/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/190813.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 Tuesday, August 13, 2019, Vol. 20, No. 161 Headlines B O L I V I A BANCO FASSIL: Fitch Affirms B+ LT IDRs; Alters Outlook to Negative B R A Z I L BRAZIL: Government Investments in Sao Paulo State Have Dropped PETROLEO BRASILEIRO: To Invest US$54BB in Rio Over the Next 5 Yrs. C O S T A R I C A BANCO DAVIVIENDA: Fitch Affirms BB- LT FC IDR, Outlook Negative M E X I C O MEXICO: Low-Income Towns Resurging Economically P U E R T O R I C O EMPRESAS CARRION: Oct. 2 Hearing on Disclosure Statement PUERTO RICO: Bond Insurer MBIA Sues Banks Over Defaulted Bonds QUESOS DEL PAIS: Oct. 1 Plan Confirmation Hearing STONEMOR PARTNERS: Incurs $34.4 Million Net Loss in 2nd Quarter STONEMOR PARTNERS: Withholds Unit Awards to Satisfy Obligations V E N E Z U E L A CITGO PETROLEUM: Venezuela Sanctions Order Leaves Future in Doubt - - - - - ============= B O L I V I A ============= BANCO FASSIL: Fitch Affirms B+ LT IDRs; Alters Outlook to Negative ------------------------------------------------------------------ Fitch Ratings has affirmed Banco Fassil S.A Long-Term Foreign and Local Currency Issuer Default Ratings at 'B+. The Rating Outlook was revised to Negative from Stable. The Outlook revision to Negative from Stable follows the recent revision of Bolivia's Long-Term IDR's Outlook to Negative from Stable on June 20, 2019. Fitch considers the bank's performance to be highly influenced by the operating environment given the impact of the government's macroeconomic and regulatory policies, as well as its overall involvement in the financial system, on its performance. Consequently, a potential sovereign downgrade would negatively affect the bank's current rating level. Key Rating Drivers VR and IDRS The bank's Viability Rating (VR), or standalone creditworthiness, drives its IDRs. Fassil's high sensitivity to the operating environment and financial regulation, along with its company profile and weak profitability highly influence its VR. The VR also considers the bank's sound asset quality, pressured capitalization and adequate funding profile. Fassil's company profile reflects the bank's growth strategy, which is oriented toward maintaining its position as the sixth largest bank in the system by assets and loans. This objective has been maintained amidst a heavily regulated and competitive financial sector, positioning the entity as a regional leader in the region of Santa Cruz. Fitch considers that Fassil's profitability remains as the weakest link in the bank's financial profile, but the agency expects its falling trend will stabilize at current levels. Compulsory loan quotas and caps and floors on interest rates for productive and social housing portfolios have pressured the system's interest margins and profitability. As of March 2019, the bank's operating profit was 0.44% of risk weighted assets (RWA), which still compares lower than Bolivian Universal Banks and international peers. However, Fitch deems it likely that pressures on profitability from falling net interest margins (NIMs), constitution of loan loss allowances and lower equity accounted income from deconsolidation of Santa Cruz Securities should ease going forward. Fassil's capital position has been affected by low retained earnings and sustained growth. Despite lower-than-previous-years loan growth in the last two years, Fitch Core Capital (FCC) to RWA felt to 9.21% as of March 2019, comparing slightly below the system (9.84%). The bank has stated full capitalization of net income for the foreseeable future. Banco Fassil's asset quality is considered by Fitch as its main financial strength (NPLs as of March 2019: 0.88%). Convergence of asset quality to that of its local peers (Average NPLs for Universal Banks as of March 2019: 1.87%) has been slower than expected, as Fassil maintained NPLs below local and international peers. Fitch denotes the bank has conservative underwriting standards with respect to other peers' practices as evidenced by low restructuring, high proportion of secured lending and high loan allowances. Fitch deems NPLs will likely stabilize below market average at around 1% should the bank maintain current practices. High concentration of the bank's loan portfolio among top 20 creditors (27% of gross loans and 3.2x of FCC as of March 2019) remains a potential risk. Fassil's funding structure is commensurate with its rating level. Total loans are funded through customer deposits that have shown stability (loans to deposits as of March 2019: 96.99%). However, funding is concentrated on term deposits from institutional clients, while its top 20 depositors represent a high 73% of total deposits. The bank has increased its usage of subordinated bonds in 2019 to meet regulatory capital needs. Fassil has an adequate liquidity position; however, it has fewer liquid assets to cover short-term obligations than its local peers. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating (SR) and Support Floor (SRF) are rated '5' and 'NF', respectively. In Fitch's view, sovereign support cannot be relied upon for Fassil, as it is not considered a systemically important bank. Rating Sensitivities VR and IDRS Upside potential for the ratings is limited given the sovereign's rating and Negative Outlook. Negative rating actions would follow from a downgrade in the sovereign's rating. Additionally, sustained negative or near-to-zero results as well as additional pressures on FCC to RWA metrics to below 7% could also underpin a downgrade. SUPPORT RATING AND SUPPORT RATING FLOOR Upside potential for Fassil's SR and SRF is limited by its company profile and could only occur over time. Substantial growth in market share in terms of retail deposits and systemic importance could cause an upward revision. =========== B R A Z I L =========== BRAZIL: Government Investments in Sao Paulo State Have Dropped -------------------------------------------------------------- Rio Times Online reports that investments by the Sao Paulo government decreased 26 percent in the first six months of Joao Doria's administration and hit their lowest since 2012. Despite the campaign's pledge to intensify the privatization of the transportation sector to invest further in education, health, and safety, 84 percent of the R$2.72 billion (US$ 688 million) invested by the governor between January and June was used for road, rail and subway works, according to Rio Times Online. As reported in the Troubled Company Reporter-Latin America on May 27, 2019, Fitch Ratings has affirmed Brazil's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. PETROLEO BRASILEIRO: To Invest US$54BB in Rio Over the Next 5 Yrs. ------------------------------------------------------------------ Rio Times Online reports that Petroleo Brasileiro SA (Petrobras) plans to invest US$54 (R$212) billion in projects in the state of Rio de Janeiro over the next five years. The news was provided by the company's president, Roberto Castello Branco, during lunch at the Rio de Janeiro Trade Association, according to Rio Times Online. According to Castello Branco, Rio de Janeiro will benefit from the revenue generated from oil production, the report notes. Last year, the company paid approximately R$17 billion in taxes, and this trend is on the rise, with taxes from Petrobras' activities, as well as from other companies investing in pre-salt, the report recalls. As reported in the Troubled Company Reporter-Latin America on Feb. 25, 2019, S&P Global Ratings raised the stand-alone credit profile (SACP) on Petrobras to 'bb' from 'bb-'. S&P also affirmed its global scale ratings on the company at 'BB-' and its Brazilian national scale rating at 'brAAA'. =================== C O S T A R I C A =================== BANCO DAVIVIENDA: Fitch Affirms BB- LT FC IDR, Outlook Negative --------------------------------------------------------------- Fitch Ratings has affirmed Banco Davivienda (Costa Rica), S.A.'s Long-Term Foreign Currency Issuer Default Rating at 'BB-' and Long-Term Local Currency IDR at 'BB', as well as Short-Term Foreign and Local Currency IDRs at 'B'. The Rating Outlooks on the Long-Term IDRs are Negative. Fitch also assigned a rating of 'F1+(cri)' to a new Programa Revolutivo de Papel Comercial 2019. The Negative Outlook indicates that Davivienda CR's IDRs could be downgraded in the event of a Costa Rican sovereign rating downgrade. KEY RATING DRIVERS IDRs, NATIONAL RATINGS AND SENIOR DEBT Davivienda CR's IDRs, national ratings and senior debt are driven by potential support from its parent Banco Davivienda, S.A., if required. Davivienda is the third largest bank in Colombia with a presence in Central America and Miami, rated 'BBB'/Outlook Negative. The IDRs reflects the sound shareholder's commitment to its subsidiary, which in Fitch's view is sufficient for Davivienda CR to be rated above the sovereign rating. The bank's Foreign Currency IDR is constrained by Costa Rica's 'BB-' Country Ceiling, which according to Fitch's criteria, captures transfer and convertibility risks. In addition, the Local Currency IDR received the maximum uplift of two notches above the sovereign rating (B+/Outlook Negative). However, this caps the subsidiary's IDRs to a lower rating than if based solely on Davivienda's ability and propensity to provide support. Fitch's assessment also considers with high importance that Davivienda's capacity and willingness to support its subsidiary would be manageable, as Davivienda CR represents around 8.5% of Davivienda's assets. The agency also considers the huge reputational risk that Davivienda CR's default could constitute to its parent, which would damage its franchise. Fitch views the Costa Rican subsidiary as a key part of Davivienda's expansion and diversification strategy in Central America. Davivienda CR's national ratings are at the highest point of this scale given the relative strength of the shareholder in relation to other issuers rated in Costa Rica. The bank's local senior debt rating is also equivalent to the institution's national rating as the debt is senior unsecured. VR Davivienda CR's Viability Rating (VR) is highly influenced by the operating environment and its company profile. The entity is the sixth largest bank in Costa Rica, with a market share of 6.9% in terms of assets, offering different products and services for the middle and high income segments in the local market. In addition, the bank's VR considers its reasonable risk appetite, good asset quality, modest but improving profitability, tight capitalization levels and adequate funding structure. Fitch views Davivienda CR's asset quality as good. However, in light of the Costa Rican market's lower dynamism, the non-performing loans (NPL) ratio (+90 days overdue) increased in 2018 and 1Q19 to 1.4% and 1.8%, respectively, after averaging 1.1% from 2015 to 2017. Nevertheless, this metric contrasts positively with the local market (2015-2018: bank: 1.2%; system: 2.0%) and is in line with international peers (similarly rated emerging market banks), reflecting the tools, controls, models and underwriting policies of the entity. Despite the prevailing environment, the agency expects delinquency metrics to remain lower than the system. The bank's profitability has been modest. Although profitability has improved in recent years, it still contrasts unfavourably with local and international peers. The operating profit to risk-weighted assets (RWA) ratio decreased to 0.5% in 2017 from 0.9% in 2015. However, as a result of the institution's commercial and operational strategies, the deteriorating trend was reversed and this metric improved to 0.9% in 2018 and 1.1% at 1Q19. The net interest margin exhibited the same evolution. Fitch expects this positive performance to continue over the medium term. In Fitch's opinion, Davivienda CR's capitalization is tight compared with local and international peers. As of 1Q19, its Fitch Core Capital (FCC) to RWA metric was 10.2%, similar to the average of 10.3% over the past four years. The bank's total capital ratio has been oscillating around 11.2%, above the regulatory minimum of 10%. In an adverse economic event, the agency expects Davivienda's ordinary support to continue if necessary, in order to maintain regulatory capital ratios that exceed the minimum required. Davivienda CR's financial flexibility is reasonable due to its diversified funding options and market access, with 69.6% of its financing coming from customer deposits as of 1Q19. From 2015 to 2018, deposit growth was lower than that of loans, resulting in an increase of the loans to deposits ratio to 125.3% in 2018 from 116.8% in 2015. This trend reversed in 1Q19, as this indicator declined to 113.7%. Fitch views the bank's liquidity position as adequate and expects it to continue strengthening. SUPPORT RATING (SR) According to Fitch's criteria, Davivienda CR's 'BB-' Foreign Currency IDR maps to a SR of '3'. The bank's SR reflects Davivienda's moderate ability and propensity to give support to its subsidiary, if necessary. Costa Rica's Country Ceiling mostly influences the entity's SR. NEW NATIONAL DEBT The new Program has the same national short-term rating as the bank, since, according to Fitch, it has the same risk, as there is no guarantee and it is in the same hierarchy of conditions as its other unsecured debts. RATING SENSITIVITIES IDRs AND SUPPORT RATING The Rating Outlook for Davivienda CR's Long-term IDRs is Negative, which indicates that a downgrade of Costa Rica's Sovereign Rating and Country Ceiling could trigger a downgrade of Davivienda CR's IDRs. In addition, the bank's IDRs and SR could be affected if Fitch's perception of the shareholder's ability or propensity to support its subsidiary changes. Conversely, a revision of the Outlook on the sovereign's IDR to Stable would likely prompt a similar action on the Outlook of the bank's IDRs. VR Davivienda CR's VR could be downgraded in a scenario of material and consistent deterioration of the local economic environment that would lead to changes in sovereign ratings. The VR could also be pressured by a deterioration of the entity's profitability and asset quality ratios that results in a sustained decline in its Fitch Core Capital ratio below 9%. There is limited upside potential on the VR as the rating is at the sovereign level and the Outlook on Costa Rica is Negative. NATIONAL RATINGS AND SENIOR DEBT The ratings are at the highest level of the national rating scale and therefore have no upside potential. However, the bank's national ratings could be downgraded if Fitch's view of the parent's ability and/or willingness to support its subsidiary changes. Changes in Davivienda CR's senior unsecured debt would mirror any potential downgrade on the bank's national scale ratings. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch has affirmed the following ratings: -- Long-Term Foreign Currency IDR at 'BB-'; Outlook Negative; -- Short-Term Foreign Currency IDR at 'B'; -- Long-Term Local Currency IDR at 'BB'; Outlook Negative; -- Short-Term Local Currency IDR at 'B'; -- Support Rating at '3'; -- Viability Rating at 'b+'; -- National Long-Term Rating at 'AAA(cri)'; Outlook Stable; -- National Short-Term Rating at 'F1+(cri)'; -- Long Term National Scale Rating of Programa E de Emisiones de Bonos Estandarizados en Colones y Dolares at 'AAA(cri)'; -- Long Term National Scale Rating of Programa F de Emisiones de Bonos Estandarizados en Colones y Dolares at 'AAA(cri)'. Fitch has assigned a 'F1+(cri)' National Short-Term Rating to new Programa Revolutivo de Papel Comercial 2019. =========== M E X I C O =========== MEXICO: Low-Income Towns Resurging Economically ----------------------------------------------- EFE News reports that on the Isthmus of Tehuantepec, in southern Mexico, it is impossible to guess by simply looking how many wind turbines have been erected over thousands of hectares. But thanks to the wind energy business, in the surrounding area the low-income communities have been resurging economically in recent years, according to EFE News. As a result of the social projects launched by various energy companies, municipalities like Santo Domingo Ingenio, which live surrounded by these majestic towers with their huge propellers that generate clean energy, are providing local residents with access to better medical facilities, electricity and better schools, the report notes. ===================== P U E R T O R I C O ===================== EMPRESAS CARRION: Oct. 2 Hearing on Disclosure Statement -------------------------------------------------------- A hearing on approval of disclosure statement explaining the Chapter 11 Plan of Empresas Carrion Allende, Inc., is scheduled for October 2, 2019, at 9:00 AM, to consider and rule upon the adequacy of the disclosure statement. Objections to the form and content of the disclosure statement must filed and served not less than fourteen (14) days prior to the hearing. About Empresas Carrion Allende Empresas Carrion Allende, Inc., operates a grocery store in Arecibo, Puerto, Rico. Empresas Carrion Allende filed its petition for relief under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 18-07111) on Dec. 6, 2018. In the petition was signed by Sandra I. Carrion Montalvo, president, the Debtor estimated $1 million to $10 million in both assets and liabilities. The case is assigned to the Hon. Mildred Caban Flores. Francisco J. Ramos Gonzalez, Esq., at Francisco J. Ramos & Asociados CSP, led by Francisco J. Ramos Gonzalez, is the Debtor's counsel. PUERTO RICO: Bond Insurer MBIA Sues Banks Over Defaulted Bonds -------------------------------------------------------------- Karen Pierog at Reuters reports that bond insurance company MBIA Inc sued several financial institutions over their role in underwriting billions of dollars of Puerto Rico bonds that eventually went into default. The lawsuit filed in superior court in San Juan claimed the banks "inflicted a financial tragedy" on the now-bankrupt U.S. commonwealth by urging it to issue "unsustainable" debt, according to Reuters. "That debt bankrupted the commonwealth and its agencies while the banks enriched themselves through massive fees," the lawsuit stated, the report notes. Puerto Rico filed for bankruptcy in 2017 to restructure about $120 billion of debt and pension obligations. According to the lawsuit, major banks underwrote more than $66 billion of bonds issued between 2001 and 2014 by Puerto Rico and its agencies, earning hundreds of millions of dollars in fees. The defendants are: UBS Financial Services Inc, UBS Securities LLC, Citigroup Global Markets Inc, Goldman Sachs & Co LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co LLC; Merrill Lynch, Pierce, Fenner & Smith Inc; RBC Capital Markets LLC, and Santander Securities LLC, the report discloses. MBIA argued that these underwriters failed to do their due diligence on Puerto Rico bonds, which led to disclosures that were "materially false or misleading" and upon which its unit, National Public Finance Guarantee Corporation, relied upon when it decided to insure the debt, the report relays. Reuters discloses that national insured more than $11 billion of Puerto Rico debt. Subsequent defaults led the insurer to make as of July 1 over $720 million in claims payments that the lawsuit seeks to recover in damages from the banks. The same banks were sued by Puerto Rico's federally created fiscal oversight board in May for allegedly aiding and abetting the island's "clearly insolvent" government to issue debt, the report adds. About Puerto Rico Puerto Rico is a self-governing commonwealth in association with the United States that's facing a massive bond debt of $70 billion, a 68% debt-to-GDP ratio and negative economic growth in nine of the last 10 years. The Commonwealth of Puerto Rico has sought bankruptcy protection, aiming to restructure its massive $74 billion debt-load and $49 billion in pension obligations. The debt restructuring petition was filed by Puerto Rico's financial oversight board in U.S. District Court in Puerto Rico (Case No. 17-01578) on May 3, 2017, and was made under Title III of 2016's U.S. Congressional rescue law known as the Puerto Rico Oversight, Management, and Economic Stability Act ('PROMESA'). The Financial Oversight and Management Board later commenced Title III cases for the Puerto Rico Sales Tax Financing Corporation (COFINA) on May 5, 2017, and the Employees Retirement System (ERS) and the Puerto Rico Highways and Transportation Authority (HTA) on May 21, 2017. On July 2, 2017, a Title III case was commenced for the Puerto Rico Electric Power Authority ("PREPA"). U.S. Chief Justice John Roberts has appointed U.S. District Judge Laura Taylor Swain to oversee the Title III cases. The Honorable Judith Dein, a United States Magistrate Judge for the District of Massachusetts, has been designated to preside over matters that may be referred to her by Judge Swain, including discovery disputes, and management of other pretrial proceedings. Joint administration of the Title III cases, under Lead Case No. 17-3283, was granted on June 29, 2017. The Oversight Board has hired as advisors, Proskauer Rose LLP and O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic consultant, Citigroup Global Markets, as municipal investment banker, and Ernst & Young, as financial advisor. Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M. Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at O'Neill & Borges are on-board as attorneys. McKinsey & Co. is the Board's strategic consultant, Ernst & Young is the Board's financial advisor, and Citigroup Global Markets Inc. is the Board's municipal investment banker. Prime Clerk LLC is the claims and noticing agent. Prime Clerk maintains a case web site at https://cases.primeclerk.com/puertorico Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA, and PREPA. O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), the agency responsible for negotiations with bondholders. The Oversight Board named Professor Nancy B. Rapoport as fee examiner and to chair a committee to review professionals' fees. Bondholders' Attorneys Kramer Levin Naftalis & Frankel LLP and Toro, Colon, Mullet, Rivera & Sifre, P.S.C. and serve as counsel to the Mutual Fund Group, comprised of mutual funds managed by Oppenheimer Funds, Inc., and the First Puerto Rico Family of Funds, which collectively hold over $4.4 billion of GO Bonds, COFINA Bonds, and other bonds issued by Puerto Rico and other instrumentalities. White & Case LLP and Lopez Sanchez & Pirillo LLC represent the UBS Family of Funds and the Puerto Rico Family of Funds, which hold $613.3 million in COFINA bonds. Paul, Weiss, Rifkind, Wharton & Garrison LLP, Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, and Jimenez, Graffam & Lausell are co-counsel to the ad hoc group of General Obligation Bondholders, comprised of Aurelius Capital Management, LP, Autonomy Capital (Jersey) LP, FCO Advisors LP, and Monarch Alternative Capital LP. Quinn Emanuel Urquhart & Sullivan, LLP and Reichard & Escalera are co-counsel to the ad hoc coalition of holders of senior bonds issued by COFINA, comprised of at least 30 institutional holders, including Canyon Capital Advisors LLC and Varde Investment Partners, L.P. Correa Acevedo & Abesada Law Offices, P.S.C., is counsel to Canyon Capital Advisors, LLC, River Canyon Fund Management, LLC, Davidson Kempner Capital Management LP, OZ Management, LP, and OZ Management II LP (the QTCB Noteholder Group). Committees The U.S. Trustee formed an official committee of retirees and an official committee of unsecured creditors of the Commonwealth. The Retiree Committee tapped Jenner & Block LLP and Bennazar, Garcia & Milian, C.S.P., as its attorneys. The Creditors Committee tapped Paul Hastings LLP and O'Neill & Gilmore LLC as counsel. QUESOS DEL PAIS: Oct. 1 Plan Confirmation Hearing ------------------------------------------------- The Disclosure Statement explaining the small business Chapter 11 Plan of Quesos del Pais La Esperanza, Inc., is conditionally approved. A hearing for the consideration of the final approval of the Disclosure Statement and the confirmation of the Plan and of such objections as may be made to either will be held on October 1, 2019 at 10:00 AM at the U.S. Bankruptcy Court, U.S. Post Office and Courthouse Building, 300 Recinto Sur, Courtroom No. 2, Second Floor, San Juan, Puerto Rico. An objection to the final approval of the Disclosure Statement and/or the confirmation of the Plan must be filed and served on/or before ten (10) days prior to the date of the hearing on confirmation of the Plan. Class 4 General Unsecured are impaired. Each Holder of an Allowed Class 4 General Unsecured Claim shall receive on or as soon as reasonably practicable after the Effective Date, and from time to time thereafter in accordance with Section VI.B of the Plan, its Pro Rata Share of the Debtor's Available Cash until each Holder receives approximately up to one four percent (4.%) of its Allowed Claim and, if applicable, post-petition interest in accordance with Section VI.I of the Plan but subject to the limitations in Section VI.D of the Plan. Class 3 General Unsecured Claims with recourse are impaired. Each Holder of an Allowed Class 3 will be paid as due under the contract or applicable non bankruptcy law. Class 5 Common Interests in Debtor in Possession are impaired. Each Holder of Allowed Class 5 Common Interests (including, if Allowed, shall neither receive nor retain any Property of the Estate of The Quesos del Pais La Esperanza Inc. The Plan provides for the distribution of (i) all Cash held by or for the benefit of each Debtor on the Effective Date) plus (ii) all Cash realized from the current operation of Debtor Business and collection of accounts receivables, causes of actions against third parties, or other disposition of Property of the Estate to the Holders of Allowed Claims and Allowed Interests. A full-text copy of the Disclosure Statement dated August 1, 2019, is available at https://tinyurl.com/yxefd8hm from PacerMonitor.com at no charge. Attorney for the Debtor: Garcia- Arregui & Fullana PSC 252 Ponce de Leon Ave. Suite 1101 San Juan, PR 00918 Tel. 787-766-2530 Fax-787-756-7800 Email: ifullana@gaflegal.com About Quesos Del Pais La Esperanza Quesos Del Pais La Esperanza Inc. filed a Chapter 11 bankruptcy petition (Bankr. D.P.R. Case No. 18-06529) on Nov. 6, 2018, disclosing under $1 million in assets and liabilities. The Debtor hired Garcia-Arregui & Fullana, as attorney. STONEMOR PARTNERS: Incurs $34.4 Million Net Loss in 2nd Quarter --------------------------------------------------------------- StoneMor Partners L.P. filed with the Securities and Exchange Commission on Aug. 9, 2019, its quarterly report on Form 10-Q reporting a net loss of $34.39 million on $78.49 million of total revenues for the three months ended June 30, 2019, compared to a net loss of $17.01 million on $81.57 million of total revenues for the three months ended June 30, 2018. For the six months ended June 30, 2019, the Company reported a net loss of $56.93 million on $149.96 million of total revenues compared to a net loss of $34.94 million on $159.51 million of total revenues for the same period last year. As of June 30, 2019, the Company had $1.76 billion in total assets, $1.76 billion in total liabilities, $57.50 million in total redeemable convertible preferred units, and a total partners' deficit of $60.94 million. Cemetery segment operating profit for the second quarter was $4.8 million compared to $4.1 million for the prior year period. Six-month segment operating profit was $7.6 million compared to $6.3 million in the prior year period. Funeral segment operating profit was $1.8 million for the second quarter compared to $2.5 million in the prior year period. Six-month segment operating profit was $3.3 million compared to $4.5 million in the prior year period. Corporate overhead expense was $13.1 million for the second quarter compared to $15.2 million in the prior year period. Cash used in operating activities for the first six months of 2019 was $31.6 million compared to cash provided by operations in the prior year period of $15.4 million. The reduction in cash from operating activities was primarily due to a decline in sales production, non-recurring working capital initiatives in the prior year period, a decline in accounts payable and accrued expenses, increased debt service costs and increased costs associated with consulting and professional fees arising from the potential C-Corporation conversion, debt refinancing, various employee severance obligations and other ongoing initiatives. Merchandise trust value at June 30, 2019 was $519.4 million compared to $488.2 million at Dec. 31, 2018. Deferred revenue at June 30, 2019 was $944.1 million compared to $914.3 million at Dec. 31, 2018. As of June 30, 2019, the Partnership had $41.9 million of unrestricted cash and cash equivalents, $20.1 million of restricted cash related to the cash collateralization of letters of credit with proceeds from the recapitalization, and $358.2 million of total debt. On June 27, 2019, the Partnership completed a $447.5 million recapitalization transaction, consisting of a private placement of $62.5 million of convertible preferred securities and a concurrent private placement consisting of $385.0 million of Senior Secured Notes due 2024. Joe Redling, StoneMor's president and chief executive officer said, "Our second quarter results reflect continued pressure on pre-need production as our sales force adjusts to initiatives we launched in the first quarter of 2019. We believe we have identified the primary drivers of our sales productivity and pre-need sales issues. While our initiatives are in the early stages, we remain focused on improving our sales process and training, and optimizing staffing levels across our asset base. "We are also beginning to see early signs of improvement in sales production with a strong sequential rebound of net interment rights sold and pre-need contracts written from the first quarter of 2019 to the current quarter. At the same time, we saw a reduction in corporate overhead net of non-recurring expenses on a year-over-year basis. As we have previously disclosed, we've targeted a minimum of $30 million of cost reductions across corporate, G&A, sales and field operations. After a careful review of labor efficiencies across our properties, at the beginning of July 2019, we implemented a reduction of approximately 6% of our field workforce as part of these cost reduction initiatives. "The June 27, 2019 announcement of the closing of our $447.5 million recapitalization not only represented a major step in providing us with a meaningful liquidity improvement to execute our turnaround strategy, but also demonstrated both the strong underlying value of our asset base as well as investor confidence in our management team's ability to execute our turnaround plan, including the next phase of our performance improvement plans." Garry Herdler, senior vice president and chief financial officer added, "In mid-April 2019, we outlined our turnaround strategy focused on four key goals: cash flow and liquidity, capital structure, balance sheet/portfolio review, and performance improvement through cost reductions and revenue enhancement. Our results reflect the efforts of our initial 100-day plan, which included significant progress on improving liquidity and capital structure. We believe we have identified additional expense reduction opportunities in the next phase of this operational turnaround strategy. "We continue to work towards process improvements to better align our cost structure with our revenues and performance improvement efforts. These efforts and the contemplated C-Corporation conversion are important steps to revitalizing our business and positioning us for future success. Since joining the team and gaining a better understanding of StoneMor's business, I am more confident in the execution plans we are developing for the next phase of our turnaround plan to address our near-in challenges and opportunities, with the commitment to set a clear strategic roadmap for the future." Updated Unit Count As of June 30, 2019, the Partnership had 39.53 million units outstanding. As part of the debt and equity recapitalization, the Partnership issued 52.08 million of Series A Preferred units which are convertible to common units on a 1:1 basis (subject to anti-dilution adjustments) no later than upon the completion of the previously announced C-Corporation conversion. The outstanding unit count at June 30, 2019, pro forma for the recapitalization transactions, was 91.62 million units. In connection with the C-Corporation conversion, and as previously disclosed, StoneMor anticipates issuing an additional 2.95 million common units. Pro forma outstanding unit count as of June 30, 2019, after giving effect to the matters noted above and the C-Corporation conversion is expected to be approximately 94.57 million units. A full-text copy of the Form 10-Q is available for free at: https://is.gd/pQhXZD About StoneMor Partners StoneMor Partners L.P., headquartered in Trevose, Pennsylvania -- http://www.stonemor.com-- is an owner and operator of cemeteries and funeral homes in the United States, with 321 cemeteries and 90 funeral homes in 27 states and Puerto Rico. StoneMor's cemetery products and services, which are sold on both a pre-need (before death) and at-need (at death) basis, include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all services which provide for the installation of this merchandise. StoneMor reported a net loss of $72.69 million for the year ended Dec. 31, 2018, compared to a net loss of $75.15 million for the year ended Dec. 31, 2017. As of March 31, 2019, the Company had $1.72 billion in total assets, $1.75 billion in total liabilities, and a total partners' deficit of $28.83 million. * * * As reported by the TCR on Feb. 13, 2019, Moody's Investors Service downgraded StoneMor Partners L.P.'s Corporate Family rating to Caa2 from Caa1 and Probability of Default rating to Caa3-PD from Caa1-PD. The Caa2 CFR reflects Moody's concern that if pre-need cemetery selling and liquidity pressures do not abate while the senior secured credit facility is being refinanced, a distressed exchange or other default event could become more likely. As reported by the TCR on July 3, 2019, S&P Global Ratings affirmed its 'CCC+' issuer credit rating on StoneMor Partners L.P. The outlook remains negative. S&P said, "The rating affirmation reflects our view that despite the removal of near term maturities and sufficient liquidity over the next twelve months, we continue to view StoneMor's capital structure as unsustainable in the long term given our projection for persistent free cash flow deficits. STONEMOR PARTNERS: Withholds Unit Awards to Satisfy Obligations --------------------------------------------------------------- The Compensation and Nominating and Governance Committee of the Board of Directors of StoneMor GP LLC, the general partner of StoneMor Partners L.P., has approved the withholding of an aggregate of 376,351 common units otherwise issuable in connection with the accelerated vesting of certain phantom and restricted unit awards previously granted to certain employees of StoneMor GP pursuant to the Partnership's Amended and Restated 2019 Long-Term Incentive Plan in satisfaction of such employees' tax withholding obligations arising from such accelerated vesting in the aggregate amount of $677,431. The number of units withheld was based on the fair market value of the units on the date of the Committee's action as defined in the LTIP, and included the withholding of the number of units set forth opposite the names of the officers listed below in satisfaction of the tax withholding obligation set forth: Units Tax Name/Title Withheld Obligations ---------- -------- ----------- Joseph M Redling 132,669 $238,804 President and Chief Executive Officer Garry P. Herdler 69,979 $125,962 Senior Vice President and Chief Financial Officer Austin K. So 39,292 $70,725 General Counsel, Chief Legal Officer and Secretary About StoneMor Partners StoneMor Partners L.P., headquartered in Trevose, Pennsylvania -- http://www.stonemor.com-- is an owner and operator of cemeteries and funeral homes in the United States, with 321 cemeteries and 90 funeral homes in 27 states and Puerto Rico. StoneMor's cemetery products and services, which are sold on both a pre-need (before death) and at-need (at death) basis, include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all services which provide for the installation of this merchandise. StoneMor reported a net loss of $72.69 million for the year ended Dec. 31, 2018, compared to a net loss of $75.15 million for the year ended Dec. 31, 2017. As of March 31, 2019, the Company had $1.72 billion in total assets, $1.75 billion in total liabilities, and a total partners' deficit of $28.83 million. * * * As reported by the TCR on Feb. 13, 2019, Moody's Investors Service downgraded StoneMor Partners L.P.'s Corporate Family rating to Caa2 from Caa1 and Probability of Default rating to Caa3-PD from Caa1-PD. The Caa2 CFR reflects Moody's concern that if pre-need cemetery selling and liquidity pressures do not abate while the senior secured credit facility is being refinanced, a distressed exchange or other default event could become more likely. As reported by the TCR on July 3, 2019, S&P Global Ratings affirmed its 'CCC+' issuer credit rating on StoneMor Partners L.P. The outlook remains negative. S&P said, "The rating affirmation reflects our view that despite the removal of near term maturities and sufficient liquidity over the next twelve months, we continue to view StoneMor's capital structure as unsustainable in the long term given our projection for persistent free cash flow deficits. ================= V E N E Z U E L A ================= CITGO PETROLEUM: Venezuela Sanctions Order Leaves Future in Doubt ----------------------------------------------------------------- The Financial Times reports that Venezuelan opposition leader Juan Guaido has proclaimed that sweeping new US sanctions targeting President Nicolas Maduro's regime will protect Venezuela-owned, US-based refiner Citgo from seizure by creditors. But he may have spoken too soon. The Financial Times says US president Donald Trump announced a near-total economic embargo of Venezuela, the first such step against a western hemisphere country in more than 30 years. Mr. Guaido, the National Assembly president who is recognised by the US and more than 50 other countries as Venezuela's interim president, was quick to home in on what he said was a key victory in the executive order, the report relays. "Given this measure, Citgo and all its assets are protected," he tweeted, notes the report. "Anyone who wants to benefit from the crisis will be driven away." The Financial Times relays that emboldened by the US order, Mr. Guaido's parallel government has hinted it might skip a $913 million payment due in late October to holders of a bond maturing in 2020 that was issued by state-owned oil company Petroleos de Venezuela SA, which is backed by a majority stake in Citgo. "Our preliminary view is that the collateral will remain beyond the reach of the PDVSA 2020 bondholders, who remain in a very weak position, and the Venezuelan side should exploit this opportunity," said an opposition lawmaker in Caracas with knowledge of the situation, the report relays. Venezuela has long been fearful of missing a payment on the debt--the country's only bond not yet in default--since it could mean losing control of the jewel in the crown of PDVSA's foreign assets, the report discloses. To avoid this outcome, the National Assembly, led by Mr. Guaido, made good on a $71 million interest payment in April, the report relays. While Alejandro Grisanti, a director on the ad hoc PDVSA board appointed by Mr. Guaido, sees the executive order as a "clear signal from the US administration that it's seeking to protect Venezuelan assets in the United States," he told the FT: "That doesn't mean there's no risk, and it certainly doesn't mean that Venezuelans can do whatever they want with the debt burden they've inherited from the Maduro and Chavez governments," the report relates. For Mr. Guaido, the failure to hold on to Citgo could be devastating, both for his teetering interim government, whose efforts to oust Mr. Maduro have stalled, and for the country, which is mired in a deep humanitarian crisis exacerbated by tough sanctions, the report relays. However, others have disputed Mr. Guaido's interpretation of the order, putting Citgo's future back in doubt, the report notes. Law firm Cleary Gottlieb, which represents creditors holding roughly $9 billion worth of Venezuelan debt, issued a statement saying it does not "see a basis" for Mr. Guaido's conclusion about Citgo, the report notes. Based on existing legal guidance from the US Treasury's Office of Foreign Assets Control, "it appears to us that the holders of the 2020 Bonds are still authorized to execute on their collateral," the firm wrote, the report relays. It also pointed to a previous Treasury Department license that exempted PDVSA 2020 bondholders from sanctions, meaning they could still go after Citgo if Venezuela missed a payment, the report discloses. "Pending any further changes to the General Licences or OFAC's guidance, therefore, we believe that execution on the collateral securing the 2020 Bonds in accordance with their terms remain authorized," the report relays. A Treasury official confirmed that interpretation: "Treasury's authorization and related guidance regarding the 2020 PDVSA bonds was not impacted by the [executive order] of August 5." A person close to Mr. Guaido's team conceded this point, but added: "The original rationale was that blocking the 2020 holders from foreclosing on their collateral would only allow Maduro to default on the bond with impunity, the report notes. "The US government was interested in increasing the financial pressure on the Maduro regime," the person said. "All of that, however, was pre-Guaido," the person added. Should creditors retain the right to seize Citgo, the person close to Mr. Guaido's team warned of severe consequences, the report notes. "At this point the license could operate to deprive the Guaido government of one of the country's most important external assets," the person said. "That, in turn, will delay the eventual economic recovery of the country," he added. For that reason, some observers expect the Treasury to clarify the scope of Citgo's protection before October, the report notes. "I don't really see the Treasury allowing the 2020 bondholders to enforce their claim," said Richard Cooper, a lawyer at Cleary Gottlieb who advises the bondholder group alongside Mark Walker at Guggenheim Securities. "If they don't change this, someone is going to get blamed for losing Citgo," he added. "It would be a potentially big hit to the Guaido team to lose Citgo under their watch," he said. The big bondholder group, which proposed its own plan to restructure the country's $150 billion stack of defaulted debt last month, has suggested an alternative path forward, the report relays. "Our group has offered to help the Guaido government find a market solution for the 2020 issue which would help Venezuela preserve control of Citgo and avoid the need for the Treasury to change their previous guidance on this issue," said Mr. Cooper, the report notes. This could include refinancing the payment due this year or the entire bond, among other options with the US government's blessing, the report discloses. The 2020 PDVSA notes, whose biggest holders include London-based investment firm Ashmore Group, BlackRock and T Rowe Price, according to data compiled by Bloomberg, are now trading around 65 cents on the dollar, down from nearly 96 cents on the dollar in late January when the prospects of regime change appeared brighter, the report relays. Mr. Grisanti of the ad hoc PDVSA board said the Guaido team is still assessing "the possibility or impossibility of paying that debt" in October, the report notes. "We're designing a strategy, working to get to the best agreement that reflects the reality on the ground in Venezuela and the humanitarian crisis it's currently experiencing," he said. "All options are on the table," he added, notes the report. As reported in the Troubled Company Reporter-Latin America on April 2, 2019, S&P Global Ratings said it assigned its 'B+' issue-level rating and '1' recovery rating to U.S.-based refinery and petroleum product marketer and distributor CITGO Petroleum Corp.'s $1.2 billion senior secured term loan due in 2024. At the same time, S&P Global Ratings placed the rating on CreditWatch with developing implications. The company plans to use the proceeds from the financing to provide liquidity for ongoing business needs. In addition, the company plans to terminate its revolving credit facility and AR securitization facility. ********* 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. . * * * End of Transmission * * *