Fitch Ratings has downgraded Unifin Financiera, S.A.B. de C.V.'s (Unifin) Long- and Short-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'RD' from 'C'.
The National Scale Long-Term and Short-Term Ratings also have been downgraded to 'RD(mex)' from 'C(mex)'. In addition, Fitch has affirmed the ratings of the company's senior notes and hybrid securities at 'C'. A full list of rating actions is at the end of this commentary.
Key Rating Drivers
The downgrades to 'RD' for international and national scale ratings follow Unifin's uncured payment default on some credit facilities. Per Fitch's Non-Bank Financial Institutions Rating Criteria, the 'RD' rating indicates that Unifin has not entered into bankruptcy filings, receivership, liquidation or a formal winding-up procedure. Some of Unifin's bank credit facilities have a shorter grace or cure period than the 30 days typical of local and global bonds. As of this date, Unifin has not cured the payments of such credit facilities due to its decision to stop paying interest and principal on its debt and seek a negotiation of a standstill agreement with its creditors to implement a debt restructuring.
As of today, Unifin has not announced a formal debt restructuring process. If a debt restructuring process is initiated, it may constitute a distressed debt exchange (DDE) under Fitch's criteria. In this scenario, Fitch will evaluate the entity's financial flexibility after the restructuring process is completed, which could result in a positive rating action if the exchange improves funding and liquidity prospects.
SENIOR DEBT
Unifin's senior global notes are rated 'C'. Fitch typically does not assign 'RD' or 'D' to defaulted obligations, instead these are rated in the 'CCC' to 'C' rating categories, depending on their recovery prospects and other relevant characteristics. Fitch has not assigned a Recovery Rating for the instrument reflecting that the potential recovery outcome for the instrument is highly variable.
HYBRID SECURITIES
Unifin's hybrid securities are rated 'C'. Fitch typically does not assign 'RD' or 'D' to defaulted obligations, instead these are rated in the 'CCC' to 'C' rating categories, depending on their recovery prospects and other relevant characteristics. While these instruments were previously two notches below the IDR to reflect increased loss severity due to deep subordination and heightened risk of non-performance relative to existing senior obligations, this is no longer feasible due to ratings compression. Fitch has not assigned a Recovery Rating for the instrument reflecting that the potential recovery outcome for the instrument is highly variable.
ESG - Management Strategy: Fitch believes Unifin faces significantly elevated execution risks related to the company's revised strategy and uncertainty regarding its franchise and long-term viability. Fitch considers these execution risks to have a negative impact on the ratings in combination with other factors.
RATING SENSITIVITIES
Fitch will monitor the sufficiency of information for the ongoing evaluation of the entity's creditworthiness, which could result in a rating withdrawal at the current level if the entity does not disclose sufficient information to Fitch and the market.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The IDRs would be downgraded to 'D' if the entity enters into bankruptcy proceedings, administration, receivership, liquidation or other formal winding-up procedures or if it ceases operations.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch would reassess Unfin's credit profile and its debt issuances if a debt restructuring process is completed and sufficient disclosure of the company's plans and financial information is provided.
SENIOR DEBT and HYBRID SECURITIES
The company's debt ratings direction would mirror any changes on those of Unifin's IDRs.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
Summary of Financial Adjustments
Fitch reclassified pre-paid expenses as intangibles and deducted from total equity due to low loss absorption capacity under stress.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unifin has an ESG Relevance Score of '5' for Management Strategy reflecting significantly elevated execution risks surrounding the company's revised strategy and uncertainty regarding the company's franchise and long-term viability. Fitch considers these execution risks to have a negative impact on the credit profile in conjunction with other factors.
Unifin has an ESG Relevance Score of '4' for Financial Transparency due to weaker third-party disclosures relative to international best practices. In addition, Fitch was not aware of the company's intention to cease debt service payments and seek a restructuring until it was publicly disclosed by the company. Fitch's considers the limited transparency to have a negative impact on the credit profile in conjunction with other factors.
Unifin has an ESG Relevance Score of '4' for Governance Structure due to concerns regarding the previously-planned expansion into non-core strategies to sustain financial metrics, which has a negative impact on the credit profile in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Prior
Unifin Financiera, S. A. B. de C. V.
LT IDR
RD
Downgrade
C
ST IDR
RD
Downgrade
C
LC LT IDR
RD
Downgrade
C
LC ST IDR
RD
Downgrade
C
Natl LT
RD(mex)
Downgrade
C(mex)
Natl ST
RD(mex)
Downgrade
C(mex)
senior unsecured
LT
C
Affirmed
C
subordinated
LT
C
Affirmed
C
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
UNIFIN FINANCIERA, S. A. B. DE C. V. 
