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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
Thursday, August 7, 2025, Vol. 26, No. 157
Headlines
B R A Z I L
AEGEA SANEAMENTO: Fitch Affirms 'BB' Long-Term IDR, Outlook Stable
COMPANHIA SIDERURGICA: Fitch Affirms 'BB' LT IDR, Outlook Now Neg.
GOL LINHAS: Moody's Assigns 'B3' CFR, Outlook Stable
LOCALIZA RENT: Moody's Affirms 'Ba1' CFR, Outlook Stable
J A M A I C A
JAMAICA: BOJ Offering 30-day Certificate of Deposit
M E X I C O
NEMAK: S&P Affirms 'BB+' Long-Term ICR on Announced Acquisition
TRQ SALES: Fitch Assigns 'BB-' IDR, Outlook Stable
P U E R T O R I C O
ADVANCE AUTO: Moody's Lowers CFR to Ba3, Outlook Negative
PUERTO RICO: White House Fires Five Oversight Board Members
SILVER AIRWAYS: Gets Court OK to Convert Chapter 11 to Chapter 7
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B R A Z I L
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AEGEA SANEAMENTO: Fitch Affirms 'BB' Long-Term IDR, Outlook Stable
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Fitch Ratings has affirmed Aegea Saneamento e Participacoes S.A.'s
(Aegea) Foreign and Local Currency Issuer Default Ratings (IDRs) at
'BB'. Fitch has also affirmed Aegea's National Long Term Rating
(NLTR) and its subsidiaries at 'AA(bra)'. Fitch has additionally
affirmed the rating of Aegea Finance S.a.r.l's (Aegea Finance)
senior unsecured notes at 'BB' and the NLTR of the senior unsecured
debenture issuances of Aegea and its subsidiaries at 'AA(bra)'. The
rating Outlook is Stable.
Aegea's ratings reflect its strong business position and
diversified asset base in the Brazilian water/wastewater industry,
with expectations for operational cash generation to increase and
leverage to trend towards more moderate levels as it continues to
develop its subsidiaries. Fitch views the high debt at the holding
level as manageable, considering the group's proved access to
varied funding sources and projected increase in dividends inflow.
Aegea should continue to generate negative FCF due to its relevant
investment needs and its high interest payments. The company's
aggressive growth strategy is a key credit consideration for the
ratings and may prevent the group to deleverage in case of
meaningful acquisitions.
Key Rating Drivers
Solid Business Position: Aegea is a relevant private player in the
water/wastewater industry in Brazil. The company has a diverse
portfolio of assets, which mitigates the operational, hydrological,
political and regulatory risks associated with its business. The
group's credit profile benefits from predictable demand and an
ongoing increase in the operational scale from recently
incorporated activities. Aegea continues to position as key
consolidating player in the industry which tends to strengthen its
business profile.
Moderate Leverage: Fitch's rating case projects continued
efficiency gains for Aegea, particularly in recently acquired
operations, and a gradual reduction in leverage to 3.4x in 2025 and
3.2x in 2027, from 3.9x at end-2024, as measured by adjusted net
debt/EBITDA. These projections do not factor in significant
acquisitions over the rating horizon, despite the company's stated
focus on inorganic growth. The ongoing development of Companhia
Riograndense de Saneamento (Corsan) and the nonconsolidated
subsidiary Águas do Rio (AdR) will be key to the deleveraging
trajectory.
Debt Concentration at the Holding Level: Fitch considers Aegea's
elevated holding-level indebtedness as manageable, supported by the
expectation of rising dividends from operating subsidiaries. As of
March 31, 2025, holding company debt totaled BRL15.3 billion.
Fitch's base case anticipates annual dividend receipts of
approximately BRL700 million in 2025, increasing substantially to
around BRL3.0 billion in 2026, providing the holding company with
enhanced deleveraging capacity.
Negative FCF: Fitch forecasts consolidated EBITDA of BRL8.2 billion
(67% margin) in 2025, rising to BRL8.7 billion (65% margin) in
2026, positioning Aegea among the most profitable peers locally.
Projections assume tariff adjustments aligned with inflation and
robust organic growth. Fitch expects the total billed volumes to
increase at an average annual rate of 15% for 2025-2027.
Consolidated cash flow from operations (CFFO) should reach BRL4.4
billion in 2025 and BRL4.2 billion in 2026, resulting in an average
negative FCF of BRL3.9 billion over the period, reflecting average
annual investments of BRL6.0 billion and dividend payments of
around BRL4.1 billion.
Ratings Equalization: Fitch views Aegea's consolidated credit
profile as stronger than most of its subsidiaries' standalone
credit profiles (SCPs). For mature subsidiaries such as Prolagos
S.A. - Concessionaria de Servicos Publicos de Agua e Esgoto
(Prolagos) and Aguas Guariroba S.A. (Guariroba), SCPs are aligned
with Aegea's, justifying the same NLTR s. For Corsan and Águas de
Teresina Saneamento SPE S.A. (Teresina), NLTR s are equalized to
Aegea's, reflecting Fitch's assessment of strong legal incentives
for parent support, including guarantees covering over 50% of
Teresina's debt and a cross-default clause on Aegea's bonds that
contemplates Corsan.
Peer Analysis
Aegea's Local Currency IDR is positioned one notch below Companhia
de Saneamento Basico do Estado de Sao Paulo (Sabesp; BB+/Stable),
which has lower leverage and more predictable cash generation given
more matured stage of its operations. In contrast, Aegea has a more
diversified portfolio of concessions in terms of geography, which
reduces operational and regulatory risk.
Both Aegea and Sabesp have strong EBITDA margins. Sabesp, as the
country's largest water and wastewater utility, benefits from
economies of scale and has improved efficiency after its recent
privatization. Transmissora Alianca de Energia Eletrica S.A.
(BB+/Stable), a power transmission company, has a better credit
profile than Aegea due to its more predictable cash flow, strong
financial profile and lower regulatory risk.
Aegea's activity in Brazil is influenced by the country's operating
environment, which is subject to volatile macroeconomic conditions.
This mostly explains the difference in ratings compared to Wessex
Water Limited (WWL; BBB-/Negative), a holding company with water
operations in England that benefits from better operating
environment.
Key Assumptions
- Annual average total volume billed growth of 15% in 2025-2027;
- Tariff increases in line with Fitch's inflation estimates added
by already approved real tariff increase for certain subsidiaries;
- Average annual capex of BRL5.8 billion in 2025-2027;
- Average annual dividend distributions of BRL4.0 billion in
2025-2027;
- Annual dividends upstreamed from to Aegea of around BRL700
million in 2025 and BRL3.0 billion in 2026;
- No new acquisition.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Unexpected material additional cash contributions from the
holding company to subsidiaries;
- Deterioration of the liquidity profile on a consolidated and
standalone basis or weaker financial flexibility;
- Consolidated adjusted net debt-to-EBITDA ratio sustainably above
4.0x;
- Sustainable EBITDA interest coverage below 2.5x.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Consolidated adjusted net debt-to-EBITDA ratio sustainably below
3.0x and maintenance of adequate liquidity profile.
Liquidity and Debt Structure
Aegea benefits from demonstrated debt market access locally and
internationally, which provides support for significant planned
investments and necessary injections at subsidiaries and sustain
adequate liquidity profile. The feature is key for its financial
flexibility as company needs to continuously fund its negative FCF
generation and manage its debt refinancing needs.
By the end of March 2025, Aegea's total adjusted debt was BRL32.2
billion, on a consolidated basis. The debt mainly comprised of the
outstanding bonds (BRL7.5 billion, adjusted by hedged derivatives)
and debentures (BRL14.9 billion). Fitch considered 100% of the
Aegea group's BRL1.2 billion outstanding issued preferred shares as
debt, according to the agency's criteria. The group's liquidity
profile was strong, with cash and equivalents at BRL7.1 billion,
which strongly compares with BRL3.4 billion of short-term debt.
Issuer Profile
Aegea operates water/wastewater concessions across 865
municipalities in 15 Brazilian states through long-term contractual
agreements. The company is majority-owned by Equipav Group (52.8%),
with additional ownership held by GIC, Singaporean sovereign fund
(34.3%), and Itausa S.A. (12.9%).
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
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
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Aegea Saneamento e
Participacoes S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA(bra) Affirmed AA(bra)
senior unsecured Natl LT AA(bra) Affirmed AA(bra)
Aguas de Teresina
Saneamento SPE S.A. Natl LT AA(bra) Affirmed AA(bra)
senior unsecured Natl LT AA(bra) Affirmed AA(bra)
Companhia
Riograndense de
Saneamento Corsan Natl LT AA(bra) Affirmed AA(bra)
senior unsecured Natl LT AA(bra) Affirmed AA(bra)
Prolagos S.A. –
Concessionaria de
Servicos Publicos de
Agua e Esgoto Natl LT AA(bra) Affirmed AA(bra)
Aegea Finance
S.a r.l.
senior unsecured LT BB Affirmed BB
Aguas Guariroba S.A. Natl LT AA(bra) Affirmed AA(bra)
senior unsecured Natl LT AA(bra) Affirmed AA(bra)
COMPANHIA SIDERURGICA: Fitch Affirms 'BB' LT IDR, Outlook Now Neg.
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Fitch Ratings has affirmed Companhia Siderurgica Nacional's (CSN)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
and National Long-Term ratings at 'BB' and at 'AAA(bra)',
respectively. . Fitch has also affirmed CSN Inova Ventures' and CSN
Resources S.A.'s senior unsecured notes, which are guaranteed by
CSN, at 'BB', and CSN Mineracao S.A. National Long-Term ratings and
senior unsecured notes at 'AAA(bra)'. Fitch has in addition
affirmed Companhia Estadual de Geração de Energia Elétrica
(CEEE-G) National Long-Term ratings and senior unsecured at
'AA(bra)'. Fitch has revised the Rating Outlook to Negative from
Stable.
The Outlook revision reflects CSN's challenges to effectively
reduce debt aiming to reduce total leverage ratio to sustainably
below 4.5x, which would be more consistent with its 'BB' rating.
CSN's ratings reflect its diversified and large asset portfolio,
solid market position, competitive vertically integrated iron ore
operations, high leverage and strong liquidity. Fitch expects CSN
to temper growth and shareholder returns while it continues to
navigate a challenging environment in the domestic steel market in
Brazil.
Key Rating Drivers
Deleveraging Challenge: Without alternative measures to bring
equity, CSN's leverage profile will remain moderately high. The
company continues to seek financial partners for its energy and
infrastructure segments and depending on the final terms of the
transaction and if this will ultimately support total debt
reduction this could alleviate leverage. Fitch adjusts its leverage
ratio by adding received and paid dividends from non-controlling
interests (NCI) to EBITDA.
Fitch expects total and net leverage to decline to 5.3x and 3.3x in
2025 and 5.1x and 3.4x in 2026 from 6.0x and 3.5x in 2024, due to
slightly higher EBITDA and foreign exchange rates. On July 30,
2025, CSN sold around 38% of its shares in Usiminas for around
BRL263 million and this is included in debt calculation for 2025.
Capital Allocation to Drive FCF: Fitch expects CSN to reduce capex
and to prioritize streamlining and organic growth over
opportunistic acquisitions and shareholder returns in 2025.
Investments will rise again in 2026 and 2027. Fitch forecasts BRL11
billion EBITDA, BRL5 billion on capex and zero dividends beyond
mining operations leading to FCF to reach BRL0.9 billion in 2025,
with EBITDA rising to BRL11.4 billion in 2026 as steel, cement,
logistics, and energy improve.
Continued Operational Diversification: The company has a
diversified portfolio of assets with operations in mining, steel,
cement, logistics (railways and port operations), and energy. Fitch
forecasts that EBITDA contribution will break down in mining (51%),
steel (21%), cement (13%), logistics (13%) and energy (2%) between
2025 and 2027. This would split FCF generation drivers in about
half from foreign and domestic origins.
Challenging Steel Market: Despite domestic demand showing some
resilience, ineffective tariffs and quota schemes have failed to
effectively prevent price erosion. Steel imports, especially from
China, have risen sharply. Import penetration hit a record 23% in
1H25, up from 18.4% in 1H24. Against this backdrop, CSN's increased
cost control efforts, including scheduled blast furnace maintenance
shutdown in 1Q25, elevated EBITDA/t to USD76 in 2H24 vs USD47 in
1H24 and Fitch expects it to reach USD95 in 2025.
Cement Market Competition: Real estate dynamism, spurred by social
housing government programs and still solid labor market, has
supported domestic demand growth, with cement sales volume growing
3.5% during first half 2025. CSN has been taking a rational
approach seeking maintain margins over market-share, which are
leading to lower volumes. CSN is optimizing its logistic models and
differentiating product portfolio. Fitch expects competition
pressures to intensify later in 2025 lowering EBITDA/t to BRL84
from BRL107 in 2H24.
Large Mining Contribution: Volume growth, cost cutting and
economies of scale are expected to offset price headwinds from
decelerating Chinese iron ore consumption and stalling global
trade. After stabilizing production increases in 2025, Pires and B4
tailings recovery projects are expected to add 3.5 million tons
till the Itabirito P15 mine adds more than 16 million tons starting
in late 2027. CSN would surpass 50 million tons of production by
2028 with EBITDA/ton of more than USD20.
Solid Business Position: CSN's business position as a low-cost
integrated steelmaker remains solid, underpinned by captive access
to raw materials (iron ore/energy), a high value-added portfolio of
products and a significant share of the flat steel industry in
Brazil. Cost competitiveness is underscored by long mine lives,
growing energy assets and consolidated logistics operations
offering economies of scale and synergies to the group.
Consolidated Approach: Fitch applies its Parent and Subsidiary
Rating Linkage criteria to CSN Cimentos, CSN Mineracao, CEEE-G and
their parent, CSN. The parent is stronger than the subsidiary and
legal incentives for support are assessed as medium, as the
presence of cross acceleration clauses in CSN Cimentos and CSN
Mineracao, or the equity support agreement in case of CEEE-G
mitigate the absence of corporate guarantees from CSN.
Fitch deems strategic incentives for support as high, as the
integration into iron ore and energy bolsters CSN's steel business
cost advantage, and because Fitch expects the cement business
contribution to be critical for CSN's cash flow diversification
strategy. Synergies exist between the iron ore, steel and cement
businesses, and management and strategies are fully integrated,
with both companies closely sharing reputational risks.
Strategic incentives for support to CEEE-G are deemed as medium
because it backs the group's expansion and diversification despite
low direct EBITDA contribution. Operational incentives for support
to CEEE-G are considered medium because half of CSN energy
consumption would be generated by CEEE-G but synergies would be
about BRL300 million.
Peer Analysis
CSN's integrated business profile and diversified steel portfolio
are comparable to Usinas Siderurgicas de Minas Gerais S.A.
(Usiminas) (BB/Stable). Both companies are highly exposed to
Brazil's local steel market. However, both have weaker business
positions than Gerdau S.A. (BBB/Stable), which benefits from
international diversification, particularly in the U.S., and a
flexible mini-mill model that helps mitigate market cycles.
United States Steel Corporation (BBB-/Stable) and Cleveland-Cliffs
Inc. (BB-/Stable) are similar to CSN in EBITDA size and blast
furnace operations, but they have a broader geographic presence in
the U.S., additional electric arc furnace facilities, higher
output, and a more value-added product mix. CSN, however, maintains
more diversified business lines.
Among Brazilian steel producers, Gerdau has the strongest balance
sheet, the most manageable debt schedule, and consistently improves
its capital structure. In contrast, CSN's gross debt remains high
relative to peers, and its debt amortization schedule is more
challenging than those of U.S. Steel, Cleveland-Cliffs, Usiminas,
or Gerdau.
Key Assumptions
- Benchmark iron ore prices average USD90/ton in 2025, USD85/ton in
2026 and USD75/ton in 2027;
- Iron ore volumes fall in 2025 to 42.2 million tons, grow 4% in
2026 and 2% in 2027;
- Iron ore EBITDA/ton at USD23 in 2025, USD24 in 2026, and USD22 in
2027;
- Steel volumes grow 5% to 4.8 million tons in 2025 and stay flat
in 2026 and 2027;
- Steel EBITDA/ton at USD95 in 2025, USD83 in 2026, and USD83 in
2027;
- Cement volumes stay flat at 13.5 million tons in 2025 and grow 7%
in 2026 and 3% in 2027;
- Cement EBITDA/ton at BRL100 in 2025, BRL105 in 2026 and BRL110 in
2027;
- Capex reaches BRL5 billion in 2025, BRL6.5 billion in 2026 and
BRL7 billion in 2027;
- An exchange rate of BRL5.8/USD1.00 at YE 2025, BRL5.8 in 2026 and
BRL5.8 in 2027.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Sustained adjusted total debt/EBITDA and adjusted net debt/EBITDA
ratios consistently above 4.5x and 3.5x;
- Lack of progress on gross debt reduction;
- Large debt funded acquisitions;
- Increased pressure from main shareholders on dividend payments;
- Adverse regulatory changes in Brazil's mining industry;
A downgrade of the international rating could lead to a more than
one notch downgrade in the national scale rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Alternative measures to bring equity that would support a
meaningful gross debt reduction;
- Sustained adjusted total debt/EBITDA ratio below 3.5x and/or
adjusted net debt/EBITDA ratio below 2.5x;
- Improved debt amortization schedule with lower exposure to
refinancing risks withing 24 months horizon.
Liquidity and Debt Structure
CSN had BRL51.6 billion (USD9.4 billion) of Fitch adjusted total
debt as of June 30, 2025. Fitch's debt figure excludes unearned
revenue of client advances received for iron ore and electric
energy supply. Fitch excludes lease related debt from its
adjustments. Bonds represent 39% of the Fitch adjusted total debt
and local debentures amount to 23%, while banks account for 38% of
debt.
Readily available cash and marketable securities reached BRL18.3
billion (USD3.3 billion) as of June 30, 2025. After the sale of
Usiminas shares, CSN still holds approximately 72 million Usiminas
common shares and 28 million preferred shares not included in the
readily available cash measure, as per Fitch's criteria it excludes
equity holdings from marketable securities.
CSN regularly needs market access to refinance medium-term debt;
any liquidity squeeze could pressure ratings. CSN has an annual
average of BRL5.6 billion of debt due in 2025-2027. About 79% of
these maturities are comprised of bank debt. Its largest maturity
is expected in 2028 with BRL10.7 billion. Approximately, 66% of the
company's debt is denominated in U.S. dollars.
Issuer Profile
CSN is an integrated high value-added steelmaker with a large
market share in the Brazilian flat steels market and presence in
Germany, the U.S. and Portugal. CSN is the second largest iron ore
exporter of Brazil.
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
Companhia Siderurgica Nacional (CSN) has an ESG Relevance Score of
'4' for Governance Structure due to key person risk and limited
board independence through a single powerful shareholder, 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 Prior
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Companhia Estadual
de Geracao De Energia
Eletrica – Ceee-G Natl LT AA(bra) Affirmed AA(bra)
senior unsecured Natl LT AA(bra) Affirmed AA(bra)
Companhia Siderurgica
Nacional (CSN) LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AAA(bra) Affirmed AAA(bra)
senior unsecured Natl LT AAA(bra) Affirmed AAA(bra)
CSN Mineracao S.A. Natl LT AAA(bra) Affirmed AAA(bra)
senior unsecured Natl LT AAA(bra) Affirmed AAA(bra)
CSN Inova Ventures
senior unsecured LT BB Affirmed BB
CSN Resources S.A.
senior unsecured LT BB Affirmed BB
GOL LINHAS: Moody's Assigns 'B3' CFR, Outlook Stable
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Moody's Ratings has assigned a B3 corporate family rating to Gol
Linhas Aereas Inteligentes S.A. (Gol) in connection with its
post-bankruptcy exit financing. At the same time, Moody's assigned
a B3 rating to the $2.1 billion backed senior secured first lien
notes issued by Gol Finance (LuxCo) on June 6th 2025 and due in
2030. The outlook for both entities is stable.
RATINGS RATIONALE
Gol's B3 corporate family rating (CFR) reflects the company's
leadership position in the Brazilian market, supported by its
strong brand name and low cost structure based on a modern and
efficient operating fleet of Boeing 737 aircraft, along with an
experienced management team. The rating also takes into
consideration the faster-than-expected post-pandemic recovery in
passenger traffic in Brazil (Ba1 stable); and more rational
competition and capacity in the Brazilian market, which has enabled
carriers to charge higher airfares, mitigating the effect of higher
jet fuel prices and other inflationary cost pressures. Gol's
ability to reduce total debt and costs during the Chapter 11
process and its high cash balance upon bankruptcy exit are also
incorporated in the B3 rating.
The B3 rating is constrained by Gol's still strained credit metrics
and free cash flow generation, its exposure to foreign currency and
fuel price volatility, and to the overall volatility of the airline
industry in the context of rising macroeconomic risks. The
company's ability to reduce leverage and control cash burn in the
next few years will still be key aspects in Gol's rating
assessment.
As part of its reorganization plan, Gol has pursued structural
changes to its capital structure that will allow it to post a fast
recovery in credit metrics through 2027. The company reduced total
debt by $1.4 billion mainly through the conversion of debt into
equity, renegotiated lease agreements with lessors and is
implementing a cost reduction plan that could save up to BRL1
billion in costs through 2029. The company has also maintained a
stable fleet size since 2019, but plans to increase its fleet to
167 aircraft in 2029 from 140 in 2025 and is increasing the share
of Boeing MAX 8 aircraft on its fleet to rearrange its network
toward more profitable routes, such as international routes and
focusing on its hubs in São Paulo, Rio de Janeiro and Brasilia.
Gol's post-exit credit metrics will improve, with total gross
leverage (Moody's adjusted) declining to around 5.5x-6.0x in 2025
compared to high single digit prior to filing for bankruptcy in
2023 and the potential to improve further towards 3.0x-3.5x by
2027. The company's interest coverage (measured by FFO + Interest
Expense / Interest Expense) will also improve from between
0.7x-1.2x in 2025 to around 1.5x-2.0x in 2027, but the company's
interest expense will continue to be high due to the costly nature
of its exit financing. Upon bankruptcy emergence, Gol's total debt
will comprise (i) $2.1 billion of exit notes, (ii) $906 million in
second-lien take-back debt; and (iii) about $428 million in other
debt instruments. The company will also raise BRL2.0 billion
(around $350 million) through a new equity offering and BRL1.5
billion (around $280 million) of new funds from convertible notes.
The new notes are secured by intellectual properties, brand, routes
and slots, cargo business, and other assets. Leases and fleet debt
are secured by aircrafts. The remaining $7 million in local bank
debt are unsecured and subordinated to the secured debt. All rated
debt rank pari passu and there is no notching of debt instruments
relative to the corporate family rating.
LIQUIDITY
Gol will have, upon bankruptcy emergence, a high cash balance, but
still sizeable debt maturities and cash needs until 2027. The
company's estimated cash balance of around $876 million in the end
of 2025 will be sufficient to cover short term financial debt
maturities of $563 million. The company's annual debt amortizations
will amount to around BRL3.5 billion until 2029, with most of
upcoming maturities represented by the new exit financing, due in
2030. Moody's expects that the company's cash flow from operations
will gradually improve throughout 2027, and that RCF coverage of
net debt will return to pre pandemic levels after 2027. Moody's
also expects a negative free cash flow generation in 2025-26, but
positive free cash flow generation from 2027 onwards, reflecting
improved profitability and flexibility in maintenance capex and
costs.
ESG CONSIDERATIONS
Gol faces high environmental risk due to carbon transition. This
will primarily depend on evolving global decarbonization policies
and regulations which may increase operating costs for airlines.
Further, the desire to reduce carbon emissions may lead to reduced
travel, in particular for business purposes, much of which can
effectively be done virtually, as demonstrated during the pandemic.
Gol has been accelerating its fleet transformation plan with the
acquisition of additional Boeing 737 MAX 8 aircrafts. Gol also
faces high industry-wide social risks related to demographic and
societal policies moving to reduce carbon emissions.
Gol's governance risks relate to the recent bankruptcy process, the
existence of dual class of shares within the corporate structure
and concentrated ownership. Gol will continue to be a publicly-held
company after exiting Chapter 11, with shares traded in the São
Paulo stock exchange. About 80% of the company's preferred shares
are held by Abra Group Limited ("Abra" Caa1, stable), 19.97% are
owned by General Unsecured Creditors (GUCs) and the remaining 0.03%
are held by other shareholders. Abra, however, does not possess the
right to appoint members to the board of directors, which will
consist of 8 members; 4 of them independent. The company's
pre-existing governance practices and structure will remain
unchanged following the Chapter 11.
RATING OUTLOOK
The stable outlook reflects Moody's expectations that Gol's credit
metrics and liquidity will improve in the next 12-18 months,
remaining adequate for its rating category.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Gol's rating would require longer term visibility
over the industry's recovery or strengthened credit metrics that
provide cushion to credit quality under various stress scenarios.
Quantitatively an upgrade would require adjusted leverage (measured
by total debt / EBITDA) below 5.5x and interest coverage (measured
by (FFO + interest expense) / interest expense) above 3.5x, all on
a sustained basis. The maintenance of an adequate liquidity profile
would also be required for an upgrade.
The rating could be downgraded if credit metrics' recovery falls
behind Moody's expectations, with adjusted leverage remaining above
6.5x and interest coverage below 1x. A deterioration in the
company's liquidity profile or additional shocks to demand or
profitability that lead to cash burn could also result in a
downgrade of the rating.
COMPANY PROFILE
Based in Sao Paulo and founded in 2001, Gol is the largest low-cost
carrier in Latin America, offering around 800 daily flights
covering 65 domestic destinations in Brazil and 16 international
destinations serving South America, North America and the
Caribbean, along with cargo and charter flight services.
Additionally, Gol owns 100% of Smiles, a loyalty program company
with around 24 million participants that allows members to
accumulate miles and redeem tickets with more than 50 different
airlines around the world and also offers non-ticket reward
products and services. In the 12 months that ended in March 2025,
Gol reported consolidated net revenue of BRL20 billion (around $3.5
billion). Gol Finance (LuxCo) is a wholly owned subsidiary of Gol.
The principal methodology used in these ratings was Passenger
Airlines published in August 2024.
The net effect of any adjustments applied to rating factor scores
or scorecard outputs under the primary methodology(ies), if any,
was not material to the ratings addressed in this announcement.
LOCALIZA RENT: Moody's Affirms 'Ba1' CFR, Outlook Stable
--------------------------------------------------------
Moody's Ratings has affirmed Localiza Rent a Car S.A.
("Localiza")'s Ba1 corporate family rating. The outlook is stable.
RATINGS RATIONALE
Localiza's rating is supported by the company's stable operating
performance and cash flow generation, and its flexible business
model, which helps it to weather economic and car market slowdowns.
Localiza's leading market shares in both the car and fleet rental
segments in Brazil (Government of Brazil, Ba1 stable), and its
dominant scale support the rating. The company has historically
maintained robust profitability as a result of low fleet
maintenance requirements, high utilization rates, attractive
discounts from automobile manufacturers and expertise in the
used-car sales market. The rating also reflects the company's
adequate corporate governance practices and strong liquidity.
Conversely, Localiza's rating is constrained by the
capital-intensive nature of the car rental business, which leads to
relatively high gross Moody's-adjusted leverage, and its lack of a
significant international footprint, with most of its revenue
generated in Brazil. In 2025 Moody's expects Localiza to prioritize
fleet renewal over expansion, which will result in lower net
capital expenditures than in 2024 and support stronger cash flow
generation.
Localiza has excellent liquidity. As of March 2025, the company
reported BRL8.2 billion in cash and cash equivalents (cash and
short-term financial investments), BRL1.0 billion in long-term
liquid investments, and about BRL1.3 billion in debt maturing until
the end of 2025. Localiza's liquidity is benefitted by a fleet of
more than 627,000 vehicles, mostly unencumbered, with an estimated
market value of more than BRL52.0 billion. This asset is an
important alternative source of liquidity, especially during
economic downturns. The company's cash balance, alongside its
unencumbered fleet value, covers the totality of its
Moody's-adjusted debt of BRL44.1 billion.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded with the maintenance of strong credit
metrics on a sustained basis coupled with stronger geographic
diversification to other countries. Presently, an upward rating
movement would be subject to the relative position to the
Government of Brazil's ratings. Quantitatively, ratings could be
upgraded if EBIT margin remains above 20%, gross leverage remains
below 2.75x on a sustained basis, and retained cash flow to net
debt above 35%.
The rating could be downgraded if liquidity deteriorates, the car
rental utilization rate declines below 70%, and car market dynamics
deteriorate consistently leading to higher depreciation charges
with gross debt/EBITDA exceeding 3.5x and EBIT Margin remaining
below 15% without prospects of an improvement. A downward rating
movement could occur if Brazil's sovereign rating is downgraded.
Founded in 1973 and headquartered in Belo Horizonte, Minas Gerais,
Brazil, Localiza operates car rental and fleet rental businesses,
and has a used-car sales business that facilitates renewal its
fleet in Brazil. The company also franchises rental car operations
in Brazil and in five countries in South America. As of March 2025,
the company had a total fleet of 627,997 cars in Brazil and four
other countries. The company is the market leader in Brazil in
terms of car rental, with the largest number of car rental
locations and presence in all main Brazilian airports. In the 12
months that ended March 2025, the company reported net revenue of
BRL38.7 billion ($6.9 billion) and Moody's-adjusted EBITDA of
BRL13.7 billion.
The principal methodology used in these ratings was Equipment and
Transportation Rental published in December 2024.
The net effect of any adjustments applied to rating factor scores
or scorecard outputs under the primary methodology(ies), if any,
was not material to the ratings addressed in this announcement.
=============
J A M A I C A
=============
JAMAICA: BOJ Offering 30-day Certificate of Deposit
---------------------------------------------------
RJR News reports that the Bank of Jamaica (BOJ) is again moving to
mop off excess money from the system.
It says it will be offering a 30-day Certificate of Deposit paying
6% per annum as it tries to curb the slide in the value of the
Jamaican dollar, according to RJR News.
The central bank is aiming to withdraw $45 billion from
circulation. Of that amount, $42.75 billion will be made available
to the private sector while the public sector will be allocated
$2.25 billion, the report relays.
This latest offer brings the total value of outstanding CDs to $126
billion. The move is part of ongoing efforts to keep the exchange
rate below J$161 to US$1, the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea. Jamaica
is an upper-middle income country with an economy heavily dependent
on tourism. Other major sectors of the Jamaican economy include
agriculture, mining, manufacturing, petroleum refining, financial
and insurance services.
On Feb. 21, 2025, Fitch Ratings affirmed Jamaica's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB-', with a
positive rating outlook. In October 2023, Moody's upgraded the
Government of Jamaica's long-term issuer and senior unsecured
ratings to B1 from B2, and senior unsecured shelf rating to (P)B1
from (P)B2. The outlook has been changed to positive from stable.
In September 2024, S&P affirmed 'BB-/B' longterm foreign and local
currency sovereign credit ratings on Jamaica and revised outlook to
positive.
===========
M E X I C O
===========
NEMAK: S&P Affirms 'BB+' Long-Term ICR on Announced Acquisition
---------------------------------------------------------------
S&P Global Ratings affirmed its long-term global scale 'BB+' and
national scale 'mxAA-' issuer credit ratings on Mexico-based auto
supplier Nemak and the 'BB+' issue-level rating on Nemak's
sustainability-linked bonds due 2028 and 2031. The recovery rating
remains '3' (50%).
The negative outlook reflects the potential for a downgrade if
operating performance and cash flow leverage fail to improve to
levels consistent with the current rating, with free operating cash
flow (FOCF) to debt remaining below 10% and debt to EBITDA above
3.0x.
Nemak will fund its planned acquisition of GF Casting Solutions
with debt, raising its adjusted debt to EBITDA to 2.7x during 2025,
from the 2.3x previously expected by S&P Global Ratings.
Although S&P believes synergies from the acquisition will boost
Nemak's top-line growth, it forecasts that adjusted leverage and
cash generation will remain constrained, at least in the next 12-18
months.
The negative outlook now reflects that the company's credit metrics
will weaken at the close of the acquisition.
S&P said, "Pro forma for the transaction, we anticipate Nemak's
debt to EBITDA will be around 2.7x and FOCF to debt will be 9.5% in
2025. This represents a deviation from our previously expected 2.3x
and 10%, respectively.
"We expect the company will successfully integrate GF and will gain
synergies to maintain strong EBITDA margins. However, Nemak will
have to increase its capital expenditure (capex) to fully
consolidate the GF business, specifically to finish its U.S.
facility. We think this will lower the company's operating cash
flow generation during the next 12-18 months.
"The company will disburse $160 million at closing, financed
through a long-term facility. The remaining $176 million includes
assuming GF's operating and financial liabilities as well as vendor
facilities and some contingency-based holdbacks to be released over
five years, which we also consider debt.
"We think the acquisition will expand Nemak's footprint in Asia and
Europe and in the electric vehicle (EV/SC) segment (e-mobility,
structure and chassis). The acquisition aligns with the company's
strategy to diversify its portfolio. EVs will now contribute about
20% of total company revenue, compared with 10% in 2024. The
acquisition will also diversify Nemak's customer base, with China
representing about 10%. Finally, we believe it will enhance Nemak's
technological capabilities, because GF is a leader in lightweight
casted components and the design and manufacturing of
high-complexity structural components. We expect the GF business
will represent around 15% of Nemak's total sales in 2026.
"The company's financial performance was solid during the first
half of the year, in our view. Nemak's revenue increased 0.6%
relative to the first half of 2024, reaching $4.9 billion, above
our expectation for the year of $4.8 billion." The higher revenue
mainly owed to the carryover effect of product repricing,
commercial negotiations, improved product mix, and the appreciation
of the euro. These factors offset a 4.1% decline in volumes
(primarily in Europe due to trade tensions).
Additionally, EBITDA margins remained solid at 13.8% during the 12
months through June 30, 2025. EBITDA per equivalent unit increased
to $18.5, reflecting an improved product mix and pricing, as well
as disciplined cost management and the company's strong position
with its customers. As a result, the company's key metrics improved
significantly, with debt to EBITDA at 2.4x, compared with 3.0x a
year prior, and FOCF to debt at 15.4%, compared with -9.5% a year
ago.
The negative outlook reflects the potential for a downgrade if
operating performance and cash flow leverage fail to improve to
levels consistent with the current rating, with FOCF to debt
remaining below 10% and debt to EBITDA above 3.0x.
S&P could lower the ratings on Nemak during the next 12-18 months
if:
-- Unsuccessful consolidation of the new business leads to weaker
credit metrics, with debt to EBITDA close to 3x and FOCF generation
below 10% on a consistent basis; or
-- EBITDA margins fall below our expectations toward 9%, reaching
below-average levels according to our industry thresholds.
S&P could revise the outlook to stable if Nemak achieves expected
growth and synergies, bringing debt to EBITDA below 2x and FOCF to
debt above 10% on a consistent basis. This could happen if the
company:
-- Successfully integrates GF,
-- Continues to increase cash flow generation,
-- Reduces its cost structure to maintain EBITDA margins at 13%,
and
-- Maintains strong liquidity.
TRQ SALES: Fitch Assigns 'BB-' IDR, Outlook Stable
--------------------------------------------------
Fitch Ratings has assigned TRQ Sales, LLC (TRQ) an Issuer Default
Rating (IDR) of 'BB-'. Fitch has also rated its revolver and term
loan at 'BB-' with a Recovery Rating of 'RR4'. The rating is
supported by the company's beneficial strategic partnership with
Hyatt, modest leverage, steady cash flow generation, and appealing
upscale all-inclusive model.
Despite industry cyclicality and economic uncertainty, TRQ diverse
geographical footprint mitigates common industry risks tied to
individual markets such as hurricanes or geopolitical events. Key
risks include the issuer's small scale, lack of a stated financial
policy, new management, and acquisitive approach in a fragmented
sector. The 'BB-'/'RR4' secured debt rating reflects the collateral
package consisting of equity pledges and mortgages on foreign
assets and is capped to reflect a less predictable range of
recovery outcomes for assets in certain jurisdictions.
Key Rating Drivers
Hyatt Strategic Partnership: Hyatt's strategic partnership with TRQ
will strengthen the asset portfolio through an outsized footprint
within Hyatt, which will result in a closer relationship with the
owner. Under a new Hotel Management Agreement (HMA), all non-Hyatt
branded assets in the acquisition portfolio will be converted to
Hyatt brands. Hyatt's team will manage these assets exclusively for
TRQ. This strategic alignment is anticipated to deliver material,
immediate cost savings compared to Playa's previous internal
management practices.
TRQ, which will own approximately 20% of Hyatt's managed
all-inclusive resorts in the Americas, is positioned to capitalize
on higher margins and pricing in the U.S. and Mexican markets. The
partnership is bolstered by a commitment to reinvest in its
properties, enhancing the long-term competitiveness of the resorts.
Moreover, the collaboration leverages Hyatt's tour operators and
vacation clubs, contributing significantly to TRQ's revenue
streams.
Near-Term Deleveraging: Fitch expects the issuer's REIT Leverage to
decline from 5.4x at YE 2025 to 4.3x in 2026. The sharp decrease in
leverage is mostly driven by the normalization of operations at its
Puerto Vallarta and Los Cabos properties that were recently
renovated, and Hyatt Zilara Cancun, which is undergoing
renovations. Additionally, Fitch expects immediate savings from
lower management fees owed to Hyatt compared to the internal
management fees and franchise fees owed to third parties prior to
the transaction.
The issuer has no financial leverage target and Fitch expects the
issuer to remain opportunistic in pursuing M&A that complements its
asset portfolio given its unique focus on the fragmented
all-inclusive space. However, Fitch expects the issuer to manage
its balance sheet, with EBITDA net leverage below 4.5x throughout
the forecast with temporary increases in leverage tied to accretive
M&A opportunities.
Consistent Cash Generation: TRQ is expected to have consistent FCF
generation, supported by its expected EBITDA/interest coverage of
over 2.5x and increasing towards 3.0x throughout the forecast. FCF
margins are expected to be in the mid- to high-single digits
throughout the forecast. Fitch expects minimal dividend leakage as
discretionary cash flows will be reinvested into its properties or
used with debt to pursue new investment opportunities. This
accretive use of cash is viewed positively compared to
shareholder-friendly actions.
Attractive Upscale All-Inclusive Model: Relative to other lodging
types, the all-inclusive model benefits from a six-month booking
window, upfront payments upon booking, and all-inclusive pricing
that covers food, beverage and lodging. This results in high demand
predictability relative to other lodging names with shorter booking
windows and higher exposure to onsite spend. All-inclusive assets
also benefit from lower labor costs. TRQ's upscale price point
insulates it from macroeconomic cycles, These cycles affect
lower-end chains more, where consumer softness is reflected earlier
and is more pronounced.
Diverse Geographical Footprint: While TRQ only holds all-inclusive
assets, its portfolio spans across the Yucatan Peninsula, Mexico
(36% of 2024 EBITDA); the Pacific Coast, Mexico (15%); Jamaica
(16%); and the Dominican Republic (33%). This diversification
mitigates industry risks, such as hurricanes, travel advisories,
geopolitical events, and bad publicity. In some cases, weakness in
one market results in tailwinds for another, as consumers often
switch destinations rather than cancel plans entirely. TRQ also
benefits from its source markets, with 59% of guests coming from
the U.S. and the rest spread internationally.
Industry Cyclicality Drives Earnings Volatility: The cyclical
nature of the hotel industry is a primary credit concern related to
TRQ. Hotels re-price their inventory daily and, therefore, have the
shortest lease terms and least stable cash flows of any commercial
property type. Economic cycles, as well as exogenous events, have
historically caused material declines in revenues and profitability
for hotels.
Uncertain Economic Outlook: Uncertainty around U.S. trade policy is
expected to directly affect consumers globally by raising the
prices of imported goods. Targeted imports represent a notable
portion of U.S. consumption, potentially driving up consumer prices
unless retailers absorb the costs through reduced margins. For TRQ,
the broader economic impact of higher import costs could lead to
reduced spending by consumers.
Peer Analysis
TRQ, rated 'BB-', is uniquely positioned in the hospitality sector,
where its smaller geographical footprint, narrowly focused asset
type, and smaller scale support Fitch's tighter leverage band at
the 'BB-' level compared to its peers. In contrast, Ryman
Hospitality Properties, also rated 'BB-', benefits from a more
geographically diversified portfolio and higher revenues despite
having fewer properties. Ryman generates 60% of its EBITDA from its
top three assets, while TRQ generates 40% from its top three
assets, demonstrating a higher degree of concentration risk at
Ryman at an asset level. However, TRQ has greater exposure to
individual markets, with 36% exposure to the Yucatan Peninsula and
33% to the Dominican Republic, both of which, in Fitch's view, face
greater geopolitical and weather-related risks, such as hurricanes
and travel warnings.
Both TRQ and Ryman have significant exposure to single
brands—Hyatt and Marriott, respectively. This benefit exposure
resulting in increased traffic, less expensive procurement, and
repeat business. Ryman's significant exposure to group bookings
provides it with a longer booking window compared to TRQ, which
benefits them from a revenue predictability perspective. However,
group bookings introduce more cyclical risk to Ryman. TRQ has more
upscale leisure exposure, which is more insulated from
macroeconomic fluctuations. TRQ also benefits from its
all-inclusive model, which is a higher-margin business with more
predictable economics than the typical European plan model.
Host Hotels & Resorts (BBB/Stable) has a scaled diversified
portfolio, proven capital access, and more conservative financial
policy, with Fitch's leverage sensitivities between 2.5x and 3.0x.
Host's prudent capital management and strategic growth initiatives
underpin its Stable Outlook.
Key Assumptions
- Revenue per available room (RevPAR) decreases in 1% 2025, but
grows 11% in 2026. Majority of growth in 2026 from completed or
recently completed renovations at Hyatt Zilara Cancun, Hyatt Ziva
Puerto Vallarta, and Hyatt Ziva Los Cabos and a rebound in travel
to Jamaica following a revision of the travel advisory from a level
3 to a level 2. Thereafter, Fitch assumes RevPAR grows at 2%-3% per
annum.
- Revenue in line with RevPAR as total keys remain the same
throughout the forecast.
- EBITDA margins improve from 29% in 2025 to 31% in 2026 and remain
flat thereafter. Margin improvement driven by growth in revenue.
- Interest rate assumptions in line with market forward rates.
- Capex initially at 13% in 2025, declining to 11% in 2026 and 8%
thereafter. Fitch assumes about 4% maintenance capex and assumes an
additional $40 million in growth capex per annum in the outer years
for unannounced projects.
- FCF margin increases from 3% in 2025 steadily to 9% in 2027,
driven by EBITDA growth, decreased interest expense, and decreased
capital intensity, offset by rising cash tax paid.
- REIT leverage declines from 5.4x in 2025 to 4.3x in 2026. Fitch
forecasts steady deleveraging thereafter but notes the potential
for unannounced strategic acquisitions that could moderate REIT
Leverage above 4.0x.
- REIT Fixed Charge Coverage increases from 2.5x in 2025 to 3.0x in
2027.
Recovery Analysis
Fitch applies the generic approach for issuers in the 'BB' rating
category and equalizes the IDR and unsecured debt instrument
ratings when average recovery prospects are present, per its
"Corporates Recovery Ratings and Instrument Ratings Criteria", as
issuers rated 'BB-' and above are too far from default for a
credible default scenario analysis to be generated, and would
likely generate Recovery Ratings (RR) that are too high across all
instruments.
Where an RR is assigned, the generic approach reflects the relative
instrument rankings and their recoveries, as well as the higher
enterprise valuation of 'BB' ratings in a generic sense for the
most senior instruments.
TRQ is a borrower incorporated in the U.S., which owns the equity
of subsidiaries located outside of the U.S. According to the
Country-Specific Treatment of Recovery Ratings Criteria, an
issuer-specific cap will be derived based on the weighted average
of the caps of the countries where the economic value of that
issuer's business could be realized. Fitch's criteria assign
countries into four groups. Mexico, Jamaica and the Dominican
Republic are assigned to Group D, which caps the Recovery Rating at
'RR4'.
Considering the IDR of 'BB-', the Category 2 first lien senior
secured debt is notched at IDR at 'BB-'/'RR4'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- REIT leverage sustained above 4.5x;
- REIT fixed charge coverage sustained below 2.50x;
- FCF margins consistently below 5% and approaching neutral
levels;
- Evidence of a deteriorating relationship with Hyatt, leading to
uncertainty around asset level profitability.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Fitch's expectation that REIT leverage will remain below 4.0x,
supported by a leverage target or stated financial policy;
- REIT fixed charge coverage sustained above 3.00x;
- Demonstrated success under new management, evidenced by increased
profitability at Hyatt managed properties;
- Demonstrated success integrating new assets and divesting
non-core assets without material disruptions to either leverage or
profitability.
Liquidity and Debt Structure
Pro forma for the transaction, Fitch expects the issuer to have $75
million in cash and $75 million available on its RCF. The issuer is
expected to generate FCF margins after growth capex in the mid to
high single digits, which is more than sufficient to cover its debt
service costs. TRQ's $1.4 billion term loan is expected to have
modest amortization of $14 million per annum with the remaining
maturity due in 2032.
Issuer Profile
TRQ Sales, LLC owns a portfolio of all-inclusive resorts in Mexico,
Jamaica, and the Dominican Republic. The portfolio includes 15
resorts with 5,793 keys and generated $872 million in revenue as of
March 2025.
Date of Relevant Committee
29-Jul-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
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
----------- ------ --------
TRQ Sales LLC LT IDR BB- New Rating
senior secured LT BB- New Rating RR4
=====================
P U E R T O R I C O
=====================
ADVANCE AUTO: Moody's Lowers CFR to Ba3, Outlook Negative
---------------------------------------------------------
Moody's Ratings downgraded Advance Auto Parts, Inc.'s (Advance
Auto) corporate family rating to Ba3 from Ba1 and probability of
default rating to Ba3-PD from Ba1-PD. At the same time, Moody's
downgraded the company's backed senior unsecured notes and senior
unsecured notes ratings to Ba3 from Ba1 and assigned a Ba3 rating
to the company's new proposed senior unsecured notes. The company's
speculative grade liquidity rating (SGL) remains unchanged at SGL 2
and the outlook remains negative.
The downgrade reflects governance considerations including Advance
Auto's increased debt level following its planned new notes
issuance which will result in higher than expected leverage and
weaker than expected interest coverage for fiscal 2025 and 2026. It
also reflects that leverage is increasing while the company is
focusing on its turnaround amidst a complex and uncertain macro
environment. Moody's now expect debt/EBITDA to be about 6.1x at the
end of fiscal 2025 compared to Moody's previous expectation of 4.5x
and Moody's estimates that the company will not have Ba credit
metrics until 2027. Prior to the proposed new senior unsecured
notes issuance, Moody's expected Ba credit metrics to be achieved
in 2026. The company already has weak credit metrics as of the LTM
period ending April 19, 2025 with lease-adjusted debt/EBITDA of
8.6x and EBITA/interest of -1.4x due primarily to restructuring
costs that were incurred during Q4 2024 and Q1 2025. However,
Moody's recognizes the that the proceeds from the unsecured notes
issuance will boost the company's cash balances allowing it the
flexibility to potentially reduce its reliance on supply chain
finance. As of April 19, 2025, Advance Auto had $3.2 billion
outstanding under its supply chain finance program.
RATINGS RATIONALE
Advance Auto's Ba3 CFR is supported by the company's good liquidity
and a financial policy that includes maintaining its significantly
reduced dividend, a cessation of share repurchases and high balance
sheet cash. The company plans to issue $1.5 billion in new senior
unsecured notes to support the potential gradual reduction in its
supply chain finance program. The proceeds will also be used to
repay the $300 million senior unsecured notes due March 2026 with
the remainder to boost balance sheet cash. The company had $1.7
billion of cash on the balance sheet at the end of Q1 2025 and
Moody's expects this to increase to about $3 billion at the end of
fiscal 2025 as a result of the new notes issuance. A reduction in
supply chain finance would result in a material increase working
capital usage resulting in negative free cash flow in 2025 and
2026, but higher cash balances would more than offset this
reduction.
The rating also reflects Moody's expectations that credit metrics
will improve in 2026 as the company puts the restructuring costs
behind them and demonstrates growth in GAAP earnings. Moody's
expects debt/EBITDA and EBITA/interest to improve to 4.7x and 1.8x
respectively in 2026.
Advance Auto's Ba3 CFR is also supported by its sizeable market
position in the expanding US commercial auto parts segment as well
as the auto parts sector's favorable industry fundamentals,
including increasing total vehicle miles driven in the US, growth
in total number of registered vehicles and the increasing age of
vehicles, which is now over 12.8 years. Given the increasing
complexity of vehicles on the road and the increasing severity of
maintenance that comes with an aging fleet, commercial auto parts
demand is expected to outpace do-it-yourself retail auto parts
demand.
The negative outlook reflects uncertainty around Advance Auto's
ability to quickly turn around its GAAP operating earnings over the
next 12-18 months. Sales to the DIY consumer have been sluggish and
down in the low single digits range in Q1 2025. DIY comparable
store sales performance reflect not only the difficult consumer
spending environment but also competitor encroachment in Moody's
views. Risk of continued weakness beyond Moody's expectations
primarily as a result of tariff-related uncertainty is also
reflected in the negative outlook.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook and the current weakness in credit
metrics, an upgrade is currently not likely. Over time, the
ratings
could be upgraded if the company's restructuring plan results in a
sustained improvement in operating performance including organic
revenue and operating income growth with significant margin
expansion. An upgrade will also require maintaining conservative
financial policies including very good liquidity and lower debt and
leverage levels. Quantitatively, the ratings could be upgraded if
lease-adjusted debt/EBITDA is sustained below 4.5x and if
EBITA/interest is sustained above 3.5x. The negative outlook could
be returned to stable over the next 12-18 months should the company
demonstrate operating performance improvement with meaningful
improvement in credit metrics.
The ratings could be downgraded if the company's restructuring plan
does not demonstrate sequential quarterly improvement including
organic revenue and operating income growth along with margin
expansion and if leverage remains elevated or interest coverage
remains weak. Quantitatively, the ratings could be downgraded if
lease-adjusted debt/EBITDA remains above 5.5x or if EBITA/interest
remains below 2.5x. A downgrade could also occur if liquidity were
to decline beyond what is expected to fund potential supply chain
finance reductions over 2025 and 2026.
Headquartered in Raleigh, North Carolina, Advance Auto Parts, Inc.
is an automotive aftermarket retailer in North America. As of April
19, 2025, Advance Auto operated 4,285 stores primarily within the
US, with additional locations in Canada, Puerto Rico and the US
Virgin Islands. The company also served 881 independently-owned
Carquest branded stores across these geographies in addition to
Mexico and various Caribbean islands. Revenue pro-forma for the
Worldpac asset sale and store closures/exits is about $8.5
billion.
The principal methodology used in these ratings was Retail and
Apparel published in November 2023.
The net effect of any adjustments applied to rating factor scores
or scorecard outputs under the primary methodology(ies), if any,
was not material to the ratings addressed in this announcement.
PUERTO RICO: White House Fires Five Oversight Board Members
-----------------------------------------------------------
Jim Wyss, Skylar Woodhouse, and Michelle Kaske of Bloomberg News
report that the White House has dismissed five of the seven
members of the federal board overseeing Puerto Rico's finances,
a move that inserts the administration directly into the
island's critical debt restructuring and contract negotiations.
According to emails reviewed by Bloomberg, Board Chair Arthur
Gonzalez, along with Cameron McKenzie, Betty Rosa, Juan Sabater,
and Luis Ubitas, were informed of their removal August 1, 2025.
Andrew Biggs and John Nixon remain on the Financial Oversight
and Management Board. The firings were first reported by
Breitbart.
"As far as the Oversight Board knows, we have seven active board
members and we have not heard otherwise," a spokesperson for the
board said August 5, 2025.
While the board has saved Puerto Rican taxpayers an estimated $55
billion over 40 years in reduced creditor payments, it has
recently faced political backlash. Far-right activist Laura
Loomer, an ally of President Donald Trump, criticized the board's
spending and called for sweeping changes.
"This is a colossal failure all around," Loomer posted on
X. "Every single one of these lawyers and consultants needs to be
fired, and a new Board needs to be installed to clean up this
mess." She pointed to the estimated $2 billion the board has spent
on bankruptcy lawyers and advisers over the past decade and claimed
Trump has the authority to replace the board entirely. Internal
emails cited by Bloomberg indicate that concerns over salaries and
prolonged bankruptcy proceedings played a role in the firings.
Matt Fabian, a partner at Municipal Market Analytics, noted the
firings were in line with broader efforts by Trump to overhaul
government boards and organizations. "It should not have been a
surprise that this could happen," he said.
The oversight board, established by Congress in 2016 under the
Obama administration, is locked in a years-long effort to reduce
the Puerto Rico Electric Power Authority's (PREPA) debt from $10
billion to $2.6 billion, amid opposition from bondholders who argue
the utility can afford to pay more. The board has also delayed a
multibillion-dollar liquefied natural gas deal between Puerto
Rico's government and New Fortress Energy.
Shares of New Fortress Energy, led by billionaire Wes Edens, jumped
as much as 17% before settling with a 7.9% gain as of 12:41 p.m.
Puerto Rico continues to struggle with some of the highest energy
costs and least reliable service in the U.S., and the ongoing PREPA
restructuring is seen as essential to the island's economic
stability.
Despite resistance from certain bondholders, the board has enforced
fiscal discipline by aligning spending with revenue, a sharp
contrast to the years preceding Puerto Rico's historic bankruptcy.
In 2022, after local lawmakers refused to authorize payments to
general obligation bondholders, the board intervened and
distributed nearly $11 billion to complete that portion of the debt
restructuring.
PREPA's bankruptcy was filed in 2017 but has been repeatedly
delayed due to broader debt issues, natural disasters like
Hurricane Maria, the COVID-19 pandemic, and political turnover that
unraveled previous restructuring agreements.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States. The chief of state is the President of the
United States of America. The head of government is an elected
Governor. There are two legislative chambers: the House of
Representatives, 51 seats, and the Senate, 27 seats. The
governor-elect is Ricardo Antonio Rossello Nevares, the son of
former governor Pedro Rossello.
In 2016, the U.S. Congress passed PROMESA, which, among other
things, created the Financial Oversight and Management Board and
imposed an automatic stay on creditor lawsuits against the
government, which expired May 1, 2017.
The members of the oversight board are: (i) Andrew G. Biggs, (ii)
Jose B. Carrion III, (iii) Carlos M. Garcia, (iv) Arthur J.
Gonzalez, (v) Jose R. Gonzalez, (vi) Ana. J. Matosantos, and (vii)
David A. Skeel Jr.
On May 3, 2017, the Commonwealth of Puerto Rico filed a petition
for relief under Title III of the Puerto Rico Oversight,
Management, and Economic Stability Act (PROMESA). The case is
pending in the United States District Court for the District of
Puerto Rico under case number 17-cv-01578. A copy of Puerto Rico
PROMESA petition is available at
http://bankrupt.com/misc/1701578-00001.pdf
On May 5, 2017, the Puerto Rico Sales Tax Financing Corporation
(COFINA) commenced a case under Title III of PROMESA (D.P.R. Case
No. 17-01599). Joint administration has been sought for the Title
III cases.
On May 21, 2017, two more agencies‚
Employees
Retirement System of the Government of the Commonwealth of Puerto
Rico and Puerto Rico Highways and Transportation Authority (Case
Nos. 17-01685 and 17-01686) commenced Title III cases.
U.S. Chief Justice John Roberts named U.S. District Judge Laura
Taylor Swain to preside over the Title III cases.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose LLP; and Hermann D. Bauer, Esq.,
at O'Neill & Borges LLC are onboard as attorneys.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains the case Web site
https://cases.primeclerk.com/puertorico
Jones Day is serving as counsel to certain ERS bondholders.
Paul Weiss is counsel to the Ad Hoc Group of Puerto Rico General
Obligation Bondholders.
SILVER AIRWAYS: Gets Court OK to Convert Chapter 11 to Chapter 7
----------------------------------------------------------------
Angelica Serrano-Roman of Bloomberg Law reports that a bankruptcy
judge has authorized the conversion of Silver Airways LLC's case
from Chapter 11 to Chapter 7 liquidation, following the airline's
shutdown last June 2025.
In a court filing, Judge Peter D. Russin of the U.S. Bankruptcy
Court for the Southern District of Florida approved Chapter 11
trustee Soneet Kapila's request, finding "good cause" for the
move.
Silver Airways filed for Chapter 11 in December 2024 and completed
the sale of its assets in June 2025. The airline announced it
ceased operations on June 11 after its restructuring efforts in
bankruptcy proved unsuccessful.
About Silver Airways
Silver Airways, LLC is a regional U.S. airline operating flights
between gateways in Florida, the Southeast and The Bahamas. The
Silver Airways fleet is comprised of modern, state of the art
aircraft with reliable, fuel-efficient turbo-prop engines.
In the summer of 2018, Silver completed the acquisition of Seaborne
Airlines, a San Juan, Puerto Rico-based air carrier serving
destinations throughout Puerto Rico, the U.S. Virgin Islands, and
other countries in the Caribbean. Seaborne provides connections
throughout the Caribbean via the carrier's hub in San Juan, while
also serving as the most critical link between St. Croix and St.
Thomas with the carrier's seaplane operation.
Silver Airways and Seaborne Virgin Islands, Inc. filed Chapter 11
petitions (Bankr. S.D. Fla. Lead Case No. 24-23623) on Dec. 30,
2024. At the time of the filing, Silver Airways reported $100
million to $500 million in assets and liabilities while Seaborne
reported $1 million to $10 million in assets and liabilities.
Judge Peter D. Russin oversees the cases.
Brian P. Hall, Esq., is the Debtors' legal counsel.
Brigade Agency Services, LLC, as lender, is represented by Frank P.
Terzo, Esq., at Nelson Mullins Riley & Scarborough, LLP.
Argent Funding LLC and Volant SVI Funding LLC, as lenders, are
represented by Regina Stango Kelbon, Esq. at Blank Rome, LLP.
Lawyers at Tucker Arensberg, P.C. represent Argentum Acquisition
Co., LLC, emerged as the winning bidder for the airline's assets
with an offer of $5,755,000 in cash plus additional amounts and the
assumption of certain liabilities.
*********
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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