New York, August 13, 2019 -- Moody's Investors Service ("Moody's") has today placed on review for downgrade
all long-term ratings of Gilex Holding S.a.r.l.
("Gilex Holding", senior secured rating B2) as well as the long-term
ratings and the ba3 standalone Baseline Credit Assessment (BCA) of its
lead bank, Banco GNB Sudameris S.A. ("GNB Sudameris",
Ba2 for deposits). In the same action, Moody's has placed
on review for downgrade all long-term ratings of Banco Bilbao Vizcaya
Argentaria Paraguay ("BBVA Paraguay", Ba1 for deposits (domestic
currency)) as well as its ba2 BCA. A complete list of affected
ratings can be found at the end of this press release.
RATINGS RATIONALE
The rating action follows the recent announcement that BBVA Spain has
reached an agreement with Banco GNB Paraguay, subsidiary of Banco
GNB Sudameris S.A., a unit of Gilex Holding S.a.r.l.,
to sell 100% of its capital in BBVA Paraguay, for about $270
million dollars in an all-cash transaction. The proposed
acquisition will create the largest commercial bank in Paraguay with $2.6
billion in deposits and $3.3 billion in total assets.
The final value of the agreement is subject to possible variations until
the date of the deal closing, which will also depend on the approval
of the relevant regulatory authorities.
GNB SUDAMERIS
Moody's placed GNB Sudameris' (GNB, deposits Ba2 stable, BCA
ba3) ratings on review for downgrade because its proposed acquisition
of BBVA Paraguay would expose the bank to weaker operating conditions
in Paraguay, which would account for 36% of GNB Sudameris'
loans upon closing, doubling its current 17% exposure.
Moody's has commented that the bank's increased presence in
Paraguay can lead to a change in GNB Sudameris' weighted Macro Profile
to "Moderate" from "Moderate +". The
review will assess the effect that a larger presence in a potentially
more volatile market could have on GNB Sudameris' asset quality
and earnings that could lead to downward pressures on its baseline credit
assessment (BCA). In addition, the ratings review will assess
the trend in the bank's capitalization ratio resulting from recent
investments in real estate, in addition to dividend payments to
its Holding company, GIlex, to service the holding company's
debt. As of March 2019, GNB's Moody's tangible
common equity had weakened to a relatively low 6.1% of risk-weighted
assets, from 7.8% in December 2017.
GILEX HOLDING
As a holding company, Gilex depends on its primary operating subsidiary
Banco GNB Sudameris' dividends to service its debt and repay principal.
As such, Gilex's senior secured debt is structurally subordinated
to the obligations of GNB, and therefore, any possible downgrade
of GNB's ratings resulting from the ratings review could have an
effect on Gilex's ratings. The review of Gilex ratings will
also focus on the company's financial metrics, including double
leverage, which is an indication of how heavily it relies on debt
to finance its investments.
According to the company, Gilex will use $80 million out
of its $284 million cash position to partially finance the acquisition,
which will leave the holding company with a cash buffer in excess of $200
million. In this scenario, double leverage, which is
measured by investments in subsidiaries divided by shareholders' equity,
will increase to around 115%. Gilex's rating will
be less pressured in such a scenario, because the assigned rating
already incorporates the expectation of a double leverage in excess of
115% but below 140%. The remainder of the funds needed
to close the transaction will be financed by a $40 million cash
position of GNB Paraguay and a $150 million capital injection from
the group's owner.
However, in an alternative scenario in which Gilex were to use the
$284 million cash on hand, except for $25 million
minimum liquidity requirement, to finance the acquisition,
its double leverage could potentially rise to as high as 144% from
109% as of March 2019. Moody's considers double leverage
in excess of 115% to be high and previously indicated the rating
would face downward pressure if it substantially rose above 140%.
This leads to a rating two notches below GNB's baseline credit assessment
(BCA) of ba3, one notch wider than Moody's typical notching for
financial holding companies.
BBVA PARAGUAY
Moody's placed BBVA Paraguay's Ba1 deposit rating (domestic currency)
ratings on review for downgrade because the proposed acquisition by GNB
Sudameris, if carried out as planned, could lead to the elimination
of the one notch support uplift. BBVA Paraguay's deposit
rating currently benefits from uplift derived from our assessment of affiliate
support from Banco Bilbao Vizcaya Argentaria, S.A.
(BBVA Spain) to its Paraguayan subsidiary. The review of BBVA Paraguay's
ratings will assess the risks of integrating the operations and any potential
client and business attrition that could negatively affect earnings generation,
or substantially change its risk appetite.
WHAT COULD CHANGE THE RATINGs -- DOWN/UP
Moody's review for downgrade is unlikely to conclude until after the deal
has received regulatory approvals and the transaction closes. The
banks' management teams anticipate this will likely occur in the next
4 to 6 months. However, Moody's may take rating actions in
the interim and prior to the close, as it gains further understanding
of the transaction and relevant implications for the creditors of both
banks and for the holding.
GNB SUDAMERIS
Moody's review for downgrade will focus on the risks associated with the
transaction, including the increased exposure to a potentially more
volatile market and likely change in GNB Sudameris' weighted Macro
Profile and downward pressures on its baseline credit assessment (BCA).
In addition, the review will evaluate the bank's capitalization
levels in conjunction with the transaction. Given the direction
of the ratings review, positive rating movement is unlikely.
GILEX HOLDING
Downward pressures on Gilex Holding's ratings would be associated with
similar pressures on GNB Sudameris' BCA. The ratings could also
face downward pressures if the group's double leverage appear likely to
exceed 115% by a meaningful amount on a sustained basis and/or
the interest coverage ratio decreases significantly.
BBVA PARAGUAY
Given the planned sale, the bank's rating does not face upward pressure
at this time. If the sale does not materialize, however,
Moody's may reassess BBVA's commitment and willingness to support its
Paraguayan operation, which could put downward pressure on the ratings.
ISSUERS AND RATINGS AFFECTED
The following GNB Sudameris S.A.'s ratings and assessments
were placed under review for downgrade:
- Long term local currency deposit rating of Ba2, stable
- Long term foreign currency deposit rating of Ba2, stable
- Long-term global foreign currency subordinated debt rating
of B1
- Long term local currency counterparty risk rating of Ba1
- Long term foreign currency counterparty risk rating of Ba1
- Adjusted Baseline Credit Assessment of ba3
- Baseline Credit Assessment of ba3
- Long-term counterparty risk assessment of Ba1(cr)
The following ratings and assessments assigned to GNB Sudameris S.A.
were affirmed:
- Short term local currency deposit ratings of Not Prime
- Short term foreign currency deposit rating of Not Prime
- Short term local currency counterparty risk rating of Not Prime
- Short term foreign currency counterparty risk rating of Not Prime
- Short term counterparty risk assessment of NP(cr)
-Outlook, changed to Rating Under Review from Stable
The following Gilex Holding S.a.r.l.'s ratings
were placed under review for downgrade:
- Long-term global local currency issuer rating of B2,
stable
- Long-term global foreign currency senior secured rating
of B2, stable
-Outlook, changed to Rating Under Review from Stable
The following ratings and assessments assigned to Banco Bilbao Vizcaya
Argentaria Paraguay (BBVA Paraguay) were placed on review for downgrade:
- Long term local currency deposit ratings of Ba1, stable
- Long term foreign currency deposit rating of Ba2, stable
- Long and short term local currency counterparty risk ratings
of Baa3 and P-3
- Long and short term foreign currency counterparty risk ratings
of Baa3 and P-3
- Adjusted baseline credit assessment of ba1
- Baseline credit assessment of ba2
- Long and short term counterparty risk assessments of Baa3(cr)
and P-3(cr)
The following ratings and assessments assigned to BBVA Paraguay were affirmed:
- Short term local currency deposit ratings of Not Prime
- Short term foreign currency deposit rating of Not Prime
-Outlook, changed to Rating Under Review from Stable
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Diego Kashiwakura, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
