/raid1/www/Hosts/bankrupt/TCRLA_Public/240820.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, August 20, 2024, Vol. 25, No. 167
Headlines
A R G E N T I N A
ARGENTINA: Inflation Slows to Lowest Level Since 2022 Under Milei
B R A Z I L
ENTREVIAS: Fitch Affirms 'BB' Debt Rating, Alters Outlook to Stable
NATURA & CO: Surpasses Expectations Despite Avon's Bankruptcy
C A Y M A N I S L A N D S
EDO SUKUK: Fitch Affirms 'BB+' Rating on Sr. Unsecured Notes
C O S T A R I C A
BANCO DE COSTA: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
BANCO NACIONAL: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
BANCO POPULAR: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Free Trade Zones Now Solid Source of Employment
E C U A D O R
ECUADOR SOCIAL: Fitch Affirms 'CCC+sf' Rating on Class B Notes
ECUADOR: Fitch Affirms 'CCC+' LongTerm Foreign Currency IDR
H A I T I
HAITI: World Bank Appoints Country Manager
J A M A I C A
JAMAICA: Got Almost $6BB in Financing From CDB in 2023
P A N A M A
LA HIPOTECARIA: Fitch Affirms 'BB+sf' Rating on 2021-1 Certificates
S U R I N A M E
SURINAME: IMF Program at Risk Over $275M Debt, Warns Minister
- - - - -
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A R G E N T I N A
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ARGENTINA: Inflation Slows to Lowest Level Since 2022 Under Milei
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Manuela Tobias & Silvia Martinez at Bloomberg News report that
Argentina's monthly inflation reached the lowest level since early
2022 after President Javier Milei briefly tapped the brakes on his
economic shock therapy by postponing utility hikes.
Consumer prices rose four percent in July from a month earlier, in
line with the four-percent median forecast of economists surveyed
by Bloomberg. Bloomberg News, citing government data, discloses
that annual inflation slowed to 263.4 percent.
Argentina's government last month postponed increases to fuel taxes
and utility prices that JPMorgan Chase & Co predicted could have
added 1.2 percentage points to monthly inflation, Bloomberg News
relays. The administration also left bus and train fares
untouched, though it will restart transport and utility hikes in
August, Bloomberg News discloses.
"Energy tariffs are a fine harmony between reducing subsidies and
inflation," Economy Minister Luis Caputo said in a radio interview
last month, Bloomberg News notes. "The priority is to lower
inflation," he added.
The government has also consistently rejected calls to speed up its
two-percent crawling peg, a monthly depreciation of the official
peso rate, despite mounting evidence the currency has become
overvalued, Bloomberg News relays. The slow crawl is instrumental
to keeping inflation in check, alongside the government's
consistent budget surpluses, Bloomberg News discloses.
The lower inflation number spells yet another victory for Milei
amid wall-to-wall coverage of a domestic abuse scandal shrouding
the opposition Peronist party, Bloomberg News says.
ARGENTINA: tagline as of August 13, 2024
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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 Aug. 8, 2024, affirmed its 'CCC/C' foreign
and local currency sovereign credit ratings on Argentina. S&P also
affirmed its 'raB+' national scale rating on the country. The
outlook on the long-term ratings remains stable. S&P's 'CCC'
transfer and convertibility assessment for Argentina remains
unchanged.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and other
uncertainties with recent progress in making fiscal adjustments,
reducing inflation, and undertaking structural reforms to address
long-standing microeconomic weaknesses that have contributed to
poor economic performance for many years.s 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.
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B R A Z I L
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ENTREVIAS: Fitch Affirms 'BB' Debt Rating, Alters Outlook to Stable
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Fitch Ratings has affirmed Entrevias Concessionaria de Rodovias
S.A. (Entrevias)'s BRL1.0 billion second debentures issuance due in
2030 at 'BB' and the National Long-Term (LT) Rating at 'AA+(bra)'.
The Rating Outlook has been revised to Stable from Positive.
The Outlook revision to Stable from Positive reflects Entrevias'
updated capex budget, which is expected to pressure projected Debt
Service Coverage Rations (DSCRs) and liquidity until 2026. Traffic
in 2023 and 1Q24 was 3% and 1.2% above Fitch's base case. Despite
the strong performance, the issuer forecasts considerable higher
investments in expansion and maintenance until 2026 which causes
DSCRs to be below 1x. Fitch considers the lower coverages are
mitigated by the resilient traffic, existing liquidity and
project's ability to raise working capital facility to cover any
shortfall.
RATING RATIONALE
The ratings reflect the operational profile of the concessionaire
with heavy vehicles representing approximately 60% of the paying
axles. The North Section of the toll road, which crosses Ribeirao
Preto in the State of Sao Paulo, has a proven traffic base and
corresponds to approximately 70% of total traffic. The South
Section, a more recent stretch, is crucial for the region's
agricultural production flow.
The rating also considers the extensive capex obligations until
2026, which are considered to be of low complexity and are already
largely contracted. The concession contract provides for annual
tariff adjustments according to inflation and the concessionaire
can charge an additional tariff after the conclusion of the main
duplication works.
The rated debt is senior, secured, indexed to inflation, and
includes a six months reserve account. Rating case DSCRs are below
1x until 2026. The debt restricts cash distribution until the end
of 2025 and existing liquidity and cash generations are expected to
be sufficient to cover project's obligation. From 2026 to 2028,
average DSCR is 1.2x, which is viewed as commensurate with the
rating, according to applicable criteria.
KEY RATING DRIVERS
Volume Strongly Linked to Economy (Volume Risk - High Midrange)
Entrevias' concession is divided into the North and South sections,
both in the State of Sao Paulo. The North Section is located in a
wealthy region and crosses Ribeirão Preto as well as has a long
traffic track record of operations. The right to collect tolls was
granted to Entrevias in May 2018, after the maturity of the prior
concession. The South Section, which crosses Marília, connects the
states of São Paulo and Paraná, and is crucial for agricultural
production flow, such as horticulture, sugar, sugar cane and
temporary crops. This stretch started collecting tolls for the
first time in October 2018. The Brazilian logistics network narrows
competition between toll roads. Therefore, the price elasticity is
moderate.
Tariffs Adjusted by Inflation (Price Risk - Midrange)
The concession falls under the state of São Paulo jurisdiction and
is regulated by Agencia de Transporte do Estado de São Paulo
(ARTESP). The concession contract stipulates annual tariffs
readjustments based in accumulated inflation. Historically, the
grantor has either granted the tariffs adjustments or compensated
the lack of full pass-through in accordance with the financial
rebalancing mechanisms defined in the concession contract. Besides
that, the concessionaire has the right to receive extra
readjustments as long as the duplication of the South segments is
completed.
Extensive Capex Plan in the Next Years (Infrastructure
Development/Renewal - Midrange)
Entrevias is expected to undertake a significant capital
expenditure plan to comply with the concession agreement in the
South Section of the road, in the region of Marília. The main
expansion investments include the duplication of lanes and the
duplication of a bridge in Borborema over the Tietê River. Most of
these interventions are considered to be of low complexity and
standard. The concessionaire already contracted most of the
expansion investments, however it is exposed to some price
volatility as asphalt costs are not passed-through to the
contractor.
Cash Trap Mechanism up to 2024 (Debt Structure - Midrange)
The debentures are senior and indexed to inflation, which is also
used to readjust tariffs, providing a natural hedge to the debt.
The amortization profile is fully amortizing, back-loaded and the
debt structure benefits from a six-month debt service reserve
account. The debt includes limitation related to additional
indebtedness, restrictions on cash distribution up to 2025 and
dividend lock-up triggers after 2025.
Financial Profile
Until 2026, Entrevias forecasts an important amount of expansion
and maintenance investments. The debt structure restricts
distributions until the end of 2025 to secure liquidity. Under
rating case, DSCRs are below 1x until 2026. Entrevias has some
flexibility to postpone maintenance capex. Also, Fitch considers
that the resilient traffic performance, the existing liquidity, and
project's ability of raise working capital facility, mitigate the
lower coverages. From 2026 to 2028, average DSCR is 1.2x and is
commensurate with the current rating, as per Fitch's criteria.
Under base case assumptions, Entrevias could withstand with zero
traffic growth and still meets debt service during the tenor of
debt.
PEER GROUP
In the International scale, the closest peer of Entrevias in the
region is Transjamaican Highway Limited's (TJH; senior secured
notes rated BB with a Positive Outlook). TJH's volume risk is
assessed as Midrange. Rating case minimum and average debt service
coverage ratios (DSCR) are at 1.7x in 2035 and 2.2x, respectively,
which are strong for the rating as per criteria but its rating is
ultimately capped at Jamaica's Country Ceiling of 'BB, TJH's
Positive Outlook mirrors the Positive Outlook of Jamaica's 'BB-' as
a reflection of the reduced concerns of higher risk of controls on
convertibility and the transfer of foreign currency to serve the
debt.
In National scale, Entrevias' closest peers are Concessionária
Rota das Bandeiras S.A (Rota das Bandeiras, first and second
debentures issuances National LT rating of AAA(bra), Stable
Outlook) and Concessionária Ponte Rio-Niteroi S.A. (Ecoponte,
first debentures issuance's National LT rating AA(bra), Positive
Outlook). Both Rota das Bandeiras and Ecoponte have volume risk
assessed as high-midrange.
Under rating case, Rota das Bandeiras minimum and average DSCRs are
1.0x and 1.7x, respectively, which justify its higher rating.
Ecoponte's presents a minimum and average DSCRs of 0.9x and 1.24x
in Fitch's rating case. Despite Ecoponte's rating being one notch
lower than Entrevia's, it has a Positive Outlook indicating an
upgrade in the near future is possible given Ecoponte's strong
financial performance recently.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Traffic performance in 2024 and 2025 below 73 and 74 million
axles, respectively;
- Subsequent delays in concluding the duplication of segments,
leading to delays in extraordinary tariff adjustments;
- Total liquidity (cash and reserves) lower than BRL 170 million by
the end of 2025.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Traffic performance in 2024 and 2025 above 75 and 78 million
axles, respectively, coupled with the execution of the mandatory
expansion capex;
- Total annual costs and expenses (excluding capex) lower than
BRL200 million.
SECURITY
Entrevias Concessionaria de Rodovias S.A. is a Special Purpose
Vehicle (SPV) that owns the concession rights to explore, invest
and maintain 570km of roads in the State of Sao Paulo, divided in
seven highways and two stretches that connect the north of the
state of Parana and the southeast of the state of Minas Gerais. The
concession was granted by the State Government of Sao Paulo,
intermediated by ARTESP, in 2017 for a period of 30 years (maturity
in June 2047).
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
----------- ------ -----
Entrevias
Concessionaria
de Rodovias S.A.
Entrevias
Concessionaria
de Rodovias
S.A./Toll Revenues
- First Lien/1 LT LT BB Affirmed BB
Entrevias
Concessionaria
de Rodovias
S.A./Toll Revenues
- First Lien/1
Natl LT Natl LT AA+(bra)Affirmed AA+(bra)
NATURA & CO: Surpasses Expectations Despite Avon's Bankruptcy
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Finimize reports that Natura & Co posted strong Q2 2024 earnings,
but Avon's chapter 11 filing added challenges and a significant net
loss.
Natura &Co surprised the market with better-than-expected core
earnings for Q2 2024, according to the report.
The beauty giant reported net revenue of 7.35 billion reais ($1.34
billion), a 5.4% rise from last year, beating forecasted revenue of
6.78 billion reais, the report relays.
Adjusted EBITDA also climbed 14.2% to 803.5 million reais,
surpassing the expected 763.8 million reais, the report notes.
Success in Brazil and Mexico drove this performance, as highlighted
by the CEO, the report adds.
About Natura & Co Holding S.A.
As reported in the Troubled Company Reporter-Latin America on April
5, 2024, Fitch Ratings has upgraded Natura &Co Holding S.A.
(Natura) and Natura Cosmeticos S.A.'s Long-Term Foreign and Local
Currency Issuer Default Ratings (IDRs) to 'BB+' from 'BB' and
National Scale Rating to 'AAA(bra) from 'AA+(bra)'. Fitch has also
upgraded Natura & Co Luxembourg Holdings S.a.r.l's unsecured notes
to 'BB+' from 'BB'. In addition, Fitch has affirmed Avon Products,
Inc. and its unsecured notes at 'BB'. Rating Outlook is Stable.
On Aug. 13, 2024, S&P Global Ratings lowered its issuer credit
rating on Avon Products Inc. (API), a subsidiary of Natura & Co
Holding S.A, to 'D' from 'BB-'. At the same time, S&P lowered its
issue rating on API's debt to 'D' from 'BB-'.
According to The Guardian, API has filed for bankruptcy as it tries
to off-load more than $1 billion of debt, including millions of
dollars in liabilities linked to lawsuits alleging that talc in its
products caused cancer.
API has filed for chapter 11, the American version of
administration, according to the report. API said that the process
would allow it to address its debt obligations in an "orderly
manner."
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C A Y M A N I S L A N D S
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EDO SUKUK: Fitch Affirms 'BB+' Rating on Sr. Unsecured Notes
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Fitch Ratings has affirmed Energy Development Oman SAOC's (EDO)
Long-Term Issue Default Rating (IDR) at 'BB+' with Stable Outlook.
Fitch has also affirmed EDO's senior unsecured rating at 'BB+'. The
Recovery Rating is 'RR4'.
The rating is constrained by that of its sole shareholder, the
government of Oman (BB+/Stable), due to their close links, in line
with Fitch's Government-Related Entities (GRE) Rating Criteria and
Parent and Subsidiary Linkage (PSL) Rating Criteria.
EDO's 'bbb+' Standalone Credit Profile (SCP) is based on its record
of a prudent financial profile and successfully maintaining the
size and scale of reserves and production within the current fiscal
framework. The SCP is supported by EDO's large-scale oil and gas
operations, strong and resilient cash flow generation, due to
contracted sale prices for gas and a flexible royalty framework, a
flexible dividend policy and low leverage.
The SCP is constrained by a single country of operations compared
with peers with an international footprint, a purely
upstream-focused business model, and a fairly mature reserve base
with low proved reserve life compared with peers'.
Key Rating Drivers
Sovereign Constrains Rating: EDO's rating is constrained by that of
Oman due to strong linkages between EDO and Oman. Under its GRE
Rating Criteria, Fitch assesses the precedents of support as
'Strong' and decision-making and oversight, preservation of
government policy role, and contagion risk as 'Very Strong'. This
assessment results in an overall GRE score of 55 points out of a
maximum of 60.
'Very Strong' Decision-Making & Oversight: EDO's 'Very Strong'
decision-making and oversight reflects full ownership by the state
with no near-term privatisation plans. The company's strategy and
activities are directed by a board of directors nominated by the
government. Its gas business is subject to regulated pricing, and
its Block 6 oil and gas concessions are critical to the domestic
economy.
'Strong' Precedents of Support: The government in 2022 provided a
shareholder bridge facility by permitting EDO to defer dividend
payouts and allowing the company to instead allocate its excess
cash towards near-term investments. The government also established
a flexible royalty regime - whereby royalties are based on average
oil prices during the relevant period - to allow EDO to preserve
cash flow at times of low hydrocarbon prices. Fitch expects the
government to continue providing support, due to EDO's pivotal role
within Oman's infrastructure and economy.
'Very Strong' Government-Policy Role Preservation: The oil and gas
sector is a major part of the Omani economy, with EDO's Block 6
concessions accounting for a large portion of the nation's total
oil and gas reserves. The company sells gas mainly on the domestic
market. Further, EDO is one of the largest corporate employers in
Oman.
'Very Strong' Contagion Risk: EDO currently has a growing presence
in capital markets. Its default would significantly impair the
financial standing of the sovereign and the ability of either the
government or other GREs within the country to raise financing.
Fitch views EDO as a benchmark issuer for its government in the
financing market. This underlines its 'Very Strong' assessment of
contagion risk.
Scale Offsets Limited Diversification: EDO is the largest oil and
gas producer in Oman via its interest in Petroleum Development Oman
(PDO). PDO operates the onshore Block 6 oil and gas concessions,
which comprise over 24% of Oman's land acreage and have more than
50 years of production history. This slightly mitigates EDO's focus
on a single country of operations. Fitch expects an average output
of over 800 thousand barrels of oil equivalent per day (kboe/d)
until 2028 in its rating case.
Flexible Payouts Under Fiscal Framework: EDO has been subject to a
unique fiscal framework since 2021. The fiscal terms include
royalties paid to the government weekly based on EDO's revenue from
the sale of oil and condensate and taxes paid on income derived
from its oil and gas operations. Royalties paid are significant
under its price deck, but they are determined by prevailing oil
prices in an asymmetrical fashion, supporting stable cash flow
under a wide range of price scenarios.
EDO's tax burden is also significant. However, Fitch views the
overall fiscal framework as generally in line with global
standards, where national oil and gas companies are subject to
generous payouts to the government, albeit with provisions to ease
the burden on cash flow when market conditions are weak.
Strong Financial Profile: Fitch expects EDO will maintain a strong
financial profile until 2028 under its base-case oil and gas price
deck, despite growing capex and high royalties and tax payments to
the government. Dividends are paid from excess cash flow after all
debt service obligations and working- capital requirements have
been met, as well as considering minimum cash levels, which allows
cash flow flexibility.
Fitch expects EDO's EBITDA net leverage to average below 1x in
2024-2028, which includes an assumption of regular debt issuance to
fund base capex, as well as continuing dividend payments. EDO plans
to maintain company-defined net debt below 2.2x funds from
operations (FFO). This is a target set by the board, although it is
no longer covenanted in its new USD2 billion term loan agreement.
Favourable Unit Economics: In 2023, EDO's total production costs
before royalties were about USD4/boe of direct production costs and
about USD12/boe of capex, which place the company at the lower end
of the global cost curve. Adding generous royalties, which Fitch
estimates at about USD15-USD20/boe, significantly increases total
production costs. This is partly mitigated by EDO's still strong
financial profile, the broad alignment of EDO's and the
government's interests and progressive taxation on oil prices.
Improving ESG Footprint: EDO continues to reduce greenhouse gas
emissions from operations and flaring as well as improving energy
efficiency. PDO also aims to expand its renewable power generation
capacity up to 30% of total capacity in the medium term. Fitch
views EDO's and PDO's environmental targets as broadly in line with
Middle Eastern peers', but lagging those of their large European
peers such as TotalEnergies SE (AA-/Stable), BP plc (A+/Stable) or
Eni SpA (A-/Stable).
Derivation Summary
EDO's closest peers in EMEA oil and gas are Saudi Arabian Oil
Company (Saudi Aramco; A+/Stable), QatarEnergy (AA/Stable) and OQ
S.A.O.C. (BB+/Stable).
EDO has a stronger SCP than its Omani peer OQ (SCP: bbb-), as OQ
has modestly higher gross leverage metrics, lower through-the-cycle
EBITDA and cash flow, and smaller scale, which are partially offset
by greater diversification and a much lower dividend burden.
Fitch assesses all three companies under its GRE Rating Criteria
and PSL Rating Criteria. Their IDRs are constrained by their
respective sovereign ratings.
Key Assumptions
Fitch's Key Assumptions within Its Rating Case for the Issuer
- Brent crude oil prices in 2024-2027 in line with Fitch's base
case price deck
- Gas production sold at current fixed prices to 2026
- Upstream production volumes averaging around 810kboe/d in
2024-2027
- Capex averaging USD3.9 billion per year in 2024-2027
- Dividends in line with the company's financial policy
RATING SENSITIVITIES
EDO
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A positive rating action on Oman would be mirrored in EDO's
rating
- The SCP is capped by limitations of the company's business
profile
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A negative rating action on Oman would be mirrored in EDO's
rating
- Weakening linkages between Oman and EDO (which Fitch believes is
unlikely), coupled with significant deterioration of the latter's
SCP
- FFO gross leverage or EBITDA net leverage rising above 1.5x on a
sustained basis due to, for example, sustained negative free cash
flow (FCF) driven by high capex or large acquisitions, which may be
negative for the SCP but not necessarily for the IDR
Oman (as of 24 May 2024):
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Public Finances: An upward trend in government debt/GDP; for
example, stemming from a loosening of the fiscal stance, or
lower-than-expected oil prices
- External Finances: Deterioration of Oman's external balance
sheet, for example, in the form of a decline in central bank
reserves and Oman Investment Authority assets
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Public Finances: A strengthening in the government's balance
sheet and greater confidence that Oman will continue to improve its
non-oil budget balance; for example, through a sustained period of
high oil revenue or the introduction of new fiscal consolidation
measures
- External Finances: A continued decline in net external debt/GDP,
for example reflecting lower state-owned enterprises external debt
or an accumulation of foreign assets
- Macro: Growth of the non-oil economy that notably improves
non-oil fiscal revenues and reducing social spending pressures on
the government
Liquidity and Debt Structure
Strong Liquidity: At end-2023, EDO had cash and cash equivalents of
USD695 million and undrawn revolving credit facilities of USD390
million. In June 2024 the company refinanced its USD2.5 billion
term loan, which had started its first instalment in 4Q23, with a
USD2 billion term loan. EDO has no near-term repayment obligations
until 2026.
Fitch expects EDO to maintain a robust liquidity profile due to
strong pre-dividend FCF, proven access to international debt
markets and strong linkage with the sovereign. Fitch expects EDO's
flexible dividend policy will allow for liquidity preservation
during periods of restricted capital-market access or lower oil
prices.
Minimum Cash Target: EDO has a stated minimum cash target of about
USD220 million plus additional cash reserves for next quarter's
debt service obligations, which is taken into account for
determining cash flow available for dividends.
Issuer Profile
EDO is Oman's national energy company and owns participating
interest in two concessions, accounting for approximately 65% of
Oman's oil and gas production. Its total production totalled
844kboe/d in 2023.
Public Ratings with Credit Linkage to other ratings
EDO's ratings are constrained by those of Oman.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Energy Development
Oman SAOC LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed RR4 BB+
EDO Sukuk Limited
senior unsecured LT BB+ Affirmed RR4 BB+
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C O S T A R I C A
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BANCO DE COSTA: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Banco de Costa Rica's (BCR) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB'
and Short-Term Foreign and Local Currency IDRs at 'B'. The Rating
Outlook on the Long-Term IDRs is Stable. Fitch has also affirmed
the bank's Viability Rating (VR) at 'bb' and the Government Support
Rating (GSR) at 'bb'.
Key Rating Drivers
IDRs Driven by Government Support: BCR's IDRs are driven by its GSR
of 'bb', which is based on Fitch's assessment about the Republic of
Costa Rica's (BCR's sole owner) ability and propensity to provide
support to BCR, if required. Fitch's assessment of the government's
ability to support is highly influenced by Costa Rica's sovereign
rating (BB/Stable).
Explicit Sovereign Guarantee: Fitch's assessment regarding the
Costa Rican sovereign's propensity to support also considers with
higher influence the full sovereign guarantee for BCR as a
state-owned bank, set forth in the National Banking System Law
(article 4). The law specifies that all non-subordinated
liabilities of BCR will be guaranteed by the government, which
sustains the bank's IDR equalization with Costa Rican sovereign
rating.
Lessened Strategic Government Ownership: Fitch believies the
government's proposal to sell BCR reflects the strategic government
ownership of the bank is somewhat reduced and has a moderate
influence in Fitch's assessment about the government's propensity
to support the bank. However, BCR's business relations and
operations with the government have not changed. Therefore, Fitch
believes the government support, if required, will be forthcoming
as long as BCR remains owned by the State with full sovereign
guarantee.
Ratings Remain Unaffected: The proposed sale is subject to
formalization, study and subsequent approval by the Costa Rican
Congress, a process that Fitch considers could take time to be
concluded. If approved, Fitch believes its execution would face
operational challenges and its successful completion could also
take a significant period. Therefore, it does not have an immediate
impact on BCR's ratings.
Moderate Policy Role: BCR's moderate policy role is mirrored in the
bank's significant commercial operations and its linkage with
government institutions by law, which could be transferred to other
public entities, although with different degrees of difficulty,
entailing operational and business challenges.
Sound Business Profile Despite Persistent Challenges: BCR's VR of
'bb' mirrors its stable business profile and financial performance
stemming from its diversified business model, its domestic systemic
relevance and its solid market position in the Costa Rican market
as the second largest bank by assets and deposits. BCR's average
2020-2023 total operating income was USD501.4 million, well in line
with is current business profile score of 'bb'. The bank's business
profile score also reflects the persistent challenges in respect to
its government ownership and reputational risks at one of its
subsidiaries.
Reasonable Asset Quality: BCR's asset quality remains stable as
observed in its controlled impairment metrics over the last few
years. As of 1Q24, its impaired loans to gross loans metric was
2.6%, in line with its 2020-2023 average (2.6%). Although these
metrics are lightly above when compared to some peers in similar
rating levels and with the Costa Rican banking system average, they
are well encompassed with its 'bb' asset quality score. Fitch
estimates BCR's impairment metrics may slightly increase given the
bank's expected growth in retail segments, although will continue
at reasonable levels given its prudent credit risk controls.
Gradual Profitability Growth: Fitch estimates BCR's profitability
will continue to gradually recover over the ratings horizon given
its strategy of increasing in higher profitable segments, reducing
its funding costs, along with reduced impacts of exchanges
differential while the foreign exchange rates tend to stabilize. At
YE 2023, its operating profit to risk weighted assets (RWA) metric
was 1.2% (1Q24: 2.4%). The banks' operating profit metrics are
expected to continue in line with its current 'bb-' score, somewhat
below its 2020-2023 average of 1.7% and lower than those of some
similarly rated peers with more favorable metrics.
Improved Capitalization: Fitch upgraded BCR's capitalization and
leverage score to 'bb' from 'bb-', as the bank's capital levels
exhibit an improvement trend since 2023, favored by its
conservative growth in its portfolios along with full retention of
earnings. As of 1Q24, BCR's Fitch Core Capital (FCC) to RWA ratio
was 15.3% (YE 2023: 14.4%) at the consolidated level, which is
comparable to that exhibited by similarly rated banks. Considering
BCR's moderate growth prospects and stable income generation, Fitch
believes BCR's capitalization levels are sufficient for the
announced capital injection to its subsidiary BCR SAFI, and will
remain commensurate with its current score.
Solid Funding Sources: In Fitch's opinion, BCR's robust franchise
and stable deposit base along with its diversified funding sources
from international and local markets contribute with reasonable
liquid levels and will continue to underpin its funding and
liquidity score of 'bb' over the rating horizon. Its sound funding
structure compares well with its rating peers. As of 1Q24, the
loans to deposits metric was 83.3% (average 2020-2023: 83.6%),
which is similar to the banking system average of 83.6%.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- BCR's IDRs and GSR will be downgraded in the event of a downgrade
in Costa Rica's sovereign rating;
- BCR's VR will be downgraded by a downward revision of Fitch's
assessment of the Costa Rican operating environment (OE). Also,
BCR's VR will be downgraded due to a material deterioration in the
asset quality that weakens BCR's financial profile and Fitch's
assessment of the bank's risk profile. Specifically, if the
operating profits to RWA declines consistently below 1.25% and the
FCC to RWA ratio declines to a level consistently below 12%;
- If a bill involving the sale of the bank were approved, Fitch
would review the expected effects on the bank's IDRs, GSR and VR
and would likely place them on Rating Watch.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- BCR's IDRs, VR and GSR could be upgraded in the event of an
upgrade of Costa Rica's sovereign rating; however, this is not
Fitch's current base case given the sovereign rating Stable
Outlook;
- An upward revision of Fitch assessment of the Costa Rican OE in
conjunction with a consistent financial performance and business
profile could lead to an upgrade of BCR's VR. The sovereign rating
acts as a cap to the bank's VR.
VR ADJUSTMENTS
The OE score of 'bb' has been assigned below the 'bbb' category
implied score due to the following adjustment reason: Sovereign
Rating (negative).
Summary of Financial Adjustments
Fitch calculated the consolidated RWAs and related metrics by using
BCR's individual RWAs and those of its main subsidiary, BICSA.
Pre-paid expenses and other deferred assets were reclassified as
intangible and deducted from total equity in order to calculate
FCC.
Public Ratings with Credit Linkage to other ratings
BCR's IDRs and GSR are linked to Costa Rican Sovereign's ratings.
ESG Considerations
BCR's ESG Relevance Score of Group Structure of '4' reflect the
government's initiative to sell the bank and potential contagion
risks related to the operation of one of its subsidiaries, which
negatively influence Fitch's assessment of the bank's Business
Profile 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 de Costa Rica LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Viability bb Affirmed bb
Government Support bb Affirmed bb
BANCO NACIONAL: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Banco Nacional de Costa Rica's (BNCR)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDR)
at 'BB', and Short-Term Foreign and Local Currency IDRs at 'B'.
Fitch has also affirmed BNCR's Viability Rating (VR) at 'bb',
Government Support Rating (GSR) at 'bb', and Long- and Short-Term
National Scale Ratings at 'AA+(cri)' and 'F1+(cri)'. The Rating
Outlook for the Long-Term ratings is Stable. Fitch has also
affirmed BNCR's National Debt Ratings.
Key Rating Drivers
Sovereign Support: BNCR's IDRs and National Ratings are driven by
its GSR, which reflect Fitch's opinion of the potential support the
bank would receive if needed from its sole owner, the Costa Rican
state (BB/Stable). Regarding the ability to support the bank, Fitch
considers, with high importance, the Costa Rican sovereign rating.
The government propensity to support BNCR is driven, with high
influence, by the strategic ownership and explicit guarantee stated
in the National Banking System Law (article 4) for BNCR as a
state-owned commercial bank, which stipulates that the government
is responsible for all its non-subordinated liabilities in the
event of liquidation.
Solid Business Profile: The bank's VR reflects its solid business
profile, with a diversified business model and high operating
income-generation capacity, reflected in a four-year (2020 to 2023)
average total operating income of USD596 million, the highest among
its local peers. Moreover, BNCR is characterized by its
historically leading market position as the largest bank in the
Costa Rican banking system, with the top market shares by loans and
customer deposits. As of May of 2024, BNCR market share was 19.9%
by loan portfolio and 25% by deposits.
Well-managed Risks: The bank's risk profile is driven by its
domestic lending opportunities, and is characterized by an adequate
risk management framework. BNCR is exposed to market risk through
the fluctuations of interest rates and the CRC/USD exchange rate;
however, Fitch believes its exposure is moderate, mitigated by its
high proportion of loans under variable interest rates (June 2024:
77.3%) and the low percentage (6.6%) of loans exposed to foreign
exchange risk. Similar to local peers, BNCR has a long position of
USD114.6 million as of March 2024, which represents 7.2% of total
equity (internal limit between 8% and 12%).
Controlled Asset Quality Metrics: Fitch believes BNCR's asset
quality metrics are adequate, bolstered by conservative risk
management, sufficient loan loss allowance coverage, and moderate
loan concentrations. As of March 2024, the impaired loans to gross
loan ratio improved to 2.4%, below the average of 2.9% over the
past four years. This improvement in the core asset quality ratio
was driven by better economic conditions, including lower interest
rates. For YE 2024, Fitch expects the metric to remain stable,
around 2.4%, given the prospects of moderate growth and stable
operating environment (OE).
Improvement in Profitability: As of March 2024, BNCR's operating
profit to risk weighted assets (RWA) improved to 2.2% (December
2023: 1.8%), above the average of the past four years of 1.7%. The
increase in the core profitability metric was due to a higher net
interest margin (NIM). Despite the decrease in interest rates in
Costa Rica, BNCR was able to reduce its funding costs. In addition,
lower noninterest expenses contributed to the improvement in the
core profitability ratio.
Fitch expects a slight decrease in the profitability core ratio,
around 1.6% for YE 2024, given a moderation in the NIM, due to the
lower interest rates, and higher expected loan impairment charges,
given the new rules regarding countercyclical loan loss
provisions.
Good Capitalization: According to Fitch, BNCR's capitalization
metrics are good, bolstered by consistent net income generation,
its role as a state-owned bank and conservative risk management
practices. As of March 2024, the Fitch Core Capital (FCC) to RWA
ratio rose to 13.3%, surpassing the four-year average of 12.4%. For
YE 2024, Fitch projects a decrease in the FCC ratio, to around
11.4%, given the phase out of the Fondo de Financiamiento para el
Desarrollo from the equity, according to the new capital
regulation.
Robust Funding Structure and Ample Liquidity: Fitch believes BNCR's
consolidated funding structure is a key credit strength. This
strength is supported by a stable deposit base, which reflects the
bank's leading market position in deposits, and a diversified range
of funding sources, including financial obligations, with both
local and international institutions, as well as access to
international and national capital markets.
As of March 2024, the ratio of gross loans to customer deposits
improved to 74.8%, down from 77.6% in December 2023, positioning
BNCR favorably compared to other regional peers. This improvement
was driven by a greater increase in deposits compared to loans. For
YE 2024, Fitch expects loans to deposits to increase to 79.3%, due
to the relatively more dynamic credit demand, given the favorable
operating conditions, compared to the deposit's expected growth and
its liquidity position.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- BNCR's IDRs and GSR will be downgraded in the event of a
downgrade to Costa Rica's sovereign rating;
- BNCR's VRs would be downgraded by a downward revision of Fitch's
assessment of the Costa Rican OE. Additionally, BNCR's VR will be
downgraded by materially further loan portfolio deterioration that
affects operating profitability to levels below 1.25% and pressures
the FCC-to-RWA ratio consistently below 10%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- BNCR's IDRs and GSR could be upgraded in the event of an upgrade
to Costa Rica's sovereign rating;
- An upward revision of Fitch's assessment of the Costa Rican OE in
conjunction with a consistent financial performance and business
profile could lead to an upgrade of BNCR's VR. The sovereign rating
acts as a cap to the bank's VR.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The national ratings of the senior unsecured debt are in line with
the bank's national ratings, as the likelihood of default on the
debt is the same as that of BNCR.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The bank's senior unsecured debt would mirror any negative or
positive change in the BNCR's national ratings.
VR ADJUSTMENTS
The OE score has been assigned below the implied score due to the
following adjustment reason: Sovereign Rating (negative).
Summary of Financial Adjustments
Fitch reclassified prepaid expenses, deposits as guarantee,
construction in process and other deferred assets as intangibles
and deducted them from total equity to reflect their low absorption
capacity.
Public Ratings with Credit Linkage to other ratings
BNCR's IDRs, GSR and national ratings are linked to the Costa Rican
sovereign rating.
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 Nacional de
Costa Rica LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Natl LT AA+(cri)Affirmed AA+(cri)
Natl ST F1+(cri)Affirmed F1+(cri)
Viability bb Affirmed bb
Government Support bb Affirmed bb
senior
unsecured Natl LT AA+(cri)Affirmed AA+(cri)
senior
unsecured Natl ST F1+(cri)Affirmed F1+(cri)
BANCO POPULAR: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Banco Popular y de Desarrollo Comunal's
(BPDC) Foreign and Local Currency Long-Term Issuer Default Ratings
(IDRs) at 'BB' and Short-Term Foreign and Local Currency IDR at
'B'. The Rating Outlook on the long-term rating is Stable. Fitch
has also affirmed the bank's Viability Rating (VR) at 'bb' and the
National Scale Long-Term and Short-Term Ratings at 'AA+(cri)' and
'F1+(cri). The Rating Outlook on the National Long-Term Rating is
Stable.
Key Rating Drivers
Ratings Driven by Intrinsic Profile: BPDC's IDRs are driven by its
intrinsic creditworthiness embodied in its 'bb' VR. The VR captures
the benefits from the bank's public nature on its consistent
business profile and sound capital metrics. It also considers the
bank's adequate asset quality and challenged profitability.
Business Profile Benefits from Public Nature: BPDC's public nature
strengthens some of its financial metrics, such as capitalization,
which consistently receives inflows via mandatory contributions
from Costa Rican employers. The bank's business profile is also
characterized by its strong market position in Costa Rica, which is
reflected in a high market share in credit and deposits, with the
latter also benefiting from mandatory savings from the country's
workforce.
Acquisition Credit Neutral: BPDC will acquire loans valued at
approximately USD 570 million from Cooperativa de Ahorro y Credito
de los Servidores Publicos, R.L. (Coopeservidores), a failed
non-bank financial institution in Costa Rica. This acquisition
represents around 10% of BPDC's total gross loans as of June 2024.
BPDC has reviewed and selected only the highest quality loans, so
Fitch does not anticipate a material impact on asset quality and on
its robust capital metrics provided its current room for asset
quality deterioration. Positively, this acquisition will enable the
bank to gain market share and likely secure the position of the
third-largest bank in Costa Rica.
Adequate Asset Quality: Fitch believes that BPDC's asset quality is
adequate, underpinned by a controlled NPL ratio (90+ days past due
loans), low per debtor concentration, and sufficient reserve
coverage. As of June 2024, the bank's NPL ratio was 2%. While Fitch
projects a slight increase in delinquency due to market conditions,
Fitch expects the ratio to remain around or below 2.5%, in line
with its 'bb'/stable assessment.
Profitability Still Under Pressure: BPDC's profitability has been
challenged by higher credit and funding costs and high operational
expenses, causing the operating profit-to-RWA ratio to drop to 0.7%
at 2023 YE from 2.3% at 2022 YE. These pressures eased slightly in
the first half of 2024, with improvements in operating
costs-to-gross revenues and loan impairment
charges-to-pre-impairment operating profit ratios. Also, the net
interest margin is expected to recover due to adjusted loan rates,
along with increased fee and commission income. However, Fitch
revised the outlook for this factor to negative from stable, given
the potential challenges in returning to levels consistently above
2%.
Sound Capital Metrics: Fitch views BPDC's capitalization as its
strongest financial factor. As of June 2024, the bank's Fitch Core
Capital (FCC) to RWA ratio was 24.7%, well above peers, enabling
above-average loan growth and strong loan loss absorption capacity.
Although this ratio has decreased from 27.2% in December 2023 due
to regulatory changes in RWA and is expected to be further
pressured by the partial acquisition of Coopservidores, Fitch
projects it will remain above 23%, in line with its current
'bbb-'/stable assessment. Capitalization is further supported by
mandatory contributions from Costa Rican employers and potential
internal capital generation improvements.
Reasonable Funding Profile: Fitch views BPDC's funding profile as
reasonable, relying on a wide deposit structure, bilateral loans,
and local debt issuances. The bank's customer deposits benefit from
mandatory contributions from the country's workforce. The bank's
liquidity management is adequate, with a reasonable ability to
fulfill its debt maturities in the next 12 months. As of June 2024,
the bank's loans-to-customer deposits ratio was 125.3%, a metric
higher than its peers.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The banks' ratings are sensitive to negative changes in the local
OE;
- IDRs, VR and national ratings could be downgraded if sustained
deterioration in financial performance drives a material
deterioration in asset quality and decline in the bank's operating
profit to risk weighted assets (RWA) metric to a level continuously
below 1.25%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The bank's IDRs and VR have limited upside potential given that
they are at the sovereign level. The ratings, including the
national ratings, could be upgraded if financial performance is
sustained and both Costa Rica's sovereign rating and OE score are
upgraded, although the latter is not Fitch's base scenario given
the current Stable Outlook.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Senior Debt
All senior unsecured debt is rated at the same level as the
issuer's long-term and short-term national scale ratings, as the
likelihood of default on the debt is the same as that of BPDC.
Government Support Rating (GSR)
Fitch believes the bank's 'bb-' GSR, one notch below the sovereign
IDR, reflects the limited probability of support from the Costa
Rican government and its current ability to support the bank.
Despite the bank's legally protected public nature and systemic
importance, there is no explicit government guarantee that would
likely equalize the ratings with the sovereign, as is the case of
the largest state-owned bank peers.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
- The bank's senior unsecured debt would mirror any positive or
negative change in BPDC's ratings;
- GSR is sensitive to a downgrade of the sovereign rating, as well
as its propensity to provide support;
- GSR could be upgraded if Costa Rica's sovereign rating is
upgraded.
VR ADJUSTMENTS
The OE score of 'bb' has been assigned below the 'bbb' category
implied score due to the following adjustment reason: Sovereign
rating (negative).
Summary of Financial Adjustments
Fitch deducted all intangible assets from total equity to obtain
the FCC due to the assets' low capacity to absorb losses.
Entity/Debt Rating Prior
----------- ------ -----
Banco Popular y de
Desarrollo Comunal LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Natl LT AA+(cri)Affirmed AA+(cri)
Natl ST F1+(cri)Affirmed F1+(cri)
Viability bb Affirmed bb
Government Support bb- Affirmed bb-
senior
unsecured Natl LT AA+(cri)Affirmed AA+(cri)
senior
unsecured Natl ST F1+(cri)Affirmed F1+(cri)
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Free Trade Zones Now Solid Source of Employment
-------------------------------------------------------------------
Dominican Today reports that President Luis Abinader announced that
the free trade zone sector has created 200,000 new direct formal
jobs over the past four years. He emphasized the sector's growth,
noting that in June 2020, there were 119,974 jobs, which increased
to 198,466 by June 2024, marking a 65.4% rise, according to
Dominican Today.
In addition to job creation, President Abinader reported a record
in exports for May 2024, with a total value of US$813 million, the
report notes. He also highlighted that 1,800 different products
have been exported to over 143 countries worldwide, the report
relays.
Regarding investment, the president stated that accumulated
investment in the sector has grown by 44.5%, from US$5,189 million
in 2020 to US$7,496 million in 2023, the report says.
These remarks were made during the LA Semanal press briefing in the
Las Cariatides room of the National Palace, where the free trade
zones, referred to as "the factory of jobs," were a key topic of
discussion, 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
=============
ECUADOR SOCIAL: Fitch Affirms 'CCC+sf' Rating on Class B Notes
--------------------------------------------------------------
Fitch Ratings has affirmed Ecuador Social Bond S.a.r.l.'s (ESB)
class A and B 144A/Reg S notes (together, the repack notes) at
'AAAsf' and 'CCC+sf', respectively. The Rating Outlook on the class
A repack notes remains Stable. Fitch does not typically assign
Outlooks to ratings in the 'CCC' category or below.
Entity/Debt Rating Prior
----------- ------ -----
Ecuador IDB Repack
Class A (secured)
XS2106052827 LT AAAsf Affirmed AAAsf
Class B (secured)
XS2106053635 LT CCC+sf Affirmed CCC+sf
Transaction Summary
The Social Bond, which is issued by the Republic of Ecuador and
partially guaranteed by the Inter-American Development Bank (IDB;
AAA/Stable), is the asset backing the repack notes.
The assigned ratings address timely payment of interest and
principal on a semiannual basis.
KEY RATING DRIVERS
Social Bond Backed by Full Faith and Credit of Ecuador: The Social
Bond shares all characteristics of other external sovereign debt
and is backed by the full faith and credit of Ecuador. The only
differences are that its proceeds are specifically allocated for
investment in Ecuador's social housing program, and its debt
service benefits from a partial credit guarantee by the IDB.
IDB's Partial Credit Guarantee: The partial credit guarantee
between the IDB and ESB, as initial purchaser of the Social Bond,
would partially cover a failure by Ecuador to meet its obligations
on the Social Bond. After such a default, all draws from the IDB
guarantee would be exclusively applied by the trustee to cover 100%
of class A's debt service, covering a percentage of the underlying
Social Bond.
The IDB guarantee is comprehensive in scope and effectively covers
100% of the class A notes to be issued by ESB within the 23-day
cure period. IDB's obligations under the partial guarantee
constitute direct, unsecured obligations of IDB.
IDB's Credit Quality Remains Strong: The rating assigned to the
class A notes is commensurate with the Issuer Default Rating (IDR)
of the guarantee provider. On Nov. 13, 2023, Fitch affirmed IDB's
IDR at 'AAA'/Outlook Stable.
Class B Notes' Ratings Commensurate with Sovereign: Given that all
flows from the IDB guarantee will be applied to the class A notes
to meet debt service according to the guarantee's schedule, a
default by Ecuador under its obligations of the Social Bond would
lead to a default of ESB's obligations under the class B notes.
Hence, the credit quality of the class B notes is a pass-through of
Ecuador's rating. Fitch last affirmed Ecuador's rating at 'CCC+' on
Aug. 13, 2024.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The class A notes' ratings are linked to the IDB's Long-Term (LT)
Foreign Currency (FC) IDR, and a downgrade of the IDB's IDR would
trigger a downgrade of class A notes in the same proportion.
Additionally, changes in Fitch's view regarding the strength of the
IDB guarantee may affect the class A notes' ratings;
- The class B notes' credit quality reflects Ecuador's rating and,
therefore, is sensitive to changes in Ecuador's LT IDR. A downgrade
of Ecuador's IDR would trigger a decrease in the class B note
ratings in the same proportion.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The class A notes' ratings are linked to the IDB's LT FC IDR of
'AAA'/Stable, which is the highest rating assigned by Fitch;
- The class B notes' credit quality reflects Ecuador's rating and,
therefore, is sensitive to changes in Ecuador's LT IDR. An upgrade
of Ecuador's IDR would trigger an uplift in the class B note
ratings in the same proportion.
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 credit risk of the class A notes is linked to the credit
quality of the IDB (AAA/Stable) as the only beneficiary of the IDB
guarantee. The credit risk of the class B notes is directly linked
to Ecuador's Long-Term IDR (CCC+).
ECUADOR: Fitch Affirms 'CCC+' LongTerm Foreign Currency IDR
-----------------------------------------------------------
Fitch Ratings has affirmed Ecuador's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'CCC+'. Fitch typically does not
assign Outlooks to sovereigns with a rating of 'CCC+' or below.
Key Rating Drivers
Ratings Affirmed: Ecuador's rating reflects fairly high per-capita
income, and current account surpluses and multilateral financing
that support external liquidity and mitigate macro-stability risks.
These factors are balanced by a poor debt-repayment record,
continued political and policy uncertainties, government financing
constraints, and weak economic growth prospects. Fitch expects a
new IMF program to anchor fiscal consolidation and ease near-term
financing risks, but execution risks remain high, and prospects for
recovery of market access that would likely be needed to honor
upcoming debt service payments remain uncertain.
Challenging Political Outlook: President Daniel Noboa of the
center-right National Democratic Action (ADN) alliance was elected
in 2023 on a mandate to tackle the deteriorating security
situation. He was able to forge a congressional alliance to raise
security spending and enact tax measures. The alliance has
collapsed, however, and additional reforms are unlikely before the
February 2025 general elections. Polling suggests Noboa is
well-positioned to win re-election given his high popularity and no
clear opposition candidate.
However, continued popularity could depend on his management of
ongoing security and serious electricity sector challenges.
Achieving further reforms could also hinge on ADN's ability to win
more seats in the highly fragmented National Assembly and form
alliances.
Reforms Pave Way to IMF Program: The IMF approved a four-year USD4
billion Extended Fund Facility (EFF) program for Ecuador in May.
The program is ambitious, anchored around a 5.5% of GDP improvement
in non-oil primary balance including fuel subsidies by 2028, of
which revenue measures are expected to yield 3.7pp and expenditure
efforts 1.8pp. The formal targets are based on the central
government (CG) plus the oil subsidy account (CFDD).
The government is on track to meet the 2024 fiscal consolidation
goal thanks to revenue measures already enacted, including 1.8pp of
GDP in tax increases and some rationalization of fuel subsidies
(2.7% of GDP in 2023). However, the IMF estimates that 1.2pp of
revenue increases are transitory and will need to be replaced by
permanent ones by 2028, which could prove more challenging.
Uncertain Consolidation Path: Fitch expects the CG fiscal deficit
to fall to 3.4% of GDP in 2024 from 5.3% in 2023, in line with the
EFF target, boosted by the tax measures but restrained by lower GDP
growth. Expenditures will remain high given rising salaries and
interest payments, and public investment is likely to accelerate in
2H24. Downside risks emanate from the closure of three Amazon oil
fields (ITT) this year after Ecuadorians voted to close them in a
referendum in August 2023, representing an estimated 0.6% of GDP in
revenue.
In 2025, Fitch believes there is scope for further fiscal
consolidation if Noboa is re-elected and can form an alliance in
congress to approve the fiscal reform agenda. Further consolidation
after 2025 will depend on the government's commitment to the fiscal
targets set out by the EFF program.
Financing Risks Remain High: Fitch expects IMF and other
multilateral funds to ease high financing risks in the near term.
In 2024, Fitch forecasts financing needs at USD11.4 billion (9.6%
of GDP) to be met by external financing of USD5.2 billion,
including from the IMF and other multilaterals, and domestic
financing of USD6.2 billion. After 2024, risks could rise given
higher financing needs and uncertain sources. In 2025, amortizing
debt to the IMF and other multilaterals will rise, and in 2026
external bonds start amortizing.
The EFF envisions Ecuador returning to Eurobond issuances to make
these payments, but prospects remain unclear with bond yields still
at highly distressed levels. Alternative financing sources appear
limited, beyond a possible USD1 billion RST with the IMF.
Debt to Fall: Fitch forecasts consolidated general government debt
to rise to 53.5% of GDP in 2024 from 52.3% in 2023, which compares
favorably with 'B'/'C'/'D' peers of 73.6%, and to fall to 52.5% by
2026.
Weak Growth: Fitch expects GDP growth to decline to 0.2% in 2024
from 2.4% in 2023. Despite solid momentum early in the first
quarter of 2024 (1.6% yoy), Fitch expects the security crisis,
fiscal consolidation and ongoing power outages to significantly
impair growth in the remainder of the year. However, settlement of
some arrears with support from the IMF and other multilaterals
could help buoy activity. Downside risks include an
earlier-than-expected closure of ITT (Fitch's baseline envisions
this occurring in 2025) and the inability of authorities to address
the energy and security crises.
Financial System Stability: Delinquencies have risen in the
financial system, with nonperforming loans (NPLs) at 8% as of late
July according to the central bank. This uptick has been led by the
cooperatives sector, which represents a third of the credit
portfolio in the system but holds around 40% of the NPLs. The
authorities created the Financial Stability Committee (a structural
benchmark of the EFF) to reduce systemic risks over time.
Improved External Liquidity Position: Fitch projects a current
account surplus of 2.0% of GDP in 2024 (1.9% in 2023) as the trade
balance strengthens on the back of supportive oil receipts amid
higher oil prices (despite fall in output), and non-oil exports,
and lower imports. Reserves fell sharply in 2023 despite a current
account surplus due to capital outflows, but they have strengthened
considerably again in 2024 on the back of multilateral support,
rising to USD7.2 billion from USD4.4 billion at year-end 2023.
ESG - Governance: Ecuador 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.
Ecuador has a low WBGI percentile ranking at 36.6 reflecting high
political uncertainty, moderate voice and accountability, weak rule
of law, moderate government effectiveness, and weak control of
corruption.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Public Finances: Greater financing strains that could jeopardize
repayment capacity, or signs of weaker willingness to service
commercial debt.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Public Finances: Fiscal consolidation that supports a sustained
reduction in government financing needs and recovery of market
access.
- Structural: Easing of political gridlock and uncertainty that
leads to improvement of governability, for example via continued
progress on reforms.
Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
Fitch's proprietary SRM assigns Ecuador a score equivalent to a
rating of 'B+' on the Long-Term Foreign-Currency IDR scale.
However, in accordance with its rating criteria, Fitch's sovereign
rating committee has not utilized the SRM and QO to explain the
ratings in this instance. Ratings of 'CCC+' and below are instead
guided by the rating definitions.
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 LT FC 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 its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
Country Ceiling
The Country Ceiling for Ecuador is 'B', 2 notches above the LT FC
IDR. This reflects strong 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 applied a +1-notch
qualitative adjustment to this, under the Long-Term Institutional
Characteristics, reflecting Ecuador's fully dollarized economy.
ESG Considerations
Ecuador 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 Ecuador has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Ecuador 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 Ecuador has a percentile rank
below 50 for the respective Governance Indicators, this has a
negative impact on the credit profile.
Ecuador 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 Ecuador has a percentile rank below 50 for the
respective Governance Indicator, this has a negative impact on the
credit profile.
Ecuador 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 Ecuador, as for all sovereigns. As Ecuador
has a fairly recent restructuring of public debt in 2020, this has
a negative 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
----------- ------ -----
Ecuador LT IDR CCC+ Affirmed CCC+
ST IDR C Affirmed C
Country Ceiling B Affirmed B
senior
unsecured LT CCC+ Affirmed CCC+
=========
H A I T I
=========
HAITI: World Bank Appoints Country Manager
------------------------------------------
RJR News reports that the World Bank has appointed Canadian
national Anne-Lucie Lefebvre as its country manager for Haiti.
The Washington-based development financier said she will be based
in Port-au-Prince and be responsible for leading the bank's
dialogue with the government, working closely with key development
partners and stakeholders, according to RJR News.
The World Bank said its work in Haiti includes an active portfolio
of 18 projects with an approximate investment of US$1.3 billion
financed by the International Development Association, and
complemented by $112 million from trust funds, the report notes.
Key sectors include transport, agriculture, urban, health,
education, social protection, water, energy, and digital
development, the report adds.
=============
J A M A I C A
=============
JAMAICA: Got Almost $6BB in Financing From CDB in 2023
------------------------------------------------------
RJR News reports that Jamaica received about $5.9 billion in
financing from the Caribbean Development Bank last year.
According to the latest Economic and Social Survey done by the
Planning Institute of Jamaica, these funds were for the execution
of three projects under the cooperation program, the report notes.
CDB says these resources were bolstered by government funds of
$170.4 million, according to RJR News.
The ESSJ said additionally, the CDB administered a total of $8.96
billion in grant resources from trust funds for five projects, to
promote agricultural development, improve export capacity, and food
management systems, the report notes.
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 N A M A
===========
LA HIPOTECARIA: Fitch Affirms 'BB+sf' Rating on 2021-1 Certificates
-------------------------------------------------------------------
Fitch Ratings has affirmed all rated notes issued by La Hipotecaria
Panamanian Mortgage Trust 2010-1, La Hipotecaria Panamanian
Mortgage Trust 2014-1, La Hipotecaria Mortgage Trust 2019-1, La
Hipotecaria Mortgage Trust 2019-2, La Hipotecaria Panamanian
Mortgage Trust 2021-1, Tenth Mortgage-Backed Notes Trust, Twelfth
Mortgage-Backed Notes Trust, Fourteenth Mortgage-Backed Notes
Trust, Sixteenth Mortgage-Backed Notes Trust.
The Rating Outlook is Stable for all of the notes except for the
class C notes issued by Fourteenth Mortgage-Backed Notes and the
class B and C notes issued by Sixteenth Mortgage-Backed Notes
Trust. These classes do not have Outlooks.
Entity/Debt Rating Prior
----------- ------ -----
La Hipotecaria Mortgage
Trust 2019-2
Series 2019-2
Certificates
US50346XAA37 LT BB+sf Affirmed BB+sf
Tenth Mortgage-Backed
Notes Trust
Interest Only LT A-sf Affirmed A-sf
Series A PAL300026AA2 LT A-sf Affirmed A-sf
La Hipotecaria
Panamanian Mortgage
Trust 2021-1
Series 2021-1
Certificates LT BB+sf Affirmed BB+sf
La Hipotecaria
Panamanian Mortgage
Trust 2010-1
2010-1 Certificates
50346RAA6 LT AA+sf Affirmed AA+sf
2010-1 Certificates
50346RAA6 ULT A-sf Affirmed A-sf
Fourteenth Mortgage-
Backed Notes Trust
A LT BB+sf Affirmed BB+sf
B LT BBsf Affirmed BBsf
C LT CCCsf Affirmed CCCsf
Sixteenth Mortgage-
Backed Notes Trust
Series A US50347JAA34 LT BB+sf Affirmed BB+sf
Series B LT CCCsf Affirmed CCCsf
Series C LT CCsf Affirmed CCsf
La Hipotecaria Mortgage
Trust 2019-1
Series 2019-1
Certificates
US50346WAA53 LT AA+sf Affirmed AA+sf
La Hipotecaria
Panamanian Mortgage
Trust 2014-1
Class A-1 50346EAA5 LT AA+sf Affirmed AA+sf
Class A-2 50346EAB3 LT BB+sf Affirmed BB+sf
Twelfth Mortgage-
Backed Notes Trust
Series A PAL3006961A4 LT BB+sf Affirmed BB+sf
KEY RATING DRIVERS
RMBS Transactions
Tenth Mortgage-Backed Notes Trust Series A Notes (Trust 10),
Twelfth Mortgage-Backed Notes Trust (Trust 12), Fourteenth
Mortgage-Backed Notes Trust (Trust 14), Sixteenth Mortgage-Backed
Notes Trust (Trust 16)
Higher Stresses Applied Due to Macroeconomic Adjustments: Fitch
expects Panama's real GDP growth to reach only 1.5% in 2024 and to
have unemployment rate increasing to 8.9%, from 7.4% observed YE23.
Fitch continues to apply higher stress scenarios as described in
"Fitch Ratings Revises Macroeconomic Adjustment for La Hipotecaria
RMBS in Panama", considering the underperformance of loans since
pandemic and challenging macroeconomic environment. In the
additional stress scenario analysis, the 'Bsf' representative pool
weighted average foreclosure frequency (WAFF) for BLH in Panama
increased to 9.68% from 8.22% in the current assumption. As
adjustments were maintained at 1.0x at 'A-sf', given that Fitch
does not envisage changes to the SF Rating Cap (A-sf), rating
multiples were compressed.
Operational Risk Mitigated (Latin America RMBS Rating Criteria):
Grupo ASSA, S.A. (BBB-/Stable, primary servicer) has hired Banco La
Hipotecaria, S.A. (the sub-servicer) to be the servicer for the
mortgages. Fitch has reviewed Banco La Hipotecaria's systems and
procedures and is satisfied with its servicing capabilities.
Additionally, Banco General S.A. (BBB-/Stable) has been designated
as back-up servicer in order to mitigate the exposure to
operational risk, and will replace the defaulting servicer within
five days of a servicer disruption event.
Country of Assets Determine Maximum Achievable Ratings: Panama's
IDR is rated 'BB+'/Stable. According to Fitch's 'Structured Finance
and Covered Bonds Country Risk Rating Criteria' the ratings of
Structured Finance notes are capped at four notches above Panama's
sovereign rating, which is equivalent to 'A-sf'. The Trust 10 has
sufficient credit enhancement (CE) to reach the SF rating cap,
while series A from Trust 12, Trust 14 and Trust 16 are capped at
the sovereign IDR, given the high exposure to public servants,
subsidies (for the Trust 12 and Trust 16) and to liquidity for
these series, through Letter of Credit provided by Banco General
(BBB-/Stable). However, this entity as of today does not constrain
the rating. Liquidity is covered through reserve account for Trust
10.
Tenth Mortgage-Backed Notes Trust Series A Notes
Frequency of Foreclosure Assumptions Similar to Previous Review:
Asset characteristics have been stable throughout the years. In an
'A-sf' scenario, the A note and the Interest Only note would need
to support a weighted average foreclosure frequency (WAFF) of 42.2%
and a weighted average recovery rate (WARR) of 87.9%, compared to a
WAFF of 41.0% and a WARR of 86.5% from last annual review, in
October 2023.
These assumptions consider the main characteristics of the assets,
where OLTV is 86.7%, the seasoning average 199 months and remaining
term 174 months, WA current loan-to-value is 54.9% and almost half
of borrowers (47.8%) pay through payroll deduction mechanism. The
assumptions also consider a Performance Adjustment Factor of 0.7x
considering the historical performance of the portfolio.
Transaction Performance Supports Assigned Ratings: CE has increased
during the last year due to the sequential nature of the structure.
As of June 2024, CE has increased to approximately 72.6% up from
65.5% observed in June 2023. The transaction also benefits from a
reserve account of 1% of the outstanding balance of the series A
notes, which is sufficient to cover almost three months of senior
expenses and interest payment on series A and IO.
Twelfth Mortgage-Backed Notes Trust
Country of Assets and Counterparty Determine Maximum Achievable
Ratings: The rating is constrained by Panama's sovereign rating
(BB+/Stable) due to the portfolio's exposure to the sovereign. Over
35% of the residential mortgages were granted to public sector
employees and about 70% of the pool benefits from Panama's
Preferential Treatment Law, whereby the government provides lenders
a subsidy, through fiscal credits, for originating mortgages below
market interest rates for a definite period of 10 or 15 years.
Also, as the reserve account is in the form of a letter of credit
provided by Banco General (BBB-/Stable), the transaction is also
exposed to this entity.
Frequency of Foreclosure Assumptions Affected by the Macroeconomic
Adjustments: To gauge the impact of the macroeconomic
underperformance, Fitch reviewed its FF parameter. Under Fitch's
updated assumptions in an 'BB+sf' scenario, the A note would need
to support a WAFF of 21.9% and a WARR of 93.8%, compared to a WAFF
of 19.8% and a WARR of 93.9% from last annual review, in September
2023.
These assumptions consider the main characteristics of the assets,
where OLTV is 90.8%, the seasoning average 155 months and remaining
term 215 months, WA current loan-to-value is 59.2% and the majority
of performing borrowers (61.0%) pay through payroll deduction
mechanism. The assumptions also consider a Performance Adjustment
Factor of 0.7x considering the historical performance of the
portfolio.
Robust Credit Enhancement Supports Assigned Ratings: CE has
returned to previous levels, being stable in the past year. As of
June 2024, CE has increased to 28.9% from 21.5% observed in July
2023 for series A. Fitch expect the CE to keep building up due to
the sequential nature of the transaction structure. The transaction
also benefits from a reserve account of 1% of the outstanding
balance of the series A notes in the form of a letter of credit,
which is sufficient to cover almost three months of senior expenses
and interest payment on the Series A notes.
Fourteenth Mortgage-Backed Notes Trust
Country of Assets and Counterparty Determine Maximum Achievable
Ratings: The rating of the series A notes is constrained by
Panama's sovereign rating (BB+/Stable) due to the portfolio's
exposure to the sovereign. Around 40% of the residential mortgages
were granted to public sector employees. Also, as the reserve
account is in the form of a letter of credit provided by Banco
General, the series A notes is also exposed to this entity.
Frequency of Foreclosure Assumptions Affected by the Macroeconomic
Adjustments: To gauge the impact of the macroeconomic
underperformance, Fitch reviewed its FF parameter. Under Fitch's
updated assumptions in an 'BB+sf' scenario, the A note would need
to support a WAFF 20.0% and a WARR of 82.7%, compared to a a WAFF
18.4% and a WARR of 84.0% from its last annual review, in September
2023. Under Fitch's updated assumptions in a 'BBsf' scenario, the
Series B notes would need to support a WAFF of 17.6% and a WARR of
85.2%, compared to a WAFF of 16.4% and a WARR of 86.0% from its
last annual review. For the base case scenario, the Series C notes
would need to support a WAFF of 9.2% and a WARR of 92.8%, compared
to a WAFF of 9.1% and a WARR of 92.5% from its last annual review.
These assumptions consider the main characteristics of the assets,
where OLTV is 70.8%, the seasoning average 143 months and remaining
term 216 months, WA current loan-to-value is 62.6% and the majority
of performing borrowers (63.5%) pay through payroll deduction
mechanism. The assumptions also consider a Performance Adjustment
Factor of 0.7x considering the historical performance of the
portfolio.
Transaction Performance Supports Assigned Ratings: CE has increased
during the last year due to the sequential nature of the structure.
As of June 2024, CE has increased to approximately 13.4% up from
11.9% observed in July 2023 for the Series A notes, to 4.3% from
3.6% for the Series B notes, and for series C it increased to 1.3%
from 0.9%. The series A notes benefits from a reserve account
equivalent to three times (x) its next interest payment in the form
of a letter of credit.
Sixteenth Mortgage-Backed Notes Trust
Country of Assets and Counterparty Determine Maximum Achievable
Ratings: The rating of the series A notes is constrained by
Panama's sovereign rating (BB+/Stable) due to the portfolio's
exposure to the sovereign. Around a quarter of the residential
mortgages were granted to public sector employees and almost 100%
of the pool benefits from an interest rate subsidy provided by the
Republic of Panama. Also, as the reserve account is in the form of
a letter of credit provided by Banco General, the series A notes is
also exposed to this entity.
Frequency of Foreclosure Assumptions Affected by the Macroeconomic
Adjustments: To gauge the impact of the macroeconomic
underperformance, Fitch reviewed its FF parameter. Under Fitch's
updated assumptions in an 'BB+sf' scenario, the A note would need
to support a WAFF of 19.2% and a WARR of 60.2%, compared to a WAFF
of 15.9% and a WARR of 61.0% from last annual review, in September
2023. At the base case scenario, the WAFF was updated to 9.2%, from
7.5%, and the WARR changed to 76.1%, from 75.0%. These assumptions
consider the main characteristics of the assets, where OLTV is
89.8%, the seasoning average 82 months and remaining term 280
months, WA current loan-to-value is 72.2% and the majority of
performing borrowers (79.7%) pay through payroll deduction
mechanism.
Transaction Performance Supports Assigned Ratings: CE has increased
during the last year due to the receipt of fiscal credits and
considering transaction allocation. The series A notes benefit from
a sequential pay structure wherein target amortization payments for
this series are senior to interest and principal payments on the
series B and C notes. Series A CE increased to 10.1% from 5.9%,
while for series B increased to -0.7% from -3.4% and for the series
C, -3.4% from -5.9%. The series A notes benefits from an interest
reserve account equivalent to 3 times (x) its next interest payment
and excess spread.
CLN Transactions
La Hipotecaria Panamanian Mortgage Trust 2010-1, 2014-1 A-1, La
Hipotecaria Trust 2019-1
DFC's Credit Quality Supports Rating: The rating assigned to the La
Hipotecaria Panamanian Mortgage Trust 2010-1, La Hipotecaria
Panamanian Mortgage Trust 2014-1 A-1, and La Hipotecaria Trust
2019-1 certificates is commensurate with the credit quality of the
guarantee provider. The credit quality of U.S. International
Development Finance Corporation (DFC) is directly linked to the
U.S. sovereign rating ('AA+'/F1+/Stable), as guarantees issued by,
and obligations of, DFC are backed by the full faith and credit of
the U.S. government, pursuant to the Foreign Assistance Act of
1969. The ULT rating assigned to the 2010-1 certificates is
commensurate with the credit quality of the series A notes of the
Tenth Mortgage-Backed Notes Trust.
Reliance on DFC Guaranty: Fitch assumes the payment on the La
Hipotecaria Panamanian Mortgage Trust 2010-1, La Hipotecaria
Panamanian Mortgage Trust 2014-1 A-1, and La Hipotecaria Trust
2019-1 certificates will rely on the DFC guaranty. Through this
guaranty, DFC will unconditionally and irrevocably guarantee the
receipt of proceeds from the underlying notes in an amount
sufficient to cover timely scheduled monthly interest amounts and
the ultimate principal amount on the certificates.
Ample Liquidity: The La Hipotecaria Panamanian Mortgage Trust
2010-1, La Hipotecaria Panamanian Mortgage Trust 2014-1 A-1 and La
Hipotecaria Trust 2019-1 certificates benefit from liquidity, in
the form of a five-day buffer between payment dates on the
underlying notes and payment dates on the certificates.
Additionally, the certificates benefit from liquidity in the form
of an interest reserve account or a letter of credit at the
underlying note level. Fitch considers this sufficient to keep debt
service current on the guaranteed certificates until funds under a
claim of DFC are received.
La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2 Certificates,
La Hipotecaria Trust 2019-2, La Hipotecaria Panamanian Mortgage
Trust 2021-1
Credit Quality of the Underlying Notes Support Ratings: The 2014-1
A-2, 2019-2 and 2021-1 certificates are a repackaging of the
BLH12th, Trust 14 and Trust 16 Series A notes, respectively,
therefore the rating assigned to the certificates is commensurate
with the credit rating of the series A notes of each transaction,
which carry a rating of 'BB+sf'/Outlook Stable. The interest
received from the underlying notes is expected to be sufficient to
cover the expenses and coupon payments due for the certificates.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The ratings of the Tenth Mortgage-Backed Notes Trust Series A notes
and interest-only notes, Twelfth Mortgage-Backed Notes Trust Series
A notes, Fourteenth Mortgage-Backed Notes Trust Series A Notes and
Sixteenth Mortgage-Backed Notes Trust Series A Notes are sensitive
to changes in the credit quality of Panama.
A downgrade of Panama's ratings could lead to a downgrade on the
notes. In addition, the ratings of the Twelfth Mortgage-Backed
Notes Trust Series A Notes and Fourteenth Mortgage-Backed Notes
Trust Series A Notes could be sensitive to changes in the credit
quality of Banco General as the Letter of Credit provider. Finally,
severe increases in foreclosure frequency as well as reductions in
recovery rates could lead to a downgrade of the notes.
The series B and C of Fourteenth Mortgage-Backed Notes Trust can be
downgraded if there is a relevant increase in foreclosure frequency
as well as reductions in recovery rates.
The series A and B of Sixteenth Mortgage-Backed Notes can also be
downgraded if credit enhancement deteriorate to a level that is not
able to be considered sufficient to converge to current level
stresses.
For series C of Sixteenth Mortgage-Backed Notes Trust, rating can
be downgraded if the C notes is irrevocably impaired such that it
is not expected to pay interest and/or principal in full in
accordance with the terms of the obligation's documentation during
the life of the transaction. This assessment would be consistent to
a C category.
DFC Guaranteed Notes: In the case of La Hipotecaria Panamanian
Mortgage Trust 2010-1, La Hipotecaria Panamanian Mortgage Trust
2014-1-A-1 Tranche and the La Hipotecaria Mortgage Trust 2019-1
notes, the rating assigned could be downgraded in the case of a
downgrade on the U.S. sovereign rating.
The unenhanced rating of the La Hipotecaria Panamanian Mortgage
Trust 2010-1 is sensitive to changes in the credit quality of the
Tenth Mortgage-Backed Notes Trust Series A Notes, hence, a negative
rating action of the series A notes would trigger a negative rating
action of the unenhanced rating on the notes in the same
proportion.
The La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2
certificates' ratings are sensitive to changes in the credit
quality of the Twelfth Mortgage-Backed Notes Trust Series A notes.
If Twelfth Mortgage-Backed Notes Trust Series A notes are
downgraded, that could lead to a downgrade of the certificates.
The La Hipotecaria Mortgage Trust 2019-2 certificates' ratings are
sensitive to changes in the credit quality of the Fourteenth
Mortgage-Backed Notes Trust Series A notes. If Fourteenth
Mortgage-Backed Notes Trust Series A notes are downgraded, that
could lead to a downgrade on the certificates.
The La Hipotecaria Panamanian Mortgage Trust 2021-1 certificates'
ratings are sensitive to changes in the credit quality of the La
Hipotecaria Sixteenth Mortgage Backed Notes Trust series A notes.
If Sixteenth Mortgage-Backed Notes Trust Series A notes are
upgraded, that could lead to an upgrade of the certificates.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The ratings of the La Hipotecaria Tenth Mortgage-Backed Notes Trust
Series A Notes & Interest-Only Notes, Twelfth Mortgage-Backed Notes
Trust Series A Notes, Fourteenth Mortgage-Backed Notes Trust Series
A Notes and Sixteenth Mortgage-Backed Notes Trust Series A Notes
are sensitive to changes in the credit quality of Panama. An
upgrade of Panama's ratings could lead to an upgrade on the notes.
The ratings of Fourteenth Mortgage-Backed Notes Trust Series B and
C Notes and Sixteenth Mortgage-Backed Notes Trust Series B and C
Notes could be upgraded in case of a future improvement of CE.
DFC Guaranteed: In the case of La Hipotecaria Panamanian Mortgage
Trust 2010-1, La Hipotecaria Panamanian Mortgage Trust 2014-1-A-1
Tranche and the La Hipotecaria Mortgage Trust 2019-1 notes, the
ratings could be downgraded in the case of an upgrade on the U.S.
sovereign rating.
The unenhanced rating of the La Hipotecaria Panamanian Mortgage
Trust 2010-1 is sensitive to changes in the credit quality of La
Hipotecaria Tenth Mortgage-Backed Notes Trust Series A notes,
hence, a positive rating action of the series A notes would trigger
a positive rating action of the unenhanced rating on the notes in
the same proportion.
The La Hipotecaria Panamanian Mortgage Trust 2014-1 A-2
certificates' ratings are sensitive to changes in the credit
quality of the Twelfth Mortgage-Backed Notes Trust Series A notes.
If Twelfth Mortgage-Backed Notes Trust Series A Notes are upgraded,
that could lead to an upgrade of the certificates.
The Hipotecaria Mortgage Trust 2019-2 certificates' ratings are
sensitive to changes in the credit quality of the Fourteenth
Mortgage-Backed Notes Trust Series A notes. If Fourteenth
Mortgage-Backed Notes Trust Series A notes are upgraded, that could
lead to an upgrade on the certificates.
The La Hipotecaria Panamanian Mortgage Trust 2021-1 certificates'
ratings are sensitive to changes in the credit quality of the La
Hipotecaria Sixteenth Mortgage Backed Notes Trust Series A notes.
If Sixteenth Mortgage-Backed Notes Trust Series A notes are
upgraded, that could lead to an upgrade of the certificates.
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 LT rating of the 2010-1 certificates issued by La Hipotecaria
Panamanian Mortgage Trust 2010-1 is directly linked to the credit
quality of the DFC and the ULT rating of the 2010-1 certificates
issued by La Hipotecaria Panamanian Mortgage Trust 2010-1 is
directly linked to the rating of the Series A Notes issued by Tenth
Mortgage-Backed Notes Trust.
- The rating of the A-1 certificates issued by La Hipotecaria
Panamanian Mortgage Trust 2014-1 is directly linked to the credit
quality of the DFC and the rating of the A-2 certificates issued by
La Hipotecaria Panamanian Mortgage Trust 2014-1 is directly linked
to the rating of the Series A Notes issued by Twelfth
Mortgage-Backed Notes Trust.
- The rating of the 2019-1 certificates issued by La Hipotecaria
Trust 2019-1 is directly linked to the credit quality of the DFC.
- The rating of the 2019-2 certificates issued by La Hipotecaria
Trust 2019-2 is directly linked to the rating of the Series A Notes
issued by Fourteenth Mortgage-Backed Notes Trust.
- The rating of the 2021-1 certificates issued by La Hipotecaria
Trust 2021-1 is directly linked to the rating of the Series A Notes
issued by Sixteenth Mortgage-Backed Notes Trust.
- The ratings of the Tenth Mortgage-Backed Notes Trust Series A and
Interest Only Note, Twelfth Mortgage-Backed Notes Trust A Notes,
Fourteenth Mortgage-Backed Notes Trust A Notes and Sixteenth
Mortgage-Backed Notes Trust A Notes are driven by Panama's credit
quality.
ESG Considerations
Fourteenth Mortgage-Backed Notes Trust has an ESG Relevance Score
of '4' [+] for Human Rights, Community Relations, Access &
Affordability due to accessibility to affordable housing, which has
a positive impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Sixteenth Mortgage-Backed Notes Trust has an ESG Relevance Score of
'4' [+] for Human Rights, Community Relations, Access &
Affordability due to accessibility to affordable housing, which has
a positive impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Tenth Mortgage-Backed Notes Trust has an ESG Relevance Score of '4'
[+] for Human Rights, Community Relations, Access & Affordability
due to accessibility to affordable housing, which has a positive
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Twelfth Mortgage-Backed Notes Trust has an ESG Relevance Score of
'4' [+] for Human Rights, Community Relations, Access &
Affordability due to accessibility to affordable housing, which has
a positive 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.
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S U R I N A M E
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SURINAME: IMF Program at Risk Over $275M Debt, Warns Minister
-------------------------------------------------------------
RJR News reports that Suriname's Finance Minister Stanley
Raghoebarsing says the country's program with the International
Monetary Fund is in danger of being stopped, as the government has
not yet paid off the national debt of approximately US$275 million
at the Central Bank of Suriname and the Energy Companies.
He said, in order to come through the upcoming seventh review of
the IMF positively, the government will have to present a plan on
how the debt at the bank will be paid off and the EBS will have to
deposit the funds that have been collected in the past three to
four months with the increase in electricity tariffs into the state
treasury, according to RJR News.
An IMF mission held talks with the government and other
stakeholders in recent days about the implementation of the
economic recovery plan, the report notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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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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