/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/230718.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, July 18, 2023, Vol. 24, No. 143 Headlines A R G E N T I N A ARGENTINA: Argentines Tighten Wallets to Fight Spiraling Inflation ARGENTINA: Rodriguez Larreta Plans Spending Cuts to Help Peso B E R M U D A TEEKAY TANKERS: Egan-Jones Retains BB- Senior Unsecured Ratings B R A Z I L AZUL SA: S&P Downgrades ICR to 'SD' on Distressed Debt Exchange BRAZIL: Records 0.08% Deflation, Lowest Price Variation for June JBS SA: Union Sues Over Alleged Exploitation of Chicken Workers D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Guarantees Funds to JCE for Staging Elections H O N D U R A S BANCO ATLANTIDA: Fitch Affirms 'B' IDR, Alters Outlook to Stable M E X I C O PETROLEOS MEXICANOS: Fitch Cuts IDRs to 'B+', On Rating Watch Neg. P U E R T O R I C O CHALLENGER BRASS: Seeks to Hire Batista Law Group as Counsel ESJ TOWERS: Disclosure Statement Hearing Reset to Aug. 22 T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: Illicit Trade Continues to Challenge Businesses - - - - - ================= A R G E N T I N A ================= ARGENTINA: Argentines Tighten Wallets to Fight Spiraling Inflation ------------------------------------------------------------------ Reuters reports that Argentines are tightening their wallets to make end meets as the South American country battles inflation which could surpass 140% on an annual basis this year, hunting for the cheapest prices on basic goods to shield their income. Annual inflation could close this year at 142.4% compared to 94.8% last year, according to a central bank poll, steadily cutting away at consumers' purchasing power in Latin America's third-largest economy, the report relays. While Argentines are on track this year to keep up their high steak consumption, higher prices are taking a bite out of their selections, the report discloses. "Customers are being more careful about what they spend and generally choose the cheapest meats, such as ground beef or cuts to make steak or meat for stews," said 51-year-old butcher Gabriel Segovia, whose shop is among those at a fair in Buenos Aires where buyers hunt for better prices, the report adds. The economic crisis, which has worsened over the past year, has plunged some 40% of the population below the poverty line and will be a key issue in the upcoming presidential primaries set for Aug. 13, with Economy Minister Sergio Massa seeking to become the ruling party's candidate for the October election, notes the report. Analysts forecast that annual inflation could close this year at 142.4% compared to 94.8% last year, according to a central bank poll, steadily cutting away at consumers' purchasing power in Latin America's third-largest economy, Reuters relates. Meanwhile, an Argentine delegation was to meet with the International Monetary Fund last week to renegotiate its $44 million loan, a source earlier told Reuters. The country is seeking adjustments as rising inflation, a weakening peso and a historic drought hamper exports and financial reserves. An IMF spokeswoman last July 13 acknowledged the talks but gave few details, notes Reuters. 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. ARGENTINA: Rodriguez Larreta Plans Spending Cuts to Help Peso ------------------------------------------------------------- Ignacio Olivera Doll at Bloomberg News reports that centrist presidential candidate Horacio Rodriguez Larreta would cut spending by four percent of gross domestic product as part of a plan that would help cushion the decline of the country's currency, according to his top economic adviser. If implemented, the plan would allow the peso to weaken gradually to a level between the current official and parallel rates, former economy minister Hernan Lacunza said during a speech to corporate executives, according to two people familiar with the meeting who requested anonymity to share details of it, notes Bloomberg News. Rodriguez Larreta will face off against Patricia Bullrich for the opposition coalition's nomination in an August 13 primary vote, with the winner advancing to the October 22 general election, Bloomberg News notes. The contest is taking place against the backdrop of Argentina's intensifying economic woes, as rapid inflation and a record drought push it to the brink of recession, Bloomberg News relays. Many polls, which have a spotty track record, show Rodriguez Larreta and Bullrich neck-and-neck in the primary, Bloomberg News notes. Spokespersons for Rodriguez Larreta and Lacunza declined to comment. The former minister estimated that the official exchange rate would reach 400 pesos per dollar, adjusted for inflation, by the end of this year, Bloomberg News says. The outlook implies that the official and parallel rates - currently at 265 and 523 pesos per dollar, respectively - will converge in the middle rather than at the higher level, Bloomberg News discloses. While other local economists also see the peso near 400 this year, they project the currency shooting to over 900 per dollar by the end of 2024, suggesting a major devaluation would happen under a new government, Bloomberg News says. Lacunza cautioned against immediately lifting Argentina's cobweb of currency controls, a reversal from his party's stance in 2015, when former president Mauricio Macri ended them overnight and triggered a massive price spike, Bloomberg News notes. The release of dollars trapped by the current controls would happen in stages under Lacunza's plan, he told executives, Bloomberg News relays. He would free up dollar access for corporate debt contracted by third parties first, then move on to imports and debts within companies. Dividends from banks and corporations would come last, Bloomberg News relays. But the spending cuts would be his first priority, he told the executives. The reductions would centre around Argentina's generous utility subsidies and expenditures at state-run companies, Bloomberg News notes. By quickly reducing spending and gradually lifting controls, Lacunza expects Argentina's Central Bank to build up US$100 million in foreign reserves per day, Bloomberg News discloses. The monetary authority is currently running out of dollars and most recently made a payment to the International Monetary Fund in Chinese yuan, Bloomberg News notes. Lacunza didn't provide details on when citizens can expect more dollar access. Currently, savers can only exchange pesos for US$200 a month and must pay three taxes implemented by the ruling Peronist bloc, which will also field a candidate in the election, Bloomberg News 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. ============= B E R M U D A ============= TEEKAY TANKERS: Egan-Jones Retains BB- Senior Unsecured Ratings --------------------------------------------------------------- Egan-Jones Ratings Company on June 26, 2023, maintained its 'BB-' foreign currency and local currency senior unsecured ratings on debt issued by Teekay Tankers Ltd. EJR also withdrew its 'A2' rating on commercial paper issued by the Company. Headquartered in Hamilton, Bermuda, Teekay Tankers Ltd. provides oil transportation services through a fleet of mid-size tankers, including Suezmax and Aframax crude oil tankers and Long Range 2 product tankers. =========== B R A Z I L =========== AZUL SA: S&P Downgrades ICR to 'SD' on Distressed Debt Exchange --------------------------------------------------------------- On July 14, 2023, S&P Global Ratings lowered its global and national scale issuer credit ratings on the company to 'SD' (selective default) from 'CC' and 'brCC', respectively. S&P also lowered its issue-level rating on the senior unsecured notes to 'D' from 'CC'. S&P will evaluate the company's new capital structure in the next couple of days, and expect to raise our issuer credit rating on Azul to 'B-'. On July 14, 2023, the company announced that it had validly tendered for exchange 73.55% of its 2024 senior unsecured notes and 94.7% of its 2026 senior unsecured notes. Azul exchanged the notes at par for the 11.5% notes due 2029 and 10.875% notes due 2030. The new notes have a higher coupon and will be secured on a second-lien basis, the collateral package will include receivables from the company's frequent flyer program (TudoAzul), the travel business (Azul Viagens), and its brand and intellectual property. S&P said, "We view this transaction as distressed rather than opportunistic since, absent this exchange, there was a realistic possibility of a conventional default on the 2024 notes or other short-term debt, because of the company's shrinking liquidity and challenging financial market conditions. Additionally, we consider that bondholders will receive less than originally promised, as maturities are extended and holdouts on the 2024 and 2026 notes will be structurally subordinated to the newly issued secured notes, and the latter will be subordinated to the new $800 million 2028 notes that Azul issued on July 13, which are secured on a first-lien basis. Bondholders received some compensation in the form of higher coupons and a partial prepayment on the new 2029 notes. "We believe the company has slashed its refinancing risk, as only about $100 million of the 2024 unsecured notes will remain outstanding and the overall maturity profile has improved with no material amortization until 2028. Additionally, the company has been able to raise considerable liquidity through the first priority notes. As such, we expect to raise our issuer credit rating on the company to 'B-' in the next few days." ESG credit indicators: E-3, S-5, G-2 BRAZIL: Records 0.08% Deflation, Lowest Price Variation for June ---------------------------------------------------------------- Richard Mann at Rio Times Online reports that in June 2023, Brazil experienced a 0.08% decrease in prices, largely attributed to the decline in food prices. The Broad National Consumer Price Index (IPCA), which tracks changes in the cost of a set of consumer goods and services, registered an accumulated increase of 2.87% for the year and 3.16% over 12 months, the report notes. This marks the lowest IPCA variation for June since 2017, according to the Brazilian Institute of Geography and Statistics (IBGE), the report relays. 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. In mid-June 2023, S&P Global Ratings, revised the outlook on its long-term global scale ratings on Brazil to positive from stable. S&P affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. S&P also affirmed its 'brAAA' national scale rating, and the outlook remains stable. The transfer and convertibility assessment remains 'BB+'. The positive outlook reflects signs of greater certainty about stable fiscal and monetary policy that could benefit Brazil's still-low GDP growth prospects. Continued GDP growth plus the emerging framework for fiscal policy could result in a smaller government debt burden than expected, which could support monetary flexibility and sustain the country's net external position. 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. Fitch, 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 2023 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. DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). JBS SA: Union Sues Over Alleged Exploitation of Chicken Workers --------------------------------------------------------------- Ana Mano at Reuters reports that a Brazilian labor union has accused JBS SA (JBSS3.SA) of submitting dozens of workers to "degrading conditions," according to a class action suit filed against the world's biggest meatpacker and its suppliers. The union filed the claim on behalf of at least 76 people, including members of the Terena Indigenous community, who were employed as third-party chicken catchers for JBS and worked in conditions "analogous to slavery," the suit alleges, according to Reuters. Their shifts lasted up to 14 hours including the journey to and from the hen houses, said union leader Sergio Bolzan in a telephone interview, the report notes. The work consisted of packing live chickens in boxes for transportation, some of which weighed as much as 24 kilograms (53 pounds), he added. JBS is a primary defendant and four outsourcing companies are co-defendants in the suit, documents show, the report relays. In a statement, the company said it had not yet been notified of the suit and would investigate the allegations, the report says. The suit claims workers did not get enough rest time, were not fully paid upon dismissal and did not get extra pay for performing hazardous work, the report discloses. JBS says it maintains "strict protocols and controls in its operations to ensure that all its suppliers comply with their legal obligations and the well-being of employees," the report relays. These obligations include providing adequate protective gear, safe working conditions and reliable means of transportation, the report notes. It also says it regularly conducts technical visits to supervise the work of catchers and to verify that everything is in order with suppliers, the report relays. Bolzan said evidence of alleged exploitation surfaced in April when he paid a surprise visit to where some catchers were being housed to document the conditions, the report says. The union submitted that evidence to a court in Sidrolandia, in the state of Mato Grosso do Sul, where Bolzan said JBS employs 5,000 people directly and indirectly, the report discloses. The union is seeking 400,000 reais ($82,000) in damages per worker and is pushing for prosecutors to formally join the suit as plaintiffs, documents show, the report says. Bolzan shared his concerns with labor prosecutors, who confirmed preliminary investigations into the matter, including whether catchers were employed "off the books," 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. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Guarantees Funds to JCE for Staging Elections ----------------------------------------------------------------- Dominican Today reports that in an interview on the Despierta program with CDN, Minister of Finance Jochi Vicente confirmed that the Government is committed to allocating the required resources to the Central Electoral Board (JCE) for the successful organization of the presidential, congressional, and municipal elections in 2024. Addressing concerns about funding, the Minister stated that the JCE had requested financial support from President Luis Abinader's administration, according to Dominican Today. He reassured the public that the government would fulfill this request to ensure a smooth and effective democratic process in the upcoming year, the report notes. Minister Jochi Vicente emphasized the Government's dedication to do everything possible and make necessary adjustments to meet the resource needs of the Central Electoral Board, the report relays. This commitment aims to prevent any issues that could potentially hinder the democratic process within the country, 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. S&P Global Ratings, in December 2022, raised its long-term foreign and local currency sovereign credit ratings on the Dominican Republic to 'BB' from 'BB-'. The outlook on the long-term ratings is stable. S&P affirmed its 'B' short-term sovereign credit ratings. S&P also revised its transfer and convertibility (T&C) assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's expectation of continued favorable GDP growth and policy continuity over the next 12-18 months that will likely stabilize the government's debt burden. In February 2023, S&P said its BB ratings reflect the country's fast-growing and resilient economy. It also incorporates the country's historical political and social challenges in passing structural reforms to contain fiscal deficits, despite recent improvements in the electricity sector. The ratings are constrained by relatively high debt, a hefty interest burden, and limited monetary policy flexibility. Fitch Ratings, in December 2022, affirmed the Dominican Republic's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Rating Outlook. Moody's affirmed the Dominican Republic's long-term issuer and senior unsecured ratings at Ba3 and maintained the stable outlook in March 2021. =============== H O N D U R A S =============== BANCO ATLANTIDA: Fitch Affirms 'B' IDR, Alters Outlook to Stable ---------------------------------------------------------------- Fitch Ratings has affirmed at 'B' the Long-Term (LT) and Short-Term (ST) Issuer Default Ratings (IDRs) for Banco Atlantida, S.A.'s (Atlantida). Fitch has affirmed Inversiones Atlantida, S.A. y Subsidiarias' (Invatlan) LT IDR at 'B-' and ST IDR at 'B'. Fitch has also affirmed Atlantida's Viability Rating (VR) at 'b' and its National LT and ST ratings at 'A+(hnd)' and 'F1(hnd)', respectively. The Rating Outlook on the LT IDRs and National LT rating was revised to Stable from Negative. Fitch also affirmed the debt ratings for Atlantida and Invatlan. The Outlook revision follows Atlantida's projected stabilization of its capital metrics given improvements in net income and a slowdown in growth. Despite the halt in the downward trend of its Fitch Core Capital (FCC) ratio, Fitch estimates that the metric will remain the bank's weakest link. KEY RATING DRIVERS IDRs and VR Atlantida's IDRs and National Ratings are driven by its intrinsic creditworthiness as reflected in its VR of 'b'. The bank's ratings are influenced by Fitch's assessment of the Honduran operating environment (OE), which is assessed at 'b-'. Fitch believes that Atlantida's business profile is a strength and a high influence factor on the rating due to its leading market position in Honduras in credit and deposits. The bank's asset quality slightly deteriorated in YE22 and March 2023 exposing the effects of rapid growth and high borrower concentrations. As of December 2022, the bank's non-performing loan ratio (NPL, 90+ days past due) receded to 2.8% from 2.5% in December 2021, and improved in March 2023 to 2.6% due to uncommon high net charge offs. The bank's four-year average growth loan ratio is 12.9%. The reserve coverage of the NPLs is trending downward but still above 100%; as of March 2023, the ratio was 114.8%, the lowest in the past four years. Asset quality is also affected by high debtor concentration. As of March 2023, the top 20 borrowers represented 2.7x Atlantida's FCC, which is a material risk exposure in case of unexpected impairments on its largest debtors. The bank's profitability core metric, operating profit to RWA ratio, improved in 2022 to 2.3% from 1.9% in 2021 (four-year average: 1.9%), driven by improvements in net interest income margin (NIM) and operational efficiency and controlled loan impairment charges. In the 1Q23, the ratio declined to 1.6% following the deterioration in asset quality, which increased the impairment charges, and the growth in non-interest expense. Fitch expects that profitability will remain around 2% in the future. As of March 2023, the bank's FCC ratio was 8.6%, which is lower than its local peers. During the past four years the ratio has trended downwards, but it appears to stabilize around 8.5%. According to Fitch's forecast, the ratio will remain above the 8% threshold for a downgrade, which drives the revision of the Outlook to Stable from Negative. Atlantida's recent underwriting of a subordinated debt increased the buffer on its regulatory capital ratio. Despite the pressures from rapid growth and consistent dividend payments, the bank's steady net income could support the capital metrics. Atlantida's funding and liquidity is consistently stable supported by its large and diversified customer deposit base that has proven to be resilient, although customer concentration is high (top 20 clients: 29.7% of total deposits). The bank remains the leading franchise in Honduras in terms of deposits, the strength of which was proven after an operational issue by late 2022 resulted in a significant deposit withdrawal that was rapidly recovered. As of March 2023, Atlantida's loans to customer deposits ratio declined to 97.1% from 87.7% in March 2022, affected by the operational event and the loan's higher growth rate in the past 18 months. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade IDRs, VR and National Ratings -- A negative change in Fitch's OE assessment or Fitch's view on the sovereign credit quality could lead to a negative rating action; -- Downgrades of Atlantida's IDRs, VR and National Ratings could also come from a continued weakened capitalization metrics reflected in a sustained FCC/RWAs below 8.0%. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade IDRs, VR and National Ratings -- A positive change in Fitch's OE assessment or Fitch's view on the sovereign credit quality could lead to a positive rating action; -- Atlantida's IDRs have limited upside potential as they are not expected to be rated two notches above the OE. National Ratings could be upgraded if the bank shows a sustained improvement in capital and profitability metrics, which would be materialized in a consistent FCC/RWA ratio comfortably standing above 9% and operating profitability/RWA consistently above 2%. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Atlantida's outstanding senior unsecured notes 'Bonos Bancatlan 2018' issued in the local capital market are rated at the same level as the bank's National Rating of 'A+(hnd)' as the likelihood of a default of the notes is the same as for the company. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES GOVERNMENT SUPPORT RATING Atlantida's GSR of 'b-' reflects the bank's high systemic importance, with over a 20% share of system deposits and loans, as well as the lack of recent history of government support of a systematically important financial institutions RATING SENSITIVITIES Negative The bank's National LT senior unsecured debt rating is sensitive to negative changes in Atlantida's National LT Rating. Fitch may also take a negative rating action on the GSR if the agency considers a lower propensity or capacity from the sovereign to support the bank. Positive A positive change in the GSR would reflect the Fitch's opinion of a higher propensity or capacity of support from the government. The bank's National LT senior unsecured debt rating is sensitive to positive changes in Atlantida's National LT Rating. SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS KEY RATING DRIVERS IDRs AND SENIOR DEBT Invatlan's IDRs of 'B-' reflect the creditworthiness of its main subsidiary, Atlantida (rated 'B'). Invatlan is rated one notch below Atlantida due to its high double leverage ratio that as of March 2023 was 150.1% (March 2022: 146%). Invatlan's Outlook mirrors Atlantida's Outlook as the main subsidiary of the controlling group. Invatlan has operations in Honduras, El Salvador, Nicaragua, Panama and Ecuador, and the group is continuously looking for opportunities to expand its business in the Latin American region, which Fitch expects will continue to pressure its double leverage ratio as recent investments are still under consolidation. Fitch also affirmed the USD300 million senior secured notes ratings at 'B-'/'RR4' as these mirror Invatlan's IDR. Despite being senior secured obligations, Fitch believes the collateral mechanism would not have a significant impact on recovery rates. In accordance with Fitch's rating criteria, recovery prospects for the notes are average and are reflected in their Recovery Rating of 'RR4'. SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES RATING SENSITIVITIES IDRs AND SENIOR DEBT Negative -- Invatlan's ratings will likely move in line with those of its main subsidiary, Atlantida; -- A significant reduction in dividends transfers from Invatlan's main subsidiaries that ultimately affect its liquidity to service debt or a sustained increase of double leverage to above 225%; -- The global senior secured debt ratings would mirror any change to Invatlan's IDR. Positive -- Invatlan's IDRs could be upgraded by one notch if the company's double-leverage ratio decreases at a level consistently below 120% resulting from a continued expansion financed by capital injections; -- The global senior secured debt ratings would mirror any change to Invatlan's IDRs. VR ADJUSTMENTS The VR of 'b' has been assigned above the implied rating of 'b-' due to the high influence of Atlantida's business profile driven by the bank's leading local franchise. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. SUMMARY OF FINANCIAL ADJUSTMENTS Pre-paid expenses were reclassified as intangible and deducted from total equity to reflect its low absorption capacity. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Invatlan's IDRs are linked to Banco Atlantida's IDRs. ESG CONSIDERATIONS Banco Atlantida S.A. has an ESG Relevance Score of '4' for Financial Transparency due to third-party disclosure that remains weaker than international best practices. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Inversiones Atlantida S.A. has an ESG Relevance Score of '4' for Financial Transparency due to lagging or missing information disclosure. This has a negative impact on the credit profile, and is relevant to the ratings 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. =========== M E X I C O =========== PETROLEOS MEXICANOS: Fitch Cuts IDRs to 'B+', On Rating Watch Neg. ------------------------------------------------------------------ Fitch Ratings has downgraded Petroleos Mexicanos' (Pemex) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B+' from 'BB-'. Fitch has also placed the ratings on Rating Watch Negative (RWN). Fitch has also downgraded approximately USD80 billion of Pemex's international notes outstanding to 'B+'/'RR4' from 'BB-'. The downgrades reflect Pemex's continued weak operating performance, which has resulted in Fitch lowering several of the company's ESG Relevance Scores to '5' and is expected to further limit it sources of financing from banks, investors, and suppliers. The lowering of these Relevance Scores reflects the environmental and social impact associated with multiple accidents at Pemex's operating facilities since February 2023, which resulted in casualties and injuries to its employees and damages to critical infrastructure and assets. The RWN reflects concern about the Mexican government's ability and willingness to materially improve the company's liquidity position and capital structure in the next two years without concessions from creditors. Pemex faces international debt bond maturities of USD4.6 billion in 2023 and USD10.9 billion in 2024. The refinancing of this debt will expose the company to higher interest expense that would further stress its cash flow. An inability to refinance the capital markets debt with similar or other long-term financial instruments would exacerbate its liquidity risk by the end of 2024. Resolution of these issues driving the RWN could extend beyond six months. If Fitch were to lower its assessment score of the financial or social implications of a default to Weak from Moderate as outlined in Fitch Government-Related Entities (GRE) Rating Criteria, a multiple-notch downgrade would likely occur as Fitch would rate the company using a bottom-up rating approach. Fitch rates Pemex's standalone credit profile 'ccc-', which would result in a maximum rating of 'b-' using the bottom-up approach. KEY RATING DRIVERS Weakening Linkage to Sovereign Rating: Pemex's ratings are four notches below the sovereign. Fitch has applied a variation to its GRE criteria in order to assign a rating with a four-notch differential. The variation is explained by Fitch's view that Pemex is in financial distress, and its ESG track record further impairs its ability to raise capital. The company reported USD107 billion of debt as of 1Q23, USD73 billion in PPE, and negative equity book value of USD95 billion. Supporting Pemex to the extent that is needed given the high level of debt and the amount of investment needed to improve its capital structure and operating assets will be increasingly material to the government's finances. Operational Track Record: Fitch believes the multiple fires at critical assets and infrastructure that resulted in numerous injuries and fatalities to its employees reflect concerns pertaining to the management of its operations and/or the lack of maintenance capital expenditures in its core assets and infrastructure. High debt service and the need for the government to finance negative cash flows have been key reasons for under investment. Significant Funding Needs: Pemex needs material support from its shareholder and possibly its creditors to navigate through its debt maturities over the rated horizon. As of 1Q23, Pemex reported USD25 billion of short-term debt, of which USD4.6 billion are in international bonds due in 2023 and USD10.9 billion in 2024. The company is highly reliant on international capital markets to refinance its existing debt, as 85% of its total debt is in hard currency. In the event Pemex continues rolling its financial maturities into short-term debt, Fitch estimates the company will conclude 2024 with nearly 35% of its total debt being short-term. In addition, the cost of refinancing assuming its current long-term spreads in the market range between 8%-12% translates in interest expenses could reach nearly USD13 billion by 2025, compared to USD8.2 billion in 2022. Growing Government Liability: Over the rated horizon, Fitch estimates that Pemex will be an increasing liability for the government. Contrary to previous years, where the government take exceeded Pemex's cash support needs, Fitch estimates under Fitch rating case that the government will have to spend roughly USD20 billion more than it receives from the company in 2026 and 2027, to keep Pemex afloat. This rating case assumes accumulated government take to be roughly USD60 billion between 2023 through 2027 compared to USD80 billion in negative cash flows. The diminishing cash outflow is the result of higher interest cost that will lower cash available for government take and capex; the rating case assumes the company will need to spend at least USD10 billion per annum in capex, which is a conservatively low estimate. ESG- GHG Emissions & Air Quality; ESG - Waste & Hazardous Materials Management and Ecological Impacts: Pemex has experienced multiple fires at its operating facilities and infrastructure that are expected to have residual impacts on the local communities and environment. Fitch is concerned that the management of its operations and/or the lack of maintenance capital expenditures in its core assets and infrastructure will further challenge its financial profile. This was a key consideration in the downgrade of the rating and reflected in the RWN, as Pemex's ESG track record can further impair its ability to raise capital. ESG - Employee Wellbeing: The multiple fires that have occurred in 2023 have resulted in numerous injuries and fatalities of its employees. Fitch is concerned regarding the management of its operations, and regulatory oversight to ensure Pemex and other operators in the country are meeting industry standards pertaining to safety and employee wellbeing. ESG - Management Strategy: The confluence of the company's ESG track record and its financial distress further complicates management's ability to execute on its strategy, which is exacerbated by the company's challenging debt maturity profile and limited accessibility of capital. DERIVATION SUMMARY Pemex's linkage to the sovereign compares unfavorably with peers Petroleos Brasileiro S.A. (Petrobras; BB-/Negative), Ecopetrol S.A. (BB+/Stable), Empresa Nacional del Petroleo (ENAP; A-/Stable) and Petroleos del Peru - Petroperu S.A. (BBB-/Negative Watch). All of Pemex's regional peers have strong linkages to their sovereigns due to strong government support. Fitch believes governments in the region, except for Mexico, implemented different measures to ensure the SCPs of their respective national oil and gas companies remain viable in the long term. Fitch views Pemex's SCP as commensurate with a 'ccc-', which is 10 notches below Petrobras' and Ecopetrol's SCPs of 'bbb'. The differences are primarily due to Pemex's weaker capital structure and increasing debt and leverage trajectory. Pemex's SCP reflects the company's large transfers to Mexico's federal government, large and increasing financial debt balance when compared with 1P reserves and elevated EBITDA-adjusted leverage. Comparatively, Ecopetrol and Petrobras significantly strengthened their capital structures and maintained stable operating profiles. KEY ASSUMPTIONS Fitch's Key Assumptions Within the Rating Case for the Issuer: -- Average West Texas Intermediate crude prices of USD75/bbl in 2023, USD70/bbl in 2024, USD65bbl in 2025, USD60bbl in 2026, and USD57bbl for the mid-cycle. -- Henry Hub prices of USD3.0/mcf in 2023, USD3.5/mcf in 2024, USD3.0mcf in 2025, USD2.75mcf in 2026 and thereafter; -- Oil Production stays flat at 1.8mmboed; -- Annual capex average of USD10 billion per annum; -- Government take to average 65% of EBITDA per annum; -- All short-term debt and debt maturities are refinanced at 11%; -- PEMEX will receive necessary support from the government to ensure adequate liquidity and debt service payments; -- Refined product volumes growth moves aligned with Fitch's Real GDP growth forecasts of 2.4% in 2023, 1.8% in 2024, and 2.0% thereafter. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- An upgrade of Mexico's sovereign ratings; -- An irrevocable guarantee from Mexico's government to sustainably cover more than 75% of Pemex's debt; -- A material capitalization, coupled with a material reduction of taxes, with a business plan that results in neutral to positive FCF through the cycle, while implementing sustainable upstream capex that is sufficient to replace 100% of reserves and stabilize production profitably. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade of Mexico's sovereign rating; -- Weakened ability and/or willingness of the government to meaningfully support Pemex; -- Weakened social and political implications or desire to support Pemex; -- Inaccessibility of financing and/or material increase in interest expense, stressing FFO to negative; -- Cash balance falling below USD3.0 billion on sustained basis. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Stressed Liquidity: Pemex's liquidity position remains weak as a result of negative FCF, which resulted in a relatively low cash position and reduced availability of its lines of credit. Pemex reported total cash and equivalents of around USD3.3 billion as of 1Q23. The company reported USD107 billion of total debt with USD25 billion in short-term debt. The company has USD4.6 billion in bonds due in 2023 and USD10.9 billion in 2024. ISSUER PROFILE Pemex, Mexico's state oil and gas company, is the nation's largest company and ranks among the world's largest vertically integrated petroleum enterprises. Criteria Variation Fitch has applied a criteria variation to the GRE criteria. Fitch has adopted a more conservative notching approach for Pemex beyond the top-down minus 3 approach suggested by the Notching Guidelines. Fitch believes that Pemex is in financial distress and that there is a lack of a willingness (but not ability) by the government to support Pemex to the extent that is fully needed. Pemex's rating is four notches below the sovereign rating at 'B+', a top-down-minus 4 approach. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS Fitch has revised Pemex's ESG Relevance Score for GHG Emissions & Air Quality to '5' from '4' and Waste & Hazardous Materials Management and Ecological Impacts to '5' from '3' due to the numerous fires at its operating facilities that are expected to increase its carbon footprint and risks to polluting the environment and its impact on local communities. This has a negative impact on the credit profile and is highly relevant to the downgrade of Pemex's rating. Fitch has revised Pemex's Employee Wellbeing ESG Relevance Score to '5' from '2' due to the multiple fires that have occurred in 2023 that have resulted in numerous reported injuries and fatalities of its employees. Fitch is concerned regarding the management of its operations, and the regulatory oversight to ensure Pemex and other operators in the country are meeting industry standards pertaining to safety and employee wellbeing. This has a negative impact on the credit profile and is highly relevant to the downgrade of Pemex's rating. Fitch has revised Pemex's Management Strategy ESG Relevance Score to '5' from '3' due to the confluence of the company's ESG track record and its financial distress, which is expected to further complicate management's ability to execute on its strategy. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors. Pemex has an ESG Relevance Score of '4' for Governance Structure, resulting from its nature as a majority government-owned entity and the inherent governance risk that arises with a dominant state shareholder, which has a negative impact on the credit profile and is relevant to the ratings 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. ===================== P U E R T O R I C O ===================== CHALLENGER BRASS: Seeks to Hire Batista Law Group as Counsel ------------------------------------------------------------ Challenger Brass & Copper Co Inc. seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to hire Batista Law Group, P.S.C. to handle its Chapter 11 case. The hourly rates of the firm's attorneys and staff are as follows: Jesus E. Batista Sanchez, Esq. $300 Associates $250 Paralegals $110 Jesus Batista Sanchez, Esq., principal at The Batista Law Group, disclosed in a court filing that his firm is a "disinterested person" pursuant to Section 101(14) of the Bankruptcy Code. The firm can be reached through: Jesus Enrique Batista Sanchez, Esq. The Batista Law Group, P.S.C. 239 Ave Arterial Hostos Ste 206 San Juan PR 00918-1475 Tel: (787) 620-2856 Email: jeb@batistasanchez.com About Challenger Brass & Copper Co Inc. Challenger Brass & Copper Co Inc. is engaged in the manufacturing and commercialization of copper, brass, bronze, stainless steels, and aluminum. The company is based in Toa Baja, P.R. Challenger Brass & Copper filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 23-01917) on June 23, 2023. The petition was signed by Abimael Padilla Negron as authorized representative of the Debtor. At the time of filing, the Debtor reported $1,031,500 in assets and $2,540,722 in liabilities. Judge Edward A. Godoy presides over the case. Jesus Enrique Batista Sanchez, Esq. at The Batista Law Group, PSC represents the Debtor as counsel. ESJ TOWERS: Disclosure Statement Hearing Reset to Aug. 22 --------------------------------------------------------- Judge Enrique S. Lamoutte has entered an order granting the motion filed by ESJ Towers Condominium Homeowners Association for an extension of time of 34 days to file its objection to the Disclosure Statement of ESJ Towers Inc. d/b/a Mare St. Clair Hotel is granted. Judge Enrique S. Lamoutte granted ESJ Towers's motion for a continuance of the hearing scheduled for July 20, 2023. The hearing on approval of the Disclosure Statement is rescheduled to August 22, 2023 at 10:00 AM at the U.S. Bankruptcy Court, Jose V. Toledo Post Office & Courthouse Bldg., Courtroom 2, Floor 2, 300 Recinto Sur, Old San Juan, Puerto Rico. About ESJ Towers ESJ Towers, Inc. owns the ESJ Towers in Carolina, P.R. The luxury apartments and condo units at ESJ Towers have direct access to Isla Verde Beach, widely considered one of the best in Puerto Rico. ESJ sought protection under Chapter 11 of the U.S. Bankruptcy Code (Bankr. D.P.R. Case No. 22-01676) on June 10, 2022, with as much as 50 million in both assets and liabilities. ESJ President Keith St. Clair signed the petition. Judge Enrique S. Lamoutte Inclan oversees the case. The Debtor tapped Charles A. Cuprill, Esq., at Charles A. Cuprill, PSC Law Offices as bankruptcy counsel; Ramon Luis Nieves, Esq., at RL Legal Consulting Services, LLC and Luis Daniel Muniz, Esq., as special counsels; Dage Consulting CPAS, PSC as financial advisor; CPA Luis R. Carrasquillo & Co., P.S.C. as financial consultant; and De Angel & Compania, PA, LLC as auditor. The U.S. Trustee for Region 21 appointed an official committee of unsecured creditors on Sept. 12, 2022. MRO Attorneys at Law, LLC and Dage Consulting CPAS, PSC serve as the committee's legal counsel and financial advisor, respectively. ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: Illicit Trade Continues to Challenge Businesses ------------------------------------------------------------------ Trinidad and Tobago Newsday reports that businesses are challenged by a wide range of illegal activities such as smuggling, counterfeiting, piracy, tax evasion, organised crime and human and drug trafficking. This according to the Trinidad and Tobago Manufacturers Association (TTMA). In a release, the association said TT continues to be used strategically by organised crime networks to facilitate the smuggling of commodities destined for external markets, according to Trinidad and Tobago Newsday. The effects of illicit trade are numerous, including loss of revenue to the government, the provision of sub-standard goods, and the erosion of legitimate businesses, the report notes. TTMA said over a two-year period, $6.4 million in cigarette sticks; 3,264 extension cords; 1,432 power strips; 1,390 LED lights; 363 Christmas lights; 790 assorted electrical appliances; 1,983 phone adapters and 837 glue guns were seized, the report relays. Additionally, law enforcement authorities sized 5,937 pharmaceuticals which were to be sold only in pharmacies but found on the shelves of retailers, the report says. TTMA said from a business standpoint, this is quite concerning as illicit networks evade law enforcement, infiltrate the system, put citizens at risk due to unregulated products, contribute to crime and deprive the government from tax collection, the report notes. Tax evasion continues to be a major component of illicit trade, primarily affecting the tobacco and alcohol industries, the report relays. Given the taxes associated with these high-value commodities, underground economies thrive on depriving the government of the revenue intended to be generated on its import or export, the report notes. Tax evasion also disrupts the playing field for legitimate manufacturers, distributors and businesses, as illicit traders erode their competitiveness by underpricing competing products, the release said, the report discloses. TTMA said it recognises the adversities associated with illicit trade and supports the initiatives geared towards eradicating these activities, the report notes. In 2018, the organisation formed the Illicit Trade Desk as part of its thrust to increase awareness and reduce instances of illicit trade activities in TT, the report adds. ********* 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 * * *