articles Ratings /ratings/en/research/articles/200429-covid-19-credit-update-latin-american-structured-finance-begins-to-feel-the-pandemic-s-effects-11471448 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

COVID-19 Credit Update: Latin American Structured Finance Begins To Feel The Pandemic’s Effects


Credit FAQ: The Key Sovereign Rating Considerations For Brazil Amid COVID-19


COVID-19 Impact: Key Takeaways From Our Articles


Servicer Evaluation: TaxServ LLC

Take Notes: 2020 European Structured Finance Conference Recap: Where Do We Go From Here

COVID-19 Credit Update: Latin American Structured Finance Begins To Feel The Pandemic’s Effects

Latin America remains in quarantine in response the COVID-19 outbreak. Containment measures across the region continue to rely on lockdowns that limit movement and restrict business activity to essential services. Welfare support in the region is not robust, and therefore the impact of a prolonged lockdown on consumers could be severe. In addition, in Argentina and Mexico, any policy response to support business has been limited. Therefore, small and medium enterprises (SMEs) in those countries face very challenging conditions.


Below are the eight key COVID-19-related risk factors that we've identified for Latin American securitizations. We added one of them--an increased concentration in transactions supported by trade receivables--since our last update.

Liquidity.  We continue to monitor the liquidity of structured finance transactions very closely, with special attention to payment reserves, expected debt service (including expenses) during the next three to six months, deferability clauses, and events of default. So far, we believe that performance in March was close to pre-COVID-19 expectations. However, based on feedback from servicers, we expect collateral performance to weaken in April and May.

Persistent deterioration of collateral performance.  The pandemic has let to sharp revisions in our economic growth and unemployment forecasts for the region. As a result, we are determining if this will lead to long-term deterioration of collateral performance. This could result in a revision of our base-case loss assumptions across ABS and our foreclosure frequency assumptions in RMBS.

Government or servicer-relief programs.  Due to the sudden stop in economic activity, some governments and servicers have rolled out programs to ease the financial impact on consumers and SMEs:

  • The Central Bank of Argentina has mandated that credit card issuers provide cardholders with a plan to extend the payment of outstanding balances to nine months, with a three-month grace period. This does not include regional credit cards, which are not subject to regulation.
  • In Brazil, large banks have announced some relief programs for specific borrowers, but there's no industrywide program. Originators are working with clients on a case-by-case basis, renegotiating with clients that seek relief before becoming delinquent. Collection of overdue accounts continues at the same pace, with some potential flexibility to renegotiate the ones with positive payment histories, but recoveries show signs of weakening. The government has provided additional support to individuals that already have some source of income from social programs or informal workers. Similarly, large banks have announced relief programs for SMEs, while small originators and fintechs opted to look at renegotiations and relief on a case-by-case basis. There have already been a large number of renegotiation requests, but companies will likely only be receptive to doing so with clients with the best profiles.
  • In Mexico, some servicers have already called for noteholder assemblies, through which they will propose implementing relief programs for securitized portfolios. The programs could include temporarily deferring a given number of rents for the next months, which include delaying those payments toward the end of the contract, or offering discounts. While favorable for borrowers, we believe these measures could compromise the transactions' liquidity and capacity to meet monthly interest payments. We are also evaluating the reach of the relief program that INFONAVIT has announced.

Closed stores of servicers using a buy-here/pay-here collection process.  Some servicers in Argentina, Brazil, and the Caribbean make collections in their stores. If the lockdown is prolonged, such servicers could face a sudden drop in payments received. We are monitoring whether they will be able to move their collection process online and assessing the potential short-term impact. To date, we have placed our ratings on 14 transactions in Argentina and CFG Investments Ltd.'s Series 2019-1 Class A and B notes on CreditWatch with negative implications.

Store closures in shopping malls backing rated CMBS transactions.  The government-ordered shutdowns of non-essential commerce, including shopping malls, are significantly limiting tenants' ability to pay rent. To date, we have placed our ratings on two mall-backed transactions in Brazil on CreditWatch negative. These CreditWatch placements reflect the potentially damaging effect of the disruption of tenants' activities on their cash flows and mall rent payments. It also reflected uncertainties about the duration of the disruption and the potential recovery of tenants' financial health, which could lead to greater liquidity pressure on operations in the short term.

Impact of potential obligor, counterparty, and sovereign downgrades.  Some nonbank financial institutions could also face a difficult year, which could affect our views regarding disruption risk. Corporate repacks that have exposure to corporate issuers in the cyclical transportation and commodities sectors in Brazil could also face negative rating actions. To date, we have taken rating actions on deals linked to the credit quality of Ecuador and Mexico. In particular, we lowered our ratings on the Ecuador Social Bond S.A. R.L. and Poinsettia Finance Ltd., which mirrors the rating on Petroleos Mexicanos (PEMEX). We also placed the ratings on four corporate repacks in Brazil on CreditWatch negative.

Increased concentration in transactions supported by trade receivables in Brazil.  Goal One Empirical Credit Rights Investment Fund and the Gávea Sul Multisectoral Credit Rights Investment Fund LP materially reduced the volume of new operations, increasing the risk of concentration. Because both transactions operate with fewer originators than other multi-transferable and multi-saluting FIDCs do, we believe they could be more exposed to sudden loss spikes in the coming months.

Effect of social distancing on the cash flow for transactions linked to transportation.  In the case of ABS equipment deals, reduced passenger volume might affect transportation companies' capacity to repay their financings. Also, future flow transactions could face reduced cash flows. Exposure for this type of transaction is mostly in Mexico but also in Brazil through corporate repacks via CRAs.

Distressed Exchanges And Similar Restructurings

To date, several entities have called for debtholder meetings to propose amendments to rated transactions' terms and conditions. We are reviewing all proposals carefully. This reflects that entities in distress might see to restructure their obligations, offering less than originally promised. Investors or counterparties would fare worse if there were a conventional default, so they're often motivated to accept these restructurings. In our analysis, we treat such offers and buybacks as a de facto restructuring and equivalent to a default.

To consider an exchange offer as tantamount to a default, we look for two conditions to be met:

  • The offer, in our view, implies the investor will receive less value than the original securities promised; and
  • The offer, in our view, is distressed rather than purely opportunistic.

Upon completion of an exchange that we consider distressed, we lower our ratings on the affected issues to 'D'. We do so even if the investors accepted the offer and there was no legal default. When we later assign a new post-exchange rating, our focus returns to the risk of conventional default.

Our Assumptions

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: As the situation evolves, we will update our assumptions and estimates accordingly.

As in other regions, the reduction in consumer discretionary spending in Latin America could hurt the credit quality of transactions across a wide array of sectors, especially those with high exposure to consumption, cyclical transportation, tourism, retail properties, oil, and SME-related asset-backed securities. Many government- and private-sector-sponsored measures for easing cash-flow strain on individuals or SMEs affecting mortgage, consumer, and SME debt could interrupt cash flow. However, structural mechanisms should insulate investors from shortfalls unless the interruptions persist. In addition, speculative-grade tranches in structured finance might have heightened downgrade risk given recession forecasts and liquidity constraints.

In Latin America, the efforts to contain COVID-19 have exacerbated the weak economic growth prospects for the key markets that we follow. Amid such uncertainties, new structured finance transactions are mostly on hold as investors focus on reassessing their portfolios and monitoring the performance of the various asset classes.

This report does not constitute a rating action.

Primary Credit Analysts:Jose Coballasi, Mexico City (52) 55-5081-4414;
Leandro C Albuquerque, Sao Paulo +55 (11) 3039-9729;
Facundo Chiarello, Buenos Aires +54 (11) 4891-2134;
Marcus Fernandes, Sao Paulo (55) 11-3039-9743;
Antonio Zellek, CFA, Mexico City +52 (55) 5081-4484;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: