/raid1/www/Hosts/bankrupt/TCRLA_Public/241008.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, October 8, 2024, Vol. 25, No. 202
Headlines
A R G E N T I N A
ARGENTINA: Milei Faces Fresh Protest Over Cuts to Universities
ARGENTINA: Mulls Tender For Power Lines After Years of Neglect
MUNICIPALITY OF CORDOBA: Fitch Cuts LT Local Currency IDR to 'CC'
B O L I V I A
BOLIVIA: S&P Affirms 'CCC+/C' LongTerm Sovereign Credit Ratings
B R A Z I L
HIDROVIAS DO BRASIL: Fitch Affirms BB- LongTerm IDR, Outlook Stable
C H I L E
CHILE: Economic Activity Disappoints, Supporting Rate Cuts
J A M A I C A
JAMAICA: Launches Production Study to Support Beekeepers
JAMAICA: Sees Higher Earnings From Mining and Quarrying Exports
M E X I C O
BANCO COMPARTAMOS: Fitch Affirms BB+ LongTerm IDRs, Outlook Stable
P E R U
PERU LNG: Fitch Puts 'B' LongTerm IDRs on Watch Negative
P U E R T O R I C O
BIOGREEN ENVIRONMENTAL: Taps Batista Law Group as Legal Counsel
V E N E Z U E L A
CITGO PETROLEUM: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
- - - - -
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A R G E N T I N A
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ARGENTINA: Milei Faces Fresh Protest Over Cuts to Universities
--------------------------------------------------------------
Buenos Aires Times reports that President Javier Milei's austerity
campaign in Argentina faced renewed opposition in a nationwide
march against budget cuts in higher education.
Public university staff and students took to the streets to protest
against Milei's forthcoming veto of a bill that would raise
salaries to compensate for sky-high inflation, which was approved
in the lower house Chamber of Deputies in August and the Senate
last month, according to Buenos Aires Times.
Organized by labour unions, it's the second mass demonstration over
threats to higher education posed by the libertarian's aggressive
spending cuts, the report relays. Argentina's public university
system is a nearly universal point of pride in the crisis-prone
nation, the report discloses.
The first protest in April swelled into one of the biggest during
Milei's nearly 10-month term, spanning most age groups and
political parties, the report relays. After that march, the
government compensated universities for operational costs but
failed to account for salaries, which make up the bulk of spending,
the report says.
In a bid to contain the unrest this time around, protesters have
been told to clear the streets by 7pm local time, the report notes.
The government has offered a salary increase of 6.8 percent that
was rejected by the public universities, according to a statement
from the Human Capital Ministry, the report discloses.
University salaries have lost about 24 percent in real terms since
November 2023, according to Nicolas Lavagnino, who heads a research
centre based out of Universidad de San Martín and Universidad de
La Plata, the report says. As a proportion of gross domestic
product, higher education spending has sunk to its lowest level
since 2005, according to Empiria, a Buenos Aires-based consulting
firm, the report relays.
Milei took office on December 10 and immediately devalued the
currency by nearly 55 percent, giving way to more than 25 percent
monthly inflation that has since fallen to around four percent, the
report notes. While salaries have been slowly rising in real
terms, they have yet to make up for the initial spike, the report
relays.
The bill would increase university salaries to make up for 2024
inflation and then adjust them for inflation going forward, the
equivalent of about 0.14 percent of GDP, according to a
congressional budget analysis, the report notes.
The discussion over university funding mirrors the debate that took
place earlier this year over pensions and social security, the
report relays. Both houses of Congress approved bills that would
compensate for inflation and Milei immediately threatened to veto
the measures because they would throw off the budget balance, the
report notes. The president's pension veto was sustained when
lawmakers were unable to muster a two-thirds majority to overturn
it, a victory his government hopes to replicate this time around,
the report relays.
"This has all the same elements as the social security discussion,"
said Luis Picat, a national congressman from Córdoba Province who
voted against the budget expansion, the report notes. "Congress
can't meddle in the budget without saying where it'll get the
resources to spend more," he added.
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.
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: Mulls Tender For Power Lines After Years of Neglect
--------------------------------------------------------------
Buenos Aires Times reports that Argentina is rushing to put
together a "market solution" to build out its national network of
high-voltage power lines, a severely neglected part of the grid
that's long capped growth in electricity generation.
Increases in Argentina's power consumption in recent years have
outpaced expansions in transmission by a factor of two, according
to President Javier Milei's newly-appointed coordinator for energy
and mining in the Economy Ministry, according to Buenos Aires
Times.
"There's a broad consensus on what needs to be done - and it's a
lot," Daniel Gonzalez said at an event in Buenos Aires. "The big
question mark is how we do it," the report notes.
Milei, a libertarian in his first year in office, won't let the
government fund new infrastructure projects. Instead, he is trying
to lay stronger foundations for companies to make the investments,
the report relays.
"What's clear is that the government isn't going to pay anymore,"
Gonzalez said, the report discloses. "So how do we create
conditions for this to get done as fast as possible and make the
private sector feel like it has sufficient assurances to go ahead?
Before the year is out we have to publish a concrete proposal, most
likely a tender, for solutions that start to turn the wheel,"
Gonzales added.
In the power sector, much of the government's effort will come down
to deregulation. More broadly, there is the so-called RIGI
programme of tax, currency and customs benefits for big projects -
a marquee section of Milei's sweeping reform package, which was
enacted at the end of August, the report relays.
Gonzalez called the incentives "crutches" that Argentina simply
can't do without if it wants to attract private investment, the
report discloses.
Transmission bottlenecks mean power generators have struggled to
build enough new plants, in particular wind and solar farms, the
report notes. That's left the government drawing up contingency
plans to avoid industrial cut-offs in the Southern Hemisphere's
coming summer months, when demand for air conditioning soars, the
report says.
"Last year was a close call," Gonzalez said. "And this summer we'll
have a little bit less power available, so we're preparing for the
worst-case scenario," the report relays.
One clean power executive agreed with Gonalez's diagnosis of the
problem, the report says. "Our project pipeline depends on
transmission," Bernardo Andrews, chief executive officer of
generator Genneia SA, said at the event, 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.
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.
MUNICIPALITY OF CORDOBA: Fitch Cuts LT Local Currency IDR to 'CC'
-----------------------------------------------------------------
Fitch Ratings has downgraded the Municipality of Cordoba's (MCOR)
Long-Term Local Currency Issuer Default Rating (IDR) to 'CC' from
'CCC-' and also affirmed its Long-Term Foreign Currency Issuer
Default Rating (IDR) at 'CC'. The Long-Term IDR is at the same
level as the sovereign rating. Fitch relied on its rating
definitions to align MCOR's ratings and 'cc' Standalone Credit
Profile (SCP).
The downgrade of MCOR's Local Currency IDR follows Fitch's
reassessment of the municipality's SCP, which was lowering to 'cc'
from 'ccc-'. This action indicates that a default of some kind
appears 'probable' within the next 12 months. MCOR faces
significant liquidity pressures due to financial deficits and a
high concentration of short-term maturities, exposing the entity to
substantial refinancing risk in a volatile and restricted local
market. The entity has very high levels of credit risk to meet its
debt service obligations over the next 12 months, even if capital
expenditures are maintained at historically low levels.
As of June 2024, there is a notable improvement in the operating
balance, resulting from an actual containment of opex and a
reduction in capex. This, combined with a financing strategy in the
local market, temporarily alleviates liquidity pressures. However,
this financial strategy exposes the entity to a high refinancing
risk in a volatile and restricted local market, without a
sufficiently strong liquidity position to meet the debt service
obligations over the next 12 months (even if capex is maintained at
historically low levels). The municipality's next semi-annual
payment on its USD150 million international bond is due Sept. 29,
2024.
KEY RATING DRIVERS
Risk Profile: 'Vulnerable'
Fitch evaluated MCOR's risk profile as 'Vulnerable,' reflecting the
combination of six Key Risk Factor KRFs assessed as 'Weaker'. The
'Vulnerable' assessment for all Argentine local and regional
governments (LRGs) weighs the sovereign IDR below the B category,
rather than Argentina's implied operating environment of 'bb'. This
assessment reflects Fitch's view of a very high risk that the
issuer may struggle to cover debt service if the operating balance
weakens unexpectedly due to lower revenue, higher expenditure, or
an unexpected rise in liabilities or debt-service requirements.
Revenue Robustness: 'Weaker'
The 'Weaker' assessment reflects Argentina's complex and imbalanced
fiscal framework and MCOR's relatively high transfer dependence.
This dependence stems from both a 'CC' sovereign counterparty
(Argentina) and a 'CCC+' provincial counterparty (Province of
Cordoba), which together account for 35% of its operating revenue
(three-year average). This situation occurs amid an adverse
macroeconomic environment characterized by higher inflation. For
2024, Fitch projects a 7.3% decline in MCOR's deflated operating
revenue, linked to the negative national economic growth outlook.
Revenue Adjustability: 'Weaker'
Fitch's 'Weaker' assessment reflects MCOR's limited ability to
generate additional revenue during potential economic downturns, a
challenge faced by all Fitch-rated Argentine LRGs. Local revenue
adjustability is low due to the country's large and distortive tax
burden. Additionally, the negative macroeconomic environment
further constrains MCOR's capacity to raise tax rates and expand
tax bases to enhance local operating revenue. Structurally high
inflation continually erodes real-term revenue growth and impacts
household affordability. In its rating case, Fitch anticipates that
operating revenues will increase at a rate below the average
inflation rate for 2024.
Expenditure Sustainability: 'Weaker'
Fitch's 'Weaker' assessment of Argentina's expenditure
sustainability stems from the country's structurally imbalanced
fiscal regime regarding revenue-expenditure decentralization. Over
the past five years, spending has been significantly influenced by
high inflation and substantial spending responsibilities. MCOR is
largely responsible for providing public services, including
education and healthcare, which are typically provincial services.
MCOR shows operating margins of 13.8% (5-year average), and Fitch
projects a three-year average of 13.2% in its rating scenario. As
of June 2024, there is a notable improvement in the operating
balance, resulting from an actual containment of opex and a
reduction in capex. However, MCOR shows financial deficit results
over the past five years of analysis (-5.4% five-year average). In
the rating scenario, Fitch projects a financial result of 0.2% for
the average of 2024-2026.
Expenditure Adjustability: 'Weaker'
The 'Weaker' assessment indicates that Argentine sub-national
entities face significant infrastructure needs and expenditure
responsibilities, with limited flexibility to reduce expenses.
National capex is both low and insufficient, thereby shifting the
capex burden to LRGs. Fitch considers MCOR's ability to cut
expenses to be weaker when compared to international peers.
Between 2021-2023, capex averaged 22.7% of total expenditure. As of
June 2024, a significant contraction to 12.5% is observed, and
Fitch projects an average of 11.8% for 2024-2026 in its rating
scenario. However, the execution of capex will depend on obtaining
the corresponding financing.
Liabilities & Liquidity Robustness: 'Weaker'
The 'Weaker' assessment highlights several critical weaknesses,
such as unhedged foreign currency debt exposure, a weak national
framework for debt and liquidity management, and an underdeveloped
local market. Additionally, the assessment considers a 'CC' rated
sovereign entity that restructured its debt in 2020, which has
curtailed external market access for LRGs.
MCOR faces significant liquidity pressures due to the concentration
of maturities over the next 12 months in both local and external
markets. This situation is exacerbated by a weak liquidity
position, which stems from financial deficits averaging -5.4% over
the past five years. This pressured liquidity position, coupled
with financial deficits and a high concentration of short-term
maturities, exposes the entity to significant refinancing risk in a
volatile and restricted local market. The entity has very high
levels of credit risk to meet its debt service obligations over the
next 12 months, even if capital expenditures are maintained at
historically low levels.
Liabilities & Liquidity Flexibility: 'Weaker'
Fitch assesses the Argentine national framework for liquidity
support and funding available to subnationals as 'Weaker,' due to
the absence of formal emergency liquidity support or bail-out
mechanisms. For liquidity, Argentine LRGs primarily rely on their
own unrestricted cash reserves. At the end of 2023, MCOR's
liquidity coverage ratio was 4.4x. The current context of national
capital controls is another risk captured in the liquidity
flexibility assessment, as the imposition of exchange regulations
could ultimately affect LRGs' ability to fulfil their financial
obligations.
Financial Profile: 'aa category'
MCOR's 'aa' financial profile score incorporates a 'aaa' payback
ratio projected at 1.7x for 2024, according to Fitch's rating case.
Additionally, an override is applied to the 'aaa' payback ratio
score because the ADSCR is estimated to reach 1.7x in 2024 ('a'
score). These financial profile metrics are analyzed to evaluate
MCOR's specific debt repayment capacity and its liquidity position
over the next 12 months.
The overall 'aa' financial profile score is underpinned by the
medium-term maturity of debt, coupled with high refinancing risks
arising from a 'CC' macroeconomic environment characterized by
significant transfer and convertibility risks. Given Argentina's
sovereign 'CC' FC IDR and the limited access to external markets
amid a volatile macroeconomic and regulatory environment, Fitch
focuses its projections on the year-end 2024 scenario.
Derivation Summary
MCOR's ratings are based on Fitch's rating definitions and are
derived from a 'Vulnerable' Risk Profile, a 'aa' financial profile
score, and reflect a very high level of credit risk. The 'CC'
Foreign Currency IDR, 'CC' Local Currency IDR and 'cc' SCP are
comparable to peers, including the Provinces of Chaco (CC), Entre
Rios (CC) and Salta (CC). Fitch does not apply asymmetric risk or
extraordinary support from upper-tier government, and classifies
MCOR as a type B LRG, as it covers debt service from cash flow on
an annual basis.
Key Assumptions
Risk Profile: 'Vulnerable, Unchanged with Medium weight'
Revenue Robustness: 'Weaker, Unchanged with Medium weight'
Revenue Adjustability: 'Weaker, Unchanged with Medium weight'
Expenditure Sustainability: 'Weaker, Unchanged with Medium weight'
Expenditure Adjustability: 'Weaker, Unchanged with Medium weight'
Liabilities and Liquidity Robustness: 'Weaker, Unchanged with
Medium weight'
Liabilities and Liquidity Flexibility: 'Weaker, Unchanged with
Medium weight'
Financial Profile: 'aa, Unchanged with Medium weight'
Asymmetric Risk: 'N/A, Unchanged with Medium weight'
Support (Budget Loans): 'N/A, Unchanged with Medium weight'
Support (Ad Hoc): 'N/A, Unchanged with Medium weight'
Rating Cap (LT IDR): 'N/A, Unchanged with Medium weight'
Rating Cap (LT LC IDR) 'N/A, Unchanged with Medium weight'
Rating Floor: 'N/A, Unchanged with Medium weight'
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 growth of 119.8% for 2024-2026;
assuming growth below average inflation towards the medium term.
- Operating expenditure average growth of 130.5% for 2024-2026;
assuming growth above average inflation towards the medium term.
- Operating margin average of 13.2% for 2024-2026, incorporating
tax collection growth below inflation against inflation-driven
operating expenditure.
- Average capex/total expenditure of around 11.8%; below the
2019-2023 historical average of 18.3%.
- Cost of debt considers non-cash debt movements due to currency
depreciation with an average exchange rate of ARS434.3 per US
dollar for 2024, ARS700.6 for 2025 and ARS1,107.0 for 2026;
- Consumer price inflation (annual average percentage change) of
256.4% for 2024, 112.6% for 2025, 47.3% for 2026.
- Direct debt figures also consider the additional indebtedness
taken in 2024, amounting to ARS70 billion. This includes ARS30
billion issued on March 21 with a one-year term, and ARS40 billion
issued on September 9 with a two-year term.
Liquidity and Debt Structure
In 2024, the municipality has been active in the local market by
issuing short-term program treasury bills. Specifically, ARS70
billion was issued; ARS30 billion was issued on March 21 with a
one-year term; and ARS40 billion was issued on September 9 with a
two-year term. Both issuances were in ARS and are not linked to the
exchange rate or inflation. The funds raised from these issuances
are being used to make payments on the international bond debt
service in USD.
As of September 2024, MCOR's financial debt stock is comprised of
an international bond of USD136.2 maturing on Sept. 29, 2027, an
infrastructure bond of 21 million units of purchasing power (UVA)
maturing on Dec. 3, 2025, Series I debt securities of ARS1.2
billion maturing on Oct. 27, 2025, Series II debt securities of
ARS668.4 million maturing on Oct. 27, 2026, Treasury Bills - Series
L of ARS30 billion maturing on March 16, 2025, and 2024 Series I
debt securities of ARS40 billion maturing on Sept. 9, 2026.
Summary of Financial Adjustments
Fitch's net adjusted debt corresponds to the difference between
Fitch-adjusted debt and the local and regional governments' (LRGs)
unrestricted cash. The latter corresponds to the level of cash at
the end of the year, excluding cash that Fitch views as being
earmarked for payables or restricted. This calculation is applied
to historical and available information provided by the issuer.
Issuer Profile
The city of Cordoba is the capital of the province of Cordoba
('CCC+') and the second-largest city in Argentina ('CC'), after
City of Buenos Aires ('B-'). The city represents one of the
nation's most important social, educational and economic centers,
which provides strong local tax revenue collection from commerce
and industry.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Signs of deeper liquidity stress that could compromise debt
repayment capacity in the short term include evidence of increased
refinancing risk in both local and foreign currency debt, as well
as any regulatory restrictions on access to foreign exchange (FX).
- If there are indications of any credit event that reflects a
near-default situation, including a Distressed Debt Exchange (DDE)
under Fitch's rating definitions.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A reduction in the perceived refinancing risk, combined with an
improvement in the liquidity position and maintaining debt service
coverage above 1.0x in Fitch's rating case.
ESG Considerations
MCOR 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 municipality in
conjunction with other factors.
MCOR has an ESG Relevance Score of '4' for Creditor Rights,
reflecting that despite the issuer's improved willingness to
service and repay its debt obligations, the latest DDE continues to
weigh on its credit profile and debt coverage is expected to remain
pressured, therefore, the issue of Creditor Rights remains relevant
to the rating 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, Municipality of LT IDR CC Affirmed CC
LC LT IDR CC Downgrade CCC-
=============
B O L I V I A
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BOLIVIA: S&P Affirms 'CCC+/C' LongTerm Sovereign Credit Ratings
---------------------------------------------------------------
S&P Global Ratings, on Oct. 4, 2024, affirmed its 'CCC+' long-term
foreign and local currency sovereign credit ratings on Bolivia. The
outlook on the long-term ratings remains negative.
S&P also affirmed its 'C' short-term foreign and local currency
sovereign credit ratings. The transfer and convertibility
assessment remains 'CCC+'.
Outlook
The negative outlook reflects the risk of Bolivia's external
profile worsening further, leading to impairment of the
government's ability to fully service its debt over the next 18
months.
A political stalemate limits the country's capacity to reverse the
erosion of its external liquidity and fiscal position, posing risks
to economic and monetary stability. The stalemate has intensified,
narrowing the margin for addressing economic policy challenges.
Downside scenario
S&P could lower the ratings in the next 12 months if it sees a
greater risk to debt servicing. In addition, S&P could consider a
debt exchange or restructuring as distressed and tantamount to a
default at such a low rating level.
Upside scenario
S&P could raise the ratings in the next 12 months if there are
decisive policies that improve Bolivia's external liquidity and
point to a more sustainable fiscal profile. Addressing the
deterioration of macroeconomic imbalances would be an initial step
toward improving investor confidence and gaining better access to
external debt markets.
Rationale
The 'CCC+' rating on Bolivia reflects its weak capacity to fully
meet its debt commitments in the long term under a fragile external
profile.
Long-term domestic issuances and external debt payments mainly owed
to official lenders mitigate debt service risks in the near term.
However, external liquidity has been deteriorating consistently,
and that could impair the government's capacity to repay its
external commercial debt service once amortizations of the global
bonds start in 2026. External commercial debt service will rise to
US$435 million in 2026 and US$420 million in 2027. The current
account of the balance of payments remains negative, and this is
pressuring foreign exchange reserves given the constraints on
accessing external borrowings.
Political divisions have intensified ahead of the presidential
election in 2025, and that has delayed approvals for official
external funding. Also contributing to the uncertainty is the lack
of transparency on key external accounts data.
Bolivia's weak fiscal profile also weighs on S&P's ratings. S&P
expects a continuation of high general government deficits (at
above 6% of GDP) and net general government debt (at over 60% of
GDP). In addition, Bolivia has exchange rate rigidities that limit
monetary policy flexibility, and its economic growth is slower than
economic growth at peer countries with similarly low GDP per
capita.
Institutional and economic profile: Political disputes ahead of
upcoming elections reduce the government's capacity to address
challenges
-- The next presidential election will take place in 2025, and
that has intensified political divisions, hurting policy cohesion
and predictability.
-- Economic growth will slow to 1.5% in 2024 because of lower
hydrocarbon production and exports, along with less room to carry
out expansionary fiscal policies.
-- Divisions within Movimiento Al Socialismo (MAS), the governing
party in Bolivia, have reduced the margin for approving policies in
Congress to address macroeconomic challenges. Neither faction of
the MAS controls a majority in Congress, making it difficult to
pass key legislation.
For instance, access to external borrowings and key legislation
aimed at improving conditions for investments in natural resources
are being delayed in the legislature. Developing those sectors
could generate economic growth and public revenue, as well as
support the reversal of external imbalances and exchange-rate
pressures.
The first round of the next presidential election will take place
on Aug. 17, 2025. The establishment of an election timeline led to
intensified campaign activism ahead of schedule, and that sharpened
the political divisions within MAS.
Other contributors to the political tensions include the selection
in October of leaders for both chambers of Congress, discussions
about the reframing of seats in the lower chamber following recent
census results, and judicial elections scheduled for December. The
current judiciary is on a one-year extension of its term (since
judicial elections were originally scheduled for 2023), and the
opposition may have more influence under a divided Congress.
On top of that, economic growth in Bolivia is slowing, following
reductions in natural gas output and exports. We expect hydrocarbon
exports to decrease 16% in 2024, following a decline of 31% in
2023. We expect the decline to continue in the near term, since new
natural gas projects take three to five years to mature. In
addition, pressures from the external sector are leading to reduced
imports of industrial inputs and capital goods, which are key for
long-term growth.
The continuation of large expansionary fiscal policies as a driver
of economic growth is becoming unsustainable. Falling revenue in
the natural gas sector, narrowing access to financing, and a higher
debt stock are forcing a fiscal consolidation that will ultimately
impact growth.
S&P expects real GDP to grow 2%, on average, in 2024-2027. In its
base case, S&P sees GDP per capita averaging US$3,850 in 2024-2027.
The growth rate of Bolivia's GDP per capita has fallen below those
of peers at a similar level of development.
Flexibility and performance profile: The erosion of external
accounts is distorting the foreign currency market and generating
inflation, while fiscal consolidation will be moderate
-- Bolivia's current account has returned to a deficit, which we
project at 2.2% of GDP, on average, in 2024-2027, mostly from a
reduction in export receipts.
-- The central bank's constrained capacity to defend the official
exchange rate has resulted in an increasing gap with parallel
exchange rates, which is leading to higher inflation.
-- Debt is set to keep rising, with fiscal deficits expected to be
above 6% of GDP because of declining revenue from hydrocarbons,
despite consolidation efforts.
External liquidity has eroded as a result of a scaling down in
hydrocarbon exports and delays in approvals for external
borrowings. We expect a current account deficit (CAD) of 3% of GDP
in 2024, compared with a current account surplus of 2.1% in 2022.
Limited access to external funding and limitations on the private
sector accessing foreign currency at the official exchange rate
have led to a de facto depreciation in foreign currency markets (in
August 2024, the gap between the official and parallel exchange
rates rose to 70%).
This is adjusting imports down. Imports for 2024 through July were
down 14% compared with the same period in 2023. Nonetheless,
lowering imports isn't sufficient to counterbalance the 21%
reduction in exports overall; the reductions were mainly in natural
gas (18%), gold (70%), and soybeans (38%), three items that jointly
accounted for 58% of total exports in 2023.
S&P said, "We forecast that the CAD will trend to roughly 2% by
2027, as agribusiness exports recover and as imports continue to be
adjusted through a gradual lift in fuel subsidies. We expect a
slight reduction in the CAD despite a steady decline in natural gas
exports due to structural issues (such as decreasing output, rising
domestic demand, and lower exports to Argentina)."
Weak investor confidence and the political constraints on approving
external loans are limiting Bolivia's capacity to cover its gross
external financing needs. As of August 2024, there was a total of
US$1 billion in external credits from multilateral lending
institutions (MLIs) and bilateral lenders pending approval.
Pressures from balance-of-payments accounts resulted in some of the
lowest levels of usable reserves over the past 10 years; usable
reserves were at US$1.8 billion (with US$153 million of that amount
being in hard currency) as of August 2024. They were at US$14.7
billion in 2014. Shortcomings with respect to data transparency on
international reserves and central bank assets are affecting the
monitoring of external liquidity.
Stability in the boliviano's link with the U.S. dollar has been key
to keeping inflation low. While foreign currency shortfalls are
affecting imports, inflation is soaring and could continue to rise
(the inflation rate was 5.2% year on year in August 2024, up from
2.6% at year-end 2023). Reductions of subsidies could also
accelerate price adjustments in the short term.
An inflexible spending structure and declining revenue from natural
gas will partly counterbalance consolidation efforts. Deficits are
projected to stay high in 2024-2027, at an average of 9% of GDP,
but that would be lower than 9.7% for 2023. This assumes there will
be a gradual lift for fuel subsidies (estimated to be roughly 2% of
GDP, currently), which would cause general government expenditures
to fall to 33.6% of GDP in 2027 from an estimated 35.1% in 2023.
Nonetheless, general government revenue is projected to average
25.5% of GDP in 2024-2027.
Large fiscal deficits led to net general government debt piling
up--to 64% of GDP in 2023--and we expect it to reach 69% in 2024.
Higher debt has pushed interest spending as a share of government
revenue above 5%. Deficits have been financed mostly through local
currency bonds and the central bank's credits. Public external debt
has been decreasing because of limitations on external borrowings,
but it's still projected to be above 40% of total debt. Therefore,
the debt burden is exposed to potential adverse swings in foreign
currency.
Financing needs will remain high, but the debt service profile will
contain risks with respect to Bolivia's capacity to fully service
its debt in the next 12 months. Despite there being less space for
financing, we believe there's a relatively lower risk of
restructuring on local currency debt than on external debt, though
it's still high on an absolute basis. Issuances have been mainly
long term, and most local currency bonds are in the hands of the
public pension fund.
Risks over external debt are partly mitigated over the next 12
months because the bulk of total payments is to official lenders.
Payments with respect to two global bonds in 2025, equal to US$108
million, correspond only to interest. Nonetheless, risks will rise
in 2026 following a scheduled increase in the amount of external
commercial debt that will be serviced--US$435 million in 2026 and
US$420 million in 2027.
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
RATINGS AFFIRMED
BOLIVIA (PLURINATIONAL STATE OF)
Sovereign Credit Rating CCC+/Negative/C
Transfer & Convertibility Assessment
Local Currency CCC+
BOLIVIA (PLURINATIONAL STATE OF)
Senior Unsecured CCC+
===========
B R A Z I L
===========
HIDROVIAS DO BRASIL: Fitch Affirms BB- LongTerm IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed Hidrovias do Brasil S.A.'s (Hidrovias)
Long-Term Foreign Currency and Local Currency Issuer Default
Ratings (IDRs) at 'BB-', and its National Long-Term Rating at
'AA-(bra)'. Fitch has also affirmed Hidrovias International Finance
S.a.r.l.'s senior unsecured notes at 'BB-' and Hidrovias' senior
unsecured debentures at 'AA-(bra)'. The Rating Outlook for the
corporate ratings is Stable.
Hidrovias' ratings reflect its strong position in the waterway
transportation sector in the North region of Brazil and in the
Parana-Paraguay river system, where logistics infrastructure is
relatively limited. The company's take-or-pay contract business
model for most of its revenues partially mitigates demand
volatility. The ratings are constrained by moderate leverage,
exposure to hydrological risks, crop failures, and client
concentration.
Fitch considers that the forecasted capital increase of at least
BRL1.2 billion in October 2024 is crucial to Hidrovias to face a
sizeable debt maturity in early 2025. This event also allows the
issuer to compensate the impact of a weakened operational
performance in 2024 on its capital structure. The company faced
deteriorated hydrological conditions in its South and North
corridors, while the uncertainties regarding the recovery in 2025
remains. Fitch views Hidrovias' financial flexibility improving
after Ultrapar group entered in its shareholder composition.
Key Rating Drivers
Weakened Operating Performance: Hidrovias' expected weak operating
performance in 2024 due to low water levels in the South and North
Corridors should reflect in lower revenues and EBITDAR generation
than previously anticipated. Fitch projects Hidrovias' EBITDAR and
cash flow from operations (CFFO) to contract to BRL618 million and
BRL228 million in 2024, from BRL756 million and BRL380 million, in
2023, driven by a 14% volume decline and a 7% tariff reduction. In
2025, EBITDAR and CFFO are expected to improve to BRL799 million
and BRL476 million, assuming an uncertain scenario of slightly
better navigation conditions, allowing total volumes to increase by
6%.
Expansion Capex Leads to Negative FCF: Fitch anticipates Hidrovia
should be able to finance expansion projects in its North Corridor
without impairing its capital structure. Fitch's projections
indicate the company will allocate approximately BRL600 million
annually to capex from 2025 to 2027, with BRL385 million per year
dedicated to expanding Northern operations.
This expansion aims to bolster Hidrovia's footprint in the
agricultural and fertilizer transportation markets in Brazil's
North region. FCF is forecasted to remain negative, totaling BRL436
million from 2024 to 2026, before turning slightly positive in
2027.
Capital Increase Benefits Leverage: Fitch believes Hidrovias'
potential capital increase prepares the company to expansion
investments over the next two to three years and mitigates the
impact of lower operating results in 2024. The base case scenario
incorporates an equity inflow of BRL1.2 billion leading to an
improvement on the net adjusted debt-to-EBITDAR ratio to 3.9x in
2024 and 3.3x in 2025. These figures compare to 4.4x in 2023 and
5.4x as of June 2024. Hidrovias' ability to enhance operating cash
flow and maintain leverage sustainably below 3.5x amid an uncertain
hydrological environment are key factors for further positive
rating actions.
Challenge to Increase Client Diversification: Hidrovias has
portfolio concentration risk, as its main clients are J&F
Mineração (a former contract of Vale S.A. [BBB/Stable], COFCO
Group and Alumina do Norte do Brasil S.A. [Alunorte]), which Fitch
estimates together account for 48%-62% of total EBITDA on
historical basis. In recent years, Hidrovias added new clients and
sectors to its portfolio, including new service activities in
Santos Port, but these additions only account for around 10% of
EBITDAR.
During 2023, EBITDAR breakdown by corridor was: North (50%), South
(45%), Coastal (13%) and Santos (8%) (with holding and others
representing 16% of expenses). Approximately 58% and 42% of EBITDA
is generated in Brazil and Uruguay/Paraguay, respectively.
Ultrapar Affiliation is Positive: Fitch views Hidrovias'
affiliation with the Ultrapar group as credit positive. The
company's transition to being controlled by a corporation with a
strong credit profile and a long-term strategy is beneficial
compared to the former private equity investor. Ultrapar is one of
the leading business groups in Brazil, actively engaged in energy
and logistics infrastructure. The minimum expected capital
injection of BRL600 million from Ultrapar into Hidrovias
underscores the shareholder commitment to the issuer's long-term
business expansion strategy. This shareholder should enhance
Hidrovias' financial flexibility.
Derivation Summary
Hidrovias's has the weakest position in the 'BB' rating category
relative to transportation and logistics peers across the region,
which are generally rated in the 'BB' to 'BBB' categories.
Hidrovias' rating is constrained by its medium-size business scale,
hydrological risks and weakest capital structure among Brazilian
peers, including MRS Logistica S.A. (Local Currency IDR
BBB-/Stable), Rumo S.A. (Local Currency IDR BB+/Stable), and VLI
S.A. (AAA[bra]/Stable). Offsetting those factors are Hidrovias'
competitive position in the region it operates and the majority of
operations being based on take-or-pay contracts that helps to
partially mitigate business volatility.
Hidrovias' net adjusted leverage is expected to remain higher than
other rated Brazilian peers in the transportation and logistics
sector with more mature operations and with higher ratings. Rumo,
VLI and MRS Logistica should report net leverage below 2.5x in the
next two years, while Hidrovias' ratings incorporate expectations
of net adjusted leverage ratio trending to 3.3x by 2025.
Key Assumptions
- Volumes to decline 14% in 2024, reflecting declines of 22.4% in
North corridor and 25.5% in South Corridor;
- Volumes to recover by 5.9% in 2025;
- Average annual capex of around BRL550 million in 2024-2027,
reflecting average annual capex for expansion project of BRL385
million in 2025-2027;
- Capital increase of BRL1,154 million in the 4Q24.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Broader client diversification;
- Net adjusted debt/EBITDAR consistently below 3.5x and total
adjusted debt/EBITDAR below 4.0x;
- Interest coverage consistently above 4.5x;
- Maintenance of strong liquidity to avoid refinancing risks.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Failure to conclude the capital increase as expected in the base
case scenario;
- Large debt-funded M&A transactions or entering into a new
business in the logistics sector that adversely affect its capital
structure on a sustained basis or increase business risk exposure;
- Net adjusted debt/EBITDAR consistently above 4.5x on a sustained
basis;
- Deterioration of liquidity position, with increasing short- to
medium-term refinancing risks.
Liquidity and Debt Structure
Reduced Refinancing Risks: Hidrovias has demonstrated a consistent
history of maintaining robust cash balances. The anticipated
capital increase is expected to mitigate refinancing risks, thereby
providing the company with enhanced financial flexibility as it
seeks suitable refinancing options to meet capex needs. Failure to
secure the BRL1.2 billion capital increase will elevate refinancing
risks as the payment of USD150 million in bonds matures in January
2025.
As of June 30, 2024, Hidrovias' cash position stood at BRL830
million, with short-term debt amounting to BRL1.2 billion. Total
debt was BRL4.7 billion, comprising international bonds (63%)
maturing in 2025 and 2031, local debentures (22%), bank credit
notes (11%), and leasing obligations (5%).
Issuer Profile
Hidrovias is an integrated logistics provider focused on waterways
logistics services. It has an end-to-end infrastructure, including
transshipment, port terminals and a fleet of barges, pusher tugs
and cabotage vessels. The company operates in logistics corridors
in the northern region of Brazil and in the Paraguay-Paraná river
system.
Summary of Financial Adjustments
- Lease expenses were adjusted back to operating expenses, reducing
EBITDA;
- The leasing obligation reported in the balance sheet is
considered as debt.
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
Hidrovias do Brasil S.A. has an ESG Relevance Score of '4' for
Exposure to Environmental Impacts due to the effective impact on
the company operations due the hydrological risks, which has a
negative impact on the credit profile, and is relevant to the
rating[s] in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Hidrovias
International
Finance S.a.r.l.
senior
unsecured LT BB- Affirmed BB-
Hidrovias do
Brasil S.A. LT IDR BB- Affirmed BB-
LC LT IDR BB- Affirmed BB-
Natl LT AA-(bra)Affirmed AA-(bra)
senior
unsecured Natl LT AA-(bra)Affirmed AA-(bra)
=========
C H I L E
=========
CHILE: Economic Activity Disappoints, Supporting Rate Cuts
----------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Chile's
economic activity unexpectedly contracted in August on a decline in
services, corroborating the central bank's message that more
interest rate cuts are on the way.
The Imacec index, a proxy for gross domestic product, fell 0.2% on
the month, matching the worst estimate in a Bloomberg survey of
analysts that had a median forecast of 0.3% growth, according to
globalinsolvency.com. From the year earlier, activity gained 2.3%,
the central bank reported, the report relays.
=============
J A M A I C A
=============
JAMAICA: Launches Production Study to Support Beekeepers
--------------------------------------------------------
RJR News reports that the Jamaican Ministry of Agriculture is on a
mission to solve a key challenge faced by beekeepers, and that is a
lack of knowledge surrounding the cost of production.
The Minister said to address this issue, it is undertaking a
national cost of production study, according to RJR News.
Portfolio Minister Floyd Green says training and sensitization
efforts will also be increased to enhance productivity and
profitability within the sector, the report notes.
In the meantime, Mr Green has announced a five million dollar
support package for beekeepers affected by Hurricane Beryl, the
report relays.
He says the funds will be used to provide essential inputs like
sugar, as well as help to restore colonies and equipment for
beekeepers who suffered losses, the report discloses.
In addition to the recovery fund, the Ministry of Agriculture has
secured $1.8 million worth of pollen supplements through
international partnerships to revitalise bee populations, 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 September 2024, S&P
affirmed 'BB-/B' sovereign ratings on Jamaica and revised outlook
to positive. In March 2022, Fitch Ratings affirmed Jamaica's
Long-Term Foreign Currency Issuer Default Rating (IDR) at 'B+'.
The Rating Outlook is Stable.
JAMAICA: Sees Higher Earnings From Mining and Quarrying Exports
---------------------------------------------------------------
Javaughn Keyes at RJR News reports that Jamaica earned US$61.4
million more from Mining and Quarrying exports for the first five
months of the year.
In its latest International Merchandise Trade Bulletin, the
Statistical Institute of Jamaica said these exports were valued at
US$290.8 million, according to RJR News.
For January to May 2023, exports in that category earned the
country US$229.4 million, the report notes.
STATIN says the 2024 income was due mainly to the 39.2 per cent
increase in alumina earnings, which was valued at US$260.8 million,
compared to US$187.4 million in 2023, the report relays.
The value of bauxite exports, however, decreased by 15.5 per cent
to US$25.2 million, 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 September 2024, S&P
affirmed 'BB-/B' sovereign ratings on Jamaica and revised outlook
to positive. 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
===========
BANCO COMPARTAMOS: Fitch Affirms BB+ LongTerm IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings affirmed Banco Compartamos, S.A., Institucion de
Banca Multiple's (Compartamos) Foreign and Local Currency Long-Term
Issuer Default Rating (IDR) at 'BB+', its Foreign and Local
Currency Short-Term IDRs at 'B' and its Viability Rating (VR) at
'bb+'. Fitch has also affirmed Compartamos' Government Support
Rating (GSR) at 'no support' (ns) and its Long- and Short-Term
National Scale ratings at 'AA(mex)' and 'F1+(mex)', respectively.
The Rating Outlook for the Long-Term ratings is Stable.
Key Rating Drivers
Consistent Credit Profile: Compartamos' ratings are supported by
its consistent leadership in the microfinance segment in Mexico and
higher-than-peers capitalization levels, complemented by sound risk
management. The ratings also consider the bank's well controlled
asset quality, strong earnings generation and proven access to the
local debt market.
Business Profile with Growing Revenues: Compartamos offers
financial services such as credit, savings, insurance, and payment
solutions to microentrepreneurs in low-income underserved
communities of Mexico. Post-pandemic, the bank experienced
double-digit growth in both size and revenues, driven by the
country's low financial inclusion and Compartamos' strong
capitalization and liquidity position, which facilitated its
expansion.
As of 1H24, the bank's total operating income (TOI) grew 20.8%
year-on-year in local currency, reaching USD662 million, with an
annual average of USD902 million from 2020 to 2023. These revenues
have shown an upward trend since 2020. Fitch considers that
Compartamos' dominant niche franchise, good brand recognition and
well managed microlending business offset its lower
diversification, scale and revenues than similarly Fitch-rated
international peers.
Manageable Loan Impairments: Compartamos' asset quality is a
relative weakness in its credit profile, yet it is reasonable
within its business segment. As of 1H24, the stage 3 loans to total
loans ratio stood at 2.8%, showing an improvement from the
2020-2023 average of 3.4%. Loan impairments were managed by the
regular application of charge-offs, a common practice among
unsecured microfinance lenders, and partially benefited from the
expansion of total loans. Fitch believes that the bank will keep
loan delinquencies at manageable levels, supported by its focus on
a sector and products where it has extensive expertise.
Sound Profitability: Fitch revised the earnings and profitability
score to 'bbb-'/Stable from 'bb+'/Stable, considering Compartamos'
good record of strong profitability, which exceeds that of most
Mexican banks. As of 1H24, the operating profit to risk-weighted
assets (RWA) ratio was 13.9%, significantly above the 7.8% average
from 2020 to 2023.
Net interest income from the loan book continues to compose nearly
all of the TOI, averaging 96.8% from 2020 to 2023. However,
complementary insurance services tied to credit have increased
their revenue contribution. Fitch expects Compartamos'
profitability to continue outperforming local and regional peers,
supported by its niche market leadership, ample net interest
margin, and high organic growth targets.
Capitalization a Rating Strength: Compartamos' capitalization and
leverage ratios are stronger than similarly rated peers and are
considered a rating strength by Fitch. The bank's regulatory common
equity Tier 1 (CET1) to RWA ratio, solely comprised of common
equity, stood at 30.2% as of 1H24, far exceeding the regulatory
minimum of 10.5%.
Fitch believes Compartamos' high capital levels are essential to
offset the risks inherent in its business model. Despite its
accelerated organic expansion strategy and consistent dividend
payments, the agency considers that the bank's capitalization will
remain robust over the rating horizon, supported by its good
earnings generation.
Good Liquidity; Recurrent Local Debt Issuer: Compartamos' mostly
wholesale funding structure, with a low proportion of customer
deposits, reflects its market niche focus. Fitch considers this
funding base adequately diversified between local market debt and
institutional funding lines. This results in a weak core metric per
Fitch's bank rating criteria, with a loan-to-customer deposits
ratio significantly above 100%. However, the agency incorporates in
its assessment the bank's well-established access to the local debt
market and its regular presence with senior unsecured issuances,
even during the most recent crisis.
Compartamos' strong liquidity position benefits from its highly
revolving portfolio, resulting in higher cash-convertible assets
compared to peers with longer loan tenures. In Fitch's view, the
funding and liquidity profile of the bank will remain stable in the
medium term, reflecting its prudent liquidity management.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A negative action on the sovereign rating or in Fitch's operating
environment (OE) assessment would result in a similar action on
Compartamos' ratings given its less diversified business profile;
- A reduced market position in the microfinance segment and a
sustained decline in total operating revenues, in conjunction with
a material deterioration in asset quality and profitability that
consistently pressures the bank's CET1 to RWA metric below 25%;
- Increased liquidity risks or reduced access to funding dependent
on market sentiment could also trigger a negative rating action.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Upside potential for the bank's VR, IDRs and National Ratings is
limited as these are already at a relatively high level for its
business model and scale;
- An upgrade would require an improvement in Fitch's OE assessment
or if the bank increases its operations and total operating income
relevantly, in conjunction with asset quality improvements, while
it maintains its other key rating drivers stable.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
National-Scale Senior Debt: Compartamos' national-scale senior
unsecured debt is rated at the same level as the bank's Long-Term
national-scale rating of 'AA(mex)', as the likelihood of default
for the notes is equivalent to that of the issuer.
No Government Support Factored In: Compartamos' GSR of 'no support'
reflects Fitch's expectation that there is no reasonable assumption
of sovereign support. This is because the bank is not classified as
a domestic systemically important bank (D-SIB), has a low deposit
market share, and its interconnectedness is limited within the
financial system compared to larger Mexican banks. As of June 2024,
Compartamos' customer deposit market share remained below 0.1% of
the Mexican banking system.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
National-Scale Senior Debt: The Long-Term national-scale debt
ratings would mirror any changes to the issuer's Long-Term national
scale rating.
GSR: There is no downside potential for the GSR. Upside potential
is limited and can only occur over time with a material growth of
the bank's systemic importance.
VR ADJUSTMENTS
The Funding & Liquidity score has been assigned above the implied
score due to the following adjustment reason(s): Non-Deposit
Funding (positive).
Summary of Financial Adjustments
Pre-paid expenses and other deferred assets were reclassified as
intangibles and deducted from equity to reflect their low loss
absorption capacity.
Financial figures are in accordance to the Comision Nacional
Bancaria y de Valores criteria. Figures for 1H24, 2023 and 2022
include recent accounting changes in the process to converge to
International Financial Reporting Standards. Prior years did not
include these changes and Fitch believes they are not directly
comparable.
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 Compartamos,
S.A., Institucion
de Banca Multiple LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Natl LT AA(mex) Affirmed AA(mex)
Natl ST F1+(mex)Affirmed F1+(mex)
Viability bb+ Affirmed bb+
Government Support ns Affirmed ns
senior
unsecured Natl LT AA(mex)Affirmed AA(mex)
=======
P E R U
=======
PERU LNG: Fitch Puts 'B' LongTerm IDRs on Watch Negative
--------------------------------------------------------
Fitch Ratings has placed PERU LNG S.R.L.'s (PLNG) 'B' Long-Term
Foreign and Local Currency Issuer Default Ratings (IDRs) on Rating
Watch Negative (RWN). Fitch has also placed PLNG's 'B'/'RR4' USD940
million senior unsecured notes due 2030 on RWN.
The RWN reflects the expectation of weak liquidity as the company
faces USD199 million in debt service in 2025 and USD190 million in
2026. Fitch expects debt service coverage and liquidity ratios to
remain below 1.25x over the next two years. As of 2Q24, the company
had USD72 million in cash plus USD70 million in undrawn committed
credit facilities and USD156 million in short-term debt
maturities.
The RWN could be resolved and a Stable Outlook could be assigned to
PLNG's IDRs if the company is able to rebuild its cash position
tied to favorable demand and cash flow results for the remainder of
the year, while improving its coverage ratios toward 1.25x. The
ratings could be downgraded if operating performance deteriorates
beyond Fitch's expectations, resulting in lower financial
flexibility.
The rating considers PLNG's volatile operational performance, tied
to its sale and purchase agreement (SPA), which limits revenue
growth and increases exposure to commodity price risks. Fitch
expects PLNG's EBITDA leverage to be around 8x by the end of FY
2024 and near 5x in FY 2025.
The Recovery Rating for PLNG's 'B' senior unsecured notes is capped
at 'RR4' due to Peru's designation as a Group D country within
Fitch's "Country-Specific Treatment of Recovery Ratings Criteria."
Key Rating Drivers
Weak Liquidity Profile: Fitch expects PLNG's liquidity to be tight
within the next 24 months, as the company faces USD199 million in
debt service in 2025 and USD190 million in 2026. Fitch estimates
that cash and equivalents available plus FCF, in 2025 and in 2026,
will cover debt obligations by 1.0x on average. Fitch's base
estimates the company will be FCF positive between 2025 and 2027
while maintaining a minimum cash balance of USD50 million.
High Leverage: PLNG's earnings and leverage profile are volatile
and tend to fluctuate drastically. The company's SPA limits its
upside revenue potential and intensifies exposure to commodity
price risk, as up to 55% of PLNG's revenue is indexed to Henry Hub
(HH) destination prices and the remaining can be sold more
optimistically to high price markers, such as National Balance
Point (NPB) and Japan Korea Marker (JKM).
The HH indexed volume will be reduced to 41% in 2026 and will not
apply afterward. Fitch calculated EBITDA is estimated to reach
USD117 million and leverage will be close to 8x by FY2024.
Strategic Asset in the Country: PLNG is a strategic asset for Peru
that supports continued gas development in the country. As of
August 2023, the Peruvian government has received close to USD648
million from both natural gas production and associated liquids
from Blocks 56, 57 and 88 in the Camisea field. The company has no
domestic competitors given the high investment barriers to entry
and the gas supply agreement (GSA) that effectively gives it
exclusive rights to much of the country's exportable gas supply,
allocated from the prolific low-cost operations of Block 56 and
57.
Standalone Approach: Fitch believes there is potential for greater
backing as PLNG has predominantly received timely support from its
shareholders. The distribution of USD130 million in cash during the
1H24 through dividends and capital reductions to shareholders
tightened the company's liquidity position. The shareholder
agreement shows a commitment to maintaining PLNG's viability,
either through contract clauses, capital injections or subordinated
loans.
Derivation Summary
PLNG has limited regional peers. Even outside Latin America, LNG
plants tend to operate on a more purely take-or-pay, capacity-based
on a tolling business model, whereas PLNG incorporates commodity
price risk, resulting in a volatile financial profile.
Tolling-based peers such as Transportadora de Gas del Peru (TGP;
BBB+/Negative) and GNL Quintero S.A. (GNLQ; A-/Stable) benefit from
the related cash flow stability afforded by their revenue
structure.
GNL Quintero, in particular, supports a significantly higher
leverage, as it operates a tolling terminal unloading, storing and
re-gasifying LNG on behalf of gas buyers under a 20-year exclusive
term use-or-pay agreement.
While TGP has projected leverage below 2.0x in the near term, its
revenue is derived from long-term ship or pay contracts to
transport natural gas and natural gas liquids from the country's
main gas production formation, Camisea, to the main consumption
area and export terminal. Similar to GNL Quintero, PLNG is
considered a strategic asset for the country; while GNL Quintero
allows the liquefaction from imported natural gas in Chile, PLNG is
the main infrastructure allowing Peru to export natural gas.
Key Assumptions
Fitch's key assumptions within its rating case for the issuer are
as follows:
- Fitch's gas price deck for HH at USD2.25/mcf by YE 2024,
USD3.0/mcf between 2025 and 2026, and long-term price at
USD2.75/mcf;
- Fitch's gas price deck for TTF at USD10.00/mcf by YE 2024,
USD10.00/mcf in 2025 and USD8.00/mcf in 2025, and long-term price
at USD5.00/mcf;
- HH indexed destinations receive 55% of shipments until 2025 and
41% in 2026, and does not apply from 2027 onward. Remainder volumes
evenly distributed between European and Asian indexed
destinations;
- Minimum YE cash balance of USD50 million over the rating
horizon;
- Exported volumes at 205 Tbtu in 2024 and 200 Tbtu on average
between 2025 and 2026;
- Average plant efficiency of 90% for the rating horizon;
- Transportation costs annually adjusted by the U.S. Producer Price
Index;
- Annual capex of USD18 million in 2024 and average of USD15
million between 2025 and 2026;
- No dividends payments between 2025 and 2027.
Recovery Analysis
Liquidation Approach
The Liquidation Value (LV) approach usually involves discounting
the book value of balance sheet assets and summing the results to
estimate the total asset liquidation proceeds in a hypothetical
liquidation process.
Fitch assumes that when an issuer's estimated Going Concern (GC)
value is greater than its LV, then the company would be expected to
attempt to reorganize and continue to operate. Fitch will apply the
LV approach only when a liquidation results in a higher return to
creditors.
The recovery analysis assumes PLNG would be liquidated in an event
of bankruptcy rather than operate as a GC. This is driven by the
fact that PLNG's assets have several years of useful life left,
absent large-scale investment needs.
The liquidation estimate reflects Fitch's view of the value of
balance sheet assets that can be realized in a sale or liquidation
process conducted during bankruptcy or insolvency proceedings and
distributed to creditors. Fitch bases its recovery ratings on 2Q24
reported accounts.
- Fitch has assumed a 10% administrative claim;
- 20% haircut to adjusted net inventory, as Fitch anticipates
potential for lower recovery from inventory;
- 20% haircut to net property, plant and equipment;
- 20% haircut to account receivables.
The above assumptions result in a recovery rate assumption within
the 'RR2' range for the senior unsecured notes. Due to the 'RR4'
cap for Peru's corporates, Fitch limits the recovery for the senior
unsecured bond at 'RR4' despite a higher projected recovery.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Amendments to contracts that would reduce price and volume risk,
similar to its tolling-based peers in the region;
- Sustained and material shareholder support such as capital
injections, guarantees or other financial backing;
- Liquidity ratio consistently above 1.25x over the rating
horizon;
- Consistent track record of built up cash over the rating horizon
with EBITDA interest coverage consistently over 5.0x;
- Hedge strategy to mitigate the company's exposure to commodity
price risk;
- Greater visibility on medium- to long-term re-contracting
options.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Material disruptions in gas supply or other operational outages
eroding the company's cash flow generation;
- Negative FCF over the rating horizon impacting liquidity;
- Cash available below USD50 million;
- EBITDA leverage above 6.0x over the rating horizon;
- BITDA interest coverage below 1.25x.
Liquidity and Debt Structure
Weak Liquidity: As of June 2024, PLNG had USD72 million in cash on
hand and USD70 million available under a working capital facility
due in 2027, while having USD156 million in short-term debt
maturities as the bond starts amortizing in September 2024. Fitch
estimates that FCF should average USD118 million between 2025 and
2026 based on its price deck scenarios. Fitch estimates that cash
and equivalents available plus FCF in 2025 and in 2026 will cover
debt obligations by 1.0x on average.
During 1H24, the company paid USD130 million in the form of
dividends and capital reduction to its shareholders which tightened
liquidity position. The company has access of up to USD60 million
in cash support from its SPA in low prices environments.
On Sept. 23, 2024, PLNG paid the first amortization on the senior
notes. The current outstanding balance of the notes is USD862
million.
Issuer Profile
PLNG was created in 2003 for the purpose of developing, building
and operating an LNG plant. The company operates a 4.5 million mtpa
gas liquefaction plant and its related facilities, a marine
terminal, and a 408km pipeline that transports natural gas from the
Camisea fields to the coast.
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 Recovery Prior
----------- ------ -------- -----
PERU LNG S.R.L. LT IDR B Rating Watch On B
LC LT IDR B Rating Watch On B
senior unsecured LT B Rating Watch On RR4 B
=====================
P U E R T O R I C O
=====================
BIOGREEN ENVIRONMENTAL: Taps Batista Law Group as Legal Counsel
---------------------------------------------------------------
Biogreen Environmental Solutions Inc. seeks approval from the U.S.
Bankruptcy Court for the District of Puerto Rico to employ The
Batista Law Group, PSC to handle its Chapter 11 case.
The hourly rates of the firm's counsel and staff are as follows:
Jesus Batista Sanchez, Attorney $350
Associates $275
Paralegals $110
In addition, the firm will seek reimbursement for expenses
incurred.
The firm received a retainer in the amount of $8,000.
Mr. Batista Sanchez, disclosed in a court filing that the firm is a
"disinterested person" as the term is defined in Section 101(14) of
the Bankruptcy Code.
The firm can be reached through:
Jesus E. Batista Sanchez, Esq.
The Batista Law Group, PSC
Capital Center I
239 Ave Arterial de Hostos Suite 206
San Juan PR 00918
Telephone: (787) 620-2856
Facsimile: (787) 777-1589
Email: jeb@batistasanchez.com
About Biogreen Environmental Solutions
Biogreen Environmental Solutions Inc. filed a petition under
Chapter 11, Subchapter V of the Bankruptcy Code (Bankr. D.P.R. Case
No. 24-03950) on Sept. 19, 2024, listing under $1 million in both
assets and liabilities.
Jesus E. Batista Sanchez, Esq., at The Batista Law Group, PSC
represents the Debtor as bankruptcy counsel.
=================
V E N E Z U E L A
=================
CITGO PETROLEUM: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Issuer Default Rating
(IDR) of CITGO Petroleum Corp. (CITGO, or Opco) at 'B' with a
Stable Outlook and the IDR of CITGO Holding, Inc. (Holdco) at
'CCC+'. Fitch also affirmed Opco's existing senior secured notes
and industrial revenue bonds at 'BB'/'RR1'.
The ratings are negatively affected by operational risks and
contagion effects from U.S. sanctions on CITGO's ultimate parent,
Petroleos de Venezuela S.A. (PDVSA). The ratings are supported by
the quality of refining assets, significant scale, moderate debt
and plentiful liquidity.
Opco and Holdco ratings are based on their standalone IDRs and
reflect Holdco's dependence on dividends from Opco, which may
potentially be constrained by the debt covenants at Opco level and
sanctions-related policies.
Key Rating Drivers
Change of Control Risks: CITGO's indirect parent is PDVSA, a
national oil company owned by the government of Venezuela. The
parent's financial weakness creates a few paths that could trigger
change of control clauses and a forced refinancing of CITGO's
debt.
These include creditor lawsuits against Venezuela, PDVSA and its
affiliates seeking to obtain judgements for litigation awards in
U.S. courts and attach to shares of CITGO's ultimate U.S. parent
(PDV Holding), coupled with the Office of Foreign Assets Control's
(OFAC) decision to unblock current sanction restrictions. There are
also actions by PDVSA's secured exchange note holders to collect on
a pledge of 50.1% of CITGO Holding's capital stock.
Sale Initiated by Court: Multiple creditors of PDVSA and the
government of Venezuela managed to obtain attachment on the shares
of PDV Holding. The Delaware district court launched the sale
process of PDV Holding, CITGO's ultimate U.S. parent, in October
2023. The sale of PDV Holding shares cannot be closed without a
special license from OFAC.
Double Trigger: CITGO's notes contain a two-part change of control
test: less than majority ownership by PDVSA and a failure by rating
agencies to affirm ratings within 90 days, at least at the level
before the ownership change. Fitch believes CITGO's credit profile
would probably improve under different ownership and without a
substantial increase in debt, which should limit bondholder
incentives to put bonds if change of control were triggered.
Nonetheless, this risk remains a key overhang on the credit. All of
CITGO's notes contain the double trigger.
Expected Reduction in EBITDA: Fitch projects that CITGO's EBITDA
will halve in 2024 compared to 2023 due to the decline in the U.S.
refining crack spreads and turnaround downtime at CITGO
refineries.
Crack spread volatility is typical for the oil refining sector.
U.S. refining margins are normalizing from elevated 2022-2023
levels as domestic fuel inventory levels increased, average weekly
gasoline and diesel demand is below last year's and supply is
healthy.
Diesel crack spread still remains above long-term level. U.S.
gasoline consumption has not fully rebounded after the pandemic and
it may decline further in 2025, according to the EIA forecast.
CITGO could redirect sales to other markets if necessary.
Access to Capital: The legacy effects of PDVSA's ownership,
including change of control risks as well as the impact of various
OFAC sanctions on entities doing business with Venezuela, are also
an overhang for CITGO in terms of capital market access. In 2019,
it had to replace revolver liquidity with a drawn debt given bank
concerns about OFAC sanctions against Venezuelan entities. It still
maintains a large cash cushion to support liquidity. The notes
issued in 2023 contain conditions that allow for the eventual
creation of an asset-based lending facility after the other legacy
bonds are repaid or refinanced.
Parent-Subsidiary Linkage: Fitch views Opco as the stronger entity
of the two as all of CITGO's assets and EBITDA are at Opco level,
except for some cash held by Holdco. Based on its PSL analysis,
Fitch views Opco and Holdco's ratings on a standalone basis given
the insulated legal ring-fencing through Opco's bond covenants
which limit the ability of the direct parent to dilute its
subsidiary's credit quality, additional separations created by OFAC
restrictions, and its insulated assessment of the access and
control factor.
Bond covenants include restrictions on dividends (R/P basket),
incurrence tests (maximum net debt/capitalization of 55% and a
minimum $1.25 billion in liquidity, pro forma post distribution),
restrictions on asset sales, and the incurrence of additional
indebtedness.
Derivation Summary
At 807 kb/d day of crude refining capacity, CITGO is smaller than
PBF Holding (BB/Stable) at approximately 1 mmb/d. However, it is
larger than HF Sinclair Corporation (BBB-/Stable) at 678 kb/d and
CVR Energy (BB-/Stable) at 207 kb/d.
CITGO is less diversified compared with refining peers that have
ancillary businesses including logistics master limited
partnerships, chemicals, renewables, retail, and specialty
products. However, CITGO's core refining asset profile is strong
and relatively flexible given the higher complexity of its
refineries than for most of its peers, which allows it to process a
large amount of discounted heavy and light shale crudes.
Legacy PDVSA ownership/governance and related capital markets
access issues remain key overhangs on the issuer despite its
relatively strong asset profile.
Key Assumptions
Fitch's key assumptions within its rating case for the issuer are
as follows:
- West Texas Intermediate prices of $75/barrel (bbl) in 2024,
$65/bbl in 2025, $60/bbl in 2026-2027 and $57/bbl in 2028 and at
midcycle;
- Refinery throughput around 800 kb/d in 2024-2028;
- Capex, turnaround and catalyst costs averaging approximately $800
million in 2024-2028;
- Average 1M SOFR rates at 4.5% in 2024, 3.8% in 2025, 3.2% in 2026
and 3.1% in 2027-2028.
Recovery Analysis
The recovery analysis assumes that CITGO Corporation would be
reorganized as a going-concern (GC) in bankruptcy rather than
liquidated. Fitch has assumed a 10% administrative claim.
Going-Concern Approach
The GC EBITDA estimate of $1.05 billion reflects Fitch's view of a
sustainable, post-reorganization EBITDA level upon which Fitch
bases the enterprise valuation (EV). This value is based on
midcycle refining crack spreads instead of recent EBITDA
generation.
An EV multiple of 5.0x was applied to the GC EBITDA to calculate a
post-reorganization EV of $5.25 billion. This is close to the
median 5.3x exit multiple for energy in "Fitch's Energy, Power and
Commodities Bankruptcy Enterprise Value and Creditor Recoveries
(Fitch Case Studies â€" September 2023)" and the 5.5x multiple
used for refining peer Par Pacific Holdings.
Liquidation Approach
The liquidation estimate reflects Fitch's view of the value of
balance sheet assets that can be realized in sale or liquidation
processes conducted during a bankruptcy or insolvency proceeding
and distributed to creditors. For liquidation value, Fitch used an
80% advance rate for the company's inventories since crude and
refined products are standardized and easily resellable in a liquid
market to peer refiners, traders or wholesalers.
The maximum of these two approaches was the going concern approach
of $5.25 billion. A standard waterfall approach was then applied.
This resulted in a three-notch recovery (RR1) for CITGO Petroleum's
senior secured notes.
RATING SENSITIVITIES
CITGO Petroleum Corp.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Reduced overhang associated with legacy PDVSA ownership issues;
- Midcycle EBITDA leverage below 3.0x.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Upgrade
- Deterioration in liquidity/market access;
- Midcycle EBITDA leverage above 4.0x.
CITGO Holding, Inc.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Maintaining de minimis debt or increased ability to upstream
dividends from Opco, such as alleviation of restrictions on R/P
basket;
- Reduced overhang associated with legacy PDVSA ownership issues.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Upgrade
- Deterioration in liquidity/market access;
- Sustained inability of Holdco to receive dividends due to R/P
basket or other restrictions.
Liquidity and Debt Structure
Healthy Opco Liquidity: Opco's liquidity includes unrestricted cash
of $3.3 billion and an undrawn $500 million receivables
securitization facility that expires in 2026. CITGO does not have
an ABL facility but can use available cash to cover short-term
funding needs, including working capital movements. CITGO has two
bonds maturing in 2025 totaling $1.175 billion and a $650 million
bond maturing in 2026, which can be covered by its cash balance.
Fitch projects that the company's liquidity will be supported by
positive FCF generation.
Sufficient Holdco Liquidity: Holdco has some cash held at its level
and no debt. Opco should be able to distribute funds to Holdco, if
needed, given that Opco has rebuilt its dividend basket. In
addition, it should have flexibility to make payments through its
tax allocation agreement.
Issuer Profile
CITGO, a U.S.-based refiner, owns and operates three large,
high-quality refineries with total rated crude processing capacity
of 807 kb/d. It has access to more than 4,000 independently owned
CITGO-branded retail outlets, and owns storage terminals and other
assets.
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
CITGO has an Environmental, Social and Corporate Governance (ESG)
Relevance Score of '4' under Environmental Factors, which reflects
its material exposure to extreme weather events (hurricanes) that
periodically lead to extended shutdowns. Two out of three of
CITGO's refineries are located on the Gulf Coast, including the
largest, Lake Charles, at 463 thousand barrels per day (kb/d). This
has a negative impact on the credit profile and is relevant to the
ratings in conjunction with other factors.
CITGO also has a Score of '4' under Governance Factors related to
the effects the legacy PDVSA ownership issues still have on the
issuer, despite the transition CITGO made to being run by a
U.S.-approved board. The risk centers around contagion through
change of control clauses associated with a PDVSA default and the
overhang legacy ownership creates in terms of capital markets
access, as well as frequent changes in board composition.
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
----------- ------ -------- -----
CITGO Holding, Inc. LT IDR CCC+ Affirmed CCC+
CITGO Petroleum Corp. LT IDR B Affirmed B
senior secured LT BB Affirmed RR1 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
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Information contained herein is obtained from sources believed to
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of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
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