Fitch: Difficult Operating and Market Conditions in Latin America

Fitch Ratings expects operating cash flows in Latin America will not recover in 2015 and that issuers' credit quality will remain under stress. External conditions remain difficult for most of the region's commodities, and pressure from imported products such as steel should increase. Consumer confidence is weak in many countries, and corporate and personal taxes have been increasing.

'Fitch anticipates multiple downward rating actions in 2015 within its portfolio of rated high-yield Latin American corporates,' said Joe Bormann, Managing Director at Fitch. 'Downgrades for Latin America corporate issuers outpaced upgrades by a ratio of 3.8x during the first five months of 2015; For high-yield credits, the ratio during the same period of 2015 was 5.5x.'

Refinancing risk is elevated for small, high-yield corporates rated 'B+' or lower that have issued bonds of less than $400 million. Positively, exposure is light in 2015 and 2016. Posadas was the only small, high-yield issuer with a bond due in 2015. It repaid its bond in January. Arendal, Bio-PAPPEL, Ceagro and Marfrig are the 'B' rated issuers with non-benchmark-sized bonds maturing in 2016. Ceagro defaulted on interest payments in May. Bio Pappel is expected to prepay its bond in the second half of 2016.

Latin American corporates face $14.2 billion of debt amortizations in 2016 and $27.6 billion in 2017. High-yield issuers account for $3.8 billion of the former figure and $14.1 billion of the latter. During 2017, nine issuers in the speculative 'B' and lower categories face $11 billion of debt maturities. About $9.2 billion of the latter figured is related to PDVSA debt, which is subject to high repayment risk.