/raid1/www/Hosts/bankrupt/TCRLA_Public/211208.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
Wednesday, December 8, 2021, Vol. 22, No. 239
Headlines
A R G E N T I N A
ARCOS DORADOS: Moody's Affirms Ba2 CFR & Alters Outlook to Stable
B E R M U D A
SAGICOR FINANCIAL: Fitch Affirms 'BB' LT IDR, Outlook Stable
B R A Z I L
BRAZIL: Industrial Sales Drop for Third Consecutive Month
BRAZIL: Slips Into Recession as Post-Pandemic Recovery Cut Short
COMPANHIA DE SANEAMENTO: S&P Affirms 'BB-' Issuer Credit Rating
C A Y M A N I S L A N D S
LUCKIN COFFEE: Closes $240-Mil. Investment From Centurium
LUCKIN COFFEE: Creditors Okays Scheme of Arrangement
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Posts Sluggish Employment Rate
E C U A D O R
BANCO DE LA PRODUCCION: Fitch Affirms 'B-' LT IDR, Outlook Neg.
BANCO DEL AUSTRO: Fitch Affirms 'CCC+' LT IDR
BANCO GUAYAQUIL: Fitch Affirms B- LT IDR, Alters Outlook to Stable
BANCO PICHINCHA: Fitch Affirms B- LT IDR, Alters Outlook to Stable
BANCO PROCREDIT: Fitch Affirms 'B-' LT IDR, Outlook Stable
G U Y A N A
GUYANA: Calls for CARICOM to Strengthen Regional Integration
H A I T I
HAITI: IDB OKs $60M Loan to Improve Food Security in Rural Areas
M E X I C O
CREDITO REAL: S&P Downgrades ICR to 'B+' on Tighter Liquidity
GRUPO AEROMEXICO: Creditors Claim Plan Hands Over $268M to Insiders
GRUPO AEROMEXICO: Junior Creditors Oppose Apollo Bankruptcy Deal
GRUPO AEROMEXICO: Objections May Delay Bankruptcy Exit Plan
U R U G U A Y
ACI AIRPORT: Fitch Rates USD246.2MM Sec. Notes 'BB+', Outlook Neg.
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A R G E N T I N A
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ARCOS DORADOS: Moody's Affirms Ba2 CFR & Alters Outlook to Stable
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Moody's Investors Service has affirmed the Ba2 Corporate Family
Rating and senior unsecured ratings of Arcos Dorados Holdings Inc.
Moody's has also changed the company's outlook to stable from
negative.
Rating actions:
Affirmations:
Issuer: Arcos Dorados Holdings Inc.
Corporate Family Rating, Affirmed Ba2
Gtd. Senior Unsecured Global Notes, Affirmed Ba2
Outlook Actions:
Issuer: Arcos Dorados Holdings Inc.
Outlook, Changed To Stable From Negative
RATINGS RATIONALE
The change in Arcos Dorados's outlook to stable from negative
reflects Moody's view of improved liquidity and operating
performance of the company since the start of 2021, which Moody's
expects will continue in the next 12-18 months and allow the
company to improve overall credit metrics and deleverage towards
levels more in line with its Ba2 rating.
Arcos Dorados credit profile continues to reflect the company's
solid market position in Latin America as McDonald's Corporation's
(McDonald's, Baa1 stable) master franchisee in the region, and its
size and scale as the largest independent McDonald's franchisee
worldwide by sales and number of restaurants (2,263 at the end of
third-quarter 2021). About 47% of Arcos Dorados' restaurants are
freestanding or in store restaurants, and offer a combination of
take-out, drive-thru or delivery services, which were in higher
demand in many markets in Latin America as a result of coronavirus
quarantine, but have not lost traction despite improved mobility in
the region.
Arcos Dorados' currency exposure and the concentration of its cash
flow in a limited number of markets with a high dependency on the
Brazilian market (38% of revenues and 52% of EBITDA as of the last
twelve months ended in September 2021) continue to constrain the
ratings.
Another constraint is Arcos Dorados' large capital spending
requirements under its Master Franchise Agreement (MFA) with
McDonald's, however Moody's understands that McDonald's has some
flexibility under this requirement. In this regard, Arcos Dorados,
in agreement with McDonald's, withdrew the 2020-2022 capital
spending plan announced in March 2020 to preserve Arcos Dorados'
financial soundness during the heigh of the Coronavirus pandemic.
The performance of Arcos Dorados has shown significant improvements
through 2021 and by the third-quarter of 2021 it had surpassed
pre-pandemic sales levels in local currency. Arcos Dorados has
implemented several key strategies to be able to recover top-line
growth and profitability through 2021. In this regard, the company
implemented its Three D's strategy of Drive-thru, Delivery and
Digital and was able to leverage on the flexibility of the
restaurant portfolio to offset the temporary decline in mall stores
and the on-premise sales channels as a result of mobility
restrictions. As of the second half of 2021 higher economic
activity and lower mobility restrictions in the region had improved
client traffic on-premise, but not at the expense of off-premise
sales, however. In fact, Drive-thru and Delivery sales segments
have continued to grow and as of the third-quarter of 2021 were up
by 12% and 43%, respectively. Furthermore, one of Arcos Dorados'
key competitive advantages in the region is its restaurant
portfolio, of which nearly half are free-standing units, which
cannot be easily replicated by competitors and proved a key
advantage to adapt to changing guest preferences since the start of
the pandemic. Also, the company has been able to operate its supply
chain with no material interruptions during 2021, keeping costs
under control despite inflationary pressures in the region, with
highly-localized sourcing and a simplified menu of guest
favorites.
Arcos Dorados' liquidity continues to be supported by its cash
balance, at $207 million as of September 2021, and $25 million
available under its committed credit facility (undrawn), which
compare favorably with $20 million in short term debt. The
company's financial debt is mainly composed of senior unsecured
notes maturing in 2023 ($203 million) and 2027 ($536 million).
Also, as of September 2021 operating leases liabilities amounted to
$802 million.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if there is a deterioration in
liquidity and operations as a consequence of potential new
coronavirus variants that would require the resumption of lockdowns
or isolation measures in the region. Specifically, ratings could be
downgraded if Moody's-adjusted debt to EBITDA ratio is expected to
remain above 4.5x or retained cash flow (RCF) to debt below 15% on
a sustained basis. In addition, given the high concentration of
operations in Brazil, a downgrade of Brazil's sovereign rating
(Government of Brazil, Ba2 stable) could strain Arcos Dorados'
ratings.
Similarly, given Arcos Dorados' strong dependence on the Brazilian
market, an upward rating movement would also be subject to its
relative position to Brazil's sovereign ratings. An upgrade would
require Arcos Dorados to show a more resilient performance
regardless of the underlying macroeconomic environment and
consumption patterns in key markets, in particular in Brazil; and
to sustain lease-adjusted debt to EBITDA below 3.5x and adjusted
RCF to debt above 20% on a sustainable basis.
The principal methodology used in these ratings was Restaurants
published in August 2021.
Headquartered in Buenos Aires, Argentina, Arcos Dorados Holdings
Inc. (Arcos Dorados) is the leading quick-service restaurant
operator in Latin America and the Caribbean. It is also McDonald's
largest independent franchisee globally in terms of systemwide
sales and restaurant count. The company has the exclusive rights to
own, operate and grant franchises of McDonald's restaurants in 20
Latin American and Caribbean countries. In the twelve months ended
September 2021, Arcos Dorados generated $2.5 billion in net
revenues.
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B E R M U D A
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SAGICOR FINANCIAL: Fitch Affirms 'BB' LT IDR, Outlook Stable
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Fitch Ratings has affirmed Sagicor Financial Company Limited's
(SFCL) Long-Term Issuer Default Rating (IDR) at 'BB'. Fitch has
also affirmed SFCL's senior debt ratings at 'BB-'. The Rating
Outlook is Stable.
KEY RATING DRIVERS
The affirmation of SFCL's ratings considers the company's 'less
favorable' business profile, which is heavily influenced by the
economic environment and sovereign risks of Barbados and Jamaica.
The ratings also consider the company's strong capitalization and
profitability, large investment exposure to below-investment grade
sovereign debt, and macroeconomic challenges associated with low
interest rates.
Fitch's view of SFCL's business profile is heavily influenced by
the economic environment and sovereign risks of Barbados and
Jamaica. While the company has made progress diversifying its
business mix driven by growth in the U.S., the company's operations
remain concentrated in Barbados and Jamaica.
SFCL's investment portfolio has considerably above average
investment risk relative to the industry. SFCL's investment
portfolio has substantial concentrations in Jamaica and Barbados
sovereigns. These investments are primarily used to meet regulatory
requirements and for insurance liability matching purposes; as a
result the portfolio has a significant concentration of below
investment-grade debt. While the sovereign concentrations are
reasonable given the company's operations in these two countries,
the sovereign exposures represent a large concentration risk and a
potential source of volatility to capital adequacy in the event of
an adverse sovereign scenario.
Fitch views capitalization of SFCL's insurance operations to be
strong and supportive of the ratings following the 2019 acquisition
by Alignvest II Acquisition Corporation (AQY), which brought in
significant capital proceeds. Fitch's view of SFCL's strong
capitalization is supported by strong consolidated MCCSR reported
at 247% as of Sept. 30, 2021 and operating leverage at 7x as of
Sept. 30, 2021, which is very strong relative to life insurance
peers.
SFCL's financial leverage ratio of 29% (adjusted to exclude
non-controlling interests from capital) as of Sept. 30, 2021 is
within Fitch's expectations for the current rating. SFCL's
financial leverage has historically been high and favorably
declined primarily due to additional capital proceeds following
completion of the AQY transaction. Financial leverage increased
following the debt refinance in the second quarter of 2021.
Fitch considers SFCL's financial performance to be strong and
supportive of the ratings. SFCL's strong operating results for the
first nine months of 2021 benefited from favorable investment
performance, favorable annual assumption review results and strong
sales growth in the U.S. SFCL's 2020 financial performance was
negatively affected by the pandemic, largely driven by unfavorable
marked to market losses and higher overall credit impairments.
SFCL is a Bermuda-based financial holding company and leading
provider of insurance products and financial services in the
Caribbean. It also provides insurance products in the U.S. as well
as banking and investment management services in Jamaica. Primary
insurance subsidiaries and the corresponding regions for SFCL
include Sagicor Group Jamaica Ltd. (Jamaica and Cayman Islands),
Sagicor Life Inc. (Barbados and Trinidad and Tobago), and Sagicor
Life USA (U.S.). Aside from these main subsidiaries and regions,
the company also has insurance operations in many of the Eastern
and Dutch Caribbean islands and select Latin American countries.
RATING SENSITIVITIES
Under its criteria, notching between actual and/or implied Insurer
Financial Strength "anchor" ratings and the IDR of a holding
company compresses/expands by one notch when the anchor rating
migrates between investment grade and non-investment grade. SFCL's
implied anchor ratings would move between that cusp point if
upgraded by one notch, implying the next potential upgrade in
SFCL's holding company IDR and senior debt ratings would be by two
notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- No material deterioration in economic and operating
environments and sovereigns of Jamaica, Trinidad, and
Barbados;
-- Deployment of capital proceeds from the AQY transaction to
grow operations in investment grade jurisdictions;
-- Decline in financial leverage ratio below 25% (adjusted to
exclude non-controlling interests from capital).
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Significant deterioration in the economic and operating
environments and sovereigns of Jamaica, Trinidad, and Barbados
which would lead to a material decline in operating
performance and/or credit profile of SFCL's investment
portfolio;
-- Deterioration in key financial metrics, including consolidated
MCCSR falling below 180% and financial leverage exceeding 50%
and ROE below 5% on a sustained basis.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
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: Industrial Sales Drop for Third Consecutive Month
---------------------------------------------------------
Richard Mann at Rio Times Online reports that the real turnover of
the manufacturing industry fell 2% in October, compared to
September, according to the Industrial Indicators from the National
Confederation of Industry (CNI).
This is the third consecutive monthly drop in sales, which has
accumulated a retraction of 8% in this period, according to Rio
Times Online. With this, the industry's total sales retreated to
the lowest amount since June 2020, when the economy and the
productive sector were still recovering from the closure of
activities in the first wave of Covid-19, the report relays.
Capacity Utilization (CU) fell 0.6 percentage points in relation to
September and retreated to 80.8%, the report discloses. This is
the fourth consecutive retraction, te report adds.
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' credit rating for Brazil stands at 'BB-' with a
negative outlook (November 2020). Fitch's 'BB-' Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) has been affirmed
in May 2021. Standard & Poor's credit rating for Brazil stands at
BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and
short-term foreign and local currency sovereign credit ratings for
Brazil were affirmed in December 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).
BRAZIL: Slips Into Recession as Post-Pandemic Recovery Cut Short
----------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Brazil's
economy fell into recession as extreme weather conditions, high
interest rates and inflation cut short its recovery from the
pandemic, dealing a blow to President Jair Bolsonaro just as he
prepares for his re-election campaign.
Gross domestic product fell 0.1% in the July-September period after
posting a revised decline of 0.4% in the second quarter, according
to globalinsolvency.com.
From a year ago, the economy expanded 4%, the national statistics
agency said, the report notes.
The downturn shows mounting challenges for Latin America's largest
economy.
Unemployment stands above 12%, annual inflation is running at a
five-year high, and the central bank has unleashed the world's most
aggressive monetary-tightening campaign this year, the report
relays. While most countries are enjoying strong growth in the
aftermath of the coronavirus, Brazil is losing momentum, the report
adds.
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' credit rating for Brazil stands at 'BB-' with a
negative outlook (November 2020). Fitch's 'BB-' Long-Term Foreign
and Local Currency Issuer Default Ratings (IDRs) has been affirmed
in May 2021. Standard & Poor's credit rating for Brazil stands at
BB- with stable outlook (April 2020). S&P's 'BB-/B' long-and
short-term foreign and local currency sovereign credit ratings for
Brazil were affirmed in December 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).
COMPANHIA DE SANEAMENTO: S&P Affirms 'BB-' Issuer Credit Rating
---------------------------------------------------------------
On Dec. 6, 2021, S&P Global Ratings revised its outlook on
Companhia de Saneamento Basico do Estado de Sao Paulo (SABESP) to
stable from negative. S&P also affirmed its 'BB-' global scale and
'brAAA' national scale ratings on the Brazil-based water and sewage
utility. The stand-alone credit profile (SACP) remains 'bb+'.
The outlook revision and ratings affirmation reflect S&P's view
that in recent quarters, SABESP has shown resilience to the
pandemic-induced shock. The company ended this September with
adjusted debt to EBITDA of 2.6x and funds from operations (FFO) to
debt of 27.8%. SABESP was also able to reduce its exposure to
foreign-currency fluctuations that stems from its debt denominated
in U.S. dollars and Japanese yen, which now accounts for 18% of
total debt compared with 21% as of Dec. 31, 2020, and about 50% at
the end of 2019.
Since the beginning of the pandemic, the company had its tariffs
readjusted two times (+3.4% in August 2020 and +7.0% in May 2021)
by the state of Sao Paulo's regulatory agency--Agencia Reguladora
de Servicos Públicos do Estado de Sao Paulo
(ARSESP)--corroborating our view that the regulatory framework in
place is independent and has a record of good execution, ensuring
that SABESP can continue investing to improve service coverage in
the municipalities where it operates. Dividend payouts also
continued at the modest levels seen in the last couple of years,
which in our view, indicates that the government of the state of
Sao Paulo (not rated), which is the company's controlling
shareholder, hasn't interfered negatively in SABESP.
S&P said, "In addition, the state of Sao Paulo itself suffered less
from the pandemic fallout than we originally anticipated. The state
managed to improve its fiscal and liquidity position over the last
quarters while maintaining prudent financial management policies.
In our opinion, the combination of solid governance standards,
financial resilience, and a track record of a hands-off approach by
the government help mitigate potential negative government
interference. In addition, while the dividends that we expect the
company to distribute are not relevant when compared to the overall
operating revenues of the state, SABESP is an important vehicle in
terms of public investment in the local economy. We also believe
that the incentives to impair the operations of an essential
services provider are limited amid the ongoing public health
crisis.
"We view SABESP as a government-related entity (GRE) because the
state of Sao Paulo owns 50.3% of the company. The remaining shares
are publicly traded on the BOVESPA and the NYSE through American
depository receipts.
"In spite of the record of noninterference from the state of Sao
Paulo, we continue to test SABESP's resilience to a hypothetical
default of its controlling shareholder, which included an
extraordinary increase in state tax, a delay in the application of
tariffs, and much higher working capital needs from an increase in
delinquency levels. In this hypothetical scenario, we expect SABESP
to be relatively resilient to a state-level default."
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C A Y M A N I S L A N D S
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LUCKIN COFFEE: Closes $240-Mil. Investment From Centurium
---------------------------------------------------------
Luckin Coffee Inc. (in Provisional Liquidation) (OTC: LKNCY) has
closed a previously announced investment agreement with an
affiliate of Centurium Capital, as the lead investor.
The Company issued and sold a total of 295,384,615 senior
convertible preferred shares to Centurium Capital through a private
placement, with aggregate gross proceeds of approximately US$240
million. The investment by Centurium Capital enables Luckin Coffee
to focus on the continued expansion of its core coffee business,
execution of its business plan and achievement of its long-term
growth targets.
Luckin Coffee intends to use the investment proceeds to facilitate
its proposed offshore restructuring, including (i) funding the
settlement of In re Luckin Coffee Inc. Securities Litigation, Case
No.1:20-cv-01293-JPC-JLC (SDNY) (the "Class Action") pursuant to
the terms of the Stipulation and Agreement of Settlement, which has
been preliminarily approved by the U.S. District Court overseeing
the Class Action, (ii) payments to the holders of its $460 million
0.75% Convertible Senior Notes due 2025 pursuant to the scheme of
arrangement Luckin Coffee previously announced and (iii) other
offshore restructuring expenses.
Luckin Coffee has made separate arrangements with Joy Capital to
close its portion of the investment agreement, totaling
approximately US$10 million in senior preferred shares. Both
Centurium and Joy Capital are leading private equity investment
firms in China and current shareholders of Luckin Coffee.
About Luckin Coffee
Luckin Coffee Inc., was a Xiamen, Fujian-based coffee chain.
In July 2020, Luckin Coffee called in liquidators to oversee a
corporate restructuring and negotiate with creditors to salvage its
business, less than four months after shocking the market with a
US$300 million accounting fraud, South China Morning Post said.
The Company hired Houlihan Lokey as financial advisers to implement
a workout with creditors. The start-up company also named
Alexander Lawson of Alvarez & Marsal Cayman Islands and Tiffany
Wong Wing Sze of Alvarez & Marsal Asia to act as "light-touch"
joint provisional liquidators (JPLs) under a Cayman Islands court
order, it said in a regulatory filing in New York.
The move was in response to a winding-up petition by an undisclosed
creditor.
The Joint Provisional Liquidators of Luckin Coffee, Alexander
Lawson of Alvarez & Marsal Cayman Islands Limited and Wing Sze
Tiffany Wong of Alvarez & Marsal Asia Limited, on Feb. 5, 2021,
filed a verified petition under chapter 15 of title 11 of the
United States Code with the United States Bankruptcy Court for the
Southern District of New York. The Chapter 15 Petition seeks,
among other things, recognition in the United States of the
Company's provisional liquidation pending before the Grand Court of
the Cayman Islands, Financial Services Division, Cause No. 157 of
2020 (ASCJ) and related relief.
LUCKIN COFFEE: Creditors Okays Scheme of Arrangement
----------------------------------------------------
Luckin Coffee Inc. (in Provisional Liquidation) (OTC: LKNCY)
announced Dec. 1 that a meeting was held Nov. 30, 2021, in Grand
Cayman, Cayman Islands regarding its scheme of arrangement (the
"Scheme") proposed in relation to the restructuring of its $460
million 0.75% Convertible Senior Notes due 2025 ("Existing
Notes").
The meeting was convened for the purpose of allowing the Company's
class of creditors affected by the Scheme (the "Scheme Creditors")
to consider and, if thought fit, approve, with or without
modification, the Scheme.
The Company is pleased to announce that at the meeting held at
10:00 a.m. (Cayman Islands time) on Nov. 30, 2021, Scheme Creditors
present and voting at the meeting (in person or by proxy) voted
unanimously to approve the Scheme, with no votes cast against the
Scheme. The meeting was attended by fifty-six Scheme Creditors
representing approximately 97.7% in aggregate outstanding principal
amount of the Existing Notes. Accordingly, the Scheme has been
approved by the requisite majority of Scheme Creditors.
As previously announced, Luckin Coffee filed a summons for
directions and petition seeking sanction of the Scheme in the Grand
Court of the Cayman Islands (the "Cayman Court") on September 20,
2021. The Scheme was proposed by Luckin Coffee and its Joint
Provisional Liquidators.1
Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin
Coffee, said, "While this development represents another important
step in the Company's continued restructuring process, the
overwhelming support from our creditors serves as a testament to
the progress our refreshed board of directors and leadership team
have achieved and the positive momentum we have generated. We thank
our creditors for their support throughout this process. Our team
at Luckin Coffee remains focused on the execution of our strategy,
delivering sustainable growth and profitability, while providing
outstanding products and services to our customers and meaningful
value for our shareholders."
Sanction Hearing
Following approval by the Scheme Creditors, the hearing of the
Company's petition for sanction of the Scheme by the Cayman Court
will take place at 10:00 a.m. (Cayman Islands time) on Dec. 13,
2021. All Scheme Creditors are entitled to attend and be heard at
the hearing.
About Luckin Coffee
Luckin Coffee Inc., was a Xiamen, Fujian-based coffee chain.
In July 2020, Luckin Coffee called in liquidators to oversee a
corporate restructuring and negotiate with creditors to salvage its
business, less than four months after shocking the market with a
US$300 million accounting fraud, South China Morning Post said.
The Company hired Houlihan Lokey as financial advisers to implement
a workout with creditors. The start-up company also named
Alexander Lawson of Alvarez & Marsal Cayman Islands and Tiffany
Wong Wing Sze of Alvarez & Marsal Asia to act as "light-touch"
joint provisional liquidators (JPLs) under a Cayman Islands court
order, it said in a regulatory filing in New York.
The move was in response to a winding-up petition by an undisclosed
creditor.
The Joint Provisional Liquidators of Luckin Coffee, Alexander
Lawson of Alvarez & Marsal Cayman Islands Limited and Wing Sze
Tiffany Wong of Alvarez & Marsal Asia Limited, on Feb. 5, 2021,
filed a verified petition under chapter 15 of title 11 of the
United States Code with the United States Bankruptcy Court for the
Southern District of New York. The Chapter 15 Petition seeks,
among other things, recognition in the United States of the
Company's provisional liquidation pending before the Grand Court of
the Cayman Islands, Financial Services Division, Cause No. 157 of
2020 (ASCJ) and related relief.
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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: Posts Sluggish Employment Rate
--------------------------------------------------
Dominican Today reports that the average employment rate in the
country continues to be below pre-pandemic levels, according to
data from a new survey by the World Bank and the United Nations
Development Program (UNDP) published.
The series of High Frequency Telephone Surveys, the second phase of
which was implemented this year in 24 countries in the region,
showed that in the pre-pandemic the employment rate was around 72%
in the Dominican Republic and that it is currently around 65%,
according to Dominican Today.
The data indicate that the Dominican Republic has a recovery above
what the regional average indicates (62%) at present, the report
notes. In addition, the country's employment rate is above nations
such as Honduras, Panama, Uruguay, Costa Rica, Argentina, Chile,
Colombia, and Brazil, the report relays.
At the local level, the Central Bank of the Dominican Republic
(BCRD), in its quarterly report July-September 2021, explains that,
during the three quarters of 2021, the Dominican labor market has
shown important signs of recovery, but hasn't reached the
pre-pandemic level, 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.
Fitch Ratings on Jan. 18, 2021, assigned a 'BB-' rating to
Dominican Republic's USD1.5 billion 5.3% notes due Jan. 21, 2041.
Concurrently, the Dominican Republic reopened its 2030 4.5% notes
for an additional USD1.0 billion, which Fitch rates 'BB-', raising
the total outstanding amount of the 2030 notes to USD2.0 billion.
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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E C U A D O R
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BANCO DE LA PRODUCCION: Fitch Affirms 'B-' LT IDR, Outlook Neg.
---------------------------------------------------------------
Fitch Ratings has affirmed Banco de la Produccion S.A. Produbanco y
Subsidiarias's (Produbanco) Long-Term Issuer Default Rating (LT
IDR) at 'B-', its Viability Rating (VR) at 'b-' and its Short-Term
IDR at 'B'. The Rating Outlook on the LT IDR is Negative.
The Negative Outlook reflects the continued pressures on the bank's
capitalization due to a significant reduction in earnings and
moderate asset quality deterioration in the context of the
pandemic, together with stronger loan growth in 2021. As of
September 2021, its Fitch Core Capital (FCC) ratio stood below
Fitch's downside sensitivity of 9% and given the pressure on
profitability, together with its dividend payment policy, Fitch
believes the bank needs to prove its capacity to return to levels
above 9% consistently.
Fitch has also withdrawn the banks Support Rating of '5' as it is
no longer relevant to the agency's coverage following the
publication of its updated Bank Rating Criteria on Nov. 12, 2021.
In line with the updated criteria, Fitch has assigned Produbanco a
Shareholder Support Rating of 'ccc'.
KEY RATING DRIVERS
IDR AND VR
Produbanco's Viability Rating (VR) drives its Long-Term IDR.
Ratings are highly influenced by the operating environment in
Ecuador, which weighs heavily on financial performance of banks.
Produbanco's VR is also highly influenced by its strong business
profile due to its important market share within the Ecuadorian
market and diversified business model.
The VR is also highly influenced by the bank's thin FCC ratio
(8.47% as of Sept. 30, 2021) as Fitch believes it provides a lower
capacity to absorb unexpected losses despite increased loan loss
reserve coverage. Capital adequacy ratio (13.8%) under local
regulation benefits from the usage of subordinated debt not
included in the FCC.
Produbanco's asset quality has historically been sound based on its
focus on large corporates. However, delinquency levels have
increased due to the pandemic and NPLs reached 3.4% according to
local standards (15 days past due for consumer loans and 30 days
for commercial loans) and 2.7% considering 60 days past due loans
at end-2020. As of Sept. 30, 2021, in line with the economic
recovery and the regulatory forbearance, NPLs decreased to 1.4%.
Similarly, net charge offs increased up to 3.0% as of December 2020
and, as of September 2021, decreased to 1.7%. Loan impairment
charges (LICs) have significantly increased since 2020, rising the
reserve coverage to 4.4% of the total loan book and 310% of NPLs.
Produbanco's coronavirus deferrals and restructures are lower than
its peers'. As of September 2021, total deferrals accounted for
8.1% of the loan portfolio and restructured and refinanced loans
accounted for 3.4% of the total, compared to 7.8% for the total
financial system at September 2021.
Produbanco's profitability has been undermined by the effects of
the pandemic mainly due to slow loan growth and higher LICs. The
latter have remained high in 2021 (at 87.9% of Pre-impairment Op.
Profit as of September 2021) as the bank continued increase
reserves to cover any further deterioration of the loan portfolio
as the full impact of the pandemic has not been seen yet. Higher
net interest revenue has partly offset this, leading to a gradual
improvement of the bank's profitability ratios.
The bank expects its profitability to continue to gradually recover
during 2022, reaching pre-pandemic levels by year end, which Fitch
considers achievable. Stronger performance in 2022 should be
supported by double digit loan growth including more profitable
segments such as consumer and credit cards and likely lower LICs
given the strong reserve coverage achieved in 2021.
Produbanco's loan to deposit ratio remained low (85.4%) reflecting
adequate levels of liquidity as a result of higher deposits in
spite of the growth of the loan book. As of October 2021, customer
deposits were the main funding source of Produbanco accounting for
89% of total funding, with the remaining 11% being financial and
subordinated debt (mostly funds from multilateral agencies). As
with most of the banking system, liquidity is high. As of October
2021, the bank had USD1.8 billion in liquid assets and all its
liquidity ratios comfortably exceed its internal and regulatory
limits.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IDRs and VR
-- The VR and IDR would be downgraded if the Fitch Core Capital
to Risk Weighted Assets ratio is sustained below 9% without a
credible plan to strengthen and restore capitalization
metrics;
-- The ratings are also sensitive to changes in the sovereign
rating, or further deterioration on the local operating
environment.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRs and VR
-- The Outlook could be revised to Stable if the bank's FCC ratio
improves and is maintained consistently above 9%;
-- Upside potential is limited. However, in the long-term, a
rating upgrade would require improved prospects for the
operating environment and a meaningful and sustained
improvement of capital metrics and core profitability,
combined with improvements in the bank's asset quality.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SHAREHOLDER SUPPORT RATING (SSR)
Produbanco's SSR reflects Fitch's view of possible external support
from its majority shareholder Promerica Financial Corporation (PFC;
62.2% ownership). The three notches discount assessment considers
the limited capacity of PFC to provide support due to the relative
size of Produbanco (32% of consolidated assets) and the size of
ownership given the existence of other relevant minority
shareholders.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
SSR
-- A downgrade of the SSR would come from a deterioration of
PFC's creditworthiness.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
SSR
-- Produbanco's SSR has limited upgrade potential over the rating
horizon, given its size and relevance relative to PFC.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Produbanco's ESG Relevance Score for Management Strategy has been
revised to '3' from '4'. The bank's score is now in line with the
standard scoring for all banks globally. The score change reflects
the reduced government intervention in the Ecuadorian banking
sector, enhancing the bank's ability to define and execute its own
strategy. This has a neutral impact on the rating.
Produbanco's ESG Relevance Score for Exposure to Environmental
Impacts has been revised to '2' from '3'. The bank's score is now
in line with the standard scoring for all banks globally. The score
change reflects that physical impacts of environmental events are
credit-neutral or have only a minimal credit impact on the entity.
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.
BANCO DEL AUSTRO: Fitch Affirms 'CCC+' LT IDR
---------------------------------------------
Fitch Ratings has affirmed Banco del Austro S.A.'s (Austro)
Long-Term Issuer Default Rating (IDR) of 'CCC+' and Viability
Rating (VR) of 'ccc+'.
Fitch has withdrawn Austro's Support Rating and Support Rating
Floor, as these ratings are no longer relevant to the agency's
coverage following the publication of its updated Bank Criteria on
Nov. 12, 2021. In line with the updated criteria, Fitch has
assigned Austro a Government Support Rating (GSR) of 'ns'.
KEY RATING DRIVERS
IDRs AND VR
Austro's VR or standalone creditworthiness drives the IDR.
Ecuador's sovereign rating (B-/Stable) and broader operating
environment considerations highly influence Austro's VR. Austro's
risk appetite is also a highly important factor for the ratings.
The bank's appetite for growth is higher than that of its peers and
the system average, as Austro plans to duplicate its market share
by 2024 in comparison with 2019. In addition, risk controls are yet
to be tested as new loans mature.
Asset quality metrics compare unfavorably among local peers and the
system average. As of September 2021, Austro's impaired loans ratio
increased to 4.08%, from 2.83%, driven by the deterioration of
consumer loans and the seasoning of the loans placed amid the
pandemic. Further asset quality deterioration could result from the
growth strategy and once the regulatory flexibility of extending
the recognition of past-due loans expires (25.1% of total loans
have deferrals, 8.0% are refinanced and 3.2% restructured as of
3Q21).
Austro's profitability metrics have remained stable through time,
but were aided during the pandemic by the relief programs. However,
in 2020 the operational profit to risk-weighted assets (RWA) ratio
decreased to 0.91%, from 1.41% in 2019. This deterioration
reflected the lower interest income and net fees and commissions
due to lower transactions and the lower loan expansion due to the
pandemic and lockdowns. In 2021, operational profitability improved
to 1.46% of RWA, driven by an increase of 14.5% of gross loans
boosted by the reactivation of the economy and lower impairment
charges.
In September 2021, Austro's capitalization ratios decreased due to
the strategic decision to allocate its liquidity in investments to
increase profitability, which increased the RWAs. Austro's Fitch
Core Capital ratio decreased to 11.01%, from 12.69%, and its
regulatory capital ratio decreased to 11.98%, from 13.16%
(regulatory minimum: 9%). However, capitalization remains adequate,
and regulatory capital is expected to remain above 11.5%, aligned
with the bank's internal policies. Fitch does not expect pressure
on capitalization ratios in the medium term, given the bank's
commitment to capitalizing a minimum of 80% of profit over the next
five years to sustain growth.
Austro's deposits increased by 13.61% during 2020 and have remained
stable in 2021, despite the temporary deposit outflow at the
beginning of the pandemic due to uncertainty in the operating
environment. Austro's funding structure is adequate, although less
diversified than that of the largest banks, with customer deposits
representing 95.99% of total funding as of September 2021. The bank
has made efforts to increase term deposits to provide more
stability to its funding structure; as of September 2021, term
deposits increased by 12.85% with a volatility of less than 5%.
Austro's sound liquidity is also reflected in the loans to deposits
ratio of 67.23%, which compares favorably among peers.
GOVERNMENT SUPPORT RATING
Austro's Government Support Rating (GSR) of 'ns' reflects that
despite the bank's market share and local franchise, Fitch believes
that there is no reasonable assumption of support being forthcoming
from the sovereign due to Ecuador's limited financial flexibility
and the lack of a lender of last resort.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IDRs and VR
-- The IDRs are sensitive to changes in the sovereign rating, or
further deterioration on the local operating environment;
-- The IDRs and VRs could be downgraded if deterioration in asset
quality or profitability leads to a sustained decrease in
Fitch Core Capital to RWAs.
GOVERNMENT SUPPORT RATING
-- The GSR has no downgrade potential, as it is at the lowest
possible level.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRs and VR
-- A rating upgrade would require improved prospects for the
operating environment and sustained profitability, combined
with improvements in the bank's credit quality and
capitalization amid high growth.
GOVERNMENT SUPPORT RATING
-- Ecuador's propensity or ability to provide timely support to
Austro is not likely to change given the sovereign's low sub
investment-grade IDR. As such, the GSR has no upgrade
potential.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Prepaid Expenses and Deferred Payments were included as other
intangibles and deducted from the FCC.
ESG CONSIDERATIONS
Austro's Environmental, Social and Corporate Governance (ESG)
Relevance Score for Management Strategy has been revised to '3'
from '4'. The bank's score is now in line with the standard scoring
for all banks globally. The score change reflects the reduced
government intervention in the Ecuadorian banking sector, enhancing
the bank's ability to define and execute its own strategy. This has
a neutral impact on the rating.
Austro's ESG Relevance Score for Exposure to Environmental Impacts
has been revised to '2' from '3'. The bank's score is now in line
with the standard scoring for all banks globally. The score change
reflects that physical impacts of environmental events are
credit-neutral or have only a minimal credit impact on the entity.
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.
BANCO GUAYAQUIL: Fitch Affirms B- LT IDR, Alters Outlook to Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Banco Guayaquil S.A. y Subsidiarias'
(Guayaquil) Long-Term Issuer Default Rating (IDR) at 'B-' and its
Viability Rating at 'b-'. The Rating Outlook on the IDR was revised
to Stable from Negative.
The Stable Outlook on Guayaquil follows Fitch's adjustment of its
operating environment (OE) assessment for the Ecuadorian banking
system to Stable from Negative as Fitch expects a favorable
environment for economic and credit growth, as well for the
Ecuadorian banks' financial performance recovery. It also reflects
the agency's expectations that the banking system's asset quality
and profitability will remain stable as credit costs decline and
lending expands. In addition, Fitch expects moderate economic
growth of 2.6% in 2022, following a stronger than previously
envisioned growth of 4% in 2021 due to higher oil prices and
success in vaccinations.
Fitch has also withdrawn Guayaquil's Support Rating and Support
Rating Floor as they are no longer relevant to the agency's
coverage following the publication of its updated Bank Rating
Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch
has assigned Guayaquil a Government Support Rating (GSR) of No
Support (ns).
KEY RATING DRIVERS
IDRs AND VR
The bank's VR or standalone creditworthiness drive the IDR of
Guayaquil. Fitch believes Ecuador's sovereign rating and broader
operating environment considerations highly influence the VR of
Guayaquil. The VR is also moderately influenced by Guayaquil's
company profile due to its strong local competitive position as the
third-largest bank and diversified business model.
The impaired loans to gross loans ratio improved to 1.4% in
September 2020 (1.7% in December 2020) and is better than the
banking system average. It reflects the lower risk appetite
compared to the peers and the selective relief programs amid the
pandemic. In addition, the sound reserve coverage of impaired loans
of 331% at 3Q21 (YE20: 321%) is conservative and enhances the
bank's loss absorption capacity in the current operating
environment. Fitch expects some deterioration in the NPL ratio with
the unwinding of the regulatory flexibility to delay the
recognition of deteriorated loan ends; however, it will remain
commensurate to its rating category.
Guayaquil's operating profit to risk-weighted assets (RWA) ratio
improved to 1.5% at 3Q21 from 0.4% at YE20. Profitability
improvement resulted from the significant decrease in loan
impairment charges, given the considerable amount of voluntary
provisions created during 2020. Fitch expects profitability to
improve in 2022 as loan impairment charges decrease and business
volumes increase. In addition, net interest margins will improve
due to higher revenue generation, but will not be enough to offset
the higher than pre-pandemic credit cost.
Guayaquil's Fitch Core Capital (FCC) ratio reduced to 12.0% at the
end of September 2021 from 12.5% at YE 2020, reflecting the
increase in RWA. The regulatory capital ratio of 15.6% at 1Q21 is
well above the regulatory minimum of 9.0% and is mostly Tier I
(about 76% of regulatory capital). Fitch expects the FCC ratio to
slightly improve in 2022, driven by moderate assets growth, and the
improvement in earnings generation, while sound reserves coverage
will continue to enhance loss absorption capacity.
Guayaquil's liquidity position is sound as it has strengthened as
core deposits grew 9.3% at 3Q21 and 15.8% at YE20, reflecting ample
liquidity in the banking system. Accordingly, the loan to deposit
ratio remained sound at 85.14% at 3Q21, better than pre-pandemic
levels (YE19: 90.5%). Historically, customer deposits have covered
most of the bank's funding needs (87.5% at 3Q21). The bank also
benefits from high-quality available funds representing 23.6% of
short-term deposits at 3Q21, deemed sound by Fitch.
GOVERNMENT SUPPORT RATING
The GSR of 'ns' reflects that despite Guayaquil's important market
share and local franchise, Fitch believes that there is no
reasonable assumption of support being forthcoming from the
sovereign due to Ecuador's limited financial flexibility and the
lack of a lender of last resort.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRs and VR
-- Upside potential is limited. In the long term, a rating
upgrade would require improved prospects for the operating
environment and a meaningful and sustained improvement of core
profitability, combined with improvements in the bank's credit
quality and capitalization.
GSR
-- Ecuador's propensity or ability to provide timely support to
Guayaquil is not likely to change given the sovereign's low
sub-investment-grade IDR. As such, the GSR has no upgrade
potential.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IDRs and VR
-- The IDRs are sensitive to changes in the sovereign rating or
further deterioration within the local operating environment;
-- The IDRs and VR could be downgraded if the pandemic-induced
economic disruption results in a relevant deterioration of
asset quality or profitability lead into a sustained decline
in the bank's FCC-to-RWA ratio below 9%.
GSR
-- The GSR has no downgrade potential, as it is at the lowest
possible level.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Prepaid Expenses and Deferred Payments were included as other
intangibles and deducted from the FCC.
ESG CONSIDERATIONS
Guayaquil's Environmental, Social and Corporate Governance (ESG)
Relevance Score for Management Strategy has been revised to '3'
from '4'. The bank's score is now in line with the standard scoring
for all banks globally. The score change reflects the reduced
government intervention in the Ecuadorian banking sector, enhancing
the bank's ability to define and execute its own strategy. This has
a neutral impact on the rating.
Guayaquil's ESG Relevance Score for Exposure to Environmental
Impacts has been revised to '2' from '3'. The bank's score is now
in line with the standard scoring for all banks globally. The score
change reflects that physical impacts of environmental events are
credit-neutral or have only a minimal credit impact on the entity.
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.
BANCO PICHINCHA: Fitch Affirms B- LT IDR, Alters Outlook to Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Banco Pichincha C.A. y Subsidiarias'
(Pichincha) Long-Term Issuer Default Rating (IDR) at 'B-' and its
Viability Rating at 'b-'. The Rating Outlook on the IDR has been
revised to Stable from Negative.
The Stable Outlook on Pichincha follows Fitch's adjustment of its
operating environment (OE) assessment for the Ecuadorian banking
system to Stable from Negative as Fitch expects a favorable
environment for economic and credit growth, as well for the
Ecuadorian banks' financial performance recovery. It also reflects
the agency's expectations that the banking system's asset quality
and profitability will remain stable as credit costs decline and
lending expands. In addition, Fitch expects moderate economic
growth of 2.6% in 2022, following a stronger than previously
envisioned growth of 4% in 2021 due to higher oil prices and
success in vaccinations.
Fitch has also withdrawn Pichincha' Support Rating and Support
Rating Floor as they are no longer relevant to the agency's
coverage following the publication of its updated Bank Rating
Criteria on Nov. 12, 2021. In line with the updated criteria, Fitch
has assigned Pichincha a Government Support Rating (GSR) of No
Support (ns).
KEY RATING DRIVERS
IDRs AND VR
The bank' VR or standalone creditworthiness drive the IDR of
Pichincha. Fitch believes Ecuador's Sovereign Rating and broader
operating environment considerations highly influence the VR of
Pichincha. The VR is also moderately influenced by Pichincha's
business profile due to its strong local competitive position as
the largest bank in Ecuador and diversified business model.
At 3Q21, the 90-days NPL ratio improved to 2.97% (YE 2020: 3.4%),
mainly due to better asset quality in loans across all sectors.
Restructuring, refinancing and the regulatory flexibility to delay
the recognition of NPLs up to 60 days (before 15 and 30 days for
consumer and commercial loans, respectively) are still cushioning
the impact of the coronavirus pandemic on Pichincha's asset
quality.
The sound reserve coverage of impaired loans of 318.9% at the 3Q21
is conservative and protects the current operating environment.
Fitch expects the seasoning of restructured and refinanced loans
(10.4% as of 3Q21) and the unwinding of the delayed recognition of
deteriorated loans to result in a deterioration of the NPL ratio,
but for the ratio to remain commensurate to its rating category.
The operating profit to RWA ratio remained low at 0.6% at 3Q21
(YE20: 0.41%). Pressure on profitability results from higher RWAs
and significant loan impairment charges as Pichincha anticipated
potential deterioration and adopted a conservative approach in
terms of provisioning. Fitch expects profitability to improve in
2022 reflecting economic recovery and credit growth, but not to
pre-pandemic levels due to significant credit costs and lower
margins.
Pichincha's Fitch Core Capital ratio reduced to 11.1% at 3Q20 from
12.6% at YE20, reflecting higher RWAs due to higher capital
requirements for credit risk. The regulatory capital ratio of 13.1%
at end-September 2021 is well above the regulatory minimum of 9%,
and is mostly Tier I (about 75% of regulatory capital). Fitch
expects the FCC ratio to slightly improve in 2021, driven by
moderate asset growth, improvement in earnings, sound reserves
coverage, as well as the expected re-capitalization of most of
earnings.
Pichincha's liquidity position is conservative and has strengthened
as core deposits grew 5% at 3Q21 and 16.5% at YE20, reflecting
ample liquidity in the banking system. Accordingly, the loan to
deposit ratio is sound at 77.4% at 3Q21. Historically, customer
deposits have covered most of the bank's funding needs (93.3% at
3Q21). Pichincha's funding structure benefits from a successful
franchise and a wide distribution network. Both allow the bank to
enjoy a well-diversified, stable and relatively low-cost funding
base.
GOVERNMENT SUPPORT RATING
The GSR of 'ns' reflects that despite Pichincha's important market
share and local franchise, Fitch believes that there is no
reasonable assumption of support being forthcoming from the
sovereign due to Ecuador's limited financial flexibility and the
lack of a lender of last resort.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
IDRs and VR
-- Upside potential is limited. In the long term, a rating
upgrade would require improved prospects for the operating
environment and a meaningful and sustained improvement in the
bank's core profitability, along with improvement in the
bank's credit quality and capitalization.
GSR
-- Ecuador's propensity or ability to provide timely support to
Pichincha is not likely to change given the sovereign's low
sub-investment-grade IDR. As such, the GSR has no upgrade
potential.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IDRs and VR
-- The IDRs are sensitive to changes in the sovereign rating or
further deterioration within the local operating environment;
-- The IDRs and VR could be downgraded if the pandemic-induced
economic disruption results in a relevant deterioration of
asset quality or profitability lead into a sustained decline
in the bank's FCC-to-RWA ratio below 9%.
GSR
-- There is no room for downgrade in the SRs as it is at the
lowest possible level.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Prepaid Expenses and Deferred Payments were included as other
intangibles and deducted from the FCC.
ESG CONSIDERATIONS
Pichincha's Environmental, Social and Corporate Governance (ESG)
Relevance Score for Management Strategy has been revised to '3'
from '4'. The bank's score is now in line with the standard scoring
for all banks globally. The score change reflects the reduced
government intervention in the Ecuadorian banking sector, enhancing
the bank's ability to define and execute its own strategy. This has
a neutral impact on the rating.
Pichincha's ESG Relevance Score for Exposure to Environmental
Impacts has been revised to '2' from '3'. The bank's score is now
in line with the standard scoring for all banks globally. The score
change reflects that physical impacts of environmental events are
credit-neutral or have only a minimal credit impact on the entity.
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.
BANCO PROCREDIT: Fitch Affirms 'B-' LT IDR, Outlook Stable
----------------------------------------------------------
Fitch Ratings has affirmed Banco ProCredit S.A.'s (ProCredit
Ecuador) Long-Term Issuer Default Rating (LT IDR) at 'B-' with a
Stable Rating Outlook, and Short-Term IDR at 'B'. Fitch also
affirmed its Viability Rating (VR) at 'ccc+'.
Fitch has also withdrawn the banks Support Rating of '5' as it is
no longer relevant to the agency's coverage following the
publication of its updated Bank Rating Criteria on Nov. 12, 2021.
In line with the updated criteria, Fitch has assigned ProCredit
Ecuador a Shareholder Support Rating (SSR) of 'b-'.
KEY RATING DRIVERS
ProCredit Ecuador's IDRs are driven by Fitch's view of the
potential support it would receive from its parent, ProCredit
Holding AG & Co. KGaA's (PCH; BBB/Stable), if required. Fitch views
parent support as being robust but constrained by Ecuador's
transfer and convertibility risks captured by the country ceiling
rated at the sovereign level of 'B-'.
Fitch's assessment of support also considers ProCredit Ecuador as a
strategic operation providing the core products and services of the
group. The ProCredit group is an international group of development
oriented commercial banks with a focus on Eastern Europe with
Ecuador as the only operation remaining in Latin America.
PCH's ability to provide timely support also considers ProCredit
Ecuador's relative size at near 6% of consolidated assets. The
propensity and commitment of PCH is reflected by the strong
presence of related funding and guarantees in different economic
cycles and in the context of the ongoing pandemic. Fitch also
contemplates the high level of operational and managerial
integration and the reputational implications of subsidiary
default.
ProCredit Ecuador's VR continues to capture still insufficient
pre-impairment profits to absorb operational costs. Procredit
reported operating losses/risk weighted assets (RWA) of 0.3%, as of
September 2021. Fitch expects a slow recovery in the bank's
profitability for 2022 driven by a higher NIM as the local economy
gain traction and loan impairment charges remains relatively well
contained.
Furthermore, profit sustainability is expected to require further
business scale and lower cost of funds, while maintaining asset
quality metrics and reducing operating costs. Fitch considers
non-performing loans remain low in local standards, which are
currently registered as 60+ days past due as of September 2021 at
0.6%, although coronavirus-related deferrals were relevant at 30%
of total loan on its peak in 2020, currently are less than 1% as of
September 2021. In addition, the restructured and refinanced loans
reached a modest 5.8% as of September 2021, which compared well
with largest private peers. LLR remained at good stance at 3.7x at
September 2021.
Fitch considers that solvency ratios will maintain a buffer above
the regulatory requirements given PCH's propensity to provide
support. Fitch Core Capital of 11.9% continues to decline as a
result of consistent loan growth, while further operating losses
stemming from reserve builds has resulted in gradual capital
erosion. In addition, Fitch expects that bank's capital metrics
remains with a certain cushion for loan growth in 2022.
Customer deposits increased close to 29.6%, as of September 2021,
as ProCredit has still benefitted from high liquidity in the
banking system. With a loan/deposit ratio close to 152.5% and high
loan growth expectations, ProCredit relies on external funding
sources, primarily related, which enhance Fitch's view of support.
SHAREHOLDER SUPORT RATING
ProCredit Ecuador's Shareholder Support Rating (SSR) is also
constrained by Ecuador's sovereign rating, as reflected in the
Country Ceiling. As per Fitch's criteria, ProCredit Ecuador
corresponds to an SSR of 'b-'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- ProCredit Ecuador's IDR and SSR are sensitive to changes in
the sovereign rating and country ceiling. IDRs and the SSR
could also be downgraded if PCH's propensity or ability to
support materially weakens;
-- The VR could be downgraded in the event of a sharp
deterioration of the asset quality and consequently on its
profitability metrics that would significantly reduce capital
metrics.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- ProCredit Ecuador's IDR and SSR could be upgraded in the event
of an upgrade in the country ceiling and sovereign rating;
-- The VR has limited upside potential considering the still
challenging operating environment. An upgrade of the bank's VR
would also require sustainable profit generation and a
sustainable improvement in its funding structure.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
ProCredit's Environmental, Social and Corporate Governance (ESG)
Relevance Score for Management Strategy has been revised to '3'
from '4'. The bank's score is now in line with the standard scoring
for all banks globally. The score change reflects the reduced
government intervention in the Ecuadorian banking sector, enhancing
the bank's ability to define and execute its own strategy. This has
a neutral impact on the rating.
ProCredit's ESG Relevance Score for Exposure to Environmental
Impacts has been revised to '2' from '3'. The bank's score is now
in line with the standard scoring for all banks globally. The score
change reflects that physical impacts of environmental events are
credit-neutral or have only a minimal credit impact on the entity.
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.
===========
G U Y A N A
===========
GUYANA: Calls for CARICOM to Strengthen Regional Integration
------------------------------------------------------------
RJR News reports that Guyana is urging CARICOM countries to
implement decisions aimed at deepening the regional integration
movement.
President Irfaan Ali said there is need for the region to
collaborate and create new business prospects, according to RJR
News.
Mr. Ali noted that various individual barriers to trade imposed by
member countries were stifling the progress, pointed to the region
importing three times more than it is exporting, the report notes.
=========
H A I T I
=========
HAITI: IDB OKs $60M Loan to Improve Food Security in Rural Areas
----------------------------------------------------------------
The Inter-American Development Bank (IDB) approved $60 million of
non-reimbursable financing to improve the food security of rural
households, including farmers, fishers, seafood merchants, and
rural workers of Haiti, by promoting rural productivity and
connectivity to rural markets. The project will be co-financed with
$18.3 million from the Global Agriculture and Food Security Program
(GAFSP).
The agriculture, fisheries, and rural infrastructure activities
proposed in the program will increase productivity and income while
promoting the sustainable management of the critical resources on
which rural beneficiaries depend.
The program will support farmers' adoption of agricultural
technologies through technical assistance, improving food
availability through increased production, and food access through
higher agricultural revenues. A menu of agricultural technologies
has been developed based on their food security relevance, climate
adaptation potential, and the environmental sustainability of
different crops. Farmers will have the option to choose among these
technological packages. This component includes actions
specifically targeted to women and youth participation, with
packages targeted to women's activities to be included in the
menu.
The program will also support around 65 fisher and merchant
associations to adopt sustainable practices that will improve
fishers' food security through improved productivity while ensuring
the sustainability of marine resources. These associations will
also be able to acquire boats, engines, fish conservation, and
processing equipment through a matching grant mechanism.
Finally, through its rural infrastructure component, the project
aims to improve road accessibility and decrease transportation
costs, production losses and increase access to markets through the
rehabilitation of rural roads. It will also invest in
climate-resilient public infrastructure, including fish landing
infrastructure and fish markets, and technical assistance to local
government and fishers' associations to ensure sustainable
operations and the proper maintenance of fishing facilities.
This program is aligned with the IDB's Vision 2025, which
prioritizes social inclusion and equality, productivity and
innovation, economic integration, and resilience to climate change.
The funds will be disbursed over a five-year period, starting in
2022.
===========
M E X I C O
===========
CREDITO REAL: S&P Downgrades ICR to 'B+' on Tighter Liquidity
-------------------------------------------------------------
S&P Global Ratings lowered its long-term global scale issuer credit
rating on Credito Real S.A.B. de C.V. SOFOM E.N.R. to 'B+' from
'BB-'. S&P also lowered its national scale rating to 'mxBBB/mxA-2'
from 'mxA-/mxA-2'. At the same time, S&P lowered its issue-level
rating on the company's senior unsecured notes to 'B+' from 'BB-'
and its issue-level rating on the subordinated perpetual notes to
'CCC+' from 'B-'. S&P placed all ratings on CreditWatch negative.
Credito Real's results during 2021 are below S&P's expectations,
which along with the region's adverse economic market conditions,
could continue undermining global investors' confidence, weakening
the company's funding and liquidity position. In the past months,
the Mexican lender announced several strategies to strengthen
liquidity; however, they haven't materialized yet.
GRUPO AEROMEXICO: Creditors Claim Plan Hands Over $268M to Insiders
-------------------------------------------------------------------
Rick Archer of Law360 reports that Grupo Aeromexico's unsecured
creditors' committee has told a New York bankruptcy judge it will
oppose the airline's proposed Chapter 11 plan, saying it gifts
corporate insiders with nearly $268 million in equity while
shorting other creditors.
In a motion filed Thursday, December 2, 2021, the committee asked
the court to amend Grupo Aeromexico SAB de CV's Chapter 11 plan
disclosure statement to include an explanation of why the unsecured
creditors believe the proposed plan should be rejected for
undervaluing the company and unfairly providing certain
shareholders with equity over and above the value of their
investments.
"The Committee's primary concern with the Exit Financing Motion is
that it is inextricably linked to a plan of reorganization that is
fatally flawed due to, among other things, the allocation of
approximately $268 million in value to insider shareholders that
collectively control a majority of Grupo Aeromexico's board of
directors -- specifically, Delta Air Lines, Inc. ("Delta") and
certain current Mexican shareholders (the "Insider Mexican
Shareholders," and together with Delta, the "Insiders") -- over and
above the amount being invested by such parties under the Plan in
violation of the absolute priority rule. Specifically, the Plan
proposes to distribute reorganized equity with a value of
approximately $182.3 million to Delta merely for performing
services that the Committee believes Delta is already contractually
obligated to provide. In the case of the Insider Mexican
Shareholders, the Plan proposes to distribute reorganized equity to
them with a value of approximately $85.3 million simply for
performing services that they are currently providing as board
members and are required to perform in accordance with their
fiduciary duties under Mexican law, and are already being paid for
(and would continue to be paid for if they remain as board
members). The evidence also shows that the Insiders exerted undue
influence over the so-called "Independent Directors" throughout the
plan process, which has resulted in hundreds of millions of dollars
of distributable value being siphoned from unsecured creditors and
given to the Insiders. Delta was also previously an undisclosed
participant in Apollo's DIP investment, all while actively advising
the Debtors with respect to the business plan that served as the
basis for the Debtors' exit financing proposals," the Committee
said in court filings.
About Grupo Aeromexico
Grupo Aeromexico, S.A.B. de C.V. (BMV: AEROMEX) --
https://www.aeromexico.com/ -- is a holding company whose
subsidiaries are engaged in commercial aviation in Mexico and the
promotion of passenger loyalty programs. Aeromexico, Mexico's
global airline, has its main hub at Terminal 2 at the Mexico City
International Airport. Its destinations network features the
United
States, Canada, Central America, South America, Asia and Europe.
Grupo Aeromexico and three of its subsidiaries sought Chapter 11
protection (Bankr. S.D.N.Y. Lead Case No. 20-11563) on June 30,
2020. In the petitions signed by CFO Ricardo Javier Sanchez Baker,
the Debtors reported consolidated assets and liabilities of $1
billion to $10 billion.
The Debtors tapped Davis Polk and Wardell LLP as their bankruptcy
counsel, KPMG Cardenas Dosal S.C. as auditor, and Rothschild & Co
US Inc. and Rothschild & Co Mexico S.A. de C.V. as financial
advisor and investment banker. White & Case LLP, Cervantes Sainz
S.C. and De la Vega & Martinez Rojas, S.C., serve as the Debtors'
special counsel. Epiq Corporate Restructuring, LLC, is the claims
and administrative agent.
The U.S. Trustee for Region 2 appointed a committee to represent
unsecured creditors on July 13, 2020. The committee is represented
by Willkie Farr & Gallagher, LLP and Morrison & Foerster, LLP.
GRUPO AEROMEXICO: Junior Creditors Oppose Apollo Bankruptcy Deal
----------------------------------------------------------------
Eliza Ronalds-Hannon and Steven Church of Bloomberg News report
that Grupo Aeromexico junior creditors slam Apollo bankruptcy
deal.
Lower-ranking creditors in Grupo Aeromexico SAB's bankruptcy are
protesting a plan led by Apollo Global Management Inc. and Delta
Air Lines Inc. they say distributes value unfairly and could lead
to "protracted litigation."
The plan, which calls for Aeromexico's biggest lender, Apollo,
and corporate partner Delta to get ownership stakes in the airline,
is "marred by conflicts of interest and opacity," unsecured
creditors Invictus Global Management and Corvid Peak Capital
Management wrote in a letter Tuesday, November 30, 2021, that also
detailed their alternate proposal.
About Grupo Aeromexico
Grupo Aeromexico, S.A.B. de C.V. (BMV: AEROMEX) --
https://www.aeromexico.com/ -- is a holding company whose
subsidiaries are engaged in commercial aviation in Mexico and the
promotion of passenger loyalty programs. Aeromexico, Mexico's
global airline, has its main hub at Terminal 2 at the Mexico City
International Airport. Its destinations network features the
United
States, Canada, Central America, South America, Asia and Europe.
Grupo Aeromexico and three of its subsidiaries sought Chapter 11
protection (Bankr. S.D.N.Y. Lead Case No. 20-11563) on June 30,
2020. In the petitions signed by CFO Ricardo Javier Sanchez Baker,
the Debtors reported consolidated assets and liabilities of $1
billion to $10 billion.
The Debtors tapped Davis Polk and Wardell LLP as their bankruptcy
counsel, KPMG Cardenas Dosal S.C. as auditor, and Rothschild & Co
US Inc. and Rothschild & Co Mexico S.A. de C.V. as financial
advisor and investment banker. White & Case LLP, Cervantes Sainz
S.C. and De la Vega & Martinez Rojas, S.C., serve as the Debtors'
special counsel. Epiq Corporate Restructuring, LLC, is the claims
and administrative agent.
The U.S. Trustee for Region 2 appointed a committee to represent
unsecured creditors on July 13, 2020. The committee is represented
by Willkie Farr & Gallagher, LLP and Morrison & Foerster, LLP.
GRUPO AEROMEXICO: Objections May Delay Bankruptcy Exit Plan
-----------------------------------------------------------
CH-Aviation reports that objections may delay Grupo Aeromexico's
bankruptcy exit plan.
Grupo Aeromexico has asked the US bankruptcy court in New York to
extend until Dec. 30, 2021, the exclusivity period during which it
may file its final restructuring plan and to extend until February
28 the exclusive solicitation period, according to a court filing.
This follows an objection to the proposed financing plan by a group
of US creditors including Invictus Global Management, LLC; Corvid
Peak Capital Management, LLC; Hain Capital Group, LLC; and Livello
Capital Management, LP (together referred to as the Ad Hoc Group)
filed with the court on November 26.
"The court should not approve the exit financing motion in the face
of the alternative proposal developed by the Ad Hoc Group, which
provides a consensual path towards exiting Chapter 11 while at the
same time distributing value fairly across the capital structure,
including to fulcrum general unsecured claims holders and
increasing plan value by USD450 million," the objection to the
court reads.
The Ad Hoc Group argues the existing proposal from the debtors was
not the best path forward, failed to deliver consensus, and did not
maximise the value for all of the key creditor groups. Their
alternative proposal, they say, "provides Delta Air Lines (DL,
Atlanta Hartsfield Jackson) and Apollo Global Management -
[together the largest stakeholders in the Aeromexico
restructuring] - with identical or improved treatment while
ensuring a consensual framework for a near-term emergence by
general unsecured creditors meaningful participation and reasonable
recoveries in the reorganised company".
According to the Ad Hoc Group, their plan had been shared with
Aeromexico, unsecured creditors, Apollo Global Management, Delta
Air Lines, and main Mexican investors on November 21, but was not
considered. In light of this, the group was investigating
whether the process leading to the existing proposal was tainted
by other considerations."
In a letter soliciting the support for their objection from the
boards of Delta Air Lines and Apollo Global Management, Global
Management co-founder and partner, Cindy Chen Delano, and Corvid
Peak Capital Management founder and Chief Investment Officer, Mark
Black, warned: "This restructuring could be on the verge of
devolving into protracted litigation because value is not currently
being distributed in a lawful manner consistent with decades of
well-established bankruptcy precedent. In particular, we believe
the value going to unimpaired claimants and third-party investors
is excessive and undermines a consensual exit."
Delta is Aeromexico's largest equity holder at almost 50% and Ed
Bastian, its chief executive officer, sits on the Mexican carrier's
board. Apollo provided the USD1 billion debtor-in-possession (DIP)
financing (of which the USD800 million tranche provides Apollo with
significant case-control through its unprecedented equity
conversion option).
"Thanks to the unique exit financing terms you have collectively
aligned on, you are both positioned to receive exceptional
recoveries and retain substantial equity in the reorganised
company. You also stand to receive representation on the board of
directors of the reorganised debtors and maintain continued
influence. We are asking that your interests and influence in these
cases now be applied to ensuring that there is a fair and
consensual path forward for all stakeholders " rather than one
marred by conflicts of interest and opacity," the letter reads.
Prior to the motion for an extension, Grupo Aeromexico, on
November 29, filed a revised version of its reorganisation plan and
accompanying disclosure statement reflecting the final terms of the
previously disclosed joint proposal from lenders under Tranche 2 of
the company's DIP financing facility, known as the "Alliance
Proposal". A hearing on the disclosure statement is currently
scheduled for December 6, 2021, and contemplates a confirmation
hearing being held on January 17, 2022.
In their motion for an extension to December 30, 2021, the debtors
argue it will permit them to seek consensus on the plan and
timeline currently contemplated "without the unnecessary
contentious confirmation process and unavoidable delay that a
competing plan would produce."
'The debtors submit that the revised plan filed on November 29,
2021, constitutes a 'viable' plan. Through intensive and lengthy
negotiations, which included the debtors and various key
constituencies engaging in a mediation before the Honourable Sean
H. Lane, the debtors have garnered broad creditor support for the
plan, as well as the support of critical counterparties and other
stakeholders. The debtors are not seeking to extend exclusivity to
pressure or prejudice their stakeholders; rather, the relief
requested herein is intended to maintain a framework conducive to
an orderly, efficient, and cost-effective emergence process," the
debtors argue.
About Grupo Aeromexico
Grupo Aeromexico, S.A.B. de C.V. (BMV: AEROMEX) --
https://www.aeromexico.com/ -- is a holding company whose
subsidiaries are engaged in commercial aviation in Mexico and the
promotion of passenger loyalty programs. Aeromexico, Mexico's
global airline, has its main hub at Terminal 2 at the Mexico City
International Airport. Its destinations network features the United
States, Canada, Central America, South America, Asia and Europe.
Grupo Aeromexico and three of its subsidiaries sought Chapter 11
protection (Bankr. S.D.N.Y. Lead Case No. 20-11563) on June 30,
2020. In the petitions signed by CFO Ricardo Javier Sanchez Baker,
the Debtors reported consolidated assets and liabilities of $1
billion to $10 billion.
The Debtors tapped Davis Polk and Wardell LLP as their bankruptcy
counsel, KPMG Cardenas Dosal S.C. as auditor, and Rothschild & Co
US Inc. and Rothschild & Co Mexico S.A. de C.V. as financial
advisor and investment banker. White & Case LLP, Cervantes Sainz
S.C. and De la Vega & Martinez Rojas, S.C., serve as the Debtors'
special counsel. Epiq Corporate Restructuring, LLC, is the claims
and administrative agent.
The U.S. Trustee for Region 2 appointed a committee to represent
unsecured creditors on July 13, 2020. The committee is represented
by Willkie Farr & Gallagher, LLP and Morrison & Foerster, LLP.
=============
U R U G U A Y
=============
ACI AIRPORT: Fitch Rates USD246.2MM Sec. Notes 'BB+', Outlook Neg.
------------------------------------------------------------------
Fitch Ratings has assigned a 'BB+' rating to ACI Airport
SudAmerica, S.A.'s $246.2 million senior secured notes (2021 notes)
due in 2034 in exchange for the existing $200 million ($207 million
outstanding) senior secured notes. The Rating Outlook for the new
notes is Negative.
The exchange offer resulted in 93.0% of the existing notes'
outstanding amount being tendered. The amount of USD246.2 million
of the 2021 notes refers to the USD193.3 million exchanged plus
USD52.9 million of new money. Fitch's rating case average debt
service coverage ratio (DSCR) remained at a similar level than of
the expected Rating which considered a 100% exchange offer. Fitch
also upgraded the ratings of the existing notes to 'BB+' from 'B+'
and removed them from Rating Watch Evolving and assigned a Negative
Outlook.
The Outlook is Negative for all notes. The upgrade on the 2015 and
2020 notes reflects the absence of liquidity shortfalls over the
short to medium term in Fitch's rating case as a consequence of the
successful exchange offer and its embedded enhanced liquidity
features in the 2021 notes.
RATING RATIONALE
The ratings are driven by Carrasco International Airport's (MVD)
strategic but modest traffic base and its strong Origin &
Destination share of passenger traffic. They are also supported by
the addition of six regional airports with a USD67 million CAPEX
plan, which has allowed the concession to be extended up to 2053,
and a dual-till tariff regulation. Debt is at HoldCo level and
benefits from a springing guarantee from the OpCo. The 2021 notes
structure includes important liquidity enhancements, such as an
extended principal grace period, an interest payment account (IPA)
of USD31 million and a six-month debt service reserve account
(DSRA), funded with Letter of Credits (LOC)at closing.
Also, the note's scheduled and target amortization provides
flexibility to the transaction in case of additional stress. Under
Fitch´s rating case, DSCR minimum and average are 1.25x and 1.47x
(2024-2034), respectively; the airport would not need to draw any
amount of its DSRA due to the IPA and up to USD15 million available
in an unsecured working capital facility. Considering both
liquidity enhancements, the airport is able to withstand 12% of
2019 traffic levels in 2022, showing an important resiliency.
Although Fitch believes that it is likely that the airport will
receive a down payment from the duty-free operator in 2023 related
to an expected contract extension, there is a risk that the
ultimate amount could be less than anticipated given the airport
sector's current operating environment. For this reason, in Fitch's
rating case, this payment, expected to happen in 2023, is not
included.
Under the severe downside case, which assumes a slower traffic
recovery until 2026, DSCRs would be slightly lower averaging 1.35x
(2024-2034), but also no draws on the DSRA would be necessary. The
solid resilience to a lower-than-expected duty-free payment and
traffic underperformance due to additional embedded liquidity is
considered consistent with a 'BB+' rating. The Negative Outlook on
the notes reflect concerns about the speed of traffic recovery in
Uruguay, where a slower pace of recovery could drain the liquidity
embedded in the structure.
KEY RATING DRIVERS
Main Uruguayan Airport, Modest Catchment Area [Revenue Risk -
Volume: Midrange]:
Located in Uruguay's capital city of Montevideo, MVD is the main
international gateway to Uruguay with approximately 85% of the
country's flights and a catchment area with 3.4 million people. As
a result, its traffic has historically mostly been from
international passengers traveling from Argentina, Chile, Brazil as
well as Spain. MVD is almost exclusively an O&D airport with less
than 1% of passengers transferring to other destinations. The
carrier concentration is considered moderate, with LATAM Airline
Group S.A. (LATAM; rated D(cl)) accounting for 33% of the
passengers. The new six regional airports added to the concession
are not expected to increase overall traffic base.
Inflation and Exchange Adjusted Tariffs [Revenue Risk - Price:
Midrange]:
Revenues are 95% denominated in USD, mostly in the form of
regulated passenger tariffs adjusted by a global index that
considers foreign exchange and inflation rates. Tariffs cannot
decrease under the concession adjustment scheme, and increases must
be approved by the Uruguayan government pursuant to a decree.
Commercial revenues derived from the airport's duty-free,
restaurant, among other concessions are not regulated but are also
influenced by traffic patterns.
Debt at HoldCo Level with Enhanced Liquidity Features [Debt
Structure: Midrange]:
Notes are fixed-rate and fully amortizing over the life of the
debt, and benefits from a springing guarantee. Debt benefits from a
six-month DSRA and a USD31 million IPA, which supports interest
payment up to November 2023 during the principal grace period,
which will end in May 2025. Also, the notes will benefit from a
legal amortization schedule complemented by a partial cash sweep up
to a target debt balance. Failure to meet the target debt balance
is not an event of default, therein providing flexibility to the
transaction in the event that certain years perform below original
expectations.
Financial Profile: Under Fitch's Rating Case, the Project's DSCR
profile (considering mandatory amortizations only) from 2024 to
2034 is strong, with a minimum and average of 1.25x and 1.47x,
respectively. Excluding the expected 2023 duty-free payment, there
is no need to draw its DSRA. Moreover, the airport is able to
withstand 12% of 2019 levels in 2022, presenting a solid resilience
to a lower-than-expected traffic underperformance thanks to
additional liquidity embedded in that structure.
PEER GROUP
Sociedad Concessionaria Operadora Aeroportuaria Internacional, S.A.
(OPAIN), the concessionaire of El Dorado International Airport in
Bogota (BB+/Rating Watch Negative), serves as a peer for ACI in
Fitch's LATAM airport portfolio. Both airports are the main
gateways in their respective countries, but OPAIN has a stronger
traffic profile, a larger O&D base, and less dependence on
international traffic, which has allowed for a quicker recovery.
OPAIN's DSCR profile of 1.3x after 2023 is consistent with its
'BB+' rating, but its current Rating Watch Negative reflects
Fitch's expectation the airport will be dependent on additional
liquidity -- expected to be manageable -- to meet debt service
payments in 2022, according to applicable criteria for airports
with a mix of stronger and midrange characteristics nonetheless,
the Rating Watch Negative reflects the airport's continued
dependence on additional liquidity to meet debt service payments in
2022. ACI's rating reflects flexibility to mitigate these two main
risks, similar to the protections embedded in OPAIN's debt
structure.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Slower traffic recovery leading to further liquidity
deterioration.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- A faster traffic recovery indicating less dependency on
structure liquidity and external liquidity events, such as
down payments from commercial contracts, could lead to a
Stable Outlook.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
TRANSACTION SUMMARY
ACI concluded its exchange offer with a 93.0% of acceptance. The
amount of USD246.2 million of the 2021 notes refers to the USD193.3
million exchanged plus USD52.9 million of new money. The increase
in indebtedness under the 2021 notes (new money) will be
principally used to fund an IPA of USD31 million, as well as fund
transaction expenses, capital contribution to PDS (for the
repayment of the OpCo senior notes of USD8.7 million and general
corporate purposes), as well accrued interest due on the existing
notes tendered and accepted for exchange in the exchange offer.
The IPA is expected to be utilized up to November 2023 during the
interest only grace period, which has been extended to May 2025
under the exchange offer versus May 2021 under the current notes'
structure. The exchange offer also assumes a two-year extension of
the debt tenor through 2034, which is permissible due the
concession extension through 2053. The debt has a six-month DSRA
initially funded at closing with a LOC, and the OpCo will also have
the flexibility to issue an additional USD15 million in
indebtedness through an unsecured working capital facility at PDS
level.
FINANCIAL ANALYSIS
At present, Fitch is not differentiating between its base and
rating case assumptions, given the level of uncertainty about
future traffic performance. In comparison to Fitch's internal GDP
projections for countries relevant to MVD's traffic base, those
used under ALG's pessimistic case were the most similar over the
short term, as the airport recovers its 2019 traffic levels in the
coming years. For this reason, Fitch adopted ALG's pessimistic
curve as its rating case traffic projection. This case is similar
to Fitch's prior rating case as both assume recovery to 2019 levels
by 2024. Recovery for the coming years has been assumed as follows
under this case: 15% of 2019 levels in 2021, 50% of 2019 levels in
2022 and 85% of 2019 levels in 2023.
Fitch has continued to include a severe downside case within its
financial analysis for ACI, due to the heightened uncertainty
concerning future traffic performance due to ACI's international
traffic concentration, which increases its traffic's dependence on
the lifting of travel restrictions, as well as other countries'
economic recoveries and vaccination distribution timelines. Under
Fitch's severe downside case, which assumes a prolonged recovery
through 2026, recovery levels are similar through 2022 but lower
starting in 2023. Recovery post-2022 has been assumed as follows
under this case: 74% of 2019 levels in 2023, 89% of 2019 levels in
2024 and 94% of 2019 levels in 2025.
Under both the rating and severe downside case, Fitch has also
assumed a 5% stress in opex for the new airports, as a potential
margin of error in comparison to the cost budget. Macroeconomic
assumptions such as inflation and foreign exchange are also updated
in line with Fitch's Sovereigns group's forecasts as of September
2021.
Management expects to receive a down payment from the duty-free
operator in 2023 related to an expected contract extension.
Although Fitch believes it is likely that the airport will receive
such a payment, Fitch also believes that the ultimate amount could
be less than expected given the airport sector's current operating
environment. For this reason, this payment has been excluded in
Fitch's rating and severe downside cases.
SECURITY
The security package supporting the 2021 notes is typical for
project finance and includes a pledge of the shares of the OpCo and
a covenant to issue a guarantee from the entity; a pledge of the
shares of Cerealsur S.A., direct owner of PDS's shares, and a
guarantee from the entity; all of the issuer's shares; and all
present and future payments, proceeds and claims of any kind with
respect to the foregoing, in a pari-pasu basis with the remaining
2015 and 2020 notes, and a pledge over account into which all
dividends and distributions from PdS to Cerealsur and from
Cerealsur to the Issuer will be deposited. Also, the 2021 notes
will benefit from a six-month DSRA and a prefunded USD31 million
IPA.
The 2021 notes include a 'springing guarantee' covenant, which
requires the OpCo to issue a guarantee of the rated debt following
the payment in full of the OpCo local notes. Therefore, the rated
debt will become pari passu with all senior unsecured debt at the
OpCo because of the guarantee.
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.
*********
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 2021. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Latin America subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Peter A. Chapman at 215-945-7000.
.
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