/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/230413.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 Thursday, April 13, 2023, Vol. 24, No. 75 Headlines A R G E N T I N A ARGENTINA: Loses US$1.5-Billion UK Case Over GDP-Linked Bonds B R A Z I L BANCO DO BRASIL: Fitch Assigns 'BB-(EXP)' Rating to $500M Sr. Notes BANCO DO BRASIL: Fitch Gives BB- Final Rating to $750M Senior Notes BANCO DO BRASIL: Moody's Rates New Senior Unsecured Notes 'Ba2' BRAZIL: Industrial Production Shrinks in January JBS SA: Q4 Net Profit Falls Almost 64% C A Y M A N I S L A N D S VANTAGE DRILLING: Incurs $3.4 Million Net Loss in 2022 D O M I N I C A DOMINICA: Faces Headwinds From Global Inflationary Shocks D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: World Bank to Give US$250M for Water Services G U A T E M A L A GUATEMALA: S&P Raises Long-Term Foreign Currency SCR to 'BB' P A R A G U A Y PARAGUAY: Economy Recovering From Last Year's Drought P E R U VOLCAN COMPANIA: Fitch Lowers LongTerm IDR to 'B+', Outlook Stable P U E R T O R I C O METROPISTAS: Moody's Affirms Ba1 Rating on $435M Sr. Secured Notes - - - - - ================= A R G E N T I N A ================= ARGENTINA: Loses US$1.5-Billion UK Case Over GDP-Linked Bonds ------------------------------------------------------------- Upmanyu Trivedi & Scott Squires at Bloomberg News report that Argentina must compensate investors for losses in the country's growth-linked securities after the nation changed the method of calculating gross domestic product, a London court ruled. The notes surged to a four-year high. Hedge funds, including Palladian Partners LP, won an order requiring Argentina to pay about 1.3 billion euros (US$1.5 billion) plus interest to be calculated from December 2014, a London court ruled, according to Bloomberg News. "The judgement is obviously significant," Argentina's lawyer said in court, Bloomberg News notes. "We will be seeking a stay on execution" and will appeal the ruling, he added. Argentina's euro-denominated warrants surged as much as 51 percent, reaching the highest since 2019, before paring gains, Bloomberg News relays. The ruling is a setback for an economy that's on the brink of another recession this year and is saddled with some of the world's highest inflation, Bloomberg News discloses. A historic drought is making matters worse, Bloomberg News notes. At the root of the case is the country's default on US$95 billion of debt in 2001 amid one of the worst financial crises in its history, Bloomberg News relays. GDP-linked bonds that pay out when the economic expansion reaches a set threshold, were part of a restructuring program, Bloomberg News says. A dispute arose after Argentina changed the base year for calculating growth in 2013, Bloomberg News notes. The four funds, including HBK Master Fund LP, Hirsh Group LLC and Virtual Emerald International Ltd had petitioned the UK court in 2019 alleging Argentina avoided payments on the bonds by making the change, Bloomberg News discloses. Argentina's lawyers had said the changes were a necessary part of creating a sustainable debt plan for the nation, Bloomberg News relays. Without the changes, the returns on the warrants would be guided by outdated measures of growth until 2035 and would be divorced from the country's real economic performance, they argued, Bloomberg News says. The law firm representing Argentina didn't respond to a request for comment after the ruling. The four funds expect Argentina to use the older GDP data series for future payments on the warrants until 2035, said Aidan O'Rourke, a partner at law firm Quinn Emanuel Urquhart & Sullivan representing the funds, Bloomberg News notes. "This money should have been paid to warrant holders in 2014 when it first became due, and the claimants look forward to all holders finally now receiving payment," he said. 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 March 29, 2023, lowered its long-term foreign currency sovereign credit rating on Argentina to 'CCC-' from 'CCC+'. S&P also affirmed its 'C' short-term foreign currency sovereign credit rating and its 'CCC-/C' local currency ratings on Argentina. The outlook on the long-term ratings is negative. S&P also lowered the transfer and convertibility assessment to 'CCC-' from 'CCC+'. The negative outlook on the long-term ratings reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Divisions across the political spectrum 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 placing debt through traditional auctions. The central bank continues to play a key role as a backstop for local debt management in the secondary market. The ongoing severe drought has exacerbated pressures in the already disrupted foreign exchange (FX) market. Fitch Ratings, on the other hand, downgraded Argentina's Long-Term Foreign Currency Issuer Default Rating (IDR) to 'C' from 'CCC-', and has affirmed the Long-Term Local Currency IDR at 'CCC-' on March 24, 2023. Fitch's downgrade of Argentina's rating to 'C' from 'CCC-' follows an executive decree that forces domestic public-sector entities into operations involving their holdings of sovereign debt securities, which would involve unilateral exchanges and forced currency conversion that constitute default events under Fitch's criteria. The 'C' rating reflects Fitch's view that default is thus imminent. Fitch said the rating would be downgraded to 'Restricted Default' (RD) upon execution of the exchanges. 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, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and downgraded its Long-Term Local Currency Issuer Rating to CCC from CCC (high) on March 3, 2023. =========== B R A Z I L =========== BANCO DO BRASIL: Fitch Assigns 'BB-(EXP)' Rating to $500M Sr. Notes ------------------------------------------------------------------- Fitch Ratings has assigned an expected Long-Term rating of 'BB-(EXP)' to Banco do Brasil S.A.'s (BdB) proposed USD500 million senior notes due 2030, acting through its Grand Cayman branch. The net proceeds will be used to finance and/or refinance, in whole or in part, new or existing eligible green and social projects in accordance with bank's Sustainability Finance Framework. The final rating is contingent upon the receipt of final documents conforming to the information already received. KEY RATING DRIVERS The excepted rating on the notes corresponds to BdB's Long-Term Foreign Currency Issuer Default Rating (IDR; BB-/Stable) and ranks equal to its other senior unsecured debt. BdB's ratings are equalized with Brazil's IDRs (BB-/Stable) and are further underpinned by the bank's Viability Rating (VR). In Fitch's view, the bank would receive support from the federal government, if needed. This reflects the majority ownership by the federal government and its key policy role, particularly in rural lending and systemic importance. 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, the rating on the notes is 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, the expected rating on the notes is sensitive to any change in the bank's IDR. For further information about the drivers and rating sensitivities for BdB's VR and other issuer ratings, please see the bank's latest press release "Fitch Affirms Banco do Brasil's Ratings at 'BB-'; Outlook Revised to Stable" published on June 1, 2022. 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 ----------- ------ Banco do Brasil S.A. senior unsecured LT BB-(EXP) Expected Rating BANCO DO BRASIL: Fitch Gives BB- Final Rating to $750M Senior Notes ------------------------------------------------------------------- Fitch Ratings has assigned a 'BB-' final rating to Banco do Brasil S.A.'s (BdB) USD750 million senior notes. The notes due were issued through its Grand Cayman branch and are due 2030 with a 6.5% annual interest rate. The net proceeds will be used to finance and/or refinance, in whole or in part, new or existing eligible green and social projects in accordance with bank's Sustainability Finance Framework. The final rating is in line with the expected rating that Fitch assigned to the proposed debt on April 11, 2023. Please see "Fitch Expects to Rate Banco do Brasil's Proposed Senior Notes Due 2030 'BB-(EXP),'. KEY RATING DRIVERS The rating on the notes corresponds to BdB's 'BB-' Long-Term Foreign Currency Issuer Default Rating (IDR)/Stable Outlook, and ranks equal to its other senior unsecured debt. BdB's ratings are equalized with Brazil's IDRs (BB-/Stable) and are further underpinned by the bank's Viability Rating (VR). Fitch believes the bank would receive support from the federal government, if needed. This reflects the majority ownership by the federal government and its key policy role, particularly in rural lending and systemic importance. 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, the rating on the notes is 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, the expected rating on the notes is sensitive to any change in the bank's IDR. Entity/Debt Rating Prior ----------- ------ ----- Banco do Brasil S.A. senior unsecured LT BB- New Rating BB-(EXP) BANCO DO BRASIL: Moody's Rates New Senior Unsecured Notes 'Ba2' --------------------------------------------------------------- Moody's Investors Service has assigned a Ba2 long-term foreign currency senior debt rating to the proposed senior unsecured notes to be issued by Banco do Brasil S.A. (BB), acting through its Grand Cayman branch (BB Cayman). The proposed notes, which are part of BB Cayman's (P)Ba2 rated USD20 billion EMTN Program, will be denominated and settled in USD, and due in April 2030. The outlook on the debt rating is stable. RATINGS RATIONALE The Ba2 rating on the notes reflects BB's well-established franchise as one of the largest Brazilian banks and provides it with a diversified and recurring earnings origination, also supporting better-than-peer capital metrics and ample access to a low-cost retail deposit funding base. In December 2022, BB's ratio of net income to tangible assets was 1.67%, supported by growth in loan origination and trading activities, both favored by the tightening monetary cycle. BB has a predominant exposure to retail loans, mostly in the form of low-risk payroll and mortgage loans and has reported good performance in the portfolios of companies and agribusiness. In December 2022, problem loans, measured as 90-day past due loans, to gross loans increased to 2.5%, from 1.8% one year prior, but still remained below pre-pandemic levels. At the same date, BB maintained high level of reserve coverage, at 227.1% of problem loans, which will mitigate the rising pressures from inflation into households' disposable income. Over the past five years, BB has maintained robust capitalization, with Moody's ratio of tangible common equity to risk-weighted assets (TCE/RWA) at 9.6% in December 2022, supported by earnings retention and lower shareholders' payout. BB's long-term local and foreign currency deposit and foreign currency senior debt ratings of Ba2 are at the same level as Brazil's Ba2 sovereign rating. The ratings have a stable outlook in line with the outlook on the sovereign rating. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING At the moment, there is limited upward pressure on BB's ratings owing to the stable outlook on its ratings. Because of the strong credit links between the sovereign and the bank, BB's ba2 BCA is constrained by Brazil's Ba2 rating. BB's BCA could be upgraded if Brazil's sovereign rating is upgraded, and if the bank maintains strong asset quality, capital and profitability metrics supporting a continued strengthening in its loss-absorbing capital buffers. Conversely, the rating assigned to these notes would face downward pressure if Brazil's sovereign rating is downgraded or if BB's asset quality, capital and profitability weaken materially. The principal methodology used in this rating was Banks Methodology published in July 2021. BRAZIL: Industrial Production Shrinks in January ------------------------------------------------ Richard Mann at Rio Times Online reports that according to the IBGE's Regional Monthly Industrial Survey (PIM), between December and January, Brazilian industrial production shrank in eight of the 15 locations analyzed. The official figures indicate a drop of 0.3% in the monthly comparison, according to Rio Times Online. In 12 months, the industry showed a variation of -0.2%, with seven locations presenting negative results, the report notes. The states that presented the sharpest drops were Rio Grande do Sul (-3.4%), São Paulo (-3.1%), and Mato Grosso (-2.0%), the report relays. The drop in Sao Paulo's industrial production came after a 0.8% retreat in the previous month, the report adds. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He was sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. As recently reported in the Troubled Company Reporter-Latin America, Fitch Ratings, in December 2022, affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. The ratings are constrained by high government indebtedness, a rigid fiscal structure, weak economic growth potential, and a record of governability challenges that have hampered efforts to address these fiscal and economic issues and clouded policy predictability. The Stable Outlook reflects Fitch's expectation that growth will slow in the coming year and that recent fiscal improvement will erode under a new government, but within a margin consistent with the current rating, and from a better starting point than previously expected. Uncertainty is elevated regarding the plans of the incoming government and the extent to which these could ease or aggravate fiscal and economic challenges. However, Fitch does not expect policies that jeopardize broad economic stability. Standard & Poor's affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil, and the outlook remains stable (June 2022). The stable outlook reflects S&P's base-case assumption that Brazil will maintain its fiscal anchors over the next two years despite an increasing interest burden, preventing significant fiscal slippage and limiting the rise in its already high debt burden. Moody's credit rating for Brazil was last set at Ba2 in 2018 with stable outlook. Moody's affirmed the Ba2 issuer ratings and senior unsecured bond ratings in April 2022. DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). JBS SA: Q4 Net Profit Falls Almost 64% -------------------------------------- Ana Mano at Reuters reports that JBS SA, the world's biggest meatpacker, reported a nearly 64% fall in net profits for the fourth quarter, blaming its U.S. beef operations and an oversupplied global market for chicken meat that affected its Pilgrims Pride unit. JBS's U.S. beef operations is its biggest unit by sales, followed by Pilgrims Pride. Both recorded a fall in net revenue over the fourth quarter, with the U.S. beef unit selling some 12% less, at almost 29 billion reais ($5.53 billion), according to Reuters. Pilgrims sales dropped almost 4% to just below 22 billion reais, JBS said. Overall, quarterly net profit was BRL2.35 billion, while adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was BRL4.6 billion, 65% below the result in the fourth quarter of 2021, the report relays. "We note that the challenging market conditions that pressured our performance in the fourth quarter of 2022 remains in the first quarter of 2023, traditionally a weaker period for the protein industry globally," said CEO Gilberto Tomazoni in a note addressing investors, notes the report. China, always an important driver for growth, remained the main destination of JBS' meat exports in 2022, accounting for 26.2% of the company's total sales internationally. In 2021, that share was a higher 27.1%, the company said, the report notes. On a brighter note, JBS said sales to the affluent Middle Eastern market were 12.1% of total exports last year, up from 10.7% in 2021, the report relays. In its home market, JBS posted healthy results at its Seara division, which processes pork and chicken, driven by its ability to raise average domestic product prices, the report notes. Seara also benefited from a 15.4% jump in dollar-denominated export sales, JBS said, the report discloses. But while Seara's overall revenue jumped 9% from the same quarter in 2021, margins suffered because of cost inflation, in particular higher livestock feed prices in Brazil, the report says. JBS said extreme volatility in the international market affected its results in 2022, citing the global increase in the supply of poultry, as well as avian flu and the conflict between Russia and Ukraine, the report relays. Still, the company had net sales of BRL375 billion in 2022, a 7% rise from 2021, the report adds. About JBS SA As reported in the Troubled Company Reporter-Latin America in August 2021, S&P Global Ratings revised the global scale outlook on JBS S.A. (JBS) and its fully owned subsidiary JBS USA Lux S.A. (JBS USA) to positive from stable and affirmed its 'BB+' issuer credit rating. The recovery expectations remain unchanged, and S&P affirmed the 'BB+' ratings on the senior unsecured notes and the 'BBB' ratings on the secured term loans. =========================== C A Y M A N I S L A N D S =========================== VANTAGE DRILLING: Incurs $3.4 Million Net Loss in 2022 ------------------------------------------------------ Vantage Drilling International has filed with the Securities and Exchange Commission its Annual Report on Form 10-K disclosing a net loss of $3.37 million on $278.72 million of total revenue for the year ended Dec. 31, 2022, compared to a net loss of $110.25 million on $158.42 million of total revenue for the year ended Dec. 31, 2021. As of Dec. 31, 2022, the Company had $578.56 million in total assets, $123.95 million in total current liabilities, $179.23 million in long-term debt, $12.88 million in other long-term liabilities, and $262.50 million in total equity. A full-text copy of the Form 10-K is available for free at: https://www.sec.gov/ix?doc=/Archives/edgar/data/1465872/000095017023011050/ck0001465872-20221231.htm About Vantage Drilling International Vantage Drilling International, a Cayman Islands exempted company, is an offshore drilling contractor, with a fleet of two ultra-deepwater drillships, and five premium jackup drilling rigs. Its primary business is to contract drilling units, related equipment and work crews primarily on a dayrate basis to drill oil and natural gas wells globally for major, national and independent oil and gas companies. The Company also markets, operates and provides management services in respect of, drilling units owned by others. * * * As reported by the TCR on March 20, 2023, S&P Global Ratings raised its issuer credit rating on offshore drilling rig operator, Vantage Drilling International, to 'CCC+' from 'CCC' and removed it from CreditWatch, where S&P placed it with positive implications on Feb. 16, 2023. S&P said the upgrade reflects the full redemption at par of Vantage's remaining $180 million of first-lien notes due November 2023, using proceeds from a $200 million private placement of first-lien notes due 2028, with the remaining balance going to cash on hand. =============== D O M I N I C A =============== DOMINICA: Faces Headwinds From Global Inflationary Shocks --------------------------------------------------------- An International Monetary Fund (IMF) staff team, led by Joana Pereira, visited Roseau and held discussions on the 2023 Article IV consultation with Dominica's authorities during March 20–31. At the end of the consultation, the mission issued the following statement, which summarizes its main conclusions and recommendations. 1. The Dominican economy is expanding strongly but faces headwinds from global inflationary shocks. Severely affected by the pandemic, real GDP growth is estimated to have reached 6.9 percent in 2021 and 5.7 percent in 2022, driven by construction of climate-resilient infrastructure, a rebound in tourism since the full lifting of COVID-related restrictions in April 2022, and a substantial rise in agricultural output. Global commodity price pressures aggravated by Russia's war in Ukraine, notably oil and food, in tandem with high shipping costs, pushed inflation up to an estimated 7.5 percent in 2022, despite mitigating price policies – fuel subsidies, custom fees waivers, and VAT cuts for electricity. The current account deficit, which has fallen substantially since hurricane Maria and COVID shocks, remained elevated at 28 percent of GDP in 2022 on account of unfavorable terms of trade, large imports of investment goods, and incomplete recovery in tourism receipts. 2. High Citizenship-by-Investment (CBI) revenue has supported public investment and crisis response measures, but fiscal space remains tight. Despite record high CBI inflows, nearing 30 percent of GDP, the primary balance deteriorated to -6.2 percent in FY21/22. The construction of resilient infrastructure – roads, housing, hospitals, and shelters – and a new airport kept public investment at high levels, while economic measures implemented in response to the pandemic and the cost-of-living crisis heightened current expenditures and weakened tax revenue. Public debt declined somewhat, to 107 percent of GDP, but stays above regional peers and constrains fiscal space going forward. 3. The financial sector enjoys ample liquidity and improving capital buffers, yet credit to the private sector is subdued. Given abundant liquidity, deposit and lending rates remain low and have fallen in some sectors, despite tighter global financing conditions and exit of non-indigenous banks in recent years. Banks have strengthened provisions in line with ECCB requirements and remain well capitalized, while the implementation of credit unions' recapitalization plans is progressing. Meanwhile, credit to the private sector has underperformed relative to GDP growth, while bank exposure to the public sector grew since the pandemic. 4. The economic outlook is positive, predicated on a full recovery in tourism in the near term, implementation of public investment plans, and prudent fiscal management. Growth is expected to stay above 4.5 percent in 2023-24, as tourism returns to pre-COVID levels, and the construction of the new international airport and geothermal power plant take hold. Inflation is projected to recede to 6.3 percent in 2023 and to continue falling afterwards along with international trends. The current account deficit is expected to gradually narrow over the medium term with the increase of tourism exports, on the back of expanded hotel and air transport capacity, the normalization of commodity prices, and a steady decline in investment goods' imports. Public debt is set to decline in coming years, albeit slowly, supported by a gradual consolidation of public finances. 5. However, downside risks remain, stemming from global economic uncertainty, climate change, and volatility of CBI revenue. External risks from geopolitical tensions or tighter global financial conditions cloud the outlook for trade, commodity prices and global demand, with significant spillovers to the Dominican economy. An intensification of natural disasters due to climate change could lead to large output and capital losses, hindering fiscal sustainability and financial stability. Shortfalls in CBI inflows could hamper implementation of infrastructure investment plans, climate resilience, economic activity, and the fiscal position. Disruptions in corresponding banking relationships (CBR) could raise barriers to trade. 6. To safeguard room for climate resilience investments and ensure compliance with the regional debt target, fiscal consolidation efforts should redouble. A consolidation path in line with the national fiscal rule – raising the primary balance to 2 percent of GDP by 2026 – is necessary to reach the 60 percent public debt target by 2035. The plan should be underpinned by a sizeable improvement of non-CBI fiscal balances, while protecting investment and other priority programs. Stronger fiscal consolidation would facilitate external rebalancing and reduce the exposure of the financial system to the public sector. 7. More ambitious reforms will be necessary to underpin the growth friendly fiscal consolidation . Mobilizing tax revenue by streamlining tax incentives, reviewing PIT allowances, and strengthening tax administration and compliance risk management is a priority. As international fuel prices moderate, the reduction of VAT on electricity should be phased out, and motor vehicle licenses revised up to compensate revenue losses from the foregone highway levy. On the spending side, it remains critical to reduce the wage bill through civil service reform, while pension spending could lessen further through an increase in the minimum (early retirement) pensionable age. Given limited fiscal space, efforts should continue to rationalize inefficient spending as well as prioritizing the government's medium-term public investment plan (PSIP) towards growth-enhancing projects – such as transition to geothermal energy and new airport. In addition, a revision of water and sewerage tariffs will strengthen the financial position of the publicly owned water company, reducing contingent liabilities. Given high exposure to climate change, allocating a higher share of CBI revenue, including all unexpected windfalls, to disaster insurance and debt amortization would bolster financial resilience and strengthen debt sustainability. 8. Meanwhile, it is essential to strengthen social protection systems. While conventional income-based targeting is hampered by widespread informality and capacity constraints, the government could pursue avenues for proxy-targeting, tailoring social assistance to vulnerable households in a systematized way. This would enable the streamlining of untargeted programs and deploying exceptional support swiftly and cost- effectively in the face of large shocks. As a first step, completing the ongoing population census, which would form the basis for a comprehensive social registry, is paramount. 9. Addressing longstanding constraints to financial intermediation is needed to prudently bolster credit to the private sector. The upcoming ECCU regional credit bureau and the already operating Eastern Caribbean Partial Credit Guarantee scheme can facilitate credit access by streamlining lending processes and addressing collateral constraints for small businesses. Ongoing initiatives to support small business development and financial management will further facilitate MSMEs' access to credit. Efforts to modernize the national insolvency law remain essential to facilitate resolution of NPLs, which remain elevated, thereby encouraging prudent risk-taking. 10. Modernizing supervisory frameworks is crucial to preserve financial stability. Efforts are needed to bolster the resources and capacity of the national supervisor considering its large mandate, which expanded further with the adoption of the Virtual Assets Business Act in mid-2022. Modernizing supervisory regulations and granting statutory independence from the Ministry of Finance would further improve its effectiveness and support risk-based supervision. To foster financial resilience to climate change, supervisory frameworks should account for related risks. Meanwhile, it remains critical to continue to pursue the needed capitalization of systemic credit unions. 11. Continued efforts to modernize the economy and strengthen economic resilience are necessary, including through policies that foster diversification and inclusiveness. The transition to geothermal energy will reduce carbon emissions, lessen external vulnerabilities, and increase economic competitiveness over medium term through lower energy costs. The new international airport will significantly boost connectivity with large markets and should be accompanied by efforts to enhance regional connectivity. Initiatives to support the agricultural sector are welcome and should be furthered to broaden the export base and explore synergies with the growing tourism sector. Digitalization and professional training will enable inclusive development and further increase productivity. 12. Advancing institutional reforms can help mitigate risks and support economic policymaking. Continued progress in strengthening AML/CFT legislation and procedures, in line with the recommendations of the upcoming CFAFT mutual evaluation report, will protect the integrity of CBI programs and the stability of CBRs. The publication of timely high-quality statistics is essential to inform policy decisions and monitor compliance with the fiscal rules. The implementation of the national fiscal rule necessitates an enhancement of public financial management processes, including for medium-term budgeting, fiscal reporting, treasury operations, and public investment management. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: World Bank to Give US$250M for Water Services ----------------------------------------------------------------- Dominican Today reports that the World Bank approved a US$250 million loan to support the government of the Dominican Republic's efforts to improve access to safely managed water and sanitation services and strengthen the capacity and efficiency of water and sanitation institutions. This operation will benefit 34,700 households (approximately 121,000 people) with access to safe drinking water and 76,300 homes (about 276,000 people) with access to safe sanitation, according to Dominican Today. "Water sector reform is a priority for the Government of the Dominican Republic. Its objective is to transform and modernize the sector's governance and institutional framework to increase the production of water for human consumption and achieve a more efficient and sustainable use of water resources. The World Bank's technical and financial support is being and will be key to promoting institutional reforms and investments to modernize the country's water sector for the benefit of all," said Pavel Isa Contreras, Minister of Economy, Planning and Development (MEPyD) of the Dominican Republic, the report notes. The US$250 million operation consists of a US$225 million program to increase household climate resilience and provide potable water and sanitation services in the provinces of Monte Cristi, Valverde, Santiago Rodriguez, Santiago, and La Vega in the Yaque del Norte river basin, the report relays. In addition, the Program will encourage the reduction of water losses, increased access to sanitation services, and improvements in energy efficiency, the report notes. The entities responsible for planning, budgeting, execution of activities, and compliance with the proposed goals will be the National Institute of Drinking Water and Sewerage (INAPA), the Santiago Aqueduct and Sewer Corporation (CORAASAN), and the La Vega Aqueduct and Sewer Corporation (CORAAVEGA), under the coordination and supervision of the Ministry of Economy, Planning and Development (MEPyD), the report says. The operation also has a $25 million component to help address institutional reforms, capacity building, and investments in water information systems and dam safety instrumentation to adapt to climate shocks effectively, the report discloses. This component will support program supervision, coordination, monitoring, and evaluation, including verification and auditing of results, the report says. It will be executed by the Ministry of Economy, Planning and Development (MEPyD) and the National Institute of Water Resources (INDRHI), the report notes. The US$250 million loan is the first of two phases in a 10-year Multiphase Program Approach (MPA), the first of its kind in the Dominican Republic, the report relays. The MPA will support the government's transformative investments in the water sector to address sector challenges by (i) fostering reforms and (ii) improving the quality, resilience, and efficiency of water resources management and drinking water and sanitation to adapt to climate change, the report notes. "The Dominican Republic has high levels of access to drinking water and sanitation infrastructure; however, challenges persist in the quality of services. With this first phase of a 10-year programmatic approach, the World Bank reaffirms its long-term commitment to modernizing the drinking water and sanitation sector in the Dominican Republic, as well as improving water resources management and resilience to climate change," said Alexandria Valerio, World Bank Resident Representative in the Dominican Republic, the report relays. Over ten years, the World Bank's estimated US$500 million MPA Program financing package will leverage investment from the government, water, sanitation, hygiene providers, and other development partners, the report discloses. The MPA Program will aim to expand access for 300,000 people to safe water supply and 600,000 people to safely managed sanitation in the country over ten years, the report notes. The US$250 million loan for the Dominican Republic Water Sector Modernization Program has a final maturity date of 35 years, including a five-year grace period, the report adds. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. TCRLA reported in April 2019 that the Dominican To 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. ================= G U A T E M A L A ================= GUATEMALA: S&P Raises Long-Term Foreign Currency SCR to 'BB' ------------------------------------------------------------ On April 11, 2023, S&P Global Ratings raised its long-term foreign currency sovereign credit rating on Guatemala to 'BB' from 'BB-'. S&P also affirmed its 'BB' long-term local currency sovereign credit rating and its 'B' short-term sovereign credit ratings. The outlook on the long-term ratings is stable. In addition, S&P revised its transfer and convertibility assessment to 'BBB-' from 'BB+'. Outlook S&PS said, "The stable outlook indicates our expectation that over the next six to 18 months cautious macroeconomic management will prevail--notwithstanding presidential and congressional elections on June 25 and unfavorable global conditions. The stable outlook also balances the country's long-standing economic and political challenges with our expectation of economic policies that should help the outgoing administration to maintain a low fiscal deficit and stable debt dynamics." Downside scenario S&P could lower the rating over the next six to 18 months if worse-than-expected economic performance or unexpected political tensions undermine Guatemala's long-term GDP growth trajectory. Upside scenario S&P could raise the ratings over the next six to 18 months if favorable political and policy developments raise investor confidence, leading to higher-than-expected economic growth. That, along with gradual progress in strengthening the country's regulatory and legal framework to reduce uncertainties and strengthen the rule of law, could result in an upgrade. Rationale The upgrade to 'BB' is based on Guatemala's resilient economy and long-standing macroeconomic stability. The ratings incorporate our view of its still-developing public institutions and a challenging political environment that constrains policymaking effectiveness. Further steps to promote long-term growth and address high social needs would be key to substantially reduce the country's high poverty level. On the other hand, Guatemala's solid external position, moderate general government debt to GDP, and sound monetary policy constitute relative credit strengths to manage the volatile external economic conditions. Institutional and economic profile: S&P expects broad policy continuity after elections to contribute to sustained growth and counterbalance still-developing public institutions and high poverty -- After Guatemala's solid economic recovery, S&P expects GDP growth around 3.4% over the next three years. -- S&P expects Guatemala to maintain macroeconomic stability through national elections on June 25. -- Still-developing institutions and political fragility limit effectiveness of policymaking. After a strong rebound in 2021, Guatemala's economy grew 4.0% in 2022, and S&P expects GDP to grow around 3% this year and 3.5% thereafter, supported by external demand, pro-investment economic policies, and still-strong remittances, which will continue to drive household consumption. Despite global headwinds, Guatemala's trend growth remains in line with peers. S&P estimates GDP per capita at US$5,800 this year, rising toward US$6,900 by 2026. Guatemala is a small, open economy with high informality, affecting an estimated 70% of the working-age population. Per capita GDP will likely slightly recover over the next three years, but it's still restrained by many years of low investment, shortfalls in social services, political gridlock, and weak competitiveness. Key to raising potential growth in the coming years will be reforms to foster competitiveness and investment, supported by sustained measures to reduce crime. Slow vaccination rollouts (as of December 2022, only 41.7% of the country's population was fully vaccinated) and persistent sociopolitical tensions pose risks to economic growth. Since taking office in January 2020, the administration of President Alejandro Giammattei has encouraged greater private-sector participation in the economy. However, political fragmentation (the president's right-wing Vamos Party has only 17 of the 160 seats in Congress) and fragile coalitions have limited the government's ability to advance meaningful reforms. The next general elections will be held on June 25, with a run-off, if required, on Aug. 20. In S&P's view, regardless of who wins the presidential election, the next administration will face significant obstacles to continue tackling poverty and strengthen institutions while maintaining stable public finances and investor confidence. S&P's relatively poor assessment of Guatemala's governance is based on the weak checks and balances between governing institutions, lack of accountability, perceptions of corruption, and record of weak policy implementation. Lack of transparency, including in the authorities' decisions regarding the eligibility of some candidates to run for president, also indicates the country's institutional shortfalls. Flexibility and performance profile: Moderate debt and fiscal deficit, a solid external position, and sound monetary policy help maintain macroeconomic stability -- Guatemala's fiscal deficits will remain low and debt levels steady as the government continues to prioritize economic stability. -- S&P expects Guatemala's external profile to remain stable in the coming three years. -- A tightening monetary policy stance mitigates inflationary pressure. A track record of cautious fiscal management and expected continuity should contain fiscal deficits, keeping general government debt, as a share of GDP, stable over the next three years. S&P expects net general government debt to be 21% of GDP by 2026, from 19% in 2022. After the deficit fell to 1.2% of GDP last year, from a record of 4.9% of GDP amid the pandemic, it expects the general government deficit will hover around 1.9% of GDP as the government continues to allocate higher revenues to social and infrastructure spending. The government will continue some initiatives to mitigate the impact of higher import prices, including gas, oil-related products, and electricity subsidies. These expenditures will be funded using government deposits in the central bank stemming from better-than-expected fiscal performance in 2022. Tax collection has reinforced its performance over the last two years and increased to 12.1% of GDP in 2022 (from 10.7% pre-pandemic in 2019), mainly owing to tax administration improvements in customs, use of electronic invoicing or tax declaration forms, and improvements in tax administration. Nevertheless, the sovereign's ability to sustainably increase its revenues, which S&P expects will hover around 12% of GDP, remains limited. Without fiscal reform, it is likely that revenues will remain largely stable as a share of GDP over the next three years. As of Jan. 31, 43.2% of the sovereign's debt was denominated in U.S. dollars, which exposes it to a sudden quetzal depreciation. Although this ratio is down from 58.6% in 2013, it remains a negative rating factor. Balancing this exposure is that 83.4% of sovereign debt is at fixed interest rates, and Guatemala's maturity profile is stable over the next three years. In addition, most of its external debt--which accounted for 40.6% of total debt--is with multilateral institutions. S&P projects interest payments to hover around 13% of general government revenues in 2023-2026. Guatemala's external position should remain a rating strength over the coming years. The current account has been in surplus over the last seven years. It narrowed to an estimated 1.4% of GDP in 2022, from 2.2% of GDP in 2021, and S&P expects it to slightly narrow over the next three years, as a result of higher imports and high oil prices, and moderate growth in remittances. The Guatemalan quetzal remained relatively stable in 2022 and will likely continue this trend in 2023 on resilient remittance inflows, healthy foreign reserves, and a sustained current account surplus. Accordingly, we forecast Guatemala's narrow net external debt to hover around 6% of current account receipts during 2023-2025. The country's gross external financing needs will likely average 76% of current account receipts and usable reserves over the same period. S&P said, "After an extraordinary increase in foreign direct investment (FDI) in 2021, we expect FDI to remain around 1% of GDP in the next three years. In our view, besides global uncertainty, FDI has been poor because of low investor confidence given political instability and the weak business climate. We expect that planned initiatives to restore legal certainty for large-scale investment projects could boost investors' confidence over the next couple of years." Guatemala's monetary policy continues to reflect the central bank's mandate to control inflation as well as its operational independence. Global energy and commodity prices have boosted inflation recently, which remains above the central bank's target of 4% (plus/minus 1%). In response, the central bank initiated a tightening cycle in May 2022. Through March 2023, it has raised rates a total of 300 basis points to 4.75% from its pandemic low. We expect average annual inflation to fall to 5.5% in 2023, from 9.2% in 2022, before converging to the midpoint of the central bank's target range at the end of 2024. S&P considers banks' contingent liabilities to be limited. The banking sector has strong capitalization, liquidity, and profitability ratios. Guatemala's banking sector has proven resilient to shocks. 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. The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. Ratings List RATINGS AFFIRMED; CREDITWATCH/OUTLOOK ACTION TO FROM GUATEMALA Sovereign Credit Rating Local Currency BB/Stable/B BB/Positive/B UPGRADED TO FROM GUATEMALA Transfer & Convertibility Assessment Local Currency BBB- BB+ GUATEMALA Senior Unsecured BB BB- UPGRADED; CREDITWATCH/OUTLOOK ACTION; RATINGS AFFIRMED TO FROM GUATEMALA Sovereign Credit Rating Foreign Currency BB/Stable/B BB-/Positive/B =============== P A R A G U A Y =============== PARAGUAY: Economy Recovering From Last Year's Drought ----------------------------------------------------- An International Monetary Fund (IMF) team led by Mr. Mauricio Villafuerte visited Asuncion from March 27 to April 4 to conduct discussions on the first review under the Policy Coordination Instrument Arrangement with Paraguay. At the conclusion of the discussions, Mr. Villafuerte issued the following statement: "The macroeconomic performance in 2023 is strong, as the economy is recovering from last year's drought and the implementation of policies remains on the expected path. Growth is projected at 4.5 percent for 2023, and the fiscal deficit of this year is foreseen to decrease to 2.3 percent of GDP. This is important, as Paraguay needs to rebuild fiscal buffers and preserve resilience against future shocks after the past few years' substantial increase in public debt due to the impact of the COVID-19 pandemic and the measures aimed at the economic recovery. We encourage the authorities to also keep their view focused on further reducing the deficit in 2024 to comply with the Fiscal Responsibility Law's deficit ceiling of 1.5 percent of GDP. "Inflation is heading downwards and expected to be close to the BCP's target by the end of 2023. The authorities' cautious and moderately tight monetary policy stance is appropriate for now and could be relaxed once inflation moves closer to the inflation target later this year. "The external current account in 2023 will likely end up with a minor surplus (0.1 percent of GDP), after a larger-than expected deficit of 6½ percent in 2022. Over the past six months, the authorities have continued implementing a successful inflation-targeting framework while letting the exchange rate act as an important shock absorber. Despite a marginal increase in the ratio of non-performing loans to total loans, financial sector solvency indicators comfortably exceed the legal minimum capital requirements, and banks' profitability has recovered to pre-pandemic levels. "The implementation of the PCI in Paraguay has been progressing well and the quantitative targets stipulated for December 2022 have been broadly met. Commitments under the PCI's structural reform agenda were met, including the submission to the National Congress of civil service reform and movable assets-based financing bills and the expansion in the coverage of the Tekoporã and Pension Alimentaria para Adultos Mayores social programs. "The Paraguayan government is committed to advance on the PCI reform targets set for 2023. They include the preparation of a transition law for the Caja Fiscal and a new version of the law for the supervision of the pension system, which would lay the foundation for a more comprehensive pension system's reform. The authorities intend to soon issue the regulations supporting the implementation of the recently approved public procurement law and to finalize a draft law that orders the structure of the State. "Additionally, the mission discussed with the government of Paraguay the inclusion of additional reforms under the PCI. The authorities are committed to work on a new version of the insolvency law, recognizing its potential to significantly strengthen the business climate in the country. In addition, they aim to complete an updated National Risk Assessment, which serves as a vital input for addressing new and emerging AML/CFT risks. "The team met with Central Bank of Paraguay (BCP) President José Cantero, Minister of Finance oscar Llamosas, other senior government officials, and representatives from the multilateral financial institutions. The staff team is grateful for the authorities' excellent cooperation and candid and constructive discussions and reaffirms the IMF's support for the government's efforts to implement its plans towards the achievement of a sustainable and inclusive economic growth." ======= P E R U ======= VOLCAN COMPANIA: Fitch Lowers LongTerm IDR to 'B+', Outlook Stable ------------------------------------------------------------------ Fitch Ratings has downgraded Volcan Compania Minera S.A.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B+' from 'BB', as well as its senior unsecured notes due in 2026 to 'B+' from 'BB'. The Rating Outlook is Stable. The ratings downgrade reflects Fitch's expectation that the company's gross and net leverage ratios will rise to an average of 4.0x and 3.2x, respectively, over the rated horizon. The higher leverage is due to higher costs and production volumes below previously projected levels amidst a backdrop of falling prices and capital expenditures that will be needed to sustain volumes. Resulting negative free cash flow will need additional borrowing at less favorable terms than historically obtained. Volcan's rating was not supported by Glencore's ownership stake in the company. Glencore's decision to sell its stake in the company could have implications for Change of Control Clauses in lending documents that could result in additional refinancing risk for Volcan. KEY RATING DRIVERS Lower Production: Volcan's output has been below Fitch's expectations over the last two years, as the 2020 coronavirus pandemic resulted in investment cuts and operational hardships that affected mine plans. The Yauli operation (58% of sales in 2022) has faced difficulties to access newly discovered higher-grade areas while the Chungar operation (20% of sales in 2022) has been grappling with narrower veins. Fitch has adjusted downward Volcan's forecast production to an average of 410,000 MT zinc equivalent between 2023 and 2025 from 460,000 MT zinc equivalent, previously. Weakening Zinc Prices: Decreasing energy costs have started to ease their sway in the zinc smelting and refining market. The zinc refined market will be in a 39,000 MT deficit during 2023, according to metals and mining consultancy CRU. This figure represents less than 0.5% of zinc production, while global concentrate surplus will reach 112,000 MT. Fitch expects this downward pressure to lower zinc prices to an average of USD3,000/MT in 2023 from USD3,527/MT in 2022 and toward USD2,100/MT in the long term. High Cost: Volcan's cost structure reached the fourth quartile of the global zinc all-in sustaining cost curve in 2022, with a weighted average of USD2,540/MT Zinc, including byproducts according to metals consultancy CRU. CRU finds the largest unit cost increase between 2019 and 2022 in the Chungar mine (70%) followed by that in the Yauli operation (30%) driven mostly by energy and consumables expenses. Low Mine Life: Volcan is working to improve mine life in reserves from approximately five years, which is consistent with the 'B' rating category. The company's Romina expansion has the potential to improve its reserve profile. Without it and other brownfield or greenfield developments, Volcan's reserves would be consistent with the 'CCC' rating category given its declining grades with little prospects of a turnaround. Cash Flow Generation: Fitch forecasts Volcan's EBITDA at USD285 million in 2023 from almost USD300 million in 2022. Capital expenditures are expected to be USD240 million in 2023, up from USD222 million in 2022, but below the USD300 million previously expected as delays in the Romina expansion in Alpamarca will postpone investment into 2024. Volcan's FCF is expected to remain negative under Fitch's conservative price deck projections. Weak Credit Ratios: Fitch projects gross leverage to average over USD1 billion between 2023 and 2025, up from USD790 million in YE 2022. This includes debt financing of the Romina related capital expenditures of USD50 million in 2023 and USD80 million in 2024, partial refinancing of the syndicate loan installment payments and an additional buffer stemming from reduced flexibility due to higher costs. Fitch expects gross and net leverage EBITDA ratios to average 4.0x and 3.2x, respectively, between 2023 and 2025. EBITDA to interest expense is expected to weaken to an average of 3.7x between 2023-2025 and fall to below 2.0x in 2026. Glencore's Exit: Glencore's publicly stated intention to sell its 55% voting and 22% economic stakes in the company does not affect Fitch's rating of Volcan. Fitch was not considering further financing, or operational support from Glencore. However, this process casts doubt on Volcan's ability to promptly develop its extensive mining rights. More generally, it also underscores a perceived higher risk toward mining development in Peru amid recent escalations of violence against mining operations in the country. Fitch will assess the implications of the change of control when more information about the new controller becomes available. Asset Sales: Divestitures from non-core assets may be used as a contingent source of cash for debt repayment. Assets more likely to be sold include Volcan's approximately 16% stake in Polpaico, a Chilean cement producer, and its hydro power plants. Fitch does not expect the 40% stake in the Chancay port project, located 50 miles north of Lima, to be considered for a near-term disposal before the construction finishes in late 2024. DERIVATION SUMMARY Volcan's production of base and precious metals diversification is higher than that of peers Ero Copper Corp (B/Stable), Aris Mining Corp (B+/Stable), Nexa Resources SA (BBB-/Stable), and Minsur SA (BBB-/Positive), similar to that of Compania de Minas Buenaventura SAA (BB-/Stable), but lower than that of Industrias Penoles SAB de CV (BBB/Stable). Volcan operates in one country (Peru), like Buenaventura, or Penoles (Mexico), Ero (Brazil) and Aris (Colombia) whereas Nexa and Minsur have diversified into Peru and Brazil. Volcan's scale of operations is higher than that of Ero and Aris, similar to that of Buenaventura, but lower than that of Nexa Resources and Minsur, and considerably smaller than that of higher-rated miner Penoles. Fitch projects that Volcan will have a weaker capital structure and liquidity than these peers. Its 4.0x and 3.2x gross and net EBITDA leverage compares with Buenaventura's 3.9x and 2.6x. Both trail behind Aris' 2.5x and 1.7x or Ero's 2.0x and 1.5x. Volcan's cost position in the fourth quartile of the zinc all-in sustaining costs is similar to that of Buenaventura's fourth quartile in the gold curve, but worse than Aris Mining's third in gold or Ero Copper's second in copper. Volcan's consolidated life of mine of five years of reserves is also on the lower end, and is comparable with that of Buenaventura or Aris Mining's four years but lower than Ero's 17 years. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer: - Average zinc price of USD3,000/tonne in 2023, USD2,500/tonne in 2024 and USD2,200/tonne in 2025; - Average silver price of USD21.25/oz in 2023, USD20/oz in 2024, and USD20/oz in 2025; - Average lead prices of USD2,100/tonne in 2023, USD1,900/tonne in 2024, and USD1,800/tonne in 2025; - Capex of USD240 million, USD272 million and USD192 million in 2023, 2024, and 2025; - Zinc output of 243,000 MT, 260,000 MT and 264,000 MT in 2023, 2024 and 2025; - Silver output of 13.4 million oz, 12.0 million oz, and 11.6 million oz in 2023, 2024, and 2025; - Yauli's zinc and silver production rise 9% and 4%, respectively in 2023. Fitch expects Yauli to contribute 60% of revenues in 2023; - Romina is expected to achieve full production in late 2024. Fitch expects the resulting Alpamarca, with the Romina expansion, to contribute 10% of revenues in 2025. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - A sustained gross debt/EBITDA ratio of less than 3.5x in a sustained basis; - A sustained net debt/EBITDA ratio of less than 3.0x in a sustained basis; - Positive to neutral FCF over the rating horizon; - Improved liquidity through asset sales or equity injection. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A sustained gross debt/EBITDA ratio of more than 4.5x with an unwillingness or inability to deleverage; - A sustained net debt/EBITDA ratio of more than 4.0x with an unwillingness or inability to deleverage; - Negative FCF over the rating horizon; - EBITDA to interest expense coverage ratio consistently below 2.0x. LIQUIDITY AND DEBT STRUCTURE Pressured Liquidity: Volcan ended 2022 with USD74 million of readily available cash and equivalents and about USD785 million in total debt. Volcan's outstanding USD365 million of bonds mature in 2026. Its USD400 million syndicate loan matures in 2026 with payments starting in 2024. Volcan's liquidity position is pressed to finance capex for Romina and to refinance the approximately USD103 million and USD137 million 2024 and 2025 installments of its syndicate loan. Fitch expects that all maturing debt will be refinanced. ISSUER PROFILE Volcan is a polymetallic mining company with a fourth quartile cost position on the global zinc cost curve per CRU. It has a track record over 75 years of operating in Peru. Volcan is diversified into the base metals zinc and lead and the precious metal silver. ESG CONSIDERATIONS Volcan Compania Minera S.A.A. has an ESG Relevance Score of '4' for Waste & Hazardous Materials Management; Ecological Impacts due to its zinc concentrate leak. In June 2022, a truck careened off the road spilling 30 tonnes of zinc concentrates in the Chillon river. This has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Prior ----------- ------ ----- Volcan Compania Minera S.A.A. LT IDR B+ Downgrade BB LC LT IDR B+ Downgrade BB senior unsecured LT B+ Downgrade BB ===================== P U E R T O R I C O ===================== METROPISTAS: Moody's Affirms Ba1 Rating on $435M Sr. Secured Notes ------------------------------------------------------------------ Moody's Investors Service affirmed the Ba1 rating assigned to Metropistas' $435 million (original issuance amount) 6.75% amortizing Senior Secured Notes due 2035 ("Notes"). The outlook was changed to positive from stable. Affirmations: Issuer: Metropistas Senior Secured Regular Bond/Debenture, Affirmed Ba1 Outlook Actions: Issuer: Metropistas Outlook, Changed To Positive From Stable RATINGS RATIONALE The outlook change to positive from stable reflects Metropistas' strong credit metrics and traffic resilience to different shocks, including hurricanes, weak economic environment and quick recovery after the pandemic. It also considers the 23 year concession tail which provides Metropistas considerable financial flexibility by reducing refinancing risk. The rating affirmation in Ba1 reflects Metropistas' adequate traffic profile and solid revenue trends that Moody's expect to continue. The affirmation incorporates the favorable traffic recovery since the outbreak of the Covid-19 pandemic, as well as Moody's views of a stronger resilience to the regional shifts in economic and social trends. Metropistas provides an essential service as a primary way of entry to San Juan, the capital city of Puerto Rico, that lacks quality alternative roads and viable public transportation. Traffic trends have been largely immune to Puerto Rico's weak economic performance. Metropistas recovered to 2019 traffic levels during 2021. In 2022 traffic growth was 0.8% compared with 2021, despite the impact of Omicron at the beginning of the year and Hurricane Fiona. Traffic in 2023 continues to experience growth with an increase of traffic of 10.8% and 6.2% in January and February, respectively when compare with 2022 levels. This large year-over-year increase reflects the lower base in 2022 caused by Omicron. The underlying credit quality of Metropistas incorporates the long term of the concession which matures in 2061 and the supportive regulatory environment. The concession allows for an automatic annual toll increase for inflation, the US CPI +1.5%, that has been implemented timely and without any government interference despite Covid-19 related economic pressures. Concurrent with the new bond issuance of Puerto Rico Highway and Transportation Authority (PRHTA) to exit from its debt restructuring process, there was an amendment to Metropistas' concession in December 2022 that changed the mechanism to cover unpaid tolls. This amendment considers the creation of an escrow account that captures the unpaid tolls when annual permits are renewed. An additional subaccount was created with a minimum balance of $15-25 million updated annually by CPI+1.5% to compensate any remaining unpaid tolls. If there is a shortfall in the minimum balance and the PRHTA does not cover it, Metropistas can increase tariffs up to $0.10 updated annually by CPI+1.5% (or around $20 million per year). Solid project finance features, including a 12-month Debt Service Reserve Account and a 12-month Major Maintenance Account are also incorporated in Moody's rating. Metropistas´debt service is not exposed to increases in interest rates given the fixed rate debt. Moody's projects that Metropistas' Debt Service Coverage Ratio ("DSCR") will average 2.4x over the life of the debt while the Concession Life Coverage Ratio ("CLCR") will reach 4.1x estimated for year-end of 2023. Moody's also expects ratios to improve, even under scenarios of zero traffic growth, given Moody's expectation of continuous toll increases and de-leveraging of the asset. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING A rating upgrade will be considered if Metropistas' financial performance continue to improve supporting a prospective DSCR above 1.7x over the next five years, coupled with Moody's assessment that its exposure to negative economic and demographic trends in Puerto Rico continues to be negligible. Metropistas' rating could be upgraded if there is more of a track record that the recent amendments to the concession continue covering timely the full unpaid tolls. Given the positive outlook on Metropistas' rating, a downgrade is unlikely. However, the outlook could be changed to stable if the DSCR remains below 1.6x. While unexpected, any government interference on the concession would weigh negatively on the rating or if the amendment to the concession results in insufficient cash flows to compensate unpaid tolls. ABOUT METROPISTAS Metropistas operates the PR-22 and the PR-5 toll-roads in San Juan under a concession from the Puerto Rico Highway and Transportation Authority. In August 2013, Metropistas issued $435 million (original face value) of 6.75% Senior Secured Notes due 2035 with quarterly debt service payments. The Notes also rank pari passu with amortizing $301 million bonds (original issuance amount) due in 2038. The principal methodology used in this rating was Privately Managed Toll Roads published in December 2022. ********* 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 * * *