/raid1/www/Hosts/bankrupt/TCRLA_Public/240606.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Thursday, June 6, 2024, Vol. 25, No. 114
Headlines
A R G E N T I N A
ARGENTINA: Bonds Climb as Milei Deregulation Plan Moves Forward
ARGENTINA: Recession Has Hit Rock Bottom, Economy to Recover
B A H A M A S
BAHAMAS: Presents Tax Free Budget to Parliament
FTX GROUP: Report Reveals Lingering Exposure for Fenwick & West
B R A Z I L
BANRISUL: Fitch Keeps 'BB-/B' IDRs on Watch Negative
BRAZIL: Consumer Prices Rise Less Than Expected in Mid-May
BRDE: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
GOL LINHAS: Posts R$1.2 Billion in FY 2023
C A Y M A N I S L A N D S
ARADA SUKUK 2: Moody's Gives '(P)B1' Rating on Sukuk Unsec. Certs
C H I L E
AES ANDES: Moody's Rates New Jr. Sub. Capital Notes Due 2055 'Ba1'
AES ANDES: S&P Assigns 'BB' LT Rating on New Junior Sub. Notes
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Organic Law of the Reserve Bank Now in Force
DOMINICAN REPUBLIC: Pro Consumidor Says Food Prices Are Stable
E C U A D O R
BOLIVARIANO DPR: Fitch Assigns 'BB-' Final Rating on 2024-1 Notes
J A M A I C A
[*] JAMAICA: 34% Increase in Value of Banknotes Issued in 2023
P A R A G U A Y
FRIGORIFICO CONCEPCION: S&P Puts 'B' ICR on CreditWatch Negative
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Bonds Climb as Milei Deregulation Plan Moves Forward
---------------------------------------------------------------
Manuela Tobias and Kevin Simauchi at Bloomberg News report that
Argentina's sovereign bonds rallied after President Javier Milei's
main legislative attempt to deregulate the economy moved closer to
a decisive Senate vote after weeks of stalemate.
Members of the general, budget and constitutional committees
approved sending the so-called 'omnibus' bill to all senators.
Lawmakers achieved "dictamen," or consensus, on putting it to a
floor vote in the opposition-controlled Senate, which by law is at
least a week away, according to Bloomberg News. Budget Committee
members also agreed to do the same for the accompanying fiscal
bill, the report notes.
Argentina's dollar bonds climbed across the curve, posting some of
the best gains among its emerging-market peers, the report relays.
Notes due in 2046 advanced roughly one cent to trade just below 46
cents on the dollar, gaining for a third straight session,
according to indicative pricing data compiled by Bloomberg,
Bloomberg News discloses.
The bills, first introduced as a single package in December, passed
the lower house in late April after being significantly watered
down. They went to the relevant upper chamber committees on May 7,
but have been bogged down in negotiations until now, Bloomberg News
notes. The package still contains a modified chapter with
incentives for foreign investors in large projects like mining,
known as RIGI, Bloomberg News relates.
Milei's party holds only seven of the 72 seats in the Senate, while
the main Peronist opposition holds 33, Bloomberg News notes. That
means the libertarian president had to broker deals with the
pro-business PRO party and members of two other moderate groups to
get it passed, underscoring a pragmatism long sought by foreign
investors, Bloomberg News relays.
Milei was hoping to get the package approved and sign a pact with
the nation's governors by May 25, a national holiday, but ended up
holding a solo event instead, Bloomberg News notes. Amid the
stalemate, the president fired his Cabinet chief, Nicolas Posse,
replacing him with former Interior minister Guillermo Francos,
Bloomberg News discloses.
Francos spent his first day on the job discussing the bill with
Senate caucus leaders and heralded the negotiations alongside
Vice-President Victoria Villarruel to get the bill through,
Bloomberg News relays.
Lawmakers agreed that Milei should have expanded executive powers
on administrative, financial, economic and energy matters, as well
as the ability to dissolve dozens of special-purpose federal
government funds, Bloomberg News relays. They also allowed the
privatisation of nearly a dozen firms, including airline
Aerolíneas Argentinas, public utilities, train and postal service
companies, and the expansion of the income tax base, Bloomberg News
notes.
Lawmakers negotiated some changes to the reform package's sections
on income taxes - like raising the minimum taxable income to
accommodate constituents from the better-earning southern Patagonia
region - and adding some exclusions to a tax amnesty meant to
encourage the declaration of taxable assets abroad, according to an
early copy of the legislation seen by Bloomberg News, Bloomberg
News says. The proposal also still contains a labour reform Milei
considers essential to encourage companies to hire, Bloomberg News
relays.
If the drafts are approved on the floor, the bills would head back
to the lower house Chamber of Deputies for it to accept any
amendments before going into effect, Bloomberg News notes. If
successful, Milei will have more power to cut expensive subsidies,
eliminate costly government bodies and attract foreign investments
to balance the country's budget and restart a tanking economy,
Bloomberg News adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on March 15, 2024, raised its local currency
sovereign credit ratings on Argentina to 'CCC/C' from 'SD/SD' and
its national scale rating to 'raB+' from 'SD'. S&P also raised its
long-term foreign currency sovereign credit rating to 'CCC' from
'CCC-' and affirmed its 'C' short-term foreign currency rating. The
outlook on the long-term ratings is stable. In addition, S&P
revised its transfer and convertibility assessment to 'CCC' from
'CCC-'.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and policy
uncertainties with the favorable change in near-term debt service
obligations. S&P also expect no further debt exchanges that it
would likely consider to be distressed.
Fitch Ratings upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
ARGENTINA: Recession Has Hit Rock Bottom, Economy to Recover
------------------------------------------------------------
Buenos Aires Times reports that Argentina's Government believes
that the recession hit rock bottom in March and April and stated
that there are signs that activity is starting to bounce back.
"We believe that the lowest point is behind us or happening now and
some indicators start to show light at the end of the tunnel," said
Presidential Spokesperson Manuel Adorni, according to Buenos Aires
Times.
President Javier Milei's spokesman considered positive data that
"some wages are starting to beat inflation, albeit marginally," and
some sectors "are starting to gain traction," the report notes.
The spokesman recalled that there is a discussion about how deep
the slump is, and stated that "the lowest point has already been
hit," the report relays.
Regarding the fall in activity that led to job losses, Adorni
underlined that "it is the cost paid for having honest levels which
needed correction," the report discloses.
"We're paying for the party enjoyed by a few, who sold us the idea
that we were all invited, but they didn't let us join in," he
insisted, the report notes.
Consulted about whether the Government had changed its view on
public works after what happened to the gas supply, Adorni
confirmed the suppression policy, Buenos Aires Times relays.
Nevertheless, he stressed that works related to the gas grid
already scheduled will continue within the expected deadlines, the
report relays.
In addition, he defended the work of Energy Secretary Eduardo
Rodriguez Chirillo by stating that "there was no lack of foresight
at all," the report notes.
20,000 State Employees Laid Off
The number of public employees was reduced by 19,223 people between
December, 2023 and April, 2024, according to data from the INDEC
national statistics bureau, the report relays.
In December, there were 341,473 state employees, and by April this
had dropped to 322,250, the report notes.
The data confirm the adjustment of public payrolls implemented by
Javier Milei's government, the report discloses.
According to official figures, most employees are in the national
public administration, at 215,901, the report relays. Last
December, there were 231,305, which shows that the main cutback was
in that orbit, the report notes.
In state-run companies, there were 110,168 people working as of
December 2023, and by April this had dropped to 106,349, which also
reflects a cutback of nearly 4,000 employees, the report relays.
According to Milei's government, the public sphere is totally
oversized, which is why the policy applied is not to renew expiring
contracts, the report says.
The libertarian administration's priority is to downsize the State,
which grew significantly in the last Kirchnerite governments, the
report notes.
They are also pushing for provinces to cut back on public
employment, based on agreements with the national government, the
report relays.
Economy Minister Luis Caputo achieved a fiscal surplus in the first
half of the year, and the goal will be to maintain it through to
the end of this month, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on March 15, 2024, raised its local currency
sovereign credit ratings on Argentina to 'CCC/C' from 'SD/SD' and
its national scale rating to 'raB+' from 'SD'. S&P also raised its
long-term foreign currency sovereign credit rating to 'CCC' from
'CCC-' and affirmed its 'C' short-term foreign currency rating. The
outlook on the long-term ratings is stable. In addition, S&P
revised its transfer and convertibility assessment to 'CCC' from
'CCC-'.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and policy
uncertainties with the favorable change in near-term debt service
obligations. S&P also expect no further debt exchanges that it
would likely consider to be distressed.
Fitch Ratings upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
=============
B A H A M A S
=============
BAHAMAS: Presents Tax Free Budget to Parliament
-----------------------------------------------
RJR News reports that the Bahamas government has presented a
tax-free US$3.54 billion budget to Parliament, with Prime Minister
Phillip Davis saying many components of this fiscal package carry
forward and build on the measures that his administration has
implemented since it came into office in 2021.
Mr. Davis told legislators that total expenditure is estimated to
amount to US$3.61 billion, of which recurrent expenditure accounts
for $3.27 billion and capital expenditure for US$344.5 million,
according to RJR News.
Prime Minister Davis said the fiscal deficit is estimated at
US$69.8 million, or 0.5 per cent of gross domestic product, with
the primary balance showing a surplus of US$586.9 million or 3.9
per cent of GDP, the report relays.
FTX GROUP: Report Reveals Lingering Exposure for Fenwick & West
---------------------------------------------------------------
Alison Frankel at Reuters reports that the California law firm that
acted as lead outside counsel for crypto exchange FTX until just
before its collapse in 2022 remains under investigation in the FTX
Chapter 11 bankruptcy, according to a report, opens new tab issued
by an independent court-appointed examiner.
Fenwick & West was the only law firm "entrusted with a birds-eye
view" of what was happening at FTX and its sister hedge fund
Alameda Research, according to bankruptcy examiner Robert Cleary of
Patterson Belknap Webb & Tyler, who was appointed earlier this year
at the behest of federal bankruptcy watchdogs, according to
Reuters.
Fenwick's legal work for FTX and Alameda, the Cleary report said,
"closely intersected with core aspects of the FTX Group's improper
operations and management," including the diversion of more than $2
billion in "founder loans" to FTX insiders as well as efforts by
FTX and Alameda executives to hide the close relationship between
the exchange and the hedge fund from regulators, the report notes.
Fenwick said in an email statement that it has and will continue to
cooperate with the ongoing investigation described in Cleary's
report, Reuters relays.
"The examiner's status report did not include any finding of
wrongdoing on Fenwick's part," the law firm's statement said.
"Fenwick stands behind the integrity of the work we performed on
behalf of FTX," the report notes.
Cleary's report referred to Fenwick & West only as Law Firm-1, not
by name, Reuters discloses. But because the examiner noted that
lawyers Daniel Friedberg and Can Sun moved from Law Firm-1 to
in-house roles at FTX and Alameda, it's clear that Law Firm-1 is
Fenwick & West, where the two attorneys previously worked, the
report notes.
Cleary's primary job as examiner was to assess whether FTX's lead
bankruptcy lawyers at Sullivan & Cromwell were conflicted because
of their work for the exchange in the months before its collapse,
the report relays. As my Reuters colleague Dietrich Knauth
reported, the examiner concluded that Sullivan & Cromwell
bankruptcy lawyers were not complicit in FTX's fraud.
Cleary concluded that Delaware federal bankruptcy judge John Dorsey
acted within his discretion when he approved Sullivan & Cromwell as
lead counsel for the bankrupt exchange, the report relays. The
firm has earned more than $180 million in that role.
The examiner did ask Dorsey to authorize additional investigation
of Sullivan & Cromwell's representation of former FTX CEO Sam
Bankman-Fried in his $500 million purchase of Robinhood shares in
2022, the report notes. Federal prosecutors subsequently accused
Bankman-Fried of using misappropriated customer funds to buy his
Robinhood stake, the report relays. (Bankman-Fried was convicted
last November in a Manhattan federal jury trial.)
Reuters discloses that Sullivan & Cromwell said in an email
statement that if the court approves any additional investigation
of its work on the Bankman-Fried's Robinhood deal, it will
cooperate with the examiner.
"Sullivan & Cromwell remains confident in our prepetition work for
FTX and the commencement of the Chapter 11 cases, and we welcome
the examiner's findings to date rejecting various baseless
allegations about our work for FTX," the statement said, the report
notes.
In addition to recounting his own findings on Sullivan & Cromwell,
Cleary disclosed investigations by FTX bankruptcy lawyers from
Quinn Emanuel Urquhart & Sullivan into potential claims against
scores of law firms and accountants that worked for the crypto
exchange, the report relays. (The examiner does not appear to have
conducted an independent investigation of any of FTX's law firms
except for Sullivan & Cromwell.)
Cleary said Quinn found no evidence that most of FTX's outside law
firms were aware of misconduct by FTX insiders, the report
discloses. But according to his report, Quinn's extensive
investigation of Fenwick & West — which included the review of
nearly 185,000 documents turned over by the law firm and nearly
70,000 documents Quinn obtained from FTX's internal database —
shows Fenwick lawyers were "directly involved" in matters that
allegedly helped FTX insiders misappropriate customer money and
hide that misconduct, the report relays.
The examiner also noted that Fenwick and FTX executives used the
ephemeral messaging app Signal for many communications, the report
notes. Of the 144 Signal conversations disclosed by Fenwick, only
18 still show actual messages, the report relays.
Cleary's report does not specifically assert that Fenwick was aware
of the insiders' misconduct, the report discloses. And notably,
Quinn Emanuel has not filed a complaint in the FTX bankruptcy
against Fenwick, which allegedly earned more than $22 million in
legal fees from FTX and Alameda between 2018 and 2022, the report
notes. Quinn has brought lawsuits in FTX's Chapter 11 proceeding
against such defendants as Bankman-Fried's parents and FTX's former
chief compliance officer, a onetime Fenwick partner, the report
relays.
Cleary's report includes some interesting background on FTX's
relationship with Fenwick, which was originally selected to
represent the crypto exchange by Bankman-Fried's father, Stanford
Law School professor Joseph Bankman, Reuters relays. He
"maintained unusually close personal relationships" with Fenwick
lawyers, the report said, "which sometimes translated into
subsidizing perks for certain [Fenwick] attorneys, such as paying
for travel and admittance to sporting events," the report relays.
Bankman did not immediately respond to an email query.
Both Fenwick & West and Sullivan & Cromwell have been sued by FTX
customers in consolidated litigation in Miami federal court over
the exchange's collapse, the report discloses. Both law firms, as
I've told you, have moved to dismiss the lawsuits, arguing that FTX
customers have offered no credible evidence that they were aware of
wrongdoing by Bankman-Fried and other FTX and Alameda insiders, the
report relays.
Lawyers cannot be liable, the firms contend, for providing routine
legal services to fraudsters unless the lawyers knew of the fraud,
the report says.
The allegations discussed in the examiner's report overlap
substantially with claims in the customer lawsuits, the report
discloses. A lead lawyer in the customers' cases, Adam Moskowitz
of The Moskowitz Law Firm told me by email that Cleary's report
lends support to his lawsuits, the report relays.
The examiner "specifically found Fenwick was intricately involved
with all of FTX's core functions and Sullivan specifically gave FTX
instructions and advice on how to hide [Bankman-Fried's] purchase
of millions of dollars in Robinhood stock," Moskowitz said, adding
that he's particularly gratified that Cleary wants to continue
investigating Sullivan & Cromwell's role in Bankman-Fried's
Robinhood stock purchase, the report says.
The examiner's report has no direct impact on the customers' case,
although Fenwick & West can't be too happy that Cleary aired
details about Quinn Emanuel's Chapter 11 investigation of the firm
just as U.S. District Judge Michael Moore of Miami is weighing
Fenwick's motion to dismiss the customers' lawsuit, the report
notes.
In the next few months, Fenwick should know if its FTX woes are
over — or just beginning, the report adds.
About FTX Group
FTX is the world's second-largest cryptocurrency firm. FTX is a
cryptocurrency exchange built by traders, for traders. FTX offers
innovative products including industry-first derivatives, options,
volatility products and leveraged tokens.
Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that
FTX paused customer withdrawals after it was hit with roughly $5
billion worth of withdrawal requests.
Faced with liquidity issues, FTX on Nov. 9, 2022, struck a deal to
sell itself to its giant rival Binance, but Binance walked away
from the deal amid reports on FTX regarding mishandled customer
funds and alleged US agency investigations. Bankman-Fried agreed
to step aside, and restructuring vet John J. Ray III was quickly
named new CEO.
FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc.
(d/b/a FTX US), Alameda Research Ltd. and certain affiliated
companies then commenced Chapter 11 proceedings (Bankr. D. Del.
Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022.
Additional entities sought Chapter 11 protection on Nov. 14, 2022.
FTX Trading and its affiliates each listed $10 billion to $50
billion in assets and liabilities, making FTX the biggest
bankruptcy filer in the US this year.
According to Reuters, SBF shared a document with investors on Nov.
10, 2022, showing FTX had $13.86 billion in liabilities and $14.6
billion in assets. However, only $900 million of those assets
were
liquid, leading to the cash crunch that ended with the company
filing for bankruptcy.
The Hon. John T. Dorsey is the case judge.
The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel;
Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal
North America, LLC as financial advisor. Kroll is the claims
agent, maintaining the page
https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory
T. Donilon, Edward L. Schnitzer, and David M. Banker, is
representing Sam Bankman-Fried in the Chapter 11 cases.
White-collar crime specialist Mark S. Cohen has reportedly been
hired to represent SBF in litigation. Lawyers at Paul Weiss
previously represented SBF but later renounced representing the
entrepreneur due to a conflict of interest.
===========
B R A Z I L
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BANRISUL: Fitch Keeps 'BB-/B' IDRs on Watch Negative
----------------------------------------------------
Fitch Ratings has maintained Banco do Estado do Rio Grande do Sul
S.A.'s (Banrisul) ratings on Rating Watch Negative (RWN) due to the
still uncertain financial impacts stemming from the heavy rains and
flooding in most of the state of Rio Grande do Sul. Fitch placed
the bank's ratings, including the Long-Term Local and Foreign
Currency issuer default ratings (IDRs) of 'BB-' and the National
Long Term rating of 'AA+(bra) on RWN on May 13, 2024. This action
reflected the challenges posed by the natural disaster.
Severe flooding compromised important infrastructure in the region
such as roads, communications infrastructure, energy distribution,
water/health logistics and had negative consequences for
agribusiness.
Whether and to what extent Banrisul has been affected is unknown,
including how it will apply the Central Bank's relief program.
However, this weather event represents a major challenge for the
preservation of the state-owned bank's credit quality,
profitability, liquidity and capital ratios due to its credit
operations and risk profiles, which are largely concentrated (or
with significant parts of its credit operations) in the state of
Rio Grande do Sul.
KEY RATING DRIVERS
ESG - Exposure to Environmental Impacts: Banrisuls's IDRs are
driven by its 'bb-' Viability Rating (VR). The VR reflects
stability of the bank's business profile and its moderate risk
appetite, with risk controls in line with major banks. However, in
Fitch's opinion, the high concentration of operations in the State
of Rio Grande do Sul, which recently was severely affected by
environmental impacts, as described above, highly weighs on Fitch
rating actions.
Stable Business Profile but Sensitive to Geographic Concentration:
Banrisul has a resilient and stable business profile and offers a
wide range of financial products and services. However, there is
regional concentration, with over 90% of its credit originating in
the south, mainly from the state of Rio Grande do Sul. The ratings
also reflect adequate management quality and stable strategies.
The role of the bank is to support the economic and social
development of the State of Rio Grande do Sul. Banrisul operates as
a commercial bank, serving both companies and individuals. The bank
also manages the payroll for the state's employees.
Well-Balanced Risk Profile: Banrisul has a moderate risk appetite,
with risk controls in line with major banks. Loans to individuals
account for the bulk of the total portfolio and those are
predominately lower-risk payroll-backed loans. Most of the lending
to companies are secured with various forms of collateral as are
the vehicle and real estate loans. There is concentration in the
state of Rio Grande do Sul, however, the exposure of the top 20
borrowers accounted for only 3.5% of total loans; historically this
ratio is low.
Asset Quality to be Challenged: Fitch's score of Banrisul's asset
quality of 'b+' has a negative outlook to reflect that severe
flooding will have a negative impact on the bank's asset quality
metrics, but the degree of impact remains to be estimated. The
90-day NPL ratio corresponded to 2.4% of total loans in 1Q24
(versus 2.0 % in at December 2023). Impaired loans, in the 'D-H'
risk range, totaled 6.8% in 1Q24, compared with 6.5% in December
2023.
Profitability Sensitive to Higher Credit Costs: Fitch's score of
Banrisul's earning and profitability of 'b+' has a negative outlook
and reflects the risk of higher credit costs by asset quality
deterioration from the effect of the flooding. Banrisul's
profitability ratios showed a slight improvement in 2023, and
remained satisfactory during the first quarter of 2024. The
operating profit to risk-weighted assets (RWAs) was nearly 1.7% at
1Q24 which was relatively unchanged from YE23.
Satisfactory Capitalization but Challenges Ahead: Capitalization
ratios remain at comfortable levels a common equity Tier 1 (CET1)
capital ratio of 14.4% in March 2024. Total Basel ratio reached
17.6% as of March 2024 which compares well with the 17.1% posted a
year earlier. However, levels are sensitive to lower profits due to
the flooding's impact.
Stable and Diversified Funding and Liquidity: One of Banrisul's
strengths is its stable and diversified funding base with clients
with savings accounts and time deposits. Liquidity is adequate,
while the bank's policy of minimum cash is conservative. The bank's
loans/deposits ratio was at a conservative level of 77% in 1Q24
compared with 78% at December 2023. Total deposits increased by
nearly 6% in 2023 and another 1.4% during the first quarter of
2024. The majority of the deposits are in the form of stable time
deposits. Deposits remained stable during the beginning of the
flooding event, however, the score of 'bb-' has a Negative Outlook
to reflect potential increased pressure on the bank's liquidity
ratios as a result of the climatic event.
Shareholder Support Rating (SSR)
Banrisul's Viability Rating (VR) and SSR are aligned at 'bb-.
However, these ratings were placed on RWN, reflecting fast-evolving
uncertainties regarding the state of Rio Grande do Sul's capacity
and willingness to support the bank given the previously mentioned
challenges. Fitch believes the significant adverse effects the
state has suffered may require a reallocation of resources,
prioritizing the reconstruction of the state over financial support
for the bank, if necessary.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Issuer Default Ratings (IDRs), Viability Rating and National
Ratings
Fitch expects to resolve the NRWN within the next six months which
should allow time to gain a better visibility into the potential
short and medium-term effects that this event will have on
Banrisul's financial profiles and, ultimately, on their ratings and
to also measure the level of support that the bank may receive from
the Federal Government of Brazil and the State Government of Rio
Grande do Sul.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade is unlikely at this time due to the ratings being on RWN
while Fitch determines the full impact of the event on the bank's
key rating drivers.
SSR
Fitch will continue to monitor support capacity and propensity due
to possible negative impacts in the state of Rio Grande do Sul.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings for Banrisul are derived from the internal ratings of
the State of Rio Grande do Sul.
ESG CONSIDERATIONS
Banco do Estado do Rio Grande do Sul S.A. has an ESG Relevance
Score of '5' (which was revised from '2') for Exposure to
Environmental Impacts due to Banrisul's exposure to the state of
Rio Grande do Sul, which recently has been highly sensitive to
catastrophic risks from flooding, 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 Prior
----------- ------ -----
Banco do Estado
do Rio Grande
do Sul S.A.
LT IDR BB- Rating Watch Maintained BB-
ST IDR B Rating Watch Maintained B
LC LT IDR BB- Rating Watch Maintained BB-
LC ST IDR B Rating Watch Maintained B
Natl LT AA+(bra) Rating Watch Maintained AA+(bra)
Natl ST F1+(bra) Rating Watch Maintained F1+(bra)
Viability bb- Rating Watch Maintained bb-
Shareholder
Support bb- Rating Watch Maintained bb-
Subordinated LT B Rating Watch Maintained B
BRAZIL: Consumer Prices Rise Less Than Expected in Mid-May
----------------------------------------------------------
globalinsolvency.com, citing Reuters, reports that consumer prices
in Brazil rose less than expected in the month to mid-May, data
from statistics agency IBGE, as the impact on food inflation from
recent floods turned out to be lighter than initially feared.
The latest inflation reading, economists say, might ease pressure
on the central bank to halt its ongoing monetary easing cycle,
according to globalinsolvency.com.
Prices as measured by the IPCA-15 index were up 0.44% in the
period, IBGE said, picking up from 0.21% in April but below the
0.48% rise expected by economists polled by Reuters, the report
relays.
Annual inflation slowed down to 3.70%, the statistics agency added,
slightly below the 3.72% forecast by economists and hitting the
lowest level for a mid-month reading in Latin America's largest
economy since October 2020, the report notes.
Eight out of the nine groups surveyed by IBGE posted price
increases in the month to mid-May, with healthcare and
transportation leading the way, driven respectively by higher
pharmaceutical and fuel prices, the report discloses. The mid-May
figures maintain Brazil's inflation index within the central bank's
target, which currently stands at 3%, plus or minus 1.5 percentage
points, 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.
S&P Global Ratings raised on Dec. 19, 2023, its long-term global
scale ratings on Brazil to 'BB' from 'BB-'. The outlook on the
long-term ratings is stable. S&P affirmed Brazil's global scale
short-term ratings at 'B' and its national scale long-term rating
at 'brAAA'. S&P also raised the transfer and convertibility
assessment on the country to 'BBB-' from 'BB+'. S&P said, "The
stable outlook reflects our expectation that Brazil will maintain
A strong external position, thanks to strong commodity output and
limited external financing needs. We also believe Brazil's
institutional framework can sustain stable and pragmatic
policymaking based on extensive checks and balances across the
executive, legislative, and judicial branches of government. We
expect a very gradual fiscal correction but anticipate fiscal
deficits will remain large."
Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook. Fitch said Brazil's ratings are supported by its large and
diverse economy, high per-capita income, and deep domestic markets
and a large cash cushion that support the sovereign's financing
flexibility and its high local-currency debt share. Strong external
finances support resilience to shocks, underpinned by a flexible
exchange rate, robust international reserves and a sovereign net
external creditor position. The ratings are constrained by weak
economic growth potential, relatively low governance scores, high
and rising government debt/GDP, and budgetary rigidities. A new
fiscal framework introduced this year aims to anchor a gradual
consolidation process and address these fiscal weaknesses, but its
effectiveness is increasingly unclear.
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).
BRDE: Fitch Affirms 'BB' LongTerm IDRs, Outlook Stable
------------------------------------------------------
Fitch Ratings has affirmed Banco Regional de Desenvolvimento do
Extremo Sul's (BRDE) Long-Term Local and Foreign Currency Issuer
Default Ratings (IDRs) at 'BB' and Short-Term Local and Foreign
Currency IDRs at 'B'. Fitch has also affirmed BRDE's National
Long-Term Rating at 'AAA(bra)' with a Stable Rating Outlook and its
National Short-Term Rating at 'F1+(bra)'. The Outlook for the IDRs
is Stable.
KEY RATING DRIVERS
Government Support Drives Ratings: BRDE's IDRs and National Ratings
are based on Fitch's expectation of support from the bank's
shareholders, the states of Parana, Santa Catarina and Rio Grande
do Sul, if need it. This is reflected in the bank's Shareholder
Support Rating (SSR) of 'bb', which is in line with Parana's
'BB'/Outlook Stable IDR. Fitch does not publicly rate Rio Grande do
Sul and Santa Catarina. However, the combined creditworthiness of
all three states strongly influences BRDE's ratings.
High Support Propensity: Fitch believes the shareholder's
propensity to provide BRDE support if needed is high, reflecting
the bank's policy role and importance as a development bank in
southern Brazil. Fitch expects support will be unquestioned as BRDE
by law is not allowed to pay dividends, which is a strong indicator
of of State support. Additionally, Fitch believes that the local
regulator would likely provide support to BRDE if needed, due to
the backing of its member states.
BRDE's relatively small size compared to the financial capacity of
each of its state shareholders, coupled with their financial
flexibility, high reputational linkages and level of operational
integration between the bank and the three subnational entities,
also influences the assessment.
Strong Policy Role: BRDE's policy role is primarily achieved
through the provision of medium- and longer-term lending to
corporates, small-and-medium sized enterprises, and domestic
cooperatives. On behalf of Brazil's largest development bank
(BNDES, rated BB/Stable), BRDE manages the disbursement of
long-term and subsidized lending to the agricultural sector, making
it one of the largest lenders of BNDES funds.
Environmental Disaster: Although the bank operates in three states
in the southern region of Brazil, about 33% of its portfolio is in
the state of Rio Grande do Sul. The state recently experienced
destructive heavy rains that caused floods that threatened
important infrastructure in the region. Roads, communication
networks, energy distribution, water supply logistics and health
services, as well agribusiness were are negatively affected. While
it is difficult to determine the exact effects on the bank's
financial standing, Fitch believes that the bank will benefit from
support provided by the three state shareholders.
No VR: Fitch does not assign BRDE a Viability Rating, as its
business model is largely determined by its policy role and its
ratings are entirely determined by Fitch's assessment of the
support the bank would receive from the the states of Parana, Santa
Catarina and Rio Grande do Sul.
Financial Performance; Moderate Influence on Ratings: Historically,
BRDE has shown better asset quality than its peers, thanks to its
cautious approach to risk, a focus on the robust agricultural
sector, and a high level of secured loans. Fitch believes the
bank's ability to generate profits will be somewhat affected by the
extent of its financial exposures in the flood-affected area of Rio
Grande do Sul State. This is expected to impact the bank's interest
income as the need for credit provisions, and consequently
expenses, may rise. However, it is not yet possible to determine
the potential effects on the bank's performance indicators.
Solid Capitalization and Gradual Funding Diversification: Fitch
believes BRDE is of high strategic importance to its three
shareholder governments, given its role as the states' financial
arm, and the support would receive if needed. The three states have
supported BRDE's capitalization when needed in the past. In Fitch's
view, the three states remain committed to maintaining the bank's
ample capital buffers.
BRDE's regulatory Common Equity Tier 1 capital ratio was 21.2% at
YE 2023, well above the minimum regulatory requirements. BRDE's
primary funding source remains concentrated on BNDES, accounting
for 45.8% of total funding at YE 2023. However, BRDE's efforts to
further diversify its funding sources has helped to reduce
concentration from previous years. During 2023, the bank had a
record amount of contracts with external sources, BRL 1.3 billion;
an increase of 180.4% compared to 2022. These sources corresponded
to 22.1% of the total contracted operations.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
NATIONAL RATINGs and SSR
- Since BRDE's ratings are driven by the SSR, they can be
downgraded if one or more of its shareholders are also downgraded;
- There may also be a downgrade if there are changes in the
propensity of the controlling states to support BRDE;
- A deterioration of Fitch's view of the creditworthiness of BRDE's
three shareholders;
- A deterioration of Fitch's view of the three shareholders
propensity to support BRDE.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
IDRs, NATIONAL RATINGS and SSR
- An upgrade of BRDE's ratings would depend on the improvement of
the parents' ability and propensity to provide support;
- An improvement of Fitch's view of the creditworthiness of the
three shareholders states;
- An improvement of Fitch's view of the three shareholder state's
propensity to support BRDE;
- The National Scale rating cannot be upgraded as it is at the
maximum level of the scale.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The banks ratings are driven by the support from the shareholders
Paraná State, Rio Grande do Sul State and Santa Catarina State
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
----------- ------ -----
Banco Regional de
Desenvolvimento
do Extremo Sul
(BRDE) LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Natl LT AAA(bra)Affirmed AAA(bra)
Natl ST F1+(bra)Affirmed F1+(bra)
Shareholder Support bb Affirmed bb
GOL LINHAS: Posts R$1.2 Billion in FY 2023
------------------------------------------
Gol Linhas Aereas Inteligentes SA filed its Annual Report on Form
20-F Report filed with the U.S. Securities and Exchange Commission,
reporting a net loss of R$1.2 billion in 2023, compared to a net
loss of R$1.6 billion in 2022.
The Company is presently undergoing Chapter 11 proceedings in the
United States Bankruptcy Court for the Southern District of New
York.
The commencement of the Chapter 11 Cases is intended to allow the
Debtors to reorganize, improve liquidity, reject unprofitable
contracts, and amend capacity purchase agreements to enable
sustainable profitability. The Company currently operates with a
significantly negative working capital, resulting in significant
uncertainty about its ability to continue as a going concern due to
the Chapter 11 cases.
As part of the Chapter 11 Cases, the Debtors will continue to
operate their businesses in the ordinary course and the Debtors'
board and management will remain in place.
Following commencement of the Chapter 11 Cases, the Debtors
obtained relief from the Bankruptcy Court to operate their
businesses in the ordinary course and to pay or otherwise honor, in
the Debtors' discretion, certain prepetition obligations. These
obligations relate to, among others, certain employee wages,
salaries and benefits, taxes, insurance, and the payment of certain
vendors and suppliers.
On February 28, 2024, the Bankruptcy Court granted, on a final
basis, the Debtors' request to access up to US$1 billion of
debtor-in-possession financing from certain secured bondholders
and/or their designees, to be used for, among other things,
designated working capital expenses, general corporate needs, and
costs related to restructuring.
During the DIP financing period, the Company must maintain a
minimum liquidity of $200 million from April 1, 2024, until
November 30, 2024, and U$$250 million thereafter.
Immediately upon the commencement of the Chapter 11 Cases, a global
automatic stay of adverse creditor collection and enforcement
action went into effect pursuant to section 362 of Title 11 of the
United States Code to prevent, among others, the Debtors' creditors
from exercising remedies with respect to the Debtors' prepetition
obligations.
The Debtors expect to address their prepetition liabilities under a
chapter 11 plan of reorganization, subject to Bankruptcy Court
approval. A plan of reorganization determines the rights and
satisfaction of claims of various creditors and parties-in-interest
and is subject to the ultimate outcome of negotiations and
Bankruptcy Court decisions ongoing through the date on which the
plan of reorganization is confirmed. Which may result in impacts on
the Company's financial statements.
A confirmed plan of reorganization or other arrangement may
materially change the amounts and classifications in the Company's
financial statements.
The Company presently expects that any proposed plan of
reorganization will provide, among other things, mechanisms for
settlement of claims against the Debtors' estates, settlement of
the Company's existing equity and debt holders, and certain
corporate governance and administrative matters pertaining to the
reorganized Company.
Any proposed plan of reorganization will be subject to revision
prior to submission to the Bankruptcy Court based upon discussions
with the Company's creditors and other interested parties, and
thereafter in response to interested parties' objections and the
requirements of the Bankruptcy Code and Bankruptcy Court. There is
no guarantee that the reorganization plan will be approved.
As of December 31, 2023, the Company has R$16.7 billion in total
assets, $39.9 billion in total liabilities, and a total deficit of
R$23.2 billion.
A full-text copy of the Company's Form 20-F is available at:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1291733/000129281424002090/golform20f_2023.htm
About Gol GOLL4.SA
GOL Linhas Aereas Inteligentes S.A. provides scheduled and
non-scheduled air transportation services for passengers and cargo;
and maintenance services for aircraft and components in Brazil and
internationally. The company offers Smiles, a frequent-flyer
program to approximately 20.5 million members, allowing clients to
accumulate and redeem miles. It operates a fleet of 146 Boeing 737
aircraft with 674 daily flights. The company was founded in 2000
and is headquartered in Sao Paulo, Brazil.
GOL Linhas Aereas Inteligentes S.A. and its affiliates and its
subsidiaries voluntarily filed for Chapter 11 protection (Bankr.
S.D.N.Y. Lead Case No. 24-10118) on Jan. 25, 2024.
GOL Linhas estimated $1 billion to $10 billion in assets as of the
bankruptcy filing.
The Debtors tapped Milbank Llp as counsel, Seabury Securities Llc
as restructuring advisor, financial advisor and investment banker,
Alixpartners, LLP, as financial advisor, and HUGHES Hubbard & Reed
LLP as aviation related counsel. Kroll Restructuring
Administration LLC is the claims agent.
===========================
C A Y M A N I S L A N D S
===========================
ARADA SUKUK 2: Moody's Gives '(P)B1' Rating on Sukuk Unsec. Certs
-----------------------------------------------------------------
Moody's Ratings has assigned a (P)B1 rating to the backed senior
unsecured trust certificate issuance programme (the "sukuk
programme") of Arada Sukuk 2 Limited, a special purpose vehicle
established by Arada Developments LLC (Arada, B1 stable). The
outlook is stable.
RATINGS RATIONALE
The assigned (P)B1 rating on the sukuk programme issued by Arada
Sukuk 2 Limited is at the same level as Arada's B1 long-term
corporate family rating (CFR). In Moody's view, the potential
certificate holders (1) will be effectively exposed to Arada's
senior unsecured credit risk; (2) will not have any preferential
claim or recourse over the trust assets, or rights to cause any
sale or disposition of the trust assets except as expressly
provided under the transaction documents; and (3) will only have
rights against Arada, ranking pari passu with other senior
unsecured obligations as provided in the transaction documents. As
such, a change in Arada's rating will be reflected in the ratings
of the sukuk programme and any certificates issued under the
programme.
The sukuk structure will consist of no less than 55% Ijara assets
(asset sale and lease back transaction) and the remainder being
Murabaha assets (commodity purchased and sold on a deferred payment
basis). The net proceeds of the issuance will be used by Arada for
its general corporate purposes, including possible land
acquisitions for expansion purposes. Moody's rating of the sukuk
programme does not express an opinion on the sukuk structure's
compliance with Shari'ah law. The ratings are subject to review of
the final documentation, the terms and conditions of which are not
expected to change in any material way from the draft documents
reviewed.
Arada's ratings reflects its (1) unique market position in Sharjah
(Ba1 stable), with Moody's expectation that Arada will continue to
benefit from long-term access to premium and well-located land
plots; (2) strong track record of support from strategic and
influential shareholders; (3) good profitability and revenue
visibility in the current market with Moody's expectation that
credit metrics will improve gradually in the next 12-18 months such
that Moody's adjusted debt to book capitalization will improve
below 60%, and Moody's adjusted EBIT/Interest Expense coverage will
improve above 3.0x; and (4) adequate liquidity profile with Moody's
expectation that Arada is committed to maintaining a predominantly
senior unsecured capital structure. The rating agency also
anticipates that any buildup of material secured short-term debt
will be temporary and will be proactively addressed by the
company.
The rating also reflects Arada's (1) small scale, exposure to the
cyclical property sector, and limited operating track record in
developing and delivering properties through economic cycles; (2)
revenue concentration in two projects and the lack of geographic
diversification outside Sharjah, despite the company's ongoing
expansion plans into the Dubai's property market; (3) relatively
aggressive funding policy in Sharjah during the construction phase,
albeit improving under the newly launched projects; (4) an
ambitious property development pipeline which could delay
improvement in the company's balance sheet; and (5) currently weak
credit metrics for the rating level, with Moody's adjusted debt to
book capitalization of 68% for year-end 2023 and EBIT/Interest
expense of 1.2x.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that Arada's
operational performance will remain strong over the next 12-18
months, and that the company will continue to maintain adequate
liquidity during the current investment cycle, while benefiting
from the ongoing supportive market trends in the UAE's property
sector.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Arada's rating could be upgraded should the company significantly
increase its scale, strengthen its business profile, and
demonstrate over time a robust operating track record in developing
and delivering properties through economic cycles. Upward pressure
would also require the company exhibiting strong credit metrics
such that Moody's adjusted debt to book capitalization is sustained
below 50% and Moody's adjusted EBIT to interest expense is
sustained above 4.0x.
Conversely, the rating could be downgraded if Arada's liquidity
position weakens or the operating environment in Sharjah
deteriorates, which could cause revenue and gross margin declines.
In addition, the rating could come under pressure if the company's
credit metrics do not improve as forecasted by Moody's, such that
adjusted debt to book capitalization does not trend below 60%, and
adjusted EBIT to interest expense remains sustainably below 3.0x.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Homebuilding and
Property Development published in October 2022.
=========
C H I L E
=========
AES ANDES: Moody's Rates New Jr. Sub. Capital Notes Due 2055 'Ba1'
------------------------------------------------------------------
Moody's Ratings assigned a Ba1 rating to AES Andes S.A. (AES Andes,
Baa3) 31-year Junior Subordinated Capital Notes due 2055 (New
Hybrid). The size and completion of the Hybrid are subject to
market conditions. The outlook is stable.
AES Andes intends to use the net proceeds from this New Green
Hybrid issuance to refinance a portion of its outstanding hybrids
and to finance or refinance eligible green projects under its Green
Financing Framework.
RATINGS RATIONALE
The Ba1 rating assigned to the New Hybrid is one notch below AES
Andes S.A. Baa3 senior unsecured rating, reflecting that this
subordinated debt instrument ranks junior to all present and future
senior indebtedness, secured debt and unsubordinated debt
obligations but senior to Junior Subordinated Capital, including
the two outstanding Junior Subordinated Capital Notes due 2079 and
other deeply subordinated securities that the issuer may issue in
the future that is designated as deeply subordinated capital.
In Moody's view, the New Hybrid has equity-like features that allow
it to receive Basket 'M' treatment (please refer to Moody's Hybrid
Equity Credit published in February 2024), which translates into
50% equity credit and 50% debt for Moody's calculations of
financial leverage, subject to a cap of 30% of the company's total
adjusted equity. The features of the New Hybrid include: (1)
optional coupon deferral; (2) a contractual maturity of 31 years;
and (3) no step-up in coupon prior to year 11 and the cumulative
step-ups will not exceed a total of 100 basis points over the life
of the instrument.
Moody's assumes the issuance proceeds will be primarily used to
support AES Andes' liability management strategy, implying in no
material change to the agency's underlying assumptions for to the
company's consolidated leverage metrics. Hence, AES Andes' Baa3
senior unsecured notes, and Ba2 junior subordinated capital 2079
notes are unchanged at this time.
Moody's considers the debt at the holding company, Mercury Chile
HoldCo LLC (Mercury, Ba1 stable), part of the company's
consolidated leverage profile, given it depends on dividends up
streamed from AES Andes for debt service. On May 30 Mercury
launched a tender offer to purchase for cash any and all of its
6.500% Backed Senior Secured Notes due 2027 ($ 318 million
outstanding).
AES Andes credit profile benefits from its predictable cash flows
deriving from long-term contracted operations with a predominantly
unregulated customer base. It also considers the geographic
diversification of its assets in Chile, Colombia and Argentina.
The assigned rating assumes the company will continue successfully
implementing its Greentegra strategy to grow the group's renewables
footprint and the coal phase out by 2027. AES Andes' aggressive
decarbonization targets are supportive of its competitive market
position, particularly in the context of mining companies in Chile
that are seeking a more sustainable production chain. Nonetheless,
this strategy entails a change to a more risky business model, that
is subject to the construction of several assets and buybacks of
energy.
AES Andes' investment grade credit profile is premised on Moody's
expectation that the consolidated cash flow from operation before
working capital changes (CFO pre WC)-to-debt ratio will improve
above 20%, while the retained cash flow (RCF)-to-debt ratio remains
above 15%. In 2023, these credit metrics have deteriorated mainly
due to the lower margins of regulated and non-regulated contracts
associated with the termination of contracts with fuel price
indexation, higher insurance costs, both in coal plants and new
renewable plants that came into operation in 2023, and higher
development expenses in solar and hydrogen projects. Moody's
expects the consolidated credit metrics will remain tight in
2024-25, but recovering afterwards to the thresholds that support
AES Andes investment grade rating.
The assigned rating to AES Andes proposed notes is based on
preliminary documentation. Moody's does not anticipate changes in
the main conditions that the bond will carry. Should issuance
conditions and/or final documentation deviate from the original
ones submitted and reviewed by the rating agency, Moody's will
assess the impact that these differences may have on the rating and
act accordingly.
RATING OUTLOOK
The stable outlook is premised on Moody's expectation that AES
Andes will be able to report consolidated ratio of CFO
pre-W/C-to-debt (as Moody's adjusted) above 20% on a forward
looking and sustained basis. It also assumes that AES Andes will
prudently manage distributions to the shareholder and its capital
structure to maintain higher financial flexibility while executing
its aggressive decarbonization strategy.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
As the New Hybrid's rating is positioned relative to other ratings
of AES Andes, a change in either: (1) Moody's relative notching
practice; or (2) the Baa3 senior unsecured rating of AES Andes,
could affect the rating of the New Hybrid.
AES Andes' rating could be downgraded if Moodys sees the company's
evolving strategy towards a renewable platform translating into an
overall higher business risk, resulting from a higher exposure to
production shortfalls and energy price volatility. Quantitatively,
negative rating pressure will build from further deterioration in
operating margins and cash flow metrics, as evidenced by a
Moody's-adjusted consolidated CFO pre-WC/debt and retained cash
flow to debt persisting below 20% and 15% respectively.
Given the currently tight key credit metrics, a rating upgrade is
unlikely. Over time, a rating upgrade would be considered if the
group's consolidated CFO pre-WC to debt and retained cash flow to
debt as Moody's adjusted consistently exceeds 25% and 15%
respectively.
COMPANY PROFILE
Headquartered in Santiago, AES Andes is one of the leading energy
producers in Chile with 3,573 MW of installed capacity. It also has
significant presence in Colombia (1,129MW) and in Argentina (643
MW).
Mercury is the indirect holding company of AES Andes, as well as of
the intermediate holding companies that guarantee the Mercury notes
(Ba1 stable), along with Inversiones Cachagua SpA and Omega SpA.
The AES Corporation (Baa3 stable) is Mercury's direct parent
company.
The principal methodology used in this rating was Unregulated
Utilities and Unregulated Power Companies published in December
2023.
AES ANDES: S&P Assigns 'BB' LT Rating on New Junior Sub. Notes
--------------------------------------------------------------
S&P Global Ratings, on June 3, 2024, assigned its 'BB' long-term
rating to Chilean power generation company AES Andes S.A.'s
proposed notes. In addition, S&P affirmed its 'BBB-' issuer credit
rating on Mercury Chile Holdco LLC and the 'BB+' ratings on its
notes, given their structural subordination. S&P also affirmed its
'BBB-' ratings on AES Andes and its unsecured notes because it
considers it a core subsidiary of Mercury Chile.
The stable outlook reflects S&P's expectation that Mercury Chile's
leverage will be about 3.5x in the next two years, amid additional
investments for new renewable energy capacity at AES Andes.
The company announced that it will issue 31-year green junior
subordinated bullet notes denominated in U.S. dollars. AES Andes
will use the proceeds mostly to refinance the existing 7.125%
junior subordinated hybrid bullet notes due 2079, and will allocate
an amount equal to the net proceeds to finance or refinance
eligible green projects and uses under its Green Financing
Framework.
The proposed issuance's terms and conditions are very similar to
the existing one. Therefore, S&P will provide intermediate equity
content to the proposed notes, given the existence of the option to
defer interest payments, sufficient permanence with the first-call
date that's beyond five years and the final maturity in 31 years,
and subordination in liquidation or bankruptcy proceedings that
grant, in its view, ability to absorb losses or conserve cash. S&P
gave an equal treatment to the hybrid bond issued in March 2019,
which it will now deem refinanced.
Based on S&P's assessment of intermediate equity content, it
includes 50% of the existing notes in adjusted equity, subject to a
15% capitalization ratio. On an aggregate basis, AES Andes's debt
amount will remain unchanged because S&P did an identical
adjustment to the existing notes, and the company will use most of
the proceeds to refinance existing obligations.
Mercury Chile is a holding company through which AES Corp.
(BBB-/Stable/A-3) owns a 99% stake in AES Andes, which is the
issuer's only asset.
The company launched the tender offer on May 30, 2024. Although the
tender offer is at 98 cents per $1, we view it as opportunistic.
This is because absent the tender, Mercury Chile's liquidity would
remain adequate, with no pressure on its financials or short-term
maturities because the notes don't mature until January 2027. The
group's ultimate shareholder, AES Corp., will fund the tender as
part of its strategy to reduce the Chilean operations' leverage.
S&P will monitor the evolution of the transaction but don't
currently anticipate a significant change in Mercury Chile's credit
metrics that could trigger an upgrade. For example, if the company
cancels more than 50% of debt at the holding level, debt to EBITDA
would be near 3.0x versus the existing 3.5x in 2024, which would
still be commensurate with the current rating.
The stable cash flow stems from its geographic diversification and
its leading position as a power generator. It has 5,524 megawatts
of capacity, with a market share of 12% in Chile and 5% in Colombia
in terms of power output as of December 2023. In addition, more
than 70% of revenue is contracted through long-term power purchase
agreements with an average remaining life of 13 years in Chile and
12 years in Colombia, further supporting stable and predictable
cash flow. S&P expects Mercury Chile to post an adjusted EBITDA
margin of 26%-30% in the next two years.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Organic Law of the Reserve Bank Now in Force
----------------------------------------------------------------
Dominican Today reports that the new Law 13-24 governing the
Reserve Bank of the Dominican Republic has come into effect
following its promulgation by President Luis Abinader and
publication in the Official Gazette.
Key updates in the legislation include adapting the bank's name to
Banco de Reservas de la Republica Dominicana - Banco Multiple and
ensuring the institution operates in alignment with the dynamic and
competitive financial sector, according to Dominican Today. The
bank's capital is set at RD$39,000 million, which can be adjusted
by the board of directors as per the Monetary and Financial Law,
without legislative approval, as long as the changes are from
capital reserves, the report notes.
The new law removes the general tax exemption previously enjoyed by
the Reserve Bank, leveling the playing field with other Dominican
financial institutions, the report relays. It also changes the
title of the head from "general administrator" to "executive
president," aligning with national and international banking norms
without altering the organizational structure or roles, the report
discloses.
"This is the first significant update to Banreservas' regulations
in 61 years, modernizing the bank to be more agile and
customer-focused, enabling it to better handle digital
transformation, innovation, and environmental sustainability," said
the bank's executive president, Samuel Pereyra, the report relays.
The board of directors will consist of 14 members: the Minister of
Finance (who will continue to preside), the bank's CEO, and 12
members appointed by the Executive Branch, including three
recommended by the Monetary Board as independent members, the
report relays. The law eliminates substitute members, making
previous substitutes regular members without increasing the board's
size, the report relays.
Upon leaving their roles, board members, except the Minister of
Finance, cannot engage in management, advisory, or legal
representation activities in financial intermediation entities for
one year, the report says.
The State remains the sole shareholder of Banreservas and will
receive 40% of its profits, with 15% allocated for covering state
debts with the bank, the report relates. The remaining 60% of
profits will go to the bank's equity reserves, the report notes.
The law introduces new regimes to protect the bank's integrity,
streamline processes, and enhance transparency, the report says.
Additional provisions ensure the bank operates under the same rules
as other multiple banks, promoting competitiveness, the report
discloses. The Bank's Retirement and Pension Plan and existing
employee rights remain unchanged, the report relays. The
legislation updates the bank's governance, structure, and
operations to align with current economic conditions, inclusivity,
fiduciary duties, and confidentiality requirements, the report
notes.
The law also strengthens transparency and accountability, and
underscores Banreservas' role in promoting the economic and social
development 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.
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 December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service 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.
DOMINICAN REPUBLIC: Pro Consumidor Says Food Prices Are Stable
--------------------------------------------------------------
Dominican Today reports that the National Institute for the
Protection of Consumer Rights (Pro Consumidor) recently announced
that a price comparison survey of basic food basket products in the
Dominican Republic reveals that most commonly consumed foods have
remained stable in recent weeks.
Eddy Alcantara, the executive director of Pro Consumidor, explained
that a significant number of these products have maintained their
prices, while others, particularly agricultural products, have seen
reductions, according to Dominican Today.
Alcántara noted that the few products experiencing price increases
did so minimally, describing this as "the most favorable behavior
this year," the report notes.
The survey, conducted across large and small supermarkets,
warehouses, markets, and grocery stores, found that "the
fundamental products of the basic food basket have had a favourable
impact on consumers' budgets," the report relays.
Among the products that have seen price reductions in large
supermarkets are beans, pork leg, garlic, powdered milk, processed
chicken, eggs, fresh pork chops, sardines, green pigeon peas,
soybean oil, yams, pineapple, and grapes, the report discloses.
Additionally, prices for cassava, Manicera Margarine, select rice,
olive oil, eggplant, Cubanela chili pepper, white potatoes, beef
brisket, and bell pepper have also decreased in large supermarkets,
the report notes.
In small supermarkets, the prices of green pigeon peas, white fried
cheese, smoked chops, and chicken have dropped, according to the
survey, 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 December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service 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.
=============
E C U A D O R
=============
BOLIVARIANO DPR: Fitch Assigns 'BB-' Final Rating on 2024-1 Notes
-----------------------------------------------------------------
Fitch Ratings has assigned a final rating of 'BB-' to the $100
million series 2024-1 notes issued by Bolivariano DPR Limited. The
Rating Outlook is Stable.
Entity/Debt Rating
----------- ------
Bolivariano DPR
Limited
2024-1 LT BB- New Rating
The future flow program is backed by existing and future flow U.S.
dollar-denominated diversified payment rights (DPRs) originated by
Banco Bolivariano C.A. (Bolivariano). The majority of DPRs are
processed by designated depository banks (DDBs), which have
executed account agreements (AAs), irrevocably obligating them to
make payments to an account controlled by the program agent.
Fitch's ratings address the timely payment of interest and
principal on a quarterly basis.
KEY RATING DRIVERS
Future Flow Rating Driven by Originator's Credit Quality: The
rating of this future flow (FF) transaction is tied to the credit
quality of the originator, Bolivariano. On May 17, 2024, Fitch
assigned Bolivariano a Long-Term Issuer Default Rating (IDR) of
'CCC+'. The bank's IDR is driven by its intrinsic creditworthiness,
reflected in its Viability Rating (VR) of 'ccc+' and is capped by
Fitch's assessment of the operating environment (OE) score of
'ccc+', given that Ecuador's sovereign rating and broader OE
considerations highly influence the bank's credit profile.
Going Concern Assessment Supports Notching Differential: Fitch uses
a going concern assessment (GCA) score to gauge the likelihood that
the originator of an FF transaction will stay in operation
throughout the transaction's life. Fitch assigned a GCA score of
'GC2' to Bolivariano based on the bank's systemic importance within
a highly concentrated market. The assigned score allows for a
maximum uplift of four notches above the IDR of the originator.
Notching Uplift from IDR: The 'GC2' allows for a maximum four-notch
rating uplift from the bank's Long-Term IDR pursuant to Fitch's FF
methodology. Considering the bank's current Long-Term IDR, the
assigned rating is at the maximum notching differential allowed by
Fitch's FF methodology for an originator with a GCA score of 'GC2'.
The four-notch uplift is supported by the transaction's strong
projected coverage levels, FF debt relative to the bank's funding
ratios that are well below the thresholds outlined in Fitch's
"Future Flow Securitization Rating Criteria," and Fitch reserving
the maximum notching uplift for transactions with originators that
are rated at the lower end of the rating scale, such as
Bolivariano.
Moderate Future Flow Debt Relative to Balance Sheet: Fitch
estimates Bolivariano's FF debt will represent 2.3% of its total
funding and 14.6% of nondeposit funding when considering the $100
million DPR transaction. Fitch considers the ratio of FF debt to
the bank's overall liabilities small enough to allow for the FF
transaction rating to receive the maximum uplift indicated by the
GCA score.
Coverage Levels Commensurate with Rating: Fitch views the
transaction's debt service coverage ratio (DSCR) more than
sufficient for the assigned rating. The minimum projected DSCR is
approximately 215.4x when considering the maximum periodic debt
service over the life of the program and DDB flows over the past
five years, while excluding what could be considered non-recurring
DPR flows.
Sovereign/Diversion Risks Reduced: The structure mitigates certain
sovereign risks by collecting cash flows offshore until the
collection of periodic debt service amounts. Fitch believes
diversion risk is partially mitigated by the AAs that have been
executed by the DDBs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The transaction rating is sensitive to changes in Bolivariano's
credit quality. Currently, the transaction is receiving the maximum
notching uplift from Bolivariano's Long-Term IDR. Therefore, a
deterioration in Bolivariano's credit quality by one notch would
trigger a downgrade of the transaction rating from its current
level.
- The transaction rating is sensitive to increases in the FF debt
relative to the bank's funding ratios. If either ratio were to
increase beyond the thresholds outlined in Fitch's "Future Flow
Securitization Rating Criteria," it could result in a downgrade of
the transaction rating from its current level.
- The transaction rating is sensitive to the DPR business line's
performance and its ability to continue operating, as reflected by
the GCA score. Changes in Fitch's view of the bank's GCA score can
lead to a change in the transaction's rating. The minimum expected
quarterly DSCR when considering DDB flows for the past five years
is approximately 215.4x; therefore, it should be able to withstand
a significant decline in cash flows absent other issues. However,
significant declines in flows could lead to a negative rating
action. A rating committee will analyze any change to these
variables to assess the potential impact on the transaction
rating.
- No company is immune from the economic and political conditions
of its home country. Political risks and the potential for
sovereign interference may increase as a sovereign's rating is
downgraded. However, the underlying structure and transaction
enhancements mitigate these risks to a level consistent with the
assigned rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The main constraint to the transaction rating is the originator's
rating and Bolivariano's OE. If the bank's Long-Term IDR is
upgraded by more than one notch from its current rating, Fitch
would consider an upgrade to the rating of the transaction from its
current level.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The FF ratings are driven by the credit risk of Banco Bolivariano
C.A. as measured by its Long-Term IDR.
=============
J A M A I C A
=============
[*] JAMAICA: 34% Increase in Value of Banknotes Issued in 2023
--------------------------------------------------------------
RJR News reports that the Bank of Jamaica says there was a 34.6 per
cent increase in the total value of banknotes issued to the public
in 2023.
In its annual report, the central bank says the value of banknotes
issued was valued at J$505.1 billion, according to RJR News.
The BOJ says this reflected the demand for newly introduced polymer
banknotes in the country, the report notes.
Of the total notes issued last year, $303.2 billion, or 60 per cent
were polymer banknotes, the report relays.
The total value of coins issued increased by 8 per cent compared to
2022, reaching $1.6 billion, the report discloses.
In 2022, 1.5 billion coins were issued, the report notes.
For the country's central bank digital currency, JAM-DEX, only $200
million was issued, during in 2023, the report recalls.
This was related to the government's JAM-DEX incentive programs,
giving funds to citizens who sign up for digital wallets, the
report ads.
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 A R A G U A Y
===============
FRIGORIFICO CONCEPCION: S&P Puts 'B' ICR on CreditWatch Negative
----------------------------------------------------------------
S&P Global Ratings placed its 'B' issuer credit rating on
Concepcion and its 'B' issue-level rating on the company's senior
secured notes on CreditWatch with negative implications.
The CreditWatch placement reflects the company's weaker liquidity
and potentially higher refinancing risk, as well as its additional
financing needs this year. S&P could lower the rating on
Frigorifico Concepcion in the next three months if its liquidity
further deteriorates, or if it encounters hurdles to refinance its
short-term debt.
The company's cash position fell to $15 million as of March 31,
2024, from $56 million as of Dec. 31, 2024. During the same period,
short-term debt increased to $203 million from $178 million.
Concepcion's management has said that the cash position somewhat
increased to about $40 million at the end of April. Additionally,
the company does not have any individual material amortization in
the next 12 months--amortizations during that timeframe mostly
relate to diversified bilateral banking financing.
However, Concepcion will need to refinance short-term debt and fund
working capital and capital expenditure (capex) needs. The recent
2022 financial restatement and the release of preliminary 2023
financial statements with an auditor qualified opinion have raised
reporting transparency and investor concerns, which in turn have
increased bond yield volatility. S&P thinks this volatility adds
some uncertainty about the company's ability to continue smoothly
accessing new funding. S&P will monitor this in the next three
months.
A sound operating performance wouldn't be enough to revert cash
flow deficits in 2024. The company continues to report solid
operating performance with increasing volumes, revenues, and EBITDA
in the first quarter of 2024. However, this was not enough to cover
the high working capital needs of $114 million, resulting in
negative free operating cash flow (FOCF) of $72 million in the
quarter. S&P expects the FOCF deficit to persist in the rest of
2024, further pressuring liquidity.
The company's growth requires funding. Concepcion is expanding its
geographic and product diversification through bovine and pork
facilities in Paraguay, Brazil, and Bolivia. S&P estimates around
55% of total production will come from Brazilian assets and around
25% from pork production in 2024, with pork contribution increasing
to about 40% in 2025.
S&P expects a 20% increase in heads of cattle processed in 2024 and
40% in 2025, especially after the company obtains a license to
export to the U.S. from its Paraguayan facility and to China from
its Brazilian subsidiary. This will translate into greater working
capital outflows and capex. As a result, we expect Concepcion's
leverage to peak at 4.2x in 2024 and improve in 2025 to 3.7x.
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
-- Transparency and reporting
*********
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
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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
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* * * End of Transmission * * *