/raid1/www/Hosts/bankrupt/TCRLA_Public/190118.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, January 18, 2019, Vol. 20, No. 13
Headlines
A R G E N T I N A
BANCO HIPOTECARIO: Moody's Affirms B2 GS LT LC Deposit Rating
BANCO HIPOTECARIO: Moody's Affirms B2 FC Sr. Unsec. Debt Rating
B A R B A D O S
BARBADOS: CariCRIS Hikes Regional Scale LC Rating to CariBB
B R A Z I L
COMPANHIA DE DESENVOLVIMENTO: Moody's Affirms B2 Issuer Ratings
D O M I N I C A N R E P U B L I C
BANCO DE RESERVAS: Moody's Affirms LT LC Deposit Rating at Ba3
DOMINICAN REPUBLIC: Unfavorable Trade Balance With US Under CAFTA
DOMINICAN REPUBLIC: Good and Bad News Out of Valle Nuevo
J A M A I C A
DIGICEL GROUP: Signs Technology Services Contract with Dominica
P U E R T O R I C O
AUTO MASTER EXPRESS: Unsecureds to Get 60 Installments of $300
LA TRINIDAD: Unsecured Creditors to Recoup 100% Under Plan
T R I N I D A D & T O B A G O
CARIBBEAN AIRLINES: Opens New Ticket Office in Cuba
CL FINANCIAL: Non-compliance of Jan. 2018 Consent Order Challenged
U R U G U A Y
ARCOS DORADOS: Moody's Hikes CFR to Ba2, Alters Outlook to Stable
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A R G E N T I N A
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BANCO HIPOTECARIO: Moody's Affirms B2 GS LT LC Deposit Rating
-------------------------------------------------------------
Moody's Latin America has affirmed all of the ratings and
assessments of Banco Hipotecario S.A., including its b2 baseline
credit assessment and its B2 and A3.ar global and national scale
local currency debt and deposits ratings. In addition, Moody's
affirmed the bank's B3 and Baa1.ar global and national scale
foreign currency deposit ratings. Hipotecario's rating outlook
remains stable.
The following ratings and assessments assigned to Banco
Hipotecario S.A. were affirmed:
Argentine national scale, long-term local currency senior
unsecured rating at A3.ar, stable outlook
Global scale, long-term local currency deposit rating at B2,
stable outlook
Global scale, short-term local currency deposit rating at Not
Prime
Global scale, long-term foreign currency deposit rating at B3,
stable outlook
Global scale, short-term foreign currency deposit rating at Not
Prime
Argentine national scale, long-term local currency deposit rating
at A3.ar, stable outlook
Argentine national scale, long-term foreign currency deposit
rating at Baa1.ar, stable outlook
Argentine national scale, long-term foreign currency senior
unsecured debt rating at A3.ar, stable outlook
Global scale, long-term counterparty risk assessment at B1(cr)
Global scale, short-term counterparty risk assessment at Not
Prime(cr)
Adjusted baseline credit assessment at b2
Baseline credit assessment at b2
Outlook, Remains Stable
RATINGS RATIONALE
The affirmation of Hipotecario's ratings reflects its stable
capital and earnings and ample liquidity, which offset risks
stemming from deterioration of Argentina's operating environment
and the resulting rise in the bank's delinquencies, as well as its
heavy reliance on market funding.
Subdued loan growth, stable profitability, and low dividend
payments have allowed the bank to maintain its capital metrics,
even as those of many of its peers deteriorated. Tangible common
equity equaled 10% of risk-weighted assets as of September 2018,
in line with the average over the preceding two years. This stable
trend in capital is expected to continue as the loan book
continues to shrink in real terms.
Despite a significant increase in credit costs in line with
deteriorating asset quality, still ample interest margins and
significant expense cuts have preserved Hipotecario's
profitability, with annualized net income equal to 2.5% of
tangible assets through September 2018. This was up slightly from
2.4% in 2017 and an average of 2.0% over the preceding four years.
However, as with other Argentine banks, Hipotecario's earnings
metrics are exaggerated by the high rate of inflation. Moreover,
credit costs are expected to continue to rise and the bank's year-
end results are also expected to reflect an increase in funding
costs as the bank's liabilities reprice at the current higher
interest rates. Together, these rising costs will likely lead to a
deterioration of the bank's profitability in the coming quarters.
The affirmation also considers the relatively long tenor of
Hipotecario's market funding, which mitigates refinancing risks
related to Argentine issuers' current lack of access foreign
capital markets and limited access to local capital markets and
provides time for the bank to adjust its funding strategy if
current market conditions persist. While market funds totaled a
high 44% of tangible banking assets as of September 2018, just 28%
matures in the next year, including just 4% of its dollar-
denominated debt. Moreover, with 65% of its loans maturing over
the same period and liquid assets equal to 25% of tangible banking
assets, the bank's liquidity position should help it withstand a
further deterioration of local market access.
The ratings affirmation comes despite the recent deterioration of
the bank's asset quality and Argentina's operating environment,
which was reflected in the recent reduction of its Macro Profile
to Weak from Weak+. As a result, while the bank's ratings were
previously constrained by Argentina's sovereign rating, this is no
longer the case.
Specifically, the main drivers of Hipotecario's asset quality
deterioration are (i) Argentina's ongoing economic recession,
which is expected to continue in 2019; (ii) the sharp increase in
inflation, which rose to at least 45% in 2018 from 25% in 2017,
and its impact on real wages, which have decreased around 20% in
2018; and (iii) extraordinarily high interest rates, with central
bank securities currently yielding 76%, down from a peak of 104%
in October. Hipotecario's focus on unsecured personal loans (83%
of its consolidated loan portfolio as of September 2018) has left
it more exposed to the asset risk deterioration than many of its
peers.
Consequently, the bank's non-performing loans including its
consumer finance subsidiary Tarshop S.S. rose to 4.7% of gross
loans as of September 2018, from 3.8% in December 2017 and just
2.7% in 2016 and Moody's expects they will continue to rise in the
coming quarters. The increase in delinquencies has come despite an
increase in write-offs to 1.6% of gross loans as of September 2018
annualized from 0.9% in 2017. While credit costs rose to an
annualized 3.5% of gross loans in the nine months through
September 2018, from 3.0% in 2017 and 1.7% in 2016, this has been
insufficient to offset the increase in delinquencies and write-
offs. In turn, this has led to a decline in Hipotecario's loan
loss reserve coverage of problem loans to just 78%, further
increasing its vulnerability to rising delinquencies.
The affirmation of the national scale ratings (NSRs) reflects that
the bank's credit profile remains weaker than the average B2-rated
issuer in Argentina, and therefore its A3.ar national scale rating
assigned to its local currency deposit and debt is the lowest
alternative corresponding to its B2 global scale rating. The
bank's foreign currency deposit ratings are constrained on both
the global and national scale by Argentina's foreign currency
deposit ceiling of B3.
The stable outlook considers that even if the bank's fundamentals
continue to deteriorate and its BCA is downgraded, its debt and
deposit ratings will not likely be affected as they will benefit
from the strong probability that the bank will receive financial
support from the Argentine government in an event of stress given
its majority government ownership.
WHAT COULD CHANGE THE RATING -- UP OR DOWN
Hipotecario's ratings could face downward pressure if the
operating environment deteriorates further and/or the Argentine
sovereign rating were downgraded. The ratings could also face
downward pressure if the bank's asset quality, capital, and /or
profitability deteriorate sharply, leading to a multi-notch
downgrade of its BCA.
Considering the strong credit interlinkages between the sovereign
and the bank, an upgrade of the Argentine sovereign rating
accompanied by an improvement in operating conditions could put
positive pressures on the bank's ratings, provided the bank's
asset quality stabilizes and funding access is restored.
The principal methodology used in these ratings was Banks
published in August 2018.
BANCO HIPOTECARIO: Moody's Affirms B2 FC Sr. Unsec. Debt Rating
---------------------------------------------------------------
Moody's Investors Service has affirmed Banco Hipotecario S.A.'s B2
foreign currency senior unsecured debt rating. The outlook on
Hipotecario's ratings remains stable. This action followed the
announcement made by Moody's Latin America Agente de Calificacion
de Riesgo S.A. that it has taken a similar action on the banks'
baseline credit assessment and deposit ratings.
The following rating assigned to Banco Hipotecario S.A. was
affirmed:
Global scale, long-term foreign currency senior unsecured debt
rating at B2, stable outlook
RATINGS RATIONALE
The affirmation of Hipotecario's ratings reflects its stable
capital and earnings and ample liquidity, which offset risks
stemming from deterioration of Argentina's operating environment
and the resulting rise in the bank's delinquencies, as well as its
heavy reliance on market funding.
Subdued loan growth, stable profitability, and low dividend
payments have allowed the bank to maintain its capital metrics,
even as those of many of its peers deteriorated. Tangible common
equity equaled 10% of risk-weighted assets as of September 2018,
in line with the average over the preceding two years. This stable
trend in capital is expected to continue as the loan book
continues to shrink in real terms.
Despite a significant increase in credit costs in line with
deteriorating asset quality, still ample interest margins and
significant expense cuts have preserved Hipotecario's
profitability, with annualized net income equal to 2.5% of
tangible assets through September 2018. This was up slightly from
2.4% in 2017 and an average of 2.0% over the preceding four years.
However, as with other Argentine banks, Hipotecario's earnings
metrics are exaggerated by the high rate of inflation. Moreover,
credit costs are expected to continue to rise and the bank's year-
end results are also expected to reflect an increase in funding
costs as the bank's liabilities reprice at the current higher
interest rates. Together, these rising costs will likely lead to a
deterioration of the bank's profitability in the coming quarters.
The affirmation also considers the relatively long tenor of
Hipotecario's market funding, which mitigates refinancing risks
related to Argentine issuers' current lack of access foreign
capital markets and limited access to local capital markets and
provides time for the bank to adjust its funding strategy if
current market conditions persist. While market funds totaled a
high 44% of tangible banking assets as of September 2018, just 28%
matures in the next year, including just 4% of its dollar-
denominated debt. Moreover, with 65% of its loans maturing over
the same period and liquid assets equal to 25% of tangible banking
assets, the bank's liquidity position should help it withstand a
further deterioration of local market access.
The ratings affirmation comes despite the recent deterioration of
the bank's asset quality and Argentina's operating environment,
which was reflected in the recent reduction of its Macro Profile
to Weak from Weak+. As a result, while the bank's ratings were
previously constrained by Argentina's sovereign rating, this is no
longer the case.
Specifically, the main drivers of Hipotecario's asset quality
deterioration are (i) Argentina's ongoing economic recession,
which is expected to continue in 2019; (ii) the sharp increase in
inflation, which rose to at least 45% in 2018 from 25% in 2017,
and its impact on real wages, which have decreased around 20% in
2018; and (iii) extraordinarily high interest rates, with central
bank securities currently yielding 76%, down from a peak of 104%
in October. Hipotecario's focus on unsecured personal loans (83%
of its consolidated loan portfolio as of September 2018) has left
it more exposed to the asset risk deterioration than many of its
peers.
Consequently, the bank's non-performing loans including its
consumer finance subsidiary Tarshop S.A. rose to 4.7% of gross
loans as of September 2018, from 3.8% in December 2017 and just
2.7% in 2016 and Moody's expects they will continue to rise in the
coming quarters. The increase in delinquencies has come despite an
increase in write-offs to 1.6% of gross loans as of September 2018
annualized from 0.9% in 2017. While credit costs rose to an
annualized 3.5% of gross loans in the nine months through
September 2018, from 3.0% in 2017 and 1.7% in 2016, this has been
insufficient to offset the increase in delinquencies and write-
offs. In turn, this has led to a decline in Hipotecario's loan
loss reserve coverage of problem loans to just 78%, further
increasing its vulnerability to rising delinquencies.
The stable outlook considers that even if the bank's fundamentals
continue to deteriorate and its BCA is downgraded, its debt
ratings will not likely be affected as they will benefit from the
strong probability that the bank will receive financial support
from the Argentine government in an event of stress given its
majority government ownership.
WHAT COULD CHANGE THE RATING -- UP OR DOWN
Hipotecario's ratings could face downward pressure if the
operating environment deteriorates further and/or the Argentine
sovereign rating were downgraded. The ratings could also face
downward pressure if the bank's asset quality, capital, and /or
profitability deteriorate sharply, leading to a multi-notch
downgrade of its BCA.
Considering the strong credit interlinkages between the sovereign
and the bank, an upgrade of the Argentine sovereign rating
accompanied by an improvement in operating conditions could put
positive pressures on the bank's ratings, provided the bank's
asset quality stabilizes and funding access is restored.
The principal methodology used in these ratings was Banks
published in August 2018.
===============
B A R B A D O S
===============
BARBADOS: CariCRIS Hikes Regional Scale LC Rating to CariBB
-----------------------------------------------------------
Caribbean Information and Credit Rating Services Limited
(CariCRIS) has issued a ratings release for the Government of
Barbados.
CariCRIS said, "[We] removed our Regional Scale Local Currency
rating of the Government of Barbados (GOB) from CariD (Default)
and has assigned a rating of a CariBB, with a stable outlook. We
have also maintained the Regional Scale Foreign Currency rating of
CariD (Default) on the country's foreign currency denominated
debt. The Local Currency Regional Scale rating indicates that the
level of creditworthiness of this obligation, adjudged in relation
to other obligations in the Caribbean is below average.
"Our decision to upgrade the rating on the local currency debt is
driven by the closure of the exchange offer for domestic (Barbados
dollar-denominated) debt. The closure of the transaction
marks the completion of the restructuring of Bds$11.9 billion
(equivalent to US $5.95 billion) in Barbados dollar-denominated
claims on the Government of Barbados (GoB) and its public sector.
"The restructuring is a central plank of the GoB's Comprehensive
Debt Restructuring Program and the Barbados Economic Reform and
Transformation (BERT) Plan. Upon successful completion of
negotiations with foreign debt holders, we will similarly revise
our ratings on the country's foreign currency debt."
The factors constraining the ratings are:
High and unsustainable debt to gross domestic product
Based on the latest data available, Barbados' gross public sector
debt to Gross Domestic Product (GDP) stood at 124% as at October
2018, down from 150% as at September 2017. Barbados' debt/GDP is
among the highest in CariCRIS' regional sample. For the period
January to October 2018, Gross Central Government Debt fell by
13.5% to Bds$11.9 billion driven by a significant decline (14.5%)
in the Country's domestic debt, together with a 9.4% fall in the
external debt to Bds $2.7 billion. Gross public sector debt fell
by 16.5% to Bds $12.4 billion from Bds $14.9 billion a year
earlier.
On June 1, 2018 the GoB suspended interest and amortization
payments due on its debts owed to external commercial creditors.
Following this announcement, the authorities suspended debt
service of external commercial debt, while continuing to pay
interest on domestic debt.
Simultaneously, the GoB approached the International Monetary
Fund (IMF) for Balance of Payments support, and on October 1, 2018
the executive board of the IMF approved a four-year Extended
Arrangement for Barbados under the Extended Fund Facility (EFF)
for an amount equivalent to SDR208 million (approximately US$290
million, or 220% of Barbados' quota in the IMF). Upon the
immediate approval of the EFF, SDR35 million (US$49 million) was
disbursed to the GoB. There are 6 indicative targets for the IMF
Program:
1. Floor on Central Government primary balance (excluding
repayment of central Government arrears)
2. No increase in Central Government arrears (excluding arrears
from non-payment of public debt)
3. Ceiling on transfers and grants to public institutions
4. Ceiling on stock of public debt
5. Ceiling on Net Domestic Assets of Central Bank
6. Floor on Net International Reserves of Central Bank
These targets help to control the build-up of debt and try to
create sustainability in debt servicing. These would be reviewed
every 6 months.
Additionally, the GoB has launched a comprehensive reform of
State-owned Enterprises (SOEs) which will now be expected to
provide standardized quarterly financial reports. As part of the
BERT Plan, several SOEs/Ministerial Departments were closed down,
amalgamated, restructured in terms of private sector
ownership/participation, defunded or downsized (known as the
Public Sector Expenditure Reduction Program). The intention is to
remove SOEs from the Consolidated Fund as much as possible. The
budgetary process is also being strengthened with the
establishment of a binding budget calendar, so that budgets can
be approved prior to the fiscal year.
A full text copy of the rating is available at:
https://bit.ly/2RWWbhY
About The Sovereign
Barbados is the most easterly island in the Caribbean chain and is
part of the Lesser Antilles. The island is approximately 34 kms
long and 23 kms wide with an area of 431 square kilometres. Its
far eastern location in the Atlantic Ocean puts it just outside
the hurricane belt of the Caribbean region.
The population of Barbados is estimated to be 285,675 (2017
estimate) making it one of the most densely populated countries in
the world, with an average population density of approximately 670
persons per square km. The majority of the population is of
African descent (92.4%), the remaining are European (2.7%) and
others of mixed descent (4.9%). The official language is English.
Barbados has transformed itself from a low-income economy
dependent upon sugar production into an upper middle-income
services driven economy. Overall, the non-tradable sector
contributes on about 80% of GDP, with financial and other services
accounting for the largest component. Other major sectors driving
economic activity are tourism, distribution, transportation and
construction. The unemployment rate was estimated at 9.2% as at
September 2018[1]. The private sector presence in the economy is
not as significant as some of its Caribbean counterparts as the
government accounts for roughly 40% of employment and gross
capital formation.
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B R A Z I L
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COMPANHIA DE DESENVOLVIMENTO: Moody's Affirms B2 Issuer Ratings
---------------------------------------------------------------
Moody's America Latina Ltda. has affirmed all ratings assigned to
Companhia De Desenvolvimento Habitacional e Urbano do Estado de
Sao Paulo, including the long and short-term global issuer ratings
of B2 and Not Prime, as well as the long and short term Brazilian
national scale issuer ratings of Ba1.br and BR-4. The issuer
outlook is stable.
The following ratings and assessments of Companhia De
Desenvolvimento Habitacional e Urbano do Estado de Sao Paulo were
affirmed:
-- Long and short-term global local currency issuer rating of B2
and Not Prime
-- Long and short term Brazilian national scale issuer rating of
Ba1.br and BR-4
The issuer outlook of Companhia De Desenvolvimento Habitacional e
Urbano do Estado de Sao Paulo is stable.
These rating actions follow the publication of MAL's new Finance
Companies rating methodology, which MAL has used to determine the
organization's baseline credit assessment. MAL then used its
Government-Related Issuers methodology to assess the level of
ratings uplift from public support for the issuer.
MAL has also withdrawn the outlooks on CDHU`s existing instrument
ratings for its own business reasons. This has no impact on the
rating outlooks for CDHU. Over the course of the next year,
Moody's Investors Service will be withdrawing all instrument level
outlooks for entities rated under the Finance Companies Rating
Methodology.
RATINGS RATIONALE
CDHU's ratings reflect the strong support it receives from its
owner, the State of Sao Paulo (Ba2, stable), which drives its very
high level of capitalization despite its heavily loss making
operations and helps offset its weak asset quality.
Moody's noted that in accordance with its methodology for rating
Government-Related Issuers (GRIs), the ratings for CDHU are
determined by (1) the company's baseline credit assessment of
caa1; and (2) strong support from its shareholder, the State of
Sao Paulo, which provides two notches of ratings uplift. Moody's
assessment of support takes into consideration CDHU's role as an
arm of the government, its mission to provide subsidized housing
to low-income borrowers in the state, the limited capacity of
other government entities to provide comparable services, and the
high level of recurring capital injections it receives from the
state. From 2012 to 2017, the State of Sao Paulo transferred R$4.9
billion to CDHU, and Moody's expects it will continue to provide
capital and funding support as it has done so in the past.
On a standalone basis, CDHU's credit profile reflects its very
high delinquency ratios and the recurring net losses it reports
due to the large subsidies it offers its borrowers, both of which
are directly related to its mission. Total past due loans
represented 15.2% of the organization's loan book as of December
2017 (the company does not report 90-day past due loans), while
net losses averaged 8.0% of average managed assets from 2015-2017.
In addition to subsidies, losses have been driven by continued
increases in production and commercialization costs, in expenses
related to the organization's non-lending activities such as
production and commercialization costs of new housing units. While
CDHU's bottom line benefitted from a one off provisions reversal
in 2017, this followed an increase of more than 50% in
provisioning expenses in 2016.
Given these structural losses, CDHU is entirely reliant on capital
injections from its shareholder to sustain its operations.
Subscriptions to common equity amounted to BRL 611 million in 2017
and BRL 740 million in 2016. Thanks to these capital injections,
coupled with the organization's very low debt levels, tangible
common equity equaled a very strong 84% of tangible managed assets
in 2017. While the capital injections must be budgeted annually
and are subject to changes depending on the performance of tax
receipts at the State, MAL estimates that the entity currently has
sufficient capital to absorb another 8 years of losses without
another capital injection, though of course it would lack funds to
extend further mortgages in this circumstance.
Notwithstanding its high level of capital, the company's very low
standalone credit profile also reflects the high level of
uncertainty about the recovery value of its assets -- particularly
the mortgage loan book -- given its unique role in social housing,
and consequently its expectation that it has limited ability to
securitize these assets to raise additional funds should capital
injections be significantly reduced.
WHAT COULD MAKE THE RATING GO UP
CDHU's ratings would be upgraded if the ratings of the State of
Sao Paulo rise, which in turn would depend upon an upgrade of the
Government of Brazil's sovereign rating. A significant improvement
in CDHU's problem loan ratio and profitability would also likely
lead to an upgrade.
WHAT COULD MAKE THE RATING GO DOWN
A downgrade of the State of Sao Paulo's ratings or a significant
deterioration in CDHU's capital levels driven by an increase in
losses or a reduction in the level of capital injections from the
state government would put downward pressure on CDHU's ratings.
Companhia De Desenvolvimento Habitacional e Urbano do Estado de
Sao Paulo is headquartered in Sao Paulo and had total assets of
BRL 8.8 billion (US$ 2.7 billion) and equity of BRL 7.5 billion
(US$ 2.2 billion) as of December 31, 2017.
The methodologies used in these ratings were Finance Companies
published in December 2018, and Government-Related Issuers
published in June 2018.
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D O M I N I C A N R E P U B L I C
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BANCO DE RESERVAS: Moody's Affirms LT LC Deposit Rating at Ba3
--------------------------------------------------------------
Moody's Investors Service has upgraded the baseline credit
assessment of state-owned Banco de Reservas de la Republica
Dominicana to b2 from b3. At the same time, the rating agency
affirmed the bank's Ba3/Not Prime and B1/Not Prime long and short-
term, local and foreign currency deposit ratings and its B2
foreign currency subordinated debt rating. The outlook on the
bank's long-term deposit ratings remains stable.
The following assessments were upgraded:
Baseline credit assessment, to b2 from b3
Adjusted baseline credit assessment, to b2 from b3
The following ratings and assessments were affirmed:
Long-term local currency deposit rating at Ba3, stable outlook
Long-term foreign currency deposit rating at B1, stable outlook
Short-term local and foreign currency deposit rating at Not Prime
Foreign currency subordinated debt rating at B2
Long and short-term local and foreign currency counterparty risk
ratings at Ba3/Not Prime
Long and short-term counterparty risk assessments at Ba3(cr) / Not
Prime(cr)
Outlook, Remains Stable
RATINGS RATIONALE
The upgrade of Banreservas' BCA to b2 from b3 reflects an
improvement in the operating environment for banks in the
Dominican Republic (DR), which prompted Moody's to increase the
country's Macro Profile to "Weak+" from "Weak". The upgrade also
incorporates Banreservas' continued good asset quality and
profitability, solid access to inexpensive retail deposit funding,
and ample liquidity buffers. These credit strengths help balance
its historically weak adjusted capitalization.
The improvement in the DR's Macro Profile, which measures the
strength of operating conditions for the country's banks as a
whole, reflects a reduction in the DR's susceptibility to
government liquidity and external vulnerability risks. Government
liquidity has been supported by an improved debt structure, driven
by longer maturities as well as by a higher share of debt issued
domestically and with fixed rates. On the reduced external
vulnerability risks, while the DR consistently runs current
account deficits, these are fully financed by foreign direct
investment and by rising remittance and tourism-related inflows.
This adds to a smaller oil import bill owing to lower oil prices,
which have contributed to current account deficits narrowing in
recent years, as well as to a modest accumulation of foreign
exchange reserves.
Despite rapid loan growth in recent years, asset risks remain
contained as evidenced by a low level of nonperforming loans
(NPLs) and thick reserve coverage of soured credit. Total NPLs
stood at 1.9% of gross loans as of September 2018, up just
slightly from 1.8% by year-end 2017, while loan loss reserves
represented about 1.8 times problem loans. Key risks for credit
quality include continued rapid credit growth in the inherently
risky consumer segment coupled with still very high borrower
concentrations in both the public and private sectors. Having
grown 23% as of September 2018 year-on-year, consumer loans now
account 21% of the total credit book, while the largest 20 loan
exposures comprise around three times the bank's tangible common
equity (TCE), although this metric has been declining over the
past years. Nevertheless, Moody's expects that continued strong
economic growth in the DR, forecast to reach 5.2% in 2019, will
limit further increases in the delinquency ratio.
Moreover, the bank's robust profitability provides a key buffer
against potential deterioration in asset quality. During the first
nine months of 2018, net income increased to 1.6% of tangible
banking assets from 1.4% for the same period of 2017 driven by
growth of higher yielding consumer credit and a an increase in
low-cost funding from demand deposits and saving accounts.
Further, credit costs remained stable at around a modest 25% of
pre-provision income while the effective tax rate stood at just
8%, offsetting the bank's very high operating expenses, which
equaled 6% of tangible assets. Banreservas is not obliged to pay
taxes, but it voluntarily pays some amount. As mandated by
Banreservas' law, however, it instead makes sizeable dividend
payments to the government. The law mandates that 35% of the
bank's earnings must be retained, 15% must be used to pay for the
government's outstanding debt with the bank, and 50% may be
distributed as dividends after paying at least 5% of the National
Treasury's outstanding bonds.
Thanks to its status as the largest bank in the country and its
state ownership, Banreservas also benefits from superior access to
low-cost deposits. Consequently, market funds, comprised of bank
borrowings and to a lesser extent senior debt issuances (but
excluding the bank's subordinated bond, which does not mature
until 2023) were below 10% of total assets as of September 2018,
limiting refinancing and repricing risks. At the same time,
liquidity remains ample, with total liquid assets comprising
around a third of the balance sheet, significantly invested in
Ba3-rated government securities.
The bank's good profitability also helps balance its historically
weak adjusted capitalization. While the bank's regulatory total
capital ratio remains strong at 18% of risk-weighted assets, this
benefits from non-tradeable government bonds that the government
has used to capitalize the bank in the past and a zero risk-weight
accorded to the bank's holdings of government securities and to
loans to the public sector. Moody's preferred tangible common
equity ratio, which adjusts for these factors, stood at around a
much more modest 7.5% as of September 2018, providing limited loss
absorption of unexpected credit or investment losses.
Banreservas' Ba3 local currency deposit rating is in line with the
DR's government bond rating thanks to two notches of uplift from
the bank's b2 BCA due to public support. Moody's considers
Banreservas' deposits and senior obligations to be effectively
backed by the government given the government's 100% ownership of
the bank and the close financial and business links between the
bank and the government, as well as the importance of Banreservas'
deposit and lending franchise as the country's largest bank.
Consequently, the stable outlook on the long-term deposit ratings
reflects the outlook on the DR's government bond rating.
The B2 foreign currency subordinated debt rating reflects a lower
probability of government support for the bank's subordinated debt
than for its deposits as the purpose of this instrument is to
absorb losses. This no longer generates any ratings uplift
following the upgrade of the BCA. The B1 foreign currency deposit
rating is constrained by the DR's sovereign ceiling for foreign
currency deposits.
WHAT COULD CAUSE THE RATINGS TO MOVE UP OR DOWN
Upward movement in Banreservas' deposit ratings would depend on an
upgrade in the DR's sovereign rating. However, the bank's BCA and
its subordinated debt rating could face upward pressure if it
maintains strong asset quality metrics, and hence profitability,
despite the continued rapid retail loan growth, or if the DR's
operating environment for banks improves further.
Conversely, deposit ratings would be downgraded in the case of a
downgrade in the sovereign ratings. While the BCA could be
downgraded in the case of a sudden deterioration in asset quality
and profitability, a significant increase in the transfers of
earnings to the government, or material declines in liquidity,
this would not affect the subordinated debt rating.
The principal methodology used in these ratings was Banks
published in August 2018.
DOMINICAN REPUBLIC: Unfavorable Trade Balance With US Under CAFTA
-----------------------------------------------------------------
Dominican Today reports that the Dominican Republic hasn't
achieved a favorable trade balance with the United States after
the Free Trade Agreement (DR-CAFTA), since instead of increasing,
the country's exports to that nation fell and the trade deficit
rose.
In 2005, two years before the agreement took effect Dominican
exports to American soil were US$4.6 billion and imports were
US$4.7 billion, according to Dominican Today.
However, the country exported US$4.49 billion to that nation last
year and imported US$7.09 billion, according to US Census
statistics, the report notes.
Those figures show that during the pact's 14 years (2005-2018)
Dominican Republic's trade deficit with the US has jumped US$1.8
billion, as exports have fallen by US$112.0 million, the report
relays.
Hope
Unlike exports the Free Trade Agreement between the United States,
Central America and the Republic has spurred foreign investment,
the report says.
Investments have jumped to US$2.5 billion since 2007, with the
private sector benefiting the most, the report notes.
Those investments have gone mainly to the free zone and the
electric sector, according to a report by El Dia, 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.
DOMINICAN REPUBLIC: Good and Bad News Out of Valle Nuevo
--------------------------------------------------------
Dominican Today reports that while it is true that the northern
area of Valle Nuevo National Park after having evicted farmers,
has been reforested and protected, the landscape of the southern
part is very different.
The southern part of the area is still being used for agriculture
and has human settlements, prompting the Environment Ministry's
intervention to recover protected lands subjected to
deforestations for many years, according to Dominican Today.
The report notes that environment deputy minister Angel Daneris
Santana said they'll continue to enforce Resolution 14/2016 to
recover the park that also covers San Jose de Ocoa, Azua and
Monsenor Nouel provinces.
He said that a greenhouse project is being prepared for that part
of the reserve, to start the transfer of those who still live and
work in those lands, the report relays. "This project is in the
formulation phase. The plan that was implemented in Costanza,
took about a month and a half, which means that within this year
will have the greenhouse for the south," he added.
Evicted Areas Are Protected
Quoted by Listin, the official said the areas that were evicted
are free of squatters, the report relays. "The only thing that is
being done is to restore it ecologically with the help of Ministry
technicians who have been planting endemic plants there," the
official said, the report notes.
Permanent Surveillance
To monitor and protect the area that has already been recovered in
Valle Nuevo, the National Environmental Protection Service (Senpa)
has 24 members who patrol 24-7, 10 on motorcycles, a truck and two
pickup trucks, according to Senpa director, Omar Gitte Mejia, 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.
=============
J A M A I C A
=============
DIGICEL GROUP: Signs Technology Services Contract with Dominica
---------------------------------------------------------------
RJR News reports that Digicel Group has signed a landmark
technology services contract with the Government of Dominica.
The 15-year agreement heralds a massive step forward in the
rebuilding of Dominica in the wake of Hurricane Maria which struck
the island in September 2017, according to RJR News.
The Government will now be able to introduce new digital services,
reduce its ICT costs, improve productivity and create new revenue
streams, the report notes.
Digicel Group will undertake the rebuilding and provisioning of
telecommunications, internet, data, cloud and other ICT services
to all Government sites, the report relays.
As reported in the Troubled Company Reporter-Latin America on
Jan. 16, 2019, Fitch Ratings has upgraded the Issuer Default
Ratings (IDR) of Digicel Group Limited (DGL) to 'CCC-' from 'RD',
Digicel Limited (DL) to 'B-'/Outlook Stable from 'CCC'/Rating
Watch Negative (RWN), and Digicel International sFinance Limited
(DIFL) to 'B'/Outlook Stable from 'CCC+'/RWN. At the same time,
Fitch has assigned new IDRs to Digicel Group One Limited (DGL1) of
'B-'/Stable and to Digicel Group Two Limited (DGL2) of 'CCC-'.
======================
P U E R T O R I C O
======================
AUTO MASTER EXPRESS: Unsecureds to Get 60 Installments of $300
--------------------------------------------------------------
Auto Master Express, Inc., filed a Chapter 11 plan and
accompanying disclosure statement.
Class 3 - General Unsecured Claims under $30,000.00 are
unimpaired. The Debtor will make one payment in the amount of
$1,500.00 at the effective date of the plan. A pro rata
distribution of this payment will be made to all creditors within
the class.
Class 4 - General Unsecured Claims over $30,000.01 are unimpaired.
The Debtor will pay 60 installments of $300.00. A pro rata
distribution of these payments will be made to all creditors
within this class.
Class 1 - Banco Popular de Puerto Rico are impaired. The Debtor
pay 60 installments of $3,442.94. The plan payment is being
calculated with $408,000.00 secured principal and an amortization
schedule of 15 years at an interest rate of 6%.
Class 2 - CRIM is impaired. The Debtor will pay 60 installments of
566.56 at an interest rate of 4.25%
Class 5 - Equity Interest Holders are impaired. There will be no
distribution to this class.
Payment and distributions under the Plan will be funded by from
the cash flow from operations and future income of the Debtor
derived from the rental income and any other future commercial
activity.
A full-text copy of the Disclosure Statement dated December 26,
2018, is available at:
http://bankrupt.com/misc/prb18-1801464ESL11-80.pdf
About Auto Master Express
Auto Master Express Inc. sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D.P.R. Case No. 18-01464) on March 19,
2018. At the time of the filing, the Debtor estimated assets of
less than $500,000 and liabilities of less than $1 million. The
Debtor engaged Lcdo. Carlos Alberto Ruiz, CSP, as its legal
counsel.
LA TRINIDAD: Unsecured Creditors to Recoup 100% Under Plan
----------------------------------------------------------
La Trinidad Elderly LP SE filed a Plan of Reorganization and
accompanying Disclosure Statement.
Class 3 - General Unsecured Creditors. Those who filed a proof of
claim and those secured creditors, who after the Debtor's efforts
have agreed to be considered part of their claim as unsecured, are
included in this class. The debt under this class has been
estimated by the Debtor in the amount of $1,200,000. This class
will be paid in cash and in full on the later of (a) the Effective
Date of the Plan or (b) the Entry of a Court Order authorizing the
disbursement of sales proceeds realized upon transfer of the
property on the terms detailed in the Plan of Reorganization.
Class 5 - Loiza Ponce Holdings, LLC are impaired. This class is
comprised by the amounts claimed by Loiza Ponce, LLC. The Debtor
schedules this creditor in the amount of $3,677,104 and classified
this as a disputed claim pending against this estate. The Debtor
schedules and classified this creditor as a disputed claim which
is contested by way of the adversary proceeding filed by the
Debtor on December 5, 2018. Any dividend to this class will only
after the entry of a final Judgment to be entered by the Honorable
Court and in accordance with the distribution provisions contained
in the Plan of Reorganization.
The Debtor will have sufficient funds to make all payments due
under this Plan. Upon Order to be entered by the Honorable Court
upon a Motion for Sale of Property to be filed, the Debtor will
complete an orderly transfer of the real property, the operations
and the existing rental agreements to a qualified operator subject
to the liens and restrictive covenants imposed by "PRHFA". With
the sales proceeds obtained from the sale, the Debtor will provide
lump sum payments for all classes to which the Plan proposes a
payment distribution.
A full-text copy of the Disclosure Statement dated December 24,
2018, is available at:
http://bankrupt.com/misc/prb18-1805549ESL11-84.pdf
About La Trinidad Elderly LP SE
La Trinidad Elderly LP SE is a privately-held company in San Juan,
Puerto Rico, engaged in activities related to real estate.
La Trinidad Elderly sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D.P.R. Case No. 18-05549) on Sept. 25,
2018. In the petition signed by Jorge A. Rios Pulperio, president
and managing partner, the Debtor disclosed that it had estimated
assets of $1 million to $10 million and liabilities of $10 million
to $50 million. Judge Brian K. Tester presides over the case.
================================
T R I N I D A D & T O B A G O
================================
CARIBBEAN AIRLINES: Opens New Ticket Office in Cuba
---------------------------------------------------
RJR News reports that Caribbean Airlines has opened a new ticket
office in Havana, Cuba, to provide enhanced reservations, sales
and ticketing services to its customers.
The office opened on January 9, with an official ribbon cutting
that was to be held Jan. 17.
Meanwhile, the Airline has launched its "Limbo" fare campaign, the
report relays.
The campaign gives customers the chance of purchasing some of the
lowest available fares for travel to select destinations
throughout the region, the report notes.
It is effective until February 11, the report adds.
Caribbean Airlines Limited -- http://www.caribbean-airlines.com/
-- provides passenger airline services in the Caribbean, South
America, and North America. The company also offers freighter
services for perishables, fish and seafood, live animals, human
remains, and dangerous goods. In addition, it operates a duty
free store in Trinidad. Caribbean Airlines Limited was founded in
2006 and is based in Piarco, Trinidad and Tobago.
As reported in the Troubled Company Reporter-Latin America on
November 2, 2015, RJR News said that Michael DiLollo, Chief
Executive Officer of Caribbean Airlines Limited has quit after
just 17 months on the job. The 48-year-old Canadian national,
citing personal reasons, resigned with immediate effect. His
resignation was accepted by the airline's board of directors. Mr.
DiLollo was appointed Caribbean Airlines CEO in May 2014,
following the sudden resignation of Robert Corbie in September
2013.
In early February 2015, Larry Howai, then Finance Minister, told
Parliament that unaudited accounts for 2014 showed the airline
made a loss of US$60 million, inclusive of its Air Jamaica
operations, and the airline planned to break even by 2017.
Mr. Howai told the Parliament that a five-year strategic plan had
been completed and was in the process of being approved for
implementation.
In an interview with the Trinidad & Tobago Guardian in early
November 2015, Mr. DiLollo said CAL did not need a bailout just
yet. Mr. DiLollo said the airline had benefited from extremely
patient shareholders for years and he believed the airline was
strategically positioned to break even in three years.
CL FINANCIAL: Non-compliance of Jan. 2018 Consent Order Challenged
------------------------------------------------------------------
Trinidad Express reports that latest update on the CL Financial
Limited bailout, which over $25 Billion of scarce public money has
been spent, shows that although the details of over 13,200 EFPA
claimants who received $10.823 Billion were provided, the Consent
Order entered in the Appeal Court on January 24, 2018 has not been
fully complied with.
The Ministry of Finance is now claiming that the CL Financial
accounts relied upon by then Finance Minister, Winston Dookeran,
in preparing his April 3, 2012 affidavit, cannot be found,
according to Trinidad Express. Also missing in action is the list
of creditors of CL Financial.
This non-compliance is now being challenged with the assistance of
attorneys, the report notes.
As reported in the Troubled Company Reporter-Latin America on July
26, 2017, CL Financial Limited shareholders vowed to pay back a
TT$15 billion (US$2.2 billion) debt to the Trinidad Government
after scoring what it called a "major legal victory" against the
Keith Rowley administration.
Caribbean360.com said the Trinidad Government went to the High
Court with a petition to have the company liquidated. Finance
Minister Colm Imbert had explained then that the move was
in response to attempts by the company's shareholders to take
control of the board. High Court Judge Kevin Ramcharan however
sided with the company shareholders, ruling that the action by the
Government was premature.
The TCR-LA, citing Trinidad Express, reported on Aug. 6, 2015,
that the Constitution Reform Forum (CRF) has called on Finance
Minister Larry Howai to refrain from embarking on an "unnecessary
drain on the Treasury" by appealing the decision of a High Court
judge, who ordered that the Minister fulfil a request by president
of the Joint Consultative Council (JCC) Afra Raymond for financial
details relating to the bailout of CL Financial Limited. The CRF
issued a release stating that if the decision is appealed, not
only will it be a waste of finance but such a course of action
will also demonstrate a "lack of commitment by the Government to
the spirit and intent of the Freedom of Information Act FOIA",
under which the request was made, according to Trinidad Express.
On July 7, 2014, Trinidad Express said that the Central Bank has
placed the responsibility of voluntary separation package (VSEP)
negotiations for workers at insurance giant Colonial Life
Insurance Company Ltd. (CLICO) with the company's board, after
which it will review accordingly, the bank said in a statement.
The bank's statement follows protest action by CLICO workers,
supported by their union, the Banking, Insurance and General
Workers' Union (BIGWU), outside the Central Bank in Port of Spain,
according to Trinidad Express.
In a separate TCRLA report on June 26, 2014, Caribbean360.com said
that the Trinidad and Tobago government welcomed an Appeal
Court ruling that the Attorney General Anand Ramlogan said saves
the country from paying out more than TT$1 billion (TT$1 = US$0.16
cents) to policyholders of the cash-strapped CLICO. The Appeal
Court overturned the ruling of a High Court that ruled members of
the United Policyholders Group (UPG) were entitled to be paid the
full sums of their polices. CLICO financially caved in on itself
at the end of 2008 after the investment instruments of major
policyholders matured and they wanted hundreds of millions of
dollars they were owed.
On Aug. 6, 2013, the TCR-LA, citing Caribbean360.com, said that
over TT$8 billion worth of CLICO's profitable business will be
transferred to Atruis, a new company that will be owned by the
state. The Trinidad Express said that the Cabinet approved the
transfer as the Finance and General Purposes Committee continues
to discuss a letter of intent hammered out by the Ministry of
Finance and CL Financial's 400 shareholders, which envisions
taxpayers will recover the more than TT$20 billion Government has
injected since 2009 to keep CL subsidiary CLICO and other
companies afloat.
At its annual general meeting in Sept. 2013, CL Financial
shareholders voted to extend the agreement with Government until
August 25, 2014, while Cabinet decides on a new framework accord
to recover the debt owed to Government through divestment of CL
subsidiaries, including Methanol Holdings, Republic Bank,
Angostura Holdings, CL World Brands and Home Construction Ltd.,
Caribbean360.com related. Proceeds from the divestment of these
assets will go toward Government's recovery of the billions it
pumped into CLICO.
TCRLA reported on Sep 22, 2011, Caribbean News Now, citing
Reuters, said that the cost of the Trinidad and Tobago
government bailout of CL Financial Limited is likely to rise to
more than TT$3 billion.
=============
U R U G U A Y
=============
ARCOS DORADOS: Moody's Hikes CFR to Ba2, Alters Outlook to Stable
-----------------------------------------------------------------
Moody's Investors Service has upgraded the Corporate Family Rating
and senior unsecured ratings of Arcos Dorados Holdings Inc. to Ba2
from Ba3. The outlook changed to stable from positive.
Ratings Upgraded:
Issuer: Arcos Dorados Holdings Inc.
Corporate Family Rating (CFR): to Ba2 from Ba3
USD 348 million outstanding Senior Unsecured Notes due 2023: Ba2
from Ba3
USD 265 million Senior Unsecured Notes due 2027: Ba2 from Ba3
Outlook changed to stable from positive
RATINGS RATIONALE
The upgrade of Arcos Dorados' ratings to Ba2 reflects primarily
the improvement in operating performance, with revenue growth (in
constant currency) in all regions, margin improvement and
continued investments in expansion, modernization and innovation.
Accordingly, adjusted EBITDA and operating margins are at the
highest level since 2013 (15.9% and 8.3%, respectively, in LTM
ended September 2018), an expansion that started in 2016, despite
the challenging macroeconomic environment in Arcos Dorados' main
markets -- namely Brazil and Argentina - and also in Venezuela.
The Ba2 ratings continue to incorporate the company's solid market
position in Latin America as McDonald's master franchisee and its
size and scale as the largest independent McDonald's franchisee
worldwide in terms of sales and number of restaurants. The ratings
also reflect Arcos Dorados' solid capital structure and
comfortable debt amortization schedule.
Arcos Dorados' currency exposure and its concentration of cash
flows in a limited number of markets with high dependency on the
Brazilian and Argentine markets (which accounts for 60% of sales),
continue to constrain the ratings. Another constraint is Arcos
Dorados' large capital expenditures requirements under its Master
Franchise Agreement (MFA) with McDonald's, which may lead to
higher leverage and weaker cash flows in times of timid underlying
consumption in the company's main markets. Arcos Dorados has some
flexibility under capital spending requirements in case of need,
but the company would still need to invest in growth and
modernization to at least maintain its market share in key
economies in Latin America.
The stable outlook reflects its expectations for a gradual
recovery in Arcos Dorados' operating environment in Brazil and
that the company will be able to sustain a good liquidity profile
and adequate credit metrics for the Ba2 ratings in the next 12-18
months. Moody's expects that Arcos Dorados will continue to pursue
growth across the region under the investment requirements set by
the MFA and will continue to benefit from increased operating
efficiency.
An upgrade would be considered in case of continuous improvement
in operating performance, including sustained recovery in traffic
and average check in real terms in Arcos Dorados' main markets, in
particular in Brazil, showing a resilient performance regardless
of the underlying macroeconomic environment and consumption
patterns in key markets. Any possible upward movement would
consider the company's dividend payout relative to growth
investment and liquidity requirements and its discipline in
shareholders' distribution or share buybacks. Quantitatively, an
upgrade also requires Arcos Dorados to sustain lease-adjusted debt
to EBITDA below 3.5x (3.6x as of the LTM ended September 2018) and
adjusted RCF (retained cash flow) to debt of 20% (16.6% as of the
LTM September 2018) on a sustainable basis. Given Arcos Dorados'
strong dependence on the Brazilian market, an upward rating
movement would also be subject to its relative position to
Brazil's sovereign ratings.
Factors that could result in a downgrade include a weakening of
same store sales or cash flows, with a deterioration in liquidity
and credit metrics such as that the company is unable to implement
its capital spending requirements under the MFA without increasing
debt levels. Quantitatively, Moody's would see downward pressure
on the ratings and/or outlook if there is deterioration in credit
metrics, with lease-adjusted debt to EBITDA trending towards 4.5x
and RCF (retained cash flow) to debt at 15% or lower. A downgrade
of Brazil's sovereign rating (Ba2 stable) could pressure Arcos
Dorados' ratings or outlook.
The principal methodology used in these ratings was Restaurant
Industry published in January 2018.
***********
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 2019. 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.
.
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