Fitch Affirms Alto Palermo's Notes at 'B+/RR3'; Outlook Stable

BUENOS AIRES--(BUSINESS WIRE)--

Fitch Ratings has affirmed Alto Palermo S.A.'s (APSA) ratings as follows:

--Foreign currency Issuer Default Rating (IDR) at 'B';

--Local currency IDR at 'BB-';

--USD120 million senior unsecured notes due in 2017 at 'B+/RR3';

--USD 50 million Argentine peso-linked notes due in 2012 at 'B+/RR3';

--National scale rating at 'AA+(arg)';

--National scale senior unsecured notes at 'AA+(arg)';

--National equity rating at '1'.

The Rating Outlook is Stable.

The 'RR3' recovery rating reflects good recovery prospects in the event of default.

APSA's 'BB-' local currency IDR is supported by the company's strong market position in the Argentine shopping center industry. While debt at APSA is low in relation to cash flow, Fitch has linked the credit quality of APSA with its more highly leveraged parent company, Inversiones y Representaciones S.A. (IRSA). APSA's local currency IDR is also constrained at 'BB?' due to its aggressive growth strategy and the high degree of risk associated with operating in Argentina's real estate industry. APSA's foreign currency IDR continues to be constrained at 'B' by the 'B' country ceiling assigned to Argentina by Fitch.

APSA has a strong business position in the Argentine shopping center industry. The company operates 13 shopping centers with a gross leasable space of approximately 308,000 square meters. The high quality of these malls and their strategic locations result in sales per square meter that exceed the market average and occupancy rates of more than 97%. APSA's revenues are partially hedged against consumer inflation as the company receives a percentage of the sales made by tenants of its malls. The company's high operating margins are due to leases that result in the tenants paying direct expenses and a percentage of the common expenses.

The company's results are closely correlated with the performance of the economy, which has proven to be quite volatile. APSA has a high degree of concentration in the near term for its lease agreements, with approximately 38% of lease contracts expiring before the end of 2012. While this ratio is high for the industry, APSA's strong market position allows it to renew contracts and update leasing terms conveniently.

APSA's leverage is low, and its interest coverage is adequate. For the last 12 months (LTM) ended Sept. 30, 2011, the company's total debt-to-EBITDA ratio was 1.0 times (x), while its EBITDA-to-interest ratio was 8.0x. As of Sept. 30, 2011, APSA had USD141 million of total debt, excluding USD32 million of convertible notes that are expected to fully convert at maturity given the current stock price. Only 13% of the company's debt is short term. The company had USD61 million of cash and marketable securities, covering short-term debt by 2.8x.

For this industry, the emphasis of Fitch's methodology is on portfolio quality and diversity, as well as the size of the asset base. APSA's portfolio of assets is strong, with undepreciated book capital of USD629 million as of Sept. 30, 2011. These assets are mostly unencumbered, as secured debt represents less than 5% of its total debt load. The company's leverage, as measured by total debt as a percentage of undepreciated book capital, was 27% as of Sept. 30, 2011. This percentage would be even lower at market values. The large pool of unencumbered assets at APSA provides financial flexibility and results in above-average recovery prospects in the event of default.

For the LTM ended of Sept. 30, 2011, APSA had USD154 million of EBITDA, an improvement from USD147 million during the fiscal year ended June 30, 2011. The improvement continues to show the positive performance of the company's shopping centers.

APSA is 95% owned by IRSA. On a consolidate basis, IRSA had USD364 million of sales and generated USD195 million of EBITDA during the LTM as of Sept. 30, 2011. IRSA had USD597 million of consolidated debt and USD88 million of consolidated cash. Excluding the debt at APSA, the main debt obligations of IRSA are USD150 million notes maturing in 2017 and USD150 million notes maturing in 2020. IRSA's notes and APSA's USD120 million notes maturing in 2017 do not have cross guarantees.

Potential Rating and Outlook Drivers:

The Stable Outlook reflects Fitch's expectations that APSA will manage its balance sheet to a targeted debt-to-EBITDA ratio around 1.5x. Under a conservative scenario, Fitch estimates the company's interest coverage to be above 5.0x. APSA's management is intent on maintaining a conservative financial structure.

Any significant increase in APSA's targeted leverage ratio would threaten credit quality and could result in a negative rating action. APSA's FC IDR could be affected by an upgrade or downgrade of the Argentine Country Ceiling of 'B'.

Additional information is available 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' dated Aug. 12, 2011;

--'Liquidity Considerations for Corporate Issuers' dated June 12, 2007;

--'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities within a Corporate Group Structure)' dated July 14, 2010;

--'Inversiones y Representaciones S.A. Press Release, dated Jan. 11, 2012.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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