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/raid1/www/Hosts/bankrupt/TCRLA_Public/231122.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 Wednesday, November 22, 2023, Vol. 24, No. 234 Headlines B R A Z I L MRS LOGISTICA: Fitch Affirms BB+ Foreign Curr. IDR, Outlook Stable SBM BALEIA SII: Fitch Affirms 'BB' Rating on Sr. Secured Notes C H I L E FALABELLA SA: Fitch Lowers LongTerm IDRs to 'BB+', Outlook Negative D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Construction Sector Not 100% Mechanized DOMINICAN REPUBLIC: Minister of Economy Signs Samoa Agreement J A M A I C A JAMAICA: Inflation Data Brings Relief; Rate Hike Won't Materialize P E R U CAMPOSOL HOLDING: Fitch Lowers LongTerm IDR to B, Outlook Negative P U E R T O R I C O EMINENCE CORPORATION: Hires Modesto Bigas Law Office as Counsel V E N E Z U E L A VENEZUELA: Facing Threat of Sanctions Again - - - - - =========== B R A Z I L =========== MRS LOGISTICA: Fitch Affirms BB+ Foreign Curr. IDR, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed MRS Logistica S.A.'s (MRS) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB+', Long-Term Local Currency IDR at 'BBB-' and Long-Term National Scale Rating at 'AAA(bra)'. In addition, Fitch has affirmed the Long-Term National Rating for MRS's unsecured debentures and promissory notes at 'AAA(bra)'. The Rating Outlook for the corporate ratings is Stable. The ratings reflect MRS's mature railroad operation, strong and resilient operational cash generation and margins, conservative capital structure, and adequate liquidity, even during the large investment period. The company's business model consists of captive demand for transportation, take-or-pay protection clauses for most of its contracts and well-defined tariff model. MRS's Foreign Currency IDR is constrained by Brazil's 'BB+' Country Ceiling. KEY RATING DRIVERS Solid Business Profile: MRS runs a mature and important railway concession in Brazil that expires in 2056. It benefits from its prominent position as sole provider of railway transportation for large clients, which are also the company's major shareholders. Its network connects Brazil's center region to the most important ports in the southeast region. The competition from other transportation modes is marginal, enhancing the company's cash flow predictability. Railway transportation in Brazil enjoys solid demand, low competition among operators, high barriers to entry and medium to high profitability. These advantages, along with the great opportunities to enhance the country's transportation infrastructure, make for a favorable credit environment for Brazilian railway companies. Captive Clients: MRS's rating benefits from demand from captive customers, enforceable take-or-pay clauses for most contracts and positive long-term sector fundamentals. The company's main individual shareholder is Minerações Brasileiras Reunidas S.A. (MBR), which is controlled by Vale (Foreign and Local Currency IDRs 'BBB'/Stable). In 2022, MBR and Vale accounted for almost half of MRS's revenues. MBR and Vale's operations are heavily dependent on MRS's iron ore transportation capacity. This is also the case for its other main shareholders: Companhia Siderúrgica Nacional (CSN, IDRs 'BB'/Positive, 37.2%, Usinas Siderúrgicas de Minas Gerais (Usiminas, IDRs 'BB'/Stable, 11.1%) and Gerdau S.A. (IDRs 'BBB'/Stable, 1.3%), are heavily dependent on MRS's iron ore transportation capacity. Captive cargo responds for about 60% of the volume transported by MRS. Shareholder Agreement Protects Profitability: MRS's shareholder agreement provides a tariff model that protects the company's profitability and cash flow generation capacity. In recent years, MRS's operating cash flow generation has been resilient against strong economic downturns and unfavorable exchange rate movements, fuel and iron ore prices. The tariff model establishes, on an annual basis, freight rates for each captive client, through a pre-defined cargo volume and a return target over equity ratio. The model determines tariff adjustments on a monthly basis in the event of substantial cost increases, chiefly regarding fuel. This operating model has proven efficient over many years, and has translated into high EBTIDA margin resilience in the 40%-50% range over the cycles. Negative FCF: MRS should continue to report consistent operating cash flow generation to support part of the large investment plan, including enough to meet the requirements of the concession contract that was renewed early in July 2022. The company's EBITDA should gradually improve, benefiting from increases in captive and non-captive freight orders, resulting from the completion of investments in infrastructure and rolling stock. Fitch's base scenario foresees volumes of 193 million tons (TUs) in 2023 and 207 million TUs in 2024, while the average tariff should range BRL32-35/ton in this period. The base scenario considers MRS's EBITDA of BRL3.1 billion and cash flow from operations (CFFO) of BRL2.2 billion in 2023, and BRL3.7 billion and BRL2.4 billion in 2024, respectively. Following the aggressive investments required by the concession contract, FCF should be BRL265 million, in 2023, and significantly negative from 2024 onwards, totaling negative BRL4.5 billion from 2024 to 2026. Investments are expected to reach BRL9.0 billion from 2023 to 2025. CFFO should finance around 80% of investments in this period. Leverage Still Conservative: MRS's net debt should remain conservative even during the expected large negative FCF period. Fitch's rating case foresees net debt will increase by BRL2.7 billion up to 2025, being BL2.0 billion at the end of 2023. In the last five years, MRS's net debt/EBITDA was very conservative, around 1.3x, which prepared the company to face the aggressive capex plan. Net leverage should remain below 2.0x during the rating period, due to the increasing EBITDA trend. The company should also report low funds from operations (FFO)-adjusted net leverage within the 1.2x-1.9x range. DERIVATION SUMMARY MRS's rating is below those of the other mature rail companies in the U.S. and Canada, which are generally rated in the mid 'BBB' to low 'A' range. MRS's operations are concentrated solely in Brazil, and its captive clients (shareholders) are rated 'BBB' or below. Compared with other Brazilian railroads, MRS is the best positioned based on consistent operating cash flow generation, relatively flat operating margins, historical positive FCF, low leverage and sound liquidity. Rumo (BB+/AAA(bra)/Stable) and VLI (NR/AAA(bra)/Stable) have presented negative FCF trends from substantial capex plans that need to be financed, and higher leverage, which is compatible with their growth momentum. KEY ASSUMPTIONS - Volumes of heavy haul to increase by 11.9% in 2023 and 9.8% in 2024; - Volumes of general cargo to increase by 2.4% in 2023 and 3.9% in 2024; - Tariffs increase by inflation; - Capex of BRL13.2 billion from 2023 to 2026, being BRL2.5 billion in 2023-2024; - Payout of 25% of net income. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Improvements in cargo diversification and credit quality of its major clients/shareholders, combined with a better operating environment in Brazil, could lead to an upgrade on MRS's Local Currency IDR; - A higher Country Ceiling for Brazil (currently at BB+) would lead to an upgrade on MRS's Foreign Currency IDR. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Deterioration of EBITDA margins to lower than 35% on a sustainable basis; - Net debt/EBITDA ratios consistently above 3.0x; - Severe deterioration of credit quality of its major clients/shareholders; - A deterioration of Brazil's operating environment could lead to a downgrade on MRS's Local Currency IDR; - A lower Country Ceiling for Brazil would lead to a downgrade on MRS's Foreign Currency IDR. LIQUIDITY AND DEBT STRUCTURE Healthy Liquidity: MRS's liquidity profile is satisfactory, supported by adequate cash position and manageable debt amortization schedule. The company also benefits from proven access to banking and capital markets. The debenture of BRL2.0 billion issued in 3Q2023 further enhanced the company's liquidity, strengthening its ability to refinance its short-term debt and face the expected negative FCF throughout 2023 and 2024. Fitch expects MRS's cash to remain around BRL3.0 billion by the end of the year, and around BRL1.0 billion in the following years. As of September 2023, MRS's cash and marketable securities reached BRL1.7 billion, which covered short-term debt of BRL876 million by 1.9 times. Total debt was BRL4.7 billion, comprised of BRL2.5 billion in debentures (52%); BRL874 million in outstanding debt with Banco Nacional de Desenvolvimento Econômico e Social (BNDES; 18%); and other long-term credits. ISSUER PROFILE MRS is a Brazilian railroad concessionaire, which operates the mature Southeastern stretch of the country's railnet. MRS's cargo includes iron ore, coal, coke (60% of the total volume) and general cargo, including agricultural, siderurgy and cement products (40% of total volume). MRS's capital belongs to Vale S.A. (Vale, 44% of the capital, directly and indirectly), Companhia Siderurgica Nacional (CSN, 38% of the capital, directly and indirectly), Usiminas Participações e Logísticas S.A. (Usiminas, 11%) and others. SUMMARY OF FINANCIAL ADJUSTMENTS - Net derivatives adjusted to debt; - D&A removed from costs and allocated as other operating expenses; - Assets sales excluded from EBITDA account. 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 Prior ----------- ------ ----- MRS Logistica S.A. LT IDR BB+ Affirmed BB+ LC LT IDR BBB- Affirmed BBB- Natl LT AAA(bra) Affirmed AAA(bra) senior unsecured Natl LT AAA(bra) Affirmed AAA(bra) SBM BALEIA SII: Fitch Affirms 'BB' Rating on Sr. Secured Notes -------------------------------------------------------------- Fitch Ratings has affirmed SBM Baleia Azul, SII/ S.a.r.l.'s series 2012-1 senior secured notes due 2027 at 'BB'. The Rating Outlook remains Stable. The transaction's rating is capped by Fitch's view of the strength of the offtaker's payment obligation, which in this case is equalized with Petrobras' Issuer Default Rating (IDR). Entity/Debt Rating Prior ----------- ------ ----- SBM Baleia Azul, SII/ S.a.r.l. Senior L8038*AA4 LT BB Affirmed BB TRANSACTION SUMMARY The notes are backed by the flows related to the charter agreement signed with Petrobras for the use of the Cidade de Anchieta floating production storage and offloading unit (FPSO) for a term of 18 years. SBM do Brasil Ltda. (SBM Brasil), the Brazilian subsidiary of SBM Holding Inc. S.A. (SBM), is the operator of the FPSO. SBM is the sponsor of the transaction. The Cidade de Anchieta FPSO began operating at the Baleia Azul oil field (considered part of the New Jubarte field now) in September 2012. KEY RATING DRIVERS PETROBRAS' CREDIT QUALITY AS CONSTRAINT Fitch uses the offtaker's IDR as the starting point to determine the appropriate strength of the offtaker's payment obligation. On July 27, 2023, Fitch upgraded Petrobras' Long-Term IDR to 'BB'/Stable, reflecting the upgrade of Brazil's Long-Term IDR to 'BB' from 'BB-'. Brazil's upgrade was due to its better-than anticipated macroeconomic and fiscal performance. Petrobras' ratings continue to reflect its close linkage with Brazil's sovereign rating, due to the government's control of the company and its strategic importance to Brazil as its near monopolistic supplier of liquid fuels. STRENGTH OF THE OFFTAKER'S PAYMENT OBLIGATION ALIGNED WITH PETROBRAS' IDR Fitch's view of the strength of the off-taker's payment obligation acts as the ultimate rating cap to the transaction. Given Fitch's qualitative assessment of asset/contract/operator characteristics and the off-taker's/industry's characteristics related to this transaction, the strength of such payment obligation has been equalized to Petrobras' Long-Term IDR. EXPERIENCED OPERATOR MITIGATES RISK SBM Offshore N.V. is the ultimate parent to SBM Holding Inc. S.A., the main sponsor of the transaction. The transaction benefits from SBM Offshore N.V.'s solid business position, global leadership in leasing FPSOs and overall strong operational performance of its fleet, aligning SBM's credit quality with investment-grade metrics. The rating of the transaction is ultimately capped by Fitch's view of the credit quality of the sponsor/operator due to the operational and financial reliance on the sponsor if needed. IMPROVING TO STABLE OPERATIONAL PERFORMANCE Since the last review, SBM completed the repair on 11 tanks required for the safe restart of the vessel, which resumed operations in December 2022. As a result of the extended shutdown, the overall uptime average since commercial operations began in 2012 declined to approximately 90%, down from 97.9% prior to the shutdown. Since the oil vessel resumed operations, SBM has seen production increase back to normal levels with an average production uptime figure of 99.8% for the period ending September 2023. AVAILABLE LIQUIDITY The transaction benefits from a $26 million (LoCs provided by ABN Amro, rated A/Stable by Fitch) debt service reserve account (DSRA) equivalent to the following two quarterly payments of principal and interest. As of September 2023, net debt balance closed at approximately $147.8 million. DSCR CONTINUES TO MEET EXPECTATIONS The key leverage metric for fully amortizing FPSO transactions is the debt service coverage ratio (DSCR). The rolling 12-month pre-opex DSCR for the period ending September 2023 was 1.95x and the average post-opex DSCR over a five-year period was 1.40x as of the period ending September 2023. Through the shareholder loan between the issuer and its parent, SBM Azul, SII/S.a.r.l received an approximate $48 million in 2022 to assist with meeting timely interest and principal payments and to assist with costs/expenses incurred while repairing the vessel. SBM's willingness to support the structure in times of stress supports the linkage between the credit quality of SBM and the transaction. As such, Fitch deems the strength of the offtaker's payment obligation to be the main constraint to the transaction's rating. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The rating may be sensitive to changes in Petrobras' credit quality as charter offtaker, and any deterioration in SBM's credit quality as operator and sponsor. In addition, the transaction's rating may be affected by the Cidade de Anchieta FPSO's operating performance and prolonged shut down of the vessel that could lead to a contract termination. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade The main constraint to the transaction's rating is currently the offtaker's credit quality. If upgraded, Fitch will consider whether the strength of the offtaker's payment obligation would be equalized with the entity's IDR. 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. ========= C H I L E ========= FALABELLA SA: Fitch Lowers LongTerm IDRs to 'BB+', Outlook Negative ------------------------------------------------------------------- Fitch Ratings has downgraded Falabella S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'BB+' from 'BBB-' and the National Long-Term Rating to 'A+(cl) from 'AA-(cl)'. Fitch has downgraded the National Equity Rating to 'First Class Level 2(cl)' from 'First Class Level 1(cl)'. The Rating Outlook for the corporate ratings is Negative and the Negative Rating Watch has been resolved. In addition, Fitch has downgraded Sodimac S.A.'s (Sodimac) National Scale and local bond ratings to 'A+(cl)' from 'AA-(cl)'. The Rating Outlook is Negative, following the rating action on its parent Falabella. The downgrade incorporates the company's sustained deterioration of the credit profile as evidenced by leverage metrics that are expected to trend above investment-grade thresholds. Fitch views the company's plans to improve its debt trajectory as insufficient to maintain its investment-grade rating. The Negative Outlook reflects significant business deterioration due to a competitive environment, the implications of a downturn in discretionary spending that Fitch expects could extend well into part of 2024, as well as the execution risks involved in the divestiture plan that the company has announced for the upcoming 12 to 15 months. KEY RATING DRIVERS High Execution Risk: Fitch believes there is elevated execution risk in the company's announced deleveraging plan, which includes real estate asset monetization of between USD800 million to USD1 billion. While Fitch acknowledges Falabella's proactive approach to real estate portfolio rationalization and efforts to defend its credit profile, the implemented cost optimization required to stabilize operations is evidence of the dislocation in the business and the ongoing profitability pressures. Therefore, Falabella's ability to maintain its 'BB+' rating will not only depend on the execution of this plan, but also on a sustained operational rebound through 2025. High Leverage: Fitch expects Falabella's leverage to remain above 6x in 2024 and reach low 5x in 2025, which is more consistent with the 'BB' rating category. These leverage metrics do not include any execution of asset monetization plan, as Fitch does not have visibility on the timing or the amount that the company may obtain from these transactions, given the execution risks associated with them. Falabella's successful execution of its deleverage plan to levels below 4.5x would lead to a stabilization of Fitch's Rating Outlook. Conversely, failure to execute this plan and weaker operating performance could result in further negative rating action. Fitch anticipates an increase in leverage to over 6.5x in 2023 from 4.3x in 2019, based on adjusted EBITDAR (including net dividends received from its financial services and minorities) declining to around CLP700 billion from CLP875 billion in the same period. Fitch recognizes that the sale of assets for about USD800 million to USD1 billion would support the company's deleveraging; however, an elevated execution risk remains. Any challenges in inventory levels, high promotional activity in 2024 and lower than anticipated recovery of consumption could shift Fitch's 2024 EBITDAR projections down. Leverage is expected to be in the low-6x range in 2024 assuming a topline recovery and profitability improvements during the period. Operations to Remain Challenged: Fitch estimates operational metrics to remain constrained by a slow recovery of the Chilean retail sector, changing consumer behavior and market competitive dynamics. The downturn in economic performance in the region has severely affected the trajectory of revenues in discretionary and construction-related categories, which has been affected by low retail same stores sales, and the increased need for promotional activity to reduce accumulated inventories. Uncertainties remain, such as the pace of retail sales recovery during 2024, economic conditions (such as persistent unemployment and developments in Chile's construction sector), and the lasting effects of long-term changes in consumer behavior. Falabella's corporate-only revenues declined -12.5% in the first nine months of 2023, posting declines of -11.5%, -15.2% and -10.7% in the third, second and first quarters, respectively. Falabella's 2023 net revenues are expected to decline by 10% to CLP9,400 billion, with a minimum EBITDAR margin of 6.9%, absorbing the decline in total revenues with increased promotional activity. Fitch estimates EBITDAR margin would recover to 7.3% and 8.0% by 2024 and 2025, respectively, as the company implements cost savings initiatives along with improvements in sales volumes. Sodimac's Strong Linkage with Falabella: Sodimac's ratings are based on the strong legal, strategic and operational support incentives from Falabella, which, under Fitch's Parent and Subsidiary Linkage Criteria, results in a equalization of the ratings. Legal incentives are based on the cross-default clause in Falabella's debt agreements that would be triggered by subsidiaries defined as relevant, Sodimac being one of them. Historically, Sodimac has represented a relevant portion of Falabella´s operating result, which supports the strong strategic linkage. Operationally, there are synergies that enhance efficiencies in the company, such as integrated purchasing and customer access to the group's credit card (CMR). There is also integrated cash management through intercompany loans. DERIVATION SUMMARY Falabellla's rating reflects a diversified business profile with activities in food retail, shopping malls, department stores, and non-food retail segments, and geographic diversification in Latin America. The company benefits from a high level of unencumbered assets, primarily related to its real estate business. The company compares well with other peers in the region such as Cencosud S.A. (BBB/Stable) and El Puerto de Liverpool, S.A.B. de C.V. (BBB+/Stable). Cencosud reported net adjusted leverage of 3.5x as of June 30, 2023 while that of Falabella's was 7.7x. Cencosud's retail formats are more oriented to the food segment and supermarket segment, which is viewed as more defensive during weak macro-economic environment. Falabella's retail formats are mainly oriented to the non-food segment. Liverpool is a leading retailer in Mexico. Its consumer finance division and the real estate portfolio strengthen its existing retail operations. Fitch expects that for 2023 the company's consolidated gross-adjusted leverage will remain at low levels of around 1.5x, while its retail-only adjusted by captive finance gross leverage will be below 1.0x. KEY ASSUMPTIONS - Revenue growth of 9.3% and 4.4% in 2024 and 2025; - Average EBITDAR margin of 7.4% during 2023-2025; - Capex Intensity of around 3.4% per year; - No dividend distributions from Falabella S.A. in 2023 (excluding Plaza S.A.'s dividend distribution). RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Although unlikely at this point, an upgrade could occur from sustained positive revenue growth and EBITDAR margin, combined with net corporate only adjusted leverage (net adjusted debt/ EBITDAR including net dividends received from its financial services and minorities) consistently below 4.0x. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Inability to achieve a clear deleverage path towards a net corporate only adjusted leverage under 4.5x on a sustained basis; - Deterioration in liquidity including interest coverage defined below 2.5x or cash over short-term debt below 1.0x, on a sustained basis; - Failure to execute deleveraging plans over the next 12 to 18 months, including asset sales; - Failure to achieve revenue growth and EBITDAR profitability along with strong FCF generation. Rating Sensitivities: Sodimac Factors that could, individually or collectively, lead to positive rating action/upgrade: - A positive rating action in Falabella's rantings would have the same effect on Sodimac. Factors that could, individually or collectively, lead to negative rating action/downgrade - A deterioration in Falabella's rating; - A decline in the company's support from its parent company, while its debt profile weakens. LIQUIDITY AND DEBT STRUCTURE Low Refinancing Risk: The company has low near-term debt maturities with the next debt maturity of CLP442 billion due in 2025. Fitch expects Falabella will have sufficient liquidity to manage net leverage through 2025. Falabella had a cash balance of CLP415 billion as of June 30, 2023, and CLP5.5 trillion of corporate only gross debt. ISSUER PROFILE Falabella's strategy is to be a leading online and offline retail platform in Chile, Peru, Colombia and Brazil. The company's operations include department stores, a home improvements store, food segment, shopping mall business, financial services and the evolving marketplace platform. 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 Prior ----------- ------ ----- Falabella S.A. LT IDR BB+ Downgrade BBB- LC LT IDR BB+ Downgrade BBB- Natl LT A+(cl) Downgrade AA-(cl) Nat Equity Rating Primera Clase Nivel 2(cl) Downgrade Primera Clase Nivel 1(cl) senior unsecured LT BB+ Downgrade BBB- senior unsecured Natl LT A+(cl) Downgrade AA-(cl) Sodimac S.A. Natl LT A+(cl) Downgrade AA-(cl) senior unsecured Natl LT A+(cl) Downgrade AA-(cl) =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Construction Sector Not 100% Mechanized ----------------------------------------------------------- Dominican Today reports that the construction sector in the Dominican Republic is a key driver of the economy, and it has been making advancements in technology to enhance productivity and competitiveness. However, the sector still faces challenges in terms of mechanization and modernization, according to Dominican Today. According to the Association of Housing Builders and Developers (Acoprovi), currently, there are no 100% mechanized processes in the construction sector, the report notes. Various construction activities have different levels of mechanization, with some closer to full mechanization than others, the report relays. For example, pouring reinforced concrete is at 95% mechanization, while masonry work is at 70-75%, and earthworks like excavations are at 80-85%, the report says. Concrete mixing on-site is mechanized at 60-70%, and steel bending is around 70%, the report notes. Acoprovi acknowledges that productivity has improved with mechanization, leading to shorter project delivery times and the adoption of new construction methods, the report discloses. However, they emphasize that there is still room for improvement, particularly in access to quality jobs, innovation in materials, and financial support for acquiring new technologies, the report says. The president of the Dominican Confederation of micro, small, and medium-sized construction companies (Copymecon), Eliseo Cristopher, highlights the lack of modernization in the sector, the report notes. He points out that in developed countries, small companies can use equipment like backhoes, which are highly efficient, while in the Dominican Republic, similar work requires a large number of manual laborers, the report relays. Modernization, according to Cristopher, would lead to greater efficiency and competitiveness in the construction sector, the report notes. One significant challenge faced by the construction sector is the high percentage of foreign laborers it employs, which impacts the local workforce, the report says. Access to modern construction technologies remains a financial obstacle for many construction MSMEs in 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. TCR-LA reported in April 2019 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. On August 14, 2023, the TCR-LA reported that Moody's Investors Service has 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. 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. DOMINICAN REPUBLIC: Minister of Economy Signs Samoa Agreement ------------------------------------------------------------- Dominican Today reports that the Minister of Economy, Planning, and Development of the Dominican Republic, Pavel Isa Contreras, expressed the Caribbean region's commitment to collaborate with the European Union in implementing the new Samoa Agreement and the Caribbean Regional Protocol. This cooperation aims to achieve sustainable and inclusive development in the region. Minister Isa Contreras represented the Caribbean region at the signing ceremony of the Samoa Agreement during the 46th Session of the Council of Ministers of the Organization of African, Caribbean, and Pacific States (OACP) and the European Union (EU), according to Dominican Today. The new agreement signifies a substantial change in the relationship between the European Union and the OACP countries, creating opportunities for collaboration on various development challenges, the report notes. The Minister highlighted the importance of effective implementation, regional coordination, and support for strengthening technical and financial capacities in the Caribbean region, the report relays. He also emphasized the significance of the European Union's involvement in multilateral forums addressing issues such as climate change, sustainable development, human rights, disaster risk management, and more, the report discloses. The Minister welcomed the appointment of a special envoy for Small Island Developing States (SIDS) and expected significant contributions from the EU for the benefit of all people, the report says. The Samoa Agreement marks a new phase in ACP-EU relations and reflects the commitment of both parties to promote development and cooperation in various areas, the report relays. The signing ceremony included high-level officials from Samoa, the European Union, the OACP, and member countries, the report notes. The agreement aims to strengthen the partnership between the European Union and ACP countries, focusing on common goals and challenges in the pursuit of sustainable development and regional cooperation, 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. TCR-LA reported in April 2019 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. On August 14, 2023, the TCR-LA reported that Moody's Investors Service has 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. 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: Inflation Data Brings Relief; Rate Hike Won't Materialize ------------------------------------------------------------------ Dashan Hendricks at Jamaica Observer reports that consumer prices broadly moderated in October as Jamaicans paid less for petrol, and the annual rise in headline inflation was the smallest it has been in 28 months, prompting the view that the Bank of Jamaica (BOJ) will back off its talks of a new round of rate hikes as the outlook for price increases left it concerned. At the end of its September meeting, the central bank, in notes accompanying its decision then to hold its policy rate at 7 per cent for at least the next eight-week period until it meets again, said it was prepared "to take the necessary actions, including further tightening of monetary policy if the emerging risks to inflation materialise," according to Jamaica Observer. That meeting is set to take place soon, with the central bank expected to communicate its decision. The policy rate has been at 7 per cent since November 2022, the report notes. But ahead of that meeting, data from the Statistical Institute of Jamaica (Statin) show the rate of price increases in the 12 months leading up to October was 5.1 per cent, the lowest it has been since prices rose at a rate of 5 per cent between May 2020 and May 2021, the report says. In October alone, consumer prices rose an average 0.8 per cent, the report relays. Most of October's inflation was attributed to higher costs for electricity, water, and sewage, the report discloses. The index for food prices rose as well, impacted by higher prices for some agricultural produce, such as Irish potato, sweet potato, and carrot, the report notes. Restaurant meals, which have seen price increases more than twice the headline rate in the last year, went up further in October, but all were moderated by a dip in petrol prices as data showing a slowdown in China, the world's second largest economy, and a dip in US industrial production, tied mainly to the strike by auto workers in that country, caused oil demand to decline, the report says. How Organization of the Petroleum Exporting Countries (OPEC) reacts to the lower prices for oil at its November 26 meeting is key, as the organization still believes speculators are driving the market, which may prompt it to do something to stop the freefall, the report relays. The West Texas Intermediate oil contract for delivery in December fell US$3.76, or 4.9 per cent, to settle at US$72.90 a barrel, while the Brent January contract tumbled US$3.76, or 4.63 per cent, to settle at US$77.42 a barrel, the report notes. US crude and the global benchmark hit their lowest level since early July, the report discloses. "Conditions globally and locally do not support further monetary tightening," Dr. Adrian Stokes, a financial economist and CEO of Quantas Capital, told the Jamaica Observer in response to the data. Pointing to the dip in inflation to 5.1 per cent, Stokes, who largely disagreed with the rate hikes between 2021 and 2022, noted that "domestic inflation has come down in line with the global factors that led to the material increase we saw over the last two years," the report relays. For him, that means "the next move by the central bank is likely to be a rate reduction". Stokes didn't say when that might happen. The BOJ has often said its decisions will be driven by incoming data. Others, such as the country treasurer for the JMMB Group Kwame Brooks was less strident, the report notes. "The BOJ will only reduce its benchmark rate if there's a reduction in US Fed rates or demonstration that Jamaica's inflation is now sustained in its target range of 4 per cent to 6 per cent," Brooks told the Caribbean Business Report, the report notes. He said he believes conditions in the US will see the Federal Reserve, the US central bank, electing to hold its policy rates at its next meeting, with the expectation that the BOJ will do the same, the report says. Apart from local inflationary pressures, the BOJ also keeps its policy rate above that in the US to mitigate the risk of capital flight, the report relays. Still, much of what the central bank will do with interest rates depend also on what is happening to core inflation, which excludes food and fuel prices, the report notes. In September, core inflation, which shows the long-term trend in price increases, was 5.6 per cent, while business people were signaling they expected prices to jump to an annualized rate of 8.8 per cent by May next year, the repor says. The bank said it also has its eyes on delays for ships transiting the Panama Canal as a drought in Central America impacts water levels in the waterway as well as how the tightening labour market is influencing prices, 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. In October 2023, Moody's upgraded the Government of Jamaica's long-term issuer and senior unsecured ratings to B1 from B2, and senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has been changed to positive from stable. The upgrade of Jamaica's rating to B1 reflects the government's sustained commitment to fiscal consolidation and debt reduction. The positive outlook reflects Moody's assessment that a continuation of the favorable fiscal trajectory will further increase Jamaica's credit resilience. 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. In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. ======= P E R U ======= CAMPOSOL HOLDING: Fitch Lowers LongTerm IDR to B, Outlook Negative ------------------------------------------------------------------ Fitch Ratings has downgraded Camposol Holding PLC (Camposol) and Camposol S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B' from 'B+'. Fitch has also downgraded Camposol S.A.'s senior unsecured notes at to 'B'/'RR4' from 'B+/RR4'. The Rating Outlook is Negative. The downgrade reflects a slower pace of deleveraging and higher leverage than initially anticipated. The Negative Outlook incorporates Camposol's reliance on a high amount of short-term debt while global capital debt market access is limited. The company's performance has been volatile due to climatic events such as El Nino weather phenomenon that should persist until early 2024. Camposol S.A.'s ratings are the same as the holding company, Camposol Holding PLC. Camposol S.A. is fully-owned by Camposol, and is the main cash generator of the group. The holding company has no debt, and Camposol Holding Plc guarantees the bond issued by Camposol S.A. KEY RATING DRIVERS Rollover of High Short-Term Debt: Fitch expects the company to be able to roll over its short-term debt and generate positive FCF in 2024. Short-term bank debt amounted to USD183 million compared to cash on hand of USD28 million as of 2Q23. Banks have been renewing their bank lines, but the reliance on short-term debt exposes the company to financial and credit market conditions and higher interest expenses. Fitch expects the company to continue to work on extending maturities and repaying debt. Expected Deleveraging: Fitch forecasts adjusted net debt/EBITDA to be close to 6x in 2023, and less than 5x in 2024. 2023 performance is driven by higher blueberry prices and less cost pressure including freight and raw materials. Fitch forecasts EBITDA of about USD100 million (excluding IFRS 16 adjustment) in 2023 and a similar level in 2024 based on higher crop volumes and lower costs. Nearly 44% of planted fields were in the non-productive or mid-yield phase as of 2Q23.Total volumes decreased by about 5.6% for the six months in 2023, driven by lower crop yields due to El Nino impact that delayed the blueberries harvesting season. Steady Investments: Fitch expects capex to reach about USD37 million and USD33 million, respectively, in YE 2023 and YE 2024, and Fitch does not factor any dividends paid in 2023 or 2024. The company's operating cash flow comes predominately from Peru, while the contribution of overseas operations has not yet materialized in 2023 as planted crops need time to reach maturity in countries such as Colombia and Uruguay. Profitability from investments abroad is expected to occur gradually in the coming years. Leading Position in Peru: Camposol benefits from its position as the leading agro-industrial company in Peru, developed through the vertically integrated production of food products such as avocados, blueberries, and other produces (tangerines, mangoes, grapes). The company's profitability is enhanced by its control of the value chain, which consist of research and product development, growing fields, processing facilities, and sales and distribution channels. As it produces fresh fruits, the company is also positioned well in the worldwide trend toward consuming healthy and more convenient products. Blueberries, avocados, and other products represented 62%, 14%, and 24% of total revenue, respectively, in 2022. Revenues came 45% from the U.S., 33% from Europe and 13% from Asia in 2022. Exposure to Price and Climatic Risks: Rating constraints include Camposol's exposure to price and production yield fluctuations. External factors such as the El Nino/La Nina weather phenomena, geopolitical conflicts which could cause logistical issues, also are negatively factored into the company's ratings. DERIVATION SUMMARY Camposol's 'B' rating reflects the company's medium-sized operational scale and the geographic concentration of its production base, which is weak compared with other commodity traders and processors such as Bunge Limited (BBB/Rating Watch Positive). Camposol's business profile is distinct in Fitch's commodity rated portfolio considering its products sold (avocados, blueberries and others); other peers are mainly in the sugar and ethanol segments, operating with less diversification. The company operates in a high business risk commodity industry, where performance is subject to external shocks such as disruption in logistics, climatic events, natural disasters and potential supply and demand imbalances, creating yield and price volatility. KEY ASSUMPTIONS - EBITDA of about USD100 million (excluding IFRS 16) positively impacted by lower ocean freight costs and higher blueberries prices in 2023; - Capex of about USD37 million in 2023 and USD33 million 2024; - Net leverage of about 6x in 2023 and below 5x in 2024. RECOVERY ANALYSIS Fitch believes that a debt restructuring would like occur under a stress economic conditions and external shocks such as climatic events or lack of access to certain exports markets. Therefore, Fitch has performed a going concern recovery analysis for Camposol that assumes that the company would be reorganized rather than liquidated. Camposol would have a going concern EBITDA of about USD74 million and a distressed multiple of 5x due to the exposure to the agri-business sector and factors such as climatic events, logistic issues, potential strikes or a shut-down of exports markets. The recovery performed under this scenario resulted in a recovery level of 'RR3'. Because of Fitch's 'RR4' soft cap for Peru, which is outlined in criteria, Camposol's Recovery Rating has been capped at 'RR4' reflecting average recovery prospects. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Reduction in short-term debt; - Strong positive FCF; - Net leverage below 3.5x on a sustained basis. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Net leverage above 4.5x by 2025 and going forwards; - EBITDA coverage below 2x; - The company not being able to rollover its short-term debt; - Negative FCF and weak liquidity. LIQUIDITY AND DEBT STRUCTURE Weak Liquidity: Camposol's liquidity is weak due to cash on hand of USD28 million and high short-term debt. Debt was mainly comprised of working capital lines USD183 million for short-term debt in 2Q23 and the company's USD350 million unsecured notes due in 2027. The company has access to banks to finance and roll-over working capital credit lines. ISSUER PROFILE Camposol is the leading agro-industrial company in Peru. It is involved in the harvesting, processing and marketing of high-quality agricultural products such as avocados, blueberries and others (tangerines, mangoes, grapes), which are exported to Europe, the U.S. and Asia. ESG CONSIDERATIONS Camposol Holding PLC has an ESG Relevance Score of '4' for Governance Structure due to ownership concentration, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Camposol S.A. has an ESG Relevance Score of '4' for Governance Structure due to ownership concentration, which 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 Recovery Prior ----------- ------ -------- ----- Camposol Holding PLC LT IDR B Downgrade B+ LC LT IDR B Downgrade B+ Camposol S.A. LT IDR B Downgrade B+ LC LT IDR B Downgrade B+ senior unsecured LT B Downgrade RR4 B+ ===================== P U E R T O R I C O ===================== EMINENCE CORPORATION: Hires Modesto Bigas Law Office as Counsel --------------------------------------------------------------- Eminence Corporation seeks approval from the U.S. Bankruptcy Court for the District of Puerto Rico to employ Modesto Bigas Law Office as its counsel. The firm will provide legal services and represent the Debtor in the Chapter 11 bankruptcy proceedings. Modesto Bigas Law will be paid at the hourly rate of $250, and will also be reimbursed for reasonable out-of-pocket expenses incurred. Modesto Bigas Law will be paid a retainer in the amount of $3,000. Modesto Bigas Mendez, Esq., partner of Modesto Bigas Law Office, assured the Court that the firm is a "disinterested person" as the term is defined in Section 101(14) of the Bankruptcy Code and does not represent any interest adverse to the Debtor and its estates. Modesto Bigas Law can be reached at: Modesto Bigas Mendez, Esq. Modesto Bigas Law Office PO Box 7462 Ponce, PR 00732 Tel: (787) 844-1444 Fax: (787) 842-4090 E-mail: modestobigas@yahoo.com About Eminence Corporation Eminence Corporation filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code (Bankr. D.P.R. Case No. 23-03714) on Nov. 10, 2023. The petition was signed by Irmgard A. Pagan Rivera as president. At the time of filing, the Debtor estimated $1,777,391 in assets and $1,537,640 in liabilities. Modesto Bigas Mendez, Esq. at MODESTO BIGAS LAW OFFICE represents the Debtor as counsel. ================= V E N E Z U E L A ================= VENEZUELA: Facing Threat of Sanctions Again ------------------------------------------- Jamaica Observer reports that the Biden Administration is prepared to revoke all licences recently awarded to Venezuela if Nicolas Maduro doesn't present a path towards fairer elections by the end of November, according to a report on US financial news channel Bloomberg. US Assistant Secretary of State for Western Hemisphere Affairs Brian Nichols said, "Everything is on the table," including revoking recently issued licenses allowing the export of Venezuelan oil and gas, Bloomberg reports, according to Jamaica Observer. The gesture of goodwill came as response to the signing of an electoral road map agreement between the Maduro Government and the Opposition, the report notes. "If they don't take the agreed steps, we will remove the licences we've awarded," Nichols said in an interview on the sidelines of the Asia-Pacific Economic Cooperation forum in San Francisco, the report relays. Among the agreed steps was to define a process to allow all Opposition candidates to run in the 2024 presidential election. The winner of Venezuela's October 22 primaries, Maria Corina Machado, remains banned from participating by Maduro's Government, the report says. Despite his comments on the potential for sanctions to return if the Maduro regime fails to comply, Nichols said that he's "confident" that the Government will live up to the deal and create a way for Machado to run, the report discloses. US Secretary of State Antony Blinken has said they also expect the release of wrongfully detained American and Venezuelan political prisoners. Maduro has repeatedly said that he will not give in to what he described as "blackmail" demands from the US, the report says. The development comes as US oil firm Chevron Corp has begun supplying fuel to Venezuela's State-run oil company PDVSA under Washington's approval of expanded deals with the South American country, according to a separate report from Reuters, the report notes. Last month, the US softened sanctions on Venezuelan oil production after four years, a step that should reshape global crude flows, the report adds. About Venezuela Venezuela, officially the Bolivarian Republic of Venezuela, is a country on the northern coast of South America, consisting of a continental landmass and a large number of small islands and islets in the Caribbean sea. The capital is the city of Caracas. Hugo Chavez was president to Venezuela from 1999 to 2013. The Chavez presidency was plagued with challenges, which included a 2002 coup d'etat, a 2002 national strike and a 2004 recall referendum. Nicolas Maduro was elected president in 2013 after the death of Chavez. Maduro won a second term at the May 2018 Venezuela elections, but this result has been challenged by countries including Argentina, Chile, Colombia, Brazil, Canada, Germany, France and the United States who deemed it fraudulent and moved to recognize Juan Guaido as president. The presidencies of Chavez and Maduro have challenged Venezuela with a socioeconomic and political crisis. It is marked by hyperinflation, climbing hunger, poverty, disease, crime and death rates, social unrest, corruption and emigration from the country. Moody's has withdrawn 'C' local currency and foreign currency ceilings for Venezuela in September 2022. Standard & Poors has also withdrawn its 'SD/D' foreign currency sovereign credit ratings and 'CCC-/C' local currency ratings on Venezuela in September 2021 due to lack of sufficient information. Fitch withdrew its own 'RD/C' Issuer Default Ratings on Venezuela in June 2019 due to the imposition of U.S. sanctions on the country's government. ********* 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 * * *