/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/181025.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, October 25, 2018, Vol. 19, No. 212 Headlines B R A Z I L JSL SA: Fitch Affirms 'BB' IDRs & Alters Outlook to Negative MRS LOGISTICA: Fitch Affirms BB LongTerm For. Currency IDR D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Oil Prices Hike Dampens 6.9% Growth Thru Q3 * DOMINICAN REPUBLIC: Fights Liquors/Cigarettes Smuggle With Brits H O N D U R A S HONDURAS: To Get $90MM IDB-Loan for Logistics & Transport Sector J A M A I C A JAMAICA: BITU to Meet With BNS Workers Amid Restructuring M E X I C O BANCA MIFEL: S&P Affirms 'BB' Global Scale ICR, Off Watch Negative BANORTE MERCANTIL: Moody's Affirms Ba2(hyb) on Jr. Sub AT1 Notes P U E R T O R I C O SEARS HOLDINGS: Set to Close 142 Stores by End of 2018 V E N E Z U E L A PETROLEOS DE VENEZUELA: To Prepare Bond Payment Amid Defaults - - - - - =========== B R A Z I L =========== JSL SA: Fitch Affirms 'BB' IDRs & Alters Outlook to Negative ------------------------------------------------------------ Fitch Ratings has affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings of JSL S.A. at 'BB' and National scale ratings at 'AA(bra)'. The Rating Outlook has been revised to Negative from Stable. The Outlook Negative reflects JSL's challenges to reduce persistently high leverage ratios due to ongoing strong growth strategy. JSL has been developing two major businesses: rent-a-car and heavy vehicles & equipment rental, mostly debt-financed, which have increased its consolidated leverage burden. The still under- developing phase of these segments and the not so favorable scenario for the sale of used vehicles is expected to limit relevant dividends distributions from those segments in the short to medium term. Fitch's base case indicates that a deleverage trend will take longer than previously anticipated. Unless, JSL revaluates its strong growth strategy or look for alternatives to enhance its capital structure through new equity injection. JSL's ratings continue to reflect its strong business profile, supported by a leading position in the Brazilian logistics industry and diversified service portfolio, and its resilient operating performance over the last years, despite the recession and more recently sluggish economic growth. JSL's above-average ability, compare to others 'BB' issuers, to generate free cash flow through capex postponement gives it an important financial flexibility and is embedded in the current ratings. Nevertheless, Fitch expects JSL to continue to take advantages of market opportunities within its business activities and should to continue to invest over the next years. The company's commitment to an adequate liquidity vis-a-vis its manageable debt maturity is a key rating consideration. KEY RATING DRIVERS High Leverage to Persist: Fitch's base case scenario projects that JSL's consolidate leverage ratio, measured by EBITDAR adjusted leverage will remain around 4.4x in the next two years. Given JSL's ongoing high maintenance capex, Fitch considers this an operating expense and includes this in its FFO calculation, which translates to an average FFO adjusted net leverage ratio of around 5.5x in the same period. In Fitch's view, a more moderate grow strategic or a new equity transaction would be required to allow an effectively deleverage process. Earlier in the year, JSL had announced and later cancelled the process of an initial public offering for its heavy vehicles and equipment business. In an exercise of equity inflow of around BRL1.2 billion, Fitch forecasts net leverage ratio measured by EBITDAR would decline to around 3.5x for 2019. Prominent Market Position and Diversified Portfolio: JSL has a leading position in the Brazilian logistics industry with a diversified portfolio of services with relevant presence in multiple sectors of the economy. JSL's strong market position, coupled with long-term contracts for most of its logistic revenues, minimizes its exposure to more volatile economic cycles. The company's significant operating scale has made it an important purchaser of light vehicles and trucks, giving it a significant amount of bargaining power versus other competitors in the industry. JSL's Main Services Include: Supply chain management, passenger transportation and general cargo transportation through its logistic segment, rent-a-car segment trough Movida Participacoes S.A (A+(bra)), rental of heavy equipment through Vamos Locacoes S.A (not rated) and also vehicles dealerships (Original). Per Fitch's calculations, the logistic segment (100% stake) represents 42% of consolidated EBITDA, Vamos (100% stake) 28%, Movida (70% stake) 27% and the dealerships (100% stake) only 2%. Solid Operating Cash Flow Generation: JSL has been efficiently managing its business expansion and profitability during the recession period in Brazil. The integration of its business and cross-selling opportunities has supported growth and gains in scale. Between 2015 and the latest-12-month period (LTM) ended Jun. 30, 2018, JSL's net revenue increased by 26%, to BRL7.5 billion. During the same period, the company's consolidated EBITDAR grew 30% to BRL1.5 billion while its FFO rose to BRL1.5 billion from BRL673 million, considering maintenance capex as operating. Capex Growth Remains Pressuring FCF: FCF is expected to remain negative in the range of BRL250 million in the next two years. JSL has the flexibility to improve FCF by reducing growth capex, as most of its capital investments are geared toward increasing the size of its fleet/equipment and are linked to specific contracts. Considering only maintenance capex, JSL's operating cash flow generation is sufficient to support these investments. Excluding growth capex, JSL generated average of BRL770 million of positive FCF during 2015-17. DERIVATION SUMMARY JSL's ratings reflect its strong business profile, supported by a leading position in the Brazilian logistics industry and diversified and resilient portfolio of products. JSL's large business scale allows an important negotiating power with the automobile manufacturers and it is a key competitive advantage when compared to peers in the local market. Fitch believes that JSL's bargain power and business position tends to be relatively closer to the industry's benchmark Localiza Rent a Car S.A (Long- Term Foreign Currency IDR BB; Long-Term Local Currency IDR BBB-; National Long-Term rating AAA(bra)) and stronger than Ouro Verde Locacao e Servico S.A. (BB-/A+(bra)/Rating Watch Negative). Compared to Localiza, JSL has weaker financial profile with higher leverage and higher refinancing risks in the medium term. Compared to Ouro Verde, JSL has much higher leverage but better liquidity and access to credit market. JSL's 'BB-' ratings compares well with other peers in the Brazilian transportation segment. JSL and Rumo's business risks are similar considering respective business-traits, but JSL leverage is higher. In case of Hidrovias do Brasil S.A. (HdB; BB/Stable), JSL's business position is stronger but the leverage profile as well the refinancing risks in the medium term are weakness. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer -- Mid-single-digit revenue growth in the next 2 years; -- EBITDAR margins at around 20%; -- Expansion capex at around BRL1.1 billion in the next two years; -- Cash balance remains sound compared to short-term debt; -- Dividends at 25% net income. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action -- Consolidated Net adjusted debt/EBITDAR below 3.0x, on a sustainable basis; -- Expansion of its business profile without jeopardizing its profitability levels; -- An upgrade of JSL's Foreign Currency IDR is unlikely in the short to medium term, since it is limited by Brazil's 'BB' Country Ceiling. Developments That May, Individually or Collectively, Lead to Negative Rating Action -- Maintenance of its Consolidated Net adjusted debt/EBITDAR above 4.0x until mid-2019; -- Deterioration of sound liquidity compared to short-term debt, leading to refinancing risk exposure; -- Deterioration in used car sales in Brazil and/or in the coverage ratio fleet value/net value to below 1.0x. LIQUIDITY Adequate Liquidity: JSL's adequate liquidity position vis-a-vis its short-term debt obligations is a key credit consideration, with cash covering short-term debt by an average 1x during the last five years. JSL has a recurring need for debt refinancing, since its debt amortization schedule had been historically concentrated in the next three years. Its negative FCF should be support by liquidity and liability management strategy. As of June 30 2018, JSL had BRL2.3 billion of cash and BRL9.6 billion of total adjusted debt, with BRL2.0 billion of debt coming due in the short-term debt. Those figures exclude the BRL1.8 billion of credit linked note. Excluding Movida's cash and short- term debt, JSL's cash-to-liquidity position is adequate with BRL1.3 billion of cash and BRL1.3 billion of short-term debt. JSL has BRL2.8 billion of debt coming due up until year-end 2019 (BRL1.2 billion, when excluding Movida). As of Jun. 30, 2018, JSL reported total debt of BRL9.6 billion. The company's debt profile is mainly comprised of local debentures, promissory notes and CRA issuances (48%), bond issuance (27%) and FINAME and leasing operations (13%). Currently, about 13% of JSL's debt is secured. FULL LIST OF RATING ACTIONS JSL S.A. -- Long-Term Foreign Currency IDR at 'BB'; -- Long-Term Local Currency IDR at 'BB'; -- National Long-Term Rating at 'AA(bra)'; -- Local debentures issuance at 'AA(bra)'. The Rating Outlook has been revised to Negative from Stable. JSL Europe -- USD625 million senior unsecured notes due to 2024 at 'BB'. MRS LOGISTICA: Fitch Affirms BB LongTerm For. Currency IDR ---------------------------------------------------------- Fitch Ratings has affirmed MRS Logistica S.A.'s (MRS) Long-Term Foreign Currency (FC) Issuer Default Rating (IDR) at 'BB', Long- Term Local Currency (LC) IDR at 'BBB-' and Long-Term National Scale Rating at 'AAA(bra)'. At the same time, Fitch has affirmed the Long-Term National Rating of MRS's BRL400 million unsecured debentures maturing in 2022 at 'AAA(bra)'. The Rating Outlook for the corporate ratings is Stable. MRS's ratings are based on its continued strong and resilient operational cash generation, positive FCF, conservative capital structure, robust financial flexibility and strong business profile. The company's business model is strong due to the captive demand for transportation and relatively low exposure to volatilities of the business environment in Brazil and the iron ore price cycle. MRS's business model is also supported by a shareholders' agreement that establishes a well-defined tariff model and has protected the company's operational margins and profitability, enhancing the predictability of future results. MRS's FC IDR is constrained by Brazil's 'BB' Country Ceiling. The Stable Outlook reflects Fitch's expectation that MRS's earnings should remain strong and key rating drivers preserved even upon the higher capex flow. KEY RATING DRIVERS Low Industry Risks: Railway transportation in Brazil enjoys solid demand, low competition amongst operators, high barriers to entry and medium to high profitability. These advantages, along with the great opportunities to enhance the country's transportation infrastructure, make for a favourable credit environment for Brazilian railway companies. Solid Business Profile: MRS runs a mature and important railway concession in Brazil that expires in 2026 and benefits from its prominent position as sole provider of railway transportation for large clients, which are also the company's major shareholders, in its coverage area, linking the Brazilian center to the most important ports in the Southeast region. The competition from other transportation modes is marginal. MRS's transported volumes have grown at an average annual rate of 2% over the last five years and are expected to increase in the coming years. Over the LTM ended June 2018, MRS transported 167 million tons. Iron ore is the main product transported. Shareholder Agreement Protects Margins: MRS's shareholder agreement provides a tariff model that protects the company's profitability and cash flow generation capacity. In recent years, MRS's operating cash flow generation has proved to be resilient against strong economic downturns and unfavourable movements of the exchange rate, fuel and iron ore prices. The tariff model establishes, on an annual basis, freight rates for each captive client during one cycle, through a pre-defined cargo volume and a return target over equity ratio. Furthermore, the model determines tariff adjustments on a monthly basis in the event of substantial cost increases, chiefly regarding fuel. This operating model has proven to be efficient over many years and has translated into high EBTIDA margin resilience that was, on average, around 40% between 2012 and 2017. Captive Clients: Positively, the company's main individual shareholder is Mineracoes Brasileiras Reunidas S.A. (MBR), which is controlled by Vale S.A. (Vale; FC and LC IDR BBB+/Stable), owing on a combined basis 43.8% of MRS's total capital. In addition, they were responsible for almost half of MRS's revenues in 2017. MBR and Vale's operations, as well as those of its other main shareholders, such as CSN (37.2%), Usiminas (11.1%) and Gerdau (1.3%), are heavily dependent on MRS's iron ore cargo capacity in its coverage area. Positive FCF: Historically, MRS has reported consistent operating cash flow generation. Fitch believes that MRS's EBITDAR will slightly increase, as the company gains scale and continues benefitting from increases in non-captive freight orders following capex completion in infrastructure and undercarriage material. In 2018, MRS's EBITDAR and FFO are expected to reach BRL1.5 billion and BRL1.0 billion, respectively, quite in line with those reported in 2017. MRS`s FCF should remain in the positive territory, benefiting from still manageable capex levels (around 20% of revenues), at least until 2021, being positive over the medium term. Fitch expects average annual FCF around BRL140 million from 2018 to 2020, after average capex and dividends around BRL842 million and BRL238 million, per year, respectively in that period. Early Concession Renewal is Neutral: Fitch does not foresee major pressures on MRS's FCF, motivated by likely early concession extension. MRS's concession contract will expire in 2026 and the planned annual capex plan of BRL850 million, in average, until 2021, is expected to improve the company's operating productivity and supports the company's request to renew the concession contract in advance. Brazilian political uncertainties are expected to pull the government decision to 2019. Conservative Capital Structure: MRS's leverage is low and consistent with the ratings assigned. During the LTM ended June 2018, MRS's adjusted net leverage ratio, measured as adjusted net debt/EBITDA, was 1.6x, comparing favourably with the 2.1x average during the 2013-2017. The conversion of EBITDA into FFO has been historically high, which has resulted in low FFO adjusted net leverage within the 2.0x to 2.5x range. Fitch forecasts improved EBITDA net leverage to be in the 1.3x-1.5x range over the next two to three years. Fitch considers adjusted net leverage below 2.0x commensurate with an investment-grade rated company in the sector. DERIVATION SUMMARY MRS is positioned below other mature rail companies in Mexico, the U.S. and Canada, which are generally rated in the mid 'BBB' to low 'A' category, given MRS businesses' reliance on only one region - Brazil. Compared to other Brazil's railroads, MRS is the best positioned, granted by its consistent operating cash flow generation, flat operating margins, positive FCF, relatively low leverage and sound liquidity, while Rumo (BB/AA(bra)/Positive) and VLI (NR/AA+(bra)/Stable) still present negative FCF trends and higher leverage, compatible with their growth momentum. A larger comparison shows MRS with lower leverage metrics than other large rail companies such as Norfolk Southern and Canadian Pacific, but in line with the Mexican/North American KSC. The company also exhibits operating margins in line with Brazilian peers but below the railroads in the north hemisphere. Solid credit metrics are partially offset by MRS's small size and geographic concentration, compared to other large world rail companies, which constrains the IDRs. MRS generates roughly USD1.0 billion in annual revenue and USD450 million EBITDA while its next largest peer generates nearly double those amounts. MRS's FC IDR 'BB'/Outlook Stable is capped by Brazil's Country Ceiling, due its total concentration on that country. KEY ASSUMPTIONS Fitch's key assumptions within Its rating case for the issuer include: - Heavy haul volumes to decline by 6% in 2018 and increase marginally from 2019 onwards; - General cargo to increase by 15% in 2018 and 5% in 2019; - Average tariffs to increase by inflation; - Total capex of BRL3.3 billion from 2018 to 2021; - Concession contract to mature in 2026 (no renewal so far). RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Material improvement of credit quality of its major clients and/or shareholders. - Positive actions toward the sovereign rating may lead to positive actions regarding MRS's FC IDR, currently limited by the Brazilian Country Celling. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Deterioration of EBITDA margins to lower than 35% on a sustainable basis. - Adjusted net debt/EBITDAR ratios consistently above 3.0x. - Severe deterioration of credit quality of its major clients and/or shareholders. - A downgrade of Brazil's sovereign rating and of the country ceiling could lead to a negative rating action regarding the FC IDR of MRS. LIQUIDITY Sound Liquidity: MRS's liquidity profile is satisfactory, with cash and marketable securities of BRL212 million at June 2018 (BRL420 million at pro forma September 2018). Historically, the cash to short-term debt coverage ratio has remained around 0.7x, and MRS also benefits from strong and predictable operating cash flow generation and proven access to credit lines that provide the company with substantial financial flexibility and adequate funding for its investments. MRS should maintain its strategy to roll-over part of its sort-term debt, leading the leverage to remain in line with the current low levels. The sharp decline in its current leverage would result in capital structure unefficience. In June 30, 2018, MRS's total debt was BRL2.5 billion: BRL684 million to mature by December 2019 and adequate debt amortization schedule from that period onwards.The main debt lines were debentures (49%) and outstanding debt with Banco Nacional de Desenvolvimento Economico e Social (BNDES; 34%). FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: MRS Logistica S.A.: -- Long-Term Foreign Currency (FC) IDR at 'BB'; -- Long-Term Local Currency (LC) IDR at 'BBB-'; -- Long-Term National Scale Rating at 'AAA(bra)'; -- Long-Term National Rating of its unsecured debentures of BRL400 million maturing in 2022 at 'AAA(bra)'. The Rating Outlook for the corporate ratings is Stable. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Oil Prices Hike Dampens 6.9% Growth Thru Q3 --------------------------------------------------------------- Dominican Today reports that the central banker Hector Valdez Albizu said the Dominican economy grew 6.9% from January to September, "reflecting its momentum." In his speech to mark the Bank's 71st anniversary, the official said just in September, the Monthly Economic Activity Index climbed 8.6%; Free zones 12%; construction 10.9% and retail 8.9%, according to Dominican Today. The report notes that Mr. Valdez said the latest labor data show that some 30,000 jobs were created in the last 12 months, driving unemployment down to 5.5% in the July-September quarter. He however said that if rising oil prices are taken into account, it would lead to a current account deficit of -1% at year end, the report relays. "This would be caused by the increase of 38.1% of the oil bill in a year, since it was already at US$778.5 million between January and September," he added. As reported in the Troubled Company Reporter-Latin America on Sept. 24, 2018, Fitch Ratings affirmed Dominican Republic's Long-Term, Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. * DOMINICAN REPUBLIC: Fights Liquors/Cigarettes Smuggle With Brits ------------------------------------------------------------------ Dominican Today reports that the Intellectual Property Office of the United Kingdom and the Scotch Whiskey Association are willing to help Dominican authorities fight the smuggling of alcohol and cigarettes in the country. Representatives of both institutions, Bill Russel and Adam Bowie respectively, met as part of the annual Dominican Week in the UK, with Dominican liquor and cigarette sector representatives as well as with directors of the British Chamber of Commerce (BRITCHAM), where the latter expressed concern with the growing illegal trade in those products in the Caribbean country, according to Dominican Today. It was learned that smuggling accounts for 65% of illegal trade,15% to incomplete declaration and 12% to counterfeit products in the Dominican Republic, which leads to over US$260.0 million in lost revenue per year, the report notes. British Chamber of Commerce president Leonel Melo and Dominican Wines and Spirits Importers Association director Manuel Cabral said they'll bring the authorities of the two countries closer together to work on the issue, the report relays. "The public-private partnership is key to combating this problem and the government of the United Kingdom can share the best practices with the Dominican government on how they have worked in other markets and have fought against unregulated production and the illegal trade of liquors and cigarettes," Mr. Melo said after the meeting, the report adds. As reported in the Troubled Company Reporter-Latin America on Sept. 24, 2018, Fitch Ratings affirmed Dominican Republic's Long-Term, Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. =============== H O N D U R A S =============== HONDURAS: To Get $90MM IDB-Loan for Logistics & Transport Sector ---------------------------------------------------------------- The Inter-American Development Bank (IDB) has approved a $90 million loan for Honduras to implement an ambitious program of reforms in the transport and freight logistics sector, with the goal strengthening the country's competitiveness and regional integration through improved logistics. The program will contribute toward putting into practice the coordinated work of the public and private sectors in the creation of the National Freight Logistics Plan (PNLOG in Spanish), which was developed by the Honduran government and supported by the IDB. This program features reforms in the regulatory, institutional, planning and commercial assistance areas. Inefficiencies in freight logistics pose an obstacle to Honduras' goal of establishing itself as a regional logistical hub. The program will help meet this challenge by laying the foundations for the use of technology, inter-operability and process digitalization. The development and performance of the logistics and transport sector and important for Honduras' competitiveness because they are closely linked to the country's agricultural and industrial manufacturing sectors. Improving planning and infrastructure management processes will boost the country's productivity through enhanced transport services. The main beneficiaries will be Honduran producers, who will gain better access to national and international markets. The plan will give continuity to the IDB's commitment to improving Honduras logistical performance through this loan. It is the first in a series of three operations that are technically linked but financed independently under the modality of a Programmatic Policy Support Loan. The specific goals of the program are to consolidate a regulatory framework with specific rules that strengthen the PNLOG; to create the National Logistics Council, comprising key institutions related to the sector; improve overall planning in it and the provision of related services; and, finally, to modernize and simplify technological processes and systems that allow for, among other things, the traceability of commercial flows in a safe and automated fashion. The program calls for a loan of $90 million, of which $54 million come from regular ordinary IDB capital, payable over 20 years, and with a grace period of five and a half years and an interest rate pegged to the LIBOR The other $36 million come from concessionary ordinary capital, payable over 40 years, with a grace period of 40 years and interest rate of 0.25%. As reported in the Troubled Company Reporter-Latin America on Sept. 27, 2017, Moody's Investors Service has upgraded the Government of Honduras' foreign currency and local currency issuer and senior unsecured ratings to B1 from B2. The rating outlook was moved to stable from positive. ============= J A M A I C A ============= JAMAICA: BITU to Meet With BNS Workers Amid Restructuring --------------------------------------------------------- RJR News reports that The Bustamante Industrial Trade Union (BITU) is scheduled to meet with workers in one of the units at Bank of Nova Scotia Jamaica where job cuts are likely as the financial institution embarks on a restructuring exercise. The union has also been meeting with its delegates at the bank to discuss the implications of the transformation, according to RJR News. However, BITU President General Kavan Gayle, says there are still concerns, the report notes. "We believe that what they are seeking in terms of a new customer experience, will pose some challenges, especially for the Jamaican customers. The transformation that they are seeking can be done by the team here in Jamaica. It is unfortunate that efforts were not given to the Jamaican brand to produce the desired efficiency and the business could have invested in that interest here. It is also disappointing in our view that the contribution in profits over decades, to the Jamaican business, is now going to be used to support some workers in the Dominican Republic," the report quoted Mr. Gayle as saying. As reported in the Troubled Company Reporter-Latin America on Sept. 27, 2018, S&P Global Ratings revised its outlook on Jamaica to positive from stable. At the same time, S&P Global Ratings affirmed its 'B' long- and short-term foreign and local currency sovereign credit ratings, and its 'B+' transfer and convertibility assessment on the country. =========== M E X I C O =========== BANCA MIFEL: S&P Affirms 'BB' Global Scale ICR, Off Watch Negative ------------------------------------------------------------------ S&P Global Ratings removed its long-term 'BB' global and 'mxA' national scale issuer credit ratings on Banca Mifel S.A from CreditWatch with positive implications, and affirmed the ratings. S&P also removed Banca Mifel's 'B' subordinated issue-level rating from CreditWatch positive and affirmed it. As a result, all rating outlooks are now stable. S&P said, "We're resolving our CreditWatch after the bank announced it won't be making its IPO at this time because of more difficult market conditions. Without the capital inflow from the transaction, we now consider our previous base-case scenario for the ratings. "Our ratings on Banca Mifel continue reflecting its growing revenues (mainly from its lending unit), although the bank still has a small market share in the Mexican banking industry. Our projected risk-adjusted capital (RAC) ratio around 8% to 8.5% on average for this year and next year incorporates rising internal capital generation and lending growth of around 15%. The bank's asset quality metrics continue to be stronger than the banking industry's average. However, Banca Mifel's loan portfolio concentrations, mainly by single-name exposures, remain. The bank's stable funding ratio remains below that of the system; however, its liquidity position provides adequate cushion to cope with unexpected cash outflows for the next 12 months. The bank's stand-alone credit profile (SACP) remains at 'bb'." BANORTE MERCANTIL: Moody's Affirms Ba2(hyb) on Jr. Sub AT1 Notes ---------------------------------------------------------------- Moody's Investors Service affirmed Banco Mercantil del Norte, S.A.'s cross border ratings of its debts issued through Banorte's Cayman Islands branch, Banco Mercantil del Norte, S.A. The rating agency has affirmed the Ba2(hyb) the entity's foreign currency junior subordinated debt ratings of the perpetual callable subordinated non-preferred non-cumulative Additional Tier 1 (AT1) capital notes, with an optional redemption on the first call date. The capital notes totaled $900 million, split into two tranches of different maturities and coupons. The rating agency also affirmed the Ba1(hyb) junior subordinated debt rating of the cumulative, non-convertible, dated, loss-absorbing Tier 2 subordinated capital notes. At the same time, Moody's affirmed Banorte's long-term foreign currency senior unsecured debt rating of A3 of the CHF fixed-rate senior unsecured notes issued through its Cayman Islands branch. Moody's also has affirmed all other ratings of Banorte Cayman with stable outlook. This rating action follows Moody's de Mexico's affirmation of Banorte's baseline credit assessment and adjusted BCA at baa2. The affirmations follow the bank's publication of its consolidated financial statements for the first time since its absorption of Banco Interacciones, S.A. in July. Following the acquisition, Banorte is now the second largest bank in Mexico, up from fourth prior the acquisition, with a 15% loan market share as of August 2018. The following ratings and assessments of Banco Mercantil del Norte, S.A.(Cayman I) (807394004) were affirmed: $500 million cumulative, non-convertible, dated, loss-absorbing Tier 2 subordinated capital notes due 2031 (CUS:05962GAF6) Long-term global foreign currency junior subordinate debt ratings of Ba1(hyb) $350 million perpetual callable subordinated non-preferred non- cumulative AT1 capital notes (CUS:05962GAH2) Long-term global foreign currency junior subordinate debt ratings of Ba2(hyb) $550 million perpetual callable subordinated non-preferred non- cumulative AT1 capital notes (CUS:05962GAJ8) Long-term global foreign currency junior subordinate debt ratings of Ba2(hyb) CHF100 million Fixed Rate Senior Unsecured Notes Due 2021 (CUS:05533UAD0) Long-term global foreign currency debt rating of A3, stable outlook Long-term Counterparty Risk Assessment of A2(cr) Short-term Counterparty Risk Assessment of Prime-1(cr) Stable Outlook RATINGS RATIONALE The affirmations reflect recent improvements in Banorte's earnings generation capacity, capitalization that remains strong despite a modest decrease as a result of the acquisition, and still low asset risks, notwithstanding increased single-borrower and industry concentrations also stemming from the acquisition. The affirmations also consider the bank's still very low reliance on market funding, notwithstanding a modest increase also as a result of the acquisition, though its deposit franchise nevertheless remains weaker than that of several of its peers, as reflected in its higher funding costs. Major acquisitions and investments over the past eight years have begun paying off for Banorte, which is becoming more profitable as it taps into the largest customer base of any Mexican banking group. Net income increased to 1.8% of tangible banking assets on an annualized basis during the first nine months of 2018 from 1.5% during 2015 as a result of the bank's increased focus on higher- yielding retail lending and recent increases in Mexico's benchmark interest rate. This led to higher lending rates and securities income even as its funding costs remained relatively stable. Although the absorption of Interacciones increases the bank's exposure to lower yielding regional and local government loans, in the medium to long-term, Banorte will benefit from the incorporation of slightly higher fee income from cross-selling new products to Interacciones's former clients, as well as significant operating and funding cost synergies. Capitalization will remain a key strength of Banorte even though tangible common equity to risk weighted assets fell by a about 70 basis points to an estimated 13.2% of adjusted risk-weighted assets as of September 2018. The rating agency expects capital to remain at about 13% over the next year supported by higher earnings and despite a higher expected dividend payout of 50%, as announced by management. This compares favorably with most of the bank's Mexican peers. Banorte also maintained strong asset quality, as reflected in its a low nonperforming loan ratio of about 1.8% of gross loans as of September 2018. Despite the bank's continued expansion into retail lending through credit card and mortgages, as well as into small and middle-market companies, Moody's expects any resulting increase in asset risk to be limited by the bank's focus on its roster of well-known clients from its group. Banorte has access to Mexico's largest customer base, with 24.5 million clients through its holding company, Grupo Financiero Banorte, S.A.B. de C.V., which in addition to the bank also controls Seguros Banorte, S.A. de C.V., Afore XXI Banorte, and Casa de Bolsa Banorte, S.A. de C.V. While non-performing loans are low, however, Banorte faces asset risks related to its high single borrower and industry concentrations, which were exacerbated by the incorporation of Interacciones's portfolio of loans to states and municipalities. That said, most of the bank's government and government-related loans are backed by trusts into which federal tax revenue transfers are deposited, which brings their credit risk closer to that of the Mexican federal government (A3 stable). Banorte has a good funding structure, underscored by a large and granular deposit base, which limits its reliance on market funding. Although the bank's loan to deposits ratio increased slightly following the acquisition given Interacciones's much heavier reliance on market funding and repayment of certain expensive demand deposits, it remained relatively low at 105% as of September 2018, up from 100% as of June 2018. Moreover, market funding excluding repos remained very low at just 7% of tangible banking assets, up just slightly from 5% as of June 2018. Nevertheless, Banorte's depends more on term deposits than many of its peers, which are less reliable and more costly than retail deposits. As a result, its average funding costs are considerably higher than those of most of its peers, notwithstanding its limited reliance on market funds. The stable outlook derives from the stable outlook on Mexico's sovereign debt rating, which reflects the government's capacity to provide financial support to Banorte in an event of stress. Moody's assesses a very high willingness by the Mexican authorities to provide support based on Banorte's importance to the country's payment system and considerable deposit market share of 15% as of July 2018. As a result, Banorte's senior unsecured debt rating benefits from two notches of ratings uplift. WHAT COULD CHANGE THE RATING UP/DOWN As a result of government support, Banorte's cross border senior unsecured rating would face upward pressure if Mexico's government bond rating is upgraded. Similarly, if Mexico's government bond rating were downgraded, Banorte's cross border senior unsecured rating would face downward pressure. Absent a corresponding improvement or deterioration in Mexico's operating environment, however, the subordinated rating would not be affected. Banorte's BCA could face upward pressure if the bank is able to reduce its large single borrower and industry concentrations and increase capitalization, while maintaining its profitability gains. However, a higher BCA would not translate into a higher senior unsecured debt rating as the debt rating is already aligned with Mexico's sovereign rating, though it would put upward pressure on the subordinated rating. The BCA would face downward pressure if Banorte's core capitalization declines significantly or if loan growth and its absorption of Interacciones lead to a substantial deterioration in the bank's asset quality and profitability. As the senior unsecured debt rating would receive more uplift from government support in this circumstance, however, a lower BCA would not translate into a lower senior unsecured debt rating, though it would put downward pressure on the subordinated rating. The principal methodology used in these ratings was Banks published in August 2018. ====================== P U E R T O R I C O ====================== SEARS HOLDINGS: Set to Close 142 Stores by End of 2018 ------------------------------------------------------- Sears recently declared bankruptcy, bringing the company to a new low after several years of steady decline. In order to avoid going out of business altogether, Sears will close at least 142 Sears and Kmart department stores by the end of 2018, which -- along with 46 closures already planned for November -- will bring the company's total number of stores in operation to fewer than 500. Many of the remaining locations have so far been profitable, so a scaled-down Sears could conceivably go on indefinitely. However, the company is currently seeking a buyer for these stores in order to preserve their long-term viability and the thousands of jobs they provide across the US. The bankruptcy could threaten these stores' profit margins if vendors and creditors avoid the struggling retailer as a financial risk, so it's not yet out of the question that Sears goes the way of Toys 'R' Us and RadioShack. In any case, bankruptcy and downsizing at this scale represent a monumental change for the former leader of the US retail market. Sears was the equivalent of Amazon and Walmart for much of the twentieth century -- when mail-order catalogs and large department stores grew to meet the expanding purchasing power of the American consumer -- and is still a staple in shopping malls. Since 1989, when Walmart surpassed Sears in domestic revenues, Sears has faced intense competition on multiple fronts: -- supercenters (e.g., Walmart, Target), which offer even larger selections of low-cost goods and conveniently combine the department store with the supermarket -- home centers (e.g., Home Depot, Lowe's, Menards), which are one-stop shops for tools, building materials, appliances, furniture, and other home goods and hardware -- e-commerce, which is dominated by Amazon and the leading brick-and-mortar retailers As a sign of the trouble Sears has been in for the last several years, the company finally sold its Craftsman brand to Stanley Black & Decker in March 2017, and the idea of selling Kenmore came up again in August 2018. Both brands have historically enjoyed widespread recognition and approval among US consumers but have lately languished under the retail chain's poor management. The Craftsman deal promises to revitalize that brand, especially as it brings the brand into growing retail channels such as Lowe's and Ace Hardware. In September, Stanley Black & Decker rolled out 1,200 new Craftsman products -- including hand tools, power tools, tool storage, lawn and garden equipment, and more. The deal gives Sears a perpetual license to continue selling Craftsman, so shoppers will still find these products where they've always been, but the brand is now under Stanley Black & Decker's management, which will help to maintain the brand's strong name. According to Freedonia analyst Cara Brosius, Stanley Black & Decker has been more understanding of consumer trends than Sears, including in its distribution through home centers. "Many customers like home centers for being a one-stop shop for home improvement projects, since they can consult store employees for advice and purchase virtually anything they need -- either in- store or online for in-store pickup if the products they need are not in stock." Another Freedonia analyst, Matt Breuer, adds that this makes two significant acquisitions for Stanley Black & Decker in the last couple of years. In September, the company also purchased a 20% stake in MTD Products -- the current market leader in US power lawn and garden equipment -- with the option to acquire the remaining 80% beginning in July 2021. "Between its ownership of Craftsman and its stake in MTD Products, Stanley Black & Decker is quickly becoming a power player in both the tools market and the lawn and garden equipment market." For more information on the manufacture and distribution of tools, power equipment, and related products, see the following Freedonia Group studies: -- Hand Tools -- Power Tools -- Tool Storage Products -- Power Lawn & Garden Equipment Additional information on the lawn and garden consumables and equipment markets is available through the Freedonia Group's Lawn & Garden Knowledge Center platform. About The Freedonia Group The Freedonia Group is an international industrial research company publishing more than 100 studies annually. Since 1985, it has provided research to customers ranging in size from global conglomerates to one-person consulting firms. More than 90% of the industrial companies in the Fortune 500 use Freedonia Group research to help with their strategic planning. It is a division of MarketResearch.com About Sears Holdings Sears Holdings Corporation (NASDAQ: SHLD) --http://www.searsholdings.com/-- began as a mail ordering catalog company in 1887 and became the world's largest retailer in the 1960s. At its peak, Sears was present in almost every big mall across the U.S., and sold everything from toys and auto parts to mail-order homes. Sears claims to be is a market leader in the appliance, tool, lawn and garden, fitness equipment, and automotive repair and maintenance retail sectors. Sears and Kmart merged to form Sears Holdings in 2005 when they had 3,500 US stores between them. Kmart emerged in 2005 from its own bankruptcy. Unable to keep up with online stores and other brick-and-mortar retailers, a long series of store closings has left it with 687 retail stores in 49 states, Guam, Puerto Rico, and the U.S. Virgin Islands as of mid-October 2018. The Company employs 68,000 individuals, of whom 32,000 are full-time employees. As of Aug. 4, 2018, Sears Holdings had $6.93 billion in total assets, $11.33 billion in total liabilities and a total deficit of $4.40 billion. Unable to cover a $134 million debt payment due Oct. 15, 2018, Sears Holdings Corporation and 49 subsidiaries sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 18-23538) on Oct. 15, 2018. The Hon. Robert D. Drain is the case judge. Weil, Gotshal & Manges LLP is serving as legal counsel, M-III Partners is serving as restructuring advisor and Lazard Freres & Co. LLC is serving as investment banker to Holdings. DLA Piper LLP is the real estate advisor. Prime Clerk is the claims and noticing agent. ================= V E N E Z U E L A ================= PETROLEOS DE VENEZUELA: To Prepare Bond Payment Amid Defaults ------------------------------------------------------------- Ben Bartenstein and Jose Enrique Arrioja at Bloomberg News report that Venezuela's state-run oil company is preparing to make a $949 million bond payment that's due on October 29, according to a person with direct knowledge of the matter. Petroleos de Venezuela SA's plan to make the coupon and partial principal repayment on the 2020 notes would mark a rare exception for Nicolas Maduro's government, which has racked up nearly $7 billion in defaulted debt to investors, according to Bloomberg News. This bond is backed by a majority stake in Citgo Holding Inc., meaning a non-payment would allow bondholders to lay claim to the crown jewel of Venezuela's U.S. assets, Bloomberg News relays. Bloomberg News discloses that the payment has been anticipated by investors. The $2.5 billion of notes are trading near a record high of 92 cents on the dollar, far higher than most Venezuelan bonds which hover around 25 cents, Bloomberg News notes. Analysts from JPMorgan Chase & Co., Torino Capital and Eurasia Group have also said the socialist government would pay because of its desire to hold on to Citgo, although there are doubts about how much longer PDVSA can service the debt, Bloomberg News relays. "The government's strategy with regards to various creditor obligations seems to be to avoid or delay paying wherever possible but pay or settle when valuable external assets are in jeopardy," Risa Grais-Targow, a senior analyst at Eurasia Group, wrote in a note, Bloomberg News notes. "There are limits to this strategy, as the government still faces meaningful cashflow constraints owing to declining cash-generating oil exports," Bloomberg News discloses Representatives for PDVSA and the Venezuelan finance ministry didn't immediately return messages seeking comment outside regular business hours in Caracas. The person with knowledge of the situation asked not to be named because the matter is private, Bloomberg News notes. Even with the payment, Citgo's fate remains in flux. A small Canadian mining company, Crystallex International Corp., was awarded the right to collect on an arbitration ruling by taking shares of the owner of Citgo Petroleum Corp., a verdict Venezuela is appealing, Bloomberg News says. Separately, an $8 billion bondholder group advised by Guggenheim Securities has said it's "exploring options" to ensure that the nation's overseas assets are available to satisfy its claims, Bloomberg News notes. As reported in the Troubled Company Reporter-Latin America on Aug. 24, 2018, S&P Global Ratings affirmed its 'SD' global scale issuer credit rating and 'D' issue-level ratings on Petroleos de Venezuela S.A. (PDVSA). *********** Monday's edition of the TCR-LA delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR-LA editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR-LA constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR-LA editor holds some position in the issuers' public debt and equity securities about which we report. Tuesday's edition of the TCR-LA features a list of companies with insolvent balance sheets obtained by our editors based on the latest balance sheets publicly available a day prior to publication. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. Submissions about insolvency-related conferences are encouraged. Send announcements to conferences@bankrupt.com *********** S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2018. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *