Fitch: Downgrades to Outpace Upgrades in 2014 for Latin American High Yield Corporates

CHICAGO--()--Link to Fitch Ratings' Report: Fitch 50 Latin America (Capital Structure Diagrams and Debt Document Summaries for 50 of the Largest Latin America Leveraged Credits)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726357

Downgrades are expected to outpace upgrades in 2014 for the Fitch 50 Latin America after a 2013 that saw elevated rating activity with a negative bias, according to a new Fitch Ratings report.

The 338 page Fitch 50 Latin America report provides a comprehensive review of the credit profiles for the 50 most prominent Latin American leveraged finance corporates.

'Brazilian and Mexican corporates make up 34 of the 50 largest high-yield issuers in Latin America. Economic conditions in Brazil looks to be moderate at best in 2013, which should prevent a wholesale improvement in negative credit trends,' said Joe Bormann, a Managing Director in Fitch's Latin America corporate group and the author of the report.

Overall the current profile of the portfolio is skewed negative with 16% of the issuers having a Rating Outlook of Negative versus 6% with a Positive Rating Outlook. According to Bormann, 'pressure for downgrades also outweighs prospects for upgrades among credits hovering at the investment grade border.'

Fitch rated six Latin America high-yield corporates that defaulted during 2013. Four of these companies: Axtel; Corporacion GEO, Desarrolladora Homex, and Urbi Desarrollos Urbanos were domiciled in Mexico, while OGX Petroleo E Gas Participacoes is a Brazilian oil and gas company and Sidetur is a Venezuelan steel producer. This level of default activity compares negatively with 2012, when only three Fitch-rated issuers defaulted in the region.

Recovery prospects are weak due to Mexico's new and relatively untested bankruptcy regime. Intercompany loans have been treated pari passu with external creditors in past restructurings, and in the case of Homex, the creation of large intercompany loans in 2012 could negatively impact recoveries.

Fitch 50 Latin America corporates do not have a high degree of exposure to China and commodity prices. Only four companies -- Fibria, Marfrig, Minerva, and Suzano -- export product to China with varying commodity price risk.

More than 40 percent of the companies in the Fitch 50 Latin America portfolio experienced either a positive or negative rating action during the first 11 months of 2013. Fitch Ratings' high-yield portfolio had a slight downward bias. In total, 13 key high-yield issuers suffered negative rating actions during the first 11 months of the year, while only 11 companies benefited from positive rating actions.

For more information, a special report titled 'Fitch 50 Latin America' is available on the Fitch Ratings web site at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Joe Bormann, CFA
Managing Director
+1-312-368-3349
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Joe Bormann, CFA
Managing Director
+1-312-368-3349
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com