TEXT-Fitch: Credit outlook turns mildly positive for speculative credits in Latin America

Thu Nov 8, 2012 9:21am EST

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(The following statement was released by the rating agency)

Nov 08 - Fitch Ratings has published its fourth comprehensive report of Latin America corporates rated 'B+' and below. The 264 page report includes detailed credit analyses of 48 corporates rated in this range, complete with organization charts with debt overlays, covenant synopses and individual recovery calculations.

According to Joe Bormann, Managing Director and lead author of the report, 'A number of factors point toward a mildly positive outlook for speculative credits in Latin America during 2013. At the top of the list is an improving macroeconomic backdrop in the region due to relatively low unemployment levels, rising wages, modest inflation, improving consumer confidence, and wider access to credit.'

Liquidity is strong for most companies rated in the 'B' category, which would enable them to withstand any potential turbulence in the market during 2013. 'Latin America corporates enjoyed record international debt capital market activity during the past year, as many investors sought emerging market debt due to low growth and interest rates in developed markets,' according to Bormann.' This favorable environment allowed about one-third of the most speculative credits in the region to access the market for refinancing purposes or to fund growth,' according to Bormann.

Key credit concerns highlighted in the report include: corporate governance risks among the weakest credits in Mexico; increased intervention by the Argentine government in the private sector; and the high degree of exposure of consumers to rising food and energy costs. Other issues discussed in the report include the impact of slower future growth rates in China upon the most speculative credits, as well as the limited impact of the Eurozone crisis on access to bank financing.

Fitch forecasts GDP growth to be 3.9% in 2013 in Latin America and 3.9% in 2014. These figures represent an increase from forecasted growth of 3.0% in 2012. Key growth engines for 2012 will be Brazil at 4.2%, Peru at 6.2%, and Colombia at 4.8%. Chile is also projected to grow at an above-average regional growth rate of 4.6% in 2013, albeit a decline from 4.8% in 2012.

The positive outlook for the weakest credits in Latin America during 2013 contrasts with the negative environment faced by many of them during the past 12 months, which led to declining cash flow levels. Fitch downgraded nine corporates rated 'B+' and downgraded and upgraded only four similarly rated companies during the first nine months of 2012. This compares with 23 upgrades and 21 downgrades for its broader Latin America corporate portfolio. The 2.2x ratio of downgrades to upgrades during 2012 should revert to around 1.0x during 2013 due to a stronger economic backdrop and improved liquidity.

The full report is titled 'Latin America High Yield: Comprehensive Analysis of B+ Issuers and Below' is available on the Fitch web site at 'www.fitchratings.com.'

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