/raid1/www/Hosts/bankrupt/TCRLA_Public/201208.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, December 8, 2020, Vol. 21, No. 245
Headlines
A R G E N T I N A
ARGENTINA: Walmart to Sell Operations, Taking $1 Billion Hit
GENNEIA SA: Fitch Upgrades Issuer Default Ratings to CCC
B R A Z I L
BRAZIL: Sao Paulo Retail Trade Should Grow Only 1% in December
BRAZIL: Soybean in Parana State Worst in 5 Years
MRS LOGISTICA: Fitch Affirms BB LT Foreign-Currency IDR
C A Y M A N I S L A N D S
AUTOPISTAS DEL NORDESTE: Fitch Affirms USD70.9MM Notes at BB-
C O L O M B I A
TECNOGLASS INC: Moody's Affirms Ba3 CFR; Alters Outlook to Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: All Fuel Prices Go Up in Country
M E X I C O
VALUE SA: Moody's Affirms B1 Issuer Ratings, Outlook Stable
P A R A G U A Y
PARAGUAY: Fitch Affirm BB+ LT IDR, Outlook Stable
P U E R T O R I C O
ASCENA RETAIL: B. Riley Financial Buys Stake in Justice Brand
METRO PUERTO RICO: Plan Exclusivity Extended Thru Dec. 22
V E N E Z U E L A
BANCO DEL CARIBE: Fitch Withdraws CC IDRs for Commercial Reasons
VENEZUELA: Dollars to Circulate Freely, Rules Out Illegalization
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A R G E N T I N A
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ARGENTINA: Walmart to Sell Operations, Taking $1 Billion Hit
------------------------------------------------------------
Adam Jourdan and Eliana Raszewski at Reuters report that Walmart
Inc., the world's largest retailer, said it was selling its retail
operations in Argentina to South American supermarket chain owner
Grupo de Narvaez, pulling back as the country grapples with an
economic crisis.
The U.S. company did not disclose the size of the deal for retail
operations involving more than 90 stores, but said it would record
about a $1 billion after-tax, non-cash loss related to the
divestiture in its fiscal third quarter next year, according to
Reuters.
The sale comes as Argentina, mired in recession since 2018, has
just emerged from a sovereign default and is grappling with a
currency crisis, the report notes. The government has been fending
off talk that international firms are looking for the exit, the
report relays.
"In Argentina you see a phenomenon of firms divesting, and
companies changing hands, reflecting a lack of confidence in the
direction of the country," said Guido Lorenzo, economist at
consultancy LCG, adding there was huge uncertainty over policy, the
report discloses. "Argentina lacks clear rules of the game."
Walmart sold the majority of its unit in Brazil in 2018, though it
maintains major operations in Chile and Mexico, the report says.
The exit from its business in Argentina, where it began operating
in 1995 and currently has some 9,000 employees in 92 stores, would
include its popular Changomas and Punto Mayorista chains, the
report notes.
Banorte analyst Valentin Mendoza said Walmart's exit from Argentina
indicated it was doubling down on operations where it was already a
market leader in Latin America such as Mexico, where it could
leverage its dominant position better, the report relays.
"Myth of an Exodus"
Argentina is headed for an economic decline of nearly 12% this
year, exacerbated by the coronavirus pandemic, the report
discloses.
The country has imposed capital controls as it battles a currency
crisis, and recently restructured over $100 billion of foreign
currency debt with local and international creditors, the report
says.
The economic malaise and uncertainty have hit corporations in the
country and led to others pulling back, including LATAM Airlines
Group and department store owner Falabella, the report relays.
The government has sought to downplay the narrative that
international firms are ditching the country over what critics have
described as anti-investment policies, and say plans to revive
growth will attract funds once again, the report notes.
"Although the global and local scenario is complex, and despite the
myth of an 'exodus', the truth is there are firms continuing to bet
on the country and announce investments every week," the ministry
of development said in a report here this month, the report says.
Thomaz Favaro, a regional director at consultancy Control Risks,
said firms were concerned about Argentina's public finances along
with a "wide range" of political risks including capital controls,
export taxes and expropriations, the report notes.
"We advise companies in investments across emerging markets and
declining interest in Argentina over the past two years is
notable," he added.
Following the acquisition, family-owned Grupo de Narvaez will own
656 stores, including supermarkets, and apparel and home appliance
outlets in nine countries, including Ecuador and Uruguay, and
employ more than 24,500 workers, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. It's capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019 according to the World Bank.
Historically, however, its economic performance has been very
uneven, with high economic growth alternating with severe
recessions, income maldistribution and in the recent decades,
increasing poverty.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8,
2020.
Fitch's credit rating for Argentina was last reported at CCC with
n/a outlook, a rating upgrade from CC on Sept. 11, 2020. DBRS'
credit rating for Argentina is CCC with n/a outlook, a rating
upgrade on Sept. 11, 2020. Moody's credit rating for Argentina was
last set at Ca, a rating downgrade from Caa2 on April 4, 2020, with
a negative outlook.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
GENNEIA SA: Fitch Upgrades Issuer Default Ratings to CCC
--------------------------------------------------------
Fitch Ratings has upgraded Genneia S.A.'s (Genneia) foreign and
local currency Issuer Default Ratings (IDRs) to 'CCC' from 'C'.
Fitch has also upgraded Genneia's USD500 million notes due 2022 to
'CCC' from 'C'.
The upgrades follow Genneia's successful completion of a tender
offer on Nov. 24, 2020 to exchange its USD51.5 million Class XXI
notes due Nov. 23, 2020 for new notes, named Class XXX, due in
2022. According to the company, it issued USD30.9 million in
capital for the new Class XXX notes and paid USD20.6 million in
cash, fulfilling the requirements set by the central bank.
According to regulatory filings, roughly 75% of the capital
received was under the Base Option and 25% was under the Par
Option. Fitch did not consider this offer a distressed debt
exchange (DDE) per its DDE criteria as the proposal did not amend
the terms of the Class XXI notes. Fitch does not rate Genneia's XXI
or XXX notes.
Fitch expects that Genneia will successfully manage the refinancing
of its dollar-denominated USD6.8 million Class XXIII bond, which
matures on Dec. 20, 2020 within the central bank's guidelines.
Fitch estimates that Genneia has approximately USD90 million in
cash on hand, USD10 million of which is in U.S. dollars.
On Oct. 28, 2020, Genneia announced a debt exchange offer for the
USD51.5 million outstanding on its Class XXI Notes due Nov. 23,
2020. Due to recently-implemented capital controls by the Central
Bank of Argentina, Argentine corporates are only allowed to access
the foreign exchange dollar market to refinance up to 40% of debt
maturities in dollars due between Oct. 15, 2020 and March 31, 2021,
while the remaining 60% has to be refinanced with an average life
of two years or more. Genneia's exchange offer provided two
options, a Base Option and a Par Option. The Base Option offers a
40% repayment of principal in USD and a 60% deferral of principal
payable in 24 months. The Par Option provides a 24-month deferral
of principal payment, payable in USD at maturity. Under both
options, investors may receive the deferred principal in New York.
Both options carry an interest rate of 12%. For investors
responding by Nov. 5, the Base Option offers a 1% early acceptance
incentive while the Par option offers a 4% early acceptance
incentive. The incentive payments would be made in Argentine
pesos.
As with its Argentine utility peers, Genneia's 'CCC' ratings are
linked to Argentina's sovereign ratings to reflect its exposure to
offtaker Compania Administradora del Mercado Mayorista Electrico
(CAMMESA). CAMMESA acts as a market agent on behalf of companies in
the electricity sector and is largely dependent on the Argentine
government for subsidies.
The 'CCC'/'RR4' ratings on the USD500 million senior unsecured
notes due 2022 are based on Genneia's equal FC and LC IDRs. Fitch's
Country-Specific Treatment of Recovery Ratings Criteria no longer
allows for a rating uplift for these obligations. Genneia is capped
at an average Recovery Rating of 'RR4' since Argentina, per the
aforementioned criteria, is categorized within Group D with a soft
cap of 'RR4'. This assumes a recovery in the range of 31% to 50%.
KEY RATING DRIVERS
Successful Debt Exchange Completion: Fitch views Genneia's recent
successful debt exchange of its Class XXI notes positively and as
necessary to comply with central bank-imposed U.S. dollar
refinancing restrictions. On Nov. 24, 2020, Genneia announced the
successful completion of its debt exchange of its USD51.5 million
Class XXI notes into USD30.9 million of Class XXX notes, achieving
the 60% refinancing target set by the central bank. Fitch also
expects Genneia to successfully manage the upcoming maturity of its
USD6.8 million Class XXIII notes, which mature on Dec. 20, 2020.
Genneia continues to exhibit stable cash flow and has USD90 million
of cash and equivalents, roughly USD10 million of which is in US
dollars.
Dominant Player in Renewables: Although Genneia is considered a
relatively small player in the local power generation industry
(3.3% of the system's installed capacity), the company is the
leading wind power generation provider in the country, with
approximately 41% of the renewable installed capacity of Argentina
as of November 2019. The company is expected to add 167MW (Chubut
Norte II, III and IV) of wind capacity in 2020, increasing its
national market share to 52% by year end and exposing it to greater
execution risk. Fitch expects that, by 2021, renewables, including
wind, solar and biomass, will constitute 73% of the company's
revenue and 76% of its EBITDA.
Heightened Counterparty Exposure: Genneia depends on payments from
CAMMESA, which acts as an agent on behalf of an association
representing agents of electricity generators, transmission,
distribution and large consumers or the wholesale market
participants (Mercado Electrico Mayorista; MEM). CAMMESA's payment
delays to the electricity sector have risen from 50 days at the
beginning of 2019 to currently over 70 days. This risk is slightly
mitigated in the RenovAR program with the presence of the FODER
trust fund, which is prefunded with one year of revenue. Payment
days for the FODER are 42 days, resulting in a consolidated payment
lag for Genneia of approximately 54 days. The company estimates 20%
of its consolidated EBITDA is backed by a World Bank guarantee.
Predictable Operating Cash Flow: Genneia's cash flow generation is
relatively stable and predictable. Almost all of the company's
revenue is related to sales to the wholesale electricity market
(MEM) under contracts signed under RenovAr, GENREN and 21/16. The
company benefits from USD-denominated power purchase agreements
(PPAs) expiring between 2018 and 2027 for its thermal capacity and
between 2027 and 2041 for renewables. These PPAs support the
company's cash flow stability and predictability through fixed
payments and fuel supplied by CAMMESA.
Strong EBITDA Margins: Fitch expects the company's EBITDA to be
USD241 million in 2020, 76% of which will be from renewables. The
company's EBITDA margins remained high in 2020 at 86%, in line with
83% in 2019. Fitch expects EBITDA margins to remain stable at 86%
in 2021 and beyond as the company does not plan any expansions
after 2020, and no PPA or regulatory changes are anticipated until
2027. Due to their low variable cost, EBITDA margins on the
company's renewable assets are 88%, while margins for its thermal
projects are approximately 84%. Genneia has relatively fixed and
stable operating costs and does not need to acquire fuel.
Improving Credit Metrics: Fitch expects Genneia to de-lever to
2.0x-3.0x in 2021 and 2022, in line with its Argentine utility
peers. The company's leverage peaked in 2018 at 6.1x to finance the
addition of 500MW of renewable energy capacity between 2017 and
2020 with an additional 167MW of new wind capacity expected in
2H2020. Fitch estimates Genneia will be FCF positive starting in
2021 after its imminent expansion capex has concluded. Fitch
expects the company to begin paying dividends in 2023, the year
after its 2022 bond matures, at a rate of 50% of the previous
year's adjusted net income, or approximately USD72 million.
Uncertain Regulatory Environment: Fitch believes Argentina's
current economic and political environment increases the regulatory
uncertainty. Following the presidential elections in October 2019,
Fitch believes power companies are exposed to uncertain regulatory
changes that could negatively impact their bottom lines, which is
reflected in their ratings being aligned with the sovereign. The
market has already witnessed the "pesification" of Base Energy with
other changes to PPAs being considered. Fitch believes the
government may adjust prices paid to generation companies and force
them to absorb some of the cost.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Genneia's ratings are linked to the sovereign rating of Argentina,
and thus an upgrade can only occur if there is an upgrade of the
Argentine sovereign.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Genneia's ratings are linked to Argentina's sovereign rating and,
as such, a downgrade may occur if the sovereign is downgraded; or
if, in Fitch's judgment, a default of some kind appears probable or
a default or default-like process has begun, which would be
represented by a 'CC' or 'C' rating.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means 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.
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B R A Z I L
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BRAZIL: Sao Paulo Retail Trade Should Grow Only 1% in December
--------------------------------------------------------------
Xiu Ying at Rio Times Online reports that Sao Paulo state retail
trade should record 1% growth in sales compared to the same month
last year, according to estimates by the Retail Trade Economic
Research (PCCV).
According to FENCOMERCIOSP, if the 13th salary were to follow last
year's pattern and the federal government's emergency aid because
of the pandemic were to be maintained at the initial amount of
R$600, the growth in trade sales could reach 10%, the report
notes.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Fitch Ratings affirmed on November 23, 2020, Brazil's Long-Term
Foreign Currency Issuer Default Rating at 'BB-' with a Negative
Outlook. Standard & Poor's credit rating for Brazil stands at BB-
with stable outlook (April 2020). Moody's credit rating for
Brazil was last set at Ba2 with stable outlook (April 2018). DBRS's
credit rating for Brazil is BB (low) with stable outlook (March
2018).
As reported in the Troubled Company Reporter-Latin America, Fitch
Ratings' negative outlook this November 2020 for Brazil reflects
the severe deterioration in fiscal deficit and public debt burden
during 2020 and persisting uncertainty regarding fiscal
consolidation prospects. Fitch expects the economy to recover
from 2021; however, uncertainty around political and policy
developments, combined with a resurgence in global coronavirus
infections, continue to cloud the outlook.
BRAZIL: Soybean in Parana State Worst in 5 Years
------------------------------------------------
Rio Times Online reports that planting of soybean for 2020-2021
season is near to 99% completion in the state of Parana according
to the Department of Rural Economics for the state of Parana.
The department reported that there are indications of 4% of the
soybeans on germinating stage with 82% in vegetative development,
12% flowering, and 2% in filling pods condition, according to Rio
Times Online.
Soybean in the state of Parana has been rated 4% poor, 24% average,
and 72% good so far. Dry weather is the major reason which has
affected the early development of the soybean crop, the report
notes.
Parana's Soybean production in the 2020/21 season is rated close to
20.4 million tons, which remains lower by 1% when compared to the
2019/20 growing season, adds the report.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Fitch Ratings affirmed on November 23, 2020, Brazil's Long-Term
Foreign Currency Issuer Default Rating at 'BB-' with a Negative
Outlook. Standard & Poor's credit rating for Brazil stands at BB-
with stable outlook (April 2020). Moody's credit rating for
Brazil was last set at Ba2 with stable outlook (April 2018). DBRS's
credit rating for Brazil is BB (low) with stable outlook (March
2018).
As reported in the Troubled Company Reporter-Latin America, Fitch
Ratings' negative outlook this November 2020 for Brazil reflects
the severe deterioration in fiscal deficit and public debt burden
during 2020 and persisting uncertainty regarding fiscal
consolidation prospects. Fitch expects the economy to recover
from 2021; however, uncertainty around political and policy
developments, combined with a resurgence in global coronavirus
infections, continue to cloud the outlook.
MRS LOGISTICA: Fitch Affirms BB LT Foreign-Currency IDR
-------------------------------------------------------
Fitch Ratings has affirmed MRS Logistica S.A.'s (MRS) Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) at 'BB',
Long-Term Local Currency (LC) IDR at 'BBB-' and Long-Term National
Scale Rating at 'AAA(bra)'. At the same time, Fitch has affirmed
the Long-Term National Rating of MRS's unsecured debentures
maturing in 2022 and 2024 at 'AAA(bra)'. The Rating Outlook for the
National Scale rating is Stable. MRS' FC IDR is constrained by
Brazil's 'BB' Country Ceiling. Fitch considers a three-notch
difference between the company's LC IDR and the Brazil's sovereign
IDR (BB-/Negative) as appropriate for a regulated sector. The
Rating Outlook of the FC and LC IDR is Negative, resulted from
exposure to Brazil's Country Ceiling and direct linkage to the
country's sovereign ratings.
The ratings are based on MRS' strong and resilient operational cash
generation, positive FCF ability, conservative capital structure,
robust financial flexibility and strong business profile. The
company's business model is strong, supported by captive demand for
transportation and volume protection clauses for most of its
contracts. MRS's business shows relatively low exposure to
volatilities of the business environment in Brazil and the
agricultural and iron ore price cycle. MRS' business model has been
strongly tested during 2019 and 2020, after the material decline of
Vale S.A.'s (Vale) volume, and credit protection metrics has been
robust. The company's business model is also supported by a
shareholders' agreement that establishes a well-defined tariff
model and has protected the company's operational profitability,
enhancing the predictability of future results.
The ratings also reflect the agency's belief that the expected iron
ore volume pressures will remain over the medium term -- due to the
decommissioning of Vale's mine attended by MRS- but will not affect
MRS' ability to generate robust cash flow operation and its credit
quality. The agency's base case foresees that MRS' net leverage
measured by net debt-to-EBITDA will remain conservative, below 1.5x
in 2020 and 2021, and it will remain conservative even in the
scenario of the concession contract renewal in a short time frame.
MRS is expected to continue raising long-term debt and maintain its
sound liquidity.
KEY RATING DRIVERS
Solid Business Profile: MRS runs a mature and important railway
concession in Brazil that expires in 2026 and benefits from its
prominent position as sole provider of railway transportation for
large clients, which are also the company's major shareholders, in
its coverage area, linking the Brazilian center to the most
important ports in the Southeast region. The competition from other
transportation modes is marginal, which enhances the company's
earning predictability. Railway transportation in Brazil enjoys
solid demand, low competition amongst operators, high barriers to
entry and medium to high profitability. These advantages, along
with the great opportunities to enhance the country's
transportation infrastructure, make for a favorable credit
environment for Brazilian railway companies.
Captive Clients: Despite of the temporary volume decline due to
Vale's production constrain, starting in 2019, MRS' ratings benefit
from the positive long-term fundamentals of its business model,
which is supported by captive clients demand combined with the
volume protection clauses (take or pay) for great part of its
contracts, which was strongly tested during 2019 and 2020.
Positively, the company's main individual shareholder is Mineracoes
Brasileiras Reunidas S.A. (MBR), which is controlled by Vale (FC
and LC IDR BBB/Stable), owing on a combined basis 43.8% of MRS's
total capital. In addition, MBR and Vale were responsible for
almost half of MRS's revenues in 2019. MBR and Vale's operations,
as well as those of its other main shareholders, such as CSN
(37.2%), Usiminas (11.1%) and Gerdau (1.3%), are heavily dependent
on MRS's iron ore cargo capacity in its coverage area. While
volumes increased by 2.2% per year from 2014 to 2018, it declined
by 16% in 2019 and should slightly increase by 1.3% in 2020.
Shareholder Agreement Protects Margins: MRS's shareholder agreement
provides a tariff model that protects the company's profitability
and cash flow generation capacity. In recent years, MRS's operating
cash flow generation has proved to be resilient against strong
economic downturns and unfavorable movements of the exchange rate,
fuel and iron ore prices. The tariff model establishes, on an
annual basis, freight rates for each captive client during one
cycle, through a pre-defined cargo volume and a return target over
equity ratio. Furthermore, the model determines tariff adjustments
on a monthly basis in the event of substantial cost increases,
chiefly regarding fuel. This operating model has proven to be
efficient over many years and has translated into high EBTIDA
margin resilience that ranges 40%-45% over the cycles.
Positive FCF Over the Long Term: Historically, MRS has reported
consistent operating cash flow generation. Fitch believes that
MRS's EBITDA will slightly increase, as the company gains scale and
continues benefitting from increases in non-captive freight orders
following capex completion in infrastructure and undercarriage
material. In 2021, Fitch expects MRS's EBITDA and FFO to reach
BRL1.7 billion and BRL1.3 billion, compared with BRL1.5 billion and
BRL1.5 billion, respectively in 2019. MRS' FCF should be slightly
negative in 2021 and 2022, following average capex of BRL1.3
billion per year, in the period, which is the double of the annual
capex over the last three years. In case of early concession
contract renewal, Fitch believes the FCF to be negative in about
BRL400 million per year, in average, from 2021 until 2023. In
Fitch's base case scenario, investments are expected to push
volumes up by about 7% per year from 2020 to 2023; and by 8% per
year, in case of higher capex requested by the concession contract
addendum.
Current Ratings Support Potential Early Concession Renewal: Fitch
does not foresee major pressures on MRS' credit quality, motivated
by the likely early concession extension. In Fitch's view, MRS has
strong capital structure to support the additional capex of BRL2.0
billion, from 2021 to 2023, to attend the contract addendum. Fitch
believes that the early contract renewal is neutral to slightly
positive to MRS' operational cashflow. The additional capex should
lead to net leverage to be in the 1.3x-1.7x range from 2021 to
2023, still very conservative for the current rating level.
Conservative Capital Structure: MRS's leverage is low and
consistent with the ratings. During the LTM ended September 2020,
MRS's net leverage ratio, measured as net debt/EBITDA, was 1.1x,
comparing favorably with the 1.6x average during the 2016-2019. The
conversion of EBITDA into FFO has been historically high, which has
resulted in low FFO-adjusted net leverage within the 1.5x-2.2x
range. Fitch forecasts improved EBITDA net leverage to be close to
1.3x over the next two to three years, commensurate with an
investment-grade rated company in the sector.
DERIVATION SUMMARY
MRS is positioned below other mature rail companies in the U.S. and
Canada, which are generally rated in the mid 'BBB' to low 'A'
range. MRS's operations businesses are concentrated solely in
Brazil, and its captive clients (shareholders) are rated 'BBB' or
below. Compared with other Brazilian railroads, MRS is the best
positioned based on consistent operating cash flow generation,
relatively flat operating margins, historical positive FCF, low
leverage and sound liquidity. Rumo (BB+/AAA[bra]/Stable) and VLI
(NR/AAA[bra]/Stable) present negative FCF trends from substantial
capex plans that need to be financed and higher leverage, which is
compatible with their growth momentum.
A broader comparison shows MRS with lower leverage metrics than
other large rail companies such as Norfolk Southern, Canadian
Pacific and Kansas City Southern. MRS also exhibits operating
margins in line with Brazilian railroads. Solid credit metrics are
partially offset by MRS's geographic concentration compared with
other large world rail companies, which constrains the IDRs. MRS's
FC IDR of 'BB'/Negative is capped by Brazil's Country Ceiling due
to its total concentration in that country.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer:
-- Although Fitch believes the early concession contract renewal
is likely, base case does not consider this scenario;
-- Heavy haul volumes to increase 5.6% and General Cargo to
decline by 5.0%, in 2020;
-- Volumes to increase based on GDP from 2021 onwards;
-- Vale's volume recovers to 2018's level in 2022;
-- Tariffs increasing by inflation;
-- Total capex of BRL4.6 billion from 2020 to 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Positive rating action is unlikely in the medium term due to the
limitation on Brazil's sovereign IDR and Country Ceiling. However,
issues that may positively impact the rating are:
-- Improvements on cargo diversification;
-- Material improvement of credit quality of its major clients
and/or shareholders combined with positive rating actions on
Brazil's sovereign IDR (BB-/Negative);
-- Positive actions toward the sovereign rating may lead to
positive actions regarding MRS's FC IDR, currently limited by the
Brazilian Country Celling.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Deterioration of EBITDA margins to lower than 35% on a
sustainable basis;
-- Net debt/EBITDA ratios consistently above 3.0x;
-- Severe deterioration of credit quality of its major clients
and/or shareholders;
-- A downgrade of Brazil's sovereign rating and of the country
ceiling could lead to a negative rating action regarding the FC and
LC IDR of MRS.
LIQUIDITY AND DEBT STRUCTURE
Sound Liquidity: MRS' liquidity profile is satisfactory, supported
by adequate cash position coupled with the positive FCF trend. As
of September 2020, MRS' cash and marketable securities peaked at
BRL1.5 billion, which covered short-term debt of BRL753 million by
2.0x. Fitch expects MRS' cash to range BRL600 million to BRL900
million over the medium term, covering satisfactory short-term
debt. MRS also benefits from proven access to credit and equity
markets to adequately fund its investments and support temporary
negative FCF, in 2021 and 2022. Liquidity is not expected to be
pressured in case of early concession contract renewal, as the
additional capex of BRL2.0 billion from 2021 to 2023 is expected to
be financed by long-term debt. MRS should maintain its strategy to
roll-over part of its sort-term debt, leading the leverage to
remain in line with the current low levels. In Sept. 30, 2020,
MRS's total debt was BRL3.0 billion, being BRL1.8 billion of
debentures (59%) and outstanding debt with Banco Nacional de
Desenvolvimento Economico e Social of BRL 528 million (BNDES;
18%).
SUMMARY OF FINANCIAL ADJUSTMENTS
Derivatives balance booked in the asset side is deducted from debt;
derivatives balance booked in the liability side is added into
debt. Assets sales excluded from EBITDA account. Concession
expenses included in EBITDA.
SOURCES OF INFORMATION
The principal sources of information used in the analysis are
described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means 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.
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C A Y M A N I S L A N D S
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AUTOPISTAS DEL NORDESTE: Fitch Affirms USD70.9MM Notes at BB-
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Fitch Ratings has affirmed Autopistas del Nordeste (Cayman) Ltd's
(AdN) notes at 'BB-'. The Rating Outlook remains Negative. The
notes are due in 2026 and have an outstanding balance of USD70.9
million.
AdN's Negative Outlook mirrors that of the sovereign ratings of
Dominican Republic and reflects the transaction's exposure to the
credit quality of the Minister of Public Works and Communications,
as the concession's grantor and provider of the Minimum Revenue
Guarantee (MRG). The latter is viewed as a credit-linked entity to
the Government of the Dominican Republic (Local Currency Issuer
Default Rating (IDR)
BB-/Negative).
RATING RATIONALE
The rating is supported by the MRG paid by the Dominican Republic's
government, which largely mitigates the project's volume and price
risks, as toll revenues remain persistently insufficient to cover
operational costs and debt service. MRG payment delays are still
significant but this risk is mitigated by AdN's adequate liquidity
to meet debt service in the short to medium term. Fitch believes
there is a heightened risk of increased delays in the MRG payment,
as a result of further pressure in the government's finances
derived from a depressed economy amid the coronavirus pandemic. An
increment in the days of payment, depending on its materiality and
duration, could rapidly deteriorate AdN's payment capacity.
The rating also reflects a flexible debt structure with principal
payments that can be deferred for two years if needed and robust
liquidity in the form of the typical reserve accounts and
additional resources retained by the stockholders within the
project to face its operational and financial obligations should
delays in receipt of the MRG continue or increase significantly.
Considering the MRG cash inflows, Fitch's rating case assumed
revenues according to MRG as traffic volumes are not expected to
reach levels above those guaranteed, so no further sensitizations
were applied to reflect the likely declines in traffic due to
travel reductions from the coronavirus and its potential economic
impact. This case yields a solid debt service coverage profile with
minimum and average debt service coverage ratio (DSCR) of 1.2x in
2023 and 1.3x, respectively, considered strong for the rating
category, in light of the transaction's reduced exposure to volume
risk. AdN's rating is constrained by Fitch's assessment of the
credit quality of the Minister of Public Works and Communications'
MRG grantor obligation, which is commensurate with that of the
Dominican Republic's sovereign (BB-/Negative).
Fitch believes the delays in the payment of the MRG are not signs
of the sovereign's incapacity or unwillingness to pay but rather a
strategic use of the financial flexibility offered by the project's
liquidity position and a reflection of the complex administrative
process needed to make budget appropriations. If such a buffer was
not available, Fitch believes the government would try and reduce
the payment cycle. The presence of Multilateral Investment
Guarantee Agency (MIGA) insurance may also incentivize the
government to treat the MRG as a senior expenditure.
The outbreak of coronavirus and related government containment
measures worldwide create an uncertain global environment for the
transportation sector. While the issuer performance data through
most recently available issuer data may not have indicated
impairment, material changes in revenue and cost profile are
occurring across the transportation sector and will continue to
evolve as economic activity and government restrictions respond to
the ongoing situation. Fitch's ratings are forward-looking in
nature, and Fitch will monitor developments in the sector as a
result of the virus outbreak as it relates to severity and
duration, and incorporate revised base and rating case qualitative
and quantitative inputs based on expectations for future
performance and assessment of key risks.
KEY RATING DRIVERS
Adequate Governmental Support: The government of the Dominican
Republic pledged under the concession agreement in 2001 an MRG that
protects noteholders from the risk of insufficient traffic over the
life of the notes. The government has continued to honor this
pledge, and Fitch expects required payments to be made over the
life of the notes. The concession agreement also calls for the
government to post a SBLC under certain circumstances to provide
additional support to the transaction.
Financial Guarantee: The notes benefit from a partial political
risk guarantee provided by the MIGA, a member of the World Bank
Group. A failure by the government to honor the MRG would be
covered under this guarantee; however, disbursements can be
delayed, and internal liquidity is essential to the project's
capacity to service debt. Fitch believes the MIGA guarantee
provides additional incentives for the government to honor its
obligations under the concession.
Low Volume Touristic Asset (Revenue Risk - Volume: Weaker): The
toll road connects Santo Domingo and the northern province of
Samana. It provides an efficient route but has competing free
alternatives. Moreover, despite robust gains in recent years,
actual traffic remains far below initial projections requiring
substantial payments via the MRG. This dependence on external
revenues is expected to continue in the near to intermediate term.
Regular Toll Increases [Revenue Risk - Price: Midrange]: The
operator of the road is able to increase tolls annually by
inflation under the concession agreement and has historically
completed annual rate adjustments without issue.
Predictable Operating Costs [Infrastructure Development & Renewal:
Midrange]: A fixed O&M agreement with an experienced toll road
operator. The project benefits from oversight from an independent
engineer who provides quarterly reports on the overall condition of
the toll road along with current and future maintenance needs.
There is a 12-month major maintenance reserve account.
Conservative Debt Structure [Debt Structure: Stronger]: The notes
are fully amortizing, fixed-rate obligations with typical project
finance covenants. Liquidity available within the structure
includes a six-month debt service reserve account, working capital
voluntarily contributed by the stockholders, among others.
Additional flexibility is also available as targeted principal
amortization on the notes is deferrable.
Financial Profile: The project's rating case ratios are strong for
the rating category with minimum and average DSCRs at 1.2x (2023)
and 1.3x, respectively. The rating is constrained by Fitch's
assessment of the credit quality of the Minister of Public Works
and Communications' MRG grantor obligation, which is commensurate
with that of the Dominican Republic's sovereign.
PEER GROUP
Given AdN's revenue profile, the most comparable transactions are
P.A. Pacifico 3 and P.A. Costera, two Colombian toll road
transactions rated at 'BBB-'/Outlook Negative, with revenues that
are mostly dependent on grants and traffic top up payments by the
concession's grantor. AdN's rating case credit metrics are slightly
lower than those of the Colombian transactions, which present LLCRs
around 1.4x.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A positive rating action on Dominican Republic's sovereign
rating could trigger a corresponding positive rating action on the
rated notes as far as the project fundamentals support it.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A negative rating action on the Dominican Republic sovereign
rating or Fitch's perception that the counterparty risk posed by
the MRG has increased; heavier MRG collection delays that trigger
the use of the DSRA to meet debt service obligations on a sustained
basis; or continued observed deterioration on available liquidity
levels to face operating and financial obligations.
TRANSACTION SUMMARY
The toll road, completed in 2009, extends 106 kilometers
(approximately 66 miles), connects Santo Domingo with the northern
province of Samana, and includes three toll plazas. In comparison
to alternative roads in the region, it considerably reduces the
travel distance between Santo Domingo and Samana. AdN is the
issuer, created under the laws of the Cayman Islands, and is an
exempted limited liability company.
CREDIT UPDATE
As of October 2020, traffic has decreased 8.8% compared to the same
period in 2019, while toll revenues decreased 7.4% both reflecting
the effects of the social distancing measures due to the
coronavirus pandemic. However, in September and October 2020,
traffic overperformed 2019 levels. According to the company, the
positive performance recently observed was not only due to the
relaxation of the lockdown measures, but also to the impact of a
government campaign to promote travel inside Dominican Republic and
to the recent expansion of some of toll plazas that were congested
in the past.
Although traffic continues to be significantly below the original
forecast, project liquidity remains strong in the form of a debt
service reserve account (USD15.0 million) and operational reserves
permitted by the Indenture to be used for debt service if needed
(USD11.6 million). These reserves amount USD26.6 million, which are
enough to cover little more than three quarterly debt service
payments. According to AdN's management team, as of the closing of
November 2020, resources available amount USD30.6 million.
The SBLC required under the concession agreement to cover any
deficiency in MRG has not been renewed since 2017. However, the
concession agreement indicates that in if the Revenue Deficit
Reserve Account is at least USD1.0 million, the SBLC is not
required. Thus, the company has properly funded this reserve.
During 2020, the government delays in the payment of the MRG
increased to 200 days from historical performance of around 140
days and, according to the concessionaire, this was explained by
the change in the federal government administration occurred in
August 2020. The concessionaire expects payment days to normalize
in the next months. Two MRG payments for this year were received
corresponding to the periods of December 2019 to February 2020 and
March to May 2020 (both in November). The invoice corresponding to
June to August 2020 was invoiced on Sept. 10. Fitch will continue
to closely monitor collection days to verify the term does not
significantly widen as this could represent short-term liquidity
problems in the future.
The concessionaire successfully concluded a toll plaza expansion
program planned for this year. These works were performed with
available funds from the appropriate reserve accounts.
FINANCIAL ANALYSIS
At present, Fitch is not differentiating between its base and
rating case assumptions, given the level of uncertainty about
future traffic performance.
Fitch has revised its traffic assumptions under its rating case to
reflect actual traffic as of October 2020 and a traffic variation
of -10% with respect to the equivalent period in 2019 for November
and December of 2020. As a result, this scenario assumes traffic in
2020 will reach 88% of the 2019 levels observed. Fitch has also
changed its assumption of traffic recovery in the longer term.
Traffic is assumed to fully recover in 2021 followed by a traffic
growth of 2% for 2022 and 1% onwards.
The Dominican Republic's Consumer Price Index (CPI) was assumed at
4.5% for 2020, and 4.0% onwards. The United States' CPI was assumed
at 0.6% for 2020, 0.7% for 2021, 1.2% for 2022 and 2.0% onwards.
O&M expenses were increased annually by inflation plus 10%.
Under this scenario, DSCR including resources from the MRG resulted
in an average DSCR of 1.3x with a minimum of 1.2x in 2023.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means 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.
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C O L O M B I A
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TECNOGLASS INC: Moody's Affirms Ba3 CFR; Alters Outlook to Stable
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Moody's Investors Service affirmed Tecnoglass Inc.'s Ba3 corporate
family rating and the Ba3 rating on its senior unsecured notes due
2022. The outlook has been changed to stable from negative.
RATINGS RATIONALE
The ratings affirmation and outlook stabilization reflect the
improvement in Tecnoglass' capital structure, along with the
gradual recovery in its operating performance.
Accordingly, refinancing risk has diminished following the issuance
of a new $300 million Senior Secured Credit Facility due 2025. The
company intends to use the net proceeds to repay all outstanding
debt, including its existing $210 million senior unsecured notes
due 2022, which bear an interest rate of 8.2%.
The improvement in Tecnoglass' operations over the past few months
is mainly supported by the US market recovery, which US accounts
for 93% of Tecnoglass' revenues and 88% of its backlog. Moody's
recently changed its outlook on the US homebuilding industry to
stable from negative as the demand for homes has recovered
relatively rapidly and steadily since bottoming in the second
quarter of 2020. Moody's expects current market conditions to
remain stable over the next 12-18 months. As of Q3 2020, single
family residential represents 19% of Tecnoglass' US sales, a
significant increase when comparted to the 3% registered in 2017.
In addition, non-residential construction has also recovered
partly. According to the Architectural Billing Index (ABI), a
leading indicator for non-residential construction activity in the
US, billings improved to 47.5 in October from 32 on May and design
contracts index reached 51.7, being from the first time since May
above the 50 threshold that indicate positive activity. Likewise,
housing starts increased by 4.9% to 1,530k in October and were
strong in Tecnoglass' area of influence in the US Southeast. The
stable outlook reflects the improvement in Tecnoglass' capital
structure, along with the gradual recovery in its operating
performance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings are unlikely to be upgraded in the short term. Positive
rating pressure would not arise until construction activity is
fully restored in the US and other markets. At this point, a
positive action will require sustained strengthening of credit
metrics and ample liquidity headroom.
Ratings could be downgraded if there is an indication of a
significant cash burn that threatens Tecnoglass' ability to cover
corporate expenses such as interests, taxes and working capital
with internal sources.
The principal methodology used in these ratings was Manufacturing
Methodology published in March 2020.
Tecnoglass Inc. is a Colombian company engaged in the production of
high-specification architectural glass and windows for both
commercial and residential markets. The company operates a 2.7
million square foot plant located in Barranquilla, Colombia. In
2019, about 86% of the company's revenue was generated in the US,
12% in Colombia and 2% in Panama and other countries in Latin
America. The company was established in 1984 and has been listed on
the Nasdaq since 2013. The company's market capitalization as of
November 2020 was $359 million.
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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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DOMINICAN REPUBLIC: All Fuel Prices Go Up in Country
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Dominican Today reports that prices of all fuels will rise from
RD$1.70 to RD$4.10 per gallon until December 11; only natural gas
maintains its price.
As explained by the MICM, the increases respond to increases in
both international oil prices and world stock markets, according to
Dominican Today.
The Ministry of Industry, Commerce and Mipymes (MICM) informed that
regular gasoline would be sold at RD$196.30 and premium at
RD$208.90, RD$2.50 more per gallon each. In contrast, regular
diesel will rise RD$2.60 to RD$159.00, and optimal at RD$170.90,
rising RD$3.80 per gallon, the report notes.
Liquefied gas will be dispensed at RD$117.90, RD$1.70 more per
gallon, the report relays. Natural gas will maintain its price of
RD$28.97 per cubic meter, the report says.
Avtur will be sold at RD$120.20 up by RD$3.50 per gallon; kerosene
will increase by RD$4.10 up to RD$145.40; fuel oil #6 will increase
by RD$2.80 up to RD$108.40, and fuel oil #1 will increase by
RD$4.90, the report notes.
Also, the rise in international prices is explained by the fact
that OPEC oil-exporting countries and Russia will agree to continue
production cuts to adjust to lower demand, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the
island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district.
Luis Rodolfo Abinader Corona is the current president of the
nation.
The Troubled Company Reporter-Latin America reported in April 2019
that the Dominican Today related that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
Standard & Poor's, on December 4, 2020, affirmed its 'BB-'
long-term foreign and local currency sovereign credit ratings on
the Dominican Republic. The outlook remains negative. S&P also
affirmed its 'B' short-term
sovereign credit ratings.
The negative outlook reflects S&P's view that it could lower the
ratings on the Dominican Republic over the next six to 18 months,
given the severe impact of the COVID-19 pandemic on the
sovereign's
already vulnerable fiscal and external profiles, as well as the
potential for a weaker-than-expected economic recovery.
Moody's credit rating for Dominican Republic was last set at Ba3
with stable outlook (July 2017). Fitch's credit rating for
Dominican Republic was last reported at BB- with negative outlook
(May 8, 2020).
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M E X I C O
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VALUE SA: Moody's Affirms B1 Issuer Ratings, Outlook Stable
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Moody's de Mexico affirmed the B1/Not Prime long- and short-term
local currency issuer ratings of Value, S.A. de C.V., Casa de Bolsa
(Value), as well as its Baa2.mx and MX-3 long and short-term
Mexican national scale issuer ratings, respectively. The outlook on
the ratings is stable.
Moody's has also withdrawn the outlook on Value's existing global
scale long-term issuer rating for its own business reasons.
The following ratings of Value, S.A. de C.V., Casa de Bolsa were
affirmed:
Long-term global local currency issuer rating of B1
Short-term global local currency issuer rating of Not Prime
Long-term Mexican national scale issuer rating of Baa2.mx
Short-term Mexican national scale issuer rating of MX-3
Outlook, stable
RATINGS RATIONALE
Moody's affirmation of the rating of Value at B1 captures the
broker dealer's high-risk appetite, given the nature of its
investment portfolio concentrated in Mexican project finance
securitizations, which tend to be less liquid than its holdings of
highly-liquid Mexican government securities. However, the firm's
relatively illiquid investment portfolio has had adequate credit
performance to date. At the same time, Value's long track record as
a niche investment franchise, its low leverage and strong
capitalization ratios protect the firm against extreme market
swings, and offsets its volatile profitability. Value's ratings
also incorporate Moody's views that decision-making processes tend
to be concentrated with a handful of key executives, exposing the
firm to governance risks.
Value's performance to date reflects the unrealized losses
triggered by the coronavirus-related volatility in its investment
portfolio, which led to mark-to market losses in the first quarter,
followed by recovering valuations in the second and third quarters
of 2020. Most of Value's investments are composed of infrastructure
bonds related to toll road projects and highways concessions in
Mexico; whose performance suffered at the outset of the pandemic as
mobility declined. As of September 2020, Value's return on average
assets (ROAA) was a negative 3.1%, resulting in a spike in its
pre-tax earnings volatility ratio to a very high 305% in the same
period. Historically, Value's pre-tax earnings volatility, at
around 100% in the past four years, has been high relative to that
of other global market makers. The concentration in Level 3 assets
is also higher than global peers. At the same time, Value has
managed to control its operating expenses since 2017, which have
declined relative to bottom line results, but the recent balance
sheet contraction and operating losses resulted in still modest
operating efficiency.
Value's reduced risk exposure and ample market liquidity supported
its liquidity inflows to outflows ratio, which increased to a
strong 135% in September 2020, from an average of around 100% over
the past three years. However, as market conditions improve over
time, Value's risk appetite and leverage will likely increase,
reversing the boost to funding and liquidity seen in 2020. Value's
market funding has declined as a share of total liabilities for the
past 3 years, and its own capital now finances more than 50% of its
operations.
Moody's also notes that its ratings for Value incorporate a
qualitative adjustment to reflect the assessment that the firm's
decision-making process is concentrated in a handful of key
executives, raising concerns about potential key-man risks.
Moreover, the brokerage house's ownership structure could also
expose the firm to potential corporate governance risks.
Value's Baa2.mx Mexican national scale issuer rating is the highest
of the two alternatives corresponding to the B1 global issuer
rating and reflects the firm's low leverage and strong
capitalization, and its well-established niche business.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could face upward pressure if the firm manages to stabilize
its earnings at positive levels, while maintaining solid liquidity
and funding buffers as risk appetite increases. Increased business
diversification without outsized risks would be credit positive.
Value's ratings could be downgraded if profitability declines
materially hurting its capital, and if leverage increases
significantly, amid a reduction in liquidity and funding buffers.
The principal methodology used in these ratings was Securities
Industry Market Makers Methodology published in November 2019.
The period of time covered in the financial information used to
determine Value, S.A. de C.V., Casa de Bolsa's rating is between
January 1, 2016 and September 30, 2020 (source: Audited Financial
statements 2016-2019. Quarterly financials 2016-2020).
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P A R A G U A Y
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PARAGUAY: Fitch Affirm BB+ LT IDR, Outlook Stable
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Fitch Ratings has affirmed Paraguay's Long-Term Foreign Currency
Issuer Default Rating at 'BB+' with a Stable Rating Outlook.
KEY RATING DRIVERS
Paraguay's ratings reflect its track record of prudent and
consistent macroeconomic policies anchored by a floating currency,
an inflation-targeting regime and a fiscal responsibility law. The
ratings also reflect a general government debt level that is still
relatively low despite a steep rise in 2020 and a projected upward
trend, along with robust external liquidity relative to 'BB' peers.
Its ratings are mainly constrained by structural factors that
include weak governance indicators and a shallow local capital
market.
Paraguay's real GDP is expected to contract by 1.1% in 2020 as a
result of the lockdown measures imposed to combat the coronavirus
pandemic, one of the milder economic contractions in Latin America.
Paraguay's relative outperformance results from a strong rebound in
soya and beef production in 2020. Agriculture suffered from drought
and flooding in 2019, resulting in an overall GDP decline of 0.4%.
Fitch expects growth to reach 3.5% in 2021, with a strong pickup in
services and commerce. Government efforts to improve the business
environment and invest in infrastructure may support higher growth
over the medium term, but volatility could return if shocks are
repeated.
The implementation of lockdowns to combat the pandemic resulted in
a severe contraction in the service industry (hotels and
restaurants expected to fall by 36%) and commerce (expected to fall
by 6%). Services overall represent an estimated 48% of GDP in 2020.
However, the sharp rise in agriculture and beef production helped
to compensate for these falls, growing an estimated 10% and 5%,
respectively. Additionally, continued depreciation pressures on the
Argentine peso and a prolonged recession led to a decline in border
trade and remittances, the second most important source of flows
for Paraguay.
In response to the pandemic, the central bank cut its policy rate
by a cumulative 325 basis points (bps) to 0.75% in June 2020, on
top of an aggregate 125 bps cut in 2019. The inflation targeting
regime in place since 2011 has anchored inflation expectations and
helped to deliver low inflation while allowing the exchange rate to
serve as a shock absorber, although high dollarization constrains
the flexibility and efficacy of these policies. Average inflation
is expected to reach 2.3% in 2020, at the lower end of the central
bank's 4%+/-2% target.
Additionally, the government announced a fiscal package worth close
to 4% of GDP (of which around half is above-the-line spending) and
suspended the fiscal responsibility law, which sets a deficit limit
of 1.5% of GDP and an increase in real current expenditures at 4%.
The package includes measures to support the healthcare system,
expand the social safety net through cash transfers and provide
loans to small- and medium-sized enterprises. The fiscal measures
and fall in tax revenues will drive the central government deficit
to an estimated 6.0% of GDP in 2020. In 2019, the authorities used
escape clauses in the fiscal rule that allowed a deficit of up to
3% of GDP in certain circumstances, including recessions, national
emergencies or international crises, due to a recession resulting
from severe weather conditions. As a result, the central government
deficit more than doubled to 2.9% of GDP in 2019, from 1.3% in
2018.
Paraguay has a long track record of prudent fiscal policy that has
delivered low deficits (or surpluses) over the last decade and
helped to keep the debt burden relatively low compared to the 'BB'
median. However, with the fiscal responsibility law suspended until
2024, fiscal credibility could suffer if a clear fiscal adjustment
plan is not detailed. To address this, the government has outlined
an adjustment plan in its medium-term fiscal framework and has
pledged to send a bill to update the fiscal responsibility law,
possibly adding a debt ceiling anchor (35%-40% of GDP) and lowering
the cap on the increase in real current expenditures to 2%.
In 2019, the government passed a tax reform that was estimated to
yield 0.7% of GDP in additional revenues beginning in 2021. Given
the economic downturn, the reform is likely to have a delayed
impact on revenues. Additionally, in view of the higher interest
burden and continued pressures for social spending, the government
may need to pass additional tax measures to return to the 1.5% of
GDP deficit limit by 2024; tax revenues are only 9% of GDP, one of
the lowest such ratios in the 'BB' category. However, the outlook
for further major reforms under President Mario Abdo Benitez's
administration has diminished given the fall in the president's
popularity, splits within the Colorado party and the fact that the
election cycle will begin to ramp up over the next year.
General government debt is expected to rise to 27.7% of GDP in
2020, from 20.2% in 2019, and continue to rise over the forecast
period. Despite the rise in the debt burden, it remains the lowest
in the 'BB' category, with the 'BB' median at close to 60% of GDP
in 2020. However, nearly 90% of Paraguay's debt is denominated in
foreign currency, exposing the debt ratio to foreign exchange (FX)
rate volatility.
Paraguay's shallow local capital market and limited domestic
financing options are rating constraints, although these are
consistent with the 'BB' category. The government has made some
progress in issuing local currency instruments at longer tenors,
albeit for relatively small amounts thus far. Public sector pension
funds are forbidden from investing in government domestic debt,
which limits local financing options and development of the
market.
Paraguay's external indicators are somewhat better than those of
its 'BB' category peers, with net external debt at 13.9% of GDP
versus the current 'BB' median of 25%. Furthermore, a large portion
of the external debt is related to the Itaipu and Yacyreta dams
(jointly owned by Paraguay with Brazil and Argentina,
respectively). Debt related to the Itaipu dam has been amortizing
yearly and is expected to be fully paid off by 2022, improving
Paraguay's external balance sheet. Net external debt remains well
below its historical high of 177% of GDP in 2003.
International reserve coverage remains steady at 6.7 months of
current external payments versus 4.8 months for the 'BB' median,
which helps to mitigate vulnerabilities from commodity dependence
and high financial dollarization. Fitch expects the current account
balance to swing into surplus at 1.0% of GDP from a small deficit
in 2019 due to import contraction while exports recover.
ESG
ESG - Governance: Paraguay has an ESG Relevance Score of '5' for
both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption, as
is the case for all sovereigns. Theses scores reflect the high
weight that the World Bank Governance Indicators (WBGI) have in
Fitch's proprietary Sovereign Rating Model. Paraguay has a medium
WBGI ranking at the 38th percentile, reflecting the absence of a
recent track record of peaceful political transitions, relatively
weak rights for participation in the political process, weak
institutional capacity, uneven application of the rule of law and a
high level of corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Sustained improvement in governance indicators - for example, as a
result of the government's efforts to combat corruption and
strengthen public institutions.
Improvement in revenue generation and development of the local
capital market that strengthens fiscal flexibility.
Higher economic growth (in the context of macro stability) that
increases prospects for GDP per capita convergence with higher
rated sovereigns.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A perceived deterioration in macroeconomic policymaking, such as a
failure to achieve fiscal consolidation that leads to a steadily
growing debt burden and deterioration in Paraguay's fiscal policy
credibility.
A sustained worsening in the country's economic prospects and
external accounts - for example, due to a fall in commodity prices
or more frequent drought conditions.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary sovereign rating model (SRM) assigns Paraguay a
score equivalent to a rating of 'BB' on the Long-Term Foreign
Currency (LT FC) IDR scale.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final LT FC IDR by applying its qualitative
overlay (QO), relative to SRM data and output, as follows:
-- Macroeconomic: +1 notch, to reflect Paraguay's track record of
prudent and consistent macroeconomic policies that include a
floating FX regime, inflation targeting and a fiscal responsibility
law.
Fitch's SRM is the agency's proprietary multiple regression rating
model. It employs 18 variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustments to the SRM
output to assign the final rating, reflecting factors within the
agency's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
KEY ASSUMPTIONS
-- The global economy performs in line with Fitch's Global
Economic Outlook, published Nov. 6, 2020.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Paraguay has an ESG Relevance Score of '5' for Political Stability
and Rights, as World Bank Governance Indicators have the highest
weight in Fitch's SRM and are therefore highly relevant to the
rating and a key rating driver with a high weight.
Paraguay has an ESG Relevance Score of '5' for Rule of Law,
Institutional and Regulatory Quality and Control of Corruption, as
World Bank Governance Indicators have the highest weight in Fitch's
SRM and are therefore highly relevant to the rating and are a key
rating driver with a high weight.
Paraguay has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms, as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver.
Paraguay has an ESG Relevance Score of '4' for Creditor Rights, as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Paraguay, as for all sovereigns.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
due to either their nature or the way in which they are being
managed by the entity.
=====================
P U E R T O R I C O
=====================
ASCENA RETAIL: B. Riley Financial Buys Stake in Justice Brand
-------------------------------------------------------------
Lauren Coleman-Lochner of Bloomberg News reports that B. Riley
Financial said it has purchased a "significant interest" in tween
clothing brand Justice through an investment in Bluestar Alliance
LLC. Bluestar won approval to buy Justice after its former parent,
Ascena Retail Group, filed for bankruptcy.
Brand had more than $1 billion in revenue last 2019 and "represents
an extremely compelling investment at an attractive valuation,"
Chairman and co-CEO Bryant Riley said in statement December 2,
2020.
B. Riley says it seeks to expand licensing revenue from brands and
pursue more acquisitions in the consumer space. The move follows a
$116.5 million investment to establish a brand portfolio.
About Ascena Retail Group
Ascena Retail Group, Inc. (Nasdaq: ASNA) is a national specialty
retailer offering apparel, shoes, and accessories for women under
the Premium Fashion (Ann Taylor, LOFT, and Lou & Grey), Plus
Fashion (Lane Bryant, Catherines and Cacique), and Value Fashion
(Dressbarn) segments, and for tween girls under the Kids Fashion
segment (Justice). Ascena, through its retail brands, operates
ecommerce websites and approximately 2,800 stores throughout the
United States, Canada, and Puerto Rico. Visit
http://www.ascenaretail.com/for more information.
Ascena Retail reported a net loss of $661.4 million for the fiscal
year ended Aug. 3, 2019, a net loss of $39.7 million for the year
ended Aug. 4, 2018, and a net loss of $1.06 billion for the year
ended July 29, 2017.
On July 23, 2020, Ascena Retail Group and its affiliates sought
Chapter 11 protection (Bankr. E.D. Va. Case No. 20-33113). As of
Feb. 1, 2020, Ascena Retail had $13,690,710,379 in assets and
$12,516,261,149 in total liabilities.
The Hon. Kevin R. Huennekens is the case judge.
The Debtors tapped Kirkland & Ellis LLP and Cooley LLP as
bankruptcy counsel, Guggenheim Securities, LLC, as financial
Advisor, and Alvarez and Marsal North America, LLC as restructuring
advisor. Prime Clerk, LLC is the claims agent.
* * *
In September 2020, FullBeauty Brands Operations, LLC, won an
auction to acquire Ascena's Catherines intellectual property assets
for a base purchase price of $40.8 million and potential upward
adjustment for certain inventory.
In November 2020, Ascena won approval to to sell the intellectual
property of its Justice Brand and other Justice brand assets to
Justice Brand Holdings LLC, an entity formed by Bluestar Alliance
LLC (a leading brand management company), for $90 million.
The Company continues to operate its Ann Taylor, LOFT, Lane Bryant,
and Lou & Grey brands as normal through a reduced number of retail
stores and online.
METRO PUERTO RICO: Plan Exclusivity Extended Thru Dec. 22
---------------------------------------------------------
At the behest of Metro Puerto Rico LLC, Judge Enrique S. Lamoutte
extended by 90 days, to December 22, 2020, the Debtor's exclusivity
period to file a chapter 11 Plan and Disclosure Statement and to
solicit acceptances of the Plan.
The Debtor said it will make use of the time to finalize and file
their Disclosure Statement and Plan since negotiations with MISLA
is still in the process to try to settle pending matters.
About Metro Puerto Rico LLC
Metro Puerto Rico LLC filed its voluntary petition under Chapter 11
of the Bankruptcy Code (Bankr. D.P.R. Case No. 20-01543) on March
31, 2020. The petition was signed by Felix I. Caraballo,
president.
At the time of filing, the Debtor estimated $1 million to $10
million in assets and $500,000 to $1 million in liabilities.
Judge Enrique S. Lamoutte oversees the case. Jose Prieto, Esq. at
JPC LAW OFFICE represents the Debtor as counsel.
=================
V E N E Z U E L A
=================
BANCO DEL CARIBE: Fitch Withdraws CC IDRs for Commercial Reasons
----------------------------------------------------------------
Fitch Ratings has affirmed Banco del Caribe C.A., Banco Universal's
(Bancaribe) Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) and Viability Rating (VR) at 'CC' and 'cc',
respectively. In addition, Fitch has withdrawn Bancaribe's ratings
for commercial reasons.
Fitch has withdrawn Bancaribe's ratings for commercial reasons.
KEY RATING DRIVERS
IDRs and VR
Bancaribe's VR drives its IDRs. In turn, the operating environment
highly influences the bank's VR. The analysis of asset quality and
profitability ratios, company profile and risk management under
hyperinflationary conditions is not meaningful at this time.
Bancaribe's Long-Term IDR was affirmed at 'CC', as Fitch continues
to believe the bank will meet its deposit obligations given the
high level of liquidity in the domestic market even if the bank
were to fail.
Historically, capitalization has been Bancaribe's weakest financial
factor; however, since YE18, capital has benefited from unrealized
gains on its U.S. dollar-denominated securities due to significant
depreciation of the currency. The bank's tangible common
equity-to-tangible assets ratio increased to 23.5% as of June 2020
(June 2019: 12.1%) and compares well with the banking system
average of 21.2%. Nevertheless, amid the hyperinflationary
environment, organic capital generation is limited relative to
asset growth, and Fitch believes capital and leverage ratios could
remain under pressure due to high nominal asset growth.
Support Rating
The banks' Support Rating (SR) of '5' and Support Rating Floor
(SRF) of 'NF' reflect Fitch's expectation of no support. Support
cannot be relied upon given Venezuela's weak fiscal position and
lack of a consistent policy on bank support.
RATING SENSITIVITIES
Not applicable, as the ratings are being withdrawn.
ESG CONSIDERATIONS
Bancaribe has an ESG Relevance Score of '4' for Financial
Transparency due to the distortion of financial indicators from
hyperinflation and limited regulatory transparency, which has a
negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors. The bank's ESG Relevance
Score for Governance Structure was changed to '4' from '3' to
reflect the extent to which the regulatory framework negatively
affects the operating environment and the financial performance of
Bancaribe. This has a moderately negative impact on the rating in
conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means 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.
VENEZUELA: Dollars to Circulate Freely, Rules Out Illegalization
----------------------------------------------------------------
The Latin American Herald reports that Nicolas Maduro ruled out
illegalizing the free circulation of foreign currency in Venezuela
as he insisted that dollarization has been a sort of an "escape
valve" for the nation's economy, although he warned to remain
vigilant on all those "problematic" dollars sold on the black
market.
Venezuela's leftist incumbent told journalists from the public and
private media in a press conference that dollarization is the proof
that citizens have not "sat on their hands," according to The Latin
American Herald.
"What is the solution to this phenomenon? We must allow the
functioning and complementariness of the national currency, of the
dollar, of the international currencies. That's the decision.
Neither to persecute it nor to make it illegal. The final solution
is the recovery of the income, and with that the real recovery of
the people's income in wages, pensions, and bonuses through the
Homeland ID card," Maduro pointed out, the report notes.
Maduro claimed that Venezuela has lost 99% of its revenues thanks
to the "blockings, sanctions, and coercive measures imposed by the
US government," adding that has come to the point of importing
gasoline to "complement national production," the report relays.
To counter those unilateral coercive measures, Maduro reiterated
his proposal of creating mechanisms to support the national economy
as a result of the people's lower incomes, the report discloses.
The Government, according to Maduro, has already outlined a
strategy for the recovery of income levels to be carried out during
the first half of 2021, which will become a top priority for the
so-called Anti-Blockade Law for the National Development and
Guarantee of Human Rights, the report notes.
"There is a plan already, we are working hard on that," Maduro
highlighted as he announced the early adoption of a series of
instruments that would jump-start the nation's productive
apparatus, the report adds.
Venezuela
Venezuela, officially the Bolivarian Republic of Venezuela, is a
country on the northern coast of South America, consisting of a
continental landmass and a large number of small islands and islets
in the Caribbean sea. The capital is the city of Caracas.
Hugo Chavez was president to Venezuela from 1999 to 2013. The
Chavez presidency was plagued with challenges, which included a
2002 coup d'etat, a 2002 national strike and a 2004 recall
referendum. Nicolas Maduro was elected president in 2013 after the
death of Chavez. Maduro won a second term at the May 2018
Venezuela elections, but this result has been challenged by
countries including Argentina, Chile, Colombia, Brazil, Canada,
Germany, France and the United States who deemed it fraudulent and
moved to recognize Juan Guaido as president.
The presidencies of Chavez and Maduro have challenged Venezuela
with a socioeconomic and political crisis. It is marked by
hyperinflation, climbing hunger, poverty, disease, crime and death
rates, social unrest, corruption and emigration from the country.
S&P Global Ratings, in May 2019, removed its long- and short-term
local currency sovereign credit ratings on Venezuela from
CreditWatch with negative implications and affirmed them at
'CCC-/C'. The outlook on the long-term local currency rating is
negative. At the same time, S&P affirmed its 'SD/D' long- and
short-term foreign currency sovereign credit ratings on Venezuela.
Moody's credit rating (long term foreign and domestic issuer
ratings) for Venezuela was last set at C with stable outlook in
March 2018. Meanwhile, Fitch's long term issuer default rating for
Venezuela was last in 2017 at RD and country ceiling was CC. Fitch,
on June 27, 2019, affirmed then withdrew the ratings due to the
imposition of U.S. sanctions on Venezuela.
*********
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 2020. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
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* * * End of Transmission * * *