Fitch Upgrades Posadas' IDRs to 'B'; Outlook Stable
Fitch Ratings has upgraded the ratings of Grupo Posadas S.A.B. de C.V.'s (Posadas) as follow:
--Local currency Issuer Default Rating (IDR) to 'B' from 'B-';
--Foreign currency IDR to 'B' from 'B-';
--National scale rating to 'BB+(mex)' from 'B+(mex)';
--USD200 million senior notes due 2015 to 'B+/RR3' from 'B-/RR4';
--MXN2.25 billion Certificados Bursatiles issuance 'Posadas08' due 2013 to 'BB+(mex)' from 'B+(mex)'.
The ratings have been removed from Rating Watch Negative. The Rating Outlook is Stable.
The rating actions reflect the successful completion of the divestiture of Posadas' South American hotel operation for US$275 million. The company has received the proceeds where US$245 million are available, mitigating refinancing concerns related to the MXN2.25 billion 'Certificados Bursatiles' issuance due April 2013. The divested South American operations accounted for approximately 19% of last year EBITDA and historically have accounted for approximately 14%.
The ratings upgrade incorporates the expectation that leverage will remain stable after the proceeds from the asset sale are used to reduce the company's indebtedness. This, in conjunction with other initiatives related to liability management, should result in a less levered capital structure, with an extended maturity profile. The rating actions are not contingent to the closing of the announced sale of 12 hotels to a real estate investment trust, which if successful, should give additional liquidity but should also affect the cash flows as those hotels will change the format to managed hotels. Excluding South American operations, a one-time charge related to a write-down of accounts receivable at the vacation club in the fourth quarter of 2011 and assuming proceeds from the divestiture are used to pay debt; total adjusted debt to EBITDAR and total debt to EBITDA should improve from previous levels of above 6.0 times (x) to 4.8x and 4.1x, respectively.
The recovery ratings of the senior notes improved to 'RR3' from 'RR4' as a result of lower leverage. This improvement results in good recovery prospects given default from the previous expectation of average recovery prospect given default. 'RR3' rated securities have characteristics consistent with securities historically recovering 51%-70% of current principal and related interest.
Cash flow contribution to consolidated EBITDA from the Vacation Club operation should increase in the short term as a result of the divestiture of South America, however, cash flow contribution from the hotel operations should become increasingly important in the medium term as new openings and key performance indicators approach levels registered prior to 2008. Going forward, Fitch views Posadas' strategy to be centered in operating and providing services to hotels as opposed to owning the properties. New openings should continue for all brands, mainly Fiesta Inn and One, under managed and leased formats. This strategy of openings reduces capex and supports free cash flow generation. The sale of the South American operations will reduce EBITDA generation by about 14%-19%, as well as geographical diversification and will downsize rooms offering by 1,903 to 18,472 rooms.
Posadas' ratings are supported by the company's solid business position, strong brand name and multiple hotel formats. Conversely, the ratings are tempered by a track record of high leverage, as well as industry cyclicality. Posadas' presence in all major urban and coastal locations in Mexico, consistent product offering and quality brand image have resulted in occupancy levels that are above the industry average in Mexico. The use of multiple hotel formats allows the company to target domestic and international business travelers of different income levels as well as tourists, diversifying its revenue base.
Key Rating Factors
Positive factors to creditworthiness include stable EBITDA generation, improving KPIs (RevPAR mainly) and a proven track record of stronger and stable credit metrics. Negative factors for credit quality could include any weakening of operating trends or decreases in RevPAR that could lead to lower EBITDA and cash flow levels, as well as incurring indebtedness that results in consistently higher leverage levels from current expectations.
Additional information is available at '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', Aug. 8, 2012;
--'Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers', Aug. 14, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Miguel Guzman-Betancourt, +52 81 8399-9100
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612, Monterrey, NL, MEXICO
Sergio Rodriguez, CFA, +52 81 8399-9100
Alberto Moreno, +52 81 8399-9100
Elizabeth Fogerty, +1-212-908-0526 (New York)