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/raid1/www/Hosts/bankrupt/TCRLA_Public/240924.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Tuesday, September 24, 2024, Vol. 25, No. 192 Headlines B A H A M A S FTX GROUP: Prager Metis Settles US SEC Negligence Case, Pays Fine FTX GROUP: US Urges Leniency for Former Executive Caroline Ellison C A Y M A N I S L A N D S CAYMAN ISLANDS: Banks Cut Interest Rates on Mortgages & Loans C O S T A R I C A COSTA RICA: Moody's Raises Issuer Ratings to Ba3, Outlook Positive D O M I N I C A N R E P U B L I C DOMINICAN REPUBLIC: Agriculture Loans Exceed RD$23 Billion in 2023 E L S A L V A D O R DAVIVIENDA SALVADORENO: Fitch Affirms 'B' LongTerm IDR H O N D U R A S HONDURAS: S&P Affirms 'BB-/B' Sovereign Credit Ratings, Outlook Neg J A M A I C A CARIBBEAN CEMENT: Resumes Full Production JAMAICA: Annual Inflation for Clothing & Footwear Up 3% in August M E X I C O ELECTRICIDAD FIRME: Fitch Affirms BB LongTerm IDRs, Outlook Stable - - - - - ============= B A H A M A S ============= FTX GROUP: Prager Metis Settles US SEC Negligence Case, Pays Fine ----------------------------------------------------------------- Jonathan Stempel at Reuters reports that a former auditor for FTX will pay $1.95 million to settle two U.S. Securities and Exchange Commission cases, including for alleged negligence in auditing the cryptocurrency exchange Sam Bankman-Fried led before being convicted of fraud. Prager Metis, based in New York, did not admit or deny wrongdoing in agreeing to the settlements, which include $1.75 million of civil fines plus disgorged profit and interest, according to Reuters. In court papers, the SEC accused Prager Metis of falsely representing that its FTX audit reports in July 2021 and April 2022 complied with generally accepted auditing standards, the report notes. The Prager Metis partner leading the audits "fundamentally did not understand FTX, or the crypto asset markets in which it operated," according to the SEC, the report relays. Prager Metis did not understand FTX's relationship with Bankman-Fried's hedge fund Alameda Research, the SEC said. Prosecutors said Bankman-Fried looted $8 billion from FTX customers, in large part to plug losses at Alameda, the report says. FTX collapsed in November 2022 and filed for bankruptcy, the report notes. SEC enforcement chief Gurbir Grewal said in a statement that Prager Metis' audits deprived FTX customers of "crucial protections" when investing, the report discloses. "Ultimately, they were defrauded out of billions of dollars by FTX and bore the consequences when FTX collapsed," he said. The second settlement addressed charges that Prager Metis violated auditor independence rules between December 2017 and October 2020 in relationships with other clients, the report relays. Bruce Braun, a lawyer for Prager Metis, said the firm was pleased to settle. "Like others, it was a victim of the collusive fraud by management at FTX," he added. Bankman-Fried, 32, is appealing his conviction and 25-year prison sentence over his role in FTX's collapse, the report notes. Caroline Ellison, who had been Alameda's chief executive, pleaded guilty over her role and testified against Bankman-Fried, her former boyfriend, the report says. Ellison's sentencing is scheduled for Sept. 24. She has asked a federal judge not to send her to prison, the report adds. About FTX FTX is the world's second-largest cryptocurrency firm. FTX is a cryptocurrency exchange built by traders, for traders. FTX offers innovative products including industry-first derivatives, options, volatility products and leveraged tokens. Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that FTX paused customer withdrawals after it was hit with roughly $5 billion worth of withdrawal requests. Faced with liquidity issues, FTX on Nov. 9, 2022, struck a deal to sell itself to its giant rival Binance, but Binance walked away from the deal amid reports on FTX regarding mishandled customer funds and alleged US agency investigations. SBF agreed to step aside, and restructuring vet John J. Ray III was quickly named new CEO. FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc. (d/b/a FTX US), Alameda Research Ltd. and certain affiliated companies then commenced Chapter 11 proceedings (Bankr. D. Del. Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022. Additional entities sought Chapter 11 protection on Nov. 14, 2022. FTX Trading and its affiliates each listed $10 billion to $50 billion in assets and liabilities, making FTX the biggest bankruptcy filer in the US this year. According to Reuters, SBF shared a document with investors on Nov. 10, 2022, showing FTX had $13.86 billion in liabilities and $14.6 billion in assets. However, only $900 million of those assets were liquid, leading to the cash crunch that ended with the company filing for bankruptcy. The Hon. John T. Dorsey is the case judge. The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel; Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal North America, LLC as financial advisor. Kroll is the claims agent, maintaining the page https://cases.ra.kroll.com/FTX/Home-Index The Official Committee of Unsecured Creditors tapped Paul Hastings as counsel, FTI Consulting, Inc., as financial advisor, and Jefferies LLC as the investment banker. Young Conaway Stargatt & Taylor LLP is the Committee's Delaware and conflicts counsel. Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory T. Donilon, Edward L. Schnitzer, and David M. Banker, is representing Sam Bankman-Fried in the Chapter 11 cases. White-collar crime specialist Mark S. Cohen has reportedly been hired to represent SBF in litigation. Lawyers at Paul Weiss previously represented SBF but later renounced representing the entrepreneur due to a conflict of interest. FTX GROUP: US Urges Leniency for Former Executive Caroline Ellison ------------------------------------------------------------------ Jonathan Stempel at Reuters reports that U.S. prosecutors made a case for leniency for former FTX cryptocurrency executive Caroline Ellison when she is sentenced over her role in the exchange's collapse, citing her help in sending FTX founder Sam Bankman-Fried to prison for 25 years. In a letter to U.S. District Judge Lewis Kaplan in Manhattan, prosecutors stopped short of recommending a specific punishment for Ellison, according to Reuters. But they said the 29-year-old's "extraordinary" cooperation justified a sentencing reduction, opens new tab from what she might otherwise deserve after pleading guilty to fraud and conspiracy charges, the report relays. "The 'what' and 'how' of the crimes, as well as the 'why,' would have been difficult to prove without Ellison's testimony," prosecutors said in the letter, the report discloses. Lawyers for Ellison did not immediately respond to requests for comment. They have asked that Ellison receive no time behind bars following her scheduled Sept. 24 sentencing. Bankman-Fried, a 32-year-old former billionaire, was accused of looting $8 billion from FTX customers, in large part to plug losses at his hedge fund Alameda Research, where Ellison was chief executive, the report notes. FTX collapsed in Nov. 2022 and filed for bankruptcy. Prosecutors said Ellison's help, including at least 20 meetings with the government and three days on the witness stand, was crucial to Bankman-Fried's conviction last November, the report relays. Ellison testified that Bankman-Fried, her former boyfriend, directed that FTX customer funds be used to prop up Alameda, and thought following rules such as "don't lie" or "don't steal" was less important than otherwise doing good for many people, the report discloses. Prosecutors said Ellison persevered despite harsh media and public scrutiny, including being mobbed at the courthouse and mocked on social media, and Bankman-Fried's effort to "weaponize" her personal writings to intimidate her, the report notes. "The government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment," prosecutors said, the report says. "Throughout, however, and certainly during her testimony, Ellison steadfastly remained candid and dedicated to telling the truth--as embarrassing as it often was for her--and in assisting with bringing the most culpable party to justice," the report relays. Though prosecutors said Ellison could theoretically receive 110 years in prison because of the huge losses suffered by FTX customers, her punishment will likely be much lighter than what Bankman-Fried received from Kaplan, the report discloses. Bankman-Fried is appealing his conviction and sentence, the report adds. About FTX FTX is the world's second-largest cryptocurrency firm. FTX is a cryptocurrency exchange built by traders, for traders. FTX offers innovative products including industry-first derivatives, options, volatility products and leveraged tokens. Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that FTX paused customer withdrawals after it was hit with roughly $5 billion worth of withdrawal requests. Faced with liquidity issues, FTX on Nov. 9, 2022, struck a deal to sell itself to its giant rival Binance, but Binance walked away from the deal amid reports on FTX regarding mishandled customer funds and alleged US agency investigations. SBF agreed to step aside, and restructuring vet John J. Ray III was quickly named new CEO. FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc. (d/b/a FTX US), Alameda Research Ltd. and certain affiliated companies then commenced Chapter 11 proceedings (Bankr. D. Del. Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022. Additional entities sought Chapter 11 protection on Nov. 14, 2022. FTX Trading and its affiliates each listed $10 billion to $50 billion in assets and liabilities, making FTX the biggest bankruptcy filer in the US this year. According to Reuters, SBF shared a document with investors on Nov. 10, 2022, showing FTX had $13.86 billion in liabilities and $14.6 billion in assets. However, only $900 million of those assets were liquid, leading to the cash crunch that ended with the company filing for bankruptcy. The Hon. John T. Dorsey is the case judge. The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel; Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal North America, LLC as financial advisor. Kroll is the claims agent, maintaining the page https://cases.ra.kroll.com/FTX/Home-Index The Official Committee of Unsecured Creditors tapped Paul Hastings as counsel, FTI Consulting, Inc., as financial advisor, and Jefferies LLC as the investment banker. Young Conaway Stargatt & Taylor LLP is the Committee's Delaware and conflicts counsel. Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory T. Donilon, Edward L. Schnitzer, and David M. Banker, is representing Sam Bankman-Fried in the Chapter 11 cases. White-collar crime specialist Mark S. Cohen has reportedly been hired to represent SBF in litigation. Lawyers at Paul Weiss previously represented SBF but later renounced representing the entrepreneur due to a conflict of interest. =========================== C A Y M A N I S L A N D S =========================== CAYMAN ISLANDS: Banks Cut Interest Rates on Mortgages & Loans ------------------------------------------------------------- RJR News reports that in the Cayman Islands, local banks have cut interest rates on mortgages and loans following the move by the US Federal Reserve, which should make borrowing cheaper. The US central bank said it was lowering rates for the first time in four years by half a percentage point, to reduce inflation while keeping unemployment in check, according to RJR News. Butterfield Bank in Cayman said it was following suit by cutting its interest rates for residential mortgages, consumer loans, and corporate loans to 8 per cent from today, the report notes. Cayman National Bank also announced that it was cutting interest rates on lending to 8 per cent from Sept. 20, the report relays. =================== C O S T A R I C A =================== COSTA RICA: Moody's Raises Issuer Ratings to Ba3, Outlook Positive ------------------------------------------------------------------ Moody's Ratings has upgraded the Government of Costa Rica's long-term local and foreign currency issuer ratings to Ba3 from B1 and maintained the positive outlook. Concurrently, Moody's have upgraded the foreign currency senior unsecured debt rating to Ba3 from B1. The decision to upgrade the rating is driven by Moody's assessment of Costa Rica's strengthened fiscal profile that is benefitting from a marked improvement in debt affordability as a result of stronger debt management and lower borrowing costs, coupled with a steady reduction in government debt ratios driven by stronger-than-expected economic growth that Moody's project will be reinforced by favorable trends from nearshoring. Government liquidity has materially improved with treasury deposits reporting consistently higher levels than in the past, providing a financial buffer against adverse shocks. The positive outlook reflects the possibility that, the authorities will continue making progress on establishing a favorable track record of fiscal and debt management, including continued compliance with rules and targets embedded in the government's medium-term fiscal framework which would improve Costa Rica's institutions and governance strength. Additionally, if approved, a proposed constitutional amendment would allow the sovereign to issue external debt with more flexibility reducing refinancing risks. Costa Rica's local and foreign currency country ceilings have been raised to Baa2 from Baa3 and to Ba1 from Ba2, respectively. The four-notch gap between the local currency ceiling and the sovereign rating reflects limited government intervention in the economy, high predictability and reliability of institutions, overall low political risk and relatively contained external imbalances. The Ba1 foreign-currency ceiling, two notches below the local currency ceiling, reflects the economy's moderate level of external indebtedness, open capital account a low level of policy effectiveness. RATINGS RATIONALE RATIONALE FOR THE UPGRADE TO Ba3 IMPROVED DEBT AFFORDABILITY FROM STRONGER DEBT MANAGEMENT AND LOWER BORROWING COSTS Primary surpluses and stronger-than-expected growth have led to a steady decrease in government debt metrics. Over the past three years, fiscal outturns have consistently exceeded government and International Monetary Fund (IMF) projections. Under an IMF Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF), the authorities have raised the primary balance on by over four percentage points of GDP (as compared to pre-pandemic levels) through significant cuts in spending and increased revenues from the 2018 tax reform such that the adjustment is structural and Moody's expect continued, sustained, primary surpluses. Adherence to the fiscal rule that was adopted in 2018, alongside the tax reform, has increased fiscal policy credibility leading to a steady decline in debt ratios. Supported by primary surpluses in the order of 3% of GDP at the central government level debt declined to 61.1% of GDP in 2023, lower than Moody's 62.5% estimate at the end of last year. Furthermore, the debt ratio could fall below 60% of GDP by 2026 if the authorities continue to meet targets set in the government's medium-term fiscal framework. Real GDP growth in 2023 at 5.1% significantly exceeded Moody's 3.6% projection, driven by robust external demand, recovering investment and stronger household consumption. Economic activity in the Free Trade Zones continues to support growth and has been outpacing activity in the rest of the economy. Costa Rica continues to benefit from the global nearshoring trend, particularly in the healthcare and service-related export sectors, supported by strong foreign direct investment (FDI) inflows. Real GDP growth remained robust at 4.2% year-on-year in the second quarter of 2024, from 4.6% in the first quarter, reflecting moderating but still strong private consumption that has benefited from continued real wage increases. Moody's have revised up Moody's real GDP growth forecast for 2024 to 3.9% but expect annual growth will converge in 2025-27 to Costa Rica's long-run potential at around 3.5%. The economy's comparatively strong growth prospects will continue to support a decline in government debt, even if primary surpluses weaken under a scenario where the government eases primary surplus targets. Sovereign borrowing costs have declined and will continue to support favorable debt dynamics. Costa Rica's external bond yields have come down significantly converging with those of strong 'Ba' credits. On the domestic front, low inflation should allow the central bank to accommodate falling interest rates, helping to reduce high borrowing cost in local currency. Combined, these factors have improved debt affordability. In addition to using the resources from external issuances to retire costly domestic debt, the government is concentrating more of its domestic issuance at longer maturities (15 and 30 years) to gradually extend the average life of domestic debt, resulting in an improving debt structure with longer maturities. Longer average life of domestic debt coupled with lower structural fiscal deficits will allow financing needs to stabilize. Moody's estimate that - on average - annual government financing needs in 2024-26 will remain at 9% of GDP, a level similar to that observed in 2022-23, but much lower than the 15% of GDP observed prior to the pandemic. Since 2023, the year when the authorities adopted a prudential guideline that requires government liquidity to match - or exceed - 3-6 months of gross financing requirements, treasury deposits have been at materially higher levels than in the past, providing a buffer against funding shocks and allowing for greater financial flexibility. Moody's expect government liquidity to be reinforced as external debt issuance provides resources to both retire expensive domestic debt and maintain a healthy level of treasury deposits. RATIONALE FOR THE POSITIVE OUTLOOK The positive outlook reflects a balance of risks skewed to the upside. The sovereign is making progress on establishing a track record that may improve institutions and governance strength backed by stronger debt and liquidity management, and continued compliance with fiscal rules embedded in the medium-term fiscal framework. A proposed constitutional amendment to allow the sovereign to issue external debt for budget financing with more flexibility would help reduce refinancing risks. Upside risks include the possibility of stronger economic growth from stronger-than-expected FDI inflows as a result of Costa Rica's attractiveness as a nearshoring partner to the US economy, especially in the healthcare and service-related export sectors. Stronger economic growth would quicken the decline in the sovereign's debt burden and enhance fiscal strength. The proposed constitutional amendment to allow the sovereign to issue external debt for budget financing with more flexibility would more closely align the budget and financing laws, improve the debt profile and reduce financing costs. Meanwhile, some downside risks remain related to still-high interest payments that are a source of fiscal rigidity and given the sovereign's low tax take, rising spending pressures could jeopardize the fiscal trajectory outlined in the authorities' medium-term fiscal framework. Expenditure restraint will be an important factor in complying with the relatively high medium-term primary surpluses laid out in the fiscal framework, to ensure the downward trend in debt metrics. However, these risks are contained by the government's commitment to reduce debt and interest burdens and ensure fiscal sustainability, alongside various legislative initiatives to reinforce fiscal and debt management capabilities. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS Costa Rica's ESG Credit Impact Score of CIS-3 reflects the country's moderate exposure to environmental and social risk. It's governance profile remains moderately weak due to its track record of political gridlock. The E-3 issuer profile score on environmental risk is related to physical climate risk. Lower crop yields because of weather events can harm the agricultural export sector and tourism revenues may be affected by wildfires, floods and increased storm severity. The S-3 issuer profile score on social risk reflects labor and income, housing, and health and safety risks. Social considerations historically were not material to Costa Rica's credit profile given a long history of stable governments and democratic institutions but attempts to reduce fiscal deficits have encountered significant social resistance in prior years. Popular demands to reduce perceived inequalities and high rates of violence will continue to constrain domestic policy choices. The G-3 issuer profile score on governance risk is related to the political inability of several administrations to address a fiscal crisis that led to substantial debt accumulation. Although budget management was weak, the authorities are slowly building a track record of credibility as fiscal deficits narrow. Governance risks are tempered by a very favorable institutional structure that safeguards democratic processes and upholds the respect for contracts. GDP per capita (PPP basis, US$): 27,064 (2023) (also known as Per Capita Income) Real GDP growth (% change): 5.1% (2023) (also known as GDP Growth) Inflation Rate (CPI, % change Dec/Dec): -1.7% (2023) Gen. Gov. Financial Balance/GDP: -2.1% (2023) (also known as Fiscal Balance) Current Account Balance/GDP: -1.4% (2023) (also known as External Balance) External debt/GDP: 44% (2023) Economic resiliency: baa2 Default history: At least one default event (on bonds and/or loans) has been recorded since 1983. On September 13, 2024, a rating committee was called to discuss the rating of the Costa Rica, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have materially increased. The issuer's governance and/or management, have materially increased. The issuer's fiscal or financial strength, including its debt profile, has materially increased. The issuer's susceptibility to event risks has not materially changed. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS Costa Rica's credit profile could improve as a result of a faster increase in debt affordability, that is, lower interest-to-revenue ratio, and a further narrowing of the fiscal deficit that leads to a more rapid reduction in government debt ratios than currently expected. Significant progress on reforms that boost structural government revenue, would create fiscal space and help narrow fiscal deficits further, helping to consolidate recent gains on establishing a track record of fiscal policy credibility and placing upward pressure on the ratings. FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS Costa Rica's rating could be subject to downward pressure in case of a re-emergence of liquidity and financing constraints, or if a reversal of fiscal policy leads to wider fiscal deficits that deviate materially from the medium-term fiscal framework resulting in an upward debt trajectory. Given the country's track record of political gridlock hindering reforms or the prompt adoption of corrective fiscal measures, downward pressure on the sovereign's credit profile could result from legislative deadlock, lack of swift and timely approval of external financing or political inability to support measures that have led to continued improvement of debt metrics. The principal methodology used in these ratings was Sovereigns published in November 2022. The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable. =================================== D O M I N I C A N R E P U B L I C =================================== DOMINICAN REPUBLIC: Agriculture Loans Exceed RD$23 Billion in 2023 ------------------------------------------------------------------ Dominican Today reports that in 2023, the agriculture subsector in the Dominican Republic received the most significant loans from the Agricultural Bank of the Dominican Republic for the agricultural sector, representing 70% of the total loans. Of the RD$33,190.6 million of accumulated disbursements at the end of December of last year, RD$23,205.4 million went to agriculture, according to the reports of the Dominican Agribusiness Board (JAD), which uses data supplied by the Agricultural Bank, Dominican Today relays. The report states that the agriculture subsector is followed by livestock, forestry, and fishing, which received RD$5,150.8, representing nearly 16% of the resources channeled, the report notes. "RD$4,834.4 million were channeled to other related activities, equivalent to almost 14% of all loans in 2023," it specifies, the report discloses. The JAD's reports note that last year's Banco Agricola loans increased by almost RD$37 million compared to 2022 when they reached RD$33,153.7 million. In 2021, they reached RD$31,335.8 million, the report relays. At the National Meeting of Leaders of the Agricultural Sector, the general administrator of Banco Agricola, Fernando Durán, affirmed that the country's agriculture would need more than RD$100 billion annually to finance its operations, the report notes. According to Dominican Today, Duran specified that rice cultivation alone, with almost three million tareas planted, requires more than RD$25 billion a year and mentioned the urgency of renewing aging cocoa plantations and continuing to modernize sectors such as livestock and poultry farming, which have shown growth in recent years. Duran explained that maintaining low inflation is key to making investments in the countryside profitable and contributing to the sector's growth, the report relays. 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. Standard & Poor's credit rating for Dominican Republic was raised to 'BB' in December 2022 with stable outlook. Moody's credit rating for Dominican Republic was last set at Ba3 in August 2023 with the outlook changed to positive. Fitch, in December 2023, affirmed the Dominican Republic's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' and revised the outlook to positive. ===================== E L S A L V A D O R ===================== DAVIVIENDA SALVADORENO: Fitch Affirms 'B' LongTerm IDR ------------------------------------------------------ Fitch Ratings has affirmed Banco Davivienda Salvadoreno, S.A.'s (Davivienda Sal) Long-Term Issuer Default Rating (IDR) at 'B'. Fitch has in addition affirmed Davivienda Sal's Short-Term IDR at 'B', Shareholder Support Rating (SSR) at 'b' and Viability Rating (VR) at 'ccc+'. Fitch has also affirmed Davivienda Sal's and its holding company, Inversiones Financieras Davivienda, S.A.'s (IF Davivienda) Long- and Short-Term National Ratings at 'EAAA(slv)' and 'F1+(slv)', respectively. The Rating Outlook of the Long-Term IDR and National Rating is Stable. Key Rating Drivers Ratings Driven by Parent Suppport: Banco Davivienda Salvadoreño, S.A.'s (Davivienda Sal) IDRs and national scale ratings are driven by its SSR of 'b', which reflects Fitch Ratings' assessment on the ability and propensity of its Colombian parent Banco Davivienda S.A. (Davivienda) to provide timely support to its subsidiary if required. Davivienda's ability to support is sustained in its 'BB+' IDR with Negative Rating Outlook. In addition, Davivienda's creditworthiness relative to other issuers rated in El Salvador allow Davivienda Sal's national ratings to be at the top of the Salvadoran scale. Country Risks Highly Weigh in Support: In Fitch's opinion, El Salvador's country risk, as reflected in its 'B' Country Ceiling (CC) heavily influences Davivienda Sal's ability to use parent support. The CC considers transfer and convertibility risks and limits Davivienda Sal's SSR and Long-Term IDR, at a four-notch stepdown from Davivienda's IDR. However, Fitch believes the Colombian parent's commitment to support its subsidiary is sufficiently strong, resulting in Davivienda Sal's Long-Term IDR and SSR at two notches above the sovereign's Long-Term IDR of 'CCC+'. Key Regional Role: Fitch weighs in its support assessment, the role of Davivienda Sal and IF Davivienda as part of the consolidated regional operations in Central America for its Colombian parent. Fitch also considers the significant reputational risk that would pose a Davivienda Sal and IF Davivienda's default for Davivienda and its other group subsidiaries, given the relevant market and business position of the group in Colombia and Central America, and its shared commercial brand. Operating Environment Highly Influences VR: Fitch believes the Salvadoran banking system's operating environment (OE) of 'ccc+' impacts the local bank's credit profile and constrains the ratings, as the OE is greatly influenced by the Salvadoran sovereign's risks. The latter stem from the country's limited capacity of access to financing and from its high levels of debt. However, the Salvadoran banks' performance has proven stable and resilient relative to the prevailing overall conditions. Stable Business Profile: Davivienda Sal's consistent business profile incorporates its diversified business model and consolidated market position in a high-risk jurisdiction. The bank's 2020-2023 average total operating income (TOI) is USD159.2 million, which compares below some local and international peers, although Fitch estimates it will remain commensurate with its business profile's 'b' score. Davivienda Sal continues as the fourth-largest participant in the Salvadoran banking system, exhibiting market shares of 13.2%, 14.5% and 13.2% in terms of assets, loans and deposits, respectively as of June 2024. Reasonable Asset Quality: Davivienda Sal's exhibits asset quality levels that are commensurate with its 'b-' score, with reasonable impairment metrics. As of June 2024, its impaired loans to total loans ratio was 2.3% (2020-2023 average: 2.0%). The mildly growing recent trend mirrors impairment in some consumer and mortgage loans, although is partly balanced by sound reserves coverages of its impaired portfolio (close to 125%). While its delinquency metrics are expected to continue slightly increasing, Fitch believes these will remain commensurate with its current score and relatively in line with its rating peers, given the bank's conservative credit standards and controls. Moderate Profitability: Davivienda Sal's earnings and profitability score of 'b-' mirrors its operating profit levels that are comparable to those of some rating peers that exhibit relatively similar metrics. As of 2Q24, its operating profit to risk weighted assets (RWA) was 1.9% (YE 2023: 0.7%). The improvement is explained by regulatory reclassification of other operating income. However, Fitch believes the bank's profitability will continue well in line with is current score, considering the moderate growth prospects and the challenges of the local OE. Healthy Capital Position: In Fitch's opinion, Davivienda Sal's sustains sound levels of capitalization, with an FCC ratio that is somewhat favorable in respect to similarly rated peers. As of 2Q24, its FCC to RWAs ratio was 14.1%, a lower metric than 14.7% at YE 2023 given slightly higher impairment and moderate credit growth. Considering the bank's conservative growth prospects and capital management along with higher profitability prospects and stable parent support, Fitch estimates Davivienda Sal's capitalization metrics may mildly increase although will remain consistent with its 'b' score. Consistent Funding and Liquidity Sources: Davivienda Sal's funding and liquidity score mirrors its stable deposits base, which is favored by its sound business franchise and contributes to stable liquidity. The score also incorporates the ordinary support from Davivienda. As of 2Q24, its loans-to-deposits metric was 105.0% (2020-2023 average: 102.2%), which is comparable to those of its similarly rated peers. Local Holding Company: IF Davivienda's National Ratings are also driven by Fitch's assessment on its parent, Davivienda's ability and propensity to support and mirror the relative credit strength of its shareholder respect to other rated issuers in El Salvador. As of June 202, Davivienda Sal accounted about 89% of IF Davivienda's assets (before eliminations); therefore, the holding consolidated credit and financial profile reflects that of the bank. Rating Sensitivities Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Negative changes in the bank's Long-Term IDR and SSR would mirror negative movements in El Salvador's CC; - Davivienda Sal's Long-Term IDR, SSR and national scale ratings could be downgraded following a multi-notch downgrade of Davivienda's IDRs; - Any perception by Fitch of a relevant reduction of the strategic importance of Davivienda Sal for its parent could trigger a downgrade of its SSR, IDRs and national scale ratings; - The bank's Short-Term IDR would only be downgraded if its Long-Term IDR were downgraded to 'CCC+' or below; - A downgrade of El Salvador's sovereign rating could lead to a downward revision of Fitch's assessment of the OE score for Salvadoran banks, which would pressure Davivienda Sal's VR. Davivienda Sal's VR could also be downgraded due to lower earnings, specifically if this affects the operating profit-to-RWAs ratio, resulting in consistent operating losses. An FCC-to-RWAs ratio consistently below 10% would also pressure the VR. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Davivienda Sal's VR, Long-Term IDR and SSR could be upgraded following an upgrade of El Salvador's sovereign rating and its CC, as the bank's VR is capped by the sovereign IDR and its IDR is capped by the Salvadoran CC. Fitch would also maintain the two-notch uplift from the sovereign for the SSR; - The upside potential for Davivienda Sal's VR is limited due to Fitch's assessment of the OE. Davivienda Sal's VR could only be upgraded over the medium term on an improvement in the OE while maintaining solid business and financial profiles; - Davivienda Sal's national scale ratings are at the highest level of Fitch's national rating scale and therefore have no upside potential. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS Local Senior Debt: Fitch has also affirmed Davivienda Sal's long- and short-term senior secured and unsecured debt ratings at 'AAA(slv)' and 'N-1(slv)', respectively. Davivienda Sal's senior unsecured and secured debt national scale ratings are rated at the same level as the issuer's national scale ratings. In Fitch's view, the probability of default on these issuances is the same as that of the bank. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Davivienda Sal's senior secured and unsecured debt national scale ratings would be downgraded in the event of any negative rating action on the bank's national scale ratings. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Davivienda Sal's senior debt ratings are at the highest level of Fitch's national rating scale and therefore have no upside potential. VR ADJUSTMENTS The VR of 'ccc+' has been assigned below the 'b-' implied VR, due to the following adjustment reason: OE/Sovereign Rating Constraint (negative). The OE score of 'ccc+' has been assigned below the implied score of 'b', due to the following adjustment reason: Sovereign Rating (negative). Summary of Financial Adjustments Davivienda Sal: Fitch reclassified prepaid expenses as intangibles and deducted them from the total equity to reflect their low absorption capacity. Public Ratings with Credit Linkage to other ratings Davivienda Sal and IF Davivienda's ratings are linked to their parent Davivienda's ratings. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Banco Davivienda Salvadoreno, S.A. LT IDR B Affirmed B ST IDR B Affirmed B Natl LT EAAA(slv) Affirmed EAAA(slv) Natl ST F1+(slv) Affirmed F1+(slv) Viability ccc+ Affirmed ccc+ Shareholder Support b Affirmed b senior unsecured Natl LT AAA(slv) Affirmed AAA(slv) senior secured Natl LT AAA(slv) Affirmed AAA(slv) senior unsecured Natl ST N-1(slv) Affirmed N-1(slv) senior secured Natl ST N-1(slv) Affirmed N-1(slv) Inversiones Financieras Davivienda, S.A. Natl LT EAAA(slv) Affirmed EAAA(slv) Natl ST F1+(slv) Affirmed F1+(slv) =============== H O N D U R A S =============== HONDURAS: S&P Affirms 'BB-/B' Sovereign Credit Ratings, Outlook Neg ------------------------------------------------------------------- S&P Global Ratings, on Sept. 20, 2024, revised the outlook on its long-term ratings on Honduras to negative from stable. At the same time, S&P affirmed its 'BB-/B' long- and short-term sovereign credit ratings. S&P also revised down its transfer and convertibility (T&C) assessment to 'BB-'. Outlook The negative outlook incorporates S&P's view that the country's exchange rate and monetary rigidities could harm its external profile and dent investor sentiment, as well as lower its economic growth prospects. Downside scenario S&P could lower the ratings in the next six to 12 months if limited access to external financing leads to a further decrease in international reserves and worsens external liquidity. Furthermore, limited exchange rate flexibility and potential political uncertainties could deteriorate investor sentiment and translate into lower economic growth prospects, leading to a downgrade. Upside scenario S&P could revise the outlook to stable in the next six to 12 months if it sees progress on monetary and exchange rate policies that generates additional external financing from official and commercial creditors. Successful implementation of reforms that result in stronger public finances and higher long-term GDP growth, while addressing weaknesses in the energy sector, could also lead to an upgrade. Rationale The 'BB-' ratings on Honduras reflect the country's low per capita GDP, weak institutions, and very limited exchange rate flexibility, which constrains monetary policy effectiveness. On the other hand, the country has maintained moderate fiscal deficits and debt levels, and most of the sovereign's debt comes from official sources. Flexibility and performance profile: Limited monetary flexibility and weakening external profile, despite expectations of gradual fiscal consolidation and stable debt -- Procyclical monetary policy and limited exchange rate flexibility are weakening investor sentiment. -- Failure to secure adequate external funding could weaken the country's external liquidity. -- S&P projects a stable annual increase in net general government debt, at around 3.7% of GDP, and marginally increasing debt levels in the next three years. Heavy intervention by the central bank in the foreign exchange market and the small size of domestic capital markets limit the effectiveness of monetary policy. S&P revised down its transfer and convertibility assessment to 'BB-', at the same level as the long-term sovereign credit rating, to reflect this pattern of intervention in the foreign exchange market and limited flexibility in exchange rate policies. The central bank changed the system for allocating dollars to the market in April 2023, due to allegations that private banks had used unfair discretionality in supplying foreign exchange to their clients under the previous system. As a result, the central bank returned to an auction system from interbank market allocation. Exchange agents are obliged to surrender foreign currency inflows to the central bank, which then sells dollars into the economy via auction, prioritizing energy imports. The amounts sold in daily auctions cover only around 40% of the demand for dollars, underscoring the scarcity of foreign currency in the economy. Delays in securing external funding from official and commercial creditors have reduced the supply of hard currency in the country and led to declining international reserves. Net international reserves fell to $6.8 billion as of September 2024 from $8.4 billion in December 2022. S&P forecasts that current account deficits will stabilize at around 3.3% of GDP over 2025-2027 and that gross external financing needs will average 96% of current account receipts and usable reserves over the next three years. Weaker investor sentiment will likely translate into low net foreign direct investment of around 1.5% of GDP in that period. The country's narrow net external debt position is likely to be around 25% of current account receipts in 2024-2027. S&P projects Honduras' current account deficit will widen to around 4.2% of GDP in 2024 due to a reduction in primary good exports and an increase in energy imports. The inflow of remittances, now 28% of GDP, has returned to a normal growth rate of only 4% annually. In September 2023, Honduras entered into a 36-month $830 million program with the IMF, committing to reduce the nonfinancial public-sector deficit to 1% of GDP over the next several years, as set in the country's fiscal responsibility law. However, the limited exchange rate flexibility and rigid monetary policy have caused delays in two scheduled quarterly revisions and disbursements, in March and September of this year. The IMF has signaled it remains in talks with the government and may soon conclude a joint review. S&P said, "We project inflation at 4.9% by the end of the year, followed by a gradual return toward the central bank's target of 4.0% (+/- 1 percentage point). The central bank increased reserve requirements and hiked the monetary policy rate to 4% in August 2024, after having kept the rate at 3% since November 2020, while most central banks globally pursued monetary tightening. We think this move, coupled with limited central bank independence, underscores Honduras' somewhat weaker monetary policy flexibility." Honduras' public finances are likely to remain stable in 2024-2027. S&P projects gradual fiscal consolidation, in line with the government's medium-term fiscal framework and its fiscal responsibility law, which targets a deficit of 1% for the nonfinancial public sector but with extraordinary space to invest in capital infrastructure. Despite the government's agenda to expand social safety nets, operational hurdles and the elimination of trust funds have limited its capacity to increase spending, leading to lower-than-expected fiscal deficits. The government-owned electricity company Empresa Nacional de Energia Electrica (ENEE; not rated) continues to pose fiscal risks to the government, on average running losses of about 1% of GDP annually. Government transfers and borrowings issued directly by ENEE have financed these deficits: The company's debt is around 9% of GDP. Following the approval of an energy law in 2022, the company renegotiated contracts with the majority of energy generators, which should reduce operational costs. However, historically low investment in the electricity grid has kept energy transmission losses very high at around 38%. S&P said, "We project net general government debt will marginally increase to around 40% of GDP in 2024-2027 (we deduct intergovernmental debt holdings from our calculation of general government debt, and we also deduct government liquid assets to calculate net general government debt). We expect the government to maintain good relationships with multilateral institutions and keep access to credit lines." About 40% of Honduras' total debt is owed to official creditors, and around 70% of its debt is in foreign currency, posing risks from sudden exchange rate fluctuations. Due to limited access to external funding, the government has paid external bond amortizations in past years with its liquid assets, reducing its net debt level to 36% in 2023 from a peak of 46% in 2020. S&P projects interest payments will hover near 9.5% of general government revenue in 2024-2027. S&P considers contingent liabilities from the financial sector to be limited. This view incorporates its assessment of the country's banking sector in group '8' according to its Banking Industry Country Risk Assessment (BICRA)--with '1' being the lowest-risk category and '10' the highest--as well as the banking sector's size, with assets of around 114% of GDP. The banking sector's liquidity indicators have worsened, though they remain well within regulatory targets. Credit has grown around 18% annually over the past two years, exceeding the 12% growth in deposits. S&P will monitor the impact of other potential contingent liabilities arising from litigation with private-sector entities, such as the ones in the special economic zones. Institutional and economic profile: Weak institutions and political uncertainties constrain economic growth prospects -- S&P expects GDP growth to slow to 3.0% in 2024 and 2025 and then increase to 3.6% thereafter. -- Limited exchange rate flexibility and weak monetary policy have dented investor sentiment. -- Weak rule of law, political uncertainty, and high perceived corruption are likely to continue constraining economic growth. Weakening political support and rising polarization will constrain the government's ability to pass reforms ahead of presidential and congressional elections in November 2025. The approval of a reform to reduce tax exemptions (Ley de Justicia Tributaria) is now likely to face delays in Congress. Ten lawmakers that belonged to the official Partido Libertad y Refundacion (Libre) left the coalition governing party, leaving it with only 40 out of 128 seats in Congress. Furthermore, uncertainty regarding the elimination of special economic zones (ZEDEs) and the decision to leave the international arbitration court CIADI could signal weakening rule of law and deter private investment. Moreover, perceived corruption continues to foster public discontent. Despite attempts to bolster controls during this administration, there have been scandals involving top government officials. S&P expects GDP growth to slow to 3% over the next two years due to weaker private investment and electoral uncertainty, followed by an increase to 3.6% thereafter. Honduras' economic growth will remain linked with GDP growth in the U.S., the destination of 40% of its exports and the main source of remittances, which account for around 28% of GDP. Furthermore, Honduras is highly exposed to extreme weather events. As a result, the government has expressed interest in IMF financing under the Resilience and Sustainability Facility, which could be considered in subsequent IMF program reviews. Honduras' per capita income growth has suffered from many years of low investment, particularly in the energy sector, where inefficiencies have produced regular blackouts that increase costs and deter private investment. Moreover, social indicators such as high poverty, at around 50%, and high informality, at around 70% of the working-age population, continue to constrain economic growth. Steps to strengthen rule of law and foster competition and private investment could raise the country's potential growth rate. In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. Ratings List DOWNGRADED TO FROM HONDURAS Transfer & Convertibility Assessment Local Currency BB- BB RATINGS AFFIRMED HONDURAS Senior Unsecured BB- RATINGS AFFIRMED; CREDITWATCH/OUTLOOK ACTION TO FROM HONDURAS Sovereign Credit Rating BB-/Negative/B BB-/Stable/B ============= J A M A I C A ============= CARIBBEAN CEMENT: Resumes Full Production ----------------------------------------- RJR News reports that Caribbean Cement Company said it has returned to full production following the successful completion of its maintenance program. This comes days after it was reported that the company was experiencing challenges meeting the current demand for cement in the local market due to the scheduled annual maintenance of its kiln, according to RJR News. Caribbean Cement says through its 24-hour operation, it has maintained a strong daily production rate to meet the targets of market demands, already reaching over 4,000 metric tonnes, which is higher than budgeted levels, the report notes. The company says it is actively addressing the current challenges and is implementing measures to ensure a steady and reliable supply of cement, the report adds. About Caribbean Cement Caribbean Cement Company Limited, together with its subsidiaries, manufactures and sells cement and clinker in Jamaica and other Caribbean countries. The company was incorporated in 1947 and is based in Kingston, Jamaica. As reported in the Troubled Company Reporter-Latin America in August 2023, Jamaica Observer said that high cost attributed to a scheduled annual maintenance exercise done during the first quarter sent operational earnings and six months profit falling for cement manufacturer Carib Cement at the end of June. For the reporting period, net profit, which amounted to $2.4 billion, was approximately 20 per cent below the $3 billion earned for the half-year mark in 2022, according to Jamaica Observer. Operating earnings for the period also fell by about 24 per cent to total $3.6 billion when compared to the $4.8 billion seen for last year's period, the report noted. In a TCRLA report on August 2021, Jamaica Observer relayed that after enduring years of sluggish results and a mountain of debt, Caribbean Cement has shrunk its long-term debt from $11.39 billion in 2018 to $500 million as at June 30, 2021. At the same time, the company reported $3.09 billion in net profit over the six months which ended June 30. Its profit for all of 2020 was $3.2 billion. The performance is coming off a challenging decade for the cement producer which included four consecutive years of losses from 2009 to 2013. JAMAICA: Annual Inflation for Clothing & Footwear Up 3% in August ----------------------------------------------------------------- RJR News reports that Jamaicans paid more for clothes for the year ended August. The Statistical Institute of Jamaica (STATIN) says the group "Clothing and footwear" was up an average 3.4 per cent for the period, according to RJR News. For the month of August alone, there was a 0.4 per cent increase the division, the report notes. STATIN says the main contributor to this increase was the 0.5 per cent rise in the cost of clothes compared to July, the report relays. That was influenced by higher prices for clothing materials and school uniforms, the report discloses. The average cost increase for 'Footwear' was 0.2 per cent, due mainly to increased prices for children's shoes, the report adds. About Jamaica Jamaica is an island country situated in the Caribbean Sea. Jamaica is an upper-middle income country with an economy heavily dependent on tourism. Other major sectors of the Jamaican economy include agriculture, mining, manufacturing, petroleum refining, financial and insurance services. In October 2023, Moody's upgraded the Government of Jamaica's long-term issuer and senior unsecured ratings to B1 from B2, and senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has been changed to positive from stable. In September 2023, S&P Global Ratings raised its long-term foreign and local currency sovereign credit ratings on Jamaica to 'BB-' from 'B+', and affirmed its short-term foreign and local currency sovereign credit ratings at 'B', with a stable outlook. In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is Stable. =========== M E X I C O =========== ELECTRICIDAD FIRME: Fitch Affirms BB LongTerm IDRs, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Electricidad Firme de Mexico Holdings, S.A. de C.V.'s (EFM) Local Currency and Foreign Currency Long-Term Issuer Default Rating (IDR) at 'BB'. The Rating Outlook is Stable. Fitch has also affirmed EFM's USD350 million senior secured notes due in 2026. The notes are secured by the first-priority lien on EFM and Electricidad Cometa de México, S.A. de C.V. shares. The affirmation incorporates the credit quality of EFM's subsidiary Cometa Energia, S.A. de C.V. (Cometa, BBB-/Stable). EFM indirectly owns 100% of Cometa, and it is EFM's only source of dividends to service debt. The ratings are constrained by EFM's high leverage and structural subordination to Cometa's creditors. Key Rating Drivers Stable Dividend Stream: EFM's ratings are supported by the quality of the dividends received from its indirect 100% ownership of Cometa. The company's cash flow is supported by strong and stable cash flows in the generation business and predictable dividend streams. Fitch forecasts dividends and distributions received from Cometa to be around USD65 million for the next three years. EFM benefits from Cometa's good market position as an efficient independent power producer in Mexico, adequate capital structure and improving credit metrics. Structural Subordination: EFM's USD350 million outstanding senior secured notes are structurally subordinated to Cometa's senior secured USD672 million outstanding notes as of June 2024, due in 2035. EFM is a holding company that depends on dividends received from Cometa to service its own financial obligations. Therefore, a substantial increase in leverage at Cometa could increase the structural subordination of EFM's creditors. This risk is mitigated by Cometa's track record of stable cash distributions to EFM. High Consolidated Leverage: EFM's consolidated leverage as of YE 2023 was at 5.4x. Fitch expects holdco leverage to be near 5.4x for the next three years and gradually decline as Cometa's notes amortize. Fitch projects consolidated gross leverage in the range of 4.7x to 5.5x in the medium term. The amortizing structure of Cometa's notes reduces the group's exposure to refinancing risks. Parent-Subsidiary Linkage: A parent and subsidiary linkage exists between EFM and its stronger operating subsidiary, Cometa. Per Fitch's Linkage Factor Assessment, there is an insulated legal ring-fencing relationship because Cometa has a covenant restricting dividend distribution to a minimum of 1.2x debt service coverage ratio (DSCR) after distribution. In addition, there is an insulated access and control relationship. Despite EFM's 100% ownership of Cometa, each entity has its own treasury and funding strategies. EFM provides a LOC in the total amount of USD60 million until the amortization of Cometa's notes in 2035 to comply with the fulfillment of the subsidiary's debt service reserve account. Off-Taker Risk Limits Cometa's Ratings: Cometa's ratings are constrained by the credit profile of its main off-takers under long-term PPAs and compression service agreements, as well as by the Mexican operating environment. In 2024, CFE and CENAGAS will represent around 33% of EBITDA, while merchant energy from Mercado Electrico Mayorista will represent around 15% of EBITDA, exposing the company to off-taker risk or the Mexican market despite deleveraging expectations. Fitch views positively the company's off-taker diversification, energy exports to the California Independent System Operator, which Cometa expects to represent around 12% of EBITDA in 2024. Derivation Summary EFM's ratings compare well with those of other holdco utility companies in the region, such as A.I. Candelaria (Spain), S.A. (BB/Stable). These holdcos depend on cash distributions from their respective main subsidiaries, Cometa and Oleoducto Central S.A. (OCENSA; BB+/Stable) to service their financial obligations. EFM is rated at the same level as A.I. Candelaria. A.I. Candelaria's ratings are supported by the quality of the dividends received from its 27.35% stake in OCENSA. The amortizing notes will contribute to leverage at the holdco level, which Fitch estimates will trend toward 4.0x in the medium term, while EFM's leverage range between 4.7x and 5.5x throughout the life of the transaction. Key Assumptions - EFM's Average annual EBITDA after associates at above USD200 million during the next three years; - Capex of around USD45 million during 2024 mainly related to mayor maintenance, decreasing to USD20 million in 2025; - Average Annual Cash distribution of Cometa of USD65 million during the next three years, contingent on meeting the required debt service reserve account and 1.2x DSCR. - Excess cash is used for capex, acquisition or distribution to shareholders. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - A downgrade of Cometa Energia's credit ratings; - Significant additional debt at the Cometa Energia's level, which increases the structural subordination of EFM; - Leverage measured as holdco debt/cash distributions above 5.0x over the rating horizon while consolidated leverage measured as total debt/EBITDA is above 5.0x on a sustained basis. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - An upgrade of Cometa's credit ratings; - Leverage, measured as holdco debt/cash distributions, below 4.5x over the rating horizon while consolidated leverage, measured as total debt/EBITDA, is sustained below 4.5x. Liquidity and Debt Structure Adequate Liquidity: EFM's liquidity is adequate and supported by readily available cash and consistent cash distributions from its single subsidiary, Cometa. EFM's debt service is limited to interest payments through the medium term, the notes mature in 2026. The debt service reserve account represents a liquidity buffer over the medium term, which must cover the payment in full of interest and principal, if any, due on the notes on the next succeeding payment. As of June 30, 2024, the group reported USD62 million of cash and cash equivalents, of which USD30 million was at the Cometa level. Issuer Profile EFM is the indirect owner of 100% of the equity interest in Cometa. Cometa had USD672 million debt outstanding under its senior secured notes as of June 2024 and is EFM's sole cash flow contributor. 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 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 ----------- ------ ----- Electricidad Firme de Mexico Holdings, S.A. de C.V. LT IDR BB Affirmed BB LC LT IDR BB Affirmed BB senior secured LT BB Affirmed BB ********* 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. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *