Peruvian healthcare provider Auna is fighting back against rating downgrades.
With a $56m bridge loan due in April and a further $350m maturing in October, both Standard & Poor’s and Fitch are concerned. S&P downgraded Auna from B to CCC+ on March 13, and Fitch cut the borrower from B+ to B- on Tuesday. Both agencies warned that further downgrades may be on the horizon.
On both occasions, Auna publicly circulated a riposte within hours. It called S&P’s decision “unfortunate”, highlighting that it was in the “final stages” of refinancing of these loans. After the Fitch action, Auna felt the need to publicly “reiterate” its refinancing update.
There’s nothing too remarkable about yet another ratings downgrade for a relatively small Latin America corporate bond issuer. The deterioration in domestic operating environments across the region — compounded by an increasing gloomy external outlook — is taking its toll. Pockets of stress among corporate bond issuers are popping up all over the region.
Yet Auna’s reaction to the downgrades speaks to a deeper ill in the market.
Issuers are scrambling to defend themselves to bondholders because they know that, these days, traders need no second invitation to start marking bonds down sharply. Indeed, immediately after S&P’s move, Auna’s 6.5% November 2025s — its only international bond — fell from 83.5 cents on the dollar to 76.5, pushing up the yield from 14% to almost 18%.
Similarly, Mexican telco Total Play in February reported a solid increase in fourth quarter Ebitda from Ps7.623m to Ps9.736m. But its promised free cash flow was yet to materialise. Though not ideal, some credit analysts did not consider this to be a particularly terrible result, and rating agencies did not react.
Still, the bond market reaction was brutal. Total Play’s 7.5% November 2025s were down from 91 cents on the dollar to around 67 within days. As one sell-side analyst following the credit noted at the time, today it only takes a whiff of a whiff of bad news, and panic begins.
Where negative headlines were once a buying opportunity, in today’s markets they are a reason to dump exposure and sell at all costs. There have been many similar examples like Auna and Total Play among Latin American corporates since the market downturn began in late 2021.
Shoot first
Sell-side bankers, especially, are keen to highlight the idiosyncrasies of each situation of corporate stress — lest they affect their chances of being able to get new issues through the market. It is true, for instance, that the default of Brazilian retail giant Lojas Americanas after the discovery of shocking accounting inconsistencies is entirely unrelated to the troubles faced by airline Azul, electric utility Light, Chilean telco VTR, or indeed Auna itself.
These bankers insist, when some investors argue that the Lojas Americanas saga “spoiled the early-year party” in LatAm bond markets, that there should be limited read-across to other borrowers in the asset class.
It is also true that, in today’s market, you do not have to be a chronically bad credit to find your bonds trading at distressed levels that suggest you’re on the precipice. Indeed, one reason for such precipitous falls in bond prices is a lack of secondary market liquidity: traders may mark down some bonds in the blink of an eye without much buying and selling going.
While trading volumes may be sub-optimal in most fixed-income asset classes these days, it is a particularly acute problem in the Latin American corporate universe. There, a broad club of corporates — usually sub-investment grade — took advantage of years of low rates to borrow cheaply, but they are not frequent borrowers, and their bonds lack the size to trade frequently.
However, the reality remains that that bond prices in the doldrums still point to trouble ahead.
With every negative headline about a company, investors have another reason to shy away from Latin American corporates — or at least the less established sub-investment companies that have provided a steady stream of nasty surprises for bondholders. That means that, in a market such as this one, sellers shoot first and ask questions later.
As long as investors take this approach, none of these companies are going to be able to turn to bond markets to refinance debt maturities. For now, with the most notable exception of Mexican non-bank lenders, the lack of market access has not led to a stream of defaults, as most maturities are still some way away. Other companies have been able to lean on bank lenders.
What LatAm high yield borrowers really need, more than just to fend off negative rating actions with press releases, is for bond markets to return to something like normal — so they have a better chance of refinancing.
That is why it would be not be entirely accurate to argue that there will be limited fall-out in Latin America from the Silicon Valley Bank or Credit Suisse collapses: the latest bout of broader market volatility is a step away from that recovery in bond markets. Remember that it was argued at the time that Latin America should be seen as a “safe haven” from the Russian invasion of Ukraine, but the war then contributed to one of the asset class’s worst ever years.
With every month that fixed-income markets struggle to get back on their feet, the closer we come to a place where distressed secondary levels will equate to default.