/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/240807.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, August 7, 2024, Vol. 25, No. 158 Headlines A R G E N T I N A CLISA: Fitch Lowers LT IDR and Sr. Sec Bond Rating to 'C' B R A Z I L AMERICANAS SA: Gets NY Judge OK for Reorganization in Brazil OCEANICA ENGENHARIA: Fitch Assigns 'B' LongTerm IDR, Outlook Stable C O L O M B I A COLOMBIA: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable ECOPETROL SA: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Seals Pact with Honduras for Air Operations DOMINICAN REPUBLIC: Year-on-Year Inflation Reaches 3.46% in June G U A T E M A L A GUATEMALA: Fitch Rates Senior Unsecured Bonds 'BB' J A M A I C A JAMAICAN TEAS: Exiting Real Estate Business P U E R T O R I C O BED BATH: Estate Administrator Wants Ex-Shareholder Sanctioned NEW FORTRESS: S&P Downgrades ICR to 'B+', Outlook Stable PUERTO RICO: Fiscal Board Sues to Stop Solar Panel Bill - - - - - ================= A R G E N T I N A ================= CLISA: Fitch Lowers LT IDR and Sr. Sec Bond Rating to 'C' --------------------------------------------------------- Fitch Ratings has downgraded Compania Latinoamericana de Infraestructura y Servicios' (CLISA) Long-Term Local Currency (LC) and Foreign Currency (FC) Issuer Default Ratings (IDRs) to 'C' from 'CC'. In addition, Fitch has downgraded CLISA's senior secured bond maturing July 2027 to 'C'/'RR4' from 'CC'/'RR4'. The downgrade follows the company's announcement that it will make use of its 30-day grace period for the coupon that was payable on July 25, 2024 for its Senior Secured notes due 2027. The company also informed that it is in conversations with holders of these notes to potentially amend the terms and conditions of said notes. The ratings reflect Fitch's view that a default-like process has begun as a result of CLISA's latest announcement regarding its 2027 secured notes. If CLISA is successful in amending the terms of its bonds and/or the coupon payment is not made within the grace period as originally contracted, Fitch will downgrade the ratings to 'RD' to reflect a Restricted Default as per its Distress Debt Exchange (DDE) criteria. Key Rating Drivers Entered a Default-Like Process: The use of the 30-day grace period and subsequent announcement that the company is in conversations with bondholders to amend the terms of the Senior Secured notes due 2027 represent a potential event of default. In Fitch's view, it is highly likely that the company will enter a restructuring process with bondholders as the current operational environment in Argentina is severely affecting the company's businesses, leading to its current inability to service debt. CLISA's construction segment has been particularly affected by the reduction of public works in the country. Poor Liquidity and Potential DDE: Fitch believes CLISA's liquidity and refinancing risks will remain high and may require the company to further restructure its debt. Net EBITDA leverage will likely surpass 7x in 2024, all else being equal. With the company's construction business that is tied to the public sector in Argentina mostly halted, the company will not be able to generate sufficient cashflows to service all of its debt obligations this year. This is exacerbated by a decrease in consumption levels in the country that affects the company's waste management, transportation and water utility segments. Fitch's assesses that the company will need all available liquidity to continue to operate its different business segments. As such, CLISA will likely enter a DDE as it aims to amend the terms of its 2027 secured notes to address its very weak financial structure and liquidity position. As per Fitch's criteria, a DDE occurs when a restructuring or exchange imposes a material reduction in terms compared to existing contractual terms and has the effect of allowing the issuer to avoid an eventual probable default. Significant Counterparty Risk: CLISA's ratings incorporate the company's exposure to high counterparty risk, which is closely linked to the Argentine public sector as 80% to 90% of the company's revenue comes from the national government, various municipalities and provinces. The more stable waste management business accounts for the majority of this figure. The company's construction business is highly dependent upon projects developed by federal, provincial and municipal governments. CLISA also faces contract renewal risk which stems from regular negotiations of public service contracts. In addition to the reduction of contracting and funding of infrastructure projects, the company is vulnerable to delays in collection with the public sector as a major client. Market Position and Diversification: CLISA has a strong market position and is one of Argentina's largest privately owned conglomerates, with businesses in various public infrastructure sectors. The company generates 64.8% of its EBITDA from its Waste Management segment. Construction is the second-largest contributor, representing roughly 33.5% of EBITDA. Approximately 60% of Construction revenue originates from Argentina and the remaining portion originates largely from contracts in Peru, Paraguay and, to a lesser extent, Brazil. Transportation and Water Supply represent the balance of its EBITDA generation. Derivation Summary CLISA maintains an important business position in Argentina's waste management industry, serving the city of Buenos Aires and other cities and counties such as Santa Fe, Neuquen and San Isidro. In addition, the company is an experienced, well-positioned operator in the construction sector. CLISA also continues to operate the city of Buenos Aires' subway network under a 12-year contract, which should provide a relatively stable revenue stream. Profitability in the Transportation segment will depend on how efficient CLISA becomes at managing the subway system. In Fitch's view, these last two business segments are the most likely to generate improvements in the company's overall financial profile, but are challenged by the current economic environment in Argentina. CLISA's profitability is lower than Companhia de Saneamento Basico do Estado de Sao Paulo (SABESP; BB+/Stable). The company's overall EBITDA margin as of YE 2023 was 8.7%, while its Waste Management division had margins of 18.9%. SABESP's EBITDA margin was around 48.3% in the same period; CLISA, however, compares much more favorably against Aguas y Saneamientos Argentinos S.A. (CCC-) which has a loss-making operation. In terms of credit metrics, CLISA also underperforms SABESP and outperforms Aguas y Saneamientos. CLISA's gross leverage stood at 6.0x debt/EBITDA while SABESP was 2.0x as of YE 2023. Similarly, CLISA's operating profile is weaker with a 1.4x FFO interest coverage ratio compared with SABESP's 3.6x for the same period. Aguas y Saneamientos is significantly weaker in this respect with a loss-generating operation that requires capital injections from its shareholders and has more pressing refinancing risks. Fitch also views CLISA's credit profile as much weaker than its U.S. peers in the waste management industry such as Waste Management Inc. (A-/Stable) and Waste Connection Inc. (A-/Stable). These companies have stronger scale, margins, FCF generation, leverage and operating environments. Key Assumptions - Projections through 2025 only; - Waste Management business flat with 19-20% margins; - A 50% decrease in Construction revenue in 2024 and flat in 2025. Margins under 10%; - No contribution to EBITDA from Transportation and Water utility; - 3% Capex intensity; - No dividends paid; - 2027 bond interest payments are reduced through 2025. Principal payments are rolled over/refinanced on all debt; - ARS/USD approximately 1400 in 2024 and 2200 in 2025. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - An amendment to the terms and conditions of the 2027 secured notes will lead to a downgrade of the Long-Term IDRs to 'RD'. The IDRs could be subsequently upgraded to a rating level reflecting the post-DDE credit profile. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A downgrade of the rating to RD will occur if the company changes the terms and conditions of the 2027 secured notes and/or misses the coupon payment on the expiration of the grace period. Liquidity and Debt Structure Impaired Liquidity Position: The 'C' rating reflects an impaired liquidity position following the deterioration of the operating environment in Argentina and significant delays from counterparty payments in that country. This forced the company to a Consent Solicitation that changed the terms of payment of the coupon of its 2027 bond maturity that was due in Jan. 25, 2024. On July 25, 2024 the company announced it will make use of the grace period for its coupon payment due on that day. The company is also in discussions with bondholders for a further amendment of the terms and conditions of the bonds. As of March 2024, the company had readily available cash in hand of ARS19.7 billion and short-term debt of ARS104 billion. Fitch notes that about three quarters of the cash is usually tied to projects and other operations. Short-term debt consisted of the BRCC notes amortization, self-liquidating debt and revolving facilities. Self-Liquidating facilities are receivables factoring like transactions with recourse to the company. The amount outstanding on the 2027 is in excess of USD358 million. These bonds have a bullet payment and includes a step-up coupon that goes from 5.25% in 2022 to 10.5% in 2024 with an option to PIK a portion of the interest payment until 2024. The company also further renegotiated its privately placed 12.7% notes under the Benito Roggio construction unit in Peru. The balance is USD10.4 million for these notes and will be paid on equal quarterly instalments with a final payment in November 2024. These last notes are not subject to Argentina's capital controls. Issuer Profile CLISA is a leading Argentine infrastructure management and development company that has been in business for over 100 years. The company is organized into four main business segments: Construction and Road Concessions, Waste Management, Transportation and Water Services. The company provides services to both the public and private sectors, but is mostly focused on public infrastructure ESG Considerations CLISA-Compania Latinoamericana de Infraestructura y Servicios 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 ----------- ------ -------- ----- CLISA-Compania Latinoamericana de Infraestructura y Servicios LT IDR C Downgrade CC LC LT IDR C Downgrade CC senior secured LT C Downgrade RR4 CC =========== B R A Z I L =========== AMERICANAS SA: Gets NY Judge OK for Reorganization in Brazil ------------------------------------------------------------ Clara Geoghegan of Law360 Bankruptcy Authority reports that a New York bankruptcy judge said his trepidation around how Brazilian department store chain Americanas' bankruptcy plan treats creditors that don't give legal releases to nondebtor third parties was quelled, and granted his Chapter 15 sign-off for a plan that was already approved by a court in Rio de Janeiro. About Americanas SA Americanas was one of the largest diversified retail chains in Brazil, with a wide platform of physical stores, robust e-commerce, fintech, and has just entered into the niche food retail. It is listed on B3, being indirectly controlled by billionaire Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles. The retailer nosedived in January 2023 after becoming mired in an accounting scandal. The firm filed for bankruptcy at a court in Rio de Janeiro on Jan. 19, 2023. Americanas sought protection under Chapter 15 of the Bankruptcy Code (Bankr. S.D.N.Y. Case No. 23-10092) on Jan. 25, 2023. White & Case LLP, led by John K. Cunningham, is the U.S. counsel. OCEANICA ENGENHARIA: Fitch Assigns 'B' LongTerm IDR, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has assigned Oceanica Engenharia e Consultoria S.A. (Oceanica) a Long-Term Foreign and Local-Currency Issuer Default Rating (IDR) of 'B'. Fitch has also assigned 'B'/'RR4' to Oceanica Lux's USD400 million five-year first-lien senior secured notes, guaranteed by Oceanica. The Outlook for the Corporate Ratings is Stable. The notes will be secured by a collateral including a Debt Service Reserve Account (DSRA), specific collateral of Oceanica's equipment and vessels, pledge of bank accounts, as well as pledge over receivables in an amount equivalent to the lower of: i) 70% of company's receivables or ii) 2x the outstanding principal amount, tested quarterly. Fitch has reviewed appraisals of the collateral that indicate a strong security package; nonetheless, Fitch has assigned Brazil a recovery cap of 'RR4', which limits any rating uplift. The ratings reflect its limited business scale in the competitive and fragmented offshore infrastructure services sector, which is capital-intensive and has moderate barriers to entry and technological levels. The rating also incorporates Oceanica's high revenue concentration in the volatile oil and gas industry and in Petrobras, as well as its exposure to contract renewals. Ratings benefit from the sizable BRL8.8 billion backlog, supported by take-or-pay contracts, which provides adequate revenue visibility for the next four years and by its long-term client relationships, mainly with Petrobras. Expectations of positive free cash flows (FCFs) starting as from 2025, backed by increased revenue, and the reduction of its high leverage to more conservative levels are also important credit considerations. The classification incorporates the success of the bond issuance with a material reduction in the current refinancing risk. Failure in issuing notes could lead to a negative rating action. The Stable Outlook considers Fitch's expectations that Oceanica will continue to successfully execute its liability management, extending debt maturities and/or reducing cost of debt, while strengthening its credit metrics. It also incorporates the expectation that contracts will start on time and without significant delays and/or penalties, and that the company will be able to deliver an uptime close to 90%. Key Rating Drivers Limited Scale and Client Concentration: Oceanica is a service provider specialized in inspection, prevention, contingency and engineering services for Petrobras' shallow, deep and ultra-deep offshore infrastructure. Oceanica has a limited scale of operations with a fleet of 16 vessels and 40 Remotely Operated Vehicles (ROV), 12 of which are classified as work class suitable for operations at 3,000 meters depth. Petrobras accounts for 95% of Oceanica's revenue through 37 contracts covering five different client divisions. The focus on Petrobras's opex rather than capex makes Oceanica less vulnerable to oil price fluctuations compared to companies that are more dependent on their clients' exploration investments. Oceanica is well-positioned to meet the demand for high-spec services with its line of SDSVs (Shallow Dive Support Vessels), RSVs (ROV Support Vessels), AHTS (Anchor Handling Tug Supply) and ROVs. These assets typically have better day rates compared to logistic support vessels and face less intense competition and lower re-contracting risks. Oil prices would need to decrease substantially before these operations experienced any setbacks given the low extraction costs of USD 4-6 per barrel. Moderate Contract Renewal Risk: Oceanica faces re-contracting risks and Fitch estimates that approximately 14% of the company's backlog will be executed by December 2024, 25% in 2025, and 18% in 2026. Take-or-pay contracts, which represent about 80% of revenue, have an average duration of four to five years. In case Petrobras decides to terminate a contract early, it will have to compensate for the undepreciated investments made. Historically, Petrobras has met all contract requirements. The remaining 20% of sales are primarily originated from lump-sum agreements covering two to three years. Although lump-sum agreements can be more volatile, they have the potential to be highly profitable if completed ahead of schedule, which has been the case for Oceanica in the past. Service revenue contributes to about 80% of total sales, with chartering accounting for the remaining 20%. Occupancy rates are likely to exceed 90% by the end of 2024, as services progress along the maturity curve. Of Oceanica's fleet of 16 vessels, 14 are contracted and two are in the process of being adapted to meet Petrobras' technical requirements and will likely enter operation in the second half of 2024. Cash Flow Stability: Oceanica's operating cash flow is relatively predictable considering all of contracts are being executed as expected. However, during more accelerated growth phases such as in 2024, when vessels are acquired and need to be upgraded to meet contract requirements, the company likely burns cash considering that these investments are predominantly financed with debt and have not yet generated revenue. Fitch projects EBITDA of BRL415 million and negative cash flow from operations (CFFO) of BRL171 million in 2024, increasing to BRL717 million and positive BRL415 million, respectively, in 2025, according to the agency's methodology. These numbers compare with EBITDA of 282 million and CFFO of BRL20 million in 2023. The mobilization costs of new contracts will likely keep EBITDA margins close to 34% in 2024, expanding to 40% in 2025 as contracts start to be executed. FCF should be negative BRL710 million in 2024 due to high working capital needs and vessel acquisitions, turning positive at BRL13 million in 2025. Base case projections consider investments of BRL534 million in 2024 and BRL395 million in 2025, and dividends equivalent to 25% of distributable net income. Expected Leverage Reduction: Oceanica's net leverage will likely peak at 4.5x in 2024, decreasing to below 3.0x by year end 2025, as new contracts begin to contribute to EBITDA, and compares with 4.1x in 2023, as per Fitch's criteria. New vessels that will start operations in the second half 2024 should support leverage reduction. Fitch projects net debt close to BRL1.8 billion during 2024 and 2025. Positive Outlook for the Sector: The maritime services sector is poised to benefit in the coming years from the shortage of ships and ROVs needed to support oil production units (FPSOs), offshore wind projects and environmental services. In Brazil, the deployment of approximately 20 FPSOs over the next five years, along with the sale of mature fields to International Oil Companies (IOCs) and junior oil companies, is likely to maintain strong demand for support ships in the medium term. This trend reduces contract renewal risks and benefits day rates. The Brazilian fleet is composed of about 400 vessels, of which 80 to 100 are inactive. Petrobras' announced contract pipeline is estimated at BRL3.7 billion, of which Oceanica has already secured about BRL800 million and is well positioned to win an additional BRL1.2 billion. Derivation Summary Oceanica is rated one notch below Helix Energy Solutions Group, Inc. (B+/Stable) which, despite being more exposed to oil and gas price fluctuations due to its drilling services, has stronger liquidity and a conservative capital structure, along with advanced progress in renewable energy. TechnipFMC plc (BBB-/Stable) is rated higher than Oceanica and Helix due to its global leadership as a fully integrated technology and services provider, supporting energy development with the world's largest installed base of subsea production equipment, umbilicals, risers and flowlines, as well as in the supply of surface integrated systems across the drilling, frac, production and measurement markets. Key Assumptions - Number of vessels: 22 in 2024 and 2025; - Average occupancy rate of 64% in 2024 and 82% in 2025; - Day rates as per contracts; - Investments of BRL534 million in 2024 and BRL395 million in 2025; - Dividends of 25% of net profits; - USD400 million bond issuance in 2024. Recovery Analysis The recovery analysis assumes Oceanica would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch assumes a 10% administrative claim. - Oceanica's going concern EBITDA of BRL300 million; - A 5x enterprise value multiple is used to calculate a post-reorganization valuation, in line with the industry's historical multiples; - The approach considers all outstanding debt as senior secured. Liquidation Value Approach Fitch excluded this method because Brazilian bankruptcy law tends to favor the maintenance of a business to preserve direct and indirect jobs. In extreme cases where liquidation has been necessary, asset recovery has been very difficult for creditors. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Significant increase in business scale; - Greater revenue diversification in IOCs and Junior Oils and in sectors other than Oil & Gas; - Net leverage below than 2.5x on a recurring basis; - Maintenance of adequate liquidity; - Positive FCF. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Net leverage greater than 3.5x on a recurring basis; - EBITDA margins below 25% on a recurring basis; - Weakening liquidity profile; - Perception of failure in renewing contracts and/or material reduction in day rates. Liquidity and Debt Structure Liquidity to Improve: Fitch expects Oceanica's liquidity to significantly improve with the success of the bond issuance in 2024. In March 2024, the company had cash and marketable securities of BRL17 million and total debt of BRL1.7 billion, of which BRL836 million was due in the short term. During the second quarter, Oceanica concluded the issuance of its fourth debenture of BRL500 million and a BRL75 million loan, substantially improving its liquidity position. Proceeds from the proposed five-year senior secured bond will be used to pre-pay most of the outstanding debt, except the recent issuances. As of March 31, 2024, total debt consisted of debentures (55% of the total), local currency loans (33%) and foreign currency debt (12%). The dollar-denominated debt is naturally hedged by USD contracts. Most of the company's debt is secured by some type of collateral such as vessels, vehicles and contract receivables. The company has unencumbered ships whose prices have increased in the wake of rising day rates, which could be used as collateral for new debt issuances. Issuer Profile Oceanica is one of the leading providers of prevention, contingency and engineering services for offshore and subsea structures for the renewable energy and oil and gas industries in Brazil. In June 2024, the company had a fleet of 16 vessels and 40 ROVs, and a backlog of BRL8.8 billion. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery ----------- ------ -------- Oceanica Lux senior secured LT B New Rating RR4 Oceanica Engenharia e Consultoria S.A. LT IDR B New Rating LC LT IDR B New Rating =============== C O L O M B I A =============== COLOMBIA: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable ---------------------------------------------------------- Fitch Ratings has affirmed Colombia's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB+' with a Stable Rating Outlook. Key Rating Drivers Stable Credit Fundamentals: Colombia's ratings reflect the country's track record of macroeconomic and financial stability, underpinned by an independent central bank with an inflation targeting regime and a free-floating currency. The ratings are constrained by high fiscal deficits and uncertain prospects for consolidation needed to ensure stable debt/GDP, a high interest burden, and high commodity dependence. Fiscal Challenges Emerge: Fitch expects the central government's fiscal deficit to widen to 5.6% of GDP in 2024 from 4.3% in 2023, in line with the government's revised budget target, largely given significant revenue underperformance due to shortfalls in tax administration efforts, failure to get approval to fast track tax litigation cases and a constitutional court ruling that on the deductibility of royalties for oil and coal companies. In June 2024, the government announced spending adjustments of nearly 2% of GDP over the rest of the year in order to meet its fiscal target, including under-execution of public infrastructure projects. Challenging Consolidation Prospects: For 2025, Fitch expects the fiscal deficit to improve modestly to 5.2% of GDP, as an economic rebound improves revenues while spending is kept relatively flat in nominal terms. The government is seeking to revise its fiscal rule in 2025 in order to gain some additional space for spending. Even with the possible change, Fitch envisages difficulties meeting the revised fiscal rule target next year. Fitch expects some further reduction in the central government (CG) deficit to 4.7%in 2026. Fitch believe that beyond 2026 further deficit reduction will prove difficult without significant revenue enhancing measures or cost reductions, in light of mounting spending pressures and budgetary rigidities. Debt Burden to Rise: Government debt will continue to rise over the forecast period, as nominal GDP growth slows over the next two years and primary balances move farther away from debt-stabilizing levels. Fitch projects consolidated general government (GG) debt to rise to 57.7% of GDP in 2026, from 53.7% in 2023, above the projected BB median of 53.6%. Colombia's GG interest/revenues ratio is expected to rise to 14.5% in 2024, above the BB median of 11.1%, and from 12.6% in 2023, but is expected to gradually fall as interest rates moderate over the next two years. Pension Reform Passage: President Gustavo Petro achieved passage of his landmark pension reform in June 2024, despite the break-up of his coalition in Congress in early 2023. This creates a solidarity and semi-contributive pillars, with an estimated fiscal cost of 0.3% of GDP according to the government, and redirects pension contributions (up to 2.3x the minimum wage) to a public pension fund from individual private accounts going forward, which could have implications on the local market. Some legal scholars point out that the reform could be challenged in the constitutional court on procedural grounds. The outlook for Petro's other key initiatives. such as health and labor reform, is uncertain given stronger opposition in the Congress. Growth Set to Accelerate: GDP growth is expected at just 1.5% in 2024. Domestic demand remains weak due to continued tight monetary policy, as ex-ante real rates remain high despite the beginning of the central bank's cutting cycle. The interest-rate-sensitive construction sector has been especially hard hit. Fitch expects gross fixed capital formation to remain weak after falling by 9.5% in 2023. Fitch expects grow to pick-up in 2025 to 2.8%, as less-restrictive monetary policy drives higher consumption and investment. Fitch believes that growth will reach a trend pace of 3% in 2026, but uncertainties on trend growth remain given the fall in investment, which Fitch believes will remain below historic levels (averaging 22% of GDP in 2010-20) over the forecast period and low productivity growth Inflation Slowly Falls: Inflation has proven to be higher and stickier than in most other inflation-targeting countries in the region. falling to 7.2% in June 2024 from a 13.3% peak in March 2023. This in part reflects weather-related and other supply shocks over the last two years, widespread indexation, and unwinding of fuel subsidies in 2023-2024. Fitch expects inflation to continue to decline to 5.8% by end-2024, still above the upper band of the central bank's 3%+/-1pp target, and fall below the upper bound of the target range by end-2025. The central bank has cut rates cumulatively by 200 bp since December 2023 to 11.25% in June 2024. Fistch expect further rate cuts to 8.5% by end-2024, and to a terminal 6.5% by year-end 2025. Narrower Current Account Deficits: The current account deficit is expected to widen marginally in 2024 to 2.8% of GDP from 2.5% in 2023, but remain sharply its 2022 high of 6.1%. Foreign direct investment has proven resilient to date despite political uncertainties, reaching over USD16 billion in net terms in 2023. Fitch expects some moderation in net foreign direct investment (FDI) in 2024-25, but that it will continue to cover over 2/3 most of the current account deficits. The central bank has accumulated reserves through derivatives to boost its external liquidity position, with an accumulation target of USD 1.5 billion in 2024. In April 2024, the IMF approved a new two-year flexible credit line with Colombia for USD8.1 billion, which represents an additional buffer to face external shocks that the country has used in the past. ESG - Governance: Colombia has an ESG Relevance Score (RS) of '5' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch's proprietary Sovereign Rating Model (SRM). Colombia has a medium WBGI ranking at 44.6 reflecting a track record of violence but peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Public Finances: A sustained deterioration in Colombia's general government debt-to-GDP ratio relative to the 'BB' peer median, for example from persistently high fiscal deficits and/or weak growth; Macro: Deterioration of investment and medium-term growth prospects with adverse social ramifications, such as high unemployment and poverty levels; External Finances: A marked increase in external vulnerabilities, for example due to renewed large current accounts deficits, a sharp fall in foreign direct investment and/or increase in net external debt-to-GDP. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Public Finances: Achievement of fiscal consolidation consistent with a steadily declining general government debt-to-GDP ratio and enhanced fiscal policy credibility; Macro: Sustained medium-term economic growth above Colombia's historical averages, accompanied by broader macro-financial stability; Structural: Improvement in governance and social cohesion. Sovereign Rating Model (SRM) and Qualitative Overlay (QO) Fitch's proprietary SRM assigns Colombia a score equivalent to a rating of 'BB+' on the Long-Term Foreign Currency IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final Long-Term Foreign Currency IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within Fitch's criteria that are not fully quantifiable and/or not fully reflected in the SRM. Country Ceiling The Country Ceiling for Colombia is affirmed at 'BBB-', 1 notch above the Long-Term Foreign Currency IDR. This reflects moderate constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments. Fitch's Country Ceiling Model produced a starting point uplift of +1 notch above the IDR. Fitch's rating committee did not apply a qualitative adjustment to the model result. ESG Considerations Colombia has an ESG Relevance Score of '5' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Colombia has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Colombia has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Colombia has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile. Colombia has an ESG Relevance Score of '4' [+] for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As Colombia has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile. Colombia has an ESG Relevance Score of '4' [+] for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Colombia, as for all sovereigns. As Colombia has track record of 20+ years without a restructuring of public debt and captured in Fitch's SRM variable, this has a positive impact on the credit profile. 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 ----------- ------ ----- Colombia LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B LC LT IDR BB+ Affirmed BB+ LC ST IDR B Affirmed B Country Ceiling BBB- Affirmed BBB- senior unsecured LT BB+ Affirmed BB+ Senior Unsecured-Local currency LT BB+ Affirmed BB+ ECOPETROL SA: Fitch Affirms 'BB+' LongTerm IDRs, Outlook Stable --------------------------------------------------------------- Fitch Ratings has affirmed Ecopetrol S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlook for the IDRs is Stable. Fitch has also affirmed the company's National Long- and Short-Term ratings at 'AAA(col)'/'F1+(col)'. The Outlook for the National Long-Term rating is Stable. Ecopetrol's ratings reflect its close linkage with the Republic of Colombia (Foreign and Local Currency IDRs, BB+/Stable) which owns 88.5% of the company. Ecopetrol's ratings also reflect the company's strategic importance for the country, as well as its ability to maintain a solid financial profile. The announcement of the acquisition of assets in the Permian Basin does not materially affect the company's credit profile, resulting in the rating affirmations. Key Rating Drivers CrownRock Transaction Credit Neutral: Ecopetrol announced it is evaluating the acquisition of a portion of CrownRock's producing assets in the Permian Basin. Fitch's base case contemplates a 30% stake in the asset, which would add between USD700 million and USD750 million of EBITDA and require up to USD3.7 billion of debt. The impact on leverage metrics is not significant as pro forma debt to EBITDA has been estimated at 2.2x, versus 2.0x without the transaction. Operationally, the addition of production and reserves is positive but not impactful enough to warrant a positive action to the SCP. Linkage to Sovereign: Ecopetrol's ratings reflect the strong linkage with the credit profile of the Republic of Colombia. The ratings also reflect the very strong incentive of the Colombian government to support Ecopetrol in the event of financial distress, given the company's strategic importance to the country as a supplier of virtually all liquid fuel demand in Colombia and owner of 100% of the country's refining capacity. Ecopetrol's cash is affected by the timeliness of the receipt of funds from the Colombian government through its stabilization fund Fondo de Estabilizacion de Precios de los Combustibles (FEPC) to offset the difference from selling gasoline and diesel in the local market at lower prices versus the export market. At June 2024, the amount accrued in the FEPC was COP12 trillion (USD2.9 billion). Fitch expects that the balance in the FEPC account will decrease with several price adjustments beings rolled out by the government. During 2022, the price of gasoline was adjusted by COP600/gallon and by an additional COP4,220/gallon during the nine months of 2023. In June 2024, the government issued decree 0763 equalizing diesel prices for large-scale consumers in Colombia which is expected to enhance cash position and predictability for the company going forward. Strong Financial Profile: Ecopetrol's 'bbb' Standalone Credit Profile (SCP), pro forma for the announced acquisition, reflects the company's strong financial profile. Fitch-calculated gross leverage as measured by total debt to EBITDA is expected to average 2.1x through the rating horizon, which is moderate for the industry as Brent prices continue supporting EBITDA generation and debt is not expected to have any drastic changes, even accounting for the acquisition in the Permian. Fitch expects Ecopetrol's interest coverage as measured by EBITDA to interest expense coverage to exceed 6x consistently through the rating horizon. Positive FCF Expected: Fitch expects Ecopetrol's FCF to be positive going forward, subject to revisions to investment and dividends plans. Fitch's base case assumption includes the company having an average annual capex budget of approximately USD5.5 billion over the next three years and that it will pay 60% of previous year's net income in line with its 40% to 60% dividend policy. This, coupled with Fitch's price assumptions for Brent crude oil price of USD80/bbl in 2024, USD70/bbl in 2025 and USD60/bbl in the long term, would result in positive FCF over the next three years. Its base case also incorporates the potential acquisition of a 30% stake in the CrownRock assets in the Permian Basin, fully financed with debt. Stable Operating Metrics: Fitch assumes total hydrocarbons production to be 835 thousand barrels of oil equivalent per day (boe/d) in 2024, pro forma for the 30% stake in the possible acquisition of the Permian Asset, exhibiting a trend of recovery expected to continue over the next three years. The company's proved reserve (1P) of 1,883 million boe gave the company a reserve life of 8.2 years as of YE23, and is expected to be 8.4 years by the end of 2024, pro forma for the acquisition of the Permian assets. Fitch assumes a 105% reserve replacement rate. Fitch's calculated after-tax full cycle cost for Ecopetrol has remained relatively stable over the past four years at approximately USD45/boe on average. Derivation Summary Ecopetrol's rating linkage to the Colombian sovereign rating is in line with the linkage for most national oil and gas companies (NOCs) in the region, including Petroleos Mexicanos (PEMEX; B+/Stable), Petroleo Brasileiro S.A. (Petrobras; BB/Stable), YPF S.A. (CCC-) and Empresa Nacional del Petroleo (ENAP; A-/Stable). In most cases in the region NOCs are of significant strategic importance for energy supply to their countries, including in Mexico, Colombia and Brazil. NOCs can also serve as a proxy for federal government funding as is the case in Mexico, and have strong legal ties to governments through their majority ownership, strong control and governmental budgetary approvals. Ecopetrol's SCP is commensurate with a 'bbb' rating, which is in line with that of Petrobras at 'bbb' given Petrobras' recent significant debt reduction. Excluding IFRS16 leases, Ecopetrol's leverage at YE 2023 was 1.8x. Ecopetrol's credit profile is materially higher than that of Pemex's 'ccc-' SCP as a result of Ecopetrol's deleveraging capital structure versus PEMEX's increasing leverage trajectory. Ecopetrol will continue to report stable production, which Fitch expects to stabilize around 850,000 boed should the acquisition take place. This production trajectory further supports the notching differential between the two companies' SCP. Key Assumptions - Ecopetrol remains majority owned by Colombia; - Brent average USD80/bbl in 2024 and USD70/bbl in 2025 before trending toward USD60/bbl in the long term; - 9.5% discount to Brent on average through rating horizon; - Stable production growth of 1.5% per annum through 2026; - 105% reserve replacement ratio per year; - Aggregate capex of approximately USD5.5 billion per year for the next three years; - Dividends of 60% of previous year's net income; - Progressive tax rate based on 2022 fiscal reform instating windfall taxes of 15%, 10%, 5%, 0% based on current crude prices; - Acquisition of 30% stake in the CrownRock asset, adding USD730 million of EBITDA and 50 boe/d to production; - Acquisition of CrownRock funded fully with debt of USD3.7 billion. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Although not expected in the short to medium term, an upgrade of Colombia's sovereign ratings. Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - A downgrade of Colombia's sovereign ratings; - A significant weakening of the company's linkage with the government and a lower government incentive to support coupled with a deterioration of its standalone credit profile; - A decrease of 1P reserves below 1.5 billion boe could trigger a downgrade to the SCP of the company from 'bbb'. Liquidity and Debt Structure Strong Liquidity: Ecopetrol's strong liquidity profile is supported by cash on hand, which amounted to USD4.3 billion at March 31, 2024, strong access to the capital markets and an adequate debt maturity profile. Based on market appetite, Fitch does not expect Ecopetrol will have difficulty refinancing, partially or in full, its 2024 maturities or taking out the financing incurred for the acquisition. ISA Contribution: Fitch expects that the majority of Ecopetrol's consolidated EBITDA will continue to be generated from its oil and gas business. Fitch estimates that ISA's EBITDA of USD1.7 billion in 2023, adjusted to Ecopetrol's ownership, is expected to represent 12% of Fitch's projected Ecopetrol EBITDA for 2024. Gross leverage excluding ISA, defined as total debt to EBITDA, is expected to be 2.2x in 2024 pro forma for the acquisition. Absent the acquisition, leverage would be 2.0x. Fitch forecasts gross leverage of 2.1x on average through 2026. Issuer Profile Ecopetrol is a leading integrated energy and infrastructure company in the Latin American and Central American region. The company is the largest in Colombia in relation to their Upstream, Midstream and Downstream business segments. Interconexión Eléctrica S.A. is 51% owned by Ecopetrol and is the largest energy transmission company in the region. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING Public Ratings with Credit Linkage to other ratings Ecopetrol S.A.'s LT IDR is linked to the sovereign rating of Colombia. ESG Considerations Ecopetrol S.A. has an ESG Relevance Score of '4' for Governance Structure due to its nature as a majority government-owned entity and the inherent governance risk that arises with a dominant state shareholder, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors. Ecopetrol S.A. has an ESG Relevance Score of '4' for Exposure to Social Impacts due to multiple attacks to its pipelines, which has a negative impact on the credit profile, and is relevant to the rating[s] 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 ----------- ------ ----- Ecopetrol S.A. LT IDR BB+ Affirmed BB+ LC LT IDR BB+ Affirmed BB+ Natl LT AAA(col)Affirmed AAA(col) Natl ST F1+(col)Affirmed F1+(col) senior unsecured LT BB+ Affirmed BB+ senior unsecured Natl LT AAA(col)Affirmed AAA(col) senior unsecured Natl ST F1+(col)Affirmed F1+(col) =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Seals Pact with Honduras for Air Operations --------------------------------------------------------------- Dominican Today reports that the governments of the Dominican Republic and Honduras have signed a memorandum of understanding to enhance air operations between the two countries. This agreement aims to improve air connectivity and facilitate the launch of new routes and frequencies, according to Dominican Today. Representing the Dominican Republic, Jose Ernesto Marte Piantini, president of the Civil Aviation Board (JAC), and Gerardo Gabriel Rivera Guifarro, executive director of the Honduran Civil Aeronautics Agency (AHAC), emphasized the importance of strengthening air-commercial relations, the report notes. They highlighted the strategic geographic locations of both nations and the favorable current conditions for expanding these ties, the report relays. Marte Piantini noted the significance of collaborating with other air transport authorities to bolster commercial aviation, the report discloses. He pointed out that this agreement enables operators from both the Dominican Republic and Honduras to offer direct flights, allowing airlines to operate between the two territories and beyond, the report says. This move opens new opportunities for operators from both countries, the report notes. During the signing, both officials acknowledged the benefits for Dominican and Honduran airlines operating this strategic route, which is expected to boost passenger traffic between the nations, the report relays. Marte Piantini mentioned that, despite the proximity of the countries, there has been no airline providing direct flights in the last 20 years, the report notes. He noted that most Hondurans traveling to the Dominican Republic currently do so on flights with stopovers, the report discloses. The agreement is set to increase the availability of air services and make commercial air operations more flexible, with unlimited frequencies and capacity, the report relays. It will also promote and energize Dominican-Honduran travel, encouraging airlines to connect the two destinations more directly, the report says. Marte Piantini emphasized that establishing new air routes will stimulate economic growth by increasing passenger traffic, the report discloses. This, in turn, provides Caribbean States with greater opportunities for profitability, particularly in passenger and cargo air transport, the report relays. Finally, both authorities agreed on the need for better direct air connectivity between the Dominican Republic and Honduras, the report notes. They plan to continue negotiations for a comprehensive air transport agreement, which is expected to further strengthen commercial ties between the two nations, 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: Year-on-Year Inflation Reaches 3.46% in June ---------------------------------------------------------------- Dominican Today reports that the Ministry of Economy informed that inter-annual inflation in the Dominican Republic stood at 3.46 % in June, thus remaining below the target range of 4.0 % ± 1.0 % for the seventh consecutive month. The inflation variation in monthly terms was 0.48 %, according to Dominican Today. In the 'Informe de situacion macroeconomica- Seguimiento de coyuntura,’ the Dominican Department of Economy, Planning and Development indicates that underlying inflation stood at 3.98 % in June, lower by 1.35 percentage points than the rate recorded in the same month of 2023, the report notes. The groups with the highest impact on the monthly increase in the general price level in June were food and non-alcoholic beverages, with a monthly variation of 0.75 % and an impact of 0.19 %; transportation (variation of 0.61 % and impact of 0.11 %) and miscellaneous goods and services (variation of 0.63 % and impact of 0.07 %), the report relays. According to a ministerial press release, inflationary pressures are expected to remain low in the domestic market, with an average projection of 3.50%, according to the macroeconomic framework updated to June 2024, the report discloses. The exchange rate of the Dominican peso depreciated against the US dollar by 7.0% inter-annually, to a rate of 58.99 pesos per dollar, notes the note, which also indicates that the real exchange rate index depreciated at an inter-annual rate of 6.5%, 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. ================= G U A T E M A L A ================= GUATEMALA: Fitch Rates Senior Unsecured Bonds 'BB' -------------------------------------------------- Fitch Ratings has assigned 'BB' ratings to Guatemala's USD600 million bonds maturing 2031 and USD800 million bonds maturing in 2037. The bonds carry coupons of 6.05% and 6.55%, respectively. Net proceeds from the sale of the 2031 bonds will be used for general budgetary purposes. Guatemala will allocate an amount equal to the net proceeds from the sale of the 2037 bonds for eligible green and social expenditures in line with the country's Sustainable Financing Framework. Key Rating Drivers The rating is in line with Guatemala's Long-Term (LT) Foreign Currency (FC) Issuer Default Rating (IDR). On Feb. 13, 2024, Fitch affirmed Guatemala's LT FC IDR at 'BB' with a Stable Rating Outlook. ESG - Governance: Guatemala has an ESG Relevance Score (RS) of '5' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in its proprietary Sovereign Rating Model. Guatemala has a low WBGI ranking at 25th percentile, reflecting relatively weak rights for participation in the political process, weak institutional capacity, uneven application of the rule of law and a high level of corruption. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - The bond ratings would be sensitive to any negative changes to Guatemala's LT FC IDR. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - The bond ratings would be sensitive to any positive changes to Guatemala's LT FC IDR. Date of Relevant Committee 12 February 2024 ESG Considerations Guatemala has an ESG Relevance Score of '5' for Political Stability and Rights as WBGIs have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGI have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Guatemala has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '4'for Human Rights and Political Freedoms as the Voice and Accountability pillar of the WBGIs is relevant to the rating and a rating driver. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Guatemala, as for all sovereigns. As Guatemala has track record of 20+ years without a restructuring of public debt and captured in its SRM variable, this has a positive impact on the credit profile. 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 ----------- ------ Guatemala senior unsecured LT BB New Rating ============= J A M A I C A ============= JAMAICAN TEAS: Exiting Real Estate Business ------------------------------------------- Dashan Hendricks at RJR News reports that Jamaican Teas group says over the past nine months to June, it began the process of exiting its real estate activities. CEO John Mahfood told the Gleaner that this was due to slow sales of residences in its latest housing development, according to RJR News. Of the 30 units in the Belvedere that came to market last December, Jamaican Teas has so far sold only eight, each priced within the $28 million to $30 million, the so-called "sweet spot," the report notes. Mr. Mahfood said there is no profit, the report relays. He said he expects the sales of another three units to be booked in the fourth quarter ending September, the report adds. ===================== P U E R T O R I C O ===================== BED BATH: Estate Administrator Wants Ex-Shareholder Sanctioned -------------------------------------------------------------- Randi Love of Bloomberg Law reports that an administrator overseeing the wind-down of Bed Bath & Beyond Inc.'s bankruptcy estate asked the court to sanction a former shareholder over a request for an equity committee, months after a restructuring plan was confirmed. Michael Goldberg of Akerman LLP, the plan administrator for Bed Bath & Beyond's wind-down, doubled down on his June opposition of the former shareholder's request for the appointment of an equity security holders' committee. The Justice Department's bankruptcy watchdog, the US Trustee, also opposed the former shareholder's committee request in June 2024. About Bed Bath & Beyond Bed Bath & Beyond Inc., together with its subsidiaries, is an omnichannel retailer selling a wide assortment of merchandise in the Home, Baby, Beauty & Wellness markets and operates under the names Bed Bath & Beyond, buybuy BABY, and Harmon, Harmon Face Values. The Company also operates Decorist, an online interior design platform that provides personalized home design services. At its peak, Bed Bath & Beyond operated the largest home furnishing retailer in the United States with over 970 stores across all 50 states, consistently at the forefront of major home and bath trends. Operating stores spanning the United States, Canada, Mexico, and Puerto Rico, Bed Bath & Beyond offers everything from bed linens to cookware to electric appliances, home organization, baby care, and more. Bed Bath & Beyond closed over 430 locations across the United States and Canada before filing Chapter 11 cases, implementing full-scale wind-downs of their Canadian business and the Harmon branded stores. Left with 360 Bed Bath & Beyond, and 120 buybuy BABY stores, Bed Bath & Beyond Inc. and 73 affiliated debtors on April 23, 2023, each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code to pursue a wind-down of operations. The cases are pending before the Honorable Vincent F. Papalia and requested joint administration of the cases under Bankr. D.N.J. Lead Case No. 23-13359. Kirkland & Ellis LLP and Cole Schotz P.C. are serving as legal counsel, Lazard Frares & Co. LLC is serving as investment banker, and AlixPartners LLP is serving as financial advisor. Bed Bath & Beyond Inc. has retained Hilco Merchant Resources LLC to assist with inventory sales. Kroll LLC is the claims agent. NEW FORTRESS: S&P Downgrades ICR to 'B+', Outlook Stable -------------------------------------------------------- S&P Global Ratings lowered its issuer credit rating on New Fortress Energy Inc. (NFE) to 'B+' from 'BB-'. The outlook is stable. S&P said, "We also lowered our rating on NFE's senior secured debt to 'B+' from 'BB-'. The '3' recovery rating indicates our expectation that lenders would receive meaningful (50%-70%; rounded estimate: 60%) recovery in the event of a payment default. "The stable outlook reflects our view that the company will successfully refinance the 2025 notes within the upcoming month and maintain leverage around 6x in 2024. "Credit measures are weaker than our initial base case forecast. NFE's adjusted credit measures are weaker than we expected primarily due to lower cash flow related to the delay in the commissioning of the FLNG1 (fast LNG) asset and the early termination of the Federal Emergency Management Agency contract in Puerto Rico. We also underestimated the amount of local currency debt raised in Brazil for the company's various terminal projects and power assets. As a result, we expect adjusted EBITDA to be about $1.25 billion and S&P Global Ratings-adjusted debt to EBITDA at year end to be about 6.2x compared with our previous forecast of EBITDA in the $1.8 billion-$1.9 billion range and debt to EBITDA of about 4.5x. We assume NFE will receive proceeds from a monetization of its Brazilian assets; however, it will fund the remainder of the cash flow shortfall with new asset-level debt. We expect leverage to improve next year, with cash flow from power contracts ramping up in Puerto Rico and at its terminals in Puerto Rico, Mexico, and Nicaragua. We expect cash flow from its assets in Brazil to increase starting in 2026." NFE's liquidity could come under significant pressure unless the company is able to refinance its 2025 notes by Sept. 16, 2024, or refinance its 2026 notes within the next nine months. NFE's revolving credit facility and term loan B have springing maturities as early as July 16, 2025, if the company's 6.75% senior secured notes ($875 million outstanding) are not fully refinanced by that time or if the 6.5% senior secured notes ($1.5 billion) are not refinanced by July 31, 2026. As of March 31, 2024, the revolver had $750 million outstanding and the term loan B had about $772 million drawn. Without a completed refinancing of the 2025 notes soon and 2026 notes within the next nine months, our assessment of liquidity would be severely weakened and have significant implications for the company's credit profile. The stable outlook incorporates S&P's view that: -- NFE will refinance the 2025 notes; -- Increased cash flow ramps from its Fast LNG, Peurto Rico, and Brazillian assets, which will partly fund its significant growth initiatives in the markets it serves; -- The financial risk profile will be highly leveraged for the next 18-24 months; -- The company is able to execute long-term contracts in the terminals and power business and improve its counterparty credit quality; -- The company relies on assets sales to finance growth and repay debt; and -- The construction of FLNG2 has some execution risk. S&P could take a negative rating action if: -- NFE cannot refinance the 2025 notes through closing of an issuance or execution of a satisfactory underwriting commitment by Aug. 21. -- The company cannot raise capital to repay the 2026 notes in the first quarter of 2025, which would provide cushion until the springing maturities are effective on the revolver and term loans. -- S&P believes debt to EBITDA will remain above 6.5x in 2025. -- S&P could take a positive rating action if the company addresses its near-term refinancing risk and it expects debt to EBITDA to be sustained below 5x. This could occur if the company: -- Adopts a more conservative financial policy that funds its various growth initiatives with internally generated cash flow and doesn't add substantial debt to its capital structure; -- Generates free cash flow after capital spending. S&P said, "Environmental factors are a negative consideration in our credit rating analysis of NFE. The company operates LNG assets, terminal facilities, and natural gas power plants globally. NFE has a growing portfolio of LNG terminals and gas-generation assets primarily in Puerto Rico, Brazil, the Caribbean, and Mexico, where it seeks to displace heating oil with natural gas-fired generation and meet the growing demand for power in the developing world. While we view gas generation as having a place in the energy transition, New Fortress remains vulnerable to changes in demand patterns for new gas-fired generation and global regulation." PUERTO RICO: Fiscal Board Sues to Stop Solar Panel Bill ------------------------------------------------------- Emily Lever at law360.com reports that the Financial Oversight and Management Board for Puerto Rico sued Gov. Pedro R. Pierluisi to nullify a law extending a program which reduces the cost of solar panels for Puerto Rican households, calling it legislative interference with the island's energy regulator. About Puerto Rico Puerto Rico is a self-governing commonwealth in association with the United States. The chief of state is the President of the United States of America. The head of government is an elected Governor. There are two legislative chambers: the House of Representatives, 51 seats, and the Senate, 27 seats. In 2016, the U.S. Congress passed PROMESA, which, among other things, created the Financial Oversight and Management Board and imposed an automatic stay on creditor lawsuits against the government, which expired May 1, 2017. The members of the oversight board are: (i) Andrew G. Biggs, (ii) Jose B. Carrion III, (iii) Carlos M. Garcia, (iv) Arthur J. Gonzalez, (v) Jose R. Gonzalez, (vi) Ana. J. Matosantos, and (vii) David A. Skeel Jr. On May 3, 2017, the Commonwealth of Puerto Rico filed a petition for relief under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). The case is pending in the United States District Court for the District of Puerto Rico under case number 17-cv-01578. A copy of Puerto Rico's PROMESA petition is available at http://bankrupt.com/misc/17-01578-00001.pdf On May 5, 2017, the Puerto Rico Sales Tax Financing Corporation (COFINA) commenced a case under Title III of PROMESA (D.P.R. Case No. 17-01599). Joint administration has been sought for the Title III cases. On May 21, 2017, two more agencies -- Employees Retirement System of the Government of the Commonwealth of Puerto Rico and Puerto Rico Highways and Transportation Authority (Case Nos. 17-01685 and 17-01686) -- commenced Title III cases. U.S. Chief Justice John Roberts named U.S. District Judge Laura Taylor Swain to preside over the Title III cases. The Oversight Board has hired as advisors, Proskauer Rose LLP and O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic consultant, Citigroup Global Markets as municipal investment banker, and Ernst & Young, as financial advisor. Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M. Abelson, Esq., of Proskauer Rose LLP; and Hermann D. Bauer, Esq., at O'Neill & Borges LLC are onboard as attorneys. Prime Clerk LLC is the claims and noticing agent. Prime Clerk maintains the case Website https://cases.primeclerk.com/puertorico Jones Day is serving as counsel to certain ERS bondholders. Paul Weiss is counsel to the Ad Hoc Group of Puerto Rico General Obligation Bondholders. ********* 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. 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