/raid1/www/Hosts/bankrupt/TCRLA_Public/230425.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, April 25, 2023, Vol. 24, No. 83
Headlines
A R G E N T I N A
ARGENTINA: Seeks to Issue Up to $1.2 Billion in Bonds
BLOCKFI INC: Exclusivity Period Extended to May 15
B A H A M A S
FTX GROUP: Deltec Ordered to Repay $53 Million Loan to Alameda
B O L I V I A
BANCO MERCANTIL: S&P Downgrades LT ICR to 'B-', Outlook Negative
BRAZIL: Takes Measures to Boost Consumer and Capital Market Credit
B R A Z I L
COMPANHIA DE SANEAMENTO: Fitch Affirms Foreign Currency IDR at BB
KLABIN SA: Fitch Affirms LongTerm IDRs at 'BB+', Outlook Stable
RUMO SA: Moody's Affirms 'Ba2' CFR & Alters Outlook to Negative
C H I L E
CHILEAN POWER: S&P Lowers Senior Secured Notes Rating to 'CCC-'
WOM SA: S&P Downgrades ICR to 'B' on Persistently Higher Leverage
C O L O M B I A
AVIANCA: Parent Plans IPO to Seal Comeback Bondholders Bet Big On
TERMOCANDELARIA POWER: Fitch Affirms IDRs at BB, Outlook Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: 2023 Will be of Disappointing Growth, BOA Says
J A M A I C A
JAMAICA: Locals Lower Expectations for the Economy
P U E R T O R I C O
BED BATH: Files for Chapter 11 to Pursue Wind Down
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Seeks to Issue Up to $1.2 Billion in Bonds
-----------------------------------------------------
Reuters reports that the Argentine government is in talks to issue
two dollar-bonds for up to $600 million each with separate
guarantees from the World Bank and the CAF as collateral, a source
from Argentina's Economy Ministry said.
The operation, which would take place in the coming weeks, would
guarantee 60% of the issuance, and the notes would have a maximum
maturity of five years, said the ministry source, who asked not to
be identified, according to the report.
The intention is to issue two separate bonds, each with its own
backing, for up to $600 million each, the source said, the report
notes. There is no assurance yet that the bonds will be issued.
"What (the guarantee) allows is for the interest rate to be set on
the qualification of the banks" and not Argentina's, said the
source, 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 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.
BLOCKFI INC: Exclusivity Period Extended to May 15
--------------------------------------------------
Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the
District of New Jersey extended BlockFi Inc. and its affiliates'
exclusive periods to file a chapter 11 plan and solicit
acceptancese thereof to May 15, 2023 and August 11, 2023,
respectively.
The judge determined that the legal and factual bases set forth
in the Debtors' Motion establish just cause for the relief
granted.
BlockFi Inc. is represented by:
Michael D. Sirota, Esq.
Warren A. Usatine, Esq.
COLE SCHOTZ P.C.
Court Plaza North, 25 Main Street
Hackensack, NJ 07601
Tel: (201) 489-3000
Email: msirota@coleschotz.com
wusatine@coleschotz.com
- and -
Joshua A. Sussberg, Esq.
Christine A. Okike, Esq.
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
601 Lexington Avenue
New York, NY 10022
Tel: (212) 446-4800
Email: jsussberg@kirkland.com
christine.okike@kirkland.com
- and -
Richard S. Kanowitz, Esq.
Kenric D. Kattner, Esq.
HAYNES AND BOONE, LLP
30 Rockefeller Plaza, 26th Floor
New York, NY 10112
Tel: (212) 659-7300
Email: richard.kanowitz@haynesboone.com
kenric.kattner@haynesboone.com
About BlockFi Inc.
BlockFi is building a bridge between digital assets and
traditional financial and wealth management products to advance
the overall digital asset ecosystem for individual and
institutional investors.
BlockFi was founded in 2017 by Zac Prince and Flori Marquez and
in its early days had backing from influential Wall Street
investors like Mike Novogratz and, later on, Valar Ventures, a
Peter Thiel-backed venture fund as well as Winklevoss Capital,
among others. BlockFi made waves in 2019 when it began providing
interest-bearing accounts with returns paid in Bitcoin and Ether,
with its program attracting millions of dollars in deposits right
away.
BlockFi grew during the pandemic years and had offices in New
York, New Jersey, Singapore, Poland and Argentina.
BlockFi worked with FTX US after it took an $80 million hit from
the bad debt of crypto hedge fund Three Arrows Capital, which
imploded after the TerraUSD stablecoin wipeout in May 2022.
BlockFi had significant exposure to the companies founded by
former FTX Chief Executive Officer Sam Bankman-Fried. BlockFi
received a $400 million credit line from FTX US in an agreement
that also gave FTX the option to acquire BlockFi through a
bailout orchestrated by Bankman-Fried over the summer. BlockFi
also had collateralized loans to Alameda Research, the trading
firm co-founded by Bankman-Fried.
BlockFi is the latest crypto firm to seek bankruptcy amid a
prolonged slump in digital asset prices. Lenders Celsius Network
LLC and Voyager Digital Holdings Inc. also filed for court
protection this year. Kirkland & Ellis is also advising Celsius
and Voyager in their separate Chapter 11 cases.
BlockFi Inc. and eight affiliates sought protection under Chapter
11 of the Bankruptcy Code (Bankr. D.N.J. Lead Case No. 22-19361)
on Nov. 28, 2022. In the petitions signed by their chief
executive officer, Zachary Prince, the Debtors reported $1
billion to $10 billion in both assets and liabilities.
Judge Michael B. Kaplan oversees the cases.
The Debtors taped Kirkland & Ellis and Haynes and Boone, LLP as
general bankruptcy counsels; Walkers (Bermuda) Limited as special
Bermuda counsel; Cole Schotz, P.C., as local counsel; Berkeley
Research Group, LLC as financial advisor; Moelis & Company as
investment banker; and Street Advisory Group, LLC as strategic
and communications advisor. Kroll Restructuring Administration,
LLC is the notice and claims agent.
=============
B A H A M A S
=============
FTX GROUP: Deltec Ordered to Repay $53 Million Loan to Alameda
--------------------------------------------------------------
Jack Schickler of CoinDesk reports that a Delaware-based bankruptcy
court judge ruled on Wednesday, April 12, 2023, that FTX's trading
arm Alameda Research should be repaid nearly $53 million for a loan
originally made in 2021 to Deltec International Group.
The federal court is attempting to unwind the affairs of the FTX
after it filed for bankruptcy protection in November, complicated
by an apparent lack of reliable records kept by the crypto
exchange.
Deltec, a Cayman Islands company whose banking arm serves
stablecoin company Tether, "shall and is hereby authorized and
directed to pay to Alameda an amount equal to USD 52,859,644," plus
$10,538 in interest per day, bankruptcy Judge John Dorsey said in
an order.
The original payment of 50 million in USDT, Tether's stablecoin
pegged to the U.S. dollar, was made from Alameda to Deltec in
2021.
The contract was approved by FTX Digital Markets' co-Chief
Executive Officer Ryan Salame, purporting to act as director of a
further company called Norton Hall, though, according to earlier
court filings by FTX, he never held such a position and
wasn’t
authorized to act as such.
John J. Ray III, a restructuring expert who took over as FTX CEO in
November, has repeatedly bemoaned poor governance prior to his
tenure. In a Sunday, April 9, 2023, filing, Ray said that Alameda
had fabricated portfolio reports, and that records of loans and
other financial transactions made by the company were "inaccurate,
contradictory or missing entirely."
A spokesperson for Deltec told CoinDesk it had been attempting to
settle the loan since December, but had needed guidance on exactly
which entity to repay given uncertainties in the paperwork.
"With the judge's ruling, we will now move forward with repayment
of the full amount, and are pleased to be able to finally conclude
this matter," the spokersperson said.
About FTX Group
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9 struck a deal to sell
itself to its giant rival Binance, but Binance walked away from the
deal amid reports on FTX regarding mishandled customer funds and
alleged US agency investigations.
At 4:30 a.m. on Nov. 11, Bankman-Fried ultimately agreed to step
aside, and restructuring vet John J. Ray III was quickly named new
CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
million in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year. According to Reuters, SBF
shared a document with investors on Nov. 10, 2022, showing FTX had
$13.86 billion in liabilities and $14.6 billion in assets.
However, only $900 million of those assets were liquid, leading to
the cash crunch that ended with the company filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims agent,
maintaining the page https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
=============
B O L I V I A
=============
BANCO MERCANTIL: S&P Downgrades LT ICR to 'B-', Outlook Negative
----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit ratings on
Banco Mercantil Santa Cruz to 'B-' from 'B'. S&P removed its
ratings from CreditWatch, where S&P had placed them with negative
implications on March 16. The outlook on the long-term ratings is
negative. S&P also affirmed its 'B' short-term issuer credit
ratings on the bank.
On April 19, 2023, S&P Global Ratings downgraded Bolivia to 'B-'
from 'B' with a negative outlook, as pressure on foreign exchange
reserves contributes to the risk of worsening external liquidity
for the country. Political divisions have limited authorities'
capacity to implement timely policies to reduce external
vulnerabilities.
S&P said, "Our ratings on Bolivia limit those on domestic banks
because we don't think they could withstand a sovereign default
scenario, given their large exposure to the country in the form of
loans and securities. Therefore, our downgrade and negative outlook
on Bolivia resulted in the same action on BMSC."
The downgrade on Bolivia reflects higher external vulnerabilities.
The outflow of dollars increased over the past two months amid
weaker public confidence in the sustainability of the exchange rate
regime, with the boliviano de facto linked with the U.S. dollar
since 2011. The authorities have reinforced their commitment to
sustain the exchange rate while relying on short-term measures to
manage liquidity pressure in the financial system--including by
lowering reserve requirements for dollar deposits and by the
central bank's direct sale of dollars to the public. However, a
lack of agreement within the governing coalition has impeded the
implementation of forceful policies to significantly reduce
Bolivia's fiscal and external deficits. The current account balance
will likely remain negative over the next two years as commodity
prices become less supportive, while S&P expects natural gas
exports to continue shrinking.
S&P is evaluating the potential direct and indirect effects of the
increasing economic and industry risks on BMSC's credit
fundamentals. In particular, it is following the evolution of its
funding base and liquidity, which the volatility could affect.
Withdrawals of dollar-denominated deposits have been increasing
since early March; however, the bank has been able to tackle
deposit outflows so far.
Environmental, Social, And Governance
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of BMSC. The Financial
Law enacted in 2013 gives the Bolivian government the power to set
interest rates and to direct lending to specific sectors (60% of
banks' credit portfolios are directed to productive sectors and to
low-income housing). Such interference in banks' business strategy
is leading to market distortions and pressuring earnings in the
banking system, which we capture in our Banking Industry Country
Risk Assessment on the country."
BRAZIL: Takes Measures to Boost Consumer and Capital Market Credit
------------------------------------------------------------------
Reuters reports that Brazil's government announced a package of 13
measures to ease consumer access to credit and reduce associated
costs in the capital and insurance markets, a move the new leftist
administration hopes will boost investment and revitalize a slowing
economy.
Among the measures is the federal government's proposal to provide
counter-guarantees for public-private partnership projects at the
state and municipal levels, the Finance Ministry said in a
presentation, according to the report.
According to Treasury Secretary Rogerio Ceron, the move is expected
to mitigate financial and political risks seen by private
investors, especially foreign ones, attracting funding for projects
such as the construction of daycare centers and sanitation
facilities, which are dear to the new government of President Luiz
Inacio Lula da Silva, the report notes.
During a news conference, he announced that the Inter-American
Development Bank (IDB) had confirmed the availability of credit
lines for operations within this framework, which are also being
assessed by development bank BNDES, state-owned Banco do Brasil and
other private lenders, the report relays.
Brazil's Secretary of Economic Reforms, Marcos Barbosa, said the
measures aim to strengthen the credit market in the long term,
paving the way for the country's capital market to become as robust
or larger than the 5 trillion reais ($988 billion) banking market,
the report notes.
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).
===========
B R A Z I L
===========
COMPANHIA DE SANEAMENTO: Fitch Affirms Foreign Currency IDR at BB
-----------------------------------------------------------------
Fitch Ratings has affirmed Companhia de Saneamento Basico do Estado
de Sao Paulo's (Sabesp) Local Currency (LC) Issuer Default Rating
(IDR) at 'BB+' and Foreign Currency (FC) IDR at 'BB'. The agency
has also affirmed the National Scale Rating 'AAA(bra)' for the
company and its unsecured debenture issuances. The Rating Outlook
is Stable.
Sabesp's ratings reflect the solid fundamentals of the
water/wastewater industry in Brazil and the issuer's solid business
profile. Fitch expects the company to maintain conservative net
leverage and robust liquidity, despite forecasted negative FCFs.
The analysis incorporates Fitch's view of the company's ownership
exposure to its majority shareholder, state of Sao Paulo
(BB-/Stable). This limits the LC IDR up to two notches from the
parent's rating, per Fitch's criteria, but currently is not a
constrain. The FC IDR is capped by Brazil's country ceiling 'BB'.
KEY RATING DRIVERS
Porous Linkage Assessment: Sabesp's assessment of its Standalone
Credit Profile (SCP) is commensurate with an LC IDR of 'bb+'.
Nevertheless, as a company controlled by the state of Sao Paulo,
Fitch applied the Government-Related Entities and Parent and
Subsidiary Linkage Rating Criteria, which resulted in the issuer's
LC IDR limited at two notches above its parent's IDR. Considering
that the state of Sao Paulo's IDR is 'BB-', Sabesp's LC IDR can
reflect its SCP of 'bb+'. Fitch considers the strength of linkage
between them as moderate and the incentive to support as weak to
moderate. In addition, the company presents porous legal
ring-fencing and porous access and control.
Low Business Risk: Sabesp's credit profile benefits from its almost
monopolistic position for provision of an essential service in its
concession area. The issuer presents economies of scale as the
largest water/wastewater company in the Americas by number of
customers, which adds to its profitability. The analysis considers
the evolving regulatory environment, the hydrological risk
intrinsic to its business and the political exposure as a
state-owned company, with potential changes in strategies after
each election for the government of Sao Paulo. The company's
activity in the state of Sao Paulo is favorable, given the state
has the largest GDP and population in the country.
High Revenue Predictability: The approved required revenue until
2024 improves Sabesp's cash flow predictability. The company will
implement a tariff increase of 9.6% in May 2023 that includes 3.8%
of regulatory adjustment to compensate for lower effective revenue,
compared with minimal required regulatory revenue during the prior
12 months. Sabesp's required revenue for the regulatory year May
2023-April 2024 is BRL20.0 billion (inflation adjusted). The
company must receive or return revenue to customers in the
following year, by means of a tariff adjustment, if realized
revenues fall outside the range +/-2.5% from the required revenue.
EBITDA Margin Above Peers: Fitch expects SABESP to keep its EBITDA
margin in the 38%-44% range, which is high and compares favorably
with its state-owned peers. In the base case scenario for the
rating, the company's EBITDA will reach BRL7.2 billion in 2023 (38%
margin -- pressured by non-recurring cost spending), and BRL8.8
billion in 2024 (44% margin). Total volume billed should increase
by 1.5% on average annually during this period, given the
increasing number of connections. The base case scenario assumes
manageable levels of water losses and delinquency and no water
supply restrictions as reservoir levels are currently high.
Heavy Investment Cycle: Sabesp's large capex program should
pressure its FCF in the coming years. Fitch projects the issuer's
cash flow from operations (CFFO) at BRL3.4 billion in 2023,
resulting in a negative FCF of BRL2.6 billion after investments of
BRL5.1 billion and dividends of BRL899 million. Annual FCF in
2024-2025 is expected to average negative BRL1.2 billion, after
robust average CFFO of BRL5.0 billion, investments of BRL5.7
billion and expected dividends of BRL508 million on average per
year. Working capital pressure should ease as the company
implements efficiency commercial measures.
Low Leverage: The leverage metrics of Sabesp should remain low over
the rating horizon, despite of relevant planned investments to
expand service capacity and coverage. The base case scenario
considers that the total debt-to-EBITDA and net debt-to-EBITDA
ratios will remain limited to 3.0x and 2.6x, respectively, which
are conservative for the industry. Fitch forecasts gross leverage
of 2.9x and net leverage of 2.5x in 2023 and below this level
thereafter, compared with an annual average of 2.6x and 2.1x,
respectively, from 2019 to 2022.
New Regulatory Environment Neutral: Sabesp's ratings do not
incorporate a major impact of recent regulatory changes in its
operations and cash flow. Fitch sees some setback in the recent
flexibility and extension of the deadline for inefficient state
public companies to prove the economic and financial capacity to
continue providing the water/wastewater service in the
municipalities they operate. The increase in the private sector's
participation should occur primarily at the expense of more
inefficient state-owned companies or municipal operators, which is
not the case for Sabesp.
DERIVATION SUMMARY
Sabesp's mature operations and its position as the largest
water/wastewater utility in Brazil benefit its business profile, in
terms of economies of scale and financial structure, when compared
with Aegea Saneamento e Participacoes S.A. (Aegea; LC and FC IDRs
BB/Stable), which has moderate leverage, reflecting its growth
strategy, partially mitigated by strong EBITDA margins. Sabesp's
strengthened CFFO generation capacity after the third tariff
revision in 2021 also supports the one notch difference on the LC
IDR, despite exposure to political risk. Aegea's credit profile
benefits from its diversified concessions within Brazil, while
Sabesp operates exclusively in the state of Sao Paulo, which
concentrates operational and regulatory risks.
Compared with power-transmission companies Transmissora Alianca de
Energia Eletrica S.A. (LC IDR BBB-/Negative; FC IDR BB/Stable) and
Alupar Investimento S.A. (LC IDR BBB-/Stable; FC IDR BB/Stable),
Sabesp presents higher regulatory risk, lower operational cash flow
predictability and less asset diversification, which explain the
difference on the LC IDRs, despite Sabesp's expected lower leverage
metrics.
Sabesp favorably compares with Namibia Water Corporation (NamWater;
FC LC IDRs BB-/Stable), a GRE in Namibia that has its ratings
constrained by the sovereign given Fitch's view of strong strength
of linkage and incentive to support between the company and the
government. NamWater SCP is 'bbb-' given strong sector positioning,
predictable cash flows and a strong liquidity profile.
KEY ASSUMPTIONS
- Total volume billed growth of 1.3% in 2023, supported by growth
of connections and overall stable volume/connection consumption;
- Total annual tariff increase of 9.6% in May 2023, 2.5% in 2024
and in line with inflation estimates, resulting in revenues within
regulatory required revenue range;
- Average annual capex of BRL5.5 billion in 2023-2025;
- Dividends of BRL899 million in 2023 and a payout ratio of 29% of
net profits thereafter.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A positive rating action on the FC IDR depends on the same
movement on the sovereign rating;
- A positive rating action on the LC IDR depends on FCF at least
neutral to slightly negative associated with the same movement on
the rating of the state of São Paulo;
- An upgrade of the National Scale Ratings is not possible as the
rating is at the top of the national scale.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Negative rating action on the sovereign rating may lead to
negative action on the FC IDR;
- Negative rating action on the state of São Paulo rating may lead
to negative action on the LC IDR;
- EBITDA margins below 40%;
- Net leverage sustained above 3.0x;
- Increased political and/or regulatory risk;
- Lower financial flexibility.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity Profile: Sabesp's robust cash position and strong
access to the financial market are key factors for the rating, as
they enable the company to manage its forecast negative FCF and
refinancing needs. Sabesp's cash position of BRL3.5 billion at the
end of 2022 covered its short-term debt of BRL2.2 billion by 1.6x.
Total debt of BRL18.9 billion had an extended maturity profile and
consisted primarily of funding from multilateral agencies of BRL7.4
billion, BRL8.2 billion in debenture issuances, and BRL2.9 billion
from Caixa Economica Federal (Caixa) and Banco Nacional de
Desenvolvimento Economico e Social (BNDES). Foreign currency debt
corresponding to 15% of total debt represents moderate exposure
risk to currency volatility. At the end of 2022, only Caixa's and
BNDES's debt was secured by receivables that represents less than
0.4x its EBITDA and does not pressure the ratings of unsecured
issuances.
ISSUER PROFILE
Sabesp is a basic sanitation concessionaire that provides treated
water supply and sewage collection and treatment services in 375 of
the 645 municipalities in Sao Paulo. The company directly supplies
water to 28.0 million people and sewage collection services to 24.7
million. Sabesp is controlled by the state of São Paulo and listed
on B3 S.A. - Bolsa Brasil, Balcão (Novo Mercado) and the New York
Stock Exchange (ADR Level III).
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 Prior
----------- ------ -----
Companhia de
Saneamento
Basico do
Estado de Sao
Paulo (SABESP) LT IDR BB Affirmed BB
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra)Affirmed AAA(bra)
senior
unsecured Natl LT AAA(bra)Affirmed AAA(bra)
KLABIN SA: Fitch Affirms LongTerm IDRs at 'BB+', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Klabin S.A.'s Long-Term Foreign Currency
(FC) and Local Currency (LC) Issuer Default Ratings (IDRs) at 'BB+'
and its National Scale Long-Term Rating at 'AAA(bra)'. Fitch has
also affirmed Klabin Austria Gmbh's senior notes, guaranteed by
Klabin, at 'BB+'. The Rating Outlook for Klabin remains Stable.
Issuances from Klabin Finance S.A. have been transferred to Klabin
Austria Gmbh.
Klabin's ratings reflect the company's leading position in the
Brazilian paper and packaging sector and its large forestry assets,
providing a low production cost structure and a high degree of
vertical integration. The company's solid liquidity position and
low refinancing risk remain key credit considerations. Fitch
expects Klabin's cash flow generation to remain strong due to the
company's low cost position in the industry; strong demand in the
paper and packaging segment; and additional volume from the Puma II
second phase, which is expected to start operations in 2Q 2023.
KEY RATING DRIVERS
Increased Capacity Strengthens Position: Klabin has a leading
position in the Brazilian packaging sector and a high degree of
vertical integration, which enhances product flexibility in the
competitive but fragmented packaging industry. The Puma II
expansion project added 354 thousand tonnes of production of
kraftliner in 2022, which should reach 450 thousand tonnes in 2024.
The second phase will add an additional 460 tonnes of annual
production capacity of coated board by 2027, when it is at full
capacity, which will further strengthen the company's leading
market position.
Strong Brazilian Market Share: Klabin's strong market shares allow
it to be a price leader in Brazil and to preserve more stable sales
volume and operating margins during instable economic scenarios
than its competitors. The company has market shares of 23% and 33%,
respectively, in the Brazilian corrugated boxes and coated board
sectors. Klabin is the sole producer of liquid packaging board in
Brazil and is the largest producer of kraftliner and industrial
bags, with market shares of 56% and 50%, respectively. Paper and
packaging business represented 49% of Klabin's EBITDA in 2022,
while pulp represented 51%. Fitch views the company's competitive
advantage as sustainable due to its scale, high level of
integration and diversified client base in the more resilient food
sector, which represents about 67% of packaging sales.
Falling Pulp Prices: Average BEKP prices to China for 2022 were
USD796/tonne, and Fitch projects a drop to USD650/tonne in 2023.
The price spike was caused by unexpected mill maintenance
downtimes, low inventories, strikes and logistical constraints.
Pulp prices started to lose momentum during 4Q22, and Fitch expects
them to decline further in 2023, pressured by increased supply from
Latin American producers and potentially weaker demand from paper
companies due to margin pressures. Chinese demand was affected by
the country's 'Zero Covid' policy, as well as paper mill closures
due to energy shortages, and it has only shown modest recovery so
far in 2023.
Lower Capex Projected: Klabin has not announced any big investment
projects after finalizing Puma II. The only significant individual
project is a new corrugated boxes unit in Piracicaba, which would
increase Klabin's total corrugated boxes conversion capacity to 1.3
million tonnes per year. The project has an expected total
investment of BRL1.6 billion over three years, and Fitch projects
total capex for Klabin during 2023-2025 of BRL13.4 billion. With
this scenario and a stable dividend policy, Fitch forecasts CFFO of
around BRL5.5 billion yearly during that time.
Leverage to Decrease Post-Expansion: Fitch expects Klabin's net
leverage ratio to reach 4.1x in 2023 and to fall within the rating
sensitivities after the completion of this investment phase.
Fitch's calculations include total debt of BRL7.1 billion from
factoring transactions as of December 2022. Klabin's net debt,
excluding factoring transactions, was BRL27.5 billion as of Dec.
31, 2022. Fitch expects it to begin decreasing in 2024 after the
PUMA II project is completed. The project has been largely financed
with operating cash flow, thanks to the high average pulp prices of
the previous two years.
Rating Above Country Ceiling: Klabin's FC IDR of 'BB+' is one-notch
higher than Brazil's Country Ceiling. This is due to a combination
of exports of USD1.2 billion, approximately USD184 million of cash
held outside of Brazil and an undrawn USD500 million offshore
credit facility. Hard Currency debt service for the next 24 months
is covered more than 1.5x by 50% of EBITDA from exports, cash held
abroad and a revolving credit facility. This suggests an uplift of
up to three notches above Brazil's Country Ceiling. However,
Klabin's FC IDR is constrained by a LC IDR of 'BB+', a reflection
of its underlying credit quality.
DERIVATION SUMMARY
Klabin has a leading position in the Brazilian packaging segment.
Its size, access to inexpensive fiber and high level of integration
relative to many of its competitors give it sustainable competitive
advantages. Its business profile is consistent with a rating in the
'BBB' category.
Klabin's leverage remains high due to a period of investments that
will continue during 2023. Its leverage is higher than Empresas
CMPC (BBB/Stable), Suzano (BBB-/Stable) and Celulosa Arauco
(BBB/Stable). Liquidity is historically strong for pulp and
packaging producers, and Klabin has strong access to debt and
capital markets.
Klabin is more exposed to demand from the local market than Suzano,
CMPC and Arauco, as these companies are leading producers of market
pulp sold globally. This makes Klabin more vulnerable to
macroeconomic conditions than its peers. Positively, its
concentration of sales to the food industry, which is relatively
resilient to downturns in Brazil's economy, and its position as the
sole producer of liquid packaging board, add stability to operating
results.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Paper and packaging sales volume of 2.4 million tons for 2023 and
2.6 million tons for 2024;
- Pulp sales volume of 1.5 million tons in 2023 and 1.5 million in
2024;
- Average hardwood net pulp price of USD650 per ton in 2023 and
USD600 per ton in 2024;
- Average FX rate of 5.3 BRL/USD in 2023 and 2024;
- Investments around BRL9.5 billion during 2023 and 2024;
- Dividends around 20% of EBITDA from 2023 onwards.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Average net debt/EBITDA ratios of 2.5x or below throughout the
pulp price cycle following completion of the expansion project;
- Sustained net debt at Klabin of less than USD3.3 billion after
completion of the expansion project.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Average net debt/EBITDA ratios of 3.5x or higher throughout the
pulp price cycle following completion of the expansion;
- Sustained net debt at Klabin of more than USD6 billion after
completion of the expansion project;
- More unstable macroeconomic environment that weakens demand for
the company's packaging products as well as prices.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: Klabin's solid liquidity position and low
refinancing risk remain key credit considerations. As of Dec. 31,
2022, the company had BRL6.5 billion of cash and marketable
securities and BRL34.6 billion of total debt, including about
BRL7.1 billion of factoring transactions as per Fitch's criteria.
The company has an extended debt amortization profile, with BRL9
billion of debt maturing in 2023 (including BRL7.1 billion in
factoring, as per Fitch methodology, which the agency expects to be
treated as revolving), and BRL1.2 billion in 2023 and 2024.
Financial flexibility is enhanced by a USD500 million unused
revolving credit facility. Klabin plans to continue to finance the
expansion project with a combination of debt and operating cash
flow. Fitch expects Klabin to continue to preserve strong
liquidity, conservatively positioning it for the price and demand
volatility, which is an inherent risk of the packaging industry.
As of Dec. 31, 2022, about 67% of total debt was denominated in
U.S. dollars. Total debt consisted of bonds (36%), factoring (20%),
BNDES (9%), export credit notes and export prepayments (6%),
Agribusiness Receivables Certificate (CRA, 4%), debentures (4%) and
others (20%).
ISSUER PROFILE
Klabin is the leader in the Brazilian corrugated boxes and coated
board sectors. In the Brazilian market, it is the sole producer of
liquid packaging board and the largest producer of kraftliner and
industrial bags. It also has an annual production capacity of 1.6
million tonnes market pulp.
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 Prior
----------- ------ -----
Klabin S.A. LT IDR BB+ Affirmed BB+
LC LT IDR BB+ Affirmed BB+
Natl LT AAA(bra) Affirmed AAA(bra)
Klabin
Austria Gmbh
senior
unsecured LT BB+ Affirmed BB+
RUMO SA: Moody's Affirms 'Ba2' CFR & Alters Outlook to Negative
---------------------------------------------------------------
Moody's Investors Service has affirmed Rumo S.A. (Rumo)'s Ba2
corporate family rating. At the same time, Moody's affirmed the Ba2
rating of the $500 million senior unsecured sustainability-linked
notes due in 2032 issued by Rumo Luxembourg S.a r.l. and
unconditionally backed by Rumo. The outlook for the ratings was
changed to negative from stable.
Affirmations:
Issuer: Rumo S.A.
Corporate Family Rating, Affirmed Ba2
Issuer: Rumo Luxembourg S.a r.l.
Backed Senior Unsecured Regular Bond/Debenture, Affirmed Ba2
Outlook Actions:
Issuer: Rumo Luxembourg S.a r.l.
Outlook, Changed To Negative From Stable
Issuer: Rumo S.A.
Outlook, Changed To Negative From Stable
RATINGS RATIONALE
The change in Rumo's rating outlook to negative from stable
reflects Moody's expectation of negative free cash flow over the
next two years and execution risks related to the company's
expansion in Mato Grosso, which leaves the company exposed to
market conditions in 2024-25 to maintain adequate liquidity and
credit metrics.
Rumo's Ba2 rating reflects its market position as the largest
independent rail operator in Government of Brazil (Ba2 stable),
with operations in the South, Midwest and Southeastern regions, an
area that is responsible for roughly 80% of the country's GDP and
grain exports that lack the appropriate railroad transportation
capacity. The company's strong growth prospects following the
renewal of the Paulista network concession, winning of the Central
network sub concession and the authorization of the extension of
the Northern network, combined with its track record of successful
capital spending execution and capital allocation, support its
rating.
The rating also incorporates the company's adequate credit quality
on the back of its investments to enhance transport capacity and
efficiency, and its adequate liquidity. Rumo's Moody's-adjusted
gross leverage (including leases and concessions obligations)
declined to 4.1x at the end of 2022 from a 7.3x peak in 2021,
supported by stronger operating performance after the drought and
low tariffs and Rumo's efforts to reduce its reported leverage,
lower its debt cost, extend debt tenor and diversify its funding
structure to mitigate leverage and liquidity risks during periods
of hefty investments. Moody's expects Rumo's adjusted leverage to
remain relatively high within 4x-4.5x in the next few years as the
company executes its growth plans, supported by relatively stable
debt levels and an adequate operating performance due to a tight
supply-demand balance for transportation in Rumo's main area of
operations. Despite the efforts to reduce debt cost Moody's expects
that Rumo's interest coverage will remain low for its rating
category for the foreseeable future.
The rating also factors in the company's solid shareholder
structure, corporate governance and strong management of Cosan S.A.
(Cosan, Ba2 stable), after the merger of Rumo and América Latina
Logistica S.A. (ALL) in 2015. Additional credit positives such as
historical shareholder support, access to capital markets and
access to Banco Nac. Desenv. Economico e Social - BNDES' (BNDES,
Ba2 stable) funding mitigate the outlook for negative free cash
flow (FCF) over the coming years.
R
umo's Ba2 rating is constrained by its large exposure to
agricultural commodities, competitive dynamics and high customer
concentration in large global trading companies, although these
risks are somewhat mitigated by the existence of take-or-pay
contracts. Rumo also lacks geographic diversification in a highly
regulated business, with all its concessions exposed to Brazil's
regulatory framework, including concessionary and environmental
regulations. Finally, execution risks in the company's large
capital spending program related to existing and new concessions
remain an important credit consideration. However, the current
management has proved to be successful in its capital allocation
over the last five years.
LIQUIDITY
As of year-end 2022, Rumo reported BRL8.2 billion in cash and cash
equivalents, sufficient to cover short-term debt by 3.9x and all
debt maturities until 2028. Historically, Rumo has generated
negative FCF because of high capital spending, and this trend
reverted in 2018-19 because of the temporary reduction in capital
spending, and improvement in capacity, transported volumes and
margins. FCF will remain negative again as Rumo executes its
capital spending plan to increase operating capacity. With the new
concession agreements signed in 2019-21 and the Lucas do Rio Verde
extension, Rumo expects to increase its transportation volume by
more than 50% over the next five years. To support this aggressive
growth plan, capital spending will increase to about BRL4-5 billion
per year over the next there years. Lucas do Rio Verde will require
BRL15 billion in investments, with around 30% being disbursed over
2023-25. However, despite the high capital spending plan and
prospects of negative FCF, Rumo has a few levers to reduce
liquidity risks, such as a current high cash position, secured
long-term funding to cover capital spending, access to capital
markets even during downturns because of its stable business model
and implicit support from its shareholder, Cosan. Furthermore, the
company's covenant compliance is adequate and sustainable even
during the peak of its investment program. The company has no
exposure to foreign-currency volatility because it hedges all
principal and interest payment in foreign currency and does not pay
dividends.
RATING OUTLOOK
The negative rating outlook reflects the risks related to Rumo's
capital spending program in the next 12-18 months and the outlook
for negative free cash flow generation in the next years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on Rumo's ratings could arise if Rumo maintains a
high operating margin while improving its cash generation and
reducing leverage. Quantitatively, a rating upgrade is possible if
funds from operations (FFO)/adjusted debt improves to more than
16.5% (15.5% in 2022) and leverage, as measured by Moody's-adjusted
debt/EBITDA, remains below 4.0x (4.1x in 2022) on a sustained
basis.
Moody's could downgrade Rumo's rating if its Moody's-adjusted
leverage remains above 4.5x after the conclusion of its investment
cycle or adjusted interest coverage ratio remains persistently
below 1.0x (1.3x in 2022). The rating could also be downgraded if
the company's liquidity deteriorates significantly because of heavy
capital spending plans, unfavorable rulings in judicial disputes or
changes in the regulatory framework that hurt Rumo's business
profile (such as the revocation of a concession without adequate
compensation).
COMPANY PROFILE
Rumo is the largest independent rail-based logistics operator in
Latin America. After winning a new 30-year subconcession of the
Norte-Sul railway (Central network) and an extension of the
Northern network, Rumo's rail operations will comprise five
long-term rail concessions, totaling around 15,000 kilometers (km)
of rail tracks, about 1,500 locomotives and over 35,000 railcars,
through which the company will transport agricultural commodities
and industrial products. Additionally, Rumo develops the intermodal
logistics of containers and related storage services through Brado
Logistica. In 2022, Rumo recorded net revenue of BRL9.8 billion
($1.8 billion) and Moody's adjusted EBITDA of BRL5.6 billion ($1.1
billion).
The principal methodology used in these ratings was Surface
Transportation and Logistics published in December 2021.
=========
C H I L E
=========
CHILEAN POWER: S&P Lowers Senior Secured Notes Rating to 'CCC-'
---------------------------------------------------------------
S&P Global Ratings lowered its rating on the Chilean wind power
Chilean Power Co. ILAP's senior secured notes due 2033 to 'CCC-'
from 'B-' and placed the rating on CreditWatch with developing
implications.
The CreditWatch developing placement reflects the likelihood of a
rating downgrade, affirmation, or upgrade in the next 90 days. A
rating action will mainly depend on the timing and amount of the
collection of the outstanding PEC receivables and the evolution of
the main market and operating variables, such as electricity
generation and prices.
Inversiones Latin America Power Limitada (ILAP) hasn't collected
the differences from the 2022 "Precio Estabilizado al Cliente
Regulado" (PEC) receivables (the mechanism to recover certain
differences between the regulated contract prices and stabilized
prices), which S&P expected to occur in the first quarter of 2023.
As a result, S&P thinks ILAP's obligations are vulnerable to
nonpayment, particularly the next coupon payment that's due on July
3, 2023.
ILAP, a limited-purpose entity, has a 100% ownership interest in
the following wind farms:
-- San Juan, a 193.2 megawatt (MW) facility located in Vallenar
(about 650 kilometers [km] north of Santiago), consisting of 56
Vestas V117 3.45 MW wind turbines, which started operating in the
first quarter of 2017.
-- Totoral, a 46 MW facility located in Canela (about 300 km north
of Santiago), consisting of 23 Vestas V90 2.2 MW wind turbines.
It's been operating since 2010.
Both wind farms distribute energy through the Sistema Eléctrico
Nacional (SEN), the national grid system that provides electricity
to almost the entire country. San Juan and Totoral have entered
into long-term power purchase agreements (PPAs) with regulated
Chilean distribution companies (discos) and large consumers,
accounting for almost all of the project's energy generation under
a P90 scenario. (P90 indicates there's a 90% likelihood the project
will exceed its forecast electricity production for the year). Both
wind farms benefit from long-term operations and maintenance (O&M)
agreements with Vestas Wind Systems A.S. (not rated), the equipment
manufacturer, which has a good track record of manufacturing,
installing, and operating wind turbines across the world.
WOM SA: S&P Downgrades ICR to 'B' on Persistently Higher Leverage
-----------------------------------------------------------------
On April 21, 2023, S&P Global Ratings lowered its issuer credit
ratings on Chilean telecom operator Wom S.A. to 'B' from 'B+'. At
the same time, S&P lowered the rating on senior unsecured notes
issued by the financing vehicle, Kenbourne Invest S.A. (and
guaranteed by Wom) to 'B' from 'B+'.
The stable outlook reflects that the company's revenue and margins
will continue rising but leverage will remain elevated for the next
12 months.
Wom's investment decisions including its participation in the 5G
bidding in 2021, and the more recent option to sell and lease back
towers and invest in Wom Colombia, coupled with upstreams (in the
form of dividends or loans) to the sponsor, have significantly
delayed the company's deleveraging. S&P-adjusted debt to EBITDA was
higher than expected--5.2x and 5.8x in 2021 and 2022,
respectively--and S&P believes it will exceed 5.0x in 2023 as well.
A relevant factor behind higher leverage in the past two years were
investments including capital expenditures (capex) for CLP223
billion (including CLP109 billion for spectrum) and CLP235 billion
in 2021 and 2022, respectively. These investments, representing
about 36% of revenues, are the drivers of the recent and future
business growth and margin expansion. However, in the same period,
Wom has also upstreamed to a shareholder about $54 million in 2021
and about $340 million in 2022. Wom funded the latter through
proceeds from the sale and lease back of its towers. S&P believes
this transaction illustrates the shareholder's leverage appetite.
The company received about $715 million during 2022--while it
reduced debt through a tender and repurchase of outstanding bonds
for about $300 million--lease obligations increased by about $350
million in 2022 and should increase by another $60 million in 2023
Therefore, the transaction lifted gross adjusted debt.
Additionally, the monetization of cross-currency swaps and
consequent entrance into a new swap contract at higher exchange
rates and securing a factoring program with IDB (Inter-American
Development Bank) to sell financed handsets also raised
S&P-adjusted gross debt.
S&P said, "Wom's investments in network should support consistent
expansion of the postpaid customer base, which we expect to grow
8%-10% in the next two years. At the same time, amid a more
challenging macroeconomic environment that's denting companies'
profitability and cash flows, there have already been some signs of
some moderation of competition in Chile's telecom market. Some
players have passed price increases or reduced promotional
activity, including Wom, which in turn should allow for at least a
stabilization in average revenue per user (ARPUs), which have been
falling for the past five years. These two factors, and a growing
relevance of the fiber business, should bolster Wom's revenue
growth. In this scenario, we forecast EBITDA will expand about 16%
in 2023 and 14% in 2024. However, we don't believe Wom's improved
performance will be enough to reduce leverage below 5.0x in 2023.
At the same time, the company has considerable investments related
to the 5G network deployment in 2023--we expect capex of about $230
million this year and falling to $130 million in 2024. Furthermore,
as long as there's excess cash and Wom complies with financial
restrictions as part of its bonds' terms and conditions, we believe
the financial sponsor could continue upstreaming dividends or
investments from Wom, or could further use the company as a vehicle
to partly finance Colombian operations. In addition, the company
has to refinance the outstanding $360 million notes that mature in
November 2024 under more challenging financial market conditions,
and higher funding costs will amplify pressure on its cash-flow
metrics.
"Wom's postpaid subscriber base reached 4.1 million by the end of
2022 (a 22% market share), up from 2.8 million in 2019 when we
initially rated the company, a 44% growth rate compared with 37% of
the industry in the same period. We expect Wom's postpaid
subscriber base to expand to 4.5 million in 2023. At the same time,
the company has efficiently managed its cost structure, boosting
margins. We believe EBITDA margin will rise to 31%-32% in 2023 from
26% in 2019. Moreover, the company has launched its fiber-to-home
(FTH) business, which should also push up revenue growth.
Currently, Wom has 1.2 million of homes passed with its fiber and
has 183,000 fiber subscribers. We expect this business to grow
considerably as there's room to improve substantially the take-up
rate, although it would still represent less than 10% of total
revenues in the next three years. Finally, the company closed the
spectrum gap with the other Chilean mobile operators. In the 2021
5G spectrum tender, Wom obtained spectrum in the four bands (400
MHz in the 26 GHz band, 50MHz in the 3.5 GHz band, 20MHz in the
700MHz band, and 30MHz in the AWS band). This will not only enable
Wom to start the 5G deployment but also to enhance its 4G coverage
and should support the company's growth and cost reduction through
lower national roaming expenses."
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Wom. Our assessment
of the company's financial risk profile as aggressive reflects
corporate decision-making that prioritizes the interests of the
controlling owners, in line with our view of the majority of rated
entities owned by private-equity sponsors. This also reflects their
generally finite holding periods and a focus on maximizing
shareholder returns."
===============
C O L O M B I A
===============
AVIANCA: Parent Plans IPO to Seal Comeback Bondholders Bet Big On
-----------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that the
holding company for Avianca Group International Ltd., a Colombian
airline that filed for bankruptcy during the pandemic, is planning
an initial public offering as revenue roars back.
"Without a doubt the IPO makes sense to support the group's
growth," Avianca's head of investor relations Maria Cristina
Ricardo said in an interview, according to globalinsolvency.com.
The plan is for Abra Group Ltd. to sell shares in New York or
London in the next 12 to 18 months, she added. Air travel in Latin
America has rebounded to pre-pandemic levels, according to data
from OAG Aviation, the report notes.
That's paved the way for a comeback of the industry that saw a
string of bankruptcy filings after demand sank in 2020 and regional
governments refrained from providing hefty support packages like
those offered in the US and Europe, the report relays.
Avianca, the lead airline for Colombia and Ecuador, sought
protection from creditors in the US a few months after the pandemic
began, the report notes.
Within weeks, two other major carriers in the region, Latam
Airlines and Grupo Aeromexico SAB de CV, did the same, the report
discloses.
The process helped Avianca cut its debt load to $3.1 billion at the
end of 2022 from $5.3 billion two years earlier, allowing it to
better compete with low-cost carriers, the report relays.
The company filled up about 80% of its planes in the fourth
quarter, with total operating revenue reaching $1.2 billion - the
best such result since the restructuring, the carrier said, the
report adds.
About Avianca
Avianca -- https://aviancaholdings.com/ -- is the commercial brand
for the collection of passenger airlines and cargo airlines under
the umbrella company Avianca Holdings S.A. Avianca has been flying
uninterrupted for 100 years. With a fleet of 158 aircraft, Avianca
serves 76 destinations in 27 countries within the Americas and
Europe.
Avianca Holdings S.A. and its affiliates sought protection under
Chapter 11 of the Bankruptcy Code (Bankr. S.D. N.Y. Lead Case No.
20-11133) on May 10, 2020. At the time of the filing, Debtors
disclosed $7,273,900,000 in assets and $7,268,700,000 in
liabilities.
Judge Martin Glenn oversees the cases.
The Debtors tapped Milbank LLP as general bankruptcy counsel;
Urdaneta, Velez, Pearl & Abdallah Abogados and Gomez-Pinzon
Abogados S.A.S. as restructuring counsel; Smith Gambrell and
Russell, LLP as aviation counsel; Seabury Securities LLC as
financial restructuring advisor and investment banker; FTI
Consulting, Inc. as financial restructuring advisor; and Kurtzman
Carson Consultants LLC as claims and noticing agent.
The U.S. Trustee for Region 2 appointed a committee of unsecured
creditors in Debtors' bankruptcy cases on May 22, 2020.
TERMOCANDELARIA POWER: Fitch Affirms IDRs at BB, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed TermoCandelaria Power S.A.'s (TPL)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
at 'BB'. The Rating Outlook is Stable. Fitch has also affirmed
TPL's USD596 million senior unsecured note due 2029 at 'BB'.
The ratings reflect the strategic importance of TPL's assets for
the Atlantic coast of Colombia, given the constrains of the
transmission infrastructure and quality of service requirements.
The company's ratings continue to reflect the combined operations
of its operating subsidiaries, Termobarranquilla (TEBSA) and
Termocandelaria (TECAN), its competitive position in the
electricity generation market in Colombia, limited contracted
position, and the low diversification of its asset base. Fitch
expects gross leverage to remain below 3.5x over the rating horizon
(excluding intercompany loan), which assumes TECAN's combined cycle
project enters online in 2Q23 and starts generating an additional
USD35 million from the reliability charge.
KEY RATING DRIVERS
Strategic Asset for the Atlantic Region: TPL's assets are critical
to the electricity demand of the Atlantic coast of Colombia, which
provides some visibility to the company's volumes generated, given
it mostly sells on the spot market. TPL's assets are designed to
cover peaks in electricity demand, shortfalls from the country's
hydroelectric plants, and cope with constraints in the transmission
grids and quality of service requirements. TPL constitutes a
natural hedge for the intermittency of non-conventional renewable
projects, which are slated to come online in the short to medium
term.
Reliance on System Inefficiencies: TPL benefits from the country's
transmission bottleneck in the northern coast, which results in
persistent out-of-merit generation (dispatch due to system
inefficiencies remunerated at their declared variable and
production cost) by TEBSA in order to meet demand despite the
company's comparative higher variable costs relative to renewable
power generation plants. Demand characteristics of the Caribbean
coast supports TEBSA's continued potential of being dispatch, as
long current transmission bottlenecks and capacity dynamics
continue.
Fitch's expects TPL's out-of-merit generation will decline to
approximately 2,100GWh in 2023, mainly affected by the slowdown in
electricity demand in the Atlantic Coast, and to a lesser extent by
the new dispatch flexibility set by resolution 101-028 as well as
the entrance into operation of the Refuerzo Costa Caribe
transmission project, which increased the capacity to import power
from the center of the country to the coastal region. TPL's
gas-fired plants generated 3,183GWh in 2022, 95% of this amount, or
3,027GWh, was out-of-merit and 157GWh was in-merit (spot sales).
Limited Contracted Position: TPL remains a marginal cost producer
with no long-term power purchase agreements (PPAs), which makes it
highly reliant on spot sales. This risk is offset by transmission
network inefficiencies and its cost competitiveness, providing
predictable out-of-merit generation at predictable realization
prices. It sources gas domestically and has access to a liquified
natural gas (LNG) terminal in the Caribbean coast of Colombia.
Limited Operational Diversification: TPL's credit profile is
constrained by the limited diversification of its operations. The
company is exposed to a higher degree of event risk than local and
regional peers from unexpected outages or disaster disruptions.
TPL's take-or-pay regasification contracts would put additional
pressure on its subsidiaries' cost structure in the event of
business interruption. TPL combines the operations of 1,295MW of
thermal electric assets, which represented around 6.6% of the
Colombian electricity generation matrix and around 24% of the
country's thermal installed capacity as of YE 2022.
Structure Mitigates Market Risks: In the long term, new investments
in the transmission network or the completion of nonconventional
renewable energy projects in Colombia's coastal region could
displace TEBSA within the dispatch curve, resulting in lower
EBITDA. Current delays in La Colectora transmission project will
likely push the commercial operation dates of approximately 1,000MW
of wind projects in the La Guajira Region into at least 2026. These
risks are partially mitigated by TPL's amortizing structure.
Credit Profile Linked to OpCos: TPL is a holding company that
combines operations of two electricity generation companies, TEBSA
and TECAN, located on Colombia's Caribbean coast. TPL fully owns
and controls TECAN and has a 57.38% stake in TEBSA. TPL's ratings
are mostly related to TEBSA's credit profile as TEBSA accounts for
approximately 80% of TPL's consolidated EBITDA. Fitch expects a
more even split between the two plants once TECAN completes its
combined cycle expansion in 2Q23.
DERIVATION SUMMARY
TPL's ratings are in line with Nautilus Inkia Holdings LLC's
(BB/Stable), its closest peer. Although lacking Inkia's
geographical diversification and asset base mix provided by its key
subsidiary Kallpa Generacion S.A. (BBB-/Stable), TPL's financial
policy and amortization profile are more conservative, with
expected 2023 gross leverage levels post-expansion of 3.5x, while
Fitch expects Inkia's leverage to be 4.6x in 2023.
Inkia's debt is structurally subordinated to debt at the operating
companies, while TPL's recent transaction fully replaced debt at
the subsidiary level. TPL's capital structure also compares
positively with Orazul Energy Peru S.A. (BB/Stable). Orazul's high
medium-term leverage of 5.0x under Fitch's forecast places it at
the high end of its rating level.
TPL's business risk is higher than multi-asset energy regional
investment-grade peers such as AES Panama Generation Holdings,
S.R.L. (BBB-/Stable), Kallpa and AES Andes S.A. (BBB-/Stable). All
of these companies benefit from a strong contractual position in
their respective markets. These companies' PPAs support their cash
flow stability through USD-linked payments and, in Kallpa's case,
pass-through clauses related to potential increases in fuel costs.
This contributes to higher EBITDA visibility in the long term
compared to TPL, which remains exposed and exogenous supply/demand
dynamics. Although TPL's key subsidiary TEBSA maintains relative
cost efficiency that currently places it within the coastal base
load, future additions to the local renewable energy matrix or
expansion of the national transmission network could potentially
displace the company from its strong competitive position in the
coastal region in the long term.
TPL ratings are two notches below Fenix Power Peru S.A.
(BBB-/Stable). As a single-asset generator with a high proportion
of take-or-pay costs and including its deleveraging trajectory of
reaching below 4.4x by 2024, Fitch views Fenix's standalone credit
quality in line with a 'BB' rating. Nevertheless, Fenix's ratings
are buoyed by its strong support from its parent Colbun S.A.
(BBB+/Stable).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- The company closes the cycle at its TECAN plant increasing its
installed capacity to 566MW from 314MW by 2Q23;
- The company's reliability charge increases at an average U.S. CPI
rate of inflation of 2.0%;
- TPL's combined annual generation over the medium term of will
average 2,100GWh per year;
- TEBSA's and TECAN's availability factors at 90%;
- No dividends are paid over the rating horizon.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Sustained total debt/EBITDA below 3.3x and a debt service
coverage ratio above 1.8x, in combination with improved contractual
position.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Consolidated leverage levels above 4.8x on a sustained basis;
- EBITDA to interest coverage of 2.0x or below on a sustained basis
or a debt service coverage ratio below 1.2x;
- Adverse regulatory changes in Colombia that weaken the company's
commercial policy;
- A weakening of the company's out-of-merit generation profile that
affects revenue visibility.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: TPL's liquidity position improved during 2022,
mainly driven by a higher than anticipated cash flow generation,
lower capex and the absent of dividend payments, which allowed the
company to generate positive FCF. Consolidated cash on hand ended
up at USD82 million as of YE 2022 to attend USD62 million of
short-term debt. TPL's maturities for 2024 amounts USD138 million,
which Fitch forecasts to be covered by USD84 million of available
cash on hand and CFO of around USD100 million during 2023. TPL has
lending relationships with both local and international banks for
its working capital needs which gives the company additional
flexibility if needed.
ISSUER PROFILE
TPL is a holding company that owns and operates 1,225MW of thermal
power capacity in the Atlantic region of Colombia, through
Termobarranquilla (TEBSA) and Termocandelaria (TECAN), making up
roughly 21% and 7% of the country's thermal and total effective
installed capacity, respectively.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Total debt adjusted by financial leases under IFRS 16;
- Total debt adjusted by intercompany loans from TPL to TEBSA and
TECAN;
- EBITDA adjusted by dividends paid to minority shareholders.
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 Prior
----------- ------ -----
TermoCandelaria
Power, S.A. LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
senior
unsecured LT BB Affirmed BB
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: 2023 Will be of Disappointing Growth, BOA Says
------------------------------------------------------------------
Dominican Today reports that in March of last year, four analysts
from Bank of America, a US financial company, released a report on
the Dominican Republic, stating that it remained one of the
positive stories in Latin America. However, the report included
some observations, such as a projected year of unsatisfactory
growth and fiscal outcomes in 2023, according to Dominican Today.
Despite record tourism, the economy is slowing down considerably,
the report relays.
In addition, the analysts are lowering their forecasts for gross
domestic product (GDP) growth in 2023, reducing it from 4.2% to 3%,
the report notes. This percentage is lower than the projections
made by international organizations, which place it between 4.2%
and 4.6%, the report says.
The analysts believe that the government will increase the fiscal
policy to avoid a recession, even if it goes against the current
position of monetary policy, the report discloses. The Dominican
Republic has a history of increased government spending during an
electoral cycle, and the slowdown in economic activity provides a
justification to increase spending, the report says.
BofA Global Research, a service of BofA Securities, published the
report, signed by Alexander Muller, the chief economist for the
Andean and Caribbean region, Pedro Diaz, the economist for Latin
America, and sovereign debt strategists Lucas Martin and Jane
Brauer, the report notes.
Muller and Diaz were part of a Bank of America delegation that met
with officials of the Central Bank of the Dominican Republic,
including Governor Hector Valdez Albizu, the report relays. The
analysts spent two days in Santo Domingo meeting with legislators,
local investors, business leaders, and academics, 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.
=============
J A M A I C A
=============
JAMAICA: Locals Lower Expectations for the Economy
--------------------------------------------------
RJR News reports that Jamaicans have lowered their expectations for
the economy.
According to Don Anderson, Pollster and head of Market Research
Limited, revealed that the latest consumer confidence survey found
that more Jamaicans thought business conditions would get worse
beyond the first quarter of this year, the report discloses.
The survey also revealed a less optimistic outlook for the
availability of jobs, according to RJR News.
Six hundred people were polled for the Consumer Confidence Survey,
conducted over the first three months of this year, the report
notes.
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.
=====================
P U E R T O R I C O
=====================
BED BATH: Files for Chapter 11 to Pursue Wind Down
--------------------------------------------------
Bed Bath & Beyond Inc. (Nasdaq: BBBY) and certain of its
subsidiaries on April 23, 2023, filed voluntary petitions for
relief under Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the District of New Jersey to implement
an orderly wind down of its businesses while conducting a limited
marketing process to solicit interest in one or more sales of some
or all of its assets.
To facilitate this process, the Company has received a commitment
of approximately $240 million in debtor-in-possession financing
("DIP") from Sixth Street Specialty Lending, Inc. Following court
approval, the Company expects this financing to provide the
necessary liquidity to support operations during the Chapter 11
process.
The Company's 360 Bed Bath & Beyond and 120 buybuy BABY stores and
websites will remain open and continue serving customers as the
Company begins its efforts to effectuate the closure of its retail
locations. Through the filing of customary motions with the Court,
the Company intends to uphold its commitments to customers,
employees, and partners, including continued payment of employee
wages and benefits, maintaining customer programs, and honoring
obligations to critical vendors.
Sue Gove, President & CEO of Bed Bath & Beyond Inc. said, "Millions
of customers have trusted us through the most important milestones
in their lives -- from going to college to getting married,
settling into a new home to having a baby. Our teams have worked
with incredible purpose to support and strengthen our beloved
banners, Bed Bath & Beyond and buybuy BABY. We deeply appreciate
our associates, customers, partners, and the communities we serve,
and we remain steadfastly determined to serve them throughout this
process. We will continue working diligently to maximize value for
the benefit of all stakeholders."
For decades, Bed Bath & Beyond set the standard across the home
goods sector and held its position through many different economic
cycles and alongside a continuously evolving customer. In late
2022, the Company initiated a significant turnaround plan to reset
foundational elements of its operational and financial positioning
to better serve customers, employees, and supplier partners.
Actions have been underway to improve merchandise assortment,
streamline supply chain, and optimize its store footprint.
While the Company has commenced a liquidation sale, Bed Bath &
Beyond Inc. intends to use the Chapter 11 proceedings to conduct a
limited sale and marketing process for some or all of its assets.
The Company has filed motions with the Court seeking authority to
market Bed Bath & Beyond and buybuy BABY as part of an auction
pursuant to section 363 of the Bankruptcy Code. Alongside these
efforts, the Company is also strategically managing inventory to
preserve value. In the event of a successful sale, the Company
will pivot away from any store closings needed to implement a
transaction. The Company believes this dual-path process will best
maximize value.
Additional information is available at
https://restructuring.ra.kroll.com/bbby. Stakeholders with
questions can contact the Company's Claims Agent, Kroll LLC, at
BBBYInfo@ra.kroll.com, (833) 570-5355, or (646) 440-4806 if calling
from outside the U.S. or Canada.
About Bed Bath & Beyond
Bed Bath & Beyond Inc., together with its subsidiaries, is an
omnichannel retailer selling a wide assortment of merchandise in
the Home, Baby, Beauty & Wellness markets and operate under the
names Bed Bath & Beyond, buybuy BABY, and Harmon, Harmon Face
Values. The Company also operates Decorist, an online interior
design platform that provides personalized home design services.
At its peak, Bed Bath & Beyond operated the largest home furnishing
retailer in the United States with over 970 stores across all 50
states, consistently at the forefront of major home and bath
trends. Operating stores spanning the United States, Canada,
Mexico, and Puerto Rico, Bed Bath & Beyond offers everything from
bed linens to cookware to electric appliances, home organization,
baby care, and more.
Bed Bath & Beyond closed over 430 locations across the United
States and Canada before filing chapter 11 cases, implementing
full scale wind downs of their Canadian business and the Harmon
branded stores.
Left with 360 Bed Bath & Beyond and 120 buybuy BABY stores, Bed
Bath & Beyond Inc. and 73 affiliated debtors on April 23, 2023,
each filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code to pursue a wind down of operations.
The cases are pending before the Honorable Vincent F. Papalia and
have requested joint administration of the cases under Bankr.
D.N.J. Lead Case No. 23-13359.
Kirkland & Ellis LLP and Cole Schotz P.C. are serving as legal
counsel, Lazard Frères & Co. LLC is serving as investment
banker,
and AlixPartners LLP is serving as financial advisor. Bed Bath &
Beyond Inc. has retained Hilco Merchant Resources LLC to assist
with inventory sales. Kroll LLC is the claims agent.
*********
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.
.
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