Latin America Corporate Outlooks Update - Challenges Persist for Chilean Corporates

CHICAGO--()--Chilean corporates face challenging conditions due to weak macroeconomic conditions, lower commodity prices, and aggressive capex plans financed using debt, according to Fitch Ratings' Chilean Corporate Outlook Report.

"Credit metrics continue to deteriorate in Chile. Approximately 15% of the corporates have Negative Rating Outlooks," according to Alejandra Fernandez, a Director at Fitch. "Of the four issuers with Negative Outlooks: GeoPark and CAP are under enormous pressure due to low commodity prices, Masisa's results are suffering because of weak conditions in Brazil, Venezuela and Argentina, while Entel's leverage has increased significantly due to its aggressive investments in Peru."

Leverage has increased for the majority of the 28 Chilean corporates with international ratings over the past few years. As of March 31, 2015, the median net debt/EBITDA ratio was 3.5x. This ratio compares with 2.4x in 2011. Negative operating cash flow trends have been a key driver of higher leverage. The cash flow from operations of these issuers has deteriorated by double digits since 2012.

Another key contributor to rising debt levels has been debt-funded M&A activity, which has expanded the presence of many corporates in Peru, Colombia and Brazil. Among these countries, the investments in Brazil remain as pressure points for Chilean corporates. Among the 10 issuers with operations in Brazil, Masisa remains in the weakest position, followed by Latam. Andina is also expected to come under pressure from negative consumer trends in that market.

Positively, foreign exchange risk is largely manageable for the 28 Chilean corporates in aggregate. Derivatives are common and issuers can find instruments that match the terms of the bonds. Issuers have done a reasonable job balancing the currency of their debt versus the currency of their cash flow.

Fitch's Five Report Outlook series will be released one report per day as follows:

Aug. 17: Brazil Corporate Outlook Update - Dark Days to Continue

Aug. 18: Chile Corporate Outlook Update - Challenges Persist

Aug. 19: Colombia Corporate Outlook Update - Resilient Credit Quality

Aug. 20: Mexico Corporate Outlook Update - Slow but Steady

Aug. 21: Peru Corporate Outlook Update - Facing Hard Times

The Chilean special report titled 'Challenges Persist' is available on the Fitch Ratings web site at www.fitchratings.com, or by clicking on the link.

Additional information is available on www.fitchratings.com

Chile Corporate Outlook Update (Challenges Persist)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869701

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Contacts

Fitch Ratings
Alejandra Fernandez
Director
+56 2 2499 3323
Fitch Chile Clasificadora de Riesgo Ltda.
Alcantara 200 of. 202, Las Condes
Santiago, Chile
or
Rina Jarufe
Senior Director
+56 2 2499 3310
or
Marco Lopez
Analyst
+56 2 2499 3315
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Alejandra Fernandez
Director
+56 2 2499 3323
Fitch Chile Clasificadora de Riesgo Ltda.
Alcantara 200 of. 202, Las Condes
Santiago, Chile
or
Rina Jarufe
Senior Director
+56 2 2499 3310
or
Marco Lopez
Analyst
+56 2 2499 3315
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com