moody's Ratings has assigned a Caa2 long-term senior unsecured debt
rating to the proposed USD-denominated notes to be issued by Banco
Macro S.A. (Macro). The proposed notes are expected to amount to up
to $500 million, with a maximum five-year maturity. The outlook on
the senior unsecured debt rating is stable.
The assigned rating is subject to receipt of final documents, the
terms and conditions of which are not expected to change in any
material way from the draft documents that Moody's have reviewed.
RATINGS RATIONALE
The assigned Caa2 rating is in line with Macro's foreign-currency
long-term deposit rating, reflecting the structure of the issuance.
The notes will constitute unsubordinated and unsecured obligations
of Macro, and will rank pari passu among themselves and with all
other present and future unsecured and unsubordinated obligations
of the bank.
The Caa2 rating assigned to Banco Macro reflects the still weak
credit profile of the Government of Argentina (Caa3 positive) and
the still challenging operating conditions for banks in the
country. The bank's performance has shown resilience through the
challenging economic cycles in Argentina, while growing business
volumes and strong risk metrics have been supported by recent
improvements in the macroeconomic conditions since 2024. Ample and
above peers capitalization, with a TCE ratio of 23.2% as of March
2025, and adequate liquidity profile, are positive credit drivers
supporting the Caa2 rating assigned to Macro. The bank's steady
funding structure is based on an inexpensive and highly granular
deposit base and benefits from its role as a financial agent for
many Argentine provinces.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward movement on Macro's ratings would be dependent on a
multi-notch upgrade of the Government of Argentina's Caa3 sovereign
rating, which currently has a positive outlook, provided that the
entity's main credit metrics remained stable or improve. In turn,
an upgrade of the sovereign, even if it were by one-notch, would
exert positive pressure on the bank´s BCA.
Negative pressures on the bank´s ratings could arise from a
downgrade of the Argentinean sovereign rating, by an unexpected
deterioration in the country's operating environment for banks, or
a deterioration of the bank's financial fundamentals.
The principal methodology used in this rating was Banks published
in November 2024.
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B R A Z I L
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ANDRE MAGGI: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Andre Maggi Participacoes S.A.'s
(Amaggi) Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) at 'BB' and National Long-Term rating at 'AA+(bra)'.
Fitch has also affirmed Amaggi Luxembourg International S.a r.l.'s
senior debt at 'BB'. The Rating Outlook is Stable.
Amaggi's ratings reflect its strong position in Brazilian
agribusiness. They also incorporate the sector's inherent risks:
volatile grains prices, exchange rate fluctuations, farmer
defaults, climate events, and low trading margins. Margin
volatility is partially mitigated by Amaggi's conservative risk
management, large scale and business integration.
The Stable Outlook incorporates the company's manageable liquidity
and an expected reduction of readily marketable inventories (RMI)
net leverage to 3.5x or lower starting in 2025. A temporary
increase to about 5.7x in fiscal 2024 was due to increased
investments in logistics and lower EBITDA generation from the Mato
Grosso crop failure in 2024.
Key Rating Drivers
Soybean Recovery in Mato Grosso: After a challenging 2024, Fitch
forecasts a strong recovery in soybean production in Mato Grosso of
around 26.4% in 2025. This recovery should provide healthier
competition for origination by improving margin spreads and
diluting logistics expenses for traders, as well as improving
margins for farmers in the region.
Stable Prices Despite Trade Tensions: Fitch expects relatively
stable prices for soybeans and corn in the international market in
2025 and in 2026, despite trade tensions. Fitch assumes the price
of soybeans at USD 10.20 per bushel in 2025 and USD 10.30 per
bushel in 2026, and the price of corn at USD 4.60 per bushel in
2025 and in 2026. These prices should not pressure working capital
needs of trading companies.
Competitive Structure in Mato Grosso: Amaggi's capacity to process
large volumes thanks to its logistics, enables the group to compete
with large multinational grain companies such as Archer Daniels
Midland Company (ADM), Cargill Incorporated (Cargill), Bunge Global
S.A. (Bunge) in the acquisition of grains in Mato Grosso State,
which is the largest producing region for soy and corn in Brazil.
Counterparty Risks: Advances in financing to farmers are provided
under strict criteria with the use of CPRs (rural credit notes) for
collateral. No single producer represents more than 1.4% of
Amaggi's annual origination. As a large agricultural producer with
farmlands in different locations, the company follows the
development of the crop over different locations in the state.
Recovery of Margins in 2025: Fitch forecasts that EBITDA margins
should recover to around 5.4% in 2025 from 3.6% in 2024. The crop
failure in Mato Grosso in 2024 impacted the group's overall
performance, but the strong performance of the 2025 crop season
will be important for margin recovery. Fitch projects cash flow
from operations (CFO) of USD256 million in 2025 and USD307 million
in 2026.
Net Leverage Below 3.5x in 2025: Fitch projects that Amaggi's RMI
net-adjusted leverage should strengthen to 3.5x in 2025 and below.
Leverage increased to about 5.7x in 2024 due to lower profitability
in the trading and farming divisions due to the crop failure in
Mato Grosso. For credit purposes, Fitch considers RMI-adjusted
leverage when evaluating commodity processing and trading
companies.
Peer Analysis
Fitch views Amaggi's business risk profile as weak relative to its
peers, Bunge (BBB+/Stable), Cargill (A/Stable), and ADM
(A/Negative). Amaggi has a smaller operational scale, lower
diversification, and substantial concentration in one region.
Although Amaggi´s consolidated profitability is satisfactory, it
remains exposed to the strong competition within the industry, with
the presence of important international groups operating with
strong credit profiles.
Key Assumptions
- Soybeans prices of USD10.20 per bushel in 2025 and USD10.30 per
bushel in 2026;
- Corn prices of USD4.60 per bushel in 2025 and in 2026;
- Cotton prices of USD66 cents per pound in 2025 and USD70 cents
per pound in 2026;
- Total investments of USD251 million in 2025 and USD295 million in
2026.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Loss of business diversification;
- RMI-adjusted net leverage (RMI adjusted total net debt to
operating EBITDA) sustained above 3.5x range on a sustainable
basis;
- Liquidity ratio (cash and marketable securities+RMI+account
receivables/Total short liabilities) below 0.8x at year-end;
- RMI-Adjusted EBITDA/Interest Paid below 2.75x;
- Secured debt/Ebitda above 2.5x;
- A multi-notch downgrade of Brazil's Country Ceiling and inability
to cover hard currency interest expenses by offshore cash and
exports
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Improved scale and geographical diversification;
- RMI-adjusted net leverage (RMI adjusted total net debt to
operating EBITDA) below 2.5x range on a sustained basis;
- Liquidity ratio (cash and marketable securities+RMI+account
receivables/Total short-term liability) above 1x on a sustainable
basis;
- Secured debt/EBITDA below 1x.
Liquidity and Debt Structure
Amaggi has adequate financial flexibility. The company has access
to diversified sources of external liquidity for short-term working
capital along with cash, short-term marketable securities, and high
levels of liquid RMI.
As of March 31, 2025, Amaggi reported consolidated cash and
marketable securities of USD980 million, and USD987 million of
short-term debt. The company also has access to several uncommitted
bank lines and maintains a minimum cash policy of USD400million.The
company's liquidity ratio based on cash, receivables, RMI and
derivatives over total current liabilities was 1.3x as of March 31,
2025.
Issuer Profile
Amaggi is Brazil's fourth largest soft commodity trader, trading
around 14.4 million tons of grains annually. It is the third
largest agricultural producer with 359,000 hectares of farmland.
Amaggi operates across the agribusiness chain, including farming,
trading, processing and logistics.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4'
for Waste & Hazardous Materials Management; Ecological Impacts due
to the ecological impact of its land use. A large amount of the
grain in its commodity business comes from the Amazon and Cerrado
Biomes. This has a negative impact on the company's credit profile
and is relevant to the ratings in conjunction with other factors.
Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4'
for Group Structure due to lack of board independence as the
company is privately controlled, which has a negative impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4'
for Governance Structure due to the existence of related parties
transaction, which has a negative impact on the credit profile, and
is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Amaggi Luxembourg
International S.a r.l.
senior unsecured LT BB Affirmed BB
Andre Maggi
Participacoes S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra) Affirmed AA+(bra)
BRAZIL: Fiscal Deficit Forecast Rises, Exposing Budget Risks
------------------------------------------------------------
Arkady Petrov at Rio Times Online reports that Brazil's Ministry of
Finance raised its 2025 primary deficit forecast from R$72.7
billion ($13.099 billion) to R$74.724 billion ($13.464 billion) in
the latest Prisma Fiscal bulletin, released June 13, 2025.
This revision, based on data from the Secretariat of Economic
Policy, signals that the government's path to a balanced budget
remains uncertain, according to Rio Times Online. The target for
2025 is zero primary deficit, but the new projection moves further
away from this goal, the report notes.
The government initially aimed for a surplus of 0.5% of GDP in
2025, the report discloses. However, after revising its fiscal
framework last year, it settled for a more modest target: a
balanced budget, with a tolerance range of 0.25% of GDP on either
side, the report says.
Finance Minister Fernando Haddad has stressed that inflation
remains under control, but the new figures highlight the
government's struggle to match spending with revenue, the report
notes.
Federal revenue is expected to grow to about R$2.9 trillion ($0.523
trillion) in 2025, a 3.6% increase, but this growth is slowing as
earlier revenue-boosting measures lose steam, the report relays.
Many of the government's planned revenue increases depend on new
measures that still need Congressional approval, the report notes.
The latest package, announced in June, aims to generate an
additional R$10.5 billion ($1.892 billion) this year and R$20.9
billion ($3.766 billion) next year, but lawmakers have resisted new
taxes without matching spending cuts, the report says.
Mandatory expenditures, including pensions and salaries, continue
to consume over 90% of the budget, the report discloses. The
government's ability to cut spending remains limited due to legal
and political constraints, the report relays.
In early 2025, the government posted a strong primary surplus, but
this was largely due to delaying court-ordered payments, not a
structural improvement in public finances, the report recalls.
Brazil's gross debt-to-GDP ratio stood at 75.9% in March 2025 and
is expected to rise further, the report notes. High interest
rates, now at 14.25%, increase debt servicing costs and limit
fiscal flexibility, the report relays.
The real weakened past 5.20 per dollar after the deficit revision,
reflecting market concerns about Brazil's fiscal outlook, the
report says. The new deficit forecast exposes the challenges
facing Brazil's fiscal framework, the report notes.
With most spending locked in and new revenue measures uncertain,
the government faces a tightrope between fiscal responsibility and
political realities, the report discloses.
Investors and businesses should watch closely as the real test will
come when postponed obligations and rising interest costs converge,
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.
In October 2024, Moody's Ratings upgraded the Government of
Brazil's long-term issuer and senior unsecured bond ratings to Ba1
from Ba2, the senior unsecured shelf rating to (P)Ba1 from (P)Ba2;
and maintained the positive outlook. S&P Global Ratings raised on
Dec. 19, 2023, its long-term global scale ratings on Brazil to
'BB' from 'BB-'. Fitch Ratings affirmed on Dec. 15, 2023, Brazil's
Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB' with
a Stable Outlook. DBRS' credit rating for Brazil was last reported
at BB with stable outlook at July 2023.
JBS SA: Aims for Global Growth on Wall Street
---------------------------------------------
Richard Mann at Rio Times Online reports that Brazilian meat giant
JBS began trading on the New York Stock Exchange (NYSE) on June 13,
2025, after minority shareholders approved a dual listing plan in
May.
JBS with more than half its revenue coming from the U.S. JBS's dual
listing aims to unlock shareholder value, broaden investor access,
and reduce borrowing costs, according to Rio Times Online.
The company argues that being listed on both the NYSE and Sao
Paulo's B3 exchange will help finance growth, diversify its product
line, and improve transparency, the report relays.
The U.S. Securities and Exchange Commission approved the listing,
which also subjects JBS to American regulatory oversight, the
report discloses. The return of Joesley and Wesley Batista to
JBS's board marks a striking comeback, the report says.
Less than a decade ago, authorities jailed both brothers for their
role in Brazil's Operation Car Wash corruption scandal, the report
relays. They admitted to paying $220 million in bribes,
implicating more than 1,800 politicians and leading to the
impeachment of a president, the report notes.
JBS and its holding company, J&F, paid billions in fines in Brazil
and the U.S. for bribery and corruption, the report relays. In
2023, Brazil's Supreme Court suspended a $2 billion penalty against
J&F, citing bias by prosecutors, the report says. The case remains
under review.
JBS's record includes major political donations. Its U.S.
subsidiary, Pilgrim's Pride, donated $5 million to Donald Trump's
2017 inaugural committee, the largest single corporate contribution
that year, the report discloses.
This donation drew scrutiny from U.S. lawmakers, who questioned
whether it influenced regulatory decisions, including the NYSE
listing, the report relays. The company's expansion relied heavily
on loans from Brazil's state development bank, BNDES, the report
says.
These loans, often on favorable terms, helped JBS finance a $20
billion global buying spree, the report discloses. Brazil's audit
court found that BNDES lost 267 million reais on one such deal and
waived a 345 million-real penalty for JBS, the report notes.
JBS faces criticism from environmental groups for breaking
deforestation pledges and for its supply chain's links to illegal
Amazonian deforestation, the report relates.
In 2017, authorities fined JBS $7.7 million for knowingly buying
cattle raised on illegally cleared land, the report says. In 2021,
the company's greenhouse gas emissions exceeded those of Italy, the
report recalls.
Despite these controversies, JBS's financial performance remains
strong, the report notes. In the first quarter of 2025, the
company reported net revenue of $19.5 billion, up 8.5% year over
year, and a net profit of $500 million, up 50.5%, the report
relays.
The company plans to maintain $2 billion in capital expenditures
and expects growth in value-added products, the report discloses.
JBS's dual listing and the Batista brothers' return highlight how
business influence and strategic investments can help a company
recover from scandal, the report notes.
These moves have also enabled JBS to expand globally, the report
relays. The company's story raises questions about corporate
governance, political influence, and environmental responsibility
in the global food industry, the report adds.
About JBS SA
JBS S.A. is a Brazilian company that is a large meat processing
enterprise, producing factory processed beef, chicken, salmon,
pork, and also selling by-products from the processing of these
meats. It is headquartered in Sao Paulo. It was founded in 1953
in Anapolis, Goias.
As reported in the Troubled Company Reporter-Latin America in
August 2021, S&P Global Ratings revised the global scale outlook
on JBS S.A. (JBS) and its fully owned subsidiary JBS USA Lux S.A.
(JBS USA) to positive from stable and affirmed its 'BB+' issuer
credit rating. The recovery expectations remain unchanged, and S&P
affirmed the 'BB+' ratings on the senior unsecured notes and the
'BBB' ratings on the secured term loans.
SAO PAULO: Fitch Affirms of 'BB' LongTerm IDRs, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed the Brazilian State of Sao Paulo's (Sao
Paulo) Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs) at 'BB' with a Stable Rating Outlook and its Short-Term
Foreign and Local Currency IDRs at 'B'.
Fitch has also affirmed Sao Paulo's National Long-Term Rating at
'AAA(bra)' with a Stable Outlook and its National Short-Term Rating
at 'F1+(bra)'. Fitch assessed Sao Paulo's Standalone Credit Profile
(SCP) at 'bb-'.
The State of Sao Paulo's IDRs are supported by those of Brazil
(BB/Stable) because the federal government is its most significant
creditor. Debt owed to the federal government makes up about 85% of
the state's direct debt. Fitch views intergovernmental debt as more
favorable, as it can be used as an instrument of support by the
sovereign in periods of stress, leading to a one-notch uplift from
the state's SCP of 'bb-'.
KEY RATING DRIVERS
Risk Profile: 'Low Midrange'
The assessment reflects Fitch's view that there is a moderately
high risk of the issuer's ability to cover debt service with the
operating balance weakening unexpectedly over the scenario horizon
(2025-2029), due to lower revenue, higher expenditure, or an
unexpected rise in liabilities or debt service requirements.
Revenue Robustness: 'Midrange'
Fitch evaluates Revenue Robustness as 'Midrange' due to the state's
high fiscal autonomy with very low dependency on federal
transfers.
The Brazilian tax collection framework transfers a large share of
the responsibility to collect taxes to states and municipalities.
Constitutional transfers exist as a mechanism to compensate poorer
entities. For that reason, Fitch views a high dependency toward
transfers as a weak feature for Brazilian local and regional
governments (LRGs).
The primary metric for Revenue Robustness is the transfers ratio
(transfers to operating revenues). Fitch classifies LRGs with a
transfer ratio more than or equal to 40% as 'Weaker' and those with
a ratio below 40% as 'Midrange'. Sao Paulo reports high fiscal
autonomy, with a low transfer ratio, which drives this factor to
'Midrange'. Transfers averaged 9.9% of operating revenue in
2020-2024, and 13.1% in 2024. The higher ratio for the last couple
of years reflects the reclassification of transfers from Fundeb, a
fund for financing education.
Between 2019 and 2024, operating revenues dropped by an average of
0.4% annually in real terms, compared to 1.9% average GDP growth.
The weaker performance of tax revenue reflects limitations to the
Imposto sobre Circulação de Mercadorias e Serviços (ICMS) tariff
over fuels, electricity and telecommunications imposed by the
Brazilian National Congress in July 2022, which were only partially
reversed later. Moreover, the state exempted pensioners pension
benefits up to the national security system ceiling from pension
contributions, reducing contributions from 2023. Fitch expects
operating revenue to align with GDP growth going forward.
Revenue Adjustability: 'Weaker'
Fitch evaluates this factor as 'Weaker' due to Brazilian states'
reliance on a small number of taxpayers and the history of federal
intervention in state tax policy.
Fitch believes Brazilian states and municipalities have limited
capacity to increase revenue during a downturn. Tax tariffs are
close to the constitutional national ceiling, and a few taxpayers
contribute a large share of tax collection. Brazil also has a
history of federal intervention in subnational taxation. In July
2022, the National Congress set a ceiling on the ICMS tariff on
fuels and electricity. This caused revenue losses for states and
municipalities, which were only partially reversed later.
The most significant tax, the ICMS, has a concentrated taxpayer
base. The state reports that, on average, the 10 largest taxpayers
corresponded to 29% of total ICMS tax collection, by sector, in
2024.
Expenditure Sustainability: 'Midrange'
Fitch evaluates Expenditure Sustainability as 'Midrange' due
adequate operating margins in recent years.
States have moderately countercyclical responsibilities because
they handle healthcare, education and law enforcement. Expenditures
grow with revenues due to earmarked revenues. States and
municipalities must allocate a share of revenues to health and
education, causing procyclical behavior in good times; high revenue
growth leads to increased spending. However, the significant weight
of personal expenditures and salary rigidity prevents expenditures
from dropping similarly during downturns despite lower revenues.
Sao Paulo reports moderate control over expenditure growth, with
sound margins. Operating margins averaged 12.3% in 2020-2024 and
10.6% at YE 2024. The state is current on its payroll bill and has
no significant delays for the payment of suppliers. The state
recorded a negative operating expenditure compound average growth
rate (CAGR) of -0.8% in real terms in 2019-2024, aligned operating
revenues CAGR of -0.4%. As per the local fiscal framework, Sao
Paulo pursues a current savings ratio of at least 10%.
Expenditure Adjustability: 'Weaker'
Fitch evaluates Expenditure Adjustability as 'Weaker' due to budget
rigidity and the limited ability to reduce spending.
Brazilian local governments have a rigid cost structure, driving
this factor to 'Weaker'. As per the Brazilian Constitution, there
is low affordability of expenditure reduction, especially for the
payroll bill and pensions. As a result, whenever there is an
unpredictable reduction in revenues, operating expenditures do not
automatically decrease in parallel.
Sao Paulo's personal expenditures were 42.2% of total expenditures
in 2024. This item has very limited flexibility for adjustments
given salary rigidity and limited ability to manage human resources
or pensions. Other operating expenditures were close to 45.9% of
total expenditures in 2024 and have some flexibility for
adjustments but are still limited by constitutional mandates on
health and education. Capex was 7.6% of total expenditures in 2024
and averaged 6.2% between 2020 and 2024. Brazilian LRGs often rely
on investment cuts in challenging economic scenarios.
Liabilities & Liquidity Robustness: 'Midrange'
Fitch evaluates this factor as 'Midrange' due to the state's
relative easier access to new lending and the robust subnational
framework for debt.
The Brazilian credit market for subnational governments is rather
limited and highly controlled by the federal government. LRGs often
opt for new loans with federal guarantees, which are only granted
to subnationals rated 'A' or 'B' under the National Treasury's
ability to pay assessment, or capacidade de pagamento (CAPAG), a
criteria assessing three indicators: indebtedness, current savings
and liquidity. Within this limited market, the State of Sao Paulo
has relatively easy access to new loans given the strength of its
economy.
There is a moderate national framework for debt and liquidity
management since there are prudent borrowing limits and
restrictions on loan types. Sao Paulo does not present maturity
concentration. External debt corresponded to 8.7% of direct debt as
of YE 2024, with no relevant maturity concentration. Debt directly
owed to the federal government represented 85% of total debt in
December 2024 or BRL288.6 billion.
Under the Fiscal Responsibility Law of 2000, Brazilian LRGs must
comply with indebtedness limits. Consolidated net debt for states
cannot exceed 2x (200%) of net current revenue. The State of Sao
Paulo reported a debt ratio of 126.6% as of YE 2024, according to
the National Treasury's calculations. The law sets limits for
guarantees at 32% of net current revenue. Sao Paulo reported
guarantees to state-owned companies of 2.12% of net current revenue
in 2024.
There is moderate off-balance-sheet risk stemming from the pension
system, which is a burden for most Brazilian LRGs, especially for
states given a mandate over education and public security. Another
relevant contingent liability refers to the payment of judicial
claims, or "precatorios". The National Congress determined
subnational governments must fully amortize such liabilities until
2029.
Liabilities & Liquidity Flexibility: 'Midrange'
A framework exists for the federal government to provide emergency
liquidity support by extending the maturity date for the state's
federal debt. Fitch assesses the entity's available liquidity,
excluding sovereign support, to decide between 'Weaker' and
'Midrange' assessments for liabilities and liquidity flexibility.
Fitch's liquidity rate for Brazilian LRGs is defined as the ratio
of short-term financial obligations to net cash, as established by
the previous version of the CAPAG system by the Brazilian National
Treasury. The CAPAG, or Capacidade de Pagamento, assesses which
entities qualify for federal government guarantees.
Fitch has set a threshold of 100% for the average of the last three
years (2022-2024) and for the last year-end results available
(December 2024), which would result in a 'Midrange' assessment for
this factor. Sao Paulo reported a three-year average liquidity
ratio of 55.6%. As of December 2024, the metric reached 50.1%,
supporting the 'Midrange' assessment.
Financial Profile: 'a category'
The Financial Profile is assessed at 'a'. Fitch's rating case
forward-looking scenario indicates that the payback ratio (net
adjusted debt to operating balance), the primary metric of the
financial profile, will reach an average of 8.6x for the 2027-2029
period, which is aligned with a 'aa' assessment. The actual debt
service coverage ratio (ADSCR), the secondary metric, is projected
at an average of 1.1x for 2027-2029, aligned with a 'bb'
assessment. Fiscal debt burden is projected at 77% for the same
period. Fitch applies an override to the overall financial profile
considering that the secondary metric is significantly weaker than
the primary metric.
Operating performance in 2024 was aligned with its base case, but
with a combination of stronger tax collection and higher debt. In
part, higher debt is explained by the monetary adjustment
coefficient applied to intergovernmental debt stock, which is
linked to the policy rate (Selic). Intergovernmental debt increased
to BRL 288 billion in 2024 from BRL272.5 billion in 2023. The
current high level of the Selic is leading to an upward adjustment
of intergovernmental debt across Brazilian LRGs, but has no direct
cash impact. Projections also consider that the state plans to take
on new loans in the amount of BRL23 billion during 2025-2029 to
finance its ambitious capex program.
Derivation Summary
The State of Sao Paulo's ratings reflect the combination of a 'Low
Midrange' risk profile and an 'a' debt sustainability assessment
under Fitch's rating case scenario. The SCP, positioned at 'bb-',
also reflects the comparison with national and international peers.
The state's IDRs benefit from a one-notch uplift from its SCP
through intergovernmental finance support. Sao Paulo's national
scale rating is mapped at AAA(bra) following a national peer
comparison.
Key Assumptions
Risk Profile: 'Low Midrange'
Revenue Robustness: 'Midrange'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Midrange'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Midrange'
Liabilities and Liquidity Flexibility: 'Midrange'
Financial Profile: 'a'
Asymmetric Risk: 'N/A'
Support (Budget Loans): '1'
Support (Ad Hoc): '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 2020-2024 figures and 2025-2029 projected
ratios. The key assumptions for the scenario include:
- YoY 5.1% increase in operating revenue on average in 2025-2029;
- YoY 5.5% increase in tax revenue on average in 2025-2029;
- YoY 5.5% increase in operating expenditure on average in
2025-2029;
- Net capital balance of - BRL 24,612 million on average in
2025-2029;
- Cost of debt: 5.3% on average in 2025-2029
Quantitative assumptions - Sovereign Related
Figures as per Fitch's sovereign actual for [2024] and forecast for
[2025-2026], respectively (no weights and changes since the last
review are included as none of these assumptions was material to
the rating action).
Liquidity and Debt Structure
Net adjusted debt totaled BRL318.4 billion as of YE 2024 and
considers unrestricted cash availabilities of BRL35.5 billion.
Foreign currency debt corresponds to 8.7% of direct debt, while 85%
consists of intergovernmental debt related to the legacy of the
debt restructuring program of the 1990s.
Sao Paulo reported a significant increase in intergovernmental debt
in the last three years, which is related to the monetary
adjustment factor applied by the national Treasury. The monetary
adjustment factor is linked to the policy rate, what leads to large
corrections during periods of contractionary monetary policy.
Corrections to the debt stock were larger than principal payments,
leading to a BRL43.6 billion increase in intergovernmental debt
since 2021.
Issuer Profile
The State of Sao Paulo is classified by Fitch as a Type B local and
regional government, which is required to cover debt service from
cash flow on an annual basis. Sao Paulo is the most populous
Brazilian state, with about 47.3 million people, or 22% of the
total for the country. It is also the strongest regional economy,
accounting for about 31% of national GDP.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A negative rating action on Brazil's Long-Term IDR would lead to a
corresponding rating action on Sao Paulo, given that its ratings
are uplifted to the sovereign level through intergovernmental
finance support.
Sao Paulo's IDRs would be downgraded if its enhanced payback ratio
is projected above 9x and its enhanced actual debt service coverage
ratio is projected below 1.5x, which Fitch views as unlikely.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A positive rating action on Brazil's Long-Term IDR could lead to a
corresponding rating action on Sao Paulo, given that its ratings
are uplifted to the sovereign level through intergovernmental
finance support.
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.
Public Ratings with Credit Linkage to other ratings
The State of Sao Paulo ratings are uplifted to the sovereign level
through intergovernmental finance support.
Entity/Debt Rating Prior
----------- ------ -----
Sao Paulo,
State of 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)
STATE OF ALAGOAS: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
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S&P Global Ratings, on June 10, 2025, revised its rating outlook on
the State of Alagoas to stable from negative. At the same time, S&P
affirmed the 'BB-' global scale and 'brAA+' national scale issuer
credit ratings.
Outlook
The stable outlook reflects S&P's expectation that Alagoas'
incipient progress in 2024 in strengthening its fiscal performance
will gradually enhance liquidity and stabilize debt. In addition,
the outlook incorporates several liability management operations
that will reduce interest payments.
Downside scenario
S&P could lower the ratings in the next 12-18 months if a reversal
in Alagoas' fiscal trends impedes the recovery of its cash reserves
or if imbalances translate into a more pronounced increase in its
debt burden, including higher interest payments that consistently
surpass 5% of operating revenue. These factors could also signal
that the state's financial management has weaker capacity to
overcome revenue shortfalls, in its view.
Upside scenario
S&P could raise its ratings on Alagoas in the next 12-18 months if
the state bolsters liquidity through running stronger budgetary
balances--all while interest payments remain below 5% of operating
revenue.
Rationale
S&P's ratings on Alagoas are anchored by the state's financial
management, which has demonstrated some capacity and commitment to
boosting its fiscal performance and containing the rise in its
interest burden. Constraining the ratings are the state's
historically low liquidity, its high debt burden, and its economic
structure, which is weaker than those of its peers. Moreover,
widespread rigidities are embedded in Brazilian local and regional
governments' (LRGs') institutional framework.
Fiscal consolidation measures will gradually improve Alagoas'
financial metrics
S&P expects Alagoas will maintain its efforts to gradually improve
its budgetary outcomes over the coming years. It already made some
progress in 2024, with a deficit after capital expenditure (capex)
at 3% of total revenue, improved from a deficit of 10.3% in 2023
that resulted from capex expansion and the burden of the state's
pension system. Operating revenue grew 17% in 2024 following
economic growth and a rise in the state's basic tax rate to 19%
from 17%.
Aiming to reinforce the prospects for continued fiscal
consolidation, Alagoas also approved and has begun to implement a
fiscal rule that mirrors that of the central government. It
constrains the growth in primary expenditure to the rate of
prior-year inflation and a share of primary revenue growth. Even if
not implemented in its entirety, the rule is a step toward
strengthening budgetary planning and discipline. S&P expects
management to generate after-capex surpluses that average 0.3% of
total revenue in 2025-2027, up from an average deficit of 6.7% in
2023-2024.
S&P said, "Alagoas is also looking to join the Programa de Pleno
Pagamento de Dividas dos Estados (Propag), which we believe would
help strengthen its fiscal metrics. Propag is a recently launched
fiscal program by the central government that aims to improve the
sustainability of states' debt. It entails extending the maturity
of LRG debt owed to the central government, reducing debt through
transferring state assets to the federal government, and providing
interest relief by converting interest payments to capex projects.
Despite the state's intentions to join the program, we do not
incorporate the program in our projections because the state has
not yet formally applied; its deadline to do so is at the end of
2025."
The state's high deficits after capex reflect record-high capex in
the past four years. Averaging 20% of total spending, these
deficits were financed mostly using available cash. S&P expects
Alagoas' capex execution to slow alongside the implementation of
fiscal consolidation measures, falling to approximately 17% of
total spending in 2025 and to 15% by 2027.
S&P said, "As a result of the improvement in budgetary performance,
we expect the state's liquidity to gradually recover from its
recent deterioration. The state's available cash fell following a
one-off court decision in early 2024 that forced the state to share
resources from its water and sewage concession, signed in 2020,
with its municipalities. The state transferred Brazilian real (R$)
900 million in 2024, reducing its total free cash to roughly R$570
million. As a result, cash plus operating cash flow should cover
about 90% of debt service for the next 12 months.
"Part of the capex will still be financed by new borrowings, but we
expect Alagoas' debt to stabilize at roughly 80% of operating
revenue--which we still consider high, though it compares favorably
with the 150% from 2015. The state's main creditor is the federal
government, which accounts for 61% of its total debt. Alagoas also
has loans from multilateral lending institutions and from domestic
banks, which the federal government guarantees."
Liability management operations, in addition to fiscal
consolidation measures, should help Alagoas maintain an interest
burden below 5% of operating revenue. The state is currently taking
steps toward two liability management actions, with an expected
average yearly interest savings of 0.5% of operating revenue. The
first relates to terms of debt owed to Inter-American Development
Bank, which exchanges the currency denomination of the debt. The
second action is related to the rollover and extension of debt
amounts owed to public banks through a new contract with World
Bank.
Despite the recent ability to borrow from multilateral lending
institutions and commercial banks Itau-Santander consortium and
Bradesco, S&P views Alagoas' access to external liquidity as
limited--in line with most Brazilian states--reducing the capacity
to quickly tap debt in case of intra-annual cash mismatches.
Management will likely maintain solid policies amid a weaker
economy and institutional framework constraints
S&P said, "Our base-case scenario assumes continuity in Alagoas'
management practices, with the objective of carefully managing
interrelated budgetary execution, liquidity, and debt burden
trajectories to improve financial metrics. The state's ruling
political party maintains broad support in the state legislature
for passing reforms aimed at such a goal. This support has been
pivotal in passing key pieces of previous legislation, such as a
revision of the spending structure, raising local tax revenue, and
the most recent local fiscal rule. Alagoas has prioritized
improving its finances, transparency, and accountability, which we
consider a rating strength.
"At the same time, the state's weaker socioeconomic conditions
weigh on its creditworthiness. Its estimated GDP per capita of
US$5,100 in 2025 is roughly half of the estimated 2025 GDP per
capita for Brazil. We forecast that economic growth in Alagoas will
keep pace with economic growth nationally, with real GDP expanding
annually by 2%, on average, in 2025-2027. Alagoas' main economic
activities are public administration, tourism, and agriculture
(mainly the sugarcane industry, which is the second-largest
employer in the state, after the public sector).
"We assess Brazilian LRGs' institutional framework as volatile and
unbalanced, which constrains our ratings on Alagoas. In our
opinion, the rigidities of Brazil's intergovernmental system
continue to prevent LRGs from structurally balancing their
finances. Nonetheless, we believe the system has a certain degree
of predictability and transparency, with enhanced oversight over
LRGs' finances and their adherence to fiscal discipline."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Ratings Affirmed; CreditWatch/Outlook Action
To From
Alagoas (State of)
Issuer Credit Rating BB-/Stable/-- BB-/Negative/--
Brazil National Scale brAA+/Stable/-- brAA+/Negative/--
===========================
C A Y M A N I S L A N D S
===========================
XP INC: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
--------------------------------------------------------
Fitch Ratings has affirmed XP Inc.'s (XP) Long-Term Local and
Foreign Currency Issuer Default Ratings (IDRs) at 'BB'. The Rating
Outlook is Stable. Fitch has also affirmed Banco XP SA's National
Long- and Short-Term Ratings at 'AAA(bra)'/'F1+(bra)',
respectively. The Rating Outlook for the long-term rating is
Stable.
Key Rating Drivers
Ratings Driven by Standalone Credit Profile: XP's 'BB' Long-Term
Local and Foreign Currency IDRs are based on its Standalone Credit
Profile (SCP), reflecting the company's strong franchise and
business model, along with a solid execution and robust financial
profile. XP's SCP is aligned with its assigned Sector Risk
Operating Environment (SROE) of 'bb' and Brazil's sovereign rating
of 'BB/Stable', reflecting the company's strong business profile.
Fitch does not expect this alignment to change in the near term.
Robust Business Profile; Effective Execution: XP Inc. is Brazil's
largest independent brokerage platform. The group has developed a
one-stop shop for clients, offering a wide range of investment
products, credit products, and services to both individual and
corporate clients, domestically and internationally. From 2021 to
2024, XP's average annual operating income was USD 2.25 billion,
consistent with its 'bb' business profile score. In Q1 2025, XP's
revenue rose 6.7% year-over-year due to an increase in retail
fixed-income activities, which offset the decline in equities.
XP's retail banking verticals continue to positively affect overall
results and diversification, enhancing retention and strengthening
its franchise. The positive outlook on the business profile score
reflects the expected enhancement of its revenue generation and
diversification, given the company's growth strategy for its core
and complementary products.
Adequate Risk Profile: XP's risk profile encompasses credit and
market risks in addition to potential operational, cyber, and
reputational risks. However, these risks are well-managed through a
sophisticated risk management framework. XP's growth, especially in
retail lending and insurance, has outpaced peers but aligns with
the company's strategic planning and market opportunities. Although
its lending portfolio is relatively concentrated, with the top 10
clients accounting for 16.6% of loans as of March 2025, XP has a
substantial volume of private securities. The frequent rotation of
these assets helps mitigate concentration and credit risks.
Broad Asset Quality View: XP's credit risk arises from its lending
assets and securities portfolio, which constitute most of the
group's assets. Although it experienced a slight increase in
delinquency metrics in 1Q25, with impaired loans rising to 1.6%
from 0.8% at YE 2024, most of its lending portfolio is secured by
client assets held by the group. During the same period, the loan
loss reserve coverage ratio declined to 0.94X from 1.8x at
end-2024. Losses in XP's non-loan exposures, particularly trading
securities, have been low. Fitch expects lending delinquencies and
securities losses to remain low, subject to macroeconomic
conditions.
Positive Profitability Trend: XP has consistently maintained robust
profit margins, driven by the continued growth of its main
brokerage services, particularly fixed income and asset management.
Its retail banking activities are also continuing to gain traction.
XP's core ratio of operating profit to average equity was strong at
24.4% as of March 2025, in line with the four-year average of
24.4%. Fitch foresees potential growth-related challenges in the
domestic operating environment, especially in equities and the
expansion of assets under custody due to industry outflows in 2025.
However, Fitch expects XP's profitability to continue improving,
driven by strict cost control and increased diversification.
Growth Drives Leverage Increase: XP's expanding banking activities
have gradually increased its leverage ratio. Fitch's core ratio,
measured as tangible assets as a portion of tangible equity,
increased to 11.1x as of March 2025 from 10.8x at YE 2024 and 9.3x
in 2023. However, these levels remain consistent with the ratings.
Fitch anticipates that XP's leverage metrics will rise in 2025,
approaching the 12x threshold of the 'bb' rating category's
leverage. This projected increase is primarily driven by the
company's expanding lending and trading portfolios. Despite
expected profitability improvements that may stabilize leverage
metrics in 2026, Fitch maintains a negative outlook on XP's
capitalization & leverage score.
Diversified Funding; Strong Liquidity: Fitch views XP's liquidity
and funding profile as strong. The company has significantly
reduced its reliance on wholesale funding lines. The customer
funding base, including deposits, letras and structured notes,
represents over 90% of XP's total debt as of March 2025. Its
funding profile has gradually become more diversified and has
exhibited strong growth but remains less diversified than its
larger peers. Liquid assets, including cash and equivalents,
government securities, and other private securities, cover a
significant portion of the company's short-term funding. The liquid
assets-to-short-term funding ratio was good at 1.4x in March 2025.
Banco XP: Banco XP's National Ratings are based on Fitch's group
ratings assessment. The company's operations are fully integrated
with its parent in terms of management, systems, and strategy,
leading to a highly correlated credit profile between the entities.
Banco XP is one of the most significant subsidiaries of XP Inc. in
terms of assets and funding.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
XP Inc. IDRs; Banco XP National Ratings
- Rating downside would be primarily contingent on a downgrade of
the Brazilian sovereign rating.
XP Inc. IDRs
- Operational incidents that result in severe damage to the
company's franchise, leading to a substantial outflow of client's
assets;
- Substantial losses from its own securities portfolio (including
loans) and/or strong volatility in its profitability metrics;
- An unexpected increase in the company's leverage, tangible
leverage ratio above 12x and/or a significant decrease in the
group's regulatory metrics in Brazil - total regulatory capital
ratio below 11%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
XP Inc. IDRs,
- Rating upside is limited in the short term. However, XP's
long-term ratings could be upgraded if total operating income
increases significantly;
- Maintenance of its current outstanding profitability and asset
quality metrics, in addition to a stability on its leverage
ratios;
- An upgrade of the Brazilian sovereign rating could also trigger
an upgrade of XP's ratings, as Fitch considers it unlikely that
XP's ratings could be above the sovereign given the significant
holding of sovereign securities.
Banco XP National Ratings
- The National Scale Ratings of Banco XP are at the highest level
on the national scale; therefore, they cannot be upgraded.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
XP's unsecured senior notes rating is equalized with the Long-Term
IDR, as the probability of default is the same as that of the
entity. The notes will also rank pari passu with other senior
unsecured obligations.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- XP's senior unsecured debt ratings are sensitive to a change in
its IDR.
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- XP's senior unsecured debt ratings are sensitive to a change in
its IDR.
VR ADJUSTMENTS
The Asset Quality score has been assigned below the implied score
due to the following adjustment reason(s): Non-Loan Exposure.
The Earnings & Profitability score has been assigned below the
implied score due to the following adjustment reason(s): Portfolio
Risk.
Summary of Financial Adjustments
Fitch adjusted XP's adjusted tangible leverage ratio in accordance
with the Non-Bank Financial Institutions Rating Methodology. Fitch
also deducted the funds from pension plans accounted for in XP's
own balance sheet and unused client cash from the calculation.
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 XP S.A Natl LT AAA(bra) Affirmed AAA(bra)
Natl ST F1+(bra) Affirmed F1+(bra)
XP Inc. LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
senior
unsecured LT BB Affirmed BB
=============
J A M A I C A
=============
DIGICEL MIDCO: Fitch Assigns 'B' LongTerm Foreign Currency IDR
--------------------------------------------------------------
Fitch Ratings has assigned Digicel Midco Limited (Digicel) a
first-time 'B' Long-Term Foreign Currency Issuer Default Rating
(IDR) and has assigned Digicel International Finance Limited (DIFL)
a 'B' IDR. Additionally, Fitch has assigned DIFL's senior secured
notes and term loan (co-issued by DIFL US LLC and Digicel
Intermediate Holdings Limited) a 'B' rating with a Recovery Rating
of 'RR4' and Digicel's unsecured notes (co-issued by DIFL US II
LLC) 'B-'/'RR5' ratings, reflecting the notes' lower recovery
prospects in the group's structure. The Rating Outlook is Stable.
The ratings reflect Digicel's improved capital structure
post-restructuring and expected successful refinancing of its 2027
secured debt, which reduces leverage and enhances debt maturity and
liquidity profiles. As a leading Caribbean mobile operator, Digicel
maintain metrics aligned with the B rating category. However, weak
operating environments in markets like Haiti and currency
depreciation risks offset these strengths.
Key Rating Drivers
IDR Equalization: Fitch applies its "Parent and Subsidiary Rating
Linkage Criteria" taking the stronger subsidiary path for DIFL
because of its lower leverage compared to the consolidated group.
However, Fitch equalizes the IDRs of DIFL and Digicel Midco due to
extensive past restructuring across multiple levels, the
cross-default provisions between Digicel's senior unsecured debt
and DIFL's secured debt, and ownership structure. DIFL's secured
debt matures before Digicel's unsecured debt. Fitch assesses the
group's credit profile using Digicel Holding (Bermuda) financials,
which align closely with Digicel's credit metrics.
Strong Competitive Position: The ratings reflect Digicel's strong
market and diversification across 25 Caribbean markets, where
duopoly conditions often reduce the risk of new entrants and
sustain consistent EBITDA margins (before leases) of about 40%. In
the mobile segment, most of Digicel's subscribers are pre-paid
consumers, making them more price sensitive. While Digicel is
expanding into higher-growth B2B solutions and home entertainment
(B2C broadband and TV), these segments contribute about 25% of
revenues.
Positive Free Cash Flow (FCF): Fitch expects the company to
generate positive FCF based on moderate capex and no dividends.
Fitch projects adjusted EBITDA (post leases) of approximately
USD690 million from approximately USD655 million. This is driven by
single-digit growth in the B2B and fixed operations, and steady
revenues from its mobile operations and lower costs due to
operating efficiency measures. Fitch projects capex-to-sales to
remain close to about 11%-12% in FYE 25 and FYE 26.
Improved Net Leverage: Fitch expects adjusted gross leverage to
reach about 4.1x in fiscal 2025 (4.3x in fiscal 2024) based on
improved EBITDA, positive FCF, and interest expenses of about USD
200 million. Fitch considers the post-restructuring capital
structure positive as it reduced Digicel's debt. The structure
improved the group's financial position, but extended the debt's
maturity and liquidity as part of interest payments are PIK. Fitch
expects net leverage to trend toward 3.5x by YE 2026 (4x in fiscal
2024).
Haiti Exposure: The ratings also reflect Digicel's exposure to a
low rated and volatile economic environment, including weather
related events. Fitch estimates that Haiti represents about 17% of
the company's revenues, with the company reporting high losses in
prepaid subscribers due to civil unrest.
Debt Restructuring and Maturity: The ratings reflect the
post-restructuring capital structure, as debt was reduced by USD1.7
billion and cash interest expense to about USD200 million, enabling
the company to begin deleveraging and reducing refinancing risk.
This restructuring aligns creditors, who are the main shareholders,
with new management on the company's strategy and priorities. Fitch
expects the company to fully refinance its main debts (term loan
and secured notes) due in 2027 by May 2026.
Peer Analysis
Digicel's business profile, characterized by leading mobile market
shares in well-diversified operational geographies supported by
network competitiveness, is stronger than Oi S.A. ('C'), which has
also restructured its debt.
Digicel's business profile is weaker than its regional diversified
telecom peers in the speculative grade rating categories, including
Millicom International Cellular S.A. ('BB+'/Stable) and Cable &
Wireless Communications Limited ('BB-'/Stable), as Digicel's
business profile is relatively smaller and less diversified on a
service basis, given its reliance on mobile and exposure to
non-investment-grade countries with significant exchange rate
volatility. Also, Digicel's financial flexibility is limited under
the current debt structure.
Liberty Communications of Puerto Rico LLC (B/Stable) has weaker
credit metrics, which Fitch expects will improve over time due to
the integration process, and it operates in an environment free
from currency risks. Additionally, Liberty Puerto Rico's revenue
mix features a more balanced distribution between fixed and mobile
services. In contrast, most of Digicel's mobile customers use
prepaid plans and tend to be more cost sensitive.
Key Assumptions
- Steady Revenue in FYE25 followed by revenue growth of about 2%-3%
driven by Digicel business and Digicel+.
- EBITDA margins (adjusted by leases) of about 35%-40%.
- Average capex of close to 12% of revenues.
- No dividend payments to controlling shareholders.
- Success in refinancing its main debts due in 2027 until May
2026.
Recovery Analysis
The recovery analysis assumes the company would be reorganized as a
going concern in bankruptcy rather than liquidated. Fitch has
assumed a 10% administrative claim.
The going concern operating EBITDA reflects Fitch's estimates of
mid-cycle EBITDA that is achievable in the medium term, given the
company's position primarily in duopoly markets and its exposure to
weak operating environment and currency risks. This going concern
EBITDA of USD540 million.
Fitch uses an enterprise value/EBITDA multiple of 5.0x, reflecting
the company's long-term prospects and good market shares in mostly
duopoly markets amid a scenario of financial distress.
Fitch forecasts recovery rates commensurate with 'RR1' for the
DIFL's 2027 senior secured notes and term loan. All these secured
debt instrument recovery ratings are capped at 'RR4' resulting in
ratings equal to the IDRs, in accordance with Fitch's Country
Specific Treatment of Recovery Ratings Criteria that constrains the
upward notching of instruments.
The senior unsecured debt is rated 1-notch below the IDRs due to
lower expected recovery and lower position in the group's
structure.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Inability to refinance its secured debt due in 2027 by May 2026;
- Deterioration of liquidity or performance;
- Negative FCF on a sustained basis;
- Debt/EBITDA above 5x.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Progress in refinancing of existing debt (secured and
unsecured);
- Improved financial flexibility;
- CFO-capex/debt above 2.5% on a sustained basis;
- Debt/ EBITDA below 3.75x on a sustained basis;
- EBITDA net leverage below 3.25x on a sustained basis.
Liquidity and Debt Structure
Digicel's liquidity improved following the group's restructuring
with a reduction in cash interest burden and an extension of the
debt amortization profile. The company's liquidity is mainly
supported by its cash balance and the expectation that the company
will generate positive free cashflow. However, the company faces
significant refinancing in 2027 (secured term loan and senior
notes).
Of the consolidated USD2.8 billion of debt, USD2.3 billion
(excluding leases) is at the DIFL level, USD455 million at the
Digicel Midco level. The DIFL debt comprises USD1.3 billion of
secured notes and USD1 billion of secured term loans due May 25,
2027. The Digicel Midco debt mainly comprises USD455 million of
unsecured PIK/cash notes due Nov. 25, 2028.
Issuer Profile
Digicel is a diversified telecom operator that provides mobile and
fixed-line services to consumers and businesses in the Caribbean.
Date of Relevant Committee
02 June 2025
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
Digicel Midco Limited has an Environmental, Social and Corporate
Governance (ESG) Relevance Score (RS) of '4' for Group Structure
due to its incorporation status in several countries with debt
levels at several entities level, which has a negative impact on
the credit profile, and is highly relevant to the rating, resulting
in an implicitly lower rating.
Digicel Midco Limited has an ESG RS of '4' for Exposure to
Environmental Impacts due to its presence in a hurricane prone
region, which has a negative impact on the credit profile, and is
relevant to the rating[s] in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
DIFL US LLC
senior secured LT B New Rating RR4
DIFL US II LLC
senior unsecured LT B- New Rating RR5
Digicel International
Finance Limited LT IDR B New Rating WD
senior secured LT B New Rating RR4
Digicel Midco Limited LT IDR B New Rating
senior unsecured LT B- New Rating RR5
Digicel Intermediate
Holdings Limited
senior secured LT B New Rating RR4
MEDICAL DISPOSABLES: Incurs $281MM Net Loss in Year Ended March 3
-----------------------------------------------------------------
RJR News reports that Medical Disposables and Supplies generated a
net loss of $281.1 million or 77 cents per share on revenues of
$3.9 billion during the year ended March 3, compared with a net
loss of $316 million on revenues of $3.7 billion for the previous
year.
This was mainly due to a jump in its administrative expenses to
$510 million from $473 million during the previous year, according
to RJR News.
But this was countered by a fall in selling and promotion expenses
to $357 million from $370 million last year, the report notes.
===============
P A R A G U A Y
===============
BANCO CONTINENTAL: Fitch Affirms BB+ LongTerm IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Banco Continental S.A.E.C.A.'s
(Continental) Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) at 'BB+'. The Rating Outlook is Stable. Fitch has
also affirmed Continental's Short-Term Foreign and Local Currency
IDRs at 'B'.
Key Rating Drivers
IDRs Driven by VR: Continental's IDRs are driven by its intrinsic
creditworthiness, as reflected in its 'bb+' Viability Rating (VR).
The bank's VR is in line with its implied VR and considers
Continental's strong local franchise as the largest Paraguayan bank
with a 19.2% market share of the banking system's loans.
Continental's strong capitalization metrics relative to its local
and similarly rated international peers are also considered in the
bank's ratings. In addition, the VR takes into account
Continental's strong asset quality, good profitability, good
liquidity, and its stable but somewhat concentrated funding
structure.
Good Business Profile: Despite Continental's moderate size on a
global basis, Fitch's business profile assessment reflects the
bank's leading market share in Paraguay in terms of assets as of
Dec. 31, 2024 ( 17.7% of the total system) and deposits, supporting
a business profile score of 'bb'. This is above the implied score
due to the bank's market position as a positive adjustment. As of
Dec. 31, 2024, Continental had a deposit market share of 16.0%
among the Paraguayan banks.
Continental's business model focuses primarily on corporate lending
(47.3% of total loans), small and medium companies (32.4%), and to
a lesser extent other business segments. The bank's risk profile
also supports its VR, as conservative underwriting policies have
enabled Continental to maintain stable and low non-performing loan
(NPL) ratios over the past few years (average of 1.4% from
2021-2024). However, the bank does have some lending concentration
as the top 20 exposures accounted for approximately 17.3% of the
total loans.
Good Asset Quality: Continental's impaired-loan ratio over 60 days
remained slightly under 1.0% as of Dec. 31, 2024 (average of 1.6%
from 2020-2023), which compares very well with the banking system
average of 2.2%. Reserve coverage to impaired loans was 217% which
compares well to the system's 143%. Fitch expects any pressure on
asset quality to be manageable due to the bank's business model,
good reserve coverage, and collateralization policies as nearly a
quarter of the loans have some type of guarantee.
Satisfactory Capitalization: Continental's capitalization has been
one of the bank's strengths due in part to its conservative
dividend policy. The bank's Fitch Core Capital (FCC) to
risk-weighted assets (RWAs) ratio remains at a comfortable 16.7% as
of Dec. 31, 2023, although this is lower than 18.6% a year earlier.
The decrease in the ratio was mainly due to nearly 30% growth in
gross loans. Continuous earnings retention has supported the bank's
capital ratios which are the second highest among its top peers. In
Fitch's view, the bank remains well prepared to face an increase in
the central bank's capital requirements for domestic systemically
important banks if required under Law No.5587/16.
Improved Profitability: Continental performed well in 2024 as its
operating profit to RWA ratio remained strong at nearly 3.3% as of
December 2024 (average of 2.9% from 2020-2023). The bank's ROAA and
ROAE ratios were a strong 2.8% and 21.8%, respectively. Its
profitability is driven by a strong franchise, good asset quality
in its lending portfolio, favorable net interest margins, cost
efficiencies, and low funding costs. Fitch expects this ratio to
remain above 3% in the near to medium term.
Satisfactory Liquidity: The bank's funding relies primarily on
wholesale deposits, and total deposits provide slightly over 63% of
the bank's total funding. About 57% of the deposits are in the form
of time deposits. There is some concentration risk as the top 20
depositors accounted for 23.8% of total deposits at the end of
December 2024.
However, the largest individual exposure (7% of total deposits) is
from a public company that provides stable funding. Continental had
earlier diversified its funding base through an international
issuance of a five-year USD300 million sustainable bond. Its
funding is complemented by the usage of approved credit lines from
several foreign financial institutions and global development
banks. A little more than 16% of funding comes from bank financing
and another 13% is in the form of the bank's equity.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Continental's VR and IDRs could be affected by material weakening
of the bank's currently strong capital metrics, specifically an FCC
ratio sustained below 16%;
- A deterioration of the operating environment that results in a
sustained deterioration of the bank's asset quality (impaired loans
ratio above 3.5%) or an operating profit to risk-weighted assets
metric below 1.5% could be negative for creditworthiness;
- Loss of the bank's strong competitive position in the local
market could also pressure ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade is unlikely over the foreseeable future but could
result from potential improvements in Fitch's assessment of the
Paraguayan operating environment faced by local banks, together
with an improvement in the bank's financial profile;
- A potential rating upgrade in the bank's GSR is unlikely.
Continental is considered by Fitch as a domestic systemically
important financial institution (D-SIFI) of the Paraguay financial
system.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The senior unsecured debt rating of 'BB+' is at the same level as
the bank's Long-Term IDR because Fitch views the likelihood of
default of the senior debt as the same as that of the issuer.
Continental's Government Support Rating (GSR) of 'bb' reflects a
moderate probability of support because of uncertainties regarding
the sovereign's ability or propensity to do so, despite the bank's
systemic importance. The ability of the sovereign to provide
support is based on Paraguay's Long-Term Foreign Currency IDR
(BB+/Stable).
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
- Senior debt ratings would generally move together with the bank's
Long-Term IDRs.
VR ADJUSTMENTS
The Operating Environment score of 'bb' has been assigned above the
'b' category implied score due to the following adjustment reason:
Sovereign Rating (positive).
The Business Profile score of 'bb' has been assigned above the 'b'
category implied score due to the following adjustment reason:
Market Position (positive).
ESG Considerations
Banco Continental S.A.E.C.A. has an ESG Relevance Score of '4' for
Governance Structure due to low board independence compared to
regional peers, and due to the main shareholder of the bank having
a high influence on Continental's strategic decisions, which Fitch
considers as a key person risk. This has a negative impact on the
credit profile and is relevant to the ratings in conjunction with
other factors.
In addition, Fitch has revised Continental's ESG Relevance score to
'3' from '2' for Exposure to Environmental Impacts due to the
bank's exposure to certain regions in Paraguay that are
occasionally impacted by droughts or flooding, as these types of
climate risks could impact its exposure to borrowers that are
active in the agriculture and/or livestock segments and other
vulnerable segments.
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 Continental
S.A.E.C.A. LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Viability bb+ Affirmed bb+
Government Support bb Affirmed bb
senior unsecured LT BB+ Affirmed BB+
UENO BANK: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
----------------------------------------------------------
Fitch Ratings has affirmed Ueno Bank S.A.'s (Ueno) Foreign and
Local Currency Long-Term Issuer Default Rating (IDR) at 'BB', its
Viability Rating (VR) at 'bb' and its Government Support Rating
(GSR) at 'b+'. Fitch has also affirmed Ueno's Short-Term Foreign
and Local Currency IDRs at 'B'. The Rating Outlook for the
Long-Term IDRs is Stable.
Key Rating Drivers
IDRs and VR
IDRs Driven by Intrinsic Creditworthiness: Ueno's 'bb' VR drives
its IDRs. Paraguay's stable operating environment and Ueno's strong
capitalization metrics post-merger relative to similarly rated
international peers (universal/commercial banks rated in the 'bb'
category) and the system are relevant to the bank's ratings. In
addition, the VR considers the bank's moderate franchise in
Paraguay, sound asset quality, strong profitability, and its stable
and moderately concentrated funding.
Moderate Market Position: Fitch considers Ueno's business model in
a consolidation process after the merger with Vision Bank. The
focus of Ueno is on the retail banking sector, primarily SMEs,
using a fully digital onboarding process to drive growth and scale
its business model. Ueno's VR reflects a strengthened franchise
post-merger with Vision, resulting in a 6.3% market share of total
assets, 6.9% in deposits, and 4.2% in loans as of March 2025. The
bank now serves nearly two million clients, the largest in the
banking system. The merger multiplied Ueno's balance sheet by 4.5x
at YE2024, establishing it as a mid-tier institution in Paraguay.
Strong Capitalization: Fitch considers Ueno's capitalization a key
financial strength. Post-merger, the bank had a strong Fitch core
capital (FCC) to risk-weighted asset (RWA) ratio at 19.3%. Fitch
anticipates Ueno's capitalization will remain robust due to
earnings retention and high transaction and credit lending volumes.
The FCC ratio is expected to stay within 19%-21% in 2025, as Ueno
benefits from higher net income despite increased RWAs from loan
growth.
Good Asset Quality: Ueno's asset quality is sound, with NPLs at
0.71% (impaired loans over gross loans) in December 2024, down from
the 2020-2024 average of 2% and 1.5% in 2023. Fitch attributes this
trend to Ueno's strong underwriting standards and risk controls,
supported by strong investments in systems and technology. A high
loan loss reserve over impaired loans at 7.9x in 2024 reflects
provisions transferred from former Vision bank to Ueno's balance
sheet and separate accounting for legacy NPLs. Fitch believes
Ueno's good risk profile and robust technology will help it
maintain sound asset quality despite post-merger risks.
Improved Profitability: Ueno reached a strong 7.3% operating
profit/RWA in 2024 post-merger, driven by a solid net interest
margin and strong credit card-related fees from Vision. The bank's
efficiency (non-interest expense/gross revenues) improved to 54.2%
at 2024, better than the four-year average of 60.1%, due to
cost-efficient non-banking branches. Fitch expects that Ueno's
profitability will stay robust, supported by its improved
franchise, stable Paraguayan operating environment, higher NIM by
its focus on SMEs and retail lending, credit card fees, and lower
funding costs, despite increased RWA and higher credit costs.
Stable Funding: The bank relies predominantly on customer deposits,
which make up 83% of its funding in December 2024. This reliance
allows the entity to maintain an adequate funding cost. The bank's
funding is complemented by senior unsecured debt, subordinated
debt, and approved credit lines with six local financial
institutions. The loan-to-deposit ratio was 75.4% and has remained
relatively stable compared to peers.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
VR and IDRs
- A sustained deterioration in Ueno's FCC ratio to a level below
13% or a decline in the bank's operating profit to RWA ratio below
2% could be negative for creditworthiness;
- The GSR could be downgraded if Fitch believes that the
government's propensity to support the bank has declined due to a
material loss in the market share of customer deposits.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
VR and IDRs
- A consolidation of the business model and risk structure
post-merger that leads to an improvement in the bank's overall
financial profile;
- An upgrade of the GSR is limited and could only occur over time
with a material gain in the bank's systemic importance.
VR ADJUSTMENTS
- The Operating Environment score of 'bb' has been assigned above
the 'b' category implied score due to the following adjustment
reasons: Sovereign Rating (positive).
- The Business Profile score of 'bb-' has been assigned above the
'b' category implied score due to the following adjustment reasons:
Business Model (positive).
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
----------- ------ -----
Ueno Bank SA LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Viability bb Affirmed bb
Government Support b+ Affirmed b+
=====================
P U E R T O R I C O
=====================
FIRST BANCORP: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has upgraded First Bancorp's (FBP) Long-Term Issuer
Default Ratings (IDRs) to 'BB+' from 'BB' and its Viability Rating
(VR) to 'bb+' from 'bb'. Fitch has also affirmed the bank's
Short-term IDRs at 'B'. The Rating Outlook is Stable.
Additionally, Fitch has affirmed FirstBank Puerto Rico's
(FirstBank) Long- and Short-Term Issuer Default Ratings (IDR) at
'BB+' and 'B,' respectively. The Rating Outlook is Stable.
Key Rating Drivers
Holding Company Equalized: Fitch equalized FBP's and FirstBank's
ratings based on its reassessment of the holding company's ability
to meet its financial obligations and cover operating expenses.
This decision reflects FBP's higher levels of liquidity at the
holding company level, lower double leverage and the repayment of
its long-term debt.
Improved Conditions Strengthen Operating Environment: Puerto Rico's
economy is recovering, driven by the flow of federal aid,
record-low unemployment, and increased economic activity. Tourism
and manufacturing are expanding, and the population has stabilized
after years of decline. While federal aid and rebuilding efforts
positively impact the economy, the long-term outlook remains
uncertain. Low labor force participation, demographic challenges,
and vulnerability to extreme weather continue to influence Fitch's
assessment of the operating environment. These issues, however,
should not affect the bank's performance over the rating horizon.
Business Profile Supports the Rating: FBP ranks as the
second-largest player across most business sectors in Puerto Rico
and consistently demonstrates financial resilience despite
challenging local economic conditions. However, its limited revenue
diversification makes FBP's business model less robust than its
higher-rated peers both locally and on the mainland, according to
Fitch.
Balanced Risk Profile: Fitch considers FBP's underwriting standards
and risk controls suitable for its current rating level. FBP
maintains greater exposure to unsecured lending compared to
similarly sized mainland peers, which generates higher credit
losses but yields higher risk-adjusted returns. Conversely, the
bank's risk management practices, particularly in handling interest
rate risk, bolster its risk profile. The moderate duration of its
investment portfolio and the limited proportion of held-to-maturity
securities demonstrate this strength.
Asset Quality Stabilizing: Credit metrics continued to normalize
during 2024, with annualized net charge-offs rising to 68 bps as of
1Q25 from 36 bps as of 1Q24, while remaining stable
quarter-over-quarter. Current charge-offs still fall materially
below the pre-COVID level of 90 bps at YE 2019. Most charge-offs
stem from the consumer segment, which now exceeds pre-pandemic
levels but shows signs of stabilization. Fitch anticipates that the
bank's credit metrics will continue to outperform historical
levels, as federal aid and a robust tourism sector in the local
operating environment help mitigate broader economic pressures from
prolonged higher interest rates.
Sustained Profitability with Efficient Business Model: FBP's
profitability remains a ratings strength. The bank's operating
profit to risk-weighted assets ratio was 3% in the first quarter of
2025, maintaining a robust position compared to most U.S. mainland
peers. Furthermore, earnings benefit from a cost-effective business
model, as demonstrated by the bank's efficiency ratio of 51%, which
favorably compares with local and U.S. mid-tier peers. Fitch
expects FBP's operating profit-to-RWA to remain solid for the rest
of 2025, supported by lower deposit costs and further net interest
margin expansion due to higher securities yield.
Solid Capital Levels: FBP's capital ratios are solid and supportive
of the bank's rating, maintained at higher levels compared to most
U.S. mainland banks. The bank's regulatory Common Equity Tier 1
(CET1) ratio rose to 16.6% in 1Q25 from 15.9% in 1Q24, driven by
strong capital formation and an increase in the fair value of AFS
debt securities. Fitch expects capital ratios may decline modestly
from current levels over the next few years through increased
shareholder returns. However, Fitch expects FBP to sustain higher
capital ratios than similarly sized banks in the U.S. due to the
island's relatively weaker operating environment.
Strong Funding Base: Fitch considers FBP's funding profile robust,
with a stable and granular deposit base and competitively lower
deposit costs than mainland peers. In the past year, the bank's
loans grew by 3%, surpassing the 1.7% deposit growth, with the
loan-to-deposit ratio increasing moderately to 75.4% in 1Q25 from
74.5% in 1Q24. Fitch expects this ratio to remain relatively stable
over the rating horizon due to moderate loan demand in Puerto Rico
and elevated public sector deposits. Excluding public sector
collateralized deposits, FBP's loan-to-deposit ratio would be
approximately 91%, marginally higher than the median for U.S.
mainland peers at 84% at 1Q25.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Negative rating action could result from a significant
deterioration in asset quality, particularly a reversion of the net
charge-off ratio above the long-term historical average, or a
sustained decline of the CET1 ratio below the benchmark level for
this operating environment (13%). Rating pressure could also occur
if the bank were to experience volatility or a decline in operating
profitability below 1% of risk-weighted assets over multiple
quarters.
Moreover, the holding company may face negative rating action if it
is unable to maintain adequate liquidity to cover one year of
expenses, which includes interest obligations and operating costs,
subsequent to the potential issuance of long-term debt.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Positive rating momentum would be contingent on improved
non-interest income contribution and further development of the
bank's franchise without materially increasing its risk appetite.
Additionally, a continued and sustained improvement in asset
quality metrics, along with stabilization in NCOs, would support
positive rating action.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
FirstBank's long-term deposits are rated one-notch higher than its
Long-Term IDR because U.S. uninsured deposits benefit from
depositor preference. U.S. depositor preference gives deposit
liabilities superior recovery prospects in the event of default.
FirstBank's short-term uninsured deposits' rating is 'F3', in
accordance with Fitch's "Bank Rating Criteria", based on the bank's
long-term deposit rating and Fitch's assessment of its funding and
liquidity profile.
FBP's and FirstBank's Government Support Ratings (GSRs) are 'No
Support' (ns). In Fitch's view, the probability of support is
unlikely.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
FirstBank's long- and short-term deposits' ratings are sensitive to
changes in its Long-Term IDR.
The GSR would be sensitive to any change in U.S. sovereign support,
which Fitch believes is unlikely.
VR ADJUSTMENTS
The Operating Environment score of 'bbb' has been assigned below
the 'aa' category implied score due to the following reason:
regional focus.
The Asset Quality score of 'bb' has been assigned below the implied
score of 'bbb' due to the following reason: concentrations.
ESG Considerations
First Bancorp's ESG Relevance Score for 'Exposure to Environmental
Impacts' is a '3', which is higher than the bank sector default
score of '2' due to the heightened risk of natural disasters in the
bank's primary operating environment of Puerto Rico. While this is
an emerging factor that requires monitoring, an ESG Relevance Score
of '3' implies it is minimally relevant to the rating.
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
----------- ------ -----
FirstBank Puerto
Rico LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
Viability bb+ Affirmed bb+
Government Support ns Affirmed ns
long-term
deposits LT BBB- Affirmed BBB-
short-term
deposits ST F3 Affirmed F3
First BanCorp LT IDR BB+ Upgrade BB
ST IDR B Affirmed B
Viability bb+ Upgrade bb
Government Support ns Affirmed ns
*********
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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Chapman, Editors.
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