An election early next year could also
complicate matters should the populace
turn against the administration of President
Lenin Moreno.
“Presidential elections are scheduled for
February 2021 and social discontent/
disenchantment with austerity measures and
the IMF increase the risk of an anti-
ESTABLISHMENTûCANDIDATEûGARNERINGûSIGNIlCANTû
support at the polls,” said Glendon.
A return of a more populist government
could result in a repeat performance of the
selective default carried out by the former
president Rafael Correa in 2008.
“A Correista administration [likely] in
ûWILLûDElNITELYûATTEMPTûTOûRESTRUCTUREû
the Eurobonds,” said Atanasov.REGIONAL
LATIN AMERICAN AIRLINES
DOWNGRADEDRatings agencies have taken action on three
Latin American airlines - LATAM AIRLINES, AZUL, and
AEROMEXICO – citing increasing risks due to
slowing demand for travel and foreign exchange
risk tied to their respective revenue streams.
Last week, Moody’s lowered LATAM
Airlines to B1 from Ba3 and Azul’s ratings to
B1 from Ba3, while Aeromexico was cut
from B2 from B1.S&P placed LATAM’s BB– issuer rating and
Azul’s B+ rating on Credit Watch Negative
LASTû4UESDAY ûCITINGûmIGHTûCANCELLATIONSûANDû
sharp reductions in airline bookings amid
the coronavirus crisis.
The downgrades and revised outlooks
were driven by the widening spread of the
virus, deteriorating global economic growth
ANDûLESSûPASSENGERûmOW
These pressures are causing airlines
ACROSSûTHEûGLOBEûTOûSLASHûmIGHTS ûPUTTINGû
STRAINûONûTHEIRûlNANCES
Last Monday S&P Global also put
AMERICAN AIRLINES on Negative Watch.
Moody’s put DELTA AIR LINES at risk of
downgrade to junk the day after and
placed WESTJET on review for downgrade
on Wednesday afternoon.
Chilean-based LATAM Airlines is the
largest airline group in the region,
generating around US$10bn in net revenue
in 2019.
h;4HE=ûACTIONûREmECTSûTHEûIMPACTûONû,AT!Mû
of the breadth and severity of the shock, and
the broad deterioration in credit quality it
has triggered,” said the ratings agency.
Moody’s also said that weaknesses in
,AT!MSûCREDITûPROlLEûHAVEûLEFTûITûVULNERABLEû
to shifts in market sentiment.
Moody’s gave a similar rationale for Azul’s
downgrade, as it is heavily exposed to the
depreciation of the Brazilian Real, with
about 80% exposure.“The devaluation of the Brazilian
currency is a big concern for Brazilian and
Mexican companies. The devaluation of
the currency has been brutal,” said a New
York-based investor echoing Moody’s
concerns.
For Aeromexico several factors compound
on the current crisis.
In addition to facing currency
devaluation, the company is still reeling
from the grounding of Boeing’s 737 Max
planes last year.
“[The grounding] not only prevented
Aeromexico to achieve planned cost
reduction through a more modern and
EFlCIENTûmEET ûBUTûRESULTEDûINûHIGHERûLEASESû
related to short notice renewals of aged
mEET vûSAIDûTHEûAGENCY
Tight liquidity for the company is also a
risk, with an estimated cash balance of
around US$500m, taking into account a
53MûlVE
YEARûBONDûISSUEDûINû*ANUARYû
and about US$130m of debt repayments.
The company also has around US$680m
of maturities due through 2021 and about
US$260m estimated in annual lease
payments, according to Moody’s.
“Aeromexico seems weak, and Latair and
Avianca are facing challenging situations.
GOL and Azul might be in better shape and
it is expected the Brazilian government will
offer some support,” said a New York-based
analyst following the credits.54 International Financing Review March 21 2020Are your colleagues as
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