Aggregate volume of debt affected by defaults YTD totaled more than $20 billion, with LATAM Airlines being the largest with approximately $10 billion of on-balance-sheet debt as of YE 2019. Historically, there has not been significant sector concentration for defaults in the region. However, most of the defaults YTD have been in the airline, non-food retail and gaming sectors, which are highly exposed to the coronavirus pandemic due to significantly reduced demand for these non-essential products and services.

LATAM Airlines Group’s and Aerovias del Continente Americano’s (Avianca) Chapter 11 filings were triggered by severe travel restrictions imposed due to the outbreak and limited financial flexibility. Grupo Famsa’s inability to refinance maturing debt due to investor risk aversion drove it into default. Enjoy’s reorganization was due to the closure of casinos in Chile, Argentina and Uruguay following government-mandated lockdowns to slow the spread of the virus.

Default risk in LATAM remains high over the near term. Over 20 issuers with aggregate outstanding debt of approximately $32 billion as of YE 2019 currently have international ratings of ‘CCC+’ or below. Eight of these issuers are domiciled in Brazil and Mexico, the two largest economies in Latin America. Brazil and Mexico accounted for 36% and 21%, respectively, of the 78 group-level defaults in the region over the last two decades. The next largest was Argentina, which represented 17% of the cumulative defaults since 2000.

Oi’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) were downgraded to ‘CCC+’ from ‘B-’ in May due to the company’s weak operating trends and the deterioration in the Brazilian operating environment, which will hinder Oi’s return to growth. While Oi is expected to have adequate liquidity in 2020, the company’s business model and financial performance is unsustainable relative to capex requirements and debt service in 2022 and beyond. Oi has the highest amount of debt outstanding at $7.8 billion among the more than 20 rated issuers with international ratings of ‘CCC+’ or below in Fitch’s LATAM corporate portfolio.

Grupo IDESA and Grupo Posadas are currently two of the lowest-rated issuers in Fitch’s rated portfolio. Grupo IDESA’s IDR was downgraded to ‘C’ from ‘CCC-’ in late March after the company launched a tender offer to exchange its unsecured notes due in 2020 for new secured notes due in 2026, which Fitch considers a distressed debt exchange (DDE) per our DDE criteria. Grupo IDESA’s IDR will be downgraded to ‘RD’ and subsequently upgraded to a rating level reflecting the post-DDE credit profile. The Mexican chemicals company is highly-levered with more than $500 million of debt as of YE 2019.

Grupo Posadas’ ratings were downgraded to ‘C’ from ‘CC’ following its announcement in June that it will not meet its senior unsecured notes’ $15.5 million USD coupon payment due on June 30, 2020. The company also announced it does not intend to make the payment during the 30-day cure period, which will lead to a downgrade of the IDRs to ‘RD’.

For more information, see Fitch’s Special Report “Latin American Corporate Defaults: Trend Increasing Over Two Decades (2000-YTD 2020)” at www.fitchratings.com.

Avianca, Digicel and Odebrecht recently defaulted on debt and have a combined $202 million due in 2020, most of which is debt held by issuers that did not participate in prior restructurings. This debt is not expected to be repaid. Travel restrictions related to the coronavirus will hinder Avianca’s ability to recover, while Digicel will struggle with weak currencies and pressured accounts receivable collections.

On the other hand, refinancing risk is manageable for CFE, ENAP and Codelco due to their ownership by the governments of Mexico and Chile, and they account for $4.9 billion of bonds falling due in 2020.

Refinancing risk is also low for America Movil, CSN, Bimbo, SABESP and SCC. Eight issuers are rated ‘B–’ or lower and account for $2.5 billion of the debt. Argentine issuers IRSA and YPF combined have $821 million of bonds maturing in 2020, with YPF accounting for 90%. Capital controls and market volatility impair Argentine corporates’ capacity to access international capital markets, execute liability management processes and service debt.

Fitch Ratings has published a report titled “Coronavirus Raises Risk On 2020 Latin America Bond Refinancings” that may be accessed by clicking here.