/raid1/www/Hosts/bankrupt/TCRLA_Public/240918.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, September 18, 2024, Vol. 25, No. 188
Headlines
A R G E N T I N A
ARGENTINA: IMF Official Steps Back From Talks in Feud With Milei
ARGENTINA: La Rioja Creditors Win US$40MM in New York Court
PROVINCE OF CORDOBA: Fitch Affirms 'CCC+' LongTerm IDRs
PROVINCE OF SANTA FE: Fitch Affirms 'B-' LongTerm IDRs
B R A Z I L
BRASKEM SA: S&P Affirms 'BB+' ICR & Alters Outlook to Negative
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Venezuela Seeks $350 Million for Past Oil Deals
[*] DOMINICAN REPUBLIC: Senator Fernandez Proposes Tax Relief
E C U A D O R
GUAYAQUIL DPR: Fitch Gives BB- Rating on $50MM Series 2024-2 Loans
M E X I C O
CONTRATO DE FIDEICOMISO CIB4323: Moody's Rates New Sec. Notes 'Ba1'
P E R U
VOLCAN COMPANIA: Fitch Hikes LongTerm IDRs to 'B-', Outlook Stable
P U E R T O R I C O
BURGERFI INTERNATIONAL: Files for Chapter 11 Reorganization
UNIVERSAL LIFE: A.M. Best Cuts Finc'l. Strength Rating to B(Fair)
T R I N I D A D A N D T O B A G O
CL FIN'L: Clico Repays Final $1 Billion to Government Last Year
- - - - -
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A R G E N T I N A
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ARGENTINA: IMF Official Steps Back From Talks in Feud With Milei
----------------------------------------------------------------
Buenos Aires Times reports the International Monetary Fund's top
negotiator with Argentina has delegated talks with the South
American nation to colleagues after drawing the ire of President
Javier Milei.
Western Hemisphere Director Rodrigo Valdes deferred to his deputy
and another official "to best support the ongoing constructive
engagement with the Argentine authorities," IMF Chief Spokesperson
Julie Kozack said at a press briefing, according to Buenos Aires
Times.
Talks about the future of Argentina's US$44-billion programme with
the Fund will now be led by Luis Cubeddu, deputy director for the
Western Hemisphere, and Ashvin Ahuja, the Argentina mission chief,
Kozack said, the report notes.
Milei, whose government is seeking fresh funding in an eventual new
programme, has long had a fractious relationship with Valdes. Last
month, the Argentine president called the IMF official "truly
irresponsible" for allowing the previous government to build up a
stock of Central Bank put options, the report relays.
The move marks a change in the IMF's stance in July, when Kozack
said Valdes enjoyed the full confidence of Managing Director
Kristalina Georgieva, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of
South America. Its capital is Buenos Aires. Javier Milei is the
current president of Argentina after winning the November 19, 2023
general election. He succeeded Alberto Angel Fernandez in the
position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal
year 2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
In March 2022, the International Monetary Fund (IMF) approved a new
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota). The IMF Executive Board's decision
allowed the authories an immediate disbursement of an equivalent of
US$9.65 billion in March 2022.
Argentina's IMF-supported program seeks to improve public finances
and start to reduce persistent high inflation through a
multi-pronged strategy, involving a gradual elimination of monetary
financing of the fiscal deficit and enhancements in the monetary
policy framework.
In June 2024, the IMF Board completed an eighth review of the
Extended Arrangement under the Extended Fund Facility for
Argentina. The IMF Board's decision enabled a disbursement of
around US$800 million to support the authorities' efforts to
entrench the disinflation process, rebuild fiscal and external
buffers, and underpin the recovery.
S&P, in March 2024, raised its local currency sovereign credit
ratings on Argentina to 'CCC/C' from 'SD/SD' and its national scale
rating to 'raB+' from 'SD'. S&P also raised its long-term foreign
currency sovereign credit rating to 'CCC' from 'CCC-' and affirmed
its 'C' short-term foreign currency rating. The S&P ratings have
been affirmed as of August 2024. 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 that it would likely consider to be distressed.
In June 2023, Fitch ratings also upgraded 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-'.
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 2023. The new 'CC' rating signals a
default event of some sort appears probable in the coming years,
regardless of the outcome of upcoming elections. The affirmation of
the LC IDR at 'CCC-' follows the peso debt swap in June that Fitch
did not deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
ARGENTINA: La Rioja Creditors Win US$40MM in New York Court
-----------------------------------------------------------
Buenos Aires Times reports that a U.S. judge ordered Argentina's La
Rioja Province to pay creditors nearly US$40 million in damages for
failing to make a series of interest and principal payments on its
debt.
The ruling, filed in a New York federal court, is linked to the
province's international dollar notes on which it defaulted in
February and August, according to Buenos Aires Times.
La Rioja failed to make the payments as its finances buckle under
the strain of President Javier Milei's austerity package and a
slump in economic output, the report notes. The situation has got
so dire that the province resorted to creating its own currency to
help pay bonuses to its workers, the report relays.
La Rioja's government didn't immediately respond to a request for
comment, while a spokesperson for the ad-hoc bondholder committee
declined to comment.
Ricardo Quintela, La Rioja's governor and one of Milei's fiercest
detractors, has blamed the president's cuts in federal aid for the
province's financial woes, the report says. The region was one of
the most reliant in Argentina on transfers from the national
government, the report notes.
As a consequence of the president's "shock" economic therapy, La
Rioja's revenue tumbled 27 percent in the first quarter compared
with the same period a year ago, according to estimates from
Buenos-Aires based brokerage firm Facimex, the report discloses.
To be sure, Milei's cuts to state funding, while sending La Rioja
into distress, has not strained the finances of other Argentine
states as much, the report relays.
A grouping of 14 provinces with foreign bonds outstanding, reported
a primary surplus of 16.9 percent of total revenue for the first
three months of 2024, up from 9.5 percent in the year-earlier
period, according to data from the country's Economy Ministry and
by BancTrust & Co, the report says.
La Rioja's 8.5 percent dollar note due 2028 last changed hands at
around 57 cents on the dollar, according to pricing data compiled
by Bloomberg, the report notes.
The case is Beauregarde Holdings LLP et al v. Province of La Rioja,
24-cv-02955, U.S. District Court, Southern District of New York.
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.
In March 2022, the International Monetary Fund (IMF) approved a new
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota). The IMF Executive Board's decision
allowed the authories an immediate disbursement of an equivalent of
US$9.65 billion in March 2022.
Argentina's IMF-supported program seeks to improve public finances
and start to reduce persistent high inflation through a
multi-pronged strategy, involving a gradual elimination of monetary
financing of the fiscal deficit and enhancements in the monetary
policy framework.
In June 2024, the IMF Board completed an eighth review of the
Extended Arrangement under the Extended Fund Facility for
Argentina. The IMF Board's decision enabled a disbursement of
around US$800 million to support the authorities' efforts to
entrench the disinflation process, rebuild fiscal and external
buffers, and underpin the recovery.
S&P, in March 2024, raised its local currency sovereign credit
ratings on Argentina to 'CCC/C' from 'SD/SD' and its national scale
rating to 'raB+' from 'SD'. S&P also raised its long-term foreign
currency sovereign credit rating to 'CCC' from 'CCC-' and affirmed
its 'C' short-term foreign currency rating. The S&P ratings have
been affirmed as of August 2024. 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 that it would likely consider to be distressed.
In June 2023, Fitch ratings also upgraded 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-'.
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 2023. 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.
PROVINCE OF CORDOBA: Fitch Affirms 'CCC+' LongTerm IDRs
-------------------------------------------------------
Fitch Ratings has affirmed Province of Cordoba's Long-Term (LT)
Foreign Currency (FC) and Local Currency Issuer Default Ratings
(IDRs) at 'CCC+'. Fitch has also affirmed Cordoba's step-up
USD709.4 million senior unsecured notes due 2025, step-up USD510.0
million senior unsecured notes due 2027, and step-up USD450.0
million senior unsecured notes due 2029 at 'CCC+'. The bonds are
rated at the same level as the province's IDRs.
Cordoba meets Fitch's criteria requirements to be rated above the
LT FC 'CC' sovereign rating. It maintains a strong budget, has no
need to undertake external refinancing of debt over the following
one year, and has sufficient liquidity available to service its
debt. These are underpinned by Cordoba's budgetary performance,
debt service coverage ratio (DSCR) and liquidity coverage ratio
remaining in line with Fitch's rating case assumptions.
In line with Fitch's updated "International Local and Regional
Governments Rating Criteria"; despite adequate management
practices, Fitch applies an asymmetric risk to assess Cordoba's
Standalone Credit Profile (SCP) at 'ccc+'; previously, the SCP was
at 'b-' because asymmetric risk considerations were included in the
rating derivation at a later stage (beyond SCP). This leads to
Cordoba's IDR being at 'CCC+' three notches above Argentina's LT FC
IDR of 'CC' but one notch below Argentina's Country Ceiling of
'B-'.
Key Rating Drivers
Risk Profile: 'Vulnerable'
The 'Vulnerable' assessment, for all Argentine local and regional
governments (LRGs), weighs the sovereign IDR below 'B' category
rather than Argentina's implied operating environment of 'bb';
thus, the risk profile reflects Fitch's view of a very high risk of
the issuer's ability to cover debt service with the operating
balance weakening unexpectedly over the scenario horizon due to
lower revenue, higher expenditure, or an unexpected rise in
liabilities or debt-service requirements.
Revenue Robustness: 'Weaker'
The assessment reflects the evolving nature of the national fiscal
framework, dependence on a 'CC' sovereign counterparty risk for
47.3% (three year-average) of its total revenue, amid an adverse
macroeconomic environment riddled with higher inflation. To date,
as per law, federal co-participation transfers have never been
interrupted to provinces. Cordoba's wealth metrics are moderately
above the national average, yet lags international peers.
Operating revenue is mostly made up of taxes, including turnover
tax, which made up 28.0% of operating revenue in 2023, and stamp
duty, which made up 3.1%. At YE 2023, federal non-earmarked
transfers (coparticipaciones) decrease 3.1% in real terms amid an
inter-annual inflation rate of 133.5%. As of June 2024, national
transfers to Cordoba increased 233.1% yoy in nominal terms but
decreasing 11.4% in real terms in a macroeconomic context where
inter-annual inflation reached 276.4% in June 2024.
Revenue Adjustability: 'Weaker'
Cordoba's ability to generate additional revenue in response to
possible economic downturns is limited, like all Fitch-rated
Argentine LRGs. Fitch considers that local revenue adjustability is
low and is challenged by the country's large and distortive tax
burden. The negative macroeconomic environment further limits the
province's ability to increase tax rates and expand tax bases to
boost its local operating revenues. Structurally high inflation
also constantly erodes real-term revenue growth and affects
affordability.
Expenditure Sustainability: 'Weaker'
Argentine LRGs have high expenditure responsibilities, in a context
of structurally high inflation. The country's fiscal regime is
structurally imbalanced regarding revenue-expenditure
decentralization which is further exacerbated by high spending
responsibilities transferred to the province. For instance, for
2024, the national government announced that it will not extend the
National Teacher Incentive Fund (FONID), a pool of resources that
the nation transfers to the provinces to improve teachers'
salaries. This fund covers 10% of Cordoba's teacher's salaries in
the lowest wages, adding pressure to the province's fiscal space.
Local economic strength, revenue growth above inflation, and
expenditure dynamics supported the budgetary performance of Cordoba
from 2019-2022. Although in 2023, the province's operating balance
was 11.7%, compared to 21.7% in 2022, it remains at sound levels.
While operating revenue decrease 5.0% in 2023, operating expenses
grew by 7.1%, in the context of an election year and a real
recomposition of the staff cost of 14.1% in real terms.
Fitch estimates that for 2024 to 2025, operating margin would hover
around 8.0%, compared to an average of 18.9% in the last five
years; as of June 2024, the operating margin is four percentage
points above, year on year.
Cordoba did not transfer its pension scheme to the nation. The
annual pension deficit has been partially mitigated by funding
transfers from the National Administration of Social Security since
2016. Federal funding to mitigate provincial pension deficits is
subject to yearly budgetary allocation, which is unpredictable and
discretionary. However, since 2019, no bilateral agreements have
been implemented; hence financial support has been decreasing,
adding pressure to Cordoba's operating margins. If social security
institution financial performance is included, the province's
operating balance for 2023 would be 9.0%, versus 11.7% without it.
Expenditure Adjustability: 'Weaker'
For argentine subnationals, infrastructure needs and expenditure
responsibilities are deemed high, with leeway to cut expenses
viewed as low amid an adverse macroeconomic context. National
capital expenditure (capex) is low and insufficient translating
capex burdens to LRGs. Capex levels reached 21.1% in 2023 and
continue reflecting Cordoba's commitment to covers its
infrastructure needs and the province's capacity for some budgetary
adjustments to accommodate other opex pressures. In 2023, opex
represented 76.9% of total expenditure and staff expenses remained
controlled at 40.3%, below to the historical average of 44.1% for
2015-2023.
Cordoba's main capital expenditure projects are on areas deemed as
key for the economic and social development of the province; such
as hospitals, schools, water and sewage, internet access, and
roads.
Liabilities and Liquidity Robustness: 'Weaker'
Capital market discipline is hindered by a protracted macroeconomic
context, and currently heightened by a 'CC' rated sovereign.
Unhedged foreign currency debt exposure is an important structural
weakness considered in this key risk factors assessment. However,
limited local capital markets led LRGs to issue debt in foreign
currency, causing this structural reliance on external markets for
financing, because local currency options generally carry higher
financial costs and shorter terms due to the high-inflation
environment. Additionally, financial obligations are characterized
by medium-term maturity of less than 10 years.
By YE 2023, direct debt increased by about 296.6% underpinned by
high inflation and currency depreciation, totaling ARS1,743.5
billion. Approximately 99.6% of Cordoba's direct debt is
denominated in foreign currency and is unhedged, mainly in U.S.
dollars, which is a rating risk in the current environment of high
inflation and currency depreciation. However, 94.8% of its total
debt has fixed interest rates.
Liabilities and Liquidity Flexibility: 'Weaker'
Fitch perceives the Argentine national framework in place for
liquidity support and funding available to subnationals as
'Weaker', as there are no formal emergency liquidity support or
bail-out mechanisms established. Consolidated cash positions of
ARS364 billion in 2023 covered 15.3% of total revenue; as of June
2024, cash positions stood at ARS318 billion. Cordoba has shown
historically good liquidity coverage metrics averaging over the
last five years, 4.6x (2023: 2.1x).
Financial Profile: 'aa category'
Fitch, considering the current sovereign 'CC' rating level,
curtailment of the external market amid a volatile macroeconomic
and regulatory context, is only projecting a rating case for YE
2025. Financial profile metrics are analyzed to evaluate Province
of Cordoba-specific debt repayment capacity and its liquidity
position in the next 12 months.
Cordoba benefits from a resilient fiscal performance with a sound
operating margin above 18.0%, supported by a dynamic and well
diversified tax base and economic structure. Fitch's rating case
envisages a progressive reduction of the operating margin towards
9%-7.3%, incorporating tax collection growth below inflation
against inflation-driven operating expenditure.
Under Fitch's rating case scenario (2024-2025), the debt payback
ratio (net adjusted debt-to-operating balance), the primary metric
of the financial profile, will be below 5.0x by 2025 at 2.2x, which
corresponds to a 'aaa' assessment. In addition, actual debt service
coverage ratio (operating balance-to-debt service), secondary
metric of the financial profile, above 1.0x in 2025 (1.4x in 2023),
leading to an 'bb' assessment. The overall financial profile score
at 'aa' is underpinned by the medium-term maturity of debt in
tandem with high refinancing risks stemming from a 'CC'
macroeconomic environment where transfer and convertibility risks
prevail.
ESG -- Creditor Rights: Cordoba concluded a Distressed Debt
Exchange (DDE) in January 2021. The agreement granted Cordoba debt
service relief after amending its amortization profile to
semiannual installments from bullet payments; however, this
impacted bondholders. Therefore, creditor rights remain a key
rating driver.
Derivation Summary
Fitch has relied on its rating definitions to position the
province's IDRs at 'CCC+'. Cordoba's SCP is assessed at 'ccc+',
reflecting a combination of vulnerable risk profile and a financial
profile assessed in the 'aa' category. The SCP also factors in
national and international peer comparison, in particular city of
Buenos Aires (B-/Stable), province of Santa Fe (B-/Stable) and
Lagos State (B-/Positive).
Despite adequate management practices in place, Fitch applies an
asymmetric risk that assesses Cordoba's SCP at 'ccc+' due to low
governance linked to the 2021 DDE process. This leads to Cordoba's
IDRs being at 'CCC+', three notches above Argentina sovereign LT FC
IDR. Cordoba meets Fitch's criteria requirements to be rated at
'CCC+', which is above the current sovereign 'CC' foreign-currency
rating but one notch below Argentina's Country Ceiling of 'B-'.
Key Assumptions
Qualitative Assumptions
Risk Profile: 'Vulnerable'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Weaker'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Financial Profile: 'aa'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Asymmetric Risk: '-1'
Sovereign Cap: 'N/A'
Sovereign Floor: 'N/A'
Quantitative Assumptions - Issuer Specific:
In line with its LRG criteria, for an entity with base case
financial profile indicating an SCP of 'b' or below, the base case
analysis alone may be sufficient to evaluate the risk of default
and transition for the debt. Therefore, in the case of Cordoba,
Fitch's base case is the rating case which already incorporates a
very stressful scenario. It is based on 2019-2023 figures and on
updated figures as of June 2024.
The Key Assumptions for the Scenario Include the Following:
- Tax revenue and current transfers average growth of 179% from
2024-2025, below inflation growth, underpinned by an adverse
macroeconomic context further exacerbated by presidential
elections;
- Operating revenue average growth of 171% for 2024-2025;
- Operating expenditure average growth of 178% for 2024-2025, above
inflation, considers lag effects from high inflation in previous
years;
- Operating margin: Average operating margin of 8.1% for
2024-2025.
- Average net capital balance of around minus ARS900 billion during
2024-2025 to be financed with operating margins, capital grants,
and financing from multilateral official creditors, national
agencies or foreign commercial banks;
- Cost of debt considers non-cash debt movements due to currency
depreciation with an average exchange rate of ARS1,005 per U.S.
dollar for 2024 and ARS1,873 per U.S. dollar for 2025.
- Consumer price inflation (annual average % change) of 256.4% for
2024 and 117.3% for 2025.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade on Argentina's Country Ceiling above 'B-' could
positively benefit Cordoba's ratings if the financial profile
remains in line with projections of a payback ratio below 5.0x and
actual debt service coverage ratio above 1.0x, under Fitch's rating
case;
- If the impact in the SCP of the asymmetric risk wears off due to
lessen refinancing risks.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of Argentina's Country Ceiling below 'CCC+'; as well
as any regulatory restrictions to access foreign exchange by LRGs;
- The SCP could be lowered if Cordoba's estimated actual DSCR drops
below 1.0x in tandem with a liquidity coverage ratio below 1.0x
underpinned by lower operating margins and unrestricted cash;
regardless of whether the payback ratio remains below 5x. Thus,
Cordoba will not meet all the conditions to be rated above the
sovereign;
- Refinancing risks underpinned by an inability to tap the
international capital market could compromise debt repayment
capacity in the coming years.
Liquidity and Debt Structure
Fitch-adjusted debt include Cordoba's bond issuances at end-2023 of
ARS1,266.2 billion and loans (both foreign and domestic) of
ARS477.3 billion. Liquidity includes ARS364 billion of total cash,
which Fitch deems as non-earmarked.
Under its Debt Issuance Program (authorized for up to USD350
million or its equivalent in other currencies), the province is
planning on taping the local capital market, before the end of the
year, for up to ARS80 billion, expandable up to ARS120 billion,
with a maturity of 18 months to 36 months; the proceeds will be
earmarked to capex projects in road works (highways, roads,
bridges), potable water works, aqueducts, expansion of sewage
networks and watershed systems, educational and hospital
infrastructure, gas pipeline systems, and any productive
infrastructure works established in the 2024 Budget.
Issuer Profile
The Province of Cordoba is located in the central region of
Argentina; it is the second-most populated province, with around
3.9 million inhabitants in 2022, an unemployment rate of 5.5% in
2023, its GDP per capita is estimated as in line with Argentina's
at USD12,879 (2023), and contributes approximately 8.0% of national
GDP.
Cordoba's economy is diversified and is based on primary and
industrial goods, as well as services (66.9% of the province's
gross domestic product). The province produces agricultural
products such as soybean, corn, wheat and peanuts. The province has
one of Argentina's most industrialized areas. Cordoba's industrial
sector is centered in the car and auto parts industry and the
agro-industrial sector.
Summary of Financial Adjustments
No material adjustments were made to figures reported by the
province.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
Cordoba has an ESG Relevance Score of '5' for Creditor Rights, due
to the province's 2021 DDE. This event has limited the current
rating assignment from a higher rating level and, therefore,
creditor rights remains a key rating driver.
The province has an ESG Relevance Score of '4' for Rule of Law,
Institutional and Regulatory Quality, Control of Corruption,
reflecting the negative impact the weak regulatory framework and
national policies of the sovereign have over the province 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
----------- ------ -----
Cordoba, Province of LT IDR CCC+ Affirmed CCC+
LC LT IDR CCC+ Affirmed CCC+
senior unsecured LT CCC+ Affirmed CCC+
PROVINCE OF SANTA FE: Fitch Affirms 'B-' LongTerm IDRs
------------------------------------------------------
Fitch Ratings has affirmed the Province of Santa Fe, Argentina's
(Santa Fe) Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) at 'B-' with a Stable Rating Outlook. Fitch has also
affirmed Santa Fe's 6.9% senior unsecured notes for USD250 million
due 2027 at 'B-'. Santa Fe's Standalone Credit Profile (SCP) is
assessed at 'b-' based on peer comparisons.
The Santa Fe's ratings affirmation reflects Fitch's expectations of
the continued solid debt metrics and no major external refinancing
needs because of a low level of indebtedness and adequate operating
balances over a three-year rating horizon (2024-2026). The latter
is based on stable operating margins between 2019 and 2023.
Santa Fe also has enough liquidity to avoid a default, which is
clear from the quality of its liquidity coverage ratios. Therefore,
the province continues to meet Fitch's criteria requirements to be
rated at 'B-', above the 'CC' foreign currency sovereign rating and
aligned with Argentina's Country Ceiling: the strong budget means
no need for external debt refinancing and sufficient liquidity.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
Santa Fe's risk profile of 'Vulnerable' is based on 'Weaker'
attributes on the six key risk factors with a sovereign rated below
the 'B' category. The assessment reflects Fitch's view of a very
high risk relative to international peers that the issuer's ability
to cover debt service with the operating balance may weaken
unexpectedly over the forecast horizon (2024-2026) due to lower
revenue, higher expenditure, or an unexpected rise in liabilities
or debt or debt-service requirement.
Revenue Robustness: 'Weaker'
Santa Fe's revenue robustness, assessed as 'Weaker', reflects its
high dependence on federal transfers, with transfers representing
around 63.8% (five-year average) of operating revenues from 2019 to
2023. These federal transfers are automatic from the
co-participation tax-sharing regime, which stem from an 'CC' rated
sovereign counterparty, amid an adverse macroeconomic environment
riddled with higher inflation. To date, as per law, federal
co-participation transfers have never been interrupted to
provinces.
At YE 2023, SF's federal non-earmarked transfers
(coparticipaciones) decrease 3.1% in real terms amid an
inter-annual inflation rate of 94.8%. As of June 2024, national
transfers to Santa Fe increased 232.8% yoy in nominal terms but
decreasing 11.5% in real terms in a macroeconomic context where
inter-annual inflation reached 275.9% in June 2024. In 2023 federal
current transfers that are discretionary slipped by 10.8% in real
terms and as of June 2024 they have dropped nominally by 20% yoy.
Revenue Adjustability: 'Weaker'
Local revenue adjustability is low and challenged by the country's
large and distortive tax burden. The negative macroeconomic
environment further limits the province's ability to increase tax
rates and expand tax bases to boost its local operating revenues.
Structural high inflation also constantly erodes real-term revenue
growth and affects affordability.
Provincial jurisdictions have legal autonomy to set tax rates, in
particular turnover tax. Tax collection accounted for 30% of
consolidated provincial revenues in 2023, reflecting low fiscal
autonomy and reliance on federal transfers from the
co-participation regime. In 2021, Santa Fe's tax revenue
performance was less dynamic than that of other provinces, but it
was one of the least affected in 2020 by the pandemic. In 2022, tax
collection increased slightly above inflation, but in 2023
decreased by 3.3% in real terms. In 2024, there was a tax reform
which consisted of hiking turnover tax rate for casinos and
financial entities (from 6.25% to 7% and 9%) in a progressive way.
Expenditure Sustainability: 'Weaker'
Argentine local and regional governments (LRGs) have high
expenditure responsibilities, in a context of structurally high
inflation. The country's fiscal regime is structurally imbalanced
regarding revenue-expenditure decentralization which is further
exacerbated by high spending responsibilities transferred to the
province. For instance, for 2024, the national government announced
that it will not extend the National Teacher Incentive Fund
(FONID), a pool of resources that the nation transfers to the
provinces to improve teachers' salaries. This fund covers 10% of
Santa Fe's teacher's salaries in the lowest wages, adding pressure
to the province's fiscal space.
Regardless, Santa Fe's operating margins have remained steady,
averaging 13% over the period of 2019 to 2023 due to fiscal
prudence policies and expenditure controls. On its rating case,
Fitch expects a re-composition of expenditure, with an average
operating margin of 5% for 2023-2025. There have been significant
salary adjustments, as the staff expenditure rose by 4.3% and 12.3%
in 2022 and 2023, respectively. Santa Fe is one the provinces with
the highest increases in staff cost between 2019 and 2023.
Santa Fe is among the provinces that did not transfer their pension
scheme to the nation and is responsible for any shortfall pension
deficit funding, which represents an additional expenditure burden
and risk for its operating balance results. When considering the
weight of the pension deficit the operating margin dropped to 2%
from 11% in 2023. The pension burden has increased gradually year
after year. As of June 2024, Santa Fe's operating margin has
improved and have reached almost 9% considering its pension burden
due to the growth in staff cost and current transfers below the
inflation.
Since 2016, Santa Fe's pension scheme deficit had been partially
financed by the national government through the National Social
Security Administration (Administracion Nacional de la Seguridad
Social [ANSES]). In June 2021, Santa Fe closed the 2019 bilateral
agreement through which ANSES recognized the financing of 85.8% of
the deficit. The difference between the real deficit and advances
required a refund scheme, alleviating fiscal accounts. However,
this agreement has not been reviewed and the nominal amounts
granted by the nation were not updated according to inflation in
2022 and 2023 and even they have ceased in 2024, which results in a
higher province's pension deficit.
Expenditure Adjustability: 'Weaker'
Fitch views leeway or flexibility to cut expenses for Santa Fe as
weak relative to international peers, considering that only 9.8% of
consolidated provincial total expenditures corresponded to capex in
2023 (average of 9.8% in 2019-2023). Santa Fe has very high
infrastructure needs, thus increasing capex does not necessarily
translate into economic growth due to the infrastructure lag,
reflecting limited flexibility to adjust expenditures. In 2023,
opex accounted for 88.4% of total expenditure, despite staff
expenses rise, which was of 53.3% of total expenditure in 2023,
above the historical average of 48.4% for 2019-2023.
Liabilities & Liquidity Robustness: 'Weaker'
There is a weak national framework for debt and liquidity
management and an underdeveloped local financial market, which led
Argentine LRGs to issue debt in foreign currency, causing this
structural reliance on external markets for financing.
Despite very low leverage (payback ratio at 1.2x and fiscal debt
burden at 13.2% in 2023), about 91% of Santa Fe's direct debt is
denominated in foreign currency, unhedged and mainly in U.S.
dollars, which increases the risks in the environment of high
inflation and currency depreciation and leading this factor to
'weaker'. Regardless, the majority of debt has fixed interest rates
(91% of its direct debt).
The province is looking at multilateral, banking and commercial
sources of funding for capex, as the external market remains
closed. In 2024, it raised USD94 million from Kuwait Fund, Saudi
Fund for Development and French Development Agency with a further
ARS43,750 million coming mainly from infrastructure bonds in the
local market.
Liabilities & Liquidity Flexibility: 'Weaker'
Fitch perceives the Argentine national framework for liquidity
support and funding available to subnationals as 'Weaker', as there
are no formal emergency liquidity support mechanisms established.
The national government can support LRGs in liquidity distress on a
case-by-case basis as a friendly creditor, making available
programs and loans to provinces from federal trust funds and
co-participation advancements. However, the current macroeconomic
environment constrains the predictability, size and timing of this
support. The Argentine government's 'CC' ratings drive the
assessment of this support to 'Weaker', considering the
counterparty risk.
In 2024, the province has subscribed to a ARS120 billion short-term
treasury bills program in case of liquidity shortfall. Its
liquidity coverage ratio averaged 7.3x during 2019-2023, and Fitch
projects it will remain sufficient to service debt for 2024-2026.
In 2022 and 2023, the increase in liquidity was below inflation due
to meaningful debt repayments, even though it remains in a good
position.
In 2022, the national government agreed to repay what it owed the
province from the 15% reduction in revenue-sharing transfers
between 2006 and 2015. The debt was paid in inflation-adjusted
bonds and bills that will mature in a staggered manner over 10
years. To date, this amounts to approximately ARS 600 billion. This
liquidity buffer could be used for capital expenditures or to cover
debt service (which has financed capital expenditures).
Financial Profile: 'aa category'
Under Fitch's rating case scenario (2024-2026), Santa Fe's
financial profile evaluated at 'aa' considers a 'aaa' primary
payback ratio of 3.2x in 2024 and below 2x since the end of 2025
when Santa Fe's 6.9% senior unsecured notes grace period ends. The
assessment also considers the 'aaa' fiscal debt burden of 6.3% in
2026.
The override stemming from a weaker score of the actual debt
service coverage ratio (ADSCR): 2x in 2024 and 1.5x in 2025, when
unsecured notes instalments begin, leading to an 'a' assessment.
The overall financial profile score at 'aa' is underpinned by the
medium-term maturity of debt in tandem with high refinancing risks
stemming from a 'CC' macroeconomic environment where transfer and
convertibility risks prevail.
Derivation Summary
Santa Fe's SCP of 'b-' resulting from a combination of a
'Vulnerable' risk profile and a financial profile assessment of
'aa'. The SCP factors in international peer comparisons, such as
other provinces in Argentina or states in Nigeria. Santa Fe's
ratings are not affected by any other factors. Santa Fe meets
Fitch's criteria requirements to be rated at 'B-', which is above
the current sovereign 'CC' rating, and so the Long-Term Foreign
Currency IDR is aligned with Argentina's 'B-' country ceiling,
which results in an IDR of 'B-'.
Debt Ratings
To finance major capital projects and tackle infrastructure lag,
Santa Fe issued USD500 million of notes through two USD250 million
placements. The first one, placed in October 2016, attracted a 6.9%
interest rate, payable semi-annually, with a final maturity of 11
years and three annual instalments of USD83.3 million in the last
three years (2025, 2026 and 2027). The second tranche, of USD125
million was placed in March 2017 and matured in March 2023. It had
a fixed rate of 7%, also payable on a semi-annual basis.
Key Assumptions
Risk Profile: 'Vulnerable'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Weaker'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Financial Profile: 'aa'
Asymmetric Risk: 'N/A'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Rating Cap (LT IDR): 'B-'
Rating Cap (LT LC IDR) 'B-'
Rating Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2019-2023 figures and 2024-2026 projected
ratios. The key assumptions for the scenario include:
- Operating revenue average rises of 123.4% for 2024-2026. This
assumes medium-term growth of below average inflation towards the
medium term to stress operating margins;
- Operating expenditure average increases of 127.6% for 2024-2026;
assuming growth above average inflation towards the medium term to
assume real term expenditure re-composition and the weight of the
province's pension deficit;
- Average capex/total expenditure levels of around 4%;
- Cost of debt considers non-cash debt movements due to currency
depreciation with an average exchange rate of ARS1,005.4 per U.S.
dollar for 2024 (YE 1,400), ARS1,873.1 for 2025 (YE 2,213.5), and
ARS2,674.7 for 2026 (YE 2,932.6);
- Consumer price inflation (annual average percent change) of
256.4% for 2024, 117.3% for 2025, 49.8% for 2026.
Liquidity and Debt Structure
By YE 2023, direct debt increased by about 250%, underpinned by
high inflation and currency depreciation, totaling ARS415.7
billion. About 91% of Santa Fe's direct debt was denominated in
foreign currency (mainly U.S. dollars) and was unhedged, which is a
rating risk in the current environment of high inflation and
currency depreciation. However, 91% of its total debt is
fixed-rate. The province did not restructure its dollar notes in
2020.
Issuer Profile
Province of Santa Fe is located in central-eastern Argentina. It
has 3.6 million residents, making it the third most populous
province, representing 8% of the country's population. Santa Fe's
economy is the nation's third largest and is relatively broad,
diversified and stable. Santa Fe contributed 10.2% of the nation's
GDP in 2023.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of the Country Ceiling would negatively affect the
ratings, as well as any regulatory restrictions to access foreign
exchange by LRGs;
- The IDR could be downgraded if the ADSCR drops below 1.0x in
tandem with a liquidity coverage ratio below 1.0x underpinned by
lower operating margins and unrestricted cash; regardless of
whether the payback ratio stays below 5x. As a result, Santa Fe
would not meet the conditions to be rated above the sovereign;
- Refinancing risks underpinned by an inability to tap the
international capital market could compromise debt repayment
capacity in the coming years.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade of the Country Ceiling and a DSCR above 2x, from
Fitch's forward-looking scenario of 3.2x in 2026 and 1.5x in 2025,
could positively affect the ratings, provided the payback ratio
remains below 5x.
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.
Public Ratings with Credit Linkage to other ratings
Santa Fe's ratings are aligned with Argentina's Country Ceiling and
are above the sovereign's ratings.
Entity/Debt Rating Prior
----------- ------ -----
Santa Fe, Province of LT IDR B- Affirmed B-
LC LT IDR B- Affirmed B-
senior unsecured LT B- Affirmed B-
===========
B R A Z I L
===========
BRASKEM SA: S&P Affirms 'BB+' ICR & Alters Outlook to Negative
--------------------------------------------------------------
S&P Global Ratings, on Sept. 13, 2024, revised the outlook on
Braskem S.A.'s issuer credit ratings to negative from stable,
indicating that S&P could lower the ratings in the next 12 months
if debt to EBITDA and funds from operations (FFO) to debt do not
trend to 4x and 15%, respectively.
This could occur if Braskem's efficiency measures don't
sufficiently compensate for prolonged weak petrochemical spreads.
At the same time, S&P affirmed its global scale ('BB+') and
national scale ('brAAA') issuer credit ratings on the company, the
issue-level ratings on its senior unsecured notes ('BB+') and its
subordinated notes ('B+'), and the national scale ratings on its
debentures ('brAAA').
S&P now forecasts S&P Global Ratings-adjusted debt to EBITDA of
around 5x in 2024 and 4.5x in 2025, versus 4x previously. Continued
uncertainty regarding global petrochemical capacity and economic
growth will continue to weigh on its forecasts.
The still depressed spreads led to lower capacity utilization in
the first half of 2024, and consequently lower volumes in Brazil,
dampening the company's cash flow. The company is working on
several efficiency measures such as cutting costs and expenses,
reducing capital expenditure (capex), and managing working capital.
S&P expects these and other actions should provide some relief to
the balance sheet and contribute to moderately positive free
operating cash flow, despite weaker revenue and EBITDA generation
over 2024 and 2025.
Braskem has historically maintained a sound cash position and a
smooth debt profile, providing cushion during industry downcycles.
The company ended June 2024 with a cash position of almost
Brazilian real (R$) 15.6 billion and an extended debt maturity
profile. Its next large maturity is due in 2028.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Venezuela Seeks $350 Million for Past Oil Deals
-------------------------------------------------------------------
Dominican Today reports that Venezuela's Vice President, Delcy
Rodríguez, has reiterated that the Dominican Republic owes $350
million for past oil purchases and called on President Luis
Abinader to settle the debt without delay.
In a message on Telegram, Rodríguez criticized the Dominican
government's stance, accusing Abinader of aligning with the United
States and demanding immediate payment of the debt, according to
Dominican Today.
Rodríguez's statement follows a claim by Venezuelan Interior
Minister Diosdado Cabello that the Dominican Republic has not met
its obligations, the report notes.
President Abinader, however, rejected the accusations, stating that
since his term began, the country has not imported any oil from
Venezuela, the report relays. He emphasized during a press
conference that no Venezuelan oil imports have been made during his
administration, with the last significant transaction occurring in
2015 and a minor diesel import in 2017, prior to his presidency,
the report notes. Leonardo Aguilera, president of the Dominican
Petroleum Refinery, also confirmed that no agreements have been
reached with Venezuela in recent years, the report discloses.
Diplomatic relations between the two nations have been strained
since July when Venezuelan President Nicolas Maduro recalled
diplomats from the Dominican Republic and other countries following
their criticism of Venezuela's electoral process, the report says.
Tensions escalated further after the U.S. seized a plane in the
Dominican Republic, claiming it was illegally purchased and used by
Maduro's government, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCR-LA reported in April 2019 that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service changed the outlook on
the Government of Dominican Republic's ratings to positive from
stable and affirmed the local and foreign-currency long-term issuer
and senior unsecured ratings at Ba3. Moody's said the key drivers
for the outlook change to positive are: (i) sustained high growth
rates have enhanced the scale and wealth levels of the economy; and
(ii) a material decline in the government debt burden coupled with
improved fiscal policy effectiveness will support medium-term debt
sustainability.
The affirmation of the Ba3 ratings balances the Dominican
Republic's strong economic growth dynamics and relatively contained
susceptibility to event risks, with a comparatively weaker fiscal
position, reflecting long-standing credit challenges which include:
(i) a shallow revenue base compared to peers, (ii) weak debt
affordability metrics, and (iii) high exposure to foreign currency
borrowing.
S&P Global Ratings, in December 2022, raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's
expectation of continued favorable GDP growth and policy continuity
over the next 12-18 months that will likely stabilize the
government's debt burden.
In February 2023, S&P said its BB ratings reflect the country's
fast-growing and resilient economy. It also incorporates the
country's historical political and social challenges in passing
structural reforms to contain fiscal deficits, despite recent
improvements in the electricity sector. The ratings are constrained
by relatively high debt, a hefty interest burden, and limited
monetary policy flexibility.
[*] DOMINICAN REPUBLIC: Senator Fernandez Proposes Tax Relief
-------------------------------------------------------------
Dominican Today reports that Senator Omar Fernandez of the
Dominican Republic reintroduced a bill aimed at modifying the Tax
Code to exempt micro-enterprises from paying the annual advance tax
to the General Directorate of Internal Revenue (DGII). The
proposal also seeks to reduce the advance payment requirement for
small and medium-sized businesses, adjusting it to 50% of the taxes
paid based on the previous year's operations, according to
Dominican Today. This measure is intended to stimulate economic
growth by supporting the creation and sustainability of new
businesses, the report notes.
The advance payment is based on projected company profits and is
currently mandatory, the report relays. Fernandez argued that this
system decapitalizes companies, particularly micro-enterprises with
fewer than ten employees, putting them at risk of bankruptcy. Under
the proposed law, only businesses with up to 250 employees would
continue making advance payments, but at a reduced rate, the report
notes.
During his presentation, Fernandez noted that most advance payments
- 90% - come from large companies, which account for just 5% of the
business sector, the report discloses. The bill, aimed at reducing
the tax burden on entrepreneurs, was referred to the Finance
Committee for further discussion in future legislative sessions,
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
=============
GUAYAQUIL DPR: Fitch Gives BB- Rating on $50MM Series 2024-2 Loans
------------------------------------------------------------------
Fitch Ratings has assigned a 'BB-' rating to the $50 million series
2024-2 loans issued by Guayaquil DPR Limited and affirmed the
outstanding series of notes at 'BB-'. In addition, Fitch has
affirmed the series 2019-1 notes issued by Guayaquil Merchant
Voucher Receivables Limited at 'BB-'. The Rating Outlook on the
notes and loans is Stable.
Entity/Debt Rating Prior
----------- ------ -----
Guayaquil Merchant
Voucher Receivables
Limited
2019-1 401539AA9 LT BB- Affirmed BB-
Guayaquil DPR Limited
2023-1 401536AA5 LT BB- Affirmed BB-
2023-2 401536AC1 LT BB- Affirmed BB-
2024-1 401536AE7 LT BB- Affirmed BB-
2024-2 LT BB- New Rating
Transaction Summary
Guayaquil DPR Limited is backed by existing and future USD
diversified payment rights (DPRs) originated by Banco Guayaquil,
S.A. (BG) in Ecuador. The majority of DPRs are processed by
designated depository banks (DDBs) that have executed account
agreements (AAs), irrevocably obligating them to make payments to
an account controlled by the program agent.
Guayaquil Merchant Voucher Receivables Limited is backed by future
flows due from American Express (Amex), Visa International Service
Association (Visa), and MasterCard International Incorporated
(MasterCard) related to international merchant vouchers (MVs)
acquired by Banco Guayaquil, S.A. in Ecuador.
Fitch's ratings address timely payment of interest and principal on
a quarterly basis.
KEY RATING DRIVERS
Future Flow (FF) Ratings Driven by Originator's Credit Quality: The
ratings of this FF transaction are driven by the Long-Term (LT)
Issuer Default Rating (IDR) of the originator, BG. On Nov. 10,
2023, Fitch affirmed BG's LT IDR at 'CCC+' and Viability Rating
(VR) at 'ccc+'. BG's IDR is underpinned by its VR, which is highly
influenced by Ecuador's sovereign rating and broader operating
environment (OE) considerations. The bank's ratings are capped by
Fitch's assessment of the OE score of 'ccc+'.
GCA Supports Notching Differential: Fitch uses a going concern
assessment (GCA) score to gauge the likelihood that the originator
of an FF transaction will stay in operation throughout the
transaction's life. Fitch assigned a GCA score of 'GC2' to BG based
on the bank's systemic importance. The score allows for a maximum
of four notches above the Long-Term IDR of the originator.
Notching Uplift from IDR: The 'GC2' allows for a maximum four
notch-rating uplift from the bank's LT IDR pursuant to Fitch's FF
methodology. Considering the bank's current LT IDR, the assigned
ratings are at the maximum notching differential of four notches
allowed by Fitch's FF methodology for an originator with a score of
'GC2'. Fitch reserves the maximum notching uplift for transactions
with originators rated on the lower end of the rating scale, such
as BG.
Moderately High Future Flow Debt: Fitch estimates future flow debt
will represent approximately 5% of BG's total funding and 30% of
BG's non-deposit funding when utilizing nonconsolidated financials
as of August 2024 and considering the new DPR issuance of $50
million together with the outstanding balances on the Series 2024
and 2023 notes, as well as BG's merchant voucher program. Fitch
views the ratio of FF debt to overall liabilities as small enough
to allow the financial FF ratings the maximum uplift indicated by
the GCA score.
Coverage Levels — DPR Program: Fitch views the transaction's debt
service coverage ratio (DSCR) as more than sufficient for the
assigned rating. The minimum projected DSCR is approximately 43.8x
when considering the maximum periodic debt service over the life of
the program, including the new $50 million issuance, and DDB flows
over the past five years, while excluding what could be considered
nonrecurring DPR flows.
Coverage Levels — MV Program: Coverage levels have remained more
than sufficient to cover quarterly debt service payments and remain
commensurate with the rating on the outstanding notes. When
considering average rolling quarterly flows over the past five
years and the maximum periodic debt service over the life of the
program, Fitch's projected minimum quarterly DSCR is 5.2x
throughout the life of the program.
De-dollarization Risk: While the dollarization regime anchors
macroeconomic stability, the risk of de-dollarization exists. It
would only occur in an extreme scenario but would be a major shock
to the Ecuadorean system.
Sovereign/Diversion Risks Reduced: The structure mitigates certain
sovereign risks by collecting cash flows offshore until investors
are paid. Fitch believes diversion risk is partially mitigated by
notice, consent and agreements signed by AmEx, Visa and MasterCard
(in the case of the MV program) and AAs signed by the DDBs (in the
case of the DPR program).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The transactions' ratings are sensitive to changes in BG's credit
quality. Currently, the MV and DPR transactions are receiving the
maximum notching uplift from BG's LT IDR. Therefore, a
deterioration in BG's credit quality by one notch would trigger a
downgrade of the ratings of the transactions from their current
level;
- The transactions' ratings are sensitive to increases in the FF
debt relative to the bank's funding ratios. If either of the ratios
increase beyond the thresholds outlined in Fitch's "Future Flow
Securitization Rating Criteria," it could result in a downgrade of
the ratings of the transactions from their current level;
- The transactions' ratings are sensitive to the credit card
acquiring business and DPR business lines' performances and their
ability to continue operating, as reflected by the bank's GCA
score. Changes in Fitch's view of the bank's GCA score could lead
to a change in the transactions' ratings. The merchant voucher
program could also be sensitive to significant changes in the
credit quality of American Express, Visa, or MasterCard to a lesser
extent.
Any changes in these variables will be analyzed in a rating
committee to assess the possible impact on the transaction
ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The main constraint to the transactions' ratings is the
originator's rating and BG's operating environment. If the bank's
LT IDR is upgraded by more than one notch from its current rating,
Fitch would also consider upgrading the transactions' ratings.
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 future flow ratings are driven by the credit risk of Banco
Guayaquil, S.A. as measured by its Long-Term IDR.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
===========
M E X I C O
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CONTRATO DE FIDEICOMISO CIB4323: Moody's Rates New Sec. Notes 'Ba1'
-------------------------------------------------------------------
Moody's Ratings has assigned a definitive rating to one class of
CMBS securities, issued by Contrato de Fideicomiso Irrevocable de
Emisión, Administración y Pago No. CIB 4323.
Senior Secured Notes, Definitive Rating Assigned Ba1 (sf)
The structure of the transaction was changed since Moody's
provisional ratings action dated July 18, 2024 to include a
payment-in-kind ("PIK") interest obligation for the rated note. In
the event property revenue is insufficient to pay the stated
interest amount, the deficit will be capitalized in years one
through three of the transaction's payment schedule. Any increase
in the outstanding amount will require an equivalent amount to be
contributed to the debt service reserve account by the borrower
sponsor. Additionally, any surplus monies received by the trust in
years one through seven will be used to decrease the principal
amount. Moody's considered multiple payment scenarios resulting
from this structural enhancement and have determined the change
does not affect Moody's provisional ratings assignment.
RATING RATIONALE
The transaction is backed by the Grand Island Cancun I Hotel Resort
(the "GIC I Hotel", or the "Portfolio") located in Cancun, Mexico.
The Portfolio consists of three properties:
(i) The Hyatt Vivid Grand Island Hotel (the "Vivid Hotel"), which
is a 400-guestroom, all-inclusive resort and the Dreams Grand
Island (the "Dreams Hotel"), which is a 616-guestroom,
all-inclusive resort, each located on a parcel of land known as
"Private Unit 1";
(ii) A parcel of land where the Grand Island Cancun Spa will be
developed known as "Private Unit 2"; and
(iii) A leasehold interest with respect to The Grand Island Beach
Club (the "Beach Club"), which provides amenities and services to
guests of the Vivid and Dreams hotels as well as hotels to be built
in the future as part of the GIC Complex.
The ratings are based on the collateral and the structure of the
transaction.
Moody's approach to rating CMBS deals combines both commercial real
estate and structured finance analysis. Based on commercial real
estate analysis, Moody's determine the credit quality of each
mortgage loan and calculate an expected loss on a loan specific
basis. Under structured finance, the credit enhancement for each
certificate typically depends on the expected frequency, severity,
and timing of future losses. Moody's also consider a range of
qualitative issues as well as the transaction's structural and
legal aspects.
The credit risk of loans is determined primarily by two factors: 1)
Moody's assessment of the probability of default, which is largely
driven by each loan's DSCR, and 2) Moody's assessment of the
severity of loss upon a default, which is largely driven by each
loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV.
As described in the CMBS methodology used to rate this transaction,
Moody's make various adjustments to the MLTV. Moody's adjust the
MLTV for each loan using a value that reflects capitalization (cap)
rates that are between Moody's sustainable cap rates and market cap
rates. Moody's also use an adjusted loan balance that reflects each
loan's amortization profile.
Moody's DSCR is based on Moody's stabilized net cash flow. The
transaction coupon was increased from 10.0% to 11.0%. The Moody's
first mortgage DSCR decreased from 1.58x to 1.44x, respectively.
Moody's LTV ratio for the first mortgage loan balance is 88.6%
based on Moody's Value.
Moody's also grade properties on a scale of 0 to 5 (best to worst)
and considers those grades when assessing the likelihood of debt
payment. The factors considered include property age, quality of
construction, location, market, and tenancy. The property quality
grade is 4.75.
The following notable strengths of the transaction include: (i) the
Property's submarket strength as a leisure destination; (ii)
five-star asset quality; (iii) brand affiliation; and (iv) sponsor
commitment.
The following notable concerns of the transaction include: (i) the
lack of historical cash flows and operational performance data;
(ii) limited third party and internal information on comparable
properties; (iii) land parcel location relative to competition;
(iv) P&L currency mismatch; (v) credit-negative legal features;
(vi) full-term interest-only mortgage loan profile; and (vii) the
volatility inherent within the hotel sector.
The principal methodology used in this rating was "Large Loan and
Single Asset/Single Borrower Commercial Mortgage-backed
Securitizations" published in July 2024.
Moody's approach for single borrower and large loan multi-borrower
transactions evaluates credit enhancement levels based on an
aggregation of adjusted loan level proceeds derived from Moody's
Moody's loan level LTV ratios. Major adjustments to determining
proceeds include leverage, loan structure, and property type. These
aggregated proceeds are then further adjusted for any pooling
benefits associated with loan level diversity, other concentrations
and correlations.
Factors that would lead to an upgrade or downgrade of the ratings:
The performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker
than Moody's had previously anticipated. Factors that may cause an
upgrade of the ratings include significant loan pay downs or
amortization, an increase in the pool's share of defeasance or
overall improved pool performance. Factors that may cause a
downgrade of the ratings include a decline in the overall
performance of the pool, loan concentration, increased expected
losses from specially serviced and troubled loans or interest
shortfalls.
=======
P E R U
=======
VOLCAN COMPANIA: Fitch Hikes LongTerm IDRs to 'B-', Outlook Stable
------------------------------------------------------------------
Fitch Ratings has upgraded Volcan Compania Minera S.A.A.'s
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
to 'B-' from 'CCC+'. Fitch has also assigned final 'B-'/RR4'
ratings to Volcan's new senior secured notes due 2030.
Additionally, Fitch has upgraded Volcan's remaining senior
unsecured notes due in 2026 to 'CCC'/'RR6' from 'CCC-'/'RR6'. The
Rating Outlook is Stable.
The upgrades reflect significant reduction in Volcan's refinancing
risks, with no major debt due until 2029 following the successful
conclusion of its bond exchange offer with an acceptance rate of
more than 80%. Furthermore, Volcan has recently improved its debt
profile with its term loan refinancing, which postponed
amortizations to start in 2025 and final maturity to 2029. The
company's execution risk on its critical investment plan to expand
its Romina operations and its moderate financial flexibility
following these recent refinancing efforts remain rating
constraints.
Key Rating Drivers
Exchange Offer Completion: Volcan has accomplished the refinancing
of most of the 2026 notes and of all of its syndicate loan.
Approximately 81.37% of the existing USD365 million 4.375% senior
notes due 2026 noteholders have accepted the exchange offer for
8.75% senior secured notes due 2030. Volcan waived the minimum
participation condition of 90% to conclude and settle the
transaction. The new senior secured notes and senior secured
syndicate loan are secured by a collateral package, including
trusts over receivables, over shares of subsidiaries and mortgages
over material assets.
Lowered Refinancing Risk: Fitch assesses that Volcan's current cash
flow generation, including improving operations, recovering market
conditions, asset sale proceeds and postponed maturities, allows
the company to support its financial obligations. Most of Volcan's
2026 bonds were exchanged for 2030 notes. The company refinanced
its loan syndicate, reducing annual instalments and postponing
maturities. One quarterly installment of about USD35 million from
the old syndicate was paid in 2024 and deducted from the new
secured loan. The new secured syndicate loan is due on 2029 and the
new secured bonds are due on 2030.
Asset Sales and Other Financing Advance: Volcan bolstered its cash
position with sales of a hydro power plant for USD78.5 million, of
which USD31.70 million has already been received, and metals
concentrate prepaid sales for USD25 million. Along with USD68
million cash available as of June 30, 2024, these proceeds
strengthen the company's financial standing. Fitch's rating case
does not consider additional asset sales due to the uncertain
timeframe and final value of expected transactions. However,
Fitch's rating case contemplates potential disposals from Volcan's
16% stake in Cementos Polpaico in Chile and its land package near
the developing Chancay port.
Additional Financing Needed to Build Romina: Romina requires USD125
million in remaining capex and could add 75,000 of zinc equivalent
MT/year. Romina is a zinc, lead, silver deposit located in the Lima
province, 15 km from the Alpamarca operation, which is depleting in
2024. Romina could use Alpamarca's camp sites, tailings dam and
concentrator plant to speed up ramp up through 2H26. An
environmental study modification is pending, but the region is
familiar with mining activities. Fitch expects Romina to contribute
9% of revenue in 2026 and 15% on 2027.
FCF Pressured by Investments: Fitch expects EBITDA to reach about
USD270 million as recent price increases help offset operational
mishaps, despite slow streamlining efforts. Capex is expected to
increase to more than USD200 million in 2024 and over USD260
million in 2025 during Romina's construction. Fitch anticipates
capex averaging about 29% of revenue over the next three years,
compared to 20% in the three previous years. Despite no expected
dividend payments, FCF should turn marginally negative in 2024 and
remain so in 2025, due to higher capex needs and weaker expected
zinc prices.
Operating Challenges Continue: Zinc prices have risen from
depressed levels as the focus shifts to mine supply due to global
mine cutbacks and smelter limitations. However, demand is still low
and business intelligence consultancy CRU, expects new supply to
reach the market in 2025 and 2026. The Yauli unit's approximately
one-month partial stoppage will likely affect Volcan's streamlining
efforts.
Before the stoppage, cost containment strategies were gradually
delivering results, as shown by unit cost improvements, although
costs remain higher than in 2019. Volcan postponed the Romina
expansion by one year. This project, which addresses the short mine
lives of about five years, will contribute to cash flows in 2026.
Derivation Summary
Volcan's production of base and precious metals diversification is
higher than that of peers Ero Copper Corp (B/Stable), Aris Mining
Corp (B+/Stable), Nexa Resources SA (BBB-/Stable), and similar to
Compania de Minas Buenaventura SAA (BB-/Stable) or Minsur SA
(BBB-/Stable). However, it is lower than Industrias Penoles SAB de
CV (BBB/Stable). Volcan operates in one country (Peru), like
Buenaventura, or Penoles (Mexico), Ero (Brazil) and Aris (Colombia)
whereas Nexa and Minsur have diversified into Peru and Brazil.
Volcan's scale of operations is higher than that of Ero and Aris,
similar to that of Buenaventura, but lower than that of Nexa
Resources and Minsur, and considerably smaller than that of
higher-rated miner Penoles.
Fitch projects that Volcan will have a weaker capital structure and
liquidity than these peers. Its 3.4x and 3.2x gross and net EBITDA
leverage average of 2024-2026 compares poorly with Minsur's 1.2x
and 0.8x, Buenaventura's 2.2x and 1.7x, Nexa's 2.9x and 2.1x.
Volcan also trails behind similarly rated Aris' 2.0x and 1.3x or
Ero's 1.6x and 1.2x.
Volcan's cost position in the third quartile of the zinc all-in
sustaining costs is better than that of Buenaventura's fourth
quartile in the gold curve or Ero Copper's fourth in copper,
similar to that of Nexa's third in zinc or Aris Mining's third in
gold.
Volcan's consolidated life of mine of five years of reserves is
also on the lower end, and is comparable with that of another
underground miners, such as Buenaventura without considering its
stake in large and long-lived Cerro Verde copper mine. Volcan's
mine life is lower than Aris Mining's 18 years and Ero's 17 years.
Key Assumptions
- Average zinc price of USD2,700/tonne in 2024, USD2,500/tonne in
2025 and USD2,300/tonne in 2026;
- Average silver price of USD25/oz in 2024, USD23.75/oz in 2025,
and USD21.25/oz in 2026;
- Zinc output of 233,000 MT, 241,000 MT and 251,000 MT in 2024,
2025 and 2026;
- Silver output of 13.1 million oz, 11.8 million oz, and 13.8
million oz in 2024, 2025, and 2026;
- Yauli's zinc and silver production falls 6% and 21%, respectively
in 2024, and rises 7% and 6% in 2025. Fitch expects Yauli to
contribute 60% of revenues in 2024;
- Romina is expected to start operations in mid-2026 and achieve
full production in 2027. Fitch expects Romina expansion, to
contribute 9% of revenues in 2026 and 15% in 2027;
- Capex of USD205 million, USD265 million and USD240 million in
2024, 2025, and 2026;
- No dividends;
- No additional asset sales;
- Loan syndicate is refinanced and bond exchange offer has 81%
acceptance, Romina requires external financing for USD125 million.
Recovery Analysis
Going-Concern Approach
The recovery analysis assumes that Volcan would be considered a
going concern in an event of bankruptcy and that the company would
be reorganized rather than liquidated. Fitch has assumed a 10%
administrative claim. Volcan's going concern EBITDA assumption is
based on zinc at USD2,400/ton and USD2,400/ton in 2024 and 2025,
respectively. The going concern EBITDA estimate reflects Fitch's
view of a sustainable, post-reorganization EBITDA level upon which
it bases the enterprise valuation in a low zinc price environment.
An enterprise valuation multiple of 5x EBITDA is applied to the
going concern EBITDA to calculate a post-reorganization enterprise
value. The choice of this multiple considered the following
factors: the historical bankruptcy case study exit multiples for
peer companies were 4.0x-6.0x, improving financial subfactors, mid
quality assets, and high-quality counterparties despite challenging
dynamics in a volatile and commoditized industry.
Fitch applies a waterfall analysis to the post-default enterprise
valuation based on the relative claims of debt in the capital
structure. The debt waterfall assumptions consider the company's
proforma debt following refinancing and debt exchange as well as
the debt funded capex for Romina.
These assumptions result in a recovery rate for the first-lien
secured bonds within the 'RR1' range, but due to the soft cap of
Peru at 'RR4', Volcan's senior secured notes are rated at
'B-'/'RR4'. For the unsecured notes, the recovery is within the RR6
range, therefore results in a rating downgrade from the IDR, being
rated at 'CCC'/'RR6'.
RATING SENSITIVITIES
Factors That Could, Individually Or Collectively, Lead To Positive
Rating Action/Upgrade
- Completion of Romina in a timely manner, resulting in an
improvement in the cost profile, production and reserve life;
- Positive to neutral FCF over the rating horizon;
- EBITDA to interest expense coverage ratio consistently above
5.0x;
- A sustained gross debt/EBITDA ratio of less than 3.5x in a
sustained basis;
- A sustained net debt/EBITDA ratio of less than 3.0x in a
sustained basis.
Factors That Could, Individually Or Collectively, Lead To Negative
Rating Action/Downgrade
- Inability to obtain financing;
- Further delays in Romina construction and ramp-up;
- Negative FCF over the rating horizon impacting liquidity;
- EBITDA to interest expense coverage ratio consistently below
2.5x;
- A sustained gross debt/EBITDA ratio of more than 4.5x with an
unwillingness or inability to deleverage;
- A sustained net debt/EBITDA ratio of more than 4.0x with an
unwillingness or inability to deleverage.
Liquidity and Debt Structure
Refinancing Efforts Improve Debt Profile: The conclusion of
refinancing exercises resulted in the postponement of payments and
in an improved maturity profile. The next relevant maturity for
Volcan is due in 2026 (USD90 million) with the largest maturities
in 2029 (USD275 million) and 2030 (USD300 million).
The recently refinanced USD400 million secured syndicate loan
replaces the previous unsecured one. One of the quarterly
amortizations, of about USD35 million, from the previous loan was
paid and has been deducted from the new syndicate loan.
Installments of USD10 million, USD20 million, USD25 million and
USD35 million are due on 2025, 2026, 2027 and 2028, with the rest
maturing in 2029.
The new secured bond is due in 2030 and the bond offer exchanged
81% of the USD365 million unsecured bond due in 2026. The
collateral package for the loan and the bond ranks both pari passu
with the same claims over trusts over receivables, over shares of
subsidiaries and mortgages over material assets.
Volcan's liquidity position is hard pressed to finance the capex
for Romina in 2024 (USD25 million) and in 2025 (USD100 million).
Hydro power plant's sales for USD78.5 million and metals
concentrate prepaid sales for USD25 million add to the USD68
million cash available on June 30, 2024. Additional asset sales or
offtake agreements could be negotiated. However, these processes
entail uncertain timing and final proceeds. Thus, they are not
considered in Fitch's rating case.
Issuer Profile
Volcan is a polymetallic mining company with a third quartile cost
position on the global zinc cost curve per CRU. It has operated in
Peru for over 75 years. Volcan is diversified into the base metals
zinc and lead, and silver.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
Volcan Compania Minera S.A.A. has an ESG Relevance Score of '4' for
Waste & Hazardous Materials Management; Ecological Impacts due to
its zinc concentrate leak. In June 2022, a truck careened off the
road spilling 30 tonnes of zinc concentrates in the Chillon river,
which has a negative impact on the credit profile, and is relevant
to the rating[s] in conjunction with other factors.
Volcan Compania Minera S.A.A. has an ESG Relevance Score of '4' for
Management Strategy due to ongoing governance concerns, which have
impaired management's ability to execute on its strategy, which has
a negative impact on the credit profile, which has a negative
impact on the credit profile, and is relevant to the rating[s] in
conjunction with other factors.
Volcan Compania Minera S.A.A. has an ESG Relevance Score of '4' for
Governance Structure due to the dynamics between its shareholders,
particularly with minority shareholders, such as Picasso and Letts
family, that impact their ability to address the company's
capitalization needs, which has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Volcan Compania
Minera S.A.A. LT IDR B- Upgrade CCC+
LC LT IDR B- Upgrade CCC+
senior unsecured LT CCC Upgrade RR6 CCC-
senior secured LT B- New Rating RR4 B-(EXP)
=====================
P U E R T O R I C O
=====================
BURGERFI INTERNATIONAL: Files for Chapter 11 Reorganization
-----------------------------------------------------------
BurgerFi International, Inc., owner of the high-quality, casual
dining chain Anthony's Coal Fired Pizza & Wings and one of the
nation's leading fast-casual "better burger" dining concepts,
BurgerFi, announced on September 11, 2024, that it has filed
voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in order to preserve the value of its brands for
all stakeholders.
All 144 locations of the Company's two brands throughout the United
States, including in Puerto Rico, and in Saudi Arabia, (both
corporate-owned and franchised) will continue normal, uninterrupted
operations. The Chapter 11 filing by the Company includes only the
67 corporate-owned locations of both brands. Franchisee-owned
locations of BurgerFi and Anthony's Coal Fired Pizza & Wings are
excluded from the bankruptcy proceedings.
"BurgerFi and Anthony's Coal Fired Pizza & Wings are dynamic and
beloved brands, and in the face of a drastic decline in
post-pandemic consumer spending amidst sustained inflation and
increasing food and labor costs, we need to stabilize the business
in a structured process," said Jeremy Rosenthal, Chief
Restructuring Officer of BurgerFi International, Inc. "We are
confident that this process will allow us to protect and grow our
brands and to continue the operational turnaround started less than
12 months ago and secure additional capital."
The Board brought in Carl Bachmann as chief executive officer and
Christopher E. Jones, chief financial officer in July 2023 to
turnaround and strengthen the brands and operations. Faced with
legacy operational challenges, they quickly developed and
implemented a strategic plan to address foundational issues
including declining same store sales, high employee turnover and a
stale menu. As part of the turnaround efforts, the Company
initiated a top-to-bottom evaluation of its operations, which is
continuing.
As a result, the Company has aligned its footprint with current
business standards through the closure of 19 underperforming
corporate-owned stores and reduced related operating costs. The
Company's current platform is primed for success.
"Despite the early positive indicators of the turnaround plan
initiated less than a year ago, the legacy challenges facing the
business necessitated today's filing," said Carl Bachmann. "We are
grateful for the continued support of our loyal customers, vendors,
business partners and our dedicated team members, who are the heart
of the company."
The Company will be filing customary "first day" motions in the
Chapter 11 cases, to ensure normal operations. These motions,
subject to court approval, will enable the timely payment of
employee wages and benefits, the continuation of customer programs
and other relief. The expedited relief being sought by the Company
includes permitting guests to continue to use rewards and gift
cards at participating locations to enjoy the exceptional food and
service we are proud to provide through BurgerFi and Anthony's Coal
Fired Pizza & Wings.
Court filings and other documents related to the restructuring are
available on a separate website administered by the Company's
claims agent, Stretto, Inc. at cases.stretto.com/BFI. Stakeholders
with questions can call (855) 492-7450 or (714) 881-5915 or email
BurgerFiInquiries@stretto.com.
Proposed advisors to the Company are Raines Feldman Littrell LLP,
Force Ten Partners, with Jeremy Rosenthal as the Company's Chief
Restructuring Officer, and Sitrick And Company as strategic
communications advisor to the Company.
About BurgerFi
Headquartered in Fort Lauderdale, Florida, BurgerFi International,
Inc. is a multi-brand restaurant company that develops, markets,
and acquires fast-casual and premium-casual dining restaurant
concepts around the world, including corporate-owned stores and
franchises.
UNIVERSAL LIFE: A.M. Best Cuts Finc'l. Strength Rating to B(Fair)
-----------------------------------------------------------------
AM Best has downgraded the Financial Strength Rating to B (Fair)
from B+ (Good) and the Long-Term Issuer Credit Rating to "bb+"
(Fair) from "bbb-" (Good) of Universal Life Insurance Company
(ULICO) (Guaynabo, PR). In addition, AM Best has revised the
outlooks to stable from negative.
The Credit Ratings (ratings) reflect ULICO's balance sheet
strength, which AM Best assesses as adequate, as well as its
adequate operating performance, limited business profile and
marginal enterprise risk management.
The rating downgrades reflect the revision in the operating
performance assessment to adequate from strong. Operating
performance, while consistently profitable, has experienced a
declining trend over the past several years, partially related to
market conditions and non-recurring items. The results for Q2 2024
reflect improving conditions versus prior year. ULICO continues to
reduce the effect of the counterparty risk with Private Bankers
Life & Annuity, most recently with the Aug. 9, 2024, court
appointment of a receiver assigned to execute ULICO's judgment but
progress has been slow. While ULICO maintains a top market position
in Puerto Rico, its business profile is limited by its concentrated
product offering and geography. AM Best will continue to monitor
the financials of ULICO.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
CL FIN'L: Clico Repays Final $1 Billion to Government Last Year
---------------------------------------------------------------
Peter Christopher at Trinidad and Tobago Guardian reports that
Finance Minister Colm Imbert said that Clico addressed its
obligation to repay its remaining liability of $1 billion to the
Trinidad and Tobago government in 2023, by selling all of its
shareholding in Methanol Holdings International Ltd (MHIL) .
Clico received a multibillion dollar bailout in 2009, which
eventually totalled over $18 billion, according to Trinidad and
Tobago Guardian.
The report notes that in the Senate, Opposition Senator Wade Mark
posed the question, "Can the minister provide the details and
status of the sale of Clico's 56.53 per cent shareholding in MHIL
to the Proman Group in late December, 2023?".
In response the Finance Minister said, "The information and answer
to this question has been in the public domain for almost one year,
and the matter has already been extensively addressed inside and
outside of the Parliament. It is therefore curious that Senator
Mark continues to beat this dead horse. The facts already in the
public domain are as follows - as of April 2023, Clico's remaining
liability to the government for the Clico bailout was $1 billion,
the report relays.
"In addition, Clico had a statutory obligation under the Insurance
Act 2018 to reduce its interest in MHIL to less than 20 per cent.
In July of 2023 the other shareholder in MHIL, Consolidated Energy,
approached Clico to acquire the full 56.53 per cent of Clico's
interest in MHIL. A sale price of US$337 million for the shares
was agreed based on a valuation done by an independent and
reputable global valuation consultant, Charles Rivers Associates,
plus an additional US$10 million as Clico's share of dividends for
2023. All issues were thus satisfactorily addressed: Clico's
satisfaction of its obligation under the Insurance Act 2018, with
respect to its shareholding in MHIL being reduced to less than 20
per cent; and Clico's obligation to repay the government the $1
billion that was still owed in 2023," the report notes.
The report discloses that the opposition senator then followed up
his question with an inquiry, "When did the Government receive the
outstanding $1 billion owed by Clico to the taxpayers of the
Republic of Trinidad and Tobago to settle its final outstanding
debt obligations to the citizenry?"
To which the Minister replied, "In 2023."
When the opposition senator asked for a specific month that the
debt was settled, Minister Imbert responded, "When I come to this
place, I have to expect strange questions from Senator Mark. That
was not part of the question. All Senator Mark complained about
was the sale of MHIL shares by Clico. He said nothing about any
debt owed by Clico to the government. Then it is therefore absurd
to expect you to walk with that date," the report notes.
On December 27, 2023 the Trinidad Guardian reported that Clico sold
its entire 56.53 per cent stake in MHIL, which is located in Oman,
to the Switzerland-based Proman Group on December 22, 2023 for the
sum of US$347 million ($2.35 billion), the report recalls.
In its 2023 audited financials, Clico reported that the sale of the
subsidiary MHIL was completed on December 22, 2023, the report
cites. Partly as a result of the sale of MHIL, Clico reported
$3.18 billion in accummulated surplus as at December 31, 2023, the
report says. The 2023 financials also disclose that the insurance
company recorded $2.30 billion in profit attributable to the owners
of the company, the report relays. Clico is 49 per cent owned by
Corporation Sole, who holds assets on behalf of the population. Its
other major shareholder is CL Financial, which is in liquidation,
with 51 per cent, the report adds.
About CL Financial/CLICO
CL Financial was one of the largest privately held conglomerate in
Trinidad and Tobago. It was originally founded as an insurance
company and has since expanded to be the holding company for a
diverse group of companies and subsidiaries.
CL Financial is the parent company of Colonial Life Insurance
Company (Trinidad) Limited (Clico). CLICO is now the Company's
insurance division.
CL Financial however experienced a liquidity crisis in 2009 that
resulted in a "bail out" agreement by which the government of
Trinidad and Tobago loaned the company funds ($7.3 billion as of
December 2010) to maintain its ability to operate, and obtained a
majority of seats on the company's board of directors.
The companies to be bailed out were: CL Financial Ltd (CLF);
Colonial Life Insurance Company Ltd (CLICO); Caribbean Money Market
Brokers Ltd (CMMB); Clico Investment Bank (CIB) and British
American Insurance Company (Trinidad) Ltd (BAICO).
As reported in the Troubled Company Reporter-Latin America in July
2017, CL Financial Limited shareholders vowed to pay back a TT$15
billion (US$2.2 billion) debt to the Trinidad Government.
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
co-published by Bankruptcy Creditors' Service, Inc., Fairless
Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C.,
USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
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