Fitch Sees High Default Probability for 10 Latin America Issuers

February 11, 2016

  • Companies have already cut spending, may lose market access

  • Region’s debt amortization rises to $14 billion this year

Downgrades and high default risk will be a constant for Latin America’s junk-rated corporate issuers as debt obligations increase this year, according to Fitch Ratings.

Companies in the region have $14 billion of payments to make in 2016 and $22 billion next year, up from $6 billion in 2015, the ratings company said in a Feb. 9 report. Downgrades will continue to outpace upgrades for the high-yield corporates, with 32 percent of issuers having either a negative outlook or negative watch on their rating. About 16 percent are already rated CCC or below.

High-yield issuers have already slashed capital spending and dividends to conserve cash and may not be able to respond to additional pressure this year created by lower commodity prices, weak exchange rates, inflation and economic contraction in Brazil and Venezuela, according to Fitch. Lower-rated companies will have limited access to markets as slow growth in the region makes junk bonds unattractive, Fitch said.

“Defaults remain at a level not seen for the past decade, with eight issuers defaulting on $4.5 billion of debt during 2015,” Fitch’s Joe Bormann and Paula Bunn wrote in the report. “Ten issuers have a high possibility of default during 2016, while default is considered imminent for another four.”

Colombia’s Pacific Exploration & Production Corp., Brazilian sugar producer Grupo USJ and General Shopping Brasil SA are among the companies at imminent risk of default, Fitch said. The fourth is Chilean car dealer Automotores Gildemeister SA, which Fitch rates as in “restricted default” as it restructures its debt.