Moody’s cuts Tianqi Lithium

Moody’s Investors Service said it downgraded to B1 from Ba3 Tianqi Lithium Corp.’s corporate family rating and the senior unsecured rating on the bonds issued by Tianqi Finco Co., Ltd. and guaranteed by Tianqi Lithium. The ratings outlook remains negative.

“The ratings downgrade mainly reflects the materially smaller-than-expected proceeds from Tianqi Lithium’s rights issue,” said Gerwin Ho, a Moody’s vice president, senior credit officer and lead analyst for Tianqi Lithium, in a press release. “Such a situation will result in the company’s slower-than-expected deleveraging and tighter-than-expected liquidity; two factors that position the company in the B rating category.”

“The negative ratings outlook continues to reflect the uncertainty related to Tianqi Lithium’s refinancing plans, weak liquidity position and weak operations,” said Ho.

Tianqi Lithium’s leverage increased following its acquisition of a 23.8% stake in Sociedad Quimica y Minera de Chile SA in December 2018, which brought its total stake in the company to 25.9%.

Tianqi Lithium announced a rights issue in which it will issue new shares totaling 343 million at RMB 8.75 per share. If fully subscribed, the proceeds will total about RMB 3 billion, which is lower than the upper range of RMB 7 billion that Moody’s had earlier expected.

As a result, Tianqi Lithium’s financial leverage – as measured by total debt to EBITDA – should remain elevated at about 7.5x over the next 12 months, with SQM accounted for on an equity method basis.

Fitch upgrades Argentina

Fitch Ratings today said it upgraded Argentina's long-term foreign-currency issuer default rating to CC from RD.

The upgrade of Argentina's long-term foreign-currency IDR to CC follows the conclusion of the government's unilateral extension of repayment of short-term dollar-denominated treasury bills (Letes) issued under local law on Dec. 19. Fitch considered this development to be a default on Argentina's sovereign obligations in the form of a distressed debt exchange, carried out via executive decree rather than a negotiation and downgraded its foreign-currency ratings to RD on Friday. The distressed exchange effectively concluded as the new repayment schedule has taken effect, Fitch said.

The CC rating indicates a high probability of another default of some kind on Argentina's sovereign obligations, which could include a new DDE or traditional payment default.

The new administration of President Alberto Fernandez announced its intention to restructure its long-term bonds issued under both local and foreign law early in 2020. It has taken steps that could support its financial position as it engages in talks with bondholders, including tightening capital controls to preserve central bank FX reserves, issuing some short-term peso-denominated debt in the local market and resorting to some central bank financing.

The administration also secured congressional approval of a package of emergency measures, including large tax increases and changes in the pension benefit formula, which could prevent an increase in financing needs in 2020, the agency said.

Fitch downgrades Argentina

Fitch Ratings said it downgraded Argentina’s long-term foreign currency issuer default rating to RD from CC on Friday.

The downgrade of Argentina follows the government’s unilateral extension on Dec. 19 of repayment of short-term dollar-denominated treasury bills (Letes) sold under local law. In accordance with Fitch criteria, Argentina defaulted on its sovereign obligations, and this development constituted a distressed debt exchange.

The new administration of President Alberto Fernandez, which took office on Dec. 10 after a first-round victory in October elections, indicated this step has been taken as part of a broader set of emergency measures to manage an ongoing economic crisis.

Fitch deemed the maturity extension to be a distressed debt exchange in line with its published sovereign rating criteria, because it entails a material reduction in terms, and has been taken to avoid a traditional payment default, albeit unilaterally via presidential decree instead of a negotiation with creditors. Fitch said it deems the decree also effectively concludes the DDE and will upgrade Argentina’s foreign currency IDRs to a level appropriate for its debt service payment prospects on a forward-looking basis.

S&P trims Argentina

S&P said it downgraded Argentina to SD from CCC- after the country’s government unilaterally extended the maturity of dollar-denominated short-term paper until August 2020. This transaction qualifies as a default under S&P’s criteria. The agency also downgraded the local currency long-term sovereign rating to CC from CCC-.

“Under our distressed exchange criteria, and in particular for entities rated in the CCC category, the extension of the maturities of the short-term debt with no compensation constitutes a default. Since the new terms became effective immediately, the default on these short-term instruments has effectively been cured. However, uncertainty remains about the government’s broader debt management strategy, and in particular that for peso-denominated obligations that come due over the next few weeks. Clarity on this strategy and any potential restructuring of these obligations will help determine when we could raise the sovereign credit rating from SD,” said S&P in a press release.

S&P’s downgrade of the local currency long-term sovereign credit rating and the long-term issue ratings on Argentina to CC from CCC- reflects heightened vulnerability of a distressed debt exchange as the Fernandez administration has signaled its plans to advance a restructuring, the terms of which are unknown, of its long-term debt with the private sector.

The outlook is negative.

S&P cuts Rutas de Lima

S&P said it lowered its issue-level rating on Rutas de Lima SAC to B from BB. The outlook on the rating is negative.

The downgrade mainly incorporates S&P’s view of higher volatility of the company’s CFADS stemming from unexpected social and political instability in Peru that would depress GDP growth in 2020 and subsequent years, and therefore, lower-than-expected traffic.

“Although we still project a relatively low minimum DSCR of about 1.05x , which is in line with our previous base-case assumptions, we believe the ratio is now more vulnerable and could drop to 1x if the conditions are only marginally worse than what we currently expect,” said S&P in a press release.

During the protests in January 2017, the newly opened Chillon toll plaza in the south-north direction of the Panamericana Norte toll road was destroyed. The municipality of Lima suspended the the toll for the remainder of the concession term, resulting in a loss of revenue for the project, which the agency initially incorporated in its DSCR metrics estimate. The project and Lima are in currently in arbitration over the suspension of the Chillon toll plaza, which S&P said it expects to be completed in 2020.

S&P upgrades Avianca

S&P said it raised its Avianca Holdings SA’s issuer credit rating to B- from SD and its issue-level rating on the 9% senior secured notes due 2023 to B- from CCC- and the 8 3/8% senior unsecured notes due 2020 to CCC+ from CC on Avianca. The outlook is stable.

“The upgrade reflects our reassessment of Avianca’s credit quality after the company announced the completion of its debt-restructuring plan,” said S&P in a press release.

At this point, the company had exchanged 88.1% of its 8 3/8% senior unsecured notes due 2020 for the new 8 3/8 % senior secured notes due 2020 (mandatory conversion by Dec. 31, 2019). At the same time, Avianca received $250 million from Kingsland and United under a convertible secured loan, which triggers the exchange of $484.4 million of principal amount of its existing 8 3/8% senior secured notes due 2020 for an equivalent principal amount of 9% senior secured notes due 2023, which will occur on Dec. 31. At the same time, the company completed all its operating and financial lease renegotiations and extended its contract period, which will allow for a more manageable capital structure in the next 12 months.

The credit rating reflects Avianca’s still weak credit metrics, including debt to EBITDA remaining above 5x and funds from operations (FFO) to debt of about 10%. Avianca’s debt restructuring included the reorganization of all routes and frequencies and the slowing of its fleet renewal pace. “We believe Avianca will focus on its most profitable routes by eliminating some of its regional flights and increasing its trans-border services through main hubs in Colombia, Costa Rica, El Salvador, and Peru,” said S&P.

Fitch ups Tahoe senior secured rating

Fitch Ratings said it upgraded Tahoe Group Co., Ltd.’s senior unsecured rating to B- from CCC+, with a recovery rating of RR4, from RR5.

Fitch estimates the recovery rate of Tahoe’s offshore senior unsecured debt had improved to 41% by the nine months ended this year, from 24% at the end of the first quarter. “We believe the improvement is sustainable, as it was driven by fundamental changes,” said Fitch in a press release.

The upgrade follows the decrease of secured debt in Tahoe’s capital structure to RMB 71 billion at the end of the third quarter from around RMB 90 billion at the end of the first quarter. The upgrade is also supported by the company’s continued deleveraging trend, with total debt decreasing by RMB 23 billion over the same period. Tahoe aims to lower its reliance on secured funding and sold a $110 million 364-day senior unsecured note at 11% in December.

High leverage limits Tahoe’s ratings due to aggressive land acquisitions before 2018. It financed its land purchases mostly via debt, which led to a heavy interest burden that severely weakened its ability to generate operating cash flow. Tahoe’s ratings are supported by its large contracted sales scale, diversified footprint across China and strong EBITDA margin, which is supported by high-quality product lines that differentiate Tahoe from most fast-churn homebuilders, Fitch said.

S&P says Enjoy off watch

S&P said it affirmed Enjoy SA’s B- ratings and removed them from CreditWatch with negative implications, where they were placed on Nov. 28.

By obtaining a waiver for the December 2019 covenant measurement, along with an amendment on the covenants for 2020, Enjoy eliminated debt payment acceleration risks in the short term and bought time to conduct asset sales to improve its capital structure.

The net debt-to-EBITDA ratio was amended to equal or below 6.5x, from 5.5x previously, between March and December 2020, equal or below 5.5x between March and December 2021, and to equal or below 5x between March and December 2022, from 4.5x previously.

However, the amendment as of March 2021 is pending on the company's ability to pledge 62.5% of Baluma's, a Uruguayan subsidiary, shares in favor of domestic bondholders. But, even if Enjoy is unable to pledge shares in favor of domestic bondholders, covenant threshold will be 6.5x in 2020. “We expect the company's net leverage under covenant definition, which differs from S&P's adjusted metrics, to remain between 5x and 6x next year,” said S&P in a press release.

To complete the pledge in favor of domestic bondholders, the company has to perform the call on its international bond and release the current pledge in favor of international bondholders. The company plans to sell real estate assets in Antofagasta, Coquimbo, and Pucon, and sell more domestic bonds to raise $200 million it needs to call the international bond.

Fitch pulls HSBC Middle East from watch

Fitch Ratings said it affirmed HSBC Bank Middle East Ltd.’s long-term issuer default rating at A+ and removed it from rating watch negative and assigned a stable outlook. This follows a similar rating action on HSBC Holdings plc, the ultimate parent and source of institutional support for HSBC Bank Middle East. Other ratings are not affected by this action.

The rating action on HSBC Holdings reflects Fitch’s view that the short-term risk of a disruptive no-deal Brexit, where the United Kingdom would leave the European Union without a withdrawal agreement in place, has reduced. It follows Fitch’s decision to remove the RWN and to affirm the AA long-term IDR on the U.K. on Dec. 17. The U.K. sovereign rating remains on negative outlook.

Fitch revises Lifestyle view to negative

Fitch Ratings said it revised the outlook on Lifestyle International Holdings Ltd.’s long-term issuer default rating to negative from stable and affirmed the IDR at BB+. Fitch also affirmed Lifestyle’s senior unsecured rating and the rating on its outstanding bonds.

The revision of the outlook to negative mirrors the increased uncertainty in the company’s cash flow generation. The impact of ongoing unrest in Hong Kong since June on the retail sector has been meaningful and is expected to result in a revenue decline in the second half of 2019. Free cash flow generation may also be affected, but the degree would depend on the pace of capex spending and the dividend payout.

Fitch said it expects Hong Kong’s retail environment to remain challenging, due mainly to the ongoing social unrest. Lifestyle is major retailer within Hong Kong. Fitch expects Lifestyle’s revenue to fall by 13.9% in 2019, in-line with the overall retail market. Retail sales in Hong Kong fell by 22.9% in August 2019 and continued to decline by 24.3% in October 2019.

In addition, China’s mainland visitors to Hong Kong are an important contributor to retail sales and arrivals started to decline in July and dropped by 46% in October, the biggest fall since May 2003 when an outbreak of SARS struck Hong Kong, Fitch said.

S&P changes Safmar view to negative

S&P said it revised the outlook for Safmar Financial Investments to negative from stable and affirmed the company’s BB- issuer rating.

This month, Safmar opened a RUB 21 billion five-year credit line with a Russian bank to finance a share buyback program.

The agency said it understands Safmar could pledge some investments as collateral under this financing. “However, we see a key risk that SFI would not be able to reduce debt as planned in the event dividend and income became lower than expected,” said S&P in a press release.

“We deem the move to increase debt to our estimate of RUB 18.7 billion gross as rather aggressive, and notable since we previously anticipated zero debt. We therefore see a risk that leverage could increase further,” S&P said.

Moody’s assigns A3 to Yucatan loan

Moody’s Investors Service said it assigned Aaa.mx (Mexico national scale) and A3 (global scale, local currency) ratings to the state of Yucatan’s Ps. 2.6 billion enhanced loan from Banamex.

The loan is payable through a master trust (BBVA Bancomer as trustee), to which the state has pledged 13.5% of the flows and rights of its General Participations Fund, equivalent to 16.875% excluding the 20% of the Yucatan’s municipalities share.

The loan is denominated in Mexican pesos with a maturity of 20 years and will pay a variable interest rate equal to the 28-day Mexican interbank interest rate plus a spread. The loan has no grace period for principal payments.

The A3/Aaa.mx debt ratings reflect the underlying creditworthiness of Yucatan, which is rated Ba1/A1.mx, and supported by legal and credit enhancements embedded in the loan, the agency said.

S&P rates Grupo Famsa notes CCC-

S&P said it assigned its CCC- issue-level and 3 recovery ratings to Grupo Famsa SAB de CV’s new 9¾% senior secured notes due December 2024. The 3 recovery rating indicates an expectation for meaningful recovery (50%-90%) in the event of a default. At the same time, S&P withdrew at the issuer’s request its CCC- issue-level and 3 recovery ratings on the company’s 7¼% senior unsecured notes due June 2020.

On Dec. 17, the company announced the settlement of the exchange offer, validly tendering $80.9 million for $140 million of its existing 2020 notes. The new notes will mature on Dec. 15, 2024, while outstanding $59.1 million of its 2020 notes remain due June 1, 2020.

Fitch revises Sri Lanka Telecom view downward

Fitch Ratings said it revised the outlook on Sri Lanka Telecom plc’s national long-term rating to negative from stable and affirmed the rating at AA+(lka). The agency also affirmed the national ratings on Sri Lanka Telecom’s outstanding senior unsecured debentures at AA+(lka).

The rating action follows Fitch’s revision of the outlook on Sri Lanka’s long-term foreign- and local-currency issuer default ratings to negative from stable on Dec. 18.

The company’s ratings are constrained by the sovereign as per Fitch’s parent and subsidiary rating linkage criteria. “We assess the relationship between the sovereign and SLT as one of a weaker parent and stronger subsidiary with strong operational and strategic linkages. The state holds a majority stake in SLT directly and indirectly and can exercise significant influence on its operating and financial profile,” Fitch said in a press release.

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