/raid1/www/Hosts/bankrupt/TCRLA_Public/171215.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
Friday, December 15, 2017, Vol. 18, No. 249
Headlines
A R G E N T I N A
PAMPA ENERGIA: Assets Sale Lowers Business Risk, Fitch Says
TOYOTA COMPANIA: Moody's Rates ARS500MM Sr. Unsecured Debt Ba3
B R A Z I L
BRAZIL: To Get $100MM-IDB Loan to Strengthen Urban Development
ODEBRECHT SA: Ecuador VP Sentenced to 6 Years in Corruption Case
C O L O M B I A
BANCOLOMBIA SA: S&P Lowers Rating to BB+/B, Outlook Stable
C O S T A R I C A
BANCO DE COSTA RICA: S&P Assigns 'BB-/B' ICRs, Outlook Negative
J A M A I C A
DIGICEL GROUP: Signs Deal with Cisco Outlining Digital Agenda
M E X I C O
MEXICO: Industrial Production Fell in October
P U E R T O R I C O
BANCO SANTANDER PUERTO RICO: Moody's Ups Issuer Rating to Baa1
L&R DEVELOPMENT: Able Insurance Dropped from Lopez Suit
PROPERTY RENTAL: Disclosure Statement Not Required, Court Rules
T R I N I D A D & T O B A G O
TRINIDAD & TOBAGO: Analysts Optimistic as Gas Decline Slows
V E N E Z U E L A
BANCO DEL CARIBE: Fitch Affirms CC IDR & 'cc' Viability Rating
BANCO EXTERIOR: Fitch Affirms CC IDR & 'cc' Viability Rating
BANCO NACIONAL: Fitch Affirms CC IDR & 'cc' Viability Rating
BANCO OCCIDENTAL: Fitch Affirms 'CC' Long-Term IDR
BANESCO BANCO: Fitch Affirms CC Long-Term FC & LC IDR
MERCANTIL CA: Fitch Affirms CC IDR & 'cc' Viability Rating
- - - - -
=================
A R G E N T I N A
=================
PAMPA ENERGIA: Assets Sale Lowers Business Risk, Fitch Says
-----------------------------------------------------------
Fitch Ratings views Pampa Energia's (IDR B/Positive) announced
sale of its refining & marketing assets as a potential catalyst
for lowering business risk and marginally credit positive for the
company. Fitch, nevertheless, expects Pampa Energia's (Pampa)
Long-Term Foreign Currency Issuer Default Rating to continue being
constrained by the 'B' country ceiling of the Republic of
Argentina, which limits the foreign currency rating of most
Argentine corporates.
In Fitch's opinion, the announced sale of Pampa's refining and
marketing assets would lower business risk as it would reduce the
company's exposure to this industry segment's elevated cash flow
volatility and high capital intensity. As of the LTM ending
September 2017, the refining and marketing segment represented 1%
or approximately USD11 million of the company's EBITDA, and
comprised approximately 23% or USD 1,002 million of revenues.
Further, over the same period of time, this business segment
reported an EBITDA margin of 1% compared to Pampa's margin of 28%.
The sale of the refining and marketing segment will have a modest
effect on pro forma gross leverage. Fitch's estimates after the
sale of these assets, assuming a total debt of USD2,342 million,
gross leverage will remain at 2.2x. Fitch expects the company to
use the proceeds of the sale for capex in permitted businesses as
defined in the covenants of its 2027 bond. Although this sale has
a minimal impact on the company's EBITDA, Fitch views the sale as
improving the company's business risk profile and will free up
capital to reinvest in its core business segments, which are Oil &
Gas E&P, Midstream and its Integrated Electricity portfolio.
On Dec. 7, 2017, Pampa announced it has executed with Trafigura
Ventures B.V. and Trafigura Argentina S.A. (Trafigura) an
agreement to sell a set of its assets related to the refining and
marketing segment. The transaction will be subject to regulatory
approval and is estimated to close in three months.
The assets to be sold are:
-- The Ricardo Elicabe refinery, located in the city of Bahia
Blanca, Province of Buenos Aires;
-- The lubricants plant, situated in the district of Avellaneda,
Province of Buenos Aires;
-- The Caleta Paula reception and dispatch plant, located in the
Province of Santa Cruz; and
-- The network of gas stations currently operated under Petrobras
branding.
TOYOTA COMPANIA: Moody's Rates ARS500MM Sr. Unsecured Debt Ba3
--------------------------------------------------------------
Moody's Latin America Agente de Calificacion de Riesgo S.A.
assigned a Ba3 global local currency senior debt rating and a
Aaa.ar national scale local currency debt rating to Toyota
Compania Financiera de Argentina S.A.(TCFA)'s expected Class 24
issuance of up to ARS500 million which will due in 24 months.
The rating outlook is stable
The following ratings were assigned to Toyota Compa§ia Financiera
de Argentina S.A.:
ARS500 million Senior Unsecured Debt Issuance
Ba3 Global Local Currency Senior Unsecured Debt Rating, with
stable outlook
Aaa.ar Argentina National Scale Local Currency Senior Unsecured
Debt Rating
RATINGS RATIONALE
TCFA's ratings consider the very high probability that Toyota's
ultimate parent, Toyota Motor Corporation (Japan) (Aa3 stable),
will support the issuer in situations of stress. Together with low
asset risk and good risk management practices, this
counterbalances credit challenges related to modest profitability
and capitalization comparing with its peers, heavy reliance on
market funding as other captive finance companies, and the lack of
diversification inherent in the company's monoline business model.
Moody's assessment of a very high probability of parental support
considers TCFA's key role as the financial agent for Toyota
Corporation in Argentina and its strong commercial and strategic
importance to the corporation. Thanks to parental support, the
company is one of the strongest credits in Argentina, as reflected
by its Aaa.ar national scale rating.
With net income equal to just 1.5% of tangible assets on an
annualized basis in the first nine months of 2017, the company's
profitability is modest by Argentine standards, which are
distorted by the high rate of inflation, and Moody's expects
earnings will narrow as inflation continues to decline, even if
business opportunities increase. Its capitalization level is also
below that of peers, with tangible common equity equal to just
8.2% of adjusted risk-weighted assets as of June 2017. Given the
nature of their business and in line with other automobile captive
finance companies, the ratings reflect risks and limitations
associated with its liquidity position and liability structure
mainly reliant on market funds. Nevertheless, the company has a
contingent credit facility of $100 million with its shareholder in
an event of stress.
In addition, the ratings consider TCFA's monoline business model
dedicated to the financing of Toyota vehicles and the increasing
level of competition within the car-financing industry in
Argentina. While non-performing loans nevertheless remain low at
just 1.1% of gross loans thanks to the company's focus on middle
and high-income individuals and solid risk management policies
that are aligned to those of its parent, delinquency levels are
likely to rise as the company's risk appetite increases in line
with improving economic conditions. The ratings also consider
Argentina's operating environment, which while improving has
historically been very volatile.
The stable outlook on TCFA's ratings is aligned with the stable
outlook on Argentina's government bond rating.
WHAT COULD CHANGE THE RATING UP/DOWN
An improvement of the company's capital, profitability, and/or
liquidity could put upward pressure on the company's global scale
ratings , as would an indication of increased affiliate support
from the company's parent. Conversely, further erosion of the
entity's capital base, a deterioration of profitability, and/or a
significant increase in asset risk could put downward pressure on
both the global and national scale ratings, as would an indication
of decreased support form the parent.
The principal methodology used in this rating was Banks published
in September 2017.
===========
B R A Z I L
===========
BRAZIL: To Get $100MM-IDB Loan to Strengthen Urban Development
--------------------------------------------------------------
Brazil will improve the living conditions of vulnerable families
in the Municipality of Joao Pessoa with a $100 million loan
approved by the Inter-American Development Bank (IDB). The loan
will strengthen integrated sustainable urban development through
planning, urban and public management.
The objective of the program will be to benefit more than 5,000
families with housing solutions and complementary infrastructures.
The housing deficit for low-income families is expected to be
reduced by 17 percent, and 320 titled houses will be offered to
women heads of families in the region of the middle Jaguaribe
River.
The project will also modernize the instruments of management and
provision of public services and will expand tax collection
through the updating of the real estate values registry,
intelligence programs and tax education and a better taxpayer
management model. It will include training for municipal public
servants and better management of assets, purchases and expenses.
In addition, it is expected to reduce the average time of
attention to emergencies of the emergency medical service and an
increase in the collection of the Real Estate Property Tax and the
real estate valuation of the Municipality of Joao Pessoa.
The $100 million IDB loan has a repayment term of 24 years, a 6-
year grace period and an interest rate based on LIBOR. The local
counterpart will be $100 million managed by the Municipality of
Joao Pessoa.
As reported in the Troubled Company Reporter-Latin America on
Nov. 14, 2017, Fitch Ratings has affirmed Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a
Negative Outlook.
ODEBRECHT SA: Ecuador VP Sentenced to 6 Years in Corruption Case
----------------------------------------------------------------
ABC News reports that Ecuador's Vice President Jorge Glas was
sentenced to six years in prison after a court convicted him of
illicit association in a scheme to accept bribes from Brazilian
construction giant Odebrecht.
A lawyer for the latest Latin American politician to fall in the
wide-reaching Odebrecht corruption scandal said Mr. Glas would
appeal the decision, according to ABC News.
National Court Judge Edgar Flores read the ruling as dozens of Mr.
Glas supporters clamored for his release outside the court before
rows of police officers dressed in black riot gear, the report
notes.
The report says that Flores described Mr. Glas as one of five
perpetrators, including his uncle, who orchestrated a plot to
favor contracts from Odebrecht in exchange for millions in bribes.
In addition to getting six years in prison, the men were ordered
to pay $33.5 million, the amount Odebrecht has acknowledged paying
to Ecuadorean officials.
"This is an historic sentence," said Carlos Montufar, an
Ecuadorean politician, the report notes. "It should serve as the
start of an important opening to strengthen institutions and
restore democracy," he added.
Politicians across the region have been charged or are under
investigation for purportedly taking bribes or illegal campaign
contributions from Odebrecht over the last decade, the report
relays. The company admitted in a plea agreement with the U.S.
Justice Department that it paid bribes to win lucrative public
works contracts across Latin America and in other regions, the
report notes.
Mr. Glas is an engineer by training who has served as vice
president since 2013 and was ordered jailed in early October by
the nation's Supreme Court during the investigation, the report
relays. He repeatedly denied accepting any bribes from Odebrecht
and refused to resign, the report notes.
"We will continue in the fight today more than ever to triumph
against injustice," Eduardo Franco, Glas' attorney, said on
Twitter, the report notes. "There was no evidence against him,"
he added.
Former President Rafael Correa also decried the ruling on Twitter,
saying the trial was full of irregularities and had only one true
motive: to remove Mr. Glas from power, the report relays. "They
convicted an innocent!" he wrote, the report says.
Mr. Correa, who left office after a decade in power earlier this
year, has been in a deepening dispute with his hand-picked
successor as president, Lenin Moreno, who he accuses of betraying
the legacy of his "21st century socialist" revolution, the report
notes.
The report relays that Mr. Moreno has distanced himself from his
one-time political mentor since his April election, exposing
corruption, courting conservative business leaders and trying to
make amends with groups that Correa shunned, including the media.
The report says that Mr. Moreno named an interim vice president in
October to fill in for Mr. Glas during the investigation, though
Mr. Glas technically remains second in command of the Andean
nation. Under Ecuadorean law, the title can only be removed
through formal resignation, a three-quarters vote by members of
the national assembly or after three months of abandoning the
post, which will transpire in January, the report adds.
About Odebrecht
Construtora Norberto Odebrecht SA is a Latin American
engineering and construction company fully owned by the
Odebrecht Group, one of the 10 largest Brazilian private groups.
Construtora Norberto is the world's largest builder of
hydroelectric plants, of sanitary and storm sewers, water
treatment and desalination plants, transmission lines and
aqueducts. The Group's main businesses are heavy engineering
and construction based in Rio de Janeiro, Brazil, and Braskem
S.A., its chemicals/petrochemicals company, based in Sao Paulo,
Brazil.
As of May 5, 2009, the company continues to carry Standard and
Poor's BB Issuer Credit ratings, and Fitch Rating's BB+ Issuer
Default ratings and BB+ Senior Unsecured Debt ratings.
* * *
As reporter in the Troubled Company Reporter-Latin America on
Dec. 2, 2016, The Wall Street Journal related that Marcelo
Odebrecht, the jailed former head of Brazilian construction giant
Odebrecht SA, agreed to sign a plea-bargain agreement in
connection with Brazil's largest corruption probe ever, according
to a person close to the negotiations. The move could roil the
nation's political class yet again. The testimony of the former
industrialist, which is part of the deal, has the potential to
implicate numerous politicians who allegedly took kickbacks from
contractors as part of a years-long graft ring centered on
Brazil's state-run oil company, Petroleo Brasileiro SA, known as
Petrobras, according to The Wall Street Journal.
===============
C O L O M B I A
===============
BANCOLOMBIA SA: S&P Lowers Rating to BB+/B, Outlook Stable
----------------------------------------------------------
S&P Global Ratings lowered its ratings on the following Colombian
commercial banks and on their respective core entities to 'BB+/B'
from 'BBB-/A-3'. The outlook on these entities is now stable.
-- Bancolombia, S. A. y Companias Subordinadas (Bancolombia);
-- Bancolombia Panama S.A.;
-- Banistmo S.A.;
-- Banco de Bogota S.A. y Subsidiarias (BBogota);
-- BAC International Bank Inc. (BIB); and
-- Credomatic International Corp.
S&P said, "We also lowered our ratings on BBogota's senior
unsecured notes due 2027 and on Banistmo's senior unsecured notes
for approximately $300 million with maturity of up to 10 years to
'BB+' from 'BBB-'.
"We also lowered our ratings on the following government-related
entities (GREs): Financiera de Desarrollo Territorial S.A.
FINDETER (Findeter) to 'BBB-/A-3' from 'BBB/A-2' and Financiera de
Desarrollo Nacional S.A. (FDN) to 'BBB-' from 'BBB'. The outlook
on these entities is now stable. We also lowered our issue-level
rating on Findeter's $500 million fixed-rate senior unsecured
notes due 2024, or its equivalent in Colombian pesos, to 'BBB-'
from 'BBB'.
"Finally, we affirmed our ratings on Banco Davivienda S.A. at
'BBB-/A-3' and on Credivalores - Crediservicios SAS at 'B+/B'. The
outlook on both entities remains stable. We also affirmed our
'BBB-' issue-level rating on Davivienda's $500 million senior
unsecured debt and on our 'B+' issue-level rating on Credivalores'
senior unsecured notes."
The rating actions on these Colombian financial institutions
follows the downgrade of the sovereign. S&P said, "The downgrade
reflects, in our view, Colombia's weakening external profile given
still high external debt, which is subject to terms of trade
volatility. Even though we expect Colombia's fiscal deficits to
decrease, the benefits of the 2016 fiscal reform have been lower
than expected with recourse to one-off revenues. In our view,
fiscal challenges include complying with the fiscal rule beyond
2018 amid low expenditure flexibility and limited appetite for
additional and immediate tax reforms."
The combination of weaker-than-expected growth and reliance on
one-off revenues this year to offset revenue underperformance from
the 2016 tax reform demonstrates the difficulty of gradually
reducing the general government deficits to comply with Colombia's
fiscal rule. The Colombian economy continues to suffer from the
knock-on effects of lower commodity prices, reflected in the high
level of external debt and pronounced volatility in the country's
terms of trade.
S&P said, "Our economic risk assessment, which is a component of
our BICRA analysis, already captures Colombia's weaker fiscal
profile and external condition. The latter results in a moderate
vulnerability to current account imbalances that affect financial
institutions. Moreover, the very high economic risk score in
Colombia's BICRA already captures the potentially deteriorating
credit risk resulting from the increasing economic imbalances.
Therefore, we're maintaining Colombia's BICRA at group '6' with
the economic and industry scores unchanged, at '7' and '5',
respectively, with stable trends in both cases. The anchor for
banks operating in Colombia remains at 'bb+'."
The weakening credit quality of the abovementioned financial
institutions stem from the downgrade of the sovereign, reflecting
the government's lower capacity to support commercial banks of
high systemic importance and financial GREs. S&P wants to
emphasize that rating actions on financial institutions are not
due to deterioration of the banking system or of their respective
stand-alone credit profiles (SACPs).
S&P said, "Our ratings on Bancolombia and BBogota incorporate one
notch of government support, given the banks' high systemic
importance and our view of the government as being supportive
towards its financial system, which results in a moderately high
likelihood of extraordinary government support to the bank.
Nevertheless, our view of these banks and the government hasn't
changed: following the sovereign's downgrade, we're not
incorporating this additional notch anymore. In our view, the
Colombian government's capacity and willingness to support banks
is now lower than in the past. Therefore, the ratings now reflect
the banks' SACP."
Given the core status of Bancolombia Panama and Banistmo to
Bancolombia, the ratings on both subsidiaries will move in tandem
with those on the parent. Therefore, S&P lowered ratings on both
entities to 'BB+/B' from 'BBB-/A-3'. The core subsidiary status
of BIB and Credomatic also prompted S&P to move their ratings in
tandem with those on BBogota. Therefore, rating on these
subsidiaries reflects those on BBogota at 'BB+/B-'.
After the sovereign's downgrade, Davivienda's 'bbb-' SACP is now
at the same level as the 'BBB-' foreign currency sovereign rating.
Therefore, even though S&P considers this entity of high systemic
importance, the issuer credit ratings on it still don't reflect
government support and remain at 'BBB-/A-3'.
S&P said, "As a result of the downgrade on Colombia, we are taking
a similar rating action on its two development banks, FDN and
Findeter, reflecting the government's lower capacity to support
its GREs. FDN's 'bb' SACP and the extremely high likelihood of
government support now provide two-notch uplift to the 'BBB-'
credit rating. And Findeter's 'bb+' SACP and a very high
likelihood of extraordinary government support in case of
financial distress now results in a one-notch uplift to the 'BBB-'
credit rating."
The 'B+' issuer credit rating on Credivalores is lower than the
sovereign rating and doesn't reflect any government or group
support. Also, the unchanged anchor for Colombia's finance
companies has no impact on the firm.
===================
C O S T A R I C A
===================
BANCO DE COSTA RICA: S&P Assigns 'BB-/B' ICRs, Outlook Negative
---------------------------------------------------------------
S&P Global Ratings assigned its 'BB-/B' global scale issuer credit
ratings (ICR) on Banco de Costa Rica (BCR). The outlook is
negative.
S&P said, "Our ratings on BCR reflect its sound market position as
the second-largest lender in the country in terms of loans and
deposits, with stable revenues from a diversified business. The
ratings are limited by the unplanned management turnover in
critical senior positions due to the investigation of possible
fraudulent loans to a cement company. Our risk-adjusted capital
(RAC) ratio for 2018-2019 is 7.7%, supported by the bank's
adequate internal capital generation, despite mandatory
contributions to different entities, and a steady loan portfolio
growth. Our risk position assessment considers the bank's high-
dollarized balance sheet. Counterbalancing these factors are the
bank's modest credit growth, with no relevant concentrations and
stable asset-quality metrics. Its funding base is similar to the
industry norm. Around 73% of its funding relies on customer
deposits, with a stable funding ratio (SFR) of 130%, and its
liquidity position provides comfortable cushion to meet short-term
maturities as most of its market debt matures after 2017. Given
its 100% government ownership, we consider BCR a government-
related entity (GRE) with a very high likelihood of support from
the government of Costa Rica, although we don't incorporate any
notches of support into our ratings on the bank. The stand-alone
credit profile (SACP) on the bank is 'bb-'."
=============
J A M A I C A
=============
DIGICEL GROUP: Signs Deal with Cisco Outlining Digital Agenda
-------------------------------------------------------------
RJR News reports that Cisco and Digicel have signed a Caribbean
Countries Digitalization Agreement outlining their objectives and
strategic plans for accelerating the digital agenda for 26
countries in the Caribbean and Central America.
Under the agreement, the two companies will collaborate to develop
a digitization vision for each country for both the immediate and
the long term, according to RJR News.
It defines areas for implementation and specific projects, such as
healthcare/telemedicine, smart cities, and connected schools, as
well as to develop an educational strategy based on Cisco
Networking Academy, the report notes.
The goal is to create a pipeline of projects for the future,
including infrastructure enhancement and island recovery, the
report adds.
As reported in the Troubled Company Reporter-Latin America on
May 26, 2017, Fitch Ratings has affirmed at 'B' the Long-term
Foreign-currency Issuer Default Ratings (IDR) of Digicel Group
Limited (DGL) and its subsidiaries, Digicel Limited (DL) and
Digicel International Finance Limited (DIFL), collectively
referred to as Digicel. The Rating Outlook is Stable. Fitch has
also affirmed all existing issue ratings of Digicel's debt
instruments.
===========
M E X I C O
===========
MEXICO: Industrial Production Fell in October
---------------------------------------------
Anthony Harrup at The Wall Street Journal reports that Mexican
industry performed worse than expected in October, with production
falling from the previous month as weakness in manufacturing and
construction offset a recovery in oil and gas output.
Industrial production slipped 0.1% seasonally adjusted from
September, and was 1.1% lower than October 2016, the National
Statistics Institute, according to The Wall Street Journal.
Output had been expected to rise 0.7% from a year earlier,
according to economists polled by The Wall Street Journal, the
report notes.
Oil and gas production rose 8.5% from September, when state oil
company Petroleos Mexicanos had shut in production following
refinery disruptions caused in the U.S. by Hurricane Harvey, and
in Mexico by a major earthquake, the report relays. Construction
activity and manufacturing each fell 0.6%, and utilities -- water,
gas and electricity -- were down 4%, the report says.
Despite the drop from September, manufacturing remains the main
engine of industrial performance, rising 2.7% from October of 2016
while mining, construction and utilities were all lower, the
report notes.
Factory output has been spearheaded by the auto industry, which
saw production up 11% in October, with further growth in November
guaranteeing record production of cars and light trucks for all of
2017, the report discloses.
The report relays that sluggish overall industrial output has kept
a lid on economic growth, which contracted 0.3% in the third
quarter but was up 2.2% in the first nine months of this year.
Industrial production through October was down 0.6%.
"We expect growth to moderate and the engines of growth to
rebalance -- with higher contributions from manufacturing and net
exports, and less thrust from services and private consumption,"
Goldman Sachs said in its recent outlook for the Mexican economy,
the report notes. "Absent major disruptions to trade, solid
growth in the United States should support manufacturing export
growth in 2018," it added.
======================
P U E R T O R I C O
======================
BANCO SANTANDER PUERTO RICO: Moody's Ups Issuer Rating to Baa1
--------------------------------------------------------------
Moody's Investors Service upgraded Santander Bank, N.A.'s issuer
rating, senior unsecured debt rating and subordinate debt rating
by one notch to Baa1 and Banco Santander Puerto Rico's issuer
rating and senior unsecured bank note program by one notch to Baa1
and (P)Baa1, respectively. The upgrade follows Moody's review
initiated on September 27, 2017 prompted by Moody's expectation of
significant issuance of additional loss-absorbing capital by
Santander Holdings USA, Inc. in response to regulatory
requirements by January 2019. This issuance will reduce loss
severity for bank-level senior and subordinate unsecured debt,
according to Moody's revised advanced Loss Given Failure (LGF)
analysis following updates to Moody's Banks rating methodology,
published on September 26, 2017, which can be accessed via the
following link:
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_
1065675.
Santander Holdings USA, Inc.'s (SHUSA) non-cumulative preferred
stock rating was upgraded by one notch to Ba2(hyb) as a result of
Moody's decision to introduce its advanced LGF analysis for SHUSA
reflecting regulatory requirements and resolution framework.
The other ratings of SHUSA (Baa3 senior unsecured), Santander
Bank, N.A. (A2/Prime-1 deposits, baa2 BCA, baa1 adjusted BCA) and
Banco Santander Puerto Rico (A2/Prime-1 deposits, ba3 BCA, baa1
adjusted BCA) were unaffected by today's actions.
RATINGS RATIONALE
SANTANDER BANK, N.A. AND BANCO SANTANDER PUERTO RICO UPGRADE
REFLECTS REDUCED LOSS SEVERITY FOR CREDITORS FROM EXPECTED
ISSUANCE OF ADDITIONAL LOSS-ABSORBING CAPITAL
The upgrade of Santander Bank, N.A.'s issuer rating, senior
unsecured debt rating and subordinate debt rating and Banco
Santander Puerto Rico's issuer rating and senior unsecured bank
note program reflects Moody's expectation that SHUSA will continue
to issue debt in order to comply with Total Loss Absorbing
Capacity (TLAC) requirements equivalent to a minimum of 6% of
risk-weighted assets (RWAs) by January 2019. Moody's said that
given the long-term debt requirement and the expectation of modest
growth in SHUSA's balance sheet, Moody's revised advanced LGF
analysis indicates a lower loss-given-failure for bank-level long-
term senior and subordinate unsecured creditors, resulting in a
one-notch upgrade. The upgrade reflects the lower loss severity of
bank senior and subordinated debt as a result of the increased
level of TLAC-qualifying long-term debt at SHUSA. Moody's believes
the resources at SHUSA will be available for the bank subsidiaries
to facilitate resolution. This supports the subordination of the
bank subsidiaries' debt structure, reducing the loss severity of
the bank subsidiaries' debt.
Banco Santander S.A., the group's ultimate parent in Spain, has
announced its issuance plans to meet its minimum TLAC
requirements. Its US-based intermediate holding company, SHUSA,
has issued $4.7 billion in senior notes in 2017. Moody's expects
SHUSA to continue its issuance program to meet TLAC requirements
by January 2019, based upon the bank's continued good access to
the capital markets.
UPGRADE OF SHUSA'S PREFERRED STOCK REFLECTS INTRODUCTION OF
MOODY'S LGF ANALYSIS FOR HOLDING COMPANY
The upgrade of SHUSA's non-cumulative preferred stock rating
reflects Moody's application of its advanced LGF analysis for
SHUSA in response to regulatory requirements which indicate that
SHUSA will be the vehicle for resolution in the US under Banco
Santander S.A.'s multiple point of entry resolution strategy. In
Moody's view, these requirements increase the certainty that SHUSA
would be subject to a Title I resolution, which Moody's views as
an operational resolution regime. Under this framework, Moody's
advanced LGF framework, a liability-side analysis to assess the
impact of a failure to express loss severity in terms of notching,
results in a one-notch upgrade to SHUSA's preferred debt ratings.
SHUSA's senior unsecured debt and senior unsecured shelf ratings
already incorporate Moody's assumption of high loss severity given
its subordination as a holding company. In addition, SHUSA's
ratings incorporate Moody's view of a high probability of support
from its ultimate parent. SHUSA's ratings also incorporate Moody's
views that the credit profile of Santander Consumer USA Inc.
(unrated), a largely subprime US consumer finance company of which
SHUSA has majority ownership, is much weaker than that of the
bank.
WHAT COULD MOVE THE RATINGS UP/DOWN
SHUSA's successful remediation of its current regulatory
deficiencies and a sustained period without further process or
control issues could be rating positive.
A significant deterioration in Santander Bank, N.A.'s capital
ratios, which are currently a key credit strength, could lead to
downward movement on the bank's BCA and deposit and debt ratings.
A downgrade of the ultimate parent's BCA could also lead to a
downgrade of Santander Bank, N.A.'s adjusted BCA and debt and
deposit ratings.
The holding company's debt ratings could be downgraded if 1)
growth at Santander Consumer dilutes SHUSA's overall credit
profile by becoming a much larger contributor of assets or
earnings, and/or 2) Santander Consumer's credit profile
deteriorates, restricting the finance company's access to
funding/liquidity.
LIST OF AFFECTED RATINGS
Issuer: Santander Holdings USA, Inc.
-- Non-cumulative Preferred Stock, Upgraded to Ba2 (hyb)
Issuer: Santander Bank, N.A.
-- Issuer Rating, Upgraded to Baa1, stable
-- Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1,
stable
-- Subordinate Regular Bond/Debenture, Upgraded to Baa1
Issuer: Banco Santander Puerto Rico
-- Issuer Rating, Upgraded to Baa1, stable
-- Senior Unsecured Bank Note Program, Upgraded to (P)Baa1
Outlook Actions:
Issuer: Banco Santander Puerto Rico
-- Outlook, Changed To Stable From Rating Under Review
Issuer: Santander Bank, N.A.
-- Outlook, Changed To Stable From Rating Under Review
Issuer: Santander Holdings USA, Inc.
-- Outlook, Changed To Stable From Rating Under Review
The principal methodology used in these ratings was Banks
published in September 2017.
L&R DEVELOPMENT: Able Insurance Dropped from Lopez Suit
-------------------------------------------------------
Judge Brian K. Tester of the U.S. Bankruptcy Court for District of
Puerto Rico dismissed the case styled L&R DEVELOPMENT & INVESTMENT
CORP; JOSE LOPEZ AVILES; NILSA ENID GUZMAN BIDOT Plaintiff, v.
HECTOR NOEL ROMAN; MYRNA ENID PEREZ VEGA; ABLE INSURANCE AGENCY,
INC. Defendant(s), Case No. 16-08792 BKT, Adversary No. 17-00026,
(Bank. D.P.R.), as to Able Insurance Agency, Inc., with prejudice.
On June 10, 2014, L&R Development, corporation shareholders Jose
Joaquin Lopez Aviles and Nilsa Enid Guzman Bidot (Lopez
shareholders) and Co-Defendants Hector Noel Roman and Myrna Enid
Perez Vega (Romans) entered into a Purchase Agreement, which
included, among other things, (a) the sale of certain land and a
purchase option, and (b) acquisition by L&R Development of certain
shares the Romans had in the Corporation and other two companies.
The Purchase Agreement included the detail for the monetary
payment of the $2 million by the Romans to L&R and the Lopez
shareholders. On the same date of the Purchase Agreement June 10,
2014, L&R Development, the Lopez shareholders and the Romans
signed an Escrow Agreement with Able Insurance. The Escrow
Agreement appointed Able Insurance as the Escrow Agent.
The Court notes that Section 4 of the Escrow Agreement contains
the material 'Disbursement Instructions' for Able Insurance which
refers to Subsection 2.2 of the Purchase Agreement. Subsection 2.2
of the Purchase Agreement states in relevant part:
"If by June 10, 2015, LRDIC and Lopez shareholders do not
agree with Scotiabank de Puerto Rico or Banco Cooperativo de
Puerto Rico to settle, restructure, release, repay LRDIC, Lopez
Shareholders or Buyers loan obligations with such financial
institutions, the remaining balance of the Escrow Funds shall be
released to the Buyers."
The Plaintiff argues that Able Insurance's action in releasing the
balance of the Escrow Funds to the Romans constitutes gross
negligence. To support their position, the Plaintiff points to
several undisputed events, namely: (a) that Able Insurance did not
request a promissory note for the disbursed funds from the Romans;
(b) Able Insurance did not request evidence from the Romans of any
payments made prior to January 31, 2016, in order to verify the
Romans' right to withdraw all or part of the Escrow Funds; (c)
Able Insurance did not advise the Seller or the Lopez Shareholders
beforehand of the disbursement of the Escrow Funds to the Romans.
The Plaintiff contends these acts and omissions on the part of
Able Insurance represents its failure to abide by the term and
conditions of the Escrow Agreement, which validated and recognized
the Purchase Agreement.
The Court determines that both documents contain the exact same
instruction to the Escrow Agent. Against that factual backdrop,
Able Insurance received the letter dated March 17, 2016, which was
sent by the Romans, wherein they requested Able Insurance to
release to them the remaining balance of the deposited funds while
representing that, "as of June 30, 2015 and as of the date hereof,
the Seller and the Lopez Shareholders have not reached an
agreement with Scotiabank de Puerto Rico to settle, restructure,
release or repay the loans specified in Section 4(a) of the Escrow
Agreement."
The Court points out that neither the Escrow Agreement nor the
Purchase Agreement contain language which mandates Able Insurance
to request a promissory note for the disbursed funds from the
Romans, nor to request evidence from the Romans of any payments
made prior to January 31, 2016, in order to verify the Romans'
right to withdraw all or part of the Escrow Funds, nor to advise
the Seller or the Lopez Shareholders beforehand of the
disbursement of the Escrow Funds to the Romans. In sum, these were
not acts required of the Escrow Agent. While other sections of the
Purchase Agreement and the Escrow Agreement do require that all
parties sign for the Escrow Agent to act, this particular
disbursement instruction directed Able Insurance to Section 2.2 of
the Purchase Agreement.
The Court concludes that the contractual clauses in question
establish that the duties and obligations of Able Insurance were
solely those that stem from the provisions of the Escrow
Agreement, that Able Insurance could rely and act upon any advice,
certificate, notice, direction, instruction or request, which Able
Insurance in good faith believed to be genuine and to have been
signed or presented by the proper party, and that Able Insurance
would not be liable for the non-compliance of the other parties.
A full-text copy of the Judge Tester's Opinion and Order is
available at https://is.gd/X8NKVU from Leagle.com.
About L&R Development
L&R Development & Investment Corp. is a real estate development
and investment corporation that was created on May 31, 2002, by
two main partners, Hector Noel Roman and Jose Joaquin Lopez.
The Debtor sought protection under Chapter 11 of the Bankruptcy
Code (Bankr. D.P.R. Case No. 16-08792) on Nov. 1, 2016. The
petition was signed by Joaquin Lopez, president. At the time of
the filing, the Debtor disclosed $3.05 million in assets and $5.56
million in liabilities. The case is assigned to Judge Brian K.
Tester.
Carmen Conde Torres, Esq., of C. Conde & Assoc. represents the
Debtor. Inmuebles Bienes Raices, LLC, has been tapped as realtor
to the Debtor.
On March 15, 2017, the Debtor filed a Chapter 11 plan of
reorganization and disclosure statement.
PROPERTY RENTAL: Disclosure Statement Not Required, Court Rules
---------------------------------------------------------------
Judge Brian K. Tester of the U.S. Bankruptcy Court for the
District of Puerto Rico granted Property Rental and Investment
Corporation's motion for an entry of an order holding that a
disclosure statement is not required with respect to their joint
chapter 11 plan or in the alternative, that the joint chapter 11
plan provides adequate information for solicitation purposes.
A hearing for the consideration of the confirmation of the Joint
Plan and of any objection to the confirmation of the plan to be
filed on /or before seven days prior to the date the hearing on
confirmation of the Plan, will be held on Jan. 24, 2018 at 2:00
P.M., at the Jose V. Toledo, Federal Building & U.S. Courthouse,
Courtroom No. 1, Second Floor, 300 Del Recinto Sur Street, Old San
Juan, Puerto Rico.
Headquartered in San Juan, Puerto Rico, Property Rental and
Investment Corporation, is a privately held company engaged in the
business of real estate rentals in Puerto Rico. The company owns
nine commercial properties having an aggregate appraised value of
$9.12 million.
The company filed for Chapter 11 protection (Bankr. D.P.R. Case
No. 17-06865) on Nov. 16, 2017, listing its total assets at $16.62
million and total liabilities at $8.69 million. The petition was
signed by Adrian E. Stella Arroyo, president.
================================
T R I N I D A D & T O B A G O
================================
TRINIDAD & TOBAGO: Analysts Optimistic as Gas Decline Slows
-----------------------------------------------------------
Trinidad Express reports that two analysts engaged by separate
Canadian banks are sanguine about prospects for the T&T economy.
The country's natural gas production decline appears to be
slowing, Shane Lowe and Francis Lewis told their separate
audiences on December 12 and November 30 respectively, according
to Trinidad Express.
Barbados-based Canadian Imperial Bank of Commerce (CIBC)
FirstCaribbean analyst Lowe was addressing investors in his
quarterly Caribbean Market Overview Q4 2017, while Lewis, a senior
consultant, was engaged by Scotiabank to lecture at its thought-
leadership series, Scotiabank Insights, at Estate 101 in Maraval,
Port of Spain, the report notes.
=================
V E N E Z U E L A
=================
BANCO DEL CARIBE: Fitch Affirms CC IDR & 'cc' Viability Rating
--------------------------------------------------------------
Fitch Ratings has affirmed Banco del Caribe, C.A. Banco
Universal's (Bancaribe) Viability Rating (VR) at 'cc' and Long-
Term Issuer Default Rating (IDR) at 'CC'. The IDR does not have an
Outlook at this rating level. Fitch has also affirmed Bancaribe's
Short-Term Foreign and Local Currency IDRs at 'C', Support Rating
at '5' and Support Rating Floor at 'NF'. Fitch has taken these
rating actions following a private-sector Venezuelan banks peer
review.
The downgrade of Bancaribe's Long-Term National Rating reflects
greater compression of bank ratings on the local scale given
shared operating challenges. In particular, Fitch is concerned
about all Venezuelan banks' ability to maintain capitalization
above regulatory minimums, as this could increase intervention
risks. In addition, Bancaribe exhibits higher vulnerability than
market leaders due to its mid-sized franchise and while its
liquidity profile remains strong, it reported liquid assets
equivalent to 40.5% of customer deposits at September 2017
compared to a system average of 51.5%.
All of Bancaribe's international ratings were affirmed as there
have been no relevant changes in Bancaribe's company profile or
performance in the context of the bank's current ratings since the
last review. Despite the downgrade of Venezuela's Foreign Currency
Long-Term IDR to Restricted Default, the bank's Foreign-Currency
Long-term IDR remains at 'CC', as the default had a minimal impact
on its financial profile.
KEY RATING DRIVERS
VR, IDRs, NATIONAL RATINGS
The bank's IDRs, National and senior debt ratings reflect the
challenging Venezuelan operating environment, characterized by
high inflation and interest rate controls. Capitalization and
liquidity metrics also highly influence Bancaribe's ratings. While
official statistics have been unavailable since 2015, Fitch
forecasts average inflation of 618.6% for 2017.
Like other banks in the system, Bancaribe's capital indicators
have come under pressure due to inflation-led asset growth. In
nominal terms, Bancaribe's deposit base grew by 204% during the
first nine months of 2017, compared to the banking system average
of 287.7%. As of October 2017, the bank's regulatory capital ratio
stood at 12.14% compared to the 12.0% regulatory minimum and the
13.1% system average. This is mitigated by VEF2.5 billion of paid
in capital (3% of equity) pending regulatory approval. Capital
limitations have also underpinned the bank's decline in market
share to 2.8% by assets at September 2017 from 3.5% at year-end
2016. Like its peers, Bancaribe's solvency will depend on the
authorities' regulatory forbearance in the context of an expanding
money supply. Such forbearance, through changes in the exchange
rate for accounting purposes and revaluations of fixed assets, has
occurred numerous times in the last two years.
Deposit growth has created conditions of high liquidity. Cash and
equivalents comprised more than one-third of Bancaribe's assets at
September 2017. Historically significant tenor mismatches between
assets and liabilities have decreased as the bank has steadily
shortened average loan tenors. As of September 2017, 94% of loans
outstanding matured within 90 days. Deposit concentration is also
moderate, with top 20 depositors representing 15.0% of total
deposits at September 2017. The highly transactional nature of
Bancaribe's balance sheet, as well as its limited foreign currency
exposure and the expected continuance of capital controls mitigate
concerns over potential deposit flight.
Ratings also reflect material constraints to Bancaribe's risk
management in light of interest rate caps and floors, high
compulsory lending requirements, an expanding money supply and
rising operating costs, as well as the scarcity of liquid
instruments or hedging instruments in the shallow local capital
markets.
In Fitch's view, loan quality and profitability metrics are
distorted by high inflation and are not comparable to emerging
market peers. Bancaribe's direct exposure to the sovereign has
declined to 45.5% of equity at September 2017. In addition, non-
performing loans, at 0.2% at September 2017, may be sensitive to a
forced economic adjustment. The bank's nominal operating
profitability (5.6% of average assets at September 2017) is
attributable to widening margins sustained by the rapid growth of
low-cost deposits and loans.
SUPPORT RATING AND SUPPORT RATING FLOOR
Bancaribe's Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Despite
the banks' medium-sized franchise, support cannot be relied upon
given Venezuela's Restricted Default (RD) rating and lack of a
consistent policy on bank support. Government interference in the
banking system could also negatively influence from foreign
shareholders support if required.
RATING SENSITIVITIES
VR, IDRs AND NATIONAL RATINGS
A resolution of the sovereign's Restricted Default could relieve
pressure on the bank's VR and Long-Term Foreign Currency IDR,
which are currently capped at the country ceiling. The Long-Term
Local Currency IDR and Short-Term IDRs are capped at the
respective sovereign ratings and would move in line with a
positive rating action of more than two notches on the sovereign.
Nevertheless, upside potential to the bank's ratings is limited in
the near term due to the current crisis. While not Fitch's base
case due to capital controls in place, a material and persistent
decline in deposits would pressure ratings downward. A sustained
decline in the bank's regulatory capital ratio, either due to
nominal growth or losses, which increases the risk of some form of
regulatory intervention, could also lead to a downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating (SR) of '5' and Support Rating Floor (SRF) of
'NF' reflect Fitch's expectation of no sovereign support. In
addition, in Fitch's view, government interference in the banking
system and the economy as a whole negatively influences
shareholder support.
Fitch has taken the following actions:
Bancaribe
-- Long-Term Foreign and Local Currency Issuer Default Ratings
affirmed at 'CC';
-- Short-Term Foreign and Local Currency ratings affirmed at 'C';
-- Viability Rating affirmed at 'cc';
-- Support Rating affirmed at '5';
-- Support Rating Floor affirmed at 'NF';
-- National Long-Term Rating downgraded to 'BBB+(ven)' from
'A-(ven)'
-- National Short-Term Rating affirmed at 'F2(ven)'.
BANCO EXTERIOR: Fitch Affirms CC IDR & 'cc' Viability Rating
------------------------------------------------------------
Fitch Ratings has affirmed Banco Exterior, C.A. Banco Universal's
(Exterior) Viability Rating (VR) at 'cc' and its Long-Term Issuer
Default Rating (IDR) at 'CC'. The LT IDR does not have an Outlook
at this rating level. Fitch has also affirmed Exterior's Short-
Term Foreign and Local Currency IDRs at 'C', Support Rating at '5'
and Support Rating Floor at 'NF'. Fitch has taken these actions
following a peer review of private-sector Venezuelan banks.
The downgrade of Exterior's Long-Term National rating reflects
greater compression of bank ratings on the local scale given
shared operating challenges. In particular, Fitch is concerned
about all Venezuelan banks' ability to maintain capitalization
above regulatory minimums, as failure to do so could increase
government intervention risks. In addition, Exterior exhibits
higher vulnerability than market leaders due to its mid-sized
franchise and relatively higher foreign exchange risk.
All international ratings were affirmed as there have been no
relevant changes in Exterior's company profile or performance
since the last review. Despite the downgrade of Venezuela's
foreign currency Long-Term IDRs to Restricted Default, the bank's
LT Foreign Currency IDR remains at 'CC', as the default had a
minimal impact on its financial profile.
KEY RATING DRIVERS
VR, IDRS, NATIONAL RATINGS AND SENIOR DEBT
Exterior's IDRs, National and senior debt ratings are highly
influenced by the challenging Venezuelan operating environment,
characterized by hyperinflation, a deep recession and interest
rate controls. The bank's capitalization and liquidity profile are
also highly relevant.
While official statistics have been unavailable since 2015, Fitch
forecasts average inflation of 618.6% for 2017 and expects
accelerating inflation to reach four digits in the near term. The
continued deep macroeconomic imbalances in Venezuela and its very
high levels of fiscal vulnerability could increase the likelihood
of a forced macroeconomic adjustment, though this is not Fitch's
base case scenario.
As with other banks in the Venezuelan banking system, inflation-
led asset growth has pressured Exterior's capital indicators. In
nominal terms Exterior experienced asset growth of 224.6% during
the first nine months of 2017, moderately lower than the banking
system average of 281.3%. As of October 2017, Exterior's
regulatory capital ratio was 12.15% compared to a 12.0% regulatory
minimum and 13.1% system average. In light of this rapid growth of
the money supply, Exterior's near-term solvency depends on the
authorities' regulatory forbearance. Such forbearance, through
changes in the exchange rate for accounting purposes or the
revaluation of fixed assets, have occurred on a number of
occasions in the last two years.
Exterior maintains a net short position in US dollars of USD 6.1
million. While small at the official Dipro exchange rate, the
exposure could be material under a devaluation scenario. The
position is partly mitigated by the bank's holdings of TICCS
(Titulos de Interes y Capital Cubierto) or dollar-indexed
government bonds. Ratings also reflect constraints on risk
management in light of interest rate controls, high compulsory
lending requirements, as well as the scarcity of liquid
instruments or hedging instruments in the shallow local capital
market.
As with the banking system as a whole, Exterior relies almost
entirely on customer deposits for funding. Positively,
historically significant tenor mismatches between assets and
liabilities have closed somewhat, as the bank has shortened
average loan tenors. As of September 2017, 92% of loans
outstanding matured within one year. The mismatch is mitigated by
high levels of liquidity wherein cash and equivalents represented
35.5% of assets and covered 39.05% of deposits and short-term
liabilities.
In Fitch's view, loan quality and profitability metrics are
distorted by high inflation and are not comparable to emerging
market peers. In addition, Exterior's direct exposure to the
public sector has declined to 20.7% of capital at September 2017
and it reports no holdings of international sovereign bonds. The
bank's share of non-performing loans, at 0.1% at September 2017,
is diluted by loan growth and may be sensitive to a forced
economic adjustment. The bank's nominal operating profitability
(at 5.8% of average assets at September 2017) benefits from wide
margins sustained by a static interest rate and capital controls
in an inflationary environment.
SUPPORT RATING AND SUPPORT RATING FLOOR
Exterior's Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Despite
the banks' medium-sized franchise, support cannot be relied upon
given Venezuela's Restricted Default rating and lack of a
consistent policy on bank support. Government interference in the
banking system could also negatively influence any potential
support from foreign shareholders if required and therefore
institutional support is not taken into consideration.
RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT
A resolution of the sovereign's Restricted Default could relieve
pressure on the bank's VR and LT Foreign Currency IDR, which are
currently capped at the country ceiling. The LT Local Currency IDR
and Short-Term IDRs are capped at the sovereign and would move in
line with a positive rating action of more than two notches on the
sovereign. Nevertheless, upside potential to the bank's ratings is
limited in the near term due to the current crisis.
While not Fitch's base case due to capital controls and domestic
market liquidity, a persistent nominal decline in deposits would
pressure the ratings. A sustained decline in the bank's regulatory
capital ratio, due to either nominal growth or losses, which
increases the risk of some form of regulatory intervention could
also lead to a downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR
The SR of '5' and SRF of 'NF' reflect Fitch's expectation of no
sovereign support.
The rating actions are:
Exterior
-- Long-Term Foreign and Local Currency Issuer Default Ratings
affirmed at 'CC';
-- Short-Term Foreign and Local Currency IDRs affirmed at 'C';
-- Viability Rating affirmed at 'cc';
-- Support Rating affirmed at '5';
-- Support Rating Floor affirmed at 'NF';
-- National Long-Term rating downgraded to 'A-(ven)' from
'A(ven)';
-- National Short-Term rating downgraded to 'F2(ven)' from
'F1(ven)'.]
BANCO NACIONAL: Fitch Affirms CC IDR & 'cc' Viability Rating
------------------------------------------------------------
Fitch Ratings has affirmed Banco Nacional de Credito, C.A. Banco
Universal's (BNC) Viability Rating (VR) at 'cc' and its Long-Term
Issuer Default Rating (IDR) at 'CC'. The LT IDR does not have an
Outlook at this rating level. Fitch also affirmed BNC's Short-Term
Foreign and Local Currency IDRs at 'C', its Support Rating at '5'
and its Support Rating Floor at 'NF'. At the same time, the
National Long-Term Rating was downgraded by one notch to 'BBB-
(ven)' from 'BBB(ven)'. Fitch has taken these actions following a
peer review of private-sector Venezuelan banks.
The one-notch downgrade of BNC's National LT rating reflects
greater compression of bank ratings on the local scale given
shared operating challenges. In particular, Fitch is concerned
about the ability of all Venezuelan banks to maintain
capitalization above regulatory minimums as failure to do so could
increase the risks of government intervention. In addition, BNC
exhibits higher vulnerability than market leaders due to its mid-
sized franchise and relatively lower liquidity profile.
All of BNC's international ratings were affirmed as there have
been no relevant changes in BNC's company profile or performance
in the context of the bank's current ratings since the last
review. Despite the downgrade of Venezuela's foreign LT Currency
IDRs to 'Restricted Default', the bank's LT Foreign Currency IDR
remains at 'CC', as the default had a minimal impact on its
financial profile.
KEY RATING DRIVERS
IDRS, VR AND NATIONAL RATINGS
BNC's VR, IDRs and National ratings are highly influenced by the
challenging Venezuelan operating environment, capitalization and
liquidity. Hyperinflation distorts the comparison of financial
metrics with regional peers (Latin American commercial banks with
a VR of 'b+' and below).
Hyperinflation, a severe recession and interest rate controls
characterize the Venezuelan operating environment. While official
statistics have been unavailable since 2015, Fitch forecasts
average inflation of 618.6% for 2017 and expects accelerating
inflation to reach four digits in the near term. Regulator-imposed
interest rate caps and floors, and high compulsory lending
requirements that affect all the banks in the system also
constrain BNC's risk management and profitability.
Similar to other universal banks operating in the Venezuelan
banking system, inflation-led asset growth has pressured BNC's
capital indicators. As of October 2017, BNC's regulatory capital
ratio stood at 12.05%, only slightly above the 12.0% regulatory
minimum and below the 13.1% banking system average. In the past,
BNC has regularly been able to infuse new shareholder capital when
needed to improve its ratios. However, in light of monetary supply
growth, BNC's near-term solvency is highly dependent on regulatory
forbearance.
Fitch recognizes that an adjustment of foreign currency assets to
a more market-oriented exchange rate and a revaluation of fixed
assets due to inflation would materially increase capitalization
ratios. Nevertheless, in Fitch's view, this does not offset the
inherent risk of operating in Venezuela given the depth of the
economic crisis and the uncertainty of prospective regulatory
measures. Capital ratios are likely to remain under pressure in
2018 due to inflation-induced growth and lower profitability.
Similar to other universal banks in the banking system, BNC relies
almost entirely on customer deposits for funding. BNC's liquidity
appears adequate for its market. Most liquid assets consist of
cash and bank deposits, which accounted for 35.1% of total assets
and covered nearly 39% of total customer deposits as of June 30,
2017. In this challenging operating environment Fitch views a
greater proportion of cash favorably, as public sector securities
may be of limited liquidity in a stress scenario given the shallow
domestic debt market.
In addition, BNC and most of its peers are subject to tenor
mismatches between assets and liabilities given the very short-
term nature of the funding. BNC's management has mitigated this
risk by conservatively lowering loan tenors to approximately 30
days.
BNC's nominal operating profit-to-average assets ratio improved to
nearly 6% as of June 30, 2017, above the system average of 5.3%.
BNC's impaired loans-to-gross loans ratio also remained low (0.06%
at June 30, 2017), comparing favorably with domestic peers.
Nevertheless, at 2% Fitch views reserve coverage of gross loans as
low given the severity and uncertainty of the current economic,
social & political crisis and historical NPL levels following
economic adjustments seen in previous crises. Despite solid
profitability and asset quality ratios, these do not weigh in
Fitch's analysis due to the impact of inflation.
SUPPORT RATING AND SUPPORT RATING FLOOR
BNC's Support Rating (SR) of '5'and Support Rating Floor (SRF) of
'NF' reflect Fitch's expectation of no support given BNC's lower
systemic importance; in addition, support cannot be relied upon
given Venezuela's Restricted Default rating and lack of a
consistent policy on bank support.
RATING SENSITIVITIES
IDRS, VR, AND NATIONAL RATINGS
A resolution of the sovereign's Restricted Default could relieve
pressure on the bank's VR and LT Foreign Currency IDR, which are
currently capped at the country ceiling. The LT Local Currency IDR
and Short-Term IDRs are capped at the sovereign and would move in
line with a positive rating action of more than two notches on the
sovereign. Nevertheless, upside potential to the bank's ratings is
limited in the near term due to the current crisis.
While not Fitch's base case because of capital controls and
domestic market liquidity, a persistent nominal decline in
deposits would pressure ratings. A sustained decline in the bank's
regulatory capital ratio, due either to nominal growth or losses,
which increases the risk of some form of regulatory intervention,
could lead to a downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR
Venezuela's propensity or ability to provide timely support to BNC
is not likely to change given the sovereign's very low
speculative-grade ratings. As such, the SR and SRF have no upgrade
potential at this time.
BNC's rating actions are:
-- Long-Term Foreign and Local Currency IDR affirmed at 'CC';
-- Short-Term Foreign and Local Currency IDR affirmed at 'C';
-- Viability Rating affirmed at 'cc';
-- Support Rating affirmed at '5';
-- Support Rating Floor affirmed at 'No Floor';
-- National Long-Term rating downgraded to 'BBB-(ven)' from
'BBB(ven)';
-- National Short-Term rating affirmed at 'F3(ven)'.
BANCO OCCIDENTAL: Fitch Affirms 'CC' Long-Term IDR
--------------------------------------------------
Following a peer review of private sector Venezuelan banks, Fitch
Ratings has affirmed Banco Occidental de Descuento, Banco
Universal C.A.'s (BOD) Long-Term (LT) Foreign and Local Currency
Issuer Default Ratings (IDRs) at 'CC'. No Rating Outlook is
assigned at this rating level.
All ratings were affirmed, as there have been no relevant changes
in BOD's company profile or performance since the last review.
Despite the downgrade of Venezuela's Long-Term IDR to 'RD'
(Restricted Default), the bank's LT Foreign Currency IDR remains
at 'CC' as the default had a minimal impact on BOD's financial
profile.
KEY RATING DRIVERS
VR, IDRS AND NATIONAL RATINGS
The bank's IDRs, National and senior debt ratings are highly
influenced by the challenging Venezuelan operating environment,
capitalization and liquidity. High inflation distorts the
comparison of financial metrics with regional peers (Latin
American commercial banks with a Viability Rating [VR] of 'b+' and
below).
Venezuelan banks operate in a market characterized by
hyperinflation, a deep recession and interest rate controls. While
official statistics have been unavailable since 2015, Fitch
forecasts average inflation of 618.6% for 2017 and expects
accelerating inflation to reach four digits in the near term. The
continued deep macroeconomic imbalances in Venezuela and its very
high levels of fiscal vulnerability could increase the likelihood
of a forced macroeconomic adjustment, though this is not Fitch's
base case scenario.
Despite capital contributions, the revaluation of fixed assets and
stronger internal capital generation, the bank's tangible common
equity/tangible assets ratio has remained well below 7% since
2013, as inflation-induced asset growth exceeded internal capital
generation. Fitch expects this trend to continue over the
foreseeable future given the hyperinflationary conditions in
Venezuela. Furthermore, the bank's regulatory capital/risk
weighted assets ratio has been at or near the minimum of 12%
required in Venezuela since 2015. Fitch believes that these tight
capital ratios reduce BOD's financial flexibility and increase
regulatory uncertainty for the bank.
As is the case with all Venezuelan banks, BOD's solvency will
depend on the authorities' regulatory forbearance given the
accelerating growth of the monetary base. Such forbearance,
through changes in the exchange rate for accounting purposes or a
revaluation of fixed assets due to inflation has occurred three
times since early 2016, with another revaluation expected in the
short term. Fitch also recognizes that an adjustment of foreign
currency assets to a more market-oriented exchange rate would be
positive for capitalization ratios. Nevertheless, in Fitch's view,
this does not offset the inherent risk of operating in Venezuela
given the depth of the economic crisis and the uncertainty in
prospective regulatory measures.
Given BOD's high level of liquid assets, the large negative
mismatch between short-term assets and liabilities is manageable
as long as domestic monetary market conditions remain liquid and
any potential liberalization of capital controls is measured. Most
liquid assets consist of cash and bank deposits (98%) and covered
37% of deposits and short-term funding as of Sept. 30, 2017. Cash
and bank deposits now account for about a third of BOD's assets,
though this is lower than banks with higher National Ratings;
liquidity remains strong. Fitch views a greater proportion of cash
favorably, as public sector securities may be of limited liquidity
in a stress scenario given the shallow domestic debt market.
BOD's profitability improved significantly due to wider margins,
rapid asset growth and cost containment. Similarly, accelerated
loan growth also benefited the impaired loans/gross loans ratio.
At 1.9% as of Sept. 30, 2017, Fitch views coverage of gross loans
as tight, given the severity and uncertainty of the current
economic, social and political crisis and historical NPL levels
following economic adjustment in previous crises. Despite
improvements in profitability and asset quality over the past
year, this does not weigh in Fitch's analysis due to the impact of
inflation on these indicators.
SUPPORT RATING AND SUPPORT RATING
The banks' Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Despite
BOD's systemic importance, support cannot be relied upon given
Venezuela's 'RD' rating and lack of a consistent policy on bank
support.
RATING SENSITIVITIES
VR, IDRS AND NATIONAL RATINGS
A resolution of the sovereign's 'RD' could relieve pressure on the
bank's VR and LT Foreign Currency IDR, which are currently capped
at the country ceiling. The LT Local Currency IDR and Short-Term
IDRs are capped at their respective sovereign ratings and would
move in line with a positive rating action of more than two
notches on the sovereign. Nevertheless, upside potential to the
bank's ratings is limited in the near term due to the current
crisis.
While not Fitch's base case due to capital controls and domestic
market liquidity, a persistent nominal decline in deposits would
pressure ratings. A sustained decline in the bank's regulatory
capital ratio, due either to nominal growth or losses, which
increases the risk of some form of regulatory intervention, could
also lead to a downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR
Venezuela's propensity or ability to provide timely support to BOD
is not likely to change given the sovereign's very low
speculative-grade ratings. As such, the SR and SRF have no upgrade
potential.
Fitch has affirmed BOD's ratings:
-- Long-Term Foreign and Local Currency IDRs at 'CC';
-- Short-Term Foreign and Local Currency IDRs at 'C';
-- Viability Rating at 'cc';
-- Support at '5';
-- Support Floor at 'NF';
-- Long-term National scale rating at 'BBB-(ven)';
-- Short-term National scale rating 'F3(ven)'.
BANESCO BANCO: Fitch Affirms CC Long-Term FC & LC IDR
-----------------------------------------------------
Following a peer review of private sector Venezuelan banks, Fitch
Ratings has affirmed Banesco Banco Universal, C.A.'s (BBU) Long-
Term Foreign and Local Currency Issuer Default Ratings (IDRs) at
'CC'. No Rating Outlook is assigned at this rating level. Fitch
has also downgraded Banesco's Long-Term National Rating to 'A-
(ven)' from 'A(ven)' while affirming its Short-Term National
Rating at 'F1'.
The downgrade of BBU's Long-Term National Rating reflects greater
compression of bank ratings on the local scale given shared
operating challenges. In particular, Fitch is concerned about all
Venezuelan banks' ability to maintain capitalization above
regulatory minimums as failure to do so could increase government
intervention risks. Nevertheless, Banesco's franchise and stronger
liquidity continue to differentiate the bank from its lower rated
peers on the national scale and it remains one of the highest
rated banks in the market.
All international ratings were affirmed as there have been no
relevant changes in BBU's company profile or performance since the
last review. Despite the downgrade of Venezuela's Long-Term IDR to
'Restricted Default' (RD), the bank's Long-Term IDR remains at
'CC' as the default had a minimal impact on its financial profile.
KEY RATING DRIVERS
VR, IDRS AND NATIONAL RATINGS
The bank's IDRs, National and senior debt ratings are highly
influenced by the challenging Venezuelan operating environment,
capitalization and liquidity. High inflation distorts the
comparison of financial metrics with regional peers (Latin
American commercial banks with a Viability Rating [VR] of 'b+' and
below).
Venezuelan banks operate in a market characterized by
hyperinflation, a deep recession and interest rate controls. While
official statistics have been unavailable since 2015, Fitch
forecasts average inflation of 618.6% for 2017 and expects
accelerating inflation to reach four digits in the near term. The
continued deep macroeconomic imbalances in Venezuela and its very
high levels of fiscal vulnerability could increase the likelihood
of a forced macroeconomic adjustment, though this is not Fitch's
base case scenario.
Like other Venezuelan banks, BBU's capital ratios have come under
pressure as asset growth has exceeded internal capital generation
since early 2014, a trend that Fitch expects to continue given the
hyperinflationary environment in Venezuela. As of October 2017,
the bank's regulatory capital ratio stood at 12.6% compared to the
12.0% regulatory minimum, which could reduce the bank's financial
flexibility. Additionally, the bank's tangible common
equity/tangible assets ratio of 5% as of Sept. 30, 2017, was among
the lowest ratios of Fitch-rated Venezuelan banks.
As is the case with all Venezuelan banks, Banesco's solvency will
depend on the authorities' regulatory forbearance in the context
of an expanding money supply. Such forbearance, through changes in
the exchange rate for accounting purposes or a revaluation of
fixed assets due to inflation has occurred three times since early
2016 with another revaluation expected in the short term. Fitch
also recognizes that an adjustment of foreign currency assets to a
more market oriented exchange rate would be positive for
capitalization ratios. Nevertheless, in Fitch's view, this does
not offset the inherent risk of operating in Venezuela given the
depth of the economic crisis and the uncertainty in prospective
regulatory measures.
Given the bank's high level of liquid assets, the large negative
mismatch between short-term assets and liabilities is manageable
as long as domestic monetary market conditions remain liquid and
any potential liberalization of capital controls is measured. Most
liquid assets consist of cash and bank deposits (99% of total) and
covered 49% of total deposits and short-term funding and 45% of
total assets as of Sept. 30, 2017. The selective default on
international debt did not materially affect BBU's liquidity
profile as it had already reduced its exposure to the central
government and PdVSA. Fitch views a greater proportion of cash
favorably, as public sector securities may be of limited liquidity
in a stress scenario given the shallow domestic debt market.
Higher margins, rapid nominal loan growth and cost containment has
stabilized the bank's operating profit /risk weighted assets ratio
to around 6% this year. As is the case with other Venezuelan
banks, Fitch expects expenditure pressures to continue over the
medium term. BBU's impaired loans to gross loans ratio has
remained well below 1% since 2011, in line with domestic peers and
reflecting the effect of inflation on the denominator. At 2.5% of
gross loans as of Sept. 30, 2017, Fitch views coverage of gross
loans as tight, given the severity and uncertainty of the current
economic, social and political crisis, as well as historical NPL
levels following economic adjustment of previous crises. Despite
solid profitability and asset quality ratios, these do not weigh
in Fitch's analysis due to the impact of inflation.
SUPPORT RATING AND SUPPORT RATING FLOOR
The banks' Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Despite
BBU's systemic importance, support cannot be relied upon given
Venezuela's 'RD' rating and lack of a consistent policy on bank
support.
RATING SENSITIVITIES
VR, IDR AND NATIONAL RATINGS
A resolution of the sovereign's 'RD' rating could relieve pressure
on the bank's VR and Long-Term Foreign Currency IDR, which are
currently capped at the country ceiling. The Long-Term Local
Currency IDR and Short-Term IDRs are capped at the sovereign and
would move in line with a positive rating action of more than two
notches on the sovereign. Nevertheless, upside potential to the
bank's ratings is limited in the near term due to the current
crisis.
While not Fitch's base case due to capital controls and domestic
market liquidity, a persistent nominal decline in deposits would
pressure the ratings. A sustained decline in the bank's regulatory
capital ratio, due to either nominal growth or losses, which
increases the risk of some form of regulatory intervention, could
lead to a downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR
Venezuela's propensity or ability to provide timely support BBU is
not likely to change given the sovereign's 'RD' rating. As such,
the SR and SRF have no upgrade potential.
Fitch has taken the following rating actions on Banco Universal,
C.A.:
-- Long-Term Foreign and Local Currency IDRs affirmed at 'CC';
-- Short-Term Foreign and Local Currency ratings affirmed at 'C';
-- Viability Rating affirmed at 'cc';
-- Support affirmed at '5';
-- Support Floor affirmed at 'NF';
-- Long-Term National Scale rating downgraded to 'A-(ven)' from
'A(ven)';
-- Short-Term National Scale rating affirmed at 'F1(ven)'.
MERCANTIL CA: Fitch Affirms CC IDR & 'cc' Viability Rating
----------------------------------------------------------
Fitch Ratings has affirmed Mercantil C.A. Banco Universal's
(Mercantil) Viability Rating (VR) at 'cc', which in turn drives
its Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs) being affirmed at 'CC' following Fitch's peer review of
Venezuelan Private Sector Banks. No Rating Outlook is assigned at
this rating level. At the same time, the Long-Term National Rating
is downgraded to 'A(ven)' from 'A+(ven)'.
The one-notch downgrade of Mercantil's Long-Term National Rating
reflects greater compression of the bank ratings on the local
scale given shared operating challenges. In particular, Fitch is
concerned about the ability of all Venezuelan banks' to maintain
capitalization above regulatory minimums as this could increase
intervention risks. Nevertheless, Mercantil's extensive franchise
and stronger liquidity continue to benefit its national ratings
and the bank remains the highest rated entity in its market.
All international ratings were affirmed as there have been no
relevant changes in Mercantil's company profile or performance in
the context of the bank's current ratings since the last review.
Despite the downgrade of Venezuela's Foreign Currency Long-Term
IDRs to 'Restricted Default', the bank's Foreign Currency Long-
Term IDR remains at 'CC' as the default had a minimal impact on
its financial profile.
KEY RATING DRIVERS
IDRS, VR AND NATIONAL RATINGS
The operating environment, capitalization and liquidity highly
influence Mercantil's ratings. Hyperinflation distorts the
comparison of financial metrics with regional peers (Latin
American commercial banks with a VR of 'b+' and below).
Venezuelan banks operate in a market characterized by
hyperinflation and interest rate controls. While official
statistics have been unavailable since 2015, Fitch forecasts
average inflation of 618.6% for 2017 and expects accelerating
inflation to reach four digits in the near term. The continued
deep macroeconomic imbalances in Venezuela and its very high
levels of fiscal vulnerability could increase the risks of a
forced macroeconomic adjustment, though this is not Fitch's base
case scenario.
Mercantil's capital ratios, like those of other Venezuelan banks,
have come under strong pressure as asset growth has exceeded
internal capital generation over the past few years. Despite
conservatively lower growth than its domestic peers this year, the
bank's tangible common equity/tangible assets ratio fell below the
average ratio of the banking system.
Fitch recognizes that an adjustment of foreign currency assets to
a more market oriented exchange rate and a revaluation of fixed
assets due to inflation would materially increase capitalization
ratios. Nevertheless, in Fitch's view, this does not offset the
inherent risk of operating in Venezuela given the depth of the
economic crisis and the uncertainty in prospective regulatory
measures. Capital ratios are likely to remain under pressure in
2018 due to inflation-induced growth and lower profitability.
Mercantil's liquidity is adequate for its market. Most liquid
assets consist of cash and bank deposits which accounted for 41%
of total assets and covered nearly 46% of total customer deposits
as of June 30, 2017. Fitch views a greater proportion of cash
favorably, as public sector securities may be of limited liquidity
in a stress scenario given the shallow domestic debt market.
Fitch views the negative mismatch between short-term assets and
liabilities that affects all Venezuelan banks as manageable as
long as domestic monetary market conditions remain liquid and any
potential liberalization of capital controls is measured. Fitch
also notes that in past crises, Mercantil has benefited from a
flight to quality which also supported deposit stability.
Mercantil's profitability metrics were below that of the system as
it chose to conservatively reduce its growth in riskier assets
while increasing its liquidity levels. Additionally, operating and
other expenses during recent quarters also pressured earnings.
Mercantil's impaired loans to gross loans ratio has remained well-
below 1% for many years and despite the reduction in risk-weighted
assets, Mercantil's asset quality metrics remain in line with
domestic peers. Regardless, Fitch still views coverage of gross
loans as tight, given the severity and uncertainty of the current
economic, social & political crisis and historical NPL levels
following economic adjustment of previous crises.
SUPPORT RATING AND SUPPORT RATING FLOOR
Mercantil's Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Despite
Mercantil's systemic importance, support cannot be relied upon
given Venezuela's Restricted Default (RD) rating and lack of a
consistent policy on bank support.
RATING SENSITIVITIES
IDRS, VR, AND NATIONAL RATINGS
A resolution of the sovereign's Restricted Default could relieve
pressure on the bank's VR and Long-Term Foreign Currency IDR,
which are currently capped at the country ceiling. The Long-Term
Local Currency IDR and Short-Term IDRs are capped at the sovereign
and would move in line with a positive rating action of more than
two notches on the sovereign. Nevertheless, upside potential to
the bank's ratings is limited in the near term due to the current
crisis.
While not Fitch's base case due to capital controls and domestic
market liquidity, a persistent nominal decline in deposits would
pressure ratings. A sustained decline in the bank's regulatory
capital ratio, either due to nominal growth or losses, which
increases the risk of some form of regulatory intervention, could
also lead to a downgrade.
SUPPORT RATING AND SUPPORT RATING FLOOR
Venezuela's propensity or ability to provide timely support to
Mercantil is not likely to change given the sovereign's very low
speculative-grade ratings. As such, the SR and SRF have no upgrade
potential at this time.
Fitch has taken the following rating actions on Mercantil:
-- Long-Term Foreign and Local Currency IDRs affirmed at 'CC';
-- Short-Term Foreign and Local Currency IDRs affirmed at 'C';
-- Viability Rating affirmed at 'cc';
-- Support Rating affirmed at '5';
-- Support Rating Floor affirmed at 'No Floor';
-- National Long-Term Rating downgraded to 'A(ven)'from
'A+(ven)';
-- National Short-Term Rating affirmed at 'F1(ven)'.
***********
Monday's edition of the TCR-LA delivers a list of indicative
prices for bond issues that reportedly trade well below par.
Prices are obtained by TCR-LA editors from a variety of outside
sources during the prior week we think are reliable. Those
sources may not, however, be complete or accurate. The Monday
Bond Pricing table is compiled on the Friday prior to publication.
Prices reported are not intended to reflect actual trades. Prices
for actual trades are probably different. Our objective is to
share information, not make markets in publicly traded securities.
Nothing in the TCR-LA constitutes an offer or solicitation to buy
or sell any security of any kind. It is likely that some entity
affiliated with a TCR-LA editor holds some position in the
issuers' public debt and equity securities about which we report.
Tuesday's edition of the TCR-LA features a list of companies with
insolvent balance sheets obtained by our editors based on the
latest balance sheets publicly available a day prior to
publication. At first glance, this list may look like the
definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
Submissions about insolvency-related conferences are encouraged.
Send announcements to conferences@bankrupt.com
***********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2017. 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 US$775 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 US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000 or Joseph Cardillo at
856-381-8268.
* * * End of Transmission * * *