/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/060228.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Tuesday, February 28, 2006, Vol. 7, Issue 42 Headlines A R G E N T I N A AEROLINEAS ARGENTINAS: Government Does not Contest Balance Sheet AGROPECUARIA TORNQUIST: Creditors Required to Submit Claims BUENOS AIRES BROADCAST: Asks Court for Reorganization EDENOR: Issuing US$282 Million Obligaciones Negociables EL PRACTICO S.A.: Trustee Sets Date for Claims Verification End FRANCOL S.R.L.: Trustee Stops Accepting Claims on April 4 REPSOL YPF: 2005 Net Income Up 29.2% SANTA FE: Validation of Claims from Creditors Begins SELECTO S.A.: Claims Verification Begins, Ending April 4 SYM SISTEMAS: Trustee Stops Accepting Claims on June 2 TANALCO S.R.L.: Trustee Stops Validating Claims on April 10 TELEMONITOREO INTERNACIONAL: Claims Verification Ends on Apr.26 TESORO MARINO: Debt Payments Halted, Set To Reorganize * ARGENTINA: Poll Shows High Percentage Against Pulp Mills B E R M U D A PXRE GROUP: Deferred Tax Writedown Cues S&P to Cut Rating to BB- PXRE REINSURANCE: A.M. Best Lowers ICR Ratings to B+ from B++ SEA CONTAINERS: Senior Vice-President David Benson Departs SEA CONTAINERS: S&P Slices Corp. Credit Rating from BB- to B+ B R A Z I L BANCO BRADESCO: Plans April 3 Capital Interest Payment BRASKEM S.A.: Amends Borealis Brasil's Shareholders Agreement COPEL: Reaches Thermoelectric Plant Agreement with Petrobras PETROLEO BRASILEIRO: Inks Thermoelectric Plant Pact with Copel MRS LOGISTICA: Realizes R$410.3 Million Profit in 2005 PETROLEO BRASILEIRO: Inks Thermoelectric Plant Pact with Copel PETROLEO BRASILEIRO: Studies 7 New Ventures with Bolivian Gov't PETROLEO IPIRANGA: Moody's Ups US$134MM Sr. Notes' Rating to Ba3 * Brazil and Mexico Launched Debt Buyback Programs C A Y M A N I S L A N D S BLUERIDGE FINANCE: Sets Mar. 9 Deadline for Claims Submission KAMNA LTD: Creditors Must Submit Claims to Liquidators by Mar. 9 PETERMAN PROPERTIES: Creditors Have Until Mar. 6 to File Claims YOKOHAMA FINANCE: Creditors Must File Claims by March 9 E C U A D O R * ECUADOR: Lifts State-of-Emergency in Napo Province * ECUADOR: Remains Potential Loser with D Risk Rating J A M A I C A * JAMAICA: Agricultural Society Pres. Calls for Farm Development M E X I C O AXTEL: Raises US$319 Million Through Public Stock Offering VITRO: Announces Organizational Changes * Mexico and Brazil Launch Debt Buyback Programs P E R U * PERU: Remains Potential Loser with C Risk Rating P U E R T O R I C O MUSICLAND HOLDING: Asset Sale Objection Must Be Filed on Mar. 17 U R U G U A Y BANCO CITIBANK: S&P Puts B Rating on Counterparty Credit * URUGUAY: Poll Shows Most Argentinians Against Pulp Mills V E N E Z U E L A PDVSA: Acquires 46% Stake in Argentine Fuel Distributor PDVSA: Venezuela Delays Giving Oil Pact Details - - - - - - - - ================= A R G E N T I N A ================= AEROLINEAS ARGENTINAS: Government Does not Contest Balance Sheet ---------------------------------------------------------------- Aerolineas Argentinas announced that the Argentine government does not contest the company's 2004 balance sheet. The government, as minority partner of the company and holder of 1.2% of the capital, dismisses to contest the 2002, 2003 and 2004 balance sheets pertaining to Aerolineas Argentinas. Meanwhile, crude actions are attempted aiming at confusing the public opinion in some argentine media, which spoke about the contest of the accounts by the government attorneys. The company stated that such news seems to be a filtration of precursors that neatly harass the current administrators of the company, aiming at creating confusion and doubt about the management conducted in Aerolineas Argentinas. The company revealed that it has proof that the forerunners are the same individuals. The company named Mr. Ricardo Muinos, former counselor of the removed Bankruptcy Trustees of Aerolineas, and Julio Semeria, current director of the company Air Madrid, among others who filed a complaint against the company directors with Court 35 of Madrid to create a climate of doubt about the honesty of the persons in charge of the airline. What is surprising about this is to prove how the government legitimacy is usurped, with the clear intention of cheating and manipulating the media as well as the public opinion, the company said, adding that it will adopt legal measures against the perpetrators, so that judges analyze and decide upon this express extortion to which the current directors of the company are subject. The Marsans group has been working since October 2001 in the airline with the intention of consolidating and creating a solid company with a future projection, while it has assumed and complied with all commitments acquired as from the privatization thereof. Last Thursday a document for the contest of the balance sheets of the company was filed with the court in which the payment suspension of Aerolineas Argentinas is pending. In said document signed by two attorneys, one of whom died two days after the filing thereof -- it was understood they were acting on behalf of the Argentine Government. However, the government authorities informed the individuals in charge of the company that none of them was representing any government judicial department. This operation is carried out when the persons responsible of such action are aware that the government does not want in any manner whatsoever to contest the 2004 balance sheet. Aerolineas has no doubt judges will be decisive about this matter. Aerolineas commands 80% of the domestic market. It has been renting airplanes from other companies because the absent mechanics have made it difficult to carry on operations using its own craft. The company had to shut down a maintenance center in Bahia Blanca. * * * As reported by Troubled Company Reporter on June 15, 2000, Aerolineas Argentinas needed a $650 million capital injection and sweeping cost cuts to save it from bankruptcy. Aerolineas' biggest shareholder covered a bulk of its losses, which Spanish sources put at $300 million in 2000. * * * Aerolineas Argentinas defaulted on a US$50 million bonds due on December 23, 2003. AGROPECUARIA TORNQUIST: Creditors Required to Submit Claims ----------------------------------------------------------- Creditors against Agropecuaria Tornquist S.R.L. are required to submit proofs of claim by April 21, 2006. Infobae relates that the claims will undergo a verification phase. Claims that are verified will then be submitted in court as individual reports on June 6, 2006. A general report, which will contain the company's audited business records as well as a summary of events pertaining to the liquidation, will be presented in court on Aug. 3, 2006. Agropecuaria Tornquist S.R.L. was declared bankrupt by a Buenos Aires court. Mr. Julio Cesar Couselo was appointed as trustee. Agropecuaria Tornquist S.R.L. can be reached at: San Martin 102 Tornquist Buenos Aires Mr. Julio Cesar Couselo, the trustee, can be reached at: Berutti 623 Bahia Blanca Buenos Aires BUENOS AIRES BROADCAST: Asks Court for Reorganization ----------------------------------------------------- Buenos Aires Broadcast S.A. has requested for reorganization after failing to pay its liabilities, La Nacion reports. The reorganization petition, once approved by the court, will allow the company to negotiate a settlement with its creditors in order to avoid a straight liquidation. The case is pending before Buenos Aires' Court No. 5. Clerk No. 10 assists on this case. Buenos Aires Broadcast S.A. can be reached at: Esparza 37 Buenos Aires EDENOR: Issuing US$282 Million Obligaciones Negociables ------------------------------------------------------- Argentine power distributor, Edenor has announced that it will be emitting Obligaciones Negociables for a total of US$282 million and that it will also open a primary emission of shares which will have price at the 'Bolsa de Comercio de Buenos Aires' (Buenos Aires stock market). After leaving default, a process formalized last week, and after obtaining 100% acceptance from its creditors, Edenor decided to go directly to the capital markets. The funds that it will obtain from the emission of Obligaciones Negociables and the shares emitted at the 'Bolsa de Comercio de Buenos Aires' will be used to rebuy debt and to make investments. * * * As reported by Troubled Company Reporter on Jan. 2, 2006, the Argentine arm of credit ratings agency Fitch Ratings maintained its 'D' local scale rating on US$600 million of bonds issued by power distributor Edenor. Fitch attributed the rating to Edenor's inability to make its credit payments, which are in US dollars, due to the devaluation of the peso and the government having frozen rates. EL PRACTICO S.A.: Trustee Sets Date for Claims Verification End --------------------------------------------------------------- Court-appointed trustee -- accounting firm Estudio Palmero, Montelar, Garcia -- will stop verifying claims from El Practico S.A.'s creditors on March 24, 2006, reports Infobae. Deadlines for the submission of individual reports as well as the general report are not yet disclosed. El Practico S.A. started reorganization after a Santa Fe court approved its petition. El Practico S.A. can be reached at: Belgrano 2910 Boleteria 4 Santa Fe Estudio Palmero, Montelar, Garcia, the trustee, can be reached at: Moreno 2971 Santa Fe FRANCOL S.R.L.: Trustee Stops Accepting Claims on April 4 --------------------------------------------------------- Ms. Marta Susana Polistina, trustee appointed by the Buenos Aires court for the bankruptcy of Francol S.R.L., will no longer entertain claims that are submitted after April 4, 2006, Infobae reports. Creditors whose claims are not validated will be disqualified from receiving any payment that the company will make. Individual reports on the validated claims will be presented in court on May 19, 2006. The submission of the general report on the case will follow on July 4, 2006. Ms. Marta Susana Polistina, the trustee, can be reached at: Avda. Corrientes 745 Buenos Aires REPSOL YPF: 2005 Net Income Up 29.2% ------------------------------------ Spanish-Argentine oil firm Repsol YPF reported net income in 2005 was up 29.2% year-on-year to a record EUR3,120 million. The performance was the result of growth in all the company's business lines, producing a 31.5% rise in income from operations to EUR6,161 million. Cash flow in 2005 rose 50.6% year-on-year, to over EUR7,074 million, confirming both the company's financial strength and large capacity for cash generation, and permitting a 16.4% cutback in debt. These results were achieved in a scenario of high crude oil prices, with Brent oil averaging a rise of 42.5% year-on-year, as well as the stability of the dollar versus the euro. The company's refining margin indicator reached $8.46 per barrel in 2005, 48.2% above the average for 2004. Repsol YPF net debt at December 2005 was EUR4,513 million, EUR885 million lower than in December 2004. This reduction came mainly from the strong cash flow generated in the period, which was also sufficient to clearly finance the investments made in the year. The net debt to capitalization ratio fell to 18.1%, posting a 6.2 percentage point drop with respect to December 2004. Investments in 2005 were slightly lower year-on-year, at EUR3,713 million, and went mostly to exploration & production -- EUR1,948 million -- and refining & marketing, EUR995 million. At EUR3,246 million, income from exploration & production operations in 2005 was 6% higher than the EUR3,062 million posted a year earlier. The growth was basically driven by the increase in crude oil reference prices and gas selling prices in Trinidad & Tobago and Argentina. The Repsol YPF liquids realisation price averaged $37.14 (EUR31.37) per barrel versus $30.85 (EUR24.83) per barrel in 2004. The average price of gas was $1.60 per thousand standard cubic feet (tscf), 24% up on the $1.29 per tscf registered in 2004, shored up by higher average retail prices for gas in Trinidad & Tobago and Argentina. The company's average oil and gas production in the year, at 1,139,400 boepd, was 2.3% less than in 2004. This decrease was mainly the result of strikes in Argentina, 5,700 boepd), scheduled turnovers and operating problems, 2,900 boepd, and the effect of high crude oil prices on production sharing contracts, 3,600 boepd. Gas production increased 1.6%, to 608,300 boepd, with enhanced production mostly from Trinidad & Tobago, Bolivia and Venezuela, which offset lower performance from Argentina and Algeria. Repsol YPF reduced on Jan. 26, 2006, proved reserves by 1,254 million barrels of oil equivalent. The negative revisions affected 71% of gas, and are concentrated 52% in Bolivia and 41% in Argentina. Investments during 2005 in the exploration & production business area rose 64.4% to EUR1,948 million. Investment in development represented 56.5% of total investment, and was spent mainly in Argentina (64.9%), Trinidad & Tobago (8.9%), Venezuela (8.1%), Bolivia (4.5%), Ecuador (3.9%), Brazil (3%) and Libya (1.7%). Income from operations in the refining & marketing area, at EUR2,683 million, was up 69.3% year-on-year. This considerable rise is mainly attributable to the positive performance of refining margins, which rose 48.2%. Marketing margins were similar year-on-year in Spain, but lower in Argentina. Total oil product sales increased 5.4% over 2004 levels to 57.9 million tons. Sales in Spain were 1.8% up year-on-year, and in Argentina, Brazil and Bolivia, rose 4.9%. In the rest of the world, oil product sales showed a 23.7% growth, reaching 8.4 million tons. Sales to our own marketing network were higher in Spain, ABB and the rest of the world. Turning to the LPG business, total sales reached 3.3 million tons, showing a 3.9% rise from 2004. In Europe there was 2.9% sales growth thanks to larger volumes in Portugal, which compensated for a 1.7% drop in Spain. In Latin America, sales were 5.2% higher year-on-year shored up by strong growth in Ecuador (9.4%) and Peru (8.3%). In 2005, investments in refining & marketing were EUR995 million, and were mainly allotted to current refining projects and the acquisition of LPG assets in Portugal. In chemicals, income from operations improved 17.6% year-on-year to EUR308 million, versus EUR262 million a year earlier. Strong performance here came from wider international margins on our product mix and the income contribution from the sines complex acquired in Portugal. Total petrochemical product sales reached 4.64 million tons, 13.3% more than in 2004. Investments in chemicals totaled EUR170 million versus EUR292 million in 2004, and were mainly spent on increasing capacity, particularly at the propylene oxide/styrene plant in Tarragona, and in upgrading existing units. Income from gas & power operations in 2005 rose 25.5% to EUR389 million, versus the EUR310 million posted in 2004. There was improvement in gas distribution in Spain and also in Latin America, where performance was boosted by organic operating growth in Mexico, Colombia, and Brazil. 2005 investment in gas & power amounted to EUR457 million versus EUR777 million the year before. * * * On June 20, 2005, Moody's Investors Service upgraded the ratings of Spanish-Argentine oil company Repsol YPF's local subsidiary YPF S.A. Moody's upgraded YPF's senior unsecured rating to Ba3 from B1 and the unit's domestic currency issuer rating to Baa2 from Baa3. YPF's foreign currency issuer rating of Caa1 remained unchanged, as it is constrained by the sovereign ceiling of Argentina. YPF's Corporate Family Rating (formerly known as the senior implied rating) is aligned with the foreign currency issuer rating at Caa1. SANTA FE: Validation of Claims from Creditors Begins ---------------------------------------------------- The verification phase for the claims submitted by Santa Fe 2081 S.R.L.'s creditors has started, Argentine daily La Nacion reports. The verification will end on April 14, 2006. Creditors who are unable to submit claims after the said date will be excluded from receiving any distribution or payment that the company will make. Santa Fe 2081 S.R.L. was declared bankrupt by Buenos Aires' Court No. 17 with the assistance of Clerk No. 33. The court made the ruling in favor of the company's creditor, Mr. Sergio Loyola. The court selected Mr. Donato Sarkuno as the company's trustee. Santa Fe 2081 S.R.L. can be reached at: Av. Santa Fe 2081 Buenos Aires Mr. Donato Sarkuno, the trustee, can be reached at: Bernardo de Irigoyen 330 Buenos Aires SELECTO S.A.: Claims Verification Begins, Ending April 4 -------------------------------------------------------- Mr. Marcelo Dborkin, court-appointed trustee, has started verifying claims against Selecto S.A. La Nacion relates that Buenos Aires' Court No. 25 declared the company's bankruptcy in favor of Ms. Natalia Tintaya Flores, the company's creditor. Ms. Flores has claims amounting to $10,480.99 against the company. Clerk No. 49 assists the court in this case. Selecto S.A. can be reached at: Av. Pueyrredon 2015 Buenos Aires Mr. Marcelo Dborkin, the trustee, can be reached at: Av. Callao 295 Buenos Aires SYM SISTEMAS: Trustee Stops Accepting Claims on June 2 ------------------------------------------------------ Ms. Beatriz Satachesky, trustee appointed by the Buenos Aires court for the reorganization of SYM Sistemas y Microfilmaciones S.R.L., will no longer entertain claims that are submitted after June 2, 2006, Infobae reports. Creditors whose claims are not validated will be disqualified from receiving any payment that the company will make. An informative assembly is scheduled on March 14, 2007. As reported by Troubled Company Reporter on Dec. 26, 2005, SYM Sistemas y Microfilmacion S.R.L. requested for reorganization after failing to pay liabilities worth $812,663.26 since July 4, 2005. Court No. 3. handles the case with the assistance of Clerk No. 5. SYM Sistemas y Microfilmaciones S.R.L. can be reached at: Dean Funes 488 Buenos Aires Ms. Beatriz Satachesky, the trustee, can be reached at: Av. Cordoba 817 Buenos Aires TANALCO S.R.L.: Trustee Stops Validating Claims on April 10 ----------------------------------------------------------- Mr. Ignacio Victor Kaczer, the trustee appointed by the Buenos Aires court for the Tanalco S.R.L. bankruptcy case, will stop validating claims from the company's creditors on April 10, 2006. Mr. Kaczer will present the validated claims in court as individual reports on May 26, 2006. The trustee will also submit a general report on the case on July 24, 2006. Mr. Ignacio Victor Kaczer, the trustee, can be reached at: Avda. Callao 441 Buenos Aires TELEMONITOREO INTERNACIONAL: Claims Verification Ends on Apr.26 --------------------------------------------------------------- Telemonitoreo Internacional S.A.'s creditors are required to present their claims against the company to Mr. Abel Latendorf, the company's trustee, on April 26, 2006. Argentine daily La Nacion relates that Buenos Aires' Court No. 14 declared the company's bankruptcy in favor of the company's creditor, Mr. Marcelo Gimbatti, for nonpayment of about $19,628.92 in debt. Clerk No. 28 assists the court with the proceedings. Telemonitoreo Internacional S.A. can be reached at: Tucuman 540 Buenos Aires Mr. Abel Latendorf, the trustee, can be reached at: Piedras 426 Buenos Aires TESORO MARINO: Debt Payments Halted, Set To Reorganize ------------------------------------------------------ Buenos Aires' Court No. 22 is reviewing the merits of Tesoro Marino S.A.'s petition to reorganize. La Nacion recalls that the company filed the petition following cessation of debt payments since August 2005. Reorganization will allow Tesoro Marino S.A. to avoid bankruptcy by negotiating a settlement with its creditors. Clerk No. 43 is assisting the court on the company's case. Tesoro Marino S.A. can be reached at: Conrado Villegas 5424 Buenos Aires * ARGENTINA: Poll Shows High Percentage Against Pulp Mills ---------------------------------------------------------- In a public opinion poll published in the Buenos Aires press, a majority of Argentines are against the construction of two pulp mills on the river that acts as a natural border between Uruguay and Argentina. According to the Merco Press, Argentinians may reject the pulp mills for environmental reasons, but they would like to see a resolution reached between Uruguayan President Tabare Vazquez and Argentine's Nestor Kirchner. Those who participated in the poll disapproved the protest tactics of blockading the international bridges leading to Uruguay. Argentina previously announced bringing the case to the International Court of Justice in The Hague, Netherlands The construction of the two pulp mills involves US$1.8 billion investment from the Uruguayan government. The Merco Press relates that Argentine provincial and federal authorities and environmentalist groups state that the pulp mills' chlorine bleaching process is highly water and air contaminating, but Uruguay argues both mills comply with the latest and most stringent European Union regulations regarding conservation of natural resources. In spite of the opinion polls, residents from Gualeguaychu, across from Fray Bentos, kept up the route and bridge blockade for the 16th consecutive day and further north where some of the traffic had been rerouted, Colon-Paysandu, environmentalist groups and local residents also began organizing random cuts, the Merco Press reports. ============= B E R M U D A ============= PXRE GROUP: Deferred Tax Writedown Cues S&P to Cut Rating to BB- ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered its counterparty credit and financial strength ratings on Bermuda-based PXRE Reinsurance Ltd. and U.S.-based PXRE Reinsurance Co. (collectively referred to as PXRE) to 'BBB-' from 'BBB+'. Standard & Poor's also said that it lowered its counterparty credit ratings on holding companies PXRE Group Ltd. (NYSE:PXT) and PXRE Corp. to 'BB-' from 'BB+'. All of these ratings remain on CreditWatch with negative implications, where they were placed on Feb. 16, 2006. "The downgrades reflect PXRE's announcement of a writedown of its deferred tax asset, the adverse impact of two counterparties canceling their reinsurance contracts, and an increase in the group's estimated 2005 hurricane losses," explained Standard & Poor's credit analyst Steven Ader. Although PXRE's capital and liquidity are sufficient to meet known obligations, its competitive position has materially diminished, as demonstrated by its disclosure that a substantial loss in premium volume could result from current reinsurance clients Exercising their right to cancel their reinsurance contracts. This possibility also materially hampers PXRE's financial flexibility, borne from its prospective business opportunities, previously incorporated into the rating. Financial flexibility is further hampered by the group's disclosure that it is currently precluded under Bermuda holding company law from declaring or paying dividends, subject to a shareholder vote in April 2006. The ratings remain on CreditWatch negative because of the fluid nature of developing events relative to PXRE's: * competitive position, * financial flexibility, * capital adequacy, and * liquidity. Standard & Poor's expects to resolve the CreditWatch status of the ratings within the next 90 days. The absence of further material negative events will likely result in the ratings being affirmed. Alternatively, the ratings could be lowered again if there is further material adverse reserve development or an unanticipated capital and liquidity impact from ongoing commutations. The current ratings reflect PXRE's: * good liquidity, * good capital adequacy, and * a favorable long-term debt maturity structure. Offsetting these strengths are PXRE's materially diminished competitive position and weak financial flexibility. PXRE REINSURANCE: A.M. Best Lowers ICR Ratings to B+ from B++ ------------------------------------------------------------- A.M. Best Co. has downgraded the financial strength rating to B+ from B++ and the issuer credit ratings to "bbb-" from "bbb" for the reinsurance subsidiaries of the PXRE Group Ltd. (PXRE) [NYSE: PXT] (Bermuda). The rating actions apply to PXRE Reinsurance Ltd. (Bermuda) and PXRE Reinsurance Company (Hartford, CT). A.M. Best has also downgraded PXRE's ICR to "bb-" from "bb" and all its existing and indicative debt ratings. All ratings have been placed under review with negative implications. These actions follow A.M. Best's previous downgrading of PXRE's ratings on February 16, 2006, after the company announced that it had materially increased its net loss estimates for hurricanes Katrina, Rita and Wilma. The company has since announced that in addition to those losses, and the subsequent rating agency downgrades, it has also recorded a material valuation allowance against its income tax recoverables due to the uncertainty that they will be ultimately realized. PXRE has also announced that it has received notices from two of its retrocessionaires that they will commute their coverages with PXRE due to rating downgrades and other changes to the company. This has resulted in pre-tax losses from the hurricanes being revised slightly upward from the high end of previous estimates. All ratings will remain under review with negative implications as A.M. Best continues to analyze the impact on PXRE of the additional capital loss to both the group and to the individual operating subsidiaries. In addition, A.M. Best will continue to actively monitor the impact of rating agency triggers on PXRE's ability to continue to do business as well as any strategic alternatives that may be developed. The following debt rating has been downgraded: PXRE Capital Trust I -- "b" from "b+" on $100 million 8.85% trust preferred securities, due 2027. The following indicative debt ratings for securities available under shelf registration have been downgraded: PXRE Group Ltd. -- "bb-" from "bb" on senior unsecured; -- to "b+" from "bb-" on subordinated; and -- to "b" from "b+" on preferred stock PXRE Capital Trust IV -- "b" from "b+" on trust preferred securities. SEA CONTAINERS: Senior Vice-President David Benson Departs ---------------------------------------------------------- Sea Containers, Ltd., announced Friday that David Benson, senior vice-president of the ferries division, will leave the company on Feb. 28, 2006. This follows Sea Containers' announcement on Nov. 3, 2005, that the company was undertaking a major restructuring of its ferries division. Mr. Benson has been employed at Sea Containers since 1983, where he has undertaken a number of roles. These include positions as Chief Executive of Venice-Simplon Orient-Express and Senior Vice-President of Passenger Transport Division for Sea Containers, where he was the driving force behind some of the most innovative passenger and vehicle ferry services in the world. Businesses included in this portfolio have included Isle of Man Steam Packet Company, Hoverspeed, Silja, SeaLink and SeaStreak and Great North Eastern Railway, the operator of high- speed passenger trains services from London to Scotland. Under Mr. Benson's leadership, Sea Containers' Passenger Transport division played a leading role in pioneering the fast ferry concept and operated one of the world's largest fleets of fast-ferries from dedicated ports, following on from its cross- channel hovercraft. It had input at ship design level with Incat in the build of the 74m and 81m SeaCat, and also won the prestigious Hales Trophy for the Blue Riband of the North Atlantic on the delivery voyage of its first SeaCat from Australia. Bob MacKenzie, President and Chief Executive Officer of Sea Containers, Ltd., said, "We are grateful to David for all his loyalty, efforts and commitment to the company since 1983, especially in the last few years where trading conditions in the ferries business have been extremely challenging." Paul Clark, Sea Containers' Commercial Director of Ferries, will assume Mr. Benson's remaining duties. * * * As reported by Troubled Company Reporter on Feb. 20, 2006, Standard & Poor's Ratings Services lowered its ratings on Sea Containers Ltd., including lowering the corporate credit rating to 'B+' from 'BB-'. All ratings remain on CreditWatch with negative implications, where they were placed Aug. 25, 2005. SEA CONTAINERS: S&P Slices Corp. Credit Rating from BB- to B+ ------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on Sea Containers Ltd., including lowering the corporate credit rating to 'B+' from 'BB-'. All ratings remain on CreditWatch with negative implications, where they were placed Aug. 25, 2005. "The downgrade is based on Sea Containers' weakened financial profile after losses incurred at its ferry operations, a business it is in the process of divesting, and lower margins expected on its GNER rail franchise," said Standard & Poor's credit analyst Betsy Snyder. "The continuing CreditWatch status reflects uncertainties about the timing and ultimate disposition of the ferry operations, and resolution of a series of disputes at GE SeaCo, a joint venture in which Sea Containers holds a 50% stake," the analyst continued. The ratings on Bermuda-based Sea Containers reflect a relatively weak financial profile, even after the planned divestiture of its unprofitable ferry operations, expected to occur in 2006. However, the company does benefit from fairly strong competitive positions in its two major remaining businesses, GNER (Great North Eastern Railway, a passenger rail line between London and Scotland) and marine cargo container leasing. Sale of the Silja assets, which account for approximately 75% of the ferry assets, will likely occur first, with bids already submitted. The timing and proceeds from sale of the other ferry assets are more uncertain. The remaining businesses generate more stable cash flow than the very competitive ferry businesses, which experienced significant losses in 2004-2005 due to excess capacity, fare discounting, and high fuel prices. Sea Containers is restructuring the ferry operations through the sale of certain operations and/or individual vessels, redeployment or chartering out vessels, and staff reductions. In November 2005, the company sold the remainder of its Orient- Express Hotels Ltd. shares, realizing proceeds of approximately $262 million before expenses. In 2006, debt will be reduced using proceeds from the sale of OEH shares as well as expected proceeds from sale of the ferry operations. A further uncertainty, with potential ratings implications, is a series of disputes between Sea Containers and General Electric Capital Corp. regarding operations at GE SeaCo. The disputes are currently in arbitration, with a decision expected in early 2006. The outcome is not determinable at this time and no loss contingency had been recorded at Sept. 30, 2005. Therefore, the potential financial effects on Sea Containers and even possible future ownership of GE SeaCo remain uncertain. Standard & Poor's will monitor the progress of the sale of the ferry operations, as well as resolution of the GE SeaCo arbitration. If either were to result in additional significant charges that would further weaken Sea Containers' financial profile, ratings would likely be lowered. =========== B R A Z I L =========== BANCO BRADESCO: Plans April 3 Capital Interest Payment ------------------------------------------------------ Banco Bradesco S.A. will pay on April 3, 2006, interests on its own capital related to March 2006, in the amount of BRL0.0285000 per common stock and BRL0.0313500 per preferred stock to the stockholders registered in the Company's records on March 1, 2006. The payment, net of the withholding income tax of 15%, except for legal entity stockholders exempted from the referred taxation, which will receive for the stated amount, will be made through the net amount of BRL0.0242250 per common stock and BRL0.0266475 per preferred stock, as follows: -- credit in the current account informed by the stockholder; -- the stockholders who did not inform their banking data or do not hold a current account in a financial institution must go to a Bradesco branch on their preference having their identification document and the notice for receipt of earnings from book-entry stocks, sent by mail to those having their address updated in the company's records; -- those with stocks held on custody with the CBLC aka Brazilian Clearing and Depository Corporation, the payment will be made to CBLC, which will transfer them to the respective stockholders through the depository agents. Headquartered in Sao Paulo, Brazil, Banco Bradesco S.A. Banco -- http://www.bradesco.com.br/-- prides itself on serving low- and medium-income individuals in Brazil since the 1960s. Bradesco is Brazil's largest private bank, with more than 3,000 banking branches, and also a leader in insurance and private pension management. Bradesco has branches throughout Brazil as well as one in New York, two in the Bahamas, and four in the Cayman Islands. Bradesco offers Internet banking, insurance, pension plans, annuities, credit card services (including football-club affinity cards for the soccer-mad population), and Internet access for customers. The bank also provides personal and commercial loans, along with leasing services. * * * As reported by Troubled Company Reporter on Feb. 23, 2006, Moody's Investors Service shifted Banco Bradesco S.A.'s 'C-' bank financial strength rating to positive from stable. BRASKEM S.A.: Amends Borealis Brasil's Shareholders Agreement ------------------------------------------------------------- Braskem S.A. announced Friday the amendment to the shareholders agreement of Borealis Brasil S.A. In December 2000, Braskem -- through OPP Petroquimica S.A. -- and Borealis A/S set up a joint venture for the production of polyethylene and polypropylene compounds, then called Borealis- OPP S.A and now called Borealis Brasil S.A. in which the former companies had, as they now have, an equity participation of respectively 20% and 80% of the total and voting capital stock. Within the context of that association, the parties entered into: -- a Supply Agreement for the supply of polypropylene by Braskem to Borealis Brasil, which was to remain in effect for five years; and -- a Shareholders Agreement which, among other matters, made provisions about: -- the Call Option of Borealis A/S to purchase the shares of Borealis Brasil held by Braskem, to be effective for 5 years as of 2002; and -- the Put Option of Braskem to sell its shares of Borealis Brasil to Borealis A/S for a period of 2- year beginning in 2005. Braskem, Borealis A/S and Borealis Brasil executed on Feb. 22, 2006, the first amendment to the Shareholders Agreement and the first amendment to the Supply Agreement, the latter being extended for an additional 10 years. Among other changes, the amendment to the Shareholders Agreement extended the timeframe for the exercise of the Put Option by Braskem for 24 months counted as of the date of the termination of the Supply Agreement, as per its amendment, as well as it relegated the Call Option held by Borealis A/S. The remaining provisions were maintained. Braskem -- http://www.braskem.com.br/-- is a thermoplastic resins producer in Latin American, and is among the three largest Brazilian-owned private industrial companies. The company operates 13 manufacturing plants located throughout Brazil, and has an annual production capacity of 5.8 million tons of resins and other petrochemical products. * * * On Oct. 17, 2005, Fitch Ratings revised the Rating Outlook of the `BB-' long-term foreign currency rating of Braskem S.A. and Braskem International Ltd. to Positive from Stable. The action followed the recent change in the Rating Outlook to Positive from Stable of the 'BB-' foreign currency rating of the Federative Republic of Brazil. The Brazilian corporate foreign currency ratings continue to be linked to the 'BB-' foreign currency rating of the sovereign. COPEL: Reaches Thermoelectric Plant Agreement with Petrobras ------------------------------------------------------------ Companhia Paranaense De Energia aka Copel reached an agreement with Petrobras regarding pending matters related to the gas contract of the thermoelectric plant of Araucaria, which was terminated on May 31, 2005. Petrobras' executive office authorized the celebration of an agreement with Copel and Copel Geracao S.A., Copel's fully owned subsidiary, regarding the thermoelectric plant of Araucaria, with the signature of an Out-of-Court Transaction Settlement, an Instrument of Acknowledgment of Quote Transferring and a Memorandum of Intent. The Out-of-Court Transaction Settlement aims to settle Compagas' debt with Petrobras, which is guaranteed by Copel, due to a gas supply contract, with take or pay and ship or pay articles, which was terminated on May 31, 2005. At that time, the nominal debt, not recognized by Copel, amounted to BRL266.4 million for ship or pay and BRL140.1 million for take or pay, being this last one recoverable as future gas supply. By the agreement to be celebrated, Copel Geracao, having Copel as guarantor, acknowledges the BRL150 million debt with Petrobras, to be paid in 60 monthly installments as from January 2010, readjusted by the Selic rate, or any other rate that may be substituted for the Selic. As guarantee, Copel Geracao S.A. and Copel offer its respective receivables. In the Instrument of Acknowledgment, Petrobras informs that has no objections of any kind to the acquisition of El Paso quotes in UEGA by Copel. By the Memorandum of Intent, Petrobras will exert their best efforts to attend UEGA's operation fuel supply necessity, as from 2010 such fuel can be natural gas or any other alternative energizer. The agreement settles, amicably, the existing conflicts regarding gas supply of the thermoelectric plant of Araucaria, which was terminated on May 31, 2005. Headquartered in Parana, Brazil, COPEL aka Companhia Paranaense de Energia SA -- http://www.copel.com/-- transmits and distributes electricity to more than 3 million customers in the state of Paran and has a generating capacity of nearly 4,600 MW, primarily from hydroelectric plants. COPEL also offers telecommunications, natural gas, engineering, and water and sanitation services. The company restructured its utility operations in 2001 into separate generation, transmission, and distribution subsidiaries to prepare for full privatization, which has been indefinitly postponed. In response, COPEL is re- evaluating its corporate structure. The government of Paran controls about 59% of COPEL. * * * Copel's BRL100,000,000 debentures due March 1, 2007, is rated Ba3 by Moody's. PETROLEO BRASILEIRO: Inks Thermoelectric Plant Pact with Copel -------------------------------------------------------------- Companhia Paranaense De Energia aka Copel reached an agreement with Petrobras regarding pending matters related to the gas contract of the thermoelectric plant of Araucaria, which was terminated on May 31, 2005. Petrobras' executive office authorized the celebration of an agreement with Copel and Copel Geracao S.A., Copel's fully owned subsidiary, regarding the thermoelectric plant of Araucaria, with the signature of an Out-of-Court Transaction Settlement, an Instrument of Acknowledgment of Quote Transferring and a Memorandum of Intent. The Out-of-Court Transaction Settlement aims to settle Compagas' debt with Petrobras, which is guaranteed by Copel, due to a gas supply contract, with take or pay and ship or pay articles, which was terminated on May 31, 2005. At that time, the nominal debt, not recognized by Copel, amounted to BRL266.4 million for ship or pay and BRL140.1 million for take or pay, being this last one recoverable as future gas supply. By the agreement to be celebrated, Copel Geracao, having Copel as guarantor, acknowledges the BRL150 million debt with Petrobras, to be paid in 60 monthly installments as from January 2010, readjusted by the Selic rate, or any other rate that may be substituted for the Selic rate. As guarantee, Copel Geracao S.A. and Copel offer its respective receivables. In the Instrument of Acknowledgment, Petrobras informs that has no objections of any kind to the acquisition of El Paso quotes in UEGA by Copel. By the Memorandum of Intent, Petrobras will exert their best efforts to attend UEGA's operation fuel supply necessity, as from 2010 such fuel can be natural gas or any other alternative energizer. The agreement settles, amicably, the existing conflicts regarding gas supply of the thermoelectric plant of Araucaria, which was terminated on May 31, 2005. Headquartered in Parana, Brazil, COPEL aka Companhia Paranaense de Energia SA -- http://www.copel.com/-- transmits and distributes electricity to more than 3 million customers in the state of Paran and has a generating capacity of nearly 4,600 MW, primarily from hydroelectric plants. COPEL also offers telecommunications, natural gas, engineering, and water and sanitation services. The company restructured its utility operations in 2001 into separate generation, transmission, and distribution subsidiaries to prepare for full privatization, which has been indefinitly postponed. In response, COPEL is re- evaluating its corporate structure. The government of Paran controls about 59% of COPEL. * * * Copel's BRL100,000,000 debentures due March 1, 2007 is rated Ba3 by Moody's. * * * Petroleo Brasileiro SA's long-term corporate family rating is rate Ba3 by Moody's and its foreign currency long-term debt is rated BB- by Fitch. MRS LOGISTICA: Realizes R$410.3 Million Profit in 2005 ------------------------------------------------------ Brazilian logistics company MRS Logistica registered a R$410.3 million net profit in 2005, double what the company earned in 2004. The company handled 108.3 million tons of cargo last year, 10.4% more than in 2004. This year MRS expects to handle between 120 million and 122 million tonnes of cargo, InvestNews reports. * * * As reported on Nov. 10, 2005, Standard & Poor's Ratings Services revised the outlook on the BB- long-term foreign currency rating of MRS Logistica S.A. to positive from stable, following the revision of the foreign currency outlook of the Federative Republic of Brazil. PETROLEO BRASILEIRO: Inks Thermoelectric Plant Pact with Copel -------------------------------------------------------------- Companhia Paranaense De Energia aka Copel reached an agreement with Petrobras regarding pending matters related to the gas contract of the thermoelectric plant of Araucaria, which was terminated on May 31, 2005. Petrobras' executive office authorized the celebration of an agreement with Copel and Copel Geracao S.A., Copel's fully owned subsidiary, regarding the thermoelectric plant of Araucaria, with the signature of an Out-of-Court Transaction Settlement, an Instrument of Acknowledgment of Quote Transferring and a Memorandum of Intent. The Out-of-Court Transaction Settlement aims to settle Compagas' debt with Petrobras, which is guaranteed by Copel, due to a gas supply contract, with take or pay and ship or pay articles, which was terminated on May 31, 2005. At that time, the nominal debt, not recognized by Copel, amounted to BRL266.4 million for ship or pay and BRL140.1 million for take or pay, being this last one recoverable as future gas supply. By the agreement to be celebrated, Copel Geracao, having Copel as guarantor, acknowledges the BRL150 million debt with Petrobras, to be paid in 60 monthly installments as from January 2010, readjusted by the Selic rate, or any other rate that may be substituted for the Selic rate. As guarantee, Copel Geracao S.A. and Copel offer its respective receivables. In the Instrument of Acknowledgment, Petrobras informs that has no objections of any kind to the acquisition of El Paso quotes in UEGA by Copel. By the Memorandum of Intent, Petrobras will exert their best efforts to attend UEGA's operation fuel supply necessity, as from 2010 such fuel can be natural gas or any other alternative energizer. The agreement settles, amicably, the existing conflicts regarding gas supply of the thermoelectric plant of Araucaria, which was terminated on May 31, 2005. Headquartered in Parana, Brazil, COPEL aka Companhia Paranaense de Energia SA -- http://www.copel.com/-- transmits and distributes electricity to more than 3 million customers in the state of Paran and has a generating capacity of nearly 4,600 MW, primarily from hydroelectric plants. COPEL also offers telecommunications, natural gas, engineering, and water and sanitation services. The company restructured its utility operations in 2001 into separate generation, transmission, and distribution subsidiaries to prepare for full privatization, which has been indefinitly postponed. In response, COPEL is re- evaluating its corporate structure. The government of Paran controls about 59% of COPEL. * * * Copel's BRL100,000,000 debentures due March 1, 2007 is rated Ba3 by Moody's. * * * Petroleo Brasileiro SA's long-term corporate family rating is rate Ba3 by Moody's and its foreign currency long-term debt is rated BB- by Fitch. PETROLEO BRASILEIRO: Studies 7 New Ventures with Bolivian Gov't --------------------------------------------------------------- Agencia Brasil reports that the Brazilian and Bolivian government-run oil companies are examining seven possible partnerships. Petroleo Brasileiro S.A. aka Petrobras' director of Gas and Energy, Ildo Sauer, affirmed in an interview with the Agencia Brasil that these projects are under study with the Yacimientos Petroliferos Fiscales Boliviano. Mr. Sauer said that he spoke recently with Nestor Cervero, director of the international division of the YPFB. The ongoing negotiations are geared to the signing a Memorandum of Understanding between the two companies at the end of this month or in the beginning of March, Agencia Brasil reports. Under an MOU, there will be guidelines that will cover seven areas of cooperation and association between the two firms. These will include the possibility of technology transfer and qualification of human resources by the Petrobras Training Center. The goal is to train the managers and technicians needed to administer the Bolivian gas system and do research on the industrial complex that is expected to go up on the border between the two countries and which may eventually contain a fertilizer factory, a thermoelectric plant, and a natural gas/chemical pole, Agencia Brasil relates. "These understandings mean association in the refineries and in petroleum exploration and production and cooperation in the areas of biofuels, development of the natural gas market, conversion of vehicles from gasoline and diesel to natural gas engines, and even the propagation of natural gas use in Bolivian residences," Mr. Sauer told Agencia Brasil. According to Mr. Sauer the investments are expected to amount to around US$2.36 billion. For these investments to materialize, the participation of private Brazilian and Bolivian investors will be necessary, Mr. Sauer explained to Agencia Brasil. * * * Petroleo Brasileiro SA's long-term corporate family rating is rate Ba3 by Moody's and its foreign currency long-term debt is rated BB- by Fitch. PETROLEO IPIRANGA: Moody's Ups US$134MM Sr. Notes' Rating to Ba3 ---------------------------------------------------------------- Moody's Investors Service has upgraded to Ba3 from B1 the foreign currency rating of Companhia Brasileira de Petr�leo Ipiranga's outstanding US$134 million step-up senior unsecured notes due 2008. The outlook of the notes rating was changed from positive to stable. The Ba3 foreign currency rating of the notes is presently not constrained by Brazil's sovereign ceiling. The rating is supported by Ipiranga's position as the second largest fuel distribution company in Brazil, and its demonstrated ability to defend and expand its market share in the Brazilian fuel distribution market while maintaining acceptable operating margins. In addition, the rating incorporates the company's efficient logistics and strong brand recognition, as well as the improved competitive environment for the diesel and gasoline markets in Brazil. At the same time, the rating is constrained by Ipiranga's volatile working capital needs, its high dependence on Petrobras' for fuel supply, the increased capex and dividends distribution which have negatively impacted its free cash flow generation, and by the fierce competition in the fast-growing ethanol market. Ipiranga is the second largest fuel distributor in Brazil with an estimated market share of about 17% and large coverage of Brazilian territory, which is supported by efficient logistics and continuous investments in information technology. Despite the intense competition from unbranded fuel distributors that have increased their market share aggressively over the past several years, in many cases based on tax evasion and fuel fraud, Ipiranga has managed, since 2003, to regain market share while maintaining still acceptable operating margins for the industry (average EBITDA margin of 1.8% in the past three fiscal years). Marketing campaigns associating the company with high- quality products and differentiated services have been successful, while it has also made substantial investments in modernization of gas stations and quality control. While Moody's recognizes the efforts of the Brazilian regulator, ANP, to improve quality control in the fuel distribution market and the positive changes in the Brazilian tax laws for gasoline and diesel that somewhat reduce tax evasion and, consequently, contribute to healthier competition within the industry, we also note that the fast-growing ethanol market still remains highly susceptible to fraud and tax evasion. Demand for ethanol has increased sharply following the introduction of flex-fuel vehicles in 2003, which currently represent close to 80% of new passenger car sales in Brazil. Moody's sees Ipiranga's dependency on Petrobras for its fuel supply as negative for the company's credit, given Petrobras' dominant position in the sector. Ethanol, on the other hand, is supplied by around 300 local alcohol mills and so has a low concentration of suppliers. Although Ipiranga has managed to maintain operating margins at acceptable levels, Moody's notes that increased dividends distribution and higher capital expenditure in logistics, modernization and expansion of its own gas stations have impacted the company's free cash flows and consumed most its cash position, which has dropped from BRL285 million at 2003 year-end to just BRL21 million, reducing its financial flexibility. The stable outlook reflects Moody's belief that Ipiranga will maintain its market share in the Brazilian fuel distribution market while managing to maintain acceptable operating margins. In addition, Moody's expects that the company will manage investments and dividends in order to report positive free cash flows going forward. Since Moody's does not expect any structural change in the competitive environment in the Brazilian fuel distribution market to materialize in the foreseeable future, an upgrade of the existing rating is unlikely. On the other hand, the company's rating or outlook could be under downward pressure if its market share and operating margins were to experience significant erosion due to fiercer competition, resulting in EBITDA margins below 1.2%. Moreover, the rating could also be negatively affected if Ipiranga experiences a material increase in its financial leverage due to continued negative free cash flow generation, and Total Debt to EBITDA above 2.5 times. Companhia Brasileira de Petr�leo Ipiranga, based in Rio de Janeiro, Brazil, is the second largest fuel distribution company in Brazil, with large coverage of the country's territory. The company reported consolidated revenues of BRL 19,477 million (US$ 7,999,000) and net earnings of BRL326 million (US$134 million) in 2005. * Brazil and Mexico Launched Debt Buyback Programs -------------------------------------------------- The Financial Times reports that two of Latin America's biggest economies, Brazil and Mexico, announced multi-billion dollar debt buybacks on Thursday last week. Brazil said it would buy back US$6.64 billion of so-called Brady bonds, the country's total outstanding amount. The move will help remove the stigma associated with the country's debt restructuring in 1994, the FT relates. Mexico launched an offer to buy back US$5 billion of global bonds denominated in U.S. dollars, sterling and euros, maturing between 2007 and 2033, and announced a new dollar-denominated benchmark bond, the FT states. According to FT, the moves are part of a trend that has seen emerging market countries buy back bonds denominated in foreign currencies or pre-pay debt as their economies improve. The economic positions of many emerging market countries are getting better, including higher foreign exchange reserves, faster export growth and current account surpluses that have been helped by rising commodity prices. "This is part of an ongoing process of liability management that is addressing the high level of indebtedness so problematic in the past. The ability to refinance debt on improved terms is a clear reflection of improved credit quality among emerging market countries and will reduce further the risk of disruption from external shocks," Philip Poole, head of emerging markets research at HSBC, told the FT. Industry analysts expect Brazil to receive an investment grade sooner than expected. Fitch Ratings assigns these ratings on Mexico: Rating Rating Date ------ ----------- Country Ceiling BBB+ Nov. 18, 2004 Long Term IDR BBB Dec. 14, 2005 Short Term IDR F3 Dec. 14, 2005 Local Currency Long Term Issuer Default Rating BBB+ Dec. 14, 2005 Fitch Ratings assigns these ratings on Brazil: Rating Rating Date ------ ----------- Country Ceiling BB- Nov. 18, 2004 Long Term IDR BB- Dec. 14, 2005 Short Term IDR B Dec. 14, 2005 Local Currency Long Term Issuer Default Rating BB- Dec. 14, 2005 =========================== C A Y M A N I S L A N D S =========================== BLUERIDGE FINANCE: Sets Mar. 9 Deadline for Claims Submission ------------------------------------------------------------- Blueridge Finance Ltd.'s Creditors are required to submit particulars of their debts or claims on or before March 9, 2006, to the company's appointed liquidators, Ms. Helen Allen and Ms. Emile Small. Failure to do so will exclude them from receiving the benefit of any distribution that the company will make. Blueridge Finance Ltd. started liquidating assets on Jan. 18, 2006. Ms. Helen Allen and Ms. Emile Small can be reached at: Maples Finance Limited P.O. Box 1093 George Town Grand Cayman, Cayman Islands KAMNA LTD: Creditors Must Submit Claims to Liquidators by Mar. 9 ---------------------------------------------------------------- Creditors of Kamna Limited are given until March 9, 2006, to submit claims to the appointed company liquidators, Ms. Sarah Baudet of Royhaven Secretaries Limited. Creditors must send full particulars of their debts or claims by the said date or be excluded from the benefit of any distribution that the company will make. Kamna Limited started liquidating assets on January 24, 2006. Ms. Baudet can be reached at: Royhaven Secretaries Limited P.O. Box 707 George Town Grand Cayman, Cayman Islands Tel: 945-4777, Fax: 945-4799 PETERMAN PROPERTIES: Creditors Have Until Mar. 6 to File Claims --------------------------------------------------------------- Peterman Properties Ltd.'s creditors are required to submit particulars of their debts or claims on or before March 6, 2006, to the company's appointed liquidators, Mr. Andrew G. Leggatt of Royhaven Secretaries Limited. Failure to do so will exclude them from receiving the benefit of any distribution that the company will make. Peterman Properties Ltd. started liquidating assets on Jan. 24, 2006. Mr. Andrew G. Leggatt can be reached at: Royhaven Secretaries Limited Coutts House, 1446 West Bay Road P.O. Box 707 George Town Grand Cayman, Cayman Islands Tel: 945 4777, Fax: 945 4799 YOKOHAMA FINANCE: Creditors Must File Claims by March 9 ------------------------------------------------------- Yokohama Finance Cayman's creditors are required to submit particulars of their debts or claims on or before March 9, 2006, to the company's appointed liquidators, Mr. Mike Hughes and Mr. Jon Roney. Failure to do so will exclude them from receiving the benefit of any distribution that the company will make. Yokohama Finance Cayman started liquidating assets on Jan. 27, 2006. Mr. Mike Hughes and Mr. Jon Roney can be reached at: Maples Finance Limited P.O. Box 1093 George Town Grand Cayman, Cayman Islands ============= E C U A D O R ============= * ECUADOR: Lifts State-of-Emergency in Napo Province ---------------------------------------------------- Ecuador's President Alfredo Palacio lifted the state-of- emergency status from the Napo province after an agreement to halt violent demonstrations was reached. On Feb. 21, about 3,000 protesters hurled rocks and dynamite Wednesday at security forces in Baeza, located 30 miles from OCP Ecuador's pumping station, which was seized late Tuesday, according to Reuters. The takeover prompted the President to declare a state of emergency in the region. The protesters took over the Sardinas pumping station, forcing a shutdown of the OCP pipeline -- principally owned by Argentina's Repsol-YPF, U.S.-based Occidental Petroleum Corp. and Canada's EnCana Corp. The two pipelines form the Andean nation's main oil arteries in a country where exports, taxes and royalties from crude account for 43 percent of the national budget. Ecuador reached an agreement with oil protesters late on Wednesday to halt violent demonstrations in Napo province that have shut down a major pipeline. The EFE News Service reports that part of the bargain is a promise from the Ecuadorian government to provide millions of dollars for infrastructure in the depressed region. Some of the 20-plus detainees, which include an unnamed mayor, will face vandalism or sabotage charges stemming from damage to public property, including roads and oil-industry infrastructure, the EFE relates. A government official said he understood the motivations of the protesters, but condemned the violence that left at least 20 people wounded, two of them in serious condition, the EFE relates. Officials said the crude would not start flowing again until an inspection for explosives is finished. The pipeline is Ecuador's only facility for heavy crude and has the capacity to transport 450,000 barrels daily from Nueva Loja in the Amazon to Esmeraldas on the coast, the EFE relates. The pipeline traverses the jungle province of Napo and the Andean province of Pichincha. Before this week's tumult, the pipeline transported an average of 150,000 barrels of heavy crude each day. Petroleum is Ecuador's No. 1 export and income from crude oil sales abroad finance about 35% of the national budget. The Napo province, despite being home to the country's most valuable asset, is lacking in basic services such as sewer systems, potable water, health care facilities, roads, education and housing, the EFE relates. * ECUADOR: Remains Potential Loser with D Risk Rating ----------------------------------------------------- Ecuador remains on the watchlist of the Economist Intelligence Unit as a potential loser. Ecuador's overall risk rating remains in the "D" band. Despite some improvements since last September, reflecting the shift in the assessment period in our risk model, a deterioration in other areas has prompted a one-point deterioration in Ecuador's overall score to 67. In particular, political risk remains one of the key factors constraining the rating. The loss of the congressional majority of the president, Alfredo Palacio, has brought the reform process to a standstill, while the departure of several key ministers has increased instability. The outcome of next year's presidential election is uncertain, but given the highly fragmented party system the next president will be reliant on forming coalitions in order to pass legislation. The Palacio government and its successor will come under pressure to meet wage demands from public-sector workers and increase spending in areas such as healthcare and education. This will have a negative impact on the sovereign's creditworthiness, since the public finances will become increasingly vulnerable to external shocks, the Economist says. Economic policy risk remains C-rated. Supporting this rating is Ecuador's success in lowering inflation and interest rates since dollarization was introduced in 2000, as well as the success of the authorities in reducing the public debt/GDP ratio. However, an improvement in the rating is unlikely. Creditworthiness remains vulnerable to a downturn in external conditions, owing to the government's dependence on oil revenue and its more expansive fiscal policy. High repayments on external debt and a widening current-account deficit are increasing the country's financing requirement. Any deterioration in the outlook could lead to a downgrade in the rating for economic policy risk to a "D". Economic structure risk is C-rated, underpinned by strong GDP growth in 2003-05 and the prospect of solid, if less spectacular, growth in 2006-07. Nonetheless, an improvement towards a "B" rating is unlikely as a result of several constraining factors. High exposure to commodity price changes remains a vulnerability, and the risk has increased following the 2005 decision to dismantle the Oil Stabilisation Fund. Weak investment ratios, high unemployment, low levels of non-oil investment and mounting domestic debt repayments also hamper the rating. Liquidity risk is D-rated. Although Banco Central del Ecuador (the Central Bank) reserves have increased, import cover is low (2.3 months), and the sovereign has limited access to international capital markets to secure financing. Although confidence in the banking sector is increasing, it remains weak, a problem that is magnified by the lack of a lender of last resort. Meanwhile, a forecast widening of the current-account deficit and a rise in debt repayments will place growing pressure on the sovereign's payments capacity, the Economist says. ============= J A M A I C A ============= * JAMAICA: Agricultural Society Pres. Calls for Farm Development ---------------------------------------------------------------- Senator Norman Grant, president of the Jamaica Agricultural Society has forwarded several recommendations to improve the condition of the island's farmers, chief of which is the establishment of a US$200 million 30-year rural development bond, the Jamaica Gleaner reports. The Gleaner quoted the senator as saying that the bond would represent a workable solution for sustainable road repairs in rural Jamaica. He suggested that the bond could be floated at a coupon rate, which would be pegged to the inflation rate plus one per cent, with tax-free interest, and made payable after one year of the issue date without penalty. Senator Grant said the instrument could also be transferable after 15 years. Senator Grant also said the facility would attract investors, both nationally and internationally, and recommended that local companies that invested should benefit from tax breaks, the Gleaner relates. * * * Jamaica's foreign currency long-term debt is rated B1 by Moody's and B by S&P. =========== M E X I C O =========== AXTEL: Raises US$319 Million Through Public Stock Offering ---------------------------------------------------------- Axtel S.A. de C.V. has made a public offering of nearly a third of its stock, raising Mx$3.36 billion (US$319 million), the Latin Lawyer reports. The combined equity offering sold 132 million shares, at 25.5 pesos each, through the Mexican Stock Exchange and in the international markets under rule 144A and regulation S, the Latin Lawyer reports. "The transaction was particularly complex due to the number of governmental authorisations that were required since the company is a telecommunications concessionaire and therefore heavily regulated in Mexico," the Latin Lawyer quoted Ricardo Maldonado Y �ez, of Mijares, Angoitia, Cort�s y Fuentes SC, as saying. Axtel has seen significant growth in recent years, reporting an increase of 140% in its operating cash flow between 2004 and 2005. In November 2005, the company signed an agreement with Intel to develop WiMAX technology in Mexico, to offer broadband Internet access. The offering was underwritten by Acciones y Valores Banamex and Credit Suisse First Boston. Axtel, S.A. de C.V. provides local and long distance telecommunications services, data transmission and internet services in Mexico, to both residential and business customers. The company has 600,000 installed lines. Axtel posted net profits of 306 million pesos (US$29 million) for 2005 compared to a loss of 79.6 million pesos in 2004. * * * Axtel's 11% $249,870,000 note due Dec. 15, 2013, is rated B1 by Moody's and B+ by Standard & Poor's. VITRO: Announces Organizational Changes --------------------------------------- Vitro announced that on Friday, Jose Domene, President of Vitro's flat glass business unit has decided to leave Vitro in order to fulfill personal projects. This decision was shared today with the board of directors during its monthly meeting in Monterrey. The board took the opportunity to thank Mr. Domene for its important contributions to the company during his stay and wished him the best of success in his future endeavors. Hugo Lara, until now Flat Glass Commercial Vice President, has been appointed Flat Glass President. Vitro, S.A. de C.V. -- http://www.vitro.com-- is a major participant in three principal businesses: flat glass, glass containers and glassware. Founded in 1909 in Monterrey, Mexico- based Vitro has joint ventures with major world-class partners and industry leaders that provide its subsidiaries with access to international markets, distribution channels and state-of- the-art technology. Vitro's subsidiaries have facilities and distribution centers in eight countries, located in North, Central and South America, and Europe, and export to more than 70 countries worldwide. * * * As reported by Troubled Company Reporter on Nov. 14, 2005, Standard & Poor's Ratings Services has revised its outlook on its 'B' long-term corporate credit rating on Vitro S.A. de C.V., and Vitro's glass containers subsidiary Vitro Envases Norteamerica S.A. de C.V., to negative from stable. * Mexico and Brazil Launch Debt Buyback Programs ------------------------------------------------ The Financial Times reports that two of Latin America's biggest economies, Brazil and Mexico, announced a multi-billion dollar debt buyback on Thursday last week. Brazil said it would buy back US$6.64 billion of so-called Brady bonds, the country's total outstanding amount. The move will help remove the stigma associated with the country's 1994 debt restructuring, the FT relates. Mexico launched an offer to buy back US$5 billion of global bonds denominated in U.S. dollars, sterling and euros, maturing between 2007 and 2033, and announced a new dollar-denominated benchmark bond, the FT states. According to FT, the moves are part of a trend that has seen emerging market countries buy back bonds denominated in foreign currencies or pre-pay debt as their economies improve. The economic positions of many emerging market countries are getting better, including higher foreign exchange reserves, faster export growth and current account surpluses that have been helped by rising commodity prices. "This is part of an ongoing process of liability management that is addressing the high level of indebtedness so problematic in the past. The ability to refinance debt on improved terms is a clear reflection of improved credit quality among emerging market countries and will reduce further the risk of disruption from external shocks," Philip Poole, head of emerging markets research at HSBC, told the FT. Industry analysts expect Brazil to receive an investment grade sooner than expected. Fitch Ratings assigns these ratings on Mexico: Rating Rating Date ------ ----------- Country Ceiling BBB+ Nov. 18, 2004 Long Term IDR BBB Dec. 14, 2005 Short Term IDR F3 Dec. 14, 2005 Local Currency Long Term Issuer Default Rating BBB+ Dec. 14, 2005 Fitch Ratings assigns these ratings on Brazil: Rating Rating Date ------ ----------- Country Ceiling BB- Nov. 18, 2004 Long Term IDR BB- Dec. 14, 2005 Short Term IDR B Dec. 14, 2005 Local Currency Long Term Issuer Default Rating BB- Dec. 14, 2005 ======= P E R U ======= * PERU: Remains Potential Loser with C Risk Rating -------------------------------------------------- Peru remains on the watchlist of the Economist Intelligence Unit as a "potential loser". The EIU stated, `Peru's overall score and rating were stable in the fourth quarter, at 43 and at the less risky end of the "C" band (and on a par with Mexico), but we have placed the Andean country on our Watchlist as a potential loser. Presidential and congressional elections will be held on April 9th 2006, and with a proliferation of candidates the outcome is uncertain. The candidate of the right-wing Unidad Nacional alliance, Lourdes Flores, leads the polls for next April's presidential vote. However, Ollanta Humala, a retired army officer with a nationalist, anti-globalisation message, has rapidly gathered support since August, pushing a former president, Alan Garcia (1985-90), into third place. In early December 2005 it was announced that he would stand as the candidate of the Union por el Peru, a centre-left party, rather than his own Partido Nacionalista, which did not obtain registration from the Jurado Nacional de Elecciones (JNE, the electoral authority). A nationwide survey in mid-December by a pollster, Apoyo, showed that Ms. Flores, a lawyer and former member of Congress, has the support of 25% of prospective voters. Her backing is strongest in Lima, but is relatively solid throughout Peru. Mr. Humala polled 22%, with his backing firmest in the southern and central Andean highlands. Mr. Garcia obtained 16%, his support having fallen by 3 percentage points since August. Peruvian lawmakers have approved a law setting a threshold of 4% of the national vote, which parties must obtain in order to win a seat. This should help to limit fragmentation in Congress. However, with so many parties running (32 are registered), the next president is unlikely to have a majority in the next Congress. The main forces in the next legislature are likely to be Mr. Garcia's Partido Aprista Peruano, Ms. Flores's UN, Mr. Humala's UPP, the party of the former president (1990-2000) Alberto Fujimori, Si Cumple, and Valentin Paniagua's Frente del Centro, the Economist states. Mr. Humala's spectacular rise has recalled the way in which the outsiders, Mr. Fujimori and the incumbent, Alejandro Toledo, swept past more experienced rivals to capture the sympathy of Peruvian voters in elections in 1990 and 2000 respectively. Mr. Humala, who led a short-lived military rebellion against Mr. Fujimori's government in 2000, appeals to large swathes of Peruvians who have not felt the benefits of strong economic growth under Mr. Toledo's government. His strong criticism of so-called traditional politicians such as Ms. Flores, Mr. Garcia and Mr. Paniagua, and of legislators in the badly discredited Congress also resonates with this group, the Economist states. Few details have yet emerged about Mr. Humala's program. He has recently moved to reassure voters that he does not represent a threat to economic or political stability, but his nationalist platform causes concern in Peru's business sector and among international investors. He has in the past proposed favoring national over foreign investment, supported greater state involvement in "strategic" sectors such as oil, gas, ports and airports, and has pledged to renegotiate oil and gas contracts that he says damage the national interest. He would also seek a new constitution and refuse to ratify the free-trade agreement signed with the US in December. Like the leftist Mr. Morales, who won the presidential election in Bolivia on December 18th by a landslide, Mr. Humala has proposed legalizing coca, the raw material for cocaine. He appeals most strongly to voters in Peru's southern region near the Bolivian border and could benefit from Mr. Morales's victory. His candidacy could, however, be damaged by association with his more extreme brother, Antauro, who attacked a police station in southern Peru in 2005, leading to the deaths of three policemen. His trial is due to begin in Lima in the coming weeks. Antauro and some other members of the Humala family have begun to criticise Ollanta for apparently moving towards the centre ground and away from some of the more extreme policy positions he has adopted in the past.' * * * Fitch Ratings assigns these ratings on Peru: Rating Rating Date ------ ----------- Country Ceiling BB Nov. 18, 2004 Long Term IDR BB Dec. 14, 2005 Short Term IDR B Dec. 14, 2005 Local Currency Long Term Issuer Default Rating BB+ Dec. 14, 2005 ===================== P U E R T O R I C O ===================== MUSICLAND HOLDING: Asset Sale Objection Must Be Filed on Mar. 17 ---------------------------------------------------------------- Musicland Holding Corp. and its debtor-affiliates have talked to industry participants and private equity funds regarding a sale transaction, James H.M. Sprayregen, Esq., at Kirkland & Ellis LLP, in New York, relates. According to Mr. Sprayregen, the Debtors also considered pursuing a stand-alone plan of reorganization, but determined that that course of action would not be the best strategy to maximize recoveries for their creditors. Moreover, the Debtors believe that a stand-alone reorganization plan would be difficult to confirm because some of their key constituencies won't support a reorganization plan. The Debtors determined that a sale of substantially all of their assets is in the best interests of their estates and their creditors, customers, associates and other stakeholders after a thorough analysis of all of these factors, industry trends, and other considerations. The Stalking Horse Offer The Debtors seek to conduct an auction for substantially all of its assets with Trans World Entertainment Corporation as their stalking horse. TWEC, which is a public-traded company with a healthy balance sheet, is one of the Debtors' principal competitors. The basic contours of the business deal between the Debtors and TWEC are: (i) TWEC has agreed, if not outbid at the auction, to purchase substantially all of the Debtors' assets for approximately $104,160,000, free and clear of liens and claims except as specifically provided for in their asset purchase agreement, executed on February 17, 2006; and (ii) TWEC has, in turn, partnered with a joint venture comprised of Hilco and Gordon Brothers Retail Partners, LLC, for an arrangement by which Hilco and Gordon Bros. will conduct inventory liquidation sales at certain of the Debtors' stores. The purchase price is payable in this manner: -- TWEC will pay Musicland a $10,000,000 deposit, which will be held in a segregated, interest bearing account with interest to accrue for the benefit of TWEC, as soon as the Court approves the Bidding Procedures. -- TWEC will pay Musicland $68,120,000 (less interest accrued on the Deposit) and will post letters of credit for the balance of $26,040,000 at the Closing. -- TWEC will pay Musicland the $26,040,000 balance, plus or minus adjustments, after the final reconciliation of the Inventory Taking. The Debtors expect to enter into a definitive agency agreement with Hilco and Gordon Bros. in the near future, as required by the APA. The APA contemplates that at the closing of the sale, TWEC will designate about 80% of the Debtors' remaining stores as "TWEC Stores," and will continue to operate those stores during some or all of what the APA denominates as the "Designation Period." TWEC will be responsible for the "Carrying Costs" of the TWEC Stores during the Designation Period. The Assumed Liabilities include: * cure claims -- $4,200,000 * gift certificates and store credits -- $11,700,000 * 50% of any transfer fees -- $1,000,000 * accrued vacation for transferred employees -- $869,000 * field bonuses for transferred employees -- $350,000 Prior to the end of the Designation Period, TWEC will instruct the Debtors to assume and assign the leases of at least 250 TWEC Stores to TWEC, and TWEC will continue to run those stores. The Debtors will be free to reject the leases of TWEC Stores that they are not directed to assume and assign. TWEC will select about 20% of the Debtors' stores at the closing of the sale as "GOB Stores." While the consideration the Debtors receive for allowing Hilco and Gordon Bros. to conduct sales on the GOB Stores is enumerated in the APA and will be paid to the Debtors by TWEC, the other terms of the conduct of the sales in the GOB Stores will be addressed in the Agency Agreement. A full-text copy of the Asset Purchase Agreement is available for free at http://bankrupt.com/misc/musicland_twecpuchaseagreement Schedules and exhibits to the APA and the executed Agency Agreement will be filed and noticed as soon as practicable. The Debtors believes that TWEC's proposal offered the best opportunity to initiate a sale process that will maximize creditor recoveries (both in terms of purchase price and in terms of cutting-off operational losses), and comply with the covenants in their postpetition financing arrangement. The Debtors have and will continue marketing their assets and business in an effort to solicit further interest from both strategic acquirers and financial buyers and investors. Thus, the Debtors ask the Court to: (a) authorize and schedule an auction for the sale of their assets to TWEC or another bidder or bidders determined have submitted the Winning Bid or Bids, free and clear of all liens, claims, encumbrances and interests; (b) approve procedures for the submission of higher and better offers for any or all of the Assets; (c) approve bid protections; and (d) approve the Sale Notice and Publication Notice. Auction & Bidding Procedures The Debtors propose to conduct an Auction on March 21, 2006, at 11:00 a.m., prevailing Eastern Time, at the offices of the Debtors' counsel: Kirkland & Ellis LLP Citigroup Center 153 East 53rd Street New York, New York At the Auction, only parties submitting written bids in compliance with the Bidding Procedures may bid against TWEC's offer. The highest or best bid, as chosen by the Debtors in their business judgment, will be submitted to the Court for approval at the hearing to approve the sale of the Assets. If there is no Qualified Bid other than the Bid submitted by TWEC, no Auction will be held. If TWEC is the Winning Bidder, the Debtors ask the Court to schedule a hearing on the Sale Motion on March 22, 2006, at 10:00 a.m., prevailing Eastern Time. In the event that TWEC is not the Winning Bidder, the Debtors may ask the Court to schedule a hearing on the Sale Motion on March 29, 2006, in order to accommodate service of and responses to the Second Notice. A full-text copy of the Bidding Procedures is available for free at http://bankrupt.com/misc/musicland_twecbiddingprocedures.pdf To induce TWEC to expend the time, energy and resources necessary to submit a stalking horse bid, the Debtors have agreed to provide certain bid protections provided to TWEC, including a $3,124,800 break-up fee -- 3% of the $104,160,000 cash portion of the purchase price. The Break-Up Fee would be payable upon the announcement of a stand-alone chapter 11 plan, the withdrawal of the Sale Motion, or the consummation of a sale transaction with another party. The Debtors have also agreed to provide reimbursement of the reasonable expenses TWEC has and will incur in connection with serving as the stalking horse bidder, up to a $500,000. The Expense Reimbursement, if any, would enjoy the same priority as the Break-Up Fee. In no event is TWEC entitled to both the Break-Up Fee and Expense Reimbursement, Mr. Sprayregen says. Other protections, including minimum overbid amounts, were also negotiated with TWEC. The Debtors propose to give notice of the Bidding Procedures, the Bidding Procedures Order, the Auction and the proposed Sale to parties-in-interest. The Debtors will also publish the notice in The Wall Street Journal (National Edition) and an appropriate trade publication. The Debtors will serve on all counterparties a notice that the Debtors may assume and assign that party's unexpired lease or executory contract to TWEC. That Notice will include the cure amount necessary to assume each unexpired lease. Objections to the Sale must be filed and served no later than 4:00 p.m., prevailing Eastern Time on March 17, 2006, on: (a) The Office of the United States Trustee for the Southern District of New York 33 Whitehall Street, 21st Floor New York, New York Attn: Deirdre A. Martini (b) counsel for the Company Kirkland & Ellis LLP 200 East Randolph Drive Chicago, Illinois 60601-6636 Attn: James Stempel, Esq., and Jonathan Friedland, Esq. with a copy to: Curtis, Mallet-Provost, Colt & Mosle LLP 101 Park Avenue New York, New York 10178 Attn: Steven J. Riesman (c) counsel for TWEC Skadden, Arps, Slate, Meagher & Flom, LLP 333 West Wacker Drive, Chicago, Illinois 60606-1285 Attn: Timothy R. Pohl (d) counsel for the Unofficial Committee of Secured Trade Creditors Morgan Lewis & Bockius LLP 1701 Market Street Philadelphia, Pennsylvania 19103-2921 Attn: Michael A. Bloom, Esq. -- and -- Morgan Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attn: Richard S. Toder, Esq. (e) counsel for the Official Committee of Unsecured Creditors Hahn & Hessen LLP 488 Madison Avenue New York, New York 10022 Attn: Mark S. Indelicato, Esq. (f) counsel for the Senior Secured Lenders Otterbourg, Steindler, Houston & Rosen, P.C. 230 Park Avenue New York, New York 10169 Attn: Andrew M. Kramer, Esq. Headquartered in New York, New York, Musicland Holding Corp., is a specialty retailer of music, movies and entertainment-related products. The Debtor and 14 of its affiliates filed for chapter 11 protection on Jan. 12, 2006 (Bankr. S.D.N.Y. Lead Case No. 06-10064). James H.M. Sprayregen, Esq., at Kirkland & Ellis, represents the Debtors in their restructuring efforts. Mark T. Power, Esq., at Hahn & Hessen LLP, represents the Official Committee of Unsecured Creditors. When the Debtors filed for protection from their creditors, they estimated more than $100 million in assets and debts. (Musicland Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 215/945-7000) ============= U R U G U A Y ============= BANCO CITIBANK: S&P Puts B Rating on Counterparty Credit -------------------------------------------------------- Standard & Poor's rating Service rates Banco Citibank S.A./ Citibank N.A. (Uruguay Branch). Banco Nacional de Mexico, S.A. (Banamex) Counterparty Credit * Local currency BBB+/Stable/A-2 Counterparty Credit * Foreign currency BBB/Stable/A-3 Certificate of deposit * Local currency BBB+/A-2 Certificate of deposit * Foreign currency BB/A-3 Citibank N.A. (Uruguay Branch) * Counterparty Credit B/Positive/B * Certificate of deposit B/B Major Rating Factors Strengths: * High and relatively stable core earnings, measured by absolute dollar amounts and as returns on revenues. * Extraordinarily diverse set of businesses operating worldwide. * Disciplined management structure with clear acquisition goals and stringent expense management. * Leadership position in credit cards, subprime lending, investment banking, cash management, and custody operations. Weaknesses: * Operations in businesses where legal and reputation risks remain high even after major litigation is settled. * High-risk mix of business lines, e.g. consumer finance, emerging markets activities, investment banking, and venture capital. * Capital and reserves relative to the company's risk profile are not exceptional but are offset by considerations of diversification and financial flexibility. * Lack of a strong home country base in retail branch banking. * Challenged to generate revenue growth. Rationale Strong earnings generation from an extraordinarily diverse set of businesses allows Citigroup Inc. to cover some of the high risks that it incurs. In the aftermath of a wave of heavy litigation expenses and criticism of its business practices from regulators around the world, management has tightened up controls and governance and has laid the groundwork for a change of corporate culture. Although these issues have not resulted either in financial instability or in major reputational damage outside of Japanese private banking, they have stymied growth. U.S. regulators discouraged major acquisitions during 2005, and organic growth is proving difficult at least in mature markets. However, Citi is making smaller acquisitions, focusing mainly on emerging markets. Larger acquisitions are possible in the near future. In addition, it is focusing on expanding its consumer network globally through new branch openings. Despite the slow growth, the basic retail and corporate banking franchises are very impressive, with an infrastructure that is best in class in many areas. Earnings volatility has been dampened over this last period of turbulence by stringent cost controls, as well as continual loan loss reserve reversals, gains on sale, and the ability to post certain losses in Argentina directly to equity. Acquisitions have benefited the bottom line in part because the companies purchased possessed high loan loss reserves that were subsequently reversed into income as credit improved. With litigation expenses hopefully behind the company, future earnings stability will depend more directly on credit costs. Loan quality metrics in the consumer sector deteriorated in the U.S. and Germany, in part due to Hurricane Katrina and bankruptcy law changes. While the effects of these issues should be temporary, it is unlikely that credit will remain as pristine as it was in early 2005. Credit costs should rise more rapidly than charge-offs, however, because loan loss reserve reductions, which have been contributing substantially to earnings over the past three years, have run their course at this point, particularly as the company's reserve cushion is lower than that of other banks. Citigroup Inc., as a holding company, has ample earnings capacity to deal with adversity, including the ability to draw on the resources of three major regulated and unregulated subsidiary groups that together are capable of producing a substantial and stable earnings base: Citibank N.A. and other banking affiliates and subsidiaries; the CitiFinancial consumer finance operations; and Citigroup Global Markets Holdings Inc., a securities firm. The sheer size of the $63 billion adjusted tangible common equity base, the $19 billion annual core earnings base, and the firm's valuable franchises across a wide variety of products globally afford it financial flexibility in the face of considerable adversity. Share repurchases and goodwill generated by the acquisitions have suppressed the accumulation of tangible capital, so that economic capital, as measured by Standard & Poor's Ratings Services, is not exceptionally strong for the rating category. It is improving, however, with the sale of the insurance and asset management businesses, which reduce the need for risk capital. Liquidity The company generally funds its global operations in local markets and enjoys access to a wide variety of funding sources on a secured (including securitizations and repos) and unsecured basis. Many of those sources are wholesale rather than core deposits, however. The holding companies maintain less coverage of short-term financing needs than peer banks, in part because of the heavy financing needs of the consumer finance operations and the brokerage operations. Outlook Citigroup's ratings should remain stable despite the improving operating environment in many of its business lines, as expectations of superior performance have already been built into the current ratings. That superior performance is expected to mitigate the effects of an above-average risk profile. Nevertheless, the risk profile argues against a higher rating at this time. For an upgrade, we would like to see core earnings volatility excluding loss reserve reversals subside, improved risk management become more embedded in the culture, and a demonstration of an ability to grow organically and to produce superior profit margins in some of the higher risk businesses. Profile Citigroup consists of subsidiaries engaged in three principal industries: commercial banking, consumer finance, investment banking, and institutional and retail brokerage; in addition, there is a small life insurance operation, Primerica. Despite the divestiture of the insurance and asset management businesses, they represent extraordinary product and geographical diversification and include a number of major business lines in which the firm enjoys a leading market position either globally or in local markets. This fact augurs well for earnings power and stability in the future. The group derives a third of its revenues from nonbanking operations. The negative aspect of this is that the nonbank subsidiaries, as well as the credit card banks, require substantial funding from the holding company. The banking operations are conducted through Citibank N.A.'s branches and subsidiaries in 100 countries (of which the largest are Citigroup Korea Inc., Banco Citiban1k Brazil, and Bank Handlowy w Warczawie; see the separate full analyses for each of these on RatingsDirect) and through other banking affiliates including Banco Nacional de Mexico, Citibank (West), FSB (formerly Golden State), and through the credit card banks in Nevada and South Dakota. The network is diverse but does not generally enjoy a leading position in any geographic area other than in Mexico or the New York metropolitan area. In many countries, it is a niche player focused on corporate banking or the affluent consumer sector. Consumer services also include branch banking, mostly internationally in 21 countries, with 3,505 branches, 1,382 of which are in Mexico and only about 896 of which are in the U.S. (largely New York City, California, and Texas). The credit card operations represent a significant concentration at this point and consist of $164 billion of receivables including $23 billion that are non-U.S., or 23% of managed loans. The proprietary investing portfolio also represents a significant concentration; consisting of $8 billion ($4.8 billion of which is private equity) of investments, it is the largest among global banks and comprises 10% of adjusted total equity. CitiFinancial's commercial and consumer finance operations are a significant part of group profits. The U.S. operations are one of the three very large franchises in North America providing secured and unsecured lines of credit for consumers (2,705 offices) and also large- and small-ticket leasing for office equipment. Operations include finance companies in Japan, Latin America, and other countries (1,759 offices) as well as some consumer banking operations that are of a consumer finance nature, for example the German bank. The Japanese network has been rationalized in response to some poor performance following a period of aggressive growth. Citigroup Global Markets, including investment banking, both institutional and retail brokerage, and sales and trading operations, accounts for about 23% of revenues. About 29% of CGM's earnings are derived from the Smith Barney retail brokerage activities, which are a close second to those of Merrill Lynch following the acquisition of the Legg Mason retail operations in late 2005, and include 13,414 brokers with $1,103 billion of client assets in its retail operations. Its investment banking standing in the league tables places it as the largest debt underwriter in both high-yield and investment- grade issues. In equities, it is one of six bulge-bracket players who are fairly close in their market shares. Investment banking is carried out in an integrated fashion with the corporate banking functions of the bank to provide a full spectrum of financing, as well as sales and trading services for large corporations and governments worldwide. The retail brokers are also effective in selling the products of other group subsidiaries such as insurance products and loans. CGM is the legal entity with the greatest amount of managerial integration with the commercial bank as it seeks to provide a full spectrum of financial services for corporate clients. It accounts for a very large proportion of the revenues of the corporate and investment banking segment. The remaining insurance operations are in Mexico and Primerica. Primerica is a direct marketing organization that focuses on term life, investment products, and the sale of other group products such as home equity loans. Ownership And Legal Status The ratings on the various legal Citigroup entities around the world reflect the legal and regulatory structure as well as the stand-alone strength of the operations. Legally a bank holding company as well as a financial services company, Citigroup benefits from the general oversight of the Federal Reserve Board. Its major subsidiary groups are regulated by the appropriate functional regulatory bodies. Standard & Poor's believes that these regulators will ensure that resources of the subsidiaries will, as a first order of business, be conserved for the benefit of their respective constituents. As a corollary, the subsidiaries are expected to be largely self- funding and capitalized to industry standards. Only those resources deemed to be excess are available to support other entities, so that the holding company and other subsidiaries benefit from the additional resources. For example, the investment-banking arm of the company, Citigroup Global Markets, has received large capital infusions twice in the past three years. Citigroup has also had a long track record of supporting its overseas subsidiaries even in periods of major stress, so that the ratings of its overseas banks benefit, in Standard & Poor's view, from a substantial element of support from the parent. Strategy: Focus On Re-igniting Growth Citigroup is emerging from a very difficult period during which it was focused on putting a series of major litigation issues behind it and on dealing with regulatory investigations of its risk management at home and abroad. At this point, it has settled much of the major litigation for a total cost of about $6 billion, and has about $3 billion of remaining legal reserves. Reputational damage is evident only in the private banking segment, and mostly in Japan. It has also been trying to change its corporate culture to prevent future litigation risk, which will remain elevated for the investment banking business. This effort will take some time to become deep-seated within the organization. It involves making staff more client rather than bottom line focused, and on getting management away from an emphasis on making quarterly numbers. At this point, Citigroup is able to think about shaping its business for the future and about re-igniting growth. It is focusing on high growth and high profit businesses in which it can achieve a number one to number three position in the marketplace. To this end, it has jettisoned most insurance and asset management operations as well as several more peripheral operations. The diminution of diversification is not desirable in Standard & Poor's view, but it still leaves Citi as the most diversified financial institution globally. With major acquisitions discouraged by regulators for the time being, it is opting for organic expansion. It is investing heavily to organically expand its distribution system in all retail segments, opening substantial numbers of branches for banking, finance, and wealth management, especially in emerging markets but in the U.S. as well. It is also spending to build out its equities trading platform as well as its U.S. mortgage banking operation. The expenses required for such investment will only partly come out of a continued unrelenting focus on cost reduction. While they will affect operating leverage, they are critical to the ongoing health of the franchise and a welcome correction to a trend that had resulted in underinvestment in some businesses. The expansion in the emerging market and more downmarket aspects of mature markets will, however, trend toward a higher risk profile to the businesses. Citigroup will at some point also need to address the fact that its branch banking presence in the U.S. is undersized for its product capabilities, though that would likely need to take the form of a large acquisition. Citigroup is one of only a few universal banks that operate indigenous banking operations in the majority of mature economies as well as a broad range of emerging markets. This provides it with a unique ability to provide services to multinational companies and to take advantage of growth opportunities in higher-growth economies. It also results in an extraordinary amount of diversification. These factors have ong been critical to the high ratings the firm enjoys. The challenge will be to lever off of what is a small market share in foreign markets (generally 2%-3%) where local institutions are learning rapidly. Risk Management The principal credit risk issues are at the bank and the finance companies, although CGM also provides bridge loans and other forms of financing and is an active participant in the credit trading markets, which can involve credit risk-taking in a marked-to-market context. In addition to the $679 billion of managed loans at Sept. 30, 2005 (including $92 billion of securitized credit cards), there were $55 billion of derivative counterparty risks and guarantees and other binding commitments of $412 billion. The credit risk profile of the loan portfolio is high relative to those of its banking peers because emerging market, finance company receivables, and commercial real estate lending businesses, all of which can have high loss rates associated with them, account for a large portion of managed loans. Credit cards in particular represent a significant concentration at $157 billion of managed loans (23%). These concerns are mitigated by the high returns earned on these higher-risk loans and the diversification of the portfolio. The loan portfolio will, however, produce higher levels of nonperforming assets and charge-offs than at peer banks over the economic cycles. Indeed, NPAs remain at the highest level of any sizable bank in the country, although they have been declining rapidly. The issues are of mix rather than of risk controls, as the bank is performing in line with its peers within each sector. Part of the reason that asset quality has remained relatively stable is that about two-thirds of managed loans are to the consumer sector, which produces high but less volatile loss rates. In addition, loans to large corporations in mature markets (excluding commercial finance), which have created problems for other competing banks, amount to only $35 billion and have a lesser concentration in telecom, media, and energy loans, so that nonperforming loans in that portfolio reached only about 3% at their peak in 2003. Commercial loan quality may be the best it can be and can deteriorate from this point as the overheated market for corporate credit cools. Citigroup also has substantial credit risk off balance sheet in securitization pools on which it retains a substantial portion of the associated credit risk. These include $96 billion of credit card loans on which it retains substantially all risk and $1.1 billion of credit enhancements on mortgage loans sold with recourse. It has $637 million of interest-only strips on its balance sheet that represent the capitalized expected future income generated by noncash gains on sale of securitized assets. Other securitizations include about $54 billion of CP conduits that have been restructured to avoid being consolidated on balance sheet according to new accounting rules and no longer represent significant risk. Consumer credit is as good as it can get in North America. The hurricane-related costs and the effect of the change in bankruptcy laws caused a $1 billion blip in losses in the second half of 2005; 2006 should benefit from lower bankruptcy-related charges, but other factors such as an increase in minimum required payments on cards could offset much of that benefit. We expect the underlying trend of about 5.5% NCOs in the card portfolio to be stable in 2006; this is high relative to those of peers even though the private label cards have improved more dramatically to levels approaching the bank cards. Internationally (which is about 19% of consumer loans, excluding Mexico), credit is superior to the U.S. and quite stable with two exceptions. In Japan, where the finance company loans suffered a severe deterioration, loss rates remain at 9.8% despite an effort to move more upscale in clientele. The German consumer bank charged off $1 billion of loans in the third quarter of 2005 to bring the write-off policy into conformity with U.S. standards. This represented a one-time catch-up of two years of deterioration, though write-offs will remain elevated over the medium term in Germany due to poor economic conditions. The Korean operations are being reoriented to consumer lending and credit is on an improving trend, but could be risky going forward. Reserves have fallen to very low levels. Citigroup has been provisioning at a lesser rate than charge-offs in each of the past three years, resulting in a $477 loan loss reserve reversal in 2005, and a $2.4 billion reversal in 2004. Reserves now cover only 1.2x annual NCOs of on-balance-sheet assets; reserves do not cover NPLs and 90-day past due loans, which is unique among U.S. banks. In particular, the consumer reserves cover only 10 months of NCOs of on-balance-sheet assets; securitized assets cannot be reserved for under current accounting rules, although this distorts comparisons with those banks that fund credit card assets on balance sheet. Reserves are determined according to a rigorous methodology that, however, focuses on identifiable losses rather than one that would produce a cushion for potential losses. The shortfall of surplus reserves (which is expressed in Standard & Poor's calculation of general reserves) argues for maintaining higher capital instead of reserves. Market Risk Market risk is a major component of overall risk for the company, largely because of the large trading operations and the private equity and hedge fund operations. Trading risk management practices at Citigroup are generally on par with industry practices. The structure of the risk management function includes a chief risk officer, who reports to the CAO, with divisional risk heads reporting to him whose function is to ensure that sufficient dialogue exists between the business and Risk Management. Risk analytics are a strength both in terms of the pricing models used and the framework for stress testing. Formal limits are set by risk management down to the desk level. Traders have limits that are set informally by the business managers. Trading revenues have been sluggish, in part due to a low risk appetite. To address that, Citi is building its prime brokerage and its equities trading operations. Risk appetite has been growing as well, and with it trading volatility. Structural interest rate risk is a complex issue because of the diversity of currencies and locations in which Citigroup operates. CGM is fundamentally short-funded, as trading operations generally are. The card operations are fundamentally asset sensitive due to the tendency of card yields to remain stable throughout the rate cycle. Thus, the net interest margin (NIM) will generally be better in a period of steep yield curves. It will also be sensitive to the level of securitization and other issues of the on-balance-sheet business mix. Given the flattening tendency currently, the margin should remain under pressure during the near future. The $4.8 billion private equity portfolio has been quite profitable this year, although its performance can be volatile. It performed relatively well through the last down-cycle in stock markets because of the lower component of start-up company investments than at some other banks. Citigroup also has $2.2 billion of shares of MetLife Inc. and St. Paul Travelers Cos. shares that were carried at $609 million below their market value at Sept. 30, 2005. Liquidity Risk Like other money center banks and brokers, Citigroup is heavily reliant on purchased funding, as well as on collateralized borrowings against securities portfolios and securitizations that effectively function as collateralized borrowings. Funding is further complicated by the variety of subsidiaries that operate in numerous countries and currencies among which funds cannot necessarily be freely or instantly transferred. To manage these complexities, the major operating subsidiaries operate under a uniform liquidity risk management policy with a single set of standards for the measurement of liquidity risk to ensure consistency across businesses, stability in methodologies, and transparency of risk. Funding is decentralized, however, with foreign subsidiaries funding themselves to the extent possible in local markets, or by borrowing under market terms on a matched basis from a central treasury function. Of paramount importance, however, is the amount of liquidity cushion maintained at the holding companies that provide funding to the operating subsidiaries that need it. On this score, the target for the liquidity cushion remains in the low range of competitors. The concerns are somewhat mitigated by the broad diversity of funding sources, both secured and unsecured, across a myriad of products and geographies. The banking operations include a large, geographically diverse retail and corporate deposit base sourced from clients of Citigroup's branches and subsidiaries in foreign countries, a significant portion of which can be considered core even though they do not fit the strict definition of FDIC-insured core deposits. The cash management and custody business yields $147 billion of liquidity balances that could be seen as customer related and relatively stable, and $41 billion of customer sweep accounts of Smith Barney brokerage customers are maintained as insured deposits at Citibank. In addition, many of the retail depositors in foreign banks and branches could also be considered core. At Sept. 30, 2005, $136 billion of foreign deposits were consumer-related, for example. In some sense, therefore, the operating bank, Citibank N.A. is self-funding. Other sources of funding include collateralized borrowings. For example, CGM borrows on a collateralized basis ($317 billion at Sept. 30, 2005) and follows its own discipline of maintaining unencumbered securities to cover short-term maturities of debt. The banks also rely on securitizations (primarily $92 billion of credit cards) as a form of collateralized borrowing and a valuable diversification of funding sources. The principal users of unsecured purchased funds are the investment banking operations (Citigroup Global Markets) and the finance companies, which are primarily funded by the holding company's borrowings. The holding company and Citigroup Funding Inc. (a funding vehicle that issues CP and MTNs under a Citigroup guarantee) are substantial borrowers in the capital markets on a long- and short-term basis. Consolidated Citigroup had $214 billion of long-term debt at Sept. 30, 2005, issued by the holding company and by Citigroup Funding Inc.($104 billion) or other subsidiaries under the Citigroup guarantee. It also had $27 billion of CP. of the total Citigroup debt, Citigroup Global Markets Holdings Inc. had $55 billion of debt and $44.7 billion of short-term borrowings, the SEC registered portion of which is covered by the Citigroup guarantee. The holding companies maintain liquidity cushions to cover short-term maturities of debt that are less than typically found at large bank holding companies but have access to 23(A) borrowings from the bank on a collateralized basis, and could migrate finance company receivables to the Citibank balance sheet. They also have supplemental contingent sources of liquidity in the form of the ability to securitize finance company assets. The holding companies are partly dependent on dividends from their subsidiaries to meet interest payments because of the double leverage that exists between the successive holding companies and their subsidiaries, which means that debt has been downstreamed to subsidiaries in the form of equity, upon which dividends rather than interest is paid. Regulated subsidiaries had about $10.1 billion of dividending capacity at Sept. 30, 2005. The presence of unregulated subsidiaries also provides financial flexibility. Accounting Citigroup's earnings quality has been affected by a number of special items over the past few years that have obscured the underlying trends. Tax and litigation cost recaptures boosted earnings in the past three years. In addition, large gains on sale of businesses and buildings boosted earnings in 2004 by $2 billion and in 2002 by $1.1 billion pretax. These special items are deducted from earnings to derive "core earnings" under Standard & Poor's definition. Gains on the sale of the life insurance and asset management operations of $2.1 billion each were recorded in discontinued operations and are also not included in core earnings. Earnings volatility was also dampened in 2002 by the fact that $589 million of devaluation losses in Argentina were recorded directly to the foreign currency translation loss account in equity rather than taken through income, although arguably the losses are permanent. It is 0noteworthy that cumulative foreign currency translation losses totaled $4.0 billion at Sept. 30, 2005, although that number also includes the Mexican peso devaluation effect on the Banamex investment. These gains have helped to offset the $10 billion of litigation reserves (pretax) taken over the past four years (net of a $600 million recapture in 2005). After the $521 million of regulatory penalties, and the settlements of the $2.65 billion WorldCom-related suits and the $2.0 billion Enron class action suit, about $3.9 billion of reserves remain at Sept. 30, 2005. In addition, there were $400 million (pretax) for the restitution of losses by private banking clients in Japan and $173 million for disgorgement of income from the transfer agency fees to mutual fund clients. However, the most unpredictable case was the class action suit, the settlement of which dispels much of the uncertainty about the sufficiency of remaining reserves. Loan loss reserves are low by U.S. industry standards in terms of coverage of annual charge-offs and of delinquent loans. Reserve reversals of $477 million in 2005, $2.4 billion in 2004, and lesser amounts in the previous three years reflected improvement in credit trends, which triggered releases mandated by policy, but their magnitude was made possible by the fact that recent acquisitions of banks and card portfolios carried high reserves. With further improvements and reversals unlikely, earnings comparisons will be difficult in the future. Securitization activities make a significant impact on the financial statements. The company provides good disclosure on the income statement and balance-sheet line item effects related to $96 billion of credit card receivables to represent what the true operating performance of the business is. Other securitizations on which the bank retains a small amount of credit risk, although not the first loss portion, include about $54 billion of CP conduits that are off balance sheet. Disclosure could be improved on those risks, as well as on mortgage loans sold with recourse and retained interests in other types of securitizations. Little disclosure is provided about the impact of acquisitions on the income statement. Certain other types of disclosure typically made by peer banks are also missing, such as loan category details, more detail on balance-sheet items, average balance sheets, etc. On the other hand, there is good detail on a large number of segments or business lines. Profitability Some of the volatility may have gone out of core earnings (before nonrecurring gains) with the major chunk of the litigation settlements behind the company. However, earnings growth will be difficult given that Citigroup has not been able to make significant acquisitions, which had been major contributors to growth in past years, and has in fact been selling businesses. In addition, the flat yield curve is hurting NIMs, reserve levels are now so low that reserve reversals can no longer contribute to earnings, credit quality cannot continue improving, and expense controls need to be relaxed somewhat to make room for investments in the business. What growth there is is mostly coming from Asia (excluding Japan), Mexico, and the nonbanking businesses. In 2005, a variety of special gains and tax and reserve reversals helped offset weakness in revenues and a sharp rise in consumer charge-offs due to Hurricane Katrina and bankruptcy law changes in the U.S. and Germany. Excluding special gains, reserve reversals, and tax recoveries, underlying earnings would have been about $18.9 billion in 2005, flat with the $18.8 billion in 2004 (calculated on a similar basis but excluding the $5 billion in litigation costs), though the 2005 number does not include the contributions of the asset management and life insurance businesses that were sold. Given the earnings pressures and diminished opportunities to reverse reserves, Citi will be hard pressed to match 2005's reported earnings from continuing operations. Nevertheless, that level of core earnings represents strong profitability, with pretax returns on operating revenues of about 35%. The sheer size of that earnings power also permits the company to absorb a considerable amount of risk without affecting its capital base and ensures that no single issue can destabilize the firm. About 60% of group earnings come from the consumer-related businesses, each of which benefits from superior management and is highly profitable due to scale efficiencies and the company's funding cost advantage. With a strong infrastructure to manage operations with a high degree of efficiency and control, the company is poised for rapid expansion through acquisitions as well as organic growth as the economy recovers. In particular, the U.S. retail branch network is capable of managing a much larger network than it currently has. The breadth of consumer products will also mean that as consumer preferences for managing finances shift, the bank will be well placed to capitalize on the changes or at least move with them. The cards business is the largest of the businesses and the most profitable of the now very concentrated field of large credit card players. Some of the profitability comes from the funding advantage, some from restraint on marketing spending, and some from high efficiency levels. Organic growth in the U.S. has been negative, but high growth in Asia and Mexico permitted management receivables to remain stable in 2005. While growth prospects for receivables are not improving due to high consumer leverage and higher repayment rates, credit costs should subside in 2006 as a portion of bankruptcy-related charge-offs were accelerated into 2005 in the run-up to the change in bankruptcy laws in the U.S., so earnings should rebound. The international consumer finance operations (largely Japan) have been in the throes of reorganization to up-tier on credit and reformat the network to be more efficient. Loan quality is improving, so 2006 could see a real turnaround. U.S retail banking and consumer finance profitability is excellent in a benign credit environment, steady growth in lending, and continued attention to expenses. International retail banking suffered from a spike of $1 billion of losses in the German bank when the timing of loss recognition was changed. Good growth in Asia and Mexico is likely to propel earnings higher in 2006. The commercial banking segment, which contains the real estate and equipment leasing operations, is benefiting from shedding noncore businesses. Growth should remain slow as commercial real estate lending opportunities plateau. The wholesale and investment bank has had a spectacular year in 2005 boosted by net loan recoveries. Sales and trading operations have driven revenue increases and improved efficiency. Investment banking revenues have been strong as well. These benefits may not be repeatable in 2006, but the investments in the equities division could help support revenues. The litigation issues have not hurt the bank's standing in the league tables for mergers and acquisitions and underwriting business. The cash management, custody, and trade finance segments, where Citigroup is a global leader as well, are growing and providing some greater stability to earnings. While credit recoveries are much diminished, growth in assets under administration should push up earnings, which were up 6.5% year to year for the nine months of 2005 if tax recoveries are excluded. The brokerage line of business has been sluggish with the weak transaction levels, although they should pick up as market activity increases. Throughout the difficult period, the bank has been innovative in attracting net new assets by cross- selling to clients of other parts of the bank and adding new channels of sales. It has also practiced strong expense controls that provide superior efficiency ratios to other competitors. The addition of the Legg Mason business should provide opportunities for cost synergies and revenue growth through greater product sales per FC. Private banking operations are suffering from the loss of revenue and the expenses of the regulatorily mandated wind-down of the Japanese operations as well as investments in better platforms. However, with those costs waning in 2006 and managed assets exhibiting growth in the U.S., earnings could expand strongly. Reaching full potential in this business will require success in plans to provide a better client proposition in the face of strong competition. Private equity gains have been very strong for 2005, so that comparisons could be difficult in the future. However, this segment also includes alternative investments management and investments in MetLife and Travelers, which are likely to be divested and could affect returns. While Citigroup must comply with bank regulatory risk-adjusted capital ratios, these ratios are not particularly applicable to the substantial nonbank industry groups within the organization. For example, they do not factor in capital requirements for insurance, or operational risk in transaction processing, wealth management, and trading operations in particular. Securitized assets also are not fully reflected, nor are higher risk assets such as the nonprime lending and emerging markets businesses. The Tier 1 regulatory ratio therefore should appropriately remain high by industry standards. On a more risk-adjusted basis than the regulatory scheme, capitalization remains more moderate before taking into consideration the benefits of the company's enormous diversification and financial flexibility. Citigroup has been generating a huge amount of capital in the past two years. Not only is capital generation due to the $19 billion annual earnings capacity, but asset sales freed up a substantial amount of capital from the Standard & Poor's adjusted common equity perspective. For example, the sale of the asset management and life insurance business reduced economic risk capital requirements, and the sale of the stake in Samba along with the reduction in Nikko Cordial holdings reduced the amount of equity in unconsolidated subsidiaries, which Standard & Poor's deducts from capital. The gains on sale also generated about $6 billion of capital. Thus, adjusted common equity rose substantially in 2004 and 2005, despite the continued acquisitions that have increased total intangibles to $44 billion excluding MSRs, and the accelerated share repurchases. Standard & Poor's expects Citigroup to hold on to some of the improvement in capital due to divestitures to help keep its economic capital measures more in line with those of other large universal banks. Capital held in various subsidiaries is not necessarily available to the holding company or other subsidiaries, especially when different regulators are involved. Banking regulators are likely to act fairly stringently to prevent transfers of resources detrimental to the bank they regulate, as are the other regulators of the respective industry groups. Only to the extent that the operating subsidiaries enjoy financial flexibility in the form of excess capital or the ability to direct investments or divestitures can those resources can be made available to the holding company and its weaker subsidiaries. Conversely, the holding company may also be required at times to recapitalize weak subsidiaries, as it did from CGM in 2004 and 2002. CGM has been recapitalized to industry standards on Standard & Poor's measures after losing money in two of the past three years as it absorbed the litigation costs. While its extraordinary international diversification and earnings power mitigate concerns over levels of risk-adjusted capital, the sheer size of the capital base also means that any one event could not severely deplete the base. * URUGUAY: Poll Shows Most Argentinians Against Pulp Mills ---------------------------------------------------------- In a public opinion poll published in the Buenos Aires press, a majority of Argentines are against the construction of two pulp mills on the river, which acts as a natural border between Uruguay and Argentina. According to the Merco Press, Argentinians may reject the pulp mills for environmental reasons but they would like to see a resolution reached between Uruguayan President Tabare Vazquez and Argentine's Nestor Kirchner. Those who participated in the poll disapproved the protest tactics of blockading the international bridges leading to Uruguay. Argentina previously announced bringing the case to the International Court of Justice in The Hague, Netherlands The construction of the two pulp mills involves US$1.8 billion investment from the Uruguayan government. The Merco Press relates that Argentine provincial and federal authorities and environmentalist groups state that the pulp mills with their chlorine bleaching process are highly water and air contaminating, but Uruguay argues both mills comply with the latest and most stringent European Union regulations regarding conservation of natural resources. In spite of the opinion polls, residents from Gualeguaychu, across from Fray Bentos, kept up the route and bridge blockade for the sixteenth consecutive day and further north where some of the traffic had been rerouted, Colon-Paysandu, environmentalist groups and local residents also began organizing random cuts, the Merco Press reports. ================= V E N E Z U E L A ================= PDVSA: Acquires 46% Stake in Argentine Fuel Distributor ------------------------------------------------------- State oil firm Petroleos de Venezuela aka PDVSA bought a 46% stake in Petrolera del Cono Sur, Argentine fuel distributor to 162 petrol stations operating under the Sol Petroleo, Economist Intelligence Unit reports. PDVSA is set to pay about US$15 million to Ancap, Uruguay's state oil company, relates EIU. Ancap will hold a 46% participation in Petrolera after the conclusion of the deal. According to EIU, Sol Petroleo's remaining 8% trades as shares on the Buenos Aires stock exchange. PDVSA is Venezuela's state oil company in charge of the development of the petroleum, petrochemical and coal industry, as well as planning, coordinating, supervising and controlling the operational activities of its divisions, both in Venezuela and abroad. * * * On Jan. 23, 2005, Fitch Ratings upgraded the local and foreign currency ratings of Petroleos de Venezuela S.A. aka PDVSA to 'BB-' from 'B+'. The rating of PDVSA's export receivable future flow securitization, PDVSA Finance Ltd, was also upgraded to 'BB+' from 'BB'. In addition, Fitch has assigned PDVSA a 'AAA(ven)' national scale rating. The Rating Outlook is Stable. Both rating actions follow Fitch's November 2005 upgrade of Venezuela's sovereign rating. PDVSA: Venezuela Delays Giving Oil Pact Details ----------------------------------------------- The Associated Press reports that Venezuela's oil minister, Rafael Ramirez, has delayed submitting to congress details on new oil contracts that are being awaited by 32 private energy producers. Minister Ramirez was scheduled to deliver to the National Assembly on Thursday the general guidelines for new joint- venture agreements that bring operations by private oil firms here under state control. Private oil companies signed preliminary agreements last year to migrate all 32 existing operating agreements in the country to new joint ventures controlled by PDVSA, which will have an average 60% stake in all new joint venture contracts. The 32 fields previously under operating agreements are now under a transition scheme controlled by special "transitional technical committees" to guarantee their normal operations and transition to the new contract model. Mario Isea, a lawmaker from congress's Energy and Mines Commission, told the AP that the new business model is under discussion and that the final document will not be ready until next month. Industry analysts say the companies' investments have stalled as they await the outcome of the difficult contract negotiations. The contract overhaul is part of the Chavez government's wider strategy to gain more control over private oil operations and increase revenue from existing oil output. The 32 fields pump approximately 500,000 barrels a day, roughly a fifth of the Venezuela's total petroleum production, according to industry estimates. Venezuela is the world's fifth-largest exporter of oil and among the top five suppliers to the United States. PDVSA is Venezuela's state oil company in charge of the development of the petroleum, petrochemical and coal industry, as well as planning, coordinating, supervising and controlling the operational activities of its divisions, both in Venezuela and abroad. * * * On Jan. 23, 2005, Fitch Ratings upgraded the local and foreign currency ratings of Petroleos de Venezuela S.A. aka PDVSA to 'BB-' from 'B+'. The rating of PDVSA's export receivable future flow securitization, PDVSA Finance Ltd, was also upgraded to 'BB+' from 'BB'. In addition, Fitch has assigned PDVSA a 'AAA(ven)' national scale rating. The Rating Outlook is Stable. Both rating actions follow Fitch's November 2005 upgrade of Venezuela's sovereign rating. *********** S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter - Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. John D. Resnick, Marjorie C. Sabijon and Sheryl Joy P. Olano, Editors. Copyright 2006. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is $575 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. * * * End of Transmission * * *