/raid1/www/Hosts/bankrupt/TCRLA_Public/170706.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
Thursday, July 6, 2017, Vol. 18, No. 133
Headlines
A R G E N T I N A
ARGENTINA: 2017 Inflation Seen at 21.6%, Above Central Bank Target
MENDOZA PROVINCE: S&P Affirms B Issuer Credit Rating
TELECOM ARGENTINA: Enters Prelim Merger Agreement w/ Cablevision
B R A Z I L
CENTRAIS ELETRICAS: Gov't. May Allow Firm to Raise Rates at Dams
JBS SA: Court Justice Upholds Barring Firm Assets Sale to Minerva
NOBLE GROUP: Sells Off Brazilian Electric Power Unit for US$3MM
RUMO LOGISTICA: Moody's Withdraws B1 Corporate Family Rating
C H I L E
EMPRESA NACIONAL DEL PETROLEO: S&P Retains 'b' SACP
E C U A D O R
ECUADOR: S&P Lowers Sovereign Credit Ratings to B-, Outlook Stable
* ECUADOR: Exports to EU Rise 20 pct. After Trade Accord
H O N D U R A S
INVERSIONES ATLANTIDA: Fitch Affirms B IDR; Outlook Stable
M E X I C O
FINANCIERA INDEPENDENCIA: Fitch Rates Proposed Sr. Notes BB-
P U E R T O R I C O
BENITEZ GONZALEZ: Trustee Files Chapter 11 Plan of Liquidation
PUERTO RICO: PREPA Sent to PROMESA Title III Bankruptcy
PUERTO RICO: PREPA's Title III Case Summary & Top Unsec. Creditors
V I R G I N I S L A N D S
LIMETREE BAY: Moody's Affirms Ba3 Sr. Secured Term Loan Rating
- - - - -
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A R G E N T I N A
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ARGENTINA: 2017 Inflation Seen at 21.6%, Above Central Bank Target
------------------------------------------------------------------
Luc Cohen at Reuters reports that median inflation expectations
for Argentina in 2017 held steady at 21.6 percent, unchanged from
a month earlier and well above the central bank's target range of
12 percent to 17 percent, a poll of 54 economists published by the
bank showed.
Latin America's No. 3 economy is seen growing 2.7 percent this
year, a tick above the 2.6 percent rate seen last month but below
government expectations for growth of around 3 percent, according
to the survey, according to Reuters.
Argentina's President Mauricio Macri is seeking to show signs that
the economy is rebounding and that inflation -- which totaled more
than 40 percent last year -- is under control ahead of mid-term
elections in October that will help determine the fate of his open
market reform agenda, the report notes.
Cuts in subsidies for utilities like gas and electricity,
necessary to reduce a wide fiscal deficit, have resulted in higher
consumer prices, the report relays. A weakening peso currency and
wage hikes above the central bank's target range also threaten to
complicate the monetary authority's goal, the report says.
Buenos Aires province -- Argentina's largest -- reached a deal
with public school teachers' unions to raise salaries by 24
percent in 2017, ending a months-long impasse, the report relays.
When negotiations began in February, the deal the union would
ultimately reach was seen as a benchmark for the rest of the
public sector, meaning a pay hike well above inflation goals could
embolden other unions to demand a similar deal, the report says.
But it has lost that bellwether status since many other sectors
have already reached deals, the report discloses.
"The impact is reduced in this context given the delay," said
Federico Furiase, an economist with consultancy Estudio Bein &
Asociados in Buenos Aires, adding that the fast-depreciating peso
currency was now the most influential factor for inflation, the
report relays.
The teachers' wage hike was similar to a 24.3 percent deal reached
earlier this year by bank workers, seen as a reference for the
private sector, the report discloses. Central bank President
Federico Sturzenegger has said wage hikes "slightly above" the
target inflation range would not jeopardize the goal, the report
adds.
* * *
As reported in the Troubled Company Reporter-Latin America on
May 10, 2017, Fitch Ratings affirmed Argentina's Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) at 'B' with a
Stable Outlook. The issue ratings on Argentina's senior unsecured
Foreign and Local Currency bonds are also affirmed at 'B'. The
Country Ceiling is affirmed at 'B' and the Short-Term Foreign and
Local Currency IDRs at 'B'.
On Jan. 30, 2017, the Troubled Company Reporter-Latin America
reported that Moody's Investors Service has assigned a B3 rating
to the Government of Argentina's US$3.25 billion bond due 2022 and
the US$3.75 billion bond due 2027. The outlook on the Government
of Argentina's rating is stable.
As previously reported by the TCR-LA, Argentina defaulted on some
of its debt late July 30, 2014, after expiration of a 30-day grace
period on a US$539 million interest payment. Earlier that day,
talks with a court-appointed mediator ended without resolving a
standoff between the country and a group of hedge funds seeking
full payment on bonds that the country had defaulted on in 2001.
A U.S. judge had ruled that the interest payment couldn't be made
unless the hedge funds led by Elliott Management Corp., got the
US$1.5 billion they claimed. The country hasn't been able to
access international credit markets since its US$95 billion
default 13 years ago.
On March 30, 2016, after more than 12 hours of debate in the
Senate, Argentina's Congress passed a bill that will allow the
government to repay holders of debt that the South American
country defaulted on in 2001, including a group of litigating
hedge funds that won judgments in a New York court. The bill
passed by a vote of 54-16.
MENDOZA PROVINCE: S&P Affirms B Issuer Credit Rating
----------------------------------------------------
S&P Global Ratings affirmed its 'B' foreign and local currency
long-term issuer credit ratings on the Argentine province of
Mendoza. The outlook remains stable.
OUTLOOK
S&P said, "The stable outlook reflects our view of an increasing
dialogue between the local and regional governments (LRGs) and the
federal government to address various fiscal and economic
challenges that are expected to remain in the short to medium
term. In addition, we consider that Mendoza's fiscal performance
will gradually improve in the next 12 months, owing to ongoing
efforts to contain spending, although it will continue to post
deficits after capital expenditure (capex), reflecting its limited
ability to reduce investments."
Downside scenario
S&P could lower its ratings on Mendoza during the next 12 months
if it lowers the sovereign ratings, if it perceives that the
province's financial commitments are unsustainable, or if the
province faces a near-term payment crisis.
Upside scenario
S&P said, "Given that we don't believe Mendoza could meet the
conditions to have a higher rating than the sovereign, we would
only consider raising our ratings on the province during the next
12 months if we were to raise our sovereign ratings on Argentina.
Such an upgrade would have to be accompanied by a track record of
Mendoza's policymakers maintaining prudent policies throughout
potential changes in administration and/or consistent operating
and after-capex surpluses in the next 12 months.
RATIONALE
"Our 'B' rating on Mendoza reflects the province's volatile fiscal
performance in recent years and poor financial planning, which we
expect will improve gradually over the next three years. Since
April 4, 2017, when we raised our ratings on Mendoza following our
rating action on the sovereign, the province has continued to tap
markets to cover its liquidity needs and we expect the gradual
macroeconomic recovery in Argentina to buttress Mendoza's revenue
and expenditure controls.
"Tighter expenditure control is offset by a very volatile
institutional framework and difficult, though gradually improving,
macroeconomic conditions Mendoza, like all LRGs in Argentina,
still operates under a very volatile and underfunded institutional
framework, in our view. However, we see a positive trend in
predictability from the outcome of potential reforms and the pace
of their implementation. We expect moderate reforms of the
distribution of federal tax revenues to the LRGs. Also, in our
view, more consistent support from the federal government has
allowed LRGs to measure the short- and longer-term impact on their
finances. We view favorably the constructive dialogue between the
federal and subnational governments to resolve the current
institutional, administrative, and budgetary challenges. As a
result, a stronger institutional framework could improve LRGs'
credit quality in the next few years."
Mendoza's financial management has made progress on controlling
expenditure amid a challenging macroeconomic scenario. Measures to
curb spending, combined with improved budgetary procedures and
liability management, led to stronger 2016 fiscal results than in
our base case. Nonetheless, continued high inflation levels, which
limit the administration's capacity to pursue financial policies
with a medium- to long-term plan, and the use of debt to cover
liquidity needs, weigh on Mendoza's financial management. In
addition, the province's economy is very sensitive to commodity
prices and weather conditions, as well as the sovereign's economic
performance, given that about half of its revenues come from
federal transfers. In 2016, Mendoza's economy shrank 3.6% due to
unfavorable weather, lower consumption due to declines in real
wages, and the temporary closing of the airport for renovation.
S&P said, "We foresee better growth prospects in 2017 in line with
the sovereign's, as well as due to a better harvest at the
beginning of the year. We estimate the local GDP per capita at
US$7,768 in 2017 while the three-year average local GDP will reach
US$7,506, albeit still below the national average.
"The foreign currency rating on the province is the same as our
'B' long-term sovereign credit rating on Argentina. Mendoza, like
most Argentine LRGs, doesn't meet our criteria to be rated higher
than the sovereign, mainly because the province's liquidity isn't
sufficient to cover all of its debt obligations."
Fiscal performance will remain sluggish, while continued
borrowings will increase debt Mendoza should continue to generate
around 49% of its own-source revenues over the next three years.
S&P does not expect changes to the current tax structure, given
the province's limited ability to raise revenue. Mendoza is
currently working to reduce its tax burden over the next 10 years
to stimulate economic activity, by gradually decreasing gross
receipts tariffs. At the same time, the steady transfer of 15% of
co-participation funds, agreed between the province and the
federal government, should keep modifiable revenues stable at 49%
of operating revenues in 2017-2019. S&P expects inflationary
pressures will continue to weigh on the province's budgetary
performance through spending increasing above inflation, but yet
staying below nominal national GDP growth. This reflects Mendoza's
ongoing efforts to monitor spending and its improved budgeting
over the past few years.
S&P said, "In our base case, we assume operating balances will
gradually improve to a surplus of 1.7% of operating revenues by
2019 from a deficit of 1.3% of operating revenues this year. At
the same time, the province's budgetary rigidities stemming from
personnel and interest payments, as well as infrastructure needs
ranging from schools to roads and public security, will result in
continued deficits after capex over the next three years. We also
assume the deficit after capex will average 4.5% of total revenue
in the forecast period. We expect capex will gradually increase,
averaging 6% of total spending between 2017 and 2019.
"We expect Mendoza will continue tapping the markets to cover its
liquidity needs over the next three years. Although, in absolute
terms, Mendoza's debt will increase relative to its operating
revenues, it will remain stable at 56% due to persisting double-
digit inflation and continued depreciation of the peso. Because
Mendoza has been issuing in local and international markets, its
debt service has increased over the past year to 11% of operating
revenues; interest payments should average 4% of operating
revenues between 2017 and 2019 reflecting the higher debt burden.
However, we expect Mendoza will continue to pursue liability
management policies to smooth its debt-service profile,
particularly in 2018. Therefore its debt service should range from
8.5% of operating revenues in 2017 to 7% in 2019.
"The province's liquidity position has improved on the back of
greater access to the markets. But, in our view, it has no free
cash to cover its estimated debt service for 2017 of Argentine
peso 5 billion. Given that about 40% of the province's debt
service is in foreign currency, depreciation of the peso would
weaken Mendoza's liquidity position further. However, this
exchange rate risk is offset by Mendoza's dollar-linked royalty
income, which should represent 7% of operating revenues in 2017.
We assess Mendoza's access to external liquidity as uncertain,
largely due to our evaluation of the development of Argentina's
domestic capital markets and of the domestic banking system.
Mendoza, like other public entities in Argentina, does not have a
strictly committed credit line, but it has established
relationships with major banks, including Banco Nacion, which is
the province's financing agent and provides it with an overdraft
facility.
"Mendoza's contingent liabilities stemming from its government-
related entities AySAM (water and sanitation) and STM
(transportation), and which we consider self-supporting, are
estimated to be below 2% of its projected operating revenues in
2017. In our view, these entities provide services that are
essential to Mendoza and are unlikely to require financial support
from the province.
"In accordance with our relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable (see 'Related Criteria And Research')." At
the onset of the committee, the chair confirmed that the
information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee agreed that the revenue and expenditure management
subscore, as well as the contingent liabilities assessment, had
improved. All other key rating factors were unchanged. Key rating
factors are reflected in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision.
The views and the decision of the rating committee are summarized
in the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating action
(see 'Related Criteria and Research').
RATINGS LIST
Ratings Affirmed
Mendoza (Province of)
Issuer Credit Rating B/Stable/--
Senior Unsecured B
TELECOM ARGENTINA: Enters Prelim Merger Agreement w/ Cablevision
----------------------------------------------------------------
Cablevision Holding S.A., a spun off company that resulted from
the corporate restructuring of Grupo Clarin S.A., disclosed that
its subsidiary Cablevision S.A. the #1 paid television provider,
the leader in the broadband market in Argentina, and the second
largest paid television provider in Uruguay, and Telecom Argentina
S.A., a leading mobile and fixed telecommunication company in
Argentina, as well as in mobile telecommunication service in
Paraguay, announced a plan to merge their corporate and
operational structures, in order to become a convergent
telecommunications provider and participate in the opening of the
sector, which pursuant to the regulatory framework in force, is
scheduled to begin as of January 2018.
On June 30, 2017, the board of directors of both Companies have
approved a Preliminary Merger Agreement. The proposed transaction
is part of a global process of convergence in the provision of
fixed and mobile telecommunication services, video and internet
distribution referred to as quadruple play. The operation will
enable the merged company to become a leader in convergent
solutions to improve people's digital lives and facilitate the
companies' digital operation. The combination of both companies
will enhance investments in the latest mobile technology
infrastructure as well as the deployment of a high speed fiber
optic network.
Nowadays, there is a tendency for technological convergence
between networks and platforms for the provision of voice, data,
sound and image transmission services, both fixed and wireless,
nationally and internationally in integrated solutions provided to
customers (the "Convergence Products").
In order to offer their customers Convergence Products, the
Companies have considered that their respective operational and
technical structures are highly complementary and could be
enhanced through structural integration, achieving synergies in
the development of Convergence Products that will bring
significant benefits to the customers, the sector and the economy
as a whole. Additionally, the investment plans of the merged
company will accelerate the development and strengthening of
networks in terms of capacity, speed, quality and various
services.
The Companies consider that such structural consolidation could be
achieved through a merger process in accordance with the
provisions of the Argentine General Corporations Law.
The agreement reached between the Companies provides for a merger
by absorption of Cablevision (as absorbed company), by Telecom
Argentina (as absorbing company). As a result of the transaction,
Telecom Argentina shall increase its share capital by
$1,184,528,406. Consequently, Telecom Argentina will issue, on the
effective date of the merger, $1,184,528,406 shares of common
stock, each of which will be registered, have a nominal value of
$1, hold one vote, and will be issued either as class A shares or
as a new class of shares of common stock (the "Class D Shares"),
which will be distributed to the shareholders of Cablevision, in
accordance with the agreed exchange ratio.
The exchange ratio approved by the Companies' board of directors
provides for 9,871.07005 shares of Telecom Argentina for each
Cablevision share. Thus, CVH, the controlling shareholder of
Cablevision, and Fintech Media LLC, Cablevision's minority
shareholder, will receive a total direct and indirect interest in
Telecom Argentina equal to 55% after its capital increase. The
current shareholders of Telecom Argentina will retain the
remaining 45% of the share capital as a result of the merger.
The transaction is subject to the respective shareholder meetings'
approval and to regulatory approvals.
Carlos Moltini, CEO of Cablevision stated: "The services offered
by both companies are complementary, this merger will allow us to
develop a quadruple play proposal, which in the world allows
clients to access fixed landline, mobile phone, television and
broadband internet. We are committed to offering both our
residential and corporate clients the best service."
LionTree Advisors and Goldman Sachs & Co. LLC served as CVH's and
Cablevision's financial advisors.
As reported in the Troubled Company Reporter-Latin America on
April 25, 2016, Moody's hiked Telecom Argentina S.A.'s Corporate
Family Rating to B3 from Caa1 in the global scale.
===========
B R A Z I L
===========
CENTRAIS ELETRICAS: Gov't. May Allow Firm to Raise Rates at Dams
----------------------------------------------------------------
The New York Times reports that the Brazilian government is
considering allowing state-run power utility Centras Eletricas
Brasileiras to raise rates at dams impacted by a 2012 sector
overhaul, a person close to the matter said.
According to the person, who requested anonymity because the
discussions are private, the government may present the proposal
as soon as possible, the report relays. A full sale of
subsidiaries including Chesf and Furnas is not currently under
discussion, the person said, The New York Times notes.
Eletrobras, as the company is known, was forced to charge lower
rates at several dams in exchange for the early renewal of their
operating licenses as part of a plan by former President Dilma
Rousseff to try and force down electricity prices, The New York
Times relays.
As reported in the Troubled Company Reporter-June 2, 2017, Moody's
Investors Service has changed the outlook on Centrais Eletricas
Brasileiras SA-Eletrobras ratings to negative from stable and
affirmed the corporate family and senior unsecured ratings at Ba3.
The action follows Moody's May 26, 2017 rating action in which the
outlook for Brazil's government bond rating was revised to
negative from stable.
JBS SA: Court Justice Upholds Barring Firm Assets Sale to Minerva
-----------------------------------------------------------------
Ricardo Brito at Reuters reports that a Brazilian Supreme Court
justice has upheld a lower court decision that ordered the world's
largest meatpacker, JBS SA, to halt the sale of $300 million worth
of South American assets to Minerva SA, according to a court
document.
Justice Edson Fachin agreed with a lower court's ruling that JBS'
deal to sell plants in Argentina, Paraguay and Uruguay could harm
the investigation of a massive corruption scandal involving JBS,
according to Reuters.
Justice Fachin's final decision was made, although the full ruling
has yet to be released, the report relays. JBS can appeal the
justice's decision to the full Supreme Court, the report notes.
JBS did not immediately respond to a request for comment,
according to Reuters.
Prosecutor-General Rodigo Janot reached a plea agreement in May
with the billionaire brothers who control JBS, Wesley and Joesley
Batista, to avoid prosecution if they turned in 1,893 politicians
allegedly involved in a bribery scheme, the report says.
Their testimony led to the corruption charge against President
Michel Temer, the report discloses. The charge against Temer, who
has repeatedly denied any wrongdoing, added to the political
turmoil in Latin America's biggest economy and threatens to halt
the president's economic reform agenda in Congress, the report
notes.
JBS' lawyers had argued before Fachin that blocking the sale of
assets to Minerva broke the terms of the plea-bargains the
Batistas signed, which gave them immunity against prosecution, the
report relays.
A separate leniency deal between the Batistas and federal
prosecutors was signed in late May, requiring the family to pay a
BRL10.3 billion ($3.11 billion) fine over 25 years, the report
adds.
As reported in the Troubled Company Reporter-Latin America on June
16, 2017, S&P Global Ratings lowered its global scale corporate
credit ratings on JBS S.A. and JBS USA to 'B+' from 'BB' on global
scale. In addition, S&P lowered its national scale rating on JBS
to 'brBBB-' from 'brAA-'. S&P also lowered the senior unsecured
debt ratings on JBS and JBS USA to 'B+' from 'BB' and the senior
secured debt ratings on JBS USA to 'BB' from 'BBB-'. All ratings
remain on CreditWatch negative.
NOBLE GROUP: Sells Off Brazilian Electric Power Unit for US$3MM
---------------------------------------------------------------
The Business Times reports that Noble Group has sold off a
Brazilian subsidiary Noble Comercializadora de Energia Ltda (NCEL)
for about US$3 million.
According to the report, the commodities trader said in an
exchange filing on June 29 that the consideration was satisfied in
cash and arrived on a willing-buyer, willing-seller basis taking
into account the relevant market and commercial considerations.
Noble owned 100 per cent of the company, which is primarily
engaged in the sale of electric power, the report notes.
NCEL had a book value and net tangible asset value of about
US$4.09 million as at May 31, said Noble, The Business Times adds.
Hong Kong-based Noble Group Limited (SGX:N21) --
http://www.thisisnoble.com/-- engages in supply of agricultural,
industrial and energy products. The Company supplies agricultural
and energy products, metals, minerals and ores. Agriculture
products include grains, oilseeds and sugar to palm oil, coffee,
and cocoa. Energy business includes coal, gas and liquid energy
products. In metals, minerals and ores (MMO), it supplies iron
ore, aluminum, special ores and alloys. The Company operates
nearly in 140 locations. It supplies growth demand markets in
Asia and Middle East. Alcoa World Alumina and Chemicals is the
subsidiary of this company.
As reported in the Troubled Company Reporter-Asia Pacific on
May 24, 2017, S&P Global Ratings lowered its long-term corporate
credit rating on Noble Group Ltd. to 'CCC+' from 'B+'. The
outlook is negative. At the same time, S&P lowered the long-term
issue rating on Noble's outstanding senior unsecured notes to
'CCC' from 'B'. In addition, S&P lowered its long-term Greater
China regional scale rating on the company to 'cnCCC+' from
'cnBB-' and on the notes to 'cnCCC' from 'cnB+'.
S&P downgraded Noble because it believed the company's capital
structure is not sustainable. This is due to continuing weak
cash flows and profitability, and Noble's access to funding will
have further weakened following its weak results for the three
months ending March 31, 2017.
The TCR-AP reported on June 27, 2017, that Fitch Ratings has
downgraded Noble Group Limited's Long-Term Foreign-Currency Issuer
Default Rating (IDR) to 'CCC' from 'B-'. At the same time, the
agency has downgraded Noble's senior unsecured rating and the
ratings on all its outstanding senior unsecured notes to 'CCC'
from 'B-'. The Recovery Rating is 'RR4'. Fitch has removed these
ratings from Rating Watch Negative
RUMO LOGISTICA: Moody's Withdraws B1 Corporate Family Rating
------------------------------------------------------------
Moody's America Latina Ltda. has withdrawn Rumo Logistica
Operadora Multimodal S.A's B1/Baa2.br corporate family rating for
business reasons.
The following ratings were withdrawn:
- Corporate Family Rating: B1/Baa2.br
RATINGS RATIONALE
Moody's has withdrawn the ratings for its own business reasons.
Rumo is the company resulting from the merger between Rumo and
ALL, completed in 2016, and is the largest independent rail-based
logistics operator in Latin America. The company's rail operations
comprise four long-term rail concessions, totaling 12,000
kilometers of rail tracks, 1,000 locomotives and 25,000 railcars,
through which the company transports agricultural commodities and
industrial products. Additionally, Rumo develops the intermodal
logistic of containers and related storage services through Brado
Logistica. In the last twelve months ended March 2017, Rumo had
net revenues of BRL 5.0 billion and net losses of BRL 797 million.
The last rating action on Rumo was taken on June 24, 2016 when
Moody's affirmed the company's global scale corporate family
ratings at B1 and national scale ratings at Baa2.br, outlook
stable
Moody's National Scale Credit Ratings (NSRs) are intended as
relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global
scale credit ratings in that they are not globally comparable with
the full universe of Moody's rated entities, but only with NSRs
for other rated debt issues and issuers within the same country.
NSRs are designated by a ".nn" country modifier signifying the
relevant country, as in ".za" for South Africa. For further
information on Moody's approach to national scale credit ratings,
please refer to Moody's Credit rating Methodology published in May
2016 entitled "Mapping National Scale Ratings from Global Scale
Ratings". While NSRs have no inherent absolute meaning in terms of
default risk or expected loss, a historical probability of default
consistent with a given NSR can be inferred from the GSR to which
it maps back at that particular point in time. For information on
the historical default rates associated with different global
scale rating categories over different investment horizons.
=========
C H I L E
=========
EMPRESA NACIONAL DEL PETROLEO: S&P Retains 'b' SACP
---------------------------------------------------
S&P Global Ratings affirmed its 'BBB-' ratings on Empresa Nacional
del Petroleo (ENAP). S&P said, "We also kept the company's 'b'
stand-alone credit profile (SACP) unchanged. The outlook on the
corporate credit rating remains stable."
S&P related, "The ratings on ENAP continue to reflect our opinion
that there is a very high likelihood that its owner, the Republic
of Chile (foreign currency: AA-/Negative/A-1+; local currency:
AA/Negative/A-1+) would provide timely and sufficient
extraordinary support to the company in the event of financial
distress. Our assessment of this likely support is based on our
view of ENAP's very important role as Chile's only domestic oil
refiner and its ability to supply about 60% of the domestic
market's needs (the remainder is supplied by imports). The company
also has a very strong link to the government, particularly
regarding debt authorization, budget approval, and tax payments.
The Senate recently approved a capital increase (originally
announced in 2014) of $400 million for ENAP, which it will make in
conjunction with a new corporate governance law. We believe that
these actions support our view that the company has a very strong
link to and a very important role with the government.
"The 'b' SACP assessment incorporates our view that ENAP will
maintain its dominant position as Chile's only domestic oil
refiner. We also incorporated the inherent volatility and
cyclicality of the international refining market, and ENAP's lack
of economies of scale and operational flexibility compared to
larger and more sophisticated refineries.
"Although the company's financial risk profile is still highly
leveraged, we've seen an improvement in ENAP's performance in the
last three fiscal years, mainly due to measures the company
undertook to enhance its efficiency and margins (including
efficiencies in energy costs, cost savings in crude oil
purchases, changes in its hedging strategy, and improvement in its
inventory margins). However, the company is currently undertaking
a demanding debt-financed capital expenditures (capex) program,
which will cost between $800 million and $900 million per year in
the next three years, and totaling $5.5 billion from 2017 to 2025.
This program will include modernizing current facilities and a new
project in conjunction with strategic partners in the oil
and gas Exploration and Production (E&P) segment."
=============
E C U A D O R
=============
ECUADOR: S&P Lowers Sovereign Credit Ratings to B-, Outlook Stable
------------------------------------------------------------------
On June 29, 2017, S&P Global Ratings lowered its long-term foreign
and local currency sovereign credit ratings on the Republic of
Ecuador to 'B-' from 'B'. The outlook is stable.
At the same time, S&P affirmed the 'B' short-term foreign and
local currency sovereign credit ratings.
In addition, S&P lowered its transfer and convertibility (T&C)
assessment for Ecuador to 'B-' from 'B'.
RATIONALE
One or more of the credit ratings referenced within this article
was assigned using a deviation from S&P Global Ratings outstanding
criteria.
S&P said, "The downgrade reflects an erosion of Ecuador's
financial and external profile over the last year because of large
fiscal deficits, resulting in a higher interest payment burden,
and increased sovereign external debt. In our view,
the new government will face challenges to effectively addressing
large fiscal imbalances (in the context of a dollarized economy),
limiting its high funding requirements, and improving relations
with the private sector in order to reverse recent poor economic
performance. We expect real GDP growth to be around 0.5% this
year, equivalent to a contraction of 1% in per capita terms.
Ecuador's growth performance has been comparatively poor in recent
years for a country at its level of per capita income. We project
that per capita income will be almost US$5,912 in 2017."
Ecuador's fiscal position has deteriorated since 2014 as oil
prices have declined. In response, the previous government
adjusted spending in 2015 to contain its fiscal deficit at 5% of
GDP. However, the general government deficit increased to 7.5% of
GDP in 2016, above S&P's expectations. The fiscal slippage
reflects lower revenues and limited capacity to cut current
spending, partly because of the recent elections. S&P stated, "We
project that the fiscal deficit will narrow to 5.2% of GDP in
2017, based on cuts in capital expenditure. We expect the new
government to announce a revised 2017 budget as well as
multiyear fiscal plan in the coming months. We project annual
growth in general government debt to average 3.2% for 2017-2020,
reflecting a narrowing of the fiscal deficit.
S&P continued, "Large fiscal deficits have resulted in high
financing needs for the government (which we estimate at around
US$13 billion in 2017). The government has relied on rolling over
domestic debt, issuing debt in external markets, and borrowing
from multilateral and bilateral lenders. In addition, the
government has borrowed directly from the central bank (financed
by its foreign exchange reserves) and has been issuing short-term
debt (CETES).
"Net general government debt rose to 46.7% of GDP in 2016, from
42.7% in 2015, and is likely to rise again this year to 48.7%. The
interest burden has also risen, further constraining the
government's fiscal flexibility to adjust to adverse shocks. We
now project the government's interest payments will account for
more than 5% of revenue in 2017-2020 as a result of the increased
debt stock and tightening in global monetary conditions. We assess
contingent liabilities from the financial sector and nonfinancial
public enterprises as limited.
"Our criteria requires us to exclude from our gross general
government debt the sovereign debt held by defined benefit pension
plans. However, in the exceptional case of Ecuador, particular
circumstances, such as the material size of the government debt
that is held by the social security institute (IESS) and its bank,
has warranted, in our view, the inclusion of such debt in our
calculation of general government debt as it provides a more
comprehensive and more accurate assessment of Ecuador's debt
burden, fiscal stress, and underlying credit risk. Hence, we now
formally deviate from our outstanding criteria and are therefore
resolving the outstanding error in our application of criteria
whereby we did not exclude such sovereign debt; this formal
deviation from criteria does not alter the rating that we have
assigned.
"We estimate the debt held by Ecuador's social security institute
and its bank to be around 20% of total general government debt,
and it constitutes a substantial, if not majority, share of the
assets held by IESS. Reflecting the lack of market buyers of
internal debt, the social security institute has been historically
the sovereign's major local creditor; the domestic private sector
has very little exposure to government securities. We believe that
this sovereign debt constitutes an illiquid asset that weakens the
liquidity of the social security institute.
"In addition, and consistent with our criteria for calculating
general government debt for sovereigns, we also include three
types of debt that are not considered official debt by the Ecuador
government in our general government debt calculations. This
includes the estimated outstanding amount of Cetes, the loans from
the central bank, foreign exchange reserves to the government, and
the estimated debt outstanding for oil presales.
"Given its limited ability to borrow locally, Ecuador has relied
heavily on external financing recently. We project that Ecuador's
narrow net external debt will increase to about 124% of current
account receipts (CARs) in 2017 versus 119% in 2016 and up from
55% in 2014. During the same period, we expect that gross external
financing needs will remain just over 110% of CARs and usable
reserves. About 67% of the public sector's debt is external,
almost all in U.S. dollars. Official creditors hold 43% of the
public-sector official debt, while external commercial debt is
about 54% of total official debt. During 2017-2019, we view
rollover risk as contained as official creditors account for all
amortization of external debt. The next global bond amortization
payment is due in 2020."
President Lenin Moreno, from Alianza Pais, took office in May
2017. President Moreno's first weeks in office suggest openness to
dialogue and engagement with the private sector, which has
generated some optimism among investors, but his government has
yet to present its fiscal and economic plans. The authorities will
face a difficult choice between reducing the fiscal deficit
and supporting economic recovery while meeting commitments to
expand social programs.
Ecuador's weak institutional capacity, along with uncertainties
over the new government's capacity to implement the fiscal
adjustments and structural reforms it needs to create the
conditions for enhanced private investment, make future policy
difficult to predict. In addition, the country's history of
debt defaults continues to limit S&P's ratings, although the
country regained access to global capital markets in 2014.
Ecuador's current account has moved into surplus of 1.5% of GDP in
2016 from a deficit of 2.1% in 2015. The sharp fall in domestic
demand combined with import tariffs accelerated the correction of
the trade balance. In 2017, S&P expects current account surplus to
decline to 0.9% of GDP as the government progressively removes
import surcharges. The country's external profile remains
vulnerable to a pronounced volatility of its terms of trade.
Ecuador's growth outlook is showing signs of slow recovery after
real GDP declined by 1.5% in 2016 on domestic demand contraction.
S&P said, "We expect economic growth to remain sluggish in 2017--
at 0.5%--as the fiscal adjustment, mainly through reduced capital
expenditure, will have implications for growth. We expect real GDP
to post small but consistent gains during 2018-2020, largely as a
result of improved confidence in the private sector and higher
earnings from the oil sector (resulting both from a stabilization
in oil prices and a modest increase in production). Sustained
long-term growth, in our view, would require reduction of fiscal
and external vulnerabilities and continued improvement in
investors' confidence, as well as progress on policy initiatives
by the new administration," S&P said.
S&P added, "We expect that Ecuador will continue to use the U.S.
dollar as its currency, constraining the country's monetary
flexibility and the central bank's ability to act as a lender of
last resort. On the other hand, dollarization also helped anchor
inflation and stabilize the financial system. Consumer price
inflation was 3.6%, on average, over the past five years. It
declined to 1.7% on average in 2016, and we expect it to further
moderate on sluggish domestic demand. We see no signals so far of
weakness in the financial system as deposits have recovered from a
significant decline in 2015. Ecuador continues to make use of
capital controls."
OUTLOOK
The stable outlook reflects S&P's expectation of broad
macroeconomic continuity under the new government combined with
limited steps to stem the rise in government debt and boost
private confidence.
S&P could lower the rating over the coming year absent measures to
reduce the country's fiscal imbalances. This scenario would likely
lead to deterioration in the availability of financing for the
government deficit. Persistent lower-than-expected growth could
weigh on Ecuador's GDP per capita, depending on the pace of
improvement in the government's general government deficit.
Either could result in pressure on the rating.
Conversely, S&Pcould raise the ratings over the next 12 months
should the government implement policy adjustments or reform that
strengthens Ecuador's financial profile. This could lead to a
reduction in the government's financing requirements beyond our
base-case forecast, enhance investors' confidence, and contain the
country's external vulnerabilities. This scenario would likely
facilitate Ecuador's access to financing, especially from private
creditors locally and globally.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable. At the onset of the committee, the chair
confirmed that the information provided to the Rating Committee by
the primary analyst had been distributed in a timely manner and
was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee agreed that the fiscal risk had improved and that
the debt and external risks had deteriorated. All other key rating
factors were unchanged.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision.
The views and the decision of the rating committee are summarized
in the above rationale and outlook.
RATINGS LIST
Downgraded; Ratings Affirmed
To From
Ecuador (Republic of)
Sovereign Credit Rating B-/Stable/B B/Stable/B
Downgraded
To From
Ecuador (Republic of)
Transfer & Convertibility Assessment B- B
Senior Unsecured B- B
* ECUADOR: Exports to EU Rise 20 pct. After Trade Accord
--------------------------------------------------------
EFE News reports that Ecuador's exports to the European Union
increased by 20 percent in the first five months of this year
compared to the same period in 2016 after the Jan. 1 entry into
force of the bilateral trade accord, the Foreign Trade Ministry
reported.
Exports in the first five months of 2017 amounted to $1.387
billion, up from $1.159 billion during the same period last year,
the ministry said, according to EFE News.
===============
H O N D U R A S
===============
INVERSIONES ATLANTIDA: Fitch Affirms B IDR; Outlook Stable
----------------------------------------------------------
Fitch Ratings has affirmed the Long- and Short-Term Foreign and
Local Currency Issuer Default Ratings (IDRs) of Inversiones
Atlantida, S.A. y Subsidiarias (Invatlan) at 'B'/'B'. The Rating
Outlook on the Long-Term ratings is Stable.
Simultaneously, Fitch has assigned an expected Long-Term rating of
'B(EXP)/RR4' to Invatlan's proposed senior notes. The final rating
is contingent upon the receipt of final documents conforming to
the information already received.
The proposed senior notes, up to USD150 million, will have a
maturity of five years (due 2022) with semi-annual fixed-rate
interest payments and the principal will be paid on the maturity
day.
KEY RATING DRIVERS
IDRs and Senior Debt Ratings
Invatlan's IDRs reflect the financial profile of its main
subsidiaries, mainly Banco Atlantida (Atlantida), rated 'A+(hon)'
on the national scale by Fitch, which has demonstrated sound
financial performance through the economic cycle. The ratings also
consider Invatlan's high operational integration with its
operating subsidiaries, as well as the light restrictions on
subsidiaries upstreaming liquidity to Invatlan. Invatlan's ratings
also reflect the expected moderate levels of double leverage.
Invatlan's creditworthiness is aligned with its main operating
subsidiary, Atlantida, since its status as a pure holding company
with low ability to generate profits in an unconsolidated basis
creates a natural dependence on the dividend flows from its
subsidiaries to meet its financial commitments. This is
particularly relevant because of Invatlan's expected moderate
levels of double leverage, defined as equity investments in
subsidiaries plus the holding company's intangibles, divided by
the holdco's common equity.
Fitch expects Invatlan's double-leverage ratio to increase due to
the holdco's future plans to issue USD150 million of debt,
although in Fitch's view it will be maintained below 120%.
According to Fitch's criteria, a double-leverage ratio of 120% or
below indicates a manageable level of debt service costs, thus
supporting the equalization of Invatlan's creditworthiness with
that of Atlantida.
The agency considers as positive for Invatlan that Honduran
regulations do not establish restrictions to capital and liquidity
fungibility. Thus, Invatlan's subsidiaries can pay dividends to
their holdco or inject liquidity efficiently. Dividend flows from
its subsidiaries are expected to be ample and more than sufficient
to service the entity's debt issue.
Atlantida is the second largest bank in the country by loans and
the first by customer deposits, with an important position in the
corporate lending market. Its ample footprint helps serve clients
nationwide and provides a solid base for expanding the bank's
operations. Atlantida's financial performance is highly sensitive
to Honduras' operating environment. The bank's ratings consider
the adequate quality of its loan portfolio, solid local franchise,
good operating profitability, low funding cost, adequate liquidity
and sound capitalization.
The expected rating of 'B(EXP)' reflects that these are senior
obligations of Invatlan that rank pari passu with other senior
indebtedness, and therefore this rating is aligned with the
company's Long-Term Foreign and Local Currency IDRs of 'B'. The
recovery rating of 'RR4' assigned to Invatlan's senior debt
issuance reflects the average expected recovery in case of the
company liquidation.
RATING SENSITIVITIES
IDRs and Senior Debt Ratings
Invatlan's creditworthiness will likely move in line with that of
its main subsidiary, Atlantida. Although it is not Fitch's base
case scenario, a downgrade could also take place due to a
significant weakening of Atlantida's financial performance and
company profile. This includes a deterioration of asset quality
that negatively affects operating profitability and a significant
weakening in the bank's capital position that leads to a reduction
in dividend payments available to service Invatlan's debt. Also
Invatlan's IDRs could be downgraded by one notch if the company's
double-leverage ratio is sustained above 120%.
Given their senior nature, these notes will typically be aligned
with the company's IDRs, and the rating of the notes will mirror
any potential change to Invatlan's IDRs.
Fitch has affirmed the following ratings:
-- Long-Term Foreign and Local currency IDRs at 'B';
-- Short-Term Foreign and Local currency IDRs at 'B'.
The Rating Outlook is Stable.
Fitch has assigned the following rating:
-- Five-year USD150 million senior notes at 'B(EXP)/RR4'.
===========
M E X I C O
===========
FINANCIERA INDEPENDENCIA: Fitch Rates Proposed Sr. Notes BB-
------------------------------------------------------------
Fitch Ratings has assigned an expected Long-Term rating of 'BB-
(EXP)' to Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R.
(Findep)'s proposed senior notes. The final rating is contingent
upon the receipt of final documents conforming to the information
already received.
The proposed senior notes will be for up to USD250 million and a
maturity of up to seven years.
The notes will be unconditionally guaranteed by four subsidiaries
of the entity: Financiera Finsol, S.A. de C.V., Sofom, E.N.R.
(Finsol), Apoyo Economico Familiar, Sofom, E.N.R. (AEF), Fisofo
S.A. de C.V., Sofom, E.N.R. and Apoyo Economico, Inc.(AFI). The
notes will be Findep's and the subsidiaries' guarantors senior
unsecured obligations.
KEY RATING DRIVERS
The 'BB-(EXP)' rating reflects that the notes are senior unsecured
obligations of Findep that rank pari passu with other senior
indebtedness, and therefore, this rating is aligned with the
company's 'BB-' Long-Term Foreign and Local Currency Issuer
Default Ratings (IDRs).
Findep's ratings factor in its moderate franchise compared to
globally rated financial entities, but well-positioned and stable
in the microfinance and personal loans sector in Mexico, and its
much lower position in the U.S. and Brazil. The ratings also
consider the entity's enhanced tangible capital ratios as of
December 2016 and March 2017, which were mainly strengthened by a
reduction of intangibles, lower asset growth, and partially due to
recurrent internal capital generation on a consolidated basis. The
still weak asset quality metrics, its funding structure, which
Fitch believes that even with its wholesale nature, is reasonably
diversified by source and maturity, and the adequate liquidity
management were also considered. Fitch believes liquidity benefits
from the relatively high turnover of its portfolio and the
favorable maturities of liabilities.
The entity has consistently delivered profits over the past four
years, but its financial performance started pressuring since
2015. Fitch highlights that its net interest margin (NIM) is still
relatively high (2016: 44.4%) but deteriorated during 2015 and
2016 due mainly to a changing product mix given the increased
proportion of AFI's loans with lower effective rates and the
increased proportion of less riskier products/segments such as
payroll deductible loans and loans to the formal sector. As of
March 2017, this ratio exhibits an improvement up to 52.9%.
Findep's earning generation capabilities continue to be affected
by elevated charge-offs from the high-risk loan portfolio of
Independencia (Findep's core subsidiary) and some asset quality
deterioration at AEF in 2016, the extraordinary expenses
associated with the entity's personnel reduction (liquidation
costs) and higher loan loss provisions which continue to drain its
earnings. By YE2016 and March 2017, its pre-tax income-to-average
assets ratio was 2.5% and 3%, below the average of 3.3% from 2013-
2015. However, the entity managed to contain funding costs in an
increasing interest rate environment in Mexico
Findep has improved its underwriting standards in Independencia
and has taken strategies for consolidating the business model,
which have been positive for Finsol. But on the other hand, AEF's
portfolio recently deteriorated. Therefore, Fitch believes the
entity's earnings could remain moderate at this subsidiary. Findep
has usually been able to rapidly take actions to adapt its
operations to unfavorable market conditions and internal operating
challenges which could affect profits. The gradual recovery of its
loan portfolio growth in an especially challenged microfinance
sector that has remained complex over a long period and will more
likely remain challenged due to higher uncertainty in the Mexican
economy, could also aid on the maintenance its profits.
The company's asset quality improved in 2016 and 2017, as a result
of its strategy of improving the quality and profitability of its
loan portfolio. As of March 2017, Findep's adjusted impairment
ratio (impaired loans + net charge-offs from past 12 months (FPTM)
/ gross loans + net charge-offs FPTM) stood at 18.4%, comparing
favorably against the average of 22% from 2013-2015. Although
Fitch believes these are still relatively high, this is the lowest
level that Findep has reached in the past five years. Asset
quality at Findep is underpinned by charge-offs that are typically
high at consumer-oriented entities, since these target low income
and non-banked clients, which were especially pressured in the
past years.
Capital ratios have strengthened since 2015, benefited not only by
factors stated earlier but also by the management's decision to
suspend dividends. The tangible equity-to-tangible assets ratio
stood at 17.9% and 17.8% as of March 2017 and YE2016, exhibiting
an improved from the average of 12.7% from 2012 to 2015. Fitch
recalls that tangible capital is mainly affected by MXN1,587
million of goodwill generated after the acquisitions in 2010-2011.
On the other hand, its debt-to-tangible equity ratio stood at 4.2x
as of March 2017, a stronger ratio than the average of the past
four years (5.8x). In the near future, Findep's capitalization
ratios could be affected if growth is resumed.
Findep's funding structure is wholesale but the entity has access
to reasonably diversified funding sources and maturities with a
combination of commercial and development bank lines as well as
foreign currency-denominated credit facilities. The entity has a
global debt issuance which the entity is planning to prepay with
part of the proceeds of the new issuance. Its funding also relies
on securitizations. In terms of unsecured funding, 36% of Findep's
total funding as of March 2017 was unsecured, while from 2012 to
2016 it fluctuated from 41% to 50%. This proportion compares
favorably against other non-bank financial institutions (NBFIs) in
Mexico and Findep has earned it and benefited through the years
from its relatively well-positioned franchise that has allowed it
to reach better funding conditions.
In 2016 and just recently, relevant changes in senior management
have occurred. Findep appointed a new CEO and CFO, who started
their managerial activities in October and April 2016,
respectively. In addition, Independencia's CEO (Findep's most
relevant subsidiary) left the company by the end of March 2017.
Therefore, Fitch believes the entity faces the challenge to
sustain the continuity and stability of its growth and financial
targets for 2017.
RATING SENSITIVITIES
Given their senior unsecured nature, these upcoming senior notes
will typically be aligned with the company's IDRs, and the rating
of the notes will mirror any potential change to Findep's IDRs.
In turn, Findep's ratings could be revised downwards if its pre-
tax income to average assets weakens to consistently below 2%, if
the impairment adjusted ratio is maintained above 25%, or if the
tangible capital-to-tangible assets ratio is steadily below 12%. A
downgrade could also occur as the result of pressures on its
funding profile and or liquidity management.
On the other hand, Findep's ratings could only benefit from
substantial financial performance progress and a tangible equity
to tangible assets ratio above 20% consistently, or a faster than
expected and considerable improvement in its overall performance.
======================
P U E R T O R I C O
======================
BENITEZ GONZALEZ: Trustee Files Chapter 11 Plan of Liquidation
--------------------------------------------------------------
Wigberto Lugo-Mender, the Chapter 11 Trustee of Benitez Gonzalez &
Asociados, SE, filed with the U.S. Bankruptcy Court for the
District of Puerto Rico a disclosure statement together with his
proposed plan of liquidation, dated June 23, 2017.
The Trustee's liquidation plan proposes to pay class 3 general
unsecured creditors a lump sum payment corresponding to the
allowed amount of their claims from the carve-out proceeds
deposited in the Chapter 11 Trustee estate account. Each member of
Class 3 holding an allowed claim will receive a lump sum
distribution within 30 days from the effective date, as per the
Schedule Payments under the Plan of Reorganization
The aggregate dividend under this class is limited to $20,000, as
this will be the maximum carve-out amount approved by BSLP Funding
LLC in the Plan of Liquidation for unsecured creditors. This class
is not impaired.
Upon confirmation of the plan, the Chapter 11 Trustee shall have
sufficient funds to make all payments then due under this Plan.
Regarding the proposed payment of administrative claims, payment
to governmental and unsecured claims, funds are currently in
deposit in the Chapter 11 Trustee account number 8343 with Banco
Santander de PR.
Except as otherwise stated, on the Consummation Date of the plan,
the administration of the properties within this bankruptcy estate
shall be and become the general responsibility of the Chapter 11
Trustee, who shall thereafter have the responsibility for the
management, control, administration, transfer and distribution of
all funds pertaining to this estate and up to the date of transfer
of the property. Accordingly, the confirmation order will not vest
the funds or property of the estate in the custody of the Debtor.
Funds and property dealt in the plan will remain under the custody
of the Chapter 11 Trustee who will be in charge of all
distributions to allowed creditors and transfers of properties
thereof.
A full-text copy of the Disclosure Statement is available at:
http://bankrupt.com/misc/prb15-05940-11-137.pdf
Headquartered in San Juan, Puerto Rico, Benitez Gonzalez &
Asociados, SE filed for Chapter 11 bankruptcy protection (Bankr.
D.P.R. Case No. 15-05940) on August 4, 2015. Charles Alfred
Cuprill, Esq. serves as bankruptcy counsel.
In its petition, the Debtor indicated $0 in total assets and $5.5
million in total liabilities. The petition was signed by Manuel E.
Benitez Gonzalez, managing partner.
A list of the Debtor's four largest unsecured creditors is
available for free at http://bankrupt.com/misc/prb15-05940.pdf
PUERTO RICO: PREPA Sent to PROMESA Title III Bankruptcy
-------------------------------------------------------
The Puerto Rico Fiscal Agency and Financial Advisory Authority
(AAFAF) announced July 2, 2017, that the restructuring support
agreement (RSA) between the Puerto Rico Electric Power Authority
(PREPA) and its creditors terminated by its terms on June 29, 2017
after the Fiscal Oversight and Management Board for Puerto Rico
(Oversight Board) denied certification of the RSA. As a result,
Governor Ricardo Rossello requested that the Oversight Board
certify the filing of a petition for PREPA to enter into Title III
of the Puerto Rico Oversight, Management, and Economic Stability
Act (PROMESA) for the purposes of adjusting PREPA's debts to a
sustainable level.
The Oversight Board granted such certification, and thereafter the
Oversight Board, as the representative of PREPA, filed a petition
for relief and the adjustment of debt for PREPA under Title III of
PROMESA. The petition was filed in the United States District
Court of Puerto Rico. PREPA expects to operate its business and
make payments in the ordinary course and does not anticipate that
its operations will be negatively impacted by the Title III case.
PREPA intends to continue to pursue its financial and operational
restructuring within the Title III case.
"I believe that the Title III filing will provide PREPA the tools
necessary to assure its uninterrupted operation and achieve a
successful restructuring," said Gerardo Portela Franco, Executive
Director of AAFAF. Ricardo L. Ramos, PREPA's Executive Director,
echoed Portela's remarks, and stated "PREPA will operate in the
ordinary course and the PREPA Title III case will not impact its
ability to continue to provide uninterrupted service to customers
or to meet its current obligations to employees and other
essential vendors."
PREPA's goal in its restructuring is to transform its operations
into a modern utility that can provide safe and reliable electric
service at sustainable rates to the citizens of Puerto Rico.
PREPA submitted the RSA to the Oversight Board for certification
on April 28, 2017. The Oversight Board denied certification of
the RSA on June 28, 2017 after two months of consideration. In
addition, PREPA was unable to submit an amended fiscal plan that
achieved the target rate per kilowatt hour (kWh) required with the
RSA in place and did not have any assurance that the RSA
transaction would result in the funding necessary to transform its
operations. The RSA terminated at 12:01 am on June 29, 2017
as a result of the Oversight Board's denial of certification and
the failure of the parties to achieve numerous other milestones in
the RSA.
For AAFAF in San Juan:
Elliot Rivera
Tel: 787-313-5111
E-mail: elliotdaviod@aosolutionspr.com
For AAFAF in New York:
Marco Carranza
Tel: 646-935-4205
E-mail: marco.carranza@ketchum.com
For PREPA:
Carlos Monroig
PREPA Communications Director
Tel: 787-521-4692
E-mail: carlos.monroig.acevedo@prepa.com
About PREPA
The Puerto Rico Electric Power Authority (PREPA) --
http://www.prepa.com/-- is a public corporation and government
instrumentality of Puerto Rico. PREPA supplies substantially all
the electricity consumed in the Commonwealth and owns all
transmission and distribution facilities and most of the
generating
facilities that constitute Puerto Rico's electric power system.
Founded in 1941, PREPA supplies electricity to 1.5 million
consumers in Puerto Rico. PREPA is the largest public utility in
the U.S. based on number of clients and revenue.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70
billion, a 68% debt-to-GDP ratio and negative economic growth in
nine of the last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III
of 2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ("PROMESA").
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21.
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that
may be referred to her by Judge Swain, including discovery
disputes, and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are onboard as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets
Inc. is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at:
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS and
HTA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and to chair a committee to review professionals' fees.
Bondholders' Attorneys
Toro, Colon, Mullet, Rivera & Sifre, P.S.C. and Kramer Levin
Naftalis & Frankel LLP serve as counsel to the Mutual Fund Group,
comprised of mutual funds managed by Oppenheimer Funds, Inc.,
Franklin Advisers, Inc., and the First Puerto Rico Family of
Funds, which collectively hold over $3.5 billion in COFINA Bonds
and over $2.9 billion in other bonds issued by Puerto Rico and
other instrumentalities, including over $1.8 billion of Puerto
Rico general obligation bonds ("GO Bonds").
White & Case LLP and Lopez Sanchez & Pirillo LLC represent the UBS
Family of Funds and the Puerto Rico Family of Funds, which hold
$613.3 million in COFINA bonds.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, Robbins, Russell,
Englert, Orseck, Untereiner & Sauber LLP, and Jimenez, Graffam &
Lausell are co-counsel to the ad hoc group of General Obligation
Bondholders, comprised of Aurelius Capital Management, LP,
Autonomy Capital (Jersey) LP, FCO Advisors LP, Franklin Mutual
Advisers LLC, Monarch Alternative Capital LP, Senator Investment
Group LP, and Stone Lion Capital Partners L.P.
Quinn Emanuel Urquhart & Sullivan, LLP and Reichard & Escalera are
co-counsel to the ad hoc coalition of holders of senior bonds
issued by COFINA, comprised of at least 30 institutional holders,
including Canyon Capital Advisors LLC and Varde Investment
Partners, L.P.
Correa Acevedo & Abesada Law Offices, P.S.C., is counsel to Canyon
Capital Advisors, LLC, River Canyon Fund Management, LLC, Davidson
Kempner Capital Management LP, OZ Management, LP, and OZ
Management II LP (the QTCB Noteholder Group).
Committees
The U.S. Trustee formed a nine-member Official Committee of
Retirees and a seven-member Official Committee of Unsecured
Creditors of the Commonwealth. The Retiree Committee tapped
Jenner & Block LLP and Bennazar, Garcia & Milian, C.S.P., as its
attorneys. The Creditors Committee tapped Paul Hastings LLP and
O'Neill & Gilmore LLC as counsel.
PUERTO RICO: PREPA's Title III Case Summary & Top Unsec. Creditors
------------------------------------------------------------------
Debtor: Puerto Rico Electric Power Authority
Financial Oversight & Management Board
Jacob Javits Federal Bldg
26 Federal Plaza
RM 2-128
New York, NY 10278
Type of Business: Founded in 1941, the Puerto Rico Electric Power
Authority (PREPA) -- http://www.prepa.com-- is
the sole provider of electricity for 1.5 million
customers. For almost 70 years, PREPA has been
producing, transmitting, distributing and
selling electricity in the most efficient,
economical and reliable way, without harming the
environment. As one of the largest public
utilities in the United States, PREPA ranks
Number 1 in clients, Number 1 in revenues,
Number 6 in sales kWh, and Number 7 in
generation kWh.
PREPA is a company with comprehensive capital
investment plans to respond to short and medium
term projected demand, strong strategic planning
to reduce fuel oil dependency, strong debt
service coverage, and effective system
management, including redundancies for emergency
preparedness.
Web site: http://www.prepa.com
Type of Filing: Title III of the Puerto Rico Oversight,
Management, and Economic Stability Act
("PROMESA"). The Title III petitions were signed
by representatives of the Financial Oversight and
Management Board for Puerto Rico, as
representative of PREPA and other debtors per
PROMESA Sec. 315.
PREPA's petition is available for free at:
http://bankrupt.com/misc/prb17-04780.pdf
Related entities that earlier filed Title III petitions under
PROMESA:
Petition
Entity Case No. Date
------ -------- ----
Commonwealth of Puerto Rico 17-03283 May 3, 2017
Puerto Rico Sales Tax Financing Corp 17-03284 May 5, 2017
Puerto Rico Highways and
Transportation Authority 17-01686 May 21, 2017
Employees Retirement System of
the Government of the
Commonwealth of Puerto Rico 17-01685 May 21, 2017
PREPA's Title III Petition Date: July 2, 2017
Case No.: 17-04780
Court: United States District Court
District of Puerto Rico (Old San Juan)
150 Carlos Chardon Street
San Juan, PR 00918-1767
http://www.prd.uscourts.gov/
Judge: Hon. Laura Taylor Swain
Attorneys for the
Financial Oversight and
Management Board: Martin J. Bienenstock, Esq.
Scott K. Rutsky, Esq.
Philip M. Abelson, Esq.
PROSKAUER ROSE LLP
11 Times Square, New York NY 10036
Tel: (212) 969-3000
Fax: (212) 969-2900
E-mail: mbienenstock@proskauer.com
srutsky@proskauer.com
pabelson@proskauer.com
Co-Attorneys for the
Oversight Board: Hermann D. Bauer, Esq.
O'NEILL & BORGES LLC
250 Munoz Rivera Ave., Suite 800
San Juan, PR 00918-1813
Tel: (787) 764-8181
Fax: (787) 753-8944
E-mail: hermann.bauer@oneillborges.com
Oversight Board's
Strategic Consultant: McKINSEY & CO.
Oversight Board's
Municipal Investment
Banker: CITIGROUP GLOBAL MARKETS
Oversight Board's
Financial Advisor: ERNST & YOUNG
Counsel to the
Puerto Rico Fiscal
Agency and Financial
Advisory Authority: John J. Rapisardi, Esq.
Suzzanne Uhland, Esq.
Peter Friedman, Esq.
O'MELVENY & MYERS LLP
7 Times Square
New York, NY 10036
Tel: 212.326.2000
Fax: 212.326.2061
E-mail: jrapisardi@omm.com
suhland@omm.com
pfriedman@omm.com
Puerto Rico's
Claims &
Noticing
Agent: PRIME CLERK LLC
Service Agent for
ERS, HTA and PREPA: EPIQ BANKRUPTCY SOLUTIONS LLC
http://dm.epiq11.com/#/case/PR1/info
Estimated Assets: Not Indicated
Estimated Debt: Not Indicated*
*Puerto Rico said in filings that PREPA has $9 billion in debt.
PREPA's List of 20 Largest Unsecured Creditors:
Entity Nature of Claim Claim Amount
------ --------------- ------------
Santiago Mendez Pedro J. Litigation $600,000,000
Attn: Manuel Fernandez Mejias
2000 Carr 8177 Suite 26
Guaynabo, PR 00966
Tel: 787-786-3466
Email: pga@caribe.net
Scotiabank De Puerto Rico Unsecured Debt $553,227,099
Attn: Richard Mason
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Tel: 212-403-1252
Email: rgmason@wlrk.com
PBJL Energy Corporation Litigation $210,985,000
Attn: Louis A. Gierbolini Rodriguez
Deguzman & Gierbolini Law Offices, PSC
PO Box 364567
San Juan, PR 00936-4567
Tel: 787-756-2765
Email:lgierbolin@dgglawpr.com
Solus Alternative Unsecured Debt $146,040,000
Asset Management LP
Attn: Nicholas Baker
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Tel: 212-455-2032
Email: nbaker@stblaw.com
Carmona Resto, Hector Litigation $100,000,000
Attn: Hector A. Castro Perez
Rodriguez Lopez Law Offices
PO Box 227
Y Abucoa, PR 00767
Tel: 787-850-8876
Email: Hacastro.perez@gmail.com
Freepoint Commodities LLC Trade Claim $60,004,806
Attn: Cheryl Fahey
Freepoint Commodities LLC
58 Commerce Road
Stamford, CT 06902
Tel: 203-542-6407
Email: cfahey@frepoint.com
Sistema Retiro Employeados AEE Trade Claim $58,614,605
Aportacion Patronal
Attn: Maria Hernandez
Sistema Retiro Empleados AEE Aportacion
Patronal
PO Box 13978
San Juan, PR 00936-3978
Tel: 787-521-4745
Email: M-hernandez-stret@aeepr.com
Rodriguez Ramirez Myrna Litigation $56,030,000
Attn: Roberto Padial Perez
Jose R. Cintron Rodriguez
Num 2 Calle Vela
Edificio Esquire Suite 101
San Juan, PR 00918
Tel: 787-294-0750
Email: rpadial@cmplawpr.com
KDC Solar PRSI LLC Litigation $52,000,000
Attn: Eric Perez Ochoa Shylene
De Jesus
Adsuar Muniz Goyco Seda & Perez-
Ochoa, PSC
PO Box 70294
San Juan, PR
00936-8294
Tel: 787-281-1813
Email: epo@amgprlaw.com
EcoElectrica, LP Trade Claim $44,883,101
Attn: Jaime L. Sanabria Hernandez
Plaza Scotiabank Suite 902
273 Ave Ponce De Leon
San Juan, PR 00918
Tel: 787-622-6115
Email: jaime.sanabria@ecoelectrica.com
AES Puerto Rico Trade Claim $44,191,484
Attn: EDNA I. Sanchez
AES Puerto Rico
PO Box 1890
Guayama, PR 00785
Tel: 787-866-8117 ext 2221
Email: edna.sanchez@aes.com
Aguas Puros Litigation $43,618,831
Attn: Anibelle Sloan Altieri
Rodriguez Lopez Law Offices
PO Box 362738
San Juan, PR 00918
Tel: 787-756-2675
Email: asloan@dgglawpr.com
Marrero, Ismael Litigation $36,000,000
Attn: Douglas H. Sanders
Sanders Phillips Grossman, LLC
B7 Tabonuco, Suite 801
Guaynabo, PR 00968
Tel: 787-331-1140
Email: Dsanders@thesandersfirm.com
Abengoa Puerto Rico, S.E. Litigation $35,000,000
Attn: Francisco A. Rosa Silva
Corretjer Piquer LLC
PO Box 902463
San Juan, PR 0902-4063
Tel: 787-977-7210
Email: ejcr@corretjerlaw.com
JP Morgan Libor Fixed/Floating Swap Claim $34,490,000
Attn: Eugenio Alarcon
JP Morgan
383 madison Avenue 8th Floor
New York, NY 10179
Tel: 212-270-1502
Email: eugenio.alarcon@jpmorgan.com
Tradewinds Energy Barcelona LLC Litigation $30,000,000
Attn: John Arrastia
Genovese, Joblove Y Battista, PA
100 S.E. 2nd Street, Suite 400
Miami, FL 33131
Tel: 305-349-2300
Email: jarrastia@gjb-law.com
Vitol Inc. Litigation $28,000,000
Attn: Eduardo A. Zayas Marxuach
McConnell Valdes LLC
PO Box 364225
San Juan, PR 00936-4225
Tel: 787-250-5813
Email: Ezm@mcvpr.com
Rivera, Ana Teresa Litigation $27,000,000
Attn: David W. Roman
Ubarri & Roman Law Office
PO Box 79564
Carolina, PR 00984-9564
Tel: 787-945-5900
Email: Droman@ubarri-romanlaw.com
Lawes, Grandville T Litigation $22,000,000
Attn: Jorge M Izquierdo-San-Miguel
Izquierdo San Miguel & Asos
Capital Center South Tower
239 Arterial Hostos Avenue, Suite 1005
San Juan, PR 00918
Tel: 787-723-7767
Email: jizquierdo@izquierdosanmiguel.com
Puma Energy Caribe, LLC Trade Claim $19,978,366
Attn: Victor M Dominguez Resto
Puma Energy Caribe LLC
PO Box 11961
San Juan, PR 00922
Tel: 787-622-6499
===========================
V I R G I N I S L A N D S
===========================
LIMETREE BAY: Moody's Affirms Ba3 Sr. Secured Term Loan Rating
--------------------------------------------------------------
Moody's Investors Service has affirmed the Ba3 rating on Limetree
Bay Terminals, LLC's 7-year senior secured term loan following LB
Terminals' intention to upsize its senior secured term loan by $25
million to $465 million. The rating outlook is stable.
Proceeds from the $25 million term loan increase will be used to
finance capital expenditures.
RATINGS RATIONALE
LB Terminals' Ba3 rating continues to balance the limited
operating complexity of storage terminals, project finance
features of the transaction and some revenue visibility provided
by a 10-year contract with a US subsidiary of international oil
and gas company, China Petroleum and Chemical Corporation (Sinopec
Corp (A1 stable)), against the project's high initial leverage
(debt/EBITDA of around 5.4x based on the upsized term loan and
management's base case for 2017), the lack of an operating track
record, ramp-up risk associated with bringing back all of the
storage capacity, and substantial contract renewal risk.
The facility is ramping-up its storage operations as it was bought
out of bankruptcy in early 2016 subsequent to the Hovensa refinery
shutting down in 2012. Uncertainty is high around management's
ability to successfully strengthen the assets' competitive
position against peers, execute a large capex project, renew
existing contracts and enter into new contracts as more capacity
comes online. Q1 2017 performance was largely in line with
expectations. Revenue came in slightly softer than expected due
to lower ship visits and marine fee revenues which was offset by
good cost control. Free cash flow generation was negative (-$31
million) and negatively impacted by working capital swings and a
$6 million bitumen tank settlement which will eliminate a future
obligation under its operating agreement with the government of
the U.S. Virgin Islands.
The rating takes into account the scale of the facility relative
to other peers in the Caribbean region with around 143 tanks and
34 mmbbls of storage capacity once all capacity has been brought
back online. Plans to expand its port to provide access to deeper-
water vessels should benefit its competitive position as its
current depth restriction of around 55 ft is its major
disadvantage in the crude oil storage segment compared to other
Caribbean storage terminals.
Moody's also considered the high leverage on the project (5.4x
debt/EBITDA at closing including maintenance expense) and the
increase in term loan shortly after rating assignment; limited
equity (debt/book capitalization of close to 80%) and the
project's modest liquidity profile. These constraints are balanced
against the existence of project finance features, a cash sweep
that should support future deleveraging; the sponsor's experience
with managing storage assets, plant operational expertise as many
of the employees are former Hovensa employees, and the resiliency
of the cash flow to extreme downside scenarios.
Management forecasts a steady deleveraging over the term loan
period supported by renewal of existing contracts and additional
planned contracts. As such management expects DSCR to improve from
around 2.0x in 2017 to an average DSCR of around 4.0x throughout
the period 2017-2023 and a deleveraging from 5.4x debt/EBITDA at
closing to below 1.0x by 2023.
Moody's also considers the high execution risk associated with
management's projections and the assigned Ba3 rating reflects the
risk that LB Terminals might not be able to renew contracts and
add new customers as projected.
The stable outlook reflects Moody's expectation that LB Terminals
will build a track record of renewing expiring existing contracts
and entering into new contracts as additional tank capacity comes
online. Moody's expects that the project will at least maintain a
debt service coverage ratio (DSCR) around 1.75x and can achieve
FFO/debt in the high single digit range in the initial three years
of the project with further improvements beyond that. The cash
flow sweep and target debt balance requirement should support a
continued deleveraging. Moody's understand that the existing
target debt balance schedule remains unaffected by the $25 million
term loan increase.
WHAT COULD CHANGE THE RATING UP?
- Successful ramp-up of operations and a demonstrated track
record of securing additional contracts that supports the ramp-
up and renewing maturing existing contracts
- Credit metrics closer to sponsor's base case with Debt/EBITDA
trending to 4.0x, a DSCR in that exceeds 3.0x in 2018 with
expectations for further improvement from the excess cash sweep
WHAT COULD CHANGE THE RATING DOWN?
- Inability to build-up adequate liquidity reserve for managing
working capital
- Inability to renew contracts and contract new customers
- No visibility for deleveraging with inability to decrease
Debt/EBITDA to below 5.0x and improve DSCR to around 2-2.5x
over the next 18-24 months as the terminal is ramping up its
operations
LIQUIDITY
LB Terminals' liquidity profile is modest. Lenders benefit from a
6-month debt service reserve account (around $15.8 million as of
March 31, 2017). Term loan proceeds were used to finance a $120
million liquidity reserve to finance a portion of the Single Point
Mooring System (SPM) Buoy Project and fund tank-field restarts. At
end of May 2017, the project had $6.6 million in restricted cash
and around $80.3 million LC capacity of which currently around
$64.5 million is available.
Management expects to create a $10 million operating reserve for
working capital purposes, however this is not a requirement under
the term loan documentation. LB Terminals has no working capital
facility or revolving credit facility at closing of the
transaction. This leaves limited cushion for unforeseen events
that could lead to negative free cash flow generation.
LEGAL SECURITY
Lenders benefit from a first lien on all material assets of the
borrower and typical project finance cash flow waterfall. The
refinery assets are initially included in the collateral but
represent a permitted disposal under the agreement.
The transaction provides for a 0.25% required quarterly
amortization (around $4.4 million per annum) starting June 30,
2017 and a cash sweep which should support additional deleveraging
over time. The cash sweep is defined as 100% of excess cash flow
through March 31, 2018 with a quarterly sweep thereafter subject
to the greater of (i) 50% of excess cash flow and (ii) the target
debt balance. Moody's expects that excess cash flow will be
invested in growth capital expenditure projects though the first
quarter of 2018.
The term loan includes a lenient maintenance financial covenant of
1.1x DSCR, which is tested quarterly commending March 31, 2018 and
allows for equity cures. The term loan documentation allowed for
an additional $25 million facility/term loan which has been
exhausted with this $25 term loan increase.
OBLIGOR PROFILE
Limetree Bay Terminals, LLC is a joint venture between an
affiliate of private equity sponsor ArcLight Capital Partners
(80%) and an affiliate of Freepoint Commodities, LLC (20%). The
project is a storage terminal, refinery and marine facility on
around 1,500 acres of land on the south shore St. Croix, US Virgin
Islands. The facility was bought out of bankruptcy in early 2016
for around $320 million, and an additional approximately $100
million has been invested since the acquisition.
The facility is the former Hovensa facility that was shut down in
2012 due to losses in the refinery operations and which declared
bankruptcy in 2015. Limetree has entered into a terminal operating
agreement with the VI Government that extends through January 4,
2041 with the option by the terminal owner to extend the agreement
for another 15 years.
LB Terminals has repurposed the asset as a storage terminal,
restarted storage tanks and entered into fee-based contracts.
Currently there are no plans to restart the refinery operations
and going forward it is expected the facility will be operated as
a petroleum storage terminal.
Contracts are fixed rate storage contracts and customers pay for
the capacity in the tank that they have reserved independent of
actual usage. Additional revenues can be created through marine
fees, blending or heating fees. LB Terminals is not directly
exposed to commodity price volatility.
The principal methodology used in this rating was Generic Project
Finance Methodology published in December 2010.
***********
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