/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/231010.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, October 10, 2023, Vol. 24, No. 203 Headlines B R A Z I L BRAZIL: Industrial Output Rises Less than Expected in August C A Y M A N I S L A N D S EDO SUKUK: Fitch Hikes Rating on Senior Unsecured Notes to 'BB+' C H I L E CHILE: Looks to China to Upgrade Its Economy Beyond Commodities CODELCO: CFO Resigns Amid Growing Debt Concerns D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Climate Change Impacts Coffee Production J A M A I C A [*] JAMAICA: World Bank Upgrades Growth Outlook M E X I C O BANCO AZTECA: Fitch Affirms 'BB/B' LongTerm IDRs, Outlook Stable BANCO COMPARTAMOS: Fitch Affirms 'BB+/B' LongTerm IDRs P U E R T O R I C O ESJ TOWERS: Committee Seeks to Hire Bankruptcy Counsel - - - - - =========== B R A Z I L =========== BRAZIL: Industrial Output Rises Less than Expected in August ------------------------------------------------------------ globalinsolvency.com, citing Reuters, reports that industrial production in Brazil rose slightly less than expected in August, data from government statistics agency IBGE showed, as the sector struggles to gather speed amid high interest rates. Output was up 0.4% in August from July, IBGE said, recovering part of the losses seen a month earlier but below forecasts as the median estimate in a Reuters poll projected an increase of 0.5%, according to globalinsolvency.com. Industry has been stuttering in Brazil this year, alternating between gains and losses as restrictive monetary policy to tame high inflation hurts consumption and investment decisions, IBGE's research manager Andre Macedo said, the report notes. The August increase was driven by capital and consumer goods production, but a drop in intermediate goods output partially offset those gains, according to the statistics agency, the report relays. Industrial production in August, IBGE added, rose 0.5% from a year earlier, while market expectations stood at a 0.8% rise, the report says. The smaller-than-expected increases suggest that the sector was a drag on economic growth in the third quarter, Capital Economics' Chief Emerging Markets Economist William Jackson said in a note to clients, the report adds. About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He was sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-', with a Stable Outlook. The upgrade reflects better-than-expected macroeconomic and fiscal performance amid successive shocks in recent years, proactive policies and reforms that have supported this, and Fitch's expectation that the new government will work toward further improvements. 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. DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term Foreign and Local Currency - Issuer Ratings to BB from BB (low). At the same time, DBRS Morningstar confirmed Brazil's Short-term Foreign and Local Currency - Issuer Ratings at R-4. The trend on all ratings is Stable (March 2018). =========================== C A Y M A N I S L A N D S =========================== EDO SUKUK: Fitch Hikes Rating on Senior Unsecured Notes to 'BB+' ---------------------------------------------------------------- Fitch Ratings has upgraded Energy Development Oman's (EDO) Long-Term Issuer Default Rating (IDR) and senior unsecured rating to 'BB+' from 'BB'. The Recovery Rating on the senior unsecured rating is 'RR4'. The Outlook on the IDR is Stable. Fitch has also upgraded the rating on the Sukuk programme issued by EDO Sukuk Limited to 'BB+' from 'BB' with a Recovery Rating of 'RR4'. The upgrades reflect the upgrade of Oman to 'BB+'/Stable on September 25, 2023. EDO's Long-Term IDR is constrained by the rating of its sole shareholder, the government of Oman given their close links, in line with Fitch's Government-Related Entities (GRE) and Parent and Subsidiary Linkage (PSL) Rating Criteria. EDO's 'bbb+' Standalone Credit Profile (SCP) is based on its record of maintaining a prudent financial profile and successfully maintaining the size and scale of reserves and production within the current fiscal framework. The SCP is supported by EDO's large-scale oil and gas operations, strong and resilient cash-flow generation due to contracted sales prices for gas and a flexible royalty framework, flexible dividend policy, and low leverage. The SCP is constrained by a single country of operations compared to peers with international footprints, a purely upstream-focused business model, and a relatively mature reserve base with low proved reserve life compared to peers. The senior unsecured rating of 'BB+' with a Recovery Rating of 'RR4' reflects its generic recovery assumptions for issuers rated 'BB-' or above and average recovery prospects given a fully senior unsecured capital structure. KEY RATING DRIVERS Sovereign Constrains Rating: EDO's rating is constrained by that of Oman. Under its GRE Rating Criteria, Fitch assesses the support track record and socio-political implications of default as ' Strong' and status, ownership and control as well as financial implications of default as 'Very Strong'. This assessment results in a support score of 45 out of a maximum of 60. The IDR is constrained by the parent's, as strong linkages between EDO and Oman underline EDO's importance to its owner. Ownership and Support Factors: The 'Very Strong' status, ownership and control reflects EDO's full ownership by the state with no near-term privatisation plans. The company is directed by a board of directors nominated by the government. The government provided a shareholder bridge facility in 2022, which alleviated the dividend burden on EDO's cash flows and allowed the company to defer accessing debt capital markets. Fitch expects the government to continue providing support when necessary, given EDO's pivotal role within Oman's infrastructure and economy. This leads to a 'Strong' assessment of the support track record. Strategic Importance of Sector: The oil and gas sector represents a significant part of the Omani economy, with EDO's Block 6 concessions accounting for a large portion of the nation's total oil and gas reserves. Furthermore, EDO is one of the largest corporate employers in Oman. Fitch therefore views socio-political implications of default as 'Strong'. Financial Implications Factor: EDO currently has limited capital market presence. Its default would significantly impair the financial standing of the sovereign and the ability of either the government or other GREs within the country to raise financing. This underlines its 'Very Strong' assessment of financial implications of default. Scale Offsets Limited Diversification: Through its interest in Petroleum Development Oman (PDO), EDO is the largest oil and gas producer in Oman. PDO operates the onshore Block 6 oil and gas concessions, which comprise over 24% of Oman's land acreage and have more than 50 years of production history. This somewhat mitigates EDO's focus on a single country of operations. Fitch expects an average output of around 760kboe/d until 2026 in its rating case forecast. Flexible Payouts Under Fiscal Framework: EDO has been subject to a unique fiscal framework since 2021. The fiscal terms include royalties paid to the government weekly based on EDO's monthly revenue from the sale of oil and condensate and taxes paid on income derived from its oil and gas operations. Royalties paid are significant under its price deck, but they are determined by prevailing oil prices in a non-linear fashion, supporting stable cash flows under a wide range of price scenarios. EDO's tax burden is also significant. However, Fitch views the overall fiscal framework as generally in line with global standards, where national oil and gas companies are subject to generous pay outs to the government, albeit with provisions to ease the burden on cash flows when market conditions are weak. Strong Financial Profile: Fitch forecasts EDO will maintain a strong financial profile until 2026 under the agency's oil and gas price deck, despite growing capex and high royalties and tax payments to the government. Dividends are paid from excess cash flow after all debt service obligations and working capital requirements have been met, as well as considering minimum cash levels, which allows cash-flow flexibility. Fitch expects EDO's EBITDA net leverage and funds from operations (FFO) net leverage to average below 1x and 1.5x, respectively, in 2023-2026, which includes an assumption of regular debt issuances to fund capex as well as continuing dividend payments. EDO plans to maintain company-defined net debt to FFO below 2.2x. This was set by the board and is covenanted in the company's USD2.5 billion loan facility. Favourable Unit Economics: In 2022, EDO's total production costs before royalties was around USD5/boe of direct production costs and around USD11/boe of capex, putting it at the lower end of the global cost curve. Adding generous royalties, which Fitch estimates at around USD15-20/boe, significantly increases total production costs. This is somewhat mitigated by EDO's still strong financial profile, EDO's and the government interests being largely aligned, and the progressive nature of taxation on oil prices. Improving ESG Footprint: EDO continues to reduce greenhouse gas emissions from operations and flaring as well as improving energy efficiency. PDO also plans to expand its renewable power generation capacity to 30% of total capacity in the medium term. Fitch views EDO's and PDO's environmental targets as broadly in line with Middle Eastern peers, but lagging those of their large European peers such as TotalEnergies SE (AA-/Stable), BP plc (A/Positive) or Eni SpA (A-/Stable). DERIVATION SUMMARY EDO's closest peers in EMEA oil and gas are Saudi Arabian Oil Company (Saudi Aramco, A+/Stable), QatarEnergy (AA-/Positive), and OQ SAOC (BB+/Stable). EDO has a stronger SCP than its Omani peer OQ (bbb-), as OQ has somewhat higher gross leverage metrics, lower through-the-cycle EBITDA and cash flows, and smaller scale, partially offset by higher diversification and a much lower dividend burden. OQ's GRE support score is five points lower than EDO's due to plans to privatise some subsidiaries, which results in a 'Strong' assessment for status, ownership and control. Nevertheless, strong linkages between OQ and its ultimate parent, the government of Oman, result in its rating being constrained by the sovereign. Fitch assesses all three companies under its GRE Rating Criteria. Their IDRs are constrained by their respective sovereign ratings. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Brent crude oil prices in 2023-2026 in line with Fitch's base case price deck - Gas production sold at current fixed prices to 2026 - Upstream production volumes averaging around 770kboe/d in 2023-2026 - Capex averaging USD3,800 million per year in 2023-2026 - Dividends in line with the company's financial policy RATING SENSITIVITIES EDO: Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Positive rating action on Oman would be mirrored on EDO's rating - The SCP is capped by limitations of the company's business profile. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Negative rating action on Oman would be mirrored on EDO's rating - Weakening linkages between Oman and EDO (which Fitch believes is unlikely), coupled with significant deterioration of the latter's SCP - FFO gross leverage and/or EBITDA net leverage rising above 1.5x on a sustained basis due to, for example, sustained negative free cash flow (FCF) driven by high capex or large acquisitions, which may be negative for the SCP but not necessarily for the IDR Oman (as of 25 September 2023): Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Public Finances: An upward trend in government debt/GDP; for example, stemming from a loosening of the fiscal stance, a materialisation of large contingent liabilities or lower-than-expected oil prices. - External Finances: Deterioration of Oman's external balance sheet; for example, in the form of a decline in central bank reserves and OIA assets. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Public Finances: A strengthening in the government's balance sheet; for example, through the introduction of new fiscal consolidation measures or a sustained period of high oil revenue. - External Finances: A continued decline in net external debt/GDP, reflecting lower SOE external debt or an accumulation of foreign assets. - Macro: Growth of the non-oil economy that notably improves non-oil fiscal revenues and reducing social spending pressures on the government. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: As of end-2022, EDO had cash and cash equivalents of USD228 million. Together with the USD390 million undrawn revolving credit facilities obtained in early 2023, EDO has sufficient liquidity to cover two-year debt maturities of USD428 million. Fitch expects EDO to maintain a robust liquidity profile considering its strong pre-dividend FCF, proven access to international debt markets and strong linkage with the sovereign. Fitch expects EDO's flexible dividend policy will allow liquidity preservation during periods of restricted capital-market access or lower prices. The company has a stated minimum cash target of around USD220 million plus additional cash reserve for 25% of next year's debt service obligations, which is taken into account when determining cash flow available for dividends. ISSUER PROFILE EDO is Oman's national energy company and owns participating interest in two concessions, accounting for approximately 65% of Oman's oil and gas production. Its production totalled 859kboe/d in 2022. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS EDO's ratings are equalised with those of Oman. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Energy Development Oman SAOC LT IDR BB+ Upgrade BB senior unsecured LT BB+ Upgrade RR4 BB EDO Sukuk Limited senior unsecured LT BB+ Upgrade RR4 BB ========= C H I L E ========= CHILE: Looks to China to Upgrade Its Economy Beyond Commodities --------------------------------------------------------------- globalinsolvency.com, citing Bloomberg News, reports that Chilean President Gabriel Boric embarks on his first trip to China with an ambitious agenda that seeks deals to make the country's economy more efficient and help it develop beyond its traditional commodities exporter role. "We want to move toward a new stage that includes investments in the country that help us improve productivity," Chile International Economic Relations Undersecretary Claudia Sanhueza said in an interview ahead of Boric's first trip to the Asian country, according to globalinsolvency.com. Officials from both nations have been working on agreements in areas including technology, innovation and education and will sign about a dozen accords during the trip, Sanhueza said while declining to provide further details, the report notes. While Chile's trade with China surpassed $65 billion last year, most of its exports are dominated by copper and much of it is shipped in the form of concentrates to be refined by Chinese smelters, the report relays. Boric's government is looking to revive a stalled economy, building up industries that add value to its copper, lithium and fruit exports, after a three-decade run that saw Chile becoming one of Latin America's richest countries faded out, the report notes. It is an ambitious policy goal, with Chile typically expanding the range of raw materials it exports, or adding small amounts of value, rather than moving onto more industrial goods, the report discloses. Total factor productivity, a measure of output per unit of input including labor, capital or other resources, has fallen since 2012 as the gains of the 1990s and 2000s petered out, the report adds. CODELCO: CFO Resigns Amid Growing Debt Concerns ----------------------------------------------- Julian Luk and Fabian Cambero at Reuters report that Chile's state miner Corporacion Nacional del Cobre de Chile's (CODELCO) disclosed that Chief Financial Officer Alejandro Rivera has resigned effective Nov. 3 amid a credit rating downgrade and growing debt. Rivera's resignation comes just months after the surprise June resignation of Codelco's CEO, according to Reuters. Chile's Centre for Copper and Mining Studies (CESCO) said in a report seen by Reuters that Codelco is at risk of insolvency due to rising costs and a growing debt pile, the report notes. A downgrade from Moody's Investor Services on Codelco's credit rating came, which could lead to further increases in financing costs, the report relays. Codelco did not name a successor in its statement and said Rivera had resigned to pursue "other professional challenges," the report notes. "Rivera participated in the implementation of Codelco's role in the country's national lithium strategy, working directly with the efforts being made both in Atacama and Maricunga," the company said, the report says. Codelco has been tasked with leading an increase in state control over the vast lithium industry in Chile, the world's second largest producer of the metal, targeting to reach an agreement with SQM by the end of this year, the report discloses. An industrial engineer with over eight years at Codelco, Rivera previously held executive roles at London-listed miner Antofagasta, the report relays. The departure of Codelco's CFO was announced internally earlier, a source with direct knowledge of the matter said, adding that it had further undermined staff morale after recent layoffs to cut costs, the source said, the report adds. In August, Codelco named Ruben Alvarado as CEO after the resignation of predecessor Andre Sougarret - a respected engineer who gained prominence leading the rescue of 33 trapped miners in 2010 - citing personal reasons and "complexities" in running the company. As reported in the Troubled Company Reporter-Latin America in October 2017, Moody's Investors Service affirmed Corporacion Nacional del Cobre de Chile's (CODELCO) A3 long-term senior unsecured ratings and changed the outlook to stable from negative. At the same time, Moody's raised CODELCO's baseline credit assessment (BCA) to ba1 from ba2. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Climate Change Impacts Coffee Production ------------------------------------------------------------ Dominican Today reports that 44 years ago, Hurricane David wreaked havoc on the Dominican Republic, with wind speeds exceeding 240 kilometers per hour and causing losses of over US$1 billion across various sectors, particularly agriculture. Nearly two decades later, in 1998, Hurricane George caused damages of over RD$1 billion in the agricultural sector alone, according to Dominican Today. One of the significant casualties of these devastating storms was the coffee industry, the report notes. Hurricane David and Hurricane George inflicted severe damage on the coffee sector, particularly in the area of Cambita Garabitos, located in the San Cristóbal province, the report relays. This region had been a vital coffee production area, but the economic conditions of the producers and the impact of these meteorological events led to a shift away from coffee cultivation, with a focus on avocados instead, the report says. Cambita Garabitos, recognized by the Ministry of Agriculture as the leading avocado producer, had previously been known for its coffee production, the report discloses. However, the effects of climate change have forced coffee plantations to higher elevations, the report says. In the Dominican Republic, coffee is now primarily grown at altitudes of at least 800 meters above sea level, the report notes. Manuel Pozo Perello, the president of Industrias Banilejas (Induban), explained that coffee cultivation at lower elevations, around 500 meters, requires substantial investment in water and fertilizers but remains unprofitable, the report says. Therefore, coffee producers have shifted their efforts to higher altitudes where the conditions are more suitable, the report relays. This shift in coffee cultivation due to climate change is not unique to the Dominican Republic. Countries like Colombia have also experienced similar challenges, the report discloses. Some producers in these countries are now cultivating coffee at exceptionally high altitudes, even up to 2,500 meters above sea level, the report notes. Induban has adjusted to these changing conditions by operating coffee farms at elevations of up to 1,600 meters, with different varieties of coffee seeds suited to specific altitudes, the report relays. In terms of coffee production, the harvest for 2021-2022 was reported to be 243,978 quintals, but this year, it is projected to reach 172,000 quintals, the report says. In Cambita Garabitos alone, which is part of the southeast regional management of the Dominican Coffee Council (Codocafe – OFEC Cambita), there were once 33,047 tasks cultivated by 817 producers, including Mana (Yaguate) and La Celestina, the report notes. Within the municipality, there were 21,249 tasks cultivated by 579 registered producers across seven areas, each with its Coffee Development Agent (ADC), the report discloses. Financial support for coffee producers is coordinated by the Dominican Coffee Council (Codocafe) in partnership with the Agricultural Bank of the Dominican Republic, 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 Today related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. Moody's Investors Service, on Aug. 10, 2023, changed the outlook on the Government of Dominican Republic's ratings to positive from stable and affirmed the local and foreign-currency long-term issuer and senior unsecured ratings at Ba3. Moody's said the key drivers for the outlook change to positive are: (i) sustained high growth rates have enhanced the scale and wealth levels of the economy; and (ii) a material decline in the government debt burden coupled with improved fiscal policy effectiveness will support medium-term debt sustainability. The affirmation of the Ba3 ratings balances the Dominican Republic's strong economic growth dynamics and relatively contained susceptibility to event risks, with a comparatively weaker fiscal position, reflecting long-standing credit challenges which include: (i) a shallow revenue base compared to peers, (ii) weak debt affordability metrics, and (iii) high exposure to foreign currency borrowing. 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. In September 2023, S&P assigned its 'BB' issue rating to the Dominican Republic's 11.25% Dominican peso (DOP) linked bond for DOP71 billion (equivalent to US$1.25 billion) maturing in 2035. The rating on the bond is the same as the long-term local currency sovereign credit rating on the Dominican Republic (BB/Stable/B). The country used about 57% of the DOP-linked bond to roll over a peso-denominated bond maturing in 2026, and will use the rest of the proceeds for general budgetary purposes. 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. ============= J A M A I C A ============= [*] JAMAICA: World Bank Upgrades Growth Outlook ----------------------------------------------- RJR News reports that the World Bank has upgraded its growth outlook for Jamaica. In its latest economic report, the country is expected to see gross domestic product (GDP) increase by 2.3 per cent this year, according to RJR News. The last outlook delivered in June projected economic growth of two per cent, the report notes. GDP for 2024 has also been upgraded to two per cent, while the 2025 forecast is 1.4 per cent growth, the report relays. Meanwhile, growth for the Caribbean and Latin America has been moved upward by 0.5 per cent for this year, the report discloses. In a press briefing, Chief Economist for Latin America and the Caribbean at the World Bank, William Maloney, said while the outlook has improved slightly, four key factors are affecting the region's output, the report says. "There is growth in the advanced countries in the G7. That's forecasted to stay pretty low going forward in the next two years. We have Chinese growth, which has become more important to our region, largely because of our natural resource exports. That's a little bit better than we were expecting previously, but on the other hand, it's not taking off and there's a lot of uncertainty around that," the report relays. In addition, he said the interest rates in advanced countries remain high, the report notes. "Despite success in fighting inflation there, the message we're getting from the Fed Watcher and the like, is that we're likely to have high interest rates for the near future. And then finally, commodity prices while not low by historical standards are not as high as they were a year or two ago. All those things conspire to give us our forecast for this year of about 2% and for next year, 2.3%, and the year after 2.6%," Mr. Maloney said, the report adds. About Jamaica Jamaica is an island country situated in the Caribbean Sea. Jamaica is an upper-middle income country with an economy heavily dependent on tourism. Other major sectors of the Jamaican economy include agriculture, mining, manufacturing, petroleum refining, financial and insurance services. S&P Global Ratings raised on September 13, 2023, its long-term foreign and local currency sovereign credit ratings on Jamaica to 'BB-' from 'B+', and affirmed its short-term foreign and local currency sovereign credit ratings at 'B'. The stable outlook reflects S&P's expectation that the government will remain committed to prudent fiscal policies and reducing debt, as well as supportive economic policies including a flexible exchange rate regime and effective monetary policy. This is the best credit rating that Jamaica has received from S&P since it started rating the country's sovereign debt in 1999, according to The Gleaner. In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. Moody's credit rating for Jamaica was last set at B2 with stable outlook (December 2019). =========== M E X I C O =========== BANCO AZTECA: Fitch Affirms 'BB/B' LongTerm IDRs, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Banco Azteca S.A., Institucion de Banca Multiple's (Banco Azteca) Viability Rating (VR) at 'bb' and Long- and Short-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' and 'B', respectively. The government support rating (GSR) was also affirmed at 'bb-'. The Rating Outlook on the Long-Term IDRs is Stable. Fitch has also affirmed the Long- and Short-Term National Scale ratings of Banco Azteca at 'A+(mex)' and 'F1+(mex),' respectively. The Outlook on the Long-Term rating is Stable. KEY RATING DRIVERS Consistent Credit Profile: Banco Azteca's IDRs and national scale ratings are driven by the bank's stand-alone creditworthiness reflected in its 'bb' VR, which is in line with the implied VR. The VR reflects the bank's strong market position in the consumer lending segment that has resulted in an ample ability to generate consistent earnings that have historically off-set the risks of its concentrated commercial loan portfolio. Fitch also considers the bank's capitalization metrics, which have been adequately managed over the years. Strong Position in Consumer Lending and Demand Deposits: Banco Azteca's business profile is underpinned by its relevant market position in consumer loans and core customer deposits. At 2Q23, the bank ranked fifth in consumer loans in Mexico with a market share of 8.3% with special focus on middle- to low- income individuals. For deposits, the bank was the eighth largest bank in the Mexican banking system with a market share of 3.2%. Banco Azteca's business model benefits from a longer operating track record, experience and knowledge in consumer lending and ample access to deposits for financing compared with peers. However, in Fitch's view the bank's business model remains sensitive to operating environment challenges. High Influence of Ample-Related Party Transactions: Fitch's 'bb+' assessment of Banco Azteca's business profile is below the 'bbb' implied score category. Fitch adjusted the score downward due to its high related party transactions, which represented 33.3% of the bank's common equity Tier 1 (CET1) at 2Q23. Although these transactions are below the regulatory limit, the level compares unfavorably with their peers. Fitch also considers the weaker corporate governance practices of Banco Azteca's controlling group, which could represent a potential risk for the bank that could threaten creditor interests. Pressured Asset Quality: Banco Azteca's asset quality is consistently pressured by its commercial loan portfolio due to its highly concentrated business model. The top 20 borrowers represented close to 1.6x the bank's CET1 as of 2Q23, where six represented more that 10% of the CET1 individually. As of 2Q23, Stage 3 loans represented 5.2% of total loans (December 2022: 4.0%; average 2019-2022: 4.2%), mainly affected by some relevant commercial borrowers. In turn, the consumer Stage 3 to gross loan ratio has been relatively stable at 5.7% as of the same date (2022: 5.4%). Based on the Comision Nacional Bancaria y de Valores (CNBV), the adjusted impaired loan ratio (Stage 3 loans plus write-offs in the last 12 months) was 9.9%. Loan loss allowances (LLA) were commensurate with the bank's riskier business model, covering 2.2x Stage 3 loans. Sound Earnings Generation: Banco Azteca's consistent earnings from its ample margin core business continue to off-set the risks from the bank's lending to companies. Banco Azteca's earnings have been sufficient to generate credit reserves to face asset quality problems from large borrowers. Despite MXN9,550 million of loan impairment charges in 1H23, the bank's operating profit to risk-weighted assets (RWAs) ratio increased to 2.9% in 2Q23 (2022: 1.7%). The bank's net interest income (+24% yoy) continued to be its main source of income, supported by consistent consumer lending growth and low financing costs, a key advantage compared with consumer banks and NBFIs peers. Fitch expects Banco Azteca's profitability to stabilize at levels above 1.5%. Appropriate Capitalization: Fitch's assessment of Banco Azteca's capitalization is underpinned by its large equity size that is comparable with or larger than its rating peers. In July 2023, the bank's capitalization metrics were pressured, as the bank's CET1 ratio declined to 13.5% (March 2023: 14.2%), while the regulatory capital ratio was 13.7%. This pressure was mostly explained by a higher capital requirement for credit risk due to large non-performing borrowers, as well as by the implementation of a new credit reserves model for the loan portfolio due to the change in the write-off policy. Fitch believes that Banco Azteca's capitalization will remain at similar levels even as the bank continues to increase its loan portfolio and will be supported by the constant reinvestment of earnings from its consumer lending business. Good Funding Profile and Liquidity: Fitch considers Banco Azteca's funding structure and liquidity as a key credit strength due to its ample core customer deposits base, mostly comprised of demand deposits (2Q23: 80.5% of total deposits). The bank's deposits represented 94.4% of total non-equity funding at 2Q23, and is diversified, low-cost and stable over the years. At the same date, the loans to deposits ratio was 72.9% (2019-2022 average: 66.0%), one of the strongest amongst Mexican banks. The good liquidity is also considered, reflected in a liquidity coverage ratio well above the minimum regulatory requirement, the relatively short-term of the consumer loan portfolio (average tenor 20 months) and its short-term financing structure. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Banco Azteca's IDRs, VR and National Ratings could be downgraded if the bank's financial profile weakens due to asset quality deterioration resulting in an operating profit to RWA metric consistently below 1.5%, or if its loss-absorption capacity decreases. Specifically, if the bank's CET1 to RWA ratio remains below 14% and the loan loss reserves fall below 200% of Stage 3 loans; - Weak corporate governance practices of Banco Azteca's controlling group or the bank itself generate reputational risks that affect its financial or business profile. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Banco Azteca's IDRs, VR and National Ratings could be upgraded if the bank improves its risk profile and asset quality, in addition to consistently deliver operating income to RWA ratios above 3.5% and the CET1 to RWA ratio above 17%. Government Support Rating (GSR): Banco Azteca 'bb-' GSR reflects Fitch's expectation that although the bank is not a domestic systemically important bank (D-SIB), there is moderate probability of sovereign support in case of need, given the bank's ample base of retail depositors and moderate market share of customer deposits. At 2Q23, Banco Azteca's deposits were about 3.2% of the Mexican banking system. - The GSR could be downgraded if Fitch believes that the government's propensity to support the bank has declined due to reasons such as a material loss in the market share of retail customer deposits. - Upside potential for Banco Azteca's GSR is limited and could only occur over time with a material gain in the bank's systemic importance. VR ADJUSTMENTS Fitch has assigned a Business Profile score of 'bb+', which is below the 'bbb' category implied score, due to the following adjustment reason(s): Management and Governance (negative). Fitch has assigned an Asset Quality score of 'b+', which is below the 'bb' category implied score, due to the following adjustment reason(s): Concentrations (negative). Fitch has assigned a Funding & Liquidity of 'bbb-', which is above the 'bb' category implied score due to the following adjustment reason(s): Deposit Structure (positive). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch classified pre-paid expenses and other deferred assets as intangibles and deducted from total equity due to the low absorption capacity under stress of these assets. Financial figures are in accordance to the Comision Nacional Bancaria y de Valores criteria. Figures for 2023 and 2022 include recent accounting changes in the process to converge to International Financial Reporting Standards. Prior years did not include these changes and Fitch believes they are not directly comparable. ESG CONSIDERATIONS Banco Azteca, S.A., Institucion de Banca Multiple has an ESG Relevance Score of '4' for Governance Structure due to the relevant related parties' transactions and the weaker corporate governance practices of Banco Azteca's controlling group that could be a risk to the bank as they benefit shareholders but affect creditor's interests. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Banco Azteca, S.A. LT IDR BB Affirmed BB ST IDR B Affirmed B LC LT IDR BB Affirmed BB LC ST IDR B Affirmed B Natl LT A+(mex) Affirmed A+(mex) Natl ST F1+(mex) Affirmed F1+(mex) Viability bb Affirmed bb Gov't Support. bb- Affirmed bb- BANCO COMPARTAMOS: Fitch Affirms 'BB+/B' LongTerm IDRs ------------------------------------------------------ Fitch Ratings has affirmed the Long- and Short-Term Foreign and Local Currency IDRs of Banco Compartamos, S.A., Institucion de Banca Multiple (Compartamos) at 'BB+' and 'B', respectively, and its Viability Rating (VR) at 'bb+'. Fitch has also affirmed Compartamos' Government Support Rating (GSR) at 'no support' (ns) and its Long- and Short-Term National Scale ratings at 'AA(mex)' and 'F1+(mex)', respectively. The Rating Outlook for the Long-Term ratings is Stable. In addition, Fitch has affirmed Compartamos' local senior unsecured debt at 'AA(mex)'. KEY RATING DRIVERS Consistent Financial Profile: Compartamos' IDRs and National scale ratings are driven by its 'bb+' VR. This reflects the bank's highly profitable business model that is focused on the microcredit niche for low-income segments, primarily under its group lending methodology but also in its individual one, as well as the bank's strong market position in the microlending sector accompanied by good financial performance, especially with high profitability and capitalization metrics. Strong Microlending Market Position: Compartamos continues to have a consistent business model that generates stable earnings over the time despite the focus to lend to low-income segments of the population. Fitch assessed Compartamos' business profile at 'bb+'. This reflects the bank's high market share in microlending in Mexico with competitive advantages to peers such as a longer track record of operations, ample knowledge and larger scale in the micro finance segment, as well as ample and continued access to funding that has allowed the bank to face high inflation and competition risks. Controlled Asset Quality: Fitch upgraded the score of Compartamos' asset quality to 'bb-' with Stable trend from 'b+' as metrics have demonstrated to be resilient despite the challenges of the operating environment (OE) and high inflation. Fitch considers asset quality deterioration will continue to be partially contained due to Compartamos' ample knowledge of the micro lending sector and its business model focused on group lending methodology (1H23: 73% of the total loan portfolio) where the group is jointly responsible for the payments. At 1H23, the stage 3 loan portfolio to gross loans ratio was 2.5% (average of 3.5% during 2019 to 2022), partially supported by high loan growth and charge-offs, common practice in its business model, while loan loss allowances coverage remains in a range of 200% to 250%. The adjusted NPL ratio (considering charge-offs) was 10.5% (average of 12.7% in 2019-2022). Good Earnings: Compartamos' operating profits continue to reflect its highly profitable business model driven by the strong market position in the microcredit segment, high loan growth and controlled credit costs. The bank's profitability remains high, supported by wide net interest margins (NIM). At 1H23, the operating profit to risk-weighted assets (RWA) ratio was 13.9%, slightly lower than the previous two quarters due to higher operating expenses due to inflationary effects and the hiring of field promoters. Fitch expects profitability to recover and remain at good levels even if asset quality shows a moderate deterioration. The promoters' expansion will also contribute to the profits, once these mature. Capital with Headroom to Absorb Losses: Compartamos' capitalization metrics are a key credit strength for the ratings. Fitch's assessment of Compartamos' capitalization and leverage factor is 'bbb'. The bank's capitalization metrics stand out among its local and regional peers and allow it to absorb the risk of the business model, expected loan growth and recurrent dividend payments. The bank's common equity tier 1 ratio (CET1; common equity tier 1) to RWA ratio of 35.6% as of 1H23 remained commensurate with the intrinsic risks of the business model. The bank's current CET1 ratio has an ample buffer above Fitch's 25% trigger for a rating downgrade. Good Liquidity: Compartamos' funding structure is weaker than local bank peers as the bank's deposits base continues to be relevantly outpaced by the loan portfolio. The loan to deposits ratio at 1H23 was 1,097.2%. Customer deposits account for a low 12.8% of the bank's funding structure. However, the bank has been able to obtain financing over several economic cycles from local development and commercial banks, multilateral banks, as well as long-term debt issuances in the local market. Fitch believes the bank's highly liquid balance sheet compensates for its weaker position in customer deposits. Its good liquidity position resulted from its short-term loan portfolio (average maturity of 5.6 months as of 1H23) that provides the bank the capacity to reprice rapidly. The liquidity coverage ratio and net stable funding ratio remained at high levels of 911% and 162%, respectively. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Compartamos' ratings could be downgraded due to a material deterioration in asset quality and profitability that pressures the bank's capital metric, CET1 to RWA, consistently below 25% or a downward revision in Fitch's assessment of the OE; - Increased liquidity risks or reduced access to wholesale funding could also trigger negative rating actions. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Upside potential for the bank's VR, IDRs and National Ratings in the medium term is limited; - Ratings could be upgraded if the bank increases its operations, in conjunction with maintaining its good levels of capitalization and profitability, while continuing to gain market position in the microlending segment. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Senior Debt The senior unsecured debt rating is at the same level as Compartamos' LT National Scale Rating of 'AA(mex)', as the notes' likelihood of default is the same as the issuer. Compartamos' GSR: No D-SIB: Compartamos' 'ns' GSR reflects Fitch's expectation that there is no reasonable assumption that support will be available since the bank is not classified as a domestic systemically important bank (D-SIB) or does not have a material market share. As of June 2023, Compartamos' customer deposit market share remained low with 0.05% of the Mexican banking system, raked in the 34 position among the 50 banks of the system. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Senior Debt The debt rating would mirror any changes to the issuer's national scale ratings. GSR There is no downside potential for the GSR; however, upside potential is limited and can only occur over time with a material growth of the bank's systemic importance. VR ADJUSTMENTS Fitch has assigned an Earnings and Profitability score of 'bb+', which is below the 'bbb' category implied score, due to the following adjustment reasons: Revenue Diversification (negative). Fitch has assigned a Funding and Liquidity score of 'bb+', which is above the 'b' category implied score, due to the following adjustment reasons: Non-deposits funding (positive). SUMMARY OF FINANCIAL ADJUSTMENTS Fitch classified pre-paid expenses and other deferred assets as intangibles and deducted them from total equity due to their low loss absorption capacity under stress. Sources of Information Financial figures are in accordance with the local banking regulator (Comision Nacional Bancario de Valores) criteria. 2022 and 2023 figures include recent accounting changes in the process to converge to International Financial Reporting Standards (IFRS). Prior years did not include this change, and Fitch believes they are not directly comparable. ESG CONSIDERATIONS Fitch has revised Compartaamos' ESG Relevance Score for Customer Welfare - Fair Messaging, Privacy & Data Security to 3 from 4 as the agency considers its business model or franchise is not affected negatively by high-rate lending or its focus on low-income individuals. Compartamos' business focus on the low-income population has limited impact on the bank's credit profile and is credit-neutral. Fitch has revised Compartaamos' ESG Relevance Score for Exposure to Social Impacts to 2 from 4 as the agency considers its business model or franchise to not be affected negatively by its social focus. Compartamos' social positioning has limited impact on the bank's credit profile and is credit-neutral. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Banco Compartamos, S.A., Institucion de Banca Multiple LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B LC LT IDR BB+ Affirmed BB+ LC ST IDR B Affirmed B Natl LT AA(mex) Affirmed AA(mex) Natl ST F1+(mex) Affirmed F1+(mex) Viability bb+ Affirmed bb+ Government Support ns Affirmed ns senior unsecured Natl LT AA(mex) Affirmed AA(mex) ===================== P U E R T O R I C O ===================== ESJ TOWERS: Committee Seeks to Hire Bankruptcy Counsel ------------------------------------------------------ The official committee of unsecured creditors appointed in the Chapter 11 case of ESJ Towers, Inc. seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to employ the Law Office of Jonathan A. Backman as lead bankruptcy counsel and Julio Cesar Alejandro Serrano, Esq., an attorney at JCAS Law, as local counsel. The committee requires legal counsel to: (a) give advice with respect to the duties and powers of the committee under the Bankruptcy Code and related law in connection with the continued operation or liquidation of the business and financial affairs of the Debtor; (b) assist the committee with respect to legal issues arising from the current state of the Debtor's affairs, the desirability of the continuation of its business, and any other matters relevant to this case; (c) assist the committee concerning the formulation and terms of any proposed plan of liquidation or reorganization; (d) assist the committee in preserving or disposing of the assets of the estate; and (e) render legal advice on such other matters as may arise from time to time for which the committee may need legal assistance. Mr. Backman will be paid a retainer of $25,000 and Mr. Alejandro a retainer of $10,000. The committee will compensate Mr. Backman and Mr. Alejandro at their hourly rates of $350 and $160, respectively. Mr. Backman's paralegal will be billed at $75 per hour. In addition, the attorneys will seek reimbursement for expenses incurred. As disclosed in court filings, both firms are "disinterested" within the meaning of Section 101(14) of the Bankruptcy Code. The firms can be reached through: Jonathan A. Backman, Esq. Law Office of Jonathan A. Backman 117 North Center Street Bloomington, IL 61701 Telephone: (309) 820-7420 Facsimile: (309) 820-7430 Email: jbackman@backlawoffice.com - and -- Julio C. Alejandro Serrano, Esq. JCAS Law 100 Plaza Pradera SC, Ste. 20 PMB 130 Toa Baja, PR 00949 Telephone: (787) 647-6632 Facsimile: (787) 647-6632 Email: alejandroj.abogadopr@gmail.com 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. The committee tapped the Law Office of Jonathan A. Backman as lead bankruptcy counsel; Julio Cesar Alejandro Serrano, Esq., at JCAS Law as local counsel; and Dage Consulting CPAS, PSC as financial advisor. ********* 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. 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