/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/230313.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 Monday, March 13, 2023, Vol. 24, No. 52 Headlines A R G E N T I N A AES ARGENTINA: Fitch Affirms Foreign & Local Currency IDRs at CCC- ARGENTINA: Hails 'Success' of 4.34-Trillion Local Debt Swap ARGENTINA: S&P Lowers Local Currency Sovereign ICR to 'SD' ARGENTINA: To Swap Peso Debt to Ease $35 Billion Default Fear FULL PLAY: Executive Found Guilty in FIFA Bribery Case B R A Z I L AEGEA SANEAMENTO: Moody's Cuts CFR to 'Ba2', Outlook Stable AMERICANAS SA: Scandal Won't Affect Brazil Banks ITAU UNIBANCO: Fitch Gives BB LongTerm Rating on USD62MM Sr. Notes J A M A I C A JAMAICA: Extends Cash Incentive to Encourage Formal Banking M E X I C O CEMEX SAB: Fitch Assigns 'BB-' Rating on Hybrid Green Notes CEMEX SAB: S&P Assigns 'B+' Rating on Subordinated Perpetual Notes P U E R T O R I C O AES PUERTO RICO: Moody's Cuts Rating on $144MM Bonds to Caa2 X X X X X X X X LATAM: Focus on Resilience at Consultation of Caribbean Governors [*] BOND PRICING: For the Week March 6 to March 10, 2023 - - - - - ================= A R G E N T I N A ================= AES ARGENTINA: Fitch Affirms Foreign & Local Currency IDRs at CCC- ------------------------------------------------------------------ Fitch Ratings has affirmed AES Argentina Generacion S.A.'s (AAG) Long-Term Foreign-Currency (FC) and Local-Currency (LC) Issuer Default Ratings (IDRs) at 'CCC-'. Fitch has also affirmed AAG's 'CCC'/'RR3' ratings for the company's USD300 million senior unsecured notes due 2024. AAG's ratings reflect the company's exposure to the Argentine sovereign (CCC-) due to the electricity sector's reliance on government subsidies and AAG's dependence on payments from FONINVEMEM funds, which is a sovereign obligation. Fitch rates AAG on a standalone basis from its parent, AES Corporation (BBB-/Stable), due to a lack of legal guarantees from the parent and a low strategic and operational incentive to support AAG. The 'CCC'/'RR3' ratings on the USD300 million senior unsecured notes are based on precedent in Argentina, where issuers launched direct debt exchanges (DDEs)that did not result in a reduction in principal, and the recoveries were above the implied recovery of an 'RR3' (51% to 70%), and the previous recovery rating of 'RR4' (31%-50%), corresponding to the Group D category within which Argentina lies. KEY RATING DRIVERS Heightened Counterparty Exposure: AAG depends on payments from CAMMESA, which acts as an agent on behalf of an association representing agents of electricity generators, transmission, distribution and large consumers or the wholesale market participants. Argentine generation companies receive payments from CAMMESA within 42 days after the close of the period, but payments have been delayed to an average of 65 days in recent months. Roughly 45% of the system cost as of 4Q22 was funded with government subsidies, and AAG was owed USD139 million as of 4Q22 through FONINVEMEM, an Argentine sovereign-owned fund. Uncertain Regulatory Environment: The electricity market remains a priority of the Argentine government. Further regulatory reform is highly probable to reduce costs and prevent the system from becoming insolvent. Fitch estimates the government transferred USD8.4 billion in funds to CAMMESA in 2022, which represented 65% of the total implied cost of the system of USD12.9 billion. Fitch expects the portion of the system that is subsidized will remain elevated in spite of increased tariffs in the Buenos Aires region and goal in Argentina's IMF agreement for electricity subsidies to be 1.7% of GDP, down from 2.3%. Medium-Term Deleveraging Expected: AAG's leverage will decline to 1.5x, in dollar terms, by 2024 as the company uses its operating cash flow and FONINVEMEM collections to pay off the majority of its 2024 bond and other loans at maturity. Projected 2022 results point to slight weakening of the company's credit metrics, with gross leverage increasing to 3.0x in 2022 from 2.7x in 2021. The increase was largely due to a one-time increase in uncollected receivables for which AAG is expected to be compensated. By 2023, leverage is anticipated to decline to 1.9x following a roughly 40% yoy increased EBITDA margin. Base Energy Inflation Adjustment: The indexation of Energia Base will be important for AAG and other producers, whose revenue is nearly 80% derived from Energia Base when FONINVEMEM collections are considered. With Resolution 31/2020, Base Energy was pesified, or denominated in Argentine pesos, at an effective rate of ARS60 per U.S. dollar. Resolution 440/2021 took effect in February 2021 and provided a roughly 30% upward adjustment, or 60% of ARS inflation, in rates over Resolution 31/2020. In April 2022 and December 2022, resolutions 238/2022 and 826/2022 took effect and provided retroactive tariff adjustments of the Energia Base legacy assets, and in February 2023 resolution 59/2023 took effect allowing combined cycle power plants on the Energia Base to sign five-year PPAs with CAMMESA with a partially dollarized rate. FONINVEMEM Receivables in Place: AAG's EBITDA generation was affected by the pesification of Base Energy but has been, and will be compensated by the company's receivables from its FONINVEMEM investments with USD33 million received through 3Q22. Upon repayment of the outstanding roughly USD149 million owed to AAG as of 3Q22, the company will own an equity stake of up to 30% in Guillermo Brown, a 578MW single-cycle plant. Repayments of FONINVEMEM obligations are U.S. dollar-denominated and have been made on schedule. Hydro Concession Expirations: The expiration of concessions for key hydro assets will lower the company's future EBITDA to below USD100 million in 2024. The concession for the 1,050MW Alicura hydro plant on the Limay River is set to expire on August 10, 2023, which Fitch estimates will lower revenue by USD17 million on a full-year basis. Nevertheless, the concession for the Alicura plant may be extended for an additional year. The expiration of concessions for the 102MW Cabra Corral and 45MW El Tunal assets on the Juramento River in November 2025 will have a less pronounced impact given their smaller size. Low Commodity Price Impact: AAG's exposure to rising global commodity prices will be low. The company's revenue comes primarily from Base Energy, which is the country's spot market framework whose participants have their fuel sourced and paid for by CAMMESA. While the coal used in the San Nicolas plant is sourced internationally, namely from Colombia, Australia and South Africa and is part of AAG's cost structure, its cost is entirely reimbursed by CAMMESA in the company's revenue. AAG's other major revenue source is its newly constructed 200MW of wind farms, which generate revenue in excess of USD40 million per year and do not depend on commodity inputs. Parent Linkage: AAG's ratings are based on its standalone credit profile, as overall legal, operational and strategic incentives to its parent company AES Corporation (IDR BBB-/Stable) to support AAG, if needed, are low. AAG is fully-owned by the AES Corporation, but there are no guarantees in place from the parent or cross-default clauses. Strategic incentives are low as AAG does not provide a significant financial contribution to AES Corporation. While both entities have the same core business, and there is some material common management, operational benefits to the parent are not material. Considering all three linkage factors are assessed as low, Fitch rates AAG on a stand-alone basis. DERIVATION SUMMARY AES Argentina's Long-Term FC and LC IDRs reflect the company's exposure to CAMMESA as an offtaker, which is reliant on subsidies from the Argentine government. This is the same situation for Argentine utility and energy peers Pampa Energia S.A. (B-/Stable), Capex S.A. (CCC+) and Genneia S.A. (CCC-). AAG is concentrated only in the electricity generation sector, presenting a balanced portfolio between thermal, wind, and hydro assets. Pampa has a more diversified business profile as a leading company in electricity generation, distribution, transmission, gas production and transportation, while Capex has an advantageous vertical integration in the thermoelectric generation space, with the flexibility of having its own natural gas reserves to supply its plants. Genneia is the leading wind power generation provider in the country with an aggressive expansion plan in renewables. In terms of credit metrics, AAG's gross leverage as of year-end 2021 was 2.7x, compared with Pampa at 1.6x, Genneia at 3.9x, Generacion Mediterranea S.A. (CCC-) at 5.6x, MSU Energy S.A. (CCC-) at 5.1x and Capex at 1.7x as of Oct. 31, 2021. On a net basis, AAG's leverage was 2.3x in 2021, reflecting USD46 million of cash and equivalents. Fitch estimates that AAG's projected gross leverage will average 1.6x in the medium term, below its Argentine peers' median of 3.0x. KEY ASSUMPTIONS - Base Energy assets are remunerated under Resolution 440/2021 with full inflation pass-through in each subsequent year; - Gross generation of approximately 9,500GWh during 2022, falling to roughly 7,800GWh in 2024 after the expiration of the Alicura hydro concession in 2023; - AAG achieves generation capacity factors of 45% for thermal assets, 20% for hydro and 45% for wind during the rating horizon; - 20% rise in coal unit costs in 2022 versus 2021, to be reimbursed by CAMMESA. Costs will fall to historical average thereafter; - Average annual maintenance capex of USD16.5 million over rating horizon; - No dividend payments until 2024 when annual payments of USD1 million begin; - U.S. dollar-denominated receivable related to FONINVEMEM of approximately USD50 million per year until 2026, all related to Guillermo Brown; - Majority of outstanding USD300 million bond due 2024 is refinanced within capital controls restrictions. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - An upgrade to the ratings of Argentina could result in a positive rating action; - Given the issuer's high dependence on the subsidies from CAMMESA, any further regulatory developments leading to a more independent market less reliant on support from the Argentine government could positively affect the company's collections/cash flow. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A downgrade of AES Argentina below 'CCC-' would be due to Fitch's belief that a default of some kind appears probable or a default or default-like process has begun, which will be represented by a 'CC' or 'C' given that the ratings of AES Argentina are linked to those of the Argentine sovereign at 'CCC-' due to the high reliance on government subsidies to the electricity sector. LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: As of Sept. 30, 2022, AAG reported available cash of ARS9,903 million (approximately USD79.5 million) covering one year of interest expense, assuming no additional debt is raised. Fitch expects the company will be able to comply with the central bank capital controls limiting corporates' access to the foreign exchange market. Although the rules were extended through the end of 2023, AAG's only financial obligation subject to the rule is its USD300 million bond due in 2024. Fitch expects the company to conduct an exchange to extend the debt maturity for this bond. ISSUER PROFILE AES Argentina Generacion S.A. (AAG), which is 100% owned by The AES Corporation (BBB-/Stable), is an electricity generation company in Argentina with an installed capacity of 3,001MW. 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- AES Argentina Generacion S.A. LT IDR CCC- Affirmed CCC- LC LT IDR CCC- Affirmed CCC- senior unsecured LT CCC Affirmed RR3 CCC ARGENTINA: Hails 'Success' of 4.34-Trillion Local Debt Swap ----------------------------------------------------------- Buenos Aires Times reports that President Alberto Fernandez's government hailed the "success" of its local debt swap offer after revealing that Argentina had exchanged 4.34 trillion pesos (US$21.66 billion at the official exchange rate) of maturing notes for new ones due in 2024 and 2025. "We cleared maturities of more than 4.3 trillion pesos, extending the curve to the years 2024 and 2025, with an overall adhesion rate of 64 percent of eligible securities," said an Economy Ministry source late, who requested anonymity, according to Buenos Aires Times. The government's operation intends to alleviate coming burdens and remove fears of a local debt default, pushing back maturities for later dates, the report relays. Argentina's leading opposition parties has criticized the move, which comes in an election year, and has accused the ruling coalition of stockpiling problems for the next administration, the report notes. The agreement to carry out the swap was sealed three days ago by Economy Minister Sergio Massa after meetings with representatives from banks and investment funds, the report says. "With this process of rearrangement and the extending of the sovereign [debt] curve in pesos, we will manage to preserve the sustainability of [Argentina's] debt," Finance Secretary Eduardo Setti said in a post on social media, reacting to the news, the report discloses. In exchange for peso-denominated bonds, the government offered a basket of two types of assets, some of which are adjusted only for inflation and others that adjust via a combination of inflation and the evolution of the official exchange rate, the report relays. Some 44 percent of peso-denominated debt is held by private banks and funds, while the rest is distributed among state enterprises, government agencies and individual bondholders, the report discloses. The government previously carried out a three-trillion-peso debt swap in January, the report says. As a result of this latest debt swap, global rating agency Standard & Poor's cut Argentina's peso debt rating from CCC- to SD ("Selective Default"), noting "macroeconomic vulnerabilities," according to a statement in New York, the report relays. Argentina's economy grew by 5.2 percent in 2022, but inflation is rampant, reaching 95.8 percent last calendar year, the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign currency and 'CCC-/C' local currency sovereign credit ratings on Argentina. The outlook on the long-term ratings remains negative. S&P's 'CCC+' transfer and convertibility assessment is unchanged. The negative outlook on the long-term ratings reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Global capital markets are closed to Argentina. Moreover, disagreement within the government coalition and infighting among the opposition constrains the sovereign's ability to implement timely changes in economic policy. Fitch Ratings, on the other hand, downgraded in October 2022 Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC) Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade reflects deep macroeconomic imbalances and a highly constrained external liquidity position, which Fitch expects to increasingly undermine repayment capacity as foreign-currency debt service ramps up in the coming years. Moody's Investors Service, in September 2022, affirmed Argentina's Ca foreign-currency and local-currency long-term issuer and senior unsecured ratings. The outlook remains stable. The decision to affirm the Ca ratings balances Argentina's limited market access, weak governance, and history of recurrent debt restructurings with recent efforts to marshal fiscal and monetary measures to start addressing underlying macroeconomic imbalances in the context of the IMF program that was approved in 2022, according to Moody's. DBRS confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at CCC (high) on July 21, 2022. ARGENTINA: S&P Lowers Local Currency Sovereign ICR to 'SD' ---------------------------------------------------------- S&P Global Ratings, on March 9, 2023, lowered its local currency sovereign issuer credit ratings on Argentina to 'SD/SD' from 'CCC-/C' and its national scale rating to 'SD' from 'raCCC+'. None of its rated bond issues are affected. S&P affirmed its 'CCC+/C' foreign currency sovereign issuer credit ratings on Argentina. The outlook on the long-term foreign currency rating remains negative. S&P's 'CCC+' transfer and convertibility assessment is unchanged. Outlook The negative outlook on the long-term foreign currency rating reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Divisions within the government coalition, and infighting among the opposition, constrain the sovereign's ability to implement timely changes in economic policy. Global capital markets are closed to Argentina. In the local market, swaps are being deployed to manage large maturities before utilizing traditional auctions to place debt. The central bank continues to play a key role as a backstop for local debt management in the secondary market. To that end, it has begun to offer put options to banks for government debt maturing in 2024 and 2025. Downside scenario S&P could lower the foreign currency ratings over the next six to 12 months on unexpected negative policy or political developments that undermine already limited access to financing. Meaningful setbacks in execution under the Extended Fund Facility (EFF) would complicate access to IMF financing, and potentially from other multilateral lending institutions. This scenario would likely further damage local investor confidence and hamper access to peso-denominated debt markets--exacerbating the risk of recourse to central bank financing amid high inflation--and lead to a downgrade. Heightened pressure in local financial markets, including the banking system's deposit base, or difficulties in managing central bank debt (LELIQs), could also lead to a downgrade. Upside scenario Upon completion of the local currency debt exchange and the issuance of new securities, S&P would likely raise its long-term local currency rating to the 'CCC' category, at which point S&P would consider the default to be "cured," as per its criteria. S&P could raise the foreign currency ratings over the next six to 12 months following: -- A track record of successful execution under the EFF, and -- Clarity on how policy will ease financing challenges in the local market and provide a road map to address Argentina's major structural macroeconomic imbalances. S&P could also raise the ratings if there is a more pronounced economic recovery that supports stronger fiscal outcomes that take pressure off the government's financing needs. Rationale S&P said, "We lowered our local currency ratings on Argentina to 'SD' following this week's announcement of a peso-denominated debt exchange that we view as distressed, rather than opportunistic, owing to the government's weak market access. This week's swap aims to clear peso maturities coming due in the second half of March through June 2023. It's the fourth such operation since August 2022. While the January swap eased peso-denominated maturities due in first-quarter 2023, it predominantly moved them into the second and third quarters. This swap aims to push the heavy maturities over the coming months into 2024 and 2025--beyond this year's election. We estimate some $85 billion in peso-denominated debt due in total this year. "In general, we consider most exchanges at such low rating levels as distressed and tantamount to a default following our criteria and ratings definitions. We continue to analyze debt exchanges at this low rating level on a case-by-case basis and in the macroeconomic and political context. We have indicated that we would likely classify such exchanges as a distressed exchange, indicating a view that absent participation, a conventional default would likely ensue." With the primary and national elections forthcoming in August and October, political stress is rising amid persistent macroeconomic imbalances, including: -- Inflation is near 100%; -- The gap between the official and multiple parallel exchange rates is around 100%; -- Already low international reserves remain under pressure; -- Uncertainties on fiscal execution in the run-up to the elections persist; and -- The economy looks set to contract this year given these combined uncertainties, the drought that's hitting agricultural exports, and tight import controls that weigh on domestic production. S&P said, "Amid these challenges, the government is, in our view, relying on debt exchanges to manage the majority of its peso maturities, and then conducting auctions to refinance smaller amounts of debt coming due. This is the first exchange to meaningfully extend maturities through the election. We expect public-sector entities (such as the central bank [BCRA], the social security institute [ANSES], and Banco de la Nacion Argentina), which hold almost half of the eligible securities in the exchange, to participate. Of the remaining holders, private banks hold some 20%. The government solicited their feedback on the new instruments. And BCRA revised its put option mechanism to offer another formal backstop for maturities on government debt due in 2024 and 2025. In July 2022, BCRA began selling put options to banks for debt maturing in 2023. "Upon completion of the debt exchange--including issuance of the new securities--we would consider the local currency default to be "cured," and we would likely raise our long-term local currency rating to the 'CCC' category." ARGENTINA: To Swap Peso Debt to Ease $35 Billion Default Fear ------------------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that Argentina will give investors the chance to exchange holdings of local debt into new bonds in a bid to ease fears of a default on the government's $35 billion of local debt coming due in the second quarter. Economy Minister Sergio Massa said the government would offer investors two swap options to exchange local bonds coming due between April and June, according to globalinsolvency.com. The government is seeking to build the local bond curve to 2024 and 2025, Massa said in a broadcast video statement, the report notes. Argentina has as much as 7 trillion pesos ($35 billion) in peso-denominated bonds maturing in the second quarter of the year, according to economy ministry officials. "We want to leave behind the idea that Argentina is always weeks away from a default," Massa said, the report says. "This will allow us to clear up any uncertainty for 2023," the report adds. About Argentina Argentina is a country located mostly in the southern half of South America. Its capital is Buenos Aires. Alberto Angel Fernandez is the current president of Argentina after winning the October 2019 general election. He succeeded Mauricio Macri in the position. Argentina has the third largest economy in Latin America. The country's economy is an upper middle-income economy for fiscal year 2019, according to the World Bank. Historically, however, its economic performance has been very uneven, with high economic growth alternating with severe recessions, income maldistribution and in the recent decades, increasing poverty. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign currency and 'CCC-/C' local currency sovereign credit ratings on Argentina. The outlook on the long-term ratings remains negative. S&P's 'CCC+' transfer and convertibility assessment is unchanged. The negative outlook on the long-term ratings reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Global capital markets are closed to Argentina. Moreover, disagreement within the government coalition and infighting among the opposition constrains the sovereign's ability to implement timely changes in economic policy. Fitch Ratings, on the other hand, downgraded in October 2022 Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC) Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade reflects deep macroeconomic imbalances and a highly constrained external liquidity position, which Fitch expects to increasingly undermine repayment capacity as foreign-currency debt service ramps up in the coming years. Moody's Investors Service, in September 2022, affirmed Argentina's Ca foreign-currency and local-currency long-term issuer and senior unsecured ratings. The outlook remains stable. The decision to affirm the Ca ratings balances Argentina's limited market access, weak governance, and history of recurrent debt restructurings with recent efforts to marshal fiscal and monetary measures to start addressing underlying macroeconomic imbalances in the context of the IMF program that was approved in 2022, according to Moody's. DBRS confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at CCC (high) on July 21, 2022. FULL PLAY: Executive Found Guilty in FIFA Bribery Case ------------------------------------------------------ Buenos Aires Times reports that former executive with 21st Century Fox and an Argentine sports marketing firm were found guilty in New York of paying bribes to secure lucrative television rights to international football officials. The US Justice Department said in a statement that former Fox executive Hernan Lopez, 52, and Argentine firm Full Play were found guilty on all counts of involvement in schemes to bribe officials at FIFA, CONMEBOL and CONCACAF, according to Buenos Aires Times. Lopez's co-defendant, Carlos Martinez, was acquitted following the seven-week trial in federal court in Brooklyn, the report relays. Lopez faces up to 40 years in prison and millions of dollars in penalties, the report discloses. The Buenos Aires-based company Full Play - whose owners Hugo and Mariano Jinkis remain fugitives - is expected to face millions of dollars in fines, the report says. "Today's verdict is a resounding victory for justice and for football fans around the world," US attorney Breon Peace said, the report discloses. "The defendants cheated by bribing football officials to act in their own greedy interests rather than in the best interests of the sport," Peace added. During the trial, the court heard how officials from South American football's governing body CONMEBOL were paid more than US$32 million in bribes as part of the corruption scandal that plunged FIFA into crisis in 2015, the report relays. Argentine businessman Alejandro Burzaco - who testified for the prosecution after pleading guilty to involvement in the scandal - told the court that he, Lopez and Martinez had funnelled kickbacks to CONMEBOL chiefs to secure broadcasting rights, the report notes. The corruption scandal uncovered by US authorities ultimately led to the downfall of former FIFA President Sepp Blatter. So far charges have been brought against more than 50 defendants from 20 countries, resulting in guilty pleas by more than 30 individual and corporate defendants, the report relays. Burzaco said during the trial that the defendants had paid out between "US$30-32 million" in bribes to secure broadcasting rights to South American football competitions such as the Copa Libertadores, as well as friendlies and qualifying matches, the report notes. The court heard that the main beneficiaries of the kickback scheme were six of the most powerful men in South American football, the report discloses. They included former CONMEBOL president Nicolas Leoz, who died in 2019, former Argentine football executive Julio Grondona, who died in 2014, and former Brazilian football chief Ricardo Teixeira, the report says. Leoz, Grondona and Teixeira were also members of the FIFA executive committee in 2010 that controversially awarded the 2018 World Cup to Russia and the 2022 finals to Qatar in a vote tainted by corruption, the report relays. Other South American officials who received bribes were CONMEBOL vice president Eugenio Figueredo, secretary general Eduardo Deluca, and treasurer Romer Osuna, according to Burzaco, the report notes. Burzaco's plea deal included an agreement with the US court that included paying a fine of at least US$21.6 million, the report adds. =========== B R A Z I L =========== AEGEA SANEAMENTO: Moody's Cuts CFR to 'Ba2', Outlook Stable ----------------------------------------------------------- Moody's Investors Service downgraded AEGEA Saneamento e Participacoes S.A's ("AEGEA") Corporate Family Rating to Ba2 from Ba1 and Aegea Finance S.a r.l.'s ("Aegea Finance") senior unsecured rating to Ba3 from Ba2. The outlook on all ratings was changed to stable from negative. Governance considerations were relevant to this rating action, because Moody's views the company's accelerated growth strategy will have a prolonged impact to its capital structure and financial risk profile. Downgrades: Issuer: AEGEA Saneamento e Participacoes S.A Corporate Family Rating: Downgraded To Ba2 From Ba1 Issuer: Aegea Finance S.a r.l. Backed Senior Unsecured Notes: Downgraded To Ba3 From Ba2 Outlook Actions: Issuer: AEGEA Saneamento e Participacoes S.A Outlook, Changed To Stable From Negative Issuer: Aegea Finance S.a r.l. Outlook, Changed To Stable From Negative RATINGS RATIONALE The downgrade of AEGEA's Ba2 CFR follows the deterioration of its consolidated credit metrics through December 2022, along with Moody's perception that an improvement in the leverage profile will take longer to materialize. For fiscal year-end 2022, Moody's calculates the company's consolidated funds from operations (FFO)-to-net debt ratio have dropped to 10% in 2022, from an average of 14.3% in the previous three years (2019-2021). During the same period, the FFO interest coverage fell to 1.6x from 2.0x. Moody's revised baseline scenario for AEGEA considers an improvement in credit metrics following recent acquisitions, potentially converging to the historical average. But additional financing needs to support new investments amid higher borrowing costs will constrain a material improvement of AEGEA's credit profile over the three years. Moody's also notes different financial arrangements being used for the execution of its expansion strategy, comprising indebtedness across the group's structure that generates encumbered cash at the subsidiaries levels and off-balance guarantees from the holding company. These structures add opacity and complexity to the cash flow analysis of the group, while also limiting the pace of leverage reduction. As a result, Moody's now assesses AEGEA's overall ESG Credit Impact Score as moderately negative (CIS-3), indicating ESG factors are considered as having a limited impact on the current rating, with greater potential for future negative impact over time. The stable outlook reflects Moody's view that AEGEA's credit profile will remain well positioned in the Ba2 rating category over the next 12-18 months, supported by its solid market position, consolidated business profile with growing track record of successful investments. AEGEA's Ba2 CFR remains supported by its consolidated business model, its geographically diversified operations regulated by long-term concession contracts that drives the stability and predictability of the company's revenues. The rating incorporates the planned acquisition of CORSAN, and continued improvement in operating performance of its existing businesses, including the ramp-up of Aguas do Rio. The execution risks of new investments are also factored in the rating with a view that consolidated free cash flow generation will remain negative over the next three-to-five years. Moody's views an overall benign business environment for the water and sewage sector in Brazil that is not likely to suffer significant policy shifts following new elected federal and state governments. Although relatively new and still under development, the current regulatory framework for the sector allows for the participation of private companies into public auctions and partnerships with goverment owned companies, through long-term contracts with adequate cost recovery mechanisms, including the periodic rebalancing for changed economic conditions. Since the approval of the Sanitation Law in 2020, AEGEA took advantage of several investment opportunities to expand its business portfolio. At the same time, the company was granted tariff readjustment and rebalances, sustaining a solid cash generation. AEGEA's liquidity profile is currently tight. As of fiscal year end, the company reported an unrestricted cash balance of BRL1.8 billion that compares to BRL 2.2 billion in debt maturities through 2024. As such, the company depends on sound access to the banking and capital markets to address its refinancing needs. AEGEA's benefits from some financial flexibility provided by its diversified and a long debt maturity profile. The planned issue of debentures in the local capital markets for up to BRL600 million will partially address its short-term refinancing needs in 2023. Aegea Finance's Senior Unsecured rating of Ba3 is positioned one notch below AEGEA's CFR to reflect the structural subordination since AEGEA does not hold any operations and is strictly a vehicle for controlling stakes on the operating subsidiaries. AEGEA largely depends on the regular payment of dividends that its operating subsidiaries upstream to allow the company to meet its debt obligations, equity investment commitments and potential cash requirements related to its guarantees. Aegea Finance's senior unsecured notes is fully guaranteed by AEGEA and ranks pari-passu to its outstanding and future unsecured debt. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive pressures on the company's ratings are unlikely over the next 12-18 months given the recent ratings downgrade, but could be exerted as new operations mature alleviating execution risks, combined with a simplification of the corporate structure and a visible deleveraging trend. Positive rating pressure would also build with evidence of strong shareholder support through planned equity injections or higher cash retention. Quantitatively, an upgrade would require FFO interest coverage stays above 2.5x and debt/capitalization stays below 70% on a sustained basis. The ratings could be downgraded if there is further deterioration in the company's leverage metrics or liquidity. Quantitatively, downward pressure will increase if the FFO interest coverage stays below 1.8x or if the debt/capitalization approaches 80% on a sustained basis. The ratings could also come under pressure if there is deterioration in subsidiaries' performance, such that it reduces consolidated cash generation or leads to noncompliance with contractual targets. Moody's perception of reduced financial flexibility of the operating subsidiaries to support debt service at the holding company level could also imply further notching down of the Notes due to structural considerations. COMPANY PROFILE AEGEA is one of the largest private water and sewage players in Brazil, with 56% market share of the private sector. After consolidating Corsan and non-operating assets in the Ceara state, the company's services will reach 30 million individuals in 480 municipalities located in 13 states, through concessions with an average contracted life of 30 years. In 2022, AEGEA reported net revenue of BRL3.7 billion and EBITDA of BRL2.5 billion. FFO interest coverage was 1.6x in the year and Debt to Capitalization 62%, as per Moody's standard adjustments. AEGEA's shareholders are Equipav (52.8% stake), the Government of Singapore Investment Corporation (34.3% stake) and Itausa S.A. (12.9% stake). The principal methodology used in these ratings was Regulated Water Utilities published in June 2018. AMERICANAS SA: Scandal Won't Affect Brazil Banks ------------------------------------------------ globalinsolvency.com, citing Reuters, reports that Brazil's central bank stated that the potential impact of the accounting scandal involving retailer Americanas SA on banks would be 'insignificant' even in an extreme scenario. The statement was made in the minutes of Financial Stability Committee meeting, which had decided to maintain a neutral macroprudential policy due to no significant increase in financial risks, according to globalinsolvency.com. Americanas filed for bankruptcy in January after disclosing "accounting inconsistencies" worth 20 billion reais (US$3.84 billion), leading banks to increase their provisioning in their most recent earnings release, the report notes. The central bank noted that the provisions stem from "a specific event related to a large company" and have already absorbed most of the materialization of the risk, the report relays. "The central bank estimated the remaining potential impact, plus a contagion scenario over the entire production and supply chain that depends on the company in a relevant way," it said, the report says. "In this extreme scenario, the impact on the consolidated financial system is insignificant and there would be no capital default in any financial institution," it added. About Americanas SA Americanas was one of the largest diversified retail chains in Brazil, with a wide platform of physical stores, robust e-commerce, fintech, and has just entered into the niche food retail. It is listed on B3, being indirectly controlled by billionaire Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles. The retailer nosedived in January 2023 after becoming mired in an accounting scandal. The firm filed for bankruptcy at a court in Rio de Janeiro on Jan. 19, 2023. Americanas sought protection under Chapter 15 of the U.S. Bankruptcy Code (Bankr. S.D.N.Y. Case No. 23-10092) on Jan. 25, 2023. White & Case LLP, led by John K. Cunningham, is the U.S. counsel. ITAU UNIBANCO: Fitch Gives BB LongTerm Rating on USD62MM Sr. Notes ------------------------------------------------------------------ Fitch Ratings has published the 'BB' long-term rating for Itau Unibanco Holding S.A.'s (IUH) green senior notes in the amount of USD62.5 million. The notes were distributed privately (private placement) in April 2022 under IUH's Global Medium-Term Note Programme through IUH's Grand Cayman Branch with a maturity date of April 14, 2025. The net proceeds were used to finance and/or refinance, in whole or in part, new or existing eligible green projects in accordance with bank's Sustainability Finance Framework. KEY RATING DRIVERS The notes were rated at the same level as IUH's 'BB' Issuer Default Rating (IDR), as these senior notes will rank equally in the right of payment with its other present and future unsecured and unsubordinated indebtedness. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: As the notes are rated at the same level as the IDR, their rating is primarily sensitive to any change in the bank's IDR. Factors that could, individually or collectively, lead to positive rating action/upgrade: As the notes are rated at the same level as the IDR, their rating is primarily sensitive to any change in the bank's IDR. 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. Entity/Debt Rating ----------- ------ Itau Unibanco Holding S.A. senior unsecured LT BB Publish ============= J A M A I C A ============= JAMAICA: Extends Cash Incentive to Encourage Formal Banking ----------------------------------------------------------- RJR News reports that the government is extending its cash incentive to people signing up for accounts with low risk and less stringent 'Know Your Customer' (KYC) requirements. The Finance Minister had announced that $2,500 would be deposited into the accounts of up to 100,000 people who open these accounts by April 1, 2022, according to RJR News. Opening the Budget Debate in the House of Representatives, Finance Minister Dr. Nigel Clarke said since the initiative was announced, only about 36 per cent of the targeted number was reached, the report relays. As such, the initiative has been extended for a further year, the report discloses. Dr. Clarke said the first 60,000 customers who sign up for a low KYC account at any commercial bank after April 1, 2023 will receive a grant from the government of $2500 into that account, the report discloses. The accounts are free of bank fees, the report adds. As reported in the Troubled Company Reporter-Latin America in March 2022, Fitch Ratings has affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. =========== M E X I C O =========== CEMEX SAB: Fitch Assigns 'BB-' Rating on Hybrid Green Notes ----------------------------------------------------------- Fitch Ratings has assigned a 'BB-' rating to the benchmark-sized perpetual subordinated green notes of CEMEX, S.A.B. de C.V. (BB+/Stable). The proposed notes qualify for 50% equity credit. Proceeds from the issuance will be used to finance or refinance, in whole or in part, one or more new or existing Eligible Green Projects. The proposed securities meet Fitch's criteria with regards to subordination, cross defaults, no material covenants, effective maturity of at least five years, ability to defer coupons for at least five years, and no look-back provisions, and therefore qualify for 50% equity credit. The proposed issuance is rated two notches below CEMEX's Issuer Default Rating (IDR) to reflect higher loss severity and heightened risk of non-performance relative to senior obligations. This approach is in accordance with Fitch's Corporates Hybrids Treatment and Notching Criteria dated Nov. 12, 2020. KEY RATING DRIVERS Equity Treatment Rationale: The hybrid notes are expected to be subordinated and rank senior only to CEMEX's share capital, coupon payments can be deferred at the discretion of the issuer, and there are limited events of default and absence of material covenants and look back provisions. Coupon payment deferrals are cumulative, and the company will be obliged to make a mandatory settlement of deferred interest payments under certain circumstances, including a declaration or payment of a cash dividend. Effective Maturity: The notes have no formal maturity date, and the issuer has a call option to redeem them after five years of the issue date. There will be a coupon step-up of 25bp after five years (the initial step up date) and additional step-up of 75bp after 15 years (the second step up date). The second step up date will be pushed back five years if CEMEX is assigned an investment-grade rating. The first call date and the coupon step-up date are not treated as effective maturity dates under Fitch's criteria due to the cumulative amount of the step-ups being lower than or equal to 1% throughout the life of the instruments. Green Bonds: Cemex intends to allocate proceeds from the issuance to finance or refinance, new or existing Eligible Green projects as outlined in the bonds' prospectus. The projects are in the area of pollution prevention control, renewable energy, energy efficiency, clean transportation, sustainable water and wastewater management and eco-efficient and/or circular economy adapted products, production technologies and processes. Strong Business Position: CEMEX benefits from product and geographic diversification as one of the world's largest cement producers, selling 63.4 million tons of cement in 2022. It is the leading cement producer in Mexico and one of the top producers in the U.S. CEMEX also has a large global presence in ready-mix and aggregates, with 2022 sales of 50.1 million cubic meters of ready-mix and 139.2 million metric tons of aggregates. CEMEX's main geographic markets by EBITDA are Mexico at 38%, the U.S. at 26%, EMEA at 23% and Central and South America at 13%. Challenge to Sustain Pricing Strategy: Cemex is expected to face downward pressure on its cement volumes in all of its regions during 2023, with limited improvements for the ready-mix and aggregates segments given a weak economic environment with rising interest rates and inflationary costs. Seeking to protect its margins, the company has already announced price increases for all products effective January 2023. During 2022, the company was able to post high double-digit price increase, with 19% and 16% growth in cement prices in Mexico and the U.S., and 18% and 15% in Ready-Mix and 22% and 16% for aggregates in Mexico and the U.S., respectively. This efficient price policy was key to help the company to offset raw material and energy cost increases. While cost pressure is expected to relatively ease compared with 2022, the company will need to carry over its pricing strategy seeking to mitigate the ongoing lower volumes impact. Manageable CFFO Pressure: Fitch forecasts that CEMEX's adjusted EBITDA in 2023 will remain slightly in line with 2022 figures, at USD2.4 billion per the agency's calculation (adjusted by IFRS16 - USD2.3 billion in 2022). This is weaker than initially forecast, as a result of the general inflationary pressures as well as weaker volume trends. For 2024-2025, Fitch estimates median adjusted EBITDA moving toward USD2.6 billion. Adjusted EBITDA margin is forecasted around 15% in the next two years. During 2022, Cemex faced higher working capital outflows due to inflationary and supply chain risks impacts on inventories, reducing operating cash flow levels. Strategic Capex to Pressure FCF: FCF is estimated around USD45 million for 2023, representing a decline from USD221 million of FCF in 2022, USD771 million in 2021 and USD674 million in 2020. This reflects the company's more aggressive capex plan that reached USD1.2 billion in 2022, an increase from USD993 million in 2021 and average of USD775 during 2018-19 period (pre-pandemic). For 2023, Cemex forecasts USD850 million of maintenance capex and USD400 million of strategic investments, including its ESG agenda. For 2024, FCF is forecast at USD187 million. Limited Ability to Deleverage: Under the current challenging economic environment, Cemex's ongoing solid capex plan, and its ESG's commitments, Fitch sees limited space for further meaningful debt reduction outside of extraordinary alternatives measures. Cemex's adjusted net debt had showed a downward trend since 2019, reflecting stronger operating performance along with asset sales and sale of carbon credits for approximately USD550 million. Fitch expects Cemex to maintain net debt/adjusted EBITDA ratios around 3.2x and 3.0x during 2023 and 2024, respectively. DERIVATION SUMMARY CEMEX's ratings reflect its diversified business position across several large markets, notably Mexico, the U.S. and certain European countries; its vertical integration and economies of scale; and positive FCF. The company is the leading cement producer in Mexico, one of the top producers in the U.S. and the largest in Spain. CEMEX's closest peers are large global cement producers such as Holcim Ltd. (BBB/Stable), which CEMEX competes with in several markets. Holcim has broader geographic diversification, with operations in Europe, North America and Asia-Pacific, each representing roughly 25% of EBITDA, while the remaining 25% of EBITDA is split among the Middle East and Africa at 10% and Latin America at 15%. Latin America is CEMEX's largest region, representing close to 50% of EBITDA, of which 35% is generated in Mexico. The U.S. represented almost 30% of CEMEX's EBITDA, with the remainder from Europe at about 15% and, to a lesser extent, Israel and the Philippines. CEMEX's broader geographic diversification and larger scale compare well with regional building materials companies such as Martin Marietta Materials, Inc. (BBB/Stable) and Latin American cement producer Votorantim Cimentos S.A. (VCSA; BBB-/Stable). VCSA, which has a dominant position in Brazil and operations in the U.S., Canada and throughout the world, is not a direct peer, as the rating is tied to parent Votorantim S.A.'s (BBB-/Stable), which includes mining, utilities and financial services subsidiaries. Martin Marietta is focused in the U.S. and the Caribbean. CEMEX's ratings reflect its weaker credit metrics than higher-rated global peers. CEMEX's net EBITDA leverage is forecast below 3.5x in 2022, while Holcim and Votorantim were around 2.0x. CEMEX's global scale, business position and funding access are all positive, as is the company's record of reducing debt. CEMEX's FFO interest coverage forecast at around 4.5x is in line with a 'BB' category building materials issuer. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer: - Low single digit decrease in cement and ready-mix and low single digit increase on aggregates for 2023, with limited recovery during 2024; - Fitch adjusted EBITDA of USD2.4 billion in 2023 and USD2.5 billion in 2024; - Capex of about USD1.25 billion in 2023 in line with management guidance, and a similar level in 2024. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Sustainable net debt/EBITDA of below 2.5x; - Sustainable FCF generation that leads to a reduction in net debt to below USD7 billion; - Continued growth in the U.S. market coupled with sustained cash flows in Mexico and a rebound in other key markets, leading to more stable cash flows; - A strengthening of CEMEX's business position outside of Mexico that leads to expectations of higher operating cash flows. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A weakening of operating cash flow and FCF expectations such that net debt/EBITDA is forecast above 3.5x; - Expectations of a pronounced deterioration of Mexico's economic environment that weakens EBITDA prospects. LIQUIDITY AND DEBT STRUCTURE Sound Liquidity: CEMEX's liquidity is solid and Fitch expects the company to maintain an active approach in terms of liability management in order to avoid refinancing risks in the shot to medium term. The company does not face meaningful maturities until 2025 and 2026, when approximately USD1.6 million of debt is due each year. In addition to USD495 million of cash, CEMEX has undrawn committed credit facilities of USD1.45 billion (total committed amount of USD1.75 billion), which support liquidity. Fitch expects the company to generate USD46 million in FCF in 2023. As of Dec. 31, 2022, Cemex's total debt was USD8.1 billion, which mainly includes market bonds (60%), syndicated loans (27%), receivables securitization (7%) and hybrid issuance (6%). Cemex issued USD1 billion of perpetual notes in June 2021, which qualify for 50% equity credit under Fitch's criteria. ISSUER PROFILE CEMEX is a large global cement producer, selling 63.4 million metric tons of cement in 2022. The company is the leading cement producer in Mexico and one of the top producers in the U.S. 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. Entity/Debt Rating ----------- ------ CEMEX, S.A.B. de C.V. Subordinated LT BB- New Rating CEMEX SAB: S&P Assigns 'B+' Rating on Subordinated Perpetual Notes ------------------------------------------------------------------ S&P Global Ratings assigned its 'B+' long-term issue-level rating to Mexican cement company CEMEX S.A.B. de C.V.'s (global scale: BB+/Stable/--; national scale: mxAA-/Stable/mxA-1+) proposed green perpetual, optionally deferrable, and subordinated hybrid capital instrument. The company intends to use the proceeds to finance eligible green projects, pay outstanding debt, fund capital management activities, and for other corporate purposes. S&P said, "We arrive at our 'B+' issue-level rating on the proposed instrument by notching down from our 'BB+' issuer credit rating (ICR) on CEMEX. The three-notch difference reflects our notching methodology, which deducts two notches for subordination because our long-term ICR on CEMEX is speculative grade (it's below 'BBB-'), and an additional notch for payment flexibility to reflect that the deferral of interest is optional. "We consider the proposed instrument to have intermediate equity content until its first reset date, because it meets our criteria in terms of subordination, permanence, and deferability at the company's discretion during that period. Consequently, we will classify 50% of the instrument's principal outstanding and accrued interest under the proposed securities as debt, and 50% of the related payments on these securities as an interest expense. "After this issuance, we expect CEMEX's ratio of outstanding hybrid instruments to adjusted capitalization to remain below the 15% threshold for us to view hybrid leverage as having intermediate equity content." Key Factors In Our Assessment Of The Instrument's Permanence Feature The proposed notes are perpetual, and CEMEX can redeem them during the period starting on the first call date, which falls five years after the issuance, and ends on the first reset date and on any interest payment date after that. In addition, CEMEX has the ability to call the instrument any time prior to the first call date at a premium through a make-whole redemption option. S&P said, "In our view, CEMEX doesn't intend to redeem the instrument prior to the redemption window of the first reset date, and we don't think this type of make-whole clause creates an expectation that CEMEX will redeem the issue before then. Accordingly, we don't view it as a call feature in our hybrid analysis, even if it's referred to as a make-whole option clause in the hybrid instrument's documentation. CEMEX can also redeem the instrument at any time due to a rating methodology, tax, repurchase, accounting, or change-of-control event." Interest to be paid on the proposed securities will increase by 25 basis points (bps) on the first step-up date, which should take place 5.25 years after the issuance date, and by a further 75 bps 15 years after the first reset date. S&P said, "We view the cumulative 100 bps as a moderate step-up, which in our view creates an incentive for CEMEX to redeem the instrument. Therefore, considering the company's current speculative-grade status, we would no longer recognize the instrument as having intermediate equity content after its first reset date, because the remaining period until its effective maturity would be 15 years." S&P said, "If we were to raise our ICR on CEMEX to the 'BBB' category, the instrument's second step-up date would change and take place 20 years after the first reset date. Under such a scenario, the instrument's effective maturity would be roughly 25 years after the issuance date, and we would maintain the intermediate equity credit only until the first reset date. According to our criteria, entities rated in the 'BBB' category or above require subordinated bonds to have 20 years or longer to effective maturity for us to categorize them as having intermediate equity content." Key Factors In S&P's Assessment Of The Instrument's Subordination The proposed instrument and interest will constitute the issuer's direct, unconditional, unsecured, and subordinated obligations, ranking junior to all existing and future unsubordinated debt, and pari passu among themselves and any future similar instruments. They're senior only to all existing and future common equity and preferred stock. Key Factors In S&P's Assessment Of The Instrument's Deferability CEMEX's option to defer payment on the proposed instrument is discretionary, meaning that it may elect not to pay accrued interest on an interest payment date because it has no obligation to do so. If CEMEX chooses to defer an interest payment, it won't have any obligation to make it, but may pay afterwards. S&P views this condition as acceptable because once CEMEX has settled the deferred amount, it can still choose to defer the next interest payment date. Interest on deferred amounts will accrue from the deferred date, and arrears of interest will be compounded on subsequent interest payment dates. Any outstanding deferred interest payment, plus interest accrued afterwards, will have to be settled if the company declares or pays a cash dividend or interest on equally ranking securities, and if it redeems or repurchases shares of equally ranking securities, or under insolvency or liquidation. ===================== P U E R T O R I C O ===================== AES PUERTO RICO: Moody's Cuts Rating on $144MM Bonds to Caa2 ------------------------------------------------------------ Moody's Investors Service downgraded to Caa2 from Caa1 the rating assigned to AES Puerto Rico, L.P.'s (AES PR or Project) senior secured obligations, including approximately $144 million of senior secured bonds 2000 Series A issued by the Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority on behalf of AES PR. The rating outlook was changed to negative from stable. Downgrades: Issuer: AES Puerto Rico, L.P. Senior Secured Funding Obligation, Downgraded to Caa2 from Caa1 Issuer: P.R. Ind Tour Ed Med & Env Ctl Facs Fin Auth Senior Secured Industrial Revenue Bond, Downgraded to Caa2 from Caa1 Outlook Actions: Issuer: AES Puerto Rico, L.P. Outlook, Changed To Negative From Stable RATINGS RATIONALE The rating downgrade to Caa2 was prompted by the increased likelihood that AES PR will not have sufficient liquidity reserves on hand to make its June 1, 2023 debt service payment on the bond. Around $17.9 million of principal amortization is due on June 1, 2023. At end of February 2023, AES PR had fully depleted its debt service reserve account for the 2000 Series A. AES PR's liquidity situation has been further aggravated during 2022 by operating expense pressure which currently cannot be passed through to the Puerto Rico Electric Power Authority (PREPA) under the power purchase agreement (PPA). Debt service coverage ratios were already below 1.0x in 2021 and 2022 but liquidity reserves were sufficient to make debt service payments during these years. Operating expenses for the project have increased given that coal ash disposal has not been permitted on the island since 2020. These higher costs are not reimbursable under the PPA. AES PR has faced higher costs for coal ash disposal and entered into an Agremax Master Purchase and Sale Agreement with Keystone Properties LLC for the disposal of its coal ash on February 19, 2019. The agreement extends through 2025. AES PR had budgeted for residual waste disposal costs of around $26.3 million in 2022. AES PR also faced higher start-up costs in 2022 because the unit needed to be restarted several times due to transmission line tripps. These are also not reimbursable under the PPA. Furthermore, AES PR will likely face higher costs for coal supply once its fuel supply agreement expires at the end of 2023 given current market prices. AES PR continues to progress with the liner project which is required by the Environmenal Protection Agency (EPA) to avoid further ground water contamination from fly ash. Any fines or additional violation notices from the EPA would be credit negative. Moody's understand that AES PR is negotiating amendments to the PPA with PREPA to alleviate short-term and medium-term liquidity concerns. However, it is highly probable that these amendments cannot be agreed upon in time for the June 1, 2023 debt service payment or may be insufficient to improve AES PR's liqudity situation on a sustainable basis. Other rating considerations include the value of AES PR to PREPA as a reliable, cost effective and important resource. While PREPA continues to operate its business in bankruptcy, the utility has honored its payment obligations under the PPA with AES PR throughout the bankruptcy, a credit positive, indicating the importance of the resource for island reliability. The economic value of the plant is limited following expiration of the PPA given a ban on coal plants in Puerto Rico by January 1, 2028. Bondholders benefit from project finance features such as first-lien security on assets and contracts. RATING OUTLOOK The negative outlook reflects the increased likelihood that AES Puerto Rico will miss its June 1, 2023 debt service payment if no amendment to the PPA with PREPA can be accomplished as a result of insufficient liquidity reserves and full depletion of the debt service reserve account. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS WHAT COULD CHANGE THE RATING UP -- Projected DSCR stabilizes around 1.0x and fully funded debt service reserve funds -- The project's ability to address environmental challenges and be in compliant with all EPA regulatory requirements -- Comfort around PREPA being able to make regular payments over the remaining life of the PPA that adequately cover all operating costs and debt service WHAT COULD CHANGE THE RATING DOWN -- Termination of the PPA, increased risk of a default and/or Moody's view on prospected recovery in an event of default weakens -- DSCR remains below 1.0x PROFILE AES PR, an indirect wholly owned subsidiary of the AES Corporation (AES, Baa3 stable), owns and operates a 454 megawatt (MW) coalfired cogeneration facility located in Guayama, Puerto Rico. The project sells all of its firm energy and capacity pursuant to a 25- year power purchase agreement to PREPA, a public corporation and governmental agency of the Commonwealth of Puerto Rico. The principal methodology used in these ratings was Power Generation Projects Methodology published in January 2022. =============== X X X X X X X X =============== LATAM: Focus on Resilience at Consultation of Caribbean Governors ----------------------------------------------------------------- The Inter-American Development Bank Group (IDB Group) held its XI Annual Consultation with the Governors of the countries comprising its Caribbean Country Department and the President of the Caribbean Development Bank on March 5–7 in Port-of-Spain, Trinidad and Tobago. This meeting marks the first official visit of new IDB President, Ilan Goldfajn, to the Caribbean. It focuses on aligning the IDB Group's and Caribbean countries' priorities and enhancing partnerships to build resilience in the region. The IDB Group is embarking on a new phase of effective development support for Latin America and the Caribbean that seeks to achieve better social outcomes, including through greater climate resilience and enhanced sustainable digital and physical infrastructure. This consultation aims to consolidate the IDB Group's support for the Caribbean in preparation for its Annual Meeting in Panama on March 16–19. In his opening remarks, the IDB president called for a renewed effort to overcome the historic plagues of poverty and inequality, increasing productivity and accelerating growth—all while tackling more frequent climate events and scarce resources., He noted that the IDB is uniquely positioned to support the Caribbean in this effort, adding: "The IDB must help the region raise to its challenges, including the more frequent and costly natural disasters, through innovative and agile ways to prepare, adapt and react." Sessions also cover the future value proposition that IDB Lab and the IDB Invest business model hold for the Caribbean, with increased support for private sector partners and greater investment in innovation and sustainability. Caribbean member countries will be represented by Ministers and other high-level Government officials. Also participating in the consultation is a high-level delegation from the Caribbean Development Bank, which has a long-standing partnership with the IDB that facilitates support for Eastern Caribbean countries. The Annual Consultation is also the occasion for loan signings with Trinidad & Tobago, Guyana and Barbados, as these member countries move ahead with investments to support their needs in areas such as education, health, resilient infrastructure, water and sanitation, or competitiveness of Micro, Small and Medium Enterprises (MSMEs). In 2022, IDB support to the region included strengthening fiscal sustainability, investing in resilient infrastructure, supporting the development of the blue economy and the social sector, and promoting private sector development. The IDB also backed a range of innovative projects, such as enabling entrepreneurial ecosystems and helping provide housing to vulnerable groups such as women, youths, children, single-parent households, and persons living with disabilities. [*] BOND PRICING: For the Week March 6 to March 10, 2023 -------------------------------------------------------- Issuer Name Cpn Price Maturity Country Curr ----------- --- ----- -------- ------- --- Noble Holding Internat 6.2 62.2 8/1/2040 KY USD Provincia del Chaco Ar 9.4 74.8 8/18/2024 AR USD Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD Sylph Ltd 2.4 65.1 9/25/2036 KY USD City of Cordoba Argent 7.9 73.1 9/29/2024 AR USD Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD Argentine Republic Gov 7.1 75.7 6/28/2117 AR USD Noble Holding Internat 6.1 62.0 3/1/2041 KY USD Cia Latinoamericana de 9.5 73.9 7/20/2023 AR USD Provincia de Buenos Ai 7.9 75.3 6/15/2027 AR USD AES Tiete Energia SA 6.8 1.2 4/15/2024 BR BRL Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD Province of Santa Fe 6.9 74.7 11/1/2027 AR USD Provincia de Rio Negro 7.8 70.4 12/7/2025 AR USD Argentina Bonar Bonds 5.8 75.2 4/18/2025 AR USD Provincia del Chaco Ar 4.0 0.0 12/4/2026 AR USD Cia Latinoamericana de 9.5 74.3 7/20/2023 AR USD Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD Argentine Republic Gov 6.3 74.1 11/9/2047 AR EUR Province of Santa Fe 6.9 75.2 11/1/2027 AR USD Metrogas SA/Chile 6.0 41.6 8/1/2024 CL CLP Argentine Republic Gov 4.3 70.0 12/31/2033 AR JPY Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD Esval SA 3.5 49.9 2/15/2026 CL CLP Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD Provincia de Cordoba 7.1 72.7 8/1/2027 AR USD Fospar S/A 6.5 1.2 5/15/2026 BR BRL Provincia de Cordoba 7.1 74.7 8/1/2027 AR USD Province of Santa Fe 6.9 75.2 11/1/2027 AR USD Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD Argentina Bonar Bonds 7.6 74.4 4/18/2037 AR USD Avadel Finance Cayman 4.5 55.0 2/1/2023 US USD Noble Holding Internat 5.3 60.5 3/15/2042 KY USD Argentine Republic Gov 0.5 27.6 12/31/2038 AR JPY Argentine Republic Gov 6.9 75.2 1/11/2048 AR USD Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD Province of Santa Fe 6.9 74.7 11/1/2027 AR USD ********* 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 2023. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *