/raid1/www/Hosts/bankrupt/TCRLA_Public/241010.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
Thursday, October 10, 2024, Vol. 25, No. 204
Headlines
A R G E N T I N A
AEROLINEAS ARGENTINAS: Subject to 'Privatization', Milei Declares
ARGENTINA: Rents Prices in Buenos Aires Up 52% So Far This Year
YPF ENERGIA: Moody's Rates New $410MM Unsecured Notes 'Caa3'
YPF ENERGIA: S&P Rates Proposed Notes 'CCC'
B R A Z I L
BANCO BMG: Fitch Hikes LongTerm IDR to 'BB-', Outlook Stable
CEMIG: Moody's Upgrades CFR to Ba1 & Alters Outlook to Stable
PETROBRAS: Moody's Affirms 'Ba1' CFR & Alters Outlook to Positive
PRIO SA: Moody's Affirms 'Ba3' CFR & Alters Outlook to Positive
TRANSPORTADORA ASSOCIADA: Moody's Affirms Ba1 CFR, Outlook Pos.
[*] Moody's Takes Actions on 23 Brazilian Financial Institutions
[*] Moody's Takes Rating Actions on 4 Brazilian Government Issuers
C H I L E
LATAM AIRLINES: To Sell First Dollar Bonds Since Bankruptcy Exit
TELEFONICA MOVILES: S&P Lowers ICR to 'BB+', Outlook Stable
J A M A I C A
JAMAICA: Businesses Encouraged to Utilize Trade Deals with UK
JAMAICA: See Higher Costs for Restaurants and Accommodation
S U R I N A M E
SURINAME: IDB Approves US$135M Credit Line for Investment Projects
X X X X X X X X
LATAM: Value of Imports From CARICOM Fell 8% for January to May
- - - - -
=================
A R G E N T I N A
=================
AEROLINEAS ARGENTINAS: Subject to 'Privatization', Milei Declares
-----------------------------------------------------------------
Buenos Aires Times reports that President Javier Milei has formally
declared the state airline Aerolineas Argentinas to be "subject to
privatisation" after weeks of union conflicts leading to two
strikes in September and affecting tens of thousands of passengers
although the decision to privatise depends on Congress.
"It is imperative to propitiate the privatization of the company
Aerolineas Argentinas," read the executive decree published,
according to Buenos Aires Times.
In the text, the government justifies its decision by pointing to
the state having to contribute US$8 billion "by virtue of the
chronic deficit" of the company since its nationalisation 16 years
ago, the report notes.
The Milei government yearns to privatise Argentina's flagship
carrier and sought to include it in a sweeping mega-reform law
early this year, the report relays. It eventually pulled the state
firm from the list of public entitles to be sold off, the report
says.
President Milei will now need the approval of Congress to make this
decree stick, the report relays.
The development comes after weeks of conflict with aviation unions
demanding compensation for the deterioration of their pay amid an
annual inflation reaching 236 percent last August, the report
notes.
Authorities at Aerolineas Argentinas have offered an increase of
almost 11 percent, a proposal rejected by the workers, the report
discloses.
Two strikes last month affected hundreds of flights and over 45,000
passengers, producing losses of over US$3 billion, the report
notes.
In response, Milei declared air transport to be an "essential
service" to force at least half of services to be provided in the
event of a strike by the sector but on September 27 a court
suspended this measure, considering that it limited the right to
strike, the report says.
The International Federation of Air Line Pilots' Associations
(IFALPA) has expressed its solidarity with domestic aviation
unions, the report discloses.
The government has also threatened to pass the operational control
of the airline into private hands, the report adds.
About Aerolineas Argentinas
Headquartered in the Torre Bouchard, located in San Nicolas, Buenos
Aires, Aerolineas Argentinas, formerly Aerolineas Argentinas S.A.,
is Argentina's largest domestic and international airline. It is
the national airline and carries around 70% of Argentina's domestic
traffic and 40% of international flights from Ministro Pistarini
International Airport, which is located in Ezeiza, Buenos Aires.
Aerolineas Argentinas is currently owned in its majority by the
Argentine government, which seized the airline from Spanish tourism
company Grupo Marsans in 2009.
In June 2001, the airline filed for protection from creditors and
went into administration. In 2002, a Buenos Aires judge accepted
its debt restructuring agreement with creditors.
ARGENTINA: Rents Prices in Buenos Aires Up 52% So Far This Year
---------------------------------------------------------------
Buenos Aires Times reports average rent prices in Buenos Aires City
have risen 52 percent so far this year, with an average flat now
above 500,000 pesos a month, according to a new survey.
The report, put together by real-estate portal Zonaprop, indicates
that the average price of a one-bedroom flat in Buenos Aires City
increased by 4.4 percent in September, according to Buenos Aires
Times.
The cumulative rise in the cost of rent in 2024 to date is over 52
percent, roughly half the inflation recorded during the same period
(102 percent), the report notes.
Breaking down the analysis on the variation of prices in relation
to the dimension of properties, the report showed that small flats
are units recording the highest increases in value, the report
relays.
An average 40-square-metre studio is rented for 424,583 pesos per
month, while a 50-square-metre one-bedroom flat goes for 507,422
pesos per month, the report discloses a 70-square-metre two-bedroom
for 682,714 pesos per month, the report notes.
After taking office, President Javier repealed the Rent Law, passed
in 2020 under his predecessor, former president Alberto Fernandez,
the report relays.
Underlining the impact of the removal of restrictions, the
real-estate portal highlighted that "the current volume of options
is 3.1 times higher than recorded in February 2023," the report
notes.
In the meantime, they informed that "the rent/price ratio is rising
and is now at an annual 4.58 percent," the report relays.
As for the change in values by area, the survey showed that Puerto
Madero continues to top the list of the most expensive
neighbourhoods in Buenos Aires City with an average rental price of
1,047,664 pesos per month, the report discloses. Nunez (570,317
pesos per month) and Palermo (569,212 pesos per month) complete the
podium, the report relays.
Conversely, Lugano is the neighborhood with the most affordable
options with an average value of 357,256 pesos per month, the
report relays. It is followed by Liniers (427,766 pesos per month)
and La Boca (437,152 pesos per month), 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.
YPF ENERGIA: Moody's Rates New $410MM Unsecured Notes 'Caa3'
------------------------------------------------------------
Moody's Ratings has assigned a Caa3 rating to YPF Energia Electrica
S.A.'s (YPFEE) planned senior unsecured notes' issuance of up to
$410 million under its medium term note program. The outlook is
stable.
The notes will have a 8-year tenor and proceeds will be used to
prepay its 2026 $400 million notes outstanding.
The assigned rating is based on preliminary documentation. Moody's
do not anticipate changes in the main conditions that the bond will
carry. Should issuance conditions and/or final documentation
deviate from the original ones submitted and reviewed by the rating
agency, Moody's will assess the impact that these differences may
have on the rating and act accordingly.
RATINGS RATIONALE
The assigned Caa3 rating and the stable outlook considers that the
proposed Notes will be direct obligations of YPFEE, with the same
ranking of its other senior unsecured debt outstanding. The
assigned rating reflect the company's growing market share and
solid position in the power market in Argentina, following the
expansion of its renewable and thermal assets base. The credit
profile reflects the company's solid Contractual position under
long-term Power Purchase Agreements (PPAs) with both private
clients and with Cammesa, the agency controlled by the Government
of Argentina (Ca stable) that manages the wholesale electricity
market. These contracts ensure a degree of predictability to its
cash flows that mainly arise from fixed-priced capacity payments
(approximately 75% of total revenues), although revenues remain
highly exposed to Cammesa's counterparty risk (65% of revenues).
The credit profile also considers that the proposed issuance, will
result in a more comfortable liquidity position for the company as
it will materially extend its debt maturity profile without
increasing leverage. Moody's expectation is that the company will
maintain its debt to EBITDA ratio in the range of two to three
times even during the investment face it is entering for the
development of its renewable projects and that it will be able to
comfortably post CFO (pre WC) in relation to debt in excess of
25%.
YPFEE rating is mainly constrained by the sovereign and exposure to
Cammesa as its main counterparty.
LIQUIDITY PROFILE
As of June 2024, YPFEE has adequate liquidity, with cash and
equivalents totaling $259 million, and short term debt maturities
of $135 million. Despite working capital pressures due to delayed
collections from Cammesa, the company has maintained an adequate
liquidity position. Furthermore, YPFEE has adequate access to
external financing, as demonstrated by the various financings the
company obtained in recent years to fund its growth projects as
well as by the ample access to the local debt and bank markets in
Argentina. The issuance of the proposed notes will contribute to
enhance its liquidity profile further.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
A rating downgrade could be triggered by an adverse change to the
regulatory framework for the company's operations that results in
lower visibility on the company's expected revenue and cash flow.
Quantitatively, (CFO pre-WC)/debt below 15% could prompt a negative
rating action.
Given the current constraints and the exposure to Cammesa, an
upgrade of the company's rating would required an upgrade of the
sovereign rating.
CORPORATE PROFILE
YPF Energia Electrica S.A. is an Argentine power generation company
with 3,274 megawatt (MW) of installed capacity in operations as of
September 2024. YPFEE was formed in August 2013 as a result of a
spin-off of the power assets from YPF Sociedad Anonima (YPF, Caa3
stable), its main shareholder and Argentina's largest, fully
integrated energy company, majority owned by the Government of
Argentina. YPF currently holds a 75.01% interest in YPFEE while the
remaining 24.99% corresponds to GE EFS, an affiliate of General
Electric Company (GE, Baa1 positive).
The principal methodology used in this rating was Unregulated
Utilities and Unregulated Power Companies published in December
2023.
YPF ENERGIA: S&P Rates Proposed Notes 'CCC'
-------------------------------------------
S&P Global Ratings affirmed its 'CCC' foreign and local currency
issuer credit ratings on Argentina-based energy generation company
YPF Energia Electrica S.A. (YPF Luz) and assigned its 'CCC'
issue-level rating to the company's proposed notes.
The stable outlook mirrors that on the sovereign and reflects YPF
Luz's conservative leverage, with expected debt to EBITDA below
3.0x in the next two years amid solid cash flows through long-term
contracts and a U.S.-dollar-denominated tariff framework.
The company intends to use the proceeds to purchase its existing
$400 million senior unsecured notes due July 2026. S&P said, "We
consider the transaction a pure liability management exercise that
should allow YPF Luz to extend its debt maturity profile (weighted
average maturities will increase to six years from two) and improve
its short-term liquidity, which we view as a positive credit
factor."
Moreover, these PPAs are U.S.-dollar-denominated, which mitigates
any foreign exchange risk, and have robust conditions. S&P said,
"Under our base-case scenario, we forecast EBITDA margins of close
to 75%-80% and EBITDA of about $400 million in 2024, increasing to
$450 million in 2025 as the General Levalle wind farm reaches its
commercial operation date, which we estimate at year-end."
The company is finalizing an ambitious capital expenditure (capex)
plan focused on renewable energy, with a projection to increase its
installed capacity in renewable assets to 0.9 gigawatts (GW) by
2026, up from the current 0.5 GW. S&P said, "We anticipate capex of
$250 million–$300 million in 2024 and close to $200
million–$250 million in 2025, which we expect the company to
finance through internally generated funds and debt. In this
context, we forecast net debt to EBITDA and funds from operations
(FFO) to debt will remain in the 2.0x-3.0x and 35%-45% ranges,
respectively, in the next two years, before improving thereafter."
S&P said, "This is because we don't believe the company has
material financial obligations that would rank ahead of its
unsecured debt by way of structural or contractual subordination in
a default scenario. Our 'CCC' ratings on YPF Luz are lower than the
'b-' stand-alone credit profile (SACP). We continue to limit our
ratings on the company by our transfer and convertibility
assessment on Argentina. Although the new Argentine administration
has gradually eased restrictions on transferring funds abroad,
particularly for debt payments and imports, we believe Argentina's
macroeconomic conditions and external front remain delicate."
===========
B R A Z I L
===========
BANCO BMG: Fitch Hikes LongTerm IDR to 'BB-', Outlook Stable
------------------------------------------------------------
Fitch Ratings has upgraded Banco BMG S.A.'s (BMG) Long-Term Issuer
Default Ratings (IDRs) and Viability Rating (VR) to 'BB-' and 'bb-'
from 'B+' and 'b+', respectively. Fitch has also upgraded BMG's
National Long-Term Ratings to 'A(bra)' from 'A-(bra)' and
Short-Term Ratings to 'F1(bra)' from 'F2(bra)'. The Rating Outlook
of the Long-Term ratings are Stable.
The upgrade reflects Fitch's view of BMG's better asset quality
that has resulted on improvement on profitability and
capitalization metrics. It also reflects BMG's progress in
achieving improved operating efficiencies following its strategic
restructuring. Fitch's view that stronger earnings should lead to
sustainably improved medium-term financial performance and expected
common equity tier 1 (CET1) ratios to remain close to 10%.
Key Rating Drivers
Positive Earnings, Capital Position: BMG's Long-Term IDRs are
driven by its VR. BMG is a relevant mid-sized player in the
domestic payroll lending market and this strength is further
supported by a high share of secured lending, which contributes to
balanced asset quality. adequate funding and liquidity profile. Its
strong specialization supports its total operating income (TOI)
generation, that as of June 2024, grew 35% yoy with a positive
trend in comparison to the average level of USD492 million for 2020
to 2023.
Franchise Reorganization: Over the past year and a half, BMG has
undergone a turnaround as new management has taken over and
implemented strategic changes and cost-cutting initiatives. These
changes include the divestment of non-core assets and a reduction
in the portfolio of less profitable segments to focus on and
optimize its traditional core business oriented towards
pension/payroll-backed lending (consignado). While execution risks
related to intense competition and regulatory interference in the
consignado market remain and are key risks to its base case
scenario, Fitch views BMG's pivot towards a more creditor-friendly
stance as positive.
Improving Profitability: Fitch has upgraded its assessment of BMG`s
earnings and profitability score to 'b+' from 'b' and revise its
outlook to positive, from stable. This reflects the uplift in BMG's
operating profitability to risk-weighted assets (RWA) ratio to 2.1%
in the first half of 2024 comparing to the average level of 0.5%
for 2020 to 2023, after three years of near break-even operating
results, and its expectation that the strategic shift towards
balancing risk and reward over aggressive growth should continue to
translate into better revenue and cost stability.
Better Risk Profile: Over the past year, BMG has tightened its
underwriting through improving formalization, reducing customer
limits, exiting weaker loans in higher risk categories, which
supports the overall risk profile. BMG's risk profile is well
aligned with its business model, which consists primarily of
payroll loans, which account for 64% of the portfolio.
Its fully collateralized nature prevents significant credit losses,
though it faces some legal, market and pricing risks as a result of
its regulated and competitive nature. Unsecured loans (29%) are
riskier but also more profitable.
Adequate Asset Quality: Fitch has upgraded its assessment of BMG's
asset quality to 'bb-' from 'b+', mainly to reflect the refocusing
of business strategy toward payroll-loans and the high portion of
secured loan in its portfolio. The bank's impaired loan (D-H) ratio
has remained relatively stable at 6.2% at end-June 2024 (average
level of 6% for 2020 to 2023), despite lower credit growth,
reflecting higher charge-offs and risk rebalancing. Fitch expects
BMG's credit risk to remain manageable and tighter underwriting to
contain impaired loan formation.
Satisfactory Capitalization: Fitch upgraded BMG's capitalization
and leverage ratings to 'b+' from 'b', reflecting improved core
capital buffers. BMG's CET1 to RWA ratio was 9.9% at end-June 2024,
286 bps above regulatory requirements and up from 9.3% a year ago.
While the targeted implementation of IFRS9 and operational risk
agendas could have a negative impact existing buffers in 2025, its
assessment is that core capital will remain at least at current
levels over the medium term, in line with management's capital
planning commitment. Controlled growth and improving organic
capital generation should contribute to BMG's capital management
flexibility.
Comfortable Liquidity: BMG has diversified funding sources,
increasing local market issuances and reducing average funding
maturity. BMG has operated with a comfortable liquidity position,
enhanced by strategic downsizing of certain credit portfolios. As
of June 30, 2024, BMG's gross loan to deposit ratio was at a
conservative 83%, maintaining a very liquid asset position above
BRL5 billion, although this is expected to decrease slightly to
support operational turnaround.
Government Support Rating: The GSR of 'No Support' (NS) reflects
BMG's small market position within the Brazilian financial system
with less than 1% of customer deposits at June 2024 to the total
market. In Fitch's view, there is no reasonable assumption of
support being forthcoming.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
IDRs AND VR
- BMG's ratings could be negatively affected if the CET1 to RWA
ratio consistently drops below 8%, combined with sustained
deterioration in the operating profit to RWA ratio to below 1%.
Fitch believes this could result from sharp asset quality
deterioration.
NATIONAL RATINGS
- A downgrade of the National Ratings would result from a weakening
of the entities' creditworthiness relative to that of other
Brazilian issuers.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
IDRS AND VR
- In the medium term, positive actions on BMG'S IDRs and VR would
most likely result from a significant improvement on its business
profile by consistent increases in its TOI levels, while improves
its operating profit to RWAs ratio sustainably above 3% and CET1
ratios consistently above 12%.
NATIONAL RATINGS
- A positive rating action of the National Ratings would result in
a strengthening of the entities' creditworthiness relative to that
of other Brazilian issuers. This could most stem from a consistent
improvement on its earnings profile and capitalization metrics.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Not applicable for this entity.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- BMG's GSR could be upgraded by a material improvement of its
system importance.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- BMG's GSR downgrade potential is not possible as it is at the
lowest level of the scale.
VR ADJUSTMENTS
The Asset Quality score of 'bb-' has been assigned above the
implied 'b' score due to the following adjustment reason:
Collateral and reserves (positive).
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 BMG S.A. LT IDR BB- Upgrade B+
ST IDR B Affirmed B
LC LT IDR BB- Upgrade B+
LC ST IDR B Affirmed B
Natl LT A(bra) Upgrade A-(bra)
Natl ST F1(bra)Upgrade F2(bra)
Viability bb- Upgrade b+
Government Support ns Affirmed ns
CEMIG: Moody's Upgrades CFR to Ba1 & Alters Outlook to Stable
-------------------------------------------------------------
Moody's Ratings has upgraded Companhia Energetica de Minas Gerais -
CEMIG's (CEMIG) Corporate Family Rating to Ba1 from Ba2 and its
Baseline Credit Assessment (BCA) to ba1 from ba2. Concomitantly,
Moody's have upgraded the global scale issuer ratings of Cemig
Distribuicao S.A. (CEMIG D) and Cemig Geracao e Transmissao S.A.
(CEMIG GT) to Ba1 from Ba2 and their BCAs to ba1 and ba2,
respectively. The outlook on all ratings was changed to stable from
positive.
The rating action follows Moody's decision to upgrade the rating of
the Government of Brazil to Ba1 from Ba2 maintaining a positive
outlook on October 1, 2024; as well as Moody's decision to upgrade
the rating of the State of Minas Gerais to B1 from B2 with the
outlook changed to stable from positive on October 2, 2024.
RATINGS RATIONALE
The rating actions speak to the credit linkages between CEMIG
group, the Brazil sovereign and the State of Minas Gerais, as its
controlling entity. CEMIG D and CEMIG GT Issuer Ratings and BCAs
mirror the rating for the parent's consolidated credit profile,
because of corporate guarantees and cross-default clauses in their
debt instruments outstanding.
The ba1 BCAs considers CEMIG's extensive and diverse electricity
operations in Brazil and its strong credit metrics despite the
country's high interest rates and inflationary pressures in recent
year. Moody's expectation is that its consolidated leverage metrics
will remain solid over the next three years, with CFO pre-working
capital to debt and the interest coverage ratio staying above 30%
and 4.0x respectively, comparing favorably with regional peers.
CEMIG's Ba1 Corporate Family Rating results from the application of
Moody's Joint Default Analysis (JDA) framework for
government-related issuers, which considers the following input
factors: a BCA of ba1 as measure of CEMIG standalone credit
worthiness; the B1 rating of the State of Minas Gerais as CEMIG's
controlling shareholder and support provider; Moody's estimate of
moderate implied government support in the case of financial
distress; and a high default dependence between CEMIG and the State
of Minas Gerais. Moody's acknowledge that the much weaker credit
quality of the State of Minas Gerais constrains the company's
ability to receive timely financial support, if needed.
Nonetheless, Moody's assume that some form of extraordinary support
from the state or indirectly from the central government would be
forthcoming in a stress scenario given the essential nature of its
regulated services.
CEMIG's ratings are constrained by that of the sovereign
(Government of Brazil Ba1 positive), given its local revenue base
and regulated business profile, among other considerations.
Nonetheless, an upgrade of Brazil's rating would not immediately
reflect in an upgrade of CEMIG, given its governance structure that
cannot be completely de-linked from the current stresses facing the
State of Minas Gerais. Although the company's credit profile is
much stronger than that of its controlling shareholder, Moody's
view CEMIG's credit quality is limited at three notches above the
State of Minas Gerais' B1 issuer rating.
The stable outlook is aligned with that of the State of Minas
Gerais (B1 stable), which carries a stable outlook. The stable
outlook also takes into consideration that CEMIG will maintain a
strong credit profile and adequate liquidity over the next 12-18
months, as enhanced by the recent asset sales, addressing its
refinancing needs in advance of their maturities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade would be considered upon an upgrade of both the
State of Minas Gerais' Issuer Rating, and that of the Government of
Brazil. A ratings upgrade would be contingent on CEMIG maintaining
strong credit metrics and an adequate debt maturity profile.
A downgrade on the ratings could develop upon increases in
liquidity risks or refinancing delays. A downgrade would be
considered if the company's credit metrics deteriorate such that
the consolidated CFO pre-WC/debt falling below 16% or interest
coverage falling below 3.0x, for a sustainable period. In addition,
negative changes in the operating environment for Brazilian
electricity companies, due to higher political interference or
unfavorable regulatory changes, could prompt a downgrade.
LIST OF AFFECTED RATINGS
Issuer: Companhia Energetica de Minas Gerais – CEMIG
Upgrades:
LT Corporate Family Rating, Upgraded to Ba1 from Ba2
Baseline Credit Assessment, Upgraded to ba1 from ba2
Outlook Actions:
Outlook, Changed To Stable From Positive
Issuer: Cemig Distribuicao S.A.
Upgrades:
LT Issuer Rating, Upgraded to Ba1 from Ba2
Baseline Credit Assessment, Upgraded to ba1 from ba2
Outlook Actions:
Outlook, Changed To Stable From Positive
Issuer: Cemig Geracao e Transmissao S.A.
Upgrades:
LT Issuer Rating, Upgraded to Ba1 from Ba2
Baseline Credit Assessment, Upgraded to ba1 from ba2
Outlook Actions:
Outlook, Changed To Stable From Positive
The principal methodologies used in rating Companhia Energetica de
Minas Gerais – CEMIG and Cemig Distribuicao S.A. were Regulated
Electric and Gas Utilities published in August 2024.
The principal methodologies used in rating Cemig Geracao e
Transmissao S.A. were Unregulated Utilities and Unregulated Power
Companies published in December 2023.
PETROBRAS: Moody's Affirms 'Ba1' CFR & Alters Outlook to Positive
-----------------------------------------------------------------
Moody's Ratings has taken rating actions on several companies
operating in Brazil. The actions follow the upgrade of Government
of Brazil's (Brazil) long-term issuer and senior unsecured bond
ratings to Ba1 from Ba2, senior unsecured shelf rating at (P)Ba1
from (P)Ba2 and maintenance of the positive outlook.
The action on Government of Brazil's rating reflects the material
credit improvements which Moody's expect to continue, including a
more robust growth performance than previously assessed and a
growing track record of economic and fiscal reforms that lend
resilience to the credit profile, although the credibility of
Brazil's fiscal framework is still moderate, as reflected in a
relatively high cost of debt. In turn, more robust growth and
fiscal policy consistently adhering to the fiscal framework will
allow the debt burden to stabilize in the medium term, albeit at
relatively high levels.
The entities related to this rating action are:
- Ambev S.A.
- Arcos Dorados B.V.
- Arcos Dorados Holdings Inc.
- Gerdau S.A.
- GTL Trade Finance Inc.
- Petrobras Global Finance B.V.
- Petrobras International Finance Company
- Petroleo Brasileiro S.A. - PETROBRAS
- Suzano S.A.
- Vale Canada Ltd.
Ambev S.A.'s (Ambev) issuer rating was upgraded to Baa2 from Baa3.
The outlook remains positive.
Arcos Dorados Holdings Inc.'s (Arcos Dorados) corporate family
rating and senior unsecured notes' rating were upgraded to Ba1 from
Ba2. Arcos Dorados B.V.'s backed senior unsecured notes', fully and
unconditionally guaranteed by its parent, Arcos Dorados, were
upgraded to Ba1 from Ba2. The outlooks changed to stable from
positive.
Gerdau S.A.'s (Gerdau) issuer rating was upgraded to Baa2 from
Baa3. At the same time, Moody's have upgraded the backed senior
unsecured notes of GTL Trade Finance Inc. (guaranteed by Gerdau
S.A. and its operating subsidiaries in Brazil) to Baa2 from Baa3,
as well as the backed solid waste disposal revenue bonds issued by
St. Paul Port Authority, MN (guaranteed by Gerdau S.A.). The
outlooks of Gerdau and GTL Trade Finance Inc. were changed to
stable from positive.
Petroleo Brasileiro S.A. - PETROBRAS' (Petrobras) Ba1 corporate
family rating was affirmed. At the same time, Moody's affirmed
Petrobras' ba1 Baseline Credit Assessment (BCA) and the Ba1 rating
of the backed senior unsecured debt issuances of Petrobras Global
Finance B.V. and Petrobras International Finance Company. Moody's
also affirmed the (P)Ba2 subordinate shelf ratings of Petrobras and
Petrobras International Finance Company, the (P)Ba1 senior
unsecured shelf ratings of Petrobras and Petrobras International
Finance Company, the (P)B1 Pref. Shelf rating for Petrobras, and
the (P)Ba1 and (P)Baa3 senior secured shelf ratings under Petrobras
and Petrobras International Finance Company respectively. The
outlook for all ratings changed to positive from stable.
Suzano S.A.'s (Suzano) Baa3 issuer rating was affirmed. The outlook
remains positive.
Vale S.A. (Vale) issuer rating and senior unsecured rating, and the
senior unsecured ratings on the debt issued by Vale Overseas
Limited (fully and unconditionally guaranteed by Vale) were
upgraded to Baa2 from Baa3. Moody's also upgraded the senior
unsecured rating of Vale Canada Ltd. (Vale Canada) to Baa3 from
Ba1. The outlook for Vale S.A. and Vale Overseas Limited remains
positive. The outlook for Vale Canada changed to stable from
positive.
RATINGS RATIONALE
Moody's view that the ratings of these issuers were limited by the
credit quality of the sovereign environment, in certain cases still
are. The creditworthiness of these companies cannot be completely
de-linked from the credit quality of the Brazilian government, and
thus their ratings need to closely reflect the risk that they share
with the sovereign.
Ambev S.A.
Ambev's Baa2 rating is supported by its scale as one of the world's
largest brewers; presence in 18 countries; leading positions in
most of its operating markets, including Brazil and Canada; and
vast portfolio of brands of alcoholic and nonalcoholic beverages.
The company benefits from its geographic diversification and brand
recognition while its scale translates into a higher bargaining
power with suppliers. Moreover, its geographic and product
diversification mitigates cash flow volatility arising from weather
events or market downturns in specific regions.
The company's dominant market position in Brazil, strong execution
capabilities and strict cost control allow it to withstand market
volatility and still maintain exceptionally strong profitability
and credit metrics. Ambev's limited reliance on the local banking
system for funding, its generation of a significant portion of
assets and cash outside Brazil, and its importance to the
controlling shareholder Anheuser-Busch InBev SA/NV (ABI, A3 stable)
help offset the negative effect of the company's links to the
Brazilian economy.
Ambev's rating is constrained by the volatility in its
commodity-linked input costs and its reliance on effective hedging
strategies to make its costs more predictable. Also, there is a
likelihood of continued high dividend payouts to its controlling
shareholder ABI.
The positive outlook incorporates the possibility of an upgrade in
case there is an upgrade of the Brazil sovereign rating.
Additionally it reflects Ambev's exceptionally strong credit
metrics, dominant market positions and operational stability, along
with its other characteristics, help outweigh the effects of its
links with the sovereign, where it generates more than 50% of its
EBITDA. Moody's expect Ambev to benefit from the diversification of
its portfolio and its geographic footprint, and to maintain
conservative financial management and strict cost control.
Arcos Dorados Holdings Inc.
Arcos Dorados credit profile reflects the company's solid market
position in Latin America as McDonald's Corporation's (McDonald's,
Baa1 stable) master franchisee; and its size and scale as the
largest independent McDonald's franchisee worldwide by sales and
number of restaurants (2,395 as of June 30, 2024). On October 1,
2024, Arcos Dorados announced it will exercise its option to renew
its Master Franchise Agreement (MFA) with McDonald's for another 20
years starting 2025. The ratings are also supported by the
geographic diversification of the company's solid restaurant base
throughout Latin America; and by Arcos Dorados' good liquidity.
Arcos Dorados' competitive edge in the region is underscored by its
restaurant portfolio because around half of its restaurants are
free-standing units, which offer a mix of takeout, drive-thru, and
delivery services, options that enhance restaurant sales and a
feature that competitors find challenging to replicate.
Furthermore, the company's edge is strengthened by a high
penetration of digital sales, accounting for 57% of total
system-wide sales in Q2 2024.
The ratings are mainly constrained by Arcos Dorados' concentration
of cash flow in a limited number of markets, with Brazil serving as
the most significant contributor to both revenue and EBITDA. Other
limiting factors include an intense competitive environment,
moderate exposure to foreign currency risks, fluctuations in
consumer purchasing power and preferences, and inflation-induced
cost pressures on labor and raw materials.
The stable outlook reflects Moody's expectation of sustained good
operating performance and liquidity over the next 12-18 months.
Arcos Dorados will continue to pursue growth across the region
under the investment requirements set by the Master Franchise
Agreement (MFA) with McDonald's and benefit from increased
operating efficiency.
Gerdau S.A.
Gerdau's Baa2 rating is supported by the company's historically
solid cash generation, which reflects its strong market position in
markets where it operates, its good operational and geographic
diversity, its cost-driven management, its flexible mill cost
structure, and its conservative financial policies. Despite
volatile operating environments, Gerdau has generated positive free
cash flow (FCF) since 2013 and was able to significantly reduce
debt levels and strengthen credit metrics, partially using proceeds
from asset divestitures.
Gerdau's rating is constrained by the company's exposure to the
cyclical steel industry, especially in Government of Brazil (Ba1
positive) and the Government of United States of America (US, Aaa
negative); and exposure to exchange rate volatility, as more than
half of its cash flow is generated in Brazil and other Latin
American countries.
The stable outlook reflects Moody's expectation that the company
will prudently manage its liquidity and expenses to preserve its
metrics and credit quality amid volatility in its key end markets.
Petroleo Brasileiro S.A. - PETROBRAS
Petrobras Ba1 corporate family rating (CFR) and ba1 Baseline Credit
Assessment (BCA), a measure of a company's standalone credit risk
without government support, reflect the company's strong credit
metrics for its rating category, and its track record of
operational and financial improvement. Despite being a government
related entity, there is a low likelihood that the company will
default as a result of sovereign credit distress given Petrobras'
solid financial metrics and capital structure; its low reliance on
domestic funding sources; its limited exposure to foreign-currency
risk, given the low and declining share of the refining business;
and the fact that around 30% of its sales are related to exports.
In addition, Moody's expect Petrobras' operating and financial
discipline to continue to support cash generation, which will help
sustain its current capital structure. Conversely, Petrobras'
rating is constrained by the company's exposure to potential policy
shifts and risk of government influence in the company's business
decisions.
The positive outlook on Petrobras' mirrors the positive outlook on
Brazil's sovereign rating and reflects Moody's view that its credit
profile will remain mostly unchanged over the next 12-18 months.
Suzano S.A.
Suzano's Baa3 rating reflects the company's leading position as the
largest producer of market pulp in the world, as well as in the
Brazilian printing and writing paper, paperboard, and tissue
sectors. The company benefits from its low-cost position and high
level of vertical integration with substantial self-sufficiency in
wood fiber and energy; the proximity of its pulp mills to its own
forests and port facilities; and long-term supply agreements, which
support stable sales volume with good geographic diversification.
The rating also reflects Suzano's conservative approach to
liquidity and risk management, but are constrained by the volatile
nature of the pulp industry, which accounts for around 77% of the
company's consolidated revenue, as well as its still relatively
high leverage compared with that of its global peers.
The positive outlook is supported by Moody's expectation that, upon
the completion of the Cerrado project, the company will prioritize
leverage reduction, while maintaining excellent liquidity and
robust credit metrics throughout the rating horizon. As of June
2024, Suzano's liquidity was bolstered by a cash balance of BRL21.6
billion, which fully accommodates its debt amortizations up to
2026, and committed credit facilities amounting to BRL7.2 billion.
Suzano's debt amortization schedule further contributes to its
financial stability, with significant maturities only due
post-2029.
Vale S.A.
Vale is currently rated two notches above the rating of the
Government of Brazil, which is supported by Vale's strong business
profile and its leading position in iron ore and nickel production
globally, with cash flow and profitability showing minimal
correlation with domestic economic conditions. Vale is highly
unlikely to default as a consequence of sovereign credit stress or
default, since its large reliance on Government of China (China, A1
negative) and large developed countries provide reasonable
insulation from Brazil's macroeconomic and political environment.
About 90% of Vale's revenues are generated outside Brazil.
Moreover, cash generated outside Brazil covers debt service and
principal payment, therefore restrictions in capital flows are
unlikely to impact Vale's ability to service debt in case there are
restrictions in capital flows. However, Vale has about 69% of total
fixed assets located in Brazil, the majority of which is iron ore,
followed by Canada (Vale Canada) with about 22%. Given the large
cash flow reliance on iron ore assets located in Brazil, Moody's
are unlikely to widen the rating differential to the Government of
Brazil rating.
Even though Vale's business profile remains constrained by the
concentration in iron ore for cash flow generation (about 92% of
EBITDA in the twelve months ended in June 2024), focus on growth in
base metals (nickel and copper) will support some cash flow
diversification away in a more material way with the planned
capacity expansion in nickel and in particular in copper. The Baa2
rating is further supported by Vale's portfolio of long lived
assets (in iron ore, nickel and copper), relatively low cost
position and strong balance sheet, with leverage below 1x (total
debt/EBITDA) since 2020.
The positive outlook reflects the expectation that Vale will
maintain its strong business profile and credit metrics, keeping
its financial discipline in capital allocation, strong liquidity
and a conservative balance sheet while it continues to invest in
growth, without significantly increasing its debt levels, while
expansion in nickel and copper will lead to a more balanced cash
flow contribution between iron ore and base metals. The positive
outlook also incorporates Moody's expectation that there will be no
significant increase in provisions and cash disbursements related
to Brumadinho or Samarco that could affect the company's liquidity
or leverage.
The stable outlook of Vale Canada reflects the rating outlook of
Vale Base Metals Limited (Baa3 stable), which owns 100% of Vale
Canada.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ambev S.A.
A rating upgrade would depend on an upgrade of Brazil's sovereign
rating, and would require Ambev to maintain steady and strong
credit metrics.
Ambev's rating or outlook could face negative pressure if its
overall operating performance were to deteriorate because of
greater-than-expected volatility in any of its major markets, or if
the company's leverage were to increase significantly because of a
change in its capital structure or a debt-financed acquisition.
Quantitatively, a downgrade could be considered if credit metrics
deteriorates, such as EBITA margin below 22% coupled with
EBIT/interest below 5.5x or debt/EBITDA above 3.0x on a sustained
basis (all metrics are according to Moody's standard adjustments
and definitions).
Arcos Dorados Holdings Inc.
Positive pressure on the ratings would require Arcos Dorados to
perform in a more resilient manner regardless of the underlying
macroeconomic environment and consumption patterns, particularly in
Brazil. An upgrade would require the company to achieve more stable
earnings across economic cycles and consumer preferences,
maintaining lease-adjusted debt/EBITDA is below 2.5x; adjusted
retained cash flow (RCF)/debt above 30%; and EBIT to interest
expense above 4.0x.
The ratings could be downgraded if there is a deterioration in
Arcos Dorados' liquidity and operational performance. Specifically,
Moody's would downgrade the ratings if the company's
Moody's-adjusted gross debt/EBITDA remains above 3.5x, RCF/debt
below 20% and EBIT to interest expense below 3.0x on a sustained
basis. In addition, given the high concentration of operations in
Brazil, a downgrade of Brazil's sovereign rating could strain Arcos
Dorados' ratings.
Gerdau S.A.
An upgrade of Gerdau's rating could occur if it is able to sustain
profitability, as measured by EBIT margin, at high-single-digit
percentages (11% in the twelve months ended June 2024) improve
liquidity and leverage, with total Moody's-adjusted debt/EBITDA
below 2x (1.5x in the twelve months ended June 2024) and
EBIT/interest expense above 5.5x (7.8x in the twelve months ended
June 2024) on a sustained basis maintain conservative financial
policies. An upgrade of Gerdau's rating would require an upgrade of
Brazil's sovereign rating and long-term visibility into Brazil's
economic strength, or reduced exposure to the country's domestic
fundamentals.
Downward pressure on the rating or outlook could result from a
severe deterioration in market conditions leading to weaker
liquidity or persistently high leverage, with total debt/EBITDA
above 3x on a sustained basis and interest coverage (EBIT/interest
expense) below 4x. A deterioration in volume and margin in Gerdau's
main markets (namely Brazil and the US), weakening of its ability
to generate positive FCF or limited flexibility for capital
spending and dividend reduction could trigger a downgrade. A sharp
deterioration in the controlling shareholders' (Metalurgica Gerdau
S.A.) financial position or a downgrade of Brazil's sovereign
rating could also precipitate a downgrade of Gerdau's rating.
Petroleo Brasileiro S.A. - PETROBRAS
The ratings could be upgraded if credit metrics are at least stable
and there is evidence of significant lower exposure to adverse
government influence. An upgrade of Petrobras' rating would also
require an upgrade of Brazil's sovereign rating.
Petrobras' ratings could be downgraded if its operating performance
deteriorates or there are external factors that increase liquidity
risk or debt leverage from the current levels on a sustained basis;
if the quality of the company's corporate governance declines,
increasing its vulnerability to adverse government interference; or
if Brazil's sovereign rating is downgraded.
Suzano S.A.
An upgrade of Suzano's ratings would require the maintenance of
strong credit metrics and market presence. A rating upgrade would
also be subject the company's leverage, measured as total adjusted
gross debt/EBITDA, to approach 2.5x. Furthermore, the company must
maintain solid liquidity and positive free cash flow (FCF)
generation over time. Additionally, an upward rating movement would
be subject to the relative position of Suzano's ratings to Brazil
's sovereign rating.
Significant changes in market conditions, in particular for
hardwood pulp, which may lead to weaker-than-expected credit
metrics for Suzano, could lead to a rating downgrade. The ratings
could also be downgraded if adjusted leverage remains above 3.0x
for a prolonged period; the company's liquidity deteriorates,
becoming insufficient to cover near-term debt service requirements;
or Brazil's sovereign rating is downgraded.
Vale S.A.
An upward rating movement would require a sustainably strong
performance through different industry cycles and continued
disciplined approach to capital allocation related to capex and
shareholder returns. Moreover, an upgrade of Vale's rating would
require continued evidence of enhanced risk control and governance
oversight, with production gradually normalizing and no material
additional provisions or cash disbursements related to the
incidents in Brumadinho or Samarco. An upgrade would also depend on
the maintenance of a solid liquidity and positive free cash flow
generation, supported by leading market positioning in its main
segments and low-cost operations. Quantitatively, an upgrade would
also require Vale's adjusted total debt/EBITDA to remain below 1.5x
and EBIT/interest expense above 7x on a sustainable basis, with
(CFO-dividends)/debt consistently above 45%. An upward rating
movement would be subject to the relative position to the
Government of Brazil rating.
An upgrade of Vale Canada's rating could result from an upgrade of
Vale Base Metals Limited (Baa3 stable) rating, but would also
depend on Vale Canada's credit quality and relevance to Vale Base
Metals business profile and cash flow.
Conversely, Vale's ratings could be downgraded should the ultimate
costs related to the disasters in Brumadinho or disbursements
related to Samarco be materially above the amounts already
provisioned due to higher fines and settlements, litigations and
class actions, or if operations do not fully recover within the
expected timeframe, affecting cash costs and free cash flow
generation. Evidence that ESG initiatives are not on track to
further de-risk the company could also lead to a negative rating
action. Quantitatively, the ratings or outlook could suffer
negative pressure should conditions for iron ore and base metals
deteriorate, leading to lower profitability, with leverage ratios
(total debt to EBITDA) rising towards 2.25x or above,
EBIT/Interest expense falling below 5.5x and (CFO-dividends)/debt
sustained below 35%. A marked deterioration in the company's
liquidity position would also precipitate a downgrade. In addition,
a downgrade of the Government of Brazil rating could strain Vale's
ratings.
A downgrade of Vale Canada's rating would likely result from a
downgrade of Vale Base Metals Limited rating.
The principal methodology used in rating Ambev S.A. was Alcoholic
Beverages published in December 2021.
PRIO SA: Moody's Affirms 'Ba3' CFR & Alters Outlook to Positive
---------------------------------------------------------------
Moody's Ratings has affirmed PRIO S.A.'s ("PRIO") Ba3 corporate
family rating and the Ba3 rating on Petrorio Luxembourg Trading
S.a.r.l. ("PetroLux") $600 million backed senior secured notes due
2026. Simultaneously, Moody's changed the outlook on the issuers to
positive from stable, following the announcement of the acquisition
of a 40% stake in Peregrino, an oil and gas producing field in
Brazil that will materially increase PRIO's production and reserves
size, upon closing of the transaction.
RATINGS RATIONALE
The change in PRIO's rating outlook to positive follows the
announcement of the signing of an agreement to acquire 40% of
Peregrino, an oil and gas producing field from Sinochem
International Oil for $1.915 billion subject to usual price
adjustments. The field produces around 88kboed of oil and is
located near PRIO's Polvo and Tubarão Martelo cluster. Upon
closing, Peregrino's consortium will be formed by Equinor
(operator, with 60% interest) and PRIO (40% interest). With this
acquisition, PRIO will add over 35kboed of oil production and
around 113Mbbl in 1P reserves, an increase of about 42% and 19%,
respectively. The deal is subject to precedent conditions, such as
the right of first refusal by Equinor, approval by the Brazilian
oil and gas regulator and the antitrust body.
The acquisition value was $1.915 billion and PRIO paid $191.5
million upon signing, and will pay the remaining $1.723.5 million
on closing with the usual price adjustments. PRIO raised around $1
billion in new bilateral loans and will use cash in balance sheet
to fund the acquisition. Pro forma to the new debt and acquisition
payment, PRIO's Moody's-adjusted leverage will peak at 1.8x, up
from 1.3x in the twelve months ended in June 2024, but Moody's
estimate leverage will decline to about 1.1x through 2025. Net
leverage ratios will remain more comfortable at the peak of 1.4x
upon the closing of the acquisition, gradually declining to 0.3x in
2025. PRIO expects to extract synergies from the fields, namely
better commercial conditions and logistics costs.
PRIO's Ba3 ratings reflect the company's high operating efficiency
and cash generation, which supports low debt leverage and good
interest coverage ratios. The rating is also supported by PRIO's
high capital spending flexibility, favorable regulatory
environment, and the fact that the company's capital is listed on
the Brazilian stock exchange, which strengthens its corporate
governance. The Ba3 rating also reflects the increase in the
company's production and proved developed reserve size after the
acquisition of the Albacora Leste and Peregrino fields.
The ratings are primarily constrained by PRIO's still-small asset
base and size of crude oil production compared with those of peers,
its high operating risk because of geographic concentration and the
mature nature of its oil and gas assets, and the company's
dependence on acquisitions of oil and gas assets to increase
production levels sustainably and maintain the reserve level.
The company's current lifting costs of $7.6/bbl, full cycle costs
of $25-30/bbl and breakeven costs of $20-25/bbl already compares
favorably with offshore and onshore producers, and Moody's expect
additional cost reduction as the company starts operations in Wahoo
in 2025, assuming no delays on the licensing process. Wahoo will
have very low lifting costs because it will be operated by the same
facilities such as FPSOs used for Frade. The low cost structure
provides PRIO with flexibility to withstand commodity price
volatility and continue generating positive free cash flow to meet
debt maturities even under adverse scenarios.
PRIO has extremely low leverage ratios, with total adjusted
debt/EBITDA of 1.3x in the twelve months ended June 2024, RCF/debt
of 65.3% and interest coverage (EBITDA/interest) of 13.6x in the
same period. Moody's expect PRIO's metrics to return to
pre-acquisition levels through 2025, assuming Moody's price
estimate of $55-75/bbl for Brent. All of PRIO's producing fields
are mature and have high annual production decline rates of close
to 10%.
LIQUIDITY
PRIO has good liquidity, with a pro forma cash position of $698
million in cash after the acquisition and $40 million in debt
coming due through the end of 2025. Moody's expect the company to
generate free cash flow cash of around $1.2 billion through
commodity cycles, more than enough to cover capital spending of
around $600 million per year, and the company to maintain its
conservative approach toward future M&A and dividend distribution
to preserve its liquidity. PRIO's next major refinancing need are
the secured notes due 2026, and the company has a number of funding
alternatives, such as access to capital markets, bilateral loans
and bank funding from the pre-sale of crude and factoring of
receivables. PRIO has also stated that intends to refinance the
bilateral loans it raised to fund the acquisition if market
conditions improve. However, PRIO does not have committed credit
facilities and the company's alternate liquidity is limited because
its asset base is small and is largely encumbered.
RATING OUTLOOK
The positive outlook on PRIO's Ba3 rating reflects Moody's
expectation that the company's production will increase to above
150,000 boe/d after the acquisition of Peregrino and increase in
production in other fields, namely Wahoo in 2025. The outlook also
incorporates Moody's expectations that PRIO's credit metrics and
liquidity will return to pre-acquisition levels in the next 12-18
months and that the company will maintain adequate liquidity even
with potential volatility in oil prices.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
PRIO's Ba3 ratings could be upgraded if the company (1) increases
production to levels approaching 150,000 boe/d; (2) increases its
production diversification; (3) sustains leveraged full-cycle
ratio, which measures an oil company's ability to generate cash
after operating, financial and reserve replacement costs,
consistently above 2.5x; (4) maintains E&P debt/proved developed
reserves below $7.0, and (5) maintains retained cash flow (cash
from operations before working capital requirements less dividends)
to total debt above 30%, all of which while maintaining an adequate
liquidity.
PRIO's Ba3 ratings could be downgraded if (1) retained cash flow to
total debt declines below 25%, with limited prospects of a quick
turnaround; (2) if E&P debt/proved developed reserves remains above
$10.0, with limited prospects of a quick turnaround and (3) if
there is a deterioration of the company's liquidity profile.
COMPANY PROFILE
Founded in 2015 and headquartered in Rio de Janeiro, Brazil, PRIO
is an independent oil and gas production company focused on assets
located in the Campos basin. The company has operations in 5
offshore fields, and upon the closing of the Peregrino field
acquisition, will own 40% in this consortium. In the twelve months
ended June 2024, the company generated $2.9 billion in revenue with
total assets of $6.7 billion.
The principal methodology used in these ratings was Independent
Exploration and Production published in December 2022.
TRANSPORTADORA ASSOCIADA: Moody's Affirms Ba1 CFR, Outlook Pos.
---------------------------------------------------------------
Moody's Ratings has affirmed the Corporate Family Rating assigned
to Transportadora Associada de Gas S.A. (TAG) at Ba1. The outlook
remains positive.
The rating action follows Moody's decision to upgrade the rating of
the Government of Brazil to Ba1 from Ba2 maintaining a positive
outlook on October 1, 2024; as well as Moody's decision to change
the outlook on the Ba1 rating assigned to Petroleo Brasileiro S.A.
- PETROBRAS (Petrobras) to positive from stable on October 2, 2024.
RATINGS RATIONALE
The affirmation of TAG's Ba1 rating reflects its leading position
in Brazil's gas transportation, its modest leverage and robust
margins supported by stable and predictable cash flows arising from
its long-term, availability-based tariff contracts. This business
profile coupled with a moderate leverage have produced FFO/debt
around 33% and interest coverage ratio ([FFO + interest]/interest)
around 3.7x, which compare favorably with its regional and global
peers.
The dynamic nature of Brazil's regulatory framework for gas
transportation and re-contracting volume needs starting in 2026
present a certain degree of uncertainty. In addition, the company
operates its liquidity efficiently and returns excess cash to its
shareholders as dividends, turning debt repayment reliant on period
cash generation and allowing for little shocks. However, these
risks are somewhat buffered by the strong and recurring cash
generation, as well as the strong profile of the shareholders.
Overall, TAG's strong credit quality suggests the potential for a
higher rating, but Moody's consider its rating to be currently
constrained by the direct and indirect credit linkages to Petroleo
Brasileiro S.A. - PETROBRAS (Ba1 positive), as the primary shipper.
Despite a robust solid operating track record and robust financial
performance, Petrobras' credit profile is currently constrained by
the company's exposure to potential policy shifts and risk of
government influence in the company's business decisions. The
strength of the guarantees embedded in contractual framework for
its Gas Transportation Agreements (GTAs) partially mitigate
counterparty risks. Sovereign links are also present given the
company's local revenue generation and regulated business nature,
therefore exposed to governmental interference.
The positive outlook on TAG's rating is aligned with that of
Petrobras' Corporate Family Rating and reflects the likelihood that
TAG' rating will be upgraded if Petrobras is upgraded.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An upgrade of Petrobras' rating would result in an upgrade of TAG's
rating. A rating upgrade would also factor in the company's ability
to re-contract volumes expiring in 2025 at prices that are in line
with or better than Moody's rating assumptions, while maintaining
FFO/net debt above 18% and interest coverage ratio above 4.0x.
A rating downgrade would result from a deterioration in PETROBRAS'
credit quality, unfavorable changes in the contractual guarantees,
or adverse shifts in Brazil's regulatory environment. Weaker
shareholder support, illustrated by higher-than-expected dividend
distributions or declining liquidity, would also increase negative
rating pressure. Moody's would consider downgrading the rating if
TAG's FFO/debt remains below 15% and interest coverage ratio ([FFO
+ interest]/interest) stays below 3.7x, both on a sustained basis.
The principal methodology used in this rating was Natural Gas
Pipelines published in April 2024.
[*] Moody's Takes Actions on 23 Brazilian Financial Institutions
----------------------------------------------------------------
Moody's Ratings has taken rating actions on 23 Brazilian financial
institutions, including these issuers' associated entities. The
rating actions were prompted by the upgrade of the Government of
Brazil's (Brazil) sovereign bond rating to Ba1 from Ba2, which
outlook remained positive.
In line with the sovereign rating action, Moody's upgraded 12
banks' baseline credit assessments (BCAs) to ba1 from ba2, which
were constrained by Brazil's sovereign bond rating, as well as one
bank's BCA to ba2 from ba3. In addition, Moody's also upgraded the
long-term local- and foreign-currency deposit ratings of 14 banks
and the long-term foreign-currency unsecured debt ratings of 17
financial institutions, including holding companies and offshore
branches, as well as the long-term Corporate Family Ratings and
long-term local-currency issuer ratings (where applicable), of five
financial institutions. Additionally, Moody's upgraded the
Counterparty Risk Ratings (CRR) and Counterparty Risk Assessments
(CRA) assigned to 25 financial institutions and to respective
offshore branches. Moody's also affirmed other assessments and
deposit ratings that were not affected by this rating action.
Moody's maintained the positive outlook on ratings assigned to 21
financial institutions, and their associated entities (where
applicable), changed to stable from positive the outlook on the
deposit ratings of one bank, and maintained the stable outlook on
the deposit ratings of two banks.
The entities related to this rating action are:
- B3 S.A. - Brasil, Bolsa, Balcao
- Banco ABC Brasil S.A.
- Banco BOCOM BBM S.A.
- Banco Bradesco S.A.
- Banco Bradesco S.A., Grand Cayman Branch
- Banco BTG Pactual S.A.
- Banco BTG Pactual S.A., Grand Cayman Branch
- Banco BTG Pactual S.A., Luxembourg Branch
- Banco Citibank S.A.
- Banco Cooperativo Sicredi S.A.
- Banco da Amazonia S.A.
- Banco Daycoval S.A.
- Banco do Brasil S.A.
- Banco Do Brasil S.A. (Cayman)
- Banco do Nordeste do Brasil S.A.
- Banco Mizuho do Brasil S.A.
- Banco Modal S.A.
- Banco Nac. Desenv. Economico e Social - BNDES
- Banco Safra S.A.
- Banco Safra S.A. (Cayman Branch)
- Banco Santander (Brasil) S.A.
- Banco Santander (Brasil) S.A. - Cayman Br
- BNDES Participacoes S.A. - BNDESPAR
- Caixa Economica Federal
- Itau Unibanco Holding S.A.
- Itau Unibanco Holding S.A. (Cayman Islands)
- Itau Unibanco S.A.
- Itau Unibanco S.A. (Cayman Islands)
- Nu Financeira S.A. - SCFI
- Nu Holdings Ltd
- XP Inc.
A List of Affected Credit Ratings is available at
https://urlcurt.com/u?l=ASSclu
RATINGS RATIONALE
(1) ISSUER-SPECIFIC CONSIDERATIONS
BANCO DO BRASIL S.A. (BB)
The upgrade of BB's long-term local- and foreign-currency deposit
ratings to Ba1 from Ba2, reflects: (1) the upgrade of its BCA to
ba1 from ba2, driven by the bank's consistent generation of
recurring earnings, better-than-peers capital metrics, strong asset
quality and ample access to stable core deposits; and (2) Moody's
unchanged assumption of the highest degree of support from the
federal government to BB.
ITAU UNIBANCO S.A. (Itau Unibanco) AND ITAU UNIBANCO HOLDING S.A.
(Itau Unibanco Holding)
The upgrade of Itau Unibanco's long-term local- and
foreign-currency deposit ratings to Ba1, from Ba2, reflects: (1)
the upgrade of the bank's BCA to ba1, from ba2, incorporating
fundamental credit strengths that have remained resilient through
economic cycles, a highly diversified earnings structure, both in
terms of lines of business and revenues from operations abroad, and
its disciplined risk appetite and risk management profile; and (2)
Moody's unchanged assumption of high government support to Itau
Unibanco. For Itau Unibanco Holding, Moody's also upgraded its
long-term issuer to Ba2 from Ba3 and senior unsecured MTN rating to
(P)Ba2 from (P)Ba3. The ratings assigned to Itau Unibanco Holding
consider one notch of structural subordination from the ratings
assigned to its operating company Itau Unibanco.
BANCO BRADESCO S.A. (Bradesco)
The upgrade of Bradesco's long-term local- and foreign-currency
deposit ratings to Ba1 from Ba2 reflects: (1) the upgrade of its
BCA to ba1 from ba2, incorporating the bank's well-established
participation in the credit and insurance segments in Brazil, sound
liquidity and steady access to funding. These strengths are
counterbalanced by problem loan metrics that remain high, while the
bank maintains efforts to improve the quality of its loan book, and
a capital position, according to Moody's metric, that remains below
that of its global peers; and (2) Moody's unchanged assumption of
high government support to the bank.
BANCO SANTANDER (BRASIL) S.A. (SANBR)
The upgrade of SANBR's long-term local- and foreign-currency
deposit ratings to Baa3 from Ba1 reflects: (1) the upgrade of its
BCA to ba1 from ba2, supported by its solid franchise in Brazil,
business diversification, ample access to granular core deposits
and a consistent cost discipline that has supported its good
earnings generation capacity; (2) Moody's unchanged assumption of a
moderate probability of affiliate support from Banco Santander,
S.A. (Spain) (A2 positive, baa1), resulting in one notch of uplift
to an Adjusted BCA of baa3; and (3) Moody's unchanged assumption of
a high probability of government support, although this results in
no uplift to deposit ratings because SANBR's Adjusted BCA is one
notch above Brazil's sovereign rating of Ba1.
BANCO NAC. DESENV. ECONOMICO E SOCIAL – BNDES (BNDES) AND BNDES
PARTICIPAÇÕES S.A. – BNDESPAR (BNDESPAR)
The upgrade of BNDES' long-term local- and foreign-currency deposit
ratings to Ba1 from Ba2, stems from: (1) the upgrade of BNDES' BCA
to ba1 from ba2, reflecting the resilience of the bank's
fundamental credit strength through different economic cycles,
which is supported by strong asset quality metrics, robust
capitalization, adequate liquidity position and its franchise as
the largest development bank in Latin America; and (2) Moody's
unchanged assumption of the highest degree of support from the
federal government to BNDES. The issuer rating assigned to its full
subsidiary BNDESPAR was also upgraded to Ba1 from Ba2.
CAIXA ECONOMICA FEDERAL (Caixa)
Moody's also upgraded Caixa's long-term local- and foreign-currency
deposit ratings to Ba1 from Ba2 reflecting Moody's unchanged
assumption of the highest degree of government support to the bank,
considering its full government ownership as well as the government
mandate assigned to Caixa as social housing bank in Brazil. In
addition, Moody's also upgraded Caixa's standalone BCA to ba2 from
ba3, acknowledging the sustained improvement seen in the bank's
creditworthiness over the past five years, with lower problem loan
ratios consistently maintained below the system's average ratio,
robust core capitalization and steadily high market share of
savings deposits. As a result, Caixa's Ba1 deposit ratings
incorporate one notch of uplift from its BCA of ba2.
BANCO DA AMAZONIA S.A. (Banco da Amazonia)
The upgrade to Ba1 from Ba2, of the long-term local- and
foreign-currency deposit ratings assigned to Banco da Amazonia
reflects: (1) the affirmation of its BCA as ba3, stemming from
Moody's view that it remains well positioned at its current level;
and (2) Moody's unchanged assumption of the highest degree of
government support to the bank because it is wholly-owned by the
federal government. As a result, its deposit ratings incorporate
two notches of uplift from its BCA.
BANCO DO NORDESTE DO BRASIL S.A. (BNB)
The upgrade to Ba1 from Ba2, of the long-term local- and
foreign-currency deposit ratings assigned to BNB incorporates: (1)
the affirmation of its BCA as b1, stemming from Moody's view that
it remains well positioned at its current level; and (2) Moody's
unchanged assumption of the highest degree of government support to
the bank because it is wholly-owned by the federal government. As a
result, its deposit ratings incorporate three notches of uplift
from its BCA.
BANCO BTG PACTUAL S.A. (BTG)
The upgrade to Ba1 from Ba2, of the long-term local- and
foreign-currency deposit ratings assigned to BTG reflects: (1) the
upgrade of the BCA to ba1 from ba2, incorporates BTG's large
commercial and investment banking as well as strong financial
advisory operation in Brazil, supported by a disciplined risk
management that provides stability in revenues and supports
capitalization; and (2) Moody's unchanged assumption of moderate
government support to the bank.
BANCO SAFRA S.A. (Safra)
Moody's also upgraded Safra's long-term local- and foreign-currency
deposit ratings to Ba1 from Ba2 driven by: (1) the upgrade of its
BCA to ba1 from ba2; reflecting the bank's well-established
franchise and strong financial fundamentals, including a sound
solvency profile and an earnings generating capacity that benefits
from a diversified operation; and (2) Moody's unchanged assumption
of moderate government support to the bank.
BANCO CITIBANK S.A. (Citibank Brazil)
The affirmation of the Baa3 long-term local- and foreign-currency
deposit ratings assigned to Citibank Brazil reflects: (1) the
upgrade of its BCA to ba1 from ba2, reflecting the bank's strong
franchise in the Brazilian corporate lending segment; (2) Moody's
unchanged assumption of a high probability of affiliate support
from Citibank, N.A. (Aa3 stable, baa1), in the United States,
resulting in one notch of uplift to an Adjusted BCA of baa3 to
Citibank Brazil; and (3) Moody's unchanged assumption of a low
probability of government support.
BANCO COOPERATIVO SICREDI S.A. (Sicredi)
In upgrading Sicredi's long-term Corporate Family Rating (CFR) and
local-currency issuer rating to Ba1 from Ba2, Moody's took into
consideration: (1) the upgrade of the bank's BCA to ba1 from ba2,
reflecting Sicredi's long track record of superior asset quality
metrics, adequate capitalization and robust earnings profile, which
benefits from a granular and low-cost core deposit base; and (2)
Moody's unchanged assumption of a low probability of government
support to Sicredi.
BANCO ABC BRASIL S.A. (BAB)
Moody's also upgraded BAB's long-term local- and foreign-currency
deposit ratings to Ba1 from Ba2 as a result of: (1) the upgrade of
its BCA to ba1 from ba2, incorporates the bank's solid financial
fundamental and well-established wholesale franchise focused on
large and upper-middle market companies, track-record of
disciplined credit risk standards, buoyant profitability,
diversified funding structure and capital replenishment capacity;
and (2) Moody's unchanged assumption of low government support to
the bank, which, however, does not provide any uplift to BAB's
deposit ratings.
BANCO DAYCOVAL S.A. (Daycoval)
The upgrade to Ba1 from Ba2, of the long-term local- and
foreign-currency deposit ratings assigned to Daycoval reflects: (1)
the upgrade of the bank's BCA to ba1 from ba2, incorporating its
solid business franchise as a middle-market lender, supported by a
disciplined business and risk profile, consistent capital
replenishment and diversified funding mix, while partly offset by
its reliance on institutional resources; and (2) Moody's unchanged
assumption of low government support to the bank, which, however,
does not provide any uplift to Daycoval's deposit ratings.
NU FINANCEIRA S.A. – SCFI (Nubank) AND NU HOLDINGS LTD
In upgrading Nubank's BCA to ba1 from ba2, Moody's acknowledge its
significant business potential arising from its sizeable customer
base and lean digital operation, solid capital position and
improving earnings profile. The ba1 BCA assigned to Nubank also
takes into account current challenges, including rising asset
risks, as a result of strong growth in the credit card segment
during period of high interest rates. In addition, the bank focuses
on enhancing business diversification as well as funding mix and
tenor, in order to support future earnings generation. Despite
that, Nubank will likely face upward pressure on its cost structure
as result of the highly competitive retail banking segment in
Brazil. The long-term issuer rating assigned to Nu Holdings Ltd
considers one notch of structural subordination from the ratings
assigned to its operating company Nubank.
BANCO BOCOM BBM S.A. (BOCOM BBM) AND BANCO MIZUHO DO BRASIL S.A.
(Mizuho Brazil)
The affirmation of the Baa3 long-term local- and foreign-currency
deposit ratings assigned to BOCOM BBM and Mizuho Brazil
incorporates: (1) the affirmation of their standalone BCAs, which
remain well positioned at ba2 and ba3, respectively; (2) Moody's
unchanged assumption of a very high probability of affiliate
support from Bank of Communications Co., Ltd and Mizuho Bank, Ltd.,
respectively, resulting in two notches, for BOCOM BBM, and three
notches, for Mizuho Brazil, of uplift to their Adjusted BCAs of
baa3; and (3) Moody's unchanged assumption of a low probability of
government support to both banks.
B3 S.A. – BRASIL, BOLSA, BALCAO (B3)
Moody's upgraded all ratings assigned to B3, including its
long-term CFR to Baa3 from Ba1, long-term local-currency issuer
rating to Baa3 from Ba1, and long-term foreign-currency senior
unsecured debt rating to Baa3 from Ba1. These ratings are
positioned one notch above Brazil's Ba1 sovereign rating because of
B3's (1) proven track record of strong financial performance
through interest rate and economic cycles, (2) systemically
relevant role as Brazil's financial market infrastructure company
and (3) strong linkage with the government, which stems from
significant investment of its cash position and most of its
settlement funds, used for protection against counterparty default
risk, into Brazilian sovereign bonds.
As CFRs are not typically assigned at an investment grade level,
subsequent to the action, Moody's will withdraw B3's CFR rating.
Moody's have decided to withdraw the rating(s) for Moody's own
business reasons.
XP INC. (XP)
The upgrade of XP's ratings, including its long-term CFR to Ba1
from Ba2, and long-term foreign-currency backed senior unsecured
debt rating to Ba1 from Ba2, reflects the company's robust
creditworthiness, which points to a standalone financial profile at
the same level as Brazil's sovereign bond rating. XP's standalone
assessment remains at the same level as Brazil's sovereign rating
because of the strong link between the firm's creditworthiness and
the Brazilian sovereign risk, driven by the concentration of XP's
market-making activities in Brazilian debt securities and the
geographical concentration of its operations.
The debt ratings assigned to XP incorporates irrevocable and
unconditional guarantee by XP Investimentos S.A., an intermediate
holding company that houses the vast majority of XP's operations.
Moody's consider that XP's creditors are structurally subordinated
to its main market-making, broker-dealer operating company's (XP
CCTVM S.A.) sizeable debt-like obligations. However, the cash flows
generated by XP's diverse other activities are of sufficient size
to offset this structural subordination in its capital structure,
and accordingly the ratings assigned to XP's proposed debt
instruments are aligned with its CFR.
BANCO MODAL S.A. (Modal)
The upgrade of Modal's long-term local- and foreign-currency
deposit ratings to Ba1 from Ba2, reflects: (1) the affirmation of
the bank's ba3 standalone BCA, which remains well positioned at its
current level; (2) Moody's unchanged assumption of a high
probability of affiliate support from XP Inc., resulting in a
two-notch uplift to an Adjusted BCA of ba1; and (3) Moody's
unchanged assumption of a low probability of government support.
OUTLOOKS
The positive outlook on the long-term deposit ratings and/or
long-term senior unsecured debt ratings, as well as long-term CFR
and long-term issuer ratings (where applicable) of BB, BNDES, Itau
Unibanco, Bradesco, SANBR, BTG, Safra, XP, Sicredi, Citibank
Brazil, BAB, Daycoval, and associated entities, reflects standalone
financial profiles that are positioned at the same level or above
Brazil's Ba1 sovereign rating. These entities' financial profiles
incorporate robust and consistent credit risk frameworks that have
weathered different economic cycles over the past ten years. For
BB, BNDES, Itau Unibanco, Bradesco and SANBR, the positive outlook
also derives from the positive outlook on Brazil's sovereign debt
rating, based on Moody's assessment of high government support.
The positive outlook on the long-term deposit ratings assigned to
Caixa, Banco da Amazonia, and BNB are driven by the positive
outlook on Brazil's sovereign debt rating.
The positive outlook on B3 is in line with the positive outlook on
Brazil's sovereign rating, reflecting its dominant position in the
local market and systemic importance as an integrated exchange,
depository, and clearing, as well as its role as a central
counterparty via its clearing houses.
The stable outlook on the long-term deposit ratings of Nubank
reflects a financial profile that is well-positioned at its current
level of ba1, at the same level as its assigned standalone BCA.
The stable outlook on the long-term deposit ratings of BOCOM BBM
and Mizuho Brazil reflects their Adjusted BCAs of baa3 that benefit
from affiliate support and are positioned one notch above the
sovereign rating of Ba1. As such, a potential one-notch upgrade of
the sovereign rating would not result in an upgrade of the banks'
deposit ratings.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The deposit ratings, senior unsecured debt and MTN program ratings,
as well as issuer ratings (where applicable), assigned to BB,
BNDES, Itau Unibanco, Bradesco, BTG, Caixa, Banco da Amazonia and
BNB, including associated entities, would face positive pressure as
a result of an upgrade of Brazil's sovereign ratings. Ratings of
Itau Unibanco, BB, BTG, XP, and associated entities, would also
face positive pressure coming from their standalone financial
profiles.
An upgrade of B3's ratings is unlikely absent an upgrade in
Brazil's sovereign rating, even in the event of a material
improvement in the company's financial fundamentals. This is
because B3's ratings are currently constrained at one notch above
Brazil's sovereign bond rating, considering the company's strong
linkage with the government creditworthiness.
For Safra, BAB, Daycoval, Nubank, Citibank Brazil, BOCOM BBM and
Mizuho Brazil, their deposit ratings, senior unsecured debt and MTN
program ratings, and issuer ratings (where applicable), could be
upgraded following an upgrade of their standalone BCAs. This, in
turn, would reflect improvement of their financial fundamentals
beyond Moody's expectations, more specifically, if the banks were
to improve their asset risk profiles, sustain strong profitability
metrics leading to sound organic capital generation capacity, while
maintaining comfortable liquidity and funding positions.
Conversely, downward pressure on these financial institutions'
standalone credit assessments and/or ratings, including deposit,
senior unsecured debt and MTN program ratings, and issuer ratings
(where applicable), would derive from a downgrade of Brazil's
sovereign ratings, although highly unlikely at this time
considering the positive outlook on the rating.
B3's ratings could be downgraded as a result of a downgrade of
Brazil's sovereign rating. A material deterioration of the
company's financial fundamentals and, in turn, of its standalone
credit profile could pressure B3's ratings downward. However, given
the current strength of B3's standalone credit profile, such
deterioration would need to be quite material, before it created
downward pressure on B3's ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in rating Itau Unibanco Holding
S.A., Itau Unibanco Holding S.A. (Cayman Islands), Itau Unibanco
S.A. (Cayman Islands), Itau Unibanco S.A., Banco Santander (Brasil)
S.A., Banco Santander (Brasil) S.A. - Cayman Br, Banco Bradesco
S.A., Banco Bradesco S.A., Grand Cayman Branch, Banco do Brasil
S.A., Banco Do Brasil S.A. (Cayman), Banco Nac. Desenv. Economico e
Social - BNDES, BNDES Participacoes S.A. - BNDESPAR, Banco da
Amazonia S.A., Banco do Nordeste do Brasil S.A., Caixa Economica
Federal, Banco BTG Pactual S.A., Banco BTG Pactual S.A., Grand
Cayman Branch, Banco BTG Pactual S.A., Luxembourg Branch, Banco
Cooperativo Sicredi S.A., Banco Safra S.A., Banco Safra S.A.
(Cayman Branch), Banco ABC Brasil S.A., Banco Daycoval S.A., Nu
Holdings Ltd, Nu Financeira S.A. - SCFI, Banco Modal S.A., Banco
BOCOM BBM S.A., Banco Citibank S.A. and Banco Mizuho do Brasil S.A.
was Banks Methodology published in March 2024.
[*] Moody's Takes Rating Actions on 4 Brazilian Government Issuers
------------------------------------------------------------------
Moody's Ratings has taken rating actions on Brazilian regional and
local governments (RLGs), including (1) the Municipality of Belo
Horizonte, (2) the Municipality of Niteroi, (3) the State of Sao
Paulo and (4) the State of Minas Gerais.
The rating actions follow Moody's decision to upgrade the
Government of Brazil's long-term issuer rating to Ba1 from Ba2,
maintaining a positive outlook on October 1, 2024. The upgrade
reflects material credit improvements which Moody's expect to
continue, including a more robust growth performance than
previously assessed and a growing track record of economic and
fiscal reforms that lend resilience to the credit profile, although
the credibility of Brazil's fiscal framework is still moderate, as
reflected in a relatively high cost of debt. In turn, more robust
growth and fiscal policy consistently adhering to the fiscal
framework will allow the debt burden to stabilize in the medium
term, albeit at relatively high levels.
RATINGS RATIONALE
A strengthening in the sovereign fiscal position through sustained
gross domestic product (GDP) growth will also be beneficial to the
credit profile of RLGs through, for example, higher transfers from
the central government but in different degrees. Transfers from the
central government constitute a significant portion of
sub-sovereigns' operating revenue, accounting for approximately 15%
for states and around 35% for municipalities. It also leads to a
view of stronger quality of support from the central government,
which highly influences the RLGs' resilience to shocks. The
stronger credit profile of the Government of Brazil is reflected in
the one notch upgrade of the long-term issuer ratings of the four
Brazilian states and municipalities.
There is a strong correlation between the sovereign's macroeconomic
performance and the states' tax bases because around 60-70% of
their operating revenue are from ICMS taxes which are very
sensitive to macroeconomic trends, and in turn revert into
transfers to their municipalities. Moody's revised upwards Moody's
real GDP growth to 2.5% in 2024 and over the medium term, partly
the result of structural reforms implemented over successive
administrations related to a range of policy areas. Moody's expect
that the stronger macroeconomic operating environment will revert
into higher fiscal results for most Brazilian states and
municipalities, hence the upgrades in the individual baseline
credit assessments (BCAs) of the State of Sao Paulo and the
Municipalities of Belo Horizonte and Niteroi. Nevertheless, Moody's
consider that the challenges around the State of Minas Gerais'
unsustainable debt level will continue to prevail, and drive the
affirmation of the state's BCA.
-- STATE OF SAO PAULO
The State of Sao Paulo's ba2 BCA reflects its large and diverse
economy that supports a strong own-source revenue base, underpinned
by the state's prudent fiscal management, and its adequate
liquidity. The BCA is one notch below the BCA Scorecard Indicated
Outcome of ba1 incorporating Moody's view of the state's modest and
somewhat volatile fiscal surpluses, which Moody's expect to
gradually compress with the state's pension burden as a share of
total revenue increasing. The ba2 BCA also takes into account Sao
Paulo's high indebtedness compared with that of its national
peers.
The state's Ba1 LT Issuer Rating reflects the combination of its
standalone credit profile, as reflected in the ba2 BCA, and Moody's
assumption of a high likelihood of extraordinary support from the
Government of Brazil should the state face acute liquidity stress.
The positive outlook on the State of Sao Paulo's rating is aligned
with the positive outlook on the Government of Brazil 's (Ba1
positive) rating. A strengthening in the sovereign fiscal position
through sustained gross domestic product (GDP) growth would be
beneficial to the credit profile of Sao Paulo through, for example,
higher ICMS tax collections due to sustained economic activity or
higher transfers from the central government.
-- STATE OF MINAS GERAIS
The State of Minas Gerais' caa2 Baseline Credit Assessment (BCA)
takes into consideration the state's very weak credit profile on a
standalone basis, given its large personnel expense structure, high
debt and pension burden, and very weak liquidity which has led to a
history of difficulties to address debt service without support
from the federal government. The state will start servicing its
debt with the federal government in October 2024 as a sign of good
faith to the fiscal recovery regime (RRF) previously approved by
the federal government. Nonetheless, its revenue base remains
largely insufficient to service all its obligations on a
sustainable basis.
The state's B1 LT Issuer Rating combines a BCA of caa2, and a high
level of extraordinary support from the Government of Brazil.
The stable outlook on the State of Minas Gerais' rating reflects
Moody's view that reaching an approval of a formal solution to
address the state's debt over the next 12-18 months remains
challenging. It also encompasses Moody's view that an upgrade of
the Government of Brazil's (Ba1 positive) rating would not
immediately result in an upgrade of the State of Minas Gerais'
rating due to its idiosyncratic risks.
-- MUNICIPALITY OF BELO HORIZONTE
The Municipality of Belo Horizonte's ba1 BCA reflects the
municipality's robust standalone credit profile, as depicted by its
relatively strong liquidity, its economic resilience, low leverage
and adequate debt profile compared to global peers. The credit
profile also takes into consideration the municipality's strong and
consistent cash financing surpluses, that result from its prudent
fiscal management.
The municipality's Ba1 LT Issuer rating reflects the combination of
its standalone credit profile, as reflected in its BCA of ba1, and
Moody's assumption of a strong likelihood of extraordinary support
from the Brazilian government in the event that the entity faces
acute liquidity stress.
The positive outlook on the Municipality Belo Horizonte's rating is
aligned with the positive outlook on the Government of Brazil's
(Ba1 positive) rating. A strengthening in the sovereign fiscal
position through sustained gross domestic product (GDP) growth
would be beneficial to the credit profile of Belo Horizonte
through, for example, increased collection of taxes on services
(ISS) due to increased economic activity, and higher transfers from
the central government. Transfers from the central government
currently constitute approximately 7.4% of Belo Horizonte's
operating revenue. Higher transfers would lead to a view of
stronger quality of support from the sovereign, which highly
influences the municipality's resilience to shocks.
-- MUNICIPALITY OF NITEROI
The Municipality of Niteroi's ba1 BCA reflects its established
track record of fiscal surpluses, conservative budget setting,
prudent fiscal management and a stable political environment, all
of which highlight a robust governance framework which presents low
governance risk to the credit profile. The rating also take into
consideration the municipality's revenue profile that is largely
reliant on volatile oil royalties. Partially mitigating this risk
is an equalization fund to offset potential shortfalls in revenue
transfers. The municipality demonstrates a very strong liquidity
position to face its modest indebtedness.
The Municipality of Niteroi's Ba1 LT Issuer rating combines a BCA
of ba1 and a strong likelihood of extraordinary support coming from
the Government of Brazil.
The positive outlook on the Municipality of Niteroi's rating is
aligned with the positive outlook on the Government of Brazil's
(Ba1 positive) rating. A strengthening in the sovereign fiscal
position through sustained gross domestic product (GDP) growth
would be beneficial to the credit profile of Niteroi through, for
example, increased collection of taxes on services (ISS) due to
increased economic activity, and higher transfers from the central
government.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The strengthening of Brazil's credit profile, as reflected by an
upgrade of the sovereign rating, would have positive credit
implications for the Brazilian sub-sovereigns in general via
reduction in the systemic risk and exert upward pressure on the
ratings, except for the State of Minas Gerais, due to its higher
idiosyncratic risks.
Alternatively, a deterioration of sovereign credit strength would
exert downward pressure on all the ratings of Brazilian RLGs.
Factors such as fiscal slippage, rapidly rising debt levels, or the
emergence of significant liquidity risks could also exert downward
pressure on the BCA of Brazilian sub-sovereigns.
LIST OF AFFECTED RATINGS
Issuer: Sao Paulo, State of
Upgrades:
Baseline Credit Assessment, Upgraded to ba2 from ba3
LT Issuer Rating, Upgraded to Ba1 from Ba2
Outlook Actions:
Outlook, Remains Positive
Issuer: Minas Gerais, State of
Upgrades:
LT Issuer Rating, Upgraded to B1 from B2
Affirmations:
Baseline Credit Assessment, Affirmed at caa2
Outlook Actions:
Outlook, Changed to Stable from Positive
Issuer: Belo Horizonte, Municipality of
Upgrades:
LT Issuer Rating, Upgraded to Ba1 from Ba2
Baseline Credit Assessment, Upgraded to ba1 from ba3
Outlook Actions:
Outlook, Remains Positive
Issuer: Niteroi, Municipality of
Upgrades:
Baseline Credit Assessment, Upgraded to ba1 from ba3
LT Issuer Rating, Upgraded to Ba1 from Ba2
Outlook Actions:
Outlook, Remains Positive
The principal methodology used in these ratings was Regional and
Local Governments published in May 2024.
=========
C H I L E
=========
LATAM AIRLINES: To Sell First Dollar Bonds Since Bankruptcy Exit
----------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Latam
Airlines Group SA is tapping global debt markets for the first time
since the carrier emerged from its chapter 11 bankruptcy.
The Santiago-based airline is selling $1.2 billion in dollar notes
maturing in 2030, according to globalinsolvency.com.
Initial price talks are taking place at a yield in the low-to-mid
8% range, the report notes.
Latam, the largest carrier in South America, exited the chapter 11
process in late 2022 with 35% less debt, placing a renewed focus on
customer service, the report relays.
It recently returned to the New York Stock Exchange, with an
offering of American depositary shares, the report discloses. As
reported in the Troubled Company Reporter-Latin America on Oct. 1,
2024, S&P Global Ratings assigned its 'BB+' issue-level rating and
'1' recovery rating to Latam Airlines Group S.A.'s proposed senior
secured notes.
TELEFONICA MOVILES: S&P Lowers ICR to 'BB+', Outlook Stable
-----------------------------------------------------------
S&P Global Ratings lowered its issuer credit and issue-level
ratings on Telefonica Moviles Chile (TMC) to 'BB+' from 'BBB-'.
The stable outlook reflects S&P's expectation that TMC will resume
revenue growth in 2025 but its profitability will remain strained
due to intense competition and leverage will remain above 3x in
2024 and close to 3x after that.
Results in the first semester of 2024 have been weak, and S&P
anticipates profitability will remain strained at least for the
next two years. Since 2021, margins have weakened, mostly because
of the sale of a majority stake in the fiber business and a period
of higher inflation in a highly competitive environment. This trend
has deepened in the past 12 months mostly amid intense competition
in Chile and some changes in commercial strategy. That translated
into subscriber losses across segments, which added to lower
equipment sales and challenges in the B2C (business to consumer)
segment, led to a EBITDA margin dropped of 16.4% in the rolling 12
months as of June 2024 from 19.6% in June 2023 -- well below
historic margins.
These include staff reduction, focusing on improving inventory
management, and renegotiating the wholesale agreement with OnNet to
reduce the rental price. However, for 2024, we expect TMC's
revenues to contract 2.4% due to modest drops in subscribers in
most business segments (particularly in postpaid mobile), as the
company has been focusing on retaining higher-value customers
rather than competing with commercial promotions.
S&P said, "We believe that although this strategy could help reduce
acquisition costs and churn, it will result in subscriber losses to
other competitors with a more aggressive commercial strategy. We
expect this to lead to an EBITDA margin of 18% at year-end 2024.
Going forward, we expect that TMC will be able to resume revenue
growth, supported by an active commercial strategy to shield
customer base and a certain stabilization of average revenue per
user (ARPU), pushing EBITDA margin to around 20% but still below
average profitability for the telecom industry."
The connectivity service with OnNet increases costs but has allowed
TMC to reduce capital expenditures (capex) allocated to fiber and
focus its investments on 5G technology. S&P said, "As a result, we
expect that capex investments will moderate to around 10% of
revenues. Coupled with working capital initiatives, this is likely
to enable TMC to maintain positive FOCF in the next two to three
years. On the other hand, we think the company could resume
dividend payments in 2025. In this sense, although we expect
leverage to fall in the second half of 2024, we forecast adjusted
debt to EBITDA will remain above 3.0x in 2024 and between 2.7x-3x
the following two years."
S&P said, "We believe that TMC's growth prospects in the fixed
business are now more challenging. In the past, we used to consider
TMC's fiber optic network a clear competitive advantage. It
provided the company with the best broad band network in the
country and the ability to defend its customer base against
competitors lacking a similar infrastructure through bundles. But
Claro -VTR JV and Empresa Nacional de Telecomunicaciones S.A have
now entered the same neutral network operated by OnNet. Although
competitive dynamics in the segment are different than mobile and
switching carriers is not as simple, we believe ARPUs in this
business will come under pressure in the coming years and TMC would
now face more intense competition in this segment."
The company has a strong presence in both the fixed and mobile
segment as the second-largest player in the mobile segment, with
28% of share as of June 2024. Additionally, it benefits from a
leading position in the fiber optic business and it holds a
significant share in pay TV (21.3%). S&P believes its strong brand
recognition and good product diversification provides TMC a
competitive edge to boost customer retention, through bundle
offers, and reduce churn.
S&P anticipates that TMC will improve cash balance to about CLP540
billion at year end 2024, improving from the reported CLP264
billion in June 2024. This increase, coupled with the
rationalization of capex, no dividend payments expected in 2025,
and no meaningful debt maturities until 2026, will contribute to
maintaining health liquidity levels.
=============
J A M A I C A
=============
JAMAICA: Businesses Encouraged to Utilize Trade Deals with UK
-------------------------------------------------------------
RJR News reports that President of the Private Sector Organisation
of Jamaica, Metry Seaga, is urging business stakeholders to take
advantage of trade arrangements with the United Kingdom.
He was speaking at a business briefing at the British High
Commission, as part of a UK Trade Mission to Jamaica, according to
RJR News.
Mr. Seaga said the private sector has not done enough to take
advantage of the trade arrangements, with new opportunities
emerging in critical sectors, the report notes.
He says Jamaica currently exports some $550 million worth of goods
to the European Union, the report relays.
Mr. Seaga highlighted that the Economic Partnership Agreement
between CARIFORUM and the UK, which came after Brexit, offers
renewed avenues for strengthening trade in areas like agriculture,
energy and logistics, the report notes.
However, he says the key to unlocking even greater benefits lies in
adding more value to traditional export, 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: See Higher Costs for Restaurants and Accommodation
-----------------------------------------------------------
RJR News reports that Jamaicans spent an average 4.8 per cent more
on eating out and accommodation for the 12 months ended August.
The Statistical Institute of Jamaica says for the month of August
alone, the division 'Restaurants and Accommodation Services' saw an
average increase in related prices of 1.1 per cent, according to
RJR News.
It is reported that this was due mostly to higher prices for meals
consumed away from home, the report notes.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea. Jamaica
is an upper-middle income country with an economy heavily dependent
on tourism. Other major sectors of the Jamaican economy include
agriculture, mining, manufacturing, petroleum refining, financial
and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. 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.
===============
S U R I N A M E
===============
SURINAME: IDB Approves US$135M Credit Line for Investment Projects
------------------------------------------------------------------
Suriname intends to increase access to electricity, drinking water,
and telecommunications for Amazonian indigenious communities.
The Inter-American Development Bank (IDB) has approved a
Conditional Credit Line for Investment Projects (CCLIP) of US$135
million in two tranches to boost socioeconomic development by
promoting clean and sustainable services within the framework of a
just energy transition.
The credit line was approved by the IDB's Executive Board, with the
first tranche comprising of an individual operation of US$45
million in the form of a Global Multiple Works Operation and a
non-reimbursable financing of US$1.5 million from the Low Emission
Energy Fund for People and the Planet.
The first individual operation will finance a bioeconomic
empowerment program in indigenous communities through access to
water, energy, and telecommunications. Its objective is to promote
the socioeconomic development of villages in rural areas.
It is expected to directly benefit 1,200 households, 25 health
centers, 30 schools, and 50 commercial activities in the Amazon
region, particularly local farmers, small business owners,
indigenous peoples, women, and afro-descendants. It will also
benefit 400 women with jobs in bioeconomic activities. The Ministry
of Natural Resources and the local electric company EBS will
benefit from institutional strengthening.
The lack of reliable and sustainable infrastructure in the
electricity, water, and telecommunications sectors in rural areas
is reflected in coverage rates. The national electricity access
rate is 98.2%. However, in rural areas, especially in villages, it
is below 90%, leaving about 20,000 households without access or
dependent on small diesel generators.
Similarly, water supply is limited—less than 60% of the rural
population has access - and telecommunications infrastructure is
deficient or non-existent in the interior, where only 27% have
internet access.
To address these challenges, the program will finance investments
in electricity, water, and telecommunications infrastructure and
services, as well as their productive and sustainable use
("bioeconomy") in rural Amazonian areas.
In this regard, it plans to finance the supply, installation, and
commissioning of disaster-resilient solar mini-grids, including the
improvement of the existing distribution network to provide
permanent electricity in these areas.
It will also support the installation of water collection,
treatment, and distribution systems to provide clean and reliable
water to villages, and finance the improvement and development of
telecommunications distribution and access infrastructure
(telephony, internet, and broadcasting).
Additionally, the program will support the formulation and
execution of projects for the productive and sustainable use of
electricity, water, and telecommunications services, with an
emphasis on the bioeconomy, and strengthen the institutional
capacity of the Ministry of Natural Resources and EBS to plan,
design, and supervise rural electrification and water supply
projects.
The first individual loan of US$45 million under the CCLIP has a
repayment term of 23.5 years, a grace period of seven years, and an
interest rate based on SOFR.
===============
X X X X X X X X
===============
LATAM: Value of Imports From CARICOM Fell 8% for January to May
---------------------------------------------------------------
RJR News reports that the value of imports from the CARICOM region
fell by 8 per cent between January to May 2024.
The Statistical Institute of Jamaica says spending on goods coming
into the country from the region, was valued at US$165.3 million,
according to RJR News.
For the similar five month period last year, these imports were
valued at US$179.7 million, the report notes.
This was due mainly to a decline in the value of "Food" and
"Mineral Fuels" imports from CARICOM, the report relays.
Expenditure on "Food" imports from the region was worth US$77.7
million, versus US$79.1 million for the corresponding period last
year, the report notes.
"Mineral Fuels" coming in from the bloc was valued at US$27.1
million, a decrease of US$12.5 million when compared to what was
spent in January to May 2023, the report adds.
*********
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 * * *