/raid1/www/Hosts/bankrupt/TCRLA_Public/180118.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, January 18, 2018, Vol. 19, No. 13
Headlines
A R G E N T I N A
BANCO SANTANDER RIO: Moody's Gives Ba3 Global Rating to New Debt
B O L I V I A
BOLIVIA: Water Shortages Resolved, Government Says
B R A Z I L
AGENCIA DO FOMENTO: Moody's Withdraws Ba3 Global Issuer Rating
BANCO GMAC: Moody's Withdraws Ba2 Global LC Deposit Rating
COMPANIA MINERA: S&P Alters Outlook to Stable & Affirms 'BB+' CCR
HIDROVIAS DO BRASIL: Fitch Rates New Sr. Unsec. Notes 'BB(EXP)'
PETROBRAS: Hit Goals & Achieved Record Production in 2017
RIO PARANA: Moody's Assigns Ba1 CFR; Outlook Negative
* S&P Takes Various Ratings on Brazilian Financial Entities
* S&P Cuts Credit Ratings on 3 Brazilian Cities
* S&P Cuts GSR to 'BB-' on Two Brazilian State-Owned Utilities
* S&P Lowers Ratings on 11 Brazilian Structured Finance Deals
* S&P Takes Various Actions on Brazilian Corporations
C O S T A R I C A
BANCO DE COSTA RICA: Fitch Retain Ratings Amid Gov't Intervention
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Chief Calls Haiti Ban on Products 'Momentary'
M E X I C O
BANCO SANTANDER MEXICO: Moody's Affirms Ba1 Jr. Sub. Debt Rating
CASA DE BOLSA: Moody's Affirms Ba1 Jr. Sub. Debt Rating
- - - - -
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A R G E N T I N A
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BANCO SANTANDER RIO: Moody's Gives Ba3 Global Rating to New Debt
----------------------------------------------------------------
Moody's Latin America Agente de Calificacion de Riesgo S.A. (MLA),
on January 16, 2017, assigned a Ba3 global local currency senior
debt rating and an Aaa.ar national scale local currency debt
rating to Banco Santander Rio S.A.'s twentieth issuance up to ARS
3,000 million, which will be due in 24 months, and the twenty
first issuance up to ARS 3,000, due in 48 months. The two
issuances together cannot exceed of ARS3.000 million.
All ratings have stable outlook.
The following ratings were assigned to Banco Santander Rio S.A.'s
expected issuances:
Class XX up to ARS3,000 million:
Ba3 Global Local Currency Debt Rating
Aaa.ar Argentina National Scale Local Currency Debt Rating
Class XXI up to ARS 3,000 million:
Ba3 Global Local Currency Debt Rating
Aaa.ar Argentina National Scale Local Currency Debt Rating
RATINGS RATIONALE
Santander Rio's ratings consider the high probability that the
bank will receive financial support from its parent, Banco
Santander S.A. (Spain) (Santander Spain, A3, stable, baa1), in an
event of stress. The benefits from parental support offset
challenges related to Argentina's operating environment, which
while improving has historically been very volatile. As a result
of these challenges, coupled with banks' close credit linkages
with their sovereigns, Santander's standalone credit profile is
constrained at the level of Argentina's B2 sovereign rating
notwithstanding its sound financial fundamentals.
Santander continues to boast good earning generation capacity
supported by an inexpensive and highly granular deposit base
linked to payroll accounts and diversified lines of business.
Despite declining steadily since 2012, when it equaled 3.7% of
tangible assets, net income remained strong at 1.9% of tangible
assets in the first three quarters of 2017, though these figures
are distorted by Argentina's high rate of inflation. Profitability
should be supported by the bank's acquisition early last year of
Citibank's retail business. The acquisition, which added 518,000
retail clients and 70 offices to Santander's network, enlarged its
footprint among high income retail clients and strengthened its
position as the largest private bank in Argentina.
However, it had negative impacts on capitalization. Largely due to
the risk-weighted assets growth generated by the acquisition,
tangible common equity fell to 9.4% of adjusted risk-weighted
assets as of September 2017, from 13.17% as of YE 2016. Although
capital is now below that of local peers, it remains moderate by
global standards.
The bank's prudent risk management practices and diversified loan
portfolio in the corporate and consumer lending segments supports
good asset quality. In the consumer segment, the bank has a
significant focus on payroll-linked loans and targets high and
medium income individuals. While nonperforming loans nevertheless
rose to 2.27% of gross loans by September 2017, up from 1.2% in
year-end 2016, loan loss reserve coverage remained adequate at
109.7%.
WHAT COULD CHANGE THE RATING UP/DOWN
The Ba3 global rating would face upward pressure if Argentina's
sovereign rating were upgraded. Conversely, the global scale
ratings would face downward pressure if the government of
Argentina were to be downgraded, and both the global and national
scale ratings could be lowered if the entity's capital base,
profitability, and/or asset quality were to deteriorate
significantly.
The principal methodology used in these ratings was Banks
published in September 2017.
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B O L I V I A
=============
BOLIVIA: Water Shortages Resolved, Government Says
--------------------------------------------------
Latinx Today reports that the drought-related water shortages that
led to the imposition of rationing in Bolivia a year ago are at an
end, Bolivian President Evo Morales said.
"We have water now. The rationing in the city of La Paz is over,"
he said during the inauguration of an aqueduct that will carry
water to Lake Estrellani, which serves roughly 300,000 residents,
according to Latinx Today.
While the drought is still causing "very serious problems" in
rural areas of eastern Bolivia, the lessons learned from the
experience of La Paz enabled authorities to upgrade the provision
of water in other cities and eliminate the need for rationing, the
president said, the report relays.
The report notes that Mr. Morales said his government considers
water to be a fundamental right, boasting that Bolivia's approach
toward preventing water privatization is now being exported to
"the whole world."
The aqueduct, which cost $14 million, is part of a $67 million
plan to prevent a recurrence of the crisis that forced the
imposition of rationing in La Paz and the much larger neighboring
city of El Alto, the report relays.
Besides investing money, the government fired the top executives
of state-owned water company EPSAS and officials responsible for
utilities regulation, while the then-water minister, Alexandra
Moreira, resigned in January 2017, the report adds.
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B R A Z I L
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AGENCIA DO FOMENTO: Moody's Withdraws Ba3 Global Issuer Rating
--------------------------------------------------------------
Moody's America Latina Ltda. (MAL) has withdrawn all ratings and
assessments assigned to Agencia do Fomento Parana S.A. (Fomento
Parana), including the long and short-term global issuer ratings
of Ba3 and Not Prime, as well as the long and short term Brazilian
national scale issuer ratings of A1.br and BR-1. Moody's has also
withdrawn Fomento Parana's baseline credit assessment (BCA) of
ba3, as well as its adjusted BCA of ba3. Before the withdrawal,
the outlook on the long-term global local currency issuer rating,
as well as the issuer outlook, was stable.
The following ratings and assessments of Agencia do Fomento Parana
S.A. were withdrawn:
- Long and short-term global local currency issuer rating of Ba3,
stable outlook and Not Prime
- Long and short term Brazilian national scale issuer rating of
A1.br and BR-1
- Baseline credit assessment of ba3
- Adjusted baseline credit assessment of ba3
The issuer outlook of Agencia do Fomento Parana S.A. was stable.
RATINGS RATIONALE
Moody's has decided to withdraw the ratings for its own business
reasons.
Agencia do Fomento Parana S.A is headquartered in Curitiba and had
total assets of BRL 1.8 billion (US$ 549 million) and equity of
BRL 1.6 billion (US$ 473 million) as of June 30, 2017.
The principal methodology used in these ratings was Banks
published in September 2017.
BANCO GMAC: Moody's Withdraws Ba2 Global LC Deposit Rating
----------------------------------------------------------
Moody's Investors Service has withdrawn all ratings and
assessments assigned to Banco GMAC S.A., including the long and
short-term global local currency deposit ratings of Ba2 and Not
Prime, as well as the long and short-term global foreign currency
deposit ratings of Ba3 and Not Prime and Banco GMAC's long and
short term Brazilian national scale rating of Aa2.br and BR-1.
Moody's has also withdrawn the bank's baseline credit assessment
(BCA) of ba3, as well as its adjusted BCA of ba2, and its long and
short-term counterparty risk assessments of Ba1(cr) and Not
prime(cr). Before the withdrawal, the outlook on the long-term
local and foreign currency deposit ratings, as well as the issuer
outlook, was stable.
The following ratings and assessments of Banco GMAC S.A. were
withdrawn:
- Long and short-term global local currency deposit rating of
Ba2, stable outlook and Not Prime
- Long and short-term foreign currency deposit rating of Ba3,
stable outlook and Not Prime
- Long and short term Brazilian national scale deposit rating of
Aa2.br and BR-1
- Baseline credit assessment of ba3
- Adjusted baseline credit assessment of ba2
- Long and short-term counterparty risk assessment of Ba1(cr) and
Not Prime(cr)
The issuer outlook of Banco GMAC S.A. was stable.
RATINGS RATIONALE
Moody's has decided to withdraw the ratings for its own business
reasons.
The last rating action on Banco GMAC S.A. was on March 16, 2017,
when Moody's affirmed the all the bank's ratings and changed the
outlook on the long-term foreign currency deposit rating to stable
from negative.
Banco GMAC S.A is headquartered in Sao Paulo and had total assets
of BRL 11.5 billion (US$ 3.5 billion) and equity of BRL 1.9
billion (US$ 578 million) as of June 30, 2017.
COMPANIA MINERA: S&P Alters Outlook to Stable & Affirms 'BB+' CCR
-----------------------------------------------------------------
S&P Global Ratings revised its outlook on Compania Minera Milpo
S.A.A. to stable from negative. At the same time, S&P affirmed its
corporate credit and issue-level ratings at 'BB+'.
The ratings affirmation and outlook revision follow the same
action on Milpo's ultimate parent, Votorantim, and on its
immediate parent, Nexa Resources S.A. (formerly VM Holding S.A.).
The outlook revision on Votorantim S.A. reflects S&P's view that
the group's exposure to fluctuations in Brazil's economy is lower
than in previous years, since EBITDA generated in Brazil
represented 65% of the group's total in 2014, whereas it now
represents less than 20%. This change in the company's cash flow
composition is, to a certain extent, due to the commodity nature
of its growing metals division, of which Milpo is a key
subsidiary. It also reflects other factors such as its global
presence and the low leverage of its cement operations.
S&P said, "As a result, the ratings on the group are two notches,
rather than one, above the sovereign foreign currency ratings.
Therefore, despite our recent downgrade of Brazil, we did not
downgrade Votorantim, or members of the group. Because the
sovereign now has a stable outlook, we revised the outlook on the
group to stable (the outlook revision on the ultimate parent
cascaded to the immediate parent, and finally to Milpo). The
stable outlook on Milpo reflects that on Nexa Resources, which
mirrors that on Votorantim, and ultimately on Brazil."
HIDROVIAS DO BRASIL: Fitch Rates New Sr. Unsec. Notes 'BB(EXP)'
---------------------------------------------------------------
Fitch Ratings has assigned an expected rating of 'BB(EXP)' to
Hidrovias do Brasil S.A.'s (HdB) proposed unsecured notes to be
issued through its fully owned subsidiary Hidrovias International
Finance S.a.r.l., a private limited liability company, organized
under the laws of the Grand Duchy of Luxembourg. The notes will be
fully guaranteed by HdB. The total amount for the proposed
issuance will depend on market conditions, while its tenor is
already defined as bullet/7-year due in 2025. Proceeds from the
proposed issuance are expected to be used primarily to refinance
debt and for general corporate purposes. Fitch's current Long-Term
Issuer Default Rating (IDR) for HdB is 'BB' with a Stable Outlook.
KEY RATING DRIVERS
Stable Cash Flow Generation Driven by Take-or-Pay Contracts: HdB's
ratings incorporate its stable cash flow generation, which
reflects the majority of its EBITDA being generated under long-
term take-or-pay contracts. These contracts provide cash flow
visibility and contain features that allow for inflation-adjusted
price increases and pass-through of fuel charges. Volume risk
under take-or-pay contracts is essentially passed on to customers
due to their long-term nature. HdB already has approximately 85%
of its total capacity contracted under long-term take-or-pay
agreements for the next 10 years. Fitch expects HdB's annual cash
flow generation, measured as EBITDA, to reach an average of BRL425
million during 2017-2019.
2017 Turning-Point Year, Expanding Scale: HdB consistently
increased its scale of operations through new contracts during
2014-2017, resulting in improved operational performance in 2017.
The company's total annual EBITDA increased to BRL301 million from
BRL20 million in 2015 during the LTM period ended Sept. 30, 2017.
HdB's EBITDA margin increased to 47.6% from 10.3% during the same
period. The company maintains capacity to transport approximately
17 million tonnes via its 325 barges with a total capacity of 712
thousand tonnes, 19 push boats, and 5 auxiliary push boats as well
as its main port terminals Mirituba Transhipment Station, Villa do
Conde TUP, and TGM.
Limited Diversification Counterbalanced by Low Counterparty Risk:
HdB's operations present some concentration risk, which is not
expected to materially change during 2017-2019. In terms of
product, grains, iron ore, and bauxite represent 54%, 30%; and,
12%, respectively, of HdB's total annual EBITDA. In terms of
routes, the Miritituba-Vila do Conde route represents
approximately 50% of the company's total EBITDA. Company
operations result in approximately 62% and 38% of the total EBITDA
being generated in Brazil and Uruguay/Paraguay, respectively.
HdB's main clients are Vale, COFCO, Mitsui, and Alunorte, which
represent 34%, 30%, 16%, and 13%, respectively, of the company's
annual EBITDA. Positively factored into the ratings is the
company's low counterparty risk, as most of its clients are top
players rated investment grade or above.
Low FX Risk: The company exposure to currency risk is moderate, as
mismatches among revenues, cost and debt are anticipated to remain
immaterial over the next several years. HdB maintains
approximately 60% and 70% of its revenues and cost structure,
denominated in U.S. dollars, respectively. The ratings factor in
HdB's financial strategy as to its liability management and plans
to partially hedge its debt structure. After debt-hedging, total
debt is anticipated to maintain a 60%/40% composition between U.S.
dollar and local currency composition.
Credit Metrics Supportive of the Rating, Material Deleveraging:
Fitch views HdB's net leverage as high but saw it consistently
declining during 2017-2019 driven by higher cash flow generation
as new contracted volume ramped up. The company's net leverage -
measured as total net debt/EBITDA - was 10.3x and 6.5x in 2016 and
LTM Sept. 30, 2017, respectively. Fitch expects HdB's net leverage
ratio to be at 4.3x as of Dec. 31, 2017; trending to levels in the
3.5x-3x range during 2019. The company's interest coverage,
measured as EBITDA/interest paid, is expected to be around 3x
during 2017-2019, improving from 0.9x in 2016. Fitch views HdB's
expected 2017-2019 credit metric levels to be in line with the
'BB' rating.
Positive and Increasing FCF: Fitch expects HdB to consistently
reach positive FCF during 2017-2019 driven by expanding revenues,
better cash flow generation; and significantly lower capex levels.
The company completed an important capex plan of approximately
BRL1.7 billion, 45% of which was funded with equity injections,
during 2014-2016. HdB plans lower future capex levels, targeting a
total amount of around BRL335 million during 2017-2019. This
combination of increasing EBITDA and lower capex is expected to
result in FCF levels of approximately BRL77 million and BRL150
million in 2018 and 2019, respectively. The ratings incorporate
the expectation the company will not pay dividends during 2017-
2019.
DERIVATION SUMMARY
The company is well positioned in the 'BB' rating category
relative to transportation/logistics peers, which are generally
rated in the 'BB' to 'BBB' rating categories. On the National
rating scale, HdB's ratings incorporates considerations such as
its track record in operational performance, capital structure,
scale, and expected credit profile during 2017-2019 versus its
Brazilian peers such as MRS Logistics (Long-term Foreign Currency
IDR BB+/Negative; Long-term Local Currency IDR BBB-/Stable;
National Long-term rating AAA(bra)/ Stable), VLI S.A. (National
Long-term rating AA+/Stable); and Rumo S.A. (Long-term Foreign
Currency IDR BB-/Positive; Long-term Local Currency IDR BB-
/Positive; National Long-term rating A(bra)/ Positive). HdB is
starting to build a good track record in terms of profitability,
FCF generation and net leverage metrics based on new take-or-pay
contracts, which offer more stable cash flow generation versus its
main peers. HdB's forecasted 2017-2019 credit metrics are
partially offset by the company's smaller size compared to other
Brazilian peers.
Expected 2017-2019 net leverage metrics are in line with the
average net leverage expected for other rated Brazilian peers in
the transportation/logistics sector. The following rated companies
Rumo S.A., VLI S.A. and MRS Logistics S.A. are forecasted to reach
2017 net leverage ratios of 4.2x, 3x, and 1.7x, respectively.
HdB's ratings factor in the expectation the company's net leverage
ratio trending to around 3.5x by 2019. The company is well
positioned relative to its Brazilian peers in terms of FCF
generation and after completing an intensive capex plan during
2014-2016. HdB is expected to generate positive FCF during 2017-
2019, while Rumo and VLI are anticipated to remain negative FCF
during the same period due to committed capex plans. MRS is
anticipated to continue to be FCF positive during the period.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Annual EBITDA levels in the BRL400 million-BRL500 million
range during 2017-2019
-- Positive FCF during 2017-2019.
-- Interest coverage (EBITDA/paid interest) consistently around
3x during 2018-2019
-- Net leverage (Net debt/EBITDA) consistently around 3.5x during
2018-2019
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
-- Material improvement in EBITDA and FCF generation over levels
incorporated in the ratings;
-- Interest coverage (EBITDA/paid Interest ratio) consistently
above 4x ;
-- Net leverage (net debt / EBITDA) consistently below 3x.
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
-- Decline in EBITDA levels consistently below levels
incorporated in the ratings;
-- Negative FCF;
-- Interest coverage (EBITDA/paid interest) consistently below
2.5x during 2018-2019;
-- Net leverage (net debt / EBITDA ratio) consistently above 4x
during 2018-2019.
LIQUIDITY
Fitch expects HdB to consistently maintain positive FCF during
2017-2019 driven by expanding revenues, better cash flow
generation, and significantly lower capex levels. During 2014-2016
the company completed an important capex plan of approximately BRL
1.7 billion; 45% were funded with equity injections. HdB plans
lower future capex levels, targeting a total amount in capex of
around BRL 335 million during 2017-2019. This combination of
increasing EBITDA and lower capex is expected to result in FCF
levels of approximately BRL 77 million and BRL 150 million in 2018
and 2019, respectively.
FULL LIST OF RATING ACTIONS
Fitch has assigned an expected rating of 'BB(EXP)' to HdB's
proposed unsecured notes to be issued through its fully owned
subsidiary Hidrovias International Finance S.a.r.l. The notes will
be fully guaranteed by HdB.
Fitch currently rates HdB as follows:
-- Long-Term Foreign Currency IDR 'BB';
-- Long-term Local Currency IDR 'BB';
-- National Long-Term Rating 'AA-(bra)'.
The Rating Outlook for the corporate ratings is Stable.
PETROBRAS: Hit Goals & Achieved Record Production in 2017
---------------------------------------------------------
EFE News reports that Brazilian state-controlled oil giant
Petroleo Brasileiro S.A. (Petrobras) said it produced a record
average of 2.65 million barrels of oil equivalent (boe) per day of
crude and natural gas in 2017, a record output level that met the
goal set for the year.
"Petrobras achieved record petroleum production in Brazil for the
fourth consecutive year," the company, whose shares are traded on
the Sao Paulo, New York and Madrid stock exchanges, said,
according to EFE News.
As reported in the Troubled Company Reporter-Latin America on
Feb. 14, 2017, S&P Global Ratings raised its global scale ratings
on Petroleo Brasileiro S.A. (Petrobras) to 'BB-' from 'B+',
including its corporate credit rating and the ratings on the
senior unsecured notes issued through the company's financing
vehicles (Petrobras International Finance Co. and Petrobras Global
Finance B.V.).
RIO PARANA: Moody's Assigns Ba1 CFR; Outlook Negative
-----------------------------------------------------
Moody's America Latina has assigned a Ba1 global scale and Aaa.br
national scale Corporate Family ratings to Rio Parana Energia S.A.
The outlook on the ratings is negative. This is the first time
Moody's assigns ratings to Rio Parana.
Based in Sao Paulo, Rio Parana is an operating power company
controlled by CTG Brasil (unrated), which holds 67% of the
company's voting capital. The other 33% is held by Huikai Clean
Energy S.A.R.L (CLAI Fund), a Chinese fund that invests in Latin
America. In December 2015, the company won the bid for a 30-year
concession to operate the Jupia and Ilha Solteira hydropower
stations. Located along the Parana river, between the states of
Sao Paulo and Mato Grosso do Sul, the two power stations combined
comprise 5.0 GW of installed capacity and 2.6 GW average of
physical guarantees. The company's generation represents about 6%
of Brazil's electricity output. In the last twelve months ended
June 30, 2017, Rio Parana reported net sales of BRL2.8 billion and
net profit of BRL630 million.
RATINGS RATIONALE
Rio Parana's strong credit quality derives from its stable and
predictable cash flows, supported by a long-term concession to
operate the Jupia and Ilha Solteira hydro power plants. The
concession agreement establishes a combined regime of mandatory
quotas to the regulated market on 70% of the physical guarantee,
in accordance with Law 12,783/2013, and the remaining 30% can be
traded in the free market under an independent production regime.
As a result, the compensation for the services is primarily
provided by fixed-capacity payments, based on the availability of
the company's generation assets. The regulated payments are
adjusted annually to inflation and are insulated from hydrologic
risks. In the free market, the company is exposed to hydrologic
risks.
Rio Parana's physical guarantee is mostly contracted through 2019,
which exacerbates the hydrologic risk in the short term. But, for
the medium term, the company's management has indicated their
intention to maintain about 15% of physical energy under the
independent production regime un-contracted to protect against
unfavorable hydrology conditions and a potential spike in spot
prices.
As of the 12 months ended June 30, 2017, Rio Parana reported cash
flow-based metrics that bode well for the rating category,
including cash flow from operations before working capital changes
(CFO pre-WC) to net debt and interest coverage ratio of 30% and
4.2x, respectively.
The corporate family rating of Ba1 on the global scale also
incorporates Moody's assessment of the likelihood of continued
support from China Three Gorges Corporation (CTG Corp, A1 stable),
the ultimate controlling shareholder and debt guarantor. Rio
Parana's current debt structure comprises a BRL2.7 billion bank
loan guaranteed by CTG Corp and a USD1.0 billion intercompany loan
provided by China Three Gorges (Luxembourg) S.A.R.L. Over the last
few years, CTG Corp has invested over USD5 billion to become the
second largest private power company operating in Brazil. As of
the most recent reporting period in 2017, Rio Parana represented
approximately 7% of the group's installed capacity and 8.5% of
consolidated revenues of CTG Corp.
Rio Parana's credit profile is balanced by the company's (i)
limited asset diversification, along with the expectation of an
accelerated investment program to recover and upgrade the existing
34 generation units in the first years of the concessions, (ii)
exposure to foreign currency volatility because 55% of its
financial liabilities are denominated in US dollars without
hedging, (iii) large refinancing needs, given BRL2.7 billion of
its in debt is due in 2019, and (iv) an aggressive dividend
distribution strategy, all of which currently constrain its
standalone financial risk profile.
The outlook on the ratings is negative, reflecting the outlook on
the Goverment of Brazil (Ba2 negative). Given the highly regulated
nature of the energy sector and the operating environment in
Brazil, Moody's expect the company to be rated no more than one
notch above the sovereign bond rating.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the intrinsic linkages of Rio Parana's standalone credit
quality to that of the Brazilian government, a positive rating
action on the government's rating could result in upward pressure
on the company's global scale ratings. A rating upgrade or outlook
stabilization would also take into account the company's liquidity
position and business profile, and the regulatory environment in
which Rio Parana operates. Quantitatively, an upgrade would also
require improvement in the company's credit metrics, as reflected
in a CFO pre-WC to net debt ratio consistently above 35% and
interest coverage ratio above 4.5x.
On the other hand, the ratings will face downward pressure if the
stability and transparency of the regulatory regime for the
generation segment is weakened, ultimately resulting in more
volatility or decreased of the cash flow base, causing sustainable
declines in CFO pre-WC to net debt and/or interest coverage ratio
to levels below 20% and 2.8x, respectively. The global scale
ratings can also be downgraded upon a similar rating action on the
Brazilian goverment's rating or on CTG Corp's credit profile.
Moody's perception of shareholder's weaker willingness to support,
could also lead to a downgrade of Rio Parana's rating.
The principal methodology used in these ratings was Unregulated
Utilities and Unregulated Power Companies published in May 2017.
* S&P Takes Various Ratings on Brazilian Financial Entities
-----------------------------------------------------------
S&P Global Ratings took various rating actions on 29 Brazilian
financial institutions and insurance companies that are rated at
the sovereign level, mirroring the same rating action on Brazil.
At the same time, Brazil's BICRA remains at group '6', reflecting
an economic risk score of '7' and industry risk score of '5'. The
banking economic and industry risk trends remained negative.
S&P has lowered the long-term global scale ratings on 15 financial
institutions to 'BB-' from 'BB'. The outlook on these ratings is
now stable. In addition, S&P affirmed its 'brAA-' long-term
ratings for entities rated on the national scale, and revised the
outlook on these ratings to stable from negative.
-- Banco do Brasil S.A.;
-- Banco Bradesco S.A.;
-- Banco Citibank S.A.;
-- Itau Unibanco Holding S.A.;
-- Itau Unibanco S.A.;
-- Banco ABC Brasil S.A.;
-- Banco do Nordeste do Brasil S.A. (BNB);
-- Banco Santander (Brasil) S.A.;
-- China Construction Bank (Brasil) Banco Multiplo S.A.;
-- Banco Votorantim S.A.;
-- Banco Safra S.A.;
-- Banco Nacional de Desenvolvimento Economico e Social;
-- Caixa Economica Federal;
-- B3 S.A - Brasil, Bolsa, Balcao; and
-- GP Investments Ltd.
In addition, S&P revised its national scale rating outlook on 14
entities to stable from negative and affirmed its 'brAA-' long-
term national scale rating on them.
-- Ativos S.A. Securitizadora de Creditos Financeiros;
-- Banco de Tokyo-Mitsubishi UFJ Brasil S/A;
-- Banco Morgan Stanley S.A.;
-- Banco J.P. Morgan S.A.;
-- Banco Toyota do Brasil S.A.;
-- Banco BNP Paribas Brasil S.A.;
-- Banco Volkswagen S.A.;
-- Banco Ole Bonsucesso Consignado S.A.;
-- BNDESPar-BNDES Participacoes S.A.;
-- BV Leasing Arrendamento Mercantil S.A.;
-- Bradesco Capitalizacao S.A.;
-- Bradesco Seguros S.A.;
-- Austral Seguradora S.A.; and
-- Austral Resseguradora S.A.
The rating action on the sovereign reflects the weakening of S&P's
institutional assessment of Brazil due to slower-than-expected
progress and lower support by the country's political class to put
in place meaningful legislation to correct structural fiscal
slippage on a timely basis. Recent political developments also
foreshadow the risk of greater policy uncertainty after national
elections later this year.
While the government has advanced many microeconomic reforms, it
has been unsuccessful thus far in garnering broad congressional
support to strengthen the fiscal trajectory in order to facilitate
adherence to Brazil's constitutional spending cap. In addition, at
times there have been mixed signals or actions that further
complicate fiscal correction or policy execution, including
measures for the 2018 budget, across branches of government. Taken
together, this highlights S&P's view that policy commitment and
political responsiveness have diminished relative to our prior
expectations.
S&P said, "We continue to view the Brazilian banking sector's
economic risk trend as negative. We expect domestic economy to
continue recovering during the next two years, supporting the
banks' efforts to improve or limit the deterioration of their
asset quality metrics. However, we believe there's still a
significant risk that a portion of the large amount of
renegotiated loans will become delinquent, raising the already
very high credit losses. Our negative trend on the industry risk
reflects the persistent risk that corruption investigations could
weaken credit quality of a number of banks."
Brazil's economic risk reflects its low GDP per capita and
political and economic challenges, which remain considerable.
Domestic banks are going through a correction phase, and although
lending is starting to grow, it's at a very low pace, and house
prices continue contracting in real terms. S&P said, "We expect
the economic recovery in Brazil that started in 2017 to gather
momentum in the next two years, with annual real GDP growth of
2.2%-2.4%. This, together with the stabilization of unemployment
and inflation, low interest rates, and the banks' focus on
healthier credit portfolios, will bring some relief to lenders'
currently weak asset quality metrics. We estimate that system-wide
nonperforming loans reached about 3.6% of total loans, while
charge-offs about 3.7% in 2017. We expect both ratios to remain
fairly stable at about 3.5% in 2018. In addition, we believe that
small and mid-size banks, which concentrate on lending to small-
and mid-size enterprises (SMEs) and have higher exposure to
cyclical sectors, will continue suffering higher credit losses,
further pressuring their capital and risk positions." Brazilian
banks still face high economic risks given the elevated levels of
renegotiated loans that are more susceptible to a weaker-than-
expected economic scenario driven by the political uncertainties
that will remain in 2018, especially considering the upcoming
presidential elections in October.
S&P's industry risk assessment for Brazil reflects the country's
well developed financial regulation, broadly in line with
international standards, and the regulator's good track record,
which has helped the financial system to withstand the economic
downturn. The latter stems from the government's effective
measures in containing potential problems. These strengths are
moderated by the large presence of government-owned banks, which
has caused significant distortions in the financial system for the
past few years, weakening competitive dynamics. However, given
capital constraints on these banks and the change in government,
they have been lowering their market share, which could reduce
distortions in the long run. On the other hand, the Brazilian
banking system has an adequate funding mix with a stable core
customer deposit base and satisfactory access to domestic and
international capital markets. In addition, banks' dependence on
external funding is fairly low--at 6.3% of the system's total
liabilities as of the end of September 2017.
* S&P Cuts Credit Ratings on 3 Brazilian Cities
-----------------------------------------------
S&P Global Ratings lowered its global scale long-term foreign and
local currency credit ratings on the states of Sao Paulo and Santa
Catarina to 'BB-' from 'BB' and on the city of Rio de Janeiro to
'BB-/B' from 'BB/B'. At the same time, S&P affirmed its national
scale ratings on the states of Sao Paulo and Santa Catarina at
'brAA-', and on the city of Rio de Janeiro at 'brAA-'. The outlook
is stable.
OUTLOOK
The stable outlooks on the Brazilian states of Sao Paulo, Santa
Catarina, and the city of Rio de Janiero primarily reflect S&P's
view that these LRGs could not have a higher rating than the
sovereign while operating under a volatile and unbalanced
institutional framework. Therefore, any rating or outlook change
on Brazil in the next 12 months may impact the ratings on these
LRGs.
Downside scenario
S&P said, "We could lower the ratings on the states of Sao Paulo,
Santa Catarina, and city of Rio de Janeiro in the next 12 months
if we were to lower the sovereign local and foreign currency
ratings. Although it is not likely in the next 12 months, we could
also lower the ratings if their stand-alone credit profiles
(SACPs) deteriorate significantly and unexpectedly."
Upside scenario
Given that S&P doesn't believe that the states of Sao Paulo and
Santa Catarina and the city of Rio meet the conditions to have
ratings above the sovereign, S&P could only raise its ratings on
them within the next 12 months if it were to raise its local and
foreign currency ratings on Brazil.
RATIONALE
The rating actions on these local and regional governments (LRGs)
reflect a similar action on Brazil and their close links to the
sovereign.
The prolonged recession in Brazil over the past two years took its
toll on LRGs' finances and, during 2017, we revised our assessment
of the institutional framework to a weaker category, given
increasing imbalances between LRGs' revenues and expenditures, and
the system's failure to provide channels around legal restrictions
on access to external financing.
S&P said, "Although we expect a slow and gradual recovery in the
next few years, we anticipate budgetary pressures to persist over
the next 12 months due to the structural rigidities of the
intergovernmental system in Brazil as well as budgetary
constraints faced by LRGs. Such rigidities and legal impediments
have left LRGs unprepared to address key long-term spending trends
and financing options. At the same time, we continue to believe
that the institutional framework for Brazilian states and
municipalities has an adequate level of predictability and
transparency, with enhanced central government oversight of LRGs'
finances and adherence to fiscal discipline laws."
The 'BB-' global scale ratings on the city of Rio de Janeiro and
on the state of Sao Paulo are two notches below their 'bb+' SACPs.
The 'BB-' global scale rating on the state of Santa Catarina is
one notch below its 'bb' SACP. The SACP is not a rating but a
means of assessing the intrinsic creditworthiness of an LRG under
the assumption that there is no sovereign rating cap. S&P said,
"The SACP results from a combination of our assessment of an LRG's
individual credit profile and the institutional framework in which
it operates. Given that we don't believe that Brazilian LRGs could
have a higher rating than the sovereign, we cap our ratings on the
states of Sao Paulo and Santa Catarina and on the city of Rio de
Janeiro at the level of the foreign currency long-term rating on
Brazil (BB-)."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the
methodology applicable. At the onset of the committee, the chair
confirmed that the information provided to the Rating Committee by
the primary analyst had been distributed in a timely manner and
was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision.
The views and the decision of the rating committee are summarized
in the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
RATINGS LIST
Ratings Lowered
To From
State of Sao Paulo
Issuer Credit Rating
Local Currency BB-/Stable/-- BB/Negative/--
Foreign Currency BB-/Stable/-- BB/Negative/--
State of Santa Catarina
Issuer Credit Rating
Local Currency BB-/Stable/-- BB/Negative/--
Foreign Currency BB-/Stable/-- BB/Negative/--
City of Rio de Janeiro
Issuer Credit Rating
Local Currency BB-/Stable/B BB/Negative/B
Foreign Currency BB-/Stable/B BB/Negative/B
Ratings Affirmed; Outlook Action
State of Sao Paulo
Issuer Credit Rating
National Scale brAA-/Stable/-- brAA-/Negative/--
State of Santa Catarina
Issuer Credit Rating
National Scale brAA-/Stable/-- brAA-/Negative/--
City of Rio de Janeiro
Issuer Credit Rating
National Scale brAA-/Stable/-- brAA-/Negative/--
* S&P Cuts GSR to 'BB-' on Two Brazilian State-Owned Utilities
--------------------------------------------------------------
S&P Global Ratings lowered the global scale foreign and local
currency ratings on CESP-Companhia Energetica de Sao Paulo (CESP)
and Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp)
to 'BB-' from 'BB' and affirmed the 'brAA-' Brazil national scale
ratings on both companies. S&P said, "We also lowered Sabesp's
senior unsecured issue-level ratings to 'BB-' from 'BB' and
affirmed the 'brAA-' ratings on its domestic issuances. These
actions followed the same rating action on the state of Sao Paulo.
We revised the outlook of these entities to stable from negative."
The ratings on the Brazilian states usually limit the ratings of
the entities they control. S&P said, "We believe that the states
might intervene in companies they control by redirecting resources
to the government and therefore weakening the entities' credit
quality, particularly amid challenging fiscal conditions.
Therefore, we took the same rating actions on CESP and Sabesp as
we did on the state. The outlooks on these two utilities are now
stable, mirroring the one on the state."
* S&P Lowers Ratings on 11 Brazilian Structured Finance Deals
-------------------------------------------------------------
S&P Global Ratings lowered its ratings on 11 Brazilian structured
finance transactions.
Nine of the transactions are diversified payment rights (DPRs)
securitizations backed by U.S. dollar-denominated Society for
Worldwide Interbank Financial Telecommunications (SWIFT) MT 100 or
MT 200 series payment order messages, which are a product of the
respective Brazilian bank's international financial operations.
Two deals are synthetic asset-backed securities (ABS)
transactions, which have unconditional guarantees from the
Federative Republic of Brazil.
The rating actions follow the Jan. 11, 2018, downgrade of the
foreign credit rating on Brazil, which resulted in various rating
actions on Brazilian corporate and infrastructure entities as well
as Brazilian financial services companies.
The ratings on the nine series backed by DPRs were lowered due to
the three-notch cap above the issuer credit rating (ICR) on the
originator. The ratings on these transactions reflect each bank's
ability to generate the specific flow of receivables that are
being securitized, the transactions' supportive structural
features, and S&P's view of the transactions' sovereign
interference risk.
Finally, S&P lowered its ratings on the synthetic ABS transactions
based on the rating on the relevant counterparty as guarantor.
S&P will continue to monitor the ratings on these structured
finance transactions and take rating actions as necessary to
reflect any changes in the transactions' underlying credit
quality.
RATINGS LOWERED
Dollar Diversified Payment Rights Finance Co.
Rating
Series To From
2008-2 BBB- BBB
International Diversified Payment Rights Co.
Rating
Series To From
2008-2 BBB- BBB
2009-4 BBB- BBB
2011-1 BBB- BBB
2011-2 BBB- BBB
2015-1 BBB- BBB
2015-2 BBB- BBB
2016-1 BBB- BBB
2016-2 BBB- BBB
Brazil Loan Trust 1
Rating
Series To From
Notes BB- BB
Brazil Minas SPE
Rating
Series To From
Notes BB- BB
* S&P Takes Various Actions on Brazilian Corporations
-----------------------------------------------------
S&P Global Ratings took multiple rating actions on Brazilian
corporations following the downgrade of the sovereign to global
scale BB-/Stable/B and outlook revision to stable from negative on
the national scale 'brAA-' ratings. The ratings on most of these
corporations are directly influenced by the ratings on Brazil,
either because the former ratings are capped at the same level, or
they're up to a maximum number of notches relative to the
sovereign ratings.
The entities in Group 1 have their ratings capped at the sovereign
level. Therefore, S&P lowered the global scale ratings to 'BB-'
and affirmed the long-term national scale ratings at 'brAA-', the
same as the national scale rating on Brazil. Most of these
companies are regulated utilities and toll roads whose rates a
public regulator determines. S&P believes that these entities
could suffer from heavier regulation in a sovereign stress
scenario, and wouldn't generate or maintain sufficient cash to
honor their financial obligations under a sovereign default
scenario. Most of these companies have their assets predominantly
in Brazil, with revenue dependent on the domestic economy and with
business dynamics strongly sensitive to downturns.
Group 1:
-- Algar Telecom S/A (brAA-/Stable/--);
-- Arteris S.A. (brAA-/Stable/--);
-- Autoban - Concessionaria do Sistema Anhanguera Bandeirantes
S.A. (brAA-/Stable/--);
-- Autopista Fernao Dias S.A (brAA-/Stable/--);
-- Autopista Planalto Sul S/A. (brAA-/Stable/--);
-- Cachoeira Paulista Transmissora de Energia S.A. (brAA-
/Stable/--);
-- Camil Alimentos S.A. (BB-/Stable/--; brAA-/Stable/--);
-- CCR S.A. (brAA-/Stable/--);
-- Centrais Eletricas do Para S.A. (brAA-/Stable/--);
-- Chapada do Piaui I Holding S.A. (brAA-/Stable/--);
-- Companhia de Eletricidade do Estado da Bahia (BB-/Stable/--;
brAA-/Stable/--);
-- Companhia de Gas de Sao Paulo - Comgas (brAA-/Stable/--);
-- Companhia Energetica de Pernambuco (CELPE) (BB-/Stable/--;
brAA-/Stable/--);
-- Companhia Energetica do Rio Grande do Norte (BB-/Stable/--;
brAA-/Stable/--);
-- Companhia Paulista de Forca e Luz (brAA-/Stable/--);
-- Companhia Piratininga de Forca e Luz (brAA-/Stable/--);
-- Concessionaria da Rodovia Presidente Dutra S.A. (brAA-
/Stable/--);
-- Concessionaria Ecovias dos Imigrantes S.A. (brAA-/Stable/--);
-- Cosan Ltd., Cosan S.A. Industria e Comercio, and Cosan
Lubrificantes e Especialidades S.A. (BB-/Stable/--);
-- CPFL Energia S.A. (brAA-/Stable/--);
-- Cyrela Brazil Realty S.A. Empreendimentos e Participacoes (BB-
/Stable/--; brAA-/Stable/--);
-- Ecorodovias Concessoes e Servicos S.A. (brAA-/Stable/--);
-- EDP Espirito Santo Distribuicao de Energia S.A. (BB-/Stable/--
; brAA-/Stable/--);
-- EDP Sao Paulo Distribuicao de Energia S.A. (brAA-/Stable/--);
-- Elektro Redes S.A. (brAA-/Stable/--);
-- Energisa Paraiba-Distribuidora de Energia S.A. (BB-/Stable/--;
brAA-/Stable/--);
-- Energisa S.A. (BB-/Stable/--; brAA-/Stable/--);
-- Energisa Sergipe-Distribuidora de Energia S.A. (BB-/Stable/--;
brAA-/Stable/--);
-- Equatorial Energia S.A. (brAA-/Stable/--);
-- Estacio Participacoes S.A. (brAA-/Stable/--); Iracema
-- Transmissora de Energia S.A. (brAA-/Stable/--);
-- JSL S.A. (BB-/Stable/--; brAA-/Stable/--);
-- Magazine Luiza S.A. (brAA-/Stable/--);
-- MRS Logistica S.A. (BB-/Stable/--; brAA-/Stable/--);
-- MRV Engenharia e Participacoes S.A. (brAA-/Stable/--);
-- Neoenergia S.A. (BB-/Stable/--; brAA-/Stable/brA-1);
-- Rede D'Or Sao Luiz S.A. (BB-/Stable/--; brAA-/Stable/--);
-- Rio Grande Energia S.A. (brAA-/Stable/--);
-- Rodonorte Concessionaria de Rodovias Integradas S.A. (brAA-
/Stable/--);
-- Santos Brasil Participacoes S.A. (brAA-/Stable/--);
-- Terminal de Conteineres de Paranagua S.A (brAA-/Stable/brA-1);
And
-- Transmissora Alianca de Energia Eletrica S.A. (BB-/Stable/--;
brAA-/Stable/brA-1).
The ratings on government-related entities Eletrobras-Centrais
Eletricas Brasileiras S.A. and Itaipu Binacional reflect those on
the sovereign. S&P views the likelihood that the Brazilian
government would provide timely and sufficient extraordinary
support in the event of distress as almost certain for Eletrobras
and extremely high for Itaipu Binacional. Therefore, the ratings
on the two entities are equalized with those on the sovereign.
S&P also downgraded Ultrafertil S.A. to brA/Stable/-- from
brA+/Negative/-- due to our belief that Ultrafertil's group has
its credit quality limited by the sovereign.
S&P lowered the global scale ratings on entities in Group 2 by one
notch, although they remain above those on the sovereign. Some of
these entities are also largely exposed to the Brazilian economy
but their finances are sound, stemming either from very low debt
levels, very robust cash positions, ownership of foreign assets or
export-oriented businesses, and power sales exclusively in the
free market that are less subject to regulatory or government
intervention. Ratings on these companies are currently at the
maximum possible amount of notches above those on the sovereign,
given their relative exposure to country risk.
Group 2:
-- Ache Laboratorios Farmaceuticos S.A. (BB+/Stable/--;
brAAA/Stable/--).
-- Ambev S.A. (BBB/Stable/--; brAAA/Stable/--).
-- Globo Comunicacao e Participacoes S.A. (BB+/Stable/--). S&P
said, "We placed the issue-level ratings on Globo on
CreditWatch with negative implications because we will need to
apply recovery ratings. Therefore, we can either affirm or
lower the debt ratings, depending on recovery expectations."
-- Rio Paranapanema Energia S.A (BB/Stable/--; brAA+/Stable/--).
S&P said, "We placed our 'brAAA' issue-level rating on Telefonica
Brasil S.A. on CreditWatch negative to assign recovery
expectation. This is because the company's limitation to Brazil's
'BB+' transfer and convertibility (T&C) level due to Telefonica's
non-exporting nature and concentrations of all its assets in
Brazil. We affirmed the corporate credit rating at
brAAA/Stable/--.
"We also placed our 'BB' rating on Ampla Energia e Servicos S.A on
CreditWatch developing and our 'brAA-' rating on the company on
CreditWatch positive. In addition, we placed our 'brAA-' rating on
Companhia Energetica do Ceara - Coelce on CreditWatch positive.
Both companies are indirect subsidiaries of Enel Americas S.A.
(BBB/Stable/--). In the next 90 days, we will reassess our view of
group support, and if the latter would come even under a
hypothetical sovereign default.
"We affirmed the ratings on the companies below after increasing
by one notch--relative to their previous limits--their maximum
rating differential from the ratings on Brazil. This was mainly
because these companies showed stronger-than-expected resilience
during the country's very weak economy in the past three years. We
believe they are better prepared to withstand a sovereign default
scenario than we assessed some time ago. The number of notches a
company could be rated above the sovereign is an ongoing
assessment and can also change depending on the level of the
sovereign rating, in order to reflect our holistic view of a
company's creditworthiness. Detailed explanations on each
individual case follows:
Braskem S.A. (BBB-/Negative/--; brAAA/Stable/--)
S&P said, "We changed our views of Braskem's sensitivity to
Brazilian economy because the company was able to export a
meaningful portion of its products. The commodity nature of its
petrochemical products allows the company to do so. Although
switching to exports would usually result in lower margins, that
possibility, in our view, strengthens Braskem's business
resiliency to a sovereign distress scenario. That factor, together
with its production facilities outside Brazil, supports our
decision to affirm our ratings on Braskem. The ratings ,
therefore, are limited at up to three notches above Brazil's
foreign currency ratings and one notch above Brazil's T&C
assessment. Braskem's stand-alone credit profile (SACP) remains at
'bbb-'. The outlook remains negative. We will reevaluate the
outlook over the next few months to incorporate the business
perspectives, operating performance, and financial policies."
Embraer S.A. (BBB/Negative/--)
S&P said, "We affirmed our ratings on Embraer, mainly because we
expect its international facilities to become more relevant to the
group's cash flow generation. This prompted us to revise the
maximum notches the ratings could be above the T&C to two from
one. However, the negative outlook reflects that we want to test
the strength and stability of the foreign assets' revenue
contribution over time. Specifically, we could revise the outlook
to stable if the amount of revenue the group generates outside
Brazil remains consistently above 30% of total revenue."
Iguatemi Empresa de Shopping Centers S.A. (brAAA/Stable/--) and
Multiplan Empreendimentos Imobiliarios S.A. (brAAA/Stable/--)
S&P said, "We affirmed our ratings on Iguatemi and Multiplan and
revised the outlook to stable from negative because we now believe
the companies have had stronger business resiliency in the past
three years, allowing for a larger differentiation from the
sovereign cap. Shopping mall revenues are correlated with consumer
spending. However, these companies focus on high-income clients,
the key locations of properties, and conservative use of debt
(which is entirely domestic), provide resiliency against a
hypothetical default of the sovereign."
Localiza Rent a Car S.A. (BB+/Stable/--; brAAA/Stable/--)
S&P said, "We reassessed Localiza's maximum differential relative
to Brazil's foreign currency rating to two notches from one. This
is due to our view that the company was able to generate free cash
flows during the macroeconomic downturn in the past three years,
which would provide a cushion in a hypothetical stress of Brazil.
Therefore, we affirmed our ratings on Localiza and revised the
outlook on both scales to stable from negative, while its SACP
remained at 'bbb-'."
Lojas Renner S.A. (brAAA/Stable/--)
S&P said, "We affirmed our rating on Lojas Renner and revised the
outlook to stable from negative based on its performance during
the past three years. We now view the company slightly more
resilient than before thanks mainly to its ability to maintain
same store sales growth, sound profitability, and manageable debt
commitments."
Raizen Energia S.A. and Raizen Combustiveis S.A. (together as
Raizen; BBB-/Stable/--; brAAA/Stable/--)
S&P affirmed its ratings on Ra°zen and revised the global scale
rating outlook to stable from negative because it changed the
maximum notches the company can be rated above the sovereign to
three from two, but still limited at one notch above the T&C.
Although Ra°zen's fuel distribution and most of its ethanol
production are entirely domestic oriented, their operations have
proved to be less correlated to GDP, with sound performance in the
past few years. Moreover, a large part of Raizen's EBITDA is
export oriented, given that it sells around 75% of its sugar
output abroad. The group sells the remainder domestically to the
food and beverage industry, which in turn has a moderate
sensitivity to GDP dynamics. Raizen's SACP remains at 'bbb'.
Ultrapar Participacoes S.A. (BB+/Stable/--; brAAA/Stable/--)
S&P said, "We affirmed the ratings and revised the outlook on both
scales to stable from negative. We changed our prior views on
Ultrapar's resiliency to a sovereign distress, allowing it to be
two notches above Brazil's foreign currency." Ultrapar's fuel
distribution business is closely linked to the Brazilian economy,
but the evidence of the past three years shows that revenues were
more resilient than what we had anticipated. Ultrapar's SACP
remains at 'bbb'.
Votorantim S.A. (BB+/Stable/--; brAAA/Stable/--), Votorantim
Cimentos S.A. (BB+/Stable/--), and Nexa Resources S.A.
(BB+/Stable/B)
S&P said, "We now rate Votorantim two notches above Brazil's
foreign currency rating. We used to limit its ratings at one notch
above Brazil's foreign currency rating. However, given the size,
location, and commodity nature of its growing metal division, its
ownership of cement operations around the globe, and the low
leverage of the non-cement operations, we reassessed our previous
conclusions. We believe these factors provide sufficient
protection against a downturn of the group's cement operation in
Brazil and any potential liability that could arise from its
ownership of Banco Votorantim S.A. in a sovereign distress
scenario. We affirmed our ratings on Votorantim and revised the
outlook on both scales to stable from negative, while its SACP
remains at 'bbb'."
The outlook revision on Votorantim Cimentos and Nexa to stable
from negative reflects the same action on the group. The SACP
remains at 'bb' and 'bb+', respectively.
S&P also affirmed the ratings on the companies in Group 3, because
they had room in their respective limits relative to the
sovereign. The individual reports on these entities include
explanations of each case.
Group 3:
-- Adecoagro S.A. (BB/Stable/--);
-- BRF S.A. (BBB-/Stable/--; brAAA/Stable/--);
-- Companhia Brasileira de Distribuicao (brAAA/Stable/--);
-- Fibria Celulose S.A. (BBB-/Stable/--);
-- Gerdau S.A. and Gerdau Ameristeel Corp. (BBB-/Negative/--;
brAAA/Stable/--);
-- Iochpe-Maxion S.A. (brAA/Stable/--);
-- Klabin S.A. (BB+/Stable/--; brAAA/Stable/--);
-- Magnesita Refratarios S.A. (BB/Stable/--; brAA/Stable/--);
-- Natura Cosmeticos S.A. (BB/Negative/--; brAA-/Negative/--);
-- Qualicorp S.A. (brAAA/Stable/--);
-- Sao Martinho S.A. (BB+/Positive/--; brAAA/Stable/--); and
-- Suzano Papel e Celulose S.A. (BB+/Positive/--;
brAAA/Stable/--).
S&P said, "We affirmed the ratings on Vale S.A. (BBB-/Positive/--;
brAAA/Stable/--) and Vale Canada Ltd. (BBB-/Positive/--) and
maintained the positive global scale rating outlooks. This is
because we believe there is at least a one-in-three chance of an
upgrade even with Brazil's T&C at 'BB+' because Vale's revenue
outside Brazil is likely to keep growing, potentially exceeding
35% of consolidated revenue. That, in our view, could justify
ratings two notches above Brazil's T&C. However, we would like to
deepen our understanding of these businesses' sensitivity to price
volatility and their strategic importance to Vale through time.
"We affirmed Petroleo Brasileiro S.A. - Petrobras ratings at BB-
/Stable/-- and at brA+/Stable/--, reflecting its 'bb-' SACP and
the relationship with the sovereign. The ratings are now capped at
Brazil's ratings.
"Finally, we revised the global scale rating outlook on
Hypermarcas S.A. (BB+/Stable/--; brAAA/Stable/--) to stable from
positive, because the lower ratings on Brazil limits the company's
potential for an upgrade."
RATINGS LIST
To From
Ache Laboratorios Farmaceuticos S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BBB-/Negative/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Adecoagro S.A.
Corporate credit rating
Global Scale BB/Stable/-- BB/Stable/--
Senior Unsecured BB BB
Algar Telecom S/A
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Ambev S.A.
Corporate credit rating
Global Scale BBB/Stable/-- BBB+/Negative/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Ampla Energia e Servicos S.A
Corporate credit rating
Global Scale BB/Watch Dev/-- BB/Negative/--
National Scale brAA-/Watch Pos/-- brAA-/Negative/--
Senior Unsecured brAA-/Watch Pos brAA-
Arteris S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Autopista Fernao Dias S.A
Autopista Planalto Sul S/A
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Secured brAA- brAA-
Braskem S.A.
Corporate credit rating
Global Scale BBB-/Negative/-- BBB-/Negative/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Senior Unsecured BBB- BBB-
Braskem America Finance Co.
Senior Unsecured BBB- BBB-
Braskem Finance Ltd.
Senior Unsecured BBB- BBB-
Braskem Netherlands Finance
Senior Unsecured BBB- BBB-
BRF S.A.
Corporate credit rating
Global Scale BBB-/Stable/-- BBB-/Stable/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Senior Unsecured BBB- BBB-
BRF GmbH
Senior Unsecured BBB- BBB-
BFF International LTD
Senior Unsecured BBB- BBB-
Cachoeira Paulista
Transmissora de Energia
S.A.
Senior Secured brAA-/Stable brAA-/Negative
Camil Alimentos S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
CCR S.A.
Rodonorte Concessionaria
de Rodovias Integradas S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Autoban - Concessionaria
do Sistema Anhanguera
Bandeirantes S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Companhia do Metro da Bahia
Corporate credit rating
National Scale brA/Stable/-- brA+/Negative/--
Senior Unsecured brAA- brAA-
Concessionaria da
Rodovia Presidente Dutra S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Secured brAA- brAA-
Companhia Brasileira de
Distribuicao
Corporate credit rating
National Scale brAAA/Stable/-- brAAA/Stable/--
Chapada do Piaui I
Holding S.A.
Senior Secured brAA-/Stable brAA-/Negative
Companhia de Gas de
Sao Paulo - Comgas
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Companhia Energetica
do Ceara - Coelce
Corporate credit rating
National Scale brAA-/Watch Pos/brA-1+ brAA-/Neg/brA-1+
Senior Unsecured brAA-/Watch Pos brAA-
Cosan Ltd.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
Senior Unsecured BB- BB
Cosan S.A. Industria e Comercio
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
Cosan Lubrificantes e Especialidades S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
Cosan Luxembourg S.A.
Senior Unsecured BB- BB
Cosan Overseas Ltd.
Senior Unsecured BB- BB
CPFL Energia S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Companhia Paulista de Forca e Luz
Companhia Piratininga de Forca e Luz
Rio Grande Energia S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Cyrela Brazil Realty S.A. Empreendimentos e Participacoes
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
Ecorodovias Concessoes e Servicos S.A.
Concessionaria Ecovias dos Imigrantes S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
EDP Espirito Santo
Distribuicao de Energia S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
EDP Sao Paulo Distribuicao
de Energia S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Eletrobras - Centrais
Eletricas Brasileiras S.A.
Corporate credit rating
Local Currency BB-/Stable/-- BB/Negative/--
Foreign Currency BB-/Stable/-- BB/Negative/--
National Scale --/--/brA-1+ --/--/brA-1+
Senior Unsecured BB- BB
Embraer S.A.
Corporate credit rating
Global Scale BBB/Negative/-- BBB/Negative/--
Senior Unsecured BBB BBB
Embraer Netherlands Finance BV
Senior Unsecured BBB BBB
Embraer Overseas Ltd.
Senior Unsecured BBB BBB
Energisa S.A.
Energisa Paraiba - Distribuidora de Energia S.A.
Energisa Sergipe - Distribuidora de Energia S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
Estacio Participacoes S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Equatorial Energia S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brA+ brA+
Centrais Eletricas do Para S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Fibria Celulose S.A.
Corporate credit rating
Global Scale BBB-/Stable/-- BBB-/Stable/--
Fibria Overseas Finance Ltd.
Senior Unsecured BBB- BBB-
Gerdau S.A.
Corporate credit rating
Global Scale BBB-/Negative/-- BBB-/Negative/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Gerdau Ameristeel Corp.
Corporate credit rating
Global Scale BBB-/Negative/-- BBB-/Negative/--
Gerdau Ameristeel US Inc.
Senior Unsecured BBB- BBB-
Gerdau Holdings Inc.
Senior Unsecured BBB- BBB-
Gerdau Trade Inc.
Senior Unsecured BBB- BBB-
GTL Trade Finance Inc.
Senior Unsecured BBB- BBB-
Globo Comunicacao e Participacoes S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BBB-/Negative/--
Senior Unsecured BB+/Watch Neg BBB-
Hypermarcas S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BB+/Positive/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Iguatemi Empresa de Shopping Centers S.A.
Corporate credit rating
National Scale brAAA/Stable/-- brAAA/Negative/--
Senior Unsecured brAAA brAAA
Iochpe-Maxion S.A.
Corporate credit rating
National Scale brAA/Stable/-- brAA/Stable/--
Senior Unsecured brAA brAA
Iracema Transmissora de Energia S.A.
Senior Secured brAA-/Stable brAA-/Negative
Itaipu Binacional
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
JSL S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
JSL Europe
Senior Unsecured BB- BB
JSL Locacoes S.A.
Senior Unsecured brAA- brAA-
Klabin S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BB+/Stable/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Klabin Finance S.A.
Senior Unsecured BB+ BB+
Localiza Rent a Car S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BB+/Negative/--
National Scale brAAA/Stable/-- brAAA/Negative/--
Senior Unsecured brAAA brAAA
Lojas Renner S.A.
Corporate credit rating
National Scale brAAA/Stable/-- brAAA/Negative/--
Senior Unsecured brAAA brAAA
Magazine Luiza S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Magnesita Refrat†rios S.A.
Corporate credit rating
Global Scale BB/Stable/-- BB/Stable/--
National Scale brAA/Stable/-- brAA/Stable/--
Magnesita Finance Ltd.
Senior Unsecured BB BB
Magnesita Refractories Co.
Senior Unsecured BB BB
MRS Logistica S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
MRV Engenharia e Participacoes S.A.
National Scale brAA-/Stable/-- brAA-/Negative/--
Multiplan Empreendimentos Imobiliarios S.A.
Corporate credit rating
National Scale brAAA/Stable/-- brAAA/Negative/--
Senior Unsecured brAAA brAAA
Natura CosmÇticos S.A.
Corporate credit rating
Global Scale BB/Negative/-- BB/Negative/--
National Scale brAA-/Negative/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Neoenergia S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/brA-1+ brAA-/Negative/brA-1+
Senior Unsecured brA+ brA+
Companhia de Eletricidade do Estado da Bahia
Companhia Energetica de Pernambuco (CELPE)
Companhia Energetica do Rio Grande do Norte
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Elektro Redes S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Petroleo Brasileiro S.A. - Petrobras
Corporate credit rating
Global Scale BB-/Stable/-- BB-/Stable/--
National Scale brA+/Stable/-- brA+/Stable/--
Petrobras Global Finance B.V.
Senior Unsecured BB- BB-
Petrobras International Finance Co.
Senior Unsecured BB- BB-
Qualicorp S.A.
Corporate credit rating
National Scale brAAA/Stable/-- brAAA/Stable/--
Raizen Combustiveis S.A.
Corporate credit rating
Global Scale BBB-/Stable/-- BBB-/Negative/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Raizen Energia S.A.
Corporate credit rating
Global Scale BBB-/Stable/-- BBB-/Negative/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Senior Unsecured brAAA brAAA
Ra°zen Fuels Finance S.A.
Senior Unsecured BBB- BBB-
Rio Paranapanema Energia S.A
Corporate credit rating
Global Scale BB/Stable/-- BB+/Negative/--
National Scale brAA+/Stable/-- brAAA/Negative/--
Rede D'Or Sao Luiz S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/-- brAA-/Negative/--
Senior Unsecured brAA- brAA-
Rede D'Or Finance S.a.r.l.
Senior Unsecured BB- BB
Santos Brasil Participacoes S.A.
Corporate credit rating
National Scale brAA-/Stable/-- brAA-/Negative/--
Sao Martinho S.A.
Corporate credit rating
Global Scale BB+/Positive/-- BB+/Positive/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Suzano Papel e Celulose S.A.
Corporate credit rating
Global Scale BB+/Positive/-- BB+/Positive/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Suzano Trading Ltd.
Senior Unsecured BB+ BB+
Suzano Austria GmbH
Senior Unsecured BB+ BB+
Telefonica Brasil S.A.
Corporate credit rating
National Scale brAAA/Stable/-- brAAA/Stable/--
Senior Unsecured brAAA/Watch Neg brAAA
Terminal de Conteineres
de Paranagua S.A.
Corporate credit rating
National Scale brAA-/Stable/brA-1+ brAA-/Negative/brA-1+
Senior Unsecured brAA- brAA-
Transmissora Alianca de
Energia Eletrica S.A.
Corporate credit rating
Global Scale BB-/Stable/-- BB/Negative/--
National Scale brAA-/Stable/brA-1+ brAA-/Negative/brA-1+
Senior Unsecured brAA- brAA-
Ultrapar Participacoes S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BB+/Negative/--
National Scale brAAA/Stable/-- brAAA/Negative/--
Ultrapar International S/A
Senior Unsecured BB+ BB+
Ultrafertil S.A.
Corporate credit rating
National Scale brA/Stable/-- brA+/Negative/--
Senior Unsecured brAA- brAA-
Vale S.A.
Corporate credit rating
Global Scale BBB-/Positive/-- BBB-/Positive/--
National Scale brAAA/Stable/-- brAAA/Stable/--
Senior Unsecured BBB- BBB-
Senior Unsecured brAAA brAAA
Vale Canada Limited
Corporate credit rating
Global Scale BBB-/Positive/-- BBB-/Positive/--
Senior Unsecured BBB- BBB-
Vale Overseas Limited
Senior Unsecured BBB- BBB-
PT Vale Indonesia Tbk
Senior Unsecured BBB- BBB-
Votorantim S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BB+/Negative/--
National Scale brAAA/Stable/-- brAAA/Negative/--
Senior Unsecured BB+ BB+
Companhia Brasileira de Aluminio
Senior Unsecured BB+ BB+
Votorantim Cimentos S.A.
Corporate credit rating
Global Scale BB+/Stable/-- BB+/Negative/--
Senior Unsecured BB+ BB+
St. Marys Cement Inc. (Canada)
Senior Unsecured BB+ BB+
Nexa Resources S.A.
Corporate credit rating
Global Scale BB+/Stable/B BB+/Negative/B
Senior Unsecured BB+ BB+
===================
C O S T A R I C A
===================
BANCO DE COSTA RICA: Fitch Retain Ratings Amid Gov't Intervention
-----------------------------------------------------------------
Government intervention at Banco Credito Agricola de Cartago
(Bancredito, not rated by Fitch Ratings), the smallest of the
three Costa Rican State-owned banks, has not resulted in a default
of its obligations and has not activated the explicit guarantee of
the sovereign. Consequently the intervention has no rating
implications for the other state-owned banks rated by Fitch and
does not affect the agency's opinion of the Costa Rican
sovereign's capacity and high propensity to provide support to
these banks.
Despite the intervention, Fitch believes that in recent years the
Costa Rican government has evidenced its support and collaboration
with Bancredito, which confirms Fitch's opinion of its capacity
and willingness to support state-owned banks. In addition, by law,
these banks have the explicit guarantee of the state for all their
senior obligations. Fitch's assessment of the capacity and
propensity of support by the Costa Rican state is highly
influenced by the systemic importance and policy role of a bank,
the funding guarantees that provide protection for creditors and
the structure of the banking system which is highly concentrated
in public banks (62% of the industry assets as of September 2017).
After a prolonged financial deterioration, the Costa Rican
government decided in May 2017 to transform Bancredito into a
development bank and to close its operations as a commercial bank.
Although closure of commercial operations was started, the
government was not able to modify the necessary laws to complete
the transformation, which resulted in a significant financial
deterioration of the entity during the year. On Dec. 22, 2017, the
local financial authority, Consejo Nacional de Supervision del
Sistema Financiero (CONASSIF), agreed to intervene at Bancredito
for a period of six months due to the non-compliance of several
regulatory indicators, in accordance with local banking
legislation.
Bancredito is a bank with limited systemic importance and a minor
policy role in relation to the other Costa Rican state-owned
banks. As of November 2017, Bancredito had assets for USD468
million and liabilities for USD393 million which account for about
1% of the total banking industry's assets and liabilities. At the
time of the intervention the bank had no obligations to non-
related institutional third parties but only one liability with
the Costa Rican government. In December 2017, the bank prepaid
most of its liabilities and on Dec. 18, 2017, signed a contract of
custody and payment of customer deposits with Banco Nacional de
Costa Rica (BNCR, BB/Stable), providing BNCR the cash to make the
full payment of principal and interests of such obligations, so
this agreement does not imply any obligation or counterparty risk
for BNCR.
Fitch currently rates the Costa Rican state-owned banks:
Banco Nacional de Costa Rica
-- Long-Term Foreign and Local Currency IDRs 'BB'; Outlook
Stable;
-- Short-Term Foreign and Local Currency IDRs 'B';
-- Long-term senior unsecured bonds 'BB';
-- Viability Rating 'bb';
-- Support Rating '3';
-- Support Rating Floor 'BB';
-- National scale long-term rating 'AA+(cri)', Outlook Stable;
-- National scale short-term rating 'F1+(cri)';
-- National scale long-term rating for local senior unsecured
debt issues 'AA+(cri)'.
Banco de Costa Rica
-- Long-Term Foreign Currency IDR 'BB'; Outlook Stable;
-- Short-Term Foreign Currency IDR 'B';
-- Long-Term Local Currency IDR 'BB'; Outlook Stable;
-- Short-Term Local Currency IDR 'B';
-- Long-term senior unsecured bonds 'BB';
-- Viability Rating 'bb-' on Negative Watch;
-- Support Rating '3';
-- Support Rating Floor 'BB';
-- Long-term National Rating 'AA+(cri)'; Outlook Stable;
-- Short-term National Rating 'F1+(cri)';
-- National scale long-term rating for local senior unsecured
debt issues 'AA+(cri)';
-- National scale short-term rating for local senior unsecured
debt issues 'F1+(cri)'.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Chief Calls Haiti Ban on Products 'Momentary'
-----------------------------------------------------------------
Dominican Today reports that agriculture minister Angel Estevez on
Tuesday said Haiti's ban on Dominican products has been lifted and
called it "something momentary" that occurs with some products
that were bought from the Dominican side of the border and
rejected by Haitian authorities.
"This was overcome, and this is already a tradition that this is
done every year, but the Dominican Republic and Haiti are still
negotiating . . . .," the official said, according to Dominican
Today. "Between the Minister of Agriculture of Haiti and us,
there is a very fluid communication," the official added.
The official noted however that there's no clear explanation for
the ban, and added that of the products barred only two from the
agro sector: rice and some vegetables, "but the rest were products
such as spaghetti, among others," the report relays.
Joint Effort for Quality Products
Interviewed in the National Palace, Estevez said together with the
Haitian official, met with the UN Food and Agriculture
Organization (FAO) and other international organizations to seek a
health system, so the fruits that leave both the Dominican
Republic and Haiti, have quality and are free of the diseases that
affect the globe, the report relays.
As reported in the Troubled Company Reporter-Latin America on
Nov. 20, 2017, Fitch Ratings has affirmed Dominican Republic's
Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-'
with a Stable Outlook.
===========
M E X I C O
===========
BANCO SANTANDER MEXICO: Moody's Affirms Ba1 Jr. Sub. Debt Rating
----------------------------------------------------------------
Moody's Investors Service has affirmed Banco Santander (Mexico),
S.A., Institucion de Banca Multiple, Grupo Financiero Santander
Mexico's (Banco Santander Mexico) foreign currency debt ratings of
its $1 billion senior unsecured debt issuance and $1.3 billion
Ten-Year Subordinated Preferred Non-Convertible Tier 2 Capital
Notes with cumulative mandatory deferral of coupons (Tier 2
hybrid). The outlook on Banco Santander Mexico's senior debt
rating remains negative.
Moody's also affirmed the junior subordinated debt ratings of Ba1
(hyb) in global foreign currency of the $500 million Perpetual
Subordinated Non-Preferred Contingent Convertible Additional Tier
1 Capital Notes with non-cumulative mandatory and optional
deferral of coupons (AT1 hybrid) issued by Grupo Financiero
Santander, S.A.B. de C.V. (Old Holdco), now payable by Banco
Santander Mexico.
The rating action follows Banco Santander Mexico's absorption of
Old Holdco on January 1, 2018. The purpose of the restructuring
was to comply with guidelines issued by the European Central Bank
(ECB) whereby minority interest may only be considered for
regulatory capital purposes at the consolidated bank level if the
entity from which minority interest is generated collects deposits
from the public and is regulated. Banco Santander, S.A. (Spain)
(Santander Spain, deposits A3 stable, BCA baa1) had just a 74.96%
interest in Old Holdco, with the balance held by various minority
shareholders.
Following the absorption of Old Holco into the bank, and the
assumption of all of its liabilities including its AT1 hybrid
directly by the bank, Old Holdco's minority shareholders have
become direct shareholders of a regulated entity. Santander Spain
now holds its controlling interest in Banco Santander Mexico
through a new 99.99%-owned holding company, Grupo Financiero
Santander, S.A. de C.V. (New Holdco), which will allow the ECB to
account those minority interests as regulatory capital for
Santander Spain.
The rating action also follows the rating actions taken earlier by
Moody's de Mexico (MDM) on Banco Santander Mexico.
The following ratings of cross border issuances by Banco Santander
Mexico were affirmed:
-- Long-term foreign currency senior unsecured debt rating of A3
with a negative outlook
-- Long-term foreign currency subordinated debt rating of Baa3
(hyb)
The following rating by Grupo Financiero Santander, S.A.B. de
C.V., assumed by Banco Santander Mexico, was affirmed:
-- Long-term foreign currency junior subordinated debt rating of
Ba1 (hyb)
RATINGS RATIONALE
AFFIRMATION OF BANCO SANTANDER MEXICO RATINGS, WITH NEGATIVE
OUTLOOK
Moody's affirmed Banco Santander Mexico's senior debt and Tier 2
hybrid ratings because the corporate restructuring will have no
effect on the bank's financial fundamentals or ultimate ownership.
The bank's assumption of Old Holdco's AT1 hybrid will not create
new debt for the bank because it had issued back-to-back hybrid
notes to Old Holdco at the time of the issuance of the AT1 hybrid
that have now been cancelled. Other assets and liabilities assumed
by the bank from Old Holdco are negligible.
The affirmation also considers the improvement in Banco Santander
Mexico's profitability and capitalization in the first nine months
of 2017, following a sustained deterioration in the previous two
to three years. Net income rebounded to 1.4% of tangible assets,
from 1.2% in calendar year 2016, while tangible common equity rose
to 11.6% of risk-weighted assets, from 10.5%. The rebound in
profitability was driven by the steep rise in interest rates in
Mexico, while the bank's funding costs remained low thanks to its
strong access to low cost retail deposit funding and operating
cost increases were contained. Although capitalization remains
below those of rated peers globally, it will continue to benefit
from higher earnings generation.
At the same time, asset quality continued to improve, with problem
loans falling to just 2.3% of gross loans in September.
Notwithstanding the low non-performing loan ratio, however, asset
risks reflect the potential impact of heightened uncertainty
regarding US trade policies and the upcoming presidential
elections.
Given Banco Santander Mexico's importance to Santander Spain, the
rating agency assesses a moderate probability of affiliate
support, which results in a one notch uplift from Banco Santander
Mexico's baa2 standalone baseline credit assessment (BCA), to an
adjusted BCA of baa1.
The outlook on Banco Santander Mexico's senior debt rating remains
negative, as a result of the negative outlook on the government's
bond rating.
AFFIRMATION OF ADDITIONAL TIER 1 CAPITAL NOTES
The affirmation of the rating assigned to Old Holdco's AT1 hybrid
also considers the assumption of the notes by the bank.
Despite being obligations of Old Holdco, the ratings of the AT1
hybrid did not previously incorporate any additional downward
notching for structural subordination because Old Holdco
previously held back-to-back obligations issued by the bank with
largely matching terms and conditions. These obligations from the
bank to Old Holdco have now been extinguished.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward ratings pressure for Banco Santander Mexico's senior debt
rating is limited because it is already at the same level as the
Mexican sovereign due to the very high probability that the bank
will receive financial support from the government in an event of
stress. The ratings on both hybrids could face upward pressure if
capital, profitability, and asset quality continue to improve, and
uncertainties related to NAFTA and Mexico's upcoming presidential
elections diminish.
While the bank's senior debt rating will face downward pressure,
in line with the negative outlook, if Mexico's government bond
ratings are downgraded, it is not likely to be affected by a
deterioration in the bank's fundamentals at this time. However,
the ratings of both hybrids' would face downward pressure if the
recent improvements in Banco Santander Mexico's financial
fundamentals prove unsustainable.
The principal methodology used in these ratings was Banks
published in September 2017.
CASA DE BOLSA: Moody's Affirms Ba1 Jr. Sub. Debt Rating
-------------------------------------------------------
Moody's de Mexico has affirmed all ratings and assessments of
Banco Santander (Mexico), S.A., Institucion de Banca Multiple,
Grupo Financiero Santander Mexico (Banco Santander Mexico) and
Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander
Mexico (Casa de Bolsa Santander). Their outlooks remain negative.
Moody's also affirmed the junior subordinated debt ratings of Ba1
(hyb) in global local currency and A1.mx (hyb) in the Mexican
National Scale of the $500 million issuance of Perpetual
Subordinated Non-Preferred Contingent Convertible Additional Tier
1 Capital Notes with non-cumulative mandatory and optional
deferral of coupons (hybrid) issued by Grupo Financiero Santander,
S.A.B. de C.V. (Old Holdco), now payable by Banco Santander
Mexico.
The rating action follows Banco Santander Mexico's absorption of
Old Holdco on January 1, 2018. The purpose of the restructuring
was to comply with guidelines issued by the European Central Bank
(ECB) whereby minority interest may only be considered for
regulatory capital purposes at the consolidated bank level if the
entity from which minority interest is generated collects deposits
from the public and is regulated. Banco Santander, S.A. (Spain)
(Santander Spain, deposits A3 stable, BCA baa1) had just a 74.96%
interest in Old Holdco, with the balance held by various minority
shareholders.
Following the absorption of Old Holco into the bank, and the
assumption of all of its liabilities including its hybrid directly
by the bank, Old Holdco's minority shareholders have become direct
shareholders of a regulated entity. Santander Spain now holds its
controlling interest in Santander Mexico through a new 99.99%-
owned holding company, Grupo Financiero Santander, S.A. de C.V.
(New Holdco), which will allow the ECB to account those minority
interests as regulatory capital for Santander Spain.
The following ratings and assessments were affirmed:
Banco Santander (Mexico), S.A. (600011987)
-- Adjusted Baseline Credit Assessment of baa1
-- Baseline Credit Assessment, of baa2
-- Long-term global local currency deposit rating of A3, negative
outlook
-- Short-term global local currency deposit rating of Prime-2
-- Long-term global foreign currency deposit rating of A3,
negative outlook
-- Short-term global foreign currency deposit rating of Prime-2
-- Long-term Mexican National Scale deposit rating of Aaa.mx
-- Short-term Mexican National Scale deposit rating of MX-1
-- Long-term global local currency senior unsecured debt rating
of A3, negative outlook
MXN1.7 billion CERTIFICADOS BURSATILES due 2021 (BSANT 11-3)
-- Long-term Mexican National Scale senior unsecured debt rating
of Aaa.mx
MXN1.7 billion CERTIFICADOS BURSATILES due 2021 (BSANT 11-3)
-- Long-term global local currency senior unsecured debt rating
of A3, negative outlook
MXN3 billion CERTIFICADOS BURSATILES due 2018 (BSANT 15)
-- Long-term Mexican National Scale senior unsecured debt rating
of Aaa.mx
MXN3 billion CERTIFICADOS BURSATILES due 2018 (BSANT 15)
-- Long-term global local currency senior unsecured debt rating
of A3, negative outlook
MXN3 billion CERTIFICADOS BURSATILES due 2018 (BSANT 16)
-- Long-term Mexican National Scale senior unsecured debt rating
of Aaa.mx
MXN3 billion CERTIFICADOS BURSATILES due 2018 (BSANT 16)
-- Long-term global local currency senior unsecured debt rating
of A3, negative outlook
MXN4 billion CERTIFICADOS BURSATILES due 2021 (BSANT 16-2)
-- Long-term Mexican National Scale senior unsecured debt rating
of Aaa.mx
MXN4 billion CERTIFICADOS BURSATILES due 2021 (BSANT 16-2)
-- Long-term global local currency senior unsecured debt rating
of A3, negative outlook
MXN3 billion CERTIFICADOS BURSATILES due 2021 (BSANT 16-3)
-- Long-term Mexican National Scale senior unsecured debt rating
of Aaa.mx
MXN3 billion CERTIFICADOS BURSATILES due 2021 (BSANT 16-3)
-- Long-term Counterparty Risk Assessment, of A2(cr)
-- Short-term Counterparty Risk Assessment, of Prime-1(cr)
Casa de Bolsa Santander, S.A. de C.V. (821609725)
-- Long-term global local currency issuer rating of Baa1,
negative outlook
-- Short-term global local currency issuer rating of Prime-2
-- Long-term Mexican National Scale issuer rating of Aa1.mx
-- Short-term Mexican National Scale issuer rating of MX-1
The following rating by Grupo Financiero Santander, S.A.B. de C.V.
(600013749), assumed by Banco Santander Mexico, was affirmed:
-- Long-term global local currency junior subordinated debt
rating of Ba1 (hyb)
-- $500 million Perpetual Contingent Convertible Capital Notes
(SANTAT1 16)
-- Long-term Mexican National Scale junior subordinated debt
rating of A1.mx (hyb)
-- $500 million Perpetual Contingent Convertible Capital Notes
(SANTAT1 16)
RATINGS RATIONALE
AFFIRMATION OF BANCO SANTANDER MEXICO RATINGS, WITH NEGATIVE
OUTLOOK
Moody's affirmed the ratings of Banco Santander Mexico because the
corporate restructuring will have no effect on the bank's
financial fundamentals or ultimate ownership. The bank's
assumption of Old Holdco's hybrid will not create new debt for the
bank because it had issued back-to-back hybrid notes to Old Holdco
at the time of the issuance of the hybrid, that have now been
cancelled. Other assets and liabilities assumed by the bank from
Old Holdco are negligible.
The affirmation also considers the improvement in Banco Santander
Mexico's profitability and capitalization in the first nine months
of 2017, following a sustained deterioration in the previous two
to three years. Net income rebounded to 1.4% of tangible assets,
from 1.2% in calendar year 2016, while tangible common equity rose
to 11.6% of risk-weighted assets, from 10.5%. The rebound in
profitability was driven by the steep rise in interest rates in
Mexico, while the bank's funding costs remained low thanks to its
strong access to low cost retail deposit funding and operating
cost increases were contained. Although capitalization remains
below those of rated peers globally, it will continue to benefit
from higher earnings generation. At the same time, asset quality
continued to improve, with problem loans falling to just 2.3% of
gross loans in September. Notwithstanding the low non-performing
loan ratio, however, asset risks reflect the potential impact of
heightened uncertainty regarding US trade policies and the
upcoming presidential elections.
Given Banco Santander Mexico's importance to Santander Spain, the
rating agency assesses a moderate probability of affiliate
support, which results in a one notch uplift from Banco Santander
Mexico's baa2 standalone baseline credit assessment (BCA), to an
adjusted BCA of baa1.
The outlook on Banco Santander Mexico's ratings remains negative,
as a result of the negative outlook on the government's bond
rating.
AFFIRMATION OF CASA DE BOLSA SANTANDER RATINGS
Moody's affirmation of all of Casa de Bolsa Santander's ratings
incorporates Moody's assessment of the brokerage house as highly
integrated and harmonized with Banco Santander Mexico, whose
standalone strength and ownership by Santander Spain remains
unchanged following the corporate restructuring. Following the
restructuring, control of Casa de Bolsa Santander has been
transferred to New Holdco from Old Holdco (after momentarily being
under the bank's ownership), and Santander Spain's effective
interest in Casa de Bolsa Santander increased to virtually 100%,
from 74.96% previously. Consequently, the creditworthiness of Casa
de Bolsa Santander continues to be best reflected by the rating
agency's baa1 adjusted BCA for Banco Santander Mexico, from which
Moody's continues to expect full support despite the fact that
minority shareholders now have a larger stake in the bank than
they do in the brokerage house. This operation did not create any
goodwill as transfer pricing methods were used in order to value
Casa de Bolsa Santander.
Moody's assessment takes into consideration that Casa de Bolsa
Santander is so highly integrated into Banco Santander Mexico's
operations that a separate standalone analysis does not produce a
meaningful result. Casa de Bolsa Santander is effectively a
booking entity for Banco Santander Mexico. Its standalone
franchise is very limited; it does not have separate money and
capital markets desks, and it is heavily reliant on services
provided by Santander Mexico. Moreover, there is little
differentiation for its customers to indicate which entity is
providing the services in question. The brokerage houses remains a
sister company of the bank following the corporate restructuring
because local regulations do not allow banks to own a brokerage
house.
The negative outlook of Casa de Bolsa Santander reflects the
negative pressure on Santander Mexico's standalone credit profile,
due to a deterioration in the bank's financial performance in the
years prior to 2017. Despite the recent recovery in the bank's
financial performance, it remains unclear if these improvements
will be sustainable.
AFFIRMATION OF ADDITIONAL TIER 1 CAPITAL NOTES
The affirmation of the rating assigned to Old Holdco's hybrid also
considers the assumption of the notes by the bank.
Despite being obligations of Old Holdco, the ratings of the hybrid
did not previously incorporate any additional downward notching
for structural subordination because Old Holdco previously held
back-to-back obligations issued by the bank with largely matching
terms and conditions. These obligations from the bank to Old
Holdco have now been extinguished.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward ratings pressure for Banco Santander Mexico's ratings
(excluding the hybrid) is limited because they are already at the
same level as the Mexican sovereign due to the very high
probability that the bank will receive financial support from the
government in an event of stress. The ratings on both the hybrid
and Casa de Bolsa Santander could face upward pressure if capital,
profitability, and asset quality continue to improve, and
uncertainties related to NAFTA and Mexico's upcoming presidential
elections diminish.
While the bank's ratings (excluding the hybrid) will face downward
pressure, in line with the negative outlook, if Mexico's
government bond ratings are downgraded, they are not likely to be
affected by a deterioration in the bank's fundamentals at this
time. However, the ratings of both hybrid and Casa de Bolsa
Santander would face downward pressure if the recent improvements
in Banco Santander Mexico's financial fundamentals prove
unsustainable.
The principal methodology used in rating Banco Santander (Mexico),
S.A. and Grupo Financiero Santander, S.A.B. de C.V. was Banks
published in September 2017. The principal methodology used in
rating Casa de Bolsa Santander, S.A. de C.V. was Securities
Industry Market Makers published in September 2017.
The period of time covered in the financial information used to
determine Banco Santander (Mexico), S.A.'s rating is between
January 1, 2012 and September 30, 2017 (source: Moody's and
issuer's financial statements).
The period of time covered in the financial information used to
determine Casa de Bolsa Santander, S.A. de C.V.'s rating is
between January 1, 2012 and September 30, 2017 (source: Moody's
and issuer's financial statements).
***********
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S U B S C R I P T I O N I N F O R M A T I O N
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