/raid1/www/Hosts/bankrupt/TCRLA_Public/220218.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, February 18, 2022, Vol. 23, No. 30
Headlines
A R G E N T I N A
BUENOS AIRES: S&P Affirms 'CCC+' LongTerm ICRs, Outlook Stable
B E R M U D A
BERMUDA: Inflation Continues to Rise
B R A Z I L
BRAZIL: Coffee Exports Fell 14% in January to 2.9 Million Bags
BRAZIL: Economic Activity Grows 4.5% in 2021, Central Bank index
C H I L E
CHILE: Central Bank Rules Out Emergency Meeting on Inflation Hike
C O S T A R I C A
BICSA: Moody's Affirms B1 Deposit Ratings & Alters Outlook to Pos.
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Current Inflation Pressures Bonds Even More
E L S A L V A D O R
BANCO AGRICOLA: Fitch Cuts LongTerm IDR to 'B-', Outlook Neg.
P E R U
COAZUCAR: S&P Raises Global Scale ICR to 'B' on Debt Refinancing
P U E R T O R I C O
PUERTO RICO: Bankruptcy Recovery Won't Ease People's Struggles
PUERTO RICO: House Members Okay Bondholder Payments
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A R G E N T I N A
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BUENOS AIRES: S&P Affirms 'CCC+' LongTerm ICRs, Outlook Stable
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S&P Global Ratings affirmed its 'CCC+' foreign and local currency
long-term issuer credit ratings on the city of Buenos Aires. The
outlook remains stable.
Outlook
S&P said, "The outlook on our ratings on Buenos Aires mirrors that
on the sovereign. Argentina's recent debt restructuring created
fiscal space, which along with strict foreign exchange restrictions
but that have remained stable, is balanced by Argentina's still
significant economic challenges. We also expect the city of Buenos
Aires to maintain minor deficits after capital expenditures (capex)
and its debt to continue declining in the next 12 months."
Downside scenario
S&P said, "We could downgrade the city of Buenos Aires in the next
12 months if we downwardly revise our T&C assessment of Argentina
because of tighter foreign exchange restrictions that could affect
local and regional governments (LRGs). In line with the Argentine
LRGs' institutional framework, we could also downgrade the city if
we downgrade Argentina. Finally, we could lower the long-term
ratings on the city in the next 12 months if more aggressive
expenditures result in wider-than-expected and consistent fiscal
deficits and an unsustainable debt service profile."
Upside scenario
S&P said, "While the city's intrinsic creditworthiness is stronger
than the current 'CCC+' ratings, we cap our ratings on the city to
those on Argentina (CCC+/Stable/C) and the 'CCC+' T&C assessment.
As a result, we could only upgrade Buenos Aires if we upgrade
Argentina and upwardly revise the T&C assessment."
Rationale
The city's stand-alone credit profile (SACP) of 'b+' indicates its
stronger creditworthiness than those of the rated LRGs in
Argentina. The SACP captures Buenos Aires' stronger socio-economic
conditions than those of other Argentine LRGs, adequate financial
management, generally balanced budgetary performance, and its
declining debt and debt service levels. All these factors helped
the city to avoid a foreign currency distressed debt restructuring
in 2020-2021, in contrast to all other rated LRGs in Argentina. The
city's debt service will be smoother during the next 24 months,
improving its liquidity debt service coverage, while access to the
domestic debt market is satisfactory. Nevertheless, there's a
significant uncertainty about the city's capacity to access
sufficient foreign currency to bulk up its foreign currency debt
service profile in the long term. Finally, in S&P's view, its
assessment of the Argentine LRGs' institutional framework,
Argentina's T&C, and the ratings on the sovereign cap our ratings
on the city.
Buenos Aires has ability to stabilize its fiscal results.
As most of LRGs in the region, Buenos Aires took a hit in 2020 and
2021 from the pandemic-related economic contraction, which shrunk
tax collection, and caused significant healthcare and
countercyclical spending. In addition, since late 2020, the
national government reduced transfers to the city. To mitigate the
fiscal impact, Buenos Aires increased taxes on the financial
sector, introduced a tax on credit card transactions, and
eliminated exceptions to financial gains in LELIQS (a Central Bank
of Argentina debt instrument). It also slashed capex. By the end of
2021, operating surplus reached 10.4% of operating revenues and
deficit after capex was 1.3% of total revenues, compared with 2.9%
and 7.3% in 2020, respectively.
S&P said, "Our base-case scenario assumes that expenditure
management will help the city maintain operating surpluses at about
13% and only minor deficits after capex during 2022-2024. Our
base-case scenario also assumes an increase in capex, as a
percentage of total expenditures, towards 14% from the low level of
10% in 2020." Given the hit to the city's finances after its
copartipation transfers were lowered, its prudent fiscal guidelines
would prevent capex from recovering to the 18.7% average during
2013-2019.
Buenos Aires plans to finance small fiscal deficits through debt
issuances in the domestic market and loans from multilateral
lending institutions, leading to a nominal debt stock increase in
the next three years. S&P said, "However, with revenues linked to
nominal economic growth, and the Argentine peso depreciating at a
slower pace, we expect Buenos Aires' debt to decline below 30% of
operating revenue by 2023. We expect interest burden to average 7%
of operating revenues during 2022-2024. Our assessment continues to
capture the debt profile's exposure to foreign currency." Given
that the city's 60% of total debt is in foreign currency, steep
depreciation of the peso could cause debt to spike in nominal terms
and as a share of operating revenues.
The city doesn't have significant maturities until March 2024
(local currency Class 22 bond full maturity) and June 2025 (foreign
currency tango bond partial maturity). As a result, S&P expects the
city's cash position and its satisfactory access to local debt
markets to cover debt service requirements during the next 12
months. Still, under current foreign currency restrictions and
consistent with its 'CCC+' T&C assessment, there's uncertainty
about Buenos Aires' capacity to accumulate sufficient foreign
currency to repay its international bond, which matures in three
partial installments between 2025 and 2027. As a result, the city's
debt service coverage could weaken in the near term.
Track record of financial management amid economic woes.
The city of Buenos Aires has the highest GDP per capita among
Argentina's LRGs, estimated at $29,130 for 2021, compared with the
estimated national average of $10,043. The city's wealthier economy
resulted in greater fiscal resilience than those of domestic peers
during the economic downturn and mitigated the effects of lower
intergovernmental transfers. However, the city's economic growth
will continue to be linked with Argentina's, which S&P expects to
post an average growth of 2% during 2022-2024.
Unlike most of Argentina's LRGs, the city's past efforts to finance
itself with domestic currency issuances and MLIs helped it prevent
a destressed debt restructuring. Regardless, the city's share of
foreign currency-denominated debt is still substantial, and we
continue to believe that its timely payment is subject to the T&C.
Buenos Aires was able to mitigate the harsh impact of the pandemic
and lower transfers by implementing temporary collection measures
and swiftly adjusting capex priorities and goals. S&P expects the
city to cap operating expenditure growth to inflation in ordr to
gradually regain operating cash flow margins.
S&P said, "We assess the institutional framework for Argentina's
LRGs as very volatile and underfunded, reflecting our perception of
the sovereign's very weak institutional predictability and volatile
intergovernmental system that has been subject to various
modifications to fiscal regulations, and lack of consistency over
the years. This jeopardizes the LRGs' financial planning and
consequently their credit quality. In our opinion, this weakness
currently prevents us from rating the city higher.
"Finally, we continue to believe that the city's creditworthiness
is subject to Argentina's foreign currency policies, which are
currently highly restrictive, resulting in a 'CCC+' T&C
assessment."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
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B E R M U D A
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BERMUDA: Inflation Continues to Rise
------------------------------------
Royal Gazette News reports that the Bermuda government said that
inflation, as measured by the Consumer Price Index, rose 2.5 per
cent in the 12 months to October.
A Ministry of the Cabinet Office statement said that during October
2021, consumers paid 2.5 per cent more than they did in October
2020 for a basket of goods and services, according to Royal Gazette
News.
The statement added: "At a glance, on average, the Food sector rose
0.2 per cent for October. The main items contributing to the
increase were imported lettuce (+6.0 per cent), green peppers (+4.3
per cent) and eggs (+3.1 per cent)," the report notes.
The Transport and Foreign Travel sector continued to be the largest
contributor to the 12-month increase in the CPI (+13.9 per cent),
the report discloses.
On average, annual increases were reported in the cost of overseas
hotel accommodations (+35.4 per cent) and airfares (+28.6 per
cent). Premium fuel and mixed fuel prices rose 16.5 per cent and
15.3 per cent, respectively, the report relays.
The Education, Recreation, Entertainment and Reading (+2.1 per
cent) and Health and Personal Care (+1.7 per cent) sectors also had
an impact on the annual inflation rate, the report notes.
Between September 2021 and October 2021, the average cost of goods
and services increased 0.6 per cent, the report discloses.
Each month, the Government measures the annual rate of inflation
and the monthly rate of inflation, the report relays.
Annual changes reflect changes from the same month last year.
Monthly changes reflect changes from month to month, the report
adds.
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B R A Z I L
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BRAZIL: Coffee Exports Fell 14% in January to 2.9 Million Bags
--------------------------------------------------------------
Rio Times Online reports that Brazil exported 2.9 million
60-kilogram bags of green coffee in January, down 14% from a year
ago, as a smaller crop and logistical bottlenecks limited
shipments, exporters' association Cecafe said on Wednesday,
February 9.
It was the lowest volume for January shipments from Brazil, the
world's biggest producer and exporter, since 2018, according to Rio
Times Online.
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.
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 2021 with stable outlook. 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
December 2021. 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: Economic Activity Grows 4.5% in 2021, Central Bank index
----------------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that economic
activity in Brazil rose 4.5% in 2021, a central bank index showed
on Feb. 11, rebounding from a record downturn the year before, when
the coronavirus pandemic ravaged Latin America's largest economy.
The IBC-BR economic activity index, a leading indicator of gross
domestic product (GDP), grew a seasonally adjusted 0.33% in
December from November, and rose 1.3% from December 2020, according
to globalinsolvency.com.
Brazil's GDP shrank 3.9% in 2020, its worst year on record, the
report notes.
The Economy Ministry has estimated GDP growth of 5.1% in 2021,
while the central bank has forecast 4.4% growth. Official GDP
figures will be released on March 4, the report relays.
The IBC-BR index pointed to a marginal 0.01% increase in activity
during the fourth quarter compared to the prior quarter, signaling
a loss of momentum to start this year, the report notes.
The outlook for 2022 looks rough in Brazil after a sharp rise in
interest rates to contain double-digit inflation, which is hurting
consumer and business confidence, the report relays.
Markets forecast a modest 0.3% GDP growth in 2022, according to a
weekly central bank survey, while the Economy Ministry projects a
2.1% expansion, 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.
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 2021 with stable outlook. 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
December 2021. 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).
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C H I L E
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CHILE: Central Bank Rules Out Emergency Meeting on Inflation Hike
-----------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that
Chile's central bank head Rosanna Costa ruled out an emergency
meeting to address the high January inflation numbers and warned of
higher interest rates at the next policy meeting in March,
according to La Tercera.
"We're concerned about the evolution of inflation and this is going
to require adjustments in monetary policy," the newspaper cited
Costa as saying, "Achieving convergence to the target will require
a different monetary policy," according to globalinsolvency.com.
Earlier, the central bank said it stepped back from a huge
175-basis point rate increase last month for fear of confusing
investors, as speculation mounts that it may now call a surprise
meeting after prices unexpectedly soared last month, the report
notes.
An increase of that size was deemed inappropriate "at this time,"
policy makers wrote in the minutes to their Jan. 26 rate decision,
when they surprised investors with a 150 basis-point hike, the
biggest in over 20 years, the report relays.
The bank also considered a rise of 1.25 percentage points, but
feared having to accelerate the tightening pace at subsequent
meetings, the report adds.
Since the meeting, the statistics agency has reported that the
annual inflation rate soared to a 14-year high of 7.7% last month,
when most analysts expected a slowdown. That jump in the cost of
living flew in the face of 550 basis points in borrowing cost hikes
since July. It also prompted calls from analysts for an emergency
rate increase before the next regularly-scheduled meeting in March,
the report relays.
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C O S T A R I C A
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BICSA: Moody's Affirms B1 Deposit Ratings & Alters Outlook to Pos.
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Moody's Investors Service has affirmed all of Banco Internacional
de Costa Rica, S.A.'s (BICSA) ratings and assessments, including
its b1 baseline credit assessment (BCA) and B1 and Not Prime long-
and short-term deposit ratings. The bank's counterparty risk
ratings of Ba3 and Not Prime as well as the counterparty risk
assessments of Ba3(cr) and Not Prime(cr) for long and short-term,
respectively, were also affirmed. The outlook was changed to
positive, from stable.
The following ratings and assessments assigned to Banco
Internacional de Costa Rica, S.A. were affirmed:
Long-term foreign currency deposit rating of B1, outlook changed
to positive, from stable
Short-term foreign currency deposit rating of Not Prime
Long-term foreign currency counterparty risk rating of Ba3
Short-term foreign currency counterparty risk rating of Not Prime
Long-term counterparty risk assessment of Ba3(cr)
Short-term counterparty risk assessment of Not Prime(cr)
Baseline Credit Assessment of b1
Adjusted Baseline Credit Assessment of b1
Outlook Action:
Banco Internacional de Costa Rica, S.A.:
Outlook, changed to positive, from stable
RATINGS RATIONALE
The positive outlook reflects Moody's expectation for a gradual
improvement in asset quality and profitability in the next 12-18
months benefitting from the ongoing economic recovery in Central
America that will support business growth and contained credit
impairment in the next quarters. In addition, the rating action
incorporates Moody's expectation that the bank will be able to
maintain capitalization at solid levels even as its resumes loan
growth, supported by earnings retention. The affirmation of BICSA's
ratings also acknowledges the proven support and commitment from
BICSA's shareholders, Banco de Costa Rica (BCR, B2 stable, b2) and
Banco Nacional de Costa Rica (BNCR, B2 stable, b2), to the bank's
long-term business strategy, which mitigates potential governance
issues.
Similar to its peers, BICSA's asset quality worsened due to
economic contraction in 2020 in Central America, with stage-3 loans
reaching 4% gross loans as of September 2021, compared with 3.1% as
of December 2019. Moody's expects that the bank's focus on
corporate lending, and the relatively low level of loans under
relief programs compared to other banks in Panama, as well as a
continued economic recovery in the countries where the bank
operates will support the improvements in asset quality in 2022.
BICSA's collateral coverage of its loan book mitigates the
relatively low reserve coverage of its portfolio. The b1 BCA
continues to reflect the bank's highly concentrated loan book, a
characteristic of its business model focused on corporate lending
activities.
In 2020 and 2021, profitability was impacted by the loan book
contraction, lower margins and higher provisioning expenses, with
net income averaging 0.2% tangible assets in the period, down from
a historical average of 0.6% between 2017 and 2019. Over the next
12-18 months, Moody's expect the bank's earnings to recover,
benefiting from more favorable operating conditions and growing
business volumes. Improved earnings generation will support the
bank's capitalization, which represents BICSA's main credit
strength. As of September 2021, Moody's preferred ratio of tangible
common equity to adjusted risk weighted assets reached a solid
16.5%, from 14.2% by year-end 2019, supported by full earnings
retention and accumulation of regulatory reserves. As the bank
resumes loan growth, capital will benefit from the expected
recovery of earnings.
On the other hand, BICSA's high reliance on confidence-sensitive
and mainly short-term market funding continues to be a credit
challenge. However, the bank's loan book is mainly focused on
short-term trade financing in Central America, which helps to
contain refinancing and liquidity risks. Moreover, the bank
maintains access to a diversified base of credit lines from large
US and European banks. Costa Rica and Panama are BICSA's core
markets, with about 35% and 30% of total loans granted in these
countries respectively, as of September 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
In line with the positive outlook, BICSA's long-term deposit rating
could be upgraded if it's profitability and asset quality improve,
while the bank's capitalization remains solid. Funding profile
improvements such as maturity extension coupled with increased
deposit diversification also would be positive for the bank's
ratings.
Given the positive outlook, the rating downgrade is unlikely.
However, the outlook could be stabilized if asset quality remains
under pressure, limiting earnings recovery and internal capital
generation. Moreover, shareholders disagreement with respect of
BICSA's management or any other development that would cause
uncertainty regarding the bank's business strategy, earnings
generation and funding access, would trigger downward ratings
pressure.
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
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D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Current Inflation Pressures Bonds Even More
---------------------------------------------------------------
Dominican Today reports that fears gained strength on Feb. 10 that
current inflation in the Dominican Republic will not subside for
now, as the 10-year US bond yield hit 2%, after learning that
inflation climbed to 7.5% year-on-year in January. The market's
reaction is explained because inflation works against bondholders
by reducing the interest received.
Rising inflation means that the future interest payments you
receive for holding the bond are worthless. This also makes the
bond less attractive, according to Dominican Today.
Bonds have become the first victim of the panic generated by
inflationary pressures, the report cites. With the increase in
yields on government bonds, debt investors are pointing this out to
governments and central banks, the report notes.
To understand the rise in bond yields, you must understand how the
market works. If investors flock to bonds (which is more likely
when inflation expectations are low), their prices will rise, and
yields will fall, the report relays.
If investors start to walk out, prices will drop with a consequent
rise in yields, which is currently happening, the report
discloses.
If yields on the 10-year US Treasury note continue to rise, it will
hurt Wall Street stocks, the report notes. According to
calculations by Ned Davis Research, the Nasdaq could fall as much
as 20% if yields continue to rise and the bond stands at 2% at the
end of the year, something that the consultancy takes for granted,
the report relays.
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.
TCRLA 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, in December 2021, revised the Outlook on Dominican
Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR)
to Stable from Negative and affirmed the IDRs at 'BB-'. The
revision of the Outlook to Stable reflects the narrowing of
Dominican Republic's government deficit and financing needs since
Fitch's last review resulting in the stabilization of the
government debt/GDP ratio, as well as the investment-driven
economic momentum, reflected in the faster-than-expected economic
recovery in 2021 that Fitch expects to carry into above-potential
GDP growth during 2022 and 2023.
Standard & Poor's, also in December 2021, revised its outlook on
the Dominican Republic to stable from negative. S&P also affirmed
its 'BB-' long-term foreign and local currency sovereign credit
ratings and its 'B' short-term sovereign credit ratings. The
stable outlook reflects S&P's expectation of continued favorable
GDP growth and policy continuity over the next 12 to 18 months that
will likely stabilize the government's debt burden, despite lack of
progress with broader tax reforms, S&P said. A
rapid economic recovery from the downturn because of the pandemic
should mitigate external and fiscal risks.
Moody's affirmed the Dominican Republic's long-term issuer and
senior unsecured ratings at Ba3 and maintained the stable outlook
in March 2021.
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E L S A L V A D O R
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BANCO AGRICOLA: Fitch Cuts LongTerm IDR to 'B-', Outlook Neg.
-------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Issuer Default Ratings
(IDRs) of Banco Agricola, S. A. (Agricola) and Banco Davivienda
Salvadoreno, S.A. (Davivienda Sal) to 'B-' from 'B', and has
affirmed their Short-Term IDRs at 'B'. The Rating Outlooks for the
Long-Term IDRs remain Negative.
In addition, Fitch has downgraded both banks' Viability Rating (VR)
to 'ccc' from 'b-', as the agency believes that these banks are
exposed to the risks from the Salvadoran operating environment
(OE), which is in turn constrained by El Salvador's low Long-Term
IDR. Consequently, the VR's likelihood of being higher than the
sovereign rating is limited, given the high correlation between
sovereign and banks credit profiles, according to Fitch's
criteria.
The rating actions on Agricola and Davivienda Sal follow the
downgrade of El Salvador's Long-Term Foreign Currency IDR to 'CCC'
from 'B-', Country Ceiling to 'B-' from 'B' and the Short-Term IDR
to 'C' from 'B'.
Agricola and Davivienda Sal's IDRs are rated above the sovereign
rating based on the potential support they could receive from their
parents, which are both rated 'BB+'/Stable. Their IDRs are capped
by the Salvadoran Country Ceiling. The Negative Outlook indicates
that these bank's IDRs would be downgraded in the event of a
Salvadoran sovereign rating and Country Ceiling downgrade.
The national ratings of Agricola and Davivienda Sal and their
holdings, as well as those of other financial institutions rated in
El Salvador, are unchanged since they are not directly affected by
the sovereign downgrade.
In addition, Fitch has also withdrawn Agricola's and Davivienda
Sal's Support Rating (SR) of '4' 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 these banks a Shareholder Support
Rating (SSR) of 'b-'.
KEY RATING DRIVERS
IDRs and SSR
Agricola's and Davivienda Sal's IDRs are underpinned by their 'b-'
SSRs, as it reflects the ability and propensity from their
respective parents, Bancolombia S.A. and Banco Davivienda S.A., to
provide support if required.
Fitch's assessment of the owners' ability to support remains highly
influenced by the constraint El Salvador's 'B-' Country Ceiling
imposes on these banks' ratings, resulting in a five-notch rating
difference below their parents' IDRs. However, in Fitch's opinion,
the shareholders' commitment to their subsidiaries is sufficiently
strong to allow both entities to be rated above the sovereign
rating. According to Fitch's criteria, the Country Ceiling captures
transfer and convertibility risks that, in this case, could limit
the subsidiaries' ability to use parent support.
For Agricola, Fitch's propensity-to-support opinion is also
strongly influenced by the huge reputational risk Bancolombia and
its subsidiaries would be exposed to if Agricola defaults.
Bancolombia has a significant footprint in Central America, and
Agricola is one of its most important subsidiaries in the region.
Davivienda Sal's rating also significantly weigh the material
reputational risk that Davivienda Sal's potential default would
represent to its parent and subsidiaries, which would have a
relevant impact on its franchise.
VR
Agricola's and Davivienda Sal's VRs are highly influenced by El
Salvador's OE, revised by Fitch to 'ccc' from 'ccc+', with a
negative trend. The Sovereign Rating constrains this OE, since some
of the sovereign key rating drivers can influence the banks'
operating conditions. The negative trend also reflects that there
are still downside risks in the OE for the Salvadoran banking
sector that could add headwinds on its financial performance.
Agricola's VR also reflects, with moderate importance, its company
profile characterized by its leading franchise in the local market
and a consistent business model. Agricola's market share in terms
of loans and deposits is around 25% as of December 2021. Moreover,
its VR reflects a better credit quality (NPL ratio: 1.3%) than the
pre-pandemic average of 2017-2019 (1.6%), as well as an ample
reserve coverage for NPLs, 253%.
Agricola's profitability, measured by operating profit to risk
weighted assets (RWA), was close to 2.0% as of September 2021,
still below pre-pandemic records, but favorable compared to the
banking system and peers. The VR also factors good levels of
capitalization to face unexpected losses, as well as a sizable
deposit base and Bancolombia's ordinary support.
Davivienda Sal's VR also moderately factors its solid local
franchise, with a 15.2% market share in terms of loans, as it is
the third-largest player in the banking system, as of December
2021. Additionally, its VR reflects adequate loan quality, with a
NPL ratio of 1.9% (system: 2.4%), and reserve coverage for NPL of
133.7% as of September 2021. Its modest profitability, exhibiting
an operating profit to RWA ratio of 0.8% in average the last four
years (system: 1.3%), is also captured in its VR.
Davivienda Sal's capitalization level provides a reasonable cushion
to face prevailing conditions, further favored by its parent's
ordinary support. This, along with its diversified funding
structure, ample deposit base and synergies generated with its
parent, are all considered in Davivienda Sal's VR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Agricola's and Davivienda Sal's ratings remain sensitive to
changes in El Salvador's sovereign rating and country ceiling.
Negative changes in the banks' IDRs and SSRs would mirror
negative movements in El Salvador's sovereign rating and
country ceiling;
-- Agricola's and Davivienda Sal's IDRs could be downgraded by a
multi-notch downgrade of their respective shareholders,
Bancolombia's and Davivienda's, IDRs; however, this scenario
is unlikely in the rating horizon given the parents' ratings
Stable Outlook;
-- Any perception by Fitch of a reduced strategic importance of
Agricola and Davivienda Sal for their parents may trigger a
downgrade of Agricola's and Davivienda Sal's SSRs and IDRs;
-- Further deterioration in the conditions could lead to a
downward revision of Fitch's assessment of the OE score for
Salvadoran's banks, which would pressure Agricola's and
Davivienda Sal's VRs;
-- Downgrades of Agricola's VR could also come from a material
deterioration in the bank's financial profile that results in
constant operating losses, and an FCC-to-RWA ratio
consistently below 10%;
-- Davivienda Sal's VR downgrades could also come from lower
earnings, specifically if it affect the operating profit to
RWA ratio, resulting in consistent operating losses. A FCC-to
RWA ratio consistently below 10% also will pressure the VR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The Negative Outlook on Agricola's and Davivienda Sal's IDRs
indicate positive actions in the ratings are highly unlikely
in the foreseeable future. However, over the medium term,
Agricola's and Davivienda Sal's IDRs, SSRs and VRs, could be
upgraded in the event of an upgrade of El Salvador's sovereign
rating and country ceiling;
-- The upside potential of Agricola's and Davivienda Sal's VRs is
limited due to the OE assessment;
-- Agricola's VR could only be upgraded over the medium term by
an improvement of the OE accompanied by a consistently good
financial metrics, while maintaining its robust company
profile;
-- Davivienda Sal's VR could only be upgraded over the medium
term as a result of improvement within the OE accompanied by
improvement in its financial metrics, while maintaining its
good company profile.
VR ADJUSTMENTS
Agricola
The bank's 'ccc' VR has been assigned below the 'b-' implied VR due
to the following adjustment reason: Operating Environment
(negative).
The Operating Environment score of 'ccc' has been assigned below
the implied score of 'b' due to the following adjustment reason:
Sovereign Rating (negative).
Davivienda Sal
The bank's 'ccc' VR has been assigned below the 'ccc+' implied VR
due to the following adjustment reason: Operating Environment
(negative).
The Operating Environment score of 'ccc' has been assigned below
the implied score of 'b' due to the following adjustment reason:
Sovereign Rating (negative).
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.
=======
P E R U
=======
COAZUCAR: S&P Raises Global Scale ICR to 'B' on Debt Refinancing
----------------------------------------------------------------
S&P Global Ratings, on Feb. 15, 2022, raised its global scale
issuer credit rating on Peru-based sugar producer Corporacion
Azucarera del Peru S.A. (Coazucar) to 'B' from 'B-' and withdrew
the issue-level rating on its 2022 notes given their full
redemption.
The stable outlook reflects S&P's expectation that Coazucar will
continue delivering steady operating and financial performance in
2022 amid higher sugar prices.
Coazucar has refinanced its outstanding $183 million senior
unsecured notes due August 2022 through a new long-term bank loan.
The notes refinancing improves the company's credit quality because
it has significantly eased refinancing risks and extended
Coazucar's debt maturity profile, with comfortable debt
amortizations under the new debt structure.
In the 12 months ended September 2021, the company posted record
high earnings, including revenues over PEN1.9 billion and an EBITDA
margin above 30%, mostly thanks to high average sugar prices,
steady volumes sold, and a broadly stable cost structure. S&P said,
"This year, we expect Coazucar to deliver stable results versus
2021, mainly driven by still high international and local sugar
prices, steady demand given the basic nature of sugar in the food
and beverage industries, and the continued reopening of local
economies despite the pandemic. Although the company's cost
structure could rise due to inflationary pressure, we expect
Coazucar to post EBITDA margins of 25%-30% for the next 12
months."
S&P said, "Our rating still incorporates the inherent industry risk
related to the volatility of international and local sugar prices,
as well as the exposure to unpredictable weather conditions such as
the El Niño climate pattern and global warming, which can also
hurt production volumes. However, we still think the positive
momentum from the price cycle is supporting Coazucar's financial
risk profile and its liquidity headroom. In 2022, we expect
Coazucar to deliver EBITDA of PEN550 million-PEN600 million with an
EBITDA margin in the 25%-30% area. With no major capital investment
requirements that could significantly increase Coazucar's debt,
rather than regular short-term debt uses for working capital needs
in the next 12-months, we forecast the company's gross leverage to
be about 3.0x in the next 12 months."
=====================
P U E R T O R I C O
=====================
PUERTO RICO: Bankruptcy Recovery Won't Ease People's Struggles
--------------------------------------------------------------
The Conversation reports that Puerto Rico has a plan to recover
from bankruptcy -- but the deal won't ease people's daily
struggles.
Puerto Rico's bankruptcy problem is complicated - but the various
ways the crisis hurts most Puerto Ricans is unmistakable, The
Conversation notes. Since Puerto Rico declared bankruptcy in 2017,
it's become harder for people to decide where they can afford to
live and where their children can enroll in school, the report
says.
The island declared a form of bankruptcy in 2017. At the time, the
island faced historic levels of debt, topping $72 billion. But
Puerto Rico's debt crisis, far worse than Detroit's $18 billion
bankruptcy claims in 2014, has now reached a potential turning
point.
U.S. District Judge Laura Taylor Swain approved a large-scale debt
restructuring plan on Jan. 18, 2022, that would cut $33 billion
from Puerto Rico's debt and work to pay back its creditors, The
Conversation relays. Because Puerto Rico has been a territory of
the United States since 1898, the bankruptcy plan unfolded in a
unique way that has limited residents' say over financial cuts to
public programs that directly affect them, angering many Puerto
Ricans.
The island's recently announced debt agreement will not make it
easier for citizens to find homes, schools, and jobs, The
Conversation says. But it will fuel and test Puerto Ricans'
ability to mobilize politically, the report notes.
Puerto Rico's controversial bankruptcy crisis
The Conversation relays that Puerto Rico's money problems, which
have grown over the past two decades, are the result of many
factors: Years of borrowing to cover budget deficits, poor economic
growth, political corruption and a population decline all play a
role.
Since Puerto Rico is a U.S. territory, and not a state or city, it
does not have the right to officially file for bankruptcy. In
2016, Congress passed the Puerto Rico Oversight, Management, and
Economic Stability Act, a law known as PROMESA, that created a new
government agency. This agency, the Financial Oversight and
Management Board for Puerto Rico, was responsible for laying out
Puerto Rico's debt repayment strategy.
But local people had no say in the creation or composition of this
board, known simply as the Junta -- meaning council in Spanish.
None of its current seven board members are from the island. Puerto
Ricans have also not been involved in the Junta's financial
decisions.
Puerto Rico's debt was never publicly audited, which lent to public
concerns about lack of transparency in managing this crisis.
The Junta primarily made financial cuts, or austerity measures, to
address the debt. They achieved an agreement with the Puerto Rican
government to partially pay back its debt.
But, for everyday people, these cuts have worsened their quality of
life, The Conversation cites.
One unpopular austerity measure the Junta took was freezing public
school teachers' pension plans. Financial cuts also limited Puerto
Rico's Medicaid spending and have threatened funding for people's
pension plans and public universities.
Thousands of teachers, earning a starting salary of $1,750 a month,
have taken to the streets in protest. Puerto Rico Governor Pedro
Pierluisi announced on Feb. 8, 2022, that teachers will receive a
temporary monthly raise of $1,000 starting in July 2022.
The teachers' demands echo the sentiment of many Puerto Ricans, who
do not like these austerity measures.
Public Schools Take A Hit
Puerto Rico's Department of Education has regularly closed public
schools over the last few years because of financial cuts, at a
pace that was previously unseen for decades. Since 2016, 523
schools have closed in Puerto Rico, The Conversation cites. The
education department has plans to close 83 schools by 2026,
affecting 18,644 students.
Julia Keleher, the former secretary of education in Puerto Rico, is
an advocate of school closings.
Keleher was a polarizing public figure -- she was also a mainland
American official in Puerto Rico -- a reminder of the island's
colonial history. Keleher pleaded guilty to federal fraud
conspiracy charges over mismanagement of public funds in June
2021.
Puerto Rico's Department of Education has new leadership. But some
specialized arts schools, such as the Central High School in San 72
Juan, have continued to shut down, prompting online petitions for
change.
School closings more broadly sparked significant protests in San
Juan by parents, students, teachers and politicians over the last
few years. Many working-class students needed to travel farther to
reach open schools that were outside of their communities,
disrupting their learning experience.
Gentrification amps up in Puerto Rico
Rising housing costs compose the latest chapter of Puerto Rico's
layered financial saga, The Conversation adds.
The housing problem coincides with Puerto Rico attracting foreign
investors with new tax breaks. Economic development experts have
argued that the arrival of new investors, combined with the Puerto
Rico government's tax relief measures, create new gentrification
concerns about affordable housing. This is particularly true along
the coastal regions - that may hurt Puerto Ricans.
This investment was made possible by a new law, which aims to
attract wealthy foreigners to the island. It does this by
providing new Puerto Rican residents with exemptions from paying
income tax on all "passive" income, meaning money from investments,
for example.
The net result is significant local resistance to foreign
Investors, The Conversation relays.
Now that a judge has approved Puerto Rico's debt restructuring, the
austerity measures cannot be changed on paper. But Puerto Rico's
public still has the chance to push back and lobby for change, as
they continue to do through protests to advocate for their
political demands, the report notes.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and to chair a committee to review professionals' fees.
PUERTO RICO: House Members Okay Bondholder Payments
---------------------------------------------------
Michelle Kaske of Bloomberg News reports that Puerto Rico's House
of Representatives passed a legislative amendment to include
payments to bondholders in the current operating budget and to
direct billions toward investors and public workers as part of the
commonwealth's debt-restructuring plan.
House members Tuesday authorized the budget revision in a 26 to 24
vote, according to Josue Brenes, spokesman for House Speaker Rafael
'Tatito' Hernandez. The resolution now moves to the Senate for its
consideration.
Puerto Rico has to amend the operating budget to include principal
and interest payments for the current fiscal year and also to
allocate $10.8 billion for cash payments to investors.
About Puerto Rico
Puerto Rico is a self-governing commonwealth in association with
the United States that's facing a massive bond debt of $70 billion,
a 68% debt-to-GDP ratio and negative economic growth in nine of the
last 10 years.
The Commonwealth of Puerto Rico has sought bankruptcy protection,
aiming to restructure its massive $74 billion debt-load and $49
billion in pension obligations.
The debt restructuring petition was filed by Puerto Rico's
financial oversight board in U.S. District Court in Puerto Rico
(Case No. 17-01578) on May 3, 2017, and was made under Title III of
2016's U.S. Congressional rescue law known as the Puerto Rico
Oversight, Management, and Economic Stability Act ('PROMESA').
The Financial Oversight and Management Board later commenced Title
III cases for the Puerto Rico Sales Tax Financing Corporation
(COFINA) on May 5, 2017, and the Employees Retirement System (ERS)
and the Puerto Rico Highways and Transportation Authority (HTA) on
May 21, 2017. On July 2, 2017, a Title III case was commenced for
the Puerto Rico Electric Power Authority ("PREPA").
U.S. Chief Justice John Roberts has appointed U.S. District Judge
Laura Taylor Swain to oversee the Title III cases. The Honorable
Judith Dein, a United States Magistrate Judge for the District of
Massachusetts, has been designated to preside over matters that may
be referred to her by Judge Swain, including discovery disputes,
and management of other pretrial proceedings.
Joint administration of the Title III cases, under Lead Case No.
17-3283, was granted on June 29, 2017.
The Oversight Board has hired as advisors, Proskauer Rose LLP and
O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic
consultant, Citigroup Global Markets, as municipal investment
banker, and Ernst & Young, as financial advisor.
Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M.
Abelson, Esq., of Proskauer Rose; and Hermann D. Bauer, Esq., at
O'Neill & Borges are on-board as attorneys.
McKinsey & Co. is the Board's strategic consultant, Ernst & Young
is the Board's financial advisor, and Citigroup Global Markets Inc.
is the Board's municipal investment banker.
Prime Clerk LLC is the claims and noticing agent. Prime Clerk
maintains a case web site at
https://cases.primeclerk.com/puertorico
Epiq Bankruptcy Solutions LLC is the service agent for ERS, HTA,
and PREPA.
O'Melveny & Myers LLP is counsel to the Commonwealth's Puerto Rico
Fiscal Agency and Financial Advisory Authority (AAFAF), the agency
responsible for negotiations with bondholders.
The Oversight Board named Professor Nancy B. Rapoport as fee
examiner and to chair a committee to review professionals' fees.
*********
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 2022. All rights reserved. ISSN 1529-2746.
This material is copyrighted and any commercial use, resale or
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